The French economists have declaimed against the danger of banks holding such large amounts of deposits because it involves the danger of their being tempted to make undue advances on commodities. There is no doubt this temptation, just as there is the temptation to overload ships to a point at which they are sure to founder in a storm. A hundred analogies may be cited; but when all is said no valid argument is made out against banks receiving and utilising, as far as they can profitably do so, deposits which would otherwise lie idle in the pockets of the people. What the banks have to guard against, and also the merchants who rely upon being able to take back from the bank what they deposit with it, is the need of cash which may suddenly arise when circumstances cause a contraction of credit. As far as banks play a part in the credit system of a country this is the cardinal consideration requiring their attention. The banks are seldom safe in departing from a fixed principle regarding their unemployed and employed reserves, in the first place with respect to the amount of the former to be held available, and in the second as regards the way in which the latter are to be worked. The deposit system undoubtedly gives rise to illusions as to the real extent of the available resources at a monetary centre. Growing prosperity clouds the vision until a snap occurs somewhere, when everybody runs to test the strain-bearing power of his own machinery, an examination which is frequently made too late.

Of all the forms in which credit is abused, the worst is perhaps that which comes under the head of accommodation bills, or what the French call " billets de complaisance." A bank-note, not grounded on a specific amount of legal tender metal money, which is one kind of accommodation bill, and the worst kind when not kept within proper limits, because it carries with it a greater weight of deception than a mere bill of exchange, is, when supposed to be convertible by law into gold at sight, raised above suspicion if the issuing institution itself enjoys good credit; accommodation paper of the bill of exchange type will pass into circulation within a limited area in proportion to the fluctuation in trade. Credit by this agency can be inflated to an enormous extent, and of all commercial instruments this has played the greatest part in producing a crisis which ensues from the undue extension of credit.

Credit institutions are in certain circumstances the arch-enemies of sound merchants trading with their own capital. The reason why they are is that, like all other institutions upon whose success depends the income of a number of persons, credit companies insist upon inflating credit when it should contract. When there is no profit to be made out of a trade by a trader who does the business with his own capital, it is obviously destruction to sound steady-going merchants to have prices kept up and an artificial activity in the interchange of commodities fostered by credit. companies, who lend their names and credit for the purpose of manufacturing an unreal purchasing power. To the building-up of this system of late years is due the prolonged stagnation experienced in 1876. When a crisis occurs some persons must be sacrificed; some companies must fall before things can right themselves. The multiplication of facilities for supporting rotten firms and decayed companies acts as a drag on the curative process which must be gone through before a fresh sound start can be made. There never was a period in our commercial history so prolific of financial expedients as that in which we live. Hence a commercial revulsion dies hard. The process will be slower, but experience seems to teach that although slower there will be more victims. The ill-success of the modern credit institutions is shown by the failure to realise the original anticipations in the case of any of those companies which Were formed prior to the collapse of 1866. An immense amount of damage has been done through their agency, and those which survive have never ceased to be the hotbeds of speculation and wrangling between the shareholders and the successive boards of direction, which by the modern proxy device have for a time swayed their decaying fortunes.

The following is an instance of the benefits to be derived from the credit system when made legitimate use of under good and sensible management. About the year 1821 the authorities in the island of Guernsey determined to build a new meat market at a cost of £4000; but as they had not the money and objected to borrow it at a high rate of interest, they determined to issue 4000 £1 notes bearing no interest. The contractor at dates agreed upon received these notes in payment of his claim. With them he paid wages and what he owed for materials used in the construction of the building; and as these notes were sanctioned by a vote of the states who constituted the Parliament of the island, they obtained free circulation. When the market was completed it consisted of eighty shops which let at a rental of £5 per annum yielding a revenue of £400. At the expiration of the first year notice was given that the notes numbered from 1 to 400 were to be presented for payment to the president of the states, and with the £400, the first year's rent from the shops, this first batch of notes was paid off and cancelled, being burnt in the presence of the president and the committee. In ten years all the notes were cancelled, and the authorities of the island were left in possession of the building and rental in perpetuity without its having cost one shilling to anybody.