382 PAPER 
them, refutes them in payment." A bank-note does not 
repretent coin ; nor is it circulated and received on that 
account; but it is an obligation on the part of the perfon 
or perfons who iffueit to pay, on demand, a certain quan¬ 
tity of gold orfilver. A common cheque upon a banker, 
which nobody ever dreamed of calling a reprefentative of 
money, is juft as much a reprefentative of it as bank¬ 
notes ; nay, in fa£l, the order which the manufacturer, on 
the Saturday night, puts into the hands'of one of his 
workmen, to get from his clerk the wages of the week, is 
a reprefentative exadfly of the fame defcription. The only 
real difference in practice is, that the one obligation gene¬ 
rally pafles but through one or a few hands, till it comes 
upon tbe obligee : the other pafles through many hands, 
each accepting it as a fatisfadlory fecurity for the valuable 
commodity which it is an order to receive. 
With regard to the effeCls of paper-money, they may 
beconfldered under two heads : the effeCt it produces on 
the price of commodities, and the eftedl it produces on 
the metallic currency along with which it circulates. Mr. 
Hume entertained the notion that paper-money raifes 
prices; whereas Mr. Adam Smith, referring to what he 
confiders as a general fadt in the theory of circulation, 
that every addition of paper to the currency dilplaces an 
equivalent quantity of gold, holds an oppofite opinion. 
This notion of Smith, however, mull be received with 
fome limitation : if, by an addition of paper to the cur¬ 
rency in any country, the price of any commodity is raifed 
in that country fo high as will pay for its importation, 
it will be imported, and part of the metallic currency will 
probably be employed to pay for the commodity thus im¬ 
ported. But, whenever the addition made to thecurrency 
by paper-money is employed in the produ£lion of commo¬ 
dities, and theincreafe in the quantity of thefe commodi¬ 
ties is in the fame proportion as the increafe to the cur¬ 
rency, by the addition of paper-money, there will be no 
reafon for exporting gold ; and the whole currency, con- 
ftfting of the precious metals and of paper, will be no 
more than is neceflary to circulate theincreafed quantity 
of commodities in the market. In corifidering this 
branch of the fubjefl in a more extended fenfe, it will be 
neceflary to look to the effedl produced on the value of 
the precious metals, in the general market of the world, 
by the addition of paper to thecurrency of any particular 
country, in cafes where that addition, not producing a 
correfponding increafe in the quantity of commodities, 
enhances their price, and thus leads to the exportation of 
gold from the country where the paper-currency is iflued. 
In thefe cafes, the fame exportation of gold, which reme¬ 
dies the temporary rife that takes place in the particular 
country where paper has been ifl’ued, has a tendency to 
increafe the fupply of precious metals in the general mar¬ 
ket of the world, and thus to occafion a general rife of 
prices in which that particular country mult participate. 
The whole quantity of* bullion, of which Great Britain 
has fpareu the ufe by adopting a different medium of do- 
meftic exchange, is added to the generaf flock of the mer¬ 
cantile commonwealth, as much as if an equal quantity 
had been brought additionally from America; and the 
faving of that annual lofs which would have been occa- 
floned by the wafle of Britifh coin, is equivalent to an in¬ 
creafe in tire annual produce of the mines. 
On the whole, with refpeCl to the eft eft of a paper-cur¬ 
rency on the price of commodities, and on the precious 
metals with which it circulates, it may be remarked, that 
it nruft vary according"to the circumftances under which 
the paper-currency is emitted, and the quantity which is 
thrown into the market ; and thefe variations in its effects 
will more properly be coniidered under the next head, viz. 
III. Advantages and Disadvantages of Paper- 
MONEY. 
i. The firft advantage refulting from the ufe of a paper- 
money, which occurs to the oblervation of a perfon re- 
fleCling ever fo fuperflcially on the fubjeff, is, that by the 
MONEY. 
fubftitution of paper in the room of gold and filver mo¬ 
ney, a veryexpenfive inftrument of commerce is replaced 
by one much lefs coftly. So far the fubftitution of paper- 
money mull be advantageous to the community. The cur¬ 
rency of a country is a part of its capital, which may be 
coniidered as unproductive : it is, indeed, neceflary to 
carry on the operations of its commerce, but it does not, 
ftridtly fpeaking, increafe that commerce; it is, therefore, 
of the utmoft importance, that this inftrument, thus un¬ 
productive, fliould be procured and kept in aCtion with 
the leaft poflible expenfe. But, where gold and filveralone 
are employed as the currency of a country, they mull 
either be obtained direCtly from the mines at great labour 
or expenfe, or purchafed by commodities on which the 
fame quantity of labour and expenfe has been laid out. 
Again, if in a country, the currency of which confided 
entirely or principally of gold and filver, a paper-currency 
is introduced, it is evident that a part of its former me¬ 
tallic currency will be fet at liberty, and may be expended 
in the purchafe of foreign commodities. Paper-currency, 
as we have.already Ihown, is in faCl only an obligation to 
pay on demand a fpecific .fum of gold and filver; it there¬ 
fore might be inferred, that the fubftitution of paper for 
gold and filver would not let at liberty any portion of the 
latter, fince it would be neceflary to retain the whole, in 
order to anfwer the demands of thofe who brought the 
paper-currency for payment. But the faCl is, that a com¬ 
paratively fmall proportion of gold and filver is required 
to anfwer the demands occafioned by a very extenlive pa¬ 
per-circulation ; thofe who iflue bank-notes loon afcer- 
tain, with fufficient and perfeCtlj-fecure precifion, the ex- 
aft amount of gold and filver which it is neceflary or pru¬ 
dent to keep by them, and the reft is employed in the 
purpofes of commerce. 
Whatever ,evils may have refulted from an injudicious 
and fuperabundant iflue of paper-money, there can be 
little doubt that this fpecies of currency has been of great 
lervice in increaflng the produce and extending the com¬ 
merce of the country. Let us fuppofe an inftance of com¬ 
mon occurrence, and of no intricacy or complication in 
its detail: A gentleman poffeffesa large eftate, that is in a 
greatmeafure in an uncultivated and unproduClive Hate: 
he does not poffefs the capital adequate to the full im¬ 
provement of it; and yet there can be no doubt, that if 
fufficient capital were laid out upon it, in a judicious and 
Ikilful manner, not only the owner, but the community, 
would be greatly benefited. In a country deftitute of pa¬ 
per-currency, he would experience great, perhaps infur- 
mountable, difficulties, in borrowing the requifite capi¬ 
tal ; whereas, in a country poffefled of a paper-currency, 
the means of improvement would be eafily obtained, and 
a great increafe of produce, and confequently of wealth, 
would be added to the public flock. Whoever has 
watched the progreffive improvement of Great Britain, 
not only in the extended and fuperior cultivation of her 
foil, but in the increafe of her nianufaClures and com¬ 
merce, rnuft be convinced that the rapid and great ad¬ 
vances flie has made in wealth within thefe few years, 
hale been in a great meafure owing to her paper-cur¬ 
rency. 
The following paffage from Smith’s Wealth of Nations 
will fet the advantages of a paper-currency, perhaps, in a 
Hill clearer light. “ It is not by augmenting the capital 
of the country, but by rendering a greater part of that 
capital a&ive and productive than would otherwife be fo, 
that the moft judicious operations of banking can in¬ 
creafe the induitry of the country. That part of his ca¬ 
pital which a dealer is obliged to keep by him unem¬ 
ployed, and in ready money, for anfwering occaflonal de¬ 
mands, is fo much dead flock, which, fo long as it re* 
mains in this fituation, produces nothing, either to him 
or to his country. The judicious operations of banking 
enable him to convert this dead flock into aCtive and pro¬ 
ductive flock ; into materials to work upon, into tools to 
work with, and into proviflons and fubfiftence to work 
