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pay out 200 millions to do the work which 100 millions did before. At the same time, its resources are diminished; all payments to it, being made in the depreciated currency, are worth but half their nominal amount. When the currency has fallen to one fourth the value of coin, 400 must be issued where 100 formerly sufficed; and the deficit in the receipts being added, the proportion may be even five or six for one.

It must not be inferred, however, that this rapid depreciation of the currency will seem to impede traffic or to paralyze industry. On the contrary—at least until the depreciation has become extreme, say 500 for 1 commerce and labor will be galvanized into unnatural activity, and a deceitful glow of animation and success, like the flush of a fever, will appear to pervade the nation. Prices rise, of course, as rapidly as the currency falls; property which was sold for 100 to-day, will command 500 or 1,000 to-morrow. At the same time, money is superabundant, and those who were once too poor to buy can now easily obtain the means of purchase. The pressure of debt is also lessened; obligations are cancelled by paying back what is actually but one half, one fourth, or a still smaller fraction, of the real value which was due. Ease in getting rid of old debts only creates a thirst for contracting new ones. Commerce is thus stimulated, while the basis on which it rests is every day becoming less secure. A reckless spirit of speculation, akin to gambling in its character and results, appears to have seized the greater part of the community. The circulation of Continental money in America, in 1779, as we are told by a writer of that day, was never more brisk and quick, than when its exchange was 500 for 1." And M. Thiers, speaking of the depreciation of the French assignats in 1795, says, that to the horrors of famine were added the scandals of reckless speculation and stockjobbing, the sale of merchandise which had no existence, as the pretended traffic was only betting upon prices, and the diffusion of a taste for luxury, dissipation, and excess, which is the invariable concomitant of sudden mutations of fortune.

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We are now prepared to explain the great difference between convertible bank currency and inconvertible bills, or paper money properly so called, that the latter is liable to issue in excess, and consequent depreciation, while the former

is not. We have seen that the former is necessarily liable to perpetual reflux upon the institutions which issue it, the amount remaining in active circulation not depending at all upon the wishes of the banks, but upon the convenience of the public. This reflux takes place in three forms, through lodgements in deposit, the repayment of loans and discounts, and actual presentation at the counter for redemption in coin. These are but three forms of payment to the banks, and in the long run, they must equal, and for a time, they may easily exceed, the payments out of the banks. It is for the public, and not for the banks, to decide what portion of this reflux shall consist of bills and what of specie, and, consequently, what portion of each shall remain in circulation. The banks can do nothing to affect this result. Let them pay out their own bills as fast as they may, and in what quantities they may, the inflowing stream will be of corresponding depth and volume. And they peril their own safety even by a slight tendency to excess; for as they can issue their bills, in the majority of cases, only by discounting the notes of individuals that will not mature for some weeks, while their own bills may be brought back the next day, the reflux of any excessive issue might easily exhaust their specie reserve, and oblige them to suspend payment. And the public are sure to decide rightly what portion of the reflux shall consist of bank-bills, and when the reflux itself shall be augmented. If the currency has become redundant because trade for a time has languished, and less money is needed to effect the fewer exchanges which take place, then spare funds will accumulate in the hands of the dealers; and these funds, because there is nothing else to be done with them, will be lodged on deposit in the banks. But if the currency be redundant because there has been a speculative fever, which has raised the prices of commodities, and therefore called for more money wherewith to circulate them, then there will be a demand for specie to send abroad, where commodities can be had on cheaper terms; and there will be a reflux of the bills in order to obtain the specie. Those who fear an excessive issue of convertible bank-bills, might as well apprehend that Lake Erie would overflow its banks and flood all the surrounding country, because it is constantly receiving the surplus waters of the three upper lakes and of innumer

able tributary streams. They forget that the average level of the lake depends, not upon the quantity of water flowing into it, but upon the quantity that flows out of it over Niagara Falls; and that no cause could affect the level except by raising or lowering the bar at the opening of Niagara River, which regulates the rate of the efflux.

But with paper money it is not so. In this case, there is no reflux and no occasion for repayment, so that the quantity in circulation depends exclusively upon the quantity emitted. The currency that is supplied with inconvertible paper is like the Dead Sea, which receives the waters of the Jordan, but has no efflux; augment the flow into it, and the level must rise. The government pays out its bills of credit, or paper money, in discharge of its debts, in the purchase of commodities, and in the payment of wages and salaries; in neither of these cases does it create any necessity for repayment, so as to bring the bills back again. True, the paper money is receivable by the state in payment of taxes and other government dues; but then there will be no necessity of issuing it at all, unless the expenditures largely exceed the receipts; and it is the amount of this excess, or the extent of the annual deficit, very large in a revolutionary period, or in case of a civil war, which determines the amount of the annual addition to the inconvertible paper currency. As this currency is not available for remittances abroad, no diminution of it is possible through the purchase of commodities in foreign lands. Every exit and channel of reflux being thus dammed up, the emission of every additional bill must advance the period when depreciation will begin, or increase the rate of that depreciation. To adopt Mr. Tooke's language, the distinction between bank currency and government paper money is, that the latter is "paid away and is not returnable to the issuer, whereas the bank-notes are only lent, and are returnable to the issuers." Because the paper money cannot be returned, it remains in circulation as an agent to raise prices, so that it "will constitute a fresh source of demand, and must be forced into and permeate all the channels of circulation."

If the banks suspend specie payment, their bills become inconvertible, and are thus far assimilated to paper money. Still, though one channel of reflux is thus dammed up, the bills

being no longer presentable for redemption in coin, they can still be returned to the banks on deposit, and in repayment of the loans and discounts. Bank paper money is thus distinguished from government paper money, this last not being returnable at all. It is expended in the purchase of naval and military stores, in building ships, in constructing public edifices, and in the payment of services performed for the state, no means being usually taken to insure its ultimate return to the exchequer. The bank issues, on the other hand, being made only in the discount of approved promissory notes of short date, naturally return after a short interval, even if they are not redeemable in specie. So long, then, as the banks confine themselves to their proper functions, and do not squander their funds, or let them out on doubtful security, there is no reason why, even after a suspension, their currency should be depreciated, except to a very small extent. Thus, the Bank of England suspended specie payments in 1797, but its notes remained at par, or within two per cent of par, till 1801. Then, indeed, a heavy demand for gold to be exported, on account of the large purchases of corn which were rendered necessary by the failure of the English crops, and of large expenditures by the British government in prosecution of the war, made specie rise to a premium, or, what is the same thing, the bank-notes to be depreciated seven or eight per cent. These disturbing causes being removed, the currency rose again in 1803, and continued at a point only 2 per cent below par till 1809.

It is unnecessary to dwell upon this point, however. A suspension of specie payments by the banks is not likely to be again sanctioned, either by law or public opinion, for any long period. It is enough to have shown, that government expenditure and the issue of government paper money are the chief causes of a depreciation of the currency, and that the banks cannot contribute much to this result except by becoming the agents of government, or by misconduct which proceeds rather from fraud than ignorance or involuntary error.

I return to a view of the consequences of an excessive depreciation of paper money, and of the measures which then become necessary for restoring the currency to a specie standard. As soon as the bills have fallen considerably in value, two prices are established for commodities, one in specie and

the other in paper currency, the difference between the two marking the rate of depreciation. When this difference has become inordinate, the progress of the depreciation is most rapid, the value of the currency fluctuating so suddenly and largely, that most persons are unwilling to receive it on any terms. The rate to-day may be 500, and to-morrow 600, for 1; under these circumstances, also, the rate will be found to vary in different localities, and be variously estimated by dif ferent tradesmen. So much confusion and uncertainty are thus created, that, by a spontaneous movement of the whole community, the paper currency is discarded altogether, the price in specie is the only one that will be received in payment for commodities; and if the paper has not already ceased, through the action of the legislature, to be legal tender, acknowledgments of debts are made with an express stipulation that the payment shall be in specie, or some other commodity of fixed value. Such a restoration of the standard seldom requires any action of the government; it is the voluntary and united act of the whole people, having been dictated by the necessities of the case.

The immediate consequences of this reversion to a specie currency are in striking contrast with the results, already noticed, of the first issue of paper money and its gradual depreciation. The latter seemed to animate industry and commerce to relieve the pressure of debt, and to supply abundant funds for enterprises which must otherwise have been abandoned; but the former seems to carry the community back, by a cruel revulsion, to worse evils than those from which it had apparently been rescued. It is the state of collapse that sometimes follows the excitement and delirium of a fever. It is now seen that the issue of paper money is really a desperate measure, that the relief which it promises is but temporary, and that the prosperity which it causes is wholly fallacious. As money rises from a low valuation to a higher one, wages are depressed, prices fall, trade stagnates, and bankruptcies become numerous; and these evils are the more serious, as the depreciation was great, and the revulsion sudden. Formerly, it was the creditors who were injured, being obliged to receive payment in a currency less valuable than the one in which the debt was contracted; now the debtors, who are more numer

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