that use, this also should belong to them. Otherwise, a serious hazard is imposed upon them for the benefit of others, who can show no good title to the gains which they usurp. "It is quite idle," says Mr. T. Tooke, a zealous advocate of the banks, "it is quite idle to say that the lower classes have the option of refusing to take the country notes; practically, in the great majority of instances, they have not and cannot have any such option. But if there is any object more important than another, for which the government of every state has been invested with the privilege of coining money, it is that of protecting the lower classes of society, who are little competent in this particular to protect themselves, from the risk of loss in receiving their stipulated wages or other payments."

Take off the tax of one per cent on bank capital, then, and impose a tax of five or ten per cent on the circulation of all bills below the denomination of $10. The amount of small notes would thus be very much diminished, and as the state, through the tax, would reap nearly the whole profit from those remaining in circulation, it could well afford to guarantee their immediate convertibility into specie. Such a measure would be even preferable to the one adopted in England, after the failure of so many private banks of issue in 1825. The circulation of one-pound notes at that time was computed at upwards of five millions sterling. So many of them became valueless, or were greatly depreciated, by the failure of the issuing banks, that Parliament the following year entirely suppressed this class of notes. However it may be regretted, adds Mr. Tooke, "that the holders of private country bank-notes, being now of the denomination of £5 and upwards, should occasionally be exposed to loss by failure of the issuers, it will hardly be contended that their case is so important and so clearly distinct from the case of depositors, and other sufferers by the failure of banks, as to justify, with the view of protecting them, an alteration of the whole system of issue."

CHAPTER XXI.

PAPER MONEY, AND ITS USE AS A REVOLUTIONARY CURRENCY.

We have still to speak briefly of the circulation of paper money, properly so called, or of bills which do not profess to be immediately convertible into specie. These are sometimes issued by the state, in cases of great emergency, and are then usually called bills of credit. In this form, they are forbidden by the Constitution of the United States, which declares that "no State shall coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts." Bank-notes, also, after the banks have suspended specie payments, so that their notes are no longer convertible into coin on demand, become bills of credit, or paper money. Thus the currency of Great Britain consisted of paper money from 1797, when the Bank of England suspended payment, till 1819, when it resumed. The distinguishing characteristics of such money are, that it is inconvertible, and its circulation is compulsory. Thus, to take the more common form of this currency, which is issued by the authority of the state, when the government has no longer the means of meeting its pecuniary engagements, it begins to make purchases and to pay its debts by issuing, not coin, nor bills immediately convertible into .coin, but its own promises to pay at some future time. These "promises to pay" are made legal tender, that is, creditors are compelled to receive them in satisfaction of their demands. Their circulation is compulsory, then; but the very fact that they are receivable in payment of debts gives them a conventional value. To any person who has money to receive, it matters nothing whether the money possesses intrinsic value or not, or whether the "promise to pay" which it bears upon its face is ever redeemed or not, provided he is sure that he can make payments with it, and cancel his own obligations. Even if the money is undergoing a rapid depreciation, as he does not expect to retain it any time in his possession, but intends to pay it away again the next day, or even the next hour,

he knows that it cannot lose much value in his hands, but that it will be worth nearly as much when he parts with it as when he received it. Paper dollars are as good as silver ones, so long as they will cancel debts and effect purchases equally well.

Paper money of this kind was issued by nearly all the American Colonies before the period of their separation from England; and from the various degrees of its depreciation in different parts of the country arose the different value of the shilling, which is still with us a popular denomination of account, though not an actual coin, and not recognized in the legal currency. The shilling was the denomination used in the Colonial paper money; and when the shilling had its par value, 4s. 6d. were equal to a silver dollar. But paper shillings became depreciated, so that, in New England, six shillings came to pass for a dollar; in New York, eight, and in Pennsylvania, seven shillings had this value. The names of these "shillings" and "pence" have remained for nearly a century after the disappearance of the reality, and still create much confusion in the popular mode of reckoning money.

But the most remarkable experiment of paper money here in America was the Continental currency, as it was called, issued by authority of Congress during the American Revolution. The epithet "Continental," like National or Federal now-a-days, marked the distinction between what was done by the government of the whole Union, and the acts of the separate Colonies or States. In June and July, 1775, to meet the expenses of the war which was seen to be inevitable, and in fact had already commenced at Lexington, Congress, having no other funds, issued three millions of dollars in these bills of credit, with a promise that they should be redeemed in four annual instalments, to commence at the end of four years. The burden of redeeming them was distributed among the several Colonies, in the ratio of their supposed number of inhabitants. The bills were issued in the purchase of provisions and munitions of war, and in the payment of the troops. In November of the same year, the issue of three additional millions became necessary; the annual instalments for redeeming this sum were to begin in eight years. Specie, which had been scarce before, had now almost entirely disappeared from the country, and the "Continental money" was considerably de

preciated. So rapidly did this depreciation and the exigencies of the war increase, that in the course of the following year, 1776, fourteen millions more had to be issued. After the issue of the first six millions, no time was fixed for the redemption of the bills. Of course, the depreciation, aggravated by large local issues of the several Colonies, soon became alarming, and futile attempts were made by Congress and the Colonial legislatures to check it. The New England Colonies tried to regulate by law the prices to be paid in this currency for labor and commodities; and Congress resolved, that the bills ought to pass for the same value as Spanish dollars in all dealings and payments, and that all persons who should refuse to take them at this valuation, ought to be considered as "enemies to the United States," and to be punished with forfeitures and other penalties. But the necessary laws of exchange and trade were not to be counteracted by legislative enactments or the patriotism of the people. Additional issues continued to be made, and the paper continued to depreciate, until, in 1780, the amount in circulation was about 200 millions, and 500, even 1,000, dollars in this currency were offered for one in silver.* Then finally the bills ceased to circulate, and became entirely worthless, as dealers would not accept them on any

*

terms.

No attempt was subsequently made to cancel the original obligation by redeeming the bills, either in full or in part; for as the depreciation had been gradual, while the bills were rapidly circulating in the community, it had obviously become impossible to measure the exact loss which each holder of them had suffered. To pay the last holder in full would only have aggravated the injustice, by giving him much more than was his due, and leaving his predecessors without any compensa

* John Adams, in a letter to the Count de Vergennes (June 22, 1780), gives some curious particulars respecting the enormous prices which were paid for commodities in America in 1779 and 1780, in consequence of this depreciation of the currency. "Bohea tea," he says, "forty sous a pound at L'Orient and Nantes, sold for forty-five dollars. Salt, which costs very little in Europe, and used to be sold for a shilling a bushel, was forty dollars a bushel, and, in some of the other States, two hundred dollars at times. Linens, which cost two livres a yard in France, forty dollars a yard. Broadcloths, a louis d'or a yard here, two hundred dollars a yard. Ironmongery of all sorts, 120 for one. Millinery of all sorts, at an advance far exceeding. These were the prices at Boston. At Philadelphia and in all the other States, they were much higher."-John Adams's Works, Vol. VII. p. 199.

tion whatever. It was justly remarked, that the depreciation of the paper money ought to be considered as a tax, inasmuch as the paper was first issued only to relieve the people from the necessity of paying a tax. Each person through whose hands the money passed parted with it again at a loss, proportioned to the quantity he held and the time he held it. As the currency circulated among the whole people, the rich and poor holding it, and suffering by its depreciation, in proportion to the respective amounts of their cash purchases and sales, the whole loss was divided among them very nearly in just proportion to their ability and liability to pay a tax. The payment of the whole value borne on the face of the bill to one who had received it, perhaps, at the rate of a hundred for one, could have been made only by a second tax on the same persons who had already been fairly and heavily taxed by its depreciation.

The history of the paper money issued in France, in the course of the Revolution which commenced in 1789, is perfectly similar to that of the corresponding experiment in America. The French bills of credit, however, as their name (assignats) indicates, were nominally issued upon a basis of real property. The national domains, as they were termed, or the confiscated estates of the crown, the clergy, and the emigrants, were made over, or sold in mass, to the municipalities or towns in which they were respectively situated. These municipalities, not having funds to pay immediately, received the property on long credit, binding themselves to pay in instalments, as fast as they were able to make sales of the estates without sacrifice. The creditors of the state then obtained their dues by receiving orders or assignments (assignats) on the municipalities for a portion of the debt thus due to the state. The holders of these orders might, if they saw fit, immediately obtain the value of them, by becoming the purchasers of the estates which the municipalities had to sell, and paying for them in assignats. If they preferred to wait, they still had the value of the national domains, and the obligations of the municipalities, as securities for the ultimate payment of the debt. Meanwhile, the assignats themselves were transferable property, which might be exchanged for commodities, or assigned in payment of debts; and to aid the negotiation of