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MONEY 
the announcement of a reduction of the rate allowed 
to depositors, instead of which it is always accom- 
panied by the announcement of a rise in that rate. 
The object of the rise of bank rate is not to reduce 
deposits, but to prevent advances growing faster than 
deposits : if it causes deposits to grow, so much the 
better. The discouragement to borrowing causes the 
borrowing class to diminish their expenditure and 
does not encourage the lending class (the depositors) 
to increase theirs, but rather to diminish it. The 
banks by this policy of encouraging the depositors 
and discouraging the borrowers very naturally tend 
to accumulate cash, which was just what they 
wanted. So, in consonance with the general theory 
of this book, there is an increased demand for currency, 
which tends to lower prices. The banks take some 
currency off the market by ‘“ increasing their reserves,” 
and, if we choose to put it in this way, we may say 
that they thereby, in so far, reduce the economy of 
currency effected by banking, an economy which 
becomes dangerous, and is, therefore quite properly 
reduced, when the bankshave lent or invested nearly 
100 per cent. of what has been lent to them. 
This power of taking currency off the market, 
however, is of a very limited kind and is not likely 
to be exercised to the full. The banks could not 
keep more than a very moderate fraction of their 
deposits in currency without sweeping away their 
profits and beginning to lose by their trade, and they 
are not likely to throw away their property in what 
would be in the long run a hopeless struggle to stabi- 
lize prices. What they may reasonably be expected 
to do is to discourage borrowing when it is going so 
far as to threaten their own security. This is a 
useful service to society as well as to themselves: 
it prevents the agonies of financial crises by checking 
the booms which precede them. But it is preventive