that any shipments of coin would be necessary. When an adverse movement of specie begins, people are always surprised, and wonder what can be the cause. As they are always sure to apply the proper remedy so soon as the movement appears to be a strong one, they would never, had they foreseen the consequences, have placed themselves in a position from which they immediately seek to escape. Coin, too, can be much better spared when it is the sole currency, than when a symbolic one is used in connection with it. In the latter case, a reduction of one dollar in coin may be equivalent to the reduction of five or ten dollars in the volume of symbols. Hence the extreme sensitiveness of such countries as England to the slightest foreign demand for specie. The illustration, therefore, that the moment a paper currency is used people methodically send abroad a corresponding amount of coin, is preposterous. The moment a symbolic currency is issued to the extent supposed by Smith, coin is carefully collected by the issuers of currency, as they can increase their issues in fivefold or greater ratio to the amount they hold. As soon as a symbolic currency begins to be issued, the motive to retain specie in the country becomes all the stronger in ratio to the amount of issue of such currency. "When we compute," says Smith, "the quantity of industry which the circulating capital of any society can employ, we must always have regard to those parts of it only which consist in provisions, materials, and finished work; the other, which consists in money, and which serves only to circulate these three, must always be deducted. In order to put industry in motion, three things are . requisite materials to work upon, tools to work with, and the wages or recompense for the sake of which the work is done. Money is neither a material to work upon, nor a tool to work with; and, though the wages of the workmen are commonly paid to them in money, their real income consists, not in the money, but in the money's worth, not in the metal pieces, but in what can be got for them. "The quantity of industry which any capital can employ must evidently be equal to the number of workmen whom it can supply with materials, tools, and maintenance suitable to the workmen ; but the quantity of industry which the whole capital can employ is certainly not equal both to the money which purchases, and to the materials, tools, and maintenance which are purchased with it but only to one or other of these two values; and to the latter more properly than to the former." 1 "Money," he continues in 1 Wealth of Nations, Book ii., Chap. ii. a subsequent part of the work, "no doubt always makes a part of the national capital; but it has already been shown that it generally makes only a small part, and always the most unprofitable part of it." 1 name. If money be capital, or the evidence of capital, then the amount of industry which any society can employ must be in ratio to its quantity. Money, in the form of coin, is capital, and as material, is constantly passing into the arts. It is capital, in being at all times exchangeable at its cost for all other articles of property. It is capital, in being always in demand at interest. It is one of the most valuable of tools or instruments, as without it no exchanges could be made, nor could other kinds of property have any exchangeable value. But for money, there could in fact, be no property worthy the If it be symbolic, it measures, so far, the quantity of merchandise in a country entering into consumption; and is the instrument, and the only one, by which the capital of a community in the form of merchandise can be loaned in any considerable amount. When loans by coin are made, the coin itself is loaned. When loans are made by means of symbolic currency, merchandise, or that which will purchase it, is loaned. Loans made by the issue of symbols are just as useful to the borrower as loans made in coin. What he wants is currency, that which will reach some other article of merchandise. The quantity of industry, therefore, which any society can employ must be in direct ratio to the amount of its money, in whatever form. Smith's assumption, that, in estimating the quantity of labor that can be employed, money is to be entirely excluded from the calculation, is exactly opposed to the fact. That the quantity of industry which the capital of any society can employ is equal both to the money which purchases, and to the materials, tools, and maintenance which are purchased with it, is a suggestion too puerile and absurd for comment. To the assertion that money always forms the least productive part of the capital of society, it is sufficient to reply, that every kind of property necessary to its operations is to be considered equally valuable and equally productive. 1 Wealth of Nations, Book iii., Chap. i. Again: "What is the proportion which the circulating money of any country bears to the whole value of the annual produce circulated by means of it, it is, perhaps, impossible to determine. It has been computed by different authors at a fifth, at a tenth, at a twentieth, and at a thirtieth, part of that value. But how small soever the proportion which the circulating money may bear to the whole value of the annual produce, as but a part, and frequently but a small part, of that produce is ever destined for the maintenance of industry, it must always bear a very considerable propor tion to that part. When, therefore, by the substitution of paper, the gold and silver necessary for circulation are reduced to perhaps a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which are destined for the maintenance of industry, it must make a very considerable addition to the quantity of that industry, and consequently to the value of the annual produce of land and labor.” 1 The proportion which the money of the country bears, or should bear, to its capital or property in other forms, is a matter of very little speculative importance. So long as such money consists of the precious metals, the necessities of society or business will always tend to a proper adjustment of the relative amounts of the two. No theory, speculation, or method can change them. This is a matter which must be left to the operation of natural laws. If there be such an excess of coin in one country that its relative value in it is reduced, such excess will move off, by its own gravity, to places or countries where it is in less relative abundance. Paper money, on the other hand, is not capital. It is the evidence of capital; and such evidences, provided they be of merchandise entering into consumption, serve all the functions of coin as currency. As the parties having the right to such merchandise, or its equivalent in coin, should always be possessed of the evidences of such right, it follows that paper money should equal in its nominal amount that of such merchandise, in other words, that the symbol should always correspond to the substance; that the money of commerce should equal the merchandise of commerce. There is a uniform tendency to such equalization in all countries making use of a symbolic currency. There is the same reason why all articles 1 Wealth of Nations, Book ii., Chap. ii. entering into consumption should be symbolized as that any one should be. In England, nearly the whole amount of the merchandise entering into consumption is symbolized. The money of that country approaches in its nominal value to that of her merchandise. Such a condition of things could by no means be possible but for the high moral qualities of her people, which lead a merchant or a banker in London to confide as implicitly in the undertakings of a merchant, banker, or manufacturer in Liverpool or Glasgow, as in those of his immediate neighbors. Domestic order is also a necessary condition to the use of such a currency. It is impossible, for the reasons stated, that it should be used to any considerable extent in Turkey or in Spain, or in the Southern, in the same degree as in the Northern United States of America. Smith assumes that the only gain in the use of paper money is in the displacement of a corresponding amount of coin, and in its conversion into other uses than that of currency. It, however, by no means follows that the use of a symbolic currency diminishes the amount of metallic currency in a country. This is a matter which can never be accurately determined. It may be that the increase in production and trade, and consequently in wealth, and the necessity of providing reserves adequate for the maintenance of a very large amount of symbolic currency, may call for the use of a larger amount of coin than could have been maintained in circulation without the use of symbols. Be this as it may, the advantages of discharging a certain amount of coin from use, by means of paper money, are really insignificant compared with those which flow from its use. Without it, the commerce and wealth of such countries as Great Britain and the United States could not have reached one-fifth of their present prodigious proportions. Again: "The whole paper money of every kind which can easily circulate in any country can never exceed the value of the gold and silver of which it supplies the place, or which (the commerce being supposed the same) would circulate there if there were no paper money. If twenty shilling notes, for example, are the lowest paper money current in Scotland, the whole of that currency that could easily circulate there cannot exceed the sum of gold and silver which would be necessary for transacting the annual exchanges of twenty shillings' value and upwards usually transacted in that country. Should the circulating paper at any time exceed that sum, as the excess could neither be sent abroad nor employed in the circulation of the country, it must return immedi ately upon the Banks to be exchanged for gold and silver. Many people would immediately perceive that they had more of this paper than was necessary for transacting their business at home; and, as they could not send it abroad, they would immediately demand payment for it at the Banks. When this superfluous paper was converted into gold and silver, they could easily find a use for it by sending it abroad; but they could find none while it remained in the shape of paper. There would immediately, therefore, be a run upon the Banks to the whole extent of this superfluous paper; and, if they showed any difficulty or backwardness in payment, to a much greater extent, the alarm which this would occasion necessarily increasing the run." 1 In the preceding paragraph Smith asserts a principle which has since become a dogma with all succeeding Economists, that the amount of paper money that can be maintained in circulation can never exceed the amount of coin the place of which it supplies. A few remarks will show its utter absurdity. The currency of his own country, Scotland, when he wrote, equalled, he tells us, £2,000,000, of which gold and silver constituted only £500,000. If we add, to the £1,500,000 of notes in circulation, £500,000, as the deposits in the Banks, which are currency equally with the notes, the total circulation of the country equalled £2,500,000. The circulation of the Scotch Banks, including deposits, in 1873, was £82,000,000; the coin reserves equalled about £5,000,000; the coin actually in circulation equalled, probably, as much more: making a total currency of £92,000,000. The increase of currency in Scotland in the hundred years, consequently, has been £89,500,000. The amount of coin displaced by the issue of notes has been, according to Smith, £82,000,000. It is absurd to suppose if there had been no increase of paper money in Scotland, that the amount of coin in circulation in it would have equalled £90,500,000-a sum nearly equalling the estimated amount in circulation in the United Kingdom at the present time. The total amount of coin in England in 1776 was estimated at the time at about £20,000,000; the notes of the Bank of England in circulation equalled about £8,000,000; deposits about £5,000,000; the circulation 1 Wealth of Nations, Book ii., Chap. ii. |