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this country, by the Bank of England, a great though imperfect, control has been exercised over the issues of competing banks, and with respect to the larger part of our circulation, the issue of notes below 51. is prohibited. Here, accordingly, although there has been much disturbance of our monetary system, and much commercial distress, both have been incomparably less than in America, and the convertibility of our paper money has been maintained. In America there has been no check but competition on the issue of notes, and scarcely any restriction as to the denomination of the note of which the currency is composed; and there we have witnessed disturbances of the monetary system, which, by the concurrent testimony of all parties and all observers, have inflicted unparalleled evils on the community, and a depreciation of the value of paper money, so great and so general, as to render utterly powerless the most stringent laws ever devised for maintaining its convertibility.
THE CONDITIONS OF SECURITY FOR A SYSTEM OF
PAPER CURRENCY STATED.
The conditions of security for a system of Paper Currency must then be the converse of those which, as we have seen, reasoning and experience alike prove to be so pregnant with danger; it should be limited in the degree to which it is made a substitute for metallic money, and subjected to absolute control in its total amount. Let us inquire by what rule we should be guided, and what process we should follow in attempting to accomplish both these objects.
With regard to the former, viz. the limitation of the extent to which paper money may be substituted for metallic, -in other words, how low a denomination of notes we should permit to circulate —we have only probabilities to guide us. With regard to the latter and more important point, the check to be imposed on the total issue of notes, whether as regards the nature and degree of that check, or the process by which it should be applied, clear and definite conclusions seem to me completely within our reach. It will be more convenient to take this latter point first in order of consideration. On the nature of the limit to be applied to the issue of a paper currency, there could, I should have thought, be but little difference of opinion among those who advocate the perfect convertibility at all times of such a currency. The object to be attained with regard to it is, that the notes of which it is composed should be always of equal value with specie ; but this object can only be insured by its not exceeding in amount the specie it has displaced. The moment it is in excess of that quan. tity, its equality of value is destroyed, and its convertibility endangered. The object to be aimed at being clear, how is it to be accomplished ? I believe by only one means—by placing the power of issuing paper money in the hands of those who will derive no private or personal advantage from the process, and limiting their functions to the mere exchange of notes for specie, and specie for notes.
To entrust the issue of our paper currency to those who derive a profit from every pound they issue, is to render it absolutely certain that there will be a perpetual tendency to excess, corrected by those convulsive efforts from time to time, which experience has shewn to be so calamitous. That competition could afford us no security against this tendency, the example of America shews beyond the possibility of a doubt; but supposing the privilege of issue were not indiscriminately conferred, that it were confined to one, or two, or three bodies, the Bank of England, the Bank of Ireland, and some one Bank in Scotland, for example, should we still, it may be inquired, be exposed to the same danger ? Yes, it may be unhesitatingly replied, to dangers alike in character, although, no doubt, less in degree. The issuing bodies on whom the monopoly was conferred would, equally with their present innumerablc competitors, have interests apart from and opposed to, the interests of the public. And although in the case supposed the three banks would be exposed possibly to the more jealous observation of the public, it is next to certain that such vigilance would not be a sufficient security against abuse.
If even we could be secure against the bias to which a natural wish to consult the interests of their proprietors must expose the directors of a bank, there will still remain the danger of over, issue from the sympathy which such parties will always feel for the real or supposed necessities of the commercial world, with the daily transactions of which they are mixed up, and of which they commonly form a part. The tendency of these motives, separately or combined, will be to an undue expansion of the currency in periods of prosperity and with favourable exchanges, and to reluctance and delay in the necessary contraction when re-action has taken place and an efflux of treasure has begun. The supposed advantage to the commercial world of the power of issue in the hands of the Bank is worse than illusory-it doubles
the calamities it is vainly imagined to avert. In proportion as a monetary crisis is delayed, is it more severe-in the same degree that the contraction of the issues is postponed, must it ultimately be more stringent, if a suspension of cash payments is to be avoided. Commercial men make but an ill exchange of that security which their own prudence, generated by the certainty that the currency would inflexibly contract, according to given laws, would insure, for the perilous and uncertain support afforded by an enlargement of the issues of the bank at those very moments when she ought most strenuously to contract them. On this point, the evidence of Mr. Norman and Mr. Loyd, the former himself a bank, director, must be held to be quite conclusive. These gentlemen state, in the strongest terms, their opinion, that the system of what is called “supporting commercial credit" by the bank, is false and empirical in principle, and dangerous in practice, inducing parties to neglect precautions which they might otherwise have taken. That "it is a remarkable phenomenon attending the drains of specie, that they always go on for some length of time before prices and speculation, and over-trading and over-banking, have reached their maximum, and that the last stage of a drain is always characterised by the springing up of internal alarm.” That “contraction, applied in the early stages of a drain, could be borne without inconvenience to the community, and would check