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CHAPTER XIII.

PAPER CURRENCY.

WE have now reached the great auxiliary of metallic currency or coin, the bank-note.

In no civilised country can all the exchanges of property, all purchases in shops or warehouses, be carried on by the agency of coin alone. Other tools of exchange are needed. Property is bought and sold by instruments made of paper, by bills, cheques, and most of all by book credit, that is, items of debt entered in the books of traders. These are not actual payments, real exchanges of one commodity for another. They do not give value for value. They are mere promises to pay, pledges for payment, or rather evidence of debt, which the law will enforce against those who will not make the promise good. It is found that men are willing to give away their goods in return for such promises on paper. Experience establishes the fact, it is founded on experience alone. Some of these tools of exchange possess a certain amount of currency; they circulate to some small extent. Bills, by the help of endorsements, run from hand to hand; that is, like sovereigns, they are used for making a certain number of purchases or paying a certain number of debts in succession, before they are presented for final payment and extinction.

It is obvious that these instruments, in the aggregate,

supersede to an enormous extent the otherwise inevitable use of coin; and on the other, they confer an immense service on a nation. They create the transcendant economy, that the bits of paper they are written on cost the merest trifles only, whilst the coins they supersede must have been necessarily purchased from the miners at a heavy cost of English products and capital. In addition, they escape the loss, which is by no means inconsiderable, of the wear and tear of the metal which it suffers in daily circulation.

The paper note possesses some further advantages over coin. It is lighter to carry; the want of weight is a real superiority in endless cases. Then it is easier to keep in safety than coin. It is a dangerous thing to steal, for it cannot be melted down like a coin; and by the numbers printed upon it, it furnishes an important security against robbery. These advantages, combined with that of cheapness, explain how it comes to pass that in some countries, as in Scotland, the one pound paper note is preferred by sellers to the sovereign.

One distinguishing characteristic of these mere promises to pay is that the acceptance of them is voluntary -(unless made legal tender by positive law)—on the part of the seller or creditor. No man is obliged to take a cheque, or bill, or non-legal tender bank-note in discharge of a debt. But the bank-note-which in essence is only a variety of the cheque-occupies a partially distinctive position. It is a cheque which the banker draws upon himself, and promises to pay in coin on demand. But it is also invested with a sort of semipublic, or rather, anonymous character. The private cheque, as a rule, does not circulate; it effects a pur

chase or discharges a debt, and is at once sent in for payment. The reason of this fact is plain. The value of a cheque depends on the solvency of a private person or a commercial firm, and the state of his account with his banker; and for the mass of men this is too frail a protection against non-payment to allow of the cheque being long kept in circulation. It is otherwise with the bank-note. The bank is a kind of public institution; its note, bestowing the advantages just mentioned, establishes itself as a public currency. It circulates in town and market. The acceptance of it is scarcely voluntary; for a tradesman who should refuse to take the notes current in his locality would expose himself not only to ill-will and diminution of custom, but often to positive inability to sell his goods.

It is obvious that the worth of a bank-note consists in the certainty of payment, of the delivery of the thing promised when demanded. As the law compels no one to accept a private cheque, it is the business of the man who gives property in exchange for it to consider for himself the prospect of payment. It is his affair and he knows it-to weigh the value of the signature, and the chances of there being money in the signer's account at his bank. But the public cannot easily act thus with a bank-note. They take it more or less on semi-compulsion; and the most disastrous and most extensive losses have been inflicted on the public, notably in the year 1825, by the insolvency of bankers and their inability to give the pledged payment in coin. The need of some legal provision to protect society and to give it worth to its paper currency becomes immediately obvious.

Are bank-notes money? The facility and characteristics of its circulation seem to establish its claim to that title. It is certainly universally called money. Coin and notes seem to differ only as a chisel differs from a saw in a carpenter's basket; they look like two varieties of cutlery, or rather, current tools. Nevertheless the bank-note, in its real nature, is not money, and it is unfortunate on many accounts that it is impossible to prevent it from being called money. Let any one read what is written on the face of the note. It promises to pay five pounds, five sovereigns, on demand. It undertakes to procure for its holder this amount of real money; but he must ask for the money in order to obtain it. A promise to give is not, and cannot be, the thing itself. Neither a bank-note, nor a cheque, nor a bill, nor a credit, nor a power of drawing is money, is payment; it does not put property into a man's hand, till the coin distinctly mentioned is given. The thing promised may never be paid at all; and the thing promised is money, coin, sovereigns-till that is forthcoming money has never made its appearance.

But if this is so-if a bank-note is only an acknowledgment of debt, and if a seller of goods gives them away merely upon taking a creditor's claim on the bank which is transferred to him-how comes it to pass that such an unreality can buy as well as the real substance, the precious metal of the coin? Because coin does not act or work by means of its physical properties, but by means of its value. That value is a complete guarantee to a seller or a creditor that he shall be able with it to procure other commodities worth those which he has sold. Experience shows that men are willing to take a debt as

payment, because it is found that what one man does every one else is willing to do also. A grocer gives tea for a claim on the Bank of England, because he finds that his butcher will do the same; and they all do it, because none wants the sovereigns pledged as such, but only the assurance that they can, on the instant, obtain the sovereigns if they choose to ask for them.

It plainly follows, from these facts, that the promise does its work as well as the coin promised on one condition, and one only-that there shall be a peremptory obligation on the issuer of the promise to pay it on demand. Without complete convertibility, the promise to pay is insecure, and immediately becomes exposed to a peculiar and formidable danger. The utmost harm of superfluous sovereigns is that they are compelled to lie idle; they are expelled like drones from the circulation, and sent to sleep, either in hoards or in banking cellars. But inconvertible notes, green-backed promises to pay for which no payment can be demanded, may be sent forth in unlimited numbers, and, which is the point of the matter, may be compelled to stay out in unlimited numbers. If a tradesman finds that twenty sovereigns will do the day's work of his shop, and that he has thirty, he will send off ten to his banker, who will forward them to the cellar in Threadneedle Street. No more sovereigns will remain out than there is work for. But if notes are issued as they now are by the American Government, and, the valve opening one way only, cannot be sent back again, they quickly expand into excessive numbers, far beyond what the exchanges of property to be effected require. Hence every holder is anxious to part with them, and finding no outlet, consents to give

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