of Hamburg (1629), and Rotterdam (1635), issued certificates of deposit representing, in round figures, the value in pure metal of the coin deposited in their safes. These bills, which gave a right to a fixed weight of gold or silver, were preferred, as a means of payment, to the current coinage, the value of which was often modified either by edict of the government or by wear and tear. Bank-notes were at a premium, and the use of them in payments was made a matter of stipulation. At the present time this form of credit-money is in general use in all civilised countries, and has even often been misused.

As a means of payment, if not recognised by law, at least universally accepted, bank-notes payable at sight or to bearer, are used instead of bills of commerce, which only circulate among persons who know each other, and are of assured responsibility. These notes are also usually preferred to metal money, as lighter, and more convenient when large sums have to be counted. In France, when after 1848 the issue of notes was restricted to a maximum insufficient for the needs of exchange, a premium was paid to obtain them.

The value of the bank-notes issued is covered by a fund in coin or ingots, and by discounted bills, which together constitute the "reserve." It is estimated that a note-issuing bank ought to have in cash one-third of its notes in circulation. A law passed in 1844, called the Bank Charter Act, subjects the Bank of England to a still more stringent rule.

By this law, every issue of notes in excess of fourteen and a half millions sterling, must be covered by an equal sum in legal money or ingots, so that the instrument of exchange can only increase in the proportion which it would observe if it were exclusively metal.

Prudence commands banks which issue notes to keep their reserve fund at a suitable level by raising the rate of discount when the precious metals are leaving the country.

In times of great crises, Governments sometimes decree a "forced currency." By this decree banks are authorised to refuse to make good their notes at sight, and all persons are obliged to receive these non-convertible notes in all payments at their nominal value. This extreme measure has as its object to enable banks sometimes to continue to lend their credit to commercial and industrial firms, which is a good thing; sometimes to make advances to the State in the form of notes forced on the public, which is an evil, and one which becomes greater in proportion as the issue of these non-convertible notes is more considerable.

When the amount of these non-convertible notes surpasses the needs of the circulation, like everything else that is in excess, they depreciate in value. This depreciation takes the form of a general rise of prices. It can be exactly measured by comparing the value of the unit of money in paner, and that of the same unit in metal. Thus the Russian silver

rouble is worth about three shillings and fourpence, while the paper rouble, at present, is only worth two and twopence. So in England in 1810, to obtain a gold guinea, in gold, or an equivalent weight of the metal, paper money had to be given of the nominal value of a guinea and a quarter.

Convertible notes are "money of paper," and this necessarily keeps on an equality with metal money, since the holder of a note, sooner than submit to a loss, will demand that it be redeemed. On the other hand, the non-convertible notes of a forced currency are "paper-money," and the depreciation of this is only limited in the same extent as is its issue in excess. The most memorable example of this depreciation is the case of the assignats. The French Republic had confiscated property of the clergy and emigrants to the value of over two hundred millions. To facilitate its sale, on the proposition of Mirabeau, the State issued notes called "assignats," because they were "assigned" for the purchase of the property of the nation. Since the lands purchased were to be paid for with these notes, which were to be destroyed on their return from circulation, with the sale of the last of the acres the last of the notes should have been cancelled.

The assignats remained at par to the end of 1792, though they had been issued to the amount of two thousand million livres, (80,000,000l.). To meet, however, the requirements of the war, they were created to the amount of forty-five thousand millions (1,800,000,000l.),

and their value diminished in proportion to the increase of their issue. During the summer of 1795, one hundred livres in assignats were hardly worth one in silver, and their value varied enormously from day to day. The price in assignats of a pair of boots was fifteen hundred livres. In July, 1796, their legal currency was suppressed. The important lesson afforded by these facts is that credit-money, even when guaranteed by real property, depreciates in value if it is issued in excess of the requirements of the circulation.

§ 6. Free Creation of Note-issuing Banks.

The issue of bank-notes should be permitted to all persons and companies accepting responsibility for their acts; but it should be prohibited to companies with limited liability because these constitute an exception to the principles of the common law.

The control of the currency has always, and rightly, been recognised as an attribute of the State. The quantity of money in circulation has an influence on all prices, and, as a consequence, on the financial situation and the legal relations of every individual. Bank-notes, however, are a money made of paper, acting on prices just like money made of metal. The history of the banks of the United States shows clearly the dangers of an unlimited power of issuing these notes.

Progress has led us from local currency to national currency, and from national currency to international

currency. The same progress must be made in the case of bank-notes. The unity of the means of exchange has the greatest advantages, and their diversity the greatest inconveniences.

CHAPTER V.

MONETARY, COMMERCIAL, AND INDUSTRIAL CRISES.

§ 1. Nature of Crises.

CRISES are the diseases of credit, for countries where credit is little used escape them. Sometimes they are as sharp as an inflammation, sometimes as slow and insidious as an anemic. They produce widespread disturbance in the money market, and consequently in production, and thus occasion heavy losses and numerous failures. Three varieties of crises may be distinguished, (1) monetary and commercial, (2) industrial, (3) speculative; and their phenomena demand as careful study as any in economy, since a knowledge of crises diminishes. the risks of loss and increases the means of gain. § 2. The Periodical recurrence of Commercial and Monetary Crises.

For the last century, i.e. ever since the employment of credit became general in England, economic crises have occurred nearly every tenth year, the exact dates being 1763, 1783, 1793, 1803, 1825, 1838, 1847