Experience shows us clearly that as demand grows the potential supply diminishes; therefore it cannot be a perennial, inexhaustible fund. If bankers find that the demand is growing, they advance their rates of interest. In other words, they demand a larger share of the profits of the community. They have two objects to serve in this. They desire to increase their own profits and they desire to check the demands upon them. From their point of view, it is better to lend a little at a high rate of interest than much at a low rate. In their annual or semi-annual speeches bank chairmen are pleased if they can show their shareholders that during a certain period the rate of interest has been high; for it is evidence to them that circumstances have been in their favour; that they have done good, profitable business. They lament times when interest has ruled low. And interest rules low when the fund is said to be overflowing, when the banks cannot lend as much as they would like. There are, however, as I have already pointed out, exceptions to this. It is no invariable rule, or law, or sequence, whatever we may please to call it, that interest is low when the fund is overflowing and high when the fund has fallen. Interest is governed by many causes extraneous to the power of banks to lend, and these causes often arise in an unforeseen, capricious way. We may say, however, while recognizing the effects of irregular, uncertain causes, that the value of what is called bank money is affected by the well-known law of supply and demand, the law that affects the prices of commodities and of labour. In a general sense, when the supply of money is greater than the demand the rate of interest falls; when the demand is in excess of the supply the rate of interest rises. Demand increases when borrowers multiply. Borrowers go in growing numbers to the banks. As the loans thereby increase, so the deposits increase. If, therefore, the deposits compose the loanable fund, the loanable fund increases. At last, however, the loanable grows so large that the banks say they can lend no more. Lend no more, when the loanable fund is greater than ever? But the banker shakes his head. He knows that though the loanable fund is greater than ever in appearance, it is smaller than ever in fact. He knows that the greater the demands made upon him the more his power of lending decreases, until the moment arrives when he has to say “Stop!” He sees that as the fund rises the proportion of the gold reserve falls. So he stops lending, lets his loans run off, whether secured on bills of discount or securities, and waits until that so-called loan-fund falls. And when it has fallen, when the loan-fund is less, then he can lend again, although to the uninitiated he has apparently less to lend.