, 1874-04-18

I noycr heard that my Quo thought it to be in
danger. Or bIaned 1t for its vast advances nay.
the advocates Of colossal reserves urgo It to lend
without coasing in the day Of crisis; And whnt
is the Inference that those tacta teach? That tho
Inv OF iixod proportion Of reserve to liabitios,
though offending against no principle Of tho
notion Of banking, Is not, in practical iifo, tho
imhosor Of the rate OF discount; but somo other
force ia Mt work which avhr touds to compel tho
bnnk to givo no hcod to this fxty Of rntio, and
that il merchants aud traders seek to learn how
discount is likely to move, they must think Of
something else.
Tho real force which
DETERMINES TIE RATE
is tho state Of tho supply and domand, but not
understood in the form of o definite figure Of
proportion between tho two. What occurs iu
other markets will illustrate tho action of this
law in banking. It il we'll known that q worry
small deficiency in tho prce of commodity ur-
gout!y needed, aad Of limited supply. auch as
| wlloat, for example, nlny produce MI enormous
| effect on ita price, whilst tho supply OF other
commodities may vnry largely, and yet thoir
prices may suffer little disturbance. It ia clear
Tint references to the much-talked OF proportion
| OF debts aud reserve will not explain tho rnpid
cent butif We suppose, as believe was the actual
| fact, that sudden donand for loans aprang up
in the Stock Exchange, the ratdswould swiftly
spring upwards, whether. tho reserve was groas
or small. Tho ball1 advances wore in urgent
demand !; It could Aell ita loans ut almost fancy
prices. It protiteA by the state Of tho market I;
and who can find fault It did az nil tradors do
under like circumstances. So again, In lsGG
and in 1866, the demand for lloip from llo bunk
! WAS immenae. Tho trade Of tho Kingdom was
In grent peril. The bank lont away almost eyory-
thing it Ind, and certainly did not exact prices
which tho market would haya borno, how
ever elevated. There is no need to think
Of. the ayor-talked.of nostrum OF the re-
| serve, and ita adventures, to understand
tho action Of the bank aud ts rato OF discount at
these momcntoua periods. What occurs to
the reserve III sinar to tho waveH Of tho sou;
Tho storm-billows rago within few feot
OF tic water's surface. Whether the deep wator
IL increased by 1000 feet or by 10000 tho snrg-
Ing waters strike with equal violence. Ills
depths below are unmoyod, and have nothing to
do with tho wAyes Of tho surface. 30 with tho
roReryo. It Ia not ts doptA, ith sizo, which aots
on tho selling price df loaNs aud discount, but the
wayea Of excited or slack delnand, which
roll amongst very fow millions oi
tho gold at its summit. large
application for loans, noting suddenly,
will ralHo the ratio Of discount whatever tho at2a
OF tho resorye; a faint dosiro to borrow VIII
leave discount low, however Blondor tho roaorvs
rnay bo.
One mighty power comes forth pfo-ominen
out Of tlliH discussion. TAo law Of supply aue
doma1d ii
-, THE KING OF THE MONEY MARKET.
What lessons nro we to derive from tA!R Erea
central truth2 What. In oshor words, IL thu
practical valua OF our diaouaBlon7 Tlert We mus
thloM array to tho wiuds tho ompty Aud omplet