242. A practical test proposed. I think that the following practical test would settle this matter at once. In Let any one bank offer its notes for circulation, payable on demand in specie, and I think it would soon be found that they are so much better than any others that can be devised, or stand on any other basis, that in case the bank could supply the demand for them, no others would be received. this case the better article would certainly drive the poorer out of use, because it would be regarded as too poor to be in circulation at all, and thus leave no chance for the competition spoken of in a preceding section, in which the poorer money always drives the better out of circulation. Or at any rate, the paper of a bank that would redeem in specie on demand, would be as much above the par value of any other offered for currency, as gold itself, and possibly even more above par than gold. It would be better for many uses. It may be said this is a mere notion, and a mere whim-a "survival" of ages less enlightened than our own—and that it is the duty of statesmen to do away with such an expensive delusion. But even the "whims" of business men, and the common sense of the community are sometimes better than the crotchets of mere theorists. "If Berkeley says there is no matter, There are some opinions that are so absurd, that, as it seems to me, the mere utterance of them releases us from all obligation to attend any farther on what their authors may have to say. And yet this attitude towards any opinion should be taken only with great caution, for, as a general rule, we are more likely to ridicule as senseless that which is too deep for our comprehension, than that which has no sense for us to comprehend. And yet I cannot but regard this idea which we sometimes meet with, of a paper currency based on nothing, convertible into nothing, as one of the kind that may be so treated. The doctrine of a money based on a nation's indebtedness is quite a different affair. It can never give a satisfactory and stable currency. It will never be quite at par with gold. But there may be certain emergencies, certain crises in a nation's affairs, where a resort to it is the least of several evils from which the choice must be made. 243. How money gets into circulation. It not unfrequently appears to me when reading the speculations concerning money and banking, that the writers have either forgotten or never definitely considered how money gets into circulation. Suppose a community in which there is no money. Some man has a portion of the precious metals which he is willing to coin. He coins them. But how, and on what conditions, will they get from him into circulation ? Surely he will not give them He will not distribute them for mere amusement, or benevolently supply the wants of all the needy who call upon him. away. I can conceive of only three ways, in one or the other of which he can be expected to part with his coin: (1) To pay for the labor of some one or more persons who will work for him for wages, (2) to pay for articles which he wants to use, or to keep and sell, or, (3) he may lend it on promises to repay it, with good security. Or if it be a government that has the gold and silver, it may coin them into money and pay it out for (1) salaries to those in its employ (2) for the supplies of various kinds which it may need, and (3) for any indebtedness which it may have contracted. But it can no more be expected to part with its money without receiving some value in return than the private citizen would. For, as we have seen, the mere coining of the metals does not at all impair their intrinsic value for the other uses for which they are desired, and to which they may be converted. And if now, we look at the issue of paper currency, we shall find very much the same law. If it is inconvertible-contains no promise to pay in any thing having value-no one will receive it. Not a man will work one hour for a mere piece of pictured paper, however beautifully executed. No man will part with what has cost him any labor, for such stuff. Nor will any one accept it in payment of a debt, except when government has declared it to be legal tender, and then he will consider himself as having been robbed of the amount of his claim. 244. Paper not convertible on demand. But if we make the paper convertible-the evidence of a promise or obligation to pay a certain amount indicated in words and figures on the face of it, as is the case with ordinary bank bills, then we have three cases: (1) It may be payable in coin on demand, and then it will be at par, and as good as the gold itself. (2) It may be made convertible into government bonds on demand, and then its value will be determined by the nature of the bonds, their rate of interest, their convertibility into coin, and the responsibility of the government, etc.,-always below par. (3) Or finally, it may be payable in coin, but, like our present greenbacks, not on demand. In this case it will inevitably be below par; or gold will be at a premium, and all the commodities we may have occasion to buy will be held at prices far above what they would command if the paper were payable on demand, as the coin itself is above the par value of the paper. 245. Premium on gold determined by the ratio of gold to paper. And this difference between the value of gold and that of the paper will vary in the first instance, and always with the ratio of the paper in circulation to the gold in the possession of the government or virtually at its command. And we have seen that if it exceeds the gold by more than about three to one, the gold will be at a premium, or the paper below par; this is inevitable. And then there will be other elements in the difference between the price of the paper and that of gold, such as I have just spoken of (2). But in any case it seems to me clear that inconvertible paper could not be put into circulation at all. The creditor might be compelled to take it for what he has already parted with, and go through the formality of giving a receipt for his claim. But |