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.

But though the value of money is not settled in an exceptional way, there is nevertheless a peculiarity about it, as there is about many articles.  It is a commodity subject to great fluctuations of value, and those fluctuations are easily produced by a slight excess or a slight deficiency of quantity.  Up to a certain point money is a necessity.  If a merchant has acceptances to meet to-morrow, money he must and will find today at some price or other.  And it is this urgent need of the whole body of merchants which runs up the value of money so wildly and to such a height in a great panic.  On the other hand, money easily becomes a ‘drug,’ as the phrase is, and there is soon too much of it.  The number of accepted securities is limited, and cannot be rapidly increased; if the amount of money seeking these accepted securities is more than can be lent on them the value of money soon goes down.  You may often hear in the market that bills are not to be had, meaning good bills of course, and when you hear this you may be sure that the value of money is very low.

If money were all held by the owners of it, or by banks which did not pay an interest for it, the value of money might not fall so fast.  Money would, in the market phrase, be ‘well held.’  The possessors would be under no necessity to employ it all; they might employ part at a high rate rather than all at a low rate.  But in Lombard Street money is very largely held by those who do pay an interest for it, and such persons must employ it all, or almost all, for they have much to pay out with one hand, and unless they receive much with the other they will be ruined.  Such persons do not so much care what is the rate of interest at which they employ their money:  they can reduce the interest they pay in proportion to that which they can make.  The vital points to them is to employ it at some rate.  If you hold (as in Lombard Street some persons do) millions of other people’s money at interest, arithmetic teaches that you will soon be ruined if you make nothing of it even if the interest you pay is not high.