so: 
 
 X< 
 
 


MONET 
 
 BY 
 
 CHAELES MORAN. 
 
 " The two greatest inventions of the human mind are writing and 
 money, the common language of intelligence, and the common lan 
 guage of self-interest." MARQUIS DB MIBABEAU. 
 
 YORK : 
 D. APPLETON AND COMPANY, 
 
 443 & 445 BPwOADWAY. 
 LONDON: 16 LITTLE BRITAIN. 
 
 1863. 
 
ENTERED, according to Act of Congress, in the year 1863, by 
 
 D. APPLETON & CO., 
 
 la the Clerk s Office of the District Court of the United States for the 
 Southern District of New York. 
 
PREFACE. 
 
 NOTES originally commenced to be used in discus 
 sions at the meetings of the Society for the Advance 
 ment of Political and Social Science, lately organized 
 in this city, gradually assumed the form of the present 
 work, which is an attempt to analyze and discuss 
 the subject of Money, in its most important, practical 
 phases, more fully than has been done in any of the 
 works that have, as yet, fallen into the hands of the 
 writer. 
 
 The conclusions arrived at appear to explain and 
 reconcile all the anomalies that, heretofore, have ren 
 dered money so vexed a subject. The views expressed 
 in this work in regard to the relative value of gold and 
 silver, and the effects of the large influx of gold from 
 new mines, were published in the local press as early 
 as 1851. Every prediction then made on this subject 
 has been fully realized, while not one of those made 
 by the partisans of the theory of the future deprecia 
 tion of gold and appreciation of silver has been ful 
 filled. The conclusions in regard to the effect on prices, 
 of bank-note issues, were arrived at and communicated 
 
 M 9790 
 
IV PREFACE. 
 
 to friends long before reading the able works of Fullar- 
 ton and Tooke, in which similar views are maintained. 
 This is mentioned here, not so much to claim the merit 
 of originality for these conclusions, as with a view to 
 obtain for them the weight due to conclusions arrived 
 at by different parties, examining the same subject from 
 different points of view. 
 
 The constantly increasing division of labor daily in 
 creases the exchanges of commodities and services, in 
 which money plays so important a part. The subject 
 of money is, therefore, supposed by the writer to be of 
 sufficient general interest to warrant the publication 
 of the present work. If it shall aid in dissipating any 
 of the numerous errors and prejudices so long connected 
 with money, and thus increase the power of this in 
 strument to further the well-being and progress of 
 humanity, the object of the writer will be attained and 
 his labors amply compensated. 
 
 NEW YORK, April 20, 1863. 
 
CONTENTS. 
 
 CHAPTER I. 
 
 Materials used as money Coins of antiquity and of the middle ages Debase 
 ment of money in the middle ages, 7 
 
 CHAPTER II. 
 
 Banks of deposit Banks of circulation Opinions of the economists on the sub 
 ject of money Principles that control money Money is a representative is con 
 stantly mistaken for the things it represents Expense of coinage Precious metala 
 both capital and representatives of capital Money the measure of value of all 
 things except itself To perform successfully its indispensable functions, money 
 must be universally accepted Coining money does not establish its value The 
 most important function of money is to represent services rendered, . . 15 
 
 CHAPTER III. 
 
 Ideas of various authors in regard to money what regulates value Opinions 
 of economists in regard to value of money Effect of increased productions of the 
 precious metals on the value of money, 31 
 
 CHAPTER IV. 
 
 Opinions of economists and others in regard to relative value of gold and silver 
 Power of governments to regulate relative value of gold and silver Examples in 
 the United States and in England Opinion of Sir Isaac Newton Relative value 
 of gold and silver at different epochs Cause of appreciation of gold and deprecia 
 tion of silver Opinions of Michel Chevalier in regard to effect of increased pro 
 ductions of gold Variations in value of gold and silver since the discovery of 
 Californian and Anstral an gold mines Exports of silver from France Error of 
 Great Britain in demonetizing gold in India, 39 
 
 CHAPTER V. 
 
 An increased production of gold cannot appreciate the value of silver Opinions 
 ofM c-hel Chevalier and other economists in regard to the relative value of gold 
 and silver Gold coins without fixed vnlues Relative production of gold a;id silver 
 Belgium rcadopts gold after demonetizing it Both metals advantageous as 
 money Neither can well be dispensed with Disadvantages of a sirgle standard 
 Exchange of silver for gold in France Conclusions in regard to metallic money 
 Proper remedy for variations in relative value of gold and silver Proposed uni 
 versal system of coinage, 56 
 
Vi CONTENTS. 
 
 CHAPTER VI. 
 
 Paper money Difficulty in the way of its universal use Government paper 
 money in France Law s Bank Assignats Government paper money in Russia 
 
 In the United States, 70 
 
 CHAPTER VII. 
 
 Bank issues in Scotland In the United States, 91 
 
 CHAPTER VIII. 
 
 Principles governing paper money Money as used in modern civilized commu 
 nitiesmoney need not possess intrinsic value Money redeemed by commodities 
 and services Government paper money cannot perform the proper functions of 
 money Bank notes preferable to Government paper money Money must repre 
 sent existing commodities and services Beneficial functions of the banks Banks 
 do not make several issues of notes based on same property demand for money 
 by commerce and industry not unlimited, 107 
 
 CHAPTER IX. 
 
 Effects of volume of currency on prices Effects of American mines in 16th cen 
 tury Effects of issues of bank notes in England Speculations not caused by bank 
 expansions Bank expansions only necessary to arrest fall of prices after a specu 
 lative movement effects of a limitation of the currency on its value limitation of 
 issues of Bank of England momentary effects of limitation of issues and of bank 
 contractions specie redemption of bank notes Prices cannot rise so as to stop 
 exports of commodities while they exist in excess of local wants effects of a depre 
 ciated paper currency on exports of commodities Specie exports Fears of inade 
 quate supply of gold and silver groundless Money only sought as means of sup 
 plying wants English " currency principles " Prices not affected by variations in 
 the volume of the currency as long as the community have full confidence in it 
 Huskisson s views in regard to money, 126 
 
 CHAPTER X. 
 
 Paper money as yet far from perfect will become the universal means of effecting 
 exchanges Bank of England Suspension of 1696 Runs on the Bank in 1720 and 
 1745 Suspension of 1797 effects of suspension and increased issues on prices 
 Price of gold and issues of bank notes during suspension Cause of rise of prices 
 during suspension, and of fall of prices after resumption Crisis of 1825 Bank act 
 of 1844 Crisis of 1847 and first suspension of act of 1844 Crisis of 1857 and second 
 suspension of act of 1844, 154 
 
 CHAPTER XL 
 
 Volume of currency theory Credit performs the functions of money not however 
 always currency Circulation and loans of Bank of England from 1821 to 1847 
 Comments of London Economist, 203 
 
 CHAPTER XII, 
 
 Volume of bank issues self-regulating Banks of issue Banks of circulation 
 Effects of bad harvests on money market Duty of banks Prices greatly de 
 pendent on confidence London and New York clearing houses Bank notes can 
 successfully replace coin in all transactions, 213 
 
MONET, 
 
 CHAPTER I. 
 
 A CORRECT appreciation of the functions of money 
 and of the natural laws that govern it, is of vast impor 
 tance to humanity, from its universal use in the exchanges 
 of commodities and services ; exchanges becoming each 
 day more numerous and indispensable in consequence 
 of the constantly increasing division of labor. 
 
 Many things have been used at different times as 
 money : cowrie shells in Africa ; wampum by the 
 American Indians ; cattle in ancient Greece. The 
 Carthaginians used leather as money, probably bearing 
 some mark or stamp. Frederic II, at the siege cf 
 Milan, issued stamped leather as money. In 1360, John 
 the Good, King of France, who was taken prisoner by 
 the celebrated Black Prince and sent to England until 
 ransomed, also issued leather money, having a small 
 silver nail in the centre. Salt is the common money in 
 
8 MONEY. 
 
 Abyssinia ; codfish in Iceland and Newfoundland. 
 ".Living mpnQy^\ graves and oxen, passed current with 
 the Anglo-Saxons, in payment of debts.* Adam Smith 
 says that in" his day there was a village in Scotland 
 where it was not uncommon for workmen to carry nails 
 instead of money to the baker s shop and the alehouse. ( 
 Marco Polo found, in China, money made of the bark 
 of the mulberry tree, bearing the stamp of the sovereign, 
 which it was death to counterfeit. Tobacco was gene 
 rally used as money in Virginia up to 1660, fifty-seven 
 years after the foundation of that colony. In 1641 the 
 Legislature of Massachusetts enacted that wheat should 
 be received in payment of all debts ; and the Conven 
 tion in France, during the Revolution, on a proposition 
 of Jean-Bon-Saint Andre, long discussed the propriety 
 of adopting wheat as money, as the measure of value 
 of all things.^ Platina was coined in Russia from 1828 
 to 1845. But the metals best adapted and most 
 generally used as coin are copper, nickel, silver, and 
 gold ; the two first being now used for coins of 
 small value, to make change, and the two latter, com 
 monly designated " the precious metals," as measures 
 of value and as legal tenders. On the continent of 
 Europe, a composition of silver and copper, called 
 billon, has long been used for small coins, which are 
 made current at a much higher value than that of the 
 metals they contain. In Qhina, Sycee silver is the 
 principal currency, and is merely ingot silver of an uni 
 form fineness, paid and received by weight. Spanish 
 
 * Westminster Review, January 1, 1848. 
 
 f Wealth of Nations, vol. i, p. 31. 
 
 \ Die. d Economie Politique, Paris, Monnaie. Idem. 
 
MONEY. 9 
 
 dollars also circulate there, but only after they have been 
 essayed and stamped as proof that they are of the 
 standard fineness.* 
 
 As Asia Minor produced gold, its earliest coinage 
 was of that metal. Italy and Sicily possessing copper, 
 bronze was first coined there. Herodotus says the 
 Lydians were the first people known to have coined gold 
 and silver. They had gold coins at the close of the 
 ninth century B. c. ; Greece Proper only at the close 
 of the eighth century B, c. Servius Tullius, King of 
 Kome, made the pound weight of copper current money. 
 The Romans first coined silver 281 B. c., and gold 
 207 B. c. 
 
 At the time of the invasion of Britain by Csesar, 
 the ancient Britons had coins of tin, iron, brass, and 
 gold. The Anglo-Saxons coined silver and brass, but 
 the Norman monarchs rejected the latter, and fur a long 
 time silver was the sole metal coined. William the 
 Conqueror issued uo coins but silver pennies or " ster 
 lings." Henry III first coined gold, in pennies weigh 
 ing rloth of a pound tower, which passed for 20d. 
 Henry VII first coined silver shillings. Silver half 
 pence and farthings were coined from the time of 
 Edward I to Edward VI. Their small size, particu- 
 
 * " There is no coined silver or gold currency in China ; the only money 
 taken being a copper coin, called cash, of small value, 1,700 representing a 
 Spanish Carolus dollar. Silver, therefore, in bulk, at its pure touch of 100 per 
 cent., takes the place of a coined measure of value, being divided into the 
 Government standard weights called tael, mace, cash, candareem, each 
 having a decimal proportion to the other ; and thus a nominal money is 
 created, although more properly these terms are merely denominations of 
 weight. " (Report of Mr. Consul Robertson on the trade of the port of 
 Shanghai for the year 1855, quoted in Tooke s History of Prices, vol. vi, 
 p. 679.) 
 
 1* 
 
10 MONEY. 
 
 larly after the reduction of the weight of the silver 
 coins, caused them to be discontinued ; and James I 
 directed farthing tokens of brass and copper to be 
 struck, but they were of such inferior value that they 
 soon fell into disuse. The first copper coinage in Eng 
 land was in 1672, under Charles II, who also coined 
 tin in 1684. James II attempted to give currency to 
 gun metal and pewter, but the attempt was soon given 
 up. Henry VII, in 1489, coined the first sovereigns, 
 of gold 23 carats 3 fine. Henry VIII, in 1544, coin 
 ed half, quarter, and eighth sovereigns, of the present 
 standard of 22 carats fine. Charles II, in 1675, coined 
 the first guinea, called thus because made of African 
 gold. 
 
 In 1797, during the suspension of the Bank of Eng 
 land, the deficiency of the silver coinage was so great in 
 England, that it was attempted to be supplied by the 
 issue of Spanish dollars, stamped with the mark of the 
 king s head. They were issued at 4s. 9c?., but were 
 called in again in the course of the year ; but the prac 
 tice was resumed at various periods during the war. In 
 1811 the Bank of England was permitted to strike and 
 issue silver tokens, to pass current for 5s. 6d. } 3s., and 
 Is. 6d* 
 
 The sovereigns of Europe extensively falsified the 
 moneys they coined, by diminishing their weight and the 
 fineness of the metal they were made of, to facilitate 
 the liquidation of their debts. Under Servius Tullius, 
 550 B. c., the as or pondo contained a Koman pound 
 of copper. In 175 B. c. it had been reduced to | oz. 
 or aV th part of its original weight. The livre in France, 
 
 * Macleod, Theory and Practice of Banking, vol. i, p. 168. 
 
MONEY. 11 
 
 under Charlemagne, contained 12 ounces of pure silver, 
 but was gradually reduced by his successors, particu 
 larly by Philip le Bel * and by the first sovereigns of 
 the house of Yalois. John the Good made seventy-one 
 alterations in the value of the coin in nine years, alter 
 nately increasing and decreasing the quantity of pure 
 metal it contained. For example, by an edict of Novem 
 ber 27, 1359, the marc of pure silver was ordered to be 
 coined into 18 livres ; by an edict of January 22, 1360, 
 into 54 livres ; March 21, 1360, into 125 livres ; March 
 31, 1360, into 12 livres ; April 25, 1360, into 16 livres ; 
 May 28, 1360, into 12 livres ; June 29, 1360, into 20 
 livres ; &c., &c.f To appreciate fully the effects of 
 these fluctuations in the value of the coin, it must be 
 remembered that after a currency has been for a time 
 depreciated, as much injustice is done by raising, as was 
 previously done by depressing its value. Philip le Bel 
 
 * "In January, 1311, a new debasement of the coin, which lasted 
 until September, 1313, reduced the livre to frs. 13.66. This standard was 
 followed by another that raised the livre to frs. 18.37, which was establish 
 ed at the moment when an extraordinary subsidy was to be levied, to which 
 Philip le Bel became entitled by the custom of those times, on the occasion 
 of his eldest son s being made a knight. Philip le Bel, at his death, left 
 the livre at about f^ths of its value at the moment of his accession to the 
 throne, but in the mean time he had caused it to alter in value twenty-two 
 times in the last nineteen years of his reign ! He had designed to reestab 
 lish the finances, whereas he only succeeded in destroying many private 
 fortunes, in causing the royal authority to fall into contempt, in exciting 
 intestine hatreds, and in producing a bloody riot in the streets of Paris." 
 (Natalis Wailly, Researches on the Monetary System of St. Louis, quoted 
 in the Journal des Economistes of Paris, September, 1862.) 
 
 Dante says of Philip le Bel : 
 
 " La si vedra il duol che sopra Senna 
 Induce, falseggiando la moneta." (Par. xix.) 
 
 f E. Cartier, Revue Numismatique of Paris, 1838, pp. 104-108. 
 
12 MONEY. 
 
 coined gold 22 carats fine ; Philip de Valois coined it 
 23, 22, and 21 carats fine ; John the Good. 21 and 18 
 carats fine. Charles V, surnamed the Wise, restored 
 the coin to a fixed weight and fineness, under the advice 
 of Nicole Oresme, Bishop of Lisieux, who wrote an 
 admirable treatise, published both in Latin and French, 
 on the origin, nature, functions, and mutations of money, 
 in which he says : " If the truth were not maintained in 
 regard to the weight and fineness of the coin, it would 
 be a vile falsehood and a fradulent deception. It is just 
 and proper for a sovereign to condemn and punish 
 false coiners. But what if he himself commits that 
 which it Js his duty to punish with death in others ? 
 The coin does not belong to the sovereign, but to those 
 who possess it. Neither sovereign nor state has the 
 right to alter the value, weight, or fineness of money. 
 The effigy of the sovereign or the stamp on the coin is 
 a proof of its weight and quality. A sovereign who 
 alters the value of the coin in weight or fineness is a 
 liar, commits perjury, and bears false testimony." * The 
 falsification of the coin was, however, continued in 
 France till the beginning of the reign of Louis XV. 
 The reduction of the livre from 1497 to 1L02 was from 
 2,225 to 1,203 centigrammes of pure silver. In 17 s 9 
 the livre only contained y/g^ths of the pure silver it 
 contained in the time of Charlemagne. 
 
 In England the coin was also debased by the sover 
 eigns. From the Conquest to the present time, how 
 ever, all the English silver coins are of the standard 
 of 11 oz. 2 dwts. fine and 18 dwts. alloy, except for the 
 short period of sixteen years, from the 34th Henry VIII 
 
 * Journal des Economistes, Paris, September, 1862, pp. 372, 373. 
 
MONEY. 
 
 13 
 
 to the 2d Elizabeth, during which the standard was 
 greatly debased. " Henry VIII stands recorded with 
 infamy as the first English sovereign who debased the 
 sterling fineness of the coins." * The shilling of Wil 
 liam the Conqueror contained 266 .-V grains tower 
 or 249 J grains troy of pure silver. It was reduced 
 by Edward VI, in 1550, to 21J grains tower or 20 
 grains troy. In 1552 it was made to contain 94-,-V 
 grains tower or 88 F 4 o grains troy. The English mint 
 used the tower pound until the 18th Henry VIII, 
 when it was replaced by the troy pound, which has 
 been used ever since, and is f oz. heavier than the 
 tower pound. 
 
 The following table exhibits the various modifica 
 tions made in the silver coinage of England : 
 
 
 Standard, _ Standard 
 
 [ver coined 
 
 per pou id 
 Troj. 
 
 Grains Troy 
 of stanrtaH 
 silver in one 
 penny. 
 
 Grains Tror 
 if fine silver in 
 one penny. 
 
 Conquest. A. D. 1066 
 28 Edward I, " 1300 
 18 Edward III, " 1344 
 
 11 oz. 2 dwt. 
 
 20*. Orf. 
 20 3 
 22 2 
 
 
 22* 
 
 20.81 
 
 20.55 
 1863 
 
 20 " " 1346 
 
 22 6 
 
 
 20 
 
 18.50 
 
 25 " " 1350 
 
 
 25 G 
 
 
 18 
 
 16.65 
 
 13 Hen rv IV, " 1412 
 4 Edward IV, " 1464 
 
 
 80 
 37 6 
 
 
 15 
 12 
 
 13.87 
 11.10 
 
 18 Henry VIII, " 1526 
 34 " " 1543 
 
 10 oz. dwt. 
 
 42 2i=45s. Otf. 
 
 48 
 
 10 
 
 9.87 
 8.33 
 
 36 " " 1544 
 
 6 
 
 
 48 
 
 10 
 
 5 
 
 37 " 1545 
 
 4 
 
 
 48 
 
 10 
 
 3. "3 
 
 3 Edward VI, " 1549 
 
 6 
 
 
 72 
 
 6f 
 
 8.33 
 
 4 " " 1550 
 
 3 
 
 
 72 
 
 6| 
 
 1.67 
 
 6 u 1552 
 
 11 1 
 
 
 60 
 
 8 
 
 7.37 
 
 1 Elizabeth, " 1558 
 
 11 2 
 
 
 60 
 
 8 
 
 7.50 
 
 43 " " 16!)1 
 56 Georee III, " 1816 
 
 11 2 
 11 2 
 
 
 62 
 64 
 
 ?! 
 
 7.16 
 6.727 
 
 Pure gold is said to be 24 carats fine. The carat 
 is an Abyssinian weight divided into 4 grains, and the 
 grains into quarters. A carat grain is equivalent to 
 
 Ruding, Annals of Coinage, vol. i, p. 300. 
 
14 MONET. 
 
 2^ dwts. When gold coins were first made at the 
 English mint, the standard of the gold put in them 
 was 23 carats 3J grains fine, and | grain alloy ; and so 
 it continued without any variation to the 18th Henry 
 VIII, who in that year first introduced a new stand 
 ard of 22 carats fine and 2 carats alloy. Henry VIII 
 made his gold coins of both these standards, and this 
 practice was continued by his successors until 1633. 
 From that period to the present time, the gold of which 
 the coins of England have been made has invariably 
 been of the new standard of 22 carats fine. Standard 
 gold has been coined in England since 1717 into 31. 17s. 
 lOid. per oz. By the act of 1844, the Bank of Eng 
 land is obligated to purchase all the gold bullion and 
 foreign coins of standard fineness at 31. 17 s. $d. per oz. 
 The debasement of the coins was universal during 
 the middle ages. In Scotland, previous to 1296, the 
 pound of silver was coined into 20 shillings. In 1601, 
 36 or 720 shillings, were coined out of the same quan 
 tity. The gold ducat or sequin, when first coined in 
 Venice in 1284, was equivalent to 3 Italian livres ; 
 to-day it would be worth 22 livres. The florin, origi 
 nally a gold coin of the value of about 10 shillngs 
 sterling ($2.50), is now a silver coin worth about 20 
 pence sterling (40 cents). The Spanish coin maravedi, 
 in 1220 weighed 24 grammes (370 grains troy) of gold ; 
 it is now a small copper coin equal to aVV of an English 
 penny. The Russian rouble of 1700 is worth 2 T Vo of 
 the roubles of 1821. 
 
CHAPTEE II. 
 
 IT was the constant alteration by the sovereigns 
 of the weight and fineness of the coins, as well as their 
 depreciation by wear and by clipping, that gave rise 
 to the ideal money of account of the banks of Venice, 
 Genoa, Amsterdam, Hamburg, &c. These institu 
 tions received all kinds of coin on deposit, but only 
 credited the depositors with their actual weight of 
 fine metal, by reducing them to the weight and fineness 
 of their ideal money of account. These moneys of 
 account were alone received in payment of debts due 
 to the banks, and, for a long time, were at a consider 
 able premium. The reason for this premium is very 
 evident from the fact that the general average value 
 of the coins circulating in Amsterdam in 1609, when 
 the Bank of Amsterdam was founded, was 9 per cent, 
 below their standard value. * The certificates of de 
 posit issued by these banks, finally suggested the use 
 of bank bills as money. The first bank bills that cir 
 culated as money were those of the Bank of Stockholm, 
 established in 1668. They were mere receipts for coin 
 deposited with the bank, but by a law of 1726, they 
 were made receivable in payment of all bills of exchange. 
 
 * Encyc. Britannica, Money. 
 
16 MONEY. 
 
 The first institution, however, that was legally author 
 ized to issue bank bills payable to bearer at sight, was 
 the Bank of England, founded in 1694. 
 
 There is to-day a greater difference of opinion on 
 the subject of money, than on almost any other subject 
 treated of by the economists. Bastiat, in his little 
 pamphlet entitled " Maudit Argent," makes an econo 
 mist say : " I curse money because it is constantly con 
 founded with wealth, and from this confusion arise errors 
 and calamities without number. I curse it because its 
 functions are ill understood and very difficult of com 
 prehension. I curse it because it confuses all ideas, 
 causes the means to be mistaken for the end, the ob 
 stacle for the cause, alpha for omega ; because its 
 presence in the world, beneficial in itself, has introduced 
 a false notion, a begging of the question, a fallacious 
 theory that, in its numerous ramifications, has impov 
 erished man, and encrimsoned the earth with blood. 
 I curse it because I feel myself incapable of wrestling 
 against the errors to which it has given birth, other 
 wise than by a long and fastidious dissertation to which 
 no one will listen." 
 
 To appreciate clearly the functions of money and 
 the natural laws that govern it, it becomes necessary 
 to establish a few preliminary principles. 
 
 Wealth and utility are synonymous terms so are 
 value and capital. But wealth and capital utility 
 and value are not synonymous terms, although con 
 stantly used as such by most persons. It is not the 
 utility of a thing itself that constitutes its value, but 
 the usefulness (not the amount) of the human labor 
 and intelligence incorporated in the thing at the time 
 
MONEY. 17 
 
 when it is sold. Water is indispensable to man, and 
 yet water has actually no value, notwithstanding its 
 great utility. But the labor of bringing water from a 
 distance to the hands of those who need it, has to be 
 remunerated, and this often gives value to water. In 
 such a case, the price paid for the water is the mere 
 remuneration of the human labor incorporated in the 
 water, and thus saved to the purchaser. The water 
 itself is one of the innumerable bounties bestowed on 
 man by the Creator, all of which ever remain gratui 
 tous, no matter through how many hands they may pass, 
 except when human monopolies, the fruit of human 
 laws, intervene. 
 
 The labor incorporated on things, and thus saved to 
 those who acquire them, is what constitutes value or 
 capital. Nothing is capital but the existing results of 
 previous labor that can contribute to man s enjoyment 
 and well being. This analysis of capital shows the 
 correctness of the theory of Bastiat, that all exchanges 
 are mere exchanges of services. 
 
 Money is not capital, but a mere representative of 
 capital, although the material of which it is made may 
 be capital when not used as money. Capital is sought 
 with a view to be consumed or retained, whereas money 
 is only sought as means of obtaining useful commodities 
 and services ; in other words, men seek money only be 
 cause it is universally accepted in exchange for com 
 modities and services, which it therefore represents. 
 But representatives are constantly confounded with 
 the things they represent, and this is particularly 
 the case with gold and silver and paper money. In 
 consequence of having been at first used as commodi- 
 
18 MONEY. 
 
 ties, at their value for consumption, although, now gen 
 erally used as representatives of capital, as means of 
 obtaining commodities and services, the precious metals 
 are still generally looked upon as capital itself in fact, 
 as the only true capital* This is carried to such an 
 extent that we are elated at an arrival of $1,000,000 
 in coin from any quarter ; while we are alarmed at an 
 arrival of $5,000,000 in commodities indispensable to 
 the welfare of the community, because we fear it may 
 lead to the exportation of a portion of our dearly 
 prized gold and silver, in exchange for the commodi 
 ties ; and yet it is evident that the only use of coin or 
 money is to obtain with it the things useful to human 
 ity ! Of what use is money where there are no com 
 modities or services to exchange ? The idea that money 
 alone is real capital or wealth, has undoubtedly dimin 
 ished the general welfare and progress of humanity, by 
 diverting its attention from industry, the sole source 
 of all capital. The same idea originated the celebrated 
 mercantile system, f first introduced by the Emperor 
 
 * "Gold and silver being useful for other purposes besides serving for 
 currency, have a certain intrinsic value, and for that reason alone they are, 
 to a certain extent, wealth in themselves. Many persons who cannot dis 
 criminate the simple ideas involved in one complex one, entertain very 
 erroneous opinions on this subject, and are apt to consider money and 
 wealth as convertible terms. Gold and silver, however, derive their chief 
 value from their peculiar fitness to form a currency, and they are less use 
 ful for general purposes than almost any other metal." (Macleod, Theory 
 and Practice of Banking, vol. i, p. 35.) 
 
 f " According to the crude ideas that were generally received about a 
 century ago, gold and silver were almost universally considered to be near 
 ly the only species of wealth, and it was considered to be the true policy of 
 every country to encourage, by every means in its power, the influx of 
 bullion, and to discourage its export ; and most, if not all, of th^e European 
 nations have gone so far, at one time or another, as to prohibit its export. 
 
MONEY. 19 
 
 Charles V, iii the relations between Spain and her 
 colonies, and subsequently introduced by Colbert in the 
 relations between nations ; a system most injurious to 
 all, and yet gradually adopted by all nations, and still 
 retained by them to a greater or lesser extent. 
 
 It is evidently this idea, that gold and silver are 
 the only true wealth, that induced England, since the 
 18th Charles II, to coin the precious metals without 
 charge to the owners of the bullion deposited at the 
 mint a custom which has most improperly become 
 general among nations ; for coining money is a service 
 rendered to the owners of bullion, who should, there 
 fore, bear the expense, and not the community at large. 
 Mr. Mushet, in his evidence before a committee of the 
 House of Lords in 1819, stated that gold could be coin 
 ed at the English mint for one half of one per cent., 
 and silver probably for one and a half per cent. In 
 France the expense of coining has been reduced for 
 gold to 6 francs for every 3,100 francs, or 0.193 per 
 cent.; for silver, to 75 centimes for every 100 francs, or 
 per cent. In Russia it costs T W per cent, for gold and 
 
 The profit of foreign commerce was estimated solely by the quantity of 
 gold and silver it brought into the country ; and the theory of commerce 
 seemed to be reduced to a general scramble among all nations, to see 
 which could draw to itself most gold and silver from the others. Accord 
 ing to this theory, the gain of one party was the loss of the other ; every 
 article produced in another country, and imported into this one, was con 
 sidered a direct loss to the country. This was what was called the mercan 
 tile or commercial system." 
 
 " So far from the principle of the mercantile theory being true, that 
 gold and silver are the most profitable and desirable object of import, the 
 direct reverse is unquestionably true, that gold and silver are, of all objects 
 of commerce, the most unprofitable." (Macleod, Theory and Practice of 
 Banking, vol. i, pp. 297-299.) 
 
20 MONEY. 
 
 2 T Vo per cent, for silver.* In the United States f the 
 estimated expense of coinage is : 
 
 At Philadelphia, 2 T Y 7 per cent., all metals included. 
 
 Ne w Orleans, 6 A 8 , " " " 
 
 North Carolina, 9 " " " 
 
 Georgia, 9 f Vo " " " 
 
 Man, in his operations for his own individual account, 
 rarely commits the error of confounding capital and its 
 representatives, because this would be fatal to his own 
 well being. An individual never borrows money to re 
 tain it as direct means of enjoyment : he invariably 
 seeks money as means of obtaining, by exchange, those 
 things which contribute, per se, to his enjoyment or well 
 being. An intelligent man never long retains money 
 on hand. He invariably exchanges it for useful or pro 
 ductive things. But in their collective capacity, as 
 legislators and theorists, where the results of their ac 
 tions and theories fall principally upon others, men con 
 stantly assert and act on the theory that capital and 
 money are identical. if 
 
 Of all the representatives of capital and services, 
 gold and silver have been the most generally used. 
 They were undoubtedly first resorted to by merchants 
 as mediums of exchanging commodities, from their gen 
 eral use for ornaments, which gave them a current value 
 everywhere. The scarcity of these metals also gave 
 
 * Encyc. Britannica, Money. 
 
 f Report of Committee on Commerce of House of Representatives, 
 September, 1850. 
 
 jf. " Gold and silver, though they serve for few, yet they command all 
 the conveniencies of life, and therefore in a plenty of them consists riches." 
 (Locke, vol. v, p. 12, London edition, 1823.) 
 
MONEY. 21 
 
 them a great value in a small volume, another great 
 advantage they offered as means of exchanging commod 
 ities. At first the value of gold and silver was entire 
 ly regulated by their value at the silversmith s, for mer 
 chants then only used the precious metals as commodi 
 ties, easily bartered everywhere for any other commod 
 ity desired ; and as long as this was the case, their 
 value followed the same law as the value of other 
 commodities. But experience having demonstrated 
 that gold and silver were admirable instruments for 
 facilitating the exchanges of commodities and services, 
 they were each day more and more used for that pur 
 pose alone, without the slightest view to consumption ; 
 and this change in their use, from commodities for con 
 sumption to mere counters representing commodities 
 delivered or services rendered, was so gradual and im 
 perceptible that to this day it is generally believed, even 
 by economists of eminence, that the value of gold and 
 silver entirely depends on their intrinsic value, or on the 
 amount of labor required to produce them.* But this 
 evidently is an error, for as soon as the use of gold and 
 silver as coin, as representatives of commodities, became 
 infinitely greater than their use as commodities, their 
 value as coin, as instruments of exchanges, regulated 
 
 * Mr. Senior, in one of his lectures on the value of money, observes : 
 " The value of the precious metals, as money, must depend ultimately on 
 their value as materials of jewelry and plate ; since if they were not used 
 as commodities, they could not circulate as money." (Tooke, History of 
 Prices, vol. v, p. 224.) 
 
 Mr. Senior had evidently in view only the original cause which led to 
 the use of the precious metals of their use as commodities easily bartered 
 everywhere : he entirely ignored their use as counters representing com 
 modities and services. 
 
22 MONEY. 
 
 their value as commodities. Should either metal ever be 
 more useful or more sought for as a commodity than as 
 money, it would soon disappear from circulation as coin, 
 no matter what efforts might be made to retain it as coin ; 
 but so long as they are mostly used as money, gold and 
 silver as commodities will always be worth the value given 
 them as coin, the delay and expense of coining alone de 
 ducted ; for no one will ever sell the precious metals as 
 bullion, at less than their value as coin, so long as they 
 can be coined and used as money ; nor will any cne ever 
 pay more for gold and silver as commodities, than their 
 value as coin, so long as they can be obtained by melting 
 the coin. This is well established by the fact that all the 
 precious metals used in the arts are paid the exact value, 
 neither more nor less, that they are worth as money. 
 
 As commodities, gold and silver are capital \ but as 
 money, they are mere representatives of commodities, 
 of capital itself. It is this double function of gold and 
 silver, as commodities and as representatives of commod 
 ities, that has confused all the economists and writers 
 on the subject of the precious metals. And it is from 
 not separating, from confounding these two opposite 
 and entirely different attributes of the precious metals, 
 that have arisen most of the erroneous theories in regard 
 to their value.* It is from considering metallic money 
 as capital that Macleod arrives at the absurd conclusion 
 that credit is capital.f " Money is capital money 
 
 * " But there will be found to be no inconsiderable difference, if we 
 distinguish as we ought to do, for the purpose whether of theory or prac 
 tice, between gold considered as merchandise, i. e., capital, and gold con 
 sidered as currency, circulating in the shape of coin among the public." 
 (Tooke, History of Prices, vol. iii, p. 224.) 
 
 f Theory and Practice of Banking, vol. i, p. 262 : " Hence as capital and 
 
MONEY. 23 
 
 commands and exchanges commodities and services 
 so does credit to a still greater extent therefore credit 
 as well as money is capital/ That this is the process 
 of reasoning by which he arrives at this absurd conclu 
 sion, is very evident from the fact that he says,* " a 
 
 credit perform exactly the same functions and are essentially of the same 
 nature the one being the symbol of past labor, the other of future labor, 
 but both being transferring power, it is not an incorrect expression to say 
 
 that CREDIT IS CAPITAL." 
 
 * Theory and Practice of Banking, vol. i, p. 259. Macleod s extraor 
 dinary theory that credit is capital, comes also from his employing the term 
 capital in its mercantile sense, as designating money, instead of in its 
 scientific sense, as designating all economized, existing results of labor. 
 He says, vol. i, p. 262 : " What is capital in the ordinary sense ? It is that 
 portion of currency which is employed in reproductive operations: when 
 the harvest is reaped, part of the corn is consumed and part is sown again. 
 Now currency is like corn, the part that is consumed is revenue, and the 
 part that is sown again is capital." Here are two important errors: 1. 
 Capital held idle is just as much capital as when used in reproductive opera 
 tions. The idea that nothing is capital that is not used reproductively, is 
 one of the exploded errors of the earlier economists, an error arising from 
 the mercantile sense of the term capital. 2. What part of currency is con 
 sumed ? and by what process ? Until Mr. Macleod answers these queries 
 we cannot admit that currency is consumed like corn, either productively 
 or unproductively. 
 
 Macleod seems to look upon labor as productive only of money wages, 
 for he says, vol. ii, p. xliv : "But suppose that instead of spending all hia 
 earnings on commodities, he saves a portion, . . . that saving is 
 called capital." The only capital produced by the laborer, that can become 
 an addition to previously existing capital, is the result of his labor money, 
 whether metallic or paper, is only an instrument which, like the highway or 
 the wagon, aids the transfer of commodities from one person or place to 
 another; and the money, exactly like the highway or the wagon, must be 
 in existence before it can be used to facilitate exchanges. Consequently, 
 in no way can any portion of money wages saved by a laborer be an addi 
 tion to existing capital. How Macleod should have fallen into the error of 
 using the term capital as synonymous with money is really incomprehensi 
 ble, for he says, vol. ii, p. xlv, " The primary, genuine, and exclusive mean 
 ing of capital is the accumulated savings of labor, and its symbol is money." 
 
24 MONEY. 
 
 banker s notes in circulation are quite as much banking 
 capital to him as gold deposited with him by his cred 
 itors." How can a banker s indebtedness be capital to 
 him ? 
 
 The metal contained in a coin is a commodity be 
 fore it is coined, and also after it is melted ; but as long 
 as it is used as money, to facilitate the exchanges of 
 commodities and services, it is a mere counter, a repre 
 sentative of commodities and services, no more subject 
 to the laws that govern commodities and services than 
 paper money.* For example, increase the representa 
 tives of commodities and services, and in no way will it 
 increase the enjoyment and progress of the community. 
 On the contrary, increase the amount of commodities 
 and services available to the community, and the well 
 being of all will be increased, no matter how little 
 money there may be ; for the absence of money would 
 only render the exchanges of commodities less rapid and 
 easy, but it would not prevent the general enjoyment 
 and progress produced by commodities and services. 
 Civilization is possible without money, but civilization 
 is perfectly impossible without the commodities and 
 services that contribute to man s progress and well be 
 ing. This seems to have been clearly perceived by the 
 
 How can a symbol be bona fide capital ? Capital always designates some 
 thing real, something useful, per se. Macleod says himself, vol. ii, p. liv : 
 " It is true that capital is not exactly synonymous with money ; but money 
 is its symbol and representative." 
 
 * " Money of every kind is an order for goods ; it is so considered by 
 the laborer when he receives it, and is almost instantly turned into money s 
 worth. It is merely the instrument by which the purchasable stock of the 
 country is distributed with convenience and advantage among the several 
 members of the community." (Thornton, An Inquiry, &c., p. 260, quoted 
 by Macleod, Theory and Practice of Banking, vol. i, p. 390.) 
 
MONEY. 25 
 
 celebrated Marshal Vauban, who said, " the true wealth 
 of a kingdom consists in the abundance of products 
 useful to man/ Also by Voltaire, who said : " A na 
 tion that should have only gold and silver, would be 
 most miserable, whilst a nation that possessed none of 
 these metals, but produced all other things that con 
 tribute to man s enjoyment and welfare, would be very 
 wealthy." 
 
 Money is the^measure of value of all things except 
 itself. But in this world there is nothing absolute ; all 
 is relative. Therefore money does not, cannot measure 
 the absolute or intrinsic value of things, but merely 
 their relative value ; or rather, the momentary estima 
 tion of the relative usefulness of the human labor and 
 intelligence incorporated in things. And money meas 
 ures this relation, not because it contains in itself an 
 equivalent amount of usefulness or labor, but because 
 it is everywhere accepted at a fixed value in exchange 
 for all other things. "When $2 are paid for a pair 
 of shoes, and $4 for a hat, it does not indicate that 
 the hat and the shoes contain the same amount of 
 human labor as the silver or the gold contained in the 
 coins, or the paper on which are printed the banknotes, 
 given for them. It indicates, merely, that it requires 
 two pairs of shoes to purchase one hat in other words, 
 that the human labor incorporated in one hat is as 
 much prized as that incorporated in two pairs of shoes 
 that with one hat the hatter can purchase two pairs 
 of shoos, and "vice versa." 
 
 Anything that is not generally accepted in ex 
 change for commodities and services, cannot perform 
 the functions of money, no matter how great be the 
 2 
 
26 MONEY. 
 
 amount of human labor required to produce or procure 
 the material it is made of. A counterfeit coin, almost 
 worthless, and even a counterfeit bank note, entirely 
 worthless, successfully perform all the functions of 
 money as long as they are accepted in exchange for 
 commodities and services.* 
 
 All commercial nations now use either one or both 
 of the precious metals as money. They are supposed 
 to give them a fixed value by coining yiem.and making 
 them a legal tender in payment of all taxes levied by 
 the Government that coins them, and of all individual 
 
 * " Coin is an ordinary commodity, like any other, authenticated as to 
 quality and weight by the stamp of the state. But coin, so long as it 
 circulates within the realm for the purpose of buying and selling, loses for 
 the time its intrinsic value. It resembles a steam engine, a field, or any 
 other machine. Its intrinsic value is suspended till it is sold, and its worth 
 consists solely in the work it achieves. Sovereigns, when passing from 
 hand to hand, are no better than counters or tokens. They are not wanted 
 for the sake of the gold they contain, but simply as pledges that a man 
 shall be able to buy with them as many commodities as those he gave in 
 exchange for them. A bad shilling does the work of coin quite as well as 
 a good one till it is found out ; and it then becomes worthless, because the 
 absence of the intrinsic value destroys faith in its power to persuade a 
 seller to part with his wares. If that seller knew that he could pass it off 
 as good upon another man, he would (apart from the question of morality) 
 be as willing to take it as a silver shilling. Metallic money, whilst acting 
 as coin, is identical with paper money, in respect of being destitute of in 
 trinsic value ; with this single difference, that when it is desired to repro 
 duce that intrinsic value, the sovereign can be instantly turned into bullion ; 
 whilst, in the case of a note, an intermediate step is necessary it must be 
 sent to the bank before its intrinsic worth is recovered. The security for 
 the value is already in the hands of the holder of the sovereign ; for the 
 note, the solvency of the issuer is an additional requisite. Still, whilst 
 circulating, both make no use of intrinsic value ; and this is the great 
 point to grasp firmly" (What is Money ? North British Review, Nov. 
 1861 without exception the best article on money we have yet met 
 with.) 
 
MONEY. 27 
 
 contracts. But this fixed value is only illusory. Coin 
 ing money does not establish its value. It only indicates 
 the quantity and quality of the metal of which the coins 
 are made* Coins are mere pieces of metal, of fixed 
 weight and quality, tested by an authority recognised 
 by all, with which purchases may be made and all con 
 tracts for the payment of money fulfilled. A contract 
 to pay one thousand dollars, pounds, florins, francs, or 
 any other coin, is simply a contract to deliver a certain 
 number of pieces of metal of a certain weight and fine 
 ness; and the coins are such pieces, certified correct by 
 
 " The province or function of the Government in regard to coinage, 
 as conducted by the Mint in obedience to the prescribed regulations, is 
 simply to certify by a stamp, bearing the effigy of the sovereign, the 
 weight and fineness of the piece of metal to which it is applied." (Tooke, 
 vol. v, p. 517.) 
 
 " When nations advanced beyond the stage of direct barter, and began 
 to use the precious metals as a common measure to which the value of all 
 other commodities was referred, it was the weight of the pure metal which 
 was invariably used as the index of value, and merchant carried scales 
 about with them, for the purpose of weighing out the metal on each sepa 
 rate occasion. . . . The necessity of carrying about scales to weigh out the 
 metal on each separate occasion being felt to be tedious and irksome, the 
 plan was devised of cutting the bullion into pieces of a certain definite 
 weight by the public authority, and putting a stamp upon them to certify 
 to the community that they were warranted to contain a certain weight of 
 bullion of a certain definite fineness. Values were then estimated by the 
 number of these pieces of bullion, which were called coins, which were 
 given for commodities, and then they were said to be reckoned by tale. 
 It is clear that the sole object of coining was to save the trouble of weigh 
 ing, and that though the prices of articles were estimated in figures, it was 
 essentially part of the understanding that these figures denote certain 
 specific quantities of pure metal." (Macleod, Theory and Practice of 
 Banking, vol. i, pp. 275, 276.) 
 
 " The stamp on the coin is the guarantee of the state that it contains a 
 certain weight of bullion." (Macleod, Theory and Practice of Banking, 
 vol. j, p. 289.) 
 
28 MONEY. 
 
 competent authority. How unjust, then, how great the 
 abuse of power, for a Government to debase the coin, 
 or to make paper a legal tender, and thus force credit 
 ors to accept, in liquidation of existing contracts, some 
 thing else than what the contracts stipulate ! After 
 one of the parties to a contract has fulfilled his part of 
 it, what principle of law or equity authorizes the en 
 actment of a law absolving the other party, in whole or 
 in part, from fulfilling his portion of the contract ? Is 
 it not a well-established principle of legislation that no 
 law shall be retroactive in its effect, or shall impair the 
 obligation of existing contracts? That coining the 
 
 * " Money has two functions : the one, that of serving as an instru 
 ment of exchange ; the other, that of being the subject of contracts for 
 future payment. It is in the latter capacity that the fixity of a standard is 
 most essential. It is as the subject of engagements or obligations for 
 future payment, that in every view of justice and polity, the specific thing 
 promised, in quantity and quality, should be paid at the expiration of the 
 term." (Tooke, History of Prices, vol. i. pp. 145, 146.) 
 
 u An alteration of the standard is a direct fraud upon debtors or 
 creditors, according as it is raised or lowered ; because the essence of 
 every, contract is, that the debtor is to pay a certain weight of gold, and 
 not so many abstract ideas which are called pounds." (Macleod, Theory 
 and Practice of Banking, vol. i. p. 289.) 
 
 " When one man lends another a sum of money to be returned to him 
 at some future period, ... he grants the use of a certain number of pieces 
 of metal of given weight and fineness during a definite period, on condition 
 that an equal number of pieces of the same weight and fineness shall be 
 restored at the expiration of the time. . . . There is here no question of 
 value, or what quantity of commodity or set of commodities the gold will 
 command in exchange. This has no part in the contract. The agreement 
 respects the quantity and not the value of the gold ; it has nothing to do 
 with the purchasing power of gold in the market. . . . This is a correct 
 representation of the nature of all mere pecuniary bargains. . . . We must 
 come to a quantity of something at last." 
 
 " It is true that contracts may be made which shall have reference to 
 the value of gold or silver as well as to its quantity. ... I may with great 
 
MONEY. 29 
 
 precious metals does not give them a fixed value is very 
 evident from the well-known fact that any given amount 
 of money will, at one time, purchase a much greater 
 amount of commodities than at another, although the 
 money contains, at "both moments, the same amount of 
 metal of the same fineness. And yet it is the almost 
 universal opinion that the only thing that retains a 
 fixed, unalterable value is metallic currency; and this 
 opinion, however erroneous it may be, greatly aids in 
 giving gold and silver their universal circulation. 
 
 Money can neither be a proper measure of value, 
 nor the proper subject of contracts for future payments, 
 if it be subject to alterations. The only attribute of 
 money that cannot be fixed is its exchangeable value, 
 which can only be expressed or measured by the quan 
 tity of other things obtained in exchange for a given 
 amount of money. Therefore, while gold and silver 
 measure the value of commodities and services, com 
 modities and* services alone can measure the value of 
 gold and silver.* 
 
 The use of the precious metals as money, every 
 where, enables commerce to resort to them as an uni- 
 
 propriety stipulate, that, inasmuch as the 100 which I lend when wheat 
 is at 50s. per quarter is equal to 40 quarters of wheat, the value of 40 
 quarters of wheat shall be returned to me when the loan is repaid. In. 
 effect this is lending the wheat. In the same way any other commodity 
 may be lent, or any other stipulation may be made. The freedom of 
 bargain is and ought to be quite unrestricted." (Bailey, Money and its 
 Vicissitudes in Value quoted by Tooke, History of Prices, vol. v. 
 pp. 148-149.) 
 
 * " Gold and silver do not measure the value of commodities more 
 than the latter measure the value of gold and silver. When one com 
 modity is exchanged for another, each measures the value of the other." 
 (Encyclopaedia Britannica, Money.) 
 
30 MONEY. 
 
 versal measure of relative values. By knowing the rela 
 tive quantity and fineness of the metal contained in the 
 coins of any two countries, and the money price of 
 things in both, the relative value of anything in both 
 countries can at once be accurately ascertained and 
 compared. Without this knowledge a large portion of 
 the beneficial operations of commerce and industry 
 would be impossible. 
 
 Metallic money is supposed to carry its value in 
 itself. This was the case at first, when it was used ex 
 clusively as a commodity. This value in itself was an 
 indispensable attribute of money in the early stages of 
 civilization, when it was used as a medium of ex 
 changes between strangers, and between parties having 
 no confidence in each other, or in the laws that pro 
 tected them, and who, therefore, would not part with 
 their property unless they received in exchange, on the 
 spot, something of equal intrinsic value in their eyes. 
 But to-day the most important use of aaoney is as an 
 acknowledgment, as a certificate, of services rendered 
 but not yet remunerated, which the community is 
 bound to liquidate by rendering equivalent services to 
 the holders, on demand. Gold and silver coin must be 
 redeemed by commodities or services on demand, or 
 they can no more perform, the functions of money than 
 irredeemable paper money. 
 
CHAPTEK III. 
 
 THE ancients had quite as correct ideas of money 
 as most of the writers and theorists on the subject at 
 the present day. Aristotle said : " May not money be 
 an imaginary wealth ? . . . What value has it from 
 nature ? Should public confidence or opinion, that 
 gives it circulation, experience a change, what would 
 be its real price ? What real want of humanity would 
 it then supply ? Alongside of a heap of gold one 
 might be in want of even food. What folly to call 
 wealth a thing in the midst of which one might die of 
 want !" Elsewhere he says, " It was agreed to give 
 and to receive, in exchange for all things and services, 
 a product or thing useful in itself, and easily handled 
 in the ordinary transactions of life, such as iron, silver, 
 or any other substance, of which the dimensions and 
 weight were first determined; and finally, to avoid the 
 trouble of continual measurages, it was stamped with 
 a particular mark, a sign of its value" The last idea 
 is erroneous, as coining indicates quantity and quality, 
 not value. And yet Michel Chevalier quotes this last 
 extract as " the very correct opinion of Aristotle, in 
 which there is not a single word to alter to-day ;" and 
 
32 MONEY. 
 
 he adds, " Money is a thing useful in itself, and not a 
 sign."* 
 
 The celebrated Law seems to have had some very 
 correct views in regard to money. He said, " Money 
 (coin) does not receive its value from Government. 
 The stamp it bears indicates its weight and its fineness 
 but does not give it its value/ 
 
 Le Hardy de Beaulieu, an eminent Belgian econo 
 mist of the present day, says : " The value of money 
 follows the variations of value of the metal of which 
 it is made, and no law or change in the names of the 
 coins can make them escape these variations/ Instead 
 of its being the value of the metal that controls the 
 value of money, it is the value of money that governs 
 the value of the metal of which it is made. The same 
 author himself says : " The second cause of the value 
 of money is entirely independent of the substance of 
 which it is made ; it results entirely from the services 
 rendered by money in facilitating exchanges. This value 
 has no tendency to equalize itself to the cost of ihe mate 
 rial of which the money is made. It depends solely on the 
 relation between supply and demand. If a govern 
 ment only coined and emitted one half of the coin 
 necessary to make the exchanges of a community, and 
 could interdict all importations of foreign coin and the 
 use of all representatives, the value of money could 
 double, whatever be the intrinsic value of the material 
 of which it is made ; and vice versa." But he adds, 
 " any excess beyond the wants of the community is in 
 variably idle or is exported. On the contrary if the 
 supply be inadequate, paper representatives are resorted 
 
 * Dictionnaire de 1 Economie Politique, vol. ii, p. 202. 
 
MONEY. * 33 
 
 to, so that the value of money is always kept uniform/ 
 And yet, subsequently, he says : " The excess of the 
 supply beyond the demand is a cause of depreciation 
 exactly like with any merchandise or product."* How 
 can this be, if, as he says, the excess beyond the wants 
 of the community is invariably idle or exported ? 
 
 The value of all things which the wants or desires 
 of humanity require to be produced, depends on the 
 cost of production, and on supply and demand. A 
 thing must be worth the cost of production, including 
 a moderate profit to the producer, otherwise its produc 
 tion will cease. Cost of production is therefore the 
 normal point around which the price of all things need 
 ed must oscillate.f Supply and demand regulate, not 
 
 * Trait6 elementaire d Economie Politique, pp. 133, 134. 
 
 f Macleod, in his Theory and Practice of Banking, asserts that supply 
 and demand alone control price, and criticises in unmeasured language, 
 all who have maintained that cost of production regulates value. J 
 This is one of the remarkable errors of that very talented^ economist. 
 He has probably fallen into this error from the fact that supply and 
 demand alone control the price of all things that cannot be produced 
 at will by human efforts, such as diamonds and precious stones, paint 
 ings of old masters, antiques, &c., &c. But these articles are entirely 
 exceptional, and of but little importance. Prices are of importance as 
 stimulus to effort, to the production of those things necessary and useful 
 to humanity. The price of all things that are produced by human effort, 
 in which human labor is incorporated, is mainly governed by the cost of 
 production, for the moment the producer cannot obtain cost of production 
 and a moderate profit, he ceases to produce. Macleod asserts that value 
 does not spring from the labor of the producer, but from the desire of the 
 consumer. What then remunerates and regulates labor if not the value of 
 its results ? Looking at the cost of production as the normal point, we can 
 
 t "The rule that cost of production regulates value, is one of the most 
 pestilent heresies that deform and confuse the current political economy of the day. 
 . . . We have no hesitation in saying that the whole system of political economy, 
 as laid down by Ricardo, and developed by Mr. J. 8. Mill, is utterly and radically 
 bad." (Macleod, Theory and Practice of Banking, Introduction, vol. ii, p. 63, 64.) 
 
 2* 
 
34 MONEY. 
 
 the price of things, as is generally said by the econo 
 mists, but the division of labor, by means of the varia 
 tions in the item of price called profit and loss. When 
 left entirely free, labor and capital, under the beneficial 
 stimulus of self-interest, have a constant tendency to 
 transfer themselves from the least profitable, to the 
 most remunerative, occupations. And as the produc 
 tion of those things most desired by the community is 
 always the most profitable occupation, and vice versa, 
 individual interests are thus constantly kept in perfect 
 accordance with the general interest ; all things wanted 
 are produced, arid no article is long produced in excess 
 of the wants of the consumers. 
 
 Every want of man has a limit, but the aggregate 
 of his wants and desires is constantly increasing, and 
 is, apparently, unlimited ; for as soon as one want or 
 desire is satisfied, another arises. Gold and silver, 
 therefore, as long as used as money, as representatives 
 of all the wants of humanity, will remain in unlimited 
 demand ; could they be affected by supply and demand, 
 the greater the reduction of their exchangeable value, 
 the greater would be the demand for them, because 
 
 foresee the future course of production, and thus regulate that important ele 
 ment of human well-being. If the price of any article leaves a large profit on 
 the cost of production, its production will increase if it leaves a loss, its pro 
 duction will decrease. Here is a guide for both producers and consumers, 
 which means all humanity. Can Mr. Macleod s " fundamental truth," that 
 " speculation is the mother of production,but demand is the origin of value,"* 
 supply any such guide ? Why is it that an article in great demand and quite 
 scarce is worth only $1, whilst another article, not nearly as scarce, nor in as 
 great demand.cannot be obtained under $10 or $20? It must be that the amount 
 of labor required to produce each article has something to do with regulating 
 its price, no matter howgreat the demand, or how limited the supply, of either. 
 
 * Vol. ii, p. Ixiii. 
 
MONEY. 
 
 35 
 
 every reduction of their exchangeable value, would 
 render necessary the use of a greater amount of them 
 to obtain any given amount of services or commodities. 
 Most of the economists assert that the value of the 
 precious metals, like that of all other commodities, de 
 pends on the cost of production and supply and de 
 mand/- On the contrary, the value of gold and silver, 
 as long as they are used as money, depends but slight 
 ly, if at all, on the cost of production and on supply 
 and demand. The only effect of the cost of production 
 on the precious metals, is to increase or diminish the 
 number of persons engaged in mining them. When 
 the precious metals cost more to produce than their 
 value as money, they cannot rise in value as long as 
 they can be obtained for consumption by melting coin. 
 And when the cost of producing the precious metals 
 diminishes, they cannot fall below their value as money, 
 because the holders of them can always have them 
 coined and use them as money. Whenever the min 
 ing of gold and silver will not procure the same 
 amount of commodities and services that can be ob- 
 
 * " Gold and silver, like all other commodities, are valuable only in 
 proportion to the quantity of labor necessary to produce them and bring 
 them to market. Gold is about fifteen times dearer than silver, not because 
 there is a greater demand for it, nor because the supply of silver is fifteen 
 times greater than that of gold, but solely because fifteen times the quantity 
 of labor is necessary to produce a given quantity of it." (Ricardo, Principles 
 of Political Economy, p. 421.) 
 
 " If the proportion of either metal alter very materially, as there seems 
 considerable prospect of being the case, from the amazing abundance of the 
 gold fields of California and Australia, their value must alter, just in the 
 same way as a very material alteration in the supply of any other commod 
 ity will cause an alteration in its value." (Macleod, Theory and Practice 
 of Banking, vol. i, p. 116.) 
 
36 MONEY. 
 
 tained for a similar amount of labor, capital, and in 
 telligence, employed at other occupations, capital and 
 labor will leave mining for other occupations; and 
 whenever mining will procure more enjoyments than 
 other occupations, capital and labor will quit other oc 
 cupations to go to mining. But the extent of the pos 
 sible transfers of labor and capital from other occupa 
 tions to mining is, and probably always will be, quite 
 limited, for emigration from distant localities to the 
 mining districts, like all emigration, is very difficult 
 and must always be slow and limited in extent, because 
 emigrants can never transfer with themselves, the use 
 ful and indispensable results of labor, such as manu 
 factories, houses, streets, roads, canals, railroads, cattle 
 and horses, improvements of arable lands, and other 
 fixtures that form by far the greatest portion of all 
 existing capital. Very productive mines may, how 
 ever, momentarily, cause a local rise of wages and 
 prices, but the* production of the most productive mines 
 will probably ever bear so slight a proportion to the 
 aggregate capital and productions of the world at large, 
 that the value of the latter can never be much, if at 
 all, affected by any future production of gold and silver. 
 The effects, therefore, of even highly productive mines 
 of the precious metals, can probably never be more 
 than local and temporary ; and even the local effects of 
 productive mines are kept in check by the very rise of 
 wages and prices they locally produce, as this general 
 rise of prices becomes a powerful inducement to capital 
 and labor to leave mining and go back to other occupa 
 tions, since a rise of prices increases the productiveness 
 of other occupations while it diminishes that of mining. 
 
MONEY. 37 
 
 The discovery of the gold mines in Australia caused the 
 prices of all things to quadruple in two years, from 
 August 1851 to July 1853. In the subsequent eight 
 een months, from July 1853 to January 1$55, most 
 commodities gradually fell until they touched ruinous 
 prices. Mr. Newmarch says : " The level of wages 
 and the prices of certain kinds of commodities in Mel 
 bourne, were reduced to the level prevailing, cceteris 
 paribus, in other countries. . . . The fall in the 
 prices of all kinds of imported commodities occurred at 
 an early period, and the low prices have been continued. 
 The fall in house rent occurred about the same early 
 period, and has been more or less continued. No ma 
 terial fall has occurred in 1856, in the large number of 
 articles of food and necessity producible only within 
 the colony. The general result has been, that within 
 a comparatively short period after the establishment of 
 rates of quadrupled wages, the laborers of the colony 
 had the advantage of an exceedingly low range of prices 
 of nearly all imported articles ; and of falling prices of 
 all articles of colonial production, the supply of which 
 admitted of comparatively easy extension. . . The 
 effect of the increased supplies of gold in Victoria, in 
 largoly increasing the prices of commodities within the 
 colony, was temporary as concerns the most numerous 
 class of commodities."* 
 
 In California the effect of the gold mines was very 
 similar. In 1848 and 1849 prices were excessive, 
 whilst in 1851 goods were often not worth their storage. 
 
 As to the effects on the value of gold and silver of 
 an increased production of these metals, how can an 
 
 * Tooke, History of Prices, voL vi, pp, 804-812. 
 
38 MONEY. 
 
 increased production affect the value of an article for 
 which the demand is unlimited, and of which, therefore, 
 there can probably never be a glut ? On the other 
 hand, how can a diminished supply seriously affect the 
 value of a thing, whose functions can, in a great meas 
 ure, be performed by other things ? That this is the 
 case with gold and silver, is quite evident, for before 
 the introduction of paper money and credit, exchanges 
 were made without coin, by means of barter ; and since 
 the introduction of credit and paper money, these in 
 genious, convenient, and economical means of effecting 
 exchanges, are infinitely more used than coin, and re 
 place it in most of the transactions of commerce. 
 
CHAPTER IV. 
 
 OF the numerous theories of the economists in re 
 gard to money, none seem more generally accepted 
 than the theory that gold and silver cannot success 
 fully be used simultaneously as the measure of value, 
 because their relative value varies with the supply 
 and demand, and with the cost of production of these 
 metals. Xenophon said : " As to money, it is the very 
 reverse of all other things. The greater the number 
 of mines discovered and worked, the greater the anxiety 
 of the citizens to become owners of them. It may be 
 objected that gold is at least as useful as silver. I shall 
 not deny this. / shall only remark that gold, if it 
 became more common than silver, would fall in value, 
 whilst silver would rise in value." 
 
 Sir William Petty in the 17th century said : " The 
 relative value of gold and silver is modified according 
 as human industry extracts more of one than of the 
 other from the bowels of the earth. Consequently only 
 one at a time should be used as money." 
 
 Locke said : "Two metals, as gold and silver, can 
 not be the measure of commerce both together in any 
 country ; because the measure of commerce must be 
 perpetually the same, invariable, and keeping the same 
 
40 MONEY. 
 
 proportion of value in all its parts One may 
 
 as well make a measure, v. g. a yard, whose parts 
 lengthen and shrink, as a measure of trade of materials 
 that have not always a settled, invariable value to one 
 another. . . . One metal, therefore, alone can be the 
 money of account and contract, and the measure of 
 commerce in any country." * 
 
 Michel Chevalier is the most prominent of the 
 numerous modern advocates of this doctrine. The error 
 of tbe theory is in taking for granted that governments 
 cannot give a fixed, invariable, relative value to the 
 two precious metals. Against this theory we have the 
 important fact that governments constantly and suc 
 cessfully do regulate the relative value of these metals. 
 In fact this is the only power governments possess over 
 their value, for coining them does not give them value, 
 but merely designates the quantity and quality of the 
 metal the coins are made of. What has greatly aided 
 in giving currency to the erroneous theory in question, 
 is the solidarity that exists between all nations con 
 nected by the ties of commerce. This causes the rela 
 tive legal value of the two metals in any one locality, 
 to be affected momentarily by their relative legal value 
 in any other country in whose favor a temporary bal 
 ance of trade has to be liquidated. What occurred in 
 the United States is a striking proof of the power of 
 governments to establish the relative value of gold and 
 silver, as well as of the effects of having different legal 
 relative values in different countries. 
 
 In the United States, the relative value of gold 
 and silver was established in 1792 at 1 to 15, which 
 
 * Vol. v, p. 151. London Edition, 1823. 
 
MONEY. 41 
 
 was that then adopted by France and most of the 
 European nations ; but when France and the rest of 
 Europe subsequently changed the relative value to 1 
 to 15^, the United States made no alteration in their 
 coinage. The consequence was, that thereafter, when 
 ever the United States had to liquidate a balance of 
 trade in favor of Europe, it was invariably paid in gold 
 as long as that metal could be obtained at 3 J- per cent, 
 premium or under, because the ounce of gold that could 
 be obtained in the United States for 15 ounces of silver, 
 had the same value in Europe as 15^ ounces of silver. 
 And when Europe had to liquidate a balance of trade 
 in favor of the United States, it was invariably done 
 with silver, because the 15 ounces of silver that could 
 be obtained in Europe for one ounce of gold, had the 
 same value in the United States, as 1^ ounce of gold. 
 The attention of Congress being called to these facts, 
 an act was passed in 1834, altering the relative value 
 of gold and silver to 1 to 16. This was committing 
 as great an error as the one it attempted to correct. 
 Instead of adopting the same relative value as in 
 Europe, Congress adopted one that inverted the pre 
 vious difference in the relative values in Europe and 
 the United States. The new relative value made gold 
 about 3J per cent, dearer in the United States than 
 in Europe, and silver 3J per cent, clearer in Europe 
 than in the United States. At once the currents of 
 the metals were reversed. Silver alone was thereafter 
 sent from the United States to Europe, in liquidation 
 of all balances of trade, as long as it could be obtained 
 at or under 3 per cent, premium, and gold alone was 
 sent by Europe to liquidate the balances of trade in 
 
42 MONEY. 
 
 favor of the United States. Under both relative values, 
 the premium on the cheap metal disappeared whenever 
 there was no adverse balance of trade to liquidate in 
 favor of Europe, as then the legal relative value in the 
 United States alone governed the value of both metals 
 there ; whereas each time a balance of trade in favor 
 of Europe was being liquidated, the premium reap 
 peared. It is very evident that the premiums in both 
 these cases were entirely due to the difference in the 
 legal relative values of the precious metals in Europe 
 and in the United States, and not to any variations in 
 their intrinsic or commercial values. 
 
 Precisely the same thing occurred in England in 
 the reign of James I. Gold, being estimated too low 
 at the mint compared with silver, was freely exported, 
 which caused incessant complaints. To remedy this 
 evil, King James raised the value of gold in his coins 
 by successive proclamations ; but he at last raised it 
 too high, and during the remainder of his reign, and 
 that of Charles I, the silver coins were exported until 
 the complaints were as great for want of silver as they 
 had been before for want of gold. - 
 
 Sir Isaac Newton, with his usual clear perception 
 of the principles governing phenomena, discovered the 
 cause and pointed out the remedy for the difficulty 
 in the way of using the two metals as standards of 
 value. In his report as master of the mint, he said : 
 " it appears by experience as well as by reason, that 
 silver flows from those places where its value is lowest 
 in proportion to gold, as from Spain to all Europe, and 
 from all Europe to the East Indies, China and Japan, 
 
 * Lord Liverpool, Coins of the Realm, p. 118. 
 
MONEY. 43 
 
 and that gold is most plentiful in those places in which 
 its value is highest in proportion to silver, as in Spain 
 and England." He pointed out that it was the irregu 
 larity in the valuation of these two metals, that caused 
 so much transmission of one or the other from place 
 to place, " and if gold were lowered only, so as to have 
 the same proportion to the silver money in England, 
 which it hath to silver in the rest of Europe, there 
 would be no temptation to export silver rather than 
 gold to any other part of Europe. And to compass 
 this last, there seems nothing more requisite than- to 
 take off about 10c. or I 2d. from the guinea, so that 
 gold may bear the same proportion to the silver money 
 in England, which it ought to do by the course of trade 
 and exchange in Europe."* And yet after quoting 
 this, Macleod says : " their market values (of gold and 
 silver) were constantly varying, and /row causes quite 
 beyond Ike reach of any law." f 
 
 The facts cited appear to us to prove conclusively 
 that governments, by common accord, can establish 
 and maintain any given relative value between the two 
 metals, as long as they are used as money. 
 
 Another very important fact to notice in regard to 
 the different relative legal values given to gold and sil 
 ver, is that it is ahvays the cheap metal that is scarce 
 and the dear metal that is abundant; the very reverse 
 of what invariably occurs with commodities, which are 
 always cheap where abundant, and dear where scarce ; 
 another proof that money does not follow the same laws 
 as commodities. 
 
 * Macleod, Theory and Practice of Banking, vol. i, p. 163. 
 f Theory and Practice of Banking, vol. i, p. 279. 
 
44 MONEY. 
 
 The relative value of gold and silver at different 
 periods has been : 
 
 In ancient Greece and Rome 1 to 12 
 
 In Greece, after the conquests of Alexander the 
 
 Great 1 to 10 
 
 In Italy, after the conquests of Julius Cicsar. . . 1 to 9 
 After the conquest of Sicily by the Romans, 
 
 where large quantities of silver were found. . 1 to 17 
 
 At the end of the 15th century, in Europe 1 to 11 
 
 In England, in 1604 1 to 12 T V 
 
 In England, in 1626 1 to 13 
 
 In 1641, in France 1 to 131 
 
 In 1641, in Spain 1 to 14 
 
 In England, in 1666 1 to 141 
 
 In England, in 1717 1 to 15 
 
 In the middle of the 18th century, in Holland. . 1 to 141 
 
 In the middle of the 18th century, in France. . 1 to 15 
 
 By the act of the 7th Germinal, year 11 (28th 
 March, 1803), France adopted the present relative value 
 of 1 to 15|, which has since become the general relative 
 value in Europe, wherever both the metals are legal 
 tenders. 
 
 From 1344 to 1664 a double standard prevailed in 
 England,*T3oth silver and gold being a legal tender ; the 
 silver coins at the rate they were issued from the mint, 
 the gold coins at rates fixed, from time to time, by 
 royal proclamation. From 1717 it was declared by 
 proclamation, at the recommendation of Sir Isaac New 
 ton, then master of the mint, that the guinea should 
 be taken as the equivalent of twenty-one shillings in 
 silver. This fixed the relative value at 1 to ISyVeVo 
 Both metals continued a legal tender at this relative 
 value till 1774, when silver was disallowed as a legal 
 tender for sums exceeding 25. In 1816 the pound of 
 
MONEY. 45 
 
 standard silver was coined into sixty-six shillings, es 
 tablishing the relative value at 1 to 14.287 ; silver was 
 declared to be a legal tender only for sums of forty shil 
 lings or under, and thenceforth it was only coined for 
 account of the Government. The object of this last 
 alteration of the relative value of the precious metals 
 was to prevent the exportation of the silver coins. 
 
 In ancient times, alterations in the relative value of 
 the two metals were easily produced by the influx of 
 quite moderate amounts of either, because they were 
 then principally used as commodities, and their value 
 therefore followed the natural laws that govern the 
 value of commodities. But since the 15th century, 
 after commerce took some development, and required 
 large amounts of the precious metals as money, all the 
 alterations in the relative value of the precious metals 
 have been in one uniform direction, up to the influx of 
 gold from California and Australia, viz : the apprecia 
 tion of gold and the depreciation of silver. This fact 
 is very significant, and explains the cause of these 
 alterations. Gold being the most valuable metal, is 
 much the most convenient to transport and to handle ; 
 and for this convenience, so long as gold did not exist 
 in sufficient quantity to suffice for all transactions, 
 many persons were willing to pay a premium for it 
 rather than be inconvenienced with silver, just as per 
 sons constantly pay a premium for a draft on another 
 city or country rather than carry or transmit coin or 
 bank notes. In both these cases the premium paid is 
 a mere remuneration for the services rendered by the 
 convenient coin or draft beyond those that could be 
 rendered by the inconvenient coin. It does not indi- 
 
46 MONEY. 
 
 cate that one is overvalued or undervalued, nor that one 
 will purchase more commodities than the other. It is 
 simply that the holder of the convenient coin or draft 
 will not exchange it for inconvenient coin unless he 
 receives some remuneration for the inconvenience or 
 expense he may incur by the exchange. Premiums of 
 this nature are always exceedingly limited in amount, 
 because the main operations of commerce are invariably 
 made by the most economical means possible. When 
 ever the premium on a convenient coin is greater than 
 the expense and trouble of handling and transporting 
 the inconvenient coin, commerce performs all its opera 
 tions with the inconvenient coin rather than pay the 
 premium for the convenient one. But the theorists 
 could not discover this simple reason for the premium 
 on gold in former times, when the supply was inade 
 quate to the demand. They constantly asserted that 
 the premium on gold was an indication that the in 
 trinsic or commercial value of gold had risen, and they 
 urged the governments to alter their legal relative 
 value so as to conform with their intrinsic value. This 
 undoubtedly caused the numerous alterations that took 
 place, each nation increasing the legal value of gold so 
 as to retain it in circulation. But every increase in the 
 relative value of gold still left this metal at a premium. 
 The partisans of the theory that the two metals could 
 not be used simultaneously as legal standards, saw in 
 this constant premium on gold notwithstanding govern 
 mental action, proof positive that governments could 
 not regulate their relative value ; whereas the fact is 
 that increasing the value of gold only augments the 
 inducement to pay a premium for it, since it increases 
 
MONEY. 47 
 
 the principal advantage gold offers over silver greater 
 lightness for equal value. Were gold and silver coined 
 at 1 to 30, the premium on the former, as long as the 
 quantity in existence was insufficient for all transac 
 tions, would be greater than when coined at 1 to 15, 
 because half the weight of gold would then perform 
 the same service as twice the amount did before, in 
 comparison with silver. As soon as the large produc 
 tion of gold in California and Australia rendered this 
 metal abundant, the premium on it disappeared. Here, 
 again, the theorists claimed a proof of the correctness 
 of their theory ; gold was evidently falling in propor 
 tion to silver, as they had predicted ; whereas the dis 
 appearance of the premium only indicated that gold 
 had become sufficiently abundant to supply the de 
 mand, which was clearly not the case before. In the 
 United States there lias been a recent striking example 
 of a similar premium being paid for coin on account of 
 its convenience, irrespective of its intrinsic value. After 
 the exportation of silver had drained that country of 
 its small silver coins, four per cent, premium was paid 
 for the old Spanish rials and half-rials (12| and 6J 
 cent pieces), although the United States mint had as 
 certained and announced that they were not, on an 
 average, worth within ten per cent, of their nominal 
 value, in consequence of their loss of weight by wear 
 and tear. And exactly as in Europe with gold, the 
 moment United States silver coins became sufficiently 
 abundant to supply all the wants of the community, 
 the premium on the small Spanish coins entirely disap 
 peared. 
 
 Sir Isaac Newton had recommended that the guinea, 
 
48 MONEY. 
 
 which passed current at 21s. 6d., should be reduced 
 lOcZ. or 12d, which would have made the relative value 
 of gold and silver the same in England as it was on the 
 continent of Europe. His advice was but partially 
 adopted, the guinea being only reduced to twenty-one 
 shillings, which was still too high, and silver conse 
 quently continued to be exported in preference to gold. 
 " From 1717 to 1816 no silver coins of legal weight and 
 purity could be retained in circulation, but were ex 
 ported to foreign countries, where they passed at full 
 value/ * What was this full value that attracted silver 
 from England to foreign countries ? Not its value 
 elsewhere as a commodity, to be used in the arts, but 
 its legal relative value to gold as money ; in other 
 words, the fictitious legal relative value as coin, given 
 it in other countries by governments. How could Eng 
 land retain silver when 15 fYcVo ouncss of it had the 
 same value there as one ounce of gold, whilst on the 
 continent of Europe one ounce of gold had only the 
 same legal value as fifteen ounces of silver ? The ex 
 portation of silver after the suspension of specie pay 
 ments by the Bank of England, when the relative legal 
 value on the continent of Europe had become 1 to 15}, 
 was caused by other reasons : by the demand for the 
 precious metals to pay the British armies on the Conti 
 nent and the subsidies to the Continental powers. This 
 demand was so imperious that the legal value of the 
 precious metals, in either locality, was entirely disre 
 garded. 
 
 It was the arguments against the two standards that 
 led Great Britain, in 1774, to adopt gold as the only 
 * Encyclopaedia Britannica, Money. 
 
MONEY. 49 
 
 standard, silver being made a legal tender only for sums 
 of 25 and under. During the French Revolution, the 
 Legislature of France repeatedly discussed the question 
 of the double standard at great length, but finally main 
 tained the double standard, which was very generally 
 used by all European nations except England. 
 
 After the discovery of the gold mines of California, 
 Michel Chevalier and the economists in general revived 
 the old theory of the impossibility of maintaining an 
 uniform relative value between the two metals, because, 
 according to them, every increase in the production of 
 either, deranges their relative value. Mr. Chevalier 
 predicted that gold would fall to one half of its present 
 value. The greatest uneasiness prevailed everywhere 
 in consequence of the apprehended fall in the value of 
 gold, and rise in the value of silver. Governments were 
 urged to demonetize gold, and two nations, Holland and 
 Belgium, actually acted on this suggestion and made 
 silver the only legal tender.* Every trifling fluctuation 
 in the value of either metal was immediately accepted 
 by these theorists, without examination or analysis, as 
 proof positive of the realization of their predictions ; 
 whereas, when closely analyzed, they all prove that the 
 theory they advanced is completely erroneous.f The 
 following, in addition to long, imposing arrays of figures 
 
 " It became a prevalent belief, that a marked divergence from the previ 
 ous scale of relative values existing between gold and silver would rapidly 
 manifest itself, and that this divergence would become so decided that 
 sound policy would lead to the substitution of silver for gold as a standard 
 metal in metallic circulations. It was in pursuance of this opinion that 
 Holland demonetized its gold coins." (Toufce, History of Prices, vol. vi, 
 
 f The result of the inquiries instituted seqms to justify a positive opinion 
 o 
 
50 MONEY. 
 
 of the past, present, and future production, existence, 
 and consumption of the two metals, were the facts 
 generally appealed to, to sustain their theories : 
 
 1st. The premium paid for gold when scarce, previous 
 to the influx of gold from California and Aus 
 tralia. 
 
 2d. The disappearance of the premium on gold after 
 the influx of gold from the Californian and Aus 
 tralian mines. 
 
 3d. The discount at which gold bullion and foreign 
 gold coins were sold in 1851 in the United States 
 and in Europe. 
 
 4th. The premium formerly paid in the United 
 States on gold, when coined as 1 to 15, and 
 that subsequently paid there on silver, when 
 coined as 1 to 16. 
 
 5th. The premium paid for silver in exchange for 
 gold, after 1851. 
 
 All these facts, except the 3d, certainly establish 
 some alterations in the value of one or the other of the 
 precious metals ; but when analyzed with care, they are 
 found to maintain our theory, and not that which we 
 combat, for none of these alterations were caused by a 
 change in the cost of production, or in the intrinsic 
 value as commodities of either of these metals. The 
 1st, 2d, and 4th of these facts have already been fully 
 explained, and certainly indicate no alteration in the 
 
 that the fluctuating increase of two or three per cent, in the price of silver, 
 as compared with gold, which has prevailed, at various periods since 1849, 
 admits of being fully explained by circumstances not connected with a fall 
 in the value of gold." (Tooke, History of Prices, vol. vi, p. 199.) 
 
MONEY. 51 
 
 natural relative value of the two metals. The discount 
 at which gold bullion and foreign gold coin were sold 
 for a time, was solely caused by the fact that the 
 mints, at that time, were nowhere organized to coin 
 promptly the enormous amounts of gold deposited with 
 them for that purpose ; and the discount was a mere 
 allowance to compensate the loss of interest caused by 
 the delay in obtaining the coin from the mints in ex 
 change for the gold deposited. This is clearly proved 
 by the fact that at the very time that uncoined gold 
 was selling at a discount, gold coin was everywhere 
 willingly accepted, at par, in exchange for silver at par. 
 Shortly after uncoined gold ceased to be sold at a dis 
 count iii Paris, the Bank of France refused to pay out 
 gold except at a premium of 3 per mille, a proof that 
 gold was still generally preferred to silver. Therefore it 
 is evident that the discount on gold bullion and foreign 
 gold coins, was also no indication of an alteration in the 
 natural relative value of the precious metals. 
 
 The 5th and last fact, the recent premium on silver 
 in Europe, was the consequence of the large and con 
 stant balances of trade which England had to pay to 
 Asia, where silver alone is used as money. England, no 
 longer using silver as a legal tender, had no stock of 
 this metal from which to supply her wants, and there 
 fore had to procure that metal in those countries where 
 there existed a stock of silver, where it was used as a 
 legal tender, as money. But the apprehensions of a 
 fall in gold and a rise in silver, created by the argu 
 ments of Michel Chevalier and his partisans, induced 
 the Bank of France and the other large holders of sil 
 ver, to refuse to exchange silver for gold at par. The 
 
52 MONEY. 
 
 English were thus forced to resort to the money changers 
 of the Continent, who, by paying a slight premium for 
 oilver, obtained in exchange for gold, the amounts re 
 quired by England to liquidate the balances of trade 
 due to Asia. But in 1861, the demand for silver for 
 Asia diminished so much that the premium on this 
 metal disappeared in July of that year, and the Bank 
 of France again paid it out in preference to gold. Pre 
 vious to this, however, between the 1st of July, 1853, 
 and the 1st of January, 1856, the Bank of France had 
 purchased abroad gold to the amount of 1,363 millions 
 of francs, for ivliicli it paid 14 millions of francs as 
 premiums, say over one per cent., so as to enable it to 
 retain its stock of silver ! * and it paid this premium of 
 one per cent, for gold, at the very time this metal was 
 said to be falling in value, and whilst the Bank paid it 
 out at par ! This is one result of attempting to arrest 
 or counteract a natural law ! It must not be forgotten, 
 that at the very moment that the premium on silver 
 disappeared, the relative stock of gold was greater, and 
 that of silver less, than at any time previous while 
 silver was at a premium ; and the production of gold 
 was then greater than at any previous moment. It is, 
 therefore, very evident that the premium on silver, also, 
 was no proof of any change in the natural relative 
 value of the precious metals. That the premium on 
 silver was entirely due to the demand for Asia, is not 
 only proved by the fact that the premium disappeared 
 as soon as the demand for Asia diminished, but also 
 by the following statistics : 
 
 The exportations of silver from France from 1852 to 
 
 * M. Chevalier, De la baisse probable de Tor, p. 42. 
 
MONEY. 53 
 
 1859, inclusive, exceeded the importations by frs. 1,378,- 
 862,000 ($275,750,000). The total exportation* of 
 silver from France during the same period being 
 frs. 2,505,813,178 ; * whilst the exportations of silver 
 from England and the Mediterranean ports, for China 
 and the East Indies, during those years, were frs. 1,917,- 
 500,000,f say 76J- per cent, of the entire exports from 
 France. If we take only the years 1856 to 1859, in 
 clusive, the exportations of silver from England and the 
 Mediterranean ports for China and the East Indies, 
 amount to 93 per cent, of the entire export of silver from 
 France in those years. Mr. Chevalier himself admits 
 " that the value of silver has risen at present, because 
 the demand for the metal has been suddenly increased 
 for a special destination, for exportation to Asia." J 
 
 The large exportation of silver from France, where 
 it was worth a premium, toward Asia where it only 
 circulates at its former value, is another conclusive 
 proof that the premium paid for silver was not caused 
 by an increase in the intrinsic or natural value of silver ; 
 and also, that the value of the precious metals is not 
 governed by the same natural laws that govern the value 
 of other things. If the same laws controlled the value of 
 gold and silver, that control the value of commodities, 
 how could such large exportations from France, of a 
 
 * Revue Contemporaine, 15 Mars, 1860, p. 12. 
 
 f Circular of Mr. Low, of London, January 1, 1861. 
 
 \ De la baisse probable de Tor, p. 59. " It will be found that the 
 variations in the price of silver follow the variations in the shipments of sil 
 ver to the East. ... We find that the rise in the price of silver is manifestly 
 connected with the large and extraordinary demand for silver as an articlo 
 of remittance to India and China in payment for commodities." (Took* 
 History of Prices, vol. vi, pp. 675, 676.) 
 
54 MONEY. 
 
 metal that country does not produce, have caused so 
 slight a variation in its value as that which has oc 
 curred ? Mr. Chevalier himself admits that " at this 
 moment the depreciation of gold in comparison to silver 
 is very small. . . . It is even remarkable that the fall in 
 gold, as compared with silver, has been thus far almost 
 imperceptible. In this respect, all the anticipations 
 which appeared most certain have experienced a post 
 ponement which, at first sight, would appear to over 
 throw the theory, but which however is not inexplica 
 ble."* The only explanation, however, given by Mr. 
 Chevalier, of the non-fulfilment of his predictions, is that 
 France, by permitting the exchange of her silver for 
 gold, has been a parachute to retard the fall of gold ! 
 How could the premium on silver be maintained after 
 the liquidation of the balance of trade in favor of Asia ? 
 Certainly not from a demand for coinage from England, 
 Switzerland, Belgium, Portugal, Spain, Eussia, Brazil, 
 or the United States, for in all these countries gold is a 
 legal tender, and facilitates the exchanges of commodi 
 ties better than silver, which, in most of these countries, 
 is now a legal tender for small amounts only, being only 
 coined to a limited amount exclusively for government 
 account, at a higher value than its legal value in France. 
 Certainly not from the demand for consumption in the 
 arts, for the annual production of the silver mines great 
 ly exceeds the demand for that purpose. 
 
 The British Government evidently committed a great 
 error in not encouraging the circulation of gold in India 
 Instead of doing this, the East India Company, appar 
 ently from fear of the impending fall in the value of 
 
 * De la baisse probable de 1 or, p. 228. 
 
MONEY. 55 
 
 gold predicted by Mr. Chevalier, sent instructions to 
 India to refuse, in payment of taxes, the gold mohurs 
 which had been hitherto received, and, to accept noth 
 ing but silver.* If the East India Company, instead of 
 discouraging the circulation of gold, had coined the 
 metal in India, and made it a legal tender there, this 
 convenient metal would, probably, not only have been 
 introduced into general circulation in India, but also 
 eventually into China, owing to the constant intercourse 
 between those countries. In that event, instead of trans 
 porting, as now, the greater part of the production of 
 the Australian mines to England, to be thence taken to 
 the continent of Europe, where it is exchanged for silver 
 at a premium, which silver is then carried to India, the 
 gold of Australia would go direct to India and China, 
 thereby saving heavy expenses and loss of interest, 
 whilst Europe would not feel alarm at the prospect of 
 losing her silver. 
 
 * " A gold coin was introduced, 1st September, 1835, called a mohur, 
 equal to fifteen rupees, worth 11. 9s. 2d. Previous to 1st September, 
 1835, gold as well as silver was a legal tender in India ; but under the law 
 of 1835, silver was adopted as the exclusive standard. In 1841, however, 
 the Indian Government found it expedient to authorize their collectors to 
 receive gold mohurs whenever tendered. But in December, 1852, a public 
 notification was issued, that gold coins would be no longer received by the 
 public officers. The effect of this modification, which is still in force, is 
 again to render silver the single standard metal in India. The origin of 
 the change of December, 1852, is said to have been a somewhat sudden 
 increase in the quantity of gold coin tendered by the public, and an appre 
 hension, on the part of the Government, that they might possibly be led 
 into the predicament of having to accept all payments made to them in gold 
 as the cheapest metal, and to make all payments to others in silver, the 
 dearer metal, and the only legal tender. The question is an intricate one ; 
 but it seems probable that the notification of December, 1852, was some 
 what hastily adopted." (Tooke, History of Prices, vol. vi, pp. 722, 723.) 
 
CHAPTEE Y. 
 
 IT is evident that the advent of gold could not in 
 crease the value of silver. Both metals being used for 
 the same purpose, and gold being the most convenient, 
 and, therefore, generally preferred, as soon as the stock 
 of gold sufficed for all the wants of the community, silver 
 would have been less used than formerly, and consequent 
 ly would have fallen in value, were it not a legal tender. 
 In any event, both metals being principally used as 
 money, as instruments of exchanges, gold could not fall 
 in value in consequence of an increased production, with 
 out producing a corresponding fall in the value of silver, 
 as long as both metals were used as money, at their 
 former relative legal value. It is surprising that so 
 eminent an economist as Mr. Chevalier should have 
 failed to perceive that if a redundancy of money depre 
 ciates its exchangeable value, the depreciation will affect 
 equally all the currencies that are current in the com 
 munity, no matter which may be the one that is in 
 creased in quantity. In a community where gold, silver, 
 and convertible bank notes circulate, it is perfectly im 
 material which of these currencies is increased. If gold, 
 from over supply, should diminish in value, silver and 
 bank notes would experience the same depreciation. 
 
MONEY. 
 
 57 
 
 although the quantity of the latter currencies in circu 
 lation be not increased, nay, even if they were dimin 
 ished, for if the volume of the currency affects its value, 
 it must be the aggregate amount, and not the amount 
 of any one of the several currencies, that must regulate 
 its value. In all communities where several currencies 
 exist, the one least desired or most easily or economical 
 ly obtained, is invariably most used, and thus maintains 
 its value and prevents the rise of the other currencies. 
 
 All variations in the value of mixed currencies, as 
 long as they all remain a legal tender or are willingly 
 accepted, is expressed tfr shown by a premium on the 
 preferred, and not by a discount on the less desired 
 currency. 
 
 Mr. Chevalier, whilst advocating the adoption by all 
 European nations of silver as the standard, denies that he 
 desires to have gold abandoned as money. He proposes 
 that gold should be coined, by stamping on the coins 
 the weight and fineness of the metal they contain, and 
 that they should then be received and paid by the com 
 munity, either at their daily value at the several ex 
 changes, measured by silver, or at the value that 
 governments should, periodically, establish. Had he 
 reflected that nothing that fluctuates constantly in 
 nominal value can properly perform the functions of 
 money, he would have perceived that this idea was im 
 practicable, and would simply result in the demonetiza 
 tion of gold, to the great inconvenience of all communi 
 ties, as they would thus lose the use of the most conven 
 ient metallic currency. The withdrawal of gold from cir 
 culation could not fail to create serious disturbances in 
 the operations of commerce and industry, for the value 
 3* 
 
58 MONEY. 
 
 of all things would then have to be measured, and all 
 exchanges would have to be carried on with one metal 
 alone, silver, the stock of which is evidently insufficient 
 for all the requirements of the world. Holland at 
 tempted to use gold coins having no fixed value, and 
 the result was, as we predicted before the experiment 
 was made, that after about 200,000 florins had been 
 coined, the demand ceased entirely ! Michel Chevalier 
 acknowledges that commerce, in consequence of their 
 uncertain value, makes little use in Holland of these 
 new gold coins." * Germany made the same experiment, 
 with similar results. f 
 
 Everything indicates that the advantages of the 
 demonetization of gold are purely imaginary. The 
 main argument for demonetizing gold is that the large 
 production of this metal at present will reduce its 
 value. But will its demonetization prevent the fall of 
 gold if it must take place ? Evidently not ; on the con 
 trary it would hasten and increase the fall greatly, for 
 the enormous amount now used as coin would then all 
 be offered for consumption as a commodity, and as the 
 yearly consumption in the arts is at present but a small 
 portion of the annual production of the mines, gold 
 
 * De la baisse probable de 1 or, p. 89. 
 
 f " Holland and Germany attempted to retain gold in circulation with 
 out giving it a fixed value. In one case the value was to be settled by the 
 parties in interest when used ; in the other it was to pass current at rates to 
 be announced every six months by the governments. But these states do 
 not appear to have succeeded in retaining in circulation an amount of gold 
 worth mentioning." (E. de Parieu, Revue Conternporaine of Paris, 15th 
 March, 1860, p. 13.) 
 
 " In Holland and in Belgium, gold continues to circulate, but simply as 
 a commodity whose value is daily adjusted by commerce, and consequently 
 it is but little used: (Michel Chevalier, De la baisse probable de 1 or, p. 89.) 
 
MONEY. 59 
 
 would have to fall, not only to a price that would arrest 
 all further production for the present, but even to one 
 so much below the cost of production as to tempt cap 
 italists to purchase and store it until needed for con 
 sumption. Imagine the fall that would have to take 
 place to induce capitalists to purchase a commodity 
 that might remain on their hands twenty, thirty, or 
 forty years, according as the demand might be stimulat 
 ed by the reduction of price ! 
 
 Mr. Chevalier says that if the plan be adopted of 
 regulating the value of gold by periodical government 
 edicts, the individual members of the community need 
 only hold, at those periods, such amount of gold as 
 they chose ! * How could this be done ? All that ex 
 ists must be held by somebody. What one sells, an 
 other must buy. And by attempting to sell at the 
 approach of those periods, the fall in value would proba 
 bly exceed the depreciation that would be announced 
 by the government edict, so that instead of escaping 
 the loss by selling the gold before these periods, it is 
 probable it would only aggravate it. 
 
 The production of the two metals was formerly 1 oz. 
 of gold to 46 oz. of silver ; whereas in 1853 it was 
 1 oz. of gold to 4 oz. of silver ; and yet no fluctuations 
 in value exceeding 3 or 4 per cent, have ever taken place 
 since this great change in the relative production of the 
 precious metals ; f and all these fluctuations were clear 
 ly caused by other reasons than a change in the value 
 
 * DC la baisse probable de 1 or, p. 235. 
 
 f " The production of gold from 1800 to 1848 was equal to fifty-eight per 
 cent, of the total stock in 1 800, without affecting, in any way that can be 
 discovered, the relative value of gold." (Tooke, History of Prices, vpl, vi, 
 p. 232.) 
 
60 MONEY. 
 
 of gold as a commodity. If so great an alteration in 
 the relative production of the two metals has produced 
 no alteration in their relative value, is it probable that 
 any future alteration in their production can produce 
 any effect so long as both metals continue to be princi 
 pally used as money ? 
 
 Belgium demonetized gold, but reaclopted it in 
 1861, making both metals once more a legal tender, at 
 the urgent and reiterated requests of her commercial 
 and industrial interests, and in defiance of the opinion 
 of the theorists. The fact is, the advantages of the 
 double standard are so great, that all the countries 
 that use gold as the onty legal standard, invariably coin 
 silver, slightly debased, and make it a legal tender for 
 limited amounts. The discarded metal thus still forms 
 a more or less considerable portion of the currency. 
 In England, for example, the silver in circulation forms 
 a fifth or a sixth of the whole metallic currency. * Is 
 not this currency given to silver where gold alone is 
 made the legal standard, an ample acknowledgment 
 of the superiority of the double standard ? The act of 
 1844 authorizes the Bank of England to hold in the 
 issue department silver to the extent of one fourth 
 of the amount of gold bullion and coin held at any 
 particular time. Sir Eobert Peel, in presenting the 
 bill of 1844, said that a certain portion of the bank 
 issues would be allowed to be on silver bullion, " as the 
 export of silver bullion was a proper remedy for the in- 
 
 * "The amount of gold in circulation in Great Britain, including that 
 in the Bank of England, is variously estimated at from forty-four to sixty 
 millions sterling. The silver is estimated at 11,000,000, but that includes 
 the coin in the colonies." (Gilbart on Banking.) 
 
MONEY. 61 
 
 convenience of our standard differing from that of 
 other nations. It was therefore of great importance to 
 insure such a stock of silver in this country as might 
 meet the wants of merchants and prevent their having 
 to send to tie Continent for it" * The committee of the 
 House of Lords of 1847 recommended that the act of 
 1844 be amended so that the issues of bank notes on 
 silver might be extended." f John Horsley Palmer, 
 Esq., then a director of the Bank of England, in 1848 
 testified before a committee of the House of Commons 
 that one of his objections to the bank act of 1844, "is 
 the li-nitntion of the quantity of silver bullion permit 
 ted to be held in the issue department : seeing that 
 silver is equally available with gold for foreign pay 
 ments, a portion of that restriction might, with perfect 
 safety, be withdrawn, and thereby greater facilities af 
 forded in meeting an unfavorable exchange." J. 
 Pease, Esq., testified before the same committee that he 
 paid wages to the extent of 10,000 to 15,000 per 
 month, and added, " I should like to see silver a legal 
 tender to a larger amount 200, or at least 100." 
 Mr. Thomas Baring said, in a speech in Parliament in 
 1848 ; " I know an instance in 1847 where it was found 
 impossible to raise a penny upon 60 3 000 worth of 
 silver, a precious metal, a legal tender in most parts of 
 the civilized world. It was not a question of price with 
 the bank, but a question affecting its own safety. The 
 bank could only issue notes on silver to the extent of 
 one fifth of the bullion in the bank, and as they had 
 
 * Macleod, Theory and Practice of Banking, vol. ii, p. 297. 
 f Tooke, History of Prices, vol. v, p. 492. 
 
62 MONEY. 
 
 not a sufficient amount of gold to be within this limi 
 tation, they could not purchase the silver." * 
 
 It is self-evident that there are great disadvantages 
 in the adoption by different countries of different metals 
 as the legal standard. How could France, were she 
 to adopt silver as the only legal standard, liquidate a 
 balance of trade in favor of England, where gold alone 
 is a legal tender ? And how could England then liqui 
 date a balance of trade in favor of France ? Such a 
 state of things would render the legal money of both 
 countries useless as means of liquidating balances of 
 trade in favor of the other, and yet this is one of the 
 most important functions of coin at the present day. 
 And this would be compensated by no advantage, for 
 the resort to a single standard cannot prevent the ex 
 portation of the metal used as the standard, whenever 
 it is required in other countries ; it only adds to the 
 inconvenience produced by the exportation, as the metal 
 exported cannot be replaced by the other, as when the 
 the double standard is used.f When England has to 
 pay silver to Asia, where can England obtain it, except 
 in the countries where it exists in abundance ? and 
 that is, invariably, the countries where it is used as a 
 
 * Alison s History of Europe, vol. viii, p. 101, American edition. 
 
 j- " Belgium, as is well known, has demonetized gold : the measure was 
 a good one ( ! ! ), and yet that country has also suffered from the exporta 
 tion of its silver coin." (R. de Fontenay, Journal des Economistes, June, 
 1860, p. 396.) 
 
 " Germany, that uses silver almost exclusively, has found it very diffi 
 cult to prevent the exportation to England, via Hamburg, of this sole 
 metallic circulation." (E. de Parieu, Ilevue Contemporame, 15th March, 
 1860, p. 14.) 
 
MONEY. G3 
 
 legal tender ; for to those countries alone, where it is a 
 legal tender at its full value, does either metal flow. 
 
 As each of the precious metals offers peculiar ad 
 vantages for special purposes, it is the interest of all 
 nations that both should be universally coined and 
 used as legal tenders. Why should governments re 
 fuse to render the service of certifying the quantity 
 and quality of either of the precious metals, which is 
 all they do by coining them, merely because it may be 
 at a premium for exportation ? Does not the foreign 
 trade merit assistance and protection as well as the 
 home trade ? If a premium on a metal be a sufficient 
 reason to cease to coin it, the owners of the bullion will 
 cease to carry it to the mint to be coined. But it is 
 absurd to enact a law forbidding the state from render 
 ing this service, when the owners of the bullion request 
 it, whatever be the use they may afterward make of 
 the coin. 
 
 To-day there is more danger, despite all the argu 
 ments of Michel Chevalier and his partisans, that silver 
 will be universally demonetized than gold, for already 
 Kussia, Portugal, and Chili have followed the example 
 of England, making gold the only legal standard. In 
 Switzerland and the United States, both gold and silver 
 are yet a legal tender, but the fractions of the dollar 
 in the United States, and the coins under 5 francs in 
 Switzerland, are only a legal tender for limited amounts, 
 being slightly debased, and coined solely for account of 
 the government. There can be no serious objections 
 to the system adopted by the United States and Swit 
 zerland, if the debased coins were redeemed by the 
 governments that issue them, whenever presented for 
 
64 MONEY. 
 
 that purpose, so as to prevent over issues. This should 
 also be d*ne in regard to all copper and nickel coins, 
 which are generally issued by the mints at a much 
 higher value than that of the metal they contain. 
 
 Mr. Chevalier says the exchange of silver at a 
 premium for gold at par is a disastrous exchange for 
 France ! * How so ? Does a country ever export 
 what is needful to the well-being of its own inhabit 
 ants ? The fact that a product or a precious metal 
 is exported in exchange for something else, is proof 
 positive that both parties to the exchange are bene 
 fited thereby, for otherwise the exchange would not 
 be made. Every commercial operation is made because 
 it is supposed to be advantageous by both seller and 
 buyer. All commercial transactions, freely repeated, 
 must be advantageous to the individuals making them, 
 and, consequently, to the nations of which they are 
 citizens ; for the prosperity of a nation depends entirely 
 on the prosperity of the individuals composing the 
 nation. The idea that there can be a national interest 
 distinct from individual interest, is a legacy of the olden 
 times, which political economy is slowly destroying ; but 
 unfortunately the error yet exists in the minds of many 
 considered intelligent and enlightened ! 
 
 Mr. de Parieu also says that the community in 
 France suffers from the exchange of silver at a premi 
 um for gold at par ; and yet he subsequently acknowl 
 edges that the gold received renders the same services 
 as the silver given in exchange. f Furthermore, he 
 asserts that the scarcity of silver has induced the coun 
 terfeiting of silver coins ! J But he admits, subsequently, 
 
 * De la baisse probable de Tor, p. 190. 
 
 f Revue Contemporaine, 16th March, 1860, p. 14. \ Ib., p. 15. 
 
MONEY. 65 
 
 he has also heard of some cases of counterfeiting the 
 gold coins.* He asserts that the exportation of silver 
 from France is the consequence of the rise in value of 
 that metal ; f whereas, evidently, the rise in the value 
 of silver is the consequence of the demand for that 
 metal for exportation, for the moment that demand 
 ceased, silver fell to its former value. 
 
 Mr. de Parieu quotes the following extract from a 
 report of the Federal Council of Switzerland : " There 
 yet remains in France about 1,000 millions of silver, 
 and if the French Government does not delay too long, 
 it may secure for its own benefit the profit which specu 
 lators will otherwise obtain/ J But to whom does this 
 silver belong ? to the government, or to the individual 
 holders ? If to the latter, why should they not profit 
 by the rise in its value, if there be any ? By what right 
 can the government claim it ? 
 
 Mr. de Fontenay says, silver is the preferable stand 
 ard, because it cannot vary in value as much as gold, 
 as the cost of production of silver is greater than that 
 of gold. Is not the talented editor of BaGtiat s works 
 advancing here the very doctrine so admirably and so 
 wittily refuted by Bastiat in his Sophismes Economiques, 
 " that fertility is injurious that abundance and cheap 
 ness are disadvantageous scarcity and dearness desir 
 able " ? 
 
 Had France, when gold was scarce and at a pre 
 mium, attempted to introduce it largely into her circu 
 lation by increasing its legal value, she would have lost 
 
 * Revue Contemporaine, 16th March, 1860, p. 16. 
 f Journal des Eoonomistes, April, 1860 p 1 
 t Ib., p. 16. 
 Ib., June, 1860, p. 398. 
 
66 MONEY. 
 
 the premium she would have had to pay for the gold, 
 at the same time that she would have driven to other 
 countries, as was the case with the United States, the 
 silver she has since sold at a premium in exchange for 
 gold at par. We have here an evidence of the advan 
 tages to be derived by allowing things to take their 
 natural course, without interference from human laws 
 and regulations. 
 
 From what precedes it follows : 
 
 1st. That money is the measure of the relative 
 value, or rather the common denominator of the value, 
 of all things except itself. 
 
 2d. That the value of money can only be measured 
 by its exchange for other things. It is just as impossi 
 ble to measure the value of money by money itself, or 
 by the bullion of which it is made, as to measure the 
 value of a bushel of wheat by another bushel of the 
 same wheat, or to ascertain the value of a fraction of 
 which the denominator alone is given. * 
 
 3d. That if money cannot measure the value of 
 money, it is just as impossible to measure the value of 
 gold coin by silver coin, or vice versa, so long as they 
 are both a legal tender, as to measure the value of a 
 bushel of wheat by the value of two half bushels of the 
 same wheat. 
 
 * " When the coin is of full weight, and the mint charges nothing for 
 coinage, coin and bullion must be of precisely equal value, and cannot 
 measure one another. We might as well talk of the weight of water in 
 water, or of the value of lead in lead, as of the price of gold in gold. Were 
 an ounce of gold to fall one tenth of its present cost of production, or to 
 cost ten times as much labor as it does now, still, while the regulations of 
 the mint are unaltered, it will be worth 31. 17s. !Qd." (Edinburgh Re 
 view, October, 1846, p. 89.) 
 
MONEY. 67 
 
 4th. That the relative value of the precious metals, 
 as long as used as money, depends entirely on the re 
 lative value at which governments make them a legal 
 tender ; but this legal relative value in one country 
 affects their relative market value in another country, 
 when there is a balance of trade to be liquidated in coin, 
 arid the relative legal value is not uniform in both coun-. 
 tries. If the difference in the relative legal value of the 
 two metals in two countries be sufficiently large, it may 
 even cause one to be exported without regard to the 
 balance of trade, in which case one metal would con 
 stantly be worth more than its legal value in the coun 
 try where it was valued lowest. 
 
 The true and only effectual remedy for all variations 
 in the relative value of gold and silver would be a con 
 gress of all the commercial nations, to adopt one uni 
 form relative value for the two metals, both of which 
 should be used everywhere as legal tenders, for it cannot 
 be doubted that two useful instruments are preferable 
 to one. Once establish everywhere a uniform rela 
 tive value between gold and silver, and make them 
 both a legal tender in all commercial countries, and 
 immediately all variations in their relative value will 
 disappear, because either metal will then liquidate equal 
 ly well a balance of trade at any point. Gold, being the 
 most convenient to transport, will be generally preferred 
 for foreign payments, and, consequently, without debas 
 ing them, there will be no tendency to export the 
 smaller silver coins indispensable to the convenience of 
 local exchanges. The same congress might also adopt 
 some universal system of coinage that would prevent the 
 present needless expense of recoining foreign coins 
 when received in liquidation of balances of trade. This 
 
68 MONEY. 
 
 desirable object can be far more readily attained than 
 is generally supposed. In Spain, in Mexico, and in all 
 the republics of South America, accounts are kept in 
 dollars varying little or not at all from the milres in 
 which accounts are kept in Brazil and Portugal, and 
 from the rix-thalers in which they are kept in Denmark 
 arid Sweden. The Austrian, Saxon, and Lubec rix- 
 thalers, as well as "the Roman, Venetian, and Sicilian 
 scudos, and the Parma ducat, all have nearly the same 
 value as the Spanish dollars. In France, Belgium, 
 Switzerland and Sardinia, accounts are kept in francs 
 of a perfectly uniform value, and in England in pounds 
 sterling, represented by the sovereign. There is at pres 
 ent but a very trifling difference in the value of a sov 
 ereign, 5 dollars, milres, rix-thalers, scudos, or ducats, 
 and 25 francs. If the different nations would only 
 agree that, hereafter, 25 francs, 5 dollars, milres, rix-tha 
 lers, scudos, or ducats, and a sovereign, should contain 
 precisely the same quantity of fine gold, or a relative 
 quantity of fine silver, at the relative value of the two 
 metals which shall be fixed by the congress, these several 
 coins or moneys, and their several fractions, could there 
 after be made a legal tender everywhere, and they would 
 all form a round sum in the money of every other coun 
 try; so that with the exception of Russia, some portions 
 of Germany, and possibly some portions of Italy, all 
 civilized nations might retain the present denominations 
 of their coins, and yet have them form a portion of a 
 universal currency. The advantage of retaining the 
 coins and denominations in use at present, cannot be 
 overestimated, for nothing is more difficult than to 
 change long-established usages or habits. Some por 
 tions of Germany, and possibly of Italv, would have to 
 
MONEY. 69 
 
 change their present coins, but in these cases the change 
 would not be very difficult, because the French coins are 
 well known, and already circulate freely in every portion 
 of those countries. In Russia, the change would be 
 more radical and more difficult, but as the present sys 
 tem of money in Russia is quite complicated by different 
 issues of roubles, each having a different value, besides 
 a legal paper currency constantly varying in value, the 
 change, if once made, would undoubtedly simplify the 
 currency, and be much for the better in every respect 
 The new system could be made entirely decimal, if Eng 
 land would merely modify some of her small coins, and 
 the present complicated calculations required to reduce 
 the currency of one country into that of any other, 
 would then become quite simple and easy. 
 
 The proposed system will be clearly understood in 
 all its details by the following table, which shows what 
 would be the value of each coin now in use, in the cur 
 rency of all the other countries : 
 
 Under the proposed system, 
 
 In the United States, In France, 
 
 In England. Spain, Portugal, &c. Belgium, &c. 
 
 The sovereign or 20 shillings, would be equal to $5.00 or frs. 25.00 
 
 16 " " " 4.00 " 20.00 
 
 10 " " 2.50 " 12.50 
 
 8 " " " 2.00 " 10.00 
 
 4 " " " 1.00 " 5.00 
 2 " " " 0.50 " 2.50 
 1 " " 0.25 " 1.25 
 
 10 pence " " 0.20 " 1.00 
 
 5 " " " 0.10 " 0.50 
 2 i " " " 0.05 " 0.25 
 1 penny " " 0.02 " 0.10 
 
 i " " " 0.01 < 0.05 
 
CHAPTEK VI. 
 
 PAPER MONEY. 
 
 KICAKDO said that money in its most perfect state, 
 is paper money, and he undoubtedly is perfectly right 
 in this assertion. Paper money is preferable to any 
 other because it is lighter, more easily handled, counted, 
 and transported, than any other money ever used, at 
 the same time that it offers the great additional advan 
 tage of being the cheapest material out of which an in 
 strument to facilitate the exchanges of commodities 
 and services can be made. Adam Smith said : " The 
 substitution of paper in the room of gold and silver 
 money, replaces a very expensive instrument of com 
 merce with one much less costly and sometimes equally 
 convenient. Circulation comes to be carried on by a 
 new wheel, which it costs less both to erect and to main 
 tain than the old one." * Another eminent writer on 
 money said : " In proportion as the instruments of com 
 merce or the machinery of manufactures are of a less 
 expensive construction, the articles which they contri 
 bute to produce may be afforded at a lower rate. To 
 employ paper money instead of gold, is to substitute a 
 
 * Wealth of Nations, vol. ii, p. 25 ; London edition, 1819. 
 
MONEY. 71 
 
 very cheap instrument of commerce in the room of an 
 expensive one." * 
 
 The great and only difficulty in regard to paper 
 money, is the abuses and errors which have attended its 
 use.f But is this a valid reason for refusing, as many 
 desire and propose, to use a great and beneficial instru 
 ment of human progress and well being ? Is not every 
 thing used by man, including his own faculties, suscep 
 tible of being abused ? Water, fire, food, education, 
 amusements, all things that contribute to the welfare of 
 humanity when properly used, also produce suffering 
 when improperly used. Suffering is a valid reason for 
 ceasing the improper use of anything, but not for ceas 
 ing its use altogether. The great aim of man must be 
 to discover the proper and beneficial use of all things. 
 With paper money, as with everything else, the great 
 point is to ascertain clearly what is its proper, and what 
 its improper, use. To this end it is necessary to refer to 
 the experience of the past, and to submit to a close and 
 careful analysis all the facts we can discover bearing 
 on the question sole means of knowledge within man s 
 reach in this world. With that view, we shall begin 
 by recalling briefly the results of a few of the experi 
 ments in regard to government issues of paper money. 
 
 The French Government, on the 2d May, 1716, 
 during the regency of the Duke of Orleans, authorized 
 
 * Quoted in Rees Encyclopaedia, Paper Currency. 
 
 f " If there were perfect security that the power of issuing paper money 
 would not be abused, that is, if there were perfect security for its being 
 issued in such quantities as to preserve its value relatively to the mass of 
 circulating commodities nearly equal, the precious metals might be entirely 
 dispensed with, not only as a circulating medium, but also as a standard to 
 which to refer the value of paper." (McCulloch, Money.) 
 
72 MONEY. 
 
 the celebrated Law to establish a bank with a capital 
 of 6,000,000 livres. Its notes were, by royal edict, 
 made receivable in payment of taxes, and, by a subse 
 quent edict, the tax receivers were even ordered to re 
 deem them in specie on presentation. This at once 
 gave them such currency that the circulation of the 
 bank soon reached 50 millions of livres. The deposits 
 of gold and silver in exchange for bank notes increased 
 every day. In less than two years, Law completely 
 introduced bank notes into circulation in Franc 3, where 
 before they had been entirely unknown. 
 
 Law s object was, finally, to establish a national 
 bank that should collect the entire public revenue, in 
 the place of the " Ferrniers Generaux," and administer 
 all the commercial privileges that might be granted to 
 it by the Government. The emission of bank notes to 
 the extent of ten times the capital of the bank was, 
 in his eyes, too limited a result. He conceived the idea 
 of uniting all the capitalists of France, so as to control 
 all the elements of national wealth, from the landed 
 estates to the colonial trade. What security could be 
 more ample than the whole of France ? But Law did 
 not dare to present this project in all its majestic sim 
 plicity. Public opinion would not, as yet, permit it. 
 He was forced to graft his national bank on some in 
 stitution that would accord with the prejudices of his 
 contemporaries ; and, unfortunately, the then prevailing 
 mania for colonization furnished him the opportunity 
 to establish a company to trade to the Mississippi. This 
 led to the organization of the " Compagnie des Indes 
 Occidentals" (West India Company), in August, 
 1717, as an adjunct to Law s bank, with a capital of 
 
MONEY. 73 
 
 one hundred millions of livres ; and, as an inducement 
 to subscribe to the shares, they were authorized to be 
 paid for, one fourth in coin and three fourths in " bil 
 lets d etat" (state notes), which were then greatly 
 depreciated. The West India Company received the 
 grant of the sovereignty and exclusive trade of Louis 
 iana, and the monopoly of the Canada fur trade. 
 
 But the main cause of the final catastrophe was, 
 that on the 4th December, 1718, two and a half years 
 after its creation, Law s bank was declared the Koyal 
 Bank of France ; the Government guaranteed the notes 
 issued by Law s bank, and reimbursed the old share 
 holders in coin ; and for all payments above six hundred 
 livres. gold and bank notes alone were declared a legal 
 tender. It thus ceased to be a private enterprise, man- 
 ag3d and controlled by the vigilant motive of self- 
 interest, and became exclusively an engine of the state. 
 To the West India Company was further granted, on 
 the 4th September, 1718, the tobacco monopoly ; on 
 the 20th July, 1719, the administration of the mint ; 
 and in May, 1719, all the privileges and trade of the 
 several maritime companies (the China, the Senegal, 
 and the East India companies) were transferred to it, 
 and ifc assumed the name of the " Compagnie des 
 Indes." . 
 
 In consequence of these successive annexations, be 
 sides its issues of bank notes, the company was forced 
 to issue sundry series of shares. The number of shares 
 originally 200,000 of 500 livres each was aug 
 mented in May, 1719, by an issue of 50,000 new 
 shares, known as " the daughters/ and by a second 
 issue of 50,000 in July, 1719, known as "the grand- 
 4 
 
74 MONEY. 
 
 daughters." A few months later, after the lease of the 
 "fermes" (taxes) had been granted to the company, 
 and it had promised to loan 1,500 millions of livres 
 to the state, four other emissions were made, which 
 carried the total number of shares to 624,000. The 
 rage for them was so great that their price rose from 
 par (500 livres) up to 18,000 livres per share ! On the 
 other hand the issues of bank notes, which, by the 
 edicts authorizing them, were to be limited to 1,200 
 millions amount about equal to the specie in the 
 kingdom were admitted by the Government to have 
 been carried to 2,700 millions ; and, according to gen 
 eral opinion, the amount issued was really 3,000 mil 
 lions of livres ! 
 
 To encourage the circulation of the bank notes, in 
 December, 1719, an edict ordered that, thereafter, they 
 should always be worth five per cent, more than specie ! 
 that silver should only be iised in payments under 100 
 livres, and gold in those under 300 livres. To check 
 the growing desire to purchase jewelry and precious 
 stones, as means of obtaining something of intrinsic 
 value in exchange for the bank notes, in which confi 
 dence was declining, it was forbidden to wear pearls, 
 diamonds, and other precious stones. The transporta 
 tion of specie was prohibited between towns in which 
 there were branches of the bank. By edicts of the 
 23d and 25th February, 1720, it was made obligatory 
 to use bank notes in all payments over 100 livres. ISTo 
 person was permitted to hold more than 500 livres in 
 specie, under penalty of confiscation and a fine of 
 10,000 livres ; and informers were to receive one half 
 of all amounts confiscated. The use of the precious 
 
MONEY. 75 
 
 metals for objects of art or luxury, was regulated and 
 limited, so as to prevent an evasion of the limitation of 
 the amount of gold and silver that might be in the 
 possession of any one person. Finally, an edict of 
 llth March, 1720, forbade any payment being made in 
 specie. 
 
 As it was feared that the fall in the price of the 
 shares of the India Company might increase the 
 discredit of the bank notes, it was decreed on the 5th 
 March that the price of the shares should be thereafter 
 9,000 livres, and an office was opened in the bank, 
 where the shares could be exchanged for bank notes, or 
 bank notes converted into shares, at that price. This 
 decree, instead of benefiting the bank notes, caused a 
 rapid depreciation of their market value. In February 
 they were worth ninety per cent., but after the 5th 
 March only sixty to fifty. 
 
 On the 21st May ; 1720, an edict reduced the value 
 of the shares to 8,000 livres ; and ordered that on the 1st 
 July it should be further reduced to 7,500 livres, and 
 should thereafter be reduced monthly 500 francs, until 
 the 1st December, when their value would become 5,000 
 francs, which thereafter was to be their permanent 
 value. The bank notes were only to pass current at 
 eighty per cent, of their par value until the 1st of July, 
 when they were to be reduced to seventy-five per cent., 
 and thereafter further reduced 5 per cent, every month, 
 until the 1st December, when they were to be current at 
 fifty per cent., which was thereafter to be their perma 
 nent value. From that moment the whole paper fabric 
 fell to the ground ; the notes lost all credit, none would 
 meddle with them ; on the 22d May any one might have 
 
76 MONEY. 
 
 starved with a hundred millions of paper money in 
 his pocket. The edict created such excitement among 
 all classes that the Kegent revoked the edict on the 
 27th May. But all confidence being now gone, this 
 revocation had no other effect than to increase the mis 
 chief, hy throwing again into the channels of commerce 
 notes universally discredited, with which knavish per 
 sons paid and ruined their lawful creditors. To render 
 matters worse, payments were the same day stopped 
 at the hank, commissioners being sent to seal up the 
 vaults and examine the books, under the pretext of in 
 quiring into frauds alleged to have been committed by 
 the clerks, but in reality to prevent the specie from 
 being paid away in exchange for notes. 
 
 When the bank thus stopped payment, the circula 
 tion was 2,235,085.590 livres, and the specie in its 
 vaults 336,011,050 livres. On the 10th June the bank 
 was opened for the payment of notes of ten livres. On 
 the llth it was announced that the notes of 100 livres 
 would be changed into small notes, but only one for 
 each person, and the 12th and 13th were appointed for 
 the payment of the notes of ten livres. This drew to 
 gether an immense number of persons, who were with 
 difficulty controlled by the troops. The 17th July was 
 appointed for the payment of the notes of 100 livres, 
 on which day so extraordinary a concourse of people 
 assombled, and the struggles to reach the bank were 
 such, that it is said no less than twenty persons were 
 suffocated. On the 30 ih July an edict doubled the 
 legal value of gold and silver, which, however, was to 
 be gradually reduced again, month by month, to their 
 former legal values, the object being, by the temptation 
 
MONEY. 77 
 
 of a temporary high value, to induce the holders of 
 coin to put it into circulation, but the edict failed in 
 attaining this object. 
 
 In June, 1720, twenty-five millions of livres of per 
 petual annuities, bearing interest at two and a half per 
 cent, per annum, and four millions of annuities on lives, 
 bearing interest at four per cent, per annum, were cre 
 ated to redeem the bank notes. In July six hundred 
 millions of rentes, and in August eight millions more of 
 perpetual annuities, bearing interest at two and a half 
 per cent, per annum, were created for the same pur 
 pose. The terms offered were considered very onerous, 
 and the people did not subscribe to them as rapidly as 
 desired. An edict was therefore issued on the 15th 
 August, declaring that the notes of 10,000 and of 
 1,000 livres should no longer circulate, except in pay 
 ment of the annuities and rentes ; and, by a subse 
 quent edict, all payments in notes were prohibited after 
 the 1st November, 1720. The consequence was that, 
 many persons having neglected the opportunities of 
 funding their bank notes within the limited time, large 
 amounts proved a total loss. 
 
 With regard to the shares, by an edict of 3d of June, 
 1720, 100,000 belonging to the king, and 300,000 in 
 the hands of the company were cancelled ; 200,000 new 
 shares were created and issued in exchange for old shares, 
 share for share, against a payment of 3,000 livres on 
 each share, or two new shares for three old shares ; 
 the dividend on the new shares was fixed at 360 francs. 
 Soon afterward 50,000 additional new shares were 
 issued on the same conditions. The farm of the taxes, 
 the mint, and the royal revenues were taken from the 
 
78 MONEY. 
 
 company, which thus became a mere trading company. 
 On the 24th of October, an edict directed a list to be 
 made out of all the original proprietors of shares. Those 
 who possessed the full number subscribed for, were 
 ordered to deposit them with the company those who 
 had either sold the whole or part, were to recomplete 
 their original number by purchasing from the company 
 the deficient shares at 13,500 livres per share. As 
 many persons upon this attempted to leave the country 
 with their property, on the 29th of October, all persons 
 were prohibited, under pain of death, from quitting the 
 kingdom without express permission of the regent. 
 
 These operations concluded, it was found that the 
 total amount of the public debt on the 1st of January, 
 1721, was 2,289,762,849 livres, besides 125,024 shares 
 of the India Company, valued at 899,638,855 livres, 
 making a total of 3,189,401,705 livres, the annual in 
 terest on which was 99,588,375 livres. 
 
 The ministry, finding it impossible for the nation to 
 sustain, for any length of time, so heavy a charge, issued 
 an edict, dated 26th of January, 1721 , appointing a com 
 missioner to take an account of the claims of the state 
 creditors, which were to be divided into five classes ; 
 the first four classes were to be composed of those who 
 had acquired their claims by money paid to the king 
 when he discharged the old debt of the state, by the 
 sale of heritable and movable property, and by the 
 disposal of merchandise or other effects, while the fifth 
 and last class were to comprehend all who could give no 
 fair or satisfactory account of the origin of their claims. 
 Deductions at different rates, proportioned to the favor 
 able or unfavorable circumstances attending the claims, 
 
MONEY. 79 
 
 were ordered to be made from the first four classes, except 
 claims of or under 500 livres, which were to be paid in 
 full. Those of the fifth class were ordered to be total 
 ly cancelled. 
 
 The claims deposited under this decree represented 
 2,222,597,491 livres, which were reduced by the com 
 missioner to 1,676,501,831 livres. The shares were re 
 duced from 125 ,024 to 56,000, and the dividends on them 
 were reduced from 360 to 100 livres per share for the 
 first ensuing year, and 150 livres thereafter, exclusive 
 of their proportion of the profits of the trade of the com 
 pany. The expenses of the commission were 9,045,- 
 875 livres. The notes at the time of the suspen 
 sion of the bank had fallen to 80 per cent, discount, 
 and on the 12th of February, 1721, they were only 
 worth 4 per cent. Thus ended the bank and the Com- 
 paigne des Indes.* 
 
 Our second illustration of government paper issues 
 is also taken from the history of France. 
 
 Tlje National Assembly of France decreed, on the 
 1st of April, 1790, the emission of assignats, based on 
 and in anticipation of the sale of the confiscated landed 
 estates of the emigrant nobles and clergy, in payment 
 of which they were to be received. 
 
 The first issue was of 400 millions of francs, but 
 others followed rapidly, and they soon began to depreciate 
 in value. The Government resorted to the most violent 
 and despotic measures to sustain the value of the assig 
 nats, such as prohibiting the use of metallic coin ; estab 
 lishing maximum prices for commodities ; inflicting 
 severe penalties on all who paid or received them at less 
 
 * Thier s Life of Law. Wood s Life of Law, Edinburgh, 1824. 
 
80 MONEY. 
 
 than their par value ; and in 1796 even death was de 
 creed against all who should refuse to receive assignats 
 at par. But all in vain. These measures were power 
 less to arrest the depreciation. There was a temporary 
 reaction in 1793, when, by means of a forced loan, 840 
 millions were redeemed, cancelled, and burnt ; but in 
 1795 the Government made another forced loan, in 
 payment of which the assignats were only received at 
 one per cent, of their nominal value ! How could they 
 continue to circulate as money, when the very Govern 
 ment that had issued them refused them in payment of 
 loans and taxes ? Further large issues were however 
 made ; they soon fell to one half of one per cent., and 
 finally, in the beginning of 1796, to zero. Toward the 
 end, 8,000 to 10,000 francs were paid for a pair of boots ; 
 600 to 700 francs for a pound of butter, and 20 to 30 
 francs for a stick of barley sugar ! 
 
 In 1796 the assignats were withdrawn and redeemed 
 at 3\th of their nominal value, with " mandate," which 
 entitled the holder to take possession of public lands at 
 their estimated value, whilst the assignats could only be 
 offered in payment at a sale of public lands. The man- 
 dats never obtained circulation as money, but fell at 
 once into the hands of speculators. When first issued, 
 they soon were only worth T V th of their nominal value, 
 and in the course of 1796 they were returned to the 
 Government in payment of taxes and lands. In July, 
 1796, the whole system of paper money came to an end 
 by the enactment of a law permitting business to be 
 transacted in any circulating medium, and making 
 mandats receivable in payment of taxes only at their 
 current value in trade. Mr. G. de Puynode, in his able 
 
MONEY. 
 
 81 
 
 and interesting work, " De la Monnaie, du credit et de 
 ttmpot," says, " such are the terrible perturbations pro 
 duced in communities by a forced circulation of paper 
 money. An inevitable fatality urges the Governments 
 that use it, toward its abuse ; for a forced circulation of 
 paper money is always resorted to in moments of crisis, 
 when the ordinary resources are insufficient. A first 
 excess in the issue of paper money, rendered necessary 
 by excessive expenditures, produces a depreciation in the 
 value of the money received in payment of the 
 taxes levied, and this depreciation obliges the Govern 
 ment to make further issues to augment its resources, 
 BO as to compensate the depreciation in the value of the 
 taxes ; and so on, ad infinitum, until the value of the 
 paper falls to zero, which is equivalent to general, or 
 rather national bankruptcy." 
 
 Progress of the emission of assignats, and of their 
 depreciation. 
 
 The amount of the first emission of 
 
 1st April, 1790. was, . . 400 million frs. 
 They had reached, by the end of Discount. 
 
 1790, 1,200 10 per cent. 
 
 The amount in Sept., 1792, was, 2,700 37 
 
 " Sept., 1793, was, 5,000 , 55 
 
 After this, a forced loan was decreed, that redeemed 
 840 millions, which were burned ; but by the beginning 
 of 1794, new issues had raised the amount to over 5 7 000 
 millions. 
 
 Discount. 
 
 The amount in June, 1794, was, 6,636 million frs. 
 
 " March, 1795, was, 8,000 78 per cent. 
 
 " Oct., 1795, was, 19,000 
 
 4* 
 
82 MONEY. 
 
 About this time, to obtain silver, 3,000 millions 
 were issued, which produced but little over 100 millions 
 in coin. 
 
 The amount at the end of 1795 Discount. 
 
 was, 20.000 million frs., 99 per cent. 
 
 And in Feb., 1796, ... 45,578 " 
 
 when they were entirely abandoned, and became utterly 
 worthless. 
 
 The first issue of paper money in Russia was at 
 the close of 1768, in the reign of Catherine II, when 
 the Bank of Assignats was founded. The whole issue 
 was limited to 400 millions of roubles. They were 
 at first redeemed indifferently in silver or copper coin, 
 but soon they were only redeemed in copper, which 
 was overvalued by 50 per cent. From 1769 to 1787 
 the amount in circulation remained uniform at about 
 40 millions, and the agio in favor of silver varied from 
 one to three per cent, in that interval, while there was 
 an agio of from one to five per cent, in favor of the 
 paper against copper. In 1774 they rose fully to par 
 compared with silver. In 1787 a sudden addition 
 was made of 60 millions, accompanied with a promise 
 that no further quantity should be issued ; but a 
 succession of wars with Turkey, Sweden, Poland, and 
 Persia, and finally with France, caused the transgres 
 sion of the promise, and further progressive issues were 
 made till 1810, when they amounted, in the whole, to 
 577 millions ; and in 1817, to 836 millions. An in 
 creasing agio on silver was the consequence, till in 
 October, 1816, the silver rouble was worth four in paper. 
 During the progress of this depreciation of the paper, 
 
MONEY. 83 
 
 the customhouse duties, which were payable in silver 
 money, could be paid in paper at an agio settled peri 
 odically upon a reference to the market rates. In Oc 
 tober, 1816, the bank notes were declared by the Gov 
 ernment to be receivable in payment of duties in the 
 proportion of 4 to 1, thus officially acknowledging a 
 depreciation of 75 per cent. On Jan. 1, 1821, the 
 issues had been reduced to 640 millions, and the ex 
 changes had improved so as to induce the Government 
 to accept the paper rouble in payment of taxes at 3.60 
 for 1, and eventually at 3.50 for 1, at which last rate 
 the conversion of bank assignats into bank notes pay 
 able on demand in silver roubles, was ordained by an 
 imperial ukase, dated July 1, 1839. * 
 
 Our last illustration of government paper issues is 
 that which occurred in the United States. 
 
 The old States, when colonies, to meet Indian and 
 colonial war expenditures, issued paper money as far 
 back as 1690, often at a considerable depreciation from 
 their nominal value. Massachusetts alone issued from 
 two to three millions of pounds lawful currency. In 1748 
 these issues of paper money were worth as follows.: 
 
 In New England, 1100 lawful were worth 100 sterling.! 
 
 In New York, 190 
 
 In East Jersey, 190 " " 
 
 In West Jersey, 180 " " " 
 
 In Pennsylvania, 180 " " 
 
 In Maryland, 200 
 
 In Virginia, 120 to 125 " " 
 
 In North Carolina, 1000 " " " " 
 
 In South Carolina, TOO " " " 
 
 * Tooke, History of Prices, vol. ii, p. G8 vol. iii, pp. 210, 215. 
 f The Funding System of the United States and Great Britain, by 
 Jonathan Elliott, pp. 15, 16. 
 
84 MONEY. 
 
 In the year 1749 , the colony of Massachusetts had 
 issued ahout 2.200,000 in bills of credit, as the gov 
 ernment paper money was then called. The colony then 
 obtained from Parliament a grant of 180, COO sterling 
 in reimbursement of the expenses incurred by the cjlony 
 in taking and securing Cape Breton from the French. 
 The House of Representatives of Massachusetts passed 
 an act in that year for establishing a stable currency 
 of gold and silver. The act provided that the bills of 
 credit outstanding should b > redeemed at eleven for one 
 with the sum granted by Parliament, which was to be 
 shipped from England in Spanish milled dollars* This 
 would leave about 220.000 in bills of credit outstand 
 ing, which were to be redeemed at the same rate by a 
 tax on the year 1749. The act, after many weeks spent 
 in debate, was rejected, but subsequently reconsidered, 
 passed by the House and Council, and approved by the 
 Governor. The measure proved perfectly successfuL 
 The apprehensions of a shock to trade proved ground 
 less I the bills being dispersed through every part of 
 the province, the silver took their place, a good currency 
 was insensibly substituted in the room of a bad one, 
 and every branch of business was carried on to greater 
 advantage than ever.* 
 
 The following account of the issues of continental 
 paper money during the war of Independence is taken 
 from the writings of Thomas Jefferson, by H. A. Wash 
 ington, vol. ix, pp. 248-259. 
 
 " On the commencement of the late Revolution, Congress had 
 no money. The external commerce of the States being suppressed^ 
 the tarniji* could not sell his produce, and, of course, could not pay 
 
 * Gouge on Banking, p. 10. 
 
MONEY. 85 
 
 a tax. Congress had no resource then but in paper money. Not 
 being able to lay a tax for its redemption, they coi.ld only promise 
 that tuxes should be laid fortha;. purpose, so as to redeem tne bills 
 by a certain day. They did not foresee t.ie long continuance of 
 tie war, the almost total suppression of their exports, and other 
 events, which rendered the performance of their engagement im 
 possible. The paper money continued for a twelvemonth equal 
 to gold and silver. But the quantities which they were obliged to 
 emit for the purpose of the war, exceeded what had been the usual 
 quantity of the circulating medium. It began, therefore, to be 
 come cheaper, or, as we expressed it, it depreciated, as gold and 
 silver would have done, had they been thrown into circulation in 
 equal quantities. But not having, like them, an intrinsic value, 
 its depreciation was more rapid and greater than could ever have 
 happened with them. In two years, it had fallen to two dollars of 
 paper money for one of silver ; in three years, to four for one ; in 
 nine months more, it fell to ten for one ; and in the six months fol 
 lowing, that is to say, by September, 1779, it had fallen to twenty 
 for one. 
 
 u Congress, alarmed at the consequences which were to be appre 
 hended should they lose this resource altogether, thought it 
 necessary to make a vigorous eifort to stop its further deprecia 
 tion. They therefore determined, in the first place, that their 
 emissions should not exceed two hundred millions of dollars, to 
 which term they were then nearly arrived ; and though they 
 knew that twenty dollars of what they were then issuing would 
 buy no more for their army than one silver dollar would buy, yet 
 they thought it Would be worth while to submit to the sacrifice of 
 nineteen out of twenty dollars, if they could thereby stop further 
 depreciation. They, therefore, published an address to their con 
 stituents, in which they renewed their original declarations that 
 this paper money should be redeemed at dollar for dollar. They 
 proved the ability of the States to do this, and that their liberty 
 would be cheaply bought at that price. The declaration was in- 
 effect ial. No man received the money at a better rate; on the 
 contrary, in six months more, that is, by March, 1780, it had fallen 
 to forty for one. Congress then tried an experiment of a differ- 
 ent kind. Considering their former offers to redeem this money 
 at par as relinquished by the general refusal to take it, but in pro- 
 
86 MONEY. 
 
 gressive depreciation, they required the whole to be brought in, 
 declared it should be redeemed at its present value of forty for 
 one, and that they would give to the holders new bills reduced in 
 their denomination to the sum of gold or silver which was ac 
 tually to be paid for them. This would reduce the nominal sum of 
 the mass in circulation to the present worth of that mass, which 
 was five millions ; a sum not too great for the circulation of the 
 States, and which, they therefore hoped, would not depreciate 
 further, as they continued firm in their purpose of emitting no 
 more. This effort was as unavailing as the former. Very little of 
 the money was brought in. It continued to circulate and to de 
 preciate till the end of 1780, when it had fallen to seventy-five 
 for one, and the money circulated from the French army being 
 by that time sensible in all the States north of the Potomac, the 
 paper ceased its circulation altogether in those States. In Virginia 
 and North Carolina it continued a year longer, within which 
 time it fell to one thousand for one, and then expired, as it had 
 done in the other States, without a single groan. Not a murmur 
 was heard on this occasion, among the people ; on the contrary, 
 universal congratulations took place on their seeing this gigantic 
 mass, whose dissolution had threatened convulsions which should 
 shake their infant confederacy to its centre, quietly interred in its 
 grave." 
 
 When the continental money was first issued, an 
 expression of doubt as to its value involved suspicion 
 of disaffection to the cause of the country. As the 
 issues increased the price of goods necessarily rose ; but 
 this was attributed to combinations of the merchants 
 to raise the price of their merchandise, and to sink the 
 value of continental money. They were called tories, 
 speculators, and many other hard names ; their stores 
 were forcibly broken open, and their goods sold at lim 
 ited prices by committees of their neighbors. 
 
 Congress, as early as January llth, 1776, resolved 
 that "whoever should refuse to receive in payment con 
 tinental bills, should be declared and treated as an 
 
MONEY. 87 
 
 enemy of his country, and be precluded from intercourse 
 with its inhabitants/ i. e. should be outlawed. 
 
 This ruinous principle was continued in practice 
 for five successive years, and appeared in all shapes 
 and forms, i. e. in tender acts; in limitations of prices: 
 in awful and threatening declarations ; in penal laws, 
 with dreadful and ruinous punishments ; and in every 
 other way that could be devised ; and all executed with 
 a relentless severity by the highest authorities then in 
 being, viz., by Congress, by assemblies and conventions 
 of the States, and by committees of inspection (whose 
 powers in those days were nearly sovereign), and even 
 by military force ; and though men of all descriptions 
 stood trembling before this monster of force, without 
 daring to lift a hand against it during all this period, 
 yet its unrestrained energy always proved ineffectual to 
 its purposes, but in every case increased the evils it was 
 designed to remedy, and destroyed the benefits it was 
 intended to promote. Many thousand families of full 
 and easy fortune were ruined by these fatal measures, 
 without the least benefit to the country, or to the 
 great and noble cause in which we were then en 
 gaged." * 
 
 The issues began 10th May, 1775, and ended in 1781. 
 The depreciation began in about three years after the 
 first issues. 
 
 On March 1, 1778, $1 in coin was given for $1.75 in paper money 
 
 On Sept. 1, 1778, 4>00 
 
 On March 1, 1779, " " jo.OO " 
 
 On Sept. 1, 1779, < 18<00 u 
 
 On March 18, 1780, " " 40 .00 " 
 
 * Pelatiah Webster, a merchant of Philadelphia, who published a series 
 
88 
 
 MONEY 
 
 A resolution was then passed by the old Congress, to 
 fund them at $40 for $l > and interest to be paid on the 
 new certificates. But the depreciation still went on.* 
 
 On Dec. 1, 1780, $1, in coin was given for $100 in paper money. 
 On May 1,1781, " " " 200 to 500 " 
 
 They did not circulate as a currency after this ; but 
 they passed at times at $1 for $1000 or more. The 
 certificates bearing interest, issued for the paper money 
 funded at $40 for $1, also rapidly depreciated, $8 
 being sold for $1 in coin, before 1791. 
 
 In 1791 a law was passed which permitted the con 
 tinental paper money still outstanding to be funded at 
 $100 for $1. The amount still outstanding in 1791 
 was estimated at from 78 to 80 millions of dollars. 
 
 Alexander Hamilton in 1790 esti 
 mated the entire issues at. ... $2,070,485 
 
 George on Banking, estimates the 
 
 entire issue at 2,070,240 
 
 Merchants Magazine for January, 
 
 1843 2,071,085 
 
 Amount as reported by the Treasu 
 ry Department to the Senate, 
 February 25, 1843 
 
 New Emissions. Old Emissions. 
 
 $357,476,541 
 337,470,541 
 387,476,337 
 
 242,100,176 
 
 of pamphlets on the subject, from 1776 to 1780, collected into a volume 
 with notes in 1790. (Quoted by Gouge on Banking, pp. 11, 12.) 
 
 * " In the later stages of a depreciation, the rate at which it progresses 
 is much more rapid than at the earlier stages. Naturally and inevitably 
 this is so. Excessive quantity is one cause of depreciation, and growing 
 distrust another. As soon as the latter is added to the former, the degra 
 dation is intensified ; no one likes to hold that which is depreciating 
 obviously and rapidly ; every one passes it forward, and thus the downward 
 motion is inevitably and constantly accelerated." (London Economist, 22d 
 November, 1862.) 
 
MONEY. 89 
 
 We find it impossible to decide which of these 
 statements is correct. 
 
 Nearly all the government paper issues ever made 
 have shared the same fate as those whose history we 
 have sketched. The phases through which they all 
 pass is remarkably similar. The issue of paper money 
 is generally resorted to by governments, in moments of 
 financial embarassments, as a resource to meet indis 
 pensable expenditures. This is contrary to the first 
 principle of money, which is, that being an instrument 
 made by the government at the expense and for the 
 convenience and advantage of the individuals ivho use 
 it, it should only be manufactured when demanded by 
 the individuals. The principle which controls the issue 
 of government paper money being false, like all other 
 recourse to false principles, the issue cannot fail to be 
 injurious to both government and people. No matter 
 how despotic or popular the government issuing the 
 paper money may be, the public soon lose confidence in 
 it : if forced by legal enactments to accept it, they 
 avoid holding it, and hoard the coin, in which they 
 have confidence, and which, therefore, suddenly disap 
 pears from circulation. The anxiety to exchange paper 
 money, in which the community has no confidence, for 
 commodities and other property which have an intrinsic 
 value, soon produces a rapid rise of prices, which is the 
 true indication and measure of the depreciation of all 
 paper money having a forced circulation. Every rise in 
 prices, being in reality a fall in the value of the paper 
 money, instead of inducing holders of commodities and 
 property to realizs, only increases their desire to retain 
 them, whilst it increases the desire of the holders of 
 
90 MONEY. 
 
 paper money to exchange it for anything possessing 
 intrinsic value. The inevitable result is a panic in re 
 gard to the paper money, and the very government that 
 issued it is soon forced to refuse it in payment of taxes 
 and loans, as it will no longer procure the supplies 
 needed by the goverment and by its officers and em 
 ployees. 
 
CHAPTER VII. 
 
 THE results of individual and corporate issues of 
 paper money are in striking contrast with those of <W- 
 ernment. 
 
 ^Take for example the Scotch banks. These insti 
 tutions have rendered incalculable services to the com 
 merce and industry of Scotland. They have long been 
 numerous in the midst of a small population, and are 
 enterprising and active in a country of limited extent, 
 with few manufacturing centres. The Scotch banks 
 knew no law but liberty and self-interest. Until 1845 
 they were the freest banks that ever existed. Legisla 
 tion limited neither their number, nor the number of 
 their shareholders, nor their capital, nor the amount or 
 nature of their issues, nor any other of their operations 
 From 1800 to 1814, owing to the scarcity of coin they 
 issued notes as low as 3 shillings. In 1826 out of a 
 circulation of 3,309,052, 2,079,344 were under 5 
 In 1836 the circulation was 3,800,000, of which two 
 thirds were under 5. 
 
 There were in Scotland in 1825, 34 banks having 133 branches 
 1850,18 . 38 2 . 
 
 1859, 583 
 
92 MONEY. 
 
 All the shareholders are personally responsible for the 
 debts of each bank, except those of the three incorpo 
 rated banks, the Bank of Scotland, the Royal Bank of 
 Scotland, and the British Linen Company, whose stock 
 holders, by the acts of incorporation, are exempted from 
 personal liability. There can be no doubt but that this 
 personal liability tends to maintain a vigilant watch on 
 the management of these institutions, besides which it 
 offers a perfect and ample guarantee to the holders of 
 the bank notes. 
 
 In 1841, the treasurer of the Bank of Scotland 
 testified before a committee of the House of Commons, 
 " that 7 millions in notes are found to be requisite to 
 keep up an average circulation of 3 millions. It ap 
 pears that the whole amount is out in circulation for a 
 few days only at two seasons of the year." * Every note 
 issued returned to the bank that issued it, within 10 
 or 11 days. This rapid return of the bank notes is 
 fully explained by the conditions of a large portion of 
 the advances made to the dealers, called cash credits. 
 The dealer, to obtain one of these credits, must furnish 
 two or more securities, who are jointly bound for the re 
 payment of the advances of the bank. A credit is then 
 opened, and the dealer may draw for the whole or part 
 at any time ; he may pay in, any day, whatever funds 
 he receives, and only pays interest on the daily balance 
 due by him to the bank.f It becomes thus the interest 
 of the persons obtaining loans to pay in daily, on account, 
 every trifling amount they may receive. How can over 
 issues take place under such a system ? How can and 
 
 * Tooke, History of Prices, vol. iii, p. 237. 
 f Encyclopaedia Britannica, Money. 
 
MONEY. 93 
 
 system be more beneficial to the dealers and to the 
 community ? How can any system economize currency 
 to a greater extent ? * 
 
 Although the circulation of the Scotch banks was 
 not limited by law, it remained quite limited in extent, 
 being regulated solely by the wants of the public. Coin 
 is almost out of circulation in Scotland, being used only 
 for change. McCulloch, in. 1838, estimated the coin in 
 circulation in Scotland at only 500,000. And yet the 
 entire circulation of notes "in Scotland does not exceed 
 3,500 ; 000, whilst in England it has varied from 30 to 
 45 millions, being from twice to three times as great, 
 in proportion to population, as in Scotland, f One of 
 
 " Every bank, then, acts as a centre of attraction to draw out of circula 
 tion every 1 note which is not absolutely requisite to pay current expenses. 
 Every Scotchman feels that he is losing money upon every note that he 
 keeps idle in his pocket or in his house ; every tradesman loses money for 
 any sum he keeps idle in his till ; the consequence of which is, that every 
 one deposits with his banker all the cash he can spare, before the close of 
 business hours, and so a large amount is withdrawn from visible circulation, 
 which would go to swell the apparent amount of currency if it were not for 
 this attractive power of the bank." (Macleod, Theory and Practice of 
 Banking, vol. i, p. 410.) 
 
 " It is a remarkable circumstance that, while there has been a great exten 
 sion of banking capital, and of banking accommodation, and of banking com 
 petition in Scotland since 1826, the amount of the aggregate circulation has 
 considerably diminished. What a commentary upon the received doctrine 
 of the power of banks to increase their issues of paper money as suits their 
 interest or convenience ; and that it is an effect of the competition of banks 
 of issue to create a vast mass of worthless paper ! " (Tooke, History of 
 Prices, vol. iii, p. 237.) 
 
 ^ f Mr. Anderson, manager of the Glasgow Union Banking Company, 
 said, on his examination before a committee of the House of Commons in 
 1841, We consider that the circulation does not require any regulation; 
 our advances and loans we regulate, but not the circulation of our notes." 
 
 Question 2,369, by Sir James Graham : " Inasmuch as every payment 
 into a bank, whether in the shape of a deposit, or to the credit of a current 
 
94 MONEY. 
 
 the great regulators of the Scotch banks is the frequent 
 exchanges of notes and liquidation of balances between 
 them. Twice a week, the banks exchange and redeem 
 their notes in Edinburgh, besides which, those of the 
 west of Scotland exchange and redeem twice a week in 
 Glasgow. 
 
 There have been but few failures of Scotch banks, 
 and the losses of the public by them in 175 years, have 
 been only 25,504, which is infinitely less than would 
 have been the wear and tear of the coin required to 
 effect the transactions performed by means of the banks. 
 
 account, bears interest day by day, and inasmuch as no commission is 
 charged upon operations on an account, and inasmuch as a great proportion 
 of the people receiving money in Scotland employ bankers, does it not 
 follow that every payment made in local notes finds its way almost imme 
 diately within the space of twenty-four hours into the hands of some 
 banker ? " 
 
 Am. " I think it does." 
 
 Q. 2,370, by Mr. Grote : " Would not the consequence of that proposi 
 tion be, if followed out, that there would be no notes whatever in the hands 
 of the public, but that all the notes issued by each bank should be, in fact, 
 in the hands of other banks ? " 
 
 Ans. " That is the effect. There are three millions of notes out, which 
 is a very small amount ; people must have a certain amount of money in 
 their pockets and boxes at home, and shopkeepers must keep a certain 
 amount of money in their tills, the daily receipts of their business ; and 
 manufacturers must keep notes to pay people s wages, and so on ; but that 
 altogether proves but a small proportion compared to the circulation of 
 England. Our three millions in Scotland amount to about 1 per head of 
 the whole population ; in England, although you have a gold circulation for 
 everything below 5, your paper circulation amounts to 2 per head. I 
 am taking about fifteen millions for the population, and thirty millions for 
 the currency." (Tooke, History of Prices, vol. iii, pp. 241, 244, 245.) 
 
 The circulation of the Bank of England and of the English country 
 banks in 1815 was 46,271,000.* 
 
 * Alison s History of Europe, vol. viii, p. 130. American edition. 
 
MONEY. 95 
 
 Far from having produced financial crises, they have 
 invariably prevented them . In 1824, when the English 
 banks and bankers aided the wild speculations "that 
 prevailed, the Scotch Banks, on the contrary, contracted 
 their loans. In 1836 and 1847, many English banks 
 failed, but not a single Scotch bank ceased to grant 
 their usual facilities to their dealers. Forgeries of the 
 bank notes are unknown. The consequence is that the 
 Scotch prefer their bank notes to gold, and make all 
 their collections and payments through the banks, which 
 leads to great economy in the use of both specie and 
 bank notes. 
 
 In Scotland, each year the circulation becomes very 
 much reduced in March it increases in May subse 
 quently falls, though not as low as in March, and in 
 creases again to touch the highest point in November. 
 Most of the payments in Scotland are made in May and 
 November. These fluctuations occur each year, whether 
 the banks increase or diminish in number ; proving that 
 they are produced by the wants of the community, and 
 not by the wishes or action of the banks. Similar re 
 sults in regard to the fluctuations of the currency occur 
 in England and Ireland. In England the highest cir 
 culation is in April, and the lowest in August, also 
 following the movements of commerce, industry, and 
 agriculture. In Ireland the lowest circulation is in 
 August and September, just before the harvests and the 
 sales of cattle ; and the highest in January, when the 
 cattle and crops are sold. 
 
 "When the Government determined on suppressing 
 the small note issues in England, the ministers said it 
 was their intention to extend the measure in a short 
 
96 MONEY. 
 
 time to Scotland and Ireland. As soon as the minis 
 terial intentions were known in Scotland, a great ferment 
 was excited, and such an opposition was organized that 
 the ministry were obliged to consent to appoint com 
 mittees of both Houses on the subject. These com 
 mittees sat during the spring of 1826, and investigated 
 the whole subject of Scotch banking at great length, 
 which had been very little understood in England before 
 that time ; and the result was so eminently favorable 
 to the Scotch banking system, that the ministry aban 
 doned their intention of attempting to alter it." * 
 
 In 1845, Sir Kobert Peel obtained the enactment 
 of a law regulating the Scotch banks, somewhat similar 
 to the act of 1844 regulating the English banks. It 
 prohibits all issues of notes under 1, and no bank 
 created after May 1, 1845, can issue notes at all. The 
 banks existing on the 1st May, 1845, may continue to 
 issue notes, but are limited to tho amount of their 
 average circulation during the year ending on that 
 day. Any notes issued beyond that amount must be 
 represented by an equivalent amount of specie in their 
 vaults, the idea being; as in England, to maintain a 
 uniform amount of the entire circulation by means of 
 a maximum amount of issues by each bank. Two or 
 more banks may be consolidated into one, and the 
 consolidated bank becomes entitled to issue the same 
 amount of notes that could have been issued by the 
 old banks before their consolidation. All the banks 
 are obliged to forward to the directors of the stamp 
 ofLce, in London, weekly returns of their condition, 
 which returns are published every four weeks in the 
 
 * Macleod, Theory and Practice of Banking, vol. i, pp. 262-263. 
 
MONEY. 97 
 
 London Gazette. They are also obliged to send, once 
 a year, a list of the names of all their stockholders. 
 
 All these limitations and prohibitions are as arbi 
 trary as they are unreasonable. Why prohibit notes 
 under 1, when the notes of less amount had never been 
 found injurious, but on the contrary advantageous ? 
 Why forever fix the relation of circulation and specie 
 for a future unknown to all, particularly when all the 
 writers on the subject, all the persons who testified 
 before the committees appointed by Parliament, all the 
 reports of those committees, bore the highest testimony 
 in favor of the management of the Scotch banks and 
 of the results of their operations ? Why prohibit new 
 banks of issue ? The past proclaims the advantages 
 of competition, and is not the future the echo of the 
 past ? Why exclude others from exercising rights 
 similar to those possessed by the present banks ? The 
 enactment of laws regulating banking is undoubtedly 
 a great error.f Should a commercial crisis now arise, 
 
 " For more than a century no bank note was ever unpaid in Scotland, 
 and it is inexplicable how Sir Robert Peel, with such a fact before his eyes, 
 should have listened to empty theories about inflated circulation, excessive 
 issues, and other sonorous phrases of like quality. Scotch notes have al 
 ways been paid, because the Scotch have framed a sound system of securing 
 the solvency of the issues ; and had the Bank of England gone on issuing 
 one-pound or ten-shilling notes since the Conquest, every one would have 
 been paid in like manner. . . . In this, as in many other matters, the 
 political logic of the Scotch nation has been admirable. They have followed 
 out Adam Smith s doctrine to its just conclusion. They have suffered no 
 arbitrary line to restrict the economy and convenience of a paper currency 
 at the dictation of shallow dogmatism and caprice." (North British Review 
 November, 1861, What is Money ?) 
 
 f " Governments have arrogated to themselves the task of regulating the 
 currency, and the natural effect is, that nothing is less regular. At present, 
 each day brings to London an abundant supply of fish, meat, vegetables, &c., 
 
 5 
 
98 MONEY. 
 
 the banks, their issues being limited, will no longer be 
 able to grant their usual facilities to commerce. The 
 community, pressed by their necessities, will be forced 
 to withdraw a portion of their deposits. This will de 
 crease their specie, and their circulation must there 
 fore be still further diminished, and a financial crisis, a 
 thing unknown in Scotland up to the present day, 
 
 and each day proves that the persons who furnish those supplies understand 
 tolerably well what is required. Were government to regulate the markets 
 as they do the currency, there would be a succession of over supplies, dur 
 ing which vast quantities of provisions would be spoiled, followed by a 
 succession of scarcities, when double prices would be paid for the neces 
 saries of life, precisely as is now the case with money. Whenever those 
 who control the operations of government shall learn that the trade in 
 money is like all other trades ; that every man has a right to associate him 
 self with his neighbors, and to trade with others on such terms as they may 
 mutually deem most likely to be advantageous, whether of limited or un 
 limited liability, and that every man has the same right to furnish currency 
 that he has to furnish hats, coats, or shoes ; and whenever they shall 
 abolish all restrictions thereupon, there may and will exist a good, sound, 
 safe, and cheap currency, but not till then." (II. C. Carey, The Credit 
 System, p. 122.) . 
 
 " Various propositions have been made in regard to that of both Eng 
 land and the United States, by persons who believe that more steadiness 
 would be obtained by having a single body or institution authorized to issue 
 paper to be used therefor, and by others for preventing the circula 
 tion of notes under ten and twenty dollars, or pounds, &c. Experience, 
 however, teaches that when governments undertake to regulate trade or 
 commerce, to furnish roads or education, there is at one time, or in one 
 place, an over supply, and at another, a deficiency. Such would be the 
 case in regard to currency. Experience also teaches us that when the peo 
 ple undertake to supply themselves, and they are not restrained in their 
 actions, the supply is well regulated. In no part of the world is the power 
 of supplying currency so much divided, in none are silver and gold to so 
 great a degree dispensed with, and in no country of the world is there one 
 combining so many of the requisites of a perfect currency, as are to be 
 found in that of Massachusetts and Rhode Island." (Id., ib., pp. 122, 
 123.) 
 
MONEY. 99 
 
 will aggravate the commercial crisis.* Mr. Hume, 
 in a debate in 1848, said, " with respect to the act of 
 1845 relating to Scotland, he ventured to say that 
 there never was a more uncalled-for piece of legislation 
 in the world. Not one single soul in Scotland was 
 found to support it, and all the Scotch witnesses who 
 were examined before the committee, spoke of its bad 
 effects." f 
 
 Mr. G-. du Puynode, from whose able work, " De la 
 Monnaie, du credit, et de I impot," we have compiled 
 many of the preceding remarks on the Scotch banks, 
 closes by saying, " No banks in the world have been 
 so wisely, so prudently managed as the Scotch banks, 
 and none have been so free from legislative control. 
 It must be, therefore, that there are other and far 
 preferable guarantees for the proper administration of 
 banks, than those resorted to by legislators. Is it not 
 truly a strange idea to ignore intelligence and morality 
 (he should have added self-interest) as sources of capa 
 city and stability ? What admirable foresight to regu 
 late everything, to order everything, in the midst of a 
 present which we scarcely understand, in contradiction 
 of a past admired by all, and in the face of a future 
 entirely unknown ! Without liberty and without com 
 petition there can be no true progress and no efficacious 
 guarantees." J 
 
 Whenever the use of bank notes is controverted, 
 it is usual to cite the United States as an example of 
 
 * G. du Puynode, De la Monnaie, du credit, et de 1 impot, vol. i, pp. 
 270, 271, edition, 1853. 
 
 f Tooke, History of Prices, vol. v, p. 494. 
 \ Vol. i, pp. 274, 275. 
 
100 MONEY. 
 
 its pernicious effects. What is never done, however, 
 is to furnish proofs to sustain that conclusion. Let 
 us examine some facts in regard to the banks of the 
 United States, during the period from 1811 to 1836. 
 Mr. H. C. Carey says : * " The period from 1811 to 1836 
 embraces times of embargo, non-intercourse, war, sus 
 pension of specie payments, resumption thereof, change 
 from a state of universal war to one of universal peace 
 that period, in short, which has, throughout the world, 
 been attended by the most remarkable changes in the 
 fortunes and prospects of individuals and of nations, 
 which was most likely to exhibit extraordinary losses by 
 individuals, and consequently by banks/ This is by far 
 the most trying period in the history of the American 
 banks, and the results are, therefore, less favorable to 
 them than would be shown by any other lengthened 
 period that can be taken. The crisis of 1837-1839 
 entailed severe losses by bank failures in the Western 
 and Southern States ; but in the Eastern and Middle 
 States, with the exception of the Bank of the United 
 States of Philadelphia, they were quite moderate ; and 
 the greater part of the loss, everywhere, fell on the 
 stockholders and not on the public. If banks and paper 
 money were, as is so frequently asserted, injurious to 
 the community, could they have increased so greatly 
 in the United States, in spite of all the adverse circum 
 stances that have occurred to try them ? f 
 
 * The Credit System, p. 25. 
 
 f " The adoption of the same measures by which it has been attempted 
 in the United States to drive bank notes out of circulation, -would have 
 ruined the banks of England and of France. Nothing could have prevent 
 ed the ruin of those of the United States but the general confidence of man 
 in his fellow man." (Id., ib., p. 37, note.) 
 
MONEY. 101 
 
 There existed in the United States : 
 
 In 1811, 88 banks with an aggregate capital of $42,609,101 
 1816, 246 " " 89,822,297 
 
 1820,307 " " 101,714,551 
 
 1830,328 110,186,608. 
 
 1838,677 378,000,000 
 
 The average number of banks in the six New Eng 
 land States, Connecticut, Rhode Island, Massachusetts, 
 New Hampshire, Vermont, and Maine, from 1811 to 
 1830, was 97, with a capital of about $22,000,000. In 
 1830 there were 172 banks, with a capital of $35,226,- 
 000. In twenty-five years the number of bank failures 
 in that district was 16, with a capital of about $2,000,- 
 000. The total loss sustained by the community by 
 these failures cannot have much exceeded $500,000, 
 say an annual average of $20,000, or T r th of one per 
 cent, on the aggregate capital of all the banks, and prob 
 ably about ^0 th of one per cent, on the amount of the 
 operations facilitated by those institutions. If this 
 estimate be correct, the loss attending the transactions 
 with the banks of New England, during more than a 
 quarter of a century, has been, on an average, one dol 
 lar in $50,000. If we exclude Connecticut, in which 
 one failure was attended with great frauds and resulted 
 in great losses, the loss does not exceed five dollars per 
 million. 
 
 Exactly as in Scotland,, the circulation of bank 
 
 " The Americans have the utmost faith in paper money. It is not a 
 blind confidence ; for if we have had our assignats, they have had their 
 continental money ; and it would not be necessary to retrace their history 
 far to find the banks failing en masse. It is a confidence founded upon 
 reason a courage the result of reflection." (M. Chevalier s United States 
 vol. ii, p. 247.) 
 
1O2 MONEY 
 
 notes in New England is very moderate, in consequence 
 of the activity of the circulation and the general resort 
 by the inhabitants to their banks for all their payments 
 and collections. The circulation in 1830, notwithstand 
 ing, or we should rather say, in consequence of the 
 great number of the banks, only amounted to $13,992,- 
 000. With an aggregate capital of $35,226,000, their 
 discounts only amounted to $46,759,000, and they held 
 in specie $2,607,000. Their circulation and their ad 
 vances to their dealers remain therefore quite limited in 
 proportion to their means.* Moreover, again exactly as 
 in Scotland, specie is hardly ever seen in this portion 
 of the United States ; the bank notes suffice for nearly 
 every transaction. In the midst of extensive commer 
 cial transactions, in a district where an excessively 
 laborious trading population are incessantly operating, 
 the entire circulation is only $7^ per capita, of which 
 $2 is specie ; and yet this amount is found to be ample. 
 In France, where the amount of transactions is propor 
 tionally much smaller, it is estimated that the metallic 
 circulation alone is about 100 francs ($20) per capita. 
 What expense, what labor and lack of confidence do the 
 latter figures reveal ; and on the contrary, what confi 
 dence, ease, and economy do the former indicate ! We 
 
 Bank Capital. Total Currency. Specie in Banks. Am t of Loans. 
 
 * New England, 1830, $35,226,000 $13,992,000 $2,607,000 $46,759,000 
 
 Bank of England, 15,000,000 30,000,000 8,000,000 37,000,000 
 
 The currency furnished by the Bank of England is twice the amount of 
 
 its capital, whereas that furnished by the banks of New England is only 
 
 one third of their capital. In England it requires an unemployed capital 
 
 invested in gold, in bank, sixteen times as great as that of New England, in 
 
 addition to a larger quantity in circulation, while the amount of its business 
 
 is but little more than four times as great." (H. C. Carey, The Credit 
 
 System, p. 71.) 
 
MONEY. 103 
 
 have before us, apparently two entirely different socie 
 ties, two different civilizations.* 
 
 In the State of New York, during the period from 
 1811 to 1830, the loss of the community, by the failure 
 of banks, apart from that of the stockholders, cannot 
 have exceeded $5 per million of the circulation, and 
 probably not $1 per million of the transactions they 
 have aided. 
 
 In 1830 the entire capital of the banks of the 
 States of New York, New Jersey, and Pennsylvania 
 amounted to $9 per inhabitant, being less than one 
 half of the amount at that period in New England, 
 which was $19J per inhabitant. On the other hand, 
 their discounts amounted to double the amount of their 
 capital, whereas in New England, the discounts were 
 not quite one third more than the amount of the capi 
 tal of the banks. In Pennsylvania, where the banks 
 were not allowed to issue notes under $5, and where con 
 sequently specie forms a considerable portion of the cir 
 culation, the bank notes in circulation are greater in 
 proportion to the capital of the banks than in Massa 
 chusetts. We have evidence here that the freer and 
 
 " The currency of France is equal to the production of the nation for 144 
 
 That of England is equal to " " 110 
 
 That of the United States is equal to " " 23 
 
 That of New England is equal to " 21 
 
 (H. C. Carey, The Credit System, p. 73.) 
 
 " New England maintains a currency at less cost than any other part of 
 the world." (Id., ib., p. 108.) 
 
 " The increase of confidence manifested by the substitution of bank 
 notes, checks, and drafts, for gold and silver, tends, therefore, to diminish 
 the proportion of capital required for the performance of exchanges, and 
 to increase the productiveness of labor." (Id., ib., p. 130.) 
 
104 MONEY. 
 
 the more numerous are the banks, the greater is the 
 capital that guarantees their operations. 
 
 Taking the aggregate of the banks of New England, 
 New York, New Jersey, and Pennsylvania, during the 
 period from 1811 to 1830, the entire losses of the pub 
 lic by bank failures cannot exceed 4-7 oth of one per 
 cent, on the transactions made by means of those insti 
 tutions. During the last fifteen years of the period 
 they do not exceed $5 per million, and probably do not 
 even reach $1 per million. 
 
 The total number of bank failures in the United 
 States from 1811 to 1836 were 167, of which 130 south 
 and west of the State of New York. The average 
 number of banks in operation during the same period 
 was 242. The average number of failures has been 
 therefore 2f per cent., which is only a trifle over the 
 average failures among the private banks of England 
 during the period from 1821 to 1826 ; a period which 
 includes, it is true, the great commercial crisis of 1825, 
 but which was marked by no other extraordinary event, 
 such as a transition from war to peace, or from peace to 
 war, that might cause universal disasters of this nature^ 
 From the first institution of banks in the United States, 
 to the year 1837, the bank failures have been about |- 
 less than those that occurred in England during the three 
 years, 1814, 1815, and 1816 ; and the losses sustained 
 by the public are probably still less relatively to the 
 amount of the transactions effected by means of the 
 banks in the two countries. In the presence of such 
 facts, what justice is there in the accusations so fre 
 quently made of unskilfulness and improvidence in the 
 management of the American banks ? 
 
MONEY. 105 
 
 In the United States the total circulation does not 
 exceed ordinarily $9 per inhabitant, of which one quar 
 ter, at most, is specie ; whilst in England it amounts 
 to $28 per inhabitant, of which one third is specie. In 
 France the difference is probably twice as great, and it 
 is well known that the greater part of the circulation 
 in that country is specie. * The reason of the larger 
 circulation in France than in England and in the United 
 States, is self-evident. Every community must have, 
 at any moment, the amount of currency necessary to 
 transact the exchanges then taking place. Where coin 
 alone is used, when commerce and industry require an 
 increase of the circulation, it can only be obtained from 
 private hoards of specie made in moments when the 
 specie is in excess of the demand, and the circulation is 
 therefore contracting; or when specie is imported in ex 
 cess of the immediate wants of the community.f The 
 community is thus forced to keep on hand at all times 
 an amount of coin equal to the maximum amount used, 
 no matter for how short a period a portion of it may be 
 required ; and to obtain this coin the country must part 
 with an equivalent amount of real, useful capital, of 
 
 * This synopsis of the American banks is mostly taken from " De la Mon- 
 naie, du credit, et de Fimpot," by G. de Puynode, who derived the facts 
 from " The Credit System," by H. C. Carey, of Philadelphia. 
 
 f " The hoards absorb the superfluous produce of the mines when it is 
 overflowing, and disgorge it again when it is wanted for use ; so that the 
 fluctuations of supply and demand do not affect at all that portion of the 
 coin which circulates, and which alone operates on prices, but only that 
 portion which is hoarded. (Fullarton on the Regulation of Currencies 
 p. 71.) 
 
 " Upon the action of the hoards depends the whole economy of the 
 international payments between specie-circulating communities ; while any 
 operation of the money collected in hoards upon prices must, even accord 
 ing to the currency hypothesis, be wholly impossible." (Id., ib., p. 182.) 
 
106 MONEY. 
 
 commodities that contribute to the well being and pro 
 gress of all. But. where the exchanges are effected with 
 bank notes, the issues are increased at those moments 
 when the exchanges or payments are large, and they 
 contract, by the return of the superfluous notes to the 
 banks that issued them, as soon as the exchanges or pay 
 ments diminish.* This keeps down the circulation, at 
 all times, to the lowest possible amount required to 
 effect the exchanges or payments taking place. Thus 
 the banks in Scotland require seven millions of notes to 
 attain an average circulation of only three millions. Can 
 any system of currency be more perfect or more advan 
 tageous than this ? It facilitates the exchanges of 
 commodities even better than coin, except with foreign 
 nations ; when properly managed, it expands and con 
 tracts in exact accordance with the transactions of com 
 merce and industry, while it does not, like coin, absorb 
 a large portion of the capital of the community. 
 
 * " Where the currency is purely metallic, the additional circulation re 
 quired for these occasions would be drawn from the private hoards ; while, 
 wherever the credit system prevails, the circulation is supplied by the 
 banks." (Fullarton on the Regulation of Currencies, p. 103.) 
 
CHAPTER VIII. 
 
 HAVING sketched the striking contrasts between the 
 results of the issues of government paper money, and 
 of bank notes, let us attempt to deduce from them the 
 natural laws that govern paper money. 
 
 Money, as used in modern civilized communities, is 
 a useful instrument that facilitates the exchanges of 
 commodities and services.* Anything can perform the 
 functions of money, as long as the community has full 
 confidence that it will, at all times, command the com- 
 
 * " The use of the currency is to facilitate the transference of debts OR 
 SERVICES DUE from one person to another, and whatever means be adop 
 ted for this purpose, whether it be gold, silver, or paper, is a currency ; . . . 
 therefore, . . . currency and transferable debt are convertible terms : 
 whatever represents transferable debt of any description is currency ; and 
 whatever material the currency may consist of, it represents transferable 
 debt and nothing else." (Macleod, Theory and Practice of Banking, vol. 
 i, p. 25.) 
 
 " If we buy a sack of wheat, we do so because it possesses certain known 
 qualities which are decidedly useful to us ; we therefore buy a sack of 
 wheat for its own sake. But we do not seek to obtain coin for its own 
 sake ; it is not capable of being put to any useful purpose directly, but we 
 strive to obtain coin for the sake of the power it confers on its possessor of 
 obtaining anything else that may suit his fancy ; for the sake of the power 
 it has of commanding the services of others ; and if anything else besides 
 coin possessed the same power, it would be equally desirable with the coin 
 itself." (Id., ib., vol. i, p. 389.) 
 
108 MONEY. 
 
 modities and services that may be required ; but any 
 money will soon be discarded when it ceases to com 
 mand the commodities and services desired. It is the 
 universal confidence in gold and silver as money, that 
 has thus far made these metals the most reliable instru 
 ments of exchanges, as well as the most certain meas 
 ures of value. But were paper money to inspire the 
 same confidence and be as universally accepted as gold 
 and silver, it would perform all the functions of money 
 even better than those metals, as it is lighter, more 
 easily transported and counted, far more economical, 
 and more easily increased and decreased in amount, in 
 accordance with the wants of the community.* It is a 
 mistake to suppose that a thing,, to perform successfully 
 the functions of money, must possess intrinsic value. 
 
 * " Whether money has any value in itself, whether, as substances or 
 as materials, it is an object of desire or not, this for the purposes of society, 
 which is dispatch of business, is as indifferent as the nature of the yard 
 stick. If it measures values and effects exchanges, if it marks a price, and 
 if it passes, it is good money. The best money is" that which performs these 
 functions with the greatest accuracy, with the greatest economy, and with 
 the greatest convenience." 
 
 " The superiority of bank money over coin for convenience, economy r 
 safety and dispatch of business ... is so great, that were it not for other 
 considerations, the use of coin, in every country, ought to be set aside en 
 tirely. 1 " (Bankers Magazine, New York, August, 1846.) 
 
 "There is clearly no difference in principle between a metallic and a 
 paper currency, only one depends upon a wider basis of credit than the 
 other. . . . If it were possible to have a paper currency, based upon the 
 same credit, and which should be as generally received as the metallic cur 
 rency, it would be a preferable form." (Macleod, Theory and Practice of 
 Banking, vol. i, p. 30.) 
 
 " Every man desires money because he can therewith procure whatever 
 else he desires. If paper can procure for him the object of his desire as 
 readily as gold and silver, paper is as desirable to him as gold and silver, * 
 (Gouge on Banking, p. 13.) 
 
MONEY. 109 
 
 Money, at present, whatever may have been the case in 
 olden times, measures the relative value of things, and 
 is beneficially used as a medium of effecting exchanges, 
 not because of its intrinsic value, but simply because 
 it is universally accepted in exchange for all things. 
 Intrinsic value was necessary in the infancy of civiliza 
 tion, when the slight development given to the division 
 of labor, and consequently to the exchanges of com 
 modities and services, rendered it important that any 
 thing received in exchange should possess intrinsic, 
 useful qualities, since it was principally with a view to 
 consumption that it was accepted. But at the present 
 day, the infinite and constantly increasing division of 
 labor has given such immense importance to the ex 
 changes of all things, that money, as a mere instrument 
 for facilitating these exchanges, is infinitely more useful 
 to humanity than any commodity whatever, as the pos 
 session of current money places all things at our com- 
 
 * " Intrinsic value was indispensably necessary at first to give circulation, 
 because barter was kept in mind ; but in process of time, when money be 
 came in use, that is entirely lost sight of. It is taken as money, without 
 reference to its intrinsic value. If gold and silver were to lose all value 
 independent of their character as money, would they be stript of their 
 character as money ? " (Rees, Encyclopaedia, Money.) 
 
 " The simplest and most perfect form of a currency is that which repre 
 sents nothing but transferable debt, and of which the material is of no 
 intrinsic value, such as paper. It is only when states have reached a high 
 degree of civilization that they adopt this perfect form ; before they attain 
 that, the material of it entirely consists of something which has an intrinsic 
 value, such as gold or silver. But this intrinsic value is a secondary cir 
 cumstance, and not the one which gives it its characteristic as a currency. 
 It is its general reception as the visible symbol of transferable power, which 
 is also called negotiability, which is the essence of a currency, and distin 
 guishes a coin from a medal." (Macleod, Theory and Practice of Banking, 
 vol. i, p. 45.) 
 
110 MONEY. 
 
 mand. But, to this end, the thing used as money must 
 be universally received, at all times, in exchange for 
 commodities and services ; and this cannot be unless 
 the commodities themselves, and the persons able to 
 render the services desired, exist. In a desert island, 
 or in a besieged town, money, at times, is nearly use 
 less, because the things desired do not exist there. It 
 is, therefore, evident that paper money, to perform suc 
 cessfully the functions of money, should never be issued 
 except against a pledge, direct or indirect, of a greater 
 value of useful commodities, needed by the community, 
 applicable to the redemption of the bank notes 
 issued. Such a rule, strictly adhered to, would make 
 paper money a perfect instrument of exchanges, be 
 cause the redemption of bank notes in commodities and 
 services is preferable to their redemption in coin ; for 
 commodities and services are useful per se, whilst the 
 only use of coin is as means of obtaining those very 
 commodities and services.* The redemption of bank 
 notes in commodities and services through the clearing 
 
 * " Currency, then, being merely a symbol of the power of commanding 
 services, it is clearly not the possession of the currency, but the services it 
 can command, that constitute the wealth of the possessor, and it is only as 
 it represents these services that currency can be considered as wealth. 
 Currency in its stagnant state is not wealth ; sovereigns or bank notes lying 
 idle in a box are of no use to their owner ; they are neither meat, nor drink, 
 nor clothing, nor fuel, nor shelter, nor anything else that is useful ; but they 
 are the proof that their owner has the right to get all these things when he 
 requires them. . . . It is the right and power of the possessor of cur 
 rency to command the services of the community, that constitute his 
 wealth, and not the mere evidence of it contained in the currency he holds ; 
 and the less costly the material which contains this evidence, provided it be 
 effectual for its purpose, the better it is." (Macleod, Theory and Practice 
 of Banking, vol. i, pp. 45, 46.) 
 
MONEY. Ill 
 
 house of the industry of the world, from which every 
 one withdraws precisely the things he desires in ex 
 change for the bank notes he holds, is the beau ideal of 
 money under the present system of the infinite division 
 of labor. Under such a system, paper money becomes 
 a mere certificate of services rendered, for which the 
 holder has not been remunerated.* Each holder, by 
 transferring the certificate, transfers his claim to any 
 parties that render him an equivalent service. The 
 redemption of money in commodities and services (by 
 this phrase, wherever used, is meant the general ac 
 ceptance of money in exchange for commodities and 
 services) is the main requisite to the proper fulfilment 
 of the functions of money, and is just as indispensable 
 to the precious metals as to paper money. Bank notes 
 are made redeemable in coin, only because coin is, as 
 yet, more universally accepted in exchange for com 
 modities and services than bank notes.f The precious 
 
 * " Currency is nothing more than the evidence of services having been 
 rendered, for which an equivalent has not been received, but can at any 
 time be demanded." (Macleod, Theory and Practice of Banking, vol. i, 
 p. 24.) 
 
 " When the laborer has received his wages in money, he has not re 
 ceived an equivalent for his services, but only something which will enable 
 him to get what he requires or chooses. The money, therefore, that he 
 possesses, is not the equivalent, but it is the symbol or proof that he has 
 rendered services for which he has not yet received an equivalent" (Id., 
 ib., vol. ii, p. xliv.) 
 
 f " Instead of representing services or commodities directly, it is almost 
 invariably usual to make the paper currency of a country represent a cer 
 tain portion of the metallic currency, which is the generally received repre 
 sentative of all services and commodities." (Id., ib., vol. i, p. 30.) 
 
 " Paper money should be represented by commodities. To insure this, 
 it is made convertible into the best known commodities, gold and silver." 
 (Encyclopedia Britannica, Money.) 
 
112 MONEY* 
 
 metals circulate everywhere ; bank notes only within a 
 more or less restricted circle around the place of their 
 issue. The object in presenting bank notes for redemp 
 tion in coin, as long as they are in good credit, is inva 
 riably to procure with the coin commodities in localities 
 where the bank notes are not accepted because unknown. 
 Government paper money cannot, successfully, for 
 any length of time, perform the functions of money, be 
 cause it is invariably issued as a financial resource, in 
 moments of emergency, generally when war is ruthlessly 
 destroying both life and property. Government paper 
 money, instead of representing existing results of labor, 
 ready to redeem the paper money on demand of the 
 holders, only represents property and lives consumed or 
 destroyed, and labor unproductively employed. How 
 can such paper issues long perform the functions of 
 money, when even metallic money cannot perform them 
 unless constantly redeemed with useful results of labor 
 and with useful services ? Money cannot be redeemed 
 with useful results of labor, unless these have been pro 
 duced, economized, and thus exist for those who desire 
 them in exchange for money. It will be said that the 
 entire property of a nation is pledged for the redemp 
 tion of the paper money issued by its government. But 
 all this property is in the hands of individuals, who rely 
 upon it for their own well being and enjoyment, as well 
 as to meet their own liabilities ; and they never consent 
 that any large portion of the results of their labor shall 
 be taken from them for the use of the government or 
 its creditors. Even the small portion they are willing 
 to contribute for that purpose, can only be reached by 
 levying taxes ; and the right of taxation to meet state 
 
MONEY. 113 
 
 indebtedness is rarely exercised by governments when 
 it becomes unpopular, because burdensome. History 
 bears abundant witness to this incontrovertible fact. 
 
 The result of all past experience in regard to papei 
 money, is conclusive as to the superiority of individual 
 and corporation issues over government issues ; and the 
 more we analyze the question, the clearer this becomes. 
 Government paper money does not possess a single 
 element of the indispensable functions of money, except 
 that of being received in payment of taxes ; and that 
 is almost invariably withdrawn from it as soon as it de 
 preciates in value to any extent, because governments 
 can no more use a depreciated currency than individuals. 
 Government paper money cannot inspire geaeral con 
 fidence, because it is affected by every unfavorable 
 political event, by wars and revolutions. These events 
 have much less effect on bank notes issued against com 
 modities, because commodities are always necessary or 
 useful to the community, and, in time of war, generally 
 rise in value from the diversion of labor from industry to 
 war. Government paper money cannot long inspire 
 general confidence, because the very issue of a compul 
 sory government paper money, is a conclusive proof of 
 impoverished and embarrassed finances, and every sub 
 sequent issue is an evidence of increasing embarrassment 
 and poverty. Government paper money also lacks that 
 important element of confidence which bank notes offer : 
 the power of the holders to enforce payment by legal 
 measures. An individual cannot enforce by legal means 
 the most sacred claim against a government. Its pay 
 ment depends entirely on the will of those who administer 
 the government. This greatly contributes to the rapid 
 
114 MONEY. 
 
 depreciation of government paper money when confi 
 dence in it is once shaken. Laws making government 
 paper money a legal tender cannot arrest its deprecia 
 tion when confidence in it becomes impaired. Such a 
 law can, momentarily, rob the creditor classes for the 
 benefit of their debtors ; but no government, however 
 despotic, has yet succeeded in compelling producers to 
 produce, and dealers to sell, commodities at a loss ; and 
 every attempt to do this, only disorganizes industry to 
 the great injury of all. If the injury caused by a forced 
 circulation of government paper money could be limited 
 to the loss through the depreciation it experiences, it 
 might yet be submitted to. But unfortunately the 
 moment .the depreciation becomes considerable, the 
 paper money drives out of circulation all metallic 
 money, which is then hoarded, and the paper money 
 itself ceases to perform the proper functions of money ; 
 the community are thus deprived of the indispensable 
 instrument, money, by which all exchanges are effected, 
 and the final consequence invariably is, the cessation or 
 diminution of production, for no one will produce com 
 modities when they cannot be readily exchanged for 
 whatever he desires. If governments, when they think 
 it necessary to issue paper, would only allow it to pass 
 at whatever value the public might put upon it, it 
 would be infinitely better for all, as the exchanges be 
 tween individuals and with foreign nations would then 
 go on uninterrupted, and production would rather be 
 stimulated than impeded by the burdens entailed upon 
 the community to meet the financial necessities of the 
 government.* 
 
 * " If paper money or bank notes cannot be maintained on a par with 
 
MONEY. 115 
 
 The moment that the depreciation of government 
 paper money becomes considerable, this becomes a 
 powerful, almost an irresistible argument in the hands 
 of demagogues, in favor of its repudiation. The poorer 
 classes are then arrayed against the rich, who are ac 
 cused, as if it were a crime, of having purchased the 
 paper money at a heavy discount, and, therefore, not 
 entitled to its reimbursement. Every one then seems 
 to forget that had not those who possessed capital pur 
 chased the paper money when it was offered at a dis 
 count, it would much sooner have fallen to zero. 
 
 Another grave objection to government paper money 
 is that the amount and time of the issues is not, can 
 not ba, regulated by the wants of the community, but 
 solely by the necessities of the government.* A currency 
 
 gold, the next best thing is to allow all persons to receive the notes at what 
 ever value they choose to put upon them. ... If this be allowed, no 
 very great inconvenience will take place in the internal trade of the coun 
 try." (Macleod, Theory and Practice of Banking, vol. i, p. 336.) 
 
 " When a government issues paper money, inconvertible and com- 
 pulsorily current, it is usually in payment for 
 
 1. The personal expenditures of the sovereign or the governing power. 
 
 2. Public works or buildings. 
 
 3. Salaries of civil servants. 
 
 4. Maintenance of military and naval establishments. 
 
 It is quite clear that paper created and so paid away by the government, 
 not being returnable to the issuer, will constitute a fresh source of demand 
 (for commodities and services), and must be forced into and permeate all 
 the channels of circulation. Accordingly, every fresh issue beyond the 
 point at which former issues had settled in a certain rise of prices and of 
 wages, and a fall (rise) of the exchanges, is soon followed by a further rise 
 of commodities and wages and a fall (rise)f of the exchanges ; the deprecia- 
 
 t What is designated in the United States a rise of exchanges, is. in England, 
 called a fall of the exchanges, because a lesser amount of foreign coin is obtained in 
 exchange for a pound sterling, and vice versa. The English expression is certainly 
 very incorrect, and would mislead any one but an expert in banking. 
 
116 MONEY. 
 
 should be elastic, should contract and expand in ac 
 cordance with the volume of the exchanges it facilitates. 
 This elasticy of. the currency is of vast importance to 
 the community, and is one of the great advantages 
 paper money offers over coin, for it is not by maintaining 
 a uniform amount of currency in circulation that its 
 value can be maintained uniform, but by maintaining a 
 constant uniform relation between the amount of the 
 currency and the amount of the exchanges it facilitates.* 
 In one word, government paper money offers none 
 of the guarantees and attributes of a successful me- 
 
 tion being in the ratio of the forcibly increased amount of the issues. 
 (Tooke, History of Prices, vol. i, pp. 176, 177.) 
 
 * " The supply of the circulating medium in every country ought to be 
 commensurate in quantity to the number and value of the exchanges which 
 it has to perform. And as the number and value of such exchanges are 
 liable to vary with every variation in the state of industry, as well as with 
 the progress of population, it is obvious that the monetary system would be 
 a very defective one, if the supply of the circulating medium did not vary 
 in corresponding proportions." (Fullarton on the Regulation of Curren 
 cies, pp. 100, 101.) 
 
 " If any legislative interference with the currency at all be desirable, 
 its aim should be to maintain its uniformity in value as far as possible. 
 Now, uniformity in value does not mean uniformity in quantity, but uni 
 formity in the amount of services it can command, and consequently it 
 should increase or diminish in exact proportion to the amount of operations 
 it represented. Thus in Scotland it was observed, that at certain periods 
 of the year, the quantities of currency in circulation were subject to certain 
 regular and well defined fluctuations, because at certain periods of the year 
 a greater amount of operations took place than at others, and the Scotch 
 banks were in the habit of increasing their issues in proportion to their 
 operations, and it was this very fluctuation in quantity that prevented the 
 uniformity in value, because the quantity of the currency in circulation 
 always rose and fell in unison with the amount of operations ; consequently 
 the same amount of currency represented the same amount of service. If 
 the currency had been limited in quantity, it would have caused the most 
 violent fluctuations in value." (Macleod, Theory and Practice of Banking, 
 voL i, pp. 208, 209.) 
 
MONEY. 117 
 
 dium of exchanges, and its issue should never be per 
 mitted by any people that have a voice in their gov 
 ernment, and any regard for their own interest and 
 well 
 
 * " There is not, I believe, a single example on record, of the power of 
 creating money out of cheap materials having been exercised by a sovereign 
 state for any length of time, or through any season of public difficulty, 
 without having been abused. So long as the whole supplies of the year are 
 raised by means of taxes and loans, no great mischief can befall ; for the 
 paper which the state issues in its payments, will in that case all flow back 
 again regularly, in the shape of loans and taxes, and there will be no sur 
 plus left to accumulate in the hands of the public. But say that the nation 
 is once embarked in a destructive and expensive war, with little prospect 
 of bringing it soon to a termination, that the revenues are failing, the gov 
 ernment at its wit s end to discover some new tax that will supply the defi 
 ciency, and the impatience of such exactions on the part of the people 
 already at its height, the temptation to substitute issues for taxation, to 
 relieve the wants of the treasury, by intercepting, through the depreciation 
 of the currency, a portion of every payment in its transit from the pocket 
 of the debtor to that of his creditor, becomes too strong to be resisted, and 
 the iniquity is, probably, perpetrated with the general acquiescence of a 
 community, who are scarcely aware of its tendency. The career of debase 
 ment once entered upon, it has no pause, till there is scarcely any value 
 left to be destroyed. And if, in this country, the portentous experiment 
 of the suspension of cash payments was not followed by the same disastrous 
 consequences which attended the issues of the Mississippi notes, and the 
 assignats in France, and of the several paper currencies put forth by the 
 principal states of northern Europe, it was because the inconvertible notes 
 were disbursed, not in payments of a government, but in the loans of a 
 bank." (Fullarton on the Regulation of Currencies, p. 24.) 
 
 " It is not so much by convertibility into gold, as by the regularity of 
 the reflux, that any redundance of the bank-note issues is rendered impossi 
 ble ; and it was by the preservation of the reflux, throughout all the perils 
 and temptations of the period of the restriction, that the monetary system 
 of these kingdoms was saved from the utter wreck and degradation which 
 overwhelmed every paper-issuing state on the Continent, and which, in all 
 human probability, must have been likewise our fate had the currency been 
 issued by a government board instead of the Bank of England. That will 
 be an evil day for England, when the supreme executive authority of this 
 
118 MONEY. 
 
 As money must be constantly redeemed with com 
 modities and services, paper money, to perform success 
 fully the functions of money, should always represent 
 useful commodities, or other results of labor, actually 
 existing in the hands of persons willing to accept the 
 paper money in exchange for them. Paper money, 
 issued by an individual possessing commodities useful 
 to the community, of greater value than the amount of 
 paper money issued, can be as readily, and, to the com 
 munity, more advantageously redeemed, by the sale of 
 the commodities, than by gold and silver, because the 
 purchasers of the commodities must, in exchange, either 
 return the paper, money issued, or something that will 
 be readily accepted by the holders of the paper money. 
 But to inspire full confidence in paper money issued 
 against the pledge of commodities and other useful 
 results of labor, it is further necessary to have entire 
 confidence in the probity of the parties holding the 
 commodities, so as to insure the conviction that they 
 are of greater value than the paper money issued against 
 them, and, also, that their proceeds, when sold, will be 
 applied to the redemption of the paper money, and to 
 nothing else. It is to meet this requirement that banks 
 intervene beneficially. Banks with large capitals, sub 
 scribed by individuals, undertake the emission of bank 
 notes, which they advance to the producers or holders 
 of the commodities. The capital of the banks is an 
 ample security for any deficiency in the value of the 
 commodities against which the bank notes are loaned 
 
 country shall take the administration of a credit circulation into its own 
 hands. I trust never to see it." (Fullarton on the Kegulation of Curren 
 cies, pp. 67, 68.) 
 
MONEY. 119 
 
 or issued, as well as for any misapplication of the pro 
 ceeds of the commodities when sold. The self-interest 
 of- the stockholders and officers of the banks is a suffi 
 cient guarantee that the advances of bank notes will 
 only be made to persons of known probity, possessed of 
 ample property to insure the redemption of the bank 
 notes advanced to them. But should the banks make 
 improper advances, the consequences, will fall on the 
 stockholders, and not on the holders of its notes. The 
 persons to whom the banks make advances of bank 
 notes are merchants or manufacturers, who constantly 
 watch, with the vigilance of self-interest, all the wants 
 of the community, so as to produce, or purchase, the 
 commodities most needed, and therefore most sought 
 for, the proceeds of which will not only reimburse the 
 advances of the banks, and that portion of their own 
 capital invested in the commodities, but also leave them 
 a remuneration for their labor and intelligence. This 
 machinery has been found to work beneficially for all 
 the parties in interest, the banks, the commercial and 
 industrial classes, and the public, as is fully proved by 
 the results of the operations of the banks of Scotland 
 and of the United States. 
 
 It is constantly asserted that banks transform debts 
 into money ; that the same property, when sold on 
 credit three times, becomes the basis of three different 
 issues of bank notes or bank credits ; thus transform 
 ing one amount of property into three times the same 
 amount of purchasing power. - 5 The following analysis 
 
 " The same lot of goods might be sold to a dozen persons, and each 
 might give a note, and each of these twelve notes might be discounted at 
 
120 MONEY. 
 
 of commercial operations shows clearly that this theory 
 is without foundation, being based on supposed facts 
 that never occur ; on an entire ignorance of the true 
 philosophy of commerce and industry. 
 
 A is a capitalist that holds commodities which he 
 has either produced or purchased with his capital. He 
 sells to B, of these commodities, to the extent of 
 $5,000, payable in a note at six months from date. 
 This note thus represents the commodities in the hands 
 of B, drawer of the note. A, desiring to purchase 
 other commodities for cash, or to pay for commodities 
 previously purchased on credit, has this note discounted 
 by a bank, the proceeds of which he receives in bank 
 notes, or in a bank credit, with which he pays for the 
 new commodities purchased by him. There now exists 
 an issue of bank notes or bank credits, based on, and 
 represented by, twice the amount of commodities ; those 
 in the hands of B, purchased with the note given by 
 
 bank. The inducement then would be to buy and sell goods that notea 
 might be discounted at bank." (Gouge on Banking, p. 19.) 
 
 " Goods or commodities pass through the following hands : First, the 
 foreign importer or manufacturer ; second, the wholesale dealer ; third, the 
 retail dealer ; fourth, the consumer. It is clear that in their passage from 
 the manufacturer to the consumer, they will give rise to at least two bills 
 of exchange not unfrequently to three. Now it is easy to suppose that 
 the manufacturer, the wholesale dealer, and the retail dealer, may all be 
 customers of the same bank, and if they all have their bills discounted by 
 the bank, it may unknowingly advance money upon each of them, and so 
 will advance on bona fide bills just three times the value of the property 
 represented by them." (Macleod, Theory and Practice of Banking, vol. i, 
 pp. 217-220.) 
 
 " In the most legitimate course of business there will generally be two 
 bills afloat representing any given property, so that in the ordinary way 
 there will be at least twice as many bills afloat as ther-e is property to repre 
 sent them." (Id., ib., vol. i, pp. 219, 220.) 
 
MONEY. 121 
 
 him to A, and those in the hands of A, purchased with 
 the bank notes or bank credits obtained by him in ex 
 change for B s note, discounted by the bank. If B sells 
 the commodities purchased of A to C, also on six 
 months credit, and has C s note discounted at bank, so 
 as to purchase new commodities for cash, or to pay for 
 others previously purchased on credit, the position of 
 things then becomes as follows : 
 
 1st. The bank holds B s note, represented by the 
 commodities purchased by B with the bank notes issued 
 to him in exchange for C s note, the proceeds of which 
 commodities will pay B s note. 
 
 2d. The bank holds C s note, represented by the 
 commodities purchased by him of B with this note, the 
 proceeds of which commodities will pay C s note. 
 
 3d. A holds the commodities purchased by him with 
 the bank notes issued to him in exchange for B s note, 
 which commodities represent A s original capital, and 
 are an additional guarantee for the payment of B s 
 note, which A has indorsed when discounted by the 
 bank. 
 
 We thus have here three parcels of commodities, 
 each worth $5,000, against two issues of bank notes or 
 bank credits of each $5,000, and not, as supposed by 
 the theory, two issues of bank notes against one and 
 the same property. Increase .the number of sales of 
 the same property ad injinitum, and it will always be 
 found that for each new issue of bank notes appears a 
 similar amount of new commodities, because commerce 
 and industry only seek loans as means of purchasing or 
 producing useful commodities ; and thus there is a con 
 stant, uniform relation maintained between the issues 
 6 
 
122 MONEY. 
 
 of properly managed banks and existing commodities. 
 Commodities consumed can never become the proper 
 basis of an issue of bank notes. If each party that 
 purchased and sold the same commodities on credit 
 were to spend for their own personal enjoyment the 
 bank notes received for the notes discounted, there 
 would be several issues of bank notes entirely based on 
 one and the same parcel of commodities ; but pay day 
 w r ould soon come the drawers of the notes, having con 
 sumed their proceeds, would be unable to pay them, 
 and the bank that had discounted the notes would be 
 come bankrupt, if it had done much business of like 
 nature, and its notes would disappear from circulation. 
 But as long as merchants and manufacturers conduct 
 their operations with a view to realize profits and cap 
 ital, and not to consume their capital, they will never 
 pay interest on loans for any other purpose than to 
 purchase or produce useful commodities, which com 
 modities become means, when sold, of redeeming the 
 bank notes issued, without necessitating the interven 
 tion of coin. The error of the theory we combat arises 
 from omitting to keep in mind the use made of the 
 bank notes or bank credits issued in exchange for the 
 mercantile notes discounted by the banks. The bank 
 notes are represented and will be redeemed by the 
 commodities purchased with them ; and should, from 
 any circumstance, the bank notes not be used for the 
 purchase of commodities, they would remain in the 
 hands of the party obtaining the discount, and would 
 enable him to meet his engagements as well, though 
 to the community not so advantageously, as the com 
 modities he had intended to purchase with them. A 
 
MONEY. 123 
 
 constant source of error in all reasonings on transac 
 tions in which money intervenes, is looking upon an 
 exchange of commodities against money as the final 
 object of man s desires. It would be, if money were 
 sought for its own sake ; but being sought and desired 
 exclusively as means of obtaining, in exchange for it, 
 useful commodities and services, the true effect of any 
 operation can only be ascertained by examining it in its 
 entirety i. e., by looking not only at what is given for 
 money, but also what is obtained for it, by the same 
 party, when parted with. 
 
 But it is generally supposed that the demand for 
 money by commerce and industry is unlimited, insa 
 tiable,* and that the attempt to satisfy this demand in 
 variably leads to over issues, which depreciate the value 
 of the currency, increase the money price of all things, 
 and prevent the exportation of the products of the 
 country, f This is the theory that led to the bank act 
 of 1844, limiting the issues of the Bank of England. 
 Let us examine what truth there is in these assump 
 tions. 
 
 Is it true that the demand for money is unlimited, 
 insatiable ? The spendthrift, who desires to obtain 
 money as means of securing commodities and services 
 
 " Of money an individual can never have enough. ... It is 
 plainly, therefore, the merest drivelling to talk about the demand for 
 money being limited by the wants of the public. They have no possible 
 limit." (Encyclopaedia Britannica, Money.) 
 
 f " If the banks at any time make money more plentiful than it would 
 be if only gold and silver circulated, they diminish its value by increasing 
 its quantity." (Gouge on Banking, p. 18.) 
 
 " The banks, by expanding their issues, cause flour, cotton, and other 
 commodities to rise so high at home that they cannot be exported and sold 
 at a profit abroad." (Id., p. 22.) 
 
124 * MONEY. 
 
 for his own personal enjoyment, is insatiable in his de 
 sire for money ; and he alone must have been thought 
 of when the theory was imagined. But commerce and 
 industry never seek money except when it can be prof 
 itably employed. They are forced to- pay interest on 
 all loans of money obtained by them, and to give what 
 is supposed to be ample security for their repayment at 
 a given day. Self-interest, therefore, constantly in 
 duces every one to refuse to borrow money unless it can 
 be used profitably.* Now it is a well-established law 
 of political economy that whenever anything is pro 
 duced or imported in excess of the wants of the com 
 munity, or of its ability to pay for it, its price will fall 
 to such a point as will check further production or im 
 portation. Here is a natural, proper, and efficient 
 limit to the demand for money, one perfectly in har 
 mony with the interests of the community ; and that 
 this limit exists and is operative, is proved by the well- 
 known fact that interest frequently falls to very low 
 rates, not in consequence of the increased volume of the 
 
 * " The public do not receive notes from a banker without paying in 
 terest for their use ; and however low that may be, they will take no more 
 than they absolutely require nor do they retain notes in their possession 
 beyond what the convenience of trade requires ; and, therefore, if issued in 
 excess of that quantity, and if convertible, a portion would be instantly 
 returned upon the issuers. Nor can we conceive any means whatever by 
 which this circulation could be so augmented ; and we have deeply to regret 
 that, although such a power on the part of the banks has been taken for 
 granted by most of the writers during the past twelve years, no one has yet 
 attempted to explain by what process it could be accomplished ; and we are 
 compelled to tliink that impressions which gained ground many years since 
 as applicable to an inconvertible currency have been inadvertently associa. 
 ted also with a convertible currency." (Capital, Currency, and Banking, by 
 James Wilson, Esq., M. P., Editor of the London Economist quoted by 
 Tooke, History of Prices, vol. iii, p. 195.) 
 
MONEY. 125 
 
 currency, but solely from the difficulty of finding, mo 
 mentarily, a profitable employment for money. In 
 general, the rate of interest, everywhere, at all times, 
 indicates the profit which the employment of money is 
 supposed to yield. This supposed profit is not always 
 realized, but whenever it becomes evident that the an 
 ticipated profit is turned into a loss, the demand for 
 money to be employed in the same operations ceases 
 entirely. In moments of embarrassment and panic, 
 when confidence is shaken, the rates of interest are very 
 high, because, then, all kinds of property can be pur 
 chased at very low rates, generally much under the cost 
 of production. Everybody then seeks to borrow, and 
 is willing to pay high rates of interest ; one with a view 
 to purchase at the low prices then ruling another from 
 a desire to avoid the heavy sacrifices that the realization 
 of property, in such moments, invariably entails. In 
 the United States money is generally worth from 7 to 
 10 per cent., not because it is scarce, but because it can 
 be employed so as to yield a profit over and above those 
 rates of interest. In Europe, if interest is only worth 
 from 3 to 5 per cent., it is simply because the profits 
 arising from its employment there will not permit the 
 payment of higher rates. 
 
CHAPTER IX. 
 
 IT is self-evident that, if the theory that the volume 
 of the currency affects prices be true, every rise or fall 
 in the money price of things which proceeds altogether 
 from an alteration in the value of money must affect all 
 things equally must raise or lower prices everywhere 
 where the currency is used. But such an effect has 
 never yet been known to take place except ivitJi irre 
 deemable government paper money. No influx of the 
 precious metals, and no issues of bank notes convertible 
 into coin, have ever produced such a result. Much has 
 been said and written on the effect on prices of the in 
 flux of the precious metals after the discovery of 
 America. A rise of prices took place in the 17th 
 century. As America had been discovered in 1492, and 
 had furnished a large supply of the precious metals in 
 the 16th and 17th centuries, the rise of prices having 
 followed these events, it was ascribed to them, without 
 much examination of the facts. Now because certain 
 events follow each other, it is not always correct to 
 assert that the anterior event is the cause of those that 
 follow. There is every reason to believe that the rise 
 of prices in the 17th century was entirely the conse 
 quence of the increase of industry, commerce, and 
 
MONEY. 127 
 
 civilization, which augmented the demand for all the 
 commodities that contributed to man s well being. " No 
 rise of prices can be discovered until 1570, fifty years 
 after the entry of the Spaniards into Mexico, and almost 
 thirty years after the discovery of the Potosi silver 
 mine. The ultimate range of prices was not reached 
 till 1640 and in 1640 and subsequently, the rise of 
 prices was equal to about 200 per cent., while the in 
 crease in the whole stock of gold and silver was equal 
 to at least 600 per cent." * Fullarton says : " We ob 
 serve no such consentaneous movements of prices co 
 inciding with the fluctuations of the bank-note cir 
 culation. ... So little have these variations (in 
 the price of grain) been influenced by the amount of 
 the issues of the Bank of England, that there appears 
 from the investigations of Mr. Tooke to have occurred 
 only one instance within the last half-century in which 
 an increased circulation of notes has coincided with a 
 rise of the price of wheat (and that only a temporary 
 and trifling rise), and one other case in which a reduc 
 tion of the bank s issues has been simultaneous with a de 
 cline in the price of wheat, namely, in 1824 and 1831. . . . 
 The expansions and contractions of the bank-note cur 
 rency, which under certain circumstances are observed 
 to accompany those fluctuations of prices, are not the 
 causes, but the consequences of such fluctuations ; they 
 do not precede, but follow them." f 
 
 * Tooke, History of Prices, vol. vi, p. 232. 
 
 f Regulation of Currencies, pp. 98-100. 
 
 " The expansion and contraction of bills of exchange, book credits, and 
 of country bank notes, are the consequences, and not the cause, of a rise 
 and fall of prices." (Tooke, History of Prices, vol. i, p. 149.) 
 
 " The general depression of credit and of prices, in 1793, was the main 
 
128 MONEY. 
 
 Mr. James Wilson says : " From the beginning of 
 1841 to 1843 we had an uninterrupted favorable ex 
 change, the bullion in the bank rapidly increased all 
 the time from 3,965,000 to upward of 11,000,000 ; 
 every means were used which properly could be to 
 increase the circulation ; but it fell, during that time, 
 from 35,600,000 to 34,049,000, and during the whole 
 period the prices of commodities generally were sink 
 ing lower ; and in 1842, the year in which the largest 
 import of gold took place, was the most depressed in 
 prices, and the lowest in the circulation of any during 
 the last thirty years. Nor were the stocks of commodi 
 ties generally above an average, and the imports were 
 much below an average ; and up to this time (April 
 19, 1848), though bullion has latterly increased to 
 upward of 16,000,000, and the recent efforts of the 
 bank to increase the circulation have proved unavail 
 ing, and the prices of all kinds of commodities, even 
 in the absence of any unusual stocks, with some few 
 exceptions, continue unprecedentedly low. The events 
 of the last four years must go far to convince even those 
 who will not exercise the patience to investigate and 
 understand the theory, that a great error has existed 
 in regard to the connection between bank circulation 
 and prices of commodities." * 
 
 cause of the contraction of the circulation, and not the contraction of the 
 circulation a cause of the depression." (Tooke, History of Prices, vol. i, 
 p. 197.) 
 
 "Mr. Hume, in a debate in the House of Commons, in 1836, said: 
 My opinion is, that the quantity of money depends on the rise of prices ; 
 and that the rise of prices does not depend on the quantity of money."* 
 (Id., ib., vol. iii, p. 174.) 
 
 * Capital, Currency, and Banking, quoted by Tooke, History of Prices, 
 vol. iii, p. 209. 
 
MONEY. 129 
 
 Mr. Danson says : " Between March and September, 
 1845, joint-stock speculations, for the immediate in 
 vestment of capital, were set on foot, involving a larger 
 aggregate amount than had ever before been so involved 
 in the country. The amount, to raise which, for rail 
 ways alone, the sanction of Parliament was actually ap 
 plied for in the following session, exceeded 340,000,000 ; 
 and if we include all the new schemes on which scrips, 
 or letters of allotment, were actually selling in the 
 market at a premium in July, August, and September, 
 1845, the amount cannot be estimated at less than 
 500,000,000." 
 
 " During those months in which the purchases and 
 sales of railway property were most numerous and ex 
 tensive, while everybody was buying and selling shares, 
 and the current rate of interest was only 2^ per cent., 
 that portion of the circulating medium which consisted 
 of Bank of England notes was but very slightly, if at all, 
 increased ; and it reached its greatest amount when 
 the prices of shares were lowest when everybody. had 
 
 " The assumption of the peculiar influence of bank notes on prices, and 
 on the exchanges, is unsustained by fact or argument." (Tooke, History of 
 Prices, vol. Hi, p. 156.) 
 
 " The balance of payments with nearly all Europe has for about four 
 years past been in favor of this country, and gold has been pouring in till 
 the influx amounts to the unheard-of sum of about fourteen millions ster 
 ling. Yet in all this time, has any one heard a complaint of any serious 
 suffering inflicted on the people of the Continent ? have prices there been 
 greatly depressed below their ranges in this country ? have wages fallen, or 
 have merchants been extensively ruined by the universal depreciation of their 
 stock ? There has occurred nothing of the kind. The tenor of commercial 
 and monetary affairs has been everywhere even and tranquil ; and in 
 France more particularly, an improving revenue and extended commerce 
 bear testimony to the continued progress of internal prosperity." (Fullar- 
 ton on the Regulation of Currencies, p. 134.") 
 
 6* 
 
130 MONEY. 
 
 ceased to speculate when the number and amount 
 of current transactions were reduced to the lowest point 
 by discredit, and when the current rate of interest for 
 first-class bills had risen from 2 \ to 4^ per cent." * 
 
 Tooke says : u Cotton, at the end of May, 1851, was 
 60 to 70 per cent, below the rates in January 1851, 
 and during the summer great embarrassment and many 
 failures were the consequence. In July, August, and 
 September, there was great depression in the produce 
 markets. The decline of prices of colonial produce was 
 20 to 30 per cent. The circulation of the Bank of 
 England and of the country banks was, in January, 
 
 1850, 29,720,000; in November, 1851, 30,860,000. 
 The highest Bank of England circulation was in July, 
 
 1851, 21,400,000, and yet July was among the gloom 
 iest months of the whole year." (Vol. v, pp. 261-266.) 
 " As far as trustworthy evidence can be obtained, there 
 are no facts in the experience of the last nine years which 
 justify the conclusion that in this country the fluctua 
 tions of prices, the course of trade, or the increased 
 demand for goods arising out of the large exports to 
 America and Australia, were immediately preceded by 
 or connected with changes in the amount of the aggre 
 gate outstanding circulation of bank notes. In other 
 words, all the evidence available to us points distinctly 
 and uniformly to the conclusion that the fluctuations 
 of the bank-note circulation were determined and regu 
 lated by the consequences flowing from previous appli 
 cations of capital and credit in particular modes. . . . 
 
 * Extract from a paper read before the Statistical Society of London, 
 in January, 1847 quoted by Tooke, History of Prices, vol. iii, pp. 
 299, 300. " . 
 
MONEY. 
 
 131 
 
 In a great number of specific instances, it can be shown 
 conclusively, that fluctuations of price of the most im 
 portant kind, and in the largest markets of the country, 
 took place either without the concurrence of any change 
 whatever in the bank-note circulation, or contempora 
 neously with the occurrence of a change, the precise 
 opposite of that which are the grounds on which the 
 currency theory is built." (Vol. v, pp. 344, 345.) 
 
 "In the nine years, 1848 to 1856, the metallic circula 
 tion of the leading commercial nations of the world has been 
 
 increased by about one third, or say 30 per cent 
 
 It is not true that even an increase by one third of the 
 quantity of metallic money has led to a corresponding 
 increase of general prices ; nor, in the case of large 
 groups of commodities, to any increase of price what 
 ever ; but on the contrary, that prices have rather sunk 
 to a lower than risen to a higher level." (Vol. vi, pp. 
 158-194.) 
 
 " It is impossible to affirm that the range of general 
 prices has been sensibly raised, by the mere operation 
 in the form of metallic money of even 160,000,000 to 
 170,000,000 of new gold introduced into the commer 
 cial world. All the instances of an important variation 
 in price, comparing 1857 and 1851, admit of being ac 
 counted for by circumstances affecting the supply or 
 the demand." (Vol. vi, p. 224.) * 
 
 * " How then, let me ask, with all the facilities of communication 
 at present existing, is it possible that the price of the metal can ever 
 fall materially below the minimum (31. 17s. 9d. at which the Bank of 
 England is obliged to purchase all standard gold bullion tendered to it for 
 sale) ; or that, with this universal reservoir (the Bank of England) forever 
 open to receive it at a fixed valuation, any considerable portion of the 
 yearly produce of the gold mines should be thrown on the market of the 
 
132 MONEY. 
 
 " I cannot help thinking that there is a lurking im 
 pression among the doctrinaires of the currency theory, 
 arising mainly from the use of the term issue of paper 
 money, which leads them to confound bank notes, strict 
 ly convertible into coin, with a compulsory and incon 
 vertible paper currency. . . . But bank notes are issued 
 to those only who, being entitled to demand gold, des re 
 to have bank notes in preference ; and it depends upon 
 the particular purposes for which the notes are em 
 ployed, whether a greater or less quantity is required. 
 The quantity, therefore, is an effect, and not a cause of 
 demand." (Yol. iii, pp. 175-177.) 
 
 Fullarton says : " I deny that we have any evi 
 dence of such a redundance of circulating bank notes 
 having ever existed in coincidence with a really convert- 
 world in Ftich a manner as to occasion its depreciation? . . , However 
 large that surplus may be, after supplying- the periodical wants of the other 
 countries of the world for consumption and for coinage, it is obvious that 
 the whole must find its way into the vaults of the Bank of England, there 
 to remain buried, and wholly inoperative on prices, till called forth by some- 
 new demand for additional circulation. This circumstance, I apprehend, 
 so long as the system shall endure-, must continue a perpetual and insupera 
 ble obstacle to any action on prices, as measured in gold coin, from the in 
 creased productiveness of the mines. It is true that, for every ounce of 
 gold which it thus purchases, the bank may, if that mode of payment be 
 preferred, issue a corresponding amount of notes; . . . but these notes- 
 will fare Just as all the issues of the bank invariably fare, which are sent 
 Into a market having no employment for them. . . . They will fast 
 flow into the bank, in payment of the bills of exchange previously in its 
 hands, as they successively become due, while there will be no vent for its 
 notes in new discounts ; and the result of the whole will be, that, at the end 
 of perhaps a week, the bank will find itself with a million more of coin in 
 its coffers, and a million less of securities ; so long as the bank has a pound 
 note out on credit, the channel of reflux must remain open, and the bank 
 is utrerly impotent to add a superfluous note to the currency," (Fullarton 
 on the Regulation of Currencies, pp. 77-79.) 
 
MONEY. 133 
 
 ible state of the currency, as to raise prices or to cause 
 an efflux of the precious metals, or that such a redund 
 ance under such circumstances is possible/ * " It is 
 self-evident that bank notes, payable at all times in 
 coin of a definite weight and quality, can never sensi 
 bly fall in value below the coin into which they are 
 convertible/ f " What has chiefly, I suspect, given 
 currency to the notion that the issues of the Bank of 
 England are in a high degree accessory to the extrava 
 gances of the speculative mania, has been the pressure 
 on the Bank of England for discounts, after the malady 
 has reached its concluding stage, when the excitement 
 has come to a pause, when the market irrecoverably 
 sinking, discredit spreading rapidly, and payments can 
 no longer bs deferred. Then, certainly, if the bank 
 complies with these applications, it must comply with 
 them by an issue of notes, for notes constitute the only 
 instrumentality through which the bank is in the prac 
 tice of lending its credits. Bat those notes are not 
 intended to circulate, nor do they circulate. There is 
 no more demand for circulation than there was before. 
 On the contrary, the rapid decline of prices which the 
 case in supposition presumes, would necessarily contract 
 the demand for circulation/ f 
 
 " Applications to the bank for extended discounts 
 occur rarely, if ever, in the origin or progress of exten 
 sive speculations in commodities. These are entered 
 into for the most part, if not entirely, in the first in 
 stance, on credit, for the length of term usual in th e 
 
 * On the Regulation of Currencies, p. 26. 
 f Ib., p. 117. 
 \ Ib. r p. 105. 
 
134 MONEY 
 
 several trades ; thus entailing on the parties no im 
 mediate necessity for borrowing so much as may be 
 wanted for the purpose beyond their own available cap 
 ital. And if the events fully justify the grounds on 
 which the speculative transactions were entered into 
 (thus admitting of sales for consumption in time to 
 replace the capital embarked), there is no unusual de 
 mand for borrowed capital to sustain them. The term, 
 speculation, in its obnoxious sense, is not, in such cases, 
 applied to the transactions ; and the parties engaged 
 have the credit of superior sagacity. It is only when, 
 by the vicissitudes of political events, or of the seasons, 
 or other adventitious circumstances, the forthcoming 
 supplies are found to exceed the computed rate of con 
 sumption, and a fall of prices ensues, that an increased 
 demand for capital (credit ?) takes place ; the market 
 rate of interest then rises, and increased applications 
 are made to the Bank of England for discount/ * 
 
 It is said that the value of money, and particularly 
 of paper money which has no intrinsic value, is main 
 tained by limiting its quantity.^ This theory is based 
 on the fact that when anything used as money exists 
 in greater quantity than is necessary to effect the 
 daily occurring exchanges, it has a tendency to fall in 
 
 * Tooke, History of Prices, vol. iii, pp. 125, 126. 
 
 f " Whatever may be the material of the money of any country, . . 
 and however destitute it may be of all intrinsic value, it is yet possible, by 
 sufficiently limiting its quantity, to raise its value in exchange to any con 
 ceivable extent." (McCulloch, Money, chap, ii.) 
 
 " There can be no doubt that by sufficiently limiting its quantity, a cur 
 rency, though destitute of intrinsic worth, may be made to circulate on a 
 level with gold and silver, or higher, if it be desired" (Encyclopaedia 
 Britannica, Money.) 
 
MONEY. 135 
 
 its exchangeable value because persons will not retain 
 it idle, as it then produces no income, and may depre 
 ciate still further. But of all currencies, a paper cur 
 rency issued by solvent banks or individuals is the one 
 least liable to experience this result ; in fact, it cannot 
 experience it at all. An irredeemable government 
 paper money is subject to this depreciation, because 
 when issued in excess of the wants of the community, 
 there being no way by which the quantity in circulation 
 can be diminished, every one attempts to get rid of it 
 on the best possible terms, precisely as with commodi 
 ties. And if coin exists in excess of its profitable use, 
 it must be exported, or lie idle, rendering no service, pro 
 ducing no income. There is therefore also a tendency, 
 in such cases, to get rid of coin on the best possible 
 terms. But not so with bank notes issued by sound 
 institutions or solvent individuals. They need never 
 be kept idle on hand, lent out at a low rate of interest, 
 or exchanged on onerous terms for commodities or other 
 property ; because, being all issued in the form of loans, 
 the persons who borrowed them of the banks, as soon 
 as they find they can no longer employ them profitably, 
 many always return them to the banks, and thus stop 
 the interest they pay for them.- There cannot, there- 
 
 * " Try then the bank notes by the same tests, and see if the principles 
 which determine a rise of prices, in the case of a more abundant influx of 
 the precious metals, or of the redundant issues of a conventional currenc) 7 , 
 can have the least application to them. There is this broad and clear dis 
 tinction between all currencies of value and currencies of credit, that the 
 quantity of the former is in no degree regulated by the public demand, 
 whereas the quantity of the latter is regulated by nothing else. The gold 
 which is once smelted and converted into coin, can never be returned again 
 into the mine : there it is, a permanent and irrevocable addition to the 
 
136 MONEY. 
 
 fore, be a redundancy of bank notes, when issued by 
 well-managed institutions, that only issue them on 
 good security/* The possibility of increasing and de- 
 stock of money in the world. . . . Still more decidedly have the con 
 ventional issues of government all the characteristics of a forced currency ; 
 . . . even after the notes have become depreciated, the law compels the 
 private creditor to accept them in satisfaction of his claims ; and the gov 
 ernment having no better money to offer, the only alternative left to its 
 creditors and dependants is to take this or none. Bank notes, on the other 
 hand, are never issued but on the demand of the recipient parties. New 
 gold coin and new conventional notes are introduced into the market by 
 being made the medium of payments. Bank notes, on the contrary, are 
 never issued but on loans, and an equal amount of notes must be returned 
 into the bank whenever the loan becomes due. Bank notes never, there 
 fore, can clog the market by their redundance, nor afford a motive to any 
 one to pay them away at a reduced value in order to get rid of them. The 
 banker lias only to take care that they are lent on sufficient security, and 
 the reflux and the issue will, in the long run, always balance each other. 
 However prone individuals may be to abuse at times the facility of borrow 
 ing, no merchant can ever desire to keep by him a larger sum in bank notes 
 than is indispensably necessary for his payments ; and if any one were dis 
 posed to indulge in so unprofitable a fancy, it would be a matter of not the 
 slightest importance to any other than himself, for, in so far as the public 
 are concerned, notes which are not in use are the same as if they were not 
 in existence. Those notes cannot be obtained from a banker but by pay 
 ing interest for the use of them, nor can they be obtained at all but for 
 very short periods, at the expiration of which they must be replaced. Their 
 circulation must always be strictly limited by the wants of those who have 
 value or security to offer for them. And so limited, there can be no re 
 dundance ; no holder of them can ever be placed in the same predicament 
 with the importers of a double supply of bullion, or the recipients of a 
 forced issue of government paper, who have no means of turning these 
 acquisitions to use but by submitting to part with them at a reduced value." 
 (Fullarton on the Regulation of Currencies, pp. 64, 65.) 
 
 " Mr. Whitmore, Governor of the Bank of England, on his examination 
 before the Bullion Committee of 1810, said: The bank notes would re 
 vert to us if there was a redundancy in circulation, as no one would pay 
 interest for a bank note that he did not want to make use of. " (Tooke, 
 History of Prices, vol. i, p. 160.) 
 
 * " It may rest with the banker to issue, but it is the public which cir- 
 
MONEY. 137 
 
 creasing each day the volume of the currency, exactly 
 in accordance with the amount of the operations which 
 the currency facilitates, instead of being injurious, is 
 one of the great advantages which bank notes offer 
 over every other kind of money. It is very uncertain, 
 and very difficult to ascertain, what is the limit to the 
 profitable employment of money. Neither legislators 
 nor bankers should attempt to fix this limit. The 
 main duty of the banker is to see that he loans only 
 on undoubted security, and for such periods of time 
 as he feels confident will not inconvenience himself. 
 The borrowers are the only proper persons to decide 
 what employment shall be made of the money, or what 
 may be the profit it will yield them. Money applied 
 to consumption may be injurious to the community ; 
 but money applied to the production, importation, or 
 
 culatcs ; and without the concurrent action of the public, neither the power 
 nor the will to issue can avail. Both the metropolitan and the country 
 circulations are subject to certain periodical floods and ebbs from regularly 
 recurring causes, over which tfie issuing bodies have no control, and which 
 are found to be of little if any effect beyond the immediate range of the 
 circumstances in which they originate. It is well known, that at the quar 
 terly periods, when the public dividends fall in course of payment, the Bank 
 of England adds regularly from a fifth to two fifths to the amount of its 
 issues. Has any one ever heard of an instance in which any of these great 
 periodical expansions of the bank circulation have, in any sensible degree, 
 disturbed markets or caused a general rise of prices ? Nothing of the kind. 
 . . . Such is the elasticity with which the general circulation throws off the 
 superfluous load which encumbers it, that the surplus notes are usually re 
 turned into the bank, and the currency restored to its average level, within 
 a few weeks after the recurrence of each quarterly period. This effect is 
 uniformly produced by a reduction of the demand, on the part of the pub 
 lic, for accommodations from the bank by way of discount or loan, a re 
 duction which follows, with immediate and striking regularity, every such 
 extraordinary augmentation of the bank issues." (Fullarton on the Regu 
 lation of Currencies, p. 86.) 
 
138 MONEY. 
 
 exchange of commodities can never greatly injure the 
 community, whatever be the result to the individuals 
 making these operations ; for increased production di 
 minishes prices low prices diminish production di 
 minished production increases prices higher prices 
 stimulate production. Thus we have constantly action 
 and reaction harmony resulting from the antagonism 
 of forces, which appears to be the universal system that 
 controls so harmoniously all created things. 
 
 But if limiting the issues of paper currency really 
 increased its value, how injurious and how unjust would 
 be such a measure as the limitation of the issues of the 
 Bank of England to 14 millions ! Every day increases 
 the population of all countries, whilst the enormous 
 development of industry and wealth in consequence of 
 the invention of machinery, the greater and greater di 
 vision of labor, and the increasing intelligence of the 
 laborers, increases production and exchanges still more 
 rapidly than population. It is evident that an amount 
 of -currency amply sufficient for the exchanges of 1844, 
 may be totally insufficient to effect the exchanges of 
 1864 ; and, therefore, the limitation of the issues of bank 
 notes, if the theory that this increases their value were 
 correct, would each day increase the value of money, and 
 reduce the value of commodities and services, although 
 no change should take place in the relative proportion be 
 tween the supply and the demand ; in fact, even if the 
 supply had moderately diminished in proportion to the 
 demand. Can it be that man can thus counteract a great 
 beneficial natural law? No, thank God, this cannot be 
 done, for otherwise we should constantly see the masses 
 still more frequently deprived than they are now of the 
 
MONEY. 139 
 
 results of their labor, at the will, and for the benefit 
 of the intriguing few who succeed in obtaining pos 
 session of the government, i. c. of the power to enact 
 human laws. The volume of the currency has no dura 
 ble effect on prices. It would, if all things could only 
 be exchanged by means of money ; but as that is not 
 the case, the currency is only an instrument that facili 
 tates exchanges, but does not control prices. Mr. Win. 
 Newmarch, in an address at Manchester in September, 
 1861, said : "It has been proved by evidence so exten 
 sive and various that we may well claim for it the force 
 of demonstration, -that fluctuations in the amount of a 
 paper circulation strictly convertible into coin, does not 
 govern prices at all, but that prices are governed by 
 supply and demand, and by operations of capital and 
 credit ; that bank notes are no more than the small 
 change of the ledger, and that the phenomena which 
 are really worth attention are not infinitesimal fluctua 
 tions in the amount of bank notes, but changes in the 
 rate of interest." * 
 
 But, unfortunately, although the theory that limiting 
 the quantity of the currency increases its value is not 
 true in principle, it is true in some exceptional cases ; 
 and the theory, as long as admitted and. acted on, does 
 immense injury to the best interests of the community ; 
 for, whenever the community obtain a certain supply 
 of currency and adapt their operations to this amount, the 
 contraction that subsequently takes place either in con 
 sequence of legal restrictions to bank issues, like in the 
 case of the Bank of England, or in consequence of the 
 ignorance of the true laws governing paper money on the 
 
 * Journal of the Statistical Society of London, December, 1861. 
 
140 MONEY. 
 
 part of the issuers, as is universally the case in the 
 United States, is perfectly ruinous to the commercial 
 and industrial interests, because the deprivation of the 
 indispensable means of exchanging commodities and 
 meeting engagements, invariably creates panics ; leads 
 to forced sales of property at ruinous rates ; destroys 
 credit, and ends by arresting and disorganizing indus 
 try for a longer or shorter period of time. Such a con 
 traction of the currency, and the subsequent rise of 
 prices which follows after confidence is reestablished 
 and the currency once more increased to an amount 
 sufficient for the exchanges then taking place, give a 
 certain appearance of truth to the theory that the volume 
 of the currency regulates prices. But it is evident that 
 these incessant expansions and contractions of the cur 
 rency, without regard to the wants of the community, 
 and their injurious effects, are not the consequences of 
 the use of paper money, but solely of its abuse, of the 
 ignorance of those who control the issues of paper money. 
 If an instrument of any kind be beneficial, how can it 
 be injurious to increase the number in use, as long as 
 those who are to use them ask and pay for them ? 
 Suppose it were asserted that increasing the number of 
 ploughs decreased their value, and that, therefore, to 
 protect the interests of the community, it was necessary 
 to limit the number of ploughs in use. Could this be 
 beneficial to any one but the present holders of ploughs, 
 who thereby would be benefited by the increase of their 
 value ? Exactly so with paper money. By making those 
 who obtain paper money from the issuers, give security for 
 its return and pay interest for its use until returned, the 
 demand for paper money is certain to be limited at all 
 
MONEY. 141 
 
 times to the amount really useful to the borrowers. And 
 if any given amount be useful to the commercial and in 
 dustrial interests, it cannot be injurious to any portion 
 of humanity ; for it is now clearly established by political 
 economy, that under perfect liberty, anything really 
 beneficial to a portion, is beneficial to the whole of 
 humanity. The contrary doctrine arises, invariably, 
 from looking only at the first effects, and omitting all 
 consideration of the subsequent, ulterior, effects of any 
 measure. 
 
 It is generally supposed that the redemption of 
 paper issues in specie is the best guarantee against over 
 issues. This is what is called in England " the bank 
 ing principle," * which supposes that this is necessary 
 to maintain the value of a paper currency on a par with 
 the currency of other nations with which commodities 
 are exchanged. It is supposed that whenever the 
 paper issues become redundant they reduce the value of 
 the currency, which leads to an exportation of the pre 
 cious metals from the country whose circulation is 
 excessive, and this then leads to the presentation of 
 bank notes to obtain specie to meet the export demand, 
 until the equilibrium of both volume and value be re 
 established. Here we have again the theory that every 
 increase in the volume of the currency decreases its 
 value. The true and only advantage of the converti- 
 
 * " That the purposes of a mixed circulation of coin and paper were 
 sufficiently answered, as long as the coin was perfect and the paper con 
 stantly convertible into coin, and that the only evils to be guarded against 
 by regulation were those attending suspension of payment and insolvency 
 of the banks. This is what is understood in general terms as the bank 
 ing principle, and is that upon which our system of currency is constructed 
 and conducted." (Tooke, History of Prices, vol. iii, p. 167.) 
 
142 MONEY. 
 
 bility of paper money into coin, on demand, is that, as 
 the banks, wherever they exist, become the reservoirs 
 of the specie reserves of the entire community, as long 
 as the precious metals are considered the only true and 
 desirable wealth, and paper money only performs the 
 functions of money within limited districts, the forced 
 convertibility becomes necessary as means of overcoming 
 the dislike of the banks to part with the coveted 
 metals when they become indispensable to commerce 
 as means of supplying some want or desire beyond 
 the means offered by the exports of commodities 
 for the moment. Were bank notes universally ac 
 cepted as money, and the precious metals used simply 
 as commodities, the exports of gold and silver would be 
 seen with as great satisfaction as the exports of all other 
 commodities by means of which we obtain, in return, 
 the objects of our wants or desires. Under our present 
 system, the moment commerce requires specie as means 
 of supplying the wants or desires of the community, 
 instead of loaning it against ample security, precisely as 
 they do their notes, the banks immediately call in the 
 loans and notes indispensable to the operations of the 
 community, * merely with a view to arrest the exports 
 of coin, although the only utility of coin is to meet pre 
 cisely such emergencies. The community are thus not 
 only attempted to be deprived of the use of the precious 
 metals brought into the country solely by means of their 
 industry and intelligence, but are further deprived of the 
 
 * " Bankers, though they cannot increase their issues above the level 
 prescribed by prices, have it always in their power to lower them to any 
 given point, or to withdraw them, if they think fit, altogether." (Fullarton 
 on the Regulation of Currencies, p. 107.) 
 
MONEY. 143 
 
 instruments indispensable to the local exchanges of 
 commodities and services. * The invariable result is an 
 immense momentary reduction, if not a total cessation 
 of the production of commodities, although the com 
 munity are in as great need of them as ever, and possess 
 the same ample means as ever to remunerate the pro 
 ducers by other services useful to the latter. 
 
 Nothing that will arrest the exportations of the 
 products of a country, while there is a foreign demand 
 for them, can produce a rise of prices, as long as the 
 products exist in excess of the local wants. Whenever, 
 from any cause, the foreign demand ceases whilst stocks 
 are in excess of the local demand, prices will fall until 
 the foreign demand recommences or the production is 
 diminished, because merchants rarely purchase commod 
 ities to hold them for future wants, but almost always 
 to supply immediate wants. Commerce is not specula 
 tion it is the constant supply of immediate wants. " It 
 will be found that in almost every instance of a drain 
 of bullion, the drain does not commence until after a 
 considerable foreign debt has been already created, and 
 all available means of discharging it through the ordinary 
 course of traffic have been exhausted." f " The scarcity 
 
 " When we come to a drain of gold to meet an unavoidable want, 
 there must be some means of avoiding measures by which the commerce of 
 the country will be dislocated. That commerce is carried on almost en 
 tirely on a system of credit. If you drive it to a ready money system, you 
 at once paralyze it in the manufacturing districts. . . . How can the 
 mercantile interests carry on the export trade, which must be conducted on 
 credit, when all accommodation is refused them ? The country has export 
 ed 700,000 of gold, and the effect of this export has been to destroy 
 property to the extent of one hundred millions." (Speech of Thomas 
 Baring, Esq., in the House of Commons, 10th May, 1847, on the crisis of 
 1847. Alison s History of Europe, vol. viii, p. 101, American edition.) 
 t Fullarton on the Regulation of Currencies, p. 130. 
 
144 MONEY. 
 
 and (consequent) dearness of native productions is an 
 infallible cause of the export of specie from a country ; 
 and an already existing abundant supply of foreign pro 
 ductions of all sorts is a certain causa of the import of 
 specie into a country. On the contrary, when native 
 productions are cheap and abundant, it will cause an 
 importation of bullion ; and when foreign productions 
 are scarce and dear, it will cause an export of bullion." * 
 This is just as true of a country where a forced irre 
 deemable paper money circulates, as of one whose cur 
 rency is entirely metallic, or partly metallic and partly 
 bank notes convertible into coin on demand. Wherever 
 a forced paper money circulates, every depreciation of 
 the paper money is accompained by a corresponding rise 
 in the rates of the foreign exchanges. This rise in the 
 foreign exchanges compensates, to the foreigners, the 
 rise in the price of commodities, which, therefore, cost , 
 no more to them than when prices were lower in a sound 
 currency. Exports thus continue as before the depre 
 ciation of the currency in fact, with a depreciated 
 currency, the exports often increase temporarily, in 
 consequence of the rise of the foreign exchanges, as this 
 becomes a great temptation to export commodities in 
 the hope of avoiding a portion of the rise in the ex 
 changes. Commerce never moves the precious metals 
 if it can be a voided, because operations in them offer little 
 or no compensation for the trouble and risk they 
 occasion, f 
 
 * Macleod, Theory and Practice of Banking, vol. i, p. 304. 
 
 f " The cause of bullion being imported is either that the price of goods 
 is so low in England, and so high in the foreign markets, as to tempt 
 foreigners to send, here to buy goods, or that the price of goods is so high 
 
MONEY. 145 
 
 Drains of specie for export are invariably caused by 
 purchases abroad of a greater amount of commodities 
 than the value of the commodities exported at the mo 
 ment. A drain of specie can never be of long duration, 
 because commerce maintains a constant equilibrium be 
 tween all nations both as to the value and the supply 
 of all things.. If the purchases abroad have been of 
 articles of necessity, like food, to supply the deficit of 
 bad harvests, they must continue as lung as the wants 
 of the community are unsatisfied ; but bad harvests 
 produce high prices for food, and low prices for every 
 thing else, because the additional amount that has to 
 be expended for food must be withdrawn from some 
 other consumption formerly indulged in, and low prices 
 for all articles but food soon attract a foreign demand 
 which arrests the drain of specie. If the purchases 
 abroad have been of articles of luxury, which can be 
 easily dispensed with, there must be an over importation 
 when the liquidation of the purchases requires an expor 
 tation of coin, and this soon corrects itself by the losses 
 invariably entailed upon the importers by importations 
 beyond the wants or means of the community. It must 
 never be forgotten that every one who parts with coin, 
 
 in the foreign market and so low in England, that nothing but specie can 
 be sent in payment of goods exported from England. 
 
 " The cause of bullion being exported from England is that there is 
 some givat and pressing demand for some article in this country, and other 
 commodities are so scarce and dear that they cannot be exported with a 
 profit, or that the article is required in such quantities that the foreigner can 
 not consume our goods (which we should prefer to send in payment) fast 
 enough, and so specie must be sent, and the greater the difference in price 
 the greater will be the drain of bullion ; or that other markets are already 
 overstocked with our productions, which are depressed below their market 
 value there " (Macleod, Theory and Practice of Banking, vol. i, p. 309.) 
 
 7 
 
146 MONET. 
 
 does so to obtain, in exchange, something he prefers to 
 coin. Now should the exchange of coin for commodi 
 ties, by individuals, ever be prevented ? If not, why 
 attempt to stop the exports of coin, which only represent 
 individual exchanges of coin for foreign commodities ? * 
 All efforts to arrest the exportation of coin are simply 
 an attempt to enforce the theory that the only true and 
 desirable wealth is gold and silver. Is it not safe and 
 proper to allow every owner of coin to dispose of it as 
 he may judge most conducive to his well being ? He 
 obtained the coin by giving something, in exchange, of 
 equal value. When he thus acquires it, is it not his 
 inherent right to do whatever he pleases with it ? Self- 
 interest will ever prevent him from parting with it ex 
 cept in exchange for something which he prefers to coin 
 if he is benefited by the exchange, the nation cannot 
 be injured, because the well being of a nation depends 
 on the well being of the individuals composing the na 
 tion. 
 
 There is nothing so absurd and groundless as the 
 fear of an inadequate supply of the precious metals as 
 long as commerce is left unfettered by legislation. a Gold 
 is easily transported from one country to another. ... 
 Owing to the great facilities of communication in modern 
 times, a very slight discrepancy of value is instantly 
 corrected by a stream of exportation. ... A mili 
 tary emergency, compelling a sudden export to an army 
 abroad, or very sudden and extensive orders for mercan- 
 
 * "I really know not why such enormous stores of coin are to be 
 hoarded up at so vast an expense, if they are to be at all times Inexorably 
 withheld from the public, whatever be the urgency of the need, 7 (Fullar- 
 ton on the Regulation of Currencies, p. 150.) 
 
MONEY. 147 
 
 tile purchases in foreign countries, might for the mo 
 ment produce a considerable diminution of the coin in 
 a nation which held no reserves in bankers hands ; but 
 the vacuum and the inconvenience would be of brief 
 duration. Gold would flow in on every side, so long as 
 people had commodities wherewith to buy it. The 
 horror which the theorists inculcate of a deficiency of 
 gold is simply preposterous ; there is probably no other 
 commodity, the scarcity of which would produce so 
 little inconvenience, or would be so. rapidly remedied. 
 A scarcity of cotton would, indeed, be a subject for 
 grave alarm ; for how could it be supplied ? But a de 
 ficiency of gold would at once cause it to pour in from 
 the reservoir of the whole world ; bankers who had 
 pledged themselves to pay gold, and merchants who 
 owe debts abroad, being the only persons who would in 
 cur any real loss ; and that would, at the utmost, be 
 trifling. A small premium on the value of the metal 
 would bring in any supply that could be wanted. In 
 truth, this horror of a scarcity of this particular article 
 above that of any other, is a mere relic of the unscien 
 tific confusion of a short supply of a commodity luith 
 the inability of an indelted banker to repay his cred 
 itors the capital which he has lost. ... A premium 
 of sixpence a sovereign, or at the most a shilling, would 
 draw torrents of gold upon England from all the world, 
 and would restore the whole of the sixteen millions of 
 gold at the bank, if it had all taken wing, for some 
 400,000 or 800,000 at most. Why, reckoning in 
 terest at five per cent., it costs the nation the larger of 
 these sums annually to keep cellars at the bank full of 
 gold. ... Of all ivants, there is none which is so easily 
 
148 MONEY. 
 
 and so certainly supplied as gold. . . . India and 
 China obtain as much silver as they can pay for with 
 their products. Is England, England rich in every store 
 of manufactured and universally desired wealth, unable 
 to do as much ? Has Adam Smith taught in vain ? 
 and is the absurd doctrine of a favorable balance of 
 trade, of the flowing in of a redundant and useless com 
 modity, not yet exploded ? " 
 
 " But how, then, is the existence of this strange 
 delusion about gold to be explained ? Partly by the 
 old mercantile theory, of which it is a remnant ; partly 
 by ignorance of the science of currency ; but most of 
 all by the universal and natural feeling of the banking 
 trade, especially of the Bank of England. It is a seri 
 ous part of their business to undertake to provide gold 
 on demand. Every banker in London, including the 
 Bank of England, is bound by law to repay all his lia 
 bilities, whether of notes or deposits, in gold on demand. 
 The business, therefore, of providing gold when wanted, 
 falls on them ; it is a duty annexed to the profit of their 
 calling. No wonder, therefore, that they are always 
 nervous as to having gold enough to meet all possible 
 demands on them ; no wonder that they preach that 
 vast heaps of stored-up gold, it matters not how useless, 
 constitute a very satisfactory state of things. . . . 
 But it is a wonder that political economists should have 
 chosen to identify the banking interest of the Bank of 
 England with the interest of the whole community ; 
 that they should have persuaded themselves that there 
 was any greater harm in dear gold than in dear corn, 
 dear cotton, or dear sugar." 
 
 " The terror felt for drains of gold and low (high) 
 
MONEY. 149 
 
 exchanges is almost too absurd to be seriously dealt 
 with. They signify only that gold is being exported ; 
 and why not rejoice over its export as much as over that 
 of Manchester bales ? Gold is sent out only to bring 
 in a more desirable commodity a serviceable, in ex 
 change for an unserviceable article. A cargo of cotton 
 or wool is, as a general rule, an arrival far more deserv 
 ing of welcome than one of gold ; and city articles of 
 the press would show more understanding of the mat 
 ter, if, instead of enumerating the ounces which come 
 from Australia to England for the most part, too, only 
 in transit to some other country they would publish 
 the supplies which are brought in of raw material for 
 the great workshops of English industry. If these 
 supplies were to fail, great indeed would be the ruin ; 
 but, if gold were scarce for a while, what would be the 
 harm ? . . . Scarce gold must be paid for at a high 
 rate. Granted ; but the question ultimately is this : 
 whether it would cost more to buy it at a dearer rate 
 occasionally when scarce, or to invest large portions of 
 capital uselessly, in keeping up expensive accumulations 
 of it, for the sole purpose of preventing it from ever 
 being scarce." * 
 
 The precious metals, being universally accepted in 
 exchange for commodities and services, imperceptibly 
 became the representatives of commodities and services, 
 by which they are constantly redeemed, and thus main 
 tained current among all those who desire commodities 
 and services, which means humanity at large. Every 
 man seeks money because it has become, like Aladdin s 
 lamp, the efficient means of obtaining, at any moment, 
 
 * What is Money? (North British Review, November, 1861.) 
 
150 MONEY. 
 
 everything he may desire.* The ignoring of this trans 
 formation of the precious metals from commodities into 
 counters, into representatives of, or orders on, all com 
 modities and services the belief that gold and silver 
 still circulate as money on account of their intrinsic 
 value, of the value in themselves, as it is sometimes 
 called, leads to the doctrine called in England "the 
 currency principle :" that paper money performs suc 
 cessfully the functions of money solely because it is, or 
 should be, the representative of coin actually in the 
 vaults of the institutions or individuals that issue it. 
 The ultra, logical partisans of this doctrine naturally 
 insist that all issues of paper that do not represent an 
 equivalent amount of coin, idle in the vaults of the 
 issuers, ready to redeem the paper issues, are injurious, 
 because they depreciate the value of the currency by 
 increasing its volume. Here we have, ooce more, the 
 doctrine that every addition to the existing stock of 
 money diminishes its exchangeable value. But neither 
 the volume of the precious metals, nor the volume of 
 the mixed currency of coin and paper money issued by 
 banks to whom it can be returned when no longer 
 needed, ever has been, or ever will be, the true measure 
 of value of all things produced by the labor of man, 
 because currency never has been, and certainly, never 
 will be hereafter, the sole means of obtaining those 
 things. If banks at the present day, like the old banks 
 of Amsterdam and of Hamburgh, were merely the de- 
 
 * The alchemists of old sought to transmute commodities into gold. 
 "We, more intelligent in regard to the true services that can be obtained 
 from things, constantly transform the precious metals into commodities and 
 services. 
 
MONEY. 151 
 
 positories, the safekeepers, of coin, for the benefit of 
 the holders of the notes issued to an equivalent amount, 
 they would render but very trifling services to human 
 ity ; services not worth the cost of the machinery re 
 quired to render them. It is because the modern banks 
 replace successfully coin by paper, as an instrument 
 for effecting exchanges because they replace capital, 
 which it requires laborious efforts to produce, by credit, 
 the active and obedient offspring of intelligence and 
 probity physical efforts by mental efforts, the true 
 process of all human progress that they have been 
 the source of the great benefits man has already derived 
 from them. Some men, fortunately declining in num 
 ber each day, believe that the introduction of machin 
 ery and of steam has been injurious to humanity 
 because they diminish the labor required to produce 
 certain results ; and that, as labor is the true source of 
 wealth, it follows that every diminution in the neces 
 sary employment of labor is injurious to society at 
 large. These men forget that labor is necessary and 
 desirable only on account of the results it produces ; 
 that if the desired results can be obtained with lees 
 effort and in greater profusion by the gratuitous natural 
 forces placed at our disposal by the beneficent Giver 
 of all things, it liberates labor from its former efforts, 
 which then become unnecessary, without diminishing 
 man s enjoyments, and permits him to secure new en 
 joyments and new sources of future progress by the 
 application of the liberated labor to new occupations. 
 Exactly so with money. If we are liberated from the 
 necessity of using the former expensive instruments of 
 exchanges, in consequence of their being replaced by a 
 gratuitous instrument, it liberates labor and capital, 
 
152 MONEY. 
 
 which can then be turned to good account in other 
 pursuits that will add to our present enjoyments and 
 future progress. 
 
 Mr. Huskisson said, in 1810 : "It is of the essence 
 of money to possess intrinsic value. Paper currency 
 has obviously no intrinsic value : a promissory note, 
 under whatever form or from whatever source it may 
 come, represents value. It does so, inasmuch as it is 
 an undertaking to pay in money the sum for which it is 
 issued. The money or coin of a country is so much of 
 its capital. Paper currency is no portion of the capital 
 of a country. It is so much circulating credit. . . . 
 Both money, however, and paper promissory of money, 
 are common measures and representatives of the value 
 of all commodities. But money alone is the universal 
 equivalent. Paper currency is the representative of 
 that money."* We have here, in a few words, the prin 
 cipal errors of the ultra bullionists, who imagined the 
 " currency principle " and the act of 1844. "Money 
 (coin) is capital/ We think it is not capital, but only 
 the representative of capital, as long as used as money. 
 To perform the functions of capital, and become sub 
 ject to the laws regulating capital, it must be demone 
 tized by being melted. " Money must possess intrinsic 
 value." We think we have shown that this is entirely 
 unnecessary. " Paper money does not possess intrinsic 
 value, therefore it cannot perform the functions of 
 money/ Experience shows conclusively it can, most 
 successfully, perform the functions of money. No peo 
 ple that have once used paper money have evor long 
 given up its use. " Paper money circulates as money 
 
 * The Question concerning the Depreciation of our Currency stated 
 and examined quoted by Tooke, History of Prices, vol. vi, p. 618. 
 
MONEY. 153 
 
 because it is a promise to pay coin, and, therefore, 
 represents coin/ We say paper money circulates, not 
 because it represents com, but because it represents 
 commodities and services. Paper money is redeemed, 
 not in coin, but by payments to the issuers in liquida 
 tion of loans of paper money. It is redeemed by com 
 modities and services, in exchange for which the bank 
 notes are transferred, by those who receive them from 
 the banks, to those who have to pay to the banks. 
 Paper money cannot be redeemed in coin if it be issued 
 in excess of the coin in the hands of the issuers.* 
 " Money is the equivalent of all things." No, it is not ; 
 it is a mere representative of all other things. Hus- 
 kisson claims that paper money is the representative of 
 coin. If that be correct, it must be because paper 
 money is eventually to be redeemed in coin. Then why 
 is not money of every kind the representative of com 
 modities and services, since these must constantly re 
 deem it to give currency to money of any kind, for 
 money is only used as means of obtaining all things 
 useful or desired. Bullionists, however, will not admit 
 that money represents commodities and services, be 
 cause that admission overthrows all their theories. 
 Huskisson admits that paper money is a measure of 
 value, and he states very correctly that it is circulating 
 credit. Bank notes are undoubtedly credit in its most 
 convenient form. 
 
 * " Bank notes are regarded by some as representatives of specie. But 
 for every silver dollar they have in their vaults, some of the banks have 
 two paper dollars in circulation, some three, some five, some eight, and 
 some thirteen. Bank notes cannot represent that which the banks have 
 not, and which is not in the country." (Gouge on Banking, p. 20.) 
 
 7* 
 
CHAPTER X. 
 
 PAPER MONEY, as yet, is far from being the perfect 
 money it will, some day, become. Up to the present 
 time it is far too much controlled and hampered by 
 legislation, and the natural laws that govern it so per 
 fectly are not yet sufficiently known to permit us to 
 derive all the benefits its use will, eventually, confer. 
 Notwithstanding all the advantages offered by paper 
 money, it performs, as yet, but a portion of the re 
 quired functions of money. It only aids the exchanges 
 of commodities and services within restricted limits. 
 For exchanges between distant points the precious 
 metals are still greatly used. The reason of this is that 
 paper money does not yet inspire universal confidence, 
 without which nothing can properly perform the func 
 tions of money, and the issues of each institution are 
 only known in a restricted circle, in the more or less 
 immediate vicinity of the locality of the institutions 
 that issue it. But each day rapidly increases the gen 
 eral intelligence, the intercourse between nations, and, 
 consequently, the universal knowledge of the institu 
 tions of all countries. Steam, railroads, and the electric 
 telegraph, not only supply our wants, but annihilate 
 
MONEY. 3 55 
 
 ignorance, distances, and time. We are rapidly pro 
 gressing toward the moment when paper money will 
 become a perfect money in every respect. It will then 
 become the universal instrument for effecting the ex 
 changes of the entire globe. The precious metals will 
 then be abandoned as money, and left exclusively to 
 the arts ; and history will speak of the times when 
 they were used as money precisely as we now do of the 
 dark ages, when cattle and iron were used for that pur 
 pose. Universal intelligence and universal probity, the 
 conviction that deception, dishonesty, and idleness are 
 unprofitable, are required, above all, to attain this de 
 sirable result ; and this, to pessimists, will appear as 
 impossible as to replace the precious metals by paper 
 money. But when we contrast the present with the 
 past, can we doubt the future moral as well as physical 
 progress of humanity ? Dr. Bowring stated at a meet 
 ing of the Society of Political Economy, of Paris, that 
 in the county in which he was born, in Scotland, two 
 out of three prisons that existed were no longer used, 
 theft having become an unprofitable occupation. Already 
 the notes of the Bank of England can be disposed of, 
 more or less readily, throughout most civilized coun 
 tries, in consequence of the large capital and well- 
 established and well-deserved confidence in the prudent 
 and intelligent management of that institution. And 
 yet it is far, very far, from being a model bank, owing 
 to its close connection with the state, to its being a 
 monopoly, and to the numerous injurious restrictions 
 imposed on its operations.* Without liberty and with- 
 
 * " Lord King, in 1826, said that if the purpose was to erect an estab 
 lishment to do mischief, they would erect it on the very principles of the 
 
156 MONEY. 
 
 out competition, nothing can approach perfection. This 
 cannot be repeated too often. * 
 
 Some of the facts connected with the history of the 
 Bank of England will throw much light on the subject 
 of paper money. 
 
 The Bank of England has now existed over a cen 
 tury and a half : during this period of time, war after 
 war has devastated the world ; nation after nation has 
 been driven to national bankruptcy ; and yet the bank 
 exists more firmly than ever. The suspension of specie 
 payments by the bank in 1696 and 1797 was the con 
 sequence of its connection with the state (to which it 
 had loaned its entire capital), and not of its advances to 
 commerce and industry; and during those suspensions, 
 the public never ceased to accept readily its notes in 
 payment of services and commodities, even though they 
 could not b3 converted into specie except at a pre 
 mium. Would its notes have b^en thus received durinsr 
 
 o 
 
 the suspension of specie payments, if paper money, as 
 many persons suppose, is, or should be, a mere repre 
 sentative of the precious metals ? 
 
 hank. They would give it a monopoly, remove from it all fear of rivalry, 
 and connect it with the Government. " (Macleod, Theory and Practice of 
 Banking, vol. ii, p. 254.) 
 
 " The great law of nature in the industrial world is free trade. There 
 is nothing more certain in all the range of science, than that exclusive 
 privileges in commerce are great violations of natural right. Trading 
 monopolies are moral crimes. When Parliament sold to the Bank ofEng_ 
 land the exclusive monopoly of banking, it sold what it had no right 
 to sell." (Macleod, Theory and Practice of Banking, vol. ii, p. 517.) 
 
 * " The admirable effect of freedom is finely exhibited in the situation 
 of the New England banks in 1837, after a period of unparalleled specula 
 tion, during which they could not increase their loans to more than forty- 
 three per cent, beyond their capital." (H. C. Carey, The Credit System, 
 p. 113.) 
 
MONEY. 157 
 
 The suspension of 1696 was, in a great measure, 
 caused by the undertaking of the bank to have recoined 
 the depreciated silver coins then in circulation, which, 
 in consequence of clipping and wear, had become re 
 duced, on an average, 25 per cent, b^low the standard. 
 For this purpose the bank had received, and then held, 
 a large amount of this depreciated silver, which it could 
 not use until recoined. The difficulties of the bank 
 were soon, however, overcome by the aid of Government. 
 Had the bank not loaned its entire capital to the state, 
 the depreciated coin in its vaults could not have caused 
 a suspension. During this first suspension of specie pay 
 ments, the notes of ths bank were as low as 25 per cent, 
 discount, but this was at a moment when exchequer 
 bills and treasury bands were at 40, 50, and even 60 per 
 cent, discount ! Can there be a better evidence of the 
 superiority of bank notes over government paper issues ? 
 
 Previous to 1759, the bank issued no notes below 
 20, but in that year it commenced to issue notes of 
 15 and 10. In 1794 the bank first issued notes 
 under 10. 
 
 In 1720, after the collapse of the South Sea Com 
 pany, and again in 1745, in consequence of the successes 
 of the Pretender in Scotland, the bank experienced 
 severe runs, which nearly drained it of its coin: on both of 
 these occasions the bank, to gain time, paid its notes in 
 sixpences and shillings, blocked up its doors with its 
 own friends, who returned the coin they received, and 
 thus succeeded in weathering the danger. We have 
 here convincing proofs of the propriety of maintaining 
 specie payments as long as any coin remains in the 
 vaults of a bank. In most cases, if the bank be in a 
 
158 MONEY. 
 
 sound condition, the drain ceases before the coin is ex 
 hausted. 
 
 " In 1793, on the execution of the king of France, 
 the British Government expelled the French ambassa 
 dor, and the Convention instantly declared war. . . . 
 This gave a shock to credit, which was already stagger 
 ing. On the 15th of February, a house of considerable 
 magnitude, deep in corn speculations, failed, and on the 
 19th, the bank refused the paper of Lane, Son & Fraser, 
 who stopped next morning, to the amount of nearly 
 1,000,000, involving a great number of other respect 
 able houses. In the mean time, the panic spread to the 
 bankers. Beginning at Newcastle, the panic imme 
 diately spread throughout the country. It was com 
 puted that there were nearly four hundred country 
 banks at that time ; of these three hundred were much 
 shaken, and upward of one hundred stopped payment. 
 . All these circumstances naturally produced a 
 demand on the Bank of England for support and dis 
 counts. But the bank, being thoroughly alarmed, re 
 solved to contract its issues. Bankruptcies multiplied 
 with frightful rapidity. The Government urged the 
 bank to come forward and support credit, but the direc 
 tors resolutely declined. When the bank adopted this 
 perverse course, universal failure seemed imminent. Sir 
 John Sinclair, on the 16th of April, suggested an issue 
 of exchequer bills. The subject was referred to a com 
 mittee of the House of Commons, who recommended an 
 issue of 5,000,000. No sooner was the act passed 
 than a large sum of money, 70,000, was sent down to 
 Manchester and Glasgow, on the strength of the ex 
 chequer bills which were not yet issued. This unex- 
 
MONEY. 159 
 
 pected supply coming so much earlier than was expected, 
 operated like magic, and had a greater effect in restor 
 ing credit than ten times the sum could have had at a 
 later period. The whole amount of exchequer bills 
 advanced was 2,202,000, the whole of which was re 
 paid ; two only of the parties assisted became bank 
 rupts ; all the others were ultimately solvent, and in 
 many instances possessed of great property." 
 
 The success of the measure was perfect and com 
 plete. The contemporary writers all bear witness to the 
 extraordinary effects produced. The bullion committee 
 of 1810, in their report, warmly approved of it, and 
 especially cite it as an illustration of a principle which 
 they laid down, that an enlarged accommodation is the 
 true remedy for that occasional failure of confidence in 
 the country districts to which our system of paper credit 
 is unavoidably exposed." * 
 
 " The position of the Bank was : 
 
 Circulation. Bullion. Discounts. 
 
 1785, 5,923,090 4,973,926 
 
 1789, 11,121,800 8,645,860 2,035,901 
 
 August, 1791, 11,672,320 8,055,510 1,898,640 
 
 Febr y, 1793, 11,888,910 4,010,680 6,456,041 
 
 " We find here that the bank had fully kept up its 
 circulation, and largely increased its discounts, while it 
 supplied the country with a large amount of gold ; and 
 yet the prices of almost all commodities were lower in 
 1793 than they had been in the two years preceeding, 
 and the price of wheat was below the average of the 
 three years previous to the harvest of 1791 ; 3 per cent, 
 consols had fallen from 96 in 1792 to 72 in 1793, at 
 which price the first loan in preparation for the war was 
 
 * Macleod, Theory and Practice of Banking, vol. ii, pp. 69-74. 
 
160 MONEY. 
 
 contracted." * We find here certainly no evidence to 
 maintain the theory that the volume of the currency 
 affects prices. 
 
 " The catastrophe of 1797 began in 1795. The 
 spring of 1795 was very cold and backward, the sum 
 mer wet and stormy, and the harvest unusually late. 
 Under these circumstances, wheat, which was 55s. in 
 in January, reached 108s. in August. The same scarcity 
 was general throughout Europe and America. Mr. Pitt, 
 in 1793, having obtained from Parliament an act per 
 mitting the bank to make advances to Government in 
 anticipation of the taxes, obtained large advances in 
 1795 to aid him in the foreign subsidies, which, in that 
 year alone, amounted to 6.253,140. All this produced 
 a large foreign drain of bullion, and that of the bank in 
 December, 1796, was reduced to 2.508,000, when a 
 drain set in more severe than ever. In December, the 
 French expedition under Hoche sailed, but fortunately 
 it was dispersed by a tempest ; only a few straggling 
 vessels reached Ireland in the last week of December^ 
 the rest putting back to France. This terrible menace 
 produced a continual demand for gold for Ireland. A 
 French frigate went into one of the Welsh harbors and 
 landed 1,200 men. This created a perfect panic among 
 the farmers. On Saturday, 18th of February, 1797, 
 being market day, the farmers, who* at that time of year 
 had the principal part of their rents (crops ?) in their 
 hands, actuated by the terror of an immediate invasion, 
 hurried into Newcastle the produce of their farms, 
 which they sold at very low prices, and immediately 
 rushed to the different banks to demand specie. Seeing 
 
 * Tooke, History of Prices, vol. i, pp. 194-197. 
 
MONEY. 161 
 
 this universal panic, the banks, by agreement, stopped 
 payment on the Monday. 
 
 "On the 21st of February, the state of the bank be 
 came so alarming that the directors resolved that the 
 time had come when they must make a communication 
 to the Government. The directors had used the most 
 violent efforts to contract their loans. On the 21st of 
 January, they were 10,550,830; on the 25th of 
 February, they were 8,640,250 ; a reduction of nearly 
 2,000,000. In order to meet their payments, persons 
 were obliged to sell their stock of all descriptions, at 
 an enormous sacrifice. The 3 per cents fell to 51, and 
 other stock in proportion. 
 
 " A meeting of the cabinet was held on Sunday at 
 Whitehall, and an order in council was issued, requiring 
 the directors of the Bank of England to suspend all 
 payments in cash, until the sense of Parliament could 
 be taken on the subject. 
 
 " The severe restrictions the bank attempted to 
 place iipon commerce, very greatly contributed to bring 
 on the calamity by which it was subsequently over 
 whelmed. The issues, which were 14,000,000 when 
 the exchange was against the country, were reduced to 
 8,640,250 when they had been for several months emi 
 nently favorable. It appears from the entire evidence 
 in the reports, that it was the excessive restriction of 
 notes which drained their vaults during the autumn of 
 1796, and that if they had been more liberal in their 
 issues, their vaults would have been much better re 
 plenished with cash." * 
 
 " But while tr.e price of public securities was great- 
 
 * Macleod, Theory and Practice of Banking, vol. ii, pp. 76-97. 
 
162 MONEY. 
 
 ly affected, the effect of the contraction was hardly per 
 ceptible on the markets for goods. The price of corn 
 had previously been falling from restored abundance, 
 while from the opposite cause, scarcity, actual or ap^ 
 prehended, colonial produce continued to rise, notwith 
 standing not only the pressure on the money market, 
 but notwithstanding, also, the advance of the exchanges. 
 It is not possible to adduce an instance more striking 
 of the inefficiency of a contraction of the circulation 
 in counteracting the tendency to an advance of prices 
 under the influence of actual scarcity, or of the force 
 of opinion of prospective scarcity relatively to the esti 
 mated rate of consumption." * 
 
 The merchants, brokers, and shipowners of London 
 met on the same day that the bank suspended specie 
 payments, and resolved that they would continue to re 
 ceive the notes of the bank in payment of all debts due 
 them, and would make their own payments in them 
 also. This had become necessary, in a measure, be 
 cause the Government had only authorized the bank 
 to cease the redemption of the notes in specie, but had 
 not made them a legal tender. It was only in 1811, 
 in the midst of the immense efforts made by England 
 to overthrow Napoleon, and when Lord King threaten 
 ed to force his tenants to pay their rents in gold or its 
 equivalent, that the Government resorted to this ex 
 treme measure. The legal suspension lasted till 1822, 
 but the bank in reality resumed cash payments in 
 1820, after which gold ceased to be at premium. The 
 issues of the bank were carried as high as 29,500,000, 
 principally in consequence of the necessities of the 
 
 * Tooke, History of Prices, vol. i, pp. 205, 206. 
 
MONET. 163 
 
 Government ; and the premium on gold rose as high 
 as 41 per cent. The suspension of the Bank of Eng 
 land gave rise to theories which yet control all legisla 
 tion in regard to banks and bank issues, although all 
 the facts upon which the theories are founded, when 
 carefully analyzed and studied, refute them completely. 
 Every rise of price produced by bad crops, and by the 
 interruptions to commerce consequent upon war and 
 non-intercourse between nations, were all attributed to 
 a redundant currency. But to-day, thanks to the in 
 telligence and industry of Mr. John Tooke, aided in 
 his latter researches by Mr. Danson and Mr. Win. 
 Newmarch, all the fluctuations in prices during the 
 suspension of the bank, as well as those since the re 
 sumption of cash payments in 1820, have been clearly 
 traced to cost of production, and supply and demand 
 sole causes that affect prices, if there be any truth in 
 political economy, which teaches that all the results 
 of labor are controlled by natural laws, and not solely 
 by man s actions or will. The following extracts from 
 Mr. Tooke s " History of Prices" will greatly facilitate 
 the comprehension of the question of paper money ; but 
 everyone desirous of understanding the subject thor 
 oughly, should read the whole of that able and interest 
 ing work. 
 
 " The circulation of the Bank of England on August 31, 
 
 im > was 10,286,780 
 
 The average circulation for the quarter ending Septem 
 ber 30, 1794, 10,422,900 
 
 The average circulation for the quarter ending Decem- 
 
 ber 31,1794 10,964,980 
 
 The average circulation for the quarter ending March 
 
 31 > 1795 12,421,260 
 
164 MONEY. 
 
 " Notwithstanding these increased issues, the ex 
 changes actually experienced some improvement", (i. e. 
 became more favorable to England). (Vol. i ; p. 198.) 
 
 " The circulation of the Bank, was 
 
 On Feb. 28, 1795, 14,017,510 ; exchange on Hamburg 36s. 0^. 
 Aug. 31, " 10,862,200 " " 32s. 6d. 
 
 Here was a decrease of 22 per cent, in the circu 
 lation, accompanied by a rise of 10 per cent, in foreign 
 exchange, the very reverse of the currency theory. 
 
 " At the close of 1795, a notice was exhibited at 
 the doors of the bank, announcing that in future, only 
 a certain proportion of the applications for discount 
 would be complied with, however high might be the 
 credit, of the parties. This announcement, combined 
 with the actual contraction of the issues, occasioned a 
 very severe pressure on the money market, and in the 
 spring of 1796 there were great complaints of an in 
 sufficiency of circulating medium for the trade in the 
 metropolis." (Vol. i., p. 200.) The pressure in the 
 money market here recorded is particularly deserving 
 of notice, as showing that the high price of provisions 
 in the spring of 1796, was not in any degree owing to 
 an enlarged circulation. The circulation of the bank, 
 exclusive of post bills, was : 
 
 Avernee price of -wheat in Lon 
 don market following 3 months. 
 
 On February 28, 1795, 13,539,160; 57s. per quarter. 
 " 1796, 11,030,116; 94s. " 
 
 (Vol. I., p. 202.) 
 " The position of the bank was : 
 
 February 28, 1797. Ansmst, 1708. 
 
 Circulation, 9.674.780 12,180,610 
 
 Deposits, 4.891,530 8,300,720 
 
 Securities, private, 5,123.319 6,419,602 
 
 Bullion, 1,086,170 6,546,100 
 
MONEY. 165 
 
 " This increased issue of paper was accompanied by a 
 rise (fall*) of the exchanges, the rapid influx of bullion, 
 and a great fall in the prices of provisions." (Vol. i, 
 pp. 206, 207.) 
 
 The real cause of the rise of gold was the demand 
 for foreign payments. " Of the magnitude of the extra 
 demand for immediate payments abroad, some idea 
 may be formed by the fact that the foreign expendi 
 tures of the Government were 
 
 In 179 i 8,335,592 
 
 1795 11,040,236 
 
 1790 10,649,916 
 
 Excess of naval stores imported in these years 4,702,819 
 
 Grain imported in these years 7,44 ,012 
 
 42,174,575 
 
 of which the largest proportion fell upon the last ten 
 years." (Vol. i, p. 208.) 
 
 " If it was the amount of bank notes that raised 
 prices in 1800 and 1801, how happened it that an in 
 creased amount in 1802 did not sustain the prices, and 
 much more, prevent a fall of above 50 per cent. ? And 
 if the exchanges had been depressed (raised) and the 
 price of bullion raised by the amount of the circula 
 tion, how happened it that they tended upon the abate 
 ment of foreign payments to their par level coinci- 
 dently with increased issues, as will appear by the fol 
 lowing statement : 
 
 Exchange on 
 The average circulation Hamburg, 
 
 Dec. 31. For n Gold. Sil r Dolla. Wheat. 
 
 Of 1800 was 13,421,920 30s. Od. 41. 6s. Vd. 5s. Ud. 133s. Qd. 
 
 1801 " 13,454,370 31s. lid. 41. 3s. Qd. 5s. W$d. 75*. Gd. 
 
 1802 " 13,917,980 Us. Od. 41. Os. Qd. 5s. 4d. 57s. Id. 
 
 (Vol. i, p. 249.) 
 * Seenotop. 115. 
 
166 MONEY. 
 
 " The great rise of the prices of corn, and of other 
 leading articles of consumption, some of them to a 
 height beyond any which they ever afterward attained, 
 and the great excitement in 1807 and 1809, took place 
 under a remarkably restricted and equable state of the 
 bank circulation-, and in a state of the currency which, 
 judging by the exchanges, and the price of bullion, 
 and the position of the bank, as to its treasure, com 
 pared with its liabilities, was such as it might have been 
 in a convertible state of the paper." (Vol. i, p. 291.) 
 
 " In the early part of 1809 there was a small in 
 crease of the amount of the bank circulation. Not 
 withstanding a further increase of banknotes, the prices 
 of nearly all commodities fell considerably with such 
 increase" (Vol. i, p. 361.) 
 
 " But with these exceptions (lands, houses, and ship 
 ping), which, so explained, afford no ground for ascrib 
 ing their comparatively high price to depreciation of 
 money, nearly all other objects of exchange ivere lower 
 in price in 1810 and 1811, than in 1800, in few in- 
 tances less than 20 per cent., and in some instances up 
 ward of 50 per cent., as measured in paper, while gold 
 had risen 25 per cent. (Vol. i, p. 313.) 
 
 " The discredit and distress in 1810 were clearly 
 the consequence of the great fall of prices. Now if, as 
 according to that theory is supposed, the rise of prices 
 had been caused by an increase of Bank of England 
 paper, how happened it, that with a further increased 
 issue they should have fallen ? And if that increased 
 issue had not been enough, why should there not have 
 been a still further issue, for the express purpose of sup 
 porting prices, and thus preventing the loss and dis 
 credit attending the fall ? " (Vol. i, p. 357.) 
 
MONEY. 167 
 
 " In 1810, the Bank of England increased its issues 
 4,500,000, and the exchanges rose (fell), that on 
 Hamburgh from 28s. 4d. to 31s. 9d. and the price of 
 gold fell from 41. Us. to 41 4s. 6d." (Vol. i, p. 362.) 
 
 " Coincidently with the large discounts in 1810, the 
 exchanges rose (fell), while the prices of commodities 
 experienced a very considerable fall." (Vol. iii, p. 123.) 
 
 " In 1808, when the utmost extravagance of specu 
 lation prevailed, the amount of private securities held 
 by the bank ranged at between 13 and 14 millions, 
 being no perceptible increase upon what it had been 
 during the three or four years preceding. But the fall 
 of prices thenceforward, was followed by a progressive 
 increase of issues, through the medium of discounts, 
 which in August, 1810, reached the enormous and un 
 precedented amount of 23,775,093. This greatly in 
 creased amount of discounts, and the consequent en 
 largement of the bank circulation, were coincident with 
 the most depressed state of the markets, and with the 
 greatest commercial distress. In proportion as markets 
 and commercial credit tended to revival, the private 
 securities held by the bank underwent a progressive 
 diminution ; and the amount in February, 1813, a 
 period which was precisely that in which the prices of 
 both imported and exportable commodities, and of labor, 
 were in the aggregate higher than in any former or sub 
 sequent period, was reduced to 12,894,324, being a 
 reduction of upward of 10 millions/ (Vol. i, pp. 363- 
 365.) 
 
 Mr. Hume says that at the very time that the bul- 
 lionists in England were attributing every rise of price 
 to overissues and depreciation of bank notes, " the 
 
168 MONEY. 
 
 prices of sugar and coffee, on the Continent, computed 
 in gold, were four or five times higher than their prices 
 in England, computed in bank notes. Coffee was worth 
 in England, in bank notes, 6d. per pound, and on the 
 Continent 3s. to 4s. Gold was worth in England, in 
 bank notes, 5 per ounce, and on the Continent 31. 17s. 
 10 { d. in gold. 
 
 " It is too absurd, of course, to say literally and dis 
 tinctly that the gold was remitted instead of the coffee, 
 as a preferable mercantile operation ; and yet if it was 
 not so, under some explanation which I am totally un 
 able to conjecture, what becomes of Mr. Huskisson s 
 advice to the bank, to draw in a number of their notes, 
 in order to reduce the price of coffee to the sum at 
 which it would be a preferable remittance to gold. 
 While gold was at a premium in England, there was 
 not a place on the globe at which we could gain access 
 with some goods, as a valuable consideration, from whence 
 the gold and silver did riot spontaneously flow to us ; 
 and there was not a country in the world in which so 
 large a quantity of desirable goods could be obtained for 
 an ounce of gold as in England. ... It is a posi 
 tive fact that England was the cheapest country in the 
 world during the time when gold was 25 per cent, and 
 upwarl above the mint price." * Yet Mr. Huskisson, 
 in a speech delivered May 7th, 1811, asserted that it 
 was a " fact admitted on all hands, that there was a 
 profit of 20 per cent, made by the exportation of gold 
 to France." f 
 
 * Tooke, History of Prices, vol. iii, pp. 107-109. 
 f Id., ib., vol. iii, p. 110. 
 
MONEY. 169 
 
 The circulation of 5 and upward was Price of wheat in December. 
 
 Last quarter of 1812, 15,647,350. 121 shillings. 
 
 " " 1813, 16,092,590. 73 " 
 
 " " 1814, 18,502,090. 65 " 
 
 In January, 1815, the price of wheat declined to 62 " 
 
 (Vol. ii, p. 32.) 
 
 Circulation of the Bank of England. Price of Gold. Ex. on Hamburg. On Paris. 
 In Feb. 1814, 24,801,080. 51. 8s. 29s. frs. 21. 
 
 In Aug. " 28,368,290. 45 33 23.30. 
 
 (Vol. ii, pp. 28-30.) 
 
 The cause of this fall of gold and of the foreign ex 
 changes was that the preliminaries of peace between 
 France and the allies were signed in April, 1814. 
 
 " The landing of Napoleon in France in 1815, had 
 the effect of instantly depressing (raising) the exchanges, 
 and raising the price of gold in an extraordinary degree. 
 The exchanges, which immediately previous to the in 
 telligence of that event had been, 
 
 On Hamburg. On Paris. Price of Gold. 
 
 32.3. frs. 22.10. 41. 9s. 
 
 Suddenly fell (rose) to 28.0. 18.80. 5 7 
 
 " After the battle of Waterloo the exchanges rose 
 (fell) and the price of gold fell as rapidly as they had 
 just before tended in an opposite direction." (Vol. ii, p. 
 83.)* 
 
 * "On receipt of the news of Bonaparte s landing from Elba, the 
 price of gold in the London market rose ten per cent, in one morning, and 
 that without the slightest alteration whatever in the amount of the incon 
 vertible issues of the bank. In the course of a few days more, the advance 
 of price amounted to twenty per cent , and this advance was maintained 
 until after the battle of Waterloo, when the prioe of gold fell nearly as 
 rapidly as it had risen, and in a manner equally unaccounted for by any 
 corresponding movement of the hank circulation. Than the rationale of 
 these phenomena nothing can be simpler. A crisis had suddenly arisen which 
 called for an instant and vast supply of gold, at whatever cost for the 
 8 
 
170 MONEY. 
 
 The rise of gold on this, and on every other occasion, 
 could not have occurred were it not for the suspension 
 of specie payments ; for, with redemption of notes in 
 specie, a drain of gold is invariably supplied at par 
 from the bank vaults. Therefore a rise of gold above 
 par is an impossibility as long as specie payments are 
 maintained. But what would have been the condition 
 of commercial affairs in 1815, had the bank then re 
 deemed its notes in gold, and the bank act of 1844 
 been in existence ? According to the theory of the 
 advocates of " the currency principle " and of the bank 
 act, every sovereign exported for the use of the armies 
 would have required the withdrawal of an equal amount 
 of bank notes from circulation ; and, as the circulation 
 can never be increased beyond the amount needed by 
 the community, every decrease of the circulation con 
 sequent on the export of gold would have deprived the 
 community of notes actually indispensable to the daily 
 transactions, which would therefore have been dimin 
 ished or arrested, to the great detriment of the entire 
 community. This state of things is precisely what 
 
 (Equipment of armies, the remittance of subsidies, and the repletion of mili 
 tary chests. There was no time to wait till this supply could be brought 
 from countries where there was gold in abundance ; it must be procured on 
 the spot, and that spot was one from which nearly all hoards of the precious 
 metals had long been swept away. The price of gold, therefore, rose pre 
 cisely on the same principle on which the price of corn rises in a famine ; 
 it rose to a famine rate, and again fell the moment the famine demand had 
 ceased. And this great fact at once affords the most satisfactory demon 
 stration of the futility of any scheme for testing the value of conventional 
 notes by the price of gold, and furnishes the most unanswerable refutation 
 of the theory which would ascribe all the variations of the price of gold 
 (luring the continuance of the bank restrictions to the fluctuations of the 
 bank issues." (Fullarton on the Regulation of Currencies, p. 23.) 
 
MONEY. 171 
 
 heretofore has constantly occurred in the United States, 
 from the erroneous action of the banks, every time that 
 a temporary exportation of gold occurred. 
 
 "In 1817 gold was flowing in largely, and the 
 bullion in the bank had, by August, reached the large 
 amount then without precedent of 11,668,266. 
 The circulation being then 29,503,000, nearly the 
 highest amount attained by the outstanding notes of 
 the Bank of England/ (Vol. iii, page 131.)* 
 
 " According to what definition can it be contended 
 that this rise in the price of coin, between the spring 
 of 1816 and the summer of 1817, being coincident with 
 an influx of upward of 7,000,000 of bullion into the 
 coffers of the bank, raising the amount of it to a sum 
 of 11,668,260 an amount beyond any that the bank 
 had ever before possessed should be considered as re 
 sulting from a depreciation of bank paper ? " (Vol. ii, 
 p. 18.) 
 
 "In short, turn the theory which ascribes the rise 
 of coin in 1816 and 1817 to the local influence of our 
 currency in every way possible, consistently with the 
 facts, and it will be found to fail wholly and in all its 
 parts." (Vol. ii, p. 19.) 
 
 " While the amount of the bank issues was, from 
 1797 to 1817, undergoing, with trifling exceptions, a 
 progressive increase, the exchanges, upon every pause 
 
 * France offers a similar example of the precious metals flowing into a 
 country while the issues of irredeemable paper currency were increasing. 
 The Bank of France suspended specie payments on the 16th March, 1848, 
 and resumed them on the 6th August, 1850. Its position was, 
 On the 6th April, 1848, circulation, frs. 295,500,000; bullion, fr*. 97,000,000 
 4th July, 1850, " 500,000,000 " " 454,250,000t 
 
 t Tooke, History of Prices, vol. vi, p. 61. 
 
172 MONEY. 
 
 from the pressure of extraordinary foreign payments, 
 tended to a recovery, and when this pressure had en 
 tirely ceased the exchanges and the price of gold were 
 restored to par, while the hank circulation was larger 
 in amount than at any preceding period/ (Vol. i, pp. 
 157, 158.) 
 
 Fullarton says : " With only one or two exceptions, 
 and those admitting of satisfactory, explanation, every 
 remarkable fall (rise) of the exchanges, followed by a 
 drain of gold, that has occurred during the last half 
 century, has been coincident throughout with a com 
 paratively low state of the circulating medium, and 
 vice versa. On no occasion was this proposition more 
 strikingly exemplified than during the period immedi 
 ately preceding the suspension of cash payments in 
 1797, when, for two years together, a system of the 
 most determined contraction was carried on by the 
 directors of the Bank of England with unrelenting per 
 severance, reducing the circulation from 16,017,510 
 on the 28th February, 1795, to 8,640,250 on the 
 25th February, 1797, without arresting, in the least 
 apparent degree, the drain of gold which was then in 
 progress for restoring the exchanges. The restoration 
 of the exchanges to its bullion par, from a depression 
 of full thirty per cent., was accomplished in 1816, after 
 various remarkable vicissitudes, in the face of an en 
 largement of the issues of the Bank of England to an 
 extent varying from three to six millions." * 
 
 The London Economist of 22d November, 1862, 
 gives the following interesting table of the value of 
 
 * On the Regulation of Currencies, p. 120. 
 
MONEY. 
 
 173 
 
 gold during the suspension of the bank, to which we 
 annex the semiannual statements of the circulation : 
 
 Average market price of 
 Standard Gold, per oz. 
 
 Average prei 
 on Standard i 
 
 1809, 4 10*. Qd. 
 
 16* p 
 
 1810, 
 
 4 5 
 
 
 
 9r 5 
 
 1811, 
 
 4 17 
 
 1 
 
 24* 
 
 1812, 
 
 5 1 
 
 4 
 
 30 
 
 Sept, to Dec. 1812, 
 
 5 8 
 
 
 
 38* 
 
 1813, 
 
 5 6 
 
 2 
 
 SfjA? 
 
 Nov. 1812, to March, 1813, 
 
 5 10 
 
 
 
 41 
 
 1814, 
 
 5 1 
 
 8 
 
 30* 
 
 1815, 
 
 4 12 
 
 9 
 
 18g 
 
 1816, 
 
 4 
 
 
 
 2* 
 
 Oct. to Dec. 1816, 
 
 3 18 
 
 6 
 
 Less than 1 
 
 1817, 
 
 4 
 
 
 
 2* 
 
 1818, 
 
 4 1 
 
 5 
 
 5* 
 
 1819 to Feb. 
 
 4 3 
 
 
 
 6* 
 
 1820, 
 
 3 17 
 
 10* 
 
 
 
 Circulation. 
 February. August. 
 
 16| p. ct. 18,542,860 19,574,180 
 
 21,019,600 
 23,360,220 
 23,408,320 
 
 24,793,990 
 23.286,850 
 23,026,880 
 
 23,214,930 24,828,120 
 
 24,808,080 28,368,290 
 
 27,261,650 27,248.670 
 
 27,013,620 26,758,720 
 
 27,397,900 29,543,780 
 
 27,770,970 26,202,150 
 
 25 126,700 25,252,690 
 
 23,484,110 24,299,340 
 
 The author of " Money," in the Encyclopaedia Bri- 
 tannica, says : " The premium on gold in 1814 is an 
 indigestible fact for those who contend that bank notes, 
 being issued in proportion to the demand, have not 
 been depreciated from excessive issues/ But what 
 evidence have we that the premium on gold in 1814 
 was the consequence of oVer issues of bank notes ? We 
 find gold in 
 
 um, -with av ge issues of 19.000,000 
 
 " " 22,900,000 
 
 " " 23.300,000 
 
 " " 23,200,000 
 
 " " 24,000,000 
 
 " " 26,500,000 
 
 " " 27.250000 
 
 " " 26,900,000 
 
 " " 28.500.000 
 
 1809, at Ifii per ct. premiu 
 
 1810, 
 
 QTG 
 
 * 
 
 1811, 
 
 24* 
 
 < 
 
 1812, 
 
 30 
 
 c 
 
 1813, 
 
 36 
 
 
 
 1814, 
 
 30 
 
 c 
 
 1815, 
 
 18| 
 
 * 
 
 1816, 
 
 2* 9 
 
 
 
 1817, 
 
 -* 
 
 < 
 
 1818, 
 
 5* 
 
 
 
 Feb. 1819, 
 
 Qi 
 
 
 
 1820, 
 
 Par 
 
 
 
 with issues of 
 
 27,000.000 
 25,100,000 
 
 With av ge issues of 23,900.000 
 
 From 1809 to 1810, the circulation increased twenty 
 
174 MONEY. 
 
 per cent., while the premium on gold fell seven per 
 cent. From 1810 to 1811 the circulation increased 
 less than two per cent., and yet the premium on gold 
 rose fifteen and a half per cent. From 1811 to 1813 
 the circulation only increased three per cent., and yet 
 the premium on gold increased eleven and a half per 
 cent. From 1813 to 1814 the circulation increased 
 ten per cent., while the premium on gold fell six per 
 cent. From 1814 to 1815 the circulation increased 
 nearly three per cent., while the premium on gold fell 
 eleven per cent. From 1815 to 1816 the circulation 
 decreased only a little over one per cent., and yet the 
 premium on gold fell sixteen and a half per cent. From 
 1816 to 1817 the circulation increased five per cent., 
 and yet the premium on gold remained the same as in 
 1816, whilst in 1818, with a decrease in the circula 
 tion of over five per cent., the premium on gold more 
 than doubled, rising from two and a half to five and a 
 half per cent. In 1819 the circulation decreased eight 
 per cent., while the premium on gold rose one per cent. 
 What connection can there be found here between the 
 issues of bank notes and the premium on gold ? And 
 if the amount of the circulation had no influence on 
 gold, how can it have influenced the prices of commod 
 ities and labar ? 
 
 Mr. Tooke says : " The relatively high prices of ar 
 ticles divested of taxation, and not the objects of imme 
 diate war expenditure, in the interval from 1793 to 1814, 
 may be ascribed to the following general circumstances : 
 
 " 1. The frequent recurrence of seasons of an unfa 
 vorable character, there having been in that interval 
 no fewer than eleven seasons (1794, 1795, 1798, 1800, 
 
MONEY. 175 
 
 1804, 1807 to 1812) in which the general produce of 
 corn, but more especially of wheat, was deficient. 
 
 " 2. The destruction of a great source of supply of 
 transatlantic produce by the revolution in St. Domingo, 
 which rendered sugar and coffee, and most other West 
 India produce, scarce and dear during the earlier part 
 of the war. 
 
 " 3. Obstructions and prohibitions of export from the 
 Continent of Europe of articles of which, whether as 
 raw materials of our manufactures, or naval stores, or 
 food, we stood in urgent need. 
 
 " 4. The increased cost of importation, by higher 
 freights and insurance, incidental to a state of war gen 
 erally, aggravated by the peculiar commercial hostility 
 and exclusion which marked the latter years. 
 
 " 5. The difference of exchange, which in the last 
 five years of the war averaged twenty per cent.* 
 
 " 6. A higher rate of interest, in consequence of the 
 absorption, by the war loans, of a considerable propor 
 tion of the savings of individuals. 7 
 
 " The causes of the decline, and of the lower range 
 of prices, from 1814 to 1837, except 1816- 17, which 
 was a moment of great scarcity over all Europe, were : 
 
 " 1. A succession of more favorable seasons, in the 
 last twenty years from 1818, there having been but five 
 seasons in which the produce of wheat was decidedly 
 deficient. 
 
 "2. The removal of obstacles from the several sources 
 of foreign supply ; a great extension of some of them, 
 and the discovery of new ones. 
 
 * Tooke estimates the extra war charges of freight, insurance, and loss 
 on exchange on wheat, at 44s. per quarter ! (Vol. ii, p. 207.) 
 
176 MONEY. 
 
 " 3. A great reduction of the charges of importation, 
 by low freights and insurances, and the improved and 
 cheaper and more rapid internal communication. 
 
 " 4. A rise (fall) in the foreign exchanges, and conse 
 quent reduction of the cost of all imported commod 
 ities. 
 
 "5. Improvements in machinery, in chemistry, and 
 in the arts and sciences generally, all tending to reduce 
 the cost of production of numerous articles, or to pro 
 vide cheaper substitutes. 
 
 " 6. A reduction of the rate of interest." * 
 
 " There is not, as far as I have been able to discover, 
 any single commodity in the whole range of articles 
 embraced in the most extensive list of prices, the vari 
 ations of which do not admit of being distinctly ac 
 counted for by circumstances peculiar to it, in the 
 relation of supply, actual or contingent, real or appre 
 hended, to the ordinary rate of consumption, without 
 supposing any influence from the bank restriction be 
 yond the degree in which the difference of exchange, 
 which could not have existed but for the restriction,"^ 
 may be considered to have operated distinctly on the 
 cost of production." J 
 
 " McCulloch states that there is not a single com 
 modity that has fallen in price since 1814, the fall of 
 which may not be satisfactorily accounted for without 
 reference to the supply of gold and silver. It seems to 
 
 * History of Prices, vol. ii, pp. 34P>, 348. 
 
 f The words we have italicised prove how unfounded is the criticism of 
 Mr. Macleod when he says: " We can hardly think Mr. Tooke can be cor 
 rect in so entirely excluding the effect of the depreciation of the paper cur 
 rency as- he does." (Theory and Practice of Banking, vol. ii, p. 179.) 
 
 \ History of Prices, vol. ii, p. 349. 
 
MONEY. 177 
 
 follow that the previous rise may be equally accounted 
 for without such reference/ * 
 
 "At the end of 1824 and beginning of 1825 the 
 spirit of speculation in articles of consumption had 
 amounted to positive infection, numbers of persons be 
 ing induced to go out of their own line of business to 
 speculate in articles with which they had no concern 
 whatever, but induced by representations of their 
 brokers to do so in the hope of realizing great and im 
 mediate gains. The recognition of the independence 
 of the South American States and Mexico, opened out 
 at this period a boundless field for speculation and the 
 consumption of British manufactures, and the spirit of 
 speculation was aggravated to the utmost by the visions 
 of countless wealth which was to be extracted from the 
 gold and silver producing countries, and immense 
 schemes were formed for working the mines with Brit 
 ish capital. Besides which, when the juvenile repub 
 lics wanted to borrow money to support their public 
 credit, the British capitalists were only too eager to 
 lend it. It is alleged that 150,000,000 of British 
 capital was sunk in different ways in Mexico and South 
 America." 
 
 " The speculative fever was at its height in the first 
 four months of 1825 ; after May and June the decline 
 was rapid. The South American loans and the Mexi 
 can mining schemes proved almost universally total 
 losses. Universal discredit now succeeded, goods be 
 came unsalable, so that stocks, which are usually held 
 in anticipation of demand, were wholly unavailable to 
 meet the pecuniary engagements of the holders. In 
 
 * Tooke, History of Prices, vol. ii, p. 353. 
 8* 
 
178 MONEY. 
 
 May the Bank of England endeavored violently to con 
 tract its issues. The bullion, which stood above 14,- 
 000,000 in January, 1824 ; was reduced to 11,600,000 
 in October, 1824, and yet the bank had increased its 
 issues 2,300,000. In April, 1825, the bullion was 
 further diminished by upward of 4,000,000, and their 
 issues were 3,600,000 higher whan they had only 6,- 
 650,000 of bullion than when they had 14,000,000." 
 
 " On the 29th November, 1825, it was announced 
 that Sir William Elford s a large bank at Plymouth 
 had failed, and that was immediately followed by the 
 fall of Wentworth & Co., a great Yorkshire firm. By 
 the 3d December, the panic had fairly set in, and the 
 whole city was thrown into the most violent state of 
 alarm and consternation. On that day, Saturday, some 
 of the directors were informed that .the house of Pole, 
 Thornton & Co., one of the leading city banking houses, 
 was in difficulties, and at a hurried meeting held on the 
 following day, it was decided to place 300,000 at their 
 disposal upon proper security. During the week the 
 house sustained itself, but the storm, instead of abating, 
 became more furious than, ever, anct on Monday, 18th 
 December, Pole & Co. finally stopped payment. The 
 fall of this great banking house was the signal for a 
 general run upon all the London bankers, and three or 
 four more gave way, and spread universal consternation 
 among the country banks, sixty-three of which succumb 
 ed to the crisis, though a considerable number paid 20s. 
 in the pound, and eventually resumed business. From 
 Monday, the 12th, to Saturday, the 17th December, was 
 the height of the crisis in London." 
 
 " On the day after Pole & Co. fell, another house of 
 
MONEY. 179 
 
 equal magnitude fell, Williams, Burgess & Co. The 
 panic then became universal, and as the directors of the 
 Bank of England thought that they would certainly 
 have to stop payment, they sounded the Government as 
 to a restriction act, but the Government absolutely de 
 clined it, and it was resolved that the bank should pay 
 away its last sovereign. On the Saturday the coin in 
 bank vaults scarcely exceeded one million, but when the 
 Saturday evening came the tide receded, and the direc 
 tors were able to assure the ministry that all danger 
 was over. On Monday, the 19th, about 400,000 came 
 from France, and the demands having sensibly abated, 
 the supplies from the mint fully equalled or rather ex 
 ceeded the sums drawn from the bank." 
 
 "Mr. Huskisson said afterward in the House of 
 Commons, that during forty eight hours (Monday and 
 Tuesday, December 12th and 13th) it was impossible 
 to convert into money, to any extent, the best securi 
 ties of the Government. Persons could neither sell 
 exchequer bills, nor bank stock, nor East India stock, 
 nor the public funds. Mr. Baring said that men would 
 not part with their money on any terms, nor for any 
 security. The extent to which the distress had reached 
 was melancholy to the last degree. Persons of un 
 doubted wealth and real capital did not know whether 
 they should be able to meet their engagements for the 
 next day. By this time, however, the exchanges had 
 decidedly turned in favor of the country, and on Wed 
 nesday, the 14th, the bank totally changed their policy, 
 and discounted with the utmost profuseness. They 
 made enormous advances on exchequer bills, and securi 
 ties of all sorts. This audacious policy was crqwned 
 
180 MONEY, 
 
 with the most complete success ; the panic was stayed 
 almost immediately. Between Wednesday, the 14 h, 
 and Siturdiiy, the 17th, the bank issued upward of 5,- 
 000,000 of notes. By the 24. h December, the panic 
 was completely allayed all over the country, and the 
 amount of the one-pound notes the bank issued was 
 under 500,000, and by the beginning of 1826 the 
 credit of the banking world was completely restored. 
 Had the bank on Monday, the 12th, adopted the course 
 which was adopted on Wednesday, the -14th, the whole 
 of that terrific crisis would have been avoided. Sir 
 Peter Pole & Co. had a surplus of 170,000 after pay 
 ment of all claims against them, besides large landed 
 property belonging to Sir Peter Pole, and about 100,- 
 000, the private property of other members of the, firm. 
 Williams, Burgess & Co. had enough to pay 40s. in the 
 pound." 
 
 " W T hen the causes of this terrible calamity came to 
 "be discussed, there were not wanting many who laid the 
 wh,*le blame upon the excessive issues of the bank, as 
 well as the excessive issues of the country banks. But 
 though it is indisputable that the bank acted on the 
 most unsound principles, in not contracting its issues 
 when "the great drain of bullion for exportation was 
 going on, it is a mere delusion for men to attribute the 
 consequences of their own wild and extravagant mania 
 to the Bank of England, or to any bank. The errors 
 of all the banks put together were trivial compared to 
 the outbreaks of speculative insanity which seized upon 
 all classes. It was not the issue of some bank notes 
 mor or less which originated the calamity, but the in 
 satiable thirst for growing suddenly rich, that seized 
 
MONEY. 181 
 
 upon so many persons, and led them to embark in the 
 maddest schemes, totally out of their line of business. 
 Was it the issue of bank notes that led a respectable 
 bookselling firm to risk 100,000 on a speculation in 
 hops ?" * 
 
 Immediately after the ministry refused their assent 
 to the application of the bank for authority to suspend 
 specie payments, a conference was held -between Lord 
 Liverpool, the Prime Minister, Mr. Huskisson, the 
 Chancellor of the Exchequer, the Governor of the Bank, 
 and Mr. Baring, afterward Lord Ashburton. At this 
 conference it was resolved to resort to the right of the 
 bank to issue one-pound notes granted in 1797, but 
 which had not been exercised for some time. A box con 
 taining 600,030 or 700.000 of these one-pound notes, 
 which had been put aside unused, had been discovered 
 by accident ; they were immediately issued in the week 
 ending 24;h December, 1825, and relieved the bank of 
 a demand for gold to that extent, as these bank notes, 
 to the country bankers, were as goxl as sovereigns. 
 This accidental discovery and issue of one-pound notes, 
 is generally acknowledged to have saved the bank from 
 suspension and the country from the injurious conse 
 quences that would have followed, and yet Parliament, 
 at its next session, passed an act prohibiting all issues 
 of notes under 5 after 1829 ! f 
 
 * Macleod, Theory and Practice of Banking, vol. ii, pp. 241-254. 
 
 f " The limitation to 5 in England is a disgrace to monetary science 
 and commercial practice among us. We have never heard one decently 
 plausible reason assigned for it. It had its origin in the alarm created by 
 the frequent insolvency of banks of issue, and in an ignorance of currency 
 which threw away the only advantage for which a paper currency was in 
 vented. Paper was designed to supersede gold, in order to escape the ex- 
 
182 MONEY. 
 
 The issues of the bank were, in the week ending 
 
 Dec. 3, 1825 17,477,298 
 
 " 10, " 18,037,960 
 
 " 17, " 23,942,810 
 
 " 24, " 25,611,800 
 
 " 31, " 25,709,410 
 
 Feb. 28, 1826 25,467,910* 
 
 This expansion of the bank, and its effects, fully sus 
 tained the views taken by the celebrated Bullion Commit 
 tee of the House of Commons in 1810, who stated that 
 it was the duty of the Bank of England to sustain credit 
 by expanding its issues in moments of panic. 
 
 " The highest average circulation of the bank in the 
 quarter ending 31st of March, 1825, when the specula 
 tive mania was at its height, was 21,OS4 ; 470 ; that 
 of the quarter ending 31st of August, 1826, was 21,- 
 563,560, and the bullion 6,784,230; and -the quarter 
 ending 28th of February, 1827, was 21,890,610, and 
 the bullion 10,159,020. Thus, with a circulation larger 
 than it had been at its highest period in 1825 (with 
 the exception of the last three weeks in December), 
 there was in little more than twelve months from the 
 nearly complete exhaustion of the coffers of the bank 
 in December, 1825, such a state of the exchanges as 
 raised the treasure to upward of 10 millions." f 
 
 pense of the metal ; and obviously convenience and safety of payment ought 
 alone to restrict the use of paper. The theorists who talked of excessive 
 issues, naturally set their faces against one-pound notes ; but not one of 
 them has ever been able to tell the world why the Bank of England should 
 not circulate its promises to pay one pound on demand among those who 
 trust it, or why a banker who is unsafe for issuing one-pound notes, is not 
 unsafe also for issuing fives." (" What is Money ? " North British Review, 
 November, 1861.) 
 
 * Tooke, History of Prices, vol. ii, p. 188. 
 
 f Id., ib., p. 189. 
 
MO N E Y. 183 
 
 In 1844 was passed the celebrated Bank Act of Sir 
 Kobert Peel. Mr. Tooke calls it " the unwise and 
 mischievous act of 1S44." * It divided the bank into 
 two distinct departments, the banking and the issue 
 departments. Disregarding the important fact that 
 circulation should vary with the variations in the oper 
 ations of the community, the bill limited the issues of 
 the bank to 14,000,000, being about the amount of 
 the loans of the bank to the state.f Sir Kobert Peel 
 had become convinced that the circulation of the bank 
 could not be reduced below 14,000,000, and he there 
 fore adopted that amount as the maximum issues of 
 notes against securities. For all issues beyond that 
 amount, the issue department was to receive and hold 
 gold, either sovereigns or bullion, to an equivalent 
 amount, the idea being that for every bank note issued 
 beyond that amount, a similar amount of gold should 
 be withdrawn from the circulation, so as to permit the 
 latter to be further expanded by nothing but gold. " All 
 existing banks of issue were to be at liberty to continue 
 to issue an amount not exceeding the average of their 
 issues during the twelve weeks next preceding the 27th 
 of April, 1844. If two or more banks become united, 
 the united bank may issue notes to the aggregate amount 
 of the issues of each separate bank. If any banker 
 who on the 6th of May, 1844, was issuing his own notes, 
 should cease to do so, it is lawful for the crown in coun 
 cil to authorize the bank to increase its issues to any 
 amount not exceeding two thirds of the amount of notes 
 
 * History of Prices, vol. iii, p. 114. 
 
 f The circulation of the bank in 1844 was 14,475,000, and its capital 
 14,553,000. 
 
184 MONEY. 
 
 withdrawn from circulation :* all profits from the 
 issues above 14,000,000 to go to the state. The avowed 
 object of the act of 1844 was to take the regulation of 
 the currency out*of the hands or even the power of the 
 directors of the Bank of England. The authors of the 
 act of 1844 nattered themselves that for every five 
 sovereigns that left the country, a five-pound note must 
 be withdrawn from circulation/ f " sir Robert Peel 
 deliberately took away the power of the bank to act in 
 extreme occasions, under the impression that his act 
 would prevent these extreme occasions from occurring." J 
 The object of the bill was thus stated at the time by 
 Mr. S. J. Lloyd (afterward Lord Overstone), the great 
 advocate of the measure, whose views had been adopted 
 by Sir Eobert Peel and incorporated in the bill : " con 
 traction of circulation is to be made precisely coincident, 
 as regards both time and amount, with diminution of 
 the bullion ; and thus it is conceived that the danger 
 of total exhaustion, which could not befall a metallic 
 circulation, will be rendered equally impossible with 
 respect to a mixed circulation of gold and paper/ In 
 
 * " There is no reason which can be alleged for insisting on the substitu 
 tion of gold or of Bank of England notes secured on a deposit of gold, for 
 one third of the country circulation displaced (he should have said discon 
 tinued), which might not with equal force be urged for discarding the entire 
 credit currency of the country and replacing it with a circulation of the 
 metals." (Fullarton on the Regulation of Currencies, p. 193.) 
 
 f Macleod, Theory and Practice of Banking, vol. ii, pp. 300-303. 
 
 j Id., ib., p. 299. 
 
 Tooke, History of Prices, vol. iii, p. 282. 
 
 "Col. Torrens, in An Inquiry, &c., in 1844, said: The proposed 
 system will effectually prevent the recurrence of those cycles of commercial 
 excitement and depression of which our ill-regulated currency has been the 
 primary and exciting cause. When the Government plan shall have been 
 
MONEY. 185 
 
 other words, the issues of bank notes in England were 
 to be, thereafter, governed by the celebrated " currency 
 principle," which "shortly stated is this that when 
 bank notes are permitted to be issued, the number in 
 circulation should always be exactly equal to the coin 
 which would be in circulation if they did not exist. 
 The advocates of this principle maintain that it is the 
 only true mode of regulating a paper currency, and pre 
 serving the paper of equal value with the gold coin." * 
 
 carried into effect, the abstraction of 7,000,000 of treasure from the cof 
 fers of the bank, in a period of nine months, will be morally impossible. 
 Had the system existed in 1838 and 1839, it would have been utterly im 
 possible that the drain should have extended to 7,000,000. The follow 
 ing figures from the actual returns of the bank under the act, afford a 
 striking illustration of the correctness of these views : 
 
 12th September, 1846, bullion, 16,350,000; circulation, 20,920,000 
 24th April, 1847, " 9,210,000 " 20,690,000 
 
 Decrease, 7,140,000 230,000" 
 
 (Tooke, History of Prices, vol. iii, p. 283.) 
 
 * Mr. James Wilson says : " These principles (the currency princi 
 ples), and the course pursued by Sir Robert Peel, necessarily involve the 
 following five assumptions : 
 
 " First. That the bank notes, though payable in coin, at the option of the 
 holder, are still liable to be issued in excess, and are consequently subject 
 to depreciation. 
 
 " Second. That convertibility is not alone a sufficient guarantee that a 
 mixed currency of bank notes and coin shall conform in its variations to 
 the same laws that would regulate a purely metallic currency. 
 
 " Third. That issuers of bank notes have power to increase or decrease 
 the circulation at pleasure. 
 
 " Fourth. That by an expansion or contraction of the issues of bank notes 
 at pleasure, the prices of commodities can be increased or diminished ; and, 
 
 " Fifth. That by such increase or diminution of prices, the foreign ex 
 changes will be corrected, and an undue influx or efflux of bullion, as the 
 case may be, will be arrested." (Id., ib., p. 261.) 
 
 The advocates of the currency principles " consider that a purely metal 
 lic circulation (excepting only as regards the convenience and economy of 
 
186 MONEY. 
 
 That is to say, the only proper issues of bank notes are 
 those which represent an "equivalent -amount of coin in 
 the hands of the issuers, with which to redeem the notes 
 issued, like those of the Banks of Amsterdam and 
 Hamburg. According to these views, bank notes be 
 ing more convenient than coin for large commercial 
 operations, it is proper and advantageous to withdraw 
 coin and substitute in its place an equivalent amount 
 of bank notes. But to use bank notes instead of coin, 
 as counters representing commodities and services, is 
 
 paper) is the type of a perfect currency, and contend that the only sound 
 principle of a mixed currency is that by which the bank notes in circulation 
 should be made to conform to the gold into which they are convertible, not 
 only in value, but in amount ; that is to say, that the bank notes, being a 
 substitute, and the only substitute, for so much coin, should vary exactly in 
 amount as the coin would have done if the currency had been purely me 
 tallic." (Tooke, History of Prices, vol. iii, pp. 167, 168.) 
 
 " The propoundcrs of the theory of the currency principle assume and 
 affirm that it is in the power of the banks to act directly on their circula 
 tion ; in other words, that they can and do exercise a direct control over 
 the quantity of paper currency which they define to be bank notes." 
 (Id., ib., p. 171.) 
 
 " According to the currency principle, the golden rule to be observed 
 in the management of the circulation is that in conformity to the assumed 
 analogy of a metallic currency, a contraction should take place immediately 
 on the commencement of a drain, and be continued, pari passu with the 
 progress of the drain, until the drain and the consequent contraction of the 
 circulation should so have reduced prices as through their medium to have 
 turned the foreign exchanges to have stopped the further export of gold 
 and to have superinduced an influx of it." (Id., ib., vol. v, p. 589.) 
 
 " But this doctrine (that contraction will prevent exports of bullion) is 
 built upon two fallacies : first, that prices are governed by the expansions 
 and contractions of the bank-note circulation ; and, secondly, that a mode 
 rate reduction of prices is all that is necessary to create a market for your 
 commodities in foreign countries." (Fullarton on the Regulation of Cur 
 rencies, p. 130.) 
 
^ MONEY. 187 
 
 injurious and improper. The foundation of this idea 
 is the supposition that all Lank notes are ultimately 
 redeemed in coin, whereas they are almost all redeemed 
 by being paid in, in payment of the loans which led to 
 their issue. * 
 
 The act of 1844 is based on several capital errors. 
 Upon what plea should the issue be separated from the 
 banking department ? f Why should not the supply 
 
 * " The mode of issue of bank notes is invariably through the medium 
 of loans and discounts. . . . The reflux (of the bank notes) takes place 
 chiefly in two ways : by payment of the redundant amount to a banker on 
 a deposit account, or by the return of notes in discharge of securities on 
 which advances have been made. A third way is, that of a return of the 
 notes to the issuing bank by a demand for coin. The last seems, in the 
 views of the currency theory, to be the only way by which a redundancy, 
 arising from the unlimited power of issue, which they assume to exist, ad 
 mits of being corrected in a convertible state of the paper. It is certainly 
 the one least in use." (Tooke, History of Prices, vol. iii, p. 185.) 
 
 f u The issue department is acted upon by the public, while the bank 
 ing department acts upon the public, thus producing a result the very re 
 verse of that contemplated by the propounders of the scheme of separation. 
 If then the due regulation of the currency depends, as it undoubtedly docs, 
 upon the banking department, and not upon the issue department, it is 
 the height of inconsistency to restrict the latter and to leave the former 
 entirely at the discretion of the directors." (Id., ib., vol. v, pp. 546, 
 547.) 
 
 " The union of functions, instead of being incongruous and incompati 
 ble, as most gratuitously, without authority or proof from experience or 
 reasoning they are held to be by the currency school, would, in truth, be 
 eminently conducive to congruity of interests, and harmony or perfect com 
 patibility of action. Supposing that two large banking establishments had 
 originally been formed in a separate state, the one similar to the present 
 issue department, the other to the banking department, a correct view to 
 the respective interests of the proprietors, and to the convenience of the 
 public, would have led to the proposal of an amalgamation." (Id., ib., vol. 
 v, pp. 553, 554.) 
 
 " Mr. George Carr Glyn, in his evidence before the committee of the 
 House of Lords in 1848, said he had been of opinion, before the act 
 
188 MONET. |T 
 
 of currency be in proportion to the demand ? If issues 
 beyond 14,000,000 be injurious, why not also those 
 under that amount ? Are state stocks proper reserves 
 with which to redeem bank notes payable in coin, on 
 demand ? * If a bank attempt to realize state stocks 
 in a moment of embarrassment, when its notes are being 
 presented for redemption in coin, can their realization 
 fail to depreciate sensibly the value of the state stocks 
 and thus aggravate existing difficulties ? It must not 
 be forgotten that the main difficulty in moments of com 
 mercial crisis, is that confidence is shaken ; most hold 
 ers of commodities and securities become eager sellers ; 
 purchasers are not to be found, and consequently prop 
 erty cannot be realized, and thus becomes useless as 
 means of meeting pressing liabilities. Had Sir Kobert 
 Peel s act been in operation in 1825, the bank would, 
 inevitably, have had to suspend specie payments. That 
 calamity was then averted, not by restricting, but by 
 augmenting the issues of the bank. It is evident that 
 issues of paper money should be diminished when money 
 is abundant and interest low, and augmented when 
 money is scarce and in demand and interest high. The 
 Bank Act of 1844 entirely disregards this, and forces the 
 bank to act on the opposite theory. Mr. Tooke, Mr. 
 Hawes, M. P., Mr. Hastie, M. P., Lord Ashburton, Mr. 
 John Stuart Mill, Mr. Fullarton, and Mr. James Wilson, 
 editor of the London Economist, all predicted the failure 
 
 passed, that the division of the bank into the issue and banking department 
 was a desirable experiment ; but after the experience of the preceding year, 
 he considered that it had decidedly failed." (Macleod, Theory and Practice 
 of Banking, vol. ii, p. 325.) 
 
 * " The issuing of notes upon the public funds is the most vicious princi 
 ple possible." (Id., ib., p. 302.) 
 
MONEY. 189 
 
 of the act of 1844, and that instead of preventing crises 
 and panics, it would aggravate them. Tooke said, " The 
 theory sought to be explained and established as forming 
 the grounds for the measure of 1844, is in every point of 
 view erroneous, proceeding, as it does, on an ambiguous 
 use of language, on unfounded assumptions of principles 
 and facts, and on false analogies." * 
 
 " In August, 1846, the bullion in the bank amounted 
 to 16,366,000 with discount at 3 per cent. The crops 
 of 1846 proved to be bad, and it became certain that an 
 immense quantity of bullion would require to be ex 
 ported in payment of the grain it would be necessary 
 to import. Accordingly, from the middle of September, 
 1846, a steady and continuous drain of bullion set in, 
 but the bank made no alteration in the rate of discount 
 until the 16th of January, 1847, when the bullion hav 
 ing fallen to 13,949,000, it raised the discount to 3J- ; 
 and on the 23d, the bullion having been further dimin 
 ished 500,000, it raised the rate to 4 per cent. The 
 drain still continued, but the bank made no further 
 advance in the rate till the 10th of April, when its 
 treasure being reduced to 9,867,000, it raised the rate 
 of discount to 5 per cent. By the division of the bank 
 into two distinct departments, the public saw that the 
 whole banking resources of the bank were reduced to 
 2,558,000, and a complete panic seized both the public 
 and the directors. The latter adopted measures of the 
 most unprecedented severity to check the demand for 
 notes. Merchants who had received loans were called 
 upon to repay them without being permitted to renew 
 them. During some days it was impossible to get bills 
 
 * History of Prices, vol. iii, p. 260. 
 
190 MONEY. 
 
 discounted at all. The rate of discount for the best bills 
 rose to 9, 10, and 12 per cent. During all this time the 
 price ofiuheat continued steadily to rise, notwithstanding 
 the monetary pressure. 3 
 
 " The pressure passed off after the first week in 
 May, having lasted about three weeks, and bullion be 
 gan to flow in after the 24th April, until, at the end of 
 June, it amounted to 10,526,000." 
 
 "The enormous importations of breads tuffs in May, 
 June, and July, coupled with the very favorable ap 
 pearance of the harvest, caused a heavy and continuous 
 fall in the price of grain ; the price of wheat, which, at 
 the close of May, had been as high as 131s., fell to 49s. 
 6d. in September. This was attended with ruin to the 
 houses which had speculated in corn. The failures in 
 the corn trade began in August, the miminum rate of 
 discount was raised to 5J-, and the greater part of the 
 paper discounted was charged at much higher rates, 
 even up to 7 per cent." 
 
 " On the 9th August the first of the frightful cata 
 logue of failures began. Leslie, Alexander & Co. stop 
 ped payment with liabilities amounting to 500 ; 000. 
 In three weeks the failures were 3,027 ; 000. Week 
 after week followed, each one increasing in severity, until 
 at last the total failures exceeded 15,000,000. Al 
 most all the firms connected with the Mauritius failed, 
 principally from having their funds locked up in sugar 
 plantations. This was accompanied by immense failures 
 in the India trade. The railway* works which had been 
 sanctioned in the session of 1845-6, were now in full 
 course of construction, causing an immense demand for 
 ready money. Almost every tradesman in the kingdom 
 
MONEY. 191 
 
 was deep in railway speculations. Ever since the 26th 
 June, the diminution of bullion had been going on rap 
 idly. On the 2d October it was reduced to 8,565,- 
 000, and the reserve to 3,409,000. The extreme 
 pressure may be considered to have begun on the 23d 
 September, when the bank adopted more stringent 
 measures for curtailing the demand upon its resources. 
 On the 2d October the bank gave notice that the 
 minimum rate on all bills falling due before the 15th 
 October, would be 5i per cent. ; and it refused al 
 together to make advances on stock or exchequer bills. 
 This last announcement created a great excitement on 
 the stock exchange. The town and country bankers 
 hastened to sell their public securities to convert them 
 into money. The difference between the price of con 
 sols for ready money, and that for the account of the 
 14th October, showed a rate of interest equivalent to 
 50 per cent, per annum. On the 16th October the 
 bank rates of discount varied from 5J to 9 per cent. At 
 this time the bullion was 8,431,000 ; the reserve 2,- 
 630,000. The following week, from Monday, the 18th, 
 to Saturday, the 23d, was the great crisis. On that 
 Monday, the Koyal Bank of Liverpool, with a paid-up 
 capital of 800,000, stopped payment, which caused 
 the funds to fall 2 per cent. This was followed by the 
 stoppage of the North and South Wales Bank, the 
 Liverpool Banking Co., the Union Bank of Newcastle, 
 heavy runs on the other banks in the district, and other 
 bank failures at Manchester and in the west of En<r- 
 
 O 
 
 land. A complete cessation of private discounts follow 
 ed. No one would part with the money or notes in his 
 possession." 
 
192 MONEY. 
 
 " The continued and ever-increasing severity of the 
 crisis caused deputation after deputation to be sent to 
 the Government, to obtain a relaxation of the act, and 
 on Saturday, the 23d October, the final determination 
 of the ministry to authorize the bank to issue notes 
 beyond the limits prescribed t>y the act, was taken, and 
 communicated to the bank, who immediately acted upon 
 it, and discounted freely at 9 per cent. The letter 
 itself (authorizing the bank to issue notes beyond the 
 limit of the act) was not actually sent till Monday, the 
 25th. No sooner was this letter made public, than the 
 panic vanished like a dream ! Mr. Gurney stated that 
 it produced its effects in ten minutes ! No sooner was 
 it known that notes might be had, than the want of 
 them ceased ! Not only did no. infringement of the 
 act take place, but the whole issue of notes in conse 
 quence of this letter was only 400,000 ; so that while 
 at one moment the whole credit of Great Britain was 
 in imminent danger of total destruction, within one 
 hour it was saved by the issue of 400,000.* 
 
 * Macleod, Theory and Practice of Banking, vol. 55, pp. 306-314. 
 
 " Nothing could shake the steady resolve of the Government to main 
 tain the restrictions of the act of 1844, until the London bankers had a 
 meeting on Friday, 22d October, at which it was agreed that, if Government 
 would not sanction a deviation from the act on the part of the bank, they 
 would withdraw their whole balances from it. This was decisive. The 
 bankers balances in the Bank of England were 1,774,472, and the reserve 
 in the bank to meet this amount was only 1,600,025. The bankers reso 
 lution was communicated to Government on Saturday, the 23d, and early on 
 Monday, the 25th, the celebrated letter, signed by Lord John Russell and 
 the Chanceller of the Exchequer was sent to the bank, authorizing a devia 
 tion from the act. The bank was authorized to issue notes beyond the 
 limit prescribed by the act, at a rate of discount fixed at eight per cent." 
 (Alison s History of Europe, vol. viii, p. 109, American edition.) 
 
 MrHubbard, Governor of -the Bank of England, said on his examina- 
 
MONEY. 193 
 
 " Thus did the famous Bank Charter Act, after hav 
 ing been three years in unrestrained operation, break 
 down from the effect of its own provisions, but not until 
 it had brought the country to the very verge of ruin. 
 Three months after Lord John KusselPs letter was 
 written, the rate of discount was lowered to 4 per cent., 
 a decisive proof that the previous high rates had been en 
 tirely owing to a want of currency, and not of capital." 
 
 " The common opinion is, that if there is an over 
 issue of bank notes, it will drive the gold out of the 
 country. That was the fundamental position of the 
 famous bullion report in 1811, and it has been the basis 
 of all our subsequent legislation on the subject. But 
 in this case the very reverse took place ; for when it was 
 known that notes would be freely issued, hoards of gold 
 immediately made their appearance, and the stock of 
 bullion in the bank instantly began to increase." 
 
 " The effect of the infraction of the law. according 
 
 o 
 
 to the Chancellor of the Exchequer s statement, was 
 altogether magical ; the whole panic ceased ; the notes 
 came out. the gold came in, all at the same time, and 
 confidence was at last restored, all in consequence of 
 the announced violation of the Bank Act. Apparently, 
 that is an act honored more in the breach than the ob 
 servance ; but what is to be said in defence of an act 
 which never proves beneficial till it is repealed ? " * 
 " The crisis of 1847 was unlike any other that had 
 
 tion before a committee of the House of Commons in 1848 : " The limita 
 tion of paper issues is the very essence of the act of 1844. And as limit 
 ation operates sensibly only under circumstances of pressure, it is obvious 
 that to evade its stringency because a pressure is felt, is simply to stultify 
 the act." 
 
 * Bankers Magazine, New York, January, 1863, p. 537. 
 9 
 
194 MONEY. 
 
 ever occurred, and well illustrated the working of the 
 new law on the subject. There was no overtrading ; 
 there was no commercial embarrassment irrespective of 
 the monetary pressure ; the credit of the Bank of Eng 
 land was above suspicion ; there was no run upon the 
 other banks ; capital was abundant and more than 
 equal, as the events of the following years demonstra 
 ted, to all the undertakings which were in hand or in 
 contemplation. There was simply and only a want of 
 currency to make the advances with, because the bank, 
 restrained by the act of 1844, could not lend money 
 with a few hundred thousand pounds only in the bank 
 ing department, though, in the other end, they had 
 above 8,000,000 in the issue department." * 
 
 Sir Kobert Peel himself said, in the parliamentary 
 debates of 1848 : " The bill of 1844 had a triple object. 
 Its first object was that in which I admit it has failed, 
 namely, to prevent, by early and gradual, severe and 
 sudden contraction, and the panic and confusion in 
 separable from it." f 
 
 * Alison s History of Europe, vol. viii, chap, xliii, p. 100, American 
 edition. 
 
 " With upward of 16,000,000 bullion in hand, the bank, when called 
 upon to meet a drain for foreign payment, the actual extent of which did 
 not reach nearly half that amount, and which, in all probability, would 
 not, under the least vigilant management conceivable, have reached 10-, 
 000,000, found itself so crippled by the arbitrary separation of its depart 
 ments, that the directors were under the necessity of resorting to measures 
 more severely restrictive of commercial credit than any that had been 
 known since 1796- 1( 7." (Tooke, History of Prices, vol. in, pp. 399, 400.) 
 
 f Macleod, Theory and Practice of Banking, vol. ii, p. 320. 
 
 Lord Ashburton said, in 1848, in his Financial or Commercial Crisis Con 
 sidered : " The expectations entertained of this infallible panacea (the act of 
 1844) were unfounded it would only work in fair weather, when restrict 
 tions of all sorts are inoperative and immaterial it could not fail to break 
 
MONEY. 195 
 
 He insisted, however, that it had greatly contribut 
 ed to maintain the convertibility of the bank notes into 
 specie. But the able author of the article " What is 
 Money ?" in the North British Review, November, 1861, 
 says very well : " The loud preaching on the necessity 
 of protecting the convertibility of the paper currency, 
 which ushered in the act of 1844, was absurd ; it was 
 a cry for medicine for a healthy man. No one ever 
 felt uneasy about the payment of the notes ; but many 
 trembled at the peril of not obtaining discount for their 
 bills." 
 
 Tooke closes his review of the Bank Act of 1844 and 
 of the crisis of 1847 as follows : * " As the result of a 
 
 down under the first difficulty and it is in fact a serious aggravation, if not 
 indeed the actual cause of the distress we now experience." 
 
 " Now this fright of the bank, with ten millions in her coffers, of viola 
 ting this parliamentary restraint, has driven her into proceedings which 
 have depreciated, to a very great extent, every description of property, food 
 only, for evident reasons, excepted. It must not be easy to estimate this 
 depreciation, extending over all merchandise, stocks, railroad shares, &c. ; 
 it probably would not have been overstated at from ten to twenty per cent. 
 But what is worse, it has paralyzed this property in the hands of the pos 
 sessors, rendered it unavailable toward meeting their engagements, and 
 thus produced, in many cases, pecuniary sacrifices, much beyond the mere 
 depreciation of the value of the property itself. It has further occasioned 
 the suspension of the execution of orders from our customers in every quar 
 ter, thus distressing manufacturers, and impeding those very operations 
 which would have corrected the tendency to an unfavorable balance of 
 trade, and given safety to the circulation of the bank." (Tooke, History of 
 Prices, vol. iii, p. 306.) 
 
 John Horsley Palmer, Esq., and Samuel Gurney, Esq , testified, in 1848, 
 before a committee of the House of Commons, that the crisis of 1847 was, 
 in their opinion, entirely caused by the restrictions of the act of 1844. 
 Charles Turner, Esq., of Liverpool, testified before the same committee, 
 that in his opinion, had the act not been suspended, universal bankruptcy 
 would have been the issue. 
 
 * History of Prices, vol. iii, pp. 401, 402. 
 
 " The whole scheme (Bank Act of 1844) in truth is built upon assump- 
 
196 MONEY. 
 
 careful examination of the principle on which the act of 
 1844 was founded, and of the experience of its working 
 since the time when it came into operation, I have no 
 hesitation in giving it as my opinion that it is a total, 
 unmitigated, uncompensated, and, in its consequences, a 
 lamentable failure/ 7 And he recommends u a total ab 
 rogation of those provisions of the acts of 1844 and 18^5 
 which limit the amount of the note circulation and sep 
 arate the function of issue from that of banking in the 
 business of the Bank of England." 
 
 The rapid and injudicious contraction of the discounts 
 of the New York city banks in September and October 
 1857, produced a financial crisis in the United States 
 which reacted with great severity on Europe. " At the 
 commencement of the year, the aspect of monetary 
 affairs seemed to promise a long period of commercial 
 ease. But subsequently, the outbreak of the mutiny 
 in India, the consequent suspension of remittances from 
 that quarter, and the inverse demand for specie, and a 
 constant efflux of the precious metals from other causes ; 
 the demand for capital to supply the military materials 
 to the Government and the East India Company ; all 
 these causes produced a depressing effect on the funds. 
 In August consols fell to 90, being lower than at any 
 time since January, 1856, during the pressure of the 
 Russian war." 
 
 " Early in October monetary disaster loomed in the 
 distance. The American mails brought tidings of the 
 stoppage of banks of high standing and vast circulation,, 
 and of the failure of mercantile houses. On the receipt 
 
 tions which will not bear the test of examination." (Fullarton on the Regu 
 lation of Currencies, p. 113.) 
 
MO KEY. 197 
 
 of these evil tidings, the Bank of England raised the 
 rate of discount from 5.V to 6 percent.; on the 12th of 
 October, it further raised it to 7 per cent., on the 19th 
 to 8 per cent. On the 27th of October, a great shock 
 to public credit and a consequent demand on the Bank 
 of England for discounts arose from the failure of the 
 Liverpool Borough Bank, (not a lank of issue.) with 
 liabilities to the extent of 5,000,000, and whose re- 
 discounted bills were largely held by the bill brokers 
 and others in London. On the 4th of November, the 
 rate of discount was further advanced by the bank to 
 9 per cent. an unprecedented rate, for when the bank 
 act was suspended in 1847, the then rate, which was 
 also the rate stipulated by the Government, was 8 per 
 cent. The bullion, which was on the 10th of October 
 10,110,000, was now only 7,919,000. By this time, 
 however, the Continental drain for gold had ceased, the 
 American demand had become unimportant, and there 
 was little apprehension that the bank issues would be 
 inadequate to meet the necessities of commerce, within 
 the legalized sphere of their circulation." 
 
 " Upon this state of things supervened, on the 7th of 
 November, the failure of Dennistoun & Co., with lia 
 bilities of 2,000000, and on the 9th, that of the 
 Western Bank of Glasgow, with liabilities between 6 and 
 7 millions, when the rate of discount was advanced by 
 the bank to 13 per cent.! On the llth, was received 
 the news of the failure of the City of Glasgow Bank, 
 with liabilities of 6,000,000, which was followed by the 
 suspension of the large discount firm of Sanderson 
 Sandiman & Co., of London, for 5,500,000. All this, 
 find a renewed discredit in Ireland, caused the abstrac- 
 
198 MONEY. 
 
 tion from the bank vaults, in four weeks, of upward of 
 two millions of gold to supply the wants of Scotland and 
 Ireland ; of which amount more than one million was 
 sent to Scotland and 280,000 to Ireland between the 
 5th and 12th of November. This drain was in its na 
 ture sudden and irresistible, and acted necessarily on the 
 reserve, which on the llth of November had decreased 
 to 1,462,000 and the bullion to 6,666,000. The 
 public had become alarmed, large deposits accumulated 
 in the Bank of England, money dealers having vast 
 sums lent to them upon call were themselves obliged to 
 resort to the Bank of England for increased supplies, 
 and for some days nearly the whole requirements of 
 commerce were thrown on the bank, when on the 12th 
 of November the Government authorized the bank to 
 disregard the restriction of the bank act. The effect 
 was the same as in 1847. On the 12th, the bank dis 
 counted and advanced to the amount of 2,373,000, 
 which still left a reserve of 581,000. The demand 
 for discounts and advances continued to increase till the 
 21st, when they reached the maximum of 21,616,000. 
 The panic rapidly subsided, and notwithstanding com 
 mercial failures of immense magnitude, the crisis passed 
 over without the prostration of our commercial existence. 
 The bullion reached its lowest point on the 18th of 
 November, 6,484,000. The issues beyond the legal 
 limit were only 928.000. On the 1st December, the 
 overissue had been returned to the issue department, 
 having averaged, during the eighteen days, only 488,- 
 830." 
 
 The failures exceeded 41,000,000, whose deficits 
 were estimated at 7,754,900. That the crisis was not 
 
N E Y. 
 
 199 
 
 due to overissues of bank notes is self-evident by the fact 
 that the entire circulation of the United Kingdom in 
 1857 was, in round numbers, only 38,000,000, whereas 
 in 1815 it amounted to 58,771,000. The Liverpool 
 Borough Bank was not a bank of issue, and the entire 
 issues of the Western Bank of Scotland and the City of 
 Glasgow Bank, were only 800,000, against deposits of 
 9,000,000. In the debates that occurred in Parliament, 
 Mr. Spooner attributed all the monetary derangements 
 and commercial embarrassments to the act of 1844, which 
 he declared to be a delusion. " It had answered none of 
 the expectations held out by its promoters it could not 
 be amended and must be abolished." Mr. Glyn differed 
 from Mr. S. as to the effect of the act of 1844 upon the 
 commercial crisis, . . . but although the pressure was 
 not caused by the act, the limitation of issues by the 
 bank became, in his opinion, in the time of pressure, 
 the primary cause of the crisis. 
 The position of the bank was : 
 
 J. 
 
 
 
 Private 
 
 Rate of 
 
 
 Circulation. 
 
 Bullion. 
 
 Securities. 
 
 Discount. 
 
 27th June, 
 
 19,819,721 
 
 11,378,872 
 
 18,987,886 
 
 6 
 
 llth July, 
 
 20,702,903 
 
 11,592,160 
 
 16,455,171 
 
 6i 
 
 29th Aug., 
 
 20,108,234 
 
 11,500,587 
 
 17,811,663 
 
 6* 
 
 3d Oct., 
 
 20,824,714 
 
 10,662,692 
 
 21,835,843 
 
 6 
 
 10th " 
 
 20,862,690 
 
 10,109,943 
 
 22,398,877 
 
 7 
 
 17th " 
 
 21,052,315 
 
 9,524,478 
 
 20,539,565 
 
 8 
 
 4th Nov., 
 
 21,071,942 
 
 8,497,780 
 
 22,628,251 
 
 9 
 
 llth " 
 
 21,036,430 
 
 7,170,508 
 
 26,113,453 
 
 10 
 
 18th " 
 
 22,235,954 
 
 6,484,096 
 
 30,299,270 
 
 10 
 
 25th 
 
 22,156,143 
 
 7,263,672 
 
 31,350,717 
 
 10 
 
 9th Dec., 
 
 20,953,992 
 
 8,069,489 
 
 30,111,185 
 
 10 
 
 23d " 
 
 20,133,558 
 
 10,753,281 
 
 28,088,186 
 
 8 
 
 We find here that as the bullion decreased, the cir- 
 
 * Annual Register, 1857. 
 
200 MONEY. 
 
 dilation and loans of the bank increased, and vice versa, 
 the very reverse of the theory on which the act of 1844 is 
 based (and of the result it was intended to produce), 
 which is that circulation and loans will diminish as 
 bullion diminishes, and increase as bullion increases. 
 
 The London Economist of 28th November, 1857, 
 says : "From 1819 down to the present time there is 
 no element in the banking statistics of this country 
 which presents such uniformity as that of the bank cir 
 culation. The most fluctuating elements in our bank 
 ing accounts are the amount of bullion held in reserve 
 by the bank, and the amount of capital (credit ?) ad 
 vanced upon private securities to traders. While circu 
 lation is most stationary, the quantity of capital (cred 
 it ?) unemployed and employed is most fluctuating. In 
 1825 the crisis broke out among the London bankers 
 who issued no notes in Liverpool it was most severely 
 felt where notes had never been issued by any of the 
 banks." 
 
 " But if we turn from these scenes of disaster in 
 England to kindred events on the Continent, what do we 
 find ? Why, that on the spot most afiected where 
 the losses are greatest where the panic is most severe 
 where, as far as facts have yet been divulged, there 
 exists the strongest presumption that speculation of a 
 reckless kind has been carried to the greatest extent, 
 there is no paper circulation at all, but that it is one of 
 the only places in Europe which boasts a purely metallic 
 currency : we mean the Republic of Hamburg. There 
 the rate of interest has fluctuated more, and upon the 
 whole, been higher than in any other part of Europe ; 
 and to such an extent has discredit spread, that the 
 
MONEY. 201 
 
 public at large has been obliged to unite and form a 
 guarantee fund, in order to save the commercial com 
 munity from common ruin arising from panic and dis 
 trust." * One hundred and sixty houses suspended 
 payments in Hamburg. Interest there was, in October, 
 
 7-| per ct., while it was 6 per ct. in London, 
 
 9 " " " 7 <: " 6 per ct. in Paris. 
 
 8 " " " 8 " H " " t 
 
 As the crisis in England was in a great measure due 
 to the crisis which originated in New York, it becomes 
 interesting to examine the condition of the New York 
 banks. We find the following in the London Econo 
 mist of the 26th of December, 1857 : 
 
 " Condition of the banks of the State of New York in 
 
 June, 1852. June, 1856. Sept., 1857. 
 
 Capital, $59,705,000 $92,334,000 $107,507,000 
 
 Circulation, 27,940,000 30,705,000 27,122,000 
 
 Deposits, 65,634,000 96,267,000 84,529,000 
 
 Loans and Discounts,127,245,000 174,141,000 170,846,000 
 
 Specie, 13,304,000 18,510,000 14,321,000 
 
 "If ever there were accounts which exhibited 
 moderate and prudent banking we find them in these 
 returns," says the London Economist. What a comment 
 on the hasty and injudicious action of the New York 
 banks, which, when in a condition declared by the highest 
 
 * London.Economist, 28th November, 1857. 
 
 f- "It is a favorite doctrine with some persons that it is impossible to have 
 an undue extension of credit with a purely metallic basis, and that an im 
 proper issue of bank notes is the sole cause of too great an expansion of 
 credit, just as if the currency being made of metal could prevent people 
 from giving their promises to pay, and buying up goods on speculation. * 
 (Macleod, Theory and Practice of Banking, vol. ii, p. 58.) 
 
 9* 
 
202 MONEY. 
 
 authority in England, moderate and prudent, at the 
 very moment that the boundless crops of our fertile soil 
 were coming forward to arrest the drain of specie, pro 
 duced a panic by an unnecessary curtailment of loans, 
 that carried disaster and destruction to the commerce 
 of two continents ! 
 
CHAPTEK XI. 
 
 SIR EGBERT PEEL S act of 1844 was entirely based on 
 the idea that all speculations, and the commercial re 
 actions that follow them, are caused by expansions of 
 the currency in other words, on the almost universally 
 admitted theory that the volume of the currency is the 
 measure of values that an increase in the volume of 
 the currency produces a rise of prices, and a decrease a 
 fall of prices. This theory is correct if the term cur 
 rency be made to include bank deposits and the checks 
 drawn against them, bills of exchange, notes of hand, 
 credits of every description; in one word, everything that 
 causes property to pass from hand to hand ; everything 
 that increases the demand for it. But it is entirely 
 erroneous if the term currency be intended, as is almost 
 invariably the case, to include only coin and bank 
 notes.* In that sense the theory is not only erroneous 
 
 * "The act of 1844 treats currency simply as bank notes to bearer; 
 but they who observe critically and carefully all the varied mazes of our 
 moneyed transactions, must recognize an almost endless variety of objects 
 acting more or less directly and with more or less celerity the same part- 
 bills of exchange at long or short dates exchequer bills India and rail 
 road bonds deposits on demand with the great money brokers latterly, 
 post-office orders for small sums passing from town to town, of which useful 
 description of quasi currency the public will probably be surprised to learn 
 that little short of 6,000,000 were circulated last year but above all, 
 
204 
 
 MONET. 
 
 now, but was so even before bank notes and commercial 
 credits were used, for then barter was an important 
 element in the exchanges of commodities, and permitted 
 
 deposits, both with the Bank of England and private bankers, are a most 
 essential part of this currency; . . . they are in fact the most formida 
 ble means of commanding the treasures of the bank, though they seem to 
 be wholly overlooked by our exclusive guardians of the currency. 
 The theorist sees in circulation nothing but the bank notes ; but the prac 
 tical man, engaged in large operations, knows how many millions pass 
 through his hands without his seeing or touching a bank note, and how 
 many varied securities and engagements perform the essential duties of his 
 circulation." (The Financial or Commercial Crisis Considered, by Lord 
 Ashburton.) 
 
 " Whatever confers the power of demanding services or commodities,, 
 or professes to confer the power of demanding them, is the currency or cir 
 culating medium of any single person, and includes not only the current 
 coin of the realm, but all its substitutes of every description, and whatever 
 else represents or displaces it. Adopting this definition, we may enumerate 
 the different species of it as follows-: 
 
 " 1. Coined money, gold silver and copper. 
 " 2. Bills of exchange, including checks. 
 * 3. Promissory notes, Including bank notes. 
 " 4. The sum standing at his credit in his banker s books, 
 " 5. Private debts due him." (Macleod r Theory and Practice of Banking,, 
 vol. i, p. 3Y.) 
 
 " "Rut as the relations of commerce extend themselves, and nations ad 
 vance in industry and wealth, credit becomes gradually a more and more 
 important engine in the mechanism of the social system, and men begin ere 
 long to discover that, by the simple intervention of credit alone, nine tenths 
 of their transactions of purchase and sale may be conveniently and econom 
 ically adjusted, without any interchange whatever of actual value, whether 
 Intrinsic or factitious. Hence the introduction Into use of the bank note. 
 But the bank note is only one, and scarcely even the most important, of the 
 various forms in which credit may be employed to facilitate exchanges. 
 And you^ cannot, therefore, include the bank note under the generic desig 
 nation of money, without finding: yourself immediatelv embarrassed by the 
 claims of bills of exchange, bankers T checks, and a variety of other typifica- 
 tions of the same principle of credit, all of which being more or less compe 
 tent to perform, and, in point of fact, performing the functions of money, 
 and some of them on a scale of vast extent,, have,, prima facie, just the 
 
MONEY. 205 
 
 the demand to be greater than the existing amount of 
 money coull exchange. If the mere increase of the 
 currency cou!d affect prices, values would not depend 
 on natural laws, but on man s action. 
 
 same pretensions to be rated as money which bank notes have." (Fullarton 
 on the Regulation of Currencies, p. 29.) 
 
 " There is scarcely any shape into which credit can be cast, in which it 
 will not at times be called to perform the functions of money ; and whether 
 that shape be a bank note, or a bill of exchange, or a banker s check, 
 the process is in every essential particular the same, and the result is tiie 
 same." (Id., ib., p. 37.) 
 
 " The purchasing power of an individual at any moment is not measured 
 by the money actually in his pocket, whether we mean by money the 
 metals, or include bank notes. It consists, first, of the money in his pos 
 session ; secondly, of the money at his banker s, and all other money due to 
 him and payable on demand ; thirdly, of whatever credit he happens to 
 possess. To the full measure of this threefold amount, he has the power 
 of purchase. How much he will employ of this power, depends upon 
 his necessities, or upon his expectations of profit. Whatever portion of it 
 he does employ, constitutes his demand for commodities, and determines 
 the extent to which he will act on prices. " (J. S. Mill, Westminster Review, 
 June, 1844.) 
 
 " We shall not hesitate to adopt some such classification of the con 
 stituent parts of the whole volume of negotiable instruments at present in 
 use in this country as the following : 
 
 " I, coin; 2, bank notes; 3, checks; 4, bills of exchange; 5, ledger 
 accounts. And to admit the substantial correctness of a doctrine which 
 teaches in effect that coin is the small change of bank notes ; bank notes 
 tha small change of checks ; checks the small change of bills of ex 
 change; and bills of exchange the small change of transactions of sale and 
 purchase, the record of which is contained in a ledger, and the adjustment 
 of which is accomplished mainly by the process of set-off." (Tooke, His 
 tory of Prices, vol. vi, pp. 593, 594.) 
 
 " If it be an undeniable fact, that nine tenths, or some other very large 
 proportion of all the transactions of purchase and sale which take place in 
 the kingdom are adjusted without the intervention of money properly so 
 called at all, and by the use of other expedients of credit than bank notes; 
 and if, lastly, the supply of some of those expedients of credit is increasing 
 and inexhaustible, utterly beyond the reach of legal restraint, and never 
 
206 MONEY. 
 
 But although every representative of money and 
 commodities is capable of performing, and does perform 
 at times, the functions of money, it is not always a 
 portion of the currency. Fullarton says very well : 
 " Every instrument of exchange produces no effect on 
 prices as long as not used to effect purchases. All in- 
 denied to any one who has occasion to use them and value to give for them, 
 stronger evidence surely cannot well be desired or imagined of the utter 
 hopelessness of any attempt to control those purchases and sales, or the 
 fluctuations of value which they engender, or by any officious tampering 
 with the free supply of so comparatively insignificant a portion of the whole 
 mass of circulating credit as the bank notes, and that portion the least of 
 any in affinity with the great operations of trade by which the course of 
 prices and exchanges is really directed." (Fullarton on the Regulation of 
 Currencies, p. 51.) 
 
 " The circulation of every country may be considered as divided into 
 two different branches the circulation of the dealers with one another, and 
 the circulation between the dealers and consumers. . . . The value of 
 the goods circulated between the different dealers with one another can 
 never exceed the value of those circulated between the dealers and the con 
 sumers, whatever is bought by the dealers being ultimately destined to be 
 sold to the consumers. (Smith s Wealth of Nations, pp. 141, 142.) " Coin, 
 and the smaller denomination of notes serving as coin, are essential to the 
 exchanges between dealers and consumers, and if these smaller notes are 
 withdrawn, their place must be supplied by coin ; but not so as regards the 
 interchange between dealers and dealers. Bank notes are not only not 
 essential to that interchange, but in point of fact, bank notes are rarely 
 used in the larger dealings of sales and purchases. All the transactions 
 between dealers and dealers, by which are to be understood all sales from 
 the producer or importer, through all the stages of intermediate processes 
 of manufacture or otherwise, to the retail dealer or the exporting merchant, 
 are resolvable into movements or transfers of capital. Now, transfers of 
 capital do not necessarily suppose, nor do actually, as a matter of fact, en 
 tail, in the great majority of transactions, a passing of money, that is, bank 
 notes or coin I mean bodily, and not by fiction at the time of the trans 
 fer. All the movements of capital may be, and the great majority are, 
 affected by the operations of banking and credit, without the intervention of 
 actual payment in coin or bank notes." (Tooke, History of Prices, vol. iii, 
 pp. 228-230.) 
 
MONEY. 207 
 
 struments drawing interest have a tendency to accumu 
 late in the hands of capitalists as investments, and in 
 that case they no longer act as money. The true light, 
 therefore, in which we ought to regard these various 
 forms of circulating credit is rather as a vat and in 
 exhaustible fund of potential currency, at the free com 
 mand of every man whose exigencies require its aid, 
 and who has an equivalent to render, or security to 
 pledge, in return/ * It is from that inexhaustible fund 
 that the community draw the means to effect purchases, 
 whenever they so feel inclined, without the aid of either 
 coin or bank notes ; purchases that, by their magnitude, 
 affect prices infinitely more than the moderate ones 
 effected with coin or bank notes. 
 
 The following remarks, and official returns of the 
 Bank of England, extracted from the London Econo 
 mist, are as interesting as they are conclusive : 
 
 " It is said that it was excessive issues which pro 
 duced and mainly caused the convulsions of 1825 and 
 1837, and therefore they ought to be restricted. Here 
 is obviously a confusion between currency and capital 
 (credit ?) between the issues of notes and the loan of 
 capital (credit ?) between circulation and credit. Is 
 it a fact that there were excessive issues at those times ? 
 The years 1821, 1822, 1823, and the first half of 1824, 
 were certainly not periods of speculation. Toward the 
 close of 1824 some excitement prevailed, and it in 
 creased until the summer of 1825, wlren it was at its 
 height. A reaction began about September, and it 
 increased into a panic or convulsion in the middle of 
 December, first, by the suspension of London banks, 
 
 * On the Regulation of Currencies, p. 44. 
 
208 MONEY. 
 
 ivho by law were prohibited from issuing notes. Well, 
 how stood the circulation of the bank during that 
 period ? We find the circulation and private securities 
 
 of the bank to have been : 
 
 
 
 Circulation. Private Securities. 
 
 1821 August 20,295,000 2,722,000 
 
 1822.... February 18,665,000 3,494,000 
 
 August 17,464,000 3,622,000 
 
 1823.... February 18,392,000 4,660,000 
 
 August 19,231,000 5,624,000 
 
 1824.... February.... 19,736,000 4,530,000 
 
 August 20,132,000 6,255,000 
 
 1825 February 20,753,000 5,503.000 
 
 August....... 19,398,000 7,691,000 
 
 " Is it possible to recognize any proof of excessive 
 issues in these figures ? But what is most striking, is, 
 that notwithstanding the slight variations in the circu 
 lation during the great excitement of 1825, when spec 
 ulation was so rash, and credit so indiscriminate, after 
 the greatest possible restriction had been placed upon 
 credit in December and January, the circulation of the 
 bank had risen on the 28th February to 25,467,000. 
 
 " Again, let us examine the facts as they existed in 
 1837, and prior to the convulsion of that year. The 
 years 1833 and 1834, and the first half of 1835, were 
 periods of no excitement or speculation. Toward the 
 close of 1835, the great American speculation set in, 
 and continued during the greater part of 1836. In 
 October of that year, some difficulties began to be ex 
 perienced, which increased in intensity till the middle 
 of 1837. Well, how stood the circulation during those 
 years ? We find it as follows : 
 
MONEY. 209 
 
 Circulation. Private Securities. 
 
 1833 February 10,370,000 5,450,000 
 
 August 19,629,000 5,999,000 
 
 1834.... February 19,252,000 8,524,000 
 
 August 18,839,000 9,683,000 
 
 1835 February 18,328,000 7,870,000 
 
 August 17,892,000 11,068,000 
 
 1836.... February 18,102,000 11,225,000 
 
 August 18,158,000 13,197,000 
 
 1837.... February 18,232,000 15,056,000 
 
 " What proof is there here again of excessive issues 
 having led to the convulsion of 1837 ? On the con 
 trary, it is curious that at the moment when the great 
 speculation began, in the autumn of 1835, the bank 
 issues were at a lower point than at any time during 
 the whole period. If we refer to the bank returns, we 
 shall easily discover how, upon this explanation, the 
 convulsions of 1825 and of 1837 arose. We shall find 
 that, although the circulation continued almost sta 
 tionary, the advances by way of loans and discounts 
 rapidly increased, and led to the excitement and indis 
 criminate credit which in those years led to such dis 
 asters. 
 
 " The c private securities, consisting chiefly of bills 
 discounted, were in August, 1821, only 2,722,000 ; 
 in August, 1824, they had increased to 6,255,000; 
 and in August, 1825, they had further increased to 
 7,691,000, showing an entire increase of nearly 5,- 
 000,000 ; and this took place without any increase in 
 the circulation whatever ; and yet all the mischief is 
 said to have risen from excessive issues, without any 
 reference to the true cause of excessive loans of capital 
 (credit?)." 
 
210 MONEY. 
 
 " The circumstances which led to the speculations 
 of 1845 and 1847, were very similar to those of the 
 former periods, both in relation to circulation and to 
 advances of capital (credit ?) upon securities. These 
 two elements in the bank returns stood thus : 
 
 Circulation. Private Securities. 
 
 1844. . . .February. . . .21,148,000 5,837,000 
 
 August 21,485,000 7,870,000 
 
 1845.... February.... 21,201,000 11,809,000 
 
 August 22,109,000 11,712,000 
 
 1846 February 20,968,000 12,242,000 
 
 August 21,390,000 12,755,000 
 
 1847.... February.... 20,151,000 15,819,000 
 
 August 18,828,000 16,923,000 
 
 " It is impossible to examine these facts, without 
 arriving at the conclusion that excessive issues had 
 nothing to do with the panic of 1847, but that, as in 
 1825 and 1837, excessive credits were the sole cause. 
 So far from the circulation being excessive at the mo 
 ment the panic arrived in September, 1847, it was 
 lower than it had been at any time during the whole 
 period, but the advances upon private securities had 
 increased from 5,837,000 in 1844, to 16,923,000 in 
 August, 1847." 
 
 " Acting upon the fallacious assumption, then, that 
 all over trading and consequent panics have been caused 
 by excessive issues, and that the bank had it in its 
 power to increase or diminish its issues at pleasure, 
 Parliament was induced to pass the act of 1844, the 
 supposed effect of which would be to regulate the cur 
 rency according to prescribed rules. But experience 
 has shown that, while the bank has every power over 
 
MONEY. 211 
 
 the amount of its advances, it has little or none over 
 its circulation. Sir Robert Peel appeared to think that 
 the only means by which bankers could issue notes was 
 by the way of loans or discounts, and that they had 
 therefore the power, by contracting their loans, to con 
 tract also the circulation, and by extending their loans 
 permanently to increase the circulation. The slightest 
 consideration will show that both these views were 
 equally unfounded. The bank may at pleasure con 
 tract its loans and discounts either by raising the rate 
 of interest, or by refusing accommodation ; but the 
 bank cannot contract the circulation at will, so long as 
 it holds large deposits on behalf of the public, which 
 they can withdraw at pleasure. If notes are required 
 for the purposes of circulation, they will be withdrawn 
 by depositors in spite of any attempt of the bank to 
 contract their amount. Indeed, it generally happens 
 when the bank is contracting its credits, the circulation 
 for a time becomes larger in place of smaller. So, on 
 the other hand, the bank cannot extend the circulation 
 at will. It may, indeed, increase its loans and dis 
 counts ; but if the notes are not required for circula 
 tion, they will immediately be returned upon the bank 
 for payment. The actual circulation at any time is 
 determined by the requirements of trade in order to 
 conduct internal exchanges, and not by the will of the 
 issuers of notes. As long as bankers hold large amounts 
 in deposits belonging to the public, the circulation can 
 not be reduced below the necessary amount required by 
 the convenience of trade, however much bankers may 
 contract their credits, and as long as the notes are 
 payable on demand, the issues cannot be excessive, 
 
212 MONEY. 
 
 however imprudent bankers may be in extending their 
 credits." 
 
 " Eank notes had, therefore, nothing to do with 
 these convulsions. It must be plain to every intelligent 
 mind that they might equally have happened had there 
 been no bank notes in existence, and if the currency 
 had been purely and exclusively metallic. They were 
 caused by the simple and clear fact that the bank had 
 been led into loans to an imprudent extent." 
 
 The statistics in the preceding extracts prove that 
 the circulation of the Bank of England declines in mo 
 ments of speculation and expansion of credits, while 
 it increases in moments of panic and contraction of 
 credits. The reason of this is, evidently, that when 
 every one has confidence in the future, individual prom 
 ises to pay circulate with such facility that they replace 
 to a certain extent bank notes, while in moments of 
 distrust each one seeks to possess and to retain bank 
 notes, which are considered perfectly reliable resources 
 af all times and under all circumstances. 
 
CHAPTER XII. 
 
 THE more closely currency is analyzed, the more 
 clearly does it appear that currency is a strictly self- 
 regulating machine, which, if left entirely free, will 
 exactly adapt its volume to the wants of the community. 
 The currency can never be inflated beyond the require 
 ments of the community by paper, as long as it can be 
 repaid to the issuers, and thus arrest the interest paid 
 for their loan.* The volume of the currency is always 
 
 * " On the first establishment of a bank of issue, in a district which had 
 not been previously provided with banking accommodation, the command 
 of capital which the banker acquires from the substitution of his notes for 
 the money previously in circulation, and which enables him to diffuse credit 
 and prosperity throughout the neighborhood, is very striking. And people 
 easily fall into the delusion that there is no limit to this power, but that the 
 banker can still go on adding to his notes, and giving a fresh impulse to the 
 prosperity he has created, even after the substitution has been completed, 
 and his paper already fills the channels of circulation. Were this so, it is 
 obvious that what is called over issue would be perpetual ; for it never 
 ceases to be the interest and desire of the issuer to send out as many notes 
 as the community will receive from him. It is quite idle to talk, as some 
 reasoners are in the habit of doing, of bankers exercising the privilege of 
 issue at one time with exemplary moderation, and at another with reckless 
 imprudence. There is no such thing. Bankers will be more or less pru 
 dent in the facilities of credit which they afford to their customers, accord- 
 
214 MONEY. 
 
 the amount held hy the entire community in their 
 pockets or in their cash tills ; it never can exceed this. 
 If a country holds more coin than is needed by the 
 community, the surplus will lie idle in the vaults of 
 banks or individual bankers. It is precisely the same 
 with paper currency. If banks issue notes beyond the 
 amount required by the community, the excess returns 
 immediately to the bank of issue for redemption. 
 When banks accumulate large surplus of coin, it is no 
 evidence that the amount of coin in the country has 
 increased. The accumulation may be, and most fre 
 quently is, the effect of diminished ability or inclina 
 tion to exchange commodities, and of its natural con 
 sequence, restricted commerce. 
 
 Banks should never be made to loan their capital to 
 
 ing to the state of their own circumstances, and those of the times ; and 
 their advances must necessarily at all times be limited by the means of the 
 bankers. But, whether the bankers advances be large or small, whether 
 the aspect of the times be cheerful or disheartening, it must be equally his 
 policy to keep out as large a circulation as he can. What advances he 
 does make, he will always be anxious to make in his own notes, because 
 they yield him a profit such as no other form of issue yields. 
 
 " It may be stated, therefore, as a settled principle, that the efforts of 
 banks of issue to extend their circulation know no remission ; that the 
 whole system, in fact, is continually on the stretch ; and that, but for the 
 antagonistic force which is always in action to correct and repress it, the 
 overflow of notes would be irresistible. Upon this ground alone, then, 
 there seems to me to be an effectual negative to the supposition that the 
 fluctuations of the bank-note circulation depend on the discretion of the 
 bankers. A man who has already put forth his whole strength, has no 
 further effort left to make. The state of a banker, who has already issued 
 every note which those who deal with him will take from his hands, be 
 comes thenceforth entirely passive. He cannot issue another till there is a 
 fresh demand. And if there be each time a fresh demand, I apprehend 
 there can be no over issue no redundance which can possibly affect 
 prices." (Fullarton on the Regulation of Currencies, pp. 82, 83.) 
 
MONEY. 215 
 
 the state, nor invest it in state stocks, but should inva 
 riably retain it in their own hands. All laws ex 
 acting the deposit of state stocks, as security for the 
 redemption of bank notes, are an error, based on the 
 supposition that state stocks are more permanent in 
 their value than other property. History fully proves 
 the error of this theory. Nothing is so permanent in 
 its value, so easily realized in moments of emergency, 
 as good commercial paper, bearing two or more signa 
 tures, representing actual transfers of commodities. 
 
 Banks of issue loan their promises to pay, or bank 
 notes, drawing no interest, in exchange for individual 
 promises to pay, drawing interest. This interest is the 
 profit of the banks, and their reward for exchanging 
 well-known paper for that but little known, as well as 
 for the risk attending such operations. These ex 
 changes of credits on these conditions, are as advanta 
 geous to the individuals as to the banks, for to the 
 individuals, the loan of bank notes is as useful as the 
 loan of a similar amount in coin or capital in any form. 
 Banks of issue, as long as they enjoy undoubted credit, 
 are only forced to contract their loans when the neces 
 sities of the community force its members to diminish 
 the amount of bank notes usually carried by them in 
 their pockets or held in their cash drawers. This only 
 occurs at long intervals, after bad harvests or great 
 over trading, and even then not to a great extent. But 
 confidence in the banks once shaken, the notes are 
 rapidly returned, and failures frequently ensue, even 
 of institutions with ample means, which cannot be 
 realized rapidly enough to meet, on presentation, all 
 the liabilities of the banks. As long as the currency 
 
216 MONEY. 
 
 is in good credit, there can be no danger to banks of 
 issue in loaning their bank notes for short periods, and 
 on undoubted securities. Short loans never lead to 
 over trading, because the borrowers can only use them 
 in operations which will or can be promptly closed. All 
 the difficulties- with banks of issue, as well as with 
 banks of deposit, arise from long loans, or from loans 
 on securities which cannot be realized at maturity. 
 
 Banks of deposit principally loan credits on their 
 ledgers, bearing ho interest, transferable by checks, in 
 exchange for individual promises to pay, bearing inter 
 est. Every discount of commercial notes by a bank of 
 deposit becomes at once transformed into deposits, 
 although, in reality, the notes payable at a future day, 
 discounted by the bank, are the only deposit made. 
 And yet it is gen3rally supposed that banks of deposit 
 lend their deposits ! Banking on deposits is, like bank 
 ing on circulation, nothing but the substitution of a 
 well-known credit for one less known. Were banking 
 the loaning of actual capital, as is generally supposed, 
 it would be infinitely less useful than it is. It would 
 merely displace capital give to one what is taken from 
 another and this could be done by the individual 
 owner of the capital, without the necessity of the ex 
 pensive intervention of banking institutions. One of 
 the great advantages offered by banks is, that to 
 the merchants., and others keeping accounts with them, 
 they are precisely what the London clearing house is to 
 the London bankers, and the New York clearing house 
 to the New York banks a medium of offsetting one 
 claim against another, without the trouble and expense 
 of resorting to coin or bank notes for every payment. 
 
MONEY. 217 
 
 The banks, being the reservoirs where the community 
 keep all their floating means, must, at all times, not 
 only possess coin sufficient to liquidate the balances 
 between themselves, but also to liquidate balances with 
 distant points, whenever they occur, until such time 
 as paper money shall circulate, like gold and silver, 
 throughout the entire world. Commerce is simply the 
 exchange of commodities. The ebbs and flows of these 
 exchanges are almost as regular as those of the tides, 
 and, when once properly understood, they can almost 
 always be foreseen and provided for. The realization 
 of the crops of a country is the principal cause of the 
 ebbs and flows of the currency. When the crops are 
 brought to market, the currency must be enlarged; 
 after they are realized, the currency gradually contracts 
 again until the appearance of the next crops. In a 
 country where coin alone circulates, the enlargement 
 of the currency can only proceed from private hoards, 
 gathered when the currency contracts, or when the pre 
 cious metals are imported from other countries. Where 
 bank notes circulate the enlargement is made by the 
 issue of new notes, which return to the issuers the mo 
 ment they are no longer needed by the community. 
 
 Bad harvests are one of the most powerful causes 
 of disturbance to banking, as well as commercial and 
 industrial operations.* If it be the cereal crops that 
 partially fail, the deficit must be supplied from other 
 countries, mostly in exchange for specie, because the 
 countries from which the cereals are then to be drawn 
 
 * " Except in the single instance of 1825, there has not occurred within 
 the last half century a drain of gold of any importance, at all commercial 
 in its origin, to which the importations of corn have not more or less con 
 tributed." (Fullarton on the Regulation of Currencies, p. 152.) 
 
218 MONEY. 
 
 cannot at once increase their consumption of the com 
 modities produced by the country needing the cereals ; 
 for the consumption of a community is the result of 
 habits, acquired during long periods of time, which are 
 not changed at a moment s notice ; and even if the 
 producers of cereals were desirous of increasing at once 
 their consumption of those commodities, the country 
 needing the cereals could rarely furnish them in suffi 
 cient quantities to balance, at once, unusually large im 
 ports of cereals, for it takes time and preparation to 
 increase largely the supply of any article. If, on the 
 other hand, the deficient harvest be of products usually 
 exported abroad in payment of foreign commodities, 
 coin must supply the deficit in the exportation of prod 
 ucts until the importations of foreign commodities are 
 checked.* In either case, commerce and industry in 
 fact, the whole community will suffer from the defi 
 cient harvest, and bankers should be extremely cautious 
 and prudent in their operations in such moments, f 
 
 * " As nothing can be made by moving gold and silver, an influx of 
 gold implies a great abundance and low prices of all other commodities ; so 
 an export of gold implies a great scarcity and high price of all other com 
 modities. An export of gold takes place when we have such a diminution 
 in the stock of commodities generally, that it becomes unprofitable to ex 
 port them to a sufficient extent to pay for our imports." 
 
 j- "If there has been a failure of the crops, and, to relieve the necessi 
 ties of the population, three millions of quarters of wheat are to be import 
 ed from abroad, so much of the capital of the nation will have to be sacri 
 ficed for that object. Whether that capital is transmitted in merchandise 
 or in specie, is a point which in no way affects the nature of the transac 
 tion ; the corn can only be obtained in exchange for an equivalent, and that 
 equivalent must, in one shape or other, come out of the wealth of the coun 
 try. The loss is irretrievable ; it is the penalty inseparable from a great 
 physical calamity, which must be submitted to ; and if any portion of the 
 penalty shall have been paid in gold, that gold can only be got back again 
 
MONEY. 219 
 
 Still, even then, they should not hesitate to loan on 
 ample and undoubted security, for it becomes import 
 ant, in such moments, that commerce and industry 
 should obtain facilities till they can realize, without 
 undue sacrifice, the commodities they hold on hand : 
 this requires time, and, meanwhile, persons possessed 
 of ample property should not be driven into bankruptcy, 
 because, temporarily, property is difficult to realize. 
 Anything really useful to humanity cannot long remain 
 without demand, and forced sales, at great sacrifices, 
 disorganize industry and commerce, to the great injury 
 of the entire community, and every effort should be 
 made to avert such results. 
 
 The evident duty of a bank is, during the period 
 when the currency contracts, to supply the natural de 
 mand for loans and circulation, but not to seek to in 
 crease it by offering to loan at reduced rates of interest, 
 or to parties offering doubtful securities. And, on the 
 other hand, not to decrease their loans and circulation 
 rapidly when they lose specie. Banks, instead of at 
 tempting to keep uniform reserves of specie, should 
 rather see that their reserves are always in proportion 
 to the approaching wants of the community wants 
 which they should freely supply as long as it is in their 
 power. To merchants, credits on bank ledgers are as 
 useful for their local operations as the same amount in 
 coin, while to the banks the calling in of loans very 
 slightly, if at all, augments their specie reserves. Banks 
 need specie reserves, beyond the small amount used to 
 
 by a second exportation of capital, to be created by fresh exertions of in 
 dustry and given in exchange for it." (Fullarton on the Regulation of Cur 
 rencies, p. 124). 
 
220 MONEY. 
 
 liquidate the daily balances between each other, only to 
 liquidate an adverse balance of trade with some distant 
 point ; and they can only increase their aggregate specie 
 reserves from receipts from those points where the ex 
 changes are in their favor. When banks lose specie, 
 they should remember that this is the result of mer 
 cantile operations commenced long before, which no 
 action on their part can then arrest or cancel ; that 
 receipts from other points are the only means by which 
 the coin they are losing can be replaced. Many persons 
 suppose that when coin is exported it is invariably to 
 effect with it purchases abroad, whereas it is almost 
 invariably exported to meet purchases made long be 
 fore.* Contraction of loans and circulation at home is, 
 then, worse than useless ; for, instead of strengthening 
 
 * Mr. Nicholas Biddle, President of the United States Bank, in an essay 
 published in April, 1828, in the National Gazette, of Philadelphia, said: 
 " The law of a mixed currency of coin and paper is, that when, from super 
 abundance of the mixed mass, too much of the coin part leaves the country, 
 the remainder must be preserved by diminishing the paper part, so as to 
 make the mixed mass more valuable in proportion. It is this capacity of 
 diminishing the paper which protects it. ... The operation proceeds 
 thus : by issuing no new notes, but requiring something from your debtors, 
 you oblige them to return you the bank notes you lent them, or their equiva 
 lent. This makes the bank notes scarcer this makes them more valuable 
 this makes the goods for which they are generally exchanged less valua 
 ble the debtor, in his anxiety to get your notes, being willing to sell Jiis 
 goods at a sacrifice this brings down the price of goods, and makes every 
 thing cheaper. Then the remedy begins-. The foreigner, finding that his 
 goods must be sold so low, sends no more. The American importer, find 
 ing that he cannot make money by importing them, imports no more. . . . 
 When the foreigner hears of this state of things, he sends back the coin he 
 took away. He took it away merely because your own domestic produc 
 tions were so high that he could not make any profit in his country by 
 taking them. But when the news reaches him that his productions are 
 very cheap in our country, he will also learn that our productions are cheap 
 
MONEY. 221 
 
 themselves, the banks only reduce the value of all com 
 modities selling to other points, thereby increasing the 
 adverse balance to be liquidated in coin ; besides which, 
 sudden contractions produce panics, which universally 
 weaken both banks and their debtors.* An intelligent 
 
 too, and he sends back the coin to buy these cheap productions of ours, 
 . . . Such is the circle which a mixed currency is always describing." 
 
 u The course of business has been this: A merchant borrows from 
 the bunks and sends abroad $100,000 in coin, or he buys bills from one 
 who has shipped the coin. With these he imports a cargo of goods sends 
 them to auction, where they are sold, and the auctioneer s notes given for 
 them. These notes are discounted by the banks, and the merchant is then 
 put in possession of another $100,000, which he again ships, and thus he 
 proceeds in an endless chain. The constant tendency of banks is to lend 
 too much and to put too many notes into circulation." (Gouge on Bank 
 ing, pp. 52, 53.) 
 
 Here is a man long looked upon as the most eminent financier in the 
 United States, who long presided over one of the largest banking institu 
 tions of the world, who proves himself not only ignorant of the principles 
 governing banking, but also of a knowledge of the modit& operandi of 
 the ordinary operations of commerce ; and who deliberately recommends to 
 bankers a course of action which, he says himself, will reduce the value of 
 the assets of their debtors and force them to make sacrifices ! After this, is 
 it surprising that commercial disasters have been frequent in the United 
 States, and that the institution over which Mr. Biddle presided became it 
 self a bankrupt, leaving not a fraction of the wreck to be saved for the un 
 fortunate owners ? How can paper money be beneficial when controlled 
 by men who are entirely ignorant of the principles that govern it? 
 
 " A contraction of the circulation leads to a general apprehension of 
 danger. Hence the bankers and others keep larger reserves of bank notes 
 on hand, in order to be prepared for the worst, and thus the evils of the 
 contraction are considerably increased. That portion of the notes of the 
 Bank of England which is passing from hand to hand, may be called the 
 active circulation. That portion which is hoarded, or kept in reserve to 
 moot -possible demands, may be called the dead circulation. Now it is 
 quite certain that the dead circulation, while it remains in that state, has 
 no effect upon the price of commodities, the spirit of speculation, or the 
 foreign exchanges. These are affected only by the active circulation. In 
 seasons of pressure, the dead circulation is increased at the expense of the 
 
222 MONEY. 
 
 banker should neither become elated at one moment 
 nor alarmed at another ; if he is conversant, as he 
 should be, with the natural laws that control commerce 
 currency,, and banking, he will know that they regulate 
 themselves. Any attempt, on his part, to interfere 
 with the operations of commerce, only aggravates ex 
 isting evils. Importations and exportations are made 
 by individuals, solely with a view to the profit to be 
 derived from them. Whenever either are in excess of 
 the necessities or the means of consumption of the 
 communities for which they are destined, the expected 
 profits are turned into losses, and this soon arrests new 
 operations, until the equilibrium between supply and 
 demand be reestablished, without any intervention on 
 the part of bankers or Government. Supply and de 
 mand are the natural regulators of commerce and in 
 dustry, and, like every natural law, they act far more 
 beneficially for man than any laws of his own making. 
 Unfortunately, few persons have faith in these laws, 
 because they have no knowledge of them, and ignore 
 the admirable results they produce ; they therefore re 
 sort to human reglementations, which invariably end by 
 being injurious instead of beneficial. The only possible 
 measure in accordance with the law of supply and 
 demand that can be resorted to by banks, is to increase 
 or diminish the rate of interest on loans in proportion 
 to the demand ; but from this proper action the Ameri- 
 
 active circulation, because people hoard their money to meet contingencies. 
 Hence we find the pressure is often more severe than the reduction of the 
 bank circulation would seem to warrant. But the fact is that the pressure 
 is in proportion to the reduction of the active circulation, and not in pro 
 portion to the reduction of the whole circulation." (Gilbart, The History 
 of Banking in America, p. 96.) 
 
MONEY. 223 
 
 can banks are debarred by our injurious usury laws. In 
 Europe, at present, it is only by an increase or decrease 
 of the rate of interest on loans that banks attempt to 
 interfere with tho supply or demand of money.* 
 
 Every general rise of prices is solely produced by 
 confidence, and every general fall of prices by want of 
 confidence, in the future.f When the community, 
 from any cause, have full confidence in the future, the 
 holders of property are not desirous to realize ; J every 
 one seeks to purchase, and finds means to do so, to a 
 greater or lesser extent, without any assistance from 
 banks, because most commercial purchases are made on 
 
 * " The true method of regulating the paper currency is by regulating the 
 rate of discount. It was by neglecting this that all the great monetary 
 crises were brought on." (Macleod, Theory and Practice of Banking, vol. 
 ii, p. 302 ) 
 
 f " It is this sudden failure of confidence and extinction of credit, 
 which produces what is called in commercial language a pressure on the 
 money market, and which causes money to be tight. When money is 
 said to be scarce, it does not mean that there is a smaller quantity of money 
 actually in existence than before ; ... but a great amount of credit 
 which served as a substitute, and was an equivalent for money, is extin 
 guished, and the money is called suddenly to fill the void." (Id., ib., 
 vol. i, p. 229.) 
 
 " It is, therefore, not the scarcity of money, but the extinction of confi 
 dence, which produces a pressure on the money market ; and an examina 
 tion of all the great commercial crises in this country will show that they 
 have always been preceded and produced by a destruction of this credit, 
 which has usually been brought about by extravagant over trading and wild 
 speculations." (Id., ib., vol. i, p. 231.) 
 
 J " A falling market will always be well supplied, because people who 
 must sell hasten to do so before the price falls still lower, and buyers hold 
 aloof, waiting as long as they can, to see the lowest. On the other hand, 
 when markets arc rising, the case is reversed. The sellers hold aloof, 
 hoping the price will still be higher ; and buyers crowd in, hastening to 
 purchase before the price rises more." (Id., ib,, vol. i, p. 232.) 
 
224 MONET. 
 
 credit, and it it is only when the credits become due 
 that the banks are called upon for loans.* A general 
 demand naturally produces a general rise of prices, until 
 something occurs that creates doubt as to the future. 
 Then, at once, nearly every one seeks to realize prop 
 erty ; purchasers are found with difficulty, and a gen 
 eral fall of prices ensues. The amount of coin or of 
 bank notes in circulation has little or nothing to do with 
 these ebbs and flows of prices, for at present most of the 
 large commercial transactions are made by means of 
 representatives of money and commodities, such as 
 checks on banks and bankers, bills of exchange, notes 
 of hand, credits on ledgers, &c., &c., and not with coin 
 or bank notes. "j* Some faint idea of the importance of 
 
 * " A demand for increased discounts at the Bank of England is rarely, 
 if ever, felt in the early stages of a speculative tendency, or as a means of 
 making purchases, with a view to a further advance. It is chiefly when a 
 pause takes place in the expected advances, and still more after the com 
 mencement of a fall, that the applications for discount become urgent, for 
 the purpose of enabling the parties to meet engagements entered into some 
 time before, and for which they may be supposed to have reckoned on 
 funds to have been realized by advantageous sales." (Tooke, History of 
 Prices, vol. i, p. 196, note.) 
 
 f " Excepting indigo and cochineal, the prices of produce, home and 
 foreign, were lower, and in most cases considerably so, in November, 1842, 
 when the circulation had for four of five months averaged 20,000,000, 
 than in the preceding January, when it was, and for some months had been, 
 scarcely over 16,000,000." (Id., ib., vol. iii, p. 49.) 
 
 " When the amount of bank notes in circulation had been reduced to 
 the narrowest limits, when the exchanges were low (high), and the bullion 
 in the bank at a minimum, and when credit was most restricted, and the 
 rate of interest unusually high, prices, which, by the currency theory, 
 should have been found down, were, generally, higher than ordinary. And 
 when the former conditions were all, without exception, reversed when 
 the bank-note circulation had been increased by the addition of more than 
 one third to its previous amount, when the exchanges were high (low) and 
 rising (falling), the bullion in the bank greater in amount than it had been 
 
MONEY. 225 
 
 these means of exchanging commodities may be formed 
 from the following figures : 
 
 The annual exchanges at the clearing house of 
 London, which do not comprise the enormous opera 
 tions of the Bank of England, are estimated at from 
 1,500 to 2,000 millions sterling : 
 
 Take the average of these figures, and we have. . . . $8,750,000,000 
 The exchanges at the New York clearing house 
 average, in ordinary times, about $25,000,000 per 
 day (latterly they have averaged nearly double 
 that amount), say per annum 7,750,000,000 
 
 Total amount of annual exchanges at the London 
 
 and New York clearing houses $16,500,000,000 
 
 The entire present annual production of the precious 
 metals is estimated at $200,000,000, say about 1} 
 per cent, of the exchanges effected at the clearing 
 houses of London and New York. What then must be 
 the proportion between the annual production of the 
 precious metals and the aggregate exchanges of the 
 whole world ? And what must be the proportion be 
 tween any conceivable reduction or expansion of the 
 bank notes in circulation, and a moderate reduction or 
 expansion of the enormous operations made with paper 
 representatives of commodities and money ? When 
 
 for many years, and still increasing, when credit was almost unlimited, and 
 the market rate of interest had for two years barely exceeded two per 
 cent, per annum, or less than half its previous amount, prices, instead of 
 being higher, were, with hardly a solitary exception, considerably lower 
 than at the former period." 
 
 " No amount of ingenuity of comment could add to the force of tho 
 argument against the supposed influence of the amount of the bank-note 
 circulation, or of the rate of interest upon prices, conveyed by a simple 
 statement of these facts." (Tooke, History of Prices, vol. iii, pp. 61, 62.) 
 
226 MONEY. 
 
 we look at these figures we can no longer wonder that 
 the large influx of gold from California and Australia 
 has produced no permanent effect on prices,* and that 
 the expansions and contractions of bank issues have no 
 permanent effect on the prices of labor and commodi 
 ties. 
 
 If the immense operations of commerce and indus 
 try are now effected more easily and more economically 
 with paper representatives of money and commodities 
 than with money itself, is it not evident that bank 
 notes can successfully be made to replace coin in all 
 transactions ? That the substitution of paper money 
 for coin is exceedingly advantageous to humanity there 
 can be no doubt, provided the paper money be left to 
 the untrammelled management of private interest. The 
 metallic currency of the country is so much capital 
 rendered unproductive in order to increase the produc 
 tiveness of the remainder. If an instrument less costly 
 can effect the exchanges as well as coin, the capital at 
 present invested in coin will at once become available 
 for productive employment, besides which the wear and 
 tear of the coin will be economized. The coin in the 
 world was estimated by Humboldt in 1827 at 344,- 
 000,000 or $1,720,000,000. This amount must have 
 been greatly increased since 1827, but 6 per cent, for wear 
 and tear and interest, on even that amount, is $103,- 
 
 * " It is impossible to affirm that the range of general prices has been 
 sensibly raised by the mere operation in the form of metallic money of 
 even the 160,000,000 or 170,000,000 of new gold introduced into the 
 commercial world. All the instances of an important variation in prices, 
 comparing 1857 with 1851, admit of being accounted for by circumstances 
 affecting the supply or the demand." (Tooke, History of Prices, vol. vi, 
 p. 224.) 
 
MONEY. 227 
 
 200,000 per annum, which would become available for 
 the well being and future progress of humanity, the 
 moment that paper money successfully and entirely re 
 places the precious metals as a circulating medium. 
 That this desirable result will be attained seems cer 
 tain. It is a mere question of time, and will depend 
 greatly on the general intelligence of humanity, and 
 still more on the general recognition of the important 
 truth that the ivdl being and progress of humanity is 
 entirely dependent on individual effort and intelligence, 
 and not on the acts of governments (protection to life, 
 liberty, and property alone excepted) ; for until that 
 truth be admitted and acted upon by governments, 
 they will continue to attempt to control the issues of 
 paper money, which will prevent humanity from deriv 
 ing from this admirable instrument, all the benefits it 
 is capable of conferring. 
 
 If it were once generally and clearly understood that 
 money is a mere instrument that facilitates the ex 
 changes of commodities and services, and that the 
 great desideratum of a proper circulating medium is, not 
 its redemption in gold and silver, but its redemption by 
 (which means its acceptance in exchange for) commodi 
 ties and services, the forced redemption of bank notes 
 in coin might be entirely dispensed with, and, along 
 with specie redemption, will inevitably disappear finan 
 cial panics such as, heretofore, have so frequently oc 
 curred, often in the midst of an unusual abundance of 
 commodities, solely from fear of an inadequate supply 
 of money, of an instrument only useful as a means of 
 obtaining the very commodities of which there exists 
 a glut ! Can anything be more absurd than to be panic 
 
228 MONEY. 
 
 stricken from fear of the lack of a symbol, when we 
 possess in abundance the very things it symbolizes ? 
 Whenever bank notes shall cease to be redeemable in 
 coin on demand, they will be freely issued to those who 
 will pay interest for them and furnish ample security 
 for their return within a specified time. The return of 
 bank notes in repayment of loans is an ample and 
 proper means of redeeming them, and will always pre 
 vent the currency from becoming redundant. There 
 will then always be an adequate supply of money 
 prices will become regular, as they will be solely con 
 trolled by cost of production and supply and demand 
 and we shall no longer see commodities sacrificed and 
 commerce and industry disorganized, merely because 
 the controllers of money refuse to furnish a supply ad 
 equate to effect the current exchanges of commodities 
 and services. 
 
 Is not this a result to be desired ? And can it be 
 attained by any other means than by the general dis 
 semination of a correct knowledge of the natural laws 
 that govern so perfectly and so beneficially, not only 
 money and currency, but all other things that contribute 
 to the well being and progress of humanity ; laws that 
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