precious metals as it needs for the purposes of ordinary retail trade and exchange. The amount which it retains of these metals is increased as its home-trade increases, but is diminished by economies in the substitution of symbols for coin. Thus the general use of cheques has tended to diminish the amount of specie circulating in a country, and, were one-pound notes adopted, a further economy would ensue, in so far as such notes when put into circulation represented a larger sum than might be retained by the bank which issued them and was bound to exchange them on demand for gold. There is reason to believe then that the amount of specie circulating within a country varies little from year to year; for, as we have seen before, there is no motive to increase its amount, every motive to reduce it to the least possible quantity consistent with the fulfilment of those functions for which money is adopted as a measure of value. It is possible that at the beginning of the present century there was nearly as much metallic money in England as there now is; for although the population has doubled, and the wealth of the country has grown in a far greater proportion, it is very likely that the enlarged demand for money is compensated by the increased use of banking and drawing facilities, and the abandonment of the habit of hoarding, a practice which was very general sixty and seventy years ago.

The ordinary supply then of gold and silver, in so far as it is employed in the arts, and employed for the purposes of an internal currency, is effected in the same way as that by which other wants are satisfied. It does not seem that these quantities of the precious metals can be materially diminished, just as they will not be materially

increased. There may be, as there was during the great continental war, a demand for specie in order to pay troops; and if paper can be substituted for gold and silver, a drain upon the metallic circulation may take place. But in the absence of such a substitute, but little of these metals will pass out of the home circulation. Dealers in the precious metals find it possible to trench on other resources, the amount of which is far less than that in circulation, but which is far more open to these influences. Gold and silver will hardly be extracted from circulation, except in some slight degree, and usually by offering a premium on them in the shape of imports at a reduced price. But persons who need to export money can obviously procure gold in exchange for notes, and thus by contracting the paper circulation, and thereupon by putting an additional strain on the metallic currency, render any effect on the latter increasingly remote and difficult.

A paper circulation purports to give the holder of the note a right to demand the sum specified in the note at his pleasure. Under no other circumstances will paper circulate at par, i. e. be exchanged at the sum which it represents. If the paper has a forced currency, it will circulate only because the solvency and good faith of the issuing parties is trusted; if it be suspected, or the prospect of redeeming the note be distant, it will circulate at a depreciated rate, this rate appearing in the country which uses the note in a rise in prices, and in transactions with foreign countries in an adverse state of the exchanges. For example, the par of exchange, omitting fractions, between England and France, is twenty-five francs, = £1. If however French notes were inconvertible and had a forced circulation, and the suspicion or risk

attending on the use of the paper amounted to twenty per cent., the prices of articles purchased in the French market would rise by this or more than this amount, and it would take thirty-one francs, speaking roundly, in paper, to procure an English sovereign. This rise in the value of gold, or, to be more exact, fall in the value of inconvertible is manifested in the national currency paper, of the United States. The discredit attaching to this paper at one period was so considerable that it took more than 280 paper dollars to procure 100 gold dollars. But with the return of peace, and with an abundant revenue, the government was able to grapple with its public debt and its state paper, and to offer a prospect that ere long it might be able to meet the over-issue and resume payments in gold.

As we have seen above, banks of issue find it possible to circulate a far larger amount of paper than the gold on which the paper is based. A bank, for example, may in ordinary times circulate £30,000,000 of notes, and be quite safe from risk if it retains only £10,000,000 of specie, i.e. has its metallic assets only one-third of its liabilities. It takes care of course, if it is dealing honestly with those who use its notes, that the remainder of its liabilities are covered by property, i.e. by bills of exchange arriving at maturity, or by quantities of government securities. It is only obliged to have all its assets in such a position, as that they can be easily convertible into specie.

Now it is plain that if it become necessary to transmit a portion of this gold upon which notes are issued, that it is only necessary to present a certain number of these notes in order to get gold in exchange. But it is also clear that if any notable portion of this gold is abstracted,

the bank is by so much nearer the position in which its notes bear a high proportion to the specie on which they rest. If the bank then be not empowered to issue notes on government or other securities, it must not only (to maintain such a proportion as that which has been referred to, and which is assumed to be generally necessary in order to sustain the reputation of the bank) diminish its circulation by all the notes returned on its hands, but by more than this amount, i.e. by just so much more as will restore the equilibrium. Thus, for example, if the ordinary circulation be £30,000,000, the ordinary amount of specie £10,000,000, the rest being held say as £10,000,000 of public and £10,000,000 of private securities; and £4,000,000 of gold be abstracted from the reserve, the bank must, to keep itself safe, reduce its public or private securities, or both, by £8,000,000, as well as curtail its notes by £4,000,000. That is, in the event of such an operation, its circulation would fall from £30,000,000 to £18,000,000. In its own interest, however, it would rather lower the amount of its private securities, than resort to a sudden or large sale of its government stock. In practice, too, the inconvenience which would ensue from curtailing the accommodation of the bank, will induce the public to be content with an over-issue of notes, provided always that this overissue be based upon a security which is readily convertible into specie. The customers of the bank will agree, either formally as they did in 1797, or informally as on many other occasions, to accept and circulate notes, even though the metallic basis be fallen to a very low amount. Experience teaches them that when trade is profitable and credit good, the most rapid and alarming efflux of bullion from any country will be speedily followed by a reflux.

The same reasoning which induces persons to economize their stock of the precious metals, instructs them also in the fact that large accumulations of specie are mere hoards from which no economical profit is derivable.

We shall however see that during the course of this operation, by which the metallic reserves of a country are diminished, great injury to traders is certain to temporarily ensue, and that the phænomena of straitened supply and urgent demand are as fully manifested as they are when society is straitened by a dearth in the necessaries of life.

The

An efflux of specie may arise from many causes. purchases of a country may be speculative; or the public may be constrained to buy large supplies of food, in consequence of deficient harvests; or capitalists may have invested largely in foreign loans; or sometimes the credit of a country has been temporarily suspected, and it is therefore necessary to make larger specie payments than heretofore; or a country may be forced to make large purchases of raw material or finished goods in other countries, which do not deal conversely with it. All these causes may produce such a result.

The illustration of these phænomena would however be too lengthy for an elementary work. They have all been exhibited in a marked form within the present century, and have all, as occasion has arisen, created serious embarrassments. It is with the last named case that we are principally concerned.

The object of a merchant is to use his capital as completely as possible. He imports goods, and gives bills to such countries as receive and negotiate bills; he exports goods and draws bills on his customers. The same facts