can by law compel his creditor to take in payment of a debt.

Lord Overstone further said (3082)-"When I give a definition of "Currency," of course it is Currency in the abstract: it is that which Currency ought to be: that definition properly laid down and properly applied, will include paper notes payable on demand, and it will exclude bills of exchange."

Here again Lord Overstone is absolutely wrong. It will be seen from the judicial decisions given above, that it is perfectly impossible to frame a true definition of Currency which shall include bank notes and exclude bills of exchange: and, moreover, no bank notes in England, except Bank of England notes, are money; because no debtor can compel his creditor to take any Bank Notes in payment of a debt, except Bank of England Notes, and these only so long as the Bank pays them in money on demand. If the Bank were to stop payment, Bank of England Notes would immediately cease to be legal tender: a consideration which will be found of the greatest importance when we come to investigate the mechanism and operation of the Bank Charter Act of 1844.

15. Mr. TOOKE was asked-"In using the term 'circulation' of the Bank of England, what do you include in that term?—I include in that term only the Bank notes in the hands of the public. In order to avoid confusion, perhaps the Committee would allow me to state the meaning which I attach to the different terms Currency and Circulating Medium.' The Currency I consider to be, in strictness of language, according to the apparent derivation of the term, that part of the circulating medium, such as the coin of the realm, and Bank of England notes and country bank notes (although not a legal tender), which pass current from hand to hand, without individual signature, such as appears on drafts or indorsements. I am doubtful whether cheques on bankers might not be included, from their perfect similarity to bank notes, in many of the purposes for which they are employed; at the same time, there is the feature of distinction which I have mentioned, viz., that cheques require the signature of the party passing the draft, and that they do not pass from hand to hand. Bills of exchange I consider as a part of the general means of distributing the

productions and revenues of the country, and, therefore, as constituting a part of the circulating medium. I consider, also, that the simple credits by which goods are, in many instances, bought and sold, come likewise under the general description of the circulating medium, in as far as the prices of commodities are in question: because a simple contract of sale, whether any payment eventually passes or not, is commonly entered in the price currents without distinctions from those for which any actual payment is made. I cannot consider that transferable debts constitute circulating medium, but only the actual transfers.

3279. "What do you mean by transferable debts?—The deposits in the hands of bankers, against which the depositors are entitled to pass their drafts.

3280. Mr. Grote "You include, not simply transfers of deposits in the hands of the Bank of England, but also transfers of deposits in the hands of other bankers?-Yes; transfers of deposits generally.

3281. Chairman-"Do you then consider a deposit to be a transferable debt owing by the banker to the depositor?—Yes. 3282. "In the use of the term Currency' in your future examination, do you propose, in addition to coin, Bank of England notes, and country bank notes, to include cheques upon bankers?— Yes; I think upon the whole the distinction I have mentioned is not sufficient to exclude them, and, therefore, I shall propose to consider them as included.

3283. "Mr. Warburton-" By cheques, you mean cheques actually drawn, and passing from one person to another?—Yes; that which is current, in fact.

3284. "Will you be good enough to state what you propose to include in the word 'circulation' in the course of your future examination?—I propose to include in the term circulation' the notes of the Bank of England, and of country banks, payable on demand.

3285. "What do you mean by circulating medium'?-I mean all instruments of interchange by which the productions and the revenue of the country are distributed; everything which serves and is received as a mode of payment, or which constitutes nominal money-price which appears in price

currents.

66

3286. Mr. Grote " There is the Currency, and there are

also certain expedients for economising the use of the Currency; you would call both one and the other of those portions of the circulating medium?-Precisely.

3287. "Do you include, in the word 'Currency,' bills of exchange ?-No.

3288. "If you include, in the term Currency,' a crossed cheque, payable at a banker's, to be presented, therefore, at the Clearing House, and having, therefore, before presentation not more than seven or eight hours to run, why is it that you do not include in the term 'Currency' a bill of exchange payable also at a banker's, falling due to-morrow, and having, probably, not more than about 24 hours to run?-It is only a question of the general acceptation of the term; there is no essential distinction in the particular case. I may, perhaps, be allowed to say, that the only question as to the employment of different descriptions of circulating medium is referable to the combined considerations of economy, convenience, and security.

3289. "If the cheque, according to the supposition in the former question, be included in the term 'Currency,' will not a bill of exchange, due to-day, payable at a banker's, be entitled also to be included in that term?-It is only a question of convenience in the classification; I am not aware that it is of any importance in practiaal operation.

3290. "Bills of Exchange having, previous to maturity, one, two, three, four, or more days to run, differ in character by insensible degrees from a crossed cheque, a crossed cheque being that bill which has the shortest time to run?-They differ in character by insensible degrees, and likewise in the trifling difference of convenience from their not being used till maturity, unless under a calculation of discount.

Mr. Tooke then started a theory which, like many others, is true in some cases, and which, we believe, he was the first to notice; but which he pushed to an extreme, which drew out some just strictures from Colonel Torrens.

3292. Mr. Hume-" Will you state what part of the Currency, or circulating medium, affects prices, under the definitions which you have now given?-No one part of them affects the prices of commodities more than any of the other parts.

3293. Mr. Grote-" Do you mean not more in degree, or not in any different way?-Not more in degree.

3294. "You mean that every portion of that which you have described under the name circulating medium' is perfectly equal to every other portion in the effect which it produces upon prices?-Perfectly so.

3295. Mr. Hume-" Do you mean that every transaction of purchase or sale by any of the means which you have mentioned, as included in the circulating medium, equally affects prices?Yes; and that was my reason for caring so little about making a distinction among them. I doubt whether they operate upon prices at all.

3296. Mr. Grote "You mean that none of these items which you have enumerated under the general term 'circulating medium' have in your opinion any effect upon prices?—Yes; I mean that they are not operative causes of prices.

3297. Mr. Hume-"What is it, then, which does affect prices? -The cost of production limiting the supply on the one hand, and the pecuniary means of the consumer limiting the demand on the other.

3298. "Will not the variations in the quantity of the circulating medium affect prices?-No.

3299. "Will it not, if abundant, be more at the disposal of individuals for purchases than when it is scarce ?—It will be more easily disposable, but it will not be necessarily so disposed of. I believe that the amount of the circulating medium is the effect, and not the cause, of variations in prices."

16. Lastly, we may quote Colonel Torrens, because he was not only one of the most influential of this school, but it was sometimes alleged that he was in reality the author of the scheme which Sir Robert Peel adopted in his Bank Charter Act of 1844. He says"The terms money and Currency have hitherto been employed to denote those instruments of exchange which possess intrinsic or derivative value, and by which, from law or custom, debts are discharged and transactions finally closed. Bank Notes, payable in specie on demand, have been included under these terms as well as coin, because, by law and custom, the acceptance of the notes of a solvent bank, no less than the acceptance of coin, liquidates debts and closes transactions; while bills of

The Principles and Practical Operation of Sir Robert Peel's Act of 1844 explained and defended, p. 79.

exchange, bank credits, cheques, and other instruments by which the use of money is economised, have not been included under the terms money and Currency, because the acceptance of such instruments does not liquidate debts and finally close transactions."

Again he says, in reply to some perfectly just observations of Mr. Fullarton-"It is an obvious departure from ordinary language to say that whether a purchase is effected by a payment in bank notes, or by a bill of exchange, the result is the same. According to the meaning of the term, Money and Credit, as established by the universal usage of the market, a purchase effected by a payment in bank notes is a ready money purchase, while a transaction negotiates by the payment of a bill of exchange is a purchase upon credit. In the former case the transaction is concluded, and the vendor has no further claim upon the purchaser; in the latter case the transaction is not concluded, and the vendor continues to have a claim upon the purchaser until a further payment has been made in satisfaction of the bill of exchange. A bank note liquidates a debt, a bill of exchange records the existence of a debt, and promises liquidation a future day. Mr. Fullarton not only inverts language but misstates facts, when he says that the transactions of which bank notes have been the instruments must remain incomplete until the notes shall be returned upon the issuing bank, or discharged in cash. A bank note for £100 may pass from purchasers to vendors many times a day, finally closing on the instant, each successive transaction. A bill of exchange may also pass from purchasers to vendors many times a day, but no one of the successive transactions of which it is the medium can be finally closed until the last recipient has received in coin or in bank notes the amount it represents.

"Now it is the necessity of ultimate re-payment which constitutes the main point of distinction, which marks the boundary between forms of credit and money. It is a necessity which applies to bills of exchange and cheques, but which does not apply to bank notes; and, therefore, upon Mr. Fullarton's own shewing, upon his own definitions and his own conditions, as to what constitutes money, bank notes come under the head of money: while bills of exchange and bankers' cheques, and such other instruments as require ultimate payments, transfers, and