These are undoubtedly very strong ob jections to a gold standard, and in order to test them thoroughly it would be satis factory to compare the actual prices of gold and silver, and estimate their rela tive variations. But such comparisons are extremely delusive, for there is no common standard by which to compare the of each metal. If silver 1:14 purchased with gold, how shall we deter mine in which there has been variation ? Or if gold and silver be both purchased alike with bank notes, there is a standard wanting; for the notes are made to con form to the value of the gold, and not to the value of the silver. These elements of uncertainty make all returns fallacious; but if reliance could be placed upon them, the fluctuations in the price of silver bullion would appear to be very slightly greater than those of gold (see Bank Charter Report, 1832, Seas. Paper, No. 722, App. p. 98 ; Banks of Issue Report, 1841, No. 410, App. p. 316). These results do not corroborate the objections to a gold standard ; but it must be recollected that independently of fluctuations in the prices of bullion, a diminution in the quantity of money circulating in a country raises the value of the remainder, and disturbs its relation to the prices of other commo dities. It is in this form that the effects of an abstraction of gold must be felt rather than in the price of bullion ; and though its influence upon prices is very injurious, the cause is not always percep tible. If a country had a circulation com posed exclusively of gold, it might some times be deprived of all its money ; if of gold and silver conjointly, it might some times be deprived of all its gold; but no country could be deprived of all, or nearly all, its silver by the operations of com merce. When paper money is added to gold and silver coins as part of the cir culation, a country can always command a sufficient quantity of money ; but the drain of its metals has an important in fluence upon the value of its circulating medium, and upon the operations of com merce; but of these matters more will be said hereafter.
The principal imperfections of the precious metals as standards of value have now been adverted to. Both of them are less liable to variations than any other known commodity which could oe used for the purposes of money ; but of the two, silver would appear to be, upon the whole, the most suitable for a standard of value.
But whatever metal may be chiefly used as money, there is a disadvantage attending the circulation of coins which remains to be noticed. To maintain a large circulation of them is the most ex pensive mode of furnishing a people with a medium of exchange. In the first place the whole value of the metals of which they are composed, is subtracted from the productive capital of the country, in order to facilitate the exchange of other com modities. Unless this expense be abso lutely necessary, it is an unwise extrava gance. It is as if children should play at cards with gold counters instead of ivory fish. Secondly, the wear and abrasion of coins makes it necessary to supply their deficiency with more of these costly metals, in addition to the amount already coined. Thirdly, not only are coins di minished in weight, but great numbers are irretrievably lost and destroyed. They are buried in the earth by misers, and never found again ; they are lost in the sea ; they are wasted by fire; they are dropped in the roads, and trampled under foot with the dust and stones. Every accident of this kind diminishes the wealth of the country, and wastes the products of its labour. Some cheaper kind of money therefore should, as far as possible, be used as a substitute for gold and silver ;—and such a substitute has been found in paper.
Not only is more economical than gold and silver, but it is more con venient than either for effecting large payments, or for transmitting sums of money to a distance. In this respect it excels gold more than gold excels silver. A million of money may be paid in bank notes as easily as ten sovereigns, and transmitted to a distance even more easily.
But notwithstanding these advantages, paper may be deemed an imperfect in strument of exchange, because it is sub to forgery. It shares this defect, however, with other kinds of money. Gold and silver coins are counterfeited m baser metals; paper-money is imitated by the forger. But the more exquisite the art with which a coin is struck, the more difficult is it to counterfeit its bn pression ; and, in the same manner the more elaborate the design of a promissory note, the greater will be the obstacles to forgery. No precautions, perhaps, can altogether prevent a spurious imitation of valuable articles; but the possibility of forgery can only be objected to the use of paper-money in the same manner as the danger of buying paste ornaments mad be urged against the wearing of dia mond& Paper is thus as well suited as any other material for the purposes of a cur rency ; but its character is essentially dif ferent from that of other descriptions of money. Its cheapness, which renders its use economical, prevents it from being exchanged as an absolute equivalent for other commodities. Gold and silver have a value of their own, distinct from their value as money ; but, except in its monetary character, paper is nearly worthless. To be accepted, therefore, in exchange for commodities, paper most represent some value besides its own.
In considering what that value may be, it will be convenient to describe the cha racter and functions of a promissory note. The state, a bank, or some person of known wealth, instead of paying a sum of money in the ordinary coins of the country, issues a note promising to pay that sum, on demand, to any person who shall present it for payment. This is the form of promissory notes which cir culate as money : but there are also pro missory notes, payable at some particular period, which, for reasons which will be presently explained, do not form part of a monetary circulation. Now, in the ordinary transactions of life, no one will promise to pay a sum of money without receiving or expecting to receive an equi valent for it, and such equivalent, what ever it may he, is the value represented by the note. Suppose that A in London owes B at Edinburgh a thousand pounds, and that he has a thousand sovereigns to discharge his debt. Instead of trans mitting the gold to Edinburgh. A takes it to the bank and exchanges it for a promissory note of that amount, which is accepted by B in payment of his debt. In this case it is clear that the note re presents a thousand sovereigns ; and any person in whose possession it may be can obtain them from the bank. Suppose again that C applies to D for a loan of 10001., for the repayment of which he is able to offer security in the shape of goods or property ; and that D, instead of advancing that sum in money, gives him his promissory note for 10001. payable on demand. In that case, the promissory note, if issued by a solvent person, would be equally payable in coined money, but it would represent the security upon which it was given. The issuer of the note will suffer if that security be insuf ficient, for he has.pledged his own pro perty against it; but the interest which he expects to receive is a compensation for the risk he incurs in realizing, as it were, the property of another. A pro missory note, it seems, may therefore re present either coined money or capital in any other form. But here an important question arises which affects the entire character of paper-money. Why do per sons accept promissory notes instead of gold and silver ? Why are they satisfied with the representative of value instead of receiving the value itself? For the explanation of this point it will be neces sary to divide promissory notes into two kinds, viz.: 1, those issued by the state, or by a state bank; and 2, those issued by bankers, or other persons unconnected with the state.