In examining the bank statement as a barometrical showing of money conditions, it should be remembered that an increase in deposits does not mean an increase in cash. The bank statement may show an increase in loans of $1,000,000 and an increase in deposits based on these loans. That is to say, $1,000,000 may have been borrowed on commercial paper, and the proceeds passed to the credit of the borrowers. Commenting on this fact, Theodore Burton says: “But in the modern development of banking the actual money deposited is much less important in determining the amount of deposits, because so large a share of them represents credits obtained by loans, etc. These credits are transferred upon orders executed by depositors, and furnish a substitute for currency. In proportion as payments and settlements are made by checks, drafts, and bills of exchange, deposits maintain an increased proportion to the amount of currency in circulation. This class of deposits increases prior to a crisis rather than diminishes, because loans increase. “In the reports of national banks, there is a striking correspondence from year to year in the volume of deposits and that of loans and discounts. Deposits show more frequent fluctuations, but rise and fall in general accord with loans and discounts. This correspondence is easily explained. Another distinction should be noted. Some deposits are the result of completed transactions, and are based upon the proceeds of sales made, amounts realized from investments, etc. Others merely represent loans or discounts the proceeds of which are entered to the credit of the borrower. Before every crisis there is an unusual proportion of deposits which are based upon loans. If in bank statements there could be separate columns for these two kinds of deposits, the information afforded by their increase or decrease would be much more valuable.” This point shows the necessity of considering not only the proportion of loans to deposits but of specie to loans. On this point Mr. Burton says: “A continuous decrease of specie attended by an increase in outstanding discounts is always a danger signal. The gap between the two may widen for months, and even for years, and may fluctuate from time to time, but a sudden change of large proportions, or a steady decrease of the percentage of specie is an unfailing indication of danger. The reason for this is not hard to discover. The quantity of metallic money in a country shows what part of its capital is available as money for the payment of its obligations to foreign countries, the final test of availability. For this last named purpose credit money cannot be used, but only money having intrinsic value--money of the Mercantile Republic, as it is called by Adam Smith.”