may temporarily lower the value of money, do not lower it
permanently, because they generate their own counteraction. And this
they do whether the notes issued are convertible into coin or not.
During the period of Bank restriction, from 1797 to 1819, the Bank
of England could not absolutely control the Money Market, any more
than it could after 1819, when it was compelled to pay its notes in
coin. But in the case of convertible notes there is a third effect,
which works in the same direction, and works more quickly. A rise of
prices, confined to one country, tends to increase imports, because
other countries can obtain more for their goods if they send them
there, and it discourages exports, because a merchant who would have
gained a profit before the rise by buying here to sell again will
not gain so much, if any, profit after that rise. By this
augmentation of imports the indebtedness of this country is
augmented, and by this diminution of exports the proportion of that
indebtedness which is paid in the usual way is decreased also. In
consequence, there is a larger balance to be paid in bullion; the
store in the bank or banks keeping the reserve is diminished, and
the rate of interest must be raised by them to stay the effiux. And
the tightness so produced is often greater than, and always equal
to, the preceding unnatural laxity.

There is, therefore, no ground for believing, as is so common, that
the value of money is settled by different causes than those which
affect the value of other commodities, or that the Bank of England
has any despotism in that matter. It has the power of a large holder
of money, and no more. Even formerly, when its monetary powers were
greater and its rivals weaker, it had no absolute control. It was
simply a large corporate dealer, making bids and much influencing
though in no sense compellingother dealers thereby.