twenty millions were absorbed ;* after which absorption, the currencies of all countries would be, in quantity and in value, nearly at their original level. I say nearly, for in strict accuracy there would be a slight difference. Ă somewhat smaller annual supply of the precious metals would now be required, there being in the world twenty millions less of metallic money undergoing waste. The equilibrium of payments, consequently, between the mining countries and the rest of the world, would thenceforth require that the mining countries should either export rather more of something else, or import rather less of foreign com. modities; which implies a somewhat lower range of prices than previously in the mining countries, and a somewhat higher in all others; a scantier currency in the former, and rather fuller currencies in the latter. This effect, which would be too trifling to require notice except for the illustration of a principle, is the only permanent change which would be produced on international trade, or on the value or quantity of the currency of any country.

securities, and would therefore create a sudden fall in the rate of interest, which would probably send a great part of the twenty millions of gold out of the country as capital, to seek a higher rate of interest elsewhere, before there had been time for any action on prices. But we will suppose that the notes are not issued by bankers, or money-lenders of any kind, but by manufacturers, in the payment of wages and purchase of materials, or by the government in its ordinary expenses, so that the whole amount would be rapidly carried into the markets for commodities. The following would be the natural order of consequences. All prices would rise greatly. Exportation would almost cease; importation would be prodigiously stimulated. A great balance of payments would become due; the exchanges would turn against England, to the full extent of the cost of exporting money; and the surplus coin would pour itself rapidly forth, over the various countries of the world, in the order of their proximity, geographically and commercially, to England. The efflux would continue until the currencies of all countries had come to a level; by which I do not mean, until money became of the same value everywhere, but until the differences were only those which existed before, and which corresponded to permanent differences in the cost of obtaining it. When the rise of prices had extended itself in an equal degree to all countries, exports and imports would everywhere revert to what they were at first, would balance one another, and the exchanges would return to par. If such a sum of money as twenty millions, when spread over the whole surface of the commercial world, were sufficient to raise the general level in a perceptible degree, the effect would be of no long duration. No alteration having occurred in the general conditions under which the metals were procured, either in the world at large manent branch of industry, carried on under or in any part of it, the reduced value would no longer be remunerating, and the supply from the mines would cease partially or wholly, until the

Effects of another kind, however, will have been produced. Twenty millions which formerly existed in the unproductive form of metallic money, have been converted into what is, or is capable of becoming, productive capital. This gain is at first made by England at the expense of other countries, who have taken her superfluity of this costly and unproductive article off her hands, giving for it an equivalent value in other commodities, By degrees the loss is made up to those countries by diminished influx from the mines, and finally the world has gained a virtual addition of twenty millions to its productive resources. Adam Smith's illustration, though so well known, deserves for its extreme

I am here supposing a state of thing in which gold and silver mining are a per

known conditions; and not the present state of uncertainty, in which gold-gathering is a game of chance, prosecuted (for the present) in the spirit of an adventure, not in that of a regular industrial pursuit.

aptness to be once more repeated. | simple extension of his ordinary occuHe compares the substitution of paper pation. He lends the amount to in the room of the precious metals, to farmers, manufacturers, or dealers, who the construction of a highway through employ it in their several businesses. the air, by which the ground now So employed, it yields, like any other occupied by roads would become avail- capital, wages of labour and profits of able for agriculture. As in that case stock. The profit is shared between a portion of the soil, so in this a part the banker, who receives interest, and of the accumulated wealth of the a succession of borrowers, mostly for country, would be relieved from a short periods, who after paying the function in which it was only em- interest, gain a profit in addition, or a ployed in rendering other soils and convenience equivalent to profit. The capitals productive, and would itself capital itself in the long run becomes become applicable to production; the entirely wages, and when replaced by office it previously fulfilled being equally the sale of the produce, becomes wages well discharged by a medium which again; thus affording a perpetual fund, costs nothing. of the value of twenty millions, for the maintenance of productive labour, and increasing the annual produce of the country by all that can be produced through the means of a capital of that value. To this gain must be added a further saving to the country, of the annual supply of the precious metals necessary for repairing the wear and tear, and other waste, of a metallic currency.

The value saved to the community by thus dispensing with metallic money, is a clear gain to those who provide the substitute. They have the use of twenty millions of circulating medium which have cost them only the expense of an engraver's plate. If they employ this accession to their fortunes as productive capital, the produce of the country is increased and the community benefited, as much as by any other capital of equal amount. Whether it is so employed or not, depends, in some degree, upon the mode of issuing it. If issued by the government, and employed in paying off debt, it would probably become productive capital. The government, however, may prefer employing this extraordinary resource in its ordinary expenses; may squander it uselessly, or make it a mere temporary substitute for taxation to an equivalent amount; in which last case the amount is saved by the taxpayers at large, who either add it to their capital or spend it as income. When paper currency is supplied, as in our own country, by bankers and banking companies, the amount is almost wholly turned into productive capital: for the issuers, being at all times liable to be called upon to refund the value, are under the strongest inducements not to squander it, and the only cases in which it is not forthcoming are cases of fraud or mismanagement. A banker's profession being that of a money-lender, his issue of notes is a

The substitution, therefore, of paper for the precious metals, should always be carried as far as is consistent with safety; no greater amount of metallic currency being retained, than is necessary to maintain, both in fact and in public belief, the convertibility of the paper. A country with the extensive commercial relations of England, is liable to be suddenly called upon for large foreign payments, sometimes in loans, or other investments of capital abroad, sometimes as the price of some unusual importation of goods, the most frequent case being that of large im portations of food consequent on a bad harvest. To meet such demands it is necessary that there should be, either in circulation or in the coffers of the banks, coin or bullion to a very considerable amount, and that this, when drawn out by any emergency, should be allowed to return after the emergency is past. But since gold wanted for exportation is almost invariably drawn from the reserves of the banks, and is never likely to be taken directly from the circulation while the banks remain solvent, the only advantage

which can be obtained from retaining partially a metallic currency for daily purposes is, that the banks may occasionally replenish their reserves from it.

and affording a profit to the merchant. On account of the depreciation, this commodity will now cost in England 61., and cannot be sold in France for more than 57. 10s., and yet it will be exported as before. Why? Because the 5l. 10s. which the exporter can get for it in France, is not depreciated paper, but gold or silver: and since in England bullion has risen, in the same proportion with other things—if the merchant brings the gold or silver to England, he can sell his 5l. 10s. for 67. 12s, and obtain as before 10 per cent for profit and expenses.

§ 3. When metallic money had been entirely superseded and expelled from circulation, by the substitution of an equal amount of bank notes, any attempt to keep a still further quantity of paper in circulation must, if the notes are convertible, be a complete failure. The new issue would again set in motion the same train of consequences by which the gold coin had It thus appears, that a depreciation already been expelled. The metals of the currency does not affect the would, as before, be required for ex- foreign trade of the country: this is portation, and would be for that pur- carried on precisely as if the currency pose demanded from the banks, to the maintained its value. But though the full extent of the superfluous notes; trade is not affected, the exchanges which thus could not possibly be re- are. When the imports and exports tained in circulation. If, indeed, the are in equilibrium, the exchange, in a notes were inconvertible, there would metallic currency, would be at par; a be no such obstacle to the increase bill on France for the equivalent of of their quantity. An inconvertible five sovereigns, would be worth five paper acts in the same way as a con- sovereigns. But five sovereigns, or the vertible, while there remains any coin quantity of gold contained in them, for it to supersede: the difference having come to be worth in England begins to manifest itself when all the 6., it follows that a bill on France for coin is driven from circulation (except 5l., will be worth 6l. When, therefore, what may be retained for the con- the real exchange is at par, there will venience of small change), and the be a nominal exchange against the issues still go on increasing. When country, of as much per cent as the the paper begins to exceed in quantity amount of the depreciation. If the the metallic currency which it super-currency is depreciated 10, 15, or 20 seded, prices of course rise; things which were worth 5. in metallic money, become worth 67. in incouvertible paper, or more as the case may be. But this rise of price will not, as in the cases before examined, stimulate import, and discourage export. The imports and exports are determined by the metallic prices of things, not by the paper prices and it is only when the paper is exchangeable at pleasure for the metals, that paper prices and metallic prices must correspond.

Let us suppose that England is the country which has the depreciated paper. Suppose that some English production could be bought, while the currency was still metallic, for 5l., and sold in France for 5l. 10s., the difference covering the expense and risk,

per cent, then in whatever way the real exchange, arising from the variations of international debts and credits, may vary, the quoted exchange will always differ 10, 15, or 20 per cent from it. However high this nominal premium may be, it has no tendency to send gold out of the country, for the purpose of drawing a bill against it and profiting by the premium; because the gold so sent must be procured, not from the banks and at par, as in the case of a convertible cur rency, but in the market, at an advance of price equal to the premium. In such cases, instead of saying that the exchange is unfavourable, it would be a more correct representation to say that the par has altered, since there is now required a larger quantity of