which ordinarily is done by credit. Money is unsuitable for about nine tenths of the work of modern business, and if there were twice as much money in circulation the character of money would not be changed. The work must be done by credit or the volume of exchanges be enormously reduced. Usually, therefore, the remedy for a panic is not the issuing of new money but the doing of something to restore confidence, which remedy may be, or may not be, the issuing of new money. In the panic of 1890,' the banks of New York settled many of their daily claims upon each other by using Clearing-House certificates, instead of money, and thus bridged over the time when money appeared to be scarce, or the time when money was forced to do more work than it ought to do. A temporary form of credit was adopted; and this served also as an example to business men, the restoration of the use of credit among them being the proper way to bring busi ness back into the only channel which can hold it. No student of human nature and of the history of finance will think that

1 Also in 1893.

panics or periods of business depression can be prevented; or that panics and periods of depression cannot occur or have not occurred under any monetary system, or in any country using any volume of money. A panic may be the natural culmination of a trade movement, and generally a panic. does not mean that more money is needed in circulation, for, after a panic, money usually becomes apparently over-plentiful. A temporary expedient is, I think, the proper remedy for a panic, although whenever a panic occurs there is sure to be heard the money-scarcity complaint.

Temporary substitutes for money (such as Clearing-House certificates) have this advantage over real money: When money becomes over-plentiful, after a panic, these substitutes may be quickly cancelled, whereas real money would remain in circulation and would tend to make gold leave the country.

Abandoning the volume-of-money theory, we necessarily give up using the rate of wages, the average of prices, the rate of interest, and the state of trade as perfect tests

of the volume of money in circulation, as to whether the volume be at any particu

lar time too large or too small; but, however erratic have been the movements of trade, of prices, and of the rate of interest during the past twenty years, while the volume of money has been advancing, still the average of prices, the rate of interest, the rate of wages, and the state of trade must be taken into consideration, with all facts and circumstances, if we are to ascer tain what volume of money is best suited to us. A good step in the right direction, I think, is the striking out, as irrelevant, the fact that Frenchmen use the equivalent of $44 dollars each; and with this fact, another, that the East can get along with about $4 per capita, for we have to do with American conditions only.

Now, what tests have we? One country uses the equivalent of $44 per capita, another say $4 per capita, others any sum between; but no country is a proper example for us. And if we take our own experience only, we find that within ten or twenty years, judging by all the

tests I have named, we must have used at times twice or thrice as much money as we ought to use, and at other times only a small fraction of the sum which we ought to have used; but, of course, we are forced to these absurd conclusions by our failure to constantly bear in mind the naturalness of the undulatory character of trade, price, wage, and interest movements. If, however, we look upon these movements as necessarily undulatory (see explanation in Chapter II.), and then bring another element into consideration, the rate of foreign exchange, we shall have a fair chance to ascertain, approximately, what volume of money is best suited to the interests. of this country.

Fortunately, there is no need for trying to construct a pure theory. We can assume that our habits and our business methods are correct, and that the volume of money which we actually use is somewhere near the proper volume; but this means nothing in regard to the quality of the money and to the proportion of each kind to the other kinds, for arbitrary laws,

rather than natural development, have determined quality and proportion. And

while, therefore, it is hard to say whether all the interests of this country could be better served by a smaller or by a larger volume of money, it need not be at all dif ficult to show that the interests of this country would be better served by a better quality of money. I think it perfectly clear indeed, that if we had had different currency or coinage laws, we might easily have accumulated gold instead of a large portion of the silver which we have accumulated. In other words, if our legisla tors had paid less attention to the demands of "silverites," of cheap-money demagogues, and of volume-of-money theorists, and had given due study to the subject of foreign exchange, these legislators might have been able to see the wisdom of allowing our production of gold to do its share toward augmenting our total circulation. The volune of money in circulation might now be as great as it is, and the composition of the circulation might be much better if there had been in our currency and our silver