第1章

THECONNECTIONOFTHECURRENCYWITHPRICES，ANDTHE

EXPEDIENCYOFASEPARATIONOFISSUEFROMBANKING。

BYTHOMASTOOKE，ESQ。F。R。S。

LONDON：

PRINTEDFOR。

LONGMAN，BROWN，GREEN，ANDLONGMANS，PATERNOSTER—ROW。

1844。

PREFACE。SomepartofthefollowingpageswaswrittenimmediatelyaftertheappearanceofthereportsofthecommitteeoftheHouse

ofCommonsonBanksofIssue，andthegreaterparthassincebeenputtogetherwithoutanydefiniteviewtopublication。

Thereasonwhichhasdeterminedmeinnowpublishingthemis，thatwhethertheviewsherepresentedbeassentedtoornot，

theyaresuch，Ithink，asoughtnottobewhollyoverlookedintheconsiderationofthemeasureswhichthegovernmenthas

announceditsintentionofproposingtoParliamentinthecourseofthepresentsession，withaviewtoplacingthebankingsystemoftheUnitedKingdomonanunprovedandpermanentfooting。SomeofthepointswhichIhaveendeavouredtoestablishmayprobablybethoughtnottobemadeoutwithsufficient

fulnessofexplanation，anddoubt—lessonseveralofthetopicsamoreexhaustiveprocessofproofandillustrationmightbe

requiredforthepurposeofanticipatingandansweringobjections。Butsuchaprocesscouldnotbecomprisedwithinareadablecompass。Itwouldrequireabookinsteadofapamphlet。Thenecessityforcompression，whichIfeeltobethusimposeduponme，haspreventedmefromtouchingatallupontopics

whichareofimportanceandconnectedinsomepointsofviewwiththesubjectherediscussed，buttowhichjusticecouldnotbedoneinanincidentalnotice。Oneofthegreatdifficultiesofdealingwiththesubjectabouttobediscussed，asindeedinmostcasesofcontroversy，butin

thismorethaninmostothers，arisesfromtheuseofthesamewordsindifferentsenses。Nottomentionthemootedpoints，

astowhetherdeposits，bankers’cheques，andbillsofexchangeshouldbeconsideredasmoneyorcurrency;becausethese

involveratherdefinitionandclassifi—cation，accordingtothepurposesforwhichtheyaresupposedtobeemployed，thanthatlooseandam—biguoususeoftermstowhichIallude。Thisconsistsinashiftingofthemeaningoftheterm，whenappliedindiscriminatelyinthesameargumenttodesignatethingsandprocessestotallydistinct。Itwillbeseeninthecourseofthisdiscussionhowmuchoftheobscurityandperplexityanderror，inwhichtheobjectsof

inquiryareinvolved，maybetracedtothevagueandambiguouslanguagecommonlyemployedintreatingofthem：suchfor

instanceas\"goldandsilver，\"\"thepreciousmetals，\"and\"bullion，\"usedindiscriminatelyandsynonymouslywith\"money\"

and\"currency;\"theterms\"moneyandcurrency\"employedwhen\"capital\"ismeant。\"Issuesofpaper，\"meaningbanknotes，

formereadvancesofcapitalwherenobanknotespass;the\"valueofmoneyorcurrency，\"fortherateofinterestor

discount。\"Abundanceandcheapness，orscarcityanddearnessofmoney，\"tosignifyalowerorahigherrateofinterest，ora

tendencytoeither。And\"expansionandcontractionofthecurrency，orofthecirculation，\"whenundueextensionofcredit，anditsconsequentrevulsion，wouldbethecorrectdescriptionofthefactsofthecase。Theinstancesinwhichconfusionandinconsistencyinreasoningmaybetracedtothislooseandambiguoususeoflanguage

areinnumerable;andifIcouldhopethatbydirectingattentiontothesourcesoferrorsopointedout，andthusinducemore

careanddistinct—nessofphraseology，soastorenderfuturediscussionsonthesubjectmoreintelligible，andconsequently

tonarrowthegroundsfordifferenceofopinion，Ishouldconsiderthatmylabour，inthispublicationhasnotbeenthrown

away，evenalthoughIshouldfailofgainingassenttotheconclusions，oranypartofthem，whichIhaveendeavouredto

establish。

London，March，1844。

ANINQUIRY

intoTHECURRENCYPRINCIPLE，ETC。ETC。

INTRODUCTION。ItwasheldbymostwritersofanyauthorityonthesubjectoftheCurrency，tillwithinthelastfewyears，thatthepurposesof

amixedcirculationofcoinandpaperweresufficientlyanswered，aslongasthecoinwasperfect，andthepaperconstantly

convertibleintocoin;andthattheonlyevilstobeguardedagainstbyregulation，werethoseattendingsuspensionof

paymentandinsolvencyofthebanks，alargeproportionofwhichblendanissueofpromissorynoteswiththeirother

business。This，inpointoffact，iswhatisunderstoodingeneraltermsasthebankingprinciple，andisthatuponwhichoursystemofcurrencyisconstructedandconducted。Butanewcanonofcurrencyhasoflatebeenpromulgatedbypersonsofnomeanauthority。Accordingtotheseauthorities，

itisnotsufficientthatthebanknotesshouldbeatalltimesstrictlyconvertibleintocoin，andthatthebanks，whetherissuing

ornotissuing，shouldbesolvent;theyconsiderthatapurelymetalliccirculation（exceptingonlyasregardstheconvenience

andeconomyofpaper），isthetypeofaperfectcurrency，andcontendthattheonlysoundprincipleofamixedcurrencyis

thatbywhichthebanknotesincirculationshouldbemadetoconformtothegold，intowhichtheyareconvertible，notonly

invalue，butinamount;thatistosay，thatthebanknotesbeingsupposedtobeasubstitute，andtheonlysubstitute，forso

muchcoin，shouldvaryexactlyinamountasthecoinwouldhavedoneiftheCurrencyhadbeenpurelymetallic;andthat

thetestofgoodorbadmanagementisnot，asisconsideredunderthemerebankingprinciple，intheextentorproportionof

reserveintreasureandinimmediatelyconvertiblesecuritiesheldbythebanks;butinthedegreeofcorrespondencebetween

variationsintheamountofbullion，andvariationsintheamountofbanknotesincirculation。Aregulationoftheissueofbanknotes，inconformitywiththisdoctrine，isnowunderstoodtobedesignatedastheCurrencyprinciple。Withaviewtotheapplicationofthisprincipletopractice，ithasbeensuggestedthateitheranationalbankshouldbe

establishedundercommissioners，whosedutyandfunctionsshouldbeconfinedtotheexchangeofpaperagainstgold，andof

goldagainstpaper，forallbeyondafixedamountofpaperissuedagainstsecurities;orthattheBankofEnglandshouldbethesolesourceofissue，underthestrictestruleofseparationofthefunctionsofissuefromthemerelybankingdepartment。Theargumentsurgedinfavourofsuchseparationhave，asitshouldseem，madeconsiderableimpressiononthepublicmind，

andschemesfoundeduponthisprinciplehavebeenstronglypressedontheattentionofgovernment，onthegroundnotonly

ofguardingagainstthedangerofsuspensionandinsolvencies，butofimpartingmoreconfidenceandstabilitytocreditand

trade，andofsecuringgreatersteadinessinprices，andthusobviatingorabatingthealternationsoffeverishexcitement，and

theextremeofdepression，whichhaveprevailedundertheexistingsystem，andwhichareimputedtoaneglectoftheCurrencyprinciple。Thequestionwhethertheconstantconvertibilityofthepapercan，orcannot，bepreservedandmaintainedunderaprudent

management，ontheexistingfootingofaunionofissueandbanking，willbeconsideredhereafter。But，waivingforthe

presentallconsiderationofthequestionofsecurityagainstsuspensionandinsolvencies，itisdesirabletoexaminethe

groundsonwhichitiscontendedthatotherevils，besidesthedangerofnon—convertibilityandinsolvenciesofbanksofissue，

ariseoutof，thepresentsystemascomparedwiththecurrency—principlesystem，andthatthetestofgoodorbad

managementofthecountrybanksofissueconsists，notintheamountoftheirreservesingoldandavailablesecurities，

comparedwiththeirliabilities，butintheconformityofthevariationsoftheircirculationtothoseofthecirculationofthe

BankofEngland;whilethetestofthemanagementoftheBankofEnglandisintheconformityofthevariationsinthe

amountofitscirculationtothoseoftheeffluxorinfluxofthepreciousmetals。

CHAPTERI。

STATEMENTOFTHECURRENCYPRINCIPLE。ThetheoryoftheCurrencyprinciplenumbersamongitsadvocatesmanydistinguishednames。Thefullestandmostelaborate

statementsofit，however，aretobefoundinthepublicationsofMr。Norman，Mr。Loyd，andColonelTorrens，andinthe

evidenceofthetwoformergentlemenbeforetheCommitteeoftheHouseofCommonsonBanksofIssuein1840。I

thereforeavailmyselfmainlyoftheirexpositionofthedoctrine，andtheirargumentsinsupportofit，asaffordingthebest

groundsforanexaminationofthetheory，andofthepracticerecommendedasanapplicationofit。Thefollowingextract

fromMr。Norman’sevidenceconveysaconcisestatementofthetheory，andoftheproposedapplicationofit，astheonly

soundruleforthepaperportionofthecurrency，namelybanknotes，whichhelimitstothosenoteswhichareinthehandsofthepublic：\"Iconsiderametalliccurrencytobethemostperfectcurrency，exceptsofarasrespectsinconvenienceinsomerespects，

andcost。Ineverythingelseametalliccurrencyisthemostperfect，andshouldbelookeduponasthetypeofallother

currencies;andasfromtheirsuperiorconvenienceandgreatercheapness，banknotesareintroducedtosupplytheplaceofa

certainportionofmetalliccurrency，Ithinkthatbanknotesshouldbesomanaged，thattheyshouldpossessalltheother

attributesofametalliccurrency，andamongthoseattributes，Iconceivethemostimportanttobetbattheyshouldincrease

anddecreaseinthesamewaythatametalliccurrencywouldincreaseanddecrease。Idonotthinkitispossibletoimproveuponametalliccurrency，exceptinthetwopointsofconvenienceandcheapness。\"（1）Mr。Normanafterwardsexplained，thatbyconveniencehemeanttheeasiertransfer，andbycheap—ness，theeconomyofusingthelesscostlymaterial;sothatthepaper，thusregulated，wouldbesofaranimprovementonametalliccurrency。Thefollowingarethechief（2）evilswhichpresentthemselves，accordingtoMr。Norman’sview，inourexistingpaper

circulation，fromitsnotconformingtosuchrule：

1。Atendencytovary，bothastoexcessanddeficiency，inanunnecessarydegree，andatunsuitableperiods。

2。Aliabilitytodiscredit，bothmercantileandpolitical，inalargeportionofit，ifnotthewhole。

3。Temporaryorpermanentinsolvencyonthepartofmanyoftheissuers。

Mr。Loydinhisevidencegivesthefollowingviewoftheinconvenience，whichheascribestothepresentsystem：

Q。2748。\"Arethereanyotherevilsbesidesthedangerofnonconvertibilitythatariseoutofthepresentsystem？\"A。\"Therecanbenodoubtaboutit;thestateofthecirculationhasaverydirecteffectuponthestateofcredit，of

confidence，ofprices，andofbanking;andifthestateofthecirculationbeallowedtobecomeanunnaturalone，unnatural

andperniciouseffectswillbeproduceduponallthose。Ifyourcirculationissubjecteithertodepreciationfromexcessofits

amount，ortoviolentfluctuationsofamount，thenundoubtedlythatwillbefollowedbycorrespondingeffectsupon

confidence，uponcredit，uponprices，uponbanking，andsoforth。Thosethingsarealsoaffectedbyotherconsiderations。I

donotseethatitispossibletoanalysetheeffects，andtoattributetoeachcauseitsrespectiveshareinproducingthose

effects;allthatcancertainlybeunderstoodis，thatifyouregulatethepapercirculationuponsoundprinciples，youmaybequitesurethatyouhavethenremovedthatportionoftheevileffectswhichwasattributabletothewantofdueregulation。\"Byanunnaturalstateofthecirculation，andthewantofdueregulation，mustbeunderstood，inthesenseinwhichMr。Loyd

usestheterm，anon—conformityoftheamountofbanknotestotheamountofbullion。

CHAP。II。

MODEOFOPERATIONOFAMETALLICCIRCULATION。Admitting，forthesakeofargument，thatametalliccirculationisthetypeofaperfectcurrency，itshouldseemthatthosewhoconfidentlypronounceittobeso，labourunderamostegregiousmisconceptionofwhattheworkingofitwouldbe。UponthegroundswhichIhavenowtostate，itwillbeevidentthattheoperationofaperfectlymetalliccirculationwould

notbeattendedwiththeadvantageswhichtheycontemplate;nor，ontheotherhand，withthedisadvantageswhichmightbeappre—hended，ifitweretoworkastheyseemtoimagineitwould。AccordingtotheCurrencyprinciple，everyexportofthepreciousmetalsunderametalliccirculation，wouldbeattended

withacontractionoftheamountandvalueofthecurrency，causingafallofprices，untilthedegreeofcontractionand

consequentfallofpricesshouldbesuch，asbyinducingadiminishedimportandincreasedexportofcommodities，tocausea

refluxofthemetalsandarestorationofpricestotheirproperlevel。So，ontheotherhand，aninfluxofthepreciousmetals

wouldraiseprices，tilltheyreachedalevelatwhichtheconverseoftheprocesswouldtakeplace。Thisoscillatingprocessof

ariseandfallofpriceswitheveryinfluxoreffluxofthepreciousmetals，independentlyofcircumstancesconnectedwiththe

costofproductionofcommodities，andtheordinaryrateofconsumption，wouldbeperplexingenough，andanythingbutconvenienttothecommercial，orthemanufacturing，ortheagriculturalcommunity。Theadvocates，however，ofthedoctrinecontendthat，althoughthustheoscillationsmightbemorefrequent，thescaleof

themwouldbemorecontracted，everydivergencebeingmorequicklychecked。Ifirmlybelieve，however，thatifevery

exportandimportofthepreciousmetalswereattendedwiththeeffectsimputedtothembythistheory，theinconvenience

wouldbefelttobeintolerable;andthatsomeofwhatMr。Normancallseconomisingexpedientswouldbedevisedand

appliedasaremedy。Buttheoperationwouldnotbethatwhichthetheory，asitisstatedinthefollowingpassages，

supposes：\"Itisuniversallyadmittedbypersonsacquaintedwithmonetaryscience，thatpapermoneyshouldbeso

regulatedastokeepthemediumofexchange，ofwhichitmayformapart，inthesamestate，withrespecttoamountandto

value，inwhichthemediumofexchangewouldexist，werethecirculatingportionofitpurelymetallic。Now，itisself—

evident，thatifthecirculationwerepurelymetallic，anadverseexchange，causinganexportationofthemetalstoanygiven

amount，wouldoccasionacontractionofthecirculatingcurrencytothesameamount;andthatafavourableexchange，

causinganimportationofthemetalstoagivenamount，wouldcauseanexpansionofthecirculatingcurrencytothesame

amount。Ifthecurrencyofthemetro—polisconsistedofgold，anadverseexchange，causinganexportationofgoldtothe

amountof1，000，000l。，wouldwithdrawfromcirculationonemillionofsovereigns。\"TORRENS。LettertoLordMelbourne，pp。29，30。\"Theamountoftheimportorexportofthepreciousmetals，isaprettysuremeasureofwhatwouldhavebeentheincreaseordecreaseoftheamountofametalliccurrency。\"S。J。LOYD。FurtherReflectionsontheCurrency，page34。AndMr。Norman，afterexplainingthemannerinwhichtheexchanges，asbetweentwocountries，AandB，mayberendered

adversetoA，soastocauseanexportofcoinorbullion，goesontosay\"TheexportofcoinandbullionwillcausegeneralpricestofallincountryA，andtoriseinB，supposingthedebttoBnotto

besoonerdischarged，untilitbecomesmoreadvantageoustoexportgoodsthanmoney。\"LettertoC。Wood，Esq。M。P。，p。17。Inthesepassages，andmanymorethatmightbecited，itisassumedthatthepreciousmetals，gold，andsilver，andbullion，

aresynonymouswithcurrencyandmoney，andareconvertibleterms。Andaccordinglyeveryexportofthepreciousmetalsis

notonlyconsidered，inthesuppositionofametalliccirculation，asacontractionofthecurrencyofthiscountry;butasso

muchaddedtothecurrencyofthecountrytowhichitisexported。Suchalterationintherelativequantityofthemetalsin

therespectivecountriesfromwhichortowhichtheyaretransmittedbeing，accordingtothistheory，anabstractionor

additionofsomuchmoney;andprices，thatis，thegeneralpricesofcommodities，beingconsideredasdependingonthe

quantityofmoney，acorrespondingriseorfallofthemisassumedtobetheconsequence。Inthisviewsomeveryimportantconsiderationsareoverlooked。Beforeenteringuponthem，however，Imustpremise，thatthroughoutthisdiscussionthevalueofgoldinthecommercial

worldisassumedtobeconstant，i。e。，thatthecostofproductionandthegeneraldemandareunvaried;alsothatthetariffsof

foreigncountriesareinstatuquo，soastoconfinetheconsiderationtotheeffectsofaninfluxoreffluxofbulliononthe

currenciesoftherespectivecountries，divestedofanyreferencetodisturbingcauses，beyondthoseincidentaltothecourseoftradeandinternationalbanking。Thereis，andmustgenerallybe，inacountrylikethisorlikeFrance，astockgreaterorlessofgoldandsilver，beyondthat

whichisinuseasmoneyorasplate，orwhichisinthemint，andingoldsmiths’andsilversmiths’hands，inpreparationforuse

aseither。Thissurplusorfloatingstockmaybeconsideredasseekingamarket，whetherforinternalpurposesorforexport;

and，bethequantitygreaterorless，canitbesaidofit，ifitisexported，thattheamountissomuchabstractedfromthecurrencyofthecountry，anymorethanifanequalvalueoftinorzinc，orleadorironwereexported？Moreover，ofthatpartofthestockexistingintheshapeofcoininthiscountryitmaybeobserved，thatasthecoinageisnot

subjecttoaseignorage，theremaybe，andfrequentlyis，inthatshapeaconsiderableamountofthepreciousmetalswhich

maynotbeinthehandsofthepublic，circulatingasmoney，norinthereservesofthedifferentbanks，theBankofEngland

excepted;butmay，liketheuncoinedmetals，beseekingamarketathomeorabroad。ItmaybeinthecoffersoftheBankof

England;butheldasbullion，beingintheshapeofcoinequallyconvenientforeverypurpose，andmoreconvenientforsomepurposes，inthatform，besidesthatofservingforcurrency，thaninuncoinedgold，thatis，inbarsoringots。Theideaofgoldseekingamarket，andnotimmediatelyfindingone，mayseemstrange，andbythefirmbelieversinthecurrency—principledoctrinemaybesetdownasparadoxicalandabsurd。Goldisanobjectinsuchuniversaldemand，orinotherwordssouniversallymarketable，thatitsbeingsupposedtobekept

onhandatall，undertheuncertaintyoffindingasuitablemarketforit，appearstobeinconceivable，oralmostacontradictioninterms。Iamreadytoadmitthatgoldisacommodityinsuchgeneraldemandthatitmayalwayscommandamarket，thatitcan

alwaysbuyallothercommodities;whereas，othercommoditiescannotalwaysbuygold。Themarketsoftheworldareopen

toitasmerchandiseatlesssacrificeuponanemergency，thanwouldattendanexportofanyotherarticle，whichmightin

quantityorkindbebeyondtheusualdemandinthecountrytowhichitissent。Sofartherecanbe，Ipresume，nodifferenceofopinion。Buttherewillbefoundtobenoinconsiderabledifference，ifwedistinguishasweoughttodo，forthepurposewhetherof

theoryorpractice，betweengoldconsideredasmerchandise，i。e。，ascapital，andgoldconsideredascurrencycirculatingintheshapeofcoinamongthepublic。Mr。Senior，inoneofhislecturesonthevalueofmoney，observes，\"Thevalueofthepreciousmetalsasmoneymustdepend

ultimatelyontheirvalueasmaterialsofjewelleryandplate;sinceiftheywerenotusedascommodities，theycouldnot

circulateasmoney。\"Andhemakesaremarktothesameeffectinanarticleinthe\"EdinburghReview\"forJulylast，onFree

tradeandRetaliation。\"Theprimarycauseoftheutilityofgoldisofcourseitsuseasthematerialofplate。Thesecondarycauseisitsuseasmoney。\"Ofthetruthofthesepropositionstherecanbenodoubt。Inanewandenlargededition，justpublished，ofthatvastrepertoryofvariousandimportantinformation，\"TheCommercial

Dictionary，\"Mr。M’Culloch，afterweighingdifferentauthorities，givesthefollowingestimateoftheconsumptionofthe

preciousmetalsforpurposesdistinctfromtheiruseasmoney\"Accordingtothisviewofthematter，thepresentannualconsumptionintheartswillbetheUnitedKingdom2，500，000l。;

France，1，000，000l。;Switzerland，450，000l。;therestofEurope，1，600，000l。;inall，5，550，000l。Towhichadding500，000l。fortheconsumptionofNorthAmerica，thetotalconsumptionwillbe6，050，000l。\"Butaportionofthegoldandsilverannuallymadeuseofinthearts，isderivedfromthefusionofoldplate，theburningoflace，pictureframes，etc。\"Assumingthat，asamedium，twentypercent，orone—fifthpart，ofthepreciousmetalsannuallymadeuseofinthearts，is

obtainedfromthefusionofoldplate，weshallhave，bydeductingthisproportionfromthe6，050，0001。appliedtotheartsin

EuropeandAmerica，4，840，000l。asthetotalannualappropriationofthenewgoldandsilverdugfromtheminestosuchpurposes，leavingabout4，400，000l。ayeartobemanufacturedintocoin，andexportedtoIndia，\"etc。Mr。M’CullochestimatesthepresentannualproduceofthepreciousmetalsfromtheAmerican，European，andRusso—Asiaticmines，at9，250，000l。（3）Asthiscountryisnotonlyalargeconsumerofthepreciousmetalsforpurposesotherthanmoney，butisalsoanentrepôt

forreceivingfromthemines，anddistributingthegreaterportionofthequantityapplicabletotheconsumptionofother

countries，thebulliontrade，totallyindependentlyofsupplyingthecurrency，mustofnecessitybeveryconsiderable。In

resortingtothisentrepôtthemetalscanonlybeconsideredasmerchandiseintransit，seekingamarketforconsumptioneitherinthiscountryorabroad。Butbeyondthestockwhichisrequisiteforthispurpose，andwhichmustalwaysincludemoreorlessofsurplustomeet

occasionalextrademand，theremustbeaveryconsiderableamountofthepreciousmetalsapplicableandappliedasthe

mostconvenientmodeofadjustmentofinternationalbalances，beingacommoditymoregenerallyindemand，andlessliable

tofluctuationsinmarketvaluethananyother。Iwillnotventure，intheabsenceofanyrecognisedgroundsforcomputation，

tohazardanestimateoftheamountsorequired;butbearinginmindtheimmenseextentofinternationaltransactions;and

thevicissitudesoftheseasons，andothercircumstancesaffectingtherelativeimportsandexportsoffood，andrawmaterials，

andmanufactures，besidesthevariationsinthemarketvalueofnationalandprivatesecuritiesinterchangeable，itcannotbut

bethatthequantityofbullionrequiredtobeconstantlyavailableforthepurposemustbeverylarge;theprincipaldepositsof

itbeingintheBankofEngland，theBankofFrance，andthepublicbanksofHamburgandAmsterdam。Thesedepositsmay，moreover，insomeofthepublicbanks，beswelledbycoinswhichhavebecomesuperfluousinthecirculation。If，therefore，wetakeintoaccountthemagnitudeofthestocknecessarilyimported，partlyfortheconsumptionofplatein

thiscountry，andpartlyforthatabroad，andoftheamountrequiredasavailablefundsfortheadjustmentofinternational

balances，itmaynotbedeemedanextravagantsuppositionthattheremightoccasionallybeunderaperfectlymetallic

circulationfluctuations，withinmoderatelyshortperiods，totheextentofatleastfiveorsixmillionssterlingintheimport

andexportofbullion，perfectlyextrinsicoftheamountorvalueofthecoincirculatingasmoneyinthehandsofthepublic，

andperfectlywithoutinfluenceonthegeneralpricesofcommodities，asequallywithoutgeneralpriceshavingbeenacauseofsuchfluctuations。ItmaybeobjectedthatthequantityofbullionwhichIhavesupposedtobeindepositamongtheprincipalpublicbanksof

thecommercialworld，applicabletotheadjustmentofinternationalbalances，shouldbelookeduponasperformingthe

functionsofmoney，inrestoringthelevelofthecurrencies，whichtheveryfactofthenecessityforthetransmissionof

moneyfromonecountrytoanotherprovestohavebeendisturbed。Thisobjectionisfoundedontheassumptionthatgold

andsilveraremoneyorcurrency，anditissupposedthatthetransmissionsofbullionforthepurposesinquestionhavea

directoperationupontheamountofmoneyorcurrencyinactualcirculationintheseveralcountries。Butinthisobjection

theconsiderationisoverlooked，thatthecoinsonlywhichenterinto，thatis，formpartoftheinternalcirculationofthecountry，canbedesignatedascurrency，whilebullioncanonlybeviewedinthelightofcapital。（4）Thedistinctionbetweenbullion，asmerchandiseorcapital，andcoins，asmoneyorcurrency，maybeexemplifiedinthecase

ofcoinswhicharesubjecttoaseignorage，andincasessuchasthatofHamburg，wherethemoneycurrentforallthe

ordinaryexpenditureofincomeconsistschieflyofavarietyofforeigncoins，passingfromhandtohandataconventional

value，whileallmercantilepaymentsaremadebytransfersofcapital，depositedintheformoffinesilver，andcalled。bank—money。InsuchacaseasthatofHamburgtherehavebeen，andmustoftenagainbe，verygreatfluctuationsintheamountofsilverin

thebank，andconsequentlyofbankmoney，withoutanyobviouslycorrespondingvariationsintheamountofmoneyin

circulationforcurrentpurposesofexpenditurebythecommunity，oranyvariationasarisingfromthatcauseinthegeneral

pricesoftheircommodities。Andifaseign—oragewereimposedonthegoldcoinofthiscountryoncorrectprinciples（that

is，accompaniedbyalimitationoftender，andbyapoweronthepartoftheholderstodemandgoldbullionat3l。17s。

10絛。perounce），theremightbe，andtherewouldbe，supposingapurelymetalliccirculation，occasionallyvery

considerablevariationintheamountofbullioninthecoffersofthenationalbank，orinthehandsofdealersinbullion，

withoutnecessarilyintheslightestdegreeaffectingtheamountofthecurrencyactuallyincirculation，intheordinarydailytransactionsarisingoutoftheexpenditureofindividualscomposingthepublic，andwithoutvariationingeneralprices。Theviews，ofwhichanoutlinehasherebeensketched，distinguishingbullionasacommodity，constitutingthereadiest

meansofinternationaltransfersofcapital，fromthecurrencyemployedforinternalpurposes，willberenderedmoreclear

whenIcometopointout，asIshallpresentlyendeavourtodo，animportantdistinctionbetweenthatpartofthecirculating

mediumwhichisemployedinthetransferanddistributionofcapital，fromthatwhichisemployedintheexpenditureof

incomes，thatis，intheretailtradeofthecountry。AndIdonotnowentermorefullyintodetailastowhatIconceivewould

betheworkingofapurelymetalliccirculation，becausethatquestiondoesnotformthemaingroundofthepresentinquiry，

whichisastothesufficiencyoftheargumentsadducedinaccordancewiththetheoryofthecurrencyprinciple，infavourofanentireseparationofthefunctionsofbanksofissuefromthoseofordinarybanking。Inthedoctrinewhichitismypurposeheretoexamine，theperfectionofametalliccirculationisassumedtobebeyond

question;whiletheimperfectionofourpresentsystemofpapercredit，quiteapartfromthedangerofinconvertibility，is

pointedoutandenlargedupon，byreferencetothedegreeinwhichitisassertedtodepartfromthisassumedmodelof

perfection，amodelofwhosepropertiesandmodeofoperationthemosterroneousnotionsseemtobeentertainedby

thosewhosetitup。（5）

CHAP。III。

MISTAKENVIEWBYTHECURRENCYTHEORYOFTHEWORKINGOFTHEEXISTINGSYSTEM。Ifsufficientgroundshaveherebeenadducedtogiveriseto，atleast，asuspicionthatthepropoundersofthecurrencytheory

areunaware，orratherareunderatotalmisconception，ofwhatwouldbetheworkingofapurelymetalliccirculation，we

areinevitablyledtosuspect，orratherIshouldsaytoconclude，thattheymayanddolabourunderamisconceptionfullyas

great，notonlyastowhatwouldbetheworkingofamixedcirculationofcoinandbanknotes，administeredaccordingto

thecurrencyprinciple，thatis，soastoconformtowhattheysupposewouldbetheworkingofametalliccirculation，butastowhattheworkingofitactuallyhasbeenandisundertheexistingbankingsystem。Themisconceptionwhich，asitshouldseem，theylabourunder，maybereferredmainlytotheviewwhichtheytakeofbank

notes，asbeingessentiallydistinctinalltheirattributesandfunctionsfromeachandeveryotherofthecomponentpartsofthecirculatingmedium，andascomingexclusivelyalongwithcoinunderthedesignationofmoney。Banknotes，accordingly，theycallpapermoney，andascribing，astheydo，adirectinfluencetothequantityofmoneyonthe

stateoftrade，ofconfidence，andcredit，andonprices，theyattachgreatimportancetothefactofanyincreaseordiminution

ofbanknotesincirculation，moreespeciallyasregardsaconformity，ornon—conformity，ofsuchincreaseordiminutionto

variationsintheamountofbullion。Asthereforetheyconceivethatitisinthepowerofthebanksofissuesotoregulatethe

amountoftheirnotesincirculation，astoconformtovariationsintheamountofbullion，or，asitismorecommonlytermed，

toregulatetheirissues，bytheexchanges（inasmuchasattentiontotheexchangeswillservetoindicatewhethergoldis

cominginorgoingout，orlikelytocomeinorgoout），theyconsidertheconformityordiscrepancybetweenthefluctuations

intheamountofbanknotesincirculationandtheamountofbullioninthecoffersoftheBankofEngland，asthetestorcriterionofthegoodorbadmanagementofthebanks。Onoccasionsofmarkeddiscrepancy，thepersonswhoespousethecurrencyprinciple，andare，atthesametime，favourable

totheBankofEngland，chargethecountrybankswithcounteracting，bytheirinattentiontotheexchangesinregulating

theirissues，allattemptsoftheBankofEnglandtorestrainthegeneralcirculationwithinduebounds;whilethecountry

banks，bothprivateandjoint—stock，maintain，throughtheirorgans，thatitisnotintheirpowertodeterminewhatshallbe

theamountoftheirnotesinthehandsofthepublic。Andnotcontentwiththusrepellingthechargemadeuponthem，they

retortitupontheBankofEngland，which，accordingtothem，hasthecontroulofthewholecirculation，andexpandsorcontractstheamountaccordingassuitsitsownpurpose。Itappearstomethatneitherofthesepartiesisrightinchargingtheother;and，moreover，thatthosepersonswho，onthe

partofthepublic，judgingonlybytheCriterionsetupbythecurrencytheory，namely，bytheconformityofvariationsinthe

amountofbanknotestovariationsintheamountofbullion，chargethepresentsystemwithcausingirregularityinthecirculation，andwithalltheevilswhichflowfrombadregulation，areequallyfarfromarightjudgment。Iamquiteconvinced，andwillendeavourtoshow，thattheamountofbanknotesincirculation，thatis，outofthewallsof

theissuingbanks，andinthehandsofthepublic，furnishesnocriterionofgoodorbadmanagementbythebanksofissue，

andisnotanefficientcauseoperatingupontradeandconfidenceandcredit，anduponprices;andthat，exceptingthegreater

inconvenienceattendingtheinsolvencyofanissuingthanofanon—issuingbank，thereisnodifferencebetweenthetwodescriptionsofbanksasregardstheirinfluenceonthevalueofthecurrency。Icannothelpthinkingthatthereisalurkingimpressionamongthedoctrinairesofthecurrencytheory，arisingmainlyfrom

theiruseoftheterm\"issueofpapermoney，\"whichleadsthemtoconfoundbanknotesstrictlyconvertibleintocoin，witha

compulsoryandinconvertiblepapercurrency。Itistrue，nodoubt，thattheyareawarethattheliabilitytopaymenton

demandingoldwilleventuallycheckanyexcessofissueintheone，andwillthusdistinguishitfromtheother。Butitseems

tomeequallytrue，judgingbyalltheirexpressionsandthewholecourseoftheirarguments，thattheyaremisledbyafalse

analogy，andthatalthoughtheyadmitingeneraltermsthattheremustbeachecktothepowerofissuebyitsbeingbrought

tothetestofconvertibility，theyareofopinionthatthereisapowerineachindividualbankofissue，andinthebanksof

issuecollectively，tooperateatanygiventimeinaddingdirectlytotheamountofbanknotesincirculation，andin

withdrawingthemfromit。Thepresumptionthattheadvocatesofthecurrencyprincipleareundertheinfluenceofthis

mistakenanalogywillbestrengthenedwhenwecometotheconsiderationoftheeffectsontrade，credit，andprices，which

theyascribetotheinfluenceofthequantityofmoney，meaningbanknotesandcoin。Inthemeantimeitmaybeproperto

bestowsomeremarksonthereasoningbywhichitisproposedtobeprovedthatbanknotesdifferinallessentialproperties，

asregardstheperformanceofthefunctionsofmoney，fromallotherformsofpapercreditemployedinthebusinessof

interchange。

CHAP。IV。

DISTINCTIVEPROPERTIESASCRIBEDTOBANKNOTES。Mr。Norman，afternoticingwhathecallsthecontrivancesusuallyresortedtoforthepurposeofeitherdispensingwiththe

useofmoneyaltogether，orofdiminishingthequantityofit，whichisabsolutelyrequiredfortheadjustmentofexisting

transactions，observes，\"Onthesecontrivancesonegeneralremarkmaybemade，asitaffordsareadyandpractical，ifnotastrictlyscientific

distinctionbetweensuchsubstitutesformoney，andthatwhich，asIconceive，reallyconstitutesmoney，viz，coinandbank

notes。Ifbanknotesarewithdrawnfromcirculation，theirplacemustnecessarilybesuppliedbyanequalamountofcoin;but

theabolitionofany，orofallofthecontri—vancesfordispensingwiththeuseofmoney，willnotnecessitatetheintroductionintheirplaceofanequalamountofcoinorbanknotes。\"LettertoC。Wood，Esq。，p。34。Indealingwiththisproposition，letustryitbyputtingthecaseinthestrongestway，andsupposethattheBankofEngland

hasthepower，andisdisposedtowithdrawallitsnotesfromcirculation;or，inordertoobviatetheobjection，thatinsuch

caseotherbanksmightsupplythevacuum，letussupposethatallpromissorynotes，payableondemand，weresuppressedby

actofparliament。WouldMr。Normancontend，thatthewholeamountmustofnecessitybereplacedbycoin？Mostassuredlysuchwouldnotbetheeffect。Amoment’sconsiderationmustbesufficienttosatisfyanyonethatitwouldonlybethesmallerdenominationofnotes，

which，ifsuppressed，wouldrequiretobereplacedbycoin;thewholeofthe1l。noteswhichstillcirculateinIrelandand

Scotland，wouldrequiretobesoreplaced，andthegreaterpartofthe51。notes，andasmallpartofthe10l。notes，inthe

UnitedKingdom。

Allthelargeramountsmightbe，andmostprobablywouldbe，suppliedbychequesandbillsofexchangeandsettlements。

TheemploymentofthehigherdenominationsofBankofEnglandnotesischieflyforthefollowingpurposes：

1。Collectionofthepublicrevenue，andthepaymentofitintotheExchequer。2。Paymentsonsalesandmortgagesoflandedandotherfixedproperty。Tilllatelytheruleintrans—actionsofthisnature，

wasalmostuniformlythatthepayment，onconveyanceofthedeeds，shouldbemadeinbanknotes。Buttherehasoflate

beenatendencytorelaxthisrule，andchequesarenownotunfrequentlyreceivedinpaymentonsuchoccasions。

3。Dividendsandrentsreceivedbypersonswhodonotemploybankers。4。Paymentsfordebtsincasesinwhichthedebtorhasnotabanker，orinwhichhewouldnotbetrustedsofarastohavehis

chequereceivedinsatisfactionoftheclaim。

5。PaymentsintoCourtinlitigatedclaims。6。Reservesheldbybankers，andespeciallythoseofthewestendofthetown，andbythejoint—stockbanksinthecitywho

arenotadmittedtotheclearing—house。

7。Settlementsattheclearing—house。Nowthesearepeculiarpurposes，mostorallofwhichmightbeansweredbyothermeansthanbanknotes，andmost

assuredlynotbysupplyingtheirplacebycoin。

1。Thepublicrevenueis，inanincreasingnumberofinstances，paidintotheExchequerbydraftsontheBankofEngland。

2。Paymentsforlandedandfixedpropertyareinanincreasingnumberofinstancespaidbycheques。

3。Dividendstopersonsnotkeepingbankers，mightberetainedbythemintheshapeofwarrants。

4。and5。Involvesosmallanamount，asnotmateriallytoaffectthequestion。6。ThecirculationofBankofEnglandnotesamongbankers，whetherbetweentheBankofEnglandandthewest—end

bankers，andthecityjointstockbankers，andthecirculationofcountrybanknotes，insettlementsamongeachother，are

mereconventionaltransfersofcapital，which，with7。TheclearingsamongthebankersofthecityofLondon，mightallbeeffectedeitherbyExchequerbills，asinthecaseofthebanksofEdinburgh，orbychequesontheBankofEngland。Thecountrybanknotesabovethelowestdenominations，（whichareinuseintheretailtrade，andinthepaymentofwages，）

aremostlyemployedintheprovisionmarkets，andincattleandhorsefairs，purposesforwhich，asIshallproceedtoshow，

billsofexchangewereformerly，andmightbeagainveryextensivelyemployed。

CHAP。V。

DEPOSITSANDCHEQUES。Amongthecontrivanceswhichthecurrencytheoryallowstobethemeansofdispensingwiththeuseofmoney，althoughit

willnotadmitthattheyperfectlyperformthefunctionsofmoney，aredepositsorlodgementsinbanks，subjecttocertain

stipulationsofrepayment。IntheexaminationbytheCommitteesonBanksofIssuein1840，thereseemstohavebeena

greatwasteoftimeandtemperinthediscussionofthequestion，whetherdepositsshouldbeconsideredascurrency，andasperformingthefunctionsofmoney。Thereisanobviousobjectiontospeakingofdepositsingeneraltermsasperformingthefunctionsofmoney，inasmuchas

depositsareofdifferentdescriptionsastotheconditionsofrepaymentattachingtothem。Butsupposingthedepositstothestrictlypayableondemand，thereisstillanapparentimproprietyinascribingtothemquadepositsadirectagencyoractivity。Itsoundsoddly，tosaytheleastofit，tospeakofdepositsorlodgementsofmoneyasbeingactive。Theactivity，ifany，isin

thepaymentbychequesfoundeduponthedeposits。Itisnotthedeposits，butthetransfersofthem;or，inotherwords，the

chequesthatconstitutetheactualinstrumentsofinterchange，andeffectpaymentsconcurrentlywithbanknotes。They

performthefunctionsofmoneynotonlyasperfectlyasbanknotes，butinthedescriptionoftransactionstowhichtheyareapplicable，theyaremoreconvenientthanbanknotes。Theyobviatethetroubleofpayingfractionalpartsofthesumincoin;they，inmanycases，supersedetheuseofstamped

receipts，inasmuchasthebooksofthebankersserveasevidenceofthepayment。Theyobviatetheriskofrobberyorfire，

whichattendsthepossessionofbanknotesbypersonsnothavingtheaccommodationofstrongandfire—proofsafes。The

chequebooksofthedrawersservealsotopreserveacounterpartofalltheparticularsofthepayment，andsoassistin

tracingerrororirregularity，iftherebeany，inthepaymentorintheentryofit。Andtheuseofcrossedcheques，asfaras

regardstheLondonbankerswhoresorttotheclearing—house，admitsofthedrawersofsuchchequesadjustingtheirreceipts

andpaymentsbetweentheopeningofbusinessandhalf—pastthreeorfouro’clock，soasthattheirbankershallhaveonlythe

balancetopay，orreceive，orsetoff。Someoralloftheseadvantages，withpossiblyothers，whichmayexistandmayhave

escapedmyobservation，aresufficienttoaccountforthegreatandincreasingtendencytotheemploymentofchequesin

preferencetobanknotesinthepecuniarytrans—actionsof。themetropolisandofthemetropolitandistrict。（6）Independently

ofthegreaterconveniencewhichisfoundtoattachtotheuseofchequesinsteadofbanknotes，bypersonswhoareinthe

habitofemployingbankers，theemploymentofbankersbypersons，whethertradersornot，ofthemiddleclasses（theupper

classesofcourse，all，ornearlyall，employbankers），isdailygainingground，andthisisanadditionalcauseofthedisplacementofbanknotesbycheques。Thereiseveryreasontobelievethatamuchlargeramountofpaymentsinthemetropolitandistrictsiseffectedbydraftson

bankersthanbybanknotes。Andthecircumstancethatdepositspayableondemandarethefoundationsonwhichdraftsare

passed，suchdraftseffectingmorepaymentsthanbanknotes，seemstobethegroundonwhichthelateMr。Pageinhis

evidence（andMr。Humeinhisexaminations，hisviewsbeingidenticalwiththoseofMr。Page）con—tendedthatdepositsarecurrencyandmoreactiveinmakingpaymentsthanbanknotes。Qu……770。（Mr。Hume。）\"Asyouhavestatedthatcirculationanddepositsarebothcurrency，whichofthetwodoyou

considertobemostactiveinmakingpayments？\"

An。\"Depositsbeyondallquestion。\"Idonot，asIhavebeforehadoccasiontoobserve，concurintheproprietyofapplyingthetermcurrencytodeposits，

because，althoughsuchofthemasarepayableondemandmayanddoserveforpaymentsbythemeansoftransfer，itisthe

transfersorcheques，andnotthedeposits，which，inpointoffact，constitutetheinstrumentsofexchange。Butwhether

depositspayableondemand，oronlythedraftsagainstthem，aretobeconsideredascurrency，isimmaterialtothispartof

myargument，whichistoshowthat，asinstrumentsofexchange，cheques，orthedepositsonwhichthesearefounded，

answerthepurposesofmoney，asconvenientlyinnearlyallinstancesasbanknotes，andmoreconvenientlyinmostcases;（7）andthatthereforewhateverinfluencemaybeascribedtobanknotes，whetheronprices，orontherateofinterest，oronthe

stateoftrade，cannotbedeniedtochequesortotheirsubstratum，depositspayableondemand。

CHAP。VI。

BILLSOFEXCHANGE。Thattransactionstoaverylargeamountareadjustedbybillsofexchangehaslongbeenknownandadmittedingeneral

terms;butthevastnessoftheamountwasnotbroughtdistinctlyunderthenoticeofthepublictilltheappearanceofa

pamphletbythelateMr。Leatham，aneminentbankeratWakefield。Accordingtoacomputation，whichheseemstohavemadewithgreatcare，foundeduponofficialreturnsofbillstampsissued，thefollowingaretheresultsRETURNOFBILLSTAMPS，FOR1832TO1839INCLUSIVEBillscreatedinGreatBritainand

Ireland，foundedonreturnsofStamps

issuedfromtheStampOffice。BillAverageamountincir—culation，at

onetimeineachyear。

1832356，153，40959，038，852

1833383，659，58595，914，896

1834379，155，05294，788，763

1835405，403，051101，350，762

1836485，943，473121，485，868

1837455，084，445113，771，111

1838465，504，041116，316，010

1839528，493，842132，123，460Mr。Leathamgivestheprocessbywhich，uponthedatafurnishedbythereturnsofstamps，hearrivesattheseresults;andI

amdisposedtothinkthattheyareasnearanapproximationtothetruthasthenatureofthematerialsadmitsofarrivingat。

Andsomecorroborationofthevastnessoftheamountsisaffordedbyareferencetotheadjustmentsattheclearinghousein

London，whichintheyear1839amountedto954，401，600l。，makinganaverageamountofpaymentsofupwardsof3，000，000l。ofbillsofexchangeandchequesdailyeffectedthroughthemediumoflittlemorethan200，000l。ofbanknotes。AsillustrativeofthepositionforwhichMr。Leathamcontends，andconclusively，asIthink，thatbillsofexchangeperform

thefunctionsofmoney，heobserves，\"Foragreatnumberofyears，ithadbeenthecustomofmerchantstopaytheclothiersinsmallbillsof10l。，15l。，20l。，and

soupto1001。，drawnattwomonthsafterdateonLondonbankers。Ihavealwaysconsideredthisthebestpartofourpaper

currency，rankingnexttogold;thebillsexistingonlyforlimitedperiods，andacquiringincreasedsecurityastheypassfrom

handtohandbyendorsement。Fromtheunreasonablyhighstamplaidonsmallbillsin1815，themerchantshaveceasedto

payinbills，butpaynotesinstead，requiring2d。inthepoundforcashfromthereceiver;andIfindtherevenuehasmuchdecreasedinconsequenceinthisclassofstamps。\"pp。44，45。Mr。LewisLoyd，whenexaminedbytheHouseofLords’CommitteeontheResumptionofCashPaymentsin1819，gavethe

followingevidenceQu。9。AtthetimewhenyoubeganbusinessinManchester，in1792，werethereanycountrybankswhichissuednotesinthat

town，orinanyotherpartofLancashire？

None，Ibelieve。

10。Havethereneverbeen，atanytime，countrybanksissuingnotesinLancashire？Nonewithinmyrecollection。IbegantoresideinManchesterin1789。Therehadbeen，beforethatperiod，notesissuedthere

abouttheyear1787or1788;Ithinkbyabankwhichfailed。IbelievethatwastheonlyattemptevermadeinLancashiretill

lately，exceptthattherewaslately，andisnow，anattemptmadetoissuethematBlackburn。

11。HowhasthecirculationofLancashirebeencarriedonsincetheperiodtowhichyourefer？

WhollyinBankofEnglandnotesandbillsofexchange。

12。IstheproportionofBankofEnglandnotesveryconsiderableascomparedwithbillsofexchange？Aboutone—tenth，Ithink，inBankofEnglandnotes，andnine—tenths，atleast，inbillsofexchange。Thesebillsofexchange

circulatefrombandtohand，tilltheyarecoveredwithendorsements。

13。Isanyinconveniencefeltfromthismodeofcirculationbybillsofexchange？

Nonewhatever。

14。HasthecirculationofBankofEnglandnotesin—creasedordecreasedoflateyearsinproportiontobillsofexchange？

Ithinktheproportionofbanknoteshasincreased。

15。Towhatdoyouattributethatincrease？Partlytothegreatincreaseofthestampduties。Itiswithinmyknowledge，fromthetransactionsofmyownhouse，thatthe

suppliesofprovisions，whicharedrawnfromtheneighbouringcounties，usedtobepaidforinsmallbillsofexchange，

mostlyof10l。orlower;butnowthepersonsgoingtotheneighbouringlocalitiesforsuppliesofprovisionstakewiththem

banknotesandbankpostbills，statingthatthestampistooseriousanobjecttothemtobepaidonsuchsmallsums。Thereis

scarcelyadaywhenIdonotsend2000l。inbankpostbillsforthatpurposetoManchester，whichwehardlyeverusedtodobeforethelastadditiontothestampduty。16。Werethesebillsofexchangedrawnforspecificloansprevioustotheiremployment，orweretheybillsresultingfromantecedenttransactions？Thosewhopurchasedprovisionsusedtogotofairsandmarketswithbillsreadydrawnintheirfavour，veryoftenfor

specificsums，asfortheroundsumof10l。，justastheynowtake10l。inBankofEnglandnotesandbankpostbills。There

wasthispeculiarcircumstanceattendingthem，thatthebillswereusuallydrawnattwomonths’date，andwereconsideredas

cashpayment;theywerebillsdrawnonLondonbycountrybankers，andremittedtoLondonassuitedtheconvenienceof

thepartieswhoreceivedthem。Now，inconsequenceofhavingbankpostbillsandBankofEnglandnotes，thepersonswho

receivethebillsmakeanallowancetothosewhopaythemoftwomonths’interest。Myanswerappliestothesupplyofthe

townwithprovi—sions。NearlyalltheothertransactionsofManchester，exceptthepaymentoflabourers，arestillcarriedoninbillsofexchange，andthepaymentoflabourersismostlymadein1l。BankofEnglandnotes。Ifbyanalterationinanoppositedirection，thestampdutyonbillsofexchangewerereducedorabolished，whilethaton

promissorynotesondemandremainedthesame，andstillmore，ifitwereraised，therewouldbeaconsiderablechangeinpractice，bymakingthesmallerpaymentsamongdealersinbillsofexchangeasasubstituteforbanknotes。InaworkbythelateMr。HenryThornton，（8）whichattractedconsiderableattentionatthetime，andwhichformedthe

subjectofanarticlebyMr。Homer，inthefirstNumberoftheEdinburghReviewin1802，thereisadistinctandfull

descriptionofthemannerinwhichbillsofexchangeperformedinhistimethefunctionofmoney;adescriptionwhichis

strictlyapplicableatthepresentday。Heobserveswithreferencetobillsofexchange，\"Theynotonlysparetheuseofreadymoney，theyalsooccupyitsplaceinmanycases。Letusimagineafarmerinthe

countrytodischargeadebtof101。tohisneighbouringgrocer，bygivingtohimabillforthatsum，drawnonhiscorn—factor

inLondon，forgrainsoldinthemetropolis;andthegrocertotransmitthebill，hehavingpreviouslyendorsedittoa

neighbouringsugarbaker，inthedischargeofalikedebt，andthesugarbakertosendit，whenagainendorsed，toaWest

Indiamerchantinanout—port，andtheWestIndiamerchanttodeliverittohiscountrybanker，whoalsoendorsesit，and

sendsitintofurthercirculation。Thebill，inthiscase，willhaveeffectedfivepayments，exactlyasifitwerea10l。note

payabletobearerondemand。Itwill，however，havecirculatedinconsequencechieflyoftheconfidenceplacedbyeach

receiverofitinthelastendorser，hisowncorrespondentintrade;whereasthecirculationofabanknoteisratherowingto

thecircumstanceofthenameoftheissuerbeingsowellknownastogivetoitanuniversalcredit。Amultitudeofbillspass

betweentraderandtraderinthecountryinthemannerwhichhasbeendescribed;andtheyevidentlyform，inthestrictestsense，apartofthecirculatingmediumofthekingdom。\"Bills，sincetheycirculatechieflyamongthetradingworld，comelittleundertheobservationofthepublic。Theamountof

billsinexistencemayyet，perhaps，beatalltimesgreaterthantheamountofallthebanknotesofeverykind，andofallthe

circulatingguineas。LiverpoolandManchestereffectthewholeoftheirlargermercantilepayments，notbycountrybank

notes，ofwhichnoneareissuedbythebanksofthoseplaces，butbybillsatoneortwomonths’date，drawnonLondon。Thebillsannuallydrawnbythebanksofeachofthosetownsamounttomanymillions。\"ThelateSirFrancisBaring，writingatastillearlierperiod（1797），andofastateofthingswithinhisimmediateexperience，

refers，inthefollowingpassage，tothepracticeprevalentamongcountrybankers，ofissuingnotespayableafterdateorafter

sight，\"Inthebeginningoftheyear1793，andofthepresentyear，1797，thebanksofNewcastlestoppedpayment，whilethoseof

ExeterandoftheWestofEnglandstoodtheirground。ThepartnersinthebanksatNewcastlewerefarmoreopulent，but

theirprivatefortunesbeinginvestedcouldnotberealisedintimetoanswerarunontheirbanks。Theirnotesallowed

interesttocommencesomemonthsafterdate，andwerethenpayableondemand;bywhichmeanstheyhadnotanhourto

preparefortheirdischarge。ThebanksofExeterissuednotespayabletwentydaysaftersightwithinterest，tocommence

fromthedateofthenote，andtoceaseonthedayofacceptance。Therecanbenodoubtthatthepracticeofthebanksat

Newcastleismorelucrative，whilstitmustforever，bemoreliabletoareturnofwhathashappened。Thetwentydays

receivedatExeterfurnishesampletimetocommunicatewithLondon，andreceiveeverydegreeofassistancewhichmayberequired。\"（9）If，accordingtothecurrencytheory，thecircum—stancethatwrittenpromisestopaybeingafterdateorsight，andtoorder，

andthereforerequiringanendorsement，aredisqualifiedfrombeingconsideredasperformingthefunctionsofmoney，on

whatgroundisitthatbankpostbills，whichareaftersightandtoorder，havebeenalwaysincludedinthereturnsofthe

circulationoftheBankofEngland？Theyarebytheirformstrictlybillsofexchange，beingnotonlyaftersightandtoorder，

butcommonlyusedfortransmissionbypost;andiftheseareconsideredtobepartofthecirculation，onwhatgroundarethe

billsoftheBankofIreland，andofthecharteredBanksofScotland，andofsuchbanksthroughouttheUnitedKingdomas

areofundoubtedcredit，notincludedinthereturnofthecountrycirculation？Thisappliesindeedonlytoshort—datedbillsof

themostunquestionedcredit;longer—datedbills，ofmoredoubtfulsecurity，seemtohavebeenaloneintheviewofthose

personswhoasserttheexclusivetitleofbanknotestobeconsideredasmoney。Billsofthisdescription，thatislong—dated

bills，aresometimesnotusedforpurposesofcirculation，theyaresimplywrittenevidenceofadebtwhichisdischargedat

maturity，withoutpassingintothirdhands。Iwillnotstopnowtoenterintothedistinctionbetweenlongandshort—datedbills

inthecomparisonwithbanknotes，andbetweenbillsdrawnbybankers，andbillsbymerchantsordealersondealers。Itisa

sufficientnegativeofthemainpropositiononwhichthecurrencytheoryrests，tohaveshownthatshort—datedbillsofexchangearesubstitutesnotonlyforcoin，butforbanknotes。###第2章If，asalastresortintheargument，itbesaidthatbillsofexchangerequiretheinterventionofbanknotesfortheultimate

payment，theansweris，thatthisisamerefiction，forthatinfacttheadjustmenttakesplacebysettlement，andthatasmall

amountofbanknotesforthebalanceeffectstheliquidation，whichmightequallybeeffectedbydraftsontheBankof

England;or，asisdoneinScotland，byexchequerbills。Analterationinthestampdutieshas，asstatedbyMr。LewisLoyd

andMr。Leatham，operatedagainsttheemploymentofthesmallerbillsofexchangeinsteadofbanknotes。Ifthecasewere

reversed，thestampsloweredonbillsandraisedonnotes，weshouldseeanimmenseincreaseintheformer，andagreatdiminutioninthelatter，inotherwords，banknoteswouldbewithdrawn，andbillsofexchangesupplytheirplace。Itishardlyperhapsnecessarytoadverttothelatterpartofthepropositionquotedatpage20，viz。，thattheabolitionofany

orofallthecontrivancesfordispensingwiththeuseofmoney，willnotnecessitatetheintroductionintheirplaceofanequal

amountofcoinorbanknotes。Theresurelycanbelittledoubtbutthattheabolitionofsuchcontrivanceswouldnecessitatethesubstituteofanequalamountofbanknotesorcoin。Sufficientgroundshave，asIventuretothink，beenstatedforestablishingtheclaiminbehalfofchequesonbankers，andof

billsofexchange，tobeconsideredasperforming，concurrentlywithbanknotes，thefunctionsofmoneyforthepurposesforwhichtheyarerespectivelyused。Ifthepropoundersofthecurrencytheorywouldconfinetheirdistinctioninfavourofbanknotestothelowest

denominations，namely，the1l。noteswholly，andthe5l。and10l。notespartially，itmight，asIhavealreadyobserved，be

conceded;butthenwhatbecomesofthedogmaortheaxiomofMr。NormanandMr。Loyd，onwhichthecurrencytheoryis

madetorest？andwhatbecomesoftheinferenceswhichtheyhavedrawnastothemanagementofbanks，fromaview

exclusivelytothewholeofthecirculation，largenotesaswellassmall？Intruth，theirtestsofgoodandbadmanagement，

andtheirviewsofthepurposesandpropertiesofthewholeofthecirculatingmediumandofitscomponentparts，are

essentiallydefectiveanderroneous。Theydrawdistinctionswhicharenotrealorsubstantial，as，forinstance，ofthehigher

denominationofbanknotescomparedwithbillsofexchangeandcheques;whiletheytotallyoverlookandconfoundthe

distinctivecharacteroftheinstrumentsofinterchangewhichareusedinthedistributionandexpenditureofin—comes，as

comparedwiththatoftheinstrumentswhichareusedinthedistributionandemploymentofcapital。

CHAP。VII。DISTINCTIONOFCIRCULATIONASBETWEENDEALERANDDEALER，ANDBETWEENDEALERANDCONSUMER。Itisofthegreatestimportancetoaclearviewoftheworkingofthepresentsystemthatthedistinctivecharactersofthe

instrumentsofinterchangeshouldbeobservedanddefined。Dr。AdamSmithhasnoticedthedistinction，andhas

accordingly，inhisviewsoftheoperationofpapermoney，steeredclearoftheconfusionbetweencurrencyandcapitalwhichpervadesanddisfiguresnearlyallmodernreasoningsonthesubject。\"Thecirculationofeverycountry，\"Dr。Smithobserves，\"maybeconsideredasdividedintotwodifferentbranchesthe

circulationofthedealerswithoneanother，andthecirculationbetweenthedealersandtheconsumers。Thoughthesame

piecesofmoney，whetherpaperormetal，maybeemployed，sometimesintheonecirculationandsometimesintheother，

yetasbothareconstantlygoingonatthesametime，eachrequiresacertainstockofmoneyofonekindoranothertocarry

iton。Thevalueofthegoodscirculatedbetweenthedifferentdealerswithoneanothernevercanexceedthevalueofthose

circulatedbetweenthedealersandtheconsumers，whateverisboughtbythedealersbeingultimatelydestinedtobesoldto

theconsumers。Papermoneymaybesoregulatedaseithertoconfineitselfverymuchtothecirculationbetweenthe

differentdealers，ortoextenditselflikewisetoagreatpartofthatbetweenthedealersandtheconsumers。Whennobank

notesarecirculatedundertenpoundsvalue，asinLondon，papermoneyconfinesitselfverymuchtothecirculationbetween

thedealers。Whenatenpoundbanknotedomesintothehandsofaconsumerheisgenerallyobligedtochangeitatthefirst

shopwherehehasoccasiontopurchasefiveshillings’worthofgoods，sothatitoftenreturnsintothehandsofadealerbeforetheconsumerhasspentafortiethpartofthemoney。\"（10）Therecanbenodoubtthatthedistinctionheremadeissubstantiallycorrect。Bearinginmindthisdistinction，thereasonis

obviouswhy，asfarasrelatestotheinterchangebetweendealersandconsumers（includingthepaymentofwages，which

constitutetheprincipalmeansoftheconsumers），coin，andthesmallerdenominationofnotesservingascoin，areessential

tosuchinterchange，andwhy，consequently，ifthosesmallernotesarewithdrawn，theirplacemustbesuppliedbycoin;but

notsoasregardstheinterchangebetweendealersanddealers。Banknotesarenotonlynotessentialtothatinterchange，but

itmustbemanifesttoanyonehavingevenaslightknowledgeonlyofthemannerinwhichsuchinterchangeisconducted，that，inpointoffact，banknotesarerarelyusedinthelargerdealingsofsalesandpurchases。Thegreatbulkofthewholesaletradeofthecountryiscarriedonandadjustedbysettlementsorsets—offofdebtsand

credits，thewrittenevidencesofwhichareinbillsofexchange（includinginthattermallpromissorynotespayabletoorder

afterdate），whilecurrentpaymentsforwhatarecalledcashsalesaremostlydischargedbycheques;theultimatebalance

only，arisingoutofthevastmassofsuchtransactions，requiringliquidationinacomparativelysmallamountofbanknotes。

Theprincipalexceptionstothis，Iapprehend，areintheprovisiontrade，andinthesheepandcattleandhorsefairs，inwhich

thepaymentsaremostlymadeincoinandbanknotes;buttherecanbenoquestionthatforamountsof10l。andupwards，billsofexchangemightbe，astheyformerlywere，and，butfortheincreasedstampduty，wouldbe，substituted。Ofthefactthat，withtheexceptionofthese，andperhapsofsomefewotherwholesaletradesinwhichnocreditisgiven，

thereislittleornointerventionofbanknotesinpurchasesorsalesamongwholesaledealers，nodoubtcanbeentertained。

AndIhavenowtostatetheexplanation，whichIamnotawareofhavingmetwithamongthevariouslucubrationsonthe

subjectofthecurrencywhichithasbeenmylottosee，ofthereasonwhy，withtheexceptionsIhavepointedout，suchsales

andpurchasesareeffectedwithoutactualpaymentinmoney，which，bythecurrencytheory，isdefinedtobecoinorbanknotes。Thereasonis，thatallthetransactionsbetweendealersanddealers，bywhicharetobeunderstoodallsalesfromthe

producerorimporter，throughallthestagesofintermediateprocessesofmanufactureorotherwisetotheretaildealerorthe

exportingmerchant，areresolvableintomovementsortransfersofcapital。Nowtransfersofcapitaldonotnecessarily

suppose，nordoactuallyasamatteroffactentail，inthegreatmajorityoftransactions，apassingofmoney，thatis，bank

notesorcoinImeanbodily，andnotbyfictionatthetimeoftransfer。Allthemovementsofcapitalmaybe，andthegreat

majorityare，effectedbytheoperationsofbankingandcreditwithouttheinterventionofactualpaymentincoinorbank

notes，thatis，actual，visible，andtangiblebanknotes，notsupposititiousbanknotes，issuedwithonehandandreceivedback

bytheother，or，moreproperlyspeaking，enteredononesideoftheledgerwithacounter—entryontheother。Andthereis

thefurtherimportantconsideration，thatthetotalamountofthetransactionsbetweendealersanddealersmust，inthelastresort，bedeterminedandlimitedbytheamountofthosebetweendealersandconsumers。Thebusinessofbankers，settingasidetheissueofpromissorynotesondemand，maybedividedintotwobranches，

correspondingwiththedistinctionpointedoutbyDr。Smithofthetransactionsbetweendealersanddealers，andbetween

dealersandconsumers。Onebranchofthebanker’sbusinessistocollectcapitalfromthosewhohavenotimmediate

employmentforit，andtodistributeortransferittothosewhohave。Theotherbranchistoreceivedepositsoftheincomes

oftheircustomers，andtopayouttheamount，asitiswantedforexpenditure，bythelatterintheobjectsoftheir

consumption。Theformermaybeconsideredasthebusinessbehindthecounter，andthelatterbeforeoroverthecounter：theformerbeingacirculationofcapital，thelatterofcurrency。Thedistinctionorseparationinreasoningofthatbranchofbankingwhichrelatestotheconcentrationofcapitalontheone

handandthedistributionofitontheother，fromthatbranchwhichisemployedinadministeringthecirculationforlocal

purposesofthedistrict，issoimportantinitsbearingonthequestionofregulatingthecirculationbytheforeignexchanges，

andonthatoftheconnectionbetweenthecurrencyandprices，thatthefullestelucidationofthepracticaloperationofthat

distinctionmaynaturallyberequired。Ihave，therefore，asthebestmethodofelucidatingthispoint，drawnlargelyonthe

examinationsbytheCommitteeonBanksofIssuein1841;andifitbeobjectedthatmorethanenoughoftheevidenceis

hereadducedforthepurpose，seeingthatthepointissoclearwhensimplystated，myanswertotheobjectoris，thatsimple

andclearasthedistinctionmayappeartohim，soimbuedwerethemembersoftheCommitteewhotookaprominentpartin

theexamination，withthetenetsofthecurrencytheory，astohaveremainedapparently（judgingatleastbythereiterationof

theirquestionstothesameeffect）unconvincedofthepowerlessnessofthebanksofissuetoinfluencedirectlytheamountof

thecirculation。Andeventothisday，withallthelightofsubsequentexperience，itshouldseem，judgingbyspeechesand

publications，andthedeclamationsagainstexcessivepaperissues，whichstillappearoccasionallyonthesubject，thatthe

dogmaofthepowerofbanksofissuetocreatepapermoneyadlibitumprevailstonearlyasgreatanextentasever。

CHAP。VIII。

REGULATIONOFTHECIRCULATIONBYTHEFOREIGNEXCHANGES。Allthecountrybankersexaminedconcurinstatingthattheyhavenotthepowerbyloansordiscountsbeyondtheordinary

transactionsoftheneighbourhoodtoextendorcontractthelocalcirculationortoinfluenceprices。Theycould，indeed，

refusetoissuetheirownnotesinansweringthedemandsoftheir`depositors，butsuchrefusalmustbeaccompaniedby

offeringBankofEnglandnotesorcoin，andthusthelocalcirculationwouldbeequallyfilledup;theymaycurtailorcallin

theiradvancesandsodiminishtheirengagements，andeventuallyrenderasmalleramountofcirculationnecessary;buttheimmediatedemandsfornotesforlocalpurposesmuststillbesatisfied。Itappearsbythatevidence，thattheircirculationisdevotedandconfinedtolocalpurposes，chieflyinsmallamounts，forthe

retailtrade;andintheruraldistricts，inadvancestofarmersforthepurchaseofstockandseed，andtocattledealersand

provisionmerchants：butthatwhencalledupontomakeadvancesbywayofloanordiscountonalargerscale，itisalways

byadraftororderuponLondon，oruponsuchoftheircorrespondentsinothertownsashappentosuittheborrowerssuchloansordiscountsbeinginvariablymadeoutofcapital，or，inotherwords，outofthegeneralresourcesofthebank。AmongthecountrybankersofEnglandIhaveselectedtheevidenceofMr。Stuckey，theheadoftheadmirablyconducted

banksofSomersetshireunderhisfirm，becausethereisnoonemoreconversant，boththeoreticallyandpractically，thanheis

withthesubjectofbanking。ByhispositionformerlyhewasinintimatecommunicationwithLordLiverpoolandMr。

Huskisson。HewasexaminedbytheBullionCommitteein1819。HewasanadherenttotheprinciplesofthelateMr。

Ricardo;andheexpressedopinionsofthedesirablenessofhavingthecirculationofbanknotesregulatedbyaviewtotheforeignexchanges。（11）Butwhatistheresultofhisverylargeexperienceasabanker？477。（Chairman。）Doyouconceivethat，generallyspeaking，thereisaninsuperabledifficultyincountrybanksexercising

suchacontroulovertheirownissues，astoreducethemtosomeextentduringaperiodofadverseforeignexchange？

Ireallydonotseehowthatistobedone。

478。Thenwhatisthepracticaleffectoftheregardtoforeignexchanges，whichyouthinkallcountrybankersoughttopay？Thepracticaleffectistomakethemmorecautiousandcircumspectinthemanagementoftheirmoneytransactions;butIshouldnotstate，thatintheagriculturaldistricts，thecirculationwouldbealteredbytheforeignexchanges。479。Doyouconceive，thatalthoughthecountrybankersoughttopayregardtothestateoftheforeignexchanges，itisnot

intheirpowertobringthatregardintopracticaleffectbyreducingtheamountoftheirissuesduringtheperiodofadverse

exchange？

Idonotseehowitcouldbedone。480。Willthentheregardwhichyourecommendtheyshouldpaytotheforeignexchangesproduceanypracticaleffect

whateverupontheirissues？

Yes，itwouldproduceeffectinthemanagementoftheirmoniedconcerns。

481。Whatpracticaleffectwoulditproduceontheirissues？

Verylittle;myownopinionis，thatcountryissueshaveverylittletodowithexchanges。

482。Wouldtheregardwhichyourecommendtotheforeignexchangesproduceanyeffectupontheirissues？

Verylittle;itwouldproducesomeeffectuponthemanagementoftheirmoniedconcerns。

483。（SirT。Fremantle。）Upontheirliabilities？

Yes。

484。Butcomparativelylittleontheirissues？

Yes：particularlyintheagriculturalpartsofthecountry。

485。Uponwhatdoyouthinktheissuesofthecountrybankersdepend？Moreonthestateofagriculturethananythingelse。Whenthelandedinterestisinacomfortablestate，Iconsidertheissuestobeincreased。491。（SirT。Fremantle。）Theadvancewhichyoumaketotheagriculturistsisanadvanceofcapital，whetheritispaidto

theminyourownnotes，orBankofEnglandnotesorgold？

Yes;theadvanceisgenerallymadetoagriculturistsinourownnotes。492。Butifthestateofthecountryissuchasnottorequireanincreaseofyourownissues，youarequitesurethatthose

noteswillcomebacktoyouinthecourseofashorttime？

Exactly。

493。Thereforetheadvancethatyoumakeinthatcaseisanadvanceofcapital，andnotanadvanceofmereissue？

Exactly;itismadeoutofourresources。

501。（Chairman。）Willyoustatehowyouareaffectedbyforeignexchanges？IthinktheLondonbankerisaffectedbythem，there—foreIamaffected;Inaturallyknowthatifmydepositsarewithdrawn，

andanydemandismadeuponme，Imustsellmysecurities;thereforeIlooktotheforeignexchangesinordertoascertainhowthemoneymarketis，thatImayknowwhatsecuritiesIshalldisposeof。524。（Chairman。）Supposethecaseofanadverseforeignexchange，when，accordingtoyourownopinion，thepaper

circulationofthecountryoughttobereduced，wouldyou，onadepositoraskingforthepaymentofadepositinnotes，beat

allguidedbythecircumstanceoftheforeignex—changes，astowhetheryoupaidthatdepositinBankofEnglandnotes，orinyourownlocalnotes？IadmitthatIshouldnotbeguidedbytheforeignexchanges，butIshouldbeguidedbyknowingwherethedepositmoneywastogoto。525。（SirT。Fremantle。）Youhavestatedthatwhenyouhaveobservedgoldgoingoutofthecountry，andmoneybecoming

tightinLondon，youhavebeeninthehabitofissuingdirectionstoyourdifferentbranches，tobemorecircumspectinthe

advancestheymake;hastheeffectofthatbeenpracticallytodiminishtheamountofyournotesincirculationinthose

districts？

Idonotthinkithas;Iamnotawarethatithas。

526。Whathastheeffectbeen？Tomakethemmorecautiousintheiradvances，keepingourresourcesmorewithinourowncommandinsteadof

discountingabill，whichweshoulddiscountundersomecircumstances，wehaverefusedit;andinsteadofadvancing1000l。

or2000l。，wehavedesiredthepersontotake5001。;thereforewekeepourbankingcapitalandbankingresourcesmore

underourowncommand。

527。Butareyoupreparedtosaythatthecirculationofyourownnoteshasnotbeenaffectedbythatcourseofcon—duct？

Iamnotawarethatithas。527。Supposing，forinstance，itshouldultimatelybethoughtthatitisdesirablethatthecountrycirculationshouldhavea

generalconformitytothestateoftheforeignexchanges，doyouconceivethatthiscouldbeinanywayeffectedbythecountrybankers？Idonotatpresentknowhowitcouldbeaccomplished;andImaytakethelibertyofgoingfurtherinthatquestion，and

sayingthatitappearstomethatthecountryissues，asconductedinthewestofEngland，haveverylittleornothingtodowiththeforeignexchanges。538。DoyouconceivethenthattheonlycirculationwhichoughttohavereferencetotheforeignexchangesisthatoftheBankofEngland？Idoconceivethatitistheonlythingwhichoughttohavereferencetothem，beingthecirculationofLondon，andLondonbeingthespotwheretheforeignexchangesaregenerallyeffected。539。（Mr。Grote。）DoyoumeantostatethatyouthinkthecirculationoftheBankofEnglandoughttobemadetovaryin

conformitywiththeforeignexchanges，butthatthecirculationofthecountrybanksoughtnottobeaffectedbytheforeignexchanges？No，Idonotgosofarasthat;myopinionisthatthecountrycirculationdoesnotaffecttheforeignexchanges，becauseitisa

differentkindofcirculation;theforeignexchangesare，weallknow，affectedinvariousways，butIdonotthinktheyareaffectedbythecountrycirculation，andIhavelookedattentivelyatthatquestion。TheevidenceofMr。Gilbart，oftheLondonandWestminsterBank，ofMr。Hobhouse，ofabankatBath，andofMr。

Rodwell，ofabankatIpswich，isfullofinformationastothecircumstanceswhichin—fluenceandlimitthecountry

circulationwithoutthepossibilityofreferencetotheexchanges。Butasthesegentlemendonotprofessevertohave

entertainedanopinionofitsbeingdesirable，ifitwerepracticable，toregulatethecountrycirculationbytheforeignex—

changes，IhavepreferredareferencetoMr。Stuckey’sevidence，hehavingentertainedandprofessedanopinionthatitwasdesirable，buthadmadethediscovery，confirmedbylongexperienceonaveryextensivescale，ofitsutterimpracticability。Mr。GurneywasexaminedonthispointbytheCommitteeontheBankCharterin1832。Ihavebeforehadoccasionto

noticehisevidenceatsomelength，（12）andwillnowonlyrefertotheconcludingpartofit：

Doesitnotfollowfromwhatyouhavesaid，thatanover—issueofnotesofcountrybankerscannoteasilybeeffected？

Mybeliefisthatitcannotbeeffectedbyanyactofthecountrybankers。Asfarasthispointisconcerned，itmightperhapsbedeemedto（besufficientlyprovedbytheevidencealreadyadduced。But

nottheevidenceonlyonthispointisconfirmed，butalsomuchadditionallightisthrownonthedistinctionbetweencapital

andcurrency，byaviewoftheScotchsystemofbanking。TheexaminationsofsomeofthemanagersoftheScotchbanksby

theCommitteein1841，areaccordinglywellworthyofattentionasillustrativeofthatdistinction。

CHAP。IX。SCOTCHBANKING。REGULATIONBYFOREIGNEXCHANGES，ANDDISTINCTIONBETWEENCAPITALANDCURRENCY。TheevidenceofMr。AlexanderBlair，treasurerandmanageroftheBankofScotland，whichistheoldestofthechartered

banks，havingbeenestablishedin1695，andwhichappearstobeconductedwithgreatabilityandprudence，isfullofvaluableinformationastothemachineryandworkingoftheScotchsys—temofbanking。Hementionsacuriousfactrelatingtothemodeinwhichthebalancesresultingfromtheexchangestwiceaweekamongthe

banksareadjustedbythemeansofexchequerbillswhich，totheamountof450，000l。，theyholdforthatexpresspurpose。HerewehaveexchequerbillsansweringallthepurposesthatBankofEnglandnotesattheclearinghouseinLondondo。Mr。Blairalsostatesthatsevenmillionsinamountofnotesisfoundtoberequisiteinordertokeepupanaveragecirculation

ofthreemillions，averycuriousfact，asitappearsthatthestampdutyispaiduponthewholestock，whetherinthehandsof

thepublicorwithinthewallsofthebanks，andthatthewholeamountisoutincirculationforafewdaysattwoseasonsoftheyear。Itisstated，moreover，uponthesameauthority，thatthetotalamountofdepositswhich，in1826，wascomputedtobeabouttwenty—onemillions，hadin1841reachedtoabouttwenty—sevenmillions。Itisaremarkablecircumstancethat，whiletherehasbeenagreatextensionofbankingcapital，andofbanking

accommodation，andofbankingcompetition，inScotlandsince1826，theamountoftheaggregatecirculationhas

considerablydiminished。Whatacommentaryuponthereceiveddoctrineofthepowerofbankstoincreasetheirissuesof

papermoneyassuitstheirinterestsorconvenience;andthatitistheeffectofthecompetitionofbanksofissuetocreatea

vastmassofworthlesspaper。

Mr。Blairgavethefollowingstatementofthein—creaseofbankingaccommodationinScotland：\"Thereareabout380bankofficesinScotland，ofwhich348arebranches。Thepopulationmaybestatedat2，500，000;thusthereisonebankforevery6600individuals。\"Therewerein1825，167offices，ofwhich133werebranchbanks。Thepopulationbeingthen2，200，000，therewasonebanktoevery13，170individuals。\"TheamountofnotesexchangedperannumbythebanksofScotlandisbelievedtobenotunder100，000，000l。delivered，and100，000，000l。received。TheBankofScotlandalonedelivers10，000，000l。，andreceivesinexchangeasmuch。\"ButtheimmediatepurposeofmyreferencetotheevidenceofMr。BlairandothermanagersoftheScotchbanks，istoshow

thattheydonotandcannotregulatetheircirculationbytheforeignexchanges;andthat，whentheymakeadvances，itisout

oftheircapitalorthatoftheirdepositors，withoutanydirectinfluenceontheircirculation;thattheyattendtotheconductoftheBankofEnglandinregulatingtheiradvances，which，however，havenoimmediateinfluenceontheircirculation。Mr。Blairwasaskedbythechairman，Doyouconceivethattheamountofnotesincirculationshouldberegulatedinanywaywithreferencetothestateofthe

foreignexchanges？Iconceivethattheloansanddiscountsofbanksshouldberegulatedwithreferencetothestateoftheforeignexchanges，butIwouldnotconsideritnecessarytoregulatethecirculationbytheforeignexchanges。1879。（Mr。Grote。）Then，isityouropinionthat，atthesametimewhentheBankofEnglandiscontractingitscirculation，

forthepurposeofcorrectinganunfavourableexchange，theprovincialbanksshouldproceedinthesametrack，andcontracttheircirculationalso？IthinkthattheyshouldconsidertheactionoftheBankofEngland，atthattime，withreferencetotheirgeneralrulesof

discount。Iwouldbegtoleavethecirculationoutofthequestion;Iwouldsaythatthebanksshouldlooktotheamountof

theirloansanddiscountsundersuchcircumstances;and，atthesametime，Iwouldsay，thattheBank（ofEngland）should

keepalargereserve，tobedeterminedbytheirpastexperienceandobservation，forwhich，totheextentitisheldforpublicaccount，theyshouldreceivecompensation。1880。Then，isityouropinion，thatataperiodwhentheexchangesareunfavourable，andtheBankofEnglandare

contractingtheircirculation，theprovincialbanksoughttobemorecautiousingrantingloansanddiscountsthantheywere

before？

Certainly。

1881。（SirJ。R。Reid。）Doesyourbankactuponthatprinciple？

Itdoes。Theexaminations，however，ofMr。Kennedy，manageroftheAyrshireBank，and。ofMr。Anderson，oftheGlasgowUnion

BankingCompany，wentmoreparticularlytothequestionofthedistinctionbetweencapitalandcurrency;andtheirevidence

iscalculatedtothrowgreatlightonthispoint。

Mr。Kennedyisasked：2092。（Mr。Grote。）Youstatedthatthecausesaffectingthequantityofyournoteswhichwereoutincirculationatanytime，

were，inyouropinion，independentoftheactionoftheforeignexchanges？

Idid。2093。Butyoualsostatedthatatthetimewhentheforeignexchangeswereunfavourable，andwhentherewasapressure

uponthemoneymarket，youthoughtitimperative，asameasureofprudence，torealisesomeofyourreservestocallin

fundsfromEdinburghorLondon？

Yes，thatisanaccuraterepresentation。2094。Thendoyounotthinkthatthatactofyours，inbringingintoyourcountryfundsrealisedinEdinburghorLondonis，

inpointoffact，tantamounttoyouracquiringforyourselfacertainportionoftheLondoncurrencyortheEdinburgh

currency，inasmuchasthelocalincreaseofyourcurrencyisnotatthatmomenttantamounttotheincreaseoftheaggregatecurrencyofthecountry？ButwedonotbringintoourcountrytheEdinburghorLondonmoney。Thediminutionofourreservestakesplaceinthis

way：partieshavepaymentstomakeinEdinburghorLondonorotherplaces，andwedrawuponourreservestheretomeet

thosepayments，butwedonotbringdowngoldorBankofEnglandnotesfromtheLondonmarketinordertopaythemawayinourcountry。2095。ThoughyoumaynotactuallybringdowngoldorBankofEnglandnotes，isnottheeffectofyourdiminishingthe

amountofyourreserveinEdinburghandLondon，andincreasingbythatmeanstheadvancestocertainlocalbor—rowers，tantamounttobringingdownsomuchoftheEdinburghorLondoncurrencyintoyourlocality？IcannotseethatIbringanycurrencydown;itismerelyapaymentmadeinLondon，orinEdinburgh，fromonepartyto

another。

2096。Willyoudescribeinwhatwayyourreservesareusuallykept？Ineasynegociablesecurities，suchasexchequerbillsandshort—datedbillsofexchange，moneylyinginourbanker’shandsin

London，andinotherparties’handsinLondon，andmoneylyinginouragents’handsinEdinburghandGlasgow，andotherplaces。2097。SupposeyousellsomanythousandexchequerbillseitherinLondonorinEdinburgh，ofcoursetheproceedsofthose

exchequerbillsareplacedtothecreditofyouragent，whetheryourEdinburghagentoryourLondonagent？

Yes。2098。Inthatcase，whenyoudirectthosefundstobepaidout，youdoinpointoffactdisposeofanequalamountof

LondoncurrencyorofEdinburghcurrencyforthepurposesofyourbank？

Yes。2099。Then，inpointoffact，doyounotconsiderthatyouareenabledbymeansofthatportionoftheLondoncurrencyor

theEdinburghcurrencyofwhichyouthusacquirethedisposal，toobtainacertainincreaseoftheamountofnotesinyourowndistrict，anddoesnotthat，inpointoffact，occasionacertaindiminutionintheLondonortheEdinburghcurrencywhichmaybesetagainsttheincreaseofyourownlocalissuesatthetime？ButwhenIgiveadraftupontheLondonagentIdonotinconsequenceoftheincreasedsumthatIhaveputathiscommand

giveoutnotesforit。IgiveadraftuponLondonpayabletosomepartyinLondon;themoneyispaidoverinLondon，sothatIdonotmakeanissueuponthat。2100。ButthequantityofcurrencywhichisavailabletootherpartiesinLondonorEdinburghisdiminishedbythatportion

whichyoudrawforyourownuse？

IdonotseehowitdiminishesthequantityofcurrencyinLondon：itmerelytransfersitfromonepartytoanother。2101。IfyouwerenottoemploythatportionoftheLondoncurrencywhichyouacquirebyrealisingyourexchequerbills，

thatportionwouldbeatthedisposalofsomeotherpersoninLondonforthepurposeofgrantingaccommodationto

Londonborrowers？

ButIdonottakeitoutofLondon;itisstillinthehandsofsomepartyinLondon。2102。Butifbymeansofthatoperationyouareenabledtoextendyouraccommodationtoyourlocalborrowers，youdo

makeitserviceabletothewantsofyourdistrict，andisitnottantamount，inpointoffact，toatransferofsomuchcapitalfromemploymentinLondontoemploymentinAyrshire：isnotthatthegeneraleffectoftheoperation？Thatmaybetheeffectofit;butithasnoeffectindiminishingtheamountofthecurrencyintheLondonmarket。Idonot

bringoutofLondonanycurrency;ImerelytakethecurrencyfromonepartyinLondon，andgiveittoanother。

2103。DonotyoubringdownfromLondontoAyrshireacertainportionofcapitalwhichwasbeforeinLondon？

Idonotseethat。2104。IftheeffectofthistransactionbetoenableyoutosupplythewantsofborrowersinAyrshire，whichotherwiseyou

couldnotsupply，surelythatdoesamounttoatransferofsomuchofyourbankingcapitalfromLondontothecountry？

ItisrathermorethepaymentofadebtduebysomepartiesinAyrshiretosomepartiesinLondon。Mr。Kennedyisright：theoperationisthemeretransferofadebt。TheAyrshirebankiscreditorofabankinLondontothe

amountof1000l。，andpasses`itsdraftonLondonforthatsum;thepersonorfirmthattakesandpaysforthedraftofthe

AyrshirebankhasapaymenttomaketohiscorrespondentinLondon。Thetransactionsbalanceeachother。Theultimate

balances，asbetweenScotlandandEngland，mustbeadjustedbyanincreaseordiminutionofthefundspossessedinEngland

bytheScotchbanksandinsomecases，althoughnotfrequent，nortoanyconsiderableamount，theremaybeatransmissionofBankofEnglandnotesorcoin。Notwithstandingtheclearnessofthisevidence，thefollowingquestionsputbytheCommittee，astothedistinctionbetween

capitalandcurrency，inthesubsequentexaminationofMr。Anderson，manageroftheGlasgowUnionBankingCompany，

willshowthelittleimpressionproducedbyitontheexaminers：

2323。（Chairman。）Doyouatallattempttoregulateyourcirculationbythestateoftheforeignexchange？Notthecirculation;weregulateourbusinessbythestateoftheforeignexchanges，butweconsiderthatthecirculationdoesnotrequireanyregulation;ouradvancesandloansweregulate，butnotthecirculationofournotes。2324。Doyouconceivethatthecirculationissufficientlyregulatedbyyoursimplyansweringthedemandsofyour

customers？

Ithinkso。2335。Doyouconceivethattheconsequenceofrestrainingyourloansandadvancesistoproduceanyeffectuponthe

amountofyourcirculation？

Noimmediateeffectupontheamountofourcirculation。

2336。Doesiteventually？Thecirculationiseventuallyaffectedbythelanguorthatfollowsapressure;whenwagesarelowandpeopleareoutof

employment，thereislessmoneycirculatingamongthem，andourcirculationisdiminished，buttheimmediateeffectofapressureisnottodiminishthecirculation。2337。Doesthenanydiminutionofthecirculationwhichtakesplacearisefromalessdemandonthepartofthepublic，and

notastheresultofanygreatercautiononthepartof。thebank？

Exactly。2338。（Mr。Grote。）Buttheeffectsyouhavedescribedimplyanincreaseddemandonthepartofthepublicatsuchperiods

foryourcirculation？

Itisanincreaseddemandformoney，（13）butnotforcirculation。

2339。Whenthosedemandsaremade，inwhatmannerdoyousupplythem;isitnotbyanincreaseofyourownnotes？InmostcasesanincreaseddemandcomesuponusintheshapeofordersuponLondon，orordersuponManchesteror

Liverpool;thepressureuponusischieflyfromtheSouth，andanextrademandfromLondon，Liverpool，andManchesterwefeelasthefirstindicationofpressure;itisnotfromourownimmediatedistricts。2340。（Chairman。）Doyoumeanthatyourcustomershavedemandsuponthem，whichitisnecessaryforthemtodischarge

inManchester，London，andotherplaces？

Yes，thatistoaconsiderableextentthecase。2341。（Mr。Grote。）Inwhatmannerdoyouenableyourcustomerstomakethosepaymentswhichyouhavetomakein

Liverpool，orLondon，orManchester？

Bygivingthemordersuponouragentsandcorrespondentsinthoseplaces。2342。YoudirectacertainportionofthefundswhichyouhaveinLondon，orLiverpool，orManchestertobeappliedtothat

purpose？

Wedo。2343。Then，inpointoffact，youmakethoseadvancesnotoutofyourownlocalcurrency，butoutofacertainportionoftheLondoncurrencyuponwhichyouhaveademand？No;Ithinkthatdoesnotpreciselydescribetheoperation。itisourcapital;itiscapitalwhichwehavecollectedinScotland，

andplacedinLondonforthatpurpose;itisnotLondoncurrencylenttoScotland，butitiscapitalbelongingtoScotlandthathasbeenplacedinLondon，andisnowap—pliedtothepurposesforwhichitiswanted。2344。ButifyoudirectpaymenttobemadeinLondon，thispaymentmustbemadebymeansofthenotesoftheBankof

England，whichalonecirculateinLondon？

Ofcourse。（14）2348。WhenincreaseddemandsaremadeuponyoubyyourcustomersinGlasgow，doyounotanswerthosedemandsbymeansofyourownlocalnotes，andnotbyordersuponLondon？Certainly;ourcirculationfromTuesdaytoFriday，andfromFridaytoTuesdayagain，isincreaseduponthisoccasion;butwe

donotreckonthatcirculation，becauseweknowthatitisimmediatelytoreturnuponus，andthatitisanadvance，notofcirculation，butofcapital;itbecomesatthenextexchange—dayanadvanceofourcapital。2349。Youfeelsatisfiedthattheincreaseofnoteswhichyoumightmakeatthatperiodwouldimmediatelycomebackupon

youintheexchange，andthatyouwouldberequiredtopaythembyordersonLondon？

Yes;orbyexchequerbillsinEdinburgh。2361。Doyounot，bymeansofthisincreasedamountofadvancesintheextraordinaryperiodstowhichthequestionshave

alluded，addtothemeansofpurchasinggoodspossessedbythepersonswhoborrowfromyou？

Yes，wedo。2362。Andisnotthatpracticallytantamounttosomuchincreaseofcirculationinthelocaldistrictsinwhichyourloanstakeplace？Ithinknotofcirculation;Ithinkitiscapital;becausethenoteswepayoutarenotretainedfordaysorweekstomakethe

purchases，theyarepaidimmediatelytosomeotherbank，andcomebacktousupontheexchange，andtheybecomeanadvanceofcapitalbyustotheparty，toenablehimtomakehispurchases。（15）2363。Butalthoughultimatelyitcomestobeanadvanceoutofyourcapital，yetforacertaintimeitisanadvancemadeby

meansofyourcirculationonly，withouttheaidofyourcapital？

Fortwoorthreedaysitis。

2364。Foracertaintime，longerorshorter，asthecasemaybe？

Itcannot，Ithink，belongerthantillthenextexchange—daywithregardtothoseextraadvances。2365。（Mr。Gisborne。）Practically，hasitmoreeffectingivingpowerofpurchasinggoodsinLondon，thanifyougavethem

adraftuponyourbankerinLondon？

No;Ithinknot。2366。（Mr。Grote。）Butduringtheperiodwhichelapsesbetweenthetimeofyourmakingtheadvanceoriginallyinyourown

notes，andthetimewhenyougivetheorderonLondon，inconsequenceofthenotescomingbacktoyouduringthatinterval，whetheritbelongorwhetheritbeshort，musttherenotbeanincreaseofthecirculationofthecountrygenerally？Ithinkthatbringsusbacktothequestionwhichhasbeensomuchdiscussedhere，viz，whetherdepositsformapartofthe

circulation。Thosenoteswhichwepayoutdonotremainout;theymustbepaidbackeithertousortosomeotherbank，in

theshapeofdeposits，tilltheyaretobeused，andtheydonotincreasethepermanentcirculationofthecountry，unlessfora

dayortwo，scarcelyforevenaday。

2367。（SirJamesGraham。）WhatproportionofthepeopleofScotlandreceivingnotesemploybankers？AverylargeproportionofthepeopleofScotlandemploybankers;wehavebeenenquiringintothatsincewecametogether。

Oneofthegentlemenhere，whoisattheheadofabankwithalargenumberofcountrybranches，informsme，thatthe

numberofcreditorsofhisbankis20，000。InourcaseIhaveareturnsinceIcametotown，makingthenumberinourbank

15，770;andoneofthegentlemenwhoishere，andwhoisattheheadofabankwithoutbranches，saysthathehas7000

peopleholdinghisobligations。

2368。（Mr。Grote。）DepositaccountsYes;depositaccounts，orcurrentaccountsbearinginterest。2369。（SirJamesGraham。）Inasmuchaseverypaymentintoabank，whetherintheshapeofadeposit，ortothecreditofa

currentaccount，bearsinterestdaybyday，andinasmuchasnocommissionischargeduponoperationsonanaccount，and

inasmuchasagreatproportionofthepeoplereceivingmoneyinScotlandemploybankers，doesitnotfollowthatevery

paymentmadeinlocalnotesfindsitswayalmostimmediatelywithinthespaceoftwenty—fourhoursintothehandsofsome

banker？

Ithinkitdoes。2370。（Mr。Grote。）Wouldnottheconsequenceofthatpropositionbe，iffollowedout，thatthereshouldbenonoteswhateverinthehandsofthepublic，butthatallthenotesissuedbyeachbankshouldbeinfactinthehandsofotherbanks？Thatistheeffect。Therearethreemillionsofnotesout，whichisaverysmallamount;peoplemusthaveacertainamountof

moneyintheirpocketsandboxesathome，andshop—keepersmustkeepacertainamountofmoneyintheirtills，thedaily

receiptsoftheirbusiness;andmanufacturersmustkeepnotestopaypeople’swages，andsoon;butthataltogetherforms

butasmallproportioncomparedtothecirculationofEngland。OurthreemillionsinScotlandamounttoabout1l。aheadof

thewholepopulation;inEngland，althoughyouhaveagoldcirculationforeverythingbelow5l。，yourpapercirculationamountsto2l。ahead。Iamtakingaboutfifteenmillionsforthepopulation，andthirtymillionsforthecurrency。Thedistinctionbetweencurrencyandcapital，whichissoclearlyshownbytheseremarkablyintelligentwitnesses，isnota

merematterofclassificationorofverbalcriticism。Theconfoundingofonewiththeotherisaprolificsourceoffallacyinreasoning，andoferrorinpracticalapplication，inquestionsrelatingtothemanagementorregulationofbanks。Ofthisastrikinginstancewasexhibitedinthereasonsadducedbytheadvocatesofthecurrencytheory，injustificationof

theadvancesmadebytheBankofEnglandin1835，againstthedepositsontheWestIndialoan。Thejustificationproceeded

onthegroundthat，butforthoseadvances，thecurrencywouldhavebeenundulycontracted。Whatthenotioncouldbeof

unduecontractionofthecurrency，thatis，ofaninconvenientwantofbanknotesinthehandsofthepublicorofthebankers，

aslongasanyamountmightbeobtainedbydiscountat4percent，passesallreasonablecomprehension。Thetruthis，thatit

waswhollyaquestionofdisposablecapital;andwasitpossibletoimaginethattherecouldbeanydangerofaninsufficiency

ofit，atatimewhenthedisposalofitwassorecklesslygoingforwardincreditstoAmerica？Whileasregardsthe

circulationorcurrency，thereiseveryreasontobelieve，onaviewofthestateofthingsatthattime，thattheamountwould

havebeenneithermorenorlessthanitwas，whethertheadvanceshadbeenmadeorwithheld。

CHAP。X。

CHARGESAGAINSTTHEMANAGEMENTOFTHEBANKOFENGLAND。Theforegoingextractsfromtheexaminationsofthecountrybankersgivetheevidenceofwitnesseswho，whileexplaining

theworkingofthecountrybanksystem，offernoopinion，adverseorotherwise，astothemanagementoftheBankof

England。ButtherearewitnessesbeforethatCommitteewho，whilegivingveryelaborateevidence，comprisinghighly

interestingdetails，servingtoexhibitwhat，fromtheirregularity，maybedeemedtobelawsdeterminingthevariationsofthe

countrycirculation，changethewholecourseoftheirreasoningwhentheygivetheiropinionupontheconductoftheBankofEngland。Theychargethatinstitutionwithbeingthemaincause，byundueexpansionandsubsequentcontractionofitsissues，of

causingthealternationsofexcitementanddepressionwhichhavecharacterisedthecommercialstateofthiscountryoflate

years。Andawholehostofwriters，someaspartisansofthejointstockbanks，othersunconnectedwithanybanks，areloud

intheirdeclamationsagainstwhatappearsintheireyesthemonstermonopolyoftheBankofEngland;con—tending，asthey

do，thatwhereasthecountrybanksofissuearelimitedastoanypowerofaddingtothecirculation，nolimitationexiststo

thepoweroftheBankofEnglandtomakeanyadditiontoitsissues，whichaviewtotheinterestsofitsproprietorsmay

dictate;thatitcanpurchaseexchequerbillsandothergovernmentsecuritiesandbullion，anddiscountbills，andmake

advancestoanyamountthatmaysuititsconvenience，againstissuesofitsnotes;andthatifthentheexchangesbecomeadverse，anditsbulliongoesout，itputsonthescrew，tothegreatderangementofallcommercialoperations。TheevidenceofMr。HobhouseandMr。Gilbartfurnishesstrikinginstancesofthemadeofreasoningbywhichitis

attemptedtobeshownthat，whilethecountrybanksareperfectlypowerlessinanyattempttoregulatetheirissues，theBank

ofEnglandisallpowerful，andcanenlargeandcontractitscirculationatpleasure，subjectonlytoanultimatelimitationby

theexhaustionofitstreasure。

H。W。Hobhouse，Esq。

158。（Mr。Gisborne。）CanyoustateanymarkeddistinctionbetweentheBankofEnglandandcountrybankersasissuers？IthinkthebanksinthecountryarebanksofissuetoaverysmallamountcomparedwiththeBankofEngland。TheBankof

Englanddealswithnothingbutitsowncurrency;itisalwaysbuyingandsellingcirculation，ifImayusetheexpression;it

issuescirculationagainstgold，whichIconsidertobeaveryunwholesomething，whetherLondonorthecountrywantsthe

circulationornot。Then，again，theylendtheirnotesforcirculationinthecountry，whichacountrybankerneverdoes;he

wouldlosehiscreditifhedidthat：hecouldneverholduphisheadafterwards，ifheattemptedtoputouthiscirculationas

theBankofEnglanddoes;thentheBankofEnglandarebuyingandsellingsecurities，andactinguponthecirculation，

whereasthecountrybankersareentirelypassive，andthatisthegreatdistinctionwhichIshoulddraw：theycarryonthe

businessofissuingtoaninfinitelysmallerextentthantheBankofEngland，andthereforethatisnotafairmeasuretojudge

themby。

159。（Mr。Hume。）AretheCommitteetounderstandthatyouobjecttotheBankofEnglandissuingnotesforgold？Ifthereisnoactualdemandforpurposesofcirculation，itincreasesthecirculationwhenitisnotwanted。Ifapersonwere

tocometomybankandputaquantityofgoldintomybankandaskmetoissuenotesagainstit，Iwouldnotdoit，forI

couldnotmakethemstayoutunlesstheywerewanted;theywouldcomeback;therefore，asIsay，Icouldnotcon—ductmy

businessinthesamewayastheBankofEnglanddoes。IfapersonbroughtgoldtomeIshouldhavetopaycoinforit。

160。（Mr。Grote。）AndthepersonwhobringstoyoubullionmightgoandgetthatcoinedattheMint？Yes，butifthereisnodemandforcirculationhedoesnotdoit;butinthecaseoftheBankofEnglandheputsitinfora

temporarypurpose，andoutcomethebanknotes;itmaybeaverywholesomethingfortheBankofEnglandtohavethat

power，butIcouldnotdoit。Iknowthatthenoteswouldreturnuponmeimmediately;inshort，Ihavenopoweroverthe

circulation。

J。W。Gilbart，Esq。1015。（Chairman。）Whataretheothertestsbywhichyouascertainwhethertheissueofbanknoteswasorwasnot

required？

Besidestherateofinterest，Iconsidertheamountofmoneyincirculation，asfarasregardstheBankofEngland，asatest。

1016。Willyouexplainthatanswermorefully？AnincreaseinthecirculationoftheBankofEngland，Iconceive，differsfromanincreaseinthecirculationofthecountry

banks，becausetheincreaseofthecirculationofthecountrybanksisdrawnoutbythestateoftradeintheirrespective

districts。Thecountrybankershavingnopowertopurchasestock，orexchequerbills，orbullion，withtheirnotes，anincrease

ofcirculationbythemisindicativeofanincreaseoftradeintheirdistricts;eitherthatthereisagreaterbrisknessoftrade，

andagreaterquantityofcommoditiesboughtandsold，orelse，fromsomeothercircumstance，thereisanadvanceinthe

priceofthosecommodities，and，therefore，Idonotconsiderthatanypositiveincreaseintheamountofthecirculationof

thecountrybanksisanyabsoluteproofofexcessofissue;ifthatwerethecase，itwouldappearthatthecirculationof

Ireland，whichwasverymuchlargerinDecember，isaproofofanexcessiveissueofnotesinthatcountry，whereasthefact

is，thatalargernumberofnotesattheendoftheyeararedrawnoutbytheproduceoftheharvestbeingbroughttomarket。

ButanincreaseoftheBankofEnglandcirculationarisingfromanissueofitsnotesagainstbullion，oragainstpurchaseof

governmentsecurities，wouldbeanincreasenotrequiredbytrade，andwouldnecessarilyreducetherateofinterestandleadtospeculationintrade，andinvestmentsinforeignsecurities。1017。Doyoumean，then，thatanyincreaseofissueofbanknotesagainstbullion，orbythepurchaseofsecurities，is，inyouropinion，anexcessofissue？Imustagainguardmyself;Iamveryaversetouniversalpropositions，becauseIbelievetherearenouniversalpropositions

inthescienceofpoliticaleconomy;thattheyareallsubjecttoexceptions，andmaybemodifiedbycircumstances。Buttaking

itasageneralrule，and，referringtoexperience，Ithinkthatanissueofnotesagainstalodgementofbullionwillbeusuallyfoundtobeanexcessofissue。FromthetenouroftheseanswersitmightbeinferredthateverypurchaseofsecuritiesorofbullionbytheBankofEngland

ismadeinbanknoteswhichremainoutandaddtotheamountofthecirculation;andiftheydonotremainout，howcan

theybesaidtoaddtothecirculation？Astothebuyingandsellingofsecurities，this，theBank，havingalargecapitaland

deposits，mightdoifitwerenotabankofissue。But，sayMr。HobhouseandMr。Gilbart，thecountrybanks，iftheybuy

securities，cannotpayforthemintheirnotes，thedemandforthesebeinglimited;theymustthereforepayfortheminan

orderonLondon。Butwhatisthatorder？Itenablestheholderofittogetgoldforit，ifhehasoccasionfororcanmakeuse

ofthegold。AndwhatdoestheBankofEnglanddo，moreorless，whenitmakesadvancesbyloanordis—count，orbuys

securities？ThesellerofthesecuritiesortheborrowermayclaimbanknotesorgoldashemightclaimBankofEngland

notesorgoldfromanyotherbankofissue。Buthemaynot，andinmostcasesdoesnot，wantthebanknotesorgold。He

mayrequireonlythepowerofpassingachequeagainsttheamount，whichhepaysintohisbanker。And，inpointoffact，

unlessthereisademandforgold，thegreatbulkofthetransactionsoftheBankofEngland，whetherinthepurchaseorsale

ofsecuritiesorofbullion，isaccompaniedwithaslittleeffectupontheamountofbanknotesinthehandsofthepublicare

thetransactionsofthecountrybanksofissueThemostextraordinarypartofthechargeagainsttheBankofEnglandis，thatitissuesitsnotesinexcessbyitspurchasesof

bullion。Inthefirstplace，thereisnomorereasonforsupposingthatbanknotesofnecessityactuallypassoutoftheBank

forpurchasesofbullionthanforpurchasesofsecurities;but，inthenextplace，theBankcannothelppurchasinggold。The

goldcomesintotheBanksometimesfromtheinternalcirculation，andinthatcaseitispaidinasamatterofcourse;

sometimesitcomesinasbullionfromabroadintheshapeofsovereignswhichhadbeenpreviouslyexported，therebeingno

seignorage;andinsuchcasealsoitisquiteobviousthattheBankmustbepassiveinreceivingthemandinpayingforthem

eitherinnotesorinabookcredit。Buttakethecaseofuncoinedgold。IftheBankobjectedtobuyit，itmightbetakentothe

Mintbytheimporter，andwhencoinedpaidintotheBank。Mr。Hobhousesaysthatitwouldnotbetakenofnecessitytothe

Mint，becausetheremightbenowantofitinthecirculation。Thiswouldbetrueifitcouldonlyfindventinthecirculationas

currency，meaningforretailpurposes，thosebeingtheonlypurposesforwhichcoinscirculate。Buttheimporterrequiresthe

useofitascapital，andiftheBankwillnotbuyitasbullionhemustsubmittothedelayofhavingitcoined，sothathemight

payitintotheBank，andthusbyasmallsacrificeofinterestgetthecommandofhiscapital。TheBank，therefore，inbuying

thebullionat3l。17s。9d。perouncesparestheimportersthisround—aboutprocess。Itis，moreover，tobeob—served，thattheBankisbyitsconstitutionadealerinbullion，andifitwerenot，someotherestablishmentwouldbe。Soinconsistent，indeed，arethechargesagainsttheBankofEnglandwithreferencetoitssupposedmanagementofthe

circulation，thatwhilethecountrybankersarechargingitwithissuingitsnotesinexcessbypurchasesofbullion，the

partisansofthecurrencyprinciple，thatis，ofametallicvariation，considerittobeanimputationuponthepresentsystemor

uponthemanagement，thatanimportofbullionisnotattendedwithacorrespondingincreaseinthecirculation。