may be needed next month, as a consequence either of our increased wealth within that time, or of a check to our prosperity and a diminished activity of circulation, growing out of a general want of confidence, and a disposition on the part both of banks and of individuals to hold larger sums in reserve. The practice of hoarding, though most common in the Asiatic states, where it is a precaution taken by individuals against arbitrary exactions by a despotic government, is not unknown in the most civilized communities of Europe and America. times even of general prosperity and quiet, many persons of the lower and more ignorant classes keep by them a little fund in specie, stored away, perhaps, in an old stocking, as a precaution against a rainy day; and though the establishment of Savings' Banks has greatly diminished the number and amount of these little hoards, there are still enough of them, in the aggregate, to keep a considerable portion of the metallic currency, as it were, in a state of abeyance. If the currency be a mixed one of paper and specie, and if some event should happen to disturb public confidence, such as the bursting of a commercial bubble, or the discovered mismanagement of two or three banks, then commences what is called a run upon the banks" generally, the effect of which is greatly to increase the number and amount of these hoards. To provide against the possible recurrence of such panics, the banks are obliged to keep much larger amounts of specie in reserve than would suffice for their ordinary transactions. The quantity of specie required as a basis and security for the circulation of the banks is like the thickness of timber and planking in the sides of a ship; it must suffice not merely for ordinary fair weather, but for possible storms and squalls, and now and then a sand-bank. The gold and silver coin thus stored up by banks and individuals is not a part of the circulation proper; the whole currency of the country may be divided into two portions, only one of which is active, or is daily employed in effecting exchanges; the other for a time is latent. This last portion is somewhat arbitrary in amount, depending upon the character of the people and their mood for the time being; it is only the active portion of the currency which has the self-adjusting power that I have spoken of.

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In respect to the varying amounts of specie thus held in re

serve by the banks, and so not entering into active circulation, Mr. Tooke justly observes, that "transmissions of the precious metals might and would take place occasionally between [Great Britain] and other countries to a considerable amount, (five or six millions at least,) without affecting the amount or value of the currency of the country from which or to which the transmissions were made; and without being a cause or a consequence of alteration in general prices." The stock of specie and bullion in the Bank of England, which, before 1848, used to average only about eight or nine millions sterling, in the summer of 1852 rose to twenty-two millions, or more than double the amount which the law regards as a safe basis for its circulation. But the amount of bank-notes in active circulation was not thereby increased; it was not materially greater than it had been six years before. At least twelve millions of this large bank reserve might have been sent to foreign countries, to import corn or any other needed article, without withdrawing a sovereign from the active currency, or affecting in the slightest degree the prices of other commodities. In fact, since 1852, about six millions have actually been withdrawn from the reserve, which now does not exceed. sixteen millions; and yet prices generally, far from receding, have considerably advanced.

Every export of the precious metals, therefore, is not to be regarded as a contraction of the currency properly so called, nor is every import of them an enlargement of it. At the present time, in consequence of the large supplies from California and Australia, large amounts of bullion are in transitu,-wandering about, as it were, from one country to another, to find where they will be of most value,- before they pass into active circulation as currency. The stock of bullion in the hands of goldsmiths and silversmiths, ready for conversion into plate or jewelry, and, still more, the stock of it which already exists. in the form of plate, the setting of jewels, lace, gilding, &c., might surely be exported in part, or altogether, without affecting the money market, or lowering the prices of commodities generally. But at least eight millions sterling out of the specie reserve in the Bank of England is as dead for all purposes of circulation, or for any effect upon prices, as if it existed only in the form of plate; for the reserve has not fallen below eight

millions for the last thirteen years, and we have only the word of the bank officers for our assurance that this sum still exists in the vaults, where it has remained undisturbed at least since 1842. It is only when the demand for the precious metals to be exported has so far reduced the stock of specie in the banks as to alarm the latter for their own safety, and thus to cause them to diminish their discounts and their circulation, that the self-regulating power of the active currency shows itself.

The power of the currency thus to determine its own amount, arises from the reciprocal action of the quantity of money in active circulation and the prices of commodities. All exchange, as I have said, is a barter of merchandise for money; and the quantity of money which an article of merchandise will command in the market is termed its price. If I barter directly one article of merchandise for another, without the intervention of money, the quantity of that other article which I can obtain will depend upon the whole quantity of it in the market, when compared with the demand for it. Should there be more of it than there is needed or asked for, I can obtain a larger quantity of it in barter for the goods which I have to offer; should there be less than is wanted, I can obtain but little. Now money is that which is offered in exchange for all commodities; and the price of all articles depends upon the quantity of money, or active currency, which exists in the country. Increase that quantity, and the price of all articles inevitably rises; diminish it, and the price as certainly falls. The whole process of exchange may be compared to the operation of weighing with a well-poised balance, the money and the merchandise being placed on the opposite arms of the lever; increase the weight on the money side, and the merchandise is sure to rise. The whole operation was exemplified on the largest scale in the sixteenth century, after the discovery of the rich gold and silver mines on this continent. The quantity of coined money was increased by this discovery fourfold; and the prices of all articles rose all over the world to four times their former amount. This was called a nominal rise of prices, and it was nominal; for as there was no circumstance which could affect the real value of all the articles of merchandise at once, it was, in truth, not the merchandise which rose in value, but the money which fell. The fact, then,

is a proof of my first position, that the real value or true amount of all the currency in the world cannot be increased or diminished at pleasure, but regulates itself; increase the quantity of it, and its true value falls in the same proportion.

We can now easily see why this fixed amount of currency for the whole world distributes itself, by its own laws, among all nations, according to their respective wants. If by any means one nation should obtain a larger portion of the whole currency of the world than falls to it by the regular course of trade, all articles of merchandise belonging to that nation must rise in price; they must be exchanged for a larger quantity of money. Articles of foreign growth and manufacture would be irresistibly attracted thither by this alteration of values. A single article might possibly be excluded by prohibitory legislation. But no arbitrary enactments can so clip the wings of commerce as to prevent it from seeking a market in a country where the prices of all commodities have risen above their average value all the world over. Foreign goods must necessarily be imported in such a case, whether by open trading or by smuggling; and being imported, they must be paid for. Money is the only redundant article in such a community, the only one which can be offered in payment; for all other goods àre, by the hypothesis, of a higher price with them than in any other country, and cannot be sent abroad but by a sacrifice. Money, then, would be exported, in spite of all coast guards, and even of the penalty of death; and the currency would thus be reduced to its natural level.

The irresistible tendency of money to go abroad from places where it exists in excess, was well illustrated in 1852, both in San Francisco, California, and in Melbourne, Australia. In consequence of the immense influx of gold from the "diggings" in the neighborhood of these places, the prices of all commodities there rose to an extent which seems almost incredible. Flour was $30 a barrel; the wages of ordinary labor were $8 a day; $60 a ton was paid for coal.* Of course,

* Mr. Howitt gives the following list of prices of poultry and dairy produce in Melbourne, as late as May, 1854, after the excitement had somewhat subsided. “Turkeys, 20s. to 25s. each; geese, 20s. to 30s. each; domestic ducks, 20s. a pair; fowls, 16s. to 18s. a couple; and eggs, 3s. to 4s. a dozen. Fresh butter is bringing from 4s. to 5s. a pound; and sweet milk from 1s. 6d. to 2s. a quart.”

these prices caused a prodigious importation of foreign goods. "While in 1850, the year before the gold discovery," says Mr. Howitt, "the imports of the whole colony amounted to only £ 744,925, for the year ending April 5, 1854, the declared value of imports at the port of Melbourne alone had reached the enormous sum of £17,675,472." The markets were quickly glutted by this rush of goods from abroad, a reaction took place, and prices fell almost as suddenly as they had risen. Whole cargoes were sold at auction, and did not bring enough to pay the expenses of freight and insurance. Meanwhile, however, the gold had been shipped off to pay for the imported commodities which had been sold at extravagant rates; and the further supplies obtained from the auriferous districts ceased to appear in the market as money, where they would have a disturbing effect on prices, but were reckoned as bullion, or an ordinary commodity for export, and sent to the ports where it could be sold on the most favorable terms.

Californian and Australian experience is rich in instruction on some other points in the theory of money, which are but imperfectly understood by most persons. Thus, when the rates of interest are very high, it is generally said that there is a scarcity of money; and conversely, when these rates are low, money is thought to be abundant or cheap. But the truth is, paradoxical as it may seem, that the abundance or scarcity of money, or currency, has nothing to do with the rates of interest, which rise or fall in proportion only to the quantity of floating capital which happens to be in the market seeking investment; and what is usually termed the "money market" is more properly called the loan market. So, at the period just referred to, both in Melbourne and San Francisco, money was marvellously plentiful and cheap, as was indicated by the extravagantly high prices of all commodities. At the same time, the rates of interest at those places were exorbitant, varying from 36 to 48 per cent a year; these rates prevailed because profits were very high, and there was a great deficiency of capital, notwithstanding the extraordinary abundance of money.

So, also, the severe reverses which attend a period of wild speculation, terminating in a "commercial crisis," are usually imputed to the bad management of the banks, which are said to deluge the community with their "paper money," as it is