BANKS CAUSE PRICE FLUCTUATIONS 65

in his possession.” ! Never was there a more curious substitution
of cause for effect, thought Lowell, than that evidenced by those
who, like Hooper, attributed the crisis of 1857 to the reduction
of bank credit, made necessary by lack of adequate reserves. Instead,
 the crisis rendered the use of capital unprofitable, and it
was for that reason, and not because of scant reserves, that bank
accommodations shrank. “It was not capital that was withdrawn
 or annihilated; the difficulty was, that nobody could be
found to employ it.” 2
Hooper found a supporter in Charles H. Carroll, who insisted
that the part played by banks in expanding and contracting the
media of payment is by no means passive. Declaring that it is a
poor rule that fails to work both ways, he asked, “Is it a decline
of ‘local dealing and expenditure’ [as asserted by Lowell] which
causes the contraction of bank loans, or is it the contraction of the
loans which causes the decline of the dealing and expenditure?”
A just adjudication of the issue had already been offered, at a
much earlier date, by several writers who held that the increased
note issue, which greater business activity calls forth, in turn
occasions a higher price level, stimulating business still further.
Thus, whichever gives the original impetus, the “needs of trade’
and the volume of currency react upon each other until the export
of specie, bringing a threatening drain of reserves, calls a halt.
The point was made, not in combating the theory that banks
cannot influence prices, but in dealing with the doctrine that
banking could have no harmful effects if its discounts were restricted
 to short commercial paper arising out of actual transactions,
 and we shall trace it at greater length in considering that
thesis.®
One important writer, whose views form a closely knit body of

' John A. Lowell, Review of Hooper's Pamphlet (1860), p. 18. Lowell was, during
the greater part of his life, a director of the Suffolk Bank, and is said to have been
the first to suggest the system that bore its name.
: Ibid., p. 11.
# C. H. Carroll, “Mr. Lowell vs. Mr. Hooper,” Hunt's Merchants’ Magazine
April, 1860), xlii, 581.
* Dew, we have seen, had shown some recognition of this in 1834. It had been
stated by Raguet in 1829.
® See Chapter XV, below.