CIRCULATING MEDIUM. 



245 



medium. Many species of precious stones comprise 

 u greater value in the same bulk and weight than 

 either gold or silver, but their value cannot be so 

 precisely estimated, nor are they found in sufficient 

 quantities. Platina would be as convenient a medi- 

 um as either gold or silver, provided it should con- 

 tinue to retain its present value ; but it has not as 

 yet been produced in sufficient abundance. It is one 

 essential quality of a circulating medium, that it 

 should have an intrinsic marketable value. Gold 

 and silver, for instance, besides answering as a me- 

 dium, liave as positive a market value as iron, tin, 

 leather, or corn. This value is derived from their 

 utility in the useful and ornamental arts ; and it 

 may be more precisely ascertained than the value 

 of most other articles, since an agreement for a 

 certain number of beaver skins, a certain quantity 

 of tobacco, and still more for a certain number of 

 cattle, admits of some doubt and dispute as to the 

 quality ; but an agreement for a certain weight of 

 gold, of given fineness, admits of no dispute ; it can 

 be reduced to the utmost certainty. 



But we see other kinds of currency, which appa- 

 rently answer the purpose of a circulating medium, 

 and which have very little value. A small piece of 

 paper, not worth intrinsically one farthing, passes for 

 many pounds ; and this sometimes leads people into 

 the mistaken notion that intrinsic value is not an es- 

 sential quality in the public currency. But we must 

 look at what is printed or written on this paper, to 

 learn why it passes for currency. It bears a promise 

 that the holder shall be entitled to a certain number 

 of pounds ; of course, a certain quantity of gold and 

 silver, of a certain fineness. If this promise ue valid, 

 and be kept, then the real medium is gold and 

 silver, though this gold and silver may be locked up 

 in a bank. But it may be said, that there is not, in 

 the banks, where bank paper circulates, and, per- 

 haps, not in the community, more than one pound hi 

 silver or gold for four pounds promised in the paper 

 in circulation. How then can four pounds of paper 

 be redeemed by one of silver? This is very easy. 

 One holder of a paper pound demands the silver at 

 the bank, and passes it off, or keeps it in his purse. 

 Now if the bank can induce this person, or the one 

 to whom he passes the pound, to let them have it 

 again, that is, to loan it to them, or to take some- 

 thing hi exchange for it, they can then, with the same 

 silver pound, redeem the second paper one, and so 

 on. Thus a bank that has capital, and a good cre- 

 dit, will be always able to reclaim and use the same 

 specie successively to redeem its paper, and, if it be 

 skilfully conducted, it will always be able to com- 

 mand it as fast as its bills can be collected and pre- 

 sented for payment. A community, therefore, 

 which only uses specie and redeemable paper as cur- 

 rency, has, to all practical purposes, a specie medi- 

 um. The paper is, in short, so much specie, for all 

 practical purposes, for it will command gold and 

 silver Here, then, is evidently an advantage gain- 

 ed ; for, if a bank, by putting one pound in its vaults, 

 can loan out four pounds on interest, it makes a 

 great income on its capital, while the community 

 loses nothing, but gains, rather; for this paper is 

 much more convenient for transportation, and equal- 

 ly convenient hi all other respects. It is a great 

 object in every community to gam this advantage, 

 arising from multiplication of money. Individuals, 

 if not prohibited by the laws, will soon issue their 

 paper money, and many of them make promises of 

 paying pounds, which they cannot fulfill, and thus the 

 public be defrauded. On the other hand, the go- 

 vernment often makes the bubble by the issue of 

 paper money, or promises of payment never to be 

 till tilled. 



There has rarely, if ever, been an instance of 8 

 government issuing paper money, and redeeming it 

 punctually, and to its full nominal amount. Innu- 

 merable issues of this sort of circulating medium 

 were made by the American colonies before the es- 

 tablishment of the independence of the United States ; 

 and, during the war of independence, the country 

 was inundated with what was called continental no. 

 ney, which was never redeemed. Russia and Austria 

 have this species of currency in circulation, always 

 depreciated, as is usual with such money. Formerly, 

 the sovereigns of Europe had a practice of debasing 

 the current coin, when they wished to levy a tax in 

 disguise, so as to make the copper, with which they 

 alloyed the silver, pass as of the value of silver. But 

 in modern times, instead of debasing the coin, the 

 usual resort is to a government bank or to govern 

 ment paper. Government paper, issued as the or- 

 dinary currency, usually proves to be a bubble. 

 And it may be taken for a general rule, that no cur- 

 rency is safe which is not of an intrinsic value, or is 

 not based upon capital sacredly pledged to its re- 

 demption. The question then recurs, why the go- 

 vernment may not pledge a certain amount of capital 

 for the redemption of its paper. The reason is, that 

 this capital must be managed, and avast deal of skill 

 and economy is requisite in managing a redeemable 

 paper currency ; and of all managers, the agents of 

 a government are the least thrifty and economical. 

 Besides, the government will ruin the credit of its 

 own paper by excessive issues in its exigencies in 

 times of war, when the effects of a destruction of its 

 credit are the most disastrous. The government, 

 therefore, ought never to trust itself to be a banker, 

 or to issue paper money, except in desperate circum- 

 stances or pressing exigencies, when no other mea- 

 sure can be resorted to, and when what would other- 

 wise be wrong and dishonest is excused for the sake 

 of preventing the greatest national calamities. If, 

 then, neither the government nor individuals can 

 safely supply a circulating medium of promises, what 

 system can be safely adopted, which shall afford all 

 the advantages of a multiplication, in effect, of the 

 medium of intrinsic value, namely, the gold and 

 silver ? Undoubtedly the system of bank circulation, 

 whereby a certain capital is sacredly pledged to the 

 redemption of the promises of payment of money 

 made in the circulating bills. A well contrived, 

 skilfully conducted system of banking, connected with 

 one of circulation, is one of the greatest triumphs of 

 national economy. The interest, as well as the re- 

 putation of individuals, is thus pledged in support of 

 the system, and in furtherance of the general indus- 

 try and prosperity. But shall individuals reap all 

 the advantages of the practical multiplication of ca- 

 pital in consequence of supplying a currency based 

 upon, but not consisting exclusively of specie ? By 

 no means. The government may indirectly reap 

 greater advantages from this system, than they 

 possibly can from an attempt at becoming themselves 

 bankers for the community, by sharing the profits 

 with those who actually conduct the business. It is 

 one of the proper and most important functions ot 

 the government to regulate the currency. It is 

 bound to interfere, with proper restrictions, for pre- 

 venting the frauds and bubbles to which individual 

 enterprise and speculation inevitably lead, if let 

 loose hi the career of credit ; and it has a profit, in 

 so doing, by reaping some of the advantages of a 

 bank circulation, and thus gaining an income with- 

 out, in fact, levying a tax. Thus, if the circulation 

 of the notes of individuals, as a currency, is prohibited, 

 and certain institutions have a right by charter to 

 supply the currency by an issue of their bank notes, 

 on paying to the government a certain bonus, r,s & 



