THE EFFECT OF “COVER?” 8s 
of those rises of prices which come from epidemics of 
optimism rather than of those more serious rises which 
come from excessive creations of currency, whether 
these arise from gold mines and minting or from the 
printing of notes to meet the exigencies of govern- 
ments which do not care to meet their expenses 
honestly by means of taxes or even loans. The utmost 
possible increase of gold held against deposits by 
banks throughout the world would be a small matter 
compared with the present decennial output of the 
gold mines, while to ask the banks of a country, 
say for instance Germany in 1923, first to print notes 
to lend to the government and then to absorb in 
reserves an equal quantity would be simply ludicrous. 
The remedy for excessive issue of currency is not to 
be found in regulation of the rate of interest charged 
by and paid by certain intermediaries (the banks) 
between lenders and borrowers, but in regulation of 
the issue of the currencv 
§4. The eff. 
curren 
That banks which issue bits of paper promising 
to pay coin on demand should, and must to avoid 
bankruptcy, keep in hand whatever amount of coin 
is required to enable them to perform their promise 
is obvious. The amount necessary will vary enor- 
mously with the circumstances of the time and 
place, and to make any generalizations about it is 
made more difficult by the fact that banks of issue 
always (or almost always, for the Bank of England's 
Issue Department and the British Government's 
Currency Note Account might perhaps be reckoned 
as banks) accept deposits from customers. They 
undertake to re a, .iese also on demand, and the 
coin kept in hand for that purpose is not and evidently 
cannot be separated from what is kept as * cover ”