that of being the subject of contracts for future payment. It is in the latter capacity that the fixity of a standard is the most essential. As a mere instrument or medium of exchange, at the same time and in the same place, invariableness of value, though desirable, is not of so much importance; the immediate purpose of money in this capacity being to serve as a point, or rather a scale, of comparison more convenient than actual barter between any two commodities or sets of commodities. It is in the latter capacity, that is to say, as the subject of engagements or obligations for future payment, that, in every view of justice and policy, the specific thing promised, in quantity and quality, should be paid at the expiration of the term."

1

The sum of all this is, that convertible paper money cannot affect prices under any conditions. So far Tooke simply follows Adam Smith, that "the amount of paper money of every kind that can circulate in a nation can only equal the amount of coin which would otherwise have been in circulation. All excess of issue would immediately return upon the Bank for coin. As its holders can make no use of such excess, they will immediately convert it into a form in which, by its exportation, they can use it." Such was Tooke's argument. If there could be no excess, then a convertible paper money could not affect prices. Neither could a government inconvertible paper currency affect prices, so long as it was not in excess of the wants of those using it in their exchanges. It became depreciated only for the reason that it was in excess of a currency of coin. Value was no necessary attribute of it. It might be a convenient attribute: that is, if a person parted with merchandise, to be paid for in six months, it would be well that that in which he was to be paid should have a uniform value; but where the transaction was to be immediately closed, that is, where a person sold a barrel of flour for the purpose of purchasing with the proceeds a hat or a coat, the value of the medium to such person, says Tooke, would be unimportant. But would it be unimportant to the seller of the coat or hat? He might wish to hold the proceeds in reserve for future use; or suppose he wished immediately to purchase something, must he not be prepared to offer that which could be held in reserve for any length of time, its value remaining unchanged. Whatever is to serve as money, in the last resort, must always possess uniformity of value, not only for months and years, but for ages.

1 History of Prices, vol. iv. pp. 145-146.

The fallacy of Tooke's distinction ought to be palpable to the dullest apprehension. Yet he drags the reader through six volumes, one of them containing nearly a thousand pages,— the greater portion of them all devoted to the task of proving this, and propositions, if possible still more absurd. So with prices: these with him depend upon cost, and the ability, not the will, of the public to consume. The public are able to consume a thousand things they will not. At one time they will not purchase a particular style of goods, which is all the rage at another, although it would be twice as valuable, as far as its wear is concerned, as that which they will purchase. Had Tooke understood the laws and effects of paper money, he would have seen that it is possible for prices to fall enormously, even when it is greatly inflated. The effect of an inflation is to advance prices, from an increase of the instruments of expenditure, and from its tendency to excite speculation, which may be carried to such a pitch as to seize and attempt to hold all the food, for example, upon the market. In such case, it not unfrequently happens that the public can be supplied from other sources, or that, from the excessive rates charged by holders, consumption will be so much reduced that those who attempted to control prices find themselves unable to carry their purchases, and are forced to throw them upon the market; in consequence of which, prices may for a time be far below what they would have been under a metallic currency. Such fluctuations, which are constantly occurring, or were occurring during the suspension of the Bank, -a period from which he drew the greater part of his illustrations, — have been assumed by Mr. Tooke to prove prices to be wholly independent of the quantity of the circulating medium. He might as well have attempted to prove that indulgence in liquor had no tendency to elevate one, from the exhaustion or syncope resulting from its excessive use. So, under an inflation of the currency, prices may fall in much greater ratio than the inflation, from the decreased cost of production, or from the falling off, from any cause, of the demand. None of these causes or influences were properly considered by him. He sought to erect a science from an observation of certain phenomena, without sufficient reference to their cause or law. It is as useless, however, to attempt to reason with him as it was with the philosopher in the tale of "Rasselas." It was, probably, from

an examination or an attempted examination of his works, that Mr. Gladstone declared the study of money to be a fruitful cause of insanity.

An authority far greater than Tooke, and whose works may, indeed, be said to epitomize all that is known or held at the present time upon this subject, is Mr. J. R. McCulloch, late Professor of Political Economy in the University of London, author of the "Cyclopædia of Commerce," of a "Statistical Account of the British Empire," of the "Principles of Political Economy," and of numerous other works on kindred subjects. He also edited the works of his great master, Adam Smith, to which he added elaborate notes of his own; the works of Lord Overstone, of David Ricardo, and of other lesser lights of the modern school. No one in his particular province ever covered so broad a field; no one was ever so familiar with the Economists; and no one ever so completely epitomized their speculations and views. He was, among them, eminently omnium hominum facile princeps. Fully accepting the doctrines of Smith, and the wide distinction which he made between the qualities of the precious metals which fit them for money and those which determine their value in exchange, he proceeds to consider the laws by which their value is determined when their movement is perfectly free; and those by which they are affected when artificial restraint is imposed upon it:

"It appears that when gold and silver are produced under a system of free competition, their value depends, like that of all other commodities, on the cost of their production. While they form the currency of the commercial world, the price of commodities, or their value estimated in money, will consequently vary not only according to the variation in the cost, demand, and supply of commodities, but also according to the variations in the cost of the gold and silver with which they are compared.

"We now come to the second branch of our inquiry, or that which has for its object to discover the laws which regulate the value of gold and silver, when the power to supply them is placed under a restraint. It is obvious, supposing competition were not allowed to operate in the production of the precious metals, that their value would no longer depend on the principles previously laid down. Whenever the supply of money is limited, its value varies in inverse ratio to its quantity as compared with the quantity of commodities brought to market, or with the business it has to perform. If, on one hand, double the usual supply of commodities

were brought to market with a limited currency, their money price would be reduced a half; and if, on the other hand, only half the usual supply of commodities were brought to market, their price would be doubled; and this, whether the cost of their production was increased or diminished. Sovereigns, shillings, livres, dollars, &c., would then really constitute mere tickets or counters, to be used in computing the value of property, and in transferring it from one individual to another. And, as small tickets or counters would serve for that purpose quite as well as large ones, it is unquestionably true that a debased currency may, by first reducing, and then limiting its quantity, be made to circulate at the value it would bear were the power to supply it unrestricted, and were it of the legal weight and fineness; and, by still further limiting its quantity, it may be made to pass at any higher value. It appears, therefore, that whatever be the matter of which money is made, and however destitute of intrinsic value, it is yet possible, by sufficiently limiting its quantity, to raise its value to any conceivable extent.... Assume the currency of Great Britain to consist of fifty or sixty millions of sovereigns; suppose now that government withdraws them, and supplies their place with fifty or sixty millions of half sovereigns, and that the issue of additional coins and of paper money is effectually prevented; in this case it is plain, should the same quantity of commodities be brought to market, there would be the same number of coins to exchange against them. There would not, therefore, unless the supply of commodities varied, be any change in their price. The hat that had previously sold for a gold coin would still sell for one. It is true that the coin for which it now sells is only half the intrinsic value of the one previously in circulation; but this deficiency has been fully compensated by the artificial value given to it by the monopoly. The country has a certain number of exchanges to perform; and it is quite obvious, that, were the currency which is to perform them sufficiently limited, a shilling or a sixpence might be made to do the business, or to pass at the value of a sovereign.

"These are principles of the greatest importance to a right understanding of the real nature of money. În inquiring into the In circumstances on which its value depends, we must always ascertain, in the first place, whether it be free or monopolized. Down to a recent period, it was universally maintained that the value of money depended entirely on the relation between its amount and the demand. But this is true only of a gold and silver currency when its quantity is limited; and of a currency formed of materials having little intrinsic worth, when its quantity is limited, and it is not convertible, at the pleasure of the holder, into some more valuable commodity. It is obvious, indeed, without any reasoning on the subject, that the value of a currency consisting of inconvertible paper, or of any other very cheap material, must depend on the proportion which its amount bears to the commodities brought to market, or to the demand; and wherever a currency of this kind, or a limited gold currency, is in circulation, the common opinion that the price of commodities depends wholly on the proportion

between them and the supply of money is quite correct. But it is altogether different with a freely supplied currency consisting of gold and silver, or of any article possessed of considerable value. The fluctuations in the supply and demand of such currency have no permanent influence over its value. This is determined by the cost of its production. If a sovereign commonly exchange for a couple of bushels of wheat or a hat, it is because its production has cost as much as either of these commodities; while, if with a limited and inconvertible paper money, the latter is exchanged for a one pound note, it is because such is the proportion which, as a part of the mass of commodities offered for sale, they bear to the supply of paper or money in the market. This proportion would, it is evident, be not only immediately, but permanently, affected by an increase or diminution of the supply of paper or of commodities; but the relations which commodities bear to a freely supplied metallic currency cannot be changed, except by a change in the cost of producing the commodities. Such are the circumstances which determine the value of money, both when the power to supply it is not subjected to any species of control, and when it is controlled and limited. In the former case, its value depends, like that of most other things, on the cost of its production; while, in the latter case, its value is totally unaffected by that circumstance, and depends on the extent to which it has been issued compared with the demand." 1

Mr. McCulloch might as well have assumed a particular county of England to be fenced off by a wall so high that only a small amount of vital air could get into it; and that, in such case, the right to breathe would sell at an enormous price; and have inferred, therefrom, that, should the amount of money be limited, its price would rise in like ratio. One illustration is as pertinent, or rather as impertinent, as the other. Whoever gets gold, gets it to spend. There may be quarrels between those who dig and those who rule as to who shall enjoy the product; but, whatever the result, it would immediately go into circulation. Such will be the law so long as mankind must be fed and clothed, or will waste its means in pageants and wars. In his "Political Economy" and other works his great theme always was the impossibility that government should control the movement of the precious metals, and consequently, the utter folly of attempting to do so. They obey a law far higher than that of human provision. His illustrations, however, are in keeping with those of the school to which he belonged, which is always assuming impossible instances as a

I Notes to Smith's Wealth of Nations, pp. 482, 483.