exchanges, the additional amount of money thus thrown into the market must come into the hands of persons who would have no immediate occasion to use it, but would lodge it on deposit in the Banks, and it would thus be immediately returned to the source whence it came.

When specie is the only legal tender, if the currency be mixed, consisting of specie and convertible Bank-bills, the amount of Bank-bills of any given denomination which remains in circulation is determined exclusively by the convenience, the feelings, and preferences at the time, of the people among whom they circulate, wholly irrespective of the regulations and the efforts of the institutions which issue these bills, provided only that they issue them freely, or do not arbitrarily keep the supply below the amount which the community is willing and desirous to receive. The Banks may create a deficiency, but they cannot create an excess, in the circulation of such bills. In the numerous payments which are daily made at the Banks, either in deposit or in liquidation of notes, that element of the currency, be it specie or bills, which is least in demand, least adapted to the present wishes and convenience of the people, will predominate, and will thus be quickly eliminated from the active circulation, till the ratio of the two branches of the currency is reduced to that point which the popular will requires. As the daily payments into the Banks must, on an average, just equal the daily payments out of them, no effort or contrivance of the Bank managers can avert this result. They may pay out, they usually do pay out, nothing but bills, and therefore, as a general rule, only bills are paid in; and thus the proportion of bills to specie continuing in circulation remains unaltered. But if a panic respecting the solvency of the Banks should be created, besides the usual payments in deposit and in liquidation of notes, bills will be presented at the counter to be cashed, or redeemed in specie; and thus the proportion of coin in active circulation is rapidly augmented. After the panic has subsided, finding that so much coin is inconvenient, on account of its weight and bulk, and the trouble of counting it, specie will be freely paid in on deposit; and then the Bank payments in bills will quickly restore the usual amount of paper to the currency.

I have already borrowed from Adam Smith the ingenious illustration, that "the gold and silver money which circulates in any

country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either." He carries out the comparison still further. "The judicious operations of Banking," he remarks, "by providing, if I may be allowed so violent a metaphor, a sort of wagon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labor. The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Dædalian wings of paper money, as when they travel about upon the solid ground of gold and silver. Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."

CHAPTER XV.

PAPER MONEY, AND ITS USE AS CURRENCY DURING A REVOLUTION OR CIVIL WAR: HISTORY OF THE EMISSION OF SUCH MONEY IN THE WAR OF THE REBELLION.

WE have still to consider the circulation of Paper Money properly so called, or of bills which do not profess to be immediately convertible into specie. These are sometimes issued by the state, in cases of great emergency, and are then usually called legal-tender notes, or bills of credit. The Constitution of the United States declares that "no State shall coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts." It is still a disputed question, whether this prohibition applies only to the legislature of any individual State, or extends also to Congress and the National government. This question has never come up for decision by the Supreme Court of the United States; meanwhile, as we all know, Congress has assumed this questionable authority, and has exercised it ever since

1862, by sanctioning large issues of Paper Money or "bills of credit" both by the National Treasury and the National Banks. Bank-notes, of course, after the banks have suspended specie payments, so that their notes are no longer convertible into coin on demand, become "bills of credit," or Paper Money. Thus the currency of Great Britain consisted of Paper Money from 1797, when the Bank of England suspended payment, till 1819, when it again began to redeem its notes in specie.

The distinguishing characteristics of Paper Money are, that it is inconvertible, and its circulation is compulsory. Thus, when the government has no longer the means of meeting its pecuniary engagements, it begins to make purchases and to pay its debts by issuing, not coin, nor bills immediately convertible into coin, but its own promises to pay at some future time. These "promises to pay" are made legal tender, that is, creditors are compelled to receive them in satisfaction of their demands. Their circulation is compulsory, then; but the very fact that they are receivable in payment of debts, as we have already shown, gives them a conventional value. To any person who has money to receive, it does not matter whether the money possesses intrinsic value or not, or whether the "promise to pay " which it bears upon its face is ever redeemed or not, provided he is sure that he can make payments with it, and cancel his own obligations. Paper dollars are as good as silver ones, so long as they will cancel debts and effect purchases equally well.

Paper Money of this kind was issued by many of the American Colonies before their separation from England; and from the various degrees of its depreciation in different parts of the country arose the different value of the shilling, which is still with us a popular denomination of account, though not an actual coin, and not recognized in the legal currency. The shilling was the denomination used in the Colonial Paper Money, Spanish dollars being the coin in which they were ultimately to be redeemed; and when the shilling had its par value, 4s. 6d. were equal to a silver dollar. But paper shillings became depreciated, so that, in New England, six shillings came to pass for a dollar; in New York, eight, and in Pennsylvania, seven shillings had this value. The names of these "shillings" and "pence" have remained for a century after the disappearance of the reality, and still create much confusion in the popular mode of reckoning money.

One remarkable experiment of Paper Money here in America was the Continental currency, as it was called, issued by authority of Congress during the American Revolution. The epithet "Continental," like National or Federal nowadays, marked the distinction between what was done by the government of the whole Union and the acts of the separate Colonies or States. In June and July, 1775, to meet the expenses of the war which was seen to be inevitable, Congress, having no other funds, issued three millions of dollars in these bills of credit, with a promise, which was not kept, that they should be redeemed in four annual instalments, to commence at the end of four years. In November of the same year, the issue of three additional millions became necessary. Specie, which had been scarce before, had now almost entirely disappeared from the country, and the "Continental money" was considerably depreciated. So rapidly did this depreciation and the exigencies of the war increase, that in the course of the following year, 1776, fourteen millions more had to be issued. Additional issues continued to be made, and the paper continued to depreciate, until, in 1780, the amount in circulation was about 200 millions; and 500, even 1,000, dollars in this currency were offered for one in silver. Then, finally, the bills ceased to circulate, and became entirely worthless, as dealers would not accept them on any terms.

No attempt was subsequently made to cancel the original obligation by redeeming the bills, either in full or in part; for as the depreciation had been gradual, while the bills were rapidly circulating in the community, it had obviously become impossible to measure the exact loss which each holder of them had suffered. To pay the last holder in full would only have aggravated the injustice, by giving him much more than was his due, and leaving his predecessors without any compensation whatever. It was justly remarked, that the depreciation of the Paper Money ought to be considered as a tax, inasmuch as the paper was first issued only to relieve the people from the necessity of paying a tax. Each person through whose hands the money passed parted with it again at a loss, proportioned to the quantity he held and the time he held it. As the currency circulated among the whole people, the rich and poor holding it, and suffering by its depreciation in proportion to the respective amounts of their cash

purchases and sales, the whole loss was divided among them very nearly in just proportio to their ability and liability to pay a tax. The payment of the whole value borne on the face of the bill to the last holder, who had received it at the rate, perhaps, of a hundred for one, could have been made only by a second tax on the same persons who had already been fairly and heavily taxed by its depreciation.

The history of the Paper Money issued in France, in the course of the Revolution of 1789, is perfectly similar to that of the corresponding experiment in America. The French bills of credit, however, as their name (assignats) indicates, were nominally issued upon a basis of real property. The national domains, as they were termed, or the confiscated estates of the crown, the clergy, and the emigrants, were made over, or sold in mass, to the municipalities or towns in which they were respectively situated. These municipalities, not having funds to pay immediately, received the property on long credit, binding themselves to pay in instalments, as fast as they were able to make sales of the estates without sacrifice. The creditors of the state then obtained their dues by receiving orders, or "assignments" (assignats), on the municipalities for a portion of the debt thus due to the state. These assignats were transferable property, which might be exchanged for commodities, or assigned in payment of debts; and to aid the negotiation of them, they were made transferable without indorsement, and constituted legal tender; that is, they were converted into Paper Money; and as the issue of them increased, they displaced the sounder portions of the currency, and became the universal medium of exchange.

As the expenditures of the state were heavy, through the war in which it was involved, and as it was an easy process to stamp and issue assignats in satisfaction of all demands, the issue of this Paper Money soon became excessive, and the inevitable consequence followed, its rapid and great depreciation. Bread rose to 22 francs (nominally over $4) a pound, and the prices of other commodities were in proportion. The issue of assignats amounted, in 1796, to the enormous sum of 45,000 millions of francs. But the state receipts from taxes, loans, the sale of the national domains, and other causes, had reduced the amount actually in circulation to about 24,000 millions. They finally be