export it to where it is of greater value; they will buy foreign securities, they will import foreign commodities. On the other hand, foreign nations will flood this country with their securities -just as the Americans did in 1839, when the Bank kept down the rate of discount below its proper level-because they can sell them at a better price here than in their own country. If a man wishes to sell a horse, and my neighbour will only give £90 for it, and I will give £96, he, of course, will sell the horse to me, and take away my cash. So, when the Americans wished to sell their debts, and found that in their own country they could only get £90 per cent. for them, whereas they could get £97 per cent. for them in England, as a natural consequence, they sent them to England for sale, and took away the cash. The only way for England to have stopped this would have been to give no more for these securities than the Americans would themselves; in other words, to maintain a uniformity in value between the currencies of the two countries 59. When the foreign exchanges are unfavourable to this country, the simple meaning of that is, that it is profitable to export gold. Now, where is the gold got from for exportation? From the Bank of England. And how is it got from there? By getting hold of the Bank's "promises to pay" gold on demand. Now, when the Bank of England knows that a multitude of persons are trying to get hold of its "promises to pay" for the purpose of demanding gold for them, to carry out of the country, would it not be the height of folly in the Bank to be multiplying its "promises to pay" in all directions, and selling them cheap? This would be exactly as wise as if the captain of a ship, directly he saw a storm coming on, were to set all his studding-sails and royals. When the captain sees the tempest approaching, he must get down his top-gallant masts and reef his topsails; so, when a commercial tempest is threatened, it behoves those who pilot the vessels of credit to contract their "promises to pay" 60. The plan proposed by Sir Archibald, and a multitude of unthinking writers, is, that when gold is leaving the country, commissioners should be appointed to issue an equal amount of inconvertible paper, which is to be withdrawn when gold comes back again. But what is to be done with the convertible paper already in existence? Is it to be declared inconvertible? For, as long as the rate of discount is depressed, there will be a constant demand for gold in exchange for notes, and a corresponding amount of inconvertible paper must be issued. Let this wonderful theory be put in practice, and the drain will not cease until every sovereign has left the country; and, moreover, they never will come back again. For, as the avowed intention is to keep down the rate of discount, and to keep up prices, there is nothing to bring the bullion back again. Nothing can bring it back again here, except we can sell our commodities or debts cheaper than other nations. But it is the avowed intention of these issues to prevent that; consequently, no bullion ever will come back 61. But, moreover, this wonderful panacea of all monetary ills-issuing an inconvertible paper currency, to supply the place of the gold that goes out is just our old friend John Law's scheme over again, of issuing paper currency based upon commodities. Those who advocate this think that the nation can send its money abroad to buy food, and have it as well in the form of paper money. Just as if a man might go into a shop, spend his money there in buying goods, and then have it again in the form of a "promise to pay." When will this stupendous delusion be eradicated from the public mind? If I have a certain quantity of money in my till, I may safely give a "promise to pay;" or, if I know for certain that money is coming in to me on a certain day, I may give my "promise to pay" at a certain date; but when I have actually spent my money, and it is gone away from me for ever, to think that I could then grant a "promise to pay" worth anything, is an idea which savours little of sanity. In 1696-97, during the re-coinage of the silver, the Bank of England might have issued £1 notes with the greatest advantage and propriety for a temporary purpose, because it knew that it would shortly have the money to pay them with; but when the money is gone from the Bank to buy corn abroad, it would be the most dangerous folly possible to issue notes to supply the place of gold 62. But there are several other considerations which point out that the rate of discount is the true method of acting upon the paper currency. As soon as the exchange becomes so unfavourable as to make it profitable to export gold, an immense number of bills are fabricated for the purpose of being sold for the sake of the premium; and these will continue to be fabricated as long as the rate of discount is kept below that of neighbouring countries; now, raising the rate of discount strangles all such operations in the birth. If only the numerical amount of notes be looked to, and the rate of discount be kept down, these speculators may get their bills passed, while legitimate trade bills may be refused. A moderate rise in the rate of discount will never inflict any real injury on trade at all equal to the refusal to discount trade bills altogether; and that is the result which has always ensued from a perseverance in keeping down the value of money below the natural level 63. Moreover, when the nation is actually obliged to spend its money in buying foreign corn, or on any other object, such as war, it is quite impossible that it can have so much money to spend upon other things; its consuming powers, therefore, are diminished; it must economise in other things. Now, if the rate of discount is kept below its natural level, it stimulates and encourages production so much beyond the powers of consumption, that it must necessarily terminate in an aggravated fall in prices. A timely raising of the rate of discount is, therefore, a warning to producers to contract their operations gradually. But keeping it unnaturally low lulls them into false security; they maintain their engagements on credit on an undiminished scale, till at last the Bank, for its own safety, is obliged to pull up on a suddento bring up all standing. Then follows a total refusal to discount, commercial panic, and ruin 64. It is, then, an incontrovertible fundamental truth in monetary science, that specie and credit form the circulating medium, and that they must increase and decrease together. An increase of currency, without an increase of debt, has no effect but to diminish the value of the currency. The same thing happens, if, when debt is destroyed, currency is not destroyed with it. If a metallic currency increases faster than debt, nature provides a remedy-it is immediately exported. But, with an inconvertible paper currency, this cannot happen, and when debt is destroyed, currency remains in circulation; when this goes on for any length of time, or to any extent, the inevitable result is a depreciation of the paper currency, which is shewn by the rise of the market above the Mint price of gold. This was eminently exemplified in England in the years subsequent to 1810. The extravagant speculations were followed by an enormous destruction of capital; but the currency which was issued to represent it remained in circulation, and soon manifested itself in a rapid fall of the value of paper. It was impossible that paper ever should right itself, unless this superfluous currency was destroyed. It is recorded that an Irishman once having taken a dislike to a banker, in order to spite him, collected a number of his notes and burned them. It would have been an excellent thing for the country bankers of England in 1814-15, if some one had done the same kind office for them. The quantity of paper currency was so excessive, compared to what it represented, that nothing could restore it to its par value but the destruction of a large portion of it; and this was brought about by the destruction of the issuers of it; and, when this was done, the value of the remainder rose to par 65. We have gone over most of the theories of currency which have attained the greatest practical importance. That there are others, is true; but they have generally been confined to a small knot of fanatics. But, as they seem, at last, to have died out, we need not weary our readers' patience by disturbing their peaceful oblivion CHAPTER XV ON THE DEFINITION OF CURRENCY 1. Having in the preceding chapters completed a general survey of the mechanism of Banking and the Foreign Exchanges, we are now compelled to examine the peculiar system of Banking which is at present established in this country; but, before we do so, we must give a little time to settle the meaning of the word Currency. Most persons engaged in practical business are morbidly averse to discussions on the meaning of words, thinking them to be pure waste of time. But no science was ever yet founded without such controversies, and it is precisely because writers on Economics have systematically despised and neglected the only means by which a science can be founded, and by which every other great science has been created and established, that Economics is at the present moment in such a discreditable state. In the present case this investigation is absolutely indispensable, because the Bank Charter Act of 1844, which now governs the whole monetary system of the country, is expressly founded upon a peculiar definition of the word Currency, and is expressly devised to carry out a peculiar Theory of Currency. In this chapter we must therefore investigate and settle the meaning of the word Currency A very distinguished statesman has said that the word Currency has driven more people mad than anything except love. Nor, to say the truth, is this very surprising. If we were to assemble a company of purely literary men, and request them to "Differentiate the Equation to a Curve," we have not the smallest doubt but that such a mysterious expression might drive them to despair, whereas any moderately educated school-boy could do it at a glance. It is precisely the same with the word Currency. It is a term of pure Mercantile Law. Any mer |