practical purposes, the current coin of commerce: and the great medium of payment of the country and specie is now only used occasionally, and as a supplement to payments in Credits of different forms.

Nothing can be more unfortunate or misleading than the expression which is so frequently used that banking is only the "Economy of Capital," and that the business of a banker is to borrow money from one set of persons and to lend it to another set. Bankers, no doubt, do collect sums from a vast number of persons, but the peculiar essence of their business is, not to lend that money to other persons, but on the basis of this bullion to create a vast superstructure of Credit; to multiply their promises to pay many times: these Credits being payable on demand and performing all the functions of an equal amount of cash. Thus banking is not an Economy of Capital, but an increase of Capital; the business of banking is not to lend money, but to create Credit: and by means of the Clearing House these Credits are now transferred from one bank to another, just as easily as a Credit is transferred from one account to another in the same bank by means of a cheque. And all these Credits are in the ordinary language and practice of commerce exactly equal to so much cash or Currency.

9. After the authoritative exposition we have given above of the real meaning of the word CURRENCY, and the judicial decisions of what it includes, it is rather a work of supererogation to cite the opinions of lay writers. The controversies as to the meaning of Currency did not arise until Smith had been several years in his grave; but we think that no one who reads his work can form any doubt but that bills of exchange are necessarily included under his designation of paper money. The question, however, is extremely unimportant, and would take far too much space to examine thoroughly.

The first occasion on which we have met the term Circulating Medium is in the debate on the Bank Restriction Act, 1797,1 in which Mr. Fox said he wished that gentlemen," instead of amusing themselves with new terms of 'Circulating Medium' and the like," which shews that it must then have been of very recent introduction. Mr. Pitt, in his reply, said-" As so much has been 1 Parliamentary History of England, Vol. XXXIII., p. 340.

said upon the nature of a Circulating Medium, he thought it necessary to notice that he did not for his own part take it to be of that empirical kind which had been generally described. It appeared to him to consist in anything that answered the great purposes of trade and commerce, whether in specie, paper, or any other term that might be used." It is quite evident, therefore, that bills of exchange, cheques, and bank credits would all be included under such a designation, because they all effect the circulation of merchandise.

The first place in which we have met the doctrine that the word Currency, or Circulating Medium, is to be restricted to specie and Bank Notes only, is in a letter of Mr. Boyd, a well known financial agent, to Mr. Pitt. He says, p. 2-"By the words 'Means of Circulation,' 'Circulating Medium,' and 'Currency,' which are used almost as synonymous terms in this letter, I understand always ready money, whether consisting of Bank Notes or specie, in contradistinction to Bills of Exchange, Navy Bills, Exchequer Bills, or any other negotiable paper, which form no part of the circulating medium, as I have always understood the term. The latter is the circulator; the former are merely objects of circulation." But Mr. Boyd, in his preface, says"But from the mere return of bank notes (without that of the balances on the books, for which the bank is likewise liable, and of the specie in its coffers) no accurate estimate can be formed of the positive difference between the present and the former circulation." Mr. Boyd, therefore, expressly includes Bank Credits, or Deposits, under the title Currency, and as his notion of Currency was ready money, it is quite evident that Cheques were also Currency in his opinion, because we have seen that Mercantile Law considers Bank Notes, Cheques, and Bank Credits, as all equally ready money.

Whether this opinion of Mr. Boyd's gained any adherents we cannot say; but, in opposition to this novel doctrine, Mr. Henry Thornton, one of the authors of the Bullion Report, said1-" A multitude of bills pass between trader and trader in the country in the manner that has been described; and they evidently form, in the strictest sense, a part of the Circulating Medium of the country." And in a note on this passage he says-" Mr. Boyd, in his publication addressed to Mr. Pitt on the subject of the Bank 1 Inquiry into the Nature and Effects of the Paper Credit of Great Britain, p. 40.

of England issues, propagates the same error into which many others have fallen, of considering bills as no part of the circulating medium of the country." After quoting the above passage from Mr. Boyd, he says-" It will be seen in the progress of this work, that it was necessary to clear away much confusion which has arisen from the want of a sufficiently full acquaintance with the several kinds of paper credit, and, in particular, to remove, by a considerable detail, the prevailing errors respecting the nature of bills, before it could be possible to reason properly upon the effects of paper credit."

Certainly no influential person at that time adopted such an opinion, and we may quote a passage from the speech of the Marquis of Tichfield, one of the most distinguished of the rising men of the day, on Mr. Western's motion, in 1822, regarding the Act of 1819. He said " Economy of money was, by contrivances to spare the use of it, according to the description of his right honourable friend, by substitution of the precious metals in the shape of voluntary credit. Every new contrivance of this kind, and every one improved, had that tendency. When it was considered to how great an extent these contrivances had been practised, in the various modes of verbal, book, and circulating credits, it was easy to see that the country had received a great addition to its Currency. This addition to the Currency would, of course, have the same effect as if gold had been increased from the mines." Here, therefore, we see it explicitly stated that credit, in all its shapes and forms, was independent, exchangeable property, of the value of, and producing the same effects as, gold.

10. A few traces of Mr. Boyd's opinion may be discovered in certain writers after this period; but, as this view was most prominently brought forward before the Committee of 1840, we may pass at once to that.

Mr. J. B. Smith, President of the Chamber of Commerce of Manchester, said that he thought Circulation and Currency were the same (Q. 40); that deposits were Currency, which was, in fact, another word for liabilities.

70. Mr. O'Connell "There is another description of paper in circulation, namely, bills of exchange; do you include those also in your description of the Currency?—I do not consider bills of exchange as Currency.

71. "What is the difference between a bill of exchange which is passing from hand to hand and commanding property in return for it, and a bank note which is performing the same functions, supposing each to be worth £100?-I consider a bill of exchange to be a debt.

72. "Is not a bank note a debt ?-The difference between a bill of exchange and currency would be this, that currency would discharge the debt; the payment of a bill of exchange is not the discharge of a debt till it is due.

78. Mr. Smith "Supposing this case to happen, that the same bill of exchange passed through a banker's hands six times in one day on the account of different persons having accounts with this bank, should you not say that that bill of exchange discharged the functions of currency?—It is a mere transfer, after all, from hand to hand, with, every time it is indorsed, an additional security.

79. "Supposing it not to be indorsed, can you point out the difference between that and a Bank of England note ?-The difference between a Bill of Exchange and a Bank of England note in any transaction, is that a Bill of Exchange is a debt, and it continues a debt till it is discharged by a Bank of England note, or by some other Currency, which is a full discharge of the debt.

80. Sir R. Peel-" What does a Bank of England note profess upon the face of it; is it not I promise to pay?'-Precisely so. 81. "Is not that evidence of a debt?-Certainly, but it is legal tender.

82. "Supposing a law were passed permitting a gold circulation to continue, and prohibiting the issue of notes by the Bank, do you not think that the measure which traders would resort to would be to supply the deficiency by Bills of Exchange?-It is probable; it might be so.

83. "Would not they answer the purposes of Currency ?—Bills of Exchange do not perform the functions of Currency, but they are instruments by which commodities are exchanged, equally with every other mode of Credit, but requiring money for their discharge.

84. "Though there is a difference in the nature of the transactions between the issue of a note, payable on demand, and passing of a bill of exchange, is there any substantial difference in their

sensible effect on the Currency of the country?-I do not think that Bills of Exchange affect the Currency, though the Currency has a very important influence on Bills of Exchange.

87. "Do not you recollect, that during the Bank restriction law, there did not remain a circulation of Bank of England notes in parts of Lancashire for the discharge of small payments, but that, in point of fact, the great commercial transactions of Lancashire were carried on by the intervention of Bills of Exchange, performing the ordinary functions of currency by means of promissory notes ?-Unquestionably, and a very large amount of these payments are still in existence.

88. "When payments do take place by these means, do not Bills of Exchange answer, in a great measure, the functions of promissory notes, though there is a difference in the character of the transaction between a Bill of Exchange and a promissory note? Yes, they are a medium for the exchange and distribution of commodities, no doubt.

89. "They are the representatives of commodities ?—Yes; they are representatives of transactions in commodities.

90. "Then are they not Currency ?—No, I do not think that follows.

91. Mr. O'Connell-" What is Currency but an instrument of exchange?—It is an instrument of exchange, but it is an equivalent also for commodities.

92. "A Bill of Exchange performs that function, it assists to exchange commodities ?-Yes, a Bill of Exchange assists in the exchange and distribution of commodities.

93. "Then it has that function of Currency?—Yes, it has.

94. "Then, having that function of Currency, which, perhaps, is the only function, can you distinguish that from Currency? What is there in your mind to induce you to say that that is not Currency which performs the functions of Currency?—I have already explained that the difference between a Bill of Exchange and Currency is this, that the one discharges a debt and the other does not.

95. Mr. Warburton-" If a party receiving a Bill of Exchange indorsed, were to give you a receipt in full for the payment of the debt, would not that Bill of Exchange perform precisely the same functions as a bank note does?—Yes, but it would be merely a