CURRENCY AND CREDIT.
T.n true principles of a sound currency are seldom controverted; but they are apt to be lost sight of in the eager search for relief from difficulties of a different origin, or in the maze of discussion when counsel is darkened by words without knowledge. The currency of any country having pecuniary transactions with other countries can only be based on the precious metals. Its standard of weight and purity are fixed and applied by law; but the amount of the currency is not matter of authoritative regulation, but regu- lates itself according to the wants and resources of the country, which sometimes make it scarce and sometimes allow it to be plenty. In most countries the expedient of substituting a paper currency in part for a cur- rency of the precious metals has been resorted to, as being more convenient and more economical. It is essential to the safety and success of this expedient, that the paper money, which possesses no intrinsic value, should at all times be convertible, at the option of the holder, into the precious metals Which it represents. To insure the fulfilment of this salutary condition, it was provided by the Bank Charter Act of 1844, ' that the Issue Department of the Bank of England should not be allowed to issue more than fourteen millions of bank-notes without an equivalent deposit of gold for any surplus above that amount. It was computed from the re- sult of past experience that the circulation of Bank of England notes (usually amounting to about twenty millions) would under no circum- stances fall so low as fourteen millions; which amount might therefore be safely issued without a corresponding deposit of gold. This provision of the Bank Charter Act has not any effect in restricting the currency, and was not framed with such a view. Had the authorized amount been taken at sixteen millions instead of fourteen millions, the circulation would not thereby have been increased by two millions; but the only difference would have been, that of the twenty millions of bank-notes usually in circulation two millions more than at present would have been issued on the guarantee of the Legislature and without a corresponding deposit of gold. The notes issued on a deposit of gold would, however, have been reduced to exactly the same extent. This last position is not generally attended to; al- though, when examined, it will not admit of dispute. But an opinion is very prevalent, that when the circulation of the country becomes contracted within its usual limits, and a general scarcity of money ex- ists, the amount of bank-notes which the Issue Department is au- thorized to issue on the guarantee tif the Legislature and without a corresponding deposit of gold, should be increased so as to supply the deficiency. Such an attempt to contravene the natural laws by which the amount of the currency is governed, besides failing in its imme- diate object, would aggravate the evils it was meant to remedy. A con- traction of the circulation within its usual limits may proceed from a turn of foreign exchanges against the country, leading to an exportation of gold, as was the case in the early part of this year. It seems obvious, that if at that time the issue of bank-notes had been increased, it must have led to an increased exportation of gold, (still keeping down the amount of the currency,) until the coffers of the Bank were emptied and a suspension of cash payments took place: whereas the exportation of gold having been left to produce its natural effect on the currency and on prices, the drain was cheeked by the increased value of money, while no apprehension arose that the Bank would be unable to meet its engagements. The present heavy pressure on the money-market proceeds from a different cause. It is mainly owing to an universal feeling of mutual distrust among the mer- cantile community. If the numerous failures which have occurred had served to show that the feeling was groundless, it would gradually have been dispelled. Unhappily, they have, on the contrary, tended to confirm it. Scarcely one failure has happened which (whatever had been the state of the Money-market) was not inevitable if the truth of the case had been known. The state of the money-market has only brought the truth to light. Under such circumstances, the immediate pressure on the money- market might, no doubt, be relieved for the moment by an increased issue of bank-notes; but the relief would be but temporary, and would prove both fallacious and ruinous, unless the causes in which the pressure had its origin should cease to operate. If the want of confidence should not be removed, or if the drain on the resources of the country should not be stopped, then the increased issue of bank-notes beyond the point of safety would first be frustrated in its immediate object of affording relief, and afterwards be followed by a panic lest the Bank should be unable to meet its engagements, whereby a suspension of cash payments must ensue, or by the actual occurrence of that disastrous result.
The demand for an increased issue of bank-notes is precisely analogous to what, with a metallic currency only, the demand would be for a de- basement of the coin to meet a similar emergency. Each measure would operate in the same manner and lead to the same consequences. The fal- lacy of the demand consists in expecting paper-money to be something more than a faithful substitute for the precious metal which it represents. The office of a well-ordered currency, whether of the precious metals or of representative paper, is not to replace capital which has been dissipated, or to restore confidence when it has been shaken, or inspire it when it is not due: its office is to do no more than furnish that which, at all times and under all circumstances, may prove a trustworthy and convenient medium of exchange for mercantile transactions, both foreign and domestic. This office, under the operation of the Bank Charter Act, our system of currency has faithfully and effectively executed. Throughout the present alarming crisis, bank-notes have been as good as gold. They never were so on any similar occasion. The ordeal through which we are now passing has been brought on by schemes of internal improvement, here, as in America, car- ried far beyond our available resources; by reckless trading with fictitious capital; by heavy losses in trade treated like losses at the gaming-table and repaired by fresh borrowing; by an enhanced price for cotton and an
enormous drain of bullion for food; by prodigal relief to Ireland; by Government loan at an adverse period; by the alarm and distrust which all those concomitant circumstances conspired to produce. To attribute effects of such magnitude to the want of any additional amount of hanks notes which would have been issued without an entire disregard of cense-. quences, is a palpable absurdity. It is no less absurd to suppose that the present distress could be removed by the legerdemain trick of setting afloat' some two or three millions of "promises to pay," without the wherewithal to keep the promise. Such a project would only turn the insolvency of counting-houses into a general confiscation of the money which every mem,
bar of the community has in his pocket. A. B.
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