92

THE PATH OF RESUMPTION IN ENGLAND.

some manner or other having to atone for it by suffering. In England the path of repentance was comparatively easy. The Bank of England was responsible for the notes it circulated, and it was universally trusted. The discount to which its notes had fallen, a guinea being worth twenty-seven shillings in notes, was in no way due to want of credit; the cause was simply excess of issues, which could not, as bank-notes and sovereigns now can, return at once into store. National misfortunes greatly facilitated resumption of specie payments. A large amount of notes issued by county bankers circulated by the side of those of the Bank of England. The war had swollen the price of English corn inordinately; peace brought the farmers of the whole world into competition with those of England. The year 1813 produced a most bountiful harvest, prices fell heavily, and many farmers were ruined. Confidence was destroyed throughout the country, and banks fell into difficulties. In the years 1814, 1815, and 1816, 250 country banks stopped payment, and the quantity of provincial banknotes was thus vastly reduced. No taint of suspicion came over the notes of the Bank of England; its notes rose in value, and much of the difficulty of resumption was thereby averted. The disposition to demand gold for the notes disappeared, for the notes were as valuable, having ceased to be in excess. Resumption exacted punishment for the past, inasmuch as many contracts to pay or repay pounds compelled the tender either of coin, or of a bank-note as valu

able as coin which had become dearer than it was when the contracts were made; but the events here described gradually cleared off old debts and new ones were increasingly based on gold prices. As the value of the Bank of England note rose, it became less profitable to export gold; the bank-note had less the character of an inferior currency, and was less able to drive gold away abroad. Thus the Bank of England was enabled voluntarily to anticipate the day of specie payment fixed by the law and to pay notes in gold in 1821, instead of 1823. No resumption was ever less violent.

Resumption would probably follow the same course in the United States. The important point is to establish a thorough conviction in the minds of the whole people that the return to specie payment is irrevocably decreed. When this feeling has penetrated the entire nation the eyes of all will be turned to the fact that in a brief space of time the paper dollar will possess absolutely equal value with the metallic dollar, and the consequence of this will be a steadily advancing habit of calculating all debts likely to be of long standing, and making all pecuniary arrangements, on the basis of the metallic dollar. Trade with foreign countries will march on the same line, importers will reckon with ever-increasing confidence on a currency as good as metallic. The premium on gold will gradually diminish, and there is reason to believe that the period of resumption will be anticipated as it was in England; and just as the Bank of England found no

94 WHO OUGHT TO ISSUE BANK-NOTES IN AMERICA?

difficulty, as a matter of fact, in obtaining a sufficient quantity of gold to face any demand for gold on the presentation of bank-notes, so, I believe, will it be in America. But there must be no enlargement of the circulation—not by a fraction—in the meanwhile, for the keystone of the whole building is that the death of the inconvertible paper is decreed past all hope of change.

England possessed an advantage the absence of which may cause some embarrassment to the United States. There is no bank-note paper in America so entirely trusted as the Bank of England note was and is. Hence, Who shall be the issuer of the United States paper currency? becomes an arduous problem. Direct issue by the Government, the Government receiving and holding the sums given by the public for the bank-notes, is a system, I conceive, greatly to be deprecated. It places convertibility at the mercy of political parties. What the Government would do with this vast receipt is not easy to say. Probably it would redeem with it existing debt; but if so, the fund guaranteeing convertibility could hardly be said to exist. In England the Bank is compelled to lodge the fifteen millions in securities. They are a concrete and tangible fund, available always for procuring money-metallic coin. A national debt due by the Government is a very different foundation for the payment of the notes on demand from securities, which can be realised at once in the open market. The want of an actually accumulated fund,

and the direct and undoubted dependence of convertibility on a vote of Congress, capable of being passed at any time, would render convertibility extremely precarious. It seems to me-though under the intricate complications which beset American currency, it is not easy for any one who is not an American to speak with confidence—that the best course to adopt would be to imitate the English system, as far as practicable; for that system works admirably in England. As an issue of paper currency it is irreproachable; the only charge brought against it which deserves a moment's notice is that the line is drawn too low at fifteen millions, as the public could and would hold a larger quantity without ever sending any portion of it for payment. That accusation, I venture to believe, has already been disposed of in the preceding pages. To intrust the issue to a single bank under the peremptory condition of investing all that it receives in Government securities would probably be the safest, as it would be the simplest plan; for it might be very difficult to check the issues of many banks, and to acquire a wellfounded assurance that the issues never exceeded the

amount lodged in securities. On this method a permanent reserve of gold must be provided; this would obviously be taken from the sum which would otherwise have been placed in securities. A portion of the profits derived from the securities, would of course, as already argued, be appropriated to the State. I do not say that this is the only plan open to the United States, but to the best of my judgment, it seems to be the best.

CHAPTER III.

WHAT IS A BANK?

We have now finished the discussion of currency in its strict and technical sense. We pass on to another agency for carrying on the great work of exchanging wealth, for exchanging goods made to be consumed by men other than the makers-to banking. As currency has no other function than this exchange of wealth, it follows that banking and currency are two different machines for performing the same work. The bank and its great instruments, the cheque and the bill of exchange, transfer the ownership of wealth from one man to another. But banking is not currency, and hopeless confusion must result if it is regarded as currency. Indeed the mixing up of currency with banking, by referring to currency as the cause of many of the most important events in banking, is to this hour the fatal source of the unintelligibleness of that really simple matter, currency. The practice of banking leads to a vast diminution in the use of currency, in the quantity of coin and banknotes employed; but they are essentially different instruments, precisely as a plough drawn by horses is a different tool from a spade worked by a man, though they both perform the same service of digging up the ground. What, then, is a bank? In what does it