as acquired this bill, if it has arisen out of a real commercial transaction, in lieu of a certain quantity of goods, which, at the then value of money, were worth 5001. or 1000l.; and it is this 500l. or 1000l., which, by presenting his bill to the Bank, he wishes to obtain. If the value of money had been different, the sum for which the bill would have been drawn would also have been different. It is to this market value of money at the time, that, in all commercial affairs, attention is exclusively paid. When in 1809, 10, 11, 12, 13 and 14, the Bank issued such a quantity of paper as to depress its value below the value of bul Tion, the circumstance of an act of Parliament having declared, that bank notes would be paid in cash at the restoration of peace, had no effect in raising their value. Merchants only draw money from a bank, because they have immediate occasion for its services. After it has been drawn, they throw it into the market for whatever it will bring; and, as they purchased it on the same terms, (for the value of money can be but slightly affected in the interval between the time that a bill is discounted and when it becomes due), they generally get as much for it, and perhaps more, than it cost. We shall afterwards endeavour to explain what it is which constitutes the natural limit to the applications of merchants for discounts. But what we have already said must, we think, render it evident, that it has nothing to do with the convertibility of notes into specie.

In like manner, those who have recourse to a bank to obtain discounts of accommodation bills, consider only the present value of money. No person discounts accommodation paper, except with a view of immediately employing the money so cbtained, either in the purchasing of commodities or labour, or in the payment of debts: And, whether one pound notes are worth 10s. or 20s., is of no consequence; inasmuch as the amount of the bill presented for discount is regulated accordingly.

The circumstance of the circulation of country bank notes ceasing as soon as any general apprehension is entertained of the solvency of those by whom they are issued, is nowise inconsistent with this principle. Country bank notes are rendered exchangeable, at the pleasure of the holder, for Bank of England notes; but since the epoch of the Restriction, the latter not being exchangeable for any other commodity, they constitute the real standard of exchangeable value.-When a country bank loses credit, the circulation of its notes is stopped, because a suspicion is entertained that it will be impossible to exchange them for paper of the Bank of England, or, in other words, for hat species of paper which constitutes the real medium of ex

change. But it is impossible to imagine that the paper consti-" tuting this medium should itself be affected by a want of credit. Every individual knows that it never had any intrinsic worth; and, as we have already shown, its value was always regulated, and must, as long as it is not rendered exchangeable for a given quantity of some other commodity, continue to be regulated, by the amount of it in circulation compared with the demand.

It appears, therefore, that if there was perfect security that the power of issuing paper money would not be abused, that is, if there was perfect security for its being issued in such quantities as to preserve its value relatively to the mass of circulating commodities nearly uniform,-the precious metals might be entirely discarded from circulation.

Unfortunately, however, no such security can be given.-If this power of supplying the State with money is vested in a private banking company such as the Bank of England; then, to suppose that they should constantly endeavour to sustain the value of their notes, would be to suppose that they should be extremely attentive to the public interests, and extremely inattentive to their own. The rendering the Restriction act perpetual would not, in our opinion, at all affect the value of our paper currency, provided its quantity was not at the same time increased. But that, in such circumstances, it would be increased, is morally certain. Such a proceeding would enable the Bank of England to exchange engraved paper, not worth perhaps 5s. a quire, for as many, or the value of as many hundreds of thousands of pounds. And is it to be supposed that the Directors and Proprietors of the Bank would not avail themselves of such an opportunity to amass wealth and riches? Is it to be supposed, that if the State enables a private gentleman to exchange a bit of paper for an estate, he will be deterred from doing so by any metaphysical considerations about its effect on the currency of the kingdom! In Loo Choo we might perhaps meet with such a primitive individual; but if we expect to find him in Europe, we shall assuredly be disappointed. In this quarter of the globe we are much too eager in the pursuit of fortune, to be at all affected by any such Utopian scruples.

On this point we are not left to be guided by general principles. We have it in our power to appeal to a widely extended and uniform course of experience,-to the history of Great Britain and every other state in Europe, and to that of the United States,-to show that no man, or set of men, have ever been invested with the power of making unrestricted issues of paper money without abusing it-or, which is the same thing, without issuing it in inordinate quantities. It is essential, there

fore, that the issuers of paper money should be placed under some species of check or control; and, for the reasons already stated, none seems so proper for that purpose as to subject the issuers of paper money to the obligation of exchanging their notes at the pleasure of the holder for a given and unvarying quantity either of gold or silver coin or bullion.

But it has been contended, that there is a radical difference between paper money issued by a government in payment of the debts it has contracted, and that which is issued by a private banking company in discount of good bills. In regard to the former, it is admitted on all hands, that it may be issued in excèss; but in regard to the latter, it has been strenuously urged, that notes issued only in proportion to the demand, in exchange for good and convertible securities payable at specific periods, cannot tend to any excess in the circulation, or to any depreciation. ' As every one of the arguments, advanced by those who maintain that our paper currency has not been depreciated since 1797, involve this principle, it will be necessary to examine it a little minutely.

In the first place, it may be observed, that the demand for discounts depends not on the nature of the security required for the repayment of the sums advanced by a bank, but on the rate of interest for which these sums can be obtained, compared with the ordinary rate of profit which may be made by their employment. If a person can procure 1000l., 10,000l. or any greater sum from a banker at 4, 5, or 6 per cent.; and if he can realize 7, 8, or 10 per cent. by its employment as capital, it is evidently for his interest, and for the interest of every other person similarly situated, to borrow to an unlimited extent. But a banking company which was relieved from all obligation to pay its notes in cash, and which, of course, was not obliged to keep any portion of unproductive stock or bullion in its coffers, would be able to issue its notes at a very low rate of interest. The demand for its paper would, therefore, be proportionably great. The interest of money, says Mr Ricardo, is not regulated by the rate at which the Bank will lend, whether it be 5, 4, or 3 per cent., but by the rate of profits which can be made by the employment of capital, and which is totally independent of the quantity, or of the value of money. Whether the bank lent one million, ten millions, or a hundred millions, they would not permanently alter the market rate of interest; they would alter only the value of the which they thus issued. In one case, ten or twenty times money more money might be required to carry on the same business, than what might be required in the other. The applications to the bank for money, then, depend on the comparison between the rate of pro

6

fits that may be made by the employment of it, and the rate at which they are willing to lend it. If they charge less than the market rate of interest, there is no amount of money which they might not lend; -if they charge more than that rate, none but spendthrifts and prodigals would be found to borrow of them. We accordingly find, that when the market rate of interest exceeds the rate of 5 per cent., at which the Bank uniformly lends, the discount office is besieged with applicants for money; and on the contrary, when the market Fate is even temporarily under 5 per cent., the clerks of that office have no employment. "

From 1809 to 1815 inclusive, the period in which the value of our paper currency relatively to gold was lowest, the market rate of interest considerably exceeded the rate (5 per cent.) at which the Bank of England, and most of the country banks, discounted. Although, therefore, the amount of the paper currency of the country had in that interval been very much increased, the applicants for fresh discounts continued as numerous as ever: And there appears no reason to doubt, that, had the Directors not been apprehensive that ultimately they might be called upon to pay their notes in specie, the quantity of them in circulation in 1813 and 1814 would have been very much increased-at least, such would most unquestionably have been the fact, had the Directors acted to the full extent of their avowed opinion, that it was impossible to issue too much paper, or to reduce its value, by engrossing into the circulation such quantities as could be issued in discount of good bills. The wants of commerce are altogether insatiable. Paper money, provided the rate of interest at which bills are discounted is less than the market rate, can never be too abundant. As long as this is the case, million after million may be thrown into the market. The value of the currency may be so reduced, as to require a one pound note to purchase a quartern loaf; and yet, as its value is diminished in proportion to the increase of its quantity, the demand for additional supplies would continue as great as ever.

If the Bank of England were alone in the possession of ant alchemical process, whereby guineas could be manufactured with the same facility as notes, it would not be disputed, that it would then be in the power of the Bank to depreciate the former value of gold, by issues of what had been produced at so very little cost. Now, in what respect does this fictitious case differ from the actual situation of the Bank? While the restriction continues, the Bank is enabled to transmute, or, which is the same in its effects, to exchange pieces of paper for landed property, manufactured goods, government securities, &c. But

* Principles of Political Economy, &c. p. 511

the value of this paper, like the value of the gold in the hypothetical case, depends entirely on the proportion which the supply bears to the demand; and, as this demand is not affected by an increase of quantity,-for that increase, by diminishing its value, renders the larger quantity of as little efficacy as the lesser quantity was before,-it is abundantly clear, that if the Bank lent at a sufficiently low rate of interest, there could be no possible limit to its issues.

In the second place, if it were true, which unquestionably it is not, that the notes of a private banking company, issued in discount of good mercantile paper, could not be depreciated from excess, that will not apply to the case of the Bank of England;. for the greater part of its paper is issued in payment of the interest of the national debt, amounting to about thirty millions per annum, exclusive of the sinking fund. And really, when such is the fact, it is a little too much to contend, as the apologists of the Restriction Act have almost always done, that Bank of England paper could not be depreciated, because it was only issued in discount of legitimate mercantile paper, payable 60 days after date. It is but justice to mention, that Mr Baring, one of our most extensive merchants, and one of the Bank Directors, publicly ridiculed this idea; and stated, in his place in the House of Commons, that the great mass of the Bank paper was issued compulsorily in payment of the public creditor, and in the other great transactions of Govern

ment.

It has been contended, and it is the only other argument that deserves the least notice, that the restoration of the par of exchange in 1815 and 1816, when the restriction was in full operation, affords a practical and convincing proof that the depression of the exchanges during the war, and the high price of bullion, had not been caused by any over-issue of paper. But this fact leads to a precisely opposite conclusion. It is of no use to tell us, that the exchanges came to par while the restriction on cash payments was unrepealed. No person ever contended, that the simple fact of such a law being in existence, could have any effect in depreciating the currency. The restriction was condemned, and justly condemned, because it enabled the Bank of England to deluge the country with paper. If the Bank had never abused that power,-if the proprietors had sacrificed their own direct, palpable, and individual interests to those of the public, and had constantly kept their paper on a level with bullion, the Restriction Act, though unwise, would, as to conse➡

Vide Morning Chronicle, 2d May 1816.