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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 them away at a loss. They submit to a discount, and there is no limit to that discount, if the inconvertible issues are continued.

Our next inquiry asks, How does this paper currency make its appearance in the world? By two processes. They are issued by a bank or by a government. A bank's object in issuing notes is to pay a portion of its debt with pieces of paper which cost little. If its depositors ask for payment, it presents to them this paper, and it is accepted: thus the bank meets its claims, and is able to keep its profitable loans to debtors undisturbed. But how comes it that the depositors are so graciously ready to accept payment in such a form? Because they find that the public will repeat the process, and be ready to take them in turn, in discharge of what is due by the depositors. But what makes the public so disposed to take a promise instead of the reality due? The reason given above, the transfer of a debt performs the work as successfully as coin, supposing always that the confidence in the bank remains unshaken.

Notes issued by a Government have a different origin. They are instruments for obtaining supplies for its wants without paying for them. But a government would encounter much difficulty in carrying out this operation on an extensive scale: the security it can offer for payment, strange to say, is far inferior to that furnished by a bank. A bank must pay its debts, the sum promised on its note, or become liable to all the pains of insolvency: its business is arrested, and its property seized by the decree of a court of law. In the case of a Government note, there is no one to go to prison, or to have his property sequestrated, if it fails to meet its engagements. And this fact leads to a second. By the very nature of his business, a banker's great object is to retain the command of the means which he acquires with his notes. His one desire is to make a profit out of them, but not to lose or waste them. A Government lies under no such feeling. The notes are issued to pay for consumption—the commodities purchased with them are at once taken into use for destruction. Those who took Government notes would know that of a certainty there were no funds in existence that could be produced to cash notes presented. A Government banknote, therefore, standing on its own merits, could not compete with notes issued bybankers. It would be swept off the market. Hence Governments have invented machinery for procuring circulation for their paper, They invest it with the character of legal tender. Legal tender does not mean, as many absurdly suppose, that a shopkeeper is obliged to sell for a legal tender note: but the legal tender law compels him to take the note on presentation for a debt recorded in his books. The word legal tender denotes that the law will regard it as a discharge of the debt. By the help of legal tender a Government can get its notes into circulation. It pays its liabilities with them, and suppliers of goods will enter into contracts on the basis of such a payment, because the contractor knows that he can pay his own debts with the paper which he receives from the Government. Thus the Government obtains what it seeks— supplies of what it wants without paying for them in ready money. It acknowledges a debt due for the amount which they cost, for the notes issued; but that debt remains like Consols, a debt only, with the additional advantage of having to pay no interest upon it. But how fares it, then, with the public? Have they lost the stores thus bought by the Government with pieces of paper? are they harmed in any way? The answer to this question depends upon the character of these notes. If the Government makes their notes convertible, by giving money for as many notes as are presented for payment, then the nation suffers no loss. The notes remaining out in circulation have indeed been paid for with goods supplied, but they are currency wanted and at work; and they cost the public no more than what must have been otherwise given to miners for the gold currency whose place the notes have taken. But the case is entirely different if the notes are inconvertible, and are issued in excess beyond the wants of the public. That excess depreciates their value. The one-pound note may go down to fifteen shillings. Thus it becomes plain that the successive issues which lowered their value were made at the cost of the holders of the previous issues. They find that the notes in their hands now buy no more than fifteen shillings worth of goods: the Government has obtained the supplies purchased with these issues in excess at the expense of the holders of the previously issued notes.

These considerations establish the conclusion that the Government is a bad direct issuer of notes. It never could maintain a trustworthy machinery for convertibility, for paying in money, every note presented, and every nation would do well not to fall into the snare of setting up such machinery.

But it is open to a Government to issue notes indirectly, through the agency of a bank; and the question has been often debated, whether a Government is reasonably entitled to engage in such an operation. It is condemned by many as an unjustifiable interference with private trade. Upon such a principle, why should not a Government become a manufacturer? In reply to this question, it may be contended with truth that a real distinction exists between currency and ordinary trade. The supply of the commodities which society requires is rightly left to private action; the work is accomplished with entire efficiency and success. It is otherwise with currency. The issuing of notes up to 1844 was open to any banker, and then experience disclosed serious evils. Banks paid their debts with promises, then lost the funds they acquired in exchange for the notes, and the unhappy note-holders were stripped of their property. Further, the currency affects the people as a whole; it is a public instrument, performing a public function. The people at large are under the necessity of accepting the currency actually in circulation; and when an issuing bank stops payment, the calamity ranges over a large portion of the community. The State is thus called upon to interfere, and the true intervention is that which will be discussed presently—the setting up of a machinery of a public character which protects every interest, and which yields a portion of its profits to the State under whose authority it acts.

Convertibility raises another question of extreme importance. Is it sufficient to impose the obligation on a bank which issues notes to pay its notes in coin on demand under pain of legal insolvency—or is it necessary to add the further protection that not only shall the

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