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be kept between Bank Notes and Coin-a principle necessary indeed
took place in 1797, when another system of Paper Currency was resorted to, not convertible, at pleasure, into cash, but founded on the ultimate solvency of the Bank, by its own funds, for the issues made to individuals, and by the funds of the nation for the issues made to government: and this system has carried us through the war successfully, and exists at present.
The two systems, the late and the present one, are both founded in mere confidence, their common parent. The first presumes, that the Bank Note will be always convertible into Coin, at the option of the holder, though it is evident that only one half of the circulating medium is actually represented by gold. The last presumes, that the Paper Currency, as long as it circulates, will keep that value in the market it was originally issued to represent, though not actually convertible, at pleasure, into its archetype ; and that, should the Currency, by any fatality, cease, all the outstanding Notes will be ultimately paid, in real value, by the property and funds of the Bank, and the funds of Government, which are pledged for their amount. The
danger, which was supposed to attend the former system, was from the disproportion which might arise between its component parts, by which the advantages held out from its power of augmenting the amount of currency, was compromised and lost, whilst the advantage of the present system is, that being unattackable by distress within or danger without, it can be adjusted to all the ordinary demands of peace, and all the extraordinary demands of war; and the only danger attributable to it, is depreciation by excess of issues.
We examined the controul on the former system, and found it vicious : examine the controul on the present system,
and see whether it be either vicious or inadequate.
This system of circulation has been now in operation for 22
1. The Bank, which issues the currency, cannot, by any possibility, force any of its Paper upon the market.
2. It never makes an issue but upon a previous demand : and the Directors have the eyes of the Nation and Parliament upon them, always watching their conduct, as well as their own interests to guard them from indiscretion.
3. It charges an advance of 5 per cent. upon all issues to individuals, and never makes advances to Government but upon parliamentary securities.
4. Its advances to individuals are by discount on bills of short dates, which there is just reason to believe represent actual value and real commodities.
5. Its Notes being in themselves of no intrinsic value, and only of value in the act of parting with them, when not wanted for the purpose of circulation, are of course immediately withdrawn from it.
6. The Bank has tests to show whether the quantity of circulating medium is too defective or too abundant.
For a numerous demand for the discount of good bills, is a test that money is scarce, and the market wants a fresh supply—whilst the paucity of demand, is a test that there is plenty of money in the market, and that discounts can be more easily and cheaply procured elsewhere than at the Bank : so also the cessation of demand from Government for advances upon parliamentary securities, is another proof that money is plentiful, and that Government can easily dispose of their securities in the market.
7. Whenever the return of Notes upon the Bank is greater than the demand for new issues.
8. The Bank has every possible inducement to prevent every excess of issue, for excess of issue, as it would depreciate their Paper, would also depreciate their profits proportionably, and would, ultimately, lead to the discredit, and by the discredit, to the extinction of the system.
Such are the guards by which the present system of currency is insured from excess, which are formed on three principles-the private interest of the purchaser of the Notes not to call for any advance he is not obliged to demand-the private interest of the Bank not to compromise their institution, by an excess of issue, which cannot profit and may be destructive ; and certain infallible tests, by which the proportion of the supply of currency to the wants of the market, may be known, adjusted, and balanced.
years, and has enabled us to meet, and overcome, every embarrassment and difficulty which continually endangered the community, with the most complicated aggravation of pressure within and without, nearly throughout the whole period; and the system has
so faithfully discharged its office, that the Pound Bank Note, which was at first issued as equivalent to the Gold Sovereign, preserved its relative value so strictly, that the Pound Bank Note, the Gold Sovereign, and Gold Bullion of equal weight to it, were almost at the same price in the market in 1815 and 1816, as when the system begun,-—which affords a complete demonstration, that the variations in the price of Gold Bullion during the war, did not originate in any depreciation of the Bank Note, for if that had been the case, and depreciation had originated from the quantity of Bank Notes in the market, the depreciation would have increased as the quantity of Bank Notes increased, and when the quantity was the greatest, the depreciation would have been also the greatest, which is the reverse of the fact.
It is still, however, conceived by some, that the present system is vicious, by excluding Coin from common currency, and by the Bank Note not being immediately convertible into Coin, and by the excess of issues which it is said has taken place, and the consequent depreciation of Paper, notwithstanding demonstration to the contrary.
Let us then examine the process which is to be taken for reviving our former convertible system.
It has happened, since the commencement of the present system, that Gold Bullion has risen in price above the Mint standard, which standard price the Bank Note represents ; and till it can be permanently secured that it shall not exceed Mint price, Coin cannot be brought into circulation. How then are the advocates of the old system to proceed?
In as much as our Coin and Bullion are of the same purity, and as the Coin is limited in circulation to a maximum of price, and Bullion is not limited,mand as Coin, when Bullion exceeds the maximum, will ever be melted, in order to become Bullion, it follows, that a principle must be adopted and enforced, of keeping down the price of Bullion to the maximum set upon Coin.
Now a circulation formed upon this principle, is an evident absurdity
The criterion for the amount of the currency, is what has been above stated, viz. the quantity necessary to answer all the demands, and circulate all the income of a community; and the deficiency or excess of quantity, is measured by the increase or relaxation of demand.
Whereas the criterion assumed under the system which is to be established, is the quantity of currency which will keep the Market price and Mint price of Gold at par.
Our present currency being founded upon a true theory of supplying the wants of a community, admits the regulations which
have been stated, for controlling its excess without prejudice to the system; because they are all wisely adjusted to the nature of the subject they are intended to controul.
But the arbitrary fixation of a maximum on Coin, and regulating the quantity of a circulating medium, so as to keep the Market price of Bullion, which is ever fuctuating, within that maximum, is totally irreconcileable to the true principles of a currency, and is the application of a rule which has no natural connexion whatever with the subject it has to govern.
Let it be asked of any common logician, whether there is any connexion between the necessity of supplying a circulating medium proportioned to the whole income and transactions of a wealthy community, and the identity of price between Coin of a fixed value and Bullion of a variable value. It is evident that any attempt to prove such a connexion must be preposterous.
An argument has, however, been made in this manner. Coin and Bullion are of the same purity: equal quantities of each must be therefore equally valuable: but if Coin is limited to a certain standard-price, and Bullion is not, in as much as Coin cannot follow the price of Bullion, Bullion must be made to submit to the price of Coin; otherwise, two pieces of Gold, which in weight and purity are the same, would not be equal in value to one another, which is absurd. Now the necessity to reduce Bullion to the price of Coin, arises from the circumstance, that, as Paper represents Coin, it will not also represent Bullion, unless Bullion be kept at the exact price of Coin: for if Bullion is allowed to be dearer than Coin, Coin will be melted to obtain the qualities and price of Bullion: and then Coin being driven from circulation by the superior value of Bullion, Paper will be no longer convertible into Coin; which would be ru. inous. As, however, reducing the quantity of circulating medium will raise its price, and consequently the value of Coin, a proportionate reduction of that medium will equalise theprices of Coin and Bullion. Q. E. D.
Such is the pretended demonstration which has been made, by introducing a system of forcè, contrary to the nature of things.-But what has it to do with the necessity of furnishing a circulating medium adequate to the demands of the whole amount of the income and transactions of a great community? What connexion is there between the two propositions above stated ? How does this demonstration refute the absurdity of measuring the quality of a circulating medium necessary for the richest and most active community in the universe, by the necessity of reducing the Market price of Bullion to the Mint price of Coin. What relation is there in nature between the two propositions ?
What then, it is asked, is to be done?- It is submitted, that
to be done?
the best way to obtain truth is first to discard what is evidently false. Quit an arbitrary and inapplicable measure, and embrace a system dictated by existing circumstances and natural reason.
It is plain, that to form our whole circulation exclusively of the precious metals, is impossible, and that some system, not of mere intrinsic value, but of confidence, is to be resorted to.
It is plain, that to circumscribe a circulation by the identity of price between Bullion, Coin, and Bank Notes, is absurd; since There can be no connexion between things limited and things unlimited in value. The principle has no analogy to a currency. The very apprehension of its adoption has produced great embarrassment, and the enacting it might involve us in distress.
As many persons, however, express alarm at having no basis to our currency of intrinsic value, but the funds of the Bank, (which are not all convertible into cash on demand,) and Government se- . curities, (which are in the same situation, though both ultimately adequate to all outstanding issues of Bank Notes, some new arrangement might be made, which would present a metallic basis of intrinsic value, payable on demand, but at the same time would leave the currency governed, as to its quantity, by the real wants of the community, and not by the forced par of the Mint and Market price of Gold.
Two plans suggest themselves. The first is, to make Gold Coin circulate at the market price of Bullion,—the prices to be fixed from period to period at the Royal Exchange -- the duration of each period to be limited, as may be found adviseable, and the prices to remain fixed during each period.
The second is, to enable the Bank to pay in Bullion all demands for exchange of their Paper if above the sum (for instance) of 251. at the market price of Gold.
Bank Notes should circulate as at present, representing Gold Coin, at the standard of 31. 175. 104d. per ounce, which is the legal standard, and which they were issued to represent, and do represent.
By either of these plans, the Bank could always afford to ply themselves and the public with any quantity of Coin or Bullion, because they could not lose in the purchase.
And the necessary quantity of circulating medium could be always measured by the criteria above stated, and which are now acted upon; and would not be restricted by the absurd necessity of contracting or increasing the issues of Bank Notes, by the variations of price in one single commodity.
The first plan would be most agreeable to those who wish to reintroduce Gold Coin into circulation.
The second, to those who prefer a Bank Note circulation founded upon a basis of intrinsic value, payable on demand.