BANKS INCREASE THE COUNTRY’S CAPITAL 33

appeared at this time reflecting the principles of the English antibullionist
 school.
It is more surprising to find a fallacy of this sort in one of the
ablest and most original of the writers with whom we have to
deal. Stephen Colwell, writing at the close of our period, brought
to bear upon the problems of banking theory an analysis that
probed deeper, in many respects, than that of any predecessor.
Yet, with reference to the matter of increasing the media of payment,
 he fell into the tyro’s error. So largely had the use of
metallic money been dispensed with, through the use of bank
notes and of checks operating through mere transfers of deposit
accounts on the books of banks, that but a fraction of one per
cent of the payments of the world’s commerce, in Colwell’s estimation,
 were effected through the transfer of coin or bullion.
Yet the magnitude of the world’s commerce had increased to such
an extent that the precious metals were fully employed in the
sphere still reserved for them — the settlement of balances. “So
full is this employment, that it may be said that all the commercial
 business which is now done without the aid of the precious
 metals in the payments, is so much of an addition to what
would be done if they were exclusively employed.” * To return
to the use of metallic money alone would be possible only through
the reduction of commerce to a fraction of one per cent of its
existing volume.?
Sounder views, such as had earlier been reached by some of the
colonial pamphleteers, received the weighty support of the
Wealth of Nations. ‘It is not by augmenting the capital of the
country, but by rendering a greater part of that capital active
and productive than would otherwise be so,* that the most juone
 can doubt that the wealth of a country is in proportion to the quantity of its
circulating medium, he is unable to understand. “No Political Economist,” Free
Trade Advocate (October 10, 1829), ii, 232, 233.
1 Colwell, Ways and Means of Payment (1859), pp. 259-262.
? Ibid., p. 262.
3 Ibid., pp. 170, 171. MacLeod falls into a similar fallacy. Dictionary of Political
Economy (1863), i, 72, 73.
* Smith explained that banks make existing capital more active and productive
by: (1) substituting an inexpensive currency for coins, thus permitting the latter
to be sent abroad in exchange for other wealth; (2) enlivening idle surpluses.