Capital Vol. III Part V
Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital

Chapter 33. The Medium of Circulation in the Credit System


"The great regulator of the velocity of the currency is credit. This explains why a severe pressure upon the money-market is generally coincident with a full circulation." (The Currency Theory Reviewed, p. 65.)

This is to be taken in a double sense. On the one hand, all methods which save on medium of circulation are based upon credit. On the other hand, however, take, for example, a 500-pound note. A gives it to B on a certain day in payment for a bill of exchange; B deposits it on the same day with his banker; the latter discounts a bill of exchange with it on the very same day for C; C pays it to his bank, the bank gives it to the bill-broker as an advance, etc. The velocity with which the note circulates here, to serve for purchases and payments, is effected by the velocity with which it repeatedly returns to someone in the form of a deposit and passes over to someone else again in the form of a loan. The pure economy in medium of circulation appears most highly developed in the clearing house — in the simple exchange of bills of exchange that are due — and in the preponderant function of money as a means of payment for merely settling balances. But the very existence of these bills of exchange depends in turn on credit, which the industrialists and merchants mutually give one another. If this credit declines, so does the number of bills, particularly long-term ones, and consequently also the effectiveness of this method of balancing accounts. And this economy, which consists in eliminating money from transactions and rests entirely upon the function of money as a means of payment, which in turn is based upon credit, can only be of two kinds (aside from the more or less developed technique in the concentration of these payments): mutual claims, represented by bills of exchange or cheques, are balanced out either by the same banker, who merely transcribes the claim from the account of one to that of another, or by the various bankers among themselves.[11] The concentration of 8 to 40 million bills of exchange in the hands of one bill-broker, such as the firm of Overend, Gurney & Co., was one of the principal means of expanding the scale of such balancing locally. The effectiveness of the medium of circulation is increased through this economy in so far as a smaller quantity of it is required simply to balance accounts. On the other hand the velocity of the money flowing as medium of circulation (by which it is also economised) depends entirely upon the flow of purchases and sales, and on the chain of payments, in so far as they occur successively in money. But credit effects and thereby increases the velocity of circulation. A single piece of money, for instance, can effect only five moves, and remains longer in the hands of each individual as mere medium of circulation without credit mediating — when A, its original owner, buys from B, B from C, C from D, D from E, and E from F, that is, when its transition from one hand to another is due only to actual purchases and sales. But when B deposits the money received in payment from A with his banker and the latter uses it in discounting bills of exchange for C, C in turn buys from D, D deposits it with his banker and the latter lends it to E, who buys from F, then even its velocity as mere medium of circulation (means of purchase) is effected by several credit operations: B's depositing with his banker and the latter's discounting for C, D's depositing with his banker, and the latter's discounting for E; in other words through four credit operations. Without these credit operations, the same piece of money would not have performed five purchases successively in the given period of time. The fact that it changed bands without mediation of actual sales and purchases, through depositing and discounting, has here accelerated its change of hands in the series of actual transactions.

We have seen previously that one and the same bank-note can constitute deposits in several banks. Similarly, it can also constitute various deposits in the same bank. The banker discounts, with the note which A has deposited, B's bill of exchange, B pays C, and C deposits the same note in the same bank that issued it.

We have already demonstrated in the discussion of simple money circulation (Vol I, Ch. III, 2) that the mass of actual circulating money, assuming the velocity of circulation and economy of payments as given, is determined by the prices of commodities and the quantity of transactions. The same law governs the circulation of notes.

In the following table, the annual average number of notes of the Bank of England, in so far as they were in the hands of the public, are recorded, namely, the 5- and 10-pound notes, the 20- to 100-pound notes, and the larger denominations between 200 and 1,000 pounds sterling; also the percentages of the total circulation that each one of these groupings constitutes. The amounts are in thousands, i.e., the last three figures are omitted.

Year £5-10 Notes % £20-100 Notes % £200-1,000 Notes % Total
1844 9,263 45.7 5,735 28.3 5,253 26.0 20,241
1845 9,698 46.9 6,082 29.3 4,942 23.8 20,722
1846 9,918 48.9 5,778 28.5 4,590 22.6 20,286
1847 9,591 50.1 5,498 28.7 4,066 21.2 19,155
1848 8,732 48.3 5,046 27.9 4,307 23.8 18,085
1849 8,692 47.2 5,234 28.5 4,477 24.3 18,403
1850 9,164 47.2 5,587 28.8 4,646 24.0 19,398
1851 9,362 48.1 5,554 28.5 4,557 23.4 19,473
1852 9,839 45.0 6,161 28.2 5,856 26.8 21,856
1853 10,699 47.3 6,393 28.2 5,541 24.5 22,653
1854 10,565 51.0 5,910 28.5 4,234 20.5 20,709
1855 10,628 53.6 5,706 28.9 3,459 17.5 19,793
1856 10,680 54.4 5,645 28.7 3,323 16.9 19,648
1857 10,659 54.7 5,567 28.6 3,241 16.7 19,467

(B. A. 1858, p. XXVI.) The total sum of circulating bank-notes, therefore, positively decreased from 1844 to 1857, although commercial business, as indicated by exports and imports, had more than doubled. The smaller bank-notes of £5 and £10 increased, as the table shows, from £9,263,000 in 1844 to £10,659,000 in 1857. And this took place simultaneously with the particularly heavy increase in gold circulation at that time. On the other hand, there was a decrease in the notes of higher denominations (£200 to £1,000) from £5,856,000 in 1852 to £3,241,000 in 1857, i.e., a decrease of more than £2½ million. This is explained as follows:

"On the 8th June 1854, the private bankers of London admitted the joint-stock banks to the arrangements of the clearing house, and shortly afterwards the final clearing was adjusted in the Bank of England. The daily clearances are now effected by transfers in the accounts which the several banks keep in that establishment. In consequence of the adoption of this system, the large notes which the bankers formerly employed for the purpose of adjusting their accounts are no longer necessary." (B. A. 1858, p. V.)

To what small minimum the use of money in wholesale trade has been reduced, can be deduced from the table reprinted in Book I (Ch. III, Footnote), which was presented to the Bank Committee by Morrison, Dillon & Co., one of the largest of those London firms from which a small dealer can buy his entire assortment of commodities.

According to the testimony of W. Newmarch before the Bank Committee 1857, No. 1741, other circumstances also contributed to economy in the circulating medium: penny postage, railways, telegraphy, in short, the improved means of communication; thus England can now carry on five to six times more business with about the same circulation of bank-notes. This is also essentially due to the withdrawal from circulation of notes of higher denomination than £10. Here Newmarch sees a natural explanation for the phenomenon that in Scotland and Ireland, where one-pound notes also circulate, note circulation has risen by about 31% (1747). The total circulation of bank-notes in the United Kingdom, including one-pound notes, is said to be £39 million (1749). The gold circulation, £70 million (1750). In Scotland, the circulation of notes was £3,120,000 in 1834; £3,020,000 in 1844; and £4,050,000 in 1854 (1752).

From these figures alone, it is evident that banks issuing notes can by no means increase the number of circulating notes at will, as long as these notes are at all times exchangeable for money. [Inconvertible paper money is not considered here at all; inconvertible bank-notes can become a universal medium of circulation only where they are actually backed by state credit, as is the case in Russia at present. They then fall under the laws of inconvertible paper money issued by the state, which have already been developed in Book I (Ch. III, 2, c) "Coin and Symbols of Value." — F.E.]

The quantity of circulating notes is regulated by the turnover requirements, and every superfluous note wends its way back immediately to the issuer. Since in England only the notes of the Bank of England circulate universally as legal means of payment, we can disregard at this point the insignificant, and merely local, note circulation of the country banks.

Before the Bank Committee 1858, Mr. Neave, Governor of the Bank of England, testifies:

"No. 947. (Question:) Whatever measures you resort to, the amount of notes with the public, you say, remains the same; that is somewhere about £20,000,000? — In ordinary times, the uses of the public seem to want about £20,000,000. There are special periodical moments when, through the year, they rise to another £1,000,000 or £1,500,000. I stated that, if the public wanted more, they could always take it from the Bank of England." — "948. You stated that during the panic the public would not allow you to diminish the amount of notes; I want you to account for that. — In moments of panic, the public have, as I believe, the full power of helping themselves as to notes; and of course, as long as the Bank has a liability, they may use that liability to take the notes from the Bank." — "949. Then there seems to be required, at all times, somewhere about £20,000,000 of legal tender? — £20,000,000 of notes with the public; it varies. It is £18,500,000, £19,000,000, £20,000,000, and so on; but taking the average, you may call it from £19,000,000 to £20,000,000."

Testimony of Thomas Tooke before the Committee of Lords on Commercial Distress (C. D. 1848/57), No. 3094:

"The Bank has no power of its own volition to extend the amount of its circulation in the hands of the public; but it has the power of reducing the amount of the notes in the hands of the public, not however without a very violent operation."

J. C. Wright, a banker for 30 years in Nottingham, having explained at length the impossibility for a country bank to be able to keep more notes in circulation than the public needs and wants, says about notes of the Bank of England (C. D. 1848/57), No. 2844:

"I am not aware that there is any check" (for note issue) "upon the Bank of England, but any excess of circulation will go into the deposits and thus assume a different name."

The same holds true for Scotland, where almost nothing but paper circulates, because there as well as in Ireland one-pound notes are also in use and "the Scotch hate gold." Kennedy, Director of a Scottish bank, declares that banks could not even contract their circulation of notes and

"conceives that so long as there are internal transactions requiring notes or gold to perform them, bankers must, either through the demands of their depositors or in one shape or another, furnish as much currency as those transactions require.... The Scottish banks can restrict their transactions, but they cannot control their currency." (Ibid., Nos. 3446, 3448.)

Similarly, Anderson, Director of the Union Bank of Scotland, states (ibid., No. 3578):

"The system of exchanges between yourselves " [among the Scottish banks] "prevents any over-issue on the part of any one bank? — Yes; there is a more powerful preventive than the system of exchanges" [which has really nothing to do with this, but does indeed guarantee the ability of the notes of each bank to circulate throughout Scotland], "the universal practice in Scotland of keeping a bank account; everybody who has any money at all has a bank account and puts in every day the money which he does not immediately want, so that at the close of the business of the day there is no money scarcely out of the banks except what people have in their pockets."

The same applies to Ireland, as indicated in the testimony of the Governor of the Bank of Ireland, MacDonnell, and the Director of the Provincial Bank of Ireland, Murray, before the same Committee.

Note circulation is just as independent of the state of the gold reserve in the vaults of the bank which guarantees the convertibility of these notes, as it is of the will of the Bank of England.

"On September 18, 1846, the circulation of the Bank of England was £20,900,000 and the bullion in the Bank £16,273,000; and on April 5, 1847, the notes in circulation were £20,815,000 and the bullion £10,246,000.... It is evident that six million of gold were exported, without any contraction of the currency of the country." (J. G. Kinnear, The Crisis and the Currency, London, 1847, p. 5.)

Of course, this applies only under present conditions prevailing in England, and even here only in so far as legislation does not decree a different relationship between the note issue and metal reserve.

Hence only the requirements of business itself exert an influence on the quantity of circulating money-notes and gold. To be noted here, in the first instance, are the periodic fluctuations, which repeat themselves annually regardless of the general condition of business, so that for the past 20 years

"the circulation is high in one month, and it is low in another month, and in a certain other month occurs a medium point." (Newmarch, B. A. 1857, No. 1650.)

Thus, in August of every year a few millions, generally in gold, pass from the Bank of England into domestic circulation to pay the harvest expenses; since wages are the principal payments to be made here, bank-notes are less serviceable in England for this purpose. By the close of the year this money has streamed back to the Bank. In Scotland, there are almost nothing but one-pound notes instead of sovereigns; here, then, the note circulation is expanded in the corresponding situation, namely, twice a year — in May and November — from 3 million to 4 million; after a fortnight the return flow begins, and is almost completed in one month. (Anderson, C. D. 1848/57, Nos. 3595-3600.)

The note circulation of the Bank of England also experiences a momentary fluctuation every three months because of the quarter]y payment of "dividends," that is, interest on the national debt, whereby bank-notes are first withdrawn from circulation and then again released to the public; but they flow back very soon again. Weguelin (B. A. 1857, No. 38) states that this fluctuation in the note circulation amounts to 2½. Mr. Chapman of the notorious firm of Overend, Gurney & Co., however, estimates the amount of disturbance thus created in the money-market as being much higher.

"When you abstract from the circulation £6,000,000 or £7,000,000 of revenue in anticipation of dividends, somebody must be the medium of supplying that in the intermediate times." (B. A. 1857, No. 5196.)

Far more significant and enduring are the fluctuations in quantity of circulating medium corresponding to the various phases of the industrial cycle. Let us listen to another associe of that firm on this question, the esteemed Quaker Samuel Gurney (C. D. 1848/57, No. 2645):

"At the end of October (1847) the amount of bank-notes in the hands of the public was £20,800,000. At that period there was great difficulty in getting possession of bank-notes in the money-market. This arose from the alarm of not being able to get them in consequence of the restriction of the Act of 1844. At present [March 1848] the amount of bank-notes in the hands of the public is ... £17,700,000, but there being now no commercial alarm whatsoever, it is much beyond what is required. There is no banking house or money-dealer in London, but what has a larger amount of bank-notes than they can use." — "2650. The amount of bank-notes ... out of the custody of the Bank of England affords a totally insufficient exponent of the active state of the circulation, without taking into consideration likewise ... the state of the commercial world and the state of credit." — "2651. The feeling of surplus that we have under the present amount of circulation in the hands of the public arises in a large degree from our present state of great stagnation. In a state of high prices and excitement of transaction £17,700,000 would give us a feeling of restriction."

[As long as the state of business is such that returns of loans made come in regularly and credit thus remains unshaken, the expansion and contraction of circulation depend simply upon the requirements of industrialists and merchants. Since gold, at least in England, does not come into question in the wholesale trade and the circulation of gold, aside from seasonal fluctuations, may be regarded as rather constant over a long period of time, the note circulation of the Bank of England constitutes a sufficiently accurate measure of these changes. In the period of stagnation following a crisis, circulation is smallest; with the renewed demand, a greater need for circulating medium develops, which increases with rising prosperity; the quantity of circulating medium reaches its apex in the period of over-tension and over-speculation — the crisis precipitously breaks out and overnight bank-notes which yesterday were still so plentiful disappear from the market and with them the discounters of bills, lenders of money on securities, and buyers of commodities. The Bank of England is called upon for help — but even its powers are soon exhausted, for the Bank Act of 1844 compels it to contract its note circulation at the very moment when the whole world cries out for notes; when owners of commodities cannot sell, yet are called upon to pay and are prepared for any sacrifice, if only they can secure bank-notes.

"During an alarm," says the earlier mentioned banker Wright (loc. cit., No. 2930), "the country requires twice as much circulation as in ordinary times, because the circulation is hoarded by bankers and others."

Once the crisis has broken out, it becomes from then on only a question of means of payment. But since every one is dependent upon someone else for the receipt of these means of payment, and no one knows whether the next one will be able to meet his payments when due, a regular stampede ensues for those means of payment available on the market, that is, for bank-notes. Everyone hoards as many of them as he can lay hand on, and thus the notes disappear from circulation on the very day when they are most needed. Samuel Gurney (C. D. 1848/57, No. 1116) estimates the amount of bank notes brought under lock and key in October 1847, at a time of such alarm, to have reached £4 to £5 million. — F.E.)

In this connection, the cross-examination of Chapman, Gurney's associate who has been previously mentioned, before the Bank Committee of 1857 is especially interesting. I present here its principal contents in context, although certain points are touched upon which we shall not examine until later.

Mr. Chapman has the following to say:

"4963. I have also no hesitation in saying that I do not think it is a proper condition of things that the money-market should be under the power of any individual capitalist (such as does exist in London), to create a tremendous scarcity and pressure, when we have a very low state of circulation out. That is possible ... there is more than one capitalist, who can withdraw from the circulating medium £1,000,000 or £2,000,000 of notes, if they have an object to attain by it." — 4965. [In the German 1894 edition this reads: 4995. — Ed. ] A big speculator can sell £1,000,000 or £2,000,000 of consols and thus take the money out of the market. Something similar to this has happened quite recently, "it creates a very violent pressure."

4967. The notes are then indeed unproductive.

"But that is nothing, if it effects his great object; his great object is to knock down the funds, to create a scarcity, and he has it perfectly in his power to do so."

An illustration: One morning there was a great demand for money in the Stock Exchange; nobody knew its cause; somebody asked Chapman to lend him £50,000 at 7%. Chapman was astonished, for his rate of interest was much lower; he accepted. Soon after that the man returned, borrowed another £50,000 at 7½%, then £100,000 at 8%, and wanted still more at 8½%. Then even Chapman became uneasy. Later it turned out that a considerable sum of money had been suddenly withdrawn from the market. But, says Chapman,

"I did lend a large sum at 8%; I was afraid to go beyond; I did not know what was coming."

It must never be forgotten that, although £19 to £20 million in notes are almost constantly supposed to be in the hands of the public, nevertheless, the portion of these notes which actually circulates, and, on the other hand, the portion which is held idle by the banks as a reserve, continually and significantly vary with respect to each other. If this reserve is large, and therefore the actual circulation small, it means, from the point of view of the money-market, that the circulation is full, money is plentiful; if the reserve is small, and therefore the actual circulation full, in the language of the money-market the circulation is low, money is scarce — in other words, the portion representing idle loan capital is small. A real expansion or contraction of the circulation, that is independent of the phases of the industrial cycle — with the amount needed by the public, however, remaining the same — occurs only for technical reasons, for instance, on the dates when taxes or the interest on the national debt are due. When taxes are paid, more notes and gold than usual flow into the Bank of England and, in effect, contract the circulation without regard to its needs. The reverse takes place when the dividends on the national debt are paid out. In the former case, loans are made from the Bank in order to obtain circulating medium. In the latter case, the rate of interest falls in private banks because of the momentary growth of their reserves. This has nothing to do with the absolute quantity of circulating medium; it does, however, concern the banking firm which sets this circulating medium in motion and for which this process consists in the alienation of loan capital and for which it pockets the profits thereby.

In the one case, there is merely a temporary displacement of circulating medium, which the Bank of England balances by short-term loans at low interest shortly before the quarterly taxes and also before the quarterly dividends on the national debt become due; the issue of these supernumerary notes first fills up the gap caused by the payment of taxes, while their return payment to the Bank soon thereafter brings back the excess of notes obtained by the public through the payment of dividends.

In the other case, low or full circulation is always simply a matter of different distribution of the same quantity of circulating medium into active circulation and deposits, i.e., an instrument of loans.

On the other hand, if, for example, the number of notes issued is increased on the basis of a flow of gold into the Bank of England, these notes assist in discounting bills outside of the Bank and return to it through the repayment of loans, so that the absolute quantity of circulating notes is only momentarily increased.

If the circulation is full because of business expansion (which may take place even though prices are relatively low), then the rate of interest can be relatively high because of the demand for loan capital as a result of rising profits and increased new investments. If it is low, because of business contraction, or perhaps because credit is very plentiful, the rate of interest can be low even though prices are high. (See Hubbard. Present edition: Ch. XXXIII. — Ed)

The absolute amount of circulation has a determining influence on the rate of interest only in times of stringency. The demand for full circulation can either reflect merely a demand for a hoarding medium (disregarding the reduced velocity of the money circulation and the continuous conversion of the same identical pieces of money into loan capital) owing to lack of credit, as was the case in 1847 when the suspension of the Bank Act did not cause any expansion of the circulation, but sufficed to draw forth the hoarded notes and to channel them into circulation; or it may be that more means of circulation are actually required under the circumstances, as was the case in 1857 when the circulation actually expanded for some time after the suspension of the Bank Act.

Otherwise, the absolute quantity of circulation has no influence whatever upon the rate of interest, since — assuming the economy and velocity of currency to be constant — it is determined in the first place by commodity-prices and the quantity of transactions (whereby one of these generally neutralises the effect of the other), and finally by the state of credit, whereas it by no means exerts the reverse effect upon the latter; and, secondly, since commodity-prices and interest do not necessarily stand in any direct correlation to each other.

During the life of the Bank Restriction Act (1797-1819) a surplus of currency existed and the rate of interest was always much higher than after the resumption of cash payments. Later, it fell rapidly with the restriction of the note issue and rising bill quotations. In 1822, 1823, and 1832, the general circulation was low, and so was the rate of interest. In 1824, 1825, and 1836, the circulation was full and the rate of interest rose. In the summer of 1830 the circulation was full and the rate of interest low. Since the gold discoveries, money circulation throughout Europe has expanded, and the rate of interest risen. Therefore, the rate of interest does not depend upon the quantity of circulating money.

The difference between the issue of circulating medium and the lending of capital is best demonstrated in the actual reproduction process. We have seen (Vol. II, Part III) in what manner the different component parts of production are exchanged for one another. For example, variable capital consists materially of the means of subsistence of the labourers, a portion of their own product. But this is paid out to them piecemeal in money. The capitalist has to advance this, and it is very greatly dependent on the credit system organisation whether he can pay out the new variable capital the following week with the old money which he paid out in the previous week. The same holds for exchange among various component parts of the total social capital, for instance, between means of consumption and means of production of means of consumption. The money for their circulation, as we have seen, must be advanced by one or both of the exchanging parties. It remains thereupon in circulation, but returns after the exchange has been completed to the one who advanced it, since it had been advanced by him over and above his actually employed industrial capital (Vol. II, Ch. XX). Under a developed system of credit, with the money concentrated in the hands of bankers, it is they, at least nominally, who advance it. This advance refers only to money in circulation. It is an advance of circulation, not an advance of capitals which it circulates.

Chapman: "5062. There may be times, when the notes in the hands of the public, though they may be large, are not to be had. Money also exists during a panic; but everyone takes good care not to convert it into loanable capital, i.e., loanable money; everyone holds on to it for the purpose of meeting real payment needs.

"5099. The country bankers in rural districts send up their unemployed balances to yourselves and other houses? — Yes." — "5100. On the other hand, the Lancashire and Yorkshire districts require discounts from you for the use of their trades? — Yes." — "5101. Then by that means the surplus money of one part of the country is made available for the demands of another part of the country? — Precisely so."

Chapman states that the custom of banks to invest their surplus money-capital for short periods in consols and treasury notes has decreased considerably of late, ever since it has become customary to lend this money at call, i.e., payable on demand. He personally considers the purchase of such paper for his business very impractical. He, therefore, invests his money in reliable bills of exchange, some of which become due every day, so that he always knows how much ready money he can count on from day to day. [5101 to 5105.]

Even the growth of exports expresses itself more or less for every country, but particularly for the country granting credit, as an increasing demand on the domestic money-market, which is not felt, however, until a period of stringency. When exports increase, British manufacturers usually draw long-term bills of exchange on the export merchants against consignments of British goods (5126).

"5127. Is it not frequently the case that an understanding exists that those bills are to be redrawn from time to time? — [Chapman:] That is a thing which they keep from us; we should not admit any bill of that sort. ... I dare say it is done, but I cannot speak to a thing of the kind." [The innocent Chapman.] "5129. If there is a large increase of the exports of the country, as there was last year, of £20 million, will not that naturally lead to a great demand for capital for the discount of bills representing those exports? — No doubt." — "5130. Inasmuch as this country gives credit, as a general rule, to foreign countries for all exports, it would be an absorption of a corresponding increase of capital for the time being? — This country gives an immense credit; but then it takes credit for its raw material. We are drawn upon from America always at 60 days, and from other parts at 90 days. On the other hand we give credit; if we send goods to Germany, we give two or three months."

Wilson inquires of Chapman (5131), whether bills of exchange on England are not drawn simultaneously with the loading of these imported raw materials and colonial goods and whether these bills of exchange do not arrive simultaneously with the bills of lading. Chapman believes so, but does not profess to know anything about such "commercial" transactions and suggests that experts in this field be questioned. — In exporting to America, remarks Chapman, "the goods are symbolised in transit" 5133; this gibberish is supposed to mean that the English export merchant draws against his commodities bills of exchange with a four-month term on one of the big American banking houses in London and this firm receives collateral from America.

"5136. As a general rule, are not the more remote transactions conducted by the merchant, who waits for his capital until the goods are sold? — There may be houses of great private wealth, who can afford to lay out their own capital and not take any advance upon the goods; but the most part are converted into advances by the acceptances of some well-known established houses." — "5137. Those houses are resident in ... London, or Liverpool, or elsewhere." — "5138. Therefore, it makes no difference, whether the manufacturer lays out his money, or whether he gets a merchant in London or Liverpool to advance it; it is still an advance in this country? — Precisely. The manufacturer in few cases has anything to do with it" [but in 1847 in almost every case]. "A man dealing in manufactured goods, for instance, at Manchester, will buy his goods and ship them through a house of respectability in London; when the London house is satisfied that they are all packed according to the understanding, he draws upon this London house for six months against these goods to India or China, or wherever they are going; then the banking world comes in and discounts that bill for him; so that, by the time he has to pay for those goods, he has the money all ready by the discount of that bill." — "5139. Although he has the money, the banker is laying out of his money? — The banker has the bill; the banker has bought the bill; he uses his banking capital in that form, namely, in discounting commercial bills."

[Hence even Chapman does not regard the discounting of bills as an advance of money, but as a purchase of commodities. — F.E.]

"5140. Still that forms part of the demand upon the money-market in London? — No doubt; it is a substantial occupation of the money-market and of the Bank of England. The Bank of England are as glad to get these bills as we are, because they know them to be good property." — "5141. In that way, as the export trade increases, the demand upon the money-market increases also? — As the prosperity of the country increases, we" [the Chapmans] "partake of it." — "5142. Then when these various fields for the employment of capital increase suddenly, of course, the natural consequence is that the rate of interest is higher? — No doubt about it."

In 5143 Chapman cannot "quite understand, that under our large exports we have had such occasion for bullion."

In 5144 the esteemed Wilson asks:

"May it not be that we give larger credits upon our exports than we take credits upon our imports? — I rather doubt that point myself. If a man accepts against his Manchester goods sent to India, you cannot accept for less than ten months. We have had to pay America for her cotton (that is perfectly true) some time before India pays us; but still it is rather refined in its operation." — "5145. If we have had an increase, as we had last year, of £20 million in our exports of manufactures we must have had a very large increase of imports of raw material previously to that" [and in this way over-exports are already identified with over-imports, and over-production with over-trading], "in order to make up that increased quantity of goods? — No doubt." — "5146. We should have to pay a very considerable balance, that is to say, the balance, no doubt, would run against us during that time, but in the long run, with America ... the exchanges are in our favour, and we have been receiving for some time past large supplies of bullion from America."

5148. Wilson asks the arch-usurer Chapman, whether he does not regard his high rate of interest as a sign of great prosperity and a high rate of profit. Chapman, evidently surprised at the naïveté of this sycophant, affirms this, of course, but has enough integrity to add the following:

"There are some, who cannot help themselves; they have engagements to meet, and they must fulfil them, whether it is profitable or not; but, for a continuance" [of the high rate of interest], "it would indicate prosperity."

Both forget that a high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pockets (whereby, however, they help to determine the rate of interest for all), and meanwhile they live in grand style on anticipated profits. Simultaneously, precisely this can incidentally provide a very profitable business for manufacturers and others. Returns become wholly deceptive as a result of the loan system. This also explains the following, which should require no explanation so far as the Bank of England is concerned, since it discounts at a lower rate than others when the interest rate is high.

"5156. I should say," says Chapman, "that our discounts, taking the present moment, when we have had for so long a high rate of interest, are at their maximum."

[Chapman made this statement on July 21, 1857, a couple of months before the crash.]

"5157. In 1852" [when the interest rate was low] "they were not nearly so large."

For business was indeed a great deal sounder then.

"5159. If there was a great flood of money in the market ... and the bank-rate low, we should get a decrease of bills ... In 1852 there was a totally different phase of things. The exports and imports of the country were as nothing then compared to the present." — "5161. Under this high rate of discount our discounts are as large as they were in 1854." [When the rate of interest was between 5 and 5½%.]

A very amusing part of Chapman's testimony reveals how these people really regard public money as their own and assume for themselves the right to constant convertibility of the bills of exchange discounted by them. The questions and replies show great naïveté. It becomes the obligation of legislation to make those bills which are accepted by large firms convertible at all time; to ensure that the Bank of England should under all circumstances continue to rediscount them for bill-brokers. And yet three of such bill-brokers went bankrupt in 1857, owing about 8 million and their own infinitesimally small capital compared with these debts.

"5177. Do you mean by that that you think that they" [that is bills accepted by Barings or Loyds] "ought to be discountable on compulsion, in the same way that a Bank of England note is now exchangeable against gold by compulsion? — I think it would be a very lamentable thing, that they should not be discountable; a most extraordinary position, that a man should stop payment, who had the acceptances of Smith, Payne & Co., or Jones, Loyd & Co. in his hands, because he could not get them discounted." — "5178. Is not the engagement of Messrs. Baring an engagement to pay a certain sum of money when the bill is due? — That is perfectly true; but Messrs. Baring, when they contract that engagement, and every other merchant who contracts an engagement, never dream that they are going to pay it in sovereigns; they expect that they are going to pay it at the Clearing House." — "5180. Do you think that there should be any machinery contrived by which the public would have a right to claim money before that bill was due by calling upon somebody to discount it? — No, not from the acceptor; but if you mean by that that we are not to have the possibility of getting commercial bills discounted, we must alter the whole constitution of things." — "5182. Then you think that it" [commercial bill] "ought to be convertible into money, exactly in the same way that a Bank of England note ought to be convertible into gold? — Most decidedly so, under certain circumstances." — "5184. Then you think that the provisions of the currency should be so shaped that a bill of exchange of undoubted character ought at all times to be as readily exchangeable against money as a bank-note? — I do." — "5185. You do not mean to say that either the Bank of England or any individual should, by law, be compelled to exchange it? — I mean to say this, that in framing a bill for the currency, we should make provision to prevent the possibility of an inconvertibility of the bills of exchange of the country arising, assuming them to be undoubtedly solid and legitimate."

This is the convertibility of the commercial bill as compared with the convertibility of bank-notes.

"5190. The money-dealers of the country only, in point of fact, represent the public."

As did Mr. Chapman later before the court of assizes in the Davidson case. See the Great City Frauds. [S. Laing, New Series of the Great City Frauds of Cole, Davison, and Cordon, London. — Ed.]

"5196. During the quarters" [when the dividends are paid] "it is ... absolutely necessary that we should go to the Bank of England. When you abstract from the circulation £6,000,000 or £7,000,000 of revenue in anticipation of the dividends, somebody must be the medium of supplying that in the intermediate time."

[In this case it is then a question of a supply of money, not of capital or loan capital.]

"5169. Everybody acquainted with our commercial circle must know that when we are in such a state that we find it impossible to sell Exchequer bills, when India bonds are perfectly useless, when you cannot discount the first commercial bills, there must be great anxiety on the part of those whose business renders them liable to pay the circulating medium of the realm on demand, which is the case with all bankers. Then the effect of that is to make every man double his reserve. Just see what the result of that is throughout the country, that every country banker, of whom there are about 500, has to send up to his London correspondent to remit him £5,000 in bank-notes. Taking such a limited sum as that as the average, which is quite absurd, you come to £2,500,000 taken out of the circulation. How is that to be supplied?"

On the other hand, the private capitalists, etc., who have money do not let go of it at any interest, for they say after the manner of Chapman,

"5195. We would rather have no interest at all, than have a doubt about our getting the money in case we require it."

"5173. Our system is this: That we have £300,000,000 of liabilities which may be called for at a single moment to be paid in the coin of the realm, and that coin of the realm, if the whole of it is substituted, amounts to £23,000,000, or whatever it may be; is not that a state which may throw us into convulsions at any moment?"

Hence the sudden change of the credit system into a monetary system during crises.

Aside from the domestic panic during crises, one can speak of the quantity of money only in so far as it concerns bullion, universal money. And this is precisely what Chapman excludes; he speaks only of 23 million in bank-notes.

The same Chapman:

"5218. The primary cause of the derangement of the money-market" [in April and later in October 1847] "no doubt was in the quantity of money which was required to regulate our exchanges, in consequence of the extraordinary importations of the year."

In the first place, this reserve of world-market money had then been reduced to its minimum. Secondly, it served at the same time as security for the convertibility of credit-money, bank-notes. It combined in this manner two quite different functions, both of which, however, stem from the nature of money, since real money is always world-market money, and credit-money always rests upon world-market money.

In 1847, without the suspension of the Bank Act of 1844,

"the clearing houses could not have been settled." (5221.)

That Chapman had an inkling of the imminent crisis, after all:

"5236. There are certain conditions of the money-market (and the present is not very far from it), where money is exceedingly difficult, and recourse must he had to the Bank."

"5239. With reference to the sums which we took from the Bank on the Friday, Saturday and Monday, the 19th, 20th, and 22nd of October, 1847, we should only have been too thankful to have got the bills back on the Wednesday following; the money reflowed to us directly the panic was over."

On Tuesday, October 23, the Bank Act was suspended and the crisis was thus broken.

Chapman believes (5274) that the bills of exchange running simultaneously on London amount to £100 or £120 million. This does not include local bills made on provincial firms.

"5287. Whereas in October 1856, the amount of the notes in the hands of the public ran up to £21,155,000, there was an extraordinary difficulty in obtaining money; notwithstanding that the public held so much, we could not touch it."

This was due to the fear caused by the squeeze in which the Eastern Bank found itself for a period of time (March 1856).

5290-92. As soon as the panic is over,

"all bankers deriving their profit from interest begin to employ the money immediately."

5302. Chapman does not explain the uneasiness that exists when the bank reserve decreases as being due to apprehension concerning deposits, but rather that all those who suddenly may be compelled to pay large sums of money are well aware they may be driven to seek their last refuge in the bank when there is a stringency in the money-market; and

"if the banks have a very small reserve, they are not glad to receive us; but on the contrary."

It is pretty, incidentally, to observe how the reserve as a real magnitude dwindles away. Bankers hold a minimum for current business needs either in their own hands or the Bank of England. Bill-brokers hold the "loose bank money of the country" without any reserve. And the Bank of England has nothing to offset its liabilities for deposits but the reserves of bankers and others, together with some public deposits, etc., which it permits to drop to a very low level, for instance, to £2 million. Aside from these £2 million in paper, then, this whole swindle has absolutely no other reserve but the bullion reserve in times of stringency (and this reduces the reserve, because the notes which come in to replace outgoing bullion must be cancelled), and thus every reduction of this reserve by drain on gold increases the crisis.

"5306. If there should not be currency to settle the transactions at the clearing house, the only next alternative which I can see is to meet together, and to make our payments in first-class bills, bills upon the Treasury, and Messrs. Smith, Payne, and so forth." — "5307. Then, if the government failed to supply you with a circulating medium, you would create one for yourselves? — What can we do? The public come in, and take the circulating medium out of our hands; it does not exist." — "5308. You would only then do in London what they do in Manchester every day of the week? — Yes."

Particularly clever is Chapman's reply to a question posed by Cayley (a Birmingham man of the Attwood school) regarding Overstone's conception of capital:

"5315. It has been stated before this Committee, that in a pressure like that of 1847, men are not looking for money, but are looking for capital; what is your opinion in that respect? — I do not understand it; we only deal in money; I do not understand what you mean by it." — "5316. If you mean thereby" [commercial capital] "the quantity of money which a man has of his own in his business, if you call that capital, it forms, in most cases, a very small proportion of the money which he wields in his affairs through the credit which is given him by the public" — through the mediation of the Chapmans.

"5339. Is it the want of property that makes us give up our specie payments? — Not at all.... It is not that we want property, but it is that we are moving under a highly artificial system; and if we have an immense superincumbent demand upon our currency, circumstances may arise to prevent our obtaining that currency. Is the whole commercial industry of the country to be paralysed? Shall we shut up all the avenues of employment?" — "5338. If the question should arise whether we should maintain specie payments, or whether we should maintain the industry of the country, I have no hesitation in saying which I should drop."

Concerning the hoarding of bank-notes "with a view to aggravate the pressure and to take advantage of the consequences" he says that this can very easily occur. Three large banks would be sufficient.

"5383. Must it not be within your knowledge, as a man conversant with the great transactions of this metropolis, that capitalists do avail themselves of these crises to make enormous profit out of the ruin of the people who fall victims to them? — There can be no doubt about it."

And we may well believe Mr. Chapman on this score, although he finally broke his own neck, commercially speaking, in an attempt at making "enormous profit out of the ruin of victims." For while his associate Gurney says: Every change in business is advantageous for one who is well informed, Chapman says:

"The one section of the community knows nothing of the other; one is the manufacturer, for instance; who exports to the continent, or imports his raw commodity; he knows nothing of the man who deals in bullion." (5046.)

And thus it happened that one fine day Gurney and Chapman themselves "were not well informed" and went into ill-famed bankruptcy.

We have previously seen that note issue does not in all cases signify an advance of capital. The following testimony by Tooke before the C. D. Committee of Lords, 1848, indicates merely that an advance of capital, even if accomplished by the bank through an issue of new notes, does not unqualifiedly signify an increase in the number of circulating notes:

"3099. Do you think that the Bank of England for instance might enlarge its advances greatly, and yet lead to no additional issue of notes? — There are facts in abundance to prove it; one of the most striking instances was in 1835, when the Bank made use of the West India deposits and of the loan from the East India Company in extended advances to the public. At that time the amount of notes in the hands of the public was actually rather diminished. And something like the same discrepancy is observable in 1846 at the time of the payment of the railway deposits into the Bank; the securities [in discount and deposits] were increased to about thirty million, while there was no perceptible effect upon the amount of notes in the hands of the public."

Aside from bank-notes, wholesale trade has another medium of circulation, which is far more important to it, namely, bills of exchange. Mr. Chapman showed us how essential it is for the regular flow of business that good hills of exchange be accepted in payment everywhere and under all conditions.

"Gilt nicht mehr der Tausves Jontof, was soll gelten, Zeter, Zeter!" ["If the Tausves-Jontof's nothing, What is left? O vile detractor!" — Heine, Disputation. — Ed.]

How are these two media of circulation related to one another?

Gilbart writes on this score:

"The reduction of the amount of the note circulation uniformly increases the amount of the bill circulation. These bills are of two classes — commercial bills and bankers' bills ... when money becomes scarce, the money-lenders say, 'draw upon us and we will accept'. And when a country banker discounts a bill for his customer, instead of giving him the cash, he will give him his own draft at twenty-one days upon his London agent. These bills serve the purpose of a currency." (J. W. Gilbart, An Inquiry into the Causes of the Pressure, etc., p. 31.)

This is corroborated in somewhat modified form by Newmarch, B. A. 1857, No. 1426:

"There is no connection between the variations in the amount of bill circulation and the variations in the bank-note circulation ... the only pretty uniform result is ...that whenever there is any pressure upon the money-market, as indicated by a rise in the rate of discount, then the volume of the bill circulation is very much increased, and vice versa."

However, the bills of exchange drawn at such times are by no means only the short-term bank-bills mentioned by Gilbart. On the contrary, they are largely bills of accommodation, which represent no real transaction at all, or simply transactions made for the sole purpose of drawing bills of exchange on them; we have presented sufficient illustrations of both. Hence the Economist (Wilson) says in comparing the security of such bills with that of bank-notes:

"Notes payable on demand can never be kept out in excess, because the excess would always return to the bank for payment, while bills at two months may be issued in great excess, there being no means of checking the issue till they have arrived at maturity, when they may have been replaced by others. For a people to admit the safety of the circulation of bills payable only on a distant day, and to object to the safety of a circulation of paper payable on demand, is, to us, perfectly unaccountable." (Economist, May 22, 1847, p. 575.)

The quantity of circulating bills of exchange, therefore, like that of bank-notes, is determined solely by the requirements of commerce; in ordinary times, there circulated in the fifties in the United Kingdom, in addition to 39 million in bank-notes, about 300 million in bills of exchange — of which 100-120 million were made out on London alone. The volume of circulating bills of exchange has no influence on note circulation and is influenced by the latter only in times of money tightness, when the quantity of hills increases and their quality deteriorates. Finally, in a period of crisis, the circulation of bills collapses completely; nobody can make use of a promise to pay since everyone will accept only cash payment; only the bank-note retains, at least thus far in England, its ability to circulate, because the nation with its total wealth backs up the Bank of England.

We have seen that even Mr. Chapman, who after all was himself a magnate on the money-market in 1857, complains bitterly that there were several large money-capitalists in London strong enough to disrupt the whole money-market at any given moment and thereby bleed white the smaller money-dealers. There were several such money sharks, he said, who could considerably intensify a stringency by selling one or two million's worth of consols and thereby withdrawing an equal amount of bank-notes (and simultaneously available loan capital) from the market. The joint action of three large banks would suffice to transform a stringency into a panic by a similar manoeuvre.

The largest capital power in London is, of course, the Bank of England, which, however, is prevented by its status as a semi-government institution from showing its domination in such a brutal manner. Nevertheless it also knows enough about ways and means of feathering its nest, particularly since the Bank Act of 1844.

The Bank of England has a capital of £14,553,000, and in addition has at its disposal about £3 million "balance," that is, undistributed profits, as well as all money collected by the government for taxes, etc., which must be deposited with the Bank until it is needed. If we add to this the sum of other deposits, about £30 million in ordinary times, and the bank-notes issued without reserve backing, we shall find that Newmarch made a rather conservative estimate in stating (B. A. 1857, No. 4889):

"I satisfied myself that the amount of funds constantly employed in the [London] money-market may be described as something like £420,000,000; and of that £120,000,000 a very considerable proportion, something like 15 or 20 per cent, is wielded by the Bank of England."

In so far as the Bank issues notes which are not covered by the bullion reserve in its vaults, it creates symbols of value that constitute for it not only circulating medium, but also additional — even if fictitious — capital to the nominal amount of these unbacked notes. And this additional capital yields additional profit. — In B. A. 1857, Wilson questions Newmarch:

"1563. The circulation of a banker, so far as it is kept out upon the average, is an addition to the effective capital of that banker, is it not? — Certainly." — "1564. Then whatever profit he derives from that circulation is a profit derived from credit, and not from a capital which he actually possesses? — Certainly."

The same is true, of course, for private banks issuing notes. In his replies Nos. 1866 to 1868, Newmarch considers two-thirds of all bank-notes issued by them (the last third has to be covered by bullion reserve in these banks) as "the creation of so much capital", because this amount of coin is saved. The profit of the banker as a result of this may not be larger than that of other capitalists. The fact remains that he draws the profit out of this national saving of coin. The fact that a national saving becomes a private profit does not shock the bourgeois economist in the least, since profit is generally the appropriation of national labour. Is there anything more absurd, for instance, than the Bank of England (1797 to 1817) — whose notes have credit only thanks to the state — taking payment from the state, i.e., from the public, in the form of interest on government loans, for the power granted it by the state to transform these same notes from paper into money and then to lend it back to the state?

The banks, incidentally, have still other means of creating capital. Again according to Newmarch, the country banks, as mentioned above, are accustomed to send their superfluous funds (that is, Bank of England notes) to London bill-brokers, in return for discounted bills of exchange. With these bills of exchange, the bank serves its customers, since it follows a rule not to reissue bills of exchange received from its local customers, in order to prevent their business transactions from becoming known in their own neighbourhood. These bills received from London not only serve the purpose of being issued to customers who have to make direct payments in London, in the event they do not prefer to get the bank's own draft on London; they also serve to settle payments locally, since the banker's endorsement secures local credit for them. Thus, in Lancashire, for instance, all the local banks' own notes and a large portion of Bank of England notes have been pushed out of circulation by such bills. (Ibid.,1568 to 1574.)

Thus we see here how banks create credit and capital by 1) issuing their own notes, 2) writing out drafts on London running up to 21 days, but paid in cash to them immediately on issue and 3) paying out discounted bills of exchange, which are endowed with credit primarily and essentially by endorsement through the bank — at least as far as concerns the local district.

The power of the Bank of England is revealed by its regulation of the market rate of interest. In times of normal activity, it may happen that the Bank cannot prevent a moderate drain of gold from its bullion reserve by raising the discount rate [12] because the demand for means of payment is satisfied by private banks, stock banks and bill-brokers, who have gained considerably in capital power during the last thirty years. In such case, the Bank of England must have recourse to other means. But the statement made by banker Glyn (of Glyn, Mills, Currie & Co.) before the C. D. 1848/57 still holds good for critical periods:

"1709. Under circumstances of great pressure upon the country the Bank of England commands the rate of interest." — "1740. In times of extraordinary pressure ... whenever the discounts of the private bankers or brokers become comparatively limited, they fall upon the Bank of England, and then it is that the Bank of England has the power of commanding the market rate."

Nevertheless, the Bank of England, being a public institution under government protection and enjoying corresponding privileges, cannot exploit its power as ruthlessly as does private business. For this reason Hubbard remarks before the Banking Committee (B. A. 1857):

"2844. [Question:] Is not it the case that when the rate of discount is highest, the Bank is the cheapest place to go, and that when it is the lowest, the bill-brokers are the cheapest parties? — [Hubbard:] That will always be the case, because the Bank of England never goes quite so low as its competitors, and when the rate is highest, it is never quite as high."

But it is a serious event in business life nevertheless when, in time of stringency, the Bank of England puts on the screw, as the saying goes, that is, when it raises still higher the interest rate which is already above average.

"As soon as the Bank puts on the screw, all purchases for foreign exportation immediately cease ... the exporters wait until prices have reached the lowest point of depression; and then, and not till then, they make their purchases. But when this point has arrived, the exchanges have been rectified — gold ceases to be exported before the lowest point of depression has arrived. Purchases of goods for exportation may have the effect of bringing back some of the gold which has been sent abroad, but they come too late to prevent the drain." (J. W. Gilbart, An Inquiry into the Causes of the Pressure on the Money-Market, London, 1840, p. 35.) "Another effect of regulating the currency by the foreign exchanges is that it leads in seasons of pressure to an enormous rate of interest." (Loc. cit., p. 40.) "The cost of rectifying the exchanges falls upon the productive industry of the country, while during the process the profits of the Bank of England are actually augmented in consequence of carrying on her business with a less amount of treasure." (Loc. cit., p. 52.)

But, says friend Samuel Gurney,

"The great fluctuations in the rate of interest are advantageous to bankers and dealers in money — all fluctuations in trade are advantageous to the knowing man."

And even though the Gurneys skim off the cream by ruthlessly exploiting the precarious state of business, whereas the Bank of England cannot do so with the same liberty, nevertheless it also makes a very pretty profit — not to mention the personal profits falling into the laps of its directors, as a result of their exceptional opportunity for ascertaining the general state of business. According to data submitted to the Lords' Committee of 1817 when cash payments were resumed, these profits accruing to the Bank of England for the entire period from 1797 to 1817 were as follows:

Bonuses and increased dividends 7,451,136
New stock divided among proprietors 7,276,500
Increased value of capital 14,553,000
Total 29,280,636

This, on a capital of £11,642,400 over a period of 19 years. (D. Hardcastle, Banks and Bankers, 2nd ed., London, 1843, p. 120.) If we estimate the total gain of the Bank of Ireland, which also suspended cash payments in 1797, by the same method, we obtain the following result:

Dividends as by returns due 1821 4,736,085
Declared bonus 1,225,000
Increased assets 1,214,800
Increased value of capital 4,185,000
Total 11,360,885

This, on a capital of £3 million. (Ibid., pp. 363-64.)

Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.

Should anyone still doubt that these esteemed bandits exploit the national and world production solely in the interests of production and the exploited themselves, he will surely learn better from the following homily on the high moral worth of bankers:

"Banking establishments are ... moral and religious Institutions.... How often has the fear of being seen by the watchful and reproving eye of his banker deterred the young tradesman from joining the company of riotous and extravagant friends? ... What has been his anxiety to stand well in the estimation of his banker? ... Has not the frown of his banker been of more influence with him than the jeers and discouragements of his friends? Has he not trembled to be supposed guilty of deceit or the slightest misstatement, lest it should give rise to suspicion, and his accommodation be in consequence restricted or discontinued? ... And has not that friendly advice been of more value to him than that of priest?" (G. M. Bell, a Scottish bank director, in The Philosophy of Joint Stock Banking, London, 1840, pp. 46, 47.)


11. Average number of days during which a bank-note remained in circulation:

Year £5 Note £10 Note £20-100 £200-500 £1,000
1792 ? 236 209 31 22
1818 148 137 121 18 13
1846 79 71 34 12 8
1856 70 58 27 9 7

(Compilation by Marshall, Cashier of the Bank of England, in Report on Bank Act, 1857. Appendix II, pp. 300-01.)

12. At the general meeting of stockholders of the Union Bank of London on January 17, 1894, President Ritchie relates that the Bank of England raised the discount in 1893 from 2½% in July to 3 and 4% in August, and since it lost within four weeks fully £4½ million in gold despite this, it raised the bank-rate to 5%, whereupon gold flowed back to it and the bank rate was reduced to 4% in September and then to 3% in October. But this bank-rate was not recognised in the market. "When the bank-rate was 5%, the discount rate was 3½%, and the rate for money 2½%; when the bank-rate fell to 4%, the discount rate was 2 3/8% and the money rate 1¾%; when the bank-rate was 3%, the discount rate fell to 1½% and the money rate to something below that." (Daily News, January 18, 1894.) — F.E.