r\ri;K moN'I'.v and (.old iixihaxck. 159 



was two and a half times as <^rcat as it had hern uikIit the 

 Dutch Cioverniiient. I'a\inent for niihtarv sujjphes was at 

 first made by the import of >il\er coins whicli, it may be added, 

 disappeared from circtilation at once. I.ater. orders were ^iven 

 for payments to be made as far as i)c)ssible in paj^er, which was 

 purchased by tlie Paymaster-General for his bills on London 

 at 2-^ ]ier cent, advance. [either method of payment would 

 result in a rise in prices or a de])reciation of money relatively 

 to commodities. But the sale of (Government Bills on London 

 checked the depreciation of money relatively to bills. The 

 })remium fell from 2c, to 10 per cent., then to par. In ;\])ril, 

 1797. (ieneral Craig reported that even at par no paper money 

 cotild be obtained. He therefore ordered a further issue to be 

 made of 250.000 Rds. Relatively to bills, the rixdollar was ap- 

 jireciating, but relatively to commodities the increased issues 

 and greater rapidity of circulation caused a great rise in ])rices. 

 Comparing ])rices in 1798 with those which existed under the 

 Dutch Government, it is found that all prices had risen. Local 

 products had mostl}- doubled or even more, while imjjorted 

 articles had also risen, though in a smaller ])roportion. This 

 temporary alteration in the proi)ortion was due, in ])art, to the 

 fall in exchange. By 1708 bills were at a discount of 20 per 

 cent. 



The dangers of the paper money were realised in bjigland. 

 hi 1796, when Lord Macartney was appointed Governor, he 

 was instructed to hold an enquiry as to the amount of paper it 

 niight be safe to leave in circulation, and the best means of 

 reducing issues. In October, 1797, he reported that the public 

 property would not fetch a quarter of the amount supposed 

 to be charged on it. and that some of the property could not 

 be sold, as it was necessary for ])ul)lic purjwses. 



The security [lie said| of the lands and houses for the paper 

 money is a mere iUusion. In reality tlie paper money depends upon 

 the credit and solidity of the Government alone. 



This illustrates the statement of the textbooks on money, that 

 securing issues on property is not sufficient to prevent depre- 

 ciation. It will only be efficacious if it results in the limitation 

 of the amount issued, and the same effect will be obtained 

 however the limitation is luade. The depreciation at the Cape 

 was not caused by the fact that the security on which the pa])er 

 was issued was inadequate. It w^ould have been ecjually great 

 if the mortgaged property had been four times as valuable as 

 it was. Macartney thought that the issues on Government ac- 

 count, including the new issue of 250.000 Rds.. were not more 

 than sufficient for^ the internal ti-ade of the country. The 

 reduction should take place in the issues made through the 

 Lombard Bank. He stiggested that this might be done by 

 transferring the mortgages to individuals. In this he was in- 

 fluenced by political ideas. r)tlier countries had bottnd uj) the 

 interests of the citizens with those of the State by making 



