"The quantity of money," he says, "that can be employed in any country must depend upon its value. . . . A circulation can never be so abundant as to overflow; for, by diminishing its value, you will in the same proportion increase its quantity, and, by increasing its value, diminish its quantity. . . .

"While the State coins money, and charges no seigniorage, money will be of the same value as any other piece of the same metal of equal weight and fineness; but, if the State charges a seigniorage for coinage, the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole seigniorage charged, because it will require a greater quantity of labor, or, which is the same thing, the value of the produce of a greater quantity of labor, to procure it.

"While the State alone coins, there can be no limit to this charge of seigniorage; for, by limiting the quantity of coin, it can be raised to any conceivable value.

"It is on this principle that paper money circulates: the whole charge for paper money may be considered as seigniorage. Though it has no intrinsic value, yet, by limiting its quantity, its value in exchange is as great as an equal denomination of coin or of bullion in that coin. On the same principle, too, namely, by a limitation of the quantity, a debased coin would circulate at the value it should bear if it were of the legal weight and fineness, not at the value of the quantity of metal which it actually contained. . . .

...

"After the establishment of Banks, the State has not the sole power of coining or issuing money. The currency may as effectually be increased by paper as by coin: so that if a State were to debase its money, and diminish its quantity, it could not support its value; because the Banks would have an equal power of adding to the whole quantity of circulation.

"On these principles, it will be seen that it is not necessary that paper money should be payable in specie to secure its value it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be its standard. If the standard were gold of a given weight and fineness, paper might be increased with every fall in the value of gold, or, which is the same thing in its effects, with every rise in the price of goods.

"Dr. Smith appears to have forgotten his own principle in his argument on colony currency. Instead of ascribing the depreci ation of that paper to its too great abundance, he asks whether, allowing the colony security to be perfectly good, a hundred pounds payable fifteen years hence would be equally valuable with a hundred pounds to be paid immediately. I answer, Yes, if it be not too abundant.

"Experience, however, shows that neither a State nor a Bank ever have had the unrestricted power of issuing paper money, without abusing that power. In all States, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or

bullion.

"A currency is in its most perfect state when it consists wholly

of paper money, but of paper money of an equal value with the gold which it professes to represent. The use of paper instead of gold substitutes the cheapest in place of the most expensive medium, and enables the country, without loss to any individual, to exchange all the gold which it before used for this purpose, for raw materials, utensils, and food, by the use of which both its wealth and its enjoyments are increased."1

Suppose government to charge nine sovereigns for coining one, that is, that for metal equal in weight to ten, it should return, to the party bringing it to the mint, only one, the insignia affixed to the coin declaring that it should have a value in exchanges equal to ten times the amount of the metal it contained, - could such declaration make the exchangeable value of the coin equal to its nominal value? Ricardo replies, "Yes, for the public must have moneymust have yardsticks and scales-or their operations must cease." But if government should offer to return in coin only one-tenth of the metal received, no one would take bullion or dust to it. The metal would be privately assayed, and would pass by weight. A person possessing bullion might wish to sell it for use in the arts, or for the purchase of foreign commodities; for which it would be received at its full value. If government should persist in returning only one-tenth of the metal in the form of coin, its action might cause no little inconvenience; but great commercial communities existed long before coinage was invented. The inconvenience resulting from the want of coinage, relative to the magnitude of the transactions taking place, would be much less now than before the invention or use of symbolic money; for the reserves necessary for the conversion of such currency may be in the form of bullion, nearly as well as in that of coin. They are now largely held in bullion. Government can create debts which have a value equal to that which is to be eventually paid, less the charge for interest for forbearance of present payment; but it can no more create values by its insignia without an obligation, than the Alchemist could create gold out of curious and fanciful combinations of the baser metals.

Paper money with Ricardo having necessarily no intrinsic value, and his assumption having become a dogma with the modern school, the only question really involved in the discus

1 Principles of Political Economy and Taxation, Chapter xxv.

sion which followed has been that of quantity. As governments were the proper parties to coin metals, they were, by necessary inference, the proper parties to issue paper. Experience, however, proved that they were not to be trusted where the temptation was so great. Their necessities, real or fancied, would always be pushing them beyond the proper limit. Paper money, therefore, was to be issued by private parties or bankers, who were always to be under the check of its conversion into coin. If, for example, a currency of £50,000,000, consisting of £30,000,000 of paper and £20,000,000 of coin, sufficed for the wants of a community in their exchanges, and an addition to it of £10,000,000 of paper, no matter how issued, were made, - the currency would be in excess; and that portion of it consisting of gold, being the only part of it that was exportable, would seek other markets in which the currency was in less relative abundance. If the addition of £10,000,000 in the case assumed were convertible into coin, it would be drawn, in order to supply the export demand. This demand would continue till equilibrium was restored; that is, till the amount of currency was reduced to that required by the community in their transactions, to the original sum of £50,000,000. Provided the parties issuing the excess were able to take in their notes on demand, all aberrations in the volume of the currency would correct themselves. Convertibility of paper at all times into coin, consequently, was the only certain test of the propriety of its issue.

But convertibility of issue may have no relation whatever to propriety of issue. A person may be able to pay a bill he has uttered; but by doing so he may strip himself of every dollar he possesses. The question, therefore, far in advance of convertibility, and which is the only one important to be considered, is the manner in, or cost at which, convertibility is sought to be secured. The notes of the Bank of England have been uninterruptedly convertible for the last fifty-five years; yet the fear that they might not be convertible has, during that whole period, kept the public mind in constant agitation, and has often culminated in panics which carried ruin and dismay throughout the land. The spectre has yet lost none of its terror or power to harm. How to create a currency which shall at all times be convertible without drawing capital from its issuers, and without creating disturbance in

monetary and financial circles, is a problem no nearer solution than it was a hundred years ago. The principles on which all commercial currencies must be based, as set out in the first part of this work, have only to be referred to, to place the whole subject in a light to command universal assent. Where bills are discounted, obligations are mutually created; and, so long as such bills represent merchandise entering into consumption, their payment is certain to return to the Bank its obligations, without the withdrawal of any considerable portion of its means. So long as such rule is followed, so long as a currency is issued only in the discount of bills representing merchandise, there can be no inflation; nor is there any danger that the Bank issuing it will be called upon for any considerable amount of coin. No ordinary alarm can take the notes so issued out of the channels of circulation, so that they will be presented for payment in coin. But so soon as the Bank ceases to discount bills, and puts its means, whatever they may be, into governments into consols, it alone undertakes to take in its own currency; and it may be laid down as an axiom in monetary science, that unless provision be made for the retirement of a currency without any act of the issuer, it is certain to involve both himself and the public in great embarrassment and loss, and the former, perhaps, in absolute ruin. The only proper mode of issuing a currency is that which shall provide for its retirement automatically, by the operation of the laws of trade, by the debtors of the Bank, instead of the Bank itself. That such mode of issue has never yet been made the subject of discussion by the Economists, is a sufficient explanation of the utter want of progress in monetary science.

It has already been sufficiently shown, that in all exchanges, equivalents, or what are assumed to be equivalents, are exchanged; that when one of the subjects of exchange is a promise or undertaking of government, its price is its real or estimated value; and that the insignia of government, unless they carry with them some obligation, are of no value. A government currency, which may at first have a value in coin nearly equal to its nominal value, may become wholly valueless; but its price at any given time is to be accepted as its value. In other words, money will no more be taken but at its value than any other kind of merchandise or property. This may, like that of all other kinds, be overestimated; the

market price of any article, however, at any one time, must always be considered to measure its value. Ricardo, however, with the Economists, held value to be no attribute of money; but that it was an instrument of commerce precisely in the same manner that scales or balances are instruments of commerce, the value of both depending upon their quantity. If only one set of scales were allowed to be used, if the weight of all merchandise entering into commerce were to be ascertained by it, it might to its possessor have an almost fabulous value, as all would have to use it upon his own terms. If Ricardo be correct, then provided there be but one shilling in the world, and that a debased one, its value might be equal to all the money in it at the present time. If he be correct, then the debasement of a currency, provided its nominal amount be not increased, is the wisest possible policy both for princes and people.

"In a national point of view," continues Ricardo, "it is of no importance whether the issuers of this well-regulated paper money be the government or a Bank; it will on the whole be equally productive of riches, whether it be issued by one or by the other: but it is not so with respect to the interest of individuals. In a country where the market rate of interest is 7 per cent, and where the State requires for a particular expense £70,000 per annum, it is a question of importance to the individuals of that country, whether they must be taxed to pay this £70,000 per aunum, or whether they could raise it without taxes. Suppose that a million of money should be required to fit out an expedition. If the State issued a million of paper, and displaced a million of coin, the expedition would be fitted out without any charge to the people; but if a Bank issued a million of paper, and lent it to government at 7 per cent, thereby displacing a million of coin, the country would be charged with a continual tax of £70,000 per annum. The people would pay the tax, the Bank would receive it, and the society would in either case be as wealthy as before: the expedition would have been really fitted out by the improvement of our system; by rendering capital, of the value of a million, productive in the form of commodities, instead of letting it remain unproductive in the form of coin. But the advantage would always be in favor of the issuers of paper; and, as the State represents the people, the people would have saved the tax, if they, and not the Bank, had issued this million. . . .

"It has already been observed, that if there were perfect security that the power of issuing paper money would not be abused, it could be of no importance, with respect to the riches of the country collectively, by whom it was issued; and I have now shown that the public would have a direct interest that the issuers should be the State, and not a company of merchants and bankers.