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therefore carries the bill to the bank, where he receives money for it, only deducting intereft for the time which it has to run. Is not this the very fame thing, in reality, to the manufacturer who gets the bill discounted, as if he had fold his goods to the bank, allowing discount for prompt payment? It is with goods, therefore, in the last resort, that notes are always bought at the bank; and it is obfervable, that nobody goes to the bank to receive notes for his bills, thereby lofing the discount, to any greater amount than is neceffary to make the payments for which he is immediately called upon. But if bank notes are never called into circulation but in the payment of goods, it would appear that they are never called but to answer the natural exigencies of bufinefs, and in this way cannot become fuperabundant. Their amount can never furpafs that of the gold and filver coin, which would circulate if they were not in existence. This we feem now entitled to affume as an established propofition. When a man purchases bank notes with real goods, at the rate of gold and filver, he would certainly purchafe gold and filver with thefe goods, if the notes were not prefent, or if they did not equally well answer his purpose. He only buys the notes because he has occafion for currency; and if the notes were not to be had, he would buy the only other fpecies of currency, gold and filver coin: real goods being always able to command it at the market price of the contiguous countries.

The other peculiarity attending a currency in bank notes,- that they are perpetually returning to the bank,-is likewise followed by consequences, of which it is of some importance to have a just conception. Let us suppose, that by any means a superabundance of paper money has come into circulation, Government, for example, being unable to wait for the slow influx of the taxes, prevails upon the bank, we shall suppose, to advance some millions of bank notes, which are to be paid with interest when the taxes come in. But there was already a sufficient quantity of currency in circulation, both to pay the taxes, and to perform the other payments of the country. This advance therefore to government, in bank notes, when it comes into circulation, is all surplus. The question is, what becomes of it? A considerable quantity of it-let us suppose, for the sake of simplicity, the whole will be immediately paid away in discharging debts contracted by government in the purchase of goods. The individuals into whose hands the additional currency is first paid, discover in it no symptoms of superfluity. They sold their goods to government, and they have received payment, as they would have received it from any other purchaser. They proceed again to market with the money come in, precisely as on any other occasion, But the next step, or a few more steps, produces a difference,

ference. The money which is proceeding towards government in the shape of taxes, is not yet paid, but is partly in the hands of the contributors, and partly accumulated in other hands. When any of the additional currency, therefore, comes into the hands of any of those persons, who have already a sufficiency, and who are under no obligation, for some months, to strip themselves of what they have, by making their payments, they have a surplus, and are disposed to turn it to advantage. But, as they know that, in the course of a few months, as soon as their payments must be made, what is now surplus, will become necessary to them, it cannot be embarked in any extension of their trade, from which the return would not be sufficiently prompt; it is, therefore, by various ways, and for various considerations, allowed to accumulate in the hands of the different private dealers in money, by whom it is employed in the retiring or discounting

of bills.

It now returns to the bank by the following process. When bills which have been discounted at the bank are retired, currency is directly returned to the bank; when it is employed by private money-dealers in discounting bills, it prevents the demand of discounts at the bank, and, by consequence, all fresh issues of notes. But while, by this process, a greater quantity of money is daily returned to the bank, in retiring the bills which daily become due, than issues from it in the discounting of new bills, it is evident that a diminution of currency is effected; and this process necessarily continues till the proper balance of currency is restored, and the superabundant issue is all drawn back. In this manner, likewise, does it appear, that no greater amount of bank notes can be made to circulate in any country, than would circulate of gold and silver, if paper currency were unknown; that a rise of prices, or a depreciation of the currency,

*

cannot

* We are aware that we have not here obviated the whole of the objections which may be made to this conclusion; and that the excess of the bullion price of gold and silver, over the mint price, has appeared to some persons a sufficient proof of actual depreciation, arising from an overissue. The full consideration of this subject, we must reserve for another opportunity; at present, we can only state it to be our opinion, that the phenomenon in question may be explained from the fact of our having a currency composed of two metals, which are constantly varying in value as to each other. To those, too, who are habituated to such speculations, our whole theory of depreciation may be sufficiently explained, perhaps, by the following simple propositions. There can be no depreciation of coin, except in consequence of the wearing or adulteration of the metals;

-and

cannot be the effect of an overissue; but that, the channel of circulation being once full, whatever flows in must run over.

Let us put, however, an extreme case. Let us suppose, that government, not satisfied with one advance, goes on demanding, and the bank granting, faster than the retiring of the bills which it has discounted, can withdraw its notes from circulation. The consequence of this would speedily be, that all its bills would be retired, and few or none would be offered for discount; yet still, by means of government, it might continue to pour its paper upon the country; and if it was exempt from the obligation of paying in cash,--but not otherwise,-the amount of this paper might extend to any degree beyond that of the gold and silver which would circulate in the country. But it is very evident, that where this is the case, i. e. wherever government distributes a paper currency which cannot be converted into cash at pleasure, there is no difference between the paper thus issued, and the compulsory emissions of government itself. They must follow, therefore, similar laws. In the first place, the precious metals would entirely disappear from the circulation, and the notes would sink to any degree of depreciation; but gold and silver would retain its price; and the man who had preserved a guinea, might soon be able to purchase with it a bank note for a hundred pounds.

From what we have thus discovered, one practical consequence of great importance may be deduced. As a bank, which issues notes, while it emits them solely in the discounting of good bills at short dates to individuals, can never issue more than the demands of business require; but, as it may, by advances to government, easily surpass the limit of those demands, it is evident that any general derangement, arising from a surplus of cur

rency,

-and there can be no depreciation of paper which circulates at par with coin-whatever be its quantity:-All depreciation of paper, it appears to us, is produced by suspicion of the credit of those who issue it. A suspension or postponement of cash payment, is obviously a ground for such suspicion; and the more that is issued while this continues, the more must this suspicion and depreciation accumulate. When it has once begun, it is easy to see how rapidly it must increase. But this is merely because the additional issue is an additional load on a credit already suspicious,-not because there is a surplus of currency in the country. No man receives Government paper, even in the first instance, but in exchange for something which he thinks worth the same sum in coin;-and no man ever receives paper money from another, except when he chooses to receive it for his goods or his labour;-consequently, he can never receive more than he wants; nor can there be any depreciation from mere overissuing.

rency, must of necessity be owing to advances to government. What is, therefore, wanting to prevent these derangements, is a law by which all advances of that nature should be prohibited, under the most awful sanctions. We do not mean to say that government should, on all possible occasions, be prevented from anticipations on the revenue, though, on all accounts, this should be allowed as seldom as possible. We only say, that government should never be allowed to anticipate, through the medium of a bank which issues notes. When these anticipations are really necessary, the advances should be made (as loans, a much heavier concern, are) by the money-dealers, and bankers of discount, but never by banks of circulation. The difference between the cases is prodigious. What is advanced by the money-dealers, and bankers of discount, is, by them, first drawn from the channel of circulation, and a vacuum is thus previously made to receive what is about to be immediately poured in by government. What, however, is advanced by the banks which circulate notes, is not necessarily, nor generally, withdrawn first from the channel of circulation. These banks advance most frequently a quantity of new-made notes, which, being poured into a channel already full, necessarily overflow, and more or less derange and disturb the regular movement of the current. If regularity of movement in that current, then, be of any importance, banks which issue notes of circulation, should be interdicted, under pain of confiscation, from all advances to government. They should, indeed, be strictly prohibited from all connexion with government whatsoever. By this rule, the bank of England should be immediately freed from all the business of government, with which it is loaded and embarrassed, in paying the interest of the national debt, in the management of exchequer bills, and other functions; and thus have its operations limited to the issuing of its own notes in the discounting of bills. It would, in this way, be impossible that it could ever derange the channel of circulation, while the business of government might be managed with equal efficacy by banks, which, not issuing notes, could have no means to produce a surplus of currency.

After these remarks on the laws which the phenomena of depreciation in respect to paper money observe, remarks which we are fully aware require more ample illustration, but on which we have already exceeded the limits of that species of disquisition to which we are at present confined, we shall next inquire, how the obligation to pay in cash operates upon a paper currency. But, on this topic, we shall be obliged greatly to contract our observa tions.

The obligation to pay in cash, may be considered, 1st, in its re

lation to the credit of the bank; 2d, in its relation to the quan

tity of currency.

1. That, to the firft of thefe, it is an indifpenfable requifite, will not require many words to prove. That any man would give real value for a piece of paper, for which he knew that nobody was under any obligation to give him value again, would be ridiculous to imagine. Yet, that no poffible abfurdity might remain, to which fome writer on paper money had not attained, it is ferioufly afferted and argued by Mr Smith, that banks fhould be entirely exempt from the obligation of paying in cafh the notes which they circulate. We could have been well content to have amufed ourselves a little with the ludicrous observations which he brings forward in fupport of this new position. But, as we have serious matter before us, in much greater quantity than we can overtake, we must deny both ourselves and our readers this relaxation. Though payments in cafh are fufpended at the bank of England, it is univerfally understood that this is only for a time; it is univerfally understood that the obligation to pay will, in a fhort time, be put in force; and, above all, it is univerfally understood, that the bank is able and ultimately liable to pay. It is obviously in confequence of these convictions, that the paper of that bank continues to circulate. Let it, however, be once paffed into a law, that the bank of England is for ever exempt from the obligation of paying her notes in cash, and we should quickly fee to what depreciation they would fail. Let it only become the general conviction, that fhe is unable to pay, and remarkable effects would be the confequence. It is very true, as Mr Smith obferves, that the paper of the bank might still continue to perform the office of money, as well as coin, provided the people would be pleafed with it.' But we do not ftand in need of reafoning; we have the most remarkable facts to prove to us that they would not continue pleased with it. When fovereigns themfelves have iffued ftamped pieces of leather for money, or when they depreciated the coins, these might have performed the office of money to the amount of the fums they were iffued for, had the people been pleafed with them.' But did this ever happen? Or is it neceffary to fay why it never happened?

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2. To difcover the effects of the obligation to pay in cash upon the quantity of currency, is a much more difficult and compli cated inquiry.

In the first place, it is evidently a check upon overiffuing. When a bank is apt to be called upon to pay gold for its notes, it feels itfelf obliged to confine the quantity which it iffues, within a certain proportion to the gold which it can readily command. What that proportion may be, depends upon circumstances. When the

credit

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