I'm reading this (clicking it will download a PDF, so, do as you find good) analysis of Adam Smith's theory of banking and money. On page 13, the author writes:

For example, Smith (293) says that if the quantity of money necessary to circulate the annual produce of the country is £1,000,000, then banks will issue one million pounds of banknotes, keeping perhaps £200,000 of gold and silver as reserves. The other £800,000 of specie is above what the circulation can employ, and will be used to import capital and commodities from abroad. Afterwards, the quantity of money in circulation will consist entirely of the £1 million in banknotes.

My confusion is, first the writer says that circulation absorb 1 million pounds but then he says £800,000 will be above what the circulation can absorb. The overall situation is quite clear to me, the banks are issuing paper notes for the whole amount of money that is needed to carry out the whole circulation in the country, and keeping only 20% of whole issued money in the form of gold and silver for fulfilling occasional demands. But that 800,000 pounds thing is quite unclear to me.


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