price of his commolity; an opinion inducement to be much of a restraint grounded either on the rise or fall in a period supposed to be one of rashadalready going on, or on his prospective venture, and upon persons so confident judgment respecting the supply and the of success as to involve themselves berate of consumption. When a dealer yond their certain means of extrication. extends his purchases beyond his im- And further, I apprehend that their conmediate means of payment, engaging fidence of being helped out in the event to pay at a specified time, he does so of ill-fortune, will mainly depend on in the expectation either that the trans- their opinion of their own individual action will have terminated favourably credit, with, perhaps, some considerabefore that time arrives, or that he tion, not of the quantity of the currency, shall then be in possession of sufficient but of the general state of the loan funds from the proceeds of his other market. They are aware that, in case transactions. The fulfilment of these of a commercial crisis, they shall have expectations depends upon prices, but difficulty in obtaining advances. But not specially upon the amount of bank if they thought it likely that a comnotes. He may, doubtless, also ask him-mercial crisis would occur before they self, in case he should be disappointed | had realized, they would not speculate. in these expectations, to what quarter he can look for a temporary advance, to enable him, at the worst, to keep his engagements. But in the first place, this prospective reflection on the somewhat more or less of difficulty which he may have in tiding over his embarrassments, seems too slender an

If no great contraction of general credit occurs, they will feel no doubt of obtaining any advances which they absolutely require, provided the state of their own affairs at the time affords in the estimation of lenders a sufficient prospect that those advances will be repaid.

CHAPTER XIII.

OF AN INCONVERTIBLE PAPER CURRENCY.

§ 1. AFTER experience had shown that pieces of paper, of no intrinsic value, by merely bearing upon them the written profession of being equivalent to a certain number of francs, dollars, or pounds, could be made to circulate as such, and to produce all the benefit to the issuers which could have been produced by the coins which they purported to represent; governments began to think that it would be a happy device if they could appropriate to themselves this benefit, free from the condition to which individuals issuing such paper substitutes for money were subject, of giving, when required, for the sign, the thing signified. They determined to try whether they could not emancipate themselves from this unpleasant obligation, and make a piece of paper issued by them pass for a pound, by merely calling it a pound,

and consenting to receive it in payment of the taxes. And such is the influence of almost all established governments, that they have generally succeeded in attaining this object: I believe I might say they have always succeeded for a time, and the power has only been lost to them after they had compromised it by the most flagrant abuse.

In the case supposed, the functions of money are performed by a thing which derives its power of performing them solely from convention; but convention is quite sufficient to confer the power; since nothing more is needful to make a person accept anything as money, and even at any arbitrary value, than the persuasion that it will be taken from him on the same terms by others. The only question is, what determines the value of such a currency; since it cannot be, as in the case of gold

There is, in truth, a great charm in the idea. To be able to pay off the national debt, defray the expenses of government without taxation, and in fine, to make the fortunes of the whole community, is a brilliant prospect, when once a man is capable of believing that printing a few characters on bits of paper will do it. The philosopher's stone could not be expected to do

more.

the corn laws were in force. But a | still stronger consideration is the importance of adhering to a simple principle, intelligible to the most untaught capacity. Everybody can understand convertibility; every one sees that what can be at any moment exchanged for five pounds, is worth five pounds. Regulation by the price of bullion is a more complex idea, and does not recon.mend itself through the same familiar associations. There would be As these projects, however often nothing like the same confidence, by slain, always resuscitate, it is not suthe public generally, in an inconver-perfluous to examine one or two of the tible currency so regulated, as in a convertible one: and the most instructed person might reasonably doubt whether such a rule would be as likely to be inflexibly adhered to. The grounds of the rule not being so well understood by the public, opinion would probably not enforce it with as much rigidity, and, in any circumstances of difficulty, would be likely to turn against it, while to the government itself a suspension of convertibility would appear a much stronger and more extreme measure, than a relaxation of what might possibly be considered a somewhat artificial rule. There is therefore a great preponderance of reasons in favour of a convertible, in preference to even the best regulated inconvertible currency. The temptation to overissue, in certain financial emergencies, is so strong, that nothing is admissible which can tend, in however slight a degree, to weaken the barriers that restrain it.

§ 3. Although no doctrine in political economy rests on more obvious grounds than the mischief of a paper currency not maintained at the same value with a metallic, either by convertibility, or by some principle of limitation equivalent to it; and although, accordingly, this doctrine has, though not till after the discussions of many years, been tolerably effectually drummed into the public mind; yet dissentients are still numerous, and projectors every now and then start up, with plans for curing all the economical evils of society by means of an unlimited issue of inconvertible paper.

fallacies by which the schemers impose upon themselves. One of the commonest is, that a paper currency cannot be issued in excess so long as every note issued represents property, or has a foundation of actual property to rest on. These phrases, of representing and resting, seldom convey any distinct or well-defined idea: when they do, their meaning is no more than this-that the issuers of the paper must have property, either of their own or entrusted to them, to the value of all the notes they issue; though for what purpose does not very clearly appear; for if the property cannot be claimed in exchange for the notes, it is difficult to divine in what manner its mere existence can serve to uphold their value. I presume, however, it is intended as a guarantee that the holders would be finally reimbursed, in case any untoward event should cause the whole concern to be wound up. On this theory there have been many schemes for "coining the whole land of the country into money" and the like.

In so far as this notion has any connexion at all with reason, it seems to originate in confounding two entirely distinct evils, to which a paper currency is liable. One is, the insolvency of the issuers; which, if the paper is grounded on their credit-if it makes any promise of payment in cash, either on demand or at any future time-of course deprives the paper of any value which it derives from the promise. To this evil paper credit is equally liable, however moderately used; and against it, a proviso that all issues should be "founded on property," as for instance

tion of all the confiscated property at its metallic value, and to have issued assignats up to, but not beyond, that

demand any piece of land, at its re gistered valuation, in exchange for assignats to the same amount. There can be no question about the superiority of this plan over the one actually adopted. Had this course been followed, the assignats could never have been depreciated to the inordinate de

that notes should only be issued on the security of some valuable thing expressly pledged for their redemption, would really be efficacious as a pre-limit; giving to the holders a right to caution. But the theory takes no account of another evil, which is incident to the notes of the most solvent firm, company, or government: that of being depreciated in value from being issued in excessive quantity. The assignats, during the French Revolution, were an example of a currency grounded on tl ese principles. The assignats "re-gree they were; for-as they would have presented an immense amount of retained all their purchasing power in highly valuable property, namely the relation to land, however much they lands of the crown, the church, the might have fallen in respect to other monasteries, and the emigrants; things-before they had lost very much amounting possibly to half the terri- of their market value, they would protory of France. They were, in fact, bably have been brought in to be exorders or assignments on this mass of changed for land. It must be rememland. The revolutionary government bered, however, that their not being had the idea of "coining" these lands depreciated would presuppose that no into money; but, to do them justice, greater number of them continued in they did not originally contemplate the circulation than would have circulated immense multiplication of issues to if they had been convertible into cash. which they were eventually driven by However convenient, therefore, in a the failure of all other financial re- time of revolution, this currency consources. They imagined that the as- vertible into land on demand might signats would come rapidly back to the have been, as a contrivance for selling issuers in exchange for land, and that rapidly a great quantity of land with they should be able to reissue them the least possible sacrifice; it is difficontinually until the lands were all cult to see what advantage it would disposed of, without having at any have, as the permanent system of a time more than a very moderate quan- country, over a currency convertible tity in circulation. Their hope was into coin: while it is not at all difficult frustrated the land did not sell so to see what would be its disadvantages; quickly as they expected; buyers were since land is far more variable in value not inclined to invest their money in than gold and silver; and besides, land, possessions which were likely to be re- to most persons, being rather an insumed without compensation if the cumbrance than a desirable possession, Revolution succumbed the bits of except to be converted into money, paper which represented land, becom- people would submit to a much greater ing prodigiously multiplied, could no depreciation before demanding land, more keep up their value than the than they will before demanding gold land itself would have done if it had or silver. * all been brought to market at once: and the result was that it at last required an assignat of six hundred francs to pay for a pound of butter.

§ 4. Another of the fallacies from which the advocates of an inconvertible

Among the schemes of currency to which, strange to say, intelligent writers have been found to give their sanction, one is as follows: that the state should receive in pledge or mortgage, any kind or amount of property,

The example of the assignats has been said not to be conclusive, because an assignat only represented land in general, but not a definite quantity of land. To have prevented their depreto the owners inconvertible paper money to ciation, the proper course, it is affirmed, the estimated value. Such a currency would would have been to have made a valuat even have the recommendations of the

such as land, stock, &c., and should advance