money will go out and none will come in, till at last the circulating medium will be nothing but "promises to pay," and no money to pay them with. Then, at last, violent convulsions, total destruction of credit, every one wishing to sell, and no one wishing or able to buy.

54. On the other hand, if, when specie is flowing in with too great abundance, it be not repelled by a due diminution in the value of money, i. e., a fall in the rate of discount, it will continue to do so until it is so superabundant that a violent fall takes place. Persons who are accustomed to depend on the incomes they derive from the interest of money, suddenly find that their means are seriously diminished. In the year 1824 there was such a plethora of capital in the country that the Scotch banks gave no interest on deposits; after 1824 came 1825. Then wild speculations find favour in the public mind, promising higher profits; and then the community goes through the cycle of bubble speculations, extravagant credit, ending in a commercial catastrophe. We may feel quite certain that if during the various crises this country has passed through, there had been more attention paid to observe the natural rate of discount, instead of thwarting the course of nature, though the variations would have been more frequent, they would have been less violent and extreme. If specie is coming in with too great speed, it is good to lower the rate of discount quickly to prevent it getting lower; if specie is going out too rapidly it is good to raise the rate quickly to prevent its being higher.

55. Such, however, is the perversity of men, that many think that a uniform and invariable rate of discount is the great thing to be preserved, no matter what nature may say to the contrary, and their ingenuity is racked to devise a plan for always keeping it so, just as if the governor of the steam engine ought always to revolve with uniform velocity. Now, the inevitable consequence of taking these means to thwart nature will be, that when specie is scarce, it will be repelled by a lower rate than the natural one; when it is already too abundant, it will be still further attracted by a rate higher than the natural one.

56. The extreme anxiety of persons to attain an impossible object, always to have the power of selling debts due to them at

a uniform rate, has led to a very prevalent theory, which seems very innocent and simple. It being desirable always to maintain the currency at a uniform amount, they propose that, as gold goes out, paper should be issued to supply its place. This theory is adopted by Sir Archibald Alison, who says, after condemning the theory that gold and paper must vary together:—

"The true system would be just the reverse. Proceeding on the principle that the great object is to equalise the currency, and with it prices and speculations, it would enlarge the paper currency when the precious metals are withdrawn, and credit is threatened with a stoppage, and proportionally contract it when the precious metals return, and the currency is becoming adequate without any considerable addition to the paper."

57. There would be certainly something specious in the idea of issuing bank notes to supply the place of the gold that went out, if, unfortunately, it had not been tried over and over again, and been attended uniformly with a catastrophe. When gold was leaving the country in vast quantities in 1796, the Bank of England still maintained its issues, against its own will, it is true, but yet the fact illustrates the principle, and the consequence was the suspension of cash payments in 1797. When the Bank had got right again in 1817, a drain for foreign loans began, and the Bank extended its issues in 1818, and the consequence was the second suspension of cash payments in 1819. In 1824, when bullion was departing from the country like a flood, the Bank extended its issues; then, when it saw itself right in the vortex of bankruptcy, it suddenly altered its policy, and the result of all this was the catastrophe of 1825. In 1838-9, a similar drain occurred, the Bank, with marvellous perversity, maintained its rate of discount considerably below the market rate, and the result was the monetary crisis of 1839. In 1847, there was the same error and the same result. Surely these instances are enough to destroy this fatal delusion.

58. In fact, Sir Archibald and the great body of public writers who share these sentiments, wholly mistake the object to be sought for in so delicate and artificial machine as a paper currency. The object to be aimed at is not to preserve a uniform rate of discount in this country, but to maintain a uniformity in

the value of the British currency with that of other countries. If money is made artificially cheap in this country, that is, cheaper than it is in neighbouring countries, persons in this country will 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 1696-7, 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 its 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 sudden-to 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