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lation to the credit of the bank; 2d, in its relation to the quantity of currency.

1. That, to the first of these, it is an indispensable requisite, 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 ridi. culous to imagine. Yet, that no possible absurdity might remain, to which some writer on paper money had not attained, it is seriously asserted and argued by Mr Smith, that banks should be entirely exempt from the obligation of paying in cash the notes which they circulate. We could have been well content to have amused ourselves a little with the ludicrous observations which he brings forward in support 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 cash are suspended at the bank of England, it is universally understood that this is only for a time; it is universally underitood that the obligation to pay will, in a short time, be put in force; and, above all, it is universally understood, that the bank is able and ultimately liable to pay. It is obviously in consequence of these convictions, that the paper of that bank continues to circulate. Let it, however, be once passed 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 see to what depreciation they would fall. Let it only become the geperal conviction, that she is unable to pay, and remarkable effects would be the consequence. It is very true, as Mr Smith observes, that the paper of the bank might still continue to perform the office of money, as well as coin, provided the people would be pleafod with it.' But we do not stand in need of reasoning ; we have the most remarkable facts to prove to us that they would not continue pleased with it. When sovereigns themselves have issued stamped pieces of leather for money, or when they depreciated the coins, these might have performed the office of money to the amount of the sums they were issued for, had the people been pleased with them.' But did this ever happen? Or is it necessary io lay why it never happened?

2.' To discover the effects of the obligation to pay in cash upon the quantity of currency, is a much more difficult and complicated inquiry.

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


quantity of paper which the maintains in circulation. The amount of notes which she finds it useful to maintain in circulation are at present, we shall say, 15 millions. If the bank resolves to maintain these 15 millions, in circulation, and if a demand for guineas arise, she may be called upon for gold to double, or ten times, or, indeed, to any number of times that amount. Thus, for example, notes to the amount of 100,00ol. we shall fuppose, are brought to her for gold; but, when she has drawn back thofe notes, and given for them gold, her paper currency is reduced to that extent; and if she refolves to maintain her quantity of notes in circulation, she must immediately reissue the notes which have been thus returned. But no sooner are they reiffued, than they are brought back for gold : again the quantity of the paper circulation is reduced ; again the notes must be issued ; and, if the demand for gold continues, and this process is repeated a fufficient number of times, the bank may be exhausted to any conceivable extent, while she has never had more than her usual quantity of notes in circulation. Even,' says Mr Thornton, (Inquiry into the Nature and Effects of the Paper Credits of Great Britain, p. 92.) if we should suppose the bank to bring down its paper circulation to one hundred thousand pounds, and to maintain it at that sum, it is obvious that this fame operation might be so reiterated from day to day, as to extract at length from the bank the greatest imaginable number of guineas."

In order to see further into this subject, we must analyze a little the operations of this bank. Let us suppose, for the sake of fimplifying the inquiry, that the fole business of the bank of England is that of issuing notes in the discounting of bills. Let us suppose that, as she discounts none at more, so she discounts none at lefs than fixty days date. And let us suppose, too, that she maintains 15 millions of paper currency in circulation. She has thus at all times in her coffers bills of exchange to the amount of 15 millions. But, of all this quantity of bills, the whole must be paid in (ixty days; she therefore draws back in fixty days the whole of her 15 millions of notes ; that is to say, she draws back, at the rate of 250,00ol., or a quarter of a million, every day. But, if she draws back notes by the retiring of bills, at the rate of a quarter of a million a day, she must issue notes in the discounting of bills at the rate of a quarter of a million a day, to compensate this return, and keep the paper in circulation at its accustomed amount. That this would be the course of business in regular times, is abundantly evident. The rate of discounting bills at the bank every day would exactly balance the rate at which bills were retired; and the notes drawn in by the one operation, would exactly correfpond to the notes sent out by the other. If the persons by whom the bills were retired were, on each day, an entirely dis. tinct set of persons from those to whom bills were discounted, 250,0col. would literally every day be paid into the bank, by the one operation, and the same sumn drawn out by the other. It so happens, however, in practice, that the man who has a bill to retire, has very often, on the same day, a bill to get discounted : in this manner, instead of giving one sum, and receiving another, the two fums are compared together, and the man only gives or receives the balance. But it is very evident that this common way of retiring one set of bills by discounting another, in no refpect alters the nature of the case. It is still true, in fact, that a quarter of a million has been paid, and a quarter of a million drawn, though these payments and drawings may, to a certain degree, have balanced one another, without the acłual trouble of counting and transferring the money.


We may now discern a fact, the consequences at least of which Mr Henry Thornton and his disciples have entirely overlooked. Let us suppose, while the bank is going on in her accustomed course, discounting bills at the rate of 250,000l. a day, that a demand for guineas comes upon her to the fume amount ; and that her daily iflues are immediately paid back for gold. What is the consequence of this ? First, her fifteen millions of notes in circulation, are reduced 250,00ol., or a quarter of a million. If the resolves to keep up her 15 millions, she must immediately reiflue, in the discounting of additional bills, the notes which have been thus returned. On the first day, therefore, of the demand for guineas, while the usual quantity of bills, to the amount, namely, of a quarter of a million, have been retired, she has discounted double that quantity. Another consequence, then, is, that, at the end of this first day, she has added a quarter of a million to the amount of bills in her coffers, while the sum of her notes in circulation remains the same. By the same operation on the second day, she adds to her bills another quarter of a million; and the effect is every day repeated, till, at the end of fixty days, the amount of her bills is fairly doubled ; that is to say, the bank ha then extended her loans from 15,000,00cl. to 30,000,cool.,-on half in her own notes, the other half in gold and silver.

Here, however, a very important question suggests itself. Whence is this extraordinary quantity of bills for discount t come? Or what possible use can there be in thus extending th discounts of the bank, for the sake of maintaining a certain quar tity of notes in circulation ? To this question Mr Thornton h: an answer very ready, and an answer on which he seems to la the greatest stress. The consideration of it will enable us to di cover the whole mystery of his reasoning. He enters into a lor


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