tels, and are bought and sold as such, bank notes differ in no o ther respect than as being payable on demand, and, from that circumstance, being more conveniently received in all common pur chases and sales. If the term, representative of money, is clearly understood to be a metaphorical expression, and to mean nothing more, than that an obligation for money, when a people are pleased with it, may perform the business of currency, as well as money itself, we have no objection to it. But if it give occasion, as it certainly does among authors, to vague and mystical apprehensions respecting paper money, which serve to involve this subject in obscurity and confusion, it ought to be discarded. In fact, when we endeavour to assign an accurate idea to the term, representative of money, as applied to bank notes, we find it impossible. A bank note is a mere contract, of a known party, to pay to the bearer a certain quantity of gold and silver in the shape of coin. When a man takes this bank note in payment, it is not as a representative of coin; for how does it represent coin? or what advantage to him would it be, though it represented it ever so exactly? The most accurate representative of coin, are well fabricated counterfeits; yet every man, when he knows them, refuses these in payment. It is not, therefore, because the bank note represents coin, but because it is a satisfactory obligation to receive coin, that it is accepted in payments; and because it is often more convenient to receive the ob ligation than to receive the coin. A common cheque upon a banker, which nobody ever dreamed of calling a representative of money, is just as much a representative of it as bank notes; nay, in fact, the order which a manufacturer on the Saturday night puts into the hand of one of his workmen, to get from his clerk the wages of the week, is a representative exactly of the same description. The only real difference in practice is, that the one obligation generally passes but through one, or a few hands, till it comes upon the obligee; the other commonly passes through many hands, each accepting it as a satisfactory security for the valuable commodity which it is an order to receive.

Having satisfied ourselves with regard to the nature of paper currency, it will be no difficult matter to comprehend the pheno mena which it exhibits; although these have given rise to some questions and speculations which well deserve a short considera

tion.

The doctrine of depreciation, on which some other conclusions depend, is that which we shall first consider. When bank paper becomes depreciated in consequence of diminished credit, the nature of this event is sufficiently understood; and no misapprehension prevails in regard to it. When a man foresees any

risk or difficulty attending the payment of a bank note offered to him in exchange, he naturally refuses to accept it, unless with such a deduction as appears to him sufficient to cover the risk or difficulty which he apprehends.

There is, however, another species of depreciation, to which, it has been imagined, that paper currency may give occasion; a depreciation arising from a superabundance of the circulating medium. To those who are not acquainted with the subject, some explanation is necessary to understand the tenor of the assertion.. As the price of any article, or its value in exchange, is determined by the proportion which the supply bears to the demand, it necessarily happens, if the supply is enlarged while the demand continues the same, that the price of the article diminishes. It is imagined, therefore, by the analogy of this case, that banks may cause the value of paper money to descend. Suppose, that the country is at any particular moment supplied with that quantity of currency which its occasions demand, it is concluded that the banks, by an overissue of their paper, may increase this quantity, and so produce a depreciation. Dr Smith, indeed, maintained, that a certain quantity of currency was necessary to fill the channel of circulation; that as soon, however, as it was full, any thing more thrown into it, by necessity overflowed. But this doctrine has been lately derided. Mr Henry Thornton, in his Inquiry into the Nature and Effects of the Paper Credit of Great Britain,' brought forward a speculation, which has been followed by almost all the writers who have succeeded him, to prove that, after the channel of circulation is full, banks may increase by their notes the quantity of currency; because every addition depreciates their value, or, in other words, raises the price of commodities in proportion to the increase. He thinks, therefore, that he may turn the metaphor of Dr Smith against himself, by remarking, that the channel of circulation, whatever currency may be thrown into it, can never overflow, as it immediately enlarges itself in proportion to the quantity received.

No proposition seems to be more certainly established than this, -that the precious metals, in all countries which are not exceedingly distant from one another, approach very nearly to an equality of price. We have no occasion, here, to enter into the explanation of the particular kind of traffic, by which they circulate from country to country; it is enough to know that they do circulate, and that so easily, that the smallest rise of their value, in any particular country, is sure to draw them speedily from other countries, or a fall in their value to send them out of any country, till the usual level or balance is established. Let us cow see how this fact operates upon the question of depreciation.

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It

It is evident that Mr Thornton, by that depreciation which he describes as consisting in a rise of prices, does not mean a depreciation of bank notes, compared with gold and silver,—such a depreciation, for example, as would take place, if a pound note should only pass in circulation for eighteen shillings; he means that kind of depreciation which takes place when a pound note is still received for the full amount of twenty shillings,-but when neither the note nor the twenty shillings can purchase more of any commodity than eighteen shillings would do before. It is evident that such a depreciation as this, if it any where exists, does not confine itself to the paper currency, but communicates itself equally to the specie of the country., It is a depreciation of the gold and silver, in the same degree as of the bank notes. But the price of gold and silver must remain the same, or very nearly the same, in this country, for example, and all the other countries in the world. If the docrine of Mr Thornton, then, be just, our banks are powerful instruments indeed; not only can they depreciate our own currency; they necessarily depreciate, by the same operation, the currency of nearly all the nations on the face of the earth. If, however, the currency of all nations be so immense a quantity, compared with ours, that any possible fluctuations which it can undergo, resemble the addition or subtraction of a drop in the waters of the ocean, then, no such depreciation as Mr Thornton supposes can take place; and Dr Smith, little as Mr Henry Thornton appears to respect him, was probably right in asserting, that when the channel of circulation is full, if any thing more is thrown in, it overflows.

It is a remarkable proof of the confufion and obfcurity which have reigned on this fubject, that many of the writers appear to have loft fight of the broad distinction between the paper money which a government compels the people to receive, and the notes of bankers, which no man receives but at his pleafure. In the first place, no man ever takes from a bank but the fmalleft quantity of notes he poflibly can. Every man defires to have in his hands no more currency than what is abfolutely neceffary for his immediate payments, that he may continue to make a profit with the larger portion of his funds. This, however, is not the cafe with thofe to whom the compulfory paper of government is tendered. It is offered to them in payment of the debts which the government has contracted; and whether they want fo large a quantity of currency or not, they must receive it. In the next place, the paper which is iffued by a bank is perpetually returning to it; every man into whofe hands a greater quantity of it come than he has immediate occafion for, carrying it to the bank for payment. The paper, on the other hand, which is iffued by ge

vernment,

vernment, never returns to it; because the government never pays. It is evident, therefore, that while there is no limit to the emiffions of government, but its own wants, or the extreme depreciation of its paper, and that, while this fpecies of paper may be accumulated in the country to any excefs, there is a vifible and impaffable limit to the emiffion of bank notes, in the defire of every individual to draw from it as fmall a quantity as poffible; and to the accumulation of thefe, a ftill more remarkable limit, in the utility which every man finds in remitting them to the bank, when-. ever a quantity of them beyond his immediate occafions is collected in his hands.

When the nature of thofe limits is duly confidered, and when we reflect upon the fact, that a gold and filver currency can never fall below the level of the price of thofe metals in furrounding countries, is it not probable, that the emiffion of bank paper is, by its own nature, fo reftrained, that it cannot produce the general depreciation of currency which is fuppofed? There is a remarkable fact, which feems entirely to confirm this inference. When the paper which was iffued by the governments of Holland and America exceeded a certain amount, it began to depreciate, though the confidence in the governments which emitted it was then as great as when the iffue commenced. The depreciation arofe, not from the credit of government having become lefs, but from the quantity of paper having become too great. But this depreciation, it is to be obferved, affected not the gold and filver which at any time appeared,—that retained its antient value, and could at laft command ten or twenty times the amount of the paper which it could have-purchafed before the depreciation commenced. How fhould this paper have become depreciated by its excefs, without affecting the value of gold and filver; and the excefs of bankers' paper have carried the depreciation of gold and filver along with it? The operation upon prices must have been exactly the fame in the one cafe as in the other. If this difference cannot be explained upon the principles of Mr Thornton, it follows that those principles are not just.

1

But, without proceeding further with these reasonings, which are rather argumenta ad hominem, than conclufions drawn from the nature of the thing, let us fee whether we cannot arrive at fome decifive evidence by aid of the principles which we have already difcovered. We have feen that fpecie, and even bank notes, are commodities, which are bought and fold like other commodities. Now, were the commodity of notes obtained at the Bank of England for nothing,-did every man obtain them merely for the afking, there might very eafily be an extraordinary quantity of them thrown into circulation. But it fo happens, that a man

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cannot

cannot obtain one of them, without having fomething to give for it. Every one which is transferred to him he has bought and paid for, with a value equivalent to the fum fpecified in the note. But it is abundantly certain, that no man, in general, buys more of any commodity than he has occafion for, and leaft of all of the commodity called money. No money is therefore ever drawn by individuals from the bank, but for the bufinefs of immediate payments; and the money wanted for immediate payments is just the money requifite for the circulation of the country.

We must entreat the excufe of our mercantile readers, when we ufe a language fo unufual to them, as to denominate the discounting of a bill the purchase of bank notes; and muft implore them, for a moment, to lay afide the confideration of the name, and endeavour, if poffible, to fix their attention upon the thing. We ftudioufly aim to avoid the technical phrafeology refpecting money, which, by its extreme abridgement, is admirably adapted, indeed, to the defpatch of business, both in fpeaking and writing, but, by the fame circumftance, has contributed greatly to introduce obfcurity and confufion into the rationale of the fub ject.* A very flight degree of reflection may convince them, that the operation is literally a purchase. What the man carries to the bank, who wants to obtain notes, is a bill of exchange, due in fixty days. The bank receives this bill, which is an obligation upon a refponfible party for a fum of money, giving in exchange for it that fum, with the deduction of intereft. The owner has therefore fold his bill to the bank, as truly as the man who fells a bill upon 'Change; and the commodity he has bought with it is bank notes. If we carry this analyfis a ftep further, we fhall ftill more clearly perceive the nature of the tranfaction. A bill of exchange, fuch as is commonly discounted at the bank, is a promife of payment, at a fixed day, for goods bought and received, Thus, a merchant purchases of the manufacturer a thoufand pounds worth of goods; but as it is not convenient to give the money for them immediately, he gives his bill for payment of the fum at a future day. The manufacturer, however, wants his money. He

therefore

*A very competent judge, Sir James Stuart, (see Polit. Econom. b. iii. c. 6.), has expressed himself with peculiar emphasis on this point. QUEST. 1. The first question I shall propose, for illustrating this subject, shall be, Whence it comes to pass that the doctrine of money is so extremely difficult and involved?--ANSW. This, I ascribe chiefly to the introduction of a money-jargon, employed by the people who have had the management of mints, or who have been practical merchants, without knowing any thing of the theory of their business. '