taken in exchange for something else, in the belief or confidence that we have the right to exchange it away again.

Credit is, therefore, the Right or Property of demanding something else when we require it. It is the right to a future payment: and we must observe that Credit is not the transfer of something else, but it is the Name of a certain species of Property or Right.

Thus Ortolan says:-" With respect to the first point of view, the personal Right is called by us Créance; by the Romans, Nomen, and less usually Creditum."

A metallic currency possesses a great advantage over the one we described at first which derived its current value from the belief and confidence of the persons who received it, that the debtor could perform his promise. That confidence would naturally exist only among his own neighbours, and at most among a comparatively small number of persons who had full opportunity of knowing the circumstances of the individual, and if the persons who took it had dealings with strangers or foreigners, who had no knowledge of the debtor, they would not receive such an obligation. The service denoted by such an obligation could only be demanded from the individual who gave it, and people in general would not be willing to give their services, when they could demand services in return from only one person. That person, too, might die, or become insolvent, which, of course, would destroy the value of his obligations. A metallic currency is free from these objections. Its utility was so evident to all persons who had commercial dealings, that they universally agreed to receive it in return for services. So that when a person receives an obligation expressed in metallic currency, he is able to command the services, not only of the original debtor, but also those of the whole industrial community.

There is clearly, then, no difference in principle between a metallic and a paper currency. A metallic currency is subject to its own peculiar disadvantages, because, by its constant wear and tear as it passes from hand to hand, it suffers considerably by abrasion, not to mention any bad practices that may be resorted to to lessen its weight, and as we have seen that the quantity or weight of the metal represents the amount of service

Généralisation du droit romain, Part II., tit. 1.

the owner can command, as the metal decreases in weight, so does the amount of service it represents gradually and correspondingly diminish. Paper is not subject to this loss of material, so that if it were possible to have a paper currency based upon the same credit, and which should be as generally received as a metallic one, it would be a preferable form.

The paper currency we have described would in its simplest form have the particular service or product, it was intended to command stated on the face of it, as we have seen was done in the American War. This, however, would manifestly limit its utility, so by universal consent it is almost invariably the custom to make the paper currency of a country represent a certain portion of the metallic currency, which is the generally received power of commanding all services and products. Paper currency, therefore, in modern practice, instead of promising that the debtor will render any amount of particular service, almost always expresses that he will give a certain amount of metallic currency, either on demand or at some fixed time.

The preceding considerations suggest to us a principle which will be found to be of fundamental importance in Economics, and it will be seen that it is essentially requisite to bear it in mind, in all questions relating to money. It is this-WHERE THERE IS NO DEBT, THERE CAN BE NO CURRENCY. The debt represented the precise inequality of the exchange, and when there is no exchange, the debt must equal in value the service rendered. Hence, it is perfectly clear, that the use of currency is to supply the defect of the exchange, or rather, in most cases, to do away with the necessity for an exchange or barter.

It is hardly necessary to say that this is not the conception of the nature of money most usual among writers on Economics. The idea most prominently dwelt upon by most writers both on the Continent and in England is that money is the "instrument of exchange," or is the "medium of exchange." The principal writers on Economics consider money as an intermediate merchandize used for the purpose of effecting indirect exchanges. This was the conception established by the Physiocrates, and generally adopted by Economists since them. J. B. Say calls a transaction effected by money a demi-exchange. So M. Joseph Garnier says that direct barter ceases as soon as nations emerge 1 Eléments de l'économie politique, 3rd edit., p. 14.

from the infancy of civilization. In civilized countries such cases are rare, and often impossible. Thus a bookseller who has nothing but books, can but rarely pay his baker, or his shoemaker with books. A certain peculiar species of merchandize has, therefore, been devised called money, which the buyers of books give to the bookseller, and which he can give again to these who sell to him. Thus, he says, barter is complicated by an intermediate exchange. This money, men have agreed to make of silver, and of gold; and in civilized countries, the shoemaker exchanges his shoes for their equivalent in money, for the purpose of again exchanging this money for a hat, it may be. The operations of the hatter are similar, and they may be represented thus:

The shoemaker

first exchanges his shoes for money, then exchanges the money for a hat, which is equivalent to exchanging the shoes for a hat.

The hatter

first exchanges a hat for money, then the money for shoes, which reduces the operation to an exchange

of a hat for shoes.

Such is the view of the matter hitherto generally adopted, and it may perhaps seem somewhat captious to reject a conception sanctioned by so great a concurrence of authority. Moreover, allowing that either conception is correct, it may seem to many indifferent which ought to be adopted. We think, however, that a careful consideration of the two proposed conceptions will shew that the one we have adopted is manifestly the more rigidly accurate of the two. But the true reason why we give the preference to it over a conception so long established, is one which has prevailed in many other sciences, and has conclusively shewn which is the true fundamental conception of the science. It is this-that although the simple phenomena of monetary science may be explained equally well by adopting either conception, yet, when we come to the higher and more complicated phenomena, they are wholly inexplicable if we adopt the conception of money as being an intermediate merchandize, as the fundamental and primary one. If there never had been any but a metallic currency, the old conception would

have sufficient, and it is capable of explaining all phenomena in which metallic currency only is concerned. But in modern times an engine of much more complicated nature has been devised, namely, Credit or Paper Currency. Now our reason for rejecting the common conception of money as the primary and fundamental one, is that it is wholly incapable of solving the more intricate and important problems in paper currency, But by adopting the conception of money we have proposed as the primary and fundamental one, the whole theory of Credit and Paper Currency can be constructed, and all their phenomena be explained. A very good proof of the correctness of these remarks is, that no writer who has adopted the older conception has ever attempted to solve the more intricate problems in the theory of paper currency, or even seems to be aware of their existence. The most stupendous calamities have been brought about by founding a paper currency in contradiction to our fundamental conception, as will be shewn in a future chapter.

The force of this reasoning will be apparent to any one who considers several analogous cases in other sciences. Thus the definition of an angle given by Euclid serves well enough for the purposes of geometry, but is quite inadequate for those of trigonometry. Consequently the conception of an angle in trigonometry is quite different from the one hitherto adopted in geometry. The fundamental conception of the central position of the earth was capable of explaining many of the simpler phenomena of astronomy, but being inadequate to explain the more complicated ones, it was rejected in favor of heliocentric So the corpuscular theory of light was superseded by the undulatory theory for the very same reason. Exactly the same course of reasoning leads us to prefer the fundamental conception of money as being the Representative of Debt to that of its being the Medium of Exchange.

one.

And we have shewn that many writers have observed this already, but they have not appreciated the full value of the conception. They have not sufficiently seen that Money and Credit are homogeneous quantities, and that Money is only the highest and most general form of Credit. A Right to demand something from an individual has only particular value, and as the individual may not be able to render that something, its value is precarious, but as money is exchangeable among all

persons, at all times, and in all places of the same country, its value is permanent and general.

Of CURRENCY or CIRCULATING MEDIUM.

21. Having thus examined the function of Money and Credit, and shewn that the latter is a species of exchangeable property, of the same nature as, but inferior in degree to, money, we have now to consider the words "Currency," and "Circulating Medium," which have given rise to protracted controversies in comparatively recent times, and we take them together, because all writers use them as absolutely equivalent.

To call money by the name of currency is one of the most extraordinary abuses of language that has ever occurred. In old times men used to speak of money being current, as it passed from hand to hand. Hence arose the expression the currency of money. So late as the case of Miller v. Race in 1750, Lord Mansfield says of money that it cannot be recovered after it has passed in currency, but before money has passed "in currency" an action might be brought for it. He says the same of a bank note: an action could not be brought for it after it was paid away in currency. Hence the word currency was manifestly applied to a certain peculiarity of money,namely, its passing from hand to hand. But about the beginning of the last century by a most extraordinary confusion of ideas, and, as far as we have been able to discover, it arose in our American colonies, the money itself was called currency. This name occurs but rarely in Smith, but since his time has become very common.

To shew the extreme absurdity of this name, we have only to consider a few similar cases. Nothing is more common than to say that such an opinion, or such a report is current, and we speak of the currency of such an opinion, or such a report. But who ever dreamt of calling the opinion, or the report, itself, currency? It is very common to speak of the currency of the Session of Parliament-but who ever dreamt of calling the Session itself currency?

Now, how can it be more rational in a scientific sense to call money currency, than to call a report, or an opinion, or the Session of Parliament, currency?