Any further reference to the particular laws and practice by which the circula tion of this country is regulated, in con nection with a complicated system of banking, will be unnecessary for the ex planation of principles, and these matters have already been treated under another head. [BANK.] But we cannot quit the subject of convertibility without advert ing to a point of great importance. In order to regulate the issues of paper with reference to the exchanges, it is by no means necessary that gold or silver coins should be given by the issuing body in exchange for its own notes. Uncoined bullion would serve the purpose equally well, and would occasion a considerable economy in the coinage. It would be sufficient, therefore, to require the bank, or other issuing body, to give bullion in exchange for its notes, at the standard price, whenever a certain amount should be demanded. There can be no object in giving facilities to every person who possesses a 51. note, to exchange it for gold, and much mischief is caused by such facilities, in times of panic; while, on the other hand, no impediment would be offered to the great operations of com merce by raising the minimum quantity 3f bullion to be demanded. By this arrangement whenever notes fell below the value of bullion, they would be brought in exchange for it, until the prices of both were again equalized; and if by any undue limitation of issue, the value of notes should be raised above that of bul lion, the bank should be obliged to give its notes in exchange for bullion. In this manner the circulation would be enlarged and the equilibrium between gold and paper restored. This excellent system was proposed by the late Mr. Ricardo in his able pamphlet entitled • Proposals for an Economical and Safe Currency,' and was , carried into effect, for a short period, on the resumption of cash-payments, in 1819, but was succeeded by the present plan of convertibility into gold coin, which is more costly and less secure in its opera tion.
In regard to the issue of paper-money there are two antagonist theories, which remain to be noticed, although it will be impossible to enter fully into the argu ments by which each is supported. By one it is proposed that all paper-money should, like gold and silver, be coined by the state alone, in order that its issue may be properly regulated and its con vertibility secured. By the other it is maintained that the issue of paper-money should be open to all persona without restriction, like the drawing of bills of exchange, except in so far as securities may be necessary for the solvency of the issuers. In this country neither of these principles has been adopted singly, but the circulation has been founded upon the union of them both. It has, however, been the policy of the government gra dually to contract the issues of private banks, and to replace them by the notes of the Bank of England, which, for the purposes of issue, now stands in the posi tion of the government itself.
In considering the relative merits of a system of government issues and of free competition amongst issuing bodies, there are three main questions to be considered —1st, the profits arising from the issue of notes ; 2ndly, the solvency of the issuers ; 3rdly, the convertibility of the notes and the securities against over issue. If the two first questions were the sole consideration, it would be diffi cult to oppose the claims of those who insist upon the right of free issue.
1. The profits arising from the circula tion of paper may be regarded as one of the many forms in which profits are realized by trade. It is true that the right of issuing
money has ordinarily been claimed as a royal prerogative, and that promissory notes might be included in that category. If such a claim had been made on the first introduction of paper-money, it could, undoubtedly, have been supported by the analogy which paper-money bears to a coinage ; and if the law had pronounced in favour of the claim, a lucrative prero gative would have been created, instead of a profitable branch of banking. But no such claim was advanced: the issue of notes has always been distinct from the coinage of money; and the state is now no more entitled to the profits arising from a paper.oirculation, than to the pro fits of any other description of business.
2. The solvency of the issuers of pro missory notes is a matter which can be provided for by law. There are few who will question the necessity of some secu rity, when money is permitted to be issued by private parties. It is, indeed, con tended by some that a promissory note is like a bill of exchange—that it represents capital and securities, and that, in its representative character, it is circulated instead of money, upon the credit of the issuer, and upon the responsibility of those who accept it. But there is an essential difference between a promissory note and a bill of exchange. The one is money and discharges a debt; the other leaves a debt outstanding until the bill becomes due and is paid. Again, a note passes from hand to hand upon the sole credit of the issuer ; a bill of exchange passes not only upon the credit of the acceptor, but also upon the credit and responsibility of each endorser. A bill is circulated amongst merchants precisely as credit is given to persons of known solvency; but a promissory note, whatever may be the solvency of its issuer, if received at all, is received as money, and is a final dis charge of a debt. It is obviously just, therefore, that when the state permits so important a privilege to be exercised as that of the issue of money, it should at the same time provide securities against its abuse. Such securities cannot be en forced without interfering, in some mea sure, with an unrestricted freedom of issue, but they are essential to the public safety, and should on no account be ne glected.
3. But the solvency of the issuers of Motes concerns those parties only, who may happen to hold the notes of a parti cular bank : it does not affect the whole country. If a bank fail, its creditors suffer like the creditors of any other bankrupt firm ; but the general business of the country is not disturbed by its failure. On the other hand, however, the regale, tion of its issues has an influence upon the entire trade of the country. However effectual may be the securities against the insolvency of private banks—however complete the protection of the individual holders of their notes—the public inter ests are still in need of protection against the consequences of an ill-regulated cur rency. The securities against insolvency and the securities against over-issue are entirely distinct : the former may be com plete; the latter may, at the same time, be Inoperative. The mode of sustaining the value of paper-money on a par with the precious metals has already been ex plained. It is only by means of converti bility and by a reference to the foreign exchanges, that the issues of paper can be adjusted to the wants of the country; and this principle is incompatible with an unrestricted issue of paper by private banks.