I urge amongst other contentions that banks do not in the true connotation of the word create credit. If it be possible to convince ourselves that they do not create credit, that credit is a something existing prior to and independently of banking, it will, I think, make the gold reserve problem easier to solve. What we gaze upon is not an unsubstantial structure called in Lombard Street “the superstructure of credit,” but is something more solid. It is a superstructure of wealth. All that banks do is to transform this wealth into liquid capital, resolve it into its constituent, or original, elements. This enables wealth to perform its fructifying functions, to reproduce itself, just as the mature fruit reproduces itself when re-sown. Were the wealth to remain in its fixed, or, as the market would say, its frozen form, what sort of wealth-harvest could we hope to gather from it? Unless it be made liquid it cannot flow. And if it did not flow, but remained frozen, sterility would result. If this transforming machinery were not provided by banks, the Government, on the nation’s behalf, would have to provide it, or the nation would become inert. As there is not, and never can be, enough legal tender coinage for this work, other legal tender currency should be provided. In answer to those who have ever clamoured for high gold reserves I have endeavoured to show the impossibility, in the present system, of this realization. What critics have at the back of their consciousness is, not quantity _per se_, but proportion. They do not mean a mere counting of sovereigns, but the ratio of an individual bank’s reserve to its liabilities. A small bank cannot have as much gold as a large bank, but it can have as high a proportion. Now, a high proportion can be attained only by keeping down the loan-deposits. It cannot be attained by getting a larger quantity of gold if the loan-deposits grow correspondingly. When banks see these deposits rising and the proportion falling, they cease lending, call in their loans, and allow the proportion to rise. We then see what we fallaciously call the loan-fund of Lombard Street diminish, showing that the loan-fund is not in the deposits, but in the gold reserves and in the totality of the wealth in the keeping of the banks at any given moment. When banks cease to lend they drive borrowers to the Bank of England. Borrowing there causes a drop in the Bank’s proportion. Therefore, we cannot have simultaneously high proportions of joint stock bank reserves and a high proportion of a Bank of England reserve unless both stop lending simultaneously. As the Bank’s reserve is the reserve of the joint stock banks collectively and the national reserve, then, if its proportion falls, the reserve-proportion of the entire system falls. The only way to keep it high is for all to stop lending and for the whole money market to lapse into a state of stagnation. So far as my knowledge extends, this has not been pointed out.