healthy condition is perfectly adapted to its objects, when every shipment has its proper representative; in other words, when the currency of commerce equals the merchandise of commerce, as a corresponding amount of coin or bullion is thereby discharged from use. There could be no inflation so long as the currency issued was symbolic, as it would always be retired when the merchandise symbolized was delivered for consumption.

It is to be observed that, although the currency described is always drawn payable absolutely in coin, and usually without referring to that which it represents, yet it is always understood that, ordinarily, little other provision is made for its payment than by its constituent. It is a currency based, not upon coin or bullion, but upon merchandise. This fact is so obvious that it is referred to here only as tending to illustrate the subject of local currencies, which though resting, like those of bills, on merchandise for their solvency, are removed one step farther than bills from that which they represent, and are consequently somewhat more difficult of explanation than a currency in the form of bills.

It is sufficiently evident that bills of exchange drawn against the sale or shipments of merchandise in gross, are not adapted to serve as local currencies. They are too large in amount, and are not as a rule presently due. They are drawn, in theory, upon such time as will be required for the delivery of that which they represent to purchasers, or consumers, and the collection of their proceeds. Local currencies are presently due, because the merchandise they represent is always assumed to be immediately deliverable to the consumer. A bill of exchange, with the bill of lading which usually accompanies it, entitles the holder to the possession of the merchandise represented, or to the proceeds of the same. He has the right of possession to the specific thing, which is usually sufficient security against loss. For whatever may be sustained he has the right of reclamation upon the drawer as soon as its amount can be ascertained. Local currencies -notes of banks - do not entitle their holder to receive any specific article, or the proceeds of the same, corresponding in value. If the holders of merchandise will not accept them on its sale as money, then the right of immediate reclamation must exist against their makers and for their whole amount.

As the makers of bills, which serve as currency, are the producers of the merchandise which such bills represent, it would seem at first sight that they could supply a currency adapted to a local or domestic trade, by an issue of notes or certificates of various denominations, payable on demand to bearer, in the articles which they produce or hold, or in default thereof, in coin. Should all producers or holders of merchandise issue such notes or certificates, their bearers could hardly fail, either by presenting them, or by exchanging them for such as might be held by other parties, to reach any article of which they might stand in need. So far as they could be so used, they would serve all the purposes of a currency of coin. The fact, however, that the holders of such notes or certificates would be subject to the risk of the continued solvency of their makers, who would as a rule have the whole of their means invested in their various industries, would so discredit them that they would never be taken in any considerable amounts. If, however, other parties not subject to the risk which always attends production and trade, and possessed of adequate capital either in coin, or merchandise (the equivalent in value of coin, and in demand for consumption;) or in bills given for such merchandise on its way to the consumer; should issue their notes or certificates, payable on demand, to an amount equal to the means possessed by them in either form, agreeing to hold a sufficient amount of coin, in reserve, for the payment of any reclamations that might be made, they would be taken, by all persons desirous of becoming possessed of the merchandise they represented, in exchange for what they had to sell, as readily as coin, so long as confidence was felt that they represented that which they purported to represent. The sole use of coin, as money, is to reach some other article of property of equal value. If it can be reached more conveniently by other means than by the use of coin, that of the latter will, of course, be dispensed with. The most convenient methods in this, as in all transactions, will, in the end, always have the preference.

Almost all domestic or local exchanges are now effected by the use of notes and credits issued in the manner described. The makers of such notes are usually Banks, and associations of capitalists; although every party possessed of merchandise entering into consumption, or of bills of parties given

for such merchandise, is entirely competent to issue instruments for its distribution. The modes of issue of the notes or credits of Banks, and the conditions necessary to secure at all times their return without the withdrawal of any considerable amount of the reserves held to meet reclamations, in other words, to preserve their value at all times at the standard of coin, — will be most readily shown by tracing from the outset the operations of one of these institutions.

A Bank-the capital of which, on commencing business, may be assumed to consist of one million dollars paid up wholly in coin, does not, in discounting bills, or in making its loans, pay out its coin, but issues its notes, or gives credit on its books to be drawn in its notes or in coin, at the pleasure of the holder, and which till drawn are termed deposits; holding, in the mean time, its coin as a reserve to redeem such notes and credits as may be presented for payment. If it paid out coin in making its loans, no adequate advantage would be gained to its stockholders or to the public from its organization; for coin could be loaned as well without as with a Bank. The very object of the Bank, in making its loans in the manner described, is to provide instruments of exchange and distribution other than coin, and thereby obviate its use. It is here assumed that the bills to be discounted were given for, and represent, merchandise having a value equal to their nominal amounts. As they would be paid by its sale and the collection of the proceeds, they would, in the hands of their holders, have a corresponding value, a value equal to that of coin,-subject, of course, to the risks which attend all commercial transactions. The notes and credits issued would have a similar value, as the Bank would undertake to appropriate the proceeds of that which the bills represented for their payment. The process of discount consists of a mutual exchange of obligations. As those of the Bank would be discharged to the extent that its notes and credits were taken in, it would receive them in payment of its bills equally with coin. The holders of merchandise, therefore, would receive them equally with coin in its sale, as they would pay their bills equally with coin. As they would be accepted in the sale of merchandise equally with coin, they would be taken by the public, the consumers of merchandise, equally with coin. As the object of all currencies, no matter the form or materials of which they may be composed, is to reach

by their exchange some other article or articles, the holders of the notes and credits of a Bank would have no adequate motive to exchange, nor would they exchange them for coin, to be used as currency, so long as they would perform, as currency, all the functions of coin. Producers, consequently, in whose favor the bills were discounted, would, from the greater convenience of their use, prefer to receive in their discount, notes and credits to coin, as they could pay them out equally with coin in the purchase of labor and material, in the prosecution of their industries, to the very parties who would be the consumers of the merchandise which they had produced and put upon the market. As fast as such merchandise was consumed, the notes and credits issued would come into the possession of the parties who had been its holders (the makers of the bills), to be used by them in their payment. The obligation created on either side, when the bills were discounted, would in this way be cancelled by mutual offset; but not until merchandise, equal in value, had been fully distributed for consumption.

The pivot upon which all these operations turn is merchandise. That provided, the instruments which represent it, and which entitle their holder to a corresponding amount of the same in value, or to the proceeds of the same, and which, by their transfer, transfer that which they represent, ARE PAPER MONEY-CURRENCY. As soon as they are issued, their movement commences automatically in their appropriate spheres, and continues until they have accomplished their circuit and work. It is merchandise that calls them into being; it is merchandise that gives them their value; it is merchandise that gives them their impulse; and it is merchandise that, by its purchase for consumption, returns them to those who issue them, not to be reissued but in the making of new loans. So far as merchandise is provided, they proceed noiselessly and beneficently in their proper orbits. So far as it is not provided, their course is as erratic and destructive as would be that of the planets, without the guidance and control of that central mass around which they now so harmoniously move.

All local currencies, therefore, are based, not on gold and silver coin, but on merchandise, for which they serve, in the place of coin, as instruments of distribution. Coin is itself money, and needs no symbol for its transfer or distribution. Except a small quantity by way of change, the precious metals

are no longer used as currency. They are held and used chiefly as reserves for the discharge of such paper currencies as are not discharged by merchandise in manner described.

As the Bank, in the payment of its bills, would make no distinction between the notes and credits issued, that is, as it would receive, in payment of bills given for breadstuffs, notes and credits issued in the discount of bills given for iron, - so the holders of merchandise, who would be the makers of its bills, would receive its notes and credits without any reference to the kind of merchandise for which the bills discounted were given. In the same way, if the merchandise of a community were symbolized by the issues of several Banks, such issues. would be received on the same terms by its holders; for the reason that each Bank would receive for the payment of its bills the notes and credits of the other Banks (provided they were of good standing) equally with its own. Whatever the notes or credits, therefore, that any person might hold, they would be directly exchangeable for any article that might have been symbolized, or which he might wish to obtain. In the settlements that would frequently, and in places where there were several Banks would daily be made, each Bank would have to take in all its notes and credits that might be held by other Banks. These settlements would be made by offsetting, as far as they would go, the notes and credits of other Banks which each might hold against those of its own held by them. The balances arising, after the notes and credits of other Banks held by any one Bank had been exhausted would, like all debts, have to be discharged in coin, as the only kind of capital which, as in the case of a balance arising in foreign trade, the party would accept in whose favor it might be found, or which the delinquent would have to offer.

The process of discount consists, as already shown, of a mutual exchange of promises payable by their terms in coin,of the notes and credits of Banks for merchants' bills. The latter are payable, in theory, upon such time as will suffice for the distribution of the merchandise for which they were given, and the collection of its proceeds. The former are payable presently, as they are assumed to represent merchandise fitted and accessible for immediate consumption; and in order that, if their holders desire, they may be used at any moment in the