contribution to make up the deficiency which has been thereby created, in the first place from the vessel with which it is more immediately connected, and this vessel is again proportionally supplied from all the others until the equilibrium is again restored, though at a somewhat lower level. This may be said to be a case in point with the late diminution of the circulating medium by the discredit thrown upon the paper system in the United States. The diminution immediately created a drain upon the specie of Great Britain, as being the country more immediately connected, and the scarcity thus produced in Great Britain would have found a supply from other countries until the equilibrium should have been restored, had not the abandonment of specie payments in the United States arrested the progress of the movement.

14. If the foregoing principles are correct, it will appear that an over issue of CONVERTIBLE paper never can take place for any great length of time, any more than an over supply of specie can long exist in any country, because there can be no over issue if it does not extend the amount of the circulating medium beyond the proportion which it ought to bear to the commercial commodities (see Nos. 7 and 8) of the country, comparatively with the circulating medium and exchangeable produce of other states;--if it does not extend so far as to do this, as it has been already said, there can be no over issue, and if it should, then the surplus would immediately find its way to other countries, (No. 12,) and the possessors of bank notes would call for payment in specie for that purpose-so that a paper issue must either cease in a short time to be

B

over issued, or else cease to be convertible, but it does not prevent an over issue taking place for a limited period until an export of gold begins to take place.

15. An inconvertible paper currency, however, may be kept permanently over-issued, and when it is so it must inevitably become depreciated, of which Great Britain under the Bank Restriction Act may be taken as an example, when, by means of advances to Government and dealings in the funds, increasing the term of discount, &c., by the issuing body, the amount of inconvertible currency was increased without any corresponding increase in the amount of commercial commodities and transactions.

16. But it does not appear that an inconvertible paper currency can be depreciated if the credit of the parties issuing is undoubted, and that the issue is kept within the proper limits, so as not to produce any redundancy in the circulation-because, the currency not being redundant, there is no rise in the price of commodities (No. 9) to derange our foreign commerce, and there is no redundancy to be distributed over other states for which specie would be necessary; thus the causes for creating depreciation not being in operation, the effect of those causes cannot take place, which may be considered as fully proved by the change which took place in the depreciation of the inconvertible paper issue of Great Britain at the period of returning to cash payments, and the same lately in the United States. The depreciation which had obtained previously constantly becoming less, according as the over issue which had occasioned it was reduced, and fell to

nothing when the amount of the circulating medium had been lowered to what the exchangeable products of the country required, and this the Bank Directors were obliged to do, in anticipation of being obliged to pay in specie; therefore, if the issue is kept within proper limits, any export of specie which may take place will not arise from depreciation, but from an unfavourable balance of trade, or some other cause which may give an advanced value thereto.

17. From what has been said the truth of the following propositions will appear.

The value of any circulating medium (and of course the value of any currency which is convertible into it) depends upon its abundance or scarcity in proportion to the capital or valuable commodities which any country may possess, and the extent of commercial transactions carried on through their instrumentality.

This is proved by the fall in value of the precious metals, owing to their increased quantity after the discovery of Mexico, and also by the reduced value of the paper currency from its increased issue during the period of the Bank Restriction Act, each of which circumstances altered the proportion, as stated above, which had previously existed, between the amount of circulating medium and the amount of commodities and commercial transactions. (No. 6.)

It follows from this that all loans to Government, or any other issues of paper in a mixed currency, by the purchase of Exchequer-bills, dealings in the funds, &c., by which the paper currency is increased in any manner not required by the increase of commodities and commer

cial transactions, has the same effect as alloying the coin under a metallic currency, its being the means of lessening its value in exchange for commodities, and therefore ought not to be tolerated. (No. 15.)

18. The quantity of circulating medium absorbed, or held in circulation by the inhabitants of any country, and also the quantity of currency required therein, depends upon the capital and extent of commercial transactions in that country, in like manner as their value has been shown to depend thereon in the foregoing proposition.

Thus England requires a larger currency, and absorbs a larger amount of circulating medium, in proportion to her territory, than Norway; France than Switzerland, Sweden, &c.

The truth of this is plainly deducible from No. 8 and 9; but is also self-evident from the fact that the circulating medium is used for facilitating exchanges, or, in other words, commercial transactions, and must therefore be required in proportion thereto.

19. The amount of circulating medium absorbed, and the quantity of currency required at different periods in any particular country, will depend-first, on the amount of its capital and commercial transactions for the time being.

Secondly, on the length of the term of discount at which bills become discountable.

Thirdly, on the rate of discount charged thereon.

The first is proved by reference to the preceding proposition. The different circumstances of any one country at

different times, in regard to capital and commercial transactions, being analogous to the different circumstances of different countries at the same time.

The second is proved by the consideration that commercial men, whether the givers or receivers of bills, or whatever be the nature of their dealings, are enabled to trade to a greater, or are confined to a less extent, according as the term of discount is increased or diminished, on which extension or diminution of trade, the amount of commercial transactions, the quantity of circulating medium. absorbed, and the quantity of currency required depends, as proved in the foregoing proposition.

The third is proved by the consideration, that the cheaper the terms upon which mercantile business can be transacted, the greater extent of business will be carried on, and the greater amount of commercial transactions will take place. Of course, a low rate of discount will have the effect upon the circulating medium and currency here ascribed to it.

It is admitted, by the practice of the Bank of England during the American panic, that to shorten the term and increase the rate of discount have, both jointly and separately, the power of diminishing the currency, and, of course, to lengthen the term and reduce the rate of discount will have the opposite effect, and increase the currency; and, accordingly, these measures have been adopted whenever the Bank Directors have had these objects in view. The truth of this mode of diminishing and increasing the currency is therefore proved, both in practice and theory, to be effectual. Supposing, then, this extension or contraction of the currency to take place by certain gradations in the changes of the term and rate of discount, there will