more safely, and therefore more cheaply.  In time of panic, these subordinate dealers in money will always come to the principal dealers.  In ordinary times, the intercourse between the two is probably close enough.  The little dealer is probably in the habit of pledging his ‘securities’ to the larger dealer at a rate less than he has himself charged, and of running into the market to lend again.  His time and brains are his principal capital, and he wants to be always using them.  But in times of incipient panic, the minor money dealer always becomes alarmed.  His credit is never very established or very wide; he always fears that he may be the person on whom current suspicion will fasten, and often he is so.  Accordingly he asks the larged dealer for advances.  A number of such persons ask all the large dealers—­those who have the money—­the holders of the reserve.  And then the plain problem before the great dealers comes to be ’How shall we best protect ourselves?  No doubt the immediate advance to these second-class dealers is annoying, but may not the refusal of it even be dangerous?  A panic grows by what it feeds on; if it devours these second-class men, shall we, the first class, be safe?’

A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it.  The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others.  They must lend to merchants, to minor bankers, to ’this man and that man,’ whenever the security is good.  In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them.  The way in which the panic of 1825 was stopped by advancing money has been described in so broad and graphic a way that the passage has become classical.  ‘We lent it,’ said Mr. Harman, on behalf of the Bank of England, ’by every possible means and in modes we had never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the Bank, and we were not on some occasions over-nice.  Seeing the dreadful state in which the public were, we rendered every assistance in our power.’  After a day or two of this treatment, the entire panic subsided, and the ‘City’ was quite calm.

The problem of managing a panic must not be thought of as mainly a ‘banking’ problem.  It is primarily a mercantile one.  All merchants are under liabilities; they have bills to meet soon, and they can only pay those bills by discounting bills on other merchants.  In other words, all merchants are dependent on borrowing money, and large merchants are dependent on borrowing much money.  At the slightest symptom of panic many merchants want to borrow more than 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.