CANADA 
225 
large expansion of the total circulating medium can result from a 
relatively small inflow of gold. The inflow that took place was 
not inconsiderable. Gold steadily dribbled into the country — 
the movement ceasing occasionally, in one or another year of 
the period, but soon reviving again — with a total by 1913 of 
$123,000,000. Almost all of the physical gold went into the 
government vaults, Dominion notes being issued against the 
accumulations. Whatever the process, so much of gold was added 
to the basis on which the circulating medium rested. The effective 
circulating medium, however, increased by a vastly greater 
amount, the superstructure being enlarged approximately in the 
same proportion as was the foundation of specie. The additional 
Dominion notes (substantially the same thing as additional gold) 
went chiefly into bank reserves. There they became the basis for 
a great increase of bank deposits and bank notes. The total 
demand liabilities of the Canadian banks of issue (deposits and 
notes together) swelled from 350 millions in 1900 to over 1000 
millions in the years 1911-1913. In round numbers, they tripled. 
[t may be noted that this increase, great tho it was, did not pro- 
ceed quite in proportion to the enlargement of the base. The ratio 
of cash reserves to demand liabilities became somewhat greater 
in the last triennium; it reached 10 per cent, against about 7 
per cent in the earlier years.! 
Deserving of note is the circumstance that the expansion of 
deposits and notes seems to have preceded rather than followed 
the enlargement of reserve. The expansion often overstepped 
the reserve increase. I have already pointed out? that such a 
chronological sequence, while at first sight appearing to be incon- 
sistent with the tenor of the Ricardian reasoning, represents 
merely one of the modifications which must be attached to it in 
view of the characteristics of deposit banking. In the case of 
Canada this peculiarity of the situation was accentuated by the 
'T have seen no explanation of this change. Possibly it was due to the fact 
that the expansion took place mainly in a few of the very large banks; and there is 
a general tendency for very large banks, having heavy demand obligations, to keep 
1 larger proportion of actual cash than do banks of moderate size. 
' Chapter 17, p. 207.