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- whether he discovered the distinction, or learned it elsewhere,

for having very clearly perceived the difference between the paper money which a government may force upon the people, and the paper money circulated from banks, which nobody receives but at his pleasure. He has seen, too, that many errors may be traced to the strange inaccuracy of confounding together these two sper cies of paper money. It is very extraordinary,' he says, 'that many erroneous doctrines are still kept up,--the writers on this subject continuing to persevere in support of many maxims, which, in practice, have been long ago abolished. One great cause of this appears to be, that there have existed two species of paper money, perfectly separate and distinct in their nature, properties and effects, but which have been hitherto confounded together by all these writers.' It is unfortunate, after making this falutary distinction, that he should have been misled, by his own notion of an imaginary standard, into an unprofitable train of speculation ; otherwise it is probable that some useful truths would have been the consequence of so hopeful a commencement.

Fortunately, it is the free and voluntary species of paper money, almost exclusively, with which we have been experimentally acquainted in this country; and as the other is abundantly simple in its nature, and moreover very circumscribed in its use (for it necessarily very soon destroys itself), it is only the paper money consisting in the notes of bankers, which calls on us for consideration on the present occasion. The notion which we have endeavoured to establish of the nature of coined money, will speedily enable us to discover the principle and laws of paper currency.

As coins are neither more nor less than commodities which are bought and sold for their value, like other commodities, so bank notes are obviously obligations upon the issuers to pay a certain quantity of those commodities; and these obligations also are bought and sold for their value, or for that quantity of the valuable commodity, coin, which they can command. They are usually denominated the representatives or symbols of coin. It is very evident, however, that this is not only a vague but an inaccurate expression. They are no more representatives or symbols of coin than bills of exchange, or any other transferable bonds for the payment of money. They are actual obligations for the receipt of a certain quantity of specie ; and they are received in payment as readily as the specie itself,-only when it is well known that specie can be received for them, without delay, and without inconvenience, or when it is known, that they will be as readily received in the market as the coin which they specify. If bills of exchange, therefore, and other transferable bonds, are regarded in the market as mere commodities, -as goods or chatD 2


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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 deridedi. 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 mav 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 bimself, 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 0ther countries, or a fall in their value to send them out of any country, till the usual level or balance is established. Let us how see how this fact operates upon the question of depreciation,

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aper curs if it any before. Ore :

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 depre ciate, by the same operation, the currency of nearly all the na tions on the face of the earth. If, however, the currency of al nations be so immense a quantity, compared with ours, that an possible fluctuations which it can undergo, resemble the additio or subtraction of a drop in the waters of the ocean, then, no suc depreciation as Mr Thornton supposes can take place; and D Smith, little as Mr Henry Thornton appears to respect him, wa probably right in asserting, that when the channel of circulatio is full, if any thing more is thrown in, ir overflows.

It is a remarkable proof of the confusion and obfcurity whic have reigned on this subject, that many of the writers appear t have lost sight of the broad distinction between the paper mone which a government compels the people to receive, and the note of bankers, which no man receives but at his pleasure. In th first place, no man ever takes from a bank but the smallest quar tity of notes he possibly can. Every man desires to have in h hands no more currency than what is absolutely necessary for h immediate payments, that he may continue to make a profit wit the larger portion of his funds. This, however, is not the ca with those to whom the compulsory paper of government is te dered. It is offered to them in payment of the debts which th government has contracted ; and whether they want lo large quantity of currency or not, they must receive it. In the neplace, the paper which is iflued by a bank is perpetually returnir to it; every man into whose hands a greater quantity of it com than he has immediate occasion for, carrying it to the bank f payment. The paper, on the other hand, which is issued by g


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