180 
POLITICAL ECONOMY 
tion, when the exportation is connected 
with the state of foreign trade, and what 
demands to expect for gold in the form of 
cash for current use in the country, in view 
of the volume of credit obligations which 
have been created by the bank through 
loans or the discounting of bills. When 
bankers feel that the limit of safety is being 
transgressed in the creation of credit money, 
by the granting of accommodation and the 
discounting of bills, and that if it continues at 
the old rate the gold in the country will be 
insufficient to meet the demands for gold, so 
that banks will be compelled to suspend cash 
payments, they begin to discourage requests 
for credit by raising the price at which they 
are prepared to grant it, that is by raising the 
discount rate. 
The situation is complicated in this country 
by the fact that we have been reduced in a 
large measure, not by law but by the drift 
of events, to a one reserve system. Bankers 
place their reserves in bulk, or in large 
part, with the Bank of England, and thus 
the Bank of England becomes the chief 
guardian of the bullion reserve of the country. 
A theoretical objection to the arrangement at 
once suggests itself. The Bank of England 
might feel the necessity of curtailing overdrafts,