62. But there are several other considerations which point out that the rate of discount is the true method of acting upon the paper currency. As soon as the exchange becomes so unfavourable as to make it profitable to export gold, an immense number of bills are fabricated for the purpose of being sold for the sake of the premium; and these will continue to be fabricated as long as the rate of discount is kept below that of neighbouring countries; now, raising the rate of discount strangles all such operations in the birth. If only the numerical amount of notes be looked to, and the rate of discount be kept down, these speculators may get their bills passed, while legitimate trade bills may be refused. A moderate rise in the rate of discount will never inflict any real injury on trade at all equal to the refusal to discount trade bills altogether; and that is the result which has always ensued from a perseverance in keeping down the value of money below the natural level.

63. Moreover, when the nation is actually obliged to spend its money in buying foreign corn, or on any other object, such as war, it is quite impossible that it can have so much money to spend upon other things; its consuming powers, therefore, are diminished; it must economise in other things. Now, if the rate of discount is kept below its natural level, it stimulates and encourages production so much beyond the powers of consumption, that it must necessarily terminate in an aggravated fall in prices. A timely raising of the rate of discount is, therefore, a warning to producers to contract their operations gradually. But keeping it unnaturally low lulls them into false security; they maintain their engagements on credit on an undiminished scale, till at last the Bank, for its own safety, is obliged to pull up on a sudden-to bring up all standing. Then follows a total refusal to discount, commercial panic, and ruin.

64. It is, then, an incontrovertible fundamental truth in monetary science, that specie and credit form the circulating medium, and that they must increase and decrease together. An increase of currency, without an increase of debt, has no effect but to diminish the value of the currency. The same thing happens, if, when debt is destroyed, currency is not destroyed with it. If a metallic currency increases faster than debt, nature

provides a remedy-it is immediately exported. But, with an inconvertible paper currency, this cannot happen, and when debt is destroyed, currency remains in circulation; when this goes on for any length of time, or to any extent, the inevitable result is a depreciation of the paper currency, which is shewn by the rise of the market above the Mint price of gold. This was eminently exemplified in England in the years subsequent to 1810. The extravagant speculations were followed by an enormous destruction of capital; but the currency which was issued to represent it remained in circulation, and soon manifested itself in a rapid fall of the value of paper. It was impossible that paper ever should right itself, unless this superfluous currency was destroyed. It is recorded that an Irishman once having taken a dislike to a banker, in order to spite him, collected a number of his notes and burned them. It would have been an excellent thing for the country bankers of England in 1814-15, if some one had done the same kind office for them. The quantity of paper currency was so excessive, compared to what it represented, that nothing could restore it to its par value but the destruction of a large portion of it; and this was brought about by the destruction of the issuers of it; and, when this was done, the value of the remainder rose to par.

65: We have gone over most of the theories of currency which have attained the greatest practical importance. That there are others, is true; but they have generally been confined to a small knot of fanatics. But, as they seem, at last, to have died out, we need not weary our readers' patience by disturbing their peaceful oblivion.

CHAPTER XIII.

ON THE DEFINITION OF CURRENCY.

1. Having in the preceding chapters completed a general survey of the mechanism of Banking and the Foreign Exchanges, we are now compelled to examine the peculiar system of Banking which is at present established in this country; but, before we do so, we must give a little time to settle the meaning of the word CURRENCY. Most persons engaged in practical business are morbidly averse to discussions on the meaning of words, thinking them to be pure waste of time. But no science was ever yet founded without such controversies, and it is precisely because writers on Economics have systematically despised and neglected the only means by which a science can be founded, and by which every other great science has been created and established, that Economics is at the present moment in such a discreditable state. In the present case this investigation is absolutely indispensable, because the Bank Charter Act of 1844, which now governs the whole monetary system of the country, is expressly founded upon a peculiar definition of the word CURRENCY, and is expressly devised to carry out a peculiar Theory of Currency. In this chapter we must therefore investigate and settle the meaning of the word CURRENCY.

A very distinguished statesman has said that the word CURRENCY has driven more people mad than anything except love. Nor, to say the truth, is this very surprising. If we were to assemble a company of purely literary men, and request them to "Differentiate the Equation to a Curve," we have not the smallest doubt but that such a mysterious expression might drive them to despair, whereas any moderately educated school-boy could do it at a glance. It is precisely the same with the word CURRENCY. It is a term of pure Mercantile Law. Any mercantile lawyer can tell in an instant what the word CURRENCY means, and what it includes; whereas, those who have occupied themselves with discussions on it, know absolutely nothing of Mercantile Law, and have exactly as much chance of settling the meaning of

CURRENCY, as they have of Differentiating an Equation. We have already given a short account of its true meaning,1 but we must now investigate the question completely.

2. Our Saxon ancestors utterly discountenanced and prohibited the sale or exchange of any goods, merchandise, or cattle by private sale or bargain. It was a matter of fixed policy with them that no sales should take place except in the presence of witnesses. A series of kings made laws to this effect, and as these laws are to this very hour in spirit the Common Law of England, and are very little known, we may give a little space to quote them textually, as constitutional curiosities.

Thus, among the Dooмs, or Laws, which Hlothære and Eadric, kings of the Kentish men, about 683 A.D., established is this 2-"16. That if any Kentishman buy a chattel in Lunden-wic (London), let him then have two or three true men to witness, or the king's wic-reeve. If it be afterwards claimed of the man of Kent, let him then vouch the man who sold it to warranty, in the wic at the King's Hall, if he know him, and can bring him to warranty; if he cannot do that, let him prove at the altar, with one of his witnesses, or with the king's wic-reeve, that he bought the chattel openly in the wic, with his own property, and then let him be paid its worth; but if he cannot prove that by lawful averment, let him give it up; and let the owner take possession of it."

Among the Dooms of Ine, King of Wessex (688-725 A.D), is this "25. If a chapman traffic up among the people, let him do it before witnesses. If stolen property be attached with a chapman, and he have not bought it before good witnesses, let him prove, according to the wite, that he was neither privy nor thief, or pay as wite thirty-six shillings.

5

Among the Dooms of Edward the Elder, son of Alfred (901-924 A.D.), is this "1. And I will that every man have his man buy out of port, but have the of other unlying men whom one may 1 Vol. I., p. 30.

warrantor, and that no portreeve's witness, or that

*Ancient Laws and Institutes of England; printed by command of William IV. p. 14. We quote the official translation of the Anglo-Saxon.

5 That is Market Overt; in Roman Law, Portus est conclusus locus quo importantur

merces et inde exportantur. Est et statio conclusa et munita.

believe. And if any one buy out of port let him incur the king's ofer hyrnes." (i. e., contempt, or hearing and refusing to obey, which incurred a penalty of 120s.)

Among the Dooms of Ethelstan (925-960 A.D.) is this1"10. And let no man exchange any property without the witness of the reeve, or of the mass-priest, or of the landlord, or of the hordere, or of other unlying man. If any one so do, let him give thirty shillings, and let the landlord take possession of the exchange."

Among the Dooms of Edgar (959-975 A.D.) are these

"4. To every burh let there be chosen thirty-three as witnesses.

"5. To small burhs, and in every hundred, twelve; unless ye desire more.

"6. And let every man, with their witness, buy and sell every of the chattels that he may buy and sell, either in a burh, or in a wapentake; and let every of them when he is first chosen as witness, give the oath that he never, neither for money nor for love, nor for fear, will deny any of those things of which he was witness, nor declare any other thing in witness, save that alone which he saw or heard; and of such sworn men, let there be at every bargain two or three as witnesses."

Among the Dooms of Ethelred (979-1016 A.D.) is this 2"3. And let no man buy or exchange, unless he have burh and witness; but if any so do, let the landlord take possession of, and hold the property, till that it be known who rightfully owns it."

Among the Dooms of Cnut the Great (1017-1035 A.D.) is this "24. And let no one buy anything above the value of four pence, either living or lying, unless he have the true witness of four men, be it within a burh, be it up in the country. For if it then be attached, and he have no such witness, let there be no vouching to warranty; but let his own be rendered to the proprietor; and the aftergild and the wite to him who is entitled thereto."

"Among the Laws of Edward the Confessor (1043-1066 A.D.) is this" 38. Defensum erat eciam in lege, ne aliquis emat vivum animal vel pannum usatum sine plegiis et bonis testibus Ancient Laws and Institutes of England, p. 87. 2 Ibid., p. 120.

3 Ibid., p. 167.

▲ Ibid., p. 191.