POLITICAL ECONOMY. 



are catted when they ore thus employed, the eurrei 



country. 



At tirst it ia probable that those pieces of metal wore melted 

 mgota or bars, and stamped with some nya. 



by thu person who first melted them. Both fold and silver 



arc susceptible of on easy auay or test, by rubbing thorn on a 

 lone, called a touchstone, and by looking at the streak 

 is made. The issue of rude masso.* of silver, stamped 

 uo trade- mark of some well-known and reputable mor- 

 is .-till practised in China. The central Government and 

 i ils are too weak and too corrupt to issue coins on their 

 '.h'.rily, with any hope that the Chinese public would 



> stamped lumps to coins is an easy step. A coin is a 

 L motal of specific fineness and weight, issued by some 

 publio authority. If the authority is honest and intelligent, 

 such an issue ia of considerable advantage, more for certifying 

 the fineness than the weight, since it is much easier to weigh a 

 quantity of coins, than it is to interpret the fineness of each 

 coin. Unfortunately, Governments have not been either honest 

 or intelligent in this matter. They have frequently issued base 

 money, and frequently lowered the quantity in the coin. The 

 latter, though on evil, is comparatively a slight inconvenience ; 

 the former is a terrible mischief, and inflicts lasting injury on 

 the community, the greater part of the suffering being endured 

 by the poor. They who trade in money can easily make them- 

 selves masters of the extent to which the fraud has been com- 

 mitted, and may oven make a profit out of their acutencss and 

 knowledge ; but they who are poor and live by wages, are 

 mulcted by the fraud, and have great difficulty in obtaining 

 that advance in the price of their labour which dealers in other 

 articles of value speedily effect. 



We have now brought our society and the progress is veri- 

 fied by the experience of economical history to such a state as 

 that of a sufficient supply of metallic money. It is found con- 

 venient to employ gold for largo values, silver for transactions 

 of a smaller kind, copper for the least exchanges. In order, 

 however, to prevent confusion, only one of these metals should 

 be taken as a standard, and the others should bo overvalued. 

 We have adopted gold and have overvalued silver and copper, 

 that is, have assigned the pieces issued a higher proportion to 

 gold than their intrinsic value. Thus the silver in twenty 

 shillings is worth a good deal less than a sovereign ; the copper 

 in 240 ponce very much less. No inconvenience ensues, for any 

 person who has to receive a sum in liquidation of a debt can 

 refuse to take more than forty shillings in silver, and twelve 

 pence in copper. In France a debtor can pay either in gold or 

 silver, a fixed ratio of value being established by law between 

 these metals. Most communities, however, use only silver as 

 the fixed measure of value. 



My readers will now see that money is the machinery, the 

 necessary machinery, by which exchanges are effected. The 

 true or complete exchange is between the producers. But the 

 use of money enables one of the producers, who receives money, 

 to postpone his part in the completion of the exchange till such 

 time as it may be convenient to himself. Hence a sale effected 

 by the payment of money has been called half an exchange. It 

 will also bo oeen that a person who takes money takes it in 

 order to get rid of it. Its utility is not immediate, but deriva- 

 tive. Except in so far as gold and silver are employed in the 

 art*, they are of no direct service to mankind. Their indirect 

 value is very great, because, as I have said, they who take 

 them accept them on tho understanding that they are, of all 

 articles of value, those which are most easily exchanged, which 

 are most serviceable, because they enable their possessor to 

 satisfy his own wants with the greatest certainty and case. 

 But except for such purpose nobody would toko, retain, or store 

 them. 



Now my reader will remember that gold and silver have 

 been adopted as tho measure of value for this reason among 

 others, that they represent f,Teat valuo in small compass. In 

 other words, it has cost great labour and pains to obtain them. 

 Much of their existing value, as far as their use is concerned, 

 would be sacrificed, if they were ever procured very cheaply and 

 abundantly. I am not referring to the effect which such a 

 ry would have on the existing stocks of tho precious 

 metals. Double this quantity: suppose that every person who 

 Lad a sovereign found himself to-morrow in tho possession of 



two, and the valuo'of his money would be reduced to. ona-half , 

 or, which u the MUM thin*, the price of everything wuoJd ia 

 brief space be doubled.- Bat I ssn referring to the fates* we 

 of thoM metal*. In order that Uwy should maintain their 

 utility, as part of tha machinery of exchange, they should be 

 oontly. 



If, however, they are contly, and everybody who jfantmm 

 them for hi* own purposes wishes to get rid of them, it is clear 

 that society in tho aggregate will try to do with as snail a stoek 

 as it pOHibly can. The wisdom of our Government in ancient 

 times was believed to consist in collecting as great a hoard a* 

 possible of the precious metals. But every individual in his 

 private capacity was irresistibly constrained to do his best to 

 reverse this policy of the Government, and to make the circula- 

 tion of tho pieces of money which be might possess as rapid 

 and as effective as possible. In brief, society wishes, as far as 

 it can, to economise the use of this very costly mechanism of 

 exchange. But except under a certain condition, it can effect 

 this economy only to a very limited extent. This condition is 

 credit, applied to the operations of banking. Credit is the 

 trust or confidence which the possessor of property repose* 

 in the integrity and solvency of another, and by which he is 

 induced to trust his property in the hands of irach a person, 

 net that, in case ho lends money, tho very same PIYJCS of money 

 should be restored to him, but that he shall get their equiva- 

 lents at his pleasure, sometimes with interest. Hence comes 

 banking. 



Banking was known in its most rudimentary form to 'the 

 ancients. Persons devoted themselves in Greece and Borne to 

 the business of receiving deposits from customers, which they 

 pledged themselves to pay on the production of a cheque or tally. 

 There is no doubt that these ancient bankers made loans with 

 the fluids which were put into their hands, for, as we read in the 

 Scriptures, they paid interest or usury on such deposits. But 

 the modern system of banking had its beginnings in great com* 

 mercial cities like Venice, Genoa, Amsterdam, and Hamburg. 

 The merchants who carried on trade in these towns took in 

 exchange for goods tho moneys of all civilised nations. A 

 Venetian trader might have in his possession the florins of the 

 Papal treasury, the byzants of the Greek empire, tho denien of 

 France, tho silver pence of England, coins in different metals, 

 and of different degrees of weight and fineness. Now such a 

 currency would be very cumbrous and inconvenient, and a 

 remedy for the hindrance and delay involved in such a system 

 would be very gladly welcome. A bank was therefore esta- 

 blished, which took all this money, and issued, in exchange for 

 it, receipts. Such a bank, called a bank of deposit, pledged 

 itself to issue no more receipts than it hod money, and of course, 

 as the expense of conducting such an institution must havo 

 been a considerable sum, it charged some slight premium on 

 its notes or receipts. So useful, however, was this paper found 

 to bo, that merchants were often glad to pay a considerable 

 premium for the convenience. In the long run all these banks 

 failed, and for the same reason. The bank lent its metallic 

 money, and so broke faith with its depositors. It might per- 

 haps have avoided this consequence, if it had lent its money for 

 short periods or on merchandise. But it unfortunately lens 

 its funds to publio companies, who foiled, for in those days 

 people did not understand tho very rudiments of banking. 

 Thus, for example, the Bank of Amsterdam, which for many 

 generations had the highest character for integrity and sol- 

 vency, was found, when the Low Countries were occupied by 

 the revolutionary armies at tho close of the last century, to 

 have lent nearly all its silver to the Dutch East India Com* 

 pacy, and to be totally insolvent. 



The Bank of England, which is tho parent of tho modern: 

 system of banking, was established at the conclusion of tho 

 seventeenth century. It did not profess to retain tho money ot 

 its depositors or shareholders, for it lent tho whole or nearly 

 the whole of its funds to the Government, issuing notes upon 

 this security, and giving interest .on its notes. As a oonso- 

 quence, its notes were frequently inconvertible, that is, tho 

 parties possessing them could not obtain caaii in exchange for 

 them, and the notes were therefore at a discount, that is, they 

 were sold or exchanged for less than their nominal value. The 

 Bank of England avoided the error of the old bocks of deposit. 

 It did not lend its notes for long poriooK, but only for short or 

 mercantile bills. But it fell into an opposite error, which ia 



