metallic currency would be. If, therefore, the issue of inconvertible paper were subjected to strict rules, one rule being that, whenever bullion rose above the mint price, the issues should be contracted until the market price of bullion and the mint price were again in accordance, such a currency would not be subject to any of the evils usually deemed inherent in an inconvertible paper.

"But, also, such a system of currency would have no advantages sufficient to recommend it to adoption. An inconvertible currency regulated by the price of bullion would conform exactly, in all its variations, to a convertible one; and the only advantage gained would be that of exemption from the necessity of keeping any reserve of the precious metals; which is not a very important consideration, especially as a government, so long as its good faith is not suspected, needs not keep so large a reserve as private issuers, being not so liable to great and sudden demands, since there never can be any real doubt of its solvency. Against this small advantage is to be set, in the first place, the possibility of fraudulent tampering with the price of bullion, for the sake of acting on the currency, in the manner of the fictitious sales of corn, to influence the averages, so much and so justly complained of while the corn laws were in force. But a still stronger consideration is the importance of adhering to a simple principle, intelligible to the most untaught capacity. Everybody can understand convertibility; every one sees that what can be at any moment exchanged for five pounds is worth five pounds. Regulation by the price of bullion is a more complex idea, and does not recommend itself through the same familiar associations. There would be nothing like the same confidence, by the public generally, in an inconvertible currency so regulated as in a convertible one; and the most instructed person might reasonably doubt whether such a rule would be as likely to be inflexibly adhered to. The grounds of the rule not being so well understood by the public, opinion would probably not enforce it with as much rigidity, and, in any circumstances of difficulty, would be likely to turn against it; while to the government itself a suspension of convertibility would appear a much stronger and more extreme measure than a relaxation of what might possibly be considered a somewhat artificial rule. There is, therefore, a great preponderance of reasons in favor of a convertible in preference to even the best-regulated inconvertible currency. The temptation to overissue in certain financial emergencies is so strong, that nothing is admissible which can tend, in however slight a degree, to weaken the barriers that restrain it."1

"After experience had shown," says Mill, in effect, "that the inhabitants of a particular country could get on just as well, could be just as comfortable and strong without food and clothing as with, governments began to think it would be a happy device to appropriate to themselves the benefit of being thus relieved from providing for these two great wants; and

1 Political Economy, vol. ii. pp. 76–78.

they determined to try whether they could not emancipate the people from these unpleasant obligations, by substituting words or declarations or hieroglyphs in place of coats and beef; and such is the strength of combination or union, that they pretty nearly succeeded in obtaining their object. Indeed, they fully succeeded for a time, only to lose their power by the flagrant conduct of those who went so far as to starve and freeze themselves to death. Convention was competent to decide, and did decide, the matter; but mankind were so perverse that they would not contain themselves within any reasonable bounds. A grand principle, therefore, which might have revolutionized society, had, notwithstanding all the benefits which might have flowed from it, to be abandoned."

Mill might have used either illustration with equal pertinence and force. The value and use of gold and silver as money was no more a matter of convention than the value and use of food and clothing. Money is just as necessary to society, as at present constituted, as is food and clothing. No experience has ever shown that "pieces of paper of no intrinsic value, by merely bearing upon them written professions of being equivalent to a certain number of francs, dollars, or pounds, could be made to circulate as such, and produce all the benefits to the issuers which could have been produced by the coins which they purported to represent." Experience

never will show such a result, unless, perchance, in a world peopled wholly by Economists. That fictions - mere pieces of paper professing to be the equivalent of coin, but representing nothing and carrying with them no obligation whatever for their payment, - cannot have the value of coin, has been made a matter of demonstration over and over again. A currency such as Mill assumes could not even get into circulation. If made legal tender, which he did not contemplate, then an attribute of value would be given to it other than that of a plain note, which was to be his currency; but even the price of legal-tender notes would soon come to be measured by their value. Men deal or intend to deal in values, in substantial things, not in shams. If they were unable to make the distinction, as Mr. Mill assumes, the race itself would soon cease to exist.

Mill's method for detecting, and determining the degree of the depreciation of an inconvertible currency, is this: "When the holders of paper cannot convert it on demand into bullion,

required in her channels of circulation. Twenty or thirty, or, perhaps, fifty years, might be required to bring about such a result. In the mean time, the interest account running against this "unproductive superfluity " might equal twice or thrice its amount. Nothing, therefore, could be gained to the world at large, while great injustice might be done to some of the nations that compose it. This should not be allowed. It is submitted that the Economists should reconsider Mill's statement in this particular, to see if it cannot be placed upon broader and more equitable foundations.

So much for Mill's assumption that the wealth of England might be increased by the substitution of worthless paper to serve as currency in the place of coin, and an advantage secured in ratio thereto. But if the gold, demonetized as it were, could be made available for export, is it certain that it would be exchanged for an equal value of commodities to be made the basis of reproduction? The first effect of the issue of paper, even if it were legal tender, would not be to send abroad, immediately, a corresponding amount of gold. The rates of exchange might be such that it could not be exported without a loss. It would only be exported to discharge balances arising in foreign trade, to be created in consequence of the excessive issues of paper. As the effect of such issues would be to advance prices, an amount of the gold would still be required as currency, in addition to the paper, and in ratio to such advance. From increased consumption, increased importations would be made, and gold would be finally exported in ratio thereto. The movement, however, would always be gradual, and would be the direct, not the indirect, effect of the increase of the currency. Whatever was exported would be for articles ordinarily entering into consumption, which exceed tenfold such as are imported to serve as the basis of production. It might be that very little would be brought into the country which it could not do as well without as with. Useful articles, that is, those which can be made the basis of production, are not usually the kind imported under the stimulus of an issue of worthless paper. All such improvident measures are always followed by others equally or still more improvident. It is to be remembered that all such issues are made only as the last alternative; that they are always

tampered with for the purpose of enabling governments to pay their debts at one-half the value at which they were contracted. There would be no motive to tamper when there was no bullion to be paid. In this case, Mill seems, without being aware of it, to have altogether inverted his argument. But a still stronger consideration, he says, is the importance of a rule which the most untaught capacity can readily understand. When an issuer says, "I will pay ten dollars, on demand, in gold," the note will be readily accepted so long as the maker is in good credit; for the holder knows that all he has to do is to demand and receive the gold for it, if he have occasion to use it, or if he suspect any thing wrong. An "untaught capacity" could hardly be made to understand the process by which a note he might hold could be made to have a value equal to that of gold, when not a particle of gold could be had for it. So far Mill was right. The regulation of the value of an inconvertible currency, so as to render it the equivalent of gold, is a very complex process. It is not illustrated in the ordinary operations of society." Even some well-taught people might well doubt whether the rule would produce the assumed result, or whether it would be rigidly adhered to. Public opinion might not sufficiently support it. The government itself might recommend its relaxation; for, as the object of such currency was to supply the lack of gold, government would not be very likely, after its issue, to take measures to give it the value of gold, when the same measures would have rendered its issue unnecessary. This is one of those cases in which it is not wise to attempt to enforce a rule or principle wholly correct, and of great value in itself, simply from the perversity or weakness of human nature.

66

"The same effects," says Mill, "which would arise from the discovery of a treasure accompany the process by which bank-notes, or any of the other substitutes for money, take the place of the precious metals. Suppose England possessed a currency wholly metallic, of twenty millions sterling, and that suddenly twenty millions of bank-notes were sent into circulation. If these were issued by bankers, they would be employed in loans, or in the purchase of securities, and would therefore create a sudden fall in the rate of interest, which would probably send a great part of the twenty millions of gold out of the country as capital, to seek a higher rate of interest elsewhere, before there had been time for any action on prices.

"Effects of another kind, however, will have been produced.

Twenty millions, which formerly existed in the unproductive form of metallic money, have been converted into what is or is capable of becoming productive capital. This gain is at first made by England at the expense of other countries, who have taken her superfluity of this costly and unproductive article off her hands, giving for it an equivalent value in other commodities; by degrees, the loss is made up to those countries by diminished influx from the mines; and, finally, the world has gained a virtual addition of twenty millions to its productive resources. . . .

"The value saved to the community by thus dispensing with metallic money is a clear gain to those who provide the substitute. They have the use of twenty millions of circulating medium which have cost them only the expense of an engraver's plate. If they employ this accession to their fortunes as productive capital, the produce of the country is increased, and the community benefited as much as by any other capital of an equal amount. Whether it is so employed or not, depends, in some degree, upon the mode of issuing it. If issued by the government, and employed in paying off debt, it would probably become productive capital. The government, however, may prefer employing this extraordinary resource in its ordinary expenses, may squander it uselessly, or make it a mere temporary substitute for taxation to an equivalent amount; in which last case, the amount is saved by the tax-payers at large, who either add it to their capital or spend it as income."1

It seems that the assumption of Mill and the Economists, that the issue by a country-England, for example — of £20,000,000 of currency, thereby enabling her to export a corresponding amount of specie in exchange for productive capital, increasing her wealth in an equal degree, might well be objected to from its apparent injustice. A principle applicable to one should be applicable to all other nations. That one is to be benefited without desert, and another injured without wrong, is not sound in morals, if it be so in Political Economy. What is to become of the unfortunate race of Midases reduced to the necessity, not only of eating and drinking, but of wearing gold? Their wrongs and sufferings are certainly fitted to excite sincere commiseration. Why should try known only to the Economists, be, whether it will or no, the dumping ground for the gold of all the rest of creation? A science that is not true for such countries as England, France, or the United States, cannot be true for any other. Each should be compelled to keep its proper proportion of its own incumbrances or impediments, and should not be allowed to

1 Political Economy, vol. ii. pp. 174-177.

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