BANKS CAUSE PRICE FLUCTUATIONS 67 
If the quantity of precious metals employed as money exercises 
so little influence on prices, we may safely infer, Colwell believed, 
that bank currency has no greater power in that respect. He by 
no means rested his case on analogy to specie currency, however. 
There are special reasons why bank notes should affect prices but 
little, since 
for all the currency issued by the banks, there is a special and constant de- 
mand from the debtors of the banks, which prevents it from having as much 
influence as it might otherwise have. The debtors of the banks having in 
their possession the whole range of commodities to which prices apply, are 
offering them for this currency, to secure it for their constantly recurring 
payments. Their constantly maturing obligations do not permit them to 
hold out for extra prices.! 
The paper currency cannot depreciate (that is, cannot raise 
prices), because the manner in which it is issued ensures a de- 
mand for it commensurate with the supply; namely, the demand 
of the bank’s borrowers, whose notes are maturing in orderly 
procession.” Colwell apparently overlooked here the fact that 
the customer of the bank does not need the bank notes for use in 
cancelling his obligation to the bank until 60 or go days after he 
has received them. Meanwhile they enter the general circulation, 
effecting a number of payments, and thus increasing the number 
of monetary units available for making purchases. Yet he recog- 
nized as much elsewhere, in urging the deposit of securities for 
bank notes. 
In further support of his view that bank notes are but a minor 
determinant of the general level of prices, Colwell resorted to the 
familiar doctrine that the volume of bank currency is the conse- 
quence, rather than the cause, of the price level. A rise in prices, 
did contend that paper money can have no influence upon prices. D. M. Balfour, 
“A Decade of the Gold Plethora,” Hunt's Merchants’ Magazine (1860), xlii, 587; and 
George Ward, “Causes of the Crisis of 1857,” Ibid. (1859), xl, 20. H. C. Carey 
was characteristically unconventional in this respect. We are told that price fluctu- 
ations are caused by the use of bank notes, he observed. ‘In every other case, how- 
ever, in which the utility of a commodity is increased, the supply becomes more 
steady, and the price more regular. . . . That being the case, the use of circulating 
notes — tending as they do to increase the utility [efficiency] of [metallic] money — 
must tend to the production of steadiness in its supply, and regularity in its value.” 
Principles of Social Science (1858), ii, 407. 
1 Colwell, op. cit., p. 17. 2 Ibid., p. 434- 3 Ibid., pp. 463, 464.