of cash notes, to prevent the enemy withdrawing the gold from this country."

Mr. Gilbart, in the event of a war, would suspend specie payments, would demonetize gold and silver, as a means of retaining them in the country. He would cut off the handle of your axe, and render it useless, so as to prevent an enemy from striking off your head. But how was the enemy to get hold of the handle? By paying the price both for that and the axe. If he paid the price, he might thereby put in the

hands of the owner that wherewith to defend himself far better

than with the axe. In a war, men do not pelt each other with paper bullets and guineas, but with what those purchase; so that a nation cannot, perhaps, do a better thing than increase its means of defence by parting with its gold. The better way is to leave the handle in, and let the enemy take it at his peril. But if the gold of a country at war be demonetized, the enemy or some other nation will be sure to get it, not in exchange for powder and ball, but for wines and silks, for that which, instead of arming and furnishing it for the fight, would inevitably tend to its emasculation, to the destruction of all patriotism and manhood. The effect of a war is always to turn the exchanges of a country engaged in it in its favor, for the reason that every one orders home the proceeds of his exports in coin, in order to have in hand that upon which he can certainly rely, should the event prove unfavorable, should domestic order be disturbed, or the wonted industries of the country fail. The exchanges were instantly turned in favor of the United States upon the outbreak of the war of the Rebellion, and gold continued to flow into the country in immense volume until the suspension of specie payments. The exports of coin and bullion from the United States in 1860, the year preceding the Rebellion, equalled $66,546,289; the imports, $8,550,135. The imports for 1861, the first year of the war, during which the country remained on a specie basis, equalled $46,359,601; the exports, $23,800,810. Specie payments were suspended near the close of 1861, through the perverse action of the Secretary of the Treasury. The first issue of legal-tender notes was authorized Feb. 25, 1862. The imports of specie for that year equalled $16,415,012; the exports, $36,886,956. The exports for 1863 equalled $100,321,731;

the imports, $13,115,612. These facts show the effect of demonetizing the currency of a country. The exports for 1863, 1864, and 1865, equalled $220,932,000; the imports, $32,504,000. For the years last named, legal-tender notes( were worth hardly fifty per cent of their par value. The retaining of gold in the country was a matter wholly within its power. If legal-tender notes had not been issued, the United States would have laid all the world under tribute. The first impulse of a people when they find themselves about to be plunged into a war is to forego every article that does not rank among the necessities of life. Their silver and gold are the first things they place beyond the reach of harm. Foreigners cannot get them, unless they pay more than they are worth. This they will not do, for the reason that they can get them of nations at peace, for their worth. The position of the United States, so far as its currency was concerned, was impregnable, but for its voluntary demonetization. Both England and the United States are striking examples of the effect of Mr. Gilbart's method. Both lost their gold as soon as it could be taken away from them by lavish and wasteful expenditure. By reason of an inconvertible currency, England probably doubled her national debt. It might not have been one-tenth its present amount; for if her gold had not been demonetized, she might have escaped or avoided wars which, with all the success achieved, brought unnumbered woes upon her people. The civil war in the United States would have been ended in half the time, and at half the cost, but for demonetizing their coin. But for this, the nation, when it came out of the conflict, would have been in position to have at once started upon a new career of prosperity, the vast incubus of slavery having been shaken off. Twelve years have elapsed since order was restored, and it is still confronted with a problem far more difficult of solution than that of the subjection of the Slave States.

The following extract will show the modes by which, according to Mr. Gilbart, banking capital may be raised:

"Now, it is obvious that these two kinds of banking are adapted to produce precisely the same effects. In each case, a banking capital is created, and each capital is employed in precisely the same way; namely, in the discounting of bills. To the parties who

have their bills discounted, it matters not from what source the capital is raised the advantage is the same to them, and the effects upon trade and commerce will be the same. Let us suppose that in each case the banking capital created is £50,000. Now, the Bank of circulation will have increased the amount of money in the country by £50,000. The Bank of deposit will not have increased at all the amount of money in the country; but it will have put into motion £50,000 that would otherwise have been idle. Here, then, is a proof that to give increased rapidity to the circulation of money has precisely the same effect as to increase the amount. Here, too, is a proof of the ignorance of banking on the part of those writers who consider that the Banks which issue notes are the sole cause of high prices, over-trading, and speculation; whereas, it is obvious that if those effects are to be attributed to banking at all, they may as fairly be ascribed to Banks of deposit as to Banks of circulation."

The difference in the two cases is, that in one the £50,000 of capital provided for the Bank is capital in a form proper to be loaned; in the other, no capital whatever is created or provided. To say that notes, without the least provision for their redemption, are the equivalent of deposits, which may be wholly in the form of coin or of notes representing coin, is to say that fiction equals reality, and shadow substance. The difference in effect in the operations of the Bank would equal the difference in fact. The issue of the £50,000, without any thing to support it, would in all probability involve all parties to it in embarrassment and loss, while the loaning of the capital made up of deposits might prove most advantageous to all parties to the loan. The distinction, however, between the effect of issues based upon capital, and such as are purely fictitious, has been too fully shown to require comment here. Mr. Gilbart, undoubtedly, possessed a capacity of intuitively measuring the person who wanted to borrow his money; but he was wholly out of his sphere when he undertook to write upon its laws.

Among the more recent publications is the "Manual of Political Economy," by Mr. Henry Fawcett, Professor of this science in the University of Cambridge, England. The following is his account of the nature and function of paper money:

1 Principles and Practice of Banking, p. 88.

"A moment's consideration will show that a bank-note, whether issued by a State establishment or by a private firm, is simply a convenient form for bringing into practical use the credit which may be possessed by the Bank. . . . A banker, therefore, whose credit is good can circulate a great number of his notes in his own neighborhood; his notes being willingly accepted by those to whom he is known. . . . It is manifestly to his advantage to issue notes; for, suppose £60,000 of these notes are kept in circulation, it is ascertained by experience that an amount of legal tender equivalent in value to one-third of the notes issued will be sufficient, if kept as a reserve, to meet all the notes which are presented for payment. A banker, therefore, whose notes circulate to the extent of £60,000, has £40,000 at his free disposal to invest in some profitable investment.

"It may be asked, What would be the effect upon prices if the bank-note circulation were suddenly increased? This suggests one of the most disputed of the currency questions. As previously stated, the bank-note circulation of England is placed under various restrictions, the nature of which will be presently detailed. The purpose we have in view, at this stage of our inquiry, is to investigate the effect which would be produced on prices if the bank-note circulation were largely increased by a removal of all restrictions which now limit its amount. We conceive that the effect which would be produced entirely depends upon circumstances. Let it be supposed that there is no change in the popula tion, or in the commercial condition of the country. If, under these circumstances, an increased issue of notes were added to the money circulation of the country, prices would manifestly rise; because there would be now more money in circulation to carry on the same amount of buying and selling which was previously conducted by a smaller amount of money. If, however, the additional notes which are issued simply cause a corresponding amount of bullion to be withdrawn from circulation, it is manifest that no effect is produced on prices. The only result is, that the trade of the country is carried on more economically; because these notes, which are simply pieces of paper of no intrinsic value, perform with equal efficiency all the purposes which were previously fulfilled by the gold, now supposed to be dispensed with. Consequently the economy of this substitution is evident. Gold is a valuable commodity, requiring much labor and capital to obtain it. We therefore have the following principles to guide us in an inquiry into the effects of a bank-note circulation:

"1. If bank-notes simply occupy, in the monetary circulation of the country, the place of a corresponding value of bullion, these notes produce no effect on prices.

"2. If it can be shown, that, either by the repeal of the Bank Charter Act or by any other cause, the bank-note circulation of the country can be increased without withdrawing from circulation a corresponding amount of coin, it is manifest that the aggregate money circulating in a country will be augmented, and general prices will, as a consequence, undoubtedly rise. . . .

"In discussing the laws of price, the principle was established, that general prices depend upon the quantity of money in circulation compared with the wealth which is bought and sold with money, and also upon the frequency with which this wealth is bought and sold before it is consumed. If more wealth is produced, and an increased quantity of wealth is also bought and sold for money, general prices must decline, unless a large quantity of money is brought into circulation. Suppose, for instance, that the production of every kind of wealth is doubled in this country, that every one doubles his purchase of commodities, and, at the same time, there is no increase in the amount of money in circulation: upon this hypothesis, each individual, although he is supposed to purchase twice as much of every commodity as he did before, will only possess the same amount of money with which to effect these purchases. He will, therefore, be only able to give the same amount of money for double the quantity of each commodity he purchases; but this is tantamount to saying that general prices have declined one half. In fact, if there should be an increased production of wealth, if there should be more buying and selling, or if any other circumstance should occur the effect of which is to require the circulation of a larger amount of money, the value of money must rise; or, in other words, general prices must decline, unless an increased supply of money is forthcoming, so that a larger amount may be brought into circulation. When buying and selling are effected by bills of exchange, the necessity for money is as completely dispensed with as if the transaction was carried on by barter: these trading transactions, therefore, in which bills of exchange are employed may be almost indefinitely extended, without rendering it necessary to bring an increased amount of money into circulation.

"A consideration of some of the consequences which would ensue if bills of exchange did not exist will perhaps more plainly indicate the influence which they exert upon prices. Suppose that all the commodities which are now bought and sold by means of bills of exchange were paid for by money, a largely increased amount of money would be required to be brought into circulation. If this additional supply were not forthcoming, money would rise in value; or, in other words, general prices would decline. Hence bills of exchange, in many classes of transactions, are a convenient and complete substitute for money. Consequently, if it were not for bills of exchange, one of two things must happen: either the money in circulation must be increased, or the money already in circulation must become more valuable, since a greater amount of money will be required to carry on the trade and commerce of the country. But to say that money becomes more valuable is equivalent to stating that general prices decline.

"It therefore appears that we cannot, by a simple negative or affirmative, answer the question, whether an increased issue of bills of exchange affects prices. All that can be said is this: if the buying and selling now carried on by bills of exchange were effected by money, then one of two things must occur, either