ments of New York are mainly, if not nearly altogether, effected by a movement of the deposits.

The efficacy of this form of currency in large payments is shown by the fact that the balances of the Clearing-house which are discharged in specie, are paid by a check on a deposit of the precious metals maintained by the banks for that purpose. The coin and bullion deposited for this purpose are so much less convenient and suitable as a medium of payment, that they too are deposited and transferred by check, employed in the same manner as the great commercial fund created by the proceeds of discounted paper. This transfer of the ownership of gold or silver can only be done upon the confidence that the deposit is intact; it is therefore founded upon confidence among the banks or individuals concerned, and is thus indebted to the principle of credit for its efficacy.

It was the advantage gained in this way which made the great deposit Bank of Amsterdam, and others founded on that plan, so efficient. The debt due by the bank to the depositor became in fact the thing transferred. And so it proved when the deposits of the Bank of Amsterdam continued to be transferred a long time after the precious metals had been abstracted. The actual constitution and mode of operation of these banks is minutely set forth in the work before us, and their practical uses more fully shown than in any previous work in the English language. Their history and practice afford many lessons for the present day on the subject of money and banking. They were established to avoid the intolerable nuisance of a multiform and much deteriorated coinage, and were unexpectedly found to afford a facility for payments far beyond any previous experience, even with the best of coins. It was discovered that a hundred thousand ducats could be paid over in as little time as one hundred, and without loss of time in counting, or risk of counterfeits or expense of assaying. The great economy and rapidity of this mode of payment led the way to many of our modern financial facilities.

For the purpose of further explaining the object of the work before us, we add the following extracts from the introduction, which indicate other topics largely treated in it. Speaking of the large use made of the Public Fairs, some three or four centuries ago, to facilitate the process of payments among merchants and others, he says:

"The Credit System was, in fact, a growth of necessity. It was indispensable to the advance of civilization and industry; it grew with the progress of commercial punctuality and integrity; it now flourishes only in this soil, and cannot be destroyed where it finds this aliment of its growth. It sent forth many vigorous shoots, in various countries, long before it attained its present magnitude and wide extension. The payments at the fairs so prevalent in Europe during the middle ages, some of which continue even down to our time, were, to a large extent, made by setting off debts against debts. Men learned to pay their debts with their credits; and this mode of payment only disappeared as the progress of the credit system, and the growth of cities, absorbed both the business and the payments of the fairs. These payments at the fairs revealed that the best fund with which to pay debts is debts. Every debt implying a credit, no one could better employ his credits than in paying his debts. This required no money, and was, therefore, not only economical, but free from innumerable risks and troubles inseparably connected with payments in money." (p. 6.)

THE BANKS OF VENICE AND GENOA.

"The Banks of Venice and Genoa were both remarkable forerunners of the credit system, and beautiful examples of its economy and power. The political and commercial importance of these two great republics were, in a great measure, owing to their respective banks, the oldest and most important of which we have any account. The lessons taught by these institutions have no doubt entered largely into the progress of the credit system, as now developed; but we strongly insist that the study of the system of these two banks is yet necessary to any thorough comprehension of the power of credit, and of what is necessary to an enlarged and efficient financial system.

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The capital of the Bank of Venice consisted of a debt due by the republic to its citizens. The government took the money, and gave in its place an inscription on the books of the bank for the amount, bearing interest. The government returned the money immediately into the channels of circulation among its citizens, whilst the lenders of the money circulated the debt as a deposit in the bank. All the large payments of this great commercial city were, for many centuries, paid in this fund, and the gold and silver coins were released for the purposes of the retail trade, the payment of foreign debts, and the foreign expenditures of the republic. The government of Venice deait faithfully with these holders of stock in the bank, not only paying the interest punctually, but redeeming any amount which seemed surperfluous, or beyond the demand of the public. This policy not only kept the bank fund at par with specie, but more than twenty per cent above it. The bank was always open to further loans to the government, when such investment was in demand. The capital of the bank fluctuated in amount according to the wants of the people, and not according to the wants of the public treasury.

"The Bank of Venice performed its functions for over five hundred years, with an uniformity of success, and immunity from censure or complaint, which no other currency has enjoyed for a tithe of that period. During that time of vast commerce and immense public expenditure, the republic had incessant trouble with their own and foreign coinage, and very many stringent regulations were made and enforced, to cure evils and prevent abuses; but we have no record of abuses on the part of the bank, or of injuries inflicted by it upon the people.

"Believing that the commercial fairs of Europe, and the Banks of Venice and Genoa, were capable of imparting historical lessons not yet properly appreciated, we have brought them more prominently before the reader than has been done in any work upon money or currency. We have, in later times, achieved a method of clearing debts between banks; but a lesson may be learned from the payments at the fairs, of successful clearing between individuals. There is no reason, in theory or in practice, why clearing may not, to a considerable extent, be practiced between individuals mutually indebted. The history of these fairs furnishes abundant exemplification of this most economical and effective of all the modes of payment." (p. 7.)

CLEARING OR PAYING DEBTS BY SET OFF.

"The practice of paying or extinguishing debts by the process of clearing, now becoming so common among the banks, is not new. Three cen

turies ago, a very large proportion of the payments of central Europe were made in that way. Then it was effected, on a large scale, between individuals; now it is wholly confined to the banks. Then it was the chief mode of accomplishing the vast payments arising from the trade of the multitudinous fairs of that period; and it so continued, until other modes of commerce supplanted that of the fairs. The clearing at the fairs was simply a process of setting off debts against debts-the same, in effect, as balancing book accounts. A said to B, you owe me a thousand florins; pay that amount for me to C, to whom I am in debt. This being done, A is acquitted, and thus the process goes on. It is obvious that the final balances, among hundreds assembled for that purpose, may be reached by setting off mutual debts, and drawing verbally on each other at sight, where the process involves more than two persons, and thus continuing to pay until the result is reached of those who have more coming to them than they had to pay, and of those who had more to pay than they had due to them. The conclusion of the whole was, that the balances to pay were the exact amount of those to receive.

"The mode of payment which had most prominence in large transactions, after clearing began to lose its importance with the decay of the fairs, was that of circulation. This was practiced not only at the great Banks of Venice and Genoa, but also at the deposit banks which succeeded them. The same money in a bank, or the same credits upon the books of a bank, was by this method kept circulating or passing from person to person, accomplishing a continued circle of payments. Its effectiveness did not come to an end, for it moved in a circle embracing nearly the same parties, gradually passing from the men of one generation to those of another. This circulation is still in full vigor in the Bank of Hamburg, and other survivors of the deposit banks of the seventeenth century; but it has no counterpart in our more modern institutions. The deposits in our banks are the proceeds of discounted commercial paper. The credits issued by the banks, of which these deposits are composed, are absorbed and wholly extinguished whenever they are paid to the banks. Their place is supplied continually by new discounts and new credits.

"This mode of payment by circulation of the same money, or the same fund, as, for instance, national debt, differs from clearing. In the former, it passes from hand to hand, performing all the payments its successive owners can effect with it. If these owners were seated at one table, they could circulate a sum in coins from hand to hand to the same effect, and see the money before them at the same time. But if seated at the same table, they could extinguish a large portion of their debts by simply exhibiting their claims, and balancing or clearing them, so far as mutual, and by verbal transfers, as in the fairs, until the final balances were reached, seldom over five per cent on the amount paid.

"Clearing is, beyond all question, the simplest, the most economical, and, when applicable, the most efficient of all modes of paying debts. It is precisely analogous to balancing accounts. Parties who are in business relations arrange to ascertain daily, or at convenient times, the state of their mutual claims; and having verified, extinguish them by set off. The banks of New York extinguished among themselves in that way, in 1857, upwards of $7,000,000,000, or upwards of $20,000,000 each day, upon which the daily balances did not exceed five per cent. This enor

mous sum is cleared in New York alone, without the use of any currency or medium of payment whatever. It is done by evidences of debt bearing the items of mutual claim, by a statement of the amounts, and by the processes of a balance." (pp. 14-16.)

INTEREST OF MONEY: DISCOUNT ON COMMERCIAL PAPER.

"The subject of interest has engaged our attention upon only two or three points. Interest is almost exclusively considered in the light of a charge for the use of money. No adequate explanation of the term. interest, as now very generally employed, can be given from that point of view. Strictly speaking, very little money is lent upon interest; there is probably, in the United States, ten times as much interest paid as there is money lent upon interest. We do not regard the proceeds of discounted notes, whether they take the shape of bank notes or bank deposits, as money. They are merely the credits or securities of the bank substituted for those of individuals. Yet these bank notes, but more especially the deposits, are really the chief medium of payment. The fund upon which interest is chiefly paid, is that which stands in the banks under the name of deposits. The two great items of interest paid in this country are the deduction made from notes and bills of exchange sold or discounted, and loans of amounts deposited in the banks, the proceeds of discounted paper. "Gold and silver are seldom lent upon interest; they are never sought for as a medium of payment, because a check upon a bank is preferred. Gold will command no higher rate of interest than a credit in bank. When interest has advanced even one or two hundred per cent, there is no corresponding advance in the precious metals. The current rate of interest depends upon the facility of obtaining the needful supply of that fund which is usually employed in paying debts. It is not the plenty or scarcity of this fund which determines the rate of interest, so much as the disposition of the holders. The fluctuations in its amount do not correspond with the fluctuations of interest. It often happens that the deposits in the banks are largest when the rate of interest is highest.

"There are many speculations about the level of the precious metals, about money flowing to one country and from another; this flux and reflux, when applied to problems of interest, furnish no light. Within the range of trade, foreign or domestic, the precious metals receive little impulse in any direction from the rate of interest; nor do they exert upon it any appreciable influence, except so far as the loss of specie by the banks may lead to a contraction of the currency." (p. 17.)

PRICES; THE EFFECT OF MONEY UPON PRICES.

"We have discussed the topic of prices more elaborately, perhaps, than was necessary for our purpose, which was chiefly to show that the relation between the quantity of money, or currency, and prices was not, by any means, so close as many have supposed. The notion long prevalent, that prices were exactly adjusted to the quantity of currency, is shown to have been long since exploded. Among the innumerable influences which go to determine the general range and fluctuation of prices, the quantity of money or currency is found to be one of the least effective. "This subject is specially important as bearing upon the results of fluctuations in the issues of banks. Besides the fact, that quantity of currency has less effect upon prices than is generally supposed, it is to be

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taken into account that, for all the currency issued by the banks, there is a special and constant demand from the debtors of the banks, which vents it from having as much influence as it might otherwise have. The debtors of the banks having in their possession the whole range of commodities to which prices apply, are offering them for this currency, to secure it for their constantly recurring payments. Their constantly maturing obligations do not permit them to hold out for extra prices." (p. 17.)

PUBLIC PAYMENTS-NATIONAL TREASURIES.

"That which has so constantly occupied the minds of men of business cannot be beneath notice of governments, under the same circumstances. If the annual receipts into the treasury of France are $300,000,000; if the annual receipts into that of Great Britain are $260,000,000; and if in the United States, the treasury annually receives $75,000,000, the mere method of receiving and disbursing these vast revenues must become an important consideration-very important, if we take the conduct of the most intelligent men of business, for ages past, as a criterion. This importance refers to the people from whom the revenues are collected, as well as to those to whom they are paid, and to the government itself, in regard to the facility and economy of its financial operations.

A financial system should be specially adapted to the habits and customs of the people for whom it is designed. No government can long depart from the usages of its people, or disregard their modes of business, without paying some penalty, soon or late, for the mistake. We regard the present mode of administering the treasury of the United States as involving this error. The habit of the people to employ paper currency and credit wherever they are applicable, is almost universal. This use would be still more general and uniform, but for restrictive laws, which the abuses of banking have provoked. In the face of this custom of the country, the public treasury has rejected the use of paper currency altogether, and reserves for itself an exclusive currency of gold and silver. This policy has had, during nearly its whole existence, the extraordinary support of the California gold mines, and has not, therefore, developed fully the harsh and evil tendencies with which it is fraught. The day is approaching when this system, if continued in its present shape, will create a financial disturbance great enough to shake the industry of the country to its center, and endanger any administration which may attempt to uphold it.

"We have compared our exclusive system, as administered under the act of 1846, with the financial systems of France and Great Britain, and find nothing in either to justify or encourage us in continuing a scheme of finance so fraught with peril to the interests of labor and trade. We refer to the manner in which that act has been carried out, not to its pro visions as they stand in the statute book. Our system assumes at once the attitude of being independent of the people and the commercial institutions of the country. It has been very aptly called the Independent Treasury, for it admits no sympathy and no relations with the business or the interests of the people. In Great Britain, the Exchequer leans upon the Bank of England, the greatest commercial institution of the country; and in this way a sympathy between the movements of the Exchequer, or public treasury, is established, which runs through and tempers, if it does not control, its whole operations. Besides this, the Ex