196 BANKING THEORIES IN UNITED STATES

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pari passu in expanding or contracting their currencies, he explained.
 Hence sudden deflation in any major country may
occasion world-wide distress.
No less interesting is the observation of H. C. Carey to the
effect that England enjoys an advantage with respect to crises
by virtue of being a creditor nation. In all cases of change in the
currency, the debtor fares worse, for it is he who is called upon to
pay. “If the debtor is unable to pay, the creditor may then raise
the rate of interest, as the Bank of England does, thus profiting
by the irregularity of the currency. When that institution finds it
necessary to contract in consequence of having overtraded, she
does not fail, but she compels her debtors to do so.” * Carey did not
tie the matter up with the foreign exchanges, however, and it
would be easy to read into his idea more than he probably had
in mind.

Meanwhile the controversy in England between the adherents
of the currency school and those of the banking school was finding
its counterpart in America. On the one side were those who insisted
 that bank notes, unless rigidly regulated by law, introduce
L Wolcott, Remarks on the Present State of Currency, Credit, Commerce, and
National Industry (1820), pp. 4-32.
2 H. C. Carey, Answers to the Questions, etc. (1840), p. 42.
3 Some years later Francis Bowen commented upon England’s position as
creditor to the United States in the short-time money market and seems to have
been considerably mystified by it. ‘There is a curious feature,” he observed, “in
the management of trade between England and the United States, which is in
marked contrast with the course of mercantile transactions between England and all
other commercial nations. For some inexplicable reason the bills of exchange are
all drawn one way”’—on London. * Principles of Political Economy (1856), pp. 322,
323 n. Englishmen seem to have been no less perplexed by the apparent anomaly,
for Lawson, in his History of Banking, remarked with reference to it: ‘To place the
trade of America on the same footing as that of all other commercial nations has
long been a desideratum. Numerous appeals, in the shape of pamphlets and other
publications, recommending the adoption of a course of exchange between the two
countries, have brought conviction to the mind of almost every mercantile man;
yet, strange to say, no step has yet been taken to effect the object; it is an evil which
must ultimately work its own cure.” History of Banking (London, 1850), pp. 51, 52,
or, American edition (Boston, 1852), p. 30. The full significance of the position
England enjoys, by virtue of her low discount rate, as creditor in the short-time
money market, has been emphasized by J. M. Keynes in the second chapter of his
Indian Currency and Finance.