The fluctuations in the value of money are therefore greater than those on the value of most other commodities.  At times there is an excessive pressure to borrow it, and at times an excessive pressure to lend it, and so the price is forced up and down.

These considerations enable us to estimate the responsibility which is thrown on the Bank of England by our system, and by every system on the bank or banks who by it keep the reserve of bullion or of legal tender exchangeable for bullion.  These banks can in no degree control the permanent value of money, but they can completely control its momentary value.  They cannot change the average value, but they can determine the deviations from the average.  If the dominant banks manage ill, the rate of interest will at one time be excessively high, and at another time excessively low:  there will be first a pernicious excitement, and next a fatal collapse.  But if they manage well, the rate of interest will not deviate so much from the average rate; it will neither ascend so high nor descend so low.  As far as anything can be steady the value of money will then be steady, and probably in consequence trade will be steady tooat least a principal cause of periodical disturbance will have been withdrawn from it.

CHAPTER VI.

Why Lombard Street Is Often Very Dull, and Sometimes Extremely Excited.

Any sudden event which creates a great demand for actual cash may cause, and will tend to cause, a panic in a country where cash is much economised, and where debts payable on demand are large.  In such a country an immense credit rests on a small cash reserve, and an unexpected and large diminution of that reserve may easily break up and shatter very much, if not the whole, of that credit.  Such accidental events are of the most various nature:  a bad harvest, an apprehension of foreign invasion, the sudden failure of a great firm which everybody trusted, and many other similar events, have all caused a sudden demand for cash.  And some writers have endeavoured to classify panics according to the nature of the particular accidents producing them.  But little, however, is, I believe, to be gained by such classifications.  There is little difference in the effect of one accident and another upon our credit system.  We must be prepared for all of them, and we must prepare for all of them in the same wayby keeping a large cash reserve.

But it is of great importance to point out that our industrial organisation is liable not only to irregnlar external accidents, but likewise to regnlar internal changes; that these changes make our credit system much more delicate at some times than at others; and that it is the recurrence of these periodical seasons of delicacy which has given rise to the notion that panics come according to a fixed rule, that every ten years or so we must have one of them.