rency, must of necessity be owing to advances to government. What is, therefore, wanting to prevent these derangements, is a law by which all advances of that nature should be prohibited, under the most awful sanctions. We do not mean to say that government should, on all possible occasions, be prevented from anticipations on the revenue, though, on all accounts, this should be allowed as seldom as possible. We only say, that government should never be allowed to anticipate, through the medium of a bank which issues notes. When these anticipations are really necessary, the advances should be made (as loans, a much heavier concern, are) by the money-dealers, and bankers of discount, but never by banks of circulation. The difference between the cases is prodigious. What is advanced by the money-dealers, and bankers of discount, is, by them, first drawn from the channel of circulation, and a vacuum is thus previously made to receive what is about to be immediately poured in by government. What, however, is advanced by the banks which circulate notes, is not necessarily, nor generally, withdrawn first from the channel of circulation. These banks advance most frequently a quan tity of new-made notes, which, being poured into a channel already full, necessarily overflow, and more or less derange and disturb the regular movement of the current. If regularity of movement in that current, then, be of any importance, banks which issue notes of circulation, should be interdicted, under pain of confiscation, from all advances to government. They should, indeed, be strictly prohibited from all connexion with government whatsoever. By this rule, the bank of England should be immediately freed from all the business of government, with which it is loaded and embarrassed, in paying the interest of the national debt, in the management of exchequer bills, and other functions; and thus have its operations limited to the issuing of its own notes in the discounting of bills. It would in this way, be impossible that it could ever derange the channel of circulation, while the business of government might be managed with equal efficacy by banks, which, not issuing notes, could have no means to produce a surplus of currency.

After these remarks on the laws which the phenomena of depreciation in respect to paper money observe, remarks which we are fully aware require more ample illustration, but on which we have already exceeded the limits of that species of disquisition to which we are at present confined, we shall next inquire, how the obligation to pay in cash operates upon a paper currency. But, on this topic, we shall be obliged greatly to contract our observations.

The obligation to pay in cash, may be considered, 1st, in its re

tation to the credit of the bank; 2d, in its relation to the quantity of currency.

1. That, to the first of thefe, it is an indifpenfable requifite, will not require many words to prove. That any man would give real value for a piece of paper, for which he knew that nobody was under any obligation to give him value again, would be ridi culous to imagine. Yet, that no poffible abfurdity might remain, to which fome writer on paper money had not attained, it is ferioully afferted and argued by Mr Smith, that banks should be entirely exempt from the obligation of paying in cafh the notes. which they circulate. We could have been well content to have amufed ourselves a little with the ludicrous obfervations which he brings forward in fupport of this new pofition. But, as we have serious matter before us; in much greater quantity than we can overtake, we must deny both ourselves and our readers this relaxation, Though payments in cafh are fufpended at the bank of England, it is univerfally understood that this is only for a time; it is univerfally understood that the obligation to pay will, in a fhort time, be put in force; and, above all, it is univerfally understood, that the bank is able and ultimately liable to pay. It is obviously in confequence of these convictions, that the paper of that bank continues to circulate. Let it, however, be once paffed into a law, that the bank of England is for ever exempt from the obligation of paying her notes in cafh, and we fhould quickly fee to what depreciation they would fall. Let it only become the general conviction, that she is unable to pay, and remarkable effects would be the confequence. It is very true, as Mr Smith observes, that the paper of the bank might ftill continue to perform the office of money, as well as coin, provided the people would be pleafed with it.' But we do not stand in need of reasoning; we have the most remarkable facts to prove to us that they would not continue pleased with it. When fovereigns themfelves have iffued ftamped pieces of leather for money, or when they depreciated the coins, thefe might have performed the office of money to the amount of the fums they were iffued for, had the people been pleafed with them.' But did this ever happen? Or is it neceffary to fay why it never happened?

2. To difcover the effects of the obligation to pay in cash upon the quantity of currency, is a much more difficult and complicated inquiry.

In the first place, it is evidently a check upon overiffuing. When a bank is apt to be called upon to pay gold for its notes, it feels itfelf obliged to confine the quantity which it iffues, within a certain proportion to the gold which it can readily command. What that proportion may be, depends upon circumftances, When the

rency, must of necessity be owing to advances to government. What is, therefore, wanting to prevent these derangements, is a law by which all advances of that nature should be prohibited, under the most awful sanctions. We do not mean to say that government should, on all possible occasions, be prevented from anticipations on the revenue, though, on all accounts, this should be allowed as seldom as possible. We only say, that government should never be allowed to anticipate, through the medium of a bank which issues notes. When these anticipations are really necessary, the advances should be made (as loans, a much heavier concern, are) by the money-dealers, and bankers of discount, but never by banks of circulation. The difference between the cases is prodigious. What is advanced by the money-dealers, and bankers of discount, is, by them, first drawn from the channel of circulation, and a vacuum is thus previously made to receive what is about to be immediately poured in by government. What, however, is advanced by the banks which circulate notes, is not necessarily, nor generally, withdrawn first from the chan nel of circulation. These banks advance most frequently a quan tity of new-made notes, which, being poured into a channel already full, necessarily overflow, and more or less derange and disturb the regular movement of the current. If regularity of movement in that current, then, be of any importance, banks which issue notes of circulation, should be interdicted, under pain of confiscation, from all advances to government. They should, indeed, be strictly prohibited from all connexion with government whatsoever. By this rule, the bank of England should be immediately freed from all the business of govern ment, with which it is loaded and embarrassed, in paying the interest of the national debt, in the management of exchequer bills, and other functions; and thus have its operations limited to the issuing of its own notes in the discounting of bills. It would, in this way, be impossible that it could ever derange the channel of circulation, while the business of government might be managed with equal efficacy by banks, which, not issuing notes, could have no means to produce a surplus of currency.

After these remarks on the laws which the phenomena of depreciation in respect to paper money observe, remarks which we are fully aware require more ample illustration, but on which we have already exceeded the limits of that species of disquisition to which we are at present confined, we shall next inquire, how the obligation to pay in cash operates upon a paper currency. But, on this topic, we shall be obliged greatly to contract our observa

tions.

The obligation to pay in cash, may be considered, 1st, in its re

lation to the credit of the bank; 2d, in its relation to the quantity of currency.

1. That, to the first of these, it is an indifpenfable requifite, will not require many words to prove. That any man would give real value for a piece of paper, for which he knew that nobody was under any obligation to give him value again, would be ridi culous to imagine. Yet, that no poffible abfurdity might remain, to which some writer on paper money had not attained, it is ferioutly afferted and argued by Mr Smith, that banks fhould be entirely exempt from the obligation of paying in cash the notes which they circulate. We could have been well content to have amufed ourselves a little with the ludicrous obfervations which he brings forward in fupport of this new pofition. But, as we have ferious matter before us, in much greater quantity than we can overtake, we must deny both ourselves and our readers this relaxation, Though payments in cafh are fufpended at the bank of England, it is univerfally understood that this is only for a time; it is univerfally understood that the obligation to pay will, in a fhort time, be put in force; and, above all, it is univerfally understood, that the bank is able and ultimately liable to pay. It is obviously in confequence of these convictions, that the paper of that bank continues to circulate. Let it, however, be once paffed into a law, that the bank of England is for ever exempt from the obligation of paying her notes in cash, and we should quickly fee to what depreciation they would fall. Let it only become the general conviction, that the is unable to pay, and remarkable effects would be the confequence. It is very true, as Mr Smith obferves, that the paper of the bank might ftill continue to perform the office of money, as well as coin, provided the people would be pleafed with it. But we do not ftand in need of reafoning; we have the most remarkable facts to prove to us that they would not continue pleased with it. When fovereigns themfelves have issued ftamped pieces of leather for money, or when they depreciated the coins, thefe might have performed the office of money to the amount of the fums they were iffued for, had the people been pleased with them.' But did this ever happen? Or is it neceffary to fay why it never happened?

2. To difcover the effects of the obligation to pay in cash upon the quantity of currency, is a much more difficult and complieated inquiry.

In the firft place, it is evidently a check upon overiffuing. When a bank is apt to be called upon to pay gold for its notes, it feels itself obliged to confine the quantity which it iffues, within a certain proportion to the gold which it can readily command. What tion may be, depends upon circumftances, When the

th

whom the bills were retired were, on each day, an entirely dif tinct fet of perfons from thofe to whom bills were discounted, 250,0col. would literally every day be paid into the bank, by the one operation, and the fame fum drawn out by the other. It fo happens, however, in practice, that the man who has a bill to retire, has very often, on the fame day, a bill to get discounted : in this manner, instead of giving one fum, and receiving another, the two fums are compared together, and the man only gives or receives the balance. But it is very evident that this common way of retiring one fet of bills by discounting another, in no refpect alters the nature of the cafe. It is ftill true, in fact, that a quarter of a million has been paid, and a quarter of a million drawn, though thefe payments and drawings may, to a certain degree, have balanced one another, without the actual trouble of counting and transferring the money.

We may now difcern a fact, the confequences at least of which Mr Henry Thornton and his difciples have entirely overlooked. Let us fuppofe, while the bank is going on in her accustomed course, discounting bills at the rate of 250,000l. a day, that a demand for guineas comes upon her to the fame amount; and that her daily iffues are immediately paid back for gold. What is the confequence of this? First, her fifteen millions of notes in circulation, are reduced 250,000l., or a quarter of a million. If the refolves to keep up her 15 millions, fhe muft immediately reiffue, in the discounting of additional bills, the notes which have been thus returned. On the first day, therefore, of the demand for guineas, while the ufual quantity of bills, to the amount, namely, of a quarter of a million, have been retired, fhe has discounted double that quantity. Another confequence, then, is, that, at the end of this first day, the has added a quarter of a million to the amount of bills in her coffers, while the fum of her notes in circulation remains the fame. By the fame operation on the fecond day, the adds to her bills another quarter of a million; and the effect is every day repeated, till, at the end of fixty days, the amount of her bills is fairly doubled; that is to fay, the bank has then extended her loans from 15,000,000l. to 30,000,cool.,-one half in her own notes, the other half in gold and filver.

Here, however, a very important question suggests itself; Whence is this extraordinary quantity of bills for discount to come? Or what possible use can there be in thus extending the discounts of the bank, for the sake of maintaining a certain quantity of notes in circulation? To this question Mr Thornton has an answer very ready, and an answer on which he seems to lay the greatest stress. The consideration of it will enable us to discover the whole mystery of his reasoning. He enters into a long