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ART. XI. 1. Considerations on the State of the Currency. "By Thomas Tooke, F.R.S. pp. 152. 6s. London. Murray. 1826.

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2. Observations on the Proceedings of Country Bankers during the last thirty Years; and on their Communications with Government: together with a Remedy proposed against the alarming Consequences arising from the Circulation of Promissory Notes; in a Letter addressed to the Chancellor of the Exchequer. By John Milford, Jun. 8vo. pp. 46. London. Longman & Co. 1826.

3. An Illustration of Mr. Joplin's Views on Currency, and Plan for its Improvement: together with Observations applicable to the present State of the Money Market; in a Series of Letters. 8vo. pp. 120. London, Baldwin & Co. 1825.

one hundred traders who had never dipped into political economy were taken indiscriminately from the most busy and intelligent commercial community in the world, and if each were asked what commodity he most frequently bought and sold, we much doubt that any of them would give the true answer. It would probably never enter into his head, that that commodity was money. The thing which is employed as the medium, by which all other things are exchanged for one another, is itself scarcely ever thought of as being also the subject of exchange; and it seems almost a solecism in language, to say, that when I buy a loaf from my baker for a shilling, it must at the same time necessarily happen, that he buys with his loaf a shilling from me.

It is to an inadvertence to this plain truth, namely, that money is as much a marketable commodity as any of those things for which' it is given in exchange, that we must ascribe the ignorance that prevails concerning the laws by which its value and its distribution are regulated, and of the consequences which follow when the natural operation of these laws is disturbed. It would be deemed an unpardonable and shameful neglect in a manufacturer or merchant, if he failed to make himself acquainted with all that he could learn respecting those articles of trade which form the subject of his dealings. Yet the far greater part of mankind never think of inquiring into the nature and properties of that one article in which, alone, all classes of all civilized communities deal in common. Unfortunately, too, there is a popular belief, that the subject has in it something of obscurity, almost approaching to mysticism;- a belief, arising in a great degree from the omission of those who have written upon this subject, to explain the elementary principles upon which their speculations were founded. These principles are few and clear; to an ignorance of them must be ascribed, in a very great degree, the shock which has been so lately given to our commercial prosperity; by a clear understanding of them alone can we be saved from a visitation of similar or worse disasters; and we do not think that at the present moment our time can be better employed, than in devoting a few pages to their illustration.

be composed,

Money, of whatever materials it may whether of the skins of animals, as among the American Indians; of cattle, as among the Tartars; or of the gold, silver, or paper of a commercial and civilized people, is employed for two purposes: first, to serve as a medium or instrument of exchange; secondly, to serve as a standard by which to measure the value of the commodities exchanged. When I buy from my baker a loaf of bread for a coin called a shilling, and when with that coin the baker buys two pounds of meat, the shilling serves the baker two purposes: first, to exchange his loaf of bread for a quantity of meat; and secondly, to measure precisely that quantity of meat, which according to the relative values of meat and bread, is worth neither more nor less than the loaf.

But money, to measure the value of other commodities, must have some value itself, as a rule could not measure length unless it had itself extension; and it is easy to see that the value of money in any particular country must depend, in the first instance, upon its quantity. This value is of course relative; and is nothing else than the proportion in which money exchanges for other things; which is as much as to say, that its value, as compared with all the other commodities which exist in the country, is greater or less according as it can purchase a greater or smaller quantity of these commodities. Suppose that in a country having money, there are two other commodities only, cloth and corn; that there are 100,000 yards of cloth, and 100,000 bushels of corn; and that the money consists of 100,000 sovereigns. Suppose that in the course of a week these 100,000 yards of cloth are exchanged once for these 100,000 bushels of corn by means of the money; that is, that the 100,000 yards are once sold for, and the 100,000 bushels of corn are once purchased with, the 100,000 sovereigns. It must of course happen, that each of the sovereigns performs a part in only one exchange (of the cloth for the corn), and that each yard of cloth and each bushel of corn sells for one sovereign.

Such being the state of things, suppose the number of sovereigns doubled, and that all of them are used in exchange, while the number of exchanges, (that is, the number of times in which a yard of cloth is sold and a bushel of corn purchased,) remains the same. It is quite clear, that the value of cloth and corn, with respect to each other, continues unaltered; and it is equally clear, that each must now exchange for double the number of sovereigns which it exchanged for before; that is, cloth will be two sovereigns a yard, and corn two sovereigns a bushel. For since 200,000 sovereigns are now used to sell once 100,000 yards of cloth, and buy once 100,000 bushels of corn, it can only be done by giving two sovereigns for each yard of cloth, and two sovereigns for each bushel of corn.

Suppose the quantity of the cloth and corn which are exchanged is diminished by one half, the result will be the same. 50,000 yards of cloth are now once sold, and 50,000 bushels of corn are now once bought, and 100,000 sovereigns are used as the medium. It is clear,

that each yard of cloth and each bushel of corn must fetch two sovereigns.

The opposite results must happen, if the number of sovereigns be diminished by half, or the quantity of cloth and corn be doubled. In the former case, 50,000 sovereigns being used to buy, first 100,000 yards of cloth, and next 100,000 bushels of corn, two yards of cloth and two bushels of corn must be given for each sovereign; and in the latter case, 100,000 sovereigns being used to buy, first 200,000 yards of cloth, and next 200,000 bushels of corn, each sovereign must here again purchase two yards of cloth, and two bushels of corn.

These are truths which are proved by mere illustration. The statement of the fact is enough to establish the principle. And yet few principles are so apt to be forgotten or contradicted in reasonings upon the subject of money and its laws, as that which has been here stated.

It is necessary to add another doctrine of great importance, or rather another illustration of the doctrine that the quantity of money in the first instance regulates its value.

Suppose that the quantities of cloth, corn, and money remain the same, and that the whole quantities exchanged remain also the same, but that in the course of a week each sovereign performs a part in two exchanges. This can only happen by the selling of each yard of cloth, and each bushel of corn for two sovereigns, and will be precisely tantamount to doubling the number of sovereigns. If 100,000 yards of cloth can be only once sold in a week for 100,000 sovereigns, and 100,000 bushels of corn can be only once bought by the same sovereigns, each sovereign can perform a part in two exchanges in one way only; namely, by the giving of the whole 100,000 sovereigns twice for half the cloth, and twice for half the corn; that is, first for 50,000 yards of cloth, and then for 50,000 bushels of corn, next, for the remaining 50,000 yards of cloth, and then for the remaining 50,000 bushels of corn. Thus it is that an increase in the rapidity with which money is circulated, has precisely the same effect as a proportionate increase in the quantity of money, or a proportionate diminution in the quantity of commodities. It is almost superfluous to observe, that what is here stated, with respect to money in its relation to two commodities, is true, whatever be the quantity or variety of wealth or business in a community; and it may be laid down, therefore, as a general rule, that the value of money depends upon its quantity, taking always into account the rapidity of its circulation, and the quantity of commodities which it is employed to buy and sell.

The great problem to be solved, however, is, what regulates the quantity of money?

The money circulating at any given time in a country is called its currency.

Two kinds of money have been used in "civilized nations 1. that which consists wholly of the precious metals; 2. that which consists of written engagements. This last is called paper currency; and it exists in two ways: 1. when it is not convertible into corn or bullion; 2. when it is so convertible.

Let us suppose that the currencies of all countries consist of the precious metals, that the exportation of them from one country to another is perfectly free, and that coining is in every country performed at the expense of the state, and at the request of individuals. Let us consider in this case what must regulate the quantity of money in any one nation.

Gold and silver, like other commodities, are only to be obtained by labour; and their exchangeable value, though it depends at first upon their quantity compared with the demand for them, must ultimately be settled according to the labour bestowed on their production, or in other words, according to the cost of extracting them from the mines. They are distributed among the nations of the earth, like all other commodities, by the giving of equivalents in exchange for them. Suppose England to want gold. She sends to the country which possesses it as much of her manufactures as will purchase what she requires; and the quantity and value of these manufactures will depend upon the cost at which the owners of the gold, (whether they be the original miners, or those to whom the miners sold it,) can bring it to the market. The expenses of carriage and the profits of all parties must be paid; and adding these to the first cost of production, the amount must be the value at which, if circumstances which we shall presently notice do not interfere, gold will circulate in England.

The facility, however, with which the precious metals, owing to their containing great value in little bulk, can be transported from one country to another, (even when their transit is prohibited by law,) causes them to be so nearly of the same value in most nations, that for all practical purposes, where the circumstances just alluded to do not interfere, their value is considered to be in all countries actually the same.

These circumstances are, the wants or desires existing in different communities, which regulate the commerce between them, and occasion, by means of that commerce, an increased or diminished demand for the precious metals.

From what we have already said of the manner in which the value of money is affected by its quantity, by the rapidity of its circulation, and by the quantity of commodities which it is employed to buy and sell, it follows, that if the precious metals were distributed among the nations of the earth, so as to suit their respective wants, and to be of the same value in all, the quantities shared by them would vary, not merely according to the extent or population of the respective nations, but also according to the amount of their wealth and the activity of their trade. A poor nation, that is, a

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nation having few commodities to be exchanged one for the other, would require less money; a rich nation, with many commodities, would require more. If of two nations of the same extent and population, one possessed twice as many commodities as the other, the former may have twice as much money as the latter, and the value of money, (if it circulate with the same degree of rapidity,) be still the same in both. In this way, supposing that no commerce takes place between nations, England may have 10 millions of sovereigns, France 15 millions, and Poland 5 millions, while the value of money is precisely the same in all.

If, under these circumstances, commerce takes place between any two of them; if, for example, England sends cloth, hardware, and china to Poland, and Poland sends corn in exchange to England, no alteration may take place in the respective values of their currencies. It may be, that the cloth, hardware, and china exported from England to Poland, are precisely of the same value as the corn exported from Poland to England. In this case, if England does not alter the quantity of her currency, her aggre gate commodities, or the rapidity of her commercial business, the currencies of England and Poland will continue of the same value; the exports will balance the imports; that is, exchange will be at par.

But suppose that, for some sudden cause, England imports more corn from Poland than can be paid for by the cloth, hardware, and china exported to Poland, and that England pays the balance in sovereigns exported out of her currency, the result must be, that the quantity of the English currency remaining in England, which is employed in buying or selling any article at home, must be less than what was required before, that is, that each portion of English cloth and corn will fetch fewer sovereigns, or, in other words, that prices must fall. An opposite result, though with an additional process, would take place in Poland. We have supposed, not only that the exportation and importation of the precious metals is perfectly free, but that in both countries the metals are coined at the expense of the state and at the request of individuals. As each state has its own peculiar coin, and as foreign coins only pass as so much bullion, it would probably become necessary to have the sovereigns imported from England converted into Polish coin. As there is always some quantity of the precious metals in the market which is not coined, the addition made by the importation to this bullion would probably, in the case supposed, sink its value below that of the same metal in coin, and make it the interest of the importers to carry the sovereigns imported to the Polish mint, and have them converted into Polish currency. The money of Poland would thus be increased in quantity, and of course diminished in value, relatively to what it was before, and relatively to the money of England; and prices in Poland would rise.