can bestow. Among a people by whom such virtues were cultivated, the Political Economist would have been as superfluous and as much out of place as a fortune-teller. The strange contrast to this picture is to be equally heeded, if the true method of human progress would be fully learned. It was the want of that which raised Holland to the highest pitch of prosperity that reduced Spain to the lowest abyss of impotence and decay. The latter should have learned to correct and abate dogma by reference to the material result. The religious must be summoned to plead at the bar of the secular, as the secular at the bar of the religious. They must mutually correct the vices and excesses of each other. A nation or people who cannot do this is far gone in the downward road, to fall an easy victim to the higher powers that surround it, which are as remorseless and inexorable as the laws of nature itself.1 After leaving Mill, we come to a vast swarm of writers, all of whom repeat him with a greater or less degree of extravagance, with the exception, perhaps, of Mr. H. D. Macleod, who has erected a vast system, measured by the number of pages devoted to it, the fundamental principle of which is that gold and silver serve as money by reason of being representative of debt; that paper serves as such by reason of being the representative of transferable debt; and that whatever represents transferable debt is currency, paper money. The italics and capitals are his own. "In this sentence," says Macleod (referring to Law's commentary upon Chamberlain's plan for a bank based upon real estate), "is concentrated the whole essence of that eternal delusion, so specious and plausible, and so fatal, which we designate as LAWISM. It is, indeed, nothing but the stupendous fallacy that money represents commodities, and that paper currency may be based upon commodities. This delusion is deeply prevalent in the public mind at the present day, and probably there are few persons, except those who have studied the true philosophical principles of Political Economy, whose views are not deeply tainted with this infection. No man who does not thoroughly understand the great 1 Charles V. being, in 1550, in Biervliet, where Beukels was buried, visited his grave, and ordered a magnificent monument to be erected to the memory of one to whom his country owed so much. What would have been his emotions could the veil of the future have been lifted so as to disclose the real significance and effect of Beukels' discovery in the disaster and ruin brought upon his house? fundamental doctrine established by Turgot and others, that money does not represent commodities, can ever have sound ideas on this subject. MONEY DOES NOT REPRESENT COMMODITIES AT ALL, BUT ONLY DEBT; OR SERVICES DUE, WHICH HAVE NOT YET RECEIVED THEIR EQUIVALENT IN COMMODITIES. Now, the views of Law are much more extensively prevalent than is generally supposed. All who think that there is any necessary connection between the quantity of money in a country and the quantity of commodities in it are influenced by them. Take the case of a private individual. Is there any necessary relation between the quantity of money he retains and the quantity of commodities he purchases? The quantity of money he has is just the quantity of debt of services due to him, - which he has not yet parted with for something else. It is the quantity of power for purchasing commodities he has over and above what he has already expended. And the quantity of money a nation possesses is simply the quantity of accumulated industry it possesses over and above all commodities; but they have no relation to each other. Now, money does not represent commodities; but it represents that portion of a man's industry which is reserved for future use. Whatever a man earns is the fruit of his industry, money included; and none of the separate items represent any thing else, though it may be exchanged for other things. Now, the value of money depends upon its relations to what it represents, namely, debt, and not to commodities. If money or currency increases faster than debt or services due, it immediately causes a diminution of its value. If debt increases faster than money or currency, then the value of money is raised. The infallible consequence, therefore, of an increase of currency, without a corresponding increase of debt, is to change the existing proportion between debt and currency, and to cause a depreciation of the latter commensurate to the changed proportion. The necessary and inevitable consequence, then, of issuing vast quantities of paper currency on the assumed value of property, is simply to cause a total subversion of the foundation of all value and of all property, and to plunge every creditor into irretrievable ruin. "We must, therefore, be careful to be just to Law. He was no advocate of an unlimited inconvertible paper currency. Quite the reverse. But, seeing that a convertible paper currency could only be based upon bullion to a certain limited extent, preserving its equality in value with bullion, his idea was to base a paper currency upon some other article of value; and he thought that it might preserve its equality in value to silver on an independent basis. His idea was, that it was only necessary to have it represent some article of value. But this attempt was contrary to the nature of things. His paper currency, though avowedly based upon things of value, had exactly the same practical effects as if it had been based upon silver. It became redundant, and swamped every thing. And the reason is plain it was a violation of the fundamental principle we have obtained Where there is no debt, there can be no currency. And the fresh quantities of currency issued on such a principle only represent the previously existing amount of debt, and then suffer a necessary diminution in value. "The foregoing considerations also show the complete fallacy of the theory we have been discussing, of issuing notes upon 'good bills.' In a banker's sense, a good bill' means simply a bill which is duly paid by the proper party at maturity. It is not of the smallest consequence to him whether the transaction out of which the bill originated is a profit or a loss to the person who incurred the obligation, as long as he is paid. But if the expression 'good bill' be taken in a more extended and philosophical sense to denote a bill upon which it is safe to issue currency, it is a very different matter indeed; for then a 'good bill' can only mean one generated by a successful operation. "It is not a little remarkable that Adam Smith adopts both the theories of paper currency which have imposed so extensively on the banking and mercantile world, and that within a very few pages of each other: the one theory, that which the Bank Directors and merchants adopted in 1810; the other, which is the great currency fallacy of the present day. The two theories are utterly irreconcilable and inconsistent with each other: the one necessarily leads to the most excessive overissues and depreciation of the paper currency; the other, if carried out in all its integrity, would be utterly destructive to the business of banking. "What, then, is the only true foundation of a paper currency ? Every consideration of sound reasoning and science proves that the only true foundation of a paper currency is that substance which is the legal or the universally accepted representative of DEBT, i.e., of services due, whatever that substance may be. Now, among all civilized nations, gold or silver bullion is the acknowledged representative of debt. Consequently, gold or silver bullion is the only true basis of a paper currency. Among all civilized nations, the weight of bullion is the acknowledged measure of value; and, consequently, bullion is the only true basis of the 'promises to pay. Many unthinking persons declaim against the absurdity of founding a paper currency upon the commodity of gold bullion, rather than any other commodity, such as wheat, or silk, or sugar. But it is not as a commodity that bullion is the basis of a paper currency, but as the substance which is the accepted representative of debt. It would be perfectly possible to make a yard of broadcloth, or a Dutch cheese, representative of debt and the measure of value. Then broadcloth or Dutch cheeses would be the only true basis of a paper currency; and to issue paper upon the basis of bullion would, in such a case, be as improper as to issue paper upon the basis of broadcloth or Dutch cheeses, under existing circumstances. But all nations are agreed that bullion is better fitted by nature for such purpose than broadcloth or Dutch cheeses; and, consequently, as it seems to be the substance pointed out by Nature herself for representing debt, it is the substance which forms the only true basis of a paper currency. 1 Macleod on Banking, vol. ii. pp. 172-174. "Bullion, then, as the symbol of debt, is not only the sole proper basis of a paper currency, but is the only true regulator of its amount. As all paper currency is a promise to pay' gold or silver bullion at some definite time, it is quite evident that the 'promises to pay' floating in a nation must bear some proportion in quantity to the actual quantity of the bullion. It is quite impossible to fix any definite proportion; because that depends upon a multitude of peculiar circumstances. Experience is the only guide on the subject. Specie and credit, or money and promises to pay money, then, form the only true circulating medium or currency; and they are its limits.1 : "But, while we contend that Lord Overstone's criterion of a currency is fatal to his own view, we are quite willing to accept it. For what is it that exists in all places, in all times, and among almost all persons? DEBT, or SERVICES DUE. And what is it that is universally required to measure, record, and transfer them? Some material. But we see that all currencies are more or less local none are universal. The idea, or the want alone, is universal. The notes of a country banker, only circulating in his own neighborhood, are like a country patois: each district has its own. A national currency rises to the dignity of a language. But even that is only local, on a larger scale. The ideas only expressed in the language are universal. We are, therefore, strengthened in our conviction, that the only true idea of a currency is that it is the Representative of Transferable Debt, and that whatever represents Transferable Debt is Currency."2 It will be time enough to reply to such flippant and incoherent nonsense, swollen into two spacious volumes, when Dr. Schliemann shall have dug up at Troas or Mycena Dutch cheeses perfectly fresh and sweet, and bearing upon their surfaces the dimples in the exact form and shape in which they were impressed by the tiny fingers of the pretty Dutch milkmaids three thousand years ago. Till then the habit or prej udice of mankind in assuming gold, as money, to be capital instead of debt, will be considered as resulting not from accident, but from law. "We must now consider," he says, "the effect of an incon. vertible paper currency on the foreign exchanges and the market price of bullion. So long as paper is convertible, that is, the holder of it has the power to demand payment in gold for it at sight, it is very clear that it cannot circulate at a discount; because, if it fell to a discount, every person who held it would immediately go and demand gold for it. But if, while it enjoys considerable 1 Macleod on Banking, vol. ii. pp. 191, 192. 2 Macleod on Banking, vol. i. p. 209. circulation, the power of convertibility is suddenly taken away, then it becomes, in all respects, equivalent to a new standard, just as much as gold or silver; and its value will be affected by the same principles as these two, viz., by the sole question of the quantity of it in circulation compared to the operations it represents. "Now if, for the public convenience, it be deemed advisable to issue an inconvertible paper currency, the only way of maintaining its currency at par is by limiting its quantity. We do not mean by this, limiting its quantity to an absolute fixed amount; but by devising some means whereby a greater quantity of it shall not be issued than if it were convertible into gold. If more than this be issued, it will be followed by the same result as attends an excessive issue of silver: it will fall to a discount, which in this case is depreciation; and the necessary consequences of a depreciated currency will follow, viz., the market price (or paper price) of bullion will rise above the mint price, and the foreign exchanges will fall. "Now, if such a state of things happens, the proper remedy is to diminish the quantity of the paper in circulation until the market price of bullion is reduced to the level of the mint price. If the direct power of demanding five sovereigns be taken away from the holder of a £5 note, still, if he can purchase bullion with it in the market to the amount of five sovereigns, it is an infallible proof that the note is current at par; and the limitation need not proceed beyond that. "Whenever the currency of a country becomes redundant, that is to say, that prices rise so much higher in one country than in its neighbors that the value of money sensibly diminishes, the natural corrective for such a thing is to take a certain portion of it out of circulation; so that, by diminishing the quantity of it, its value may be raised. When people find that the same quantity of gold will not purchase an equal amount of commodities in this country as they will in another, their own natural instincts will lead them to purchase commodities abroad, where they are cheap, and bring them for sale here where they are dear. The natural instincts of trade will, therefore, produce an equilibrium in value in the currency of neighboring countries. "Now, when the currency of a country consists partly of paper and partly of gold and silver, it is quite clear that only the metallic portion of it can be exported in payment of foreign commodities. The paper portion of it which has no value abroad must remain at home. If the issues of the paper be continued so as to prevent the currency from recovering its value, the process of the exportation of the metallic portion will go on until it is entirely exhausted. If this be the case, the only method of restoring the currency to its former value is by diminishing the quantity of the paper until the drain is stopped by the enhancement of the value of the whole quantity."1 1 Macleod on Banking, vol. i. pp. 257-260. |