STATE PAPERS. 



465 



nion of your committee, there is 

 no room to regret that this House 

 has not taken earlier notice of all 

 the consequences of that law. 



By far the most important of 

 those consequences is, that while 

 the convertibility into specie no 

 longer exists as a check to an over 

 issue of paper, the bank directors 

 have not perceived that the re- 

 moval of that check rendered it 

 possible that such an excess might 

 be issued by the discount of per- 

 fectly good bills. So far from per- 

 ceiving this, your committee have 

 shown that they maintain the con- 

 trary doctrine with the utmost con- 

 fidence, however it may bequalified 

 occasionally by some of their ex- 

 pressions. That this doctrine is a 

 very fallacious one your commit- 

 tee cannot entertain a doubt. The 

 fallacy, upon which it is found- 

 ed, lies in not distinguishing be- 

 tween an advance of capital to mer- 

 chants, and an addition of supply 

 of currency to the general mass of 

 circulating medium. If the advance 

 of capital only is considered, as 

 made to those who are ready to 

 employ it in judicious and produc- 

 tive undertakings,it is evident there 

 need be no other limit to the total 

 amount of advances than what the 

 means of the lender, and his pru- 

 dence in the selection of borrowers 

 may impose. But, in the present 

 situation of the bank, intrusted as 

 it is with thefunctions of supplying 

 thepublicwiththatpaper currency 

 which forms the basis of our cir- 

 culation, and at the same time not 

 subjected to the liability of con- 

 verting the paper into specie, 

 every advance which it makes of 

 capital to the merchants in the 

 shape of discount, becomes an ad- 

 dition also to the mass of circulat- 

 ing medium. In the first instance, 



Vol. LII. 



when the advance is made by notes 

 paid in discount of a bill, it is un- 

 doubtedly so much capital, so 

 much power of making purchases, 

 placed in the hands of the mer- 

 chant who receives the notes : and 

 if those hands are safe, the opera- 

 tion is so far, and in this its first 

 step, useful and productive to the 

 public. But as soon as the portion 

 of circulating medium, in which 

 the advance was thus made, per- 

 forms in the hands of him to whom 

 it was advanced this its first opera- 

 tion as capital, as soon as the notes 

 are exchanged by him for some 

 other article which is capital, they 

 fall into the channel of circulation 

 as so much circulating medium, 

 and form an addition to the mass 

 of currency. The necessary effect 

 of every such addition to the mass, 

 is to diminish the relative value of 

 any given portion of that mass in 

 exchange for commodities. If the 

 addition were made by notes con- 

 vertible into specie, this diminu- 

 tion of the relative value of any 

 given portion of the whole mass, 

 would speedily bring back upon 

 the bank, which issued the notes, 

 as much as was excessive. But if 

 by law they are not, so convertible, 

 of course this excess will not be 

 brought back, but will remain in 

 the channel of circulation, until 

 paid in again to the bank itself, in 

 discharge of the bills which were 

 originally discounted. During the 

 whole time they remain out, they 

 perform all the functions of circu- 

 lating medium ; and before they 

 come to be paid in discharge of 

 those bills, they have already been 

 followed by a new issue of notes in 

 a similar operation of discounting. 

 Each successive advance repeats 

 the same process. If the whole 

 sum of discounts continues out- 

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