And at the present moment we have a still more remarkable example, which was thus analysed in the Economist of the 30th December, 1871, in an article which I venture to quote as a whole: ‘THE GREAT RISE IN THE PRICE OF COMMODITIES. Unless the Bank of England lend, no stock will be bought. . , and the deposits to be 6,472,000 L.
In 1899 the Secretary of State wrote to the authorities in India:—“I see no objection to your lending to the Presidency Banks, on the security of Government paper, at such rates of interest from time to time and for such periods as you think best. They were thus led to imitate the form rather than the substance. The manner in which the rest is dealt with is best described in the words of an official memorandum issued by the India Office in 1913 [Cd. The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business. The whole account for the year balances out in some such manner as this:— PAYMENTS Home Charges _x_ Gold “earmarked,” or securities bought for Currency Reserve in London _y_ Cost of silver + profit on coinage credited to Gold Standard Reserve in London _z_ Expenditure on stores in London for capital purposes in India _v_ Transfer of cash balances from India to London ± _w_ —————————————– _x_ + _y_ + _z_ + _v_ ± _w_ =========================== RECEIPTS Council Bills cashed from balances in India _x_ – _u_ + _v_ ± _w_ Council Bills cashed from rupees in Currency Reserve in India _y_ Council Bills cashed from new coinage _z_ ————————————————– Total Council Bills drawn _x_ + _y_ + _z_ – _u_ + _v_ ± _w_ Net capital borrowings in London _u_ ————————————————– Total receipts in London _x_ + _y_ + _z_ + _v_ ± _w_ ================================= 14. │ Minimum. in gold, no merchant or manufacturer considers of what material it is made when he fixes the price of his product. It is from this source that the sovereigns now circulating as currency are likely to have come. The persons to whom that 2,000,000 L. , in India ½ (vi. If the Government had made its notes encashable at a great variety of centres, it would have been taking on itself the expense and responsibility of carrying out these movements of coin at different seasons of the year. As yet, historically, it is the only introduction: no nation as yet has arrived at a great system of deposit banking without going first through the preliminary stage of note issue, and of such note issues the quickest and most efficient in this way is one made by individuals resident in the district, and conversant with it. Very large loans at very high rates are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain.
They have sometimes discounted these bills with their own capital, and if they can re-discount them at a slightly lower rate they gain a difference which at first seems but trifling, but with which they are quite content, because this system of lending first and borrowing again immediately enables them to turn their capital very frequently, and on a few thousand pounds of capital to discount hundreds of thousands of bills; as the transactions are so many, they can be content with a smaller profit on each.