things, have never been able to make even the first successful start. The moment they have attempted to issue notes and credits as currency, these have always been presented for immediate redemption in coin. As they can pay neither merchandise nor coin, they have no other alternative but to go into immediate liquidation.

That a currency may at all times be convertible, the means for its redemption must always be provided previous to its issue, not by the Bank, but by the public, the producers of merchandise. With such provision, the currency from the moment of its issue would take care of itself. The attempt to make such provision after issue would be certain to defeat itself. When merchandise is provided, the necessities of consumers compel them to purchase it, piece by piece, for consumption. Their necessities and purchases will have the effect to maintain its price, so as to render it adequate to the discharge of the currency issued against it. But neither real estate nor securities can be taken for consumption, piece by piece; they must be sold in gross, or not at all. A proposition, or a necessity, for the sale of a large amount of either would be naturally met by the public, by a combination not to purchase except at very low rates, or by a shyness growing out of an apprehension that sales in large amounts would necessarily tend to bring down prices by creating a disturbance in the money market. The result would be that property symbolized at a fair value would not, under the peremptory sales that would be necessary, bring half that at which it was symbolized: the loss sustained by the Bank in its first operations would be usually sufficient to drive it into liquidation. The world has seen no end to attempts to establish Banks upon capital other than coin and merchandise; but all such, without exception, have proved disastrous failures.

For similar reasons, bills given for merchandise not in demand for consumption are no better subjects for discount than bills given in the purchase of real estate or securities. Such merchandise, since it could not be sold, would not retire the notes and credits issued in the discount of the bills representing it. These would have to be taken in by paying out the corresponding amount of coin. It is in the discount of notes given for unsalable merchandise that Banks make by far the

greater part of their losses. Where the demand for their products is not active, producers, as a means of tempting purchasers, offer longer credits. Merchants will often buy on six months' credit, when they would by no means buy on a credit of three, well knowing that within the shorter time they could not make their payments out of the merchandise purchased. They hope, however, to be able to turn their purchases within the longer period, and so take the risk. If merchants take long paper, Banks are tempted to do the same by a concession in the rate of discount. In the mean time, producers, being supplied with means, push their industries without any reference to the condition of the market, and daily add to the stock of unsalable goods already pressing upon it. As they increase their stocks, they again tempt purchasers by giving still longer credits; and tempt the Banks to discount the new bills by increasing the rates paid. Producers will always keep at work so long as they can find the means of doing so. As the bills so discounted will not mature till a long time after the notes and credits issued in their discount will have been returned to them for redemption, the Banks must take in the latter by paying out a corresponding amount of their reserves. As they must maintain these in ratio, it is here assumed, of one of the former to five of liabilities, they must reduce the line of their discounts in like ratio, or must cease discounting till new reserves are provided equal in amount to those drawn. In either case, the currency must for a time at least be contracted, and prices must suffer a corresponding decline. As soon as it was seen that the market was a falling one, no one would purchase at all, or only sparingly, or at greatly reduced prices, or at those far below the cost of production. As goods could not be sold, a very considerable portion of the long paper discounted could not be paid. With every failure in their payment, the means of Banks would be still further exhausted; so that no considerable time would elapse, before the holders of their notes and credits, seeing that they did not represent merchandise adequate for their redemption, would for their own security rush to the Banks, and demand to be paid in coin. Their immediate suspension, as in the instances already given, would be the necessary result.

No Bank, as a rule, will discount what is known or suspected to be accommodation paper. It is impossible that serious

losses should not result from its discount. On the other hand, while it well knows that it should discount only such bills as were given for merchandise, it may be wholly unable to form a correct opinion as to its salableness, or market value. The only rule, in such case, that can protect it from loss is that which forbids the discount of any bills having a longer time to run than that necessary for the distribution for consumption of the merchandise represented by them. If Banks will not discount long paper, merchants cannot take it to any considerable extent. The merchant is to be trusted that the price he contracts to pay shall not exceed the current rate at the time. Should he purchase, say on three months, and should prices soon after show a tendency to fall, he will not add to his stock till he sees how he is coming out with that already on hand. The decline which may be suffered before his bills will mature will hardly ever be sufficient to sweep away the reserves which every careful business man is assumed to maintain. Till these are exhausted the Banks cannot suffer. His declining to purchase is timely notice to producers that the market is already overstocked. If purchasers will not buy, producers can get no bills for discount; and, if they cannot, they must of necessity reduce their production in ratio to the falling off of the demand.

From what has preceded, it will be seen that, as in such countries as the United States and Great Britain Banks and bankers supply almost all the instruments of consumption, they are directly responsible for the greater part of the fluctuations that are constantly taking place in production and trade, and for those great financial revulsions which from time to time sweep over them with such disastrous effects. There can be no considerable fluctuations in price or values, with a metallic currency, as in all operations equivalents are exchanged at the value of coin. There are no commercial crises in Turkey, and rarely in France, where most of the dealings are in a currency of metals, of capital. The money in circulation is itself a proper subject of expenditure. A paper currency on the other hand, while it may serve as the instrument, may by no means represent the proper subjects of expenditure. As it is the instrument of expenditure, as it serves to the party issuing it all the functions of capital, so far as it can be made to circulate at

all, there is at all times the strongest possible motive to needy, improvident, or dishonest parties for its issue. Such temptation is the weak point in all symbolic currencies, and is the one, of all others, to be especially guarded against.

While there is the strongest temptation for the issue of paper money without the provision of adequate means for its redemption, there will always be a plenty of parties to take, at some figure, what they consider of doubtful value, or perhaps worthless, from a confidence in their own cleverness in palming it off, at a higher rate than that for which they took it, upon others more credulous or less informed than themselves. They flatter themselves that they shall never "get stuck" with it, as the phrase is. It is here that the moral, or rather the immoral, side of a fictitious or fraudulent currency comes in. Its possession always carries with it the suggestion of fraud, of swindling some other person out of a sum equal to a portion of its nominal value. The most worthless of currencies are as attractive in form, and promise as solemnly to pay coin, as the most valuable. Those who deal in them, therefore, start with their case more than half made out. As most currencies are good, they have seldom much difficulty in persuading those upon whom they wish to impose them that those they hold are equally so. The wild-cat currencies of the Western States, which were issued in such abundance some forty years ago, could never have got into circulation but from a belief, on the part of those who took them, that they could shove them off upon somebody else without loss to themselves. Where a currency is a fraud, almost every act of the community using it is tainted with fraud. Of all agencies at work in society, a fictitious currency, or one that is made irredeemable by law, is the most potent in sapping alike its moral sense and its material welfare.

From what has preceded, it will be seen that the functions of governments in the matter of currencies are extremely limited. A metallic currency derives its value wholly (except in some countries in which a slight charge for coinage is made) from the cost of the metals that compose it. The stamp of government is affixed as evidence that each piece, of similar denomination, contains an equal quantity of pure metal. Coinage is an attribute of the supreme power, for the same reason as

is the establishment of a uniform system of weights and measures. It often has no property in the metals it coins, and has no more to do with their value than it has with the value of the material out of which are made the weights and measures it establishes. If the quantity of pure metal in a coin is increased or reduced, from whatever cause, the value of the coin is increased or reduced in an equal degree, its denomination meanwhile remaining the same.

Its functions in the creation of a symbolic currency are, if possible, still less important than in the creation of a metallic one. It neither provides the means for its conversion, nor does it affix its stamp to the materials of which it is composed. All it can properly do is to add its sanction to laws, not of its own enacting, but arising out of the operations of production and trade. It has been shown that a symbolic currency represents merchandise, and is discharged by its purchase for consumption; that so long as it is symbolic, it must, as a rule, be discharged in this manner, and without the intervention of coin. In creating a Bank, therefore, the government, as the custodian of the public welfare, need make hardly any other provision than to forbid the issue of currency except in the discount of bills given in the purchase of merchandise, and maturing within four months; or within the time required for its distribution to its consumers. The amount of reserves to be maintained, the next most important matter, must as a rule, be left to the discretion of its managers.

As governments are never possessed of merchandise or coin for the purpose of making loans, they can never issue a currency convertible at the pleasure of the holder, nor one that is not at a discount from the standard of coin. The currency they issue, therefore, is wholly different in kind from that issued by Banks. As already shown, the process of issue of the latter consists of a mutual exchange of obligations, of their notes and credits for the bills of their customers. The parties to whom the notes and credits are issued are the producers of merchandise. Such notes and credits represent such merchandise, and are convertible on demand into it, or into coin, at the option of the holder. The makers of the bills discounted are the purchasers of the same for distribution. Although the Banks are the only parties that undertake, in terms,