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shillings guinea. Their buying income would be reduced by nearly a-third. And what temptation is thus created for governments to pay off their national debts with heavy discounts, and all on the plea of legality and the use of an enlightened currency. Thus, the one single function which currency was invented to discharge is radically corrupted. Instead of effecting the exchange of equal goods in two purchases by the intervention of money, the bad note exchanges goods in unequal quantities; the seller, when he buys in turn, gets less than the worth of the goods he sold.
But the evil does not stop here. The undulations of the disastrous fall of the stone in the water spread in ever-widening circles. Gambling is introduced into every act of trade—an element most hostile to the nature of true trade and full of ruinous consequences. The shopkeeper who sells in January to be paid at Christmas does not know what will be the value of the note which he will receive then; he protects himself by adding an increased figure to his prices by way of insurance, and by this process a heavy tax is imposed on consumers, that is, on the whole community. So also on the foreign merchant. He imports goods into a country to be paid in bills—but what will be the worth of those bills in metallic money, which is always the only international money, when the bills become due? Again the dealer protects himself by adding an item of currency insurance to his cost of production—and that cost of production all his customers, if the trade is continuous, must pay.
And all this disorder, this taxation on all buyers, this most unjust and cruel wrong and loss inflicted on all creditors, this tainting of all trading with gambling by the use of a tool which refuses to do the one work it was invented for performing, what assignable motive can it have?
One motive it has in almost every case—what Mr M'Culloch calls "the enrichment of one part of society at the expense of another." We cannot do better than listen to his description of the process adopted to effect this object. "Directly to alter the terms of contracts between individuals would be too barefaced and tyrannical an interference with the rights of modesty to be tolerated. Those, therefore, who endeavour to enrich one part of society at the expense of another find it necessary to act with caution and reserve. Instead of changing the stipulations in contracts, they have resorted to the ingenious device of changing the standard by which these stipulations are adjusted. They have not said, in so many words, that IO or 20 per cent, should be added to or deducted from the debts and obligations of society, but they have, nevertheless, effected this by making a proportional change in the value of money." *
One plea most commonly urged in defence of inconvertible bank-notes appeals to necessity, the political distress of the hour. The State is in sore want of means, and the limit of taxation has been reached; what else can a Government do at such a time but provide what is indispensable for the safety of the nation, but pay with promises to be made good at some future day? With these inconvertible notes it pays no interest on what it borrows; by an increase of the ordinary * "Metallic and Paper Money and Banks," J. M'Culloch.
National Debt an increased taxation would have been unavoidable. This may be so; at a moment of danger such a proceeding may admit of some excuse. But it should never be forgotten that the harm inflicted by such a currency goes on uninterruptedly year after year; it never stops; it is always working fresh injury. It goes on persecuting society at every turn. It poisons every sale as time rolls on, every exchange. Overwhelming necessity may extenuate the imposition of so easy but so vicious a tax. But the pressure once over not a day should be lost by any Legislature which has any knowledge of the nature and working of money, to arrest the plague and sweep away the inconvertible paper, which it felt forced to have recourse to in the hour of danger.
We have now reached the great financial institution of modern times—banking. It is an agency for performing the all-important service on which civilisation depends —the exchange of commodities produced by different makers on the fundamental principle of division of employments. Thus it does the same work as money or currency; banking and currency are two different machines for performing the same function. They both transfer goods and property from the hands of one person to those of another. That is their one and only task. They do nothing else, and this is a truth sadly unperceived, and yet one which cannot be too firmly grasped, if light is ever to penetrate into this region. They each employ two operations to complete one transaction. The farmer buys three sovereigns with a sheep, and then with those sovereigns he purchases guano; a sheep has been exchanged for guano through the intermediate agency of money. In precisely the same manner the farmer again sells a rick of wheat for a cheque or bill, and his banker with that cheque enables a merchant to buy tea. Wheat has been exchanged for tea by the help of certain writing within banks. There is no difference whatever in the essence of the process, though, of course, the mechanical machinery actually employed in each case varies in detail. Banking and money are purely tools of exchange, and nothing else.
But banking is not money nor currency of any kind. Endless confusion is generated on every side by this fatal misconception. Money does its work by means of a valuable metal; banking employs for its tools words written on pieces of paper called bills and cheques, which give legal claim to the metal called coin, and for which the courts of law will, if need be, compel that coin to be given. Thus debts expressed on paper are the tools with which banking works. Some little money it touches, as every business must; but both for banking and for the collective trade of a highly commercial country, coin, money, is absolutely nothing but its small change. Many regard the cheque and the bill as money, equally so credits opened in banking accounts; but if they are money, then farewell to all possibility of understanding what money is. Upon such ideas, a letter must often be regarded as money; for many are the payments which a banker effects without a bill or cheque, in compliance with the instructions of a letter. To jumble up into one heap coin, notes, money, banking, currency, cheques and bills, is to refuse to understand what are their natures and manners of working.
We have asked and answered the question, What is money ?—let us do the same for a bank. What is a bank? A banker is an intermediate agent between two principals; that is the very essence of his action. He is as truly a broker as a tea-broker in Mincing Lane or a cotton broker in Liverpool. Like them he brings a seller and a buyer together, or rather, which is the same thing in substance, a lender and a borrower ; and