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seem as if both B and A had the use of it at once. he smallest consideration will show that when B has with his capital to A, the use of it as capital rests. alone, and that B has no other service from it than in his ultimate claim upon it serves him to obtain the other capital from a third person, C. All capital vn) of which any person has really the use, is, and > much subtracted from the capital of some one

t though credit is never anything more than a pital from hand to hand, it is generally, and nsfer to hands more competent to employ the v in production. If there were no such thing from general insecurity and want of confiantily practised, many persons who possess apital, but who from their occupations, or essary skill and knowledge, cannot personemployment, would derive no benefit would either lie idle, or would be, pernihilated in unskilful attempts to make All this capital is now lent at interest, or production. Capital thus circumportion of the productive resources of ; and is naturally attracted to those being in the greatest business, have it to most advantage; because such s to obtain it, and able to give the herefore, the productive funds of 1 by credit, they are called into a luctive activity. As the confinded extends itself, means are smallest portions of capital, the by him to meet contingencies, The principal instruks of deposit. Where these

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tender at a fixed valuation, than when the exclusive standard of the currency is either gold or silver. Instead of being only affected by variations in the cost of production of one metal, it is subject to derangement from those of two. The particular kind of variation to which a currency is rendered more liable by having two legal standards, is a fall of value, or what is commonly called a depreciation; since practically that one of the two metals will always be the standard, of which the real has fallen below the rated value. If the tendency of the metals be to rise in value, all payments will be made in the one which has risen least; and if to fall, then in that which has fallen most.

§ 2. The plan of a double standard is still occasionally brought forward by here and there a writer or orator as a great improvement in currency. It is probable that, with most of its adherents, its chief merit is its tendency to a sort of depreciation, there being at all times abundance of supporters for any mode, either open or covert, of lowering the standard. Some, however, are influenced by an exaggerated estimate of an advantage which to a certain extent is real, that of being able to have recourse, for replenishing the circulation, to the united stock of gold and silver in the commercial world, instead of being confined to one of them, which, from accidental absorption, may not be obtainable with sufficient rapidity. The advantage without the disadvantages of a double standard, seems to be best obtained by those nations, with whom one only of the two metals is a legal tender, but the other also is coined, and allowed to pass for whatever value the market assigns to it.

In France, silver alone is (I believe) a legal tender, and all sums are expressed and accounts kept in francs, a silver coin. Gold is also coined, for convenience, but does not pass at a fixed valuation: the twenty francs marked on a napoleon are merely nominal, napoleons being never to be bought for that sum, but always bearing a small premium,

or agio, as it is called; though, as the agio is very trifling, (the bullion value differing very little from twenty francs) it is seldom possible to pass a napoleon for more than that sum in ordinary retail transactions. Silver, then, is the real money of the country, and gold coin only a merchandize; but though not a legal tender, it answers all the real purposes of one, since no creditor is at all likely to refuse receiving it at the market price, in payment of his debt.

When this plan is adopted, it is naturally the more costly metal which is left to be bought and sold as an article of commerce. But nations which, like England, adopt the more costly of the two as their standard, resort to a different expedient for retaining them both in circulation, namely, to make silver a legal tender, but only for small payments. In England, no one can be compelled to receive silver in payment for a larger amount than forty shillings. With this regulation there is necessarily combined another, namely, that silver coin should be rated, in comparison with gold, somewhat above its intrinsic value; that there should not be, in twenty shillings, as much silver as is worth a sovereign: for if there were, a very slight turn of the market in its favour would make it worth more than a sovereign, and it would be profitable to melt the silver coin. The over-valuation of the silver coin creates an inducement to buy silver and send it to the mint to be coined, since it is received back at a higher value than properly belongs to it: this, however, has been guarded against, by limiting the quantity of the silver coinage, which is not left, like that of gold, to the discretion of individuals, but is determined by the government, and restricted to the amount supposed to be required for small payments. The only precaution necessary is, not to put so high a valuation upon the silver, as to hold out a strong temptation to private coining.

CHAPTER XI.

OF CREDIT, AS A SUBSTITUTE FOR MONEY.

§ 1. THE functions of credit have been a subject of as much misunderstanding and as much confusion of ideas, as any single topic in Political Economy. This is not owing to any peculiar difficulty in the theory of the subject, but to the complex nature of some of the mercantile phenomena arising from the forms in which credit clothes itself; by which attention is diverted from the properties of credit in general, to the peculiarities of its particular forms.

As a specimen of the confused notions entertained respecting the nature of credit, we may advert to the exaggerated language so often used respecting its national importance. Credit has a great, but not, as many people seem to suppose, a magical power; it cannot make something out of nothing. How often is an extension of credit talked of as equivalent to a creation of capital, or as if credit actually were capital. It seems strange that there should be any need to point out, that credit being only permission to use the capital of another person, the means of production cannot be increased by it, but only transferred. If the borrower's means of production and of employing labour are increased by the credit given him, the lender's are as much diminished. The same sum cannot be used as capital both by the owner, and also by the person to whom it is lent: it cannot supply its full value in wages, tools, and materials, to two sets of labourers at once. It is true that the capital which A has borrowed from B, and makes use of in his business, still forms part of the wealth of B for other purposes; he can enter into engagements in reliance on it, and can even borrow, when needful, an equivalent sum on the security of it; so that to a superficial eye it

might seem as if both B and A had the use of it at once. But the smallest consideration will show that when B has parted with his capital to A, the use of it as capital rests with A alone, and that B has no other service from it than in so far as his ultimate claim upon it serves him to obtain the use of another capital from a third person, C. All capital (not his own) of which any person has really the use, is, and must be, so much subtracted from the capital of some one else.

$ 2. But though credit is never anything more than a transfer of capital from hand to hand, it is generally, and naturally, a transfer to hands more competent to employ the capital efficiently in production. If there were no such thing as credit, or if, from general insecurity and want of confidence, it were scantily practised, many persons who possess more or less of capital, but who from their occupations, or for want of the necessary skill and knowledge, cannot personally superintend its employment, would derive no benefit from it their funds would either lie idle, or would be, perhaps, wasted and annihilated in unskilful attempts to make them yield a profit. All this capital is now lent at interest, and made available for production. Capital thus circumstanced forms a large portion of the productive resources of any commercial country; and is naturally attracted to those producers or traders who, being in the greatest business, have the means of employing it to most advantage; because such are both the most desirous to obtain it, and able to give the best security. Although, therefore, the productive funds of the country are not increased by credit, they are called into a more complete state of productive activity. As the confidence on which credit is grounded extends itself, means are developed by which even the smallest portions of capital, the sums which each person keeps by him to meet contingencies, are made available for productive uses. The principal instruments for this purpose are banks of deposit. Where these

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