usual; they think they will supply themselves with the means of
meeting their bills while those means are still forthcoming. If the
bankers gratify the merchants, they must lend largely just when they
like it least; if they do not gratify them, there is a panic.

On the surface there seems a great inconsistency in all this. First,
you establish in some bank or banks a certain reserve; you make of
it or them a kind of ultimate treasury, where the last shilling of
the country is deposited and kept. And then you go on to say that
this final treasury is also to be the last lending-house; that out
of it unbounded, or at any rate immense, advances are to be made
when no once else lends. This seems like saying--first, that the
reserve should be kept, and then that it should not be kept. But
there is no puzzle in the matter. The ultimate banking reserve of a
country (by whomsoever kept) is not kept out of show, but for
certain essential purposes, and one of those purposes is the meeting
a demand for cash caused by an alarm within the country. It is not
unreasonable that our ultimate treasure in particular cases should
be lent; on the contrary, we keep that treasure for the very reason
that in particular cases it should be lent.

When reduced to abstract principle, the subject comes to this. An
'alarm' is an opinion that the money of certain persons will not pay
their creditors when those creditors want to be paid. If possible,
that alarm is best met by enabling those persons to pay their
creditors to the very moment. For this purpose only a little money
is wanted. If that alarm is not so met, it aggravates into a panic,
which is an opinion that most people, or very many people, will not
pay their creditors; and this too can only be met by enabling all
those persons to pay what they owe, which takes a great deal of