to be fully adequate to its objects, should equal in amount the total value of the merchandise entering presently into consumption. Paper money does not supersede metallic money: it only supplements it. To say, therefore, that it should never exceed in amount the coin previously in circulation, is to say that a railroad constructed along an old highway should never transport a greater amount of merchandise than had been transported over it. The railroad may still leave the old highway well employed, while reducing the cost of transportation five or ten fold. It does not supersede, it supplements, the old highway; and, by supplementing it, adds almost infinitely to production and wealth.

"Whatever currency a Bank issues over and above what a community can absorb, is," says Smith, "constantly returning to it for redemption." A country will absorb all the currency it can get. If the present amount of United States notes should be quintupled, the country would absorb them, just as it has absorbed those at present in circulation, which, as far as the exchanges were concerned, were wholly superfluous. Prices rose in ratio to the amount issued, so that, so soon as the effect of the inflation had expended itself, money was in no greater relative abundance than before. So with the issues of a Bank. If they represented consumable merchandise, the country would absorb all that could be issued; money, in the mean time, remaining in the same relative abundance. As whatever was issued by Banks would be speedily returned to them for redemption, and would have to be retired by the payment of coin, provided they did not represent merchandise, the country could not "absorb" such notes a second time, for the very good reason that they could not be reissued. When a currency is irredeemable, the country will absorb all it can get, so long as any credit whatever is attached to it. It can absorb whatever represents capital, for the reason that an equilibrium is in such case maintained between prices and the amount of currency issued.

"When it was observed that, within moderate periods of time, the repayments of a particular customer were upon most occasions fully equal to the advances which a Bank had made him, it might be assumed that the paper money which had been advanced to him had not at any time exceeded the quantity of gold and silver

which he would otherwise have been obliged to keep by him for answering occasional demands; and that, consequently, the paper money which had been circulated by his means had not at any time exceeded the quantity of gold and silver which would have circulated in the country had there been no paper money. The frequency, regularity, and amount of his repayments, would sufficiently demonstrate that the amount of the advances made had at no time exceeded that part of his capital which he would otherwise have been obliged to keep by him unemployed, and in ready money for answering occasional demands.

"The advances of the Bank paper, by exceeding the quantity of gold and silver, which, had there been no such advances, he would have been obliged to keep by him for answering occasional demands, might soon come to exceed the whole quantity of gold and silver which would have circulated in the country had there been no paper money, and, consequently, to exceed the quantity which the circulation of the country could easily absorb and employ; and the excess of this paper money would immediately have returned upon the Bank to be exchanged for gold and silver."1

As prices would rise in ratio to the amount of paper money issued, an increase of currency over that which had been in use would, in the outset, tend to make merchants more prompt in their payments, from a corresponding increase of demand for merchandise. Promptness in payment would, for a time, be rather an evidence of an excess of currency than otherwise. An inflation, or an excessive issue, of paper, might go on for years, even when the currency could be converted on demand into coin, provided all the Banks and bankers were affected by similar sentiments, and moved in the same direction. The greater part of the notes and credits issued would be retired by mutual offset in the manner already described; so that only a small amount of coin might, for a long time, be drawn. In this way, the amount of paper in circulation might very largely exceed the amount that could eventually be sustained. In time, however, some event or another would disclose the weakness of the financial situation, of which the wisest and most experienced in the community might, up to the very time of the catastrophe, be almost wholly unconscious. Then would come the scramble, the sauve qui peut, - which, in a few months, might reduce the currency far below the point at which it stood when the inflation commenced. Even in such a case, the Banks might not be

1 Wealth of Nations, Book ii. Chap. ii.

compelled to suspend specie payment; but they might lose a very considerable portion of their reserves, and might require years to recover the ground lost. Unfortunately, the history of Banks is one of constant alternation between excessive issues and excessive contractions. The first lesson is yet to be learned by their managers, that all loans, except those made upon business paper, always inflict an injury upon the public, and usually recoil with greater or less force upon those making them.

"It is not by augmenting the capital of the country," says Smith," but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country. That part of his capital which a dealer is obliged to keep by him unemployed, and in ready money for answering occasional demands, is so much dead stock, which, so long as it remains in this situation, produces nothing to himself or to his country. . . . The gold and silver money which circulates in any country, and by means of which the produce of its lands and labor is annually distributed to the proper consumers, is in the same manner as the ready money of a dealer a dead stock. It is a very valuable part of the capital of the country which produces nothing to the country. The judicious operations of banking, by substituting paper in the room of the greater part of this gold and silver, enables the country to convert a great part of this dead stock into active and productive stock, into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing (if I may be allowed so violent a metaphor) a sort of wagon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and cornfields, and thereby to increase, very considerably, the annual produce of its land and labor...

"The increase of paper money, it has been said, by augmenting the quantity, and consequently diminishing the value, of the whole currency, necessarily augments the money price of commodities; but as the quantity of gold and silver which is taken from the currency is always equal to the quantity of paper which is added to it, paper money does not necessarily increase the quantity of the whole currency." 1

Smith's assertions, that all reserves and all money are so much dead capital, and that it is only by the use of paper

1 Wealth of Nations, Book ii. Chap. ii.

money that gold and silver, being discharged from use as currency and exported, can produce any thing to a country holding them, have been sufficiently refuted. "These are," he tells us, "like highways, which, while they circulate and carry to market all the grass and corn of a country, produce not a pile of either." He forgot that it was the highway that gave the grass and corn whatever marketable value they possessed; . and, that, consequently, the highway was as productive as were the soils upon which they were grown. His "violent metaphor," that a judicious process of banking was like a wagon way through the air, enabling the country, as it were, to convert the greater part of highways into good pastures and cornfields, and thereby increase the annual produce of its land and labor, is a false one for the reason that as there may be no less gold in a country possessing a symbolic currency, so there are no fewer, but more, ordinary highways for every railway that is constructed; showing that the improvement does not supersede, but supplements, the old method.

Among the subjects which Smith discussed, as having an intimate relation to that of money, was "Balance of Trade," of which he treats in the chapter in the "Wealth of Nations," entitled "The Principles of the Commercial or Mercantile System." As there has been no subject upon which the Economists have been better agreed, nor one more thoroughly misunderstood, it may be well to set out briefly the ideas and conditions upon which this system was founded; and to show, that while the methods resorted to were calculated to defeat the end sought, a favorable, or, rather, a not unfavorable, "Balance of Trade" is that which is always uppermost in the minds of individuals as well as nations; and every community, at least every one using a symbolic currency, must constantly look to it that the "Balance of Trade" is not adverse, and must be able to prevent the withdrawal of an excessive amount of coin, and to recall such as may have been lost from an unfavorable state of its industries and trade.

It is well known to every student of history, that the assumed science of Political Economy is a modern one. Such part of it as relates to symbolic currencies dates from the foundation of the Bank of England, - an event, or institution,

which has changed the whole face of modern society. Although somewhat addicted to commerce, the Greeks never appear to have speculated upon subjects coming within the range of the economic sciences. Their industries were chiefly conducted by, and their incomes derived from, the labor of slaves; and it was hardly to be expected that subjects or callings which were held by the wisest and best of their race in disesteem, or as contrary to nature, should be thought worthy to be erected into the dignity of a science. The Romans, never a commercial or manufacturing people, sustained themselves very largely by war during the period of their conquests; and after the world was subjected to their arms, by requisitions upon the provinces. For ages the race was under one vast military régime, which left no room for, or effectually stifled all discussion upon subjects which now chiefly engross the attention of mankind.

The Northern races which overthrew the Empire, and erected the new nationalities upon its ruins, were radically unlike all that preceded them. The spirit of independence, which pervaded them all, rendered it impossible that the arms of one state or nation should become paramount, so as to draw from others its means of support. Wealth, consequently, if gained at all, had finally to be gained by industry and trade, in what, compared with Southern Europe, was a country forbidding in its aspect, and possessed of a cold and inhospitable climate. Unlike the Romans, all the Northern nations were addicted to adventure and to nautical life. They had a passion for wealth and luxury which industry and commerce could alone supply. The new civilizations, consequently, rested upon foundations wholly different from the old. With the old, almost the only idea of a city was as a means of attack or defence; with the new, the city had hardly any other purpose than as a mart of trade. Those founded by them frequently rose to great wealth and power; and combining with each other, like the Hanse Towns, were in time able not only to protect their commerce and industries, but to oppose an effectual resistance to the utmost power that could be brought against them. As freedom is the necessary condition of commerce, these cities became the asylums and champions of the liberties of mankind. But for them, these could not have survived the assaults