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The unity of the Note means a much specie in the country, or none monopoly of the currency. A mo at all, these notes are always a legal nopoly of the currency means a tender. Hence the validity of such power of altering the Rate of In- a form of currency is perfect and terest, and the Measure of Value, unquestionable. in an abnormal manner.

But a State - currency does not There are three distinct forms insure the other requisite-namely, in which a Paper currency can be the unchangeableness of the measestablished. I. As issued by the ure of value. To maintain unState. II. By a single Bank of changed the measure of value (i. e., Issue. III. By several Banks of the value of the currency) two Issue-either restricted in number, points must be attended to. 1. The or established on the principle of currency must not be increased freedom and competition.

while the monetary requirements of In deciding which of these sys- the community remain unchanged, tems is the best, there are two main -otherwise the measure of value points to be kept in view. Firstly, will be depreciated. 2. The curthe validity of the Note-that is to rency must not remain at the same say, its constant acceptability by amount when the monetary rethe community as a valid tender in quirements of the country are inpayments, and other transfers of creased,—otherwise the measure of capital. Secondly, the steadiness value will be enhanced. Under a of the Measure of Value, in which right monetary system, the amount all contracts are made, and all busi- of the currency and the requireness is carried on : so that when a ments of the community will alman engages to pay a certain sum ways be commensurate,—the curof money, that sum, when the time rency in such a case increasing or of payment arrives, shall possess diminishing according to the naneither more nor less value (as tural law of supply and demand. measured by goods or other pro But a State-currency is not neperty) than it did at the time when cessarily based upon this principle. the contract was made.

The weak point of a State-currency A perfect system of currency is, that the amount of the noteought to attain both of these objects issues has no necessary connection fully. And the best system is that with the monetary requirements of which attains both of these objects the community; and therefore of in the greatest degree. Let us itself gives no security for the mainapply this test to the three forms of tenance of the measure of value. note-issues above described.

The peculiar defect of a State-curI. A State-currency attains the rency is its liability to excess— first of these objects_namely, the producing a depreciation of the validity of the note-fully. State measure of value. . notes are necessarily a valid tender It is possible, of course, to conceive at all times and under all circum- a case in which a State-currency stances. The State expenditure is might be inadequate to the monemade in these notes, and the State tary wants of the community. This taxes are paid in these notes. They might happen if the State-issues thus possess a value independent were restricted to the amount of of their being convertible into the each year's taxation. The monetary precious metals. Whether there is transactions of a community are regulated in extent partly by the these exceptional times ; the very amount of taxation, partly by the increase of the Government excondition of trade. But the mone- penditure of itself occasioning an tary requirements of trade and the increased requirement for currency. amount of taxation are not mutu. Moreover, if the general trade of ally dependent; and a currency- a country be not diminished (and system which is regulated by the sometimes it is not) by the occurlatter only, cannot be adjusted for rence of war, then the war of itself, both. Hence, under a State - cur- by creating a new branch of trade, rency, strictly limited to the amount augments the monetary requireof the year's taxation, the measure ments of a community, and tends of value might be enhanced,-in to absorb the extra issues, of consequence of there being no pro- State - currency. But, however vision for an enlargement of the these causes may lessen the decurrency when an increase takes preciation of the currency which place in the monetary requirements naturally ensues from an extra of trade.

issue of paper-money by the GovBut, as a matter of fact, the ten- ernment (in lieu of contracting dency of a system of State-issues loans), they are seldom or never so is quite the other way. It is al- potent as to prevent a depreciation ways prone to run into excess. In of the measure of value. This exceptional times—for example, in is a serious objection to a Statetime of war—the Government can currency: because, although the not cover all its expenditure by community may lose no more (in means of taxation. It must have the end it generally loses less) in recourse to loans. And it is quite this way than if a loan were conreasonable that, in the life of a tracted, the temporary alteration nation, the exceptional seasons of in the measure of value inflicts war should borrow from the nor- great hardship upon individuals mal seasons of peace : just as creditors losing, and debtors gaina merchant in bad years must ing; and when such a system is have recourse to a portion of carried to the length it has been the profits which he makes in recently in America, a widespread ordinary times. But instead of spirit of gambling is generated, contracting loans, a Government which is inimical to the interests which has free power to issue of honest industry, and demoralState-money has every inducement ising in its effects upon the comto meet the extra expenditure by munity at large. means of an increased issue of its In fine: a system of State-curnotes. In this way the State rency insures in the most perfect obtains the required sum with- manner the validity of the note, out having to pay interest for it. but it does not insure the mainThis may be called a forced loan; tenance of the measure of value. strictly speaking, it is taxation in That is to say, a State-currency a disguised form. If the extra renders the Note at all times a valid issues of notes were really ac- tender, but it does not insure that companied by an increase in the the value of the note, relatively to monetary requirements of the com- goods and other kinds of property, munity, no depreciation of the cur- shall be always the same. rency would take place; and the II. A single Bank of Issue. Such result would be a pure gain alike establishments exist in a composite to the Government and to the form-partly private, and partly as community. And no doubt an in- a State Bank. The Bank of France crease of the monetary require- is of this kind. The Bank of Eng. ments of the country generally land, although essentially a private does, to a certain extent, occur in bank, and acting as such, is so favoured by State privileges, and its notes. If the bank is above fettered by State restrictions, that suspicion, practically no danger at it is really of this kind also. In all arises to the bank upon this such cases, there is an anomaly ground. As long as a bank is known which bids defiance to precise cri- to be thoroughly solvent, no deticism. But let us treat the Single mand is ever made upon it for pay. Bank of Issue as a private estab- ment of its notes in specie.* Neverlishment, as the Bank of England theless a bank must guard to some essentially is, and in accordance extent against the possibility of such with which view it regulates its a demand arising. Such a demand, operations. And let us apply to it is true, as regards a bank which it the two tests which we have possesses the confidence of the specified, the fulfilment of which public, is quite trifling; at the most, is requisite in a perfect system of it never amounts to one-tenth of currency.

the note-issues in the case of the Firstly, as regards the validity Bank of England, or one-fifteenth in of the note. It is obvious that the the case of the Bank of France. In notes of a private bank cannot fact, as experience has shown, the possibly surpass, and rarely equal, notes of both of these banks cirin validity those issued by the culate freely even at times when State. However perfect may be the Bank's stock of specie, wherethe credit of a private bank, and with it has to meet all its liabilieven though it possess the sole ties, is not more than a million power of issuing notes, still it is sterling. But the Banks of Engbound to give specie for its notes land and of France are liable to a on demand ; whereas State-notes drain of specie from which a purely circulate, and must be accepted, State bank of issue is exempt. quite irrespective of their convert- They are liable to pay their deibility into specie.

posits as well as their notes in Secondly, as to insuring the specie. Hence, under the system of maintenance of the measure of a single private bank of issue, an value-i.e., of the currency. A embarrassment arises whenever a single bank of issue, although a demand for payment of deposits in private establishment, might do specie occurs. The bank must atthis; for it is in direct relation with tend alike to the convertibility of its trade and the monetary require- notes and to the payment of its ments of the community. As these deposits in specie. And as the only requirements increase, the bank's (or almost the only) portion of its issues may increase ; when they deposits of which payment is dediminish, its issues will of necessity manded in specie is that which is diminish. They must diminish in produced by its discounting of the latter case, because the public bills or advances upon securities, will not take more notes than it must either restrict these loans they require; but in the former or else provide itself with the recase, whether or not the note-issues quisite amount of specie for carryof the Bank increase in accordance ing on its business safely. But as with the requirements of the com- a single bank of issue has necesmunity depends partly on the con- sarily a monopoly of the currency, dition of the bank at the time, and it is tempted to shirk its own duty partly upon the motives which re- by throwing the burden upon the gulate its action. Let us consider community. Accordingly, as a these two points.

matter of fact, the Bank of England A private bank is bound to in- (and in a lesser degree the Bank of sure the constant convertibility of France), whenever an unusual de

* Except, of course, as a means of getting “change."

mand for gold arises, takes no steps Its first aim is to make the largest to provide itself with specie at its amount of profit it possibly canown expense, but charges higher of course, at the expense of the rates for its loans: thereby altering community; and the monopoly the rate of interest and the meas- which it enjoys enables it to act ure of value the maintenance of upon this principle unchecked, which at a steady level is, as we and sometimes to a most serious have said, one of the two prime extent. requisites of a perfect currency. III. Plurality of note-issues. If system.

the notes of a single bank of issue Thus, however perfect may be rarely equal, and cannot possibly the validity of the note under the surpass, in validity State - notes, system of a single bank of issue- a currency which is composed of even though it equal (and it can the note-issues of many separate never surpass) that of a State-cur- banks must be still less perfect in rency-such a system gives no this respect. Every bank is liable security for the maintenance of the to lose the confidence of the public measure of value and the rate of and to experience a run for deinterest. On the contrary, the fact posits, which endangers also the vaof a single bank of issue being a lidity of its notes-a liability from private establishment, naturally in which the State, of course, is free. duces it to raise the rate of interest On this account the greater the as high as it possibly can. And number of banks of issue the weaker the fact that such a bank has a (per se) is the basis of the currency. monopoly of the currency-of the It is more easy to establish firmly means of lending capital-gives it in public opinion the credit of one free scope to act in accordance with bank than of many. So that, in its own interests, irrespective of the case of a single bank of issue those of the community. The State (as notably in the case of the Bank has no motive in restricting the of France), a smaller amount of currency, and thereby raising the specie is needed to secure convertirate of interest. It does not re- bility than in the case of many ceive deposits, liable to be called banks of issue. It is true—as we for in specie; nor does it deal have pointed out before that the in the discounting of bills, which note-issues of a solvent and wellwould give it a motive for keeping credited bank hardly, as a matter the rate of interest high. Thus a of fact, constitute any part of its liaState-system of currency is free bilities : seeing that no one wishes from one of the embarrassments to cash notes save from loss of conwhich beset banks; and it is free fidence in the bank which issues also from the motive which banks them; and that when an unusual have in raising the value of the external demand for gold arises, commodity in which they deal. The the drain is not made by cashing State benefits most when the com- notes (by the tedious and impracmunity benefits most. In excep- ticable process of collecting notes, tional times, the State is tempted and then taking them to the Bank to alter the measure of value by to be exchanged for gold), but by issuing more notes than are called getting discounts. Nevertheless for by the monetary requirements it is indisputable that the credit of the community ; but under no and solvency of a single bank of circumstances has it any induce issue can be more firmly secured ment to enhance the value of the than the credit of many such banks. currency by imposing arbitrary re- And hence it follows that, as restrictions upon the issue of its gards the validity of the note, as notes. A single bank of issue, on well as the economy of specie, the the contrary, has this inducement system of a single bank of issue is preferable to that of a plurality of currency we have to guard against banks of issue.

over-issues, and consequent alteraThus, as regards one of the two tion of the measure of value through prime requisites of a perfect cur- depreciations of the note. In the rency-system, the preference must case of a Single Bank of Issue, we be given to a single bank of issue. have specially to guard against the But as regards the other requisite- action of monopoly, in unduly en. namely, the maintenance of the cur- hancing the value of money on loan, rency, and the rate of interest, in and (thereby) of the currency at their normal condition—an entirely large. Under a system of Freedom opposite judgment must be given. of Issues, we must take means to The value of money-as of every secure the validity of the Note. other commodity-depends upon If, then, there is to be a diversity the law of supply and demand ; of note-issues, what is the best means and the only way in which the of insuring their validity? If, on supply can be regulated on natural the other hand, the unity of the conditions, is by means of free com- note is to be established, in what petition. A private monopoly of hands is this exclusive right of the supply of currency is as perni- issue to be placed, so as to avoid cious a thing as a private monopoly the evils of a monopoly? To give of the supply of corn or of any the sole power of issuing currency other commodity. Indeed it is to a private bank, will never do. much worse. Hence the system of If the currency is to be supplied a single bank of issue is funda- from one source only, that source mentally vicious, and most injurious ought to be the State. Nevertheto the community. All banks, we less, if the measure of value is to repeat-and this is our cardinal be kept steady, some other system principle-ought to have equally than that of State-issues must be the means of employing their capi- called into play. tal and utilising their credit. The If the measure of value is to capital at the disposal of each bank, remain steady, or subject only to of course, is different—so also is natural fluctuations, this must be the extent of its credit,—but each accomplished by means of a system bank ought equally to have the which responds freely to the monemeans of employing its resources. tary requirements of the communWhether these means should consist ity. The value of money, like that of notes of its own, or notes supplied of all other commodities, depends from another source, we shall con- upon the amount of the supply and sider in the sequel, but it is already the extent of the demand. If the obvious, that to make the banks of amount of money in a country rea country dependent upon a Single mains the same at a time when the Bank for a supply of the means monetary requirements of the com(notes) of carrying on their business, munity (owing to increase of popuis to subject the measure of value lation and trade, or any other cause) and the rate of interest to unnatural experience an increase, then the conditions, by conferring upon this value of the currency will be alsingle bank a monopoly, and con- tered, — all business will be deverting all the other banks into ranged, and all contracts vitiated. mere satellites and dependants, In like manner, if the amount of thereby preventing that free com- the currency be diminished, while petition which is indispensable to the monetary requirements of the keep the rate of interest at its community continue as before, the natural level.

same result will ensue; the value Thus each of the three systems of money will be raised, and prices which we have passed in review lowered. In either case, the same has its peculiar defects. In a State- quantity of goods or land, houses or

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