assumed an increase of currency to be followed by an increase of prices. The whole question turns upon the nature of the currency. If it be neither capital nor the representative of capital (merchandise); if it be that kind of currency which can be substituted for gold, like legal tender, then he was quite right; for an increase of such currency always tends to advance prices in being in excess of the means of consumption. If it be capital or the representative of capital, then he was wholly wrong; for prices must be in ratio to the amount of merchandise fitted for consumption, or in ratio to the perfection of the instruments for its distribution.

The same remarks apply with equal force to bills as currency as to bank-notes. Bills are, equally with bank-notes, the representatives of values, of merchandise; and would have no value but for their capacity of being discharged by it. As they must always speedily disappear if they possess any value, they can no more be substituted for coin than can notes. Mr. Fawcett predicates the same results of them as of bank-notes, and assumes that their use may discharge that of gold altogether. An increase in their amount puts up prices; a decrease in it puts them down. Suppose, he says, "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." But if bills of exchange, that is, symbolic money, were not used, "all the commodities now bought and sold" would not be bought and sold, probably not one-quarter the present amount. They would not exist. They are bought and sold, that is, they do exist, by reason of the use of symbolic money. With a return to a metallic currency, the amount of commodities would not only be greatly reduced, but the cost to consumers would be greatly increased.

Such is the confusion which prevails as to the nature and effect upon prices, of credits in the forms in which they are chiefly used, that it may be well, at the risk of some repetition, to restate the whole subject. The lending of his name by a party possessed of means in real estate or securities, to another of integrity and enterprise, is one of the usual illustrations of the beneficent results that may flow from the use of credits. The capitalist, as he is termed, will make a profit in the form of

interest upon the amount of the credit he extends. The borrower gets that upon which he can profitably exercise his industry and skill. But such credit, as a rule, is valueless until it is turned by a Bank into money. This done, the borrower contracts to pay the amount of the loan in money, within a comparatively brief period. This is to be provided out of the proceeds of the enterprise or industry in which he may engage. If he cannot turn this to account within the time within which the loan of the Bank is to be repaid, then the credit will prove to him a source of loss far greater than its amount. It was the means of anticipating of putting into the form of money -that which perhaps existed only in idea, or which, if well based, might require years for its proper development. If the borrower cannot pay, then the capitalist, at the last moment, will be called upon. He may not be able to take in his credit immediately, although possessed of large means; and, consequently, becomes involved and discredited by the operation. If he cannot seasonably pay, the Bank must take in its notes, by paying out a corresponding amount of coin. Its ability to discount, and with it the amount of the currency, will be reduced in like degree. The currency, which was inflated by the amount of the discount above the ordinary range, is now reduced as far below it; and prices fall in like, or in still greater, ratio. All credits, therefore, of the kind described produce, as a rule, two effects: a rise, from an issue of instruments in excess of the means of consumption; and then a fall, far greater and of longer continuance than the rise, from a reduction of the currency as far below as it had exceeded its ordinary range, and from the improvident expenditure of capital equal to the amount of the credit given. Such credits, therefore, should never be made the basis of industrial enterprises. Another form of credit, the process of which has already been fully detailed, is that by which bills given in the purchase of merchandise, for its distribution, are converted by Banks into paper money, by means of which producers can anticipate the sale of their products and collection of the proceeds. By this process they are enabled to continue their industries on their wonted scale. The effect is greatly to reduce prices to the consumer, while usually increasing the profits of the producer. A third form that out of which bills which form the basis of paper money chiefly arise is the intrusting to the merchant

such possession of that in which he deals as is necessary for the discharge of his particular function. Such credit may be given by bill, or by book account. By its means, merchandise reaches the consumer with no other burden resting upon it than cost, and the necessary charge and compensation for the labor employed in its distribution. When it reaches the consumer, and is paid for, the proceeds return through the same channel through which it was distributed, discharging the obligations incurred in the several stages; to be finally paid over to the producer, or to the Bank, assuming the merchandise to have been sold upon credit and a bill given therefor, and turned into notes. The credit last described exerts a most powerful influence in the reduction of prices. In one sense, it includes the previous one, as it lays the foundation for bankers' credits, to be given in the discount of bills. The two last are the only ones that act to any considerable extent upon prices; and their effect in the end is always to produce a fall when the prices which the consumer pays, as well as those which the producer realizes, are taken into account. Were the effect of credits, in their proper sense, to raise instead of reducing prices, they would be the greatest of evils, instead of being, as they are, most valuable contrivances in the economy of society.

The only effect of the Act of 1844 would be to allow perfect freedom in the form of the currency issued. There might be an increased use of notes, and fewer checks; but this is not probable.

"Inconvertible notes," says Fawcett, " will be as freely accepted as coin, if people have confidence that an inconvertible currency is only a temporary expedient, and that the government will take scrupulous care never to permit the issue of inconvertible notes to exceed an amount which can with certainty be ultimately redeemed.

"It is, therefore, possible to conceive that exceptional circumstances may occur, during which an inconvertible currency may be issued, if kept within proper limits, without disturbing the finances of the country. For instance, there can be little doubt that the American civil war created a demand for a greater amount of money to be circulated in that country. More money was in fact required; because the raising of a large army, and supporting it in the field, would render it necessary to make many more payments in money. If the issue of an inconvertible currency in America

had gone no further than to satisfy this demand for a greater sum of money to be brought into circulation, no one's confidence in the financial credit of the government would have been shaken, and the inconvertible currency would have exerted no effect on prices. But the American government far outstepped their legitimate limits." "1

People accept an inconvertible currency of government notes, as it will discharge their own debts existing at the time, by virtue of its being legal tender, and from a belief that it will speedily be redeemed by an equivalent in some form. If government be competent to issue it, it would have a high value for a time, even if it were believed that it would not be paid. While there are grave objections to such a currency, says Mr. Fawcett, it is possible that if its issue were confined within reasonable limits, it might be issued without disturbing the finances of a country. If, for example, the United States, in the late civil war, had issued notes only in ratio to their increased necessity for money, the issue could have exerted no influence over prices. The yearly average expenditures of that country previous to the war equalled, say, $15,000,000. They went up during the war to $750,000,000 annually, for three years. The demand for money, measured by the price of the notes issued, exceeded sixteen-fold the amount of previous expenditure. To that extent, said Mr. Fawcett, government notes might be issued, and the currency increased in like ratio, without exerting any influence upon prices; for the reason that the money issued would only be in ratio to the increased necessity for its use. But how could the expenditures of a government be increased sixteen-fold, or even eightfold, without any increase of capital, or fund to draw upon, and prices remain at their old figures? It is the same as to say that a demand multiplied by one per cent equals a demand multiplied by eight or sixteen per cent. If gold could have been supplied wherewith to meet all expenditures growing out of the war, prices would still have increased enormously, from the excess of demand over supply. Gold was not, or could not be, had. Legal-tender could; and prices rose in ratio to its use, and to the necessities of the government. At one time, $281 of paper would purchase only $100 of coin. Prices rose, there

1 Manual of Political Economy, p. 443.

fore, in ratio to the demand; in other words, in ratio to the inflation of the currency. If Mr. Fawcett had paused long enough to ask himself whether or not a sovereign to be received six months hence had the same value to the person who was to receive it as a sovereign in hand; or whether a government note having one year to run, without interest, equalled in value its note having the same time to run, bearing interest, -the answer, properly made, would have unlocked to him all the mysteries of money. Instead of this, he contented himself with a mild restatement of all the old dogmas, every one of which he accepted without reservation, and every one of which is exactly opposed to the principles upon which money is based. It must, however, be said in his favor, that his style is in agreeable contrast to the incoherent extravagance of Macleod and the fantastic nonsense of Bonamy Price.

Mr. W. Stanley Jevons, Professor of Political Economy in the University of London, in a recently published work, entitled "Money and the Mechanism of Exchange," gives the following account of the nature of paper money, and the manner in which it gets into use:

"Metallic money, as we have seen, immensely facilitates, and, so to speak, lubricates the operation of exchange. But nations employing gold and silver money have usually discovered, in the course of time, that tokens of small metallic value, or even pieces of leather and paper of nominal value, might be passed from hand to hand as signs of the ownership of coins. That which replaces gold or silver or copper money is at first of a purely representative character. But, when a community has become thoroughly habituated to the circulation of a currency of this character, it is often found possible to remove the basis of valuable metal which it is supposed to represent, and yet to maintain the valueless bits of leather or paper in circulation as before. Thus arises the abnormal phenomenon known as an inconvertible paper money....

"Although we now distinguish money according as it is metallic or paper money, because paper has in recent times been universally adopted as the material for representative money, yet it is well to remember that various other substances have been used for the purpose. We may pass, in fact, by gradual steps, from the perfect standard coins, whose nominal value is coincident with their metallic value, to worthless bits of paper, which are yet allowed to stand for thousands, or even millions, of pounds sterling..

...

"Persons who have long been accustomed to pay away certain pieces of paper without loss will continue to regard them as good 1 Money and the Mechanism of Exchange, pp. 191-194.