190 ECONOMIC PRINCIPLES

in prices may result, which the freer issue of notes would
have avoided. Thus, a local and temporary maintenance of
prices, above the level which a purely metallic currency
would ensure, is possible as a consequence of the use of notes
with some freedom of issue. It is, further, probable that the
use of uncovered notes, that is, notes not fully represented
by coin held in reserve on their account, does result similarly,
taking the world as a whole, that is, keeps prices at a level
somewhat different from that which a metallic currency would
permit. The question is, Is such a result desirable or
injurious ?
The differences of opinion on this point divide currency
theorists into two schools, advocating what are known as
“the currency principle” and “the banking principle”
respectively. The former school triumphed in England in
1844, when Peel's Bank Act practically decreed that, for the
future, all changes of quantity in the circulation of English
bank-notes should be such as would have occurred with a
purely metallic currency. Either gold coin or bank-notes
could he had for circulation, but not both. To secure the
latter, the former must be locked up in the bank vaults. The
currency has become inadequately elastic under these restrictions.
 Thus, in 1845, the note-issue of England and Wales
averaged about 28'4 million pounds. As recently as 1898
the annual average did not reach 29 millions, having, in fact,
increased only some £400,000 in over half a century. In
the seventies it stood at higher figures, and has recently risen
to over 30 millions. Still, it shows little elasticity, which
is the cause of criticism by the adherents of the banking
principle,” who hold that a paper currency may properly,
indeed it ought to, increase with the need of a country for
an exchange medium. In England, the limitation of the
expansibility of the note-issue has not caused great inconvenience,
 because of the development of the cheque system,
which provides a medium of exchange for many of the
purposes for which bank-notes might otherwise be convenient.
The “currency principle ” has, in fact, not been exemplified in
the actual exchange- medium of the country, though it
dominates the Bank Act. In Germany, the inconveniences.