Page:Principles of Political Economy Vol 2.djvu/252

232 lions it must procure by letting that amount of advances out, and not renewing them. Not only must it raise its rate of interest, but it must effect, by whatever means, a diminution of two millions in the total amount of its discounts: or it must sell securities to an equal amount. This violent action on the money market for the purpose of replenishing the Banking reserve, is wholly occasioned by the Act of 1844. If the restrictions of that Act did not exist, the Bank, instead of contracting its discounts, would simply transfer two millions, either in gold or in notes, from the Issue to the Banking Department; not in order to lend them to the public, but to secure the solvency of the Banking Department in the event of further unexpected demands by the depositors. And unless the drain continued, and reached so great an amount as to seem likely to exceed the whole of the gold in the reserves of both departments, the Bank would be under no necessity, while the pressure lasted, of withholding from commerce its accustomed amount of accommodation, at a rate of interest corresponding to the increased demand.

I am aware it will be said that by allowing drains of this character to operate freely upon the Bank reserve until they cease of themselves, a contraction of the currency and of credit would not be prevented, but only postponed; since if a limitation of issues were not resorted to for the purpose of