ments, refusing to accept their own notes in payment for taxes, have stamped them with a considerable discount, from their first appearance: other governments, accepting them indeed, but forcing notes much faster from their treasuries than they could possibly return, and increasing the stream to compensate its diminished value, have ultimately created such a deluge, as in several instances has swept away every establishment of social life, and ingulfed the whole in universal bankruptcy.

Notes issued in this country by the Bank of England, are so far identified with the foreign, that they promise to pay what the holder has no right to demand: they differ, in being circulated by a company of merchants, not directly under the control of government, and of acknowledged solvency. They are said also to differ by not being legal tenders; but this distinction, except in words, may fairly be denied. Public creditors have no other alternative against receiving notes, than not being paid at all; on them at least they are forced into circulation; and not a single individual has been found in fourteen years, amidst the infinite variety of opinions and circumstances existing in that time, who has ventured to decline these notes, and to demand cash.

S

From this state of things arises a most important question :-Is not the paper currency of England convertible at the will of the holder, into a substance of intrinsic worth, the produce of labor, hitherto considered as an article the most proper for measuring others-is this paper currency proceeding in the same career of depreciation, which other non-convertible currencies have uniformly run? or, is there such an essential difference between them, as will preserve this, though others have perished?

I shall arrange my answers under two heads of inquiry.
Can such a currency be depreciated?

Is it not actually depreciated ?

Preparatory to the first, let us consider what forms the value of gold above lead, what renders saffron more precious than hay.— Clearly, the labor, the operation, the manure, the extent of ground requisite for producing these mineral or vegetable substances.-If some cheap process could be discovered for converting materials easily procured into gold, there can be no possible doubt of gold then exchanging for no larger quantities of other articles, than what were produced by an equal expense of labor and cost; but if gold should still continue the standard of value, a pound would remain exactly equal to forty-four guineas and a half, or to 461. 14s. 6d.; consequently the ounce to 37. 17s. 104d. Let a still more easy and less expensive process be found out of creating this metal; it would evidently become of proportionably less value, perhaps on a level with the cheapest form of iron: but this value in exchange, however

small, must soon be common to the whole world; and all other articles measured by it, would be said to have advanced several hundred-fold.

It seems impossible then to deny, that paper notes, manufactured at a much less price than the most successful alchemy could hope to produce gold, may, like it, suffer a reduction of value from excess of quantity, and cause an apparent rise in the value of gold itself, and of all other conimodities measured by this ideal standard; but, with one essential difference; the reduction of value in the general intrinsic standard, and the apparent increase of other articles, must be common to all the world; whilst this is necessarily confined to the particular country issuing the ideal medium.

Nor can it be imagined that a substance of no intrinsic worth, unable to travel beyond certain bounds, is capable of possessing so important, so eminent an advantage over metallic currencies, as to remain always of the same value, incapable of change, entirely unaffected by the supply or by the demand, whilst every other article is in perpetual fluctuation. Those who maintain an opinion so very strange and improbable, endeavour to support it in the following

manner.

These non-convertible notes, they say, are always issued in consequence of property retained, equal at least in value to their nominal amount; no addition is therefore made to the general stock of wealth, and consequently no reduction of value can ensue.

If other media of circulation, if gold coin were withdrawn and held in deposit to an equal amount, the assertion would undoubtedly be true: but when the reserve is made from other merchandise, the aggregate of wealth does indeed remain unchanged, as to the whole; admitting however fluctuations to any extent, among the different parts.

Such would be the effect, if some portion of one commodity could be transformed into another; and this appears virtually done, when circulating media become increased by the deposit of other articles. If large quantities of coffee were converted into sugar, undoubtedly the rates of these two commodities must experience a corresponding change.

If a part of the West-India produce were lodged in warehouses for some long indefinite time, and notes were issued on the credit of this stock, surely the diminished quantity of produce left for sale would advance in price; and on similar principles the increased quantity of circulating medium must cause its value to decline.

The excess of any commodity seems necessarily to create a competition among sellers, and a corresponding reserve among those who mean to buy; all are aware that articles retained cease to yield profit, and both parties act accordingly.

Gold, silver, copper, wine, corn, &c. are observed to fluctuate precisely in this manner; nor can I discover any magic sufficiently powerful in an ideal medium, for compelling men to retain this one commodity against their interest.

If all the circulating media in the possession of an individual were suddenly increased to any extent, he would readily find means for disposing of it with advantage: but if this increase become universal, there appears to be no reason whatever for supposing, that the same competition and reserve would not affect this article, which is found to advance or to depreciate every other.

If this is admitted, I arrive at the second head:-Are bank notes depreciated?

It is allowed, on all hands, that notes purporting to pay 461. 14s. 6d. or forty-four guineas and a half, can no longer purchase in exchange a pound of gold: but gold is said to be advanced; large quantities are hoarded; much is sent to the armies, perhaps much has been lost; the desire of possessing gold plate is increased; the mines are less productive.

If these statements were admitted, a creditor might urge :-I lent a certain quantity of gold under an express engagement of having it returned; if that metal had fallen in value, I must have been satisfied with receiving back precisely the same weight; surely I may be allowed to profit by the accidental turn of events in my own favor.

But there exist two facts capable, as I conceive, of clearly deciding this important question-namely, foreign exchange, and the average price of home commodities, estimated in the artificial medium. I have endeavoured to prove, by the familiar instance of corn, that foreign exchanges must be really varied by the balance of trade or of payments, and nominally by any reduction of value in the standard article of circulation itself. In the first case, or that of a really unfavorable exchange, any medium of circulation possessing intrinsic worth, will flow partially out of the country, till the remainder advances in value as compared with other commodities; and thus makes it the interest of merchants rather to export them.

In the second case, as between England and Ireland, an exchange of 8 per cent. is no more than nominal, and only compensates the inferior value of Irish coin. To illustrate this further: let us suppose, that when French paper money had fallen so low as to ten for one, commercial transactions were equal between that nation and Holland: real commercial exchange must then be at par between the two countries; yet ten pieces of gold at Amsterdam would, under this supposition, purchase a bill on Paris for a hundred pieces, which being received in French paper currency, would exactly replace, in Paris, the ten pieces of gold. Thus au apparent

exchange nominally ten times cent. per cent. against France, would have arisen, though really at par, from its depreciated currency; which at the same time had increased the prices of all home commodities in the same proportion.

The nominal exchanges have been for a long time adverse to England with foreign countries, in a much greater degree than experience justifies our imputing, as a reality, to any balance of trade, or of payments, which cannot much exceed the expense of transferring bullion from one country to the other; and referring to the other criterion, the prices of home commodities, as measured by the artificial medium, we find them manifestly, confessedly, notoriously advanced foreign articles in our market, after due allowances are made in particular cases, for the action of other manifest causes, will be found advanced in nearly the same proportion. The appearances are then exactly the same, though differing widely in degree, as those exhibited in France.

Unfavorable exchanges, and an advancing price of general ar ticles, cannot exist together in any other way. This is the experimentum crucis, the test clearly decisive of the whole question in dispute.

It would far exceed the limits I wish to preserve, were I to enter on an examination of all those plans or regulations which the Bank of England has laid down ;-such as never discounting under five per cent. nor on any other than real transactions, and limiting the date of bills to two months: but none of these appear to have been founded on any principle, directly tending to preserve the paper currency at the same value in exchange for other articles, as gold formerly possessed. To effect this, it is presumed that the nominal value of all the circulating media taken together, should exactly equal the amount of what would have appeared, had a metallic currency, with notes really payable on demand, occupied their place. If the artificial circulating medium could be kept below this standard, and gold excluded, the value of bank-notes would advance in respect to all other articles, or these would be considered as growing cheap; and a contrary effect must as necessarily follow from their exceeding that amount.

If the quantity of metallic circulation is kept below its natural level, in any country, by imposing a duty or seignorage on coining, an agio to that amount will certainly arise, provided the government refrains from issuing on its own account, and can restrain counterfeits; as no individual will convert bullion into coin, at a loss of weight, until the agio compensates it. This natural effect of seignorage, and not the nominal rate at which coin is issued, gives it a value above so much bullion.

It does not appear that discounting at any particular per-centage,

or for any specified time, can produce the coincidence of nominal values, mentioned above, probably beyond the reach of human power to adjust: and, what is of most importance to observe, no step in the progress of depreciation has any tendency whatsoever to make itself the last; and the bank must always feel a strong inducement to accommodate with capital, persons inclined to speculation and adventure; as it shares five per cent. on their mercantile transactions, free of expense, and with little risk.

Gold must equally disappear from a concurrent circulation with non-convertible notes, whether that is advanced in value, or these are declined; on either supposition it will take the shape of common merchandise, and acquire a greater power over other articles of produce and labor: it is therefore desirable on both suppositions to restore the equilibrium.

Here it may be right to notice a popular argument, destitute of force, but frequently urged: "Do not twenty-one bank poundnotes still procure the necessaries of life equally with twenty guineas?" I answer, certainly they do, and for these reasons: first and principally, because the tax-gatherer continues to accept both at the same rate; the whole circulating medium of all kinds is rapidly absorbed by imposts, and again diffused; whilst no distinction is made by him, it will be difficult for any to appear in ordinary transactions in large payments gold is never seen: penal laws, or the apprehension of penal laws, and even public opinion, will be of sufficient power to deter persons from making such distinction, when the inducement of profit is limited to a small sum.

SECTION VII.

I shall now assume the leading facts as proved: but several other topics for discussion remain. The most prominent of these relate to country banks.

Their situation appears, at first sight, not to have been materially altered by the restriction; they are still obliged to pay on demand, in that which cannot be procured without an equivalent; but experience has sufficiently shown, that circumstances connected with them are entirely changed. The preference usually given, by persons out of trade, to currency of intrinsic value, does not extend to Bank of England notes; a contrary preference is, in truth, universally felt, on account of the greater security against frauds, which persons in ordinary life are not skilled to detect. Thus all banks are enabled to keep a much greater quantity of notes in circulation than could have been effected in former times, and with a less re