MONEY

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accommodation  and  discounting  as  much  as
possible,  and  to  that  end  might  put  up  the
Bank  rate  ;  but  conceivably  other  banks
might  have  placed  very  large  reserves  with  the
Bank  of  England,  repayment  of  which  they
had  the  right  to  ask  for  in  gold,  and  they  might
feel  that  they  were  in  an  absolutely  secure
position  and  could  safely  undertake  an  even
greater  mass  of  credit  business.  Consequently
the  other  banks  might  keep  their  discount  rates
down,  so  that  the  only  effect  of  the  action  on  the
part  of  the  Bank  of  England  would  be  to  drive
its  customers  away  to  the  other  banks.  As
a  matter  of  fact  this  seldom  or  never  happens.
It  has  become  a  custom,  broadly  speaking,  for
all  the  banks  in  the  country  to  follow  the  lead
of  the  head  custodian  of  the  bullion  reserve,
that  is  the  Bank  of  England,  in  the  matter
of  the  discount  rate.  How  and  why  this
custom  arose,  and  in  what  way  the  Bank
of  England  takes  steps  in  exceptional  circumstances ­
  when  it  becomes  necessary  to  force
some  discounters  to  follow  its  lead,  are  interesting ­
  questions  which,  however,  we  shall  not
proceed  to  consider  here,  since  our  present
purpose  is  to  merely  show  how  the  activities
of  banks  affect  the  quantity  of  money  in  a
country,  and  not  to  discuss  the  principles  and
practice  of  banking  as  a  business.