GOLD AS A COMMODITY.

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Consider the question as one of political economy, and this truth becomes obvious. Thus: The nation habitually requires for use and consumption certain quantities of commodities, of which gold is one. These commodities are severally and collectively liable to fall short, either from deficient harvests, from waste in war, from losses abroad, or from too great a diversion of labour or capital in some special direction. When a scarcity of some chief commodity or necessary occurs, what is the remedy? The commodity of which there is an excess (or if none is in excess, then that which can best be spared) is exported in exchange for an additional supply of the deficient commodity. And, indeed, the whole of our foreign trade, alike in ordinary and extraordinary times, consists in this process. But when it happens either that the commodity which we can best spare is not wanted abroad, or (as recently) that a chief foreign customer is temporarily disabled from buying, or that the commodity which we can best spare is gold, then gold itself is exported in exchange for the thing which we most want. Whatever form the transaction takes, it is nothing but bringing the supplies of various commodities into harmony with the demands for them. The fact that gold is exported, is simply a proof that the need for gold is less than the need for other things. Under such circumstances an efflux of gold will continue, and ought to continue, until other things have become relatively so abundant, and gold relatively so scarce, that the demand for gold is equal to other demands. And he who would prevent this process, is about as wise as the miser, who, finding his house without food, chooses So starve rather than draw upon his purse.

The second question-" Shall the Bank have permission to let its reserve of gold diminish so greatly as to risk the convertibility of its notes ?" is not more profound than the first. It may fitly be answered by the more genera!

question—“Shall the merchant, the manufacturer, or the shopkeeper, be allowed so to invest his capital as to risk the fulfilment of his engagements?" If the answer to the first be "No," it must be "No" to the second. If to the second it be "Yes," it must be "Yes" to the first. Any one who proposed that the State should oversee the transactions of every trader, so as to insure his ability to cash all demands as they fell due, might with consistency argue that bankers should be under like control. But while no one has the folly to contend for the one, nearly all contend for the other. One would think that the banker acquired, in virtue of his occupation, some abnormal desire to ruin himself that while traders in other things are restrained by a wholesome dread of bankruptcy, traders in capital have a longing to appear in the Gazette, which law alone can prevent them from gratifying! Surely the moral checks which act on other men will act on bankers. And if these moral checks do not suffice to produce perfect security, we have ample proof that no cunning legislative checks will supply their place. The current notion that bankers can, and will, if allowed, issue notes to any extent, is one of the absurdest illusions-an illusion, however, which would never have arisen but for the vicious overissues induced by law.

The truth is, that in the first place, a banker cannot increase his issue of notes at will: it has been proved by the unanimous testimony of all bankers who have been examined before successive parliamentary committees, that "the amount of their issues is exclusively regulated by the extent of local dealings and expenditure in their respective districts;" and that any notes issued in excess of the demand are "immediately returned to them." And the truth is, in the second place, that a banker will not, on the average of cases, issue more notes than in his judg ment it is safe to issue; seeing that if his promises-to-pay

THE BUGBEAR OF DEPRECIATION.

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in circulation, are greatly in excess of his available means of paying them, he runs an imminent risk of having to stop payment-a result, of which he has no less a horror than other men. If facts are needed in proof of this, they are furnished by the history of both the Bank of England and the Bank of Ireland; which, before they were de bauched by the State, habitually regulated their issues according to their stock of bullion, and would probably always have been still more careful, but for the consciousness that there was the State-credit to fall back upon.

The third question-" Shall the Bank be allowed to issue notes in such numbers as to cause their depreciation ?" has, in effect, been answered in answering the first two. There can be no depreciation of notes so long as they are exchangeable for gold on demand. And so long as the State, in discharge of its duty, insists on the fulfilment of contracts, the alternative of bankruptcy must ever be a restraint on such over-issue of notes as endangers that exchangeability. The truth is, that the bugbear of depreciation is one that would have been unknown but for the sins of governments. In the case of America, where there have been occasional depreciations, the sin has been a sin of omission: the State has not enforced the fulfilment of contracts-has not forthwith bankrupted those who failed to cash their notes; and, if accounts are true, has allowed those to be mobbed who brought back farwandering notes for payment.* In all other cases, the sin has been a sin of commission. The depreciated papercurrency in France, during the revolution, was a Statecurrency. The depreciated paper-currencies of Austria and Russia, have been State-currencies. And the only depreciated paper-currency we have known, has been to all intents and purposes a State-currency. It was the

*This was written in 1858; when "greenbacks" were unknown.

State which, in 1795-'6, force upon the Bank of England that excessive issue of notes which led to the suspension of cash-payments. It was the State which, in 1802, forbad the resumption of cash-payments, when the Bank of England wished to resume them. It was the State which, during a quarter of a century, maintained that suspension of cash-payments from which the excessive multiplication and depreciation of notes resulted. The entire corruption was entailed by State-expenditure, and established by State-warrant. Yet now, the State affects a virtuous horror of the crime committed at its instigation! Having contrived to shuffle-off the odium on to the shoulders of its tools, the State gravely lectures the banking-community upon its guilt; and with sternest face passes measures to prevent it from sinning!

We contend, then, that neither to restrain the efflux of gold, nor to guard against the over-issue of bank-notes, is legislative interference warranted. If Government will promptly execute the law against all defaulters, the selfinterest of bankers and traders will do the rest: such evils as would still result from mercantile dishonesties and imprudences, being evils which legal regulation may augment but cannot prevent. Let the Bank of England, in common with every other bank, simply consult its own safety and its own profits, and there will result just as much check as should be put, on the efflux of gold or the circulation of paper; and the only check that can be put on the doings of speculators. Whatever leads to unusual draughts on the resources of banks, immediately causes a rise in the rate of discount-a rise dictated both by the wish to make increased profits, and the wish to avoid a dangerous decrease of resources. This raised rate of dis. count prevents the demand from being so great as it would else have been-alike checks undue expansion of the note. circulation; stops speculators from making further engage

SALUTARY EFFECTS OF A CRISIS.

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ments, and, if gold is being exported, diminishes the profit of exportation. Successive rises successively increase these effects, until eventually none will give the rate of discount demanded, save those in peril of stopping payment; the increase of the credit-currency ceases, and the efflux of gold, if it is going on, is arrested by the homedemand outbalancing the foreign demand. And if in times of great pressure, and under the temptation of high discounts, banks allow their circulation to expand to a somewhat dangerous extent, the course is justified by the necessities. As shown at the outset, the process is one by which banks, on the deposit of good securities, loan their credit to traders who but for loans would be bankrupt. And that banks should run some risks to save hosts of solvent men from inevitable ruin, few will deny. Moreover, during a crisis which thus runs its natural course, there will really occur that purification of the mercantile world, which many think can be effected only by some Act-of-Parliament ordeal. Under the circumstances described, men who have adequate securities to offer, will get bank-accommodation; but those who, having traded without capital or beyond their means, have not, will be denied it, and will fail. Under a free system, the good will be sifted from the bad; whereas the exist ing restrictions on bank-accommodations, tend to destroy good and bad together.

Thus it is not true that there need be special regulations to prevent the inconvertibility and depreciation of notes. It is not true that but for legislative supervision, bankers would let gold drain out of the country to an undue extent. It is not true that these " currency theorists" havo discovered a place at which the body-politic would bleed to death, but for a State-styptic.

What else we have to say on the general question, may