2 MAY 1840, Page 11


°semi. '.:7th April 1840.

SIR—Nothing has so much retarded the progress of accurate thought on sub- jects connected with political economy as the want oftit-fir/Wens. In your

last week, masterly article

you have not given us a dyinition of "Curreocy," only a description, as being " that with which we pay debts and nuake pur- chases." 'rhis, though quite true, is, as you are %vett aware, too general ; since sly blather, who owed. me 5s., might pay his debt with a leg of motion—which nom would call part of the currency. Currency is, strictly, that which is legal tender ; but we must extend the term so as to include that which is prac- tically never refused when tendered in payment. Thus there arise Bin e kinds of currency,—first, precious metals; second, paper which is legal tender; thirtl, p,ver which is not legal tender. or course it is perfectly evident that deposits )11banks belong to none of these three classes, as a cheek is neither legally nor conventionally always received vvben tendered in payment. But it were pre- sumptuous to add any thing to your convincing arthde on the subject. Of course' bills of exchange (a stronger ease than deposits, because already in a eirculating shape) form no part of the currenry. One observation on the above division I would make ; and that is, that the value of a Bank of England note, and of a note issued by any other bank, depend upon different cause. Take away from both the power of being converted into gold, (which they have in common,) the Bank a England mite retains its value, the other loses it entirely'. Hence we see, that convertibility into gold, xvhich is ue, identut to one L osential to the other. The value of the Bank of England note is main- tained by law, the value of the other by confidence. There is a difference in hind between the Bank of Eogland and all other notes ; there is only a differ- ence in degree between country notes and other private obligations, such as cheeks, bids of exchange. The introduction of this heterogeneous element into The currency might ri /Anti have been expected to produce confusion, nor has practice belied theory. Consider what a Bank Director has to consider, and how complicated and contradictory are t he condit ions of t I te problem he has to solve. Ile must regulate his issues with reference to—first, the state a the exchanges; second, the issues of other banks; third, the interests a his shareholders. And all or the most helper:am ot these are often subject oh to the convenience of t iovertonent ; as in I1e24, the Bank having contracted to pay off the Five per Cents., was obliged to increase its km., at the very Inollient when they ought to lit vi been cull. traetel. The first of these three ettesiderations is the only tem with which the nation is euncerned ; and yet, how often is it metlitied by the s.a. ind, or con- travened Ity the third. " If we centraet our issues. the other I•enks will in- crease theirs, or dividends will be much diminished." is Ow language of nip Bank-padmr. Thus, every inducement is held out to tie Directors to put off the net:it-my yuntraction of their issues till the la-'t !ohmic : a depreciating of the emir my ensues, a fall in the exchange, a rush for geld, panic and ruin.

Is there it remedy for this? Yes—a simple and a sure One. By what has

been Said alinve it appears that it is possibly to have a paper (eel's ney not et/n- it:ark him goid, as we had from '97 till '19. The value of 1 his curreiwy will depend ev,it the ratio of the supply to the demand. By diminishing or in- creosieg iv.issues, its value might infinitely tilted ahoy,' or depressed helow the value if gold. The only prwtical difficulty is to find p•wstuts to (rut. t with this power; and such persees eattuot be litund. But WV can prescribe to them a Me front which they eannot deviate. Consider 1ittil ot Ettgland notes as the subAtulial eurnucy the ceuntry, and their liability to be paid in gold only as the rsgulator ofthat currency. By this simple role e mu pare off the excrescences of the present system. Joint Stock and other banks ninst not be allowed, Ity extravagant issees with a view to their individual interests, to vitiate the etirrelle,r the prerogative of making money must be restored to the Government, and only one hank of issue allowed.

Thus we toll have relieved the Directors of the second of their three con- siderations ; hot that is not enough. There i3 yet enother source of error It hint must he done away us ith—the regard to the interest et' their own share

holders. 77/c Bonk er m ?,st cc. r.,e to he thposit„ It inust cease to diwount bulls, n. assha mice in any shape. '1"lius disencumbered of (Mit. difficulties, perhaps some nii5Iit think that the Directors might be trusted to regulate their to, ti issues : lout I think not. The ways ai,,hhing ftre like those of Providence immutable. Open an telico where gold shell he given for -Bank paper and ll'ttitk paper for gold on dimmed : when the rxelet itgis IS in our favour—that is, when gold is more valuable here than al,road—per,mm; will import it, and take it to the office as the readiest way of disposine of it ; when the exchange is against us, loiter will be brought to he exchaeged for gold foe exportation. Thus every fluctuation will cheek itself in the birth, the

disturbing eau St's being renint ; aud the state of the i.-Xeliallge wilt hen sties

that never-failing guidU to ii ii which it ooght In he. it has twen as- Sinned Os is indeed almtelantly evident) that too profuse or too sparing an issue of notes depreciates or raises the value of gold as well as of paper, and to exactly the same extent.

I ant, Sir, your constant reader and admirer,