Henry Dunning Macleod.

A dictionary of political economy: biographical, bibliographical ..., Volume 1 online

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because he only issued them in exchajage for
some service rendered. They were only a sub-
stitute for the Royal coin. Th^ circulated in
the nei^bourhood, because the people believed
that the original issuers were able to give their
valne la goods at any time. They were mani-
festly only an inferior form of money, and they
must have had an indq>endent existence as much
as money.

Postage stamps are a rude form of currency.
They are a right to demand the Postmaster-
General to carry a letter. And the carriage of
the letter is their value. But as most persons,
nowadays, want to write letters, postage stamps
are universally received as small chance. And,
as a late Act declares, that they shm be ex-
changeable for money at any Post Office, they
are now to all intents and purposes pennv bank-
notes. These postage stamps are evidently a
particular form of Government credit, and no
one doubts that they are separate and exchange-
able property over and above other property.

It is further manifest that it can make no differ-
ence in the nature of the pledge, whether it is
made payable on demand, or at a certain date
after its issue. There may be certain incon-
veniences attached to it, which may diminish its
present value, but it is manifest that it in no way
alters its fundamental nature as a pledge, whether
it be redeemable six months hence, or three
mouths hence, or on demand. Hence, all species
and forms of credit must be included under the
category of the Currency, or Circulating Medium,
because their essence is, not that they shall be
payable on demand, but that they circulate com-
modities, or other things.

The observations contained in the preceding
paragraphs show that the idea of "currency" is
quite independent and essentially distinct from
that which we usually call <* money,** regarded as

an intermediate and equivalent merchandize. It
is quite possible to have a currency, even though
its most useful and general form, money, had
never been thought of. K transactions take place
between individuals, it is scarcely possible to
imagine that there should not be debts, or balances
of services, due, arising between them, and this
Is the basis of a currency. But it does not neces-
sarily follow that there must be money. If the
way of conducting commerce by way of money
had never been invented, a grocer and a wine
merchant might trade witii each other. If they
had agreed t£at a bottle of wine and a pound of
tea should be considered as equivalents, the
grocer might purchase a bottle of wine, and, if
the wine merchant wanted more or less than a
pound of tea, he might let the grocer have the
wine, upon his giving his promise to pay the tea
when required. And this note would be made
transferable, and pass through a hundred different
hands before the owner of it demanded tea. It
would perform exactly the same function as
money in circulating goods. It would, therefore,
be currency, but it would not be money in the
sense of being an intermediate and equivalent
merchandize. Money has, no doubt, enormous
advantages over such a currency, but these ad-
vantages are purchased at a very heavy cost;
and in modem times, whenever public distress
began to be severe, the luxury of a metallic cur-
rency is one of the first to be dispensed with.
The true nature of a currency is revealed as
soon as gold and silver disappear. This is well
exemplified in America at the present moment,
where private tickets of all sorts have superseded
specie. Instead of money, people have now their
pockets filled with bread tickets, and milk tick-
ets, and railroad tickets. If a man goes to get
his hair cut, and tenders a dollar, he cannot p;et
change, but he receives so many tickets promising
to cut his hair so many times.

The metallic currency is termed Monbt, and
the paper currency of aU sorts is termed Sbcu-
arrT fob Momkt. These securities for money,
or the paper currency, are divided into two
general species; first, promisee to pay money,
called Pbomissoet Notbs ; and secondly, orders
to pay money, called Buxs of Exchamgb. Each
of these general divisions again is subdivided into
several varieties, which are fully treated of under
Bank Noib; Bill of Exchamob; Chbqub;
Credit; Deposit; Pbomibsobt Notb.

The name of Currency, as we have seen, is
given to something which is used as a pledge to
denote the power its owner has of commanding
services, ifvery transfer denotes an operation,
because it is evident that in commerce every
transfer of currency necessarily involves the
transfer of something else. The amount of the
sum total of all the transferences of the Curren<^
which takes place, is properly called the Cibcd-
LJLTiov. Hence a single piece of money may
add considerably to the circulation, for every
time it is transferred it is an addition to the
circulation, though it is no increase of Cur-
rency. We may observe that the same con-
fusion of ideas has affected the use of the word
circulation as that of currency. It is generidly
used as synonymous with money and bank
notes, and more particularly the latter. Thus
the number of notes issued by the Bank of

Digitized by





England, or any other bank, is frequently called
its circnlation. This of coarse is manifestly the
same confusion of idea that calls money which is
current, the cnrrency. It is as great a confusion
of idea as to call a wheel a rotation. It is clear
that money and the circulation do not bear any
fixed relation to each other, for there may be a
large amount of money in a country, yet if the in-
dustrial operations be few, there will be a small cir-
culation ; on the other hand, there may be a small
amount of money, yet if the people be active and
industrious, it will pass frequently from hand to
hand, and there will be a large circulation.

When transactions take place between indivi-
duals, if the interchange be of things of a like
nature, as currency for currency, or commodities
for commodities, it is called an Exchahgb, or in
the case of commodities, frequently Baetes.
Thus we speak of the Foreign Exchanges, or the
value of tbe currency of one country in terms of
the currency of another; or we ask for the
change (t.«-, the *change or exchange) of a £5
note, or a sovereign ; so we speak of exchanging
a picture for a statue, or one book for another.
yfhen. the interchange is of things of an unlike
nature, such as currency for commodities, it is
called a Sale, and the one who gives currency is
said to buy the commodities, and he who gives the
commodity is said to Sell it. Thus we buy a
horse or a house with money ; so an officer buys
a commission in the army, but he exchanges from
one regiment to another. So in Lear, when
Albany tlu-ows down his glove to the traitor
Edmund, the latter, throwing down his own,
replies "There's my exchange," meaning, like
for like. So, in Hamlet, Laertes says^

** Bxohange forgiveness with me, noble Hamlet**

The quantity of the currency given for the com-
modity is called its Feice, and when the buyer
of the goods transfers thefr stipuUted price to
the seller, he is said to Pat for them.

The subtle question whether if a fair exchange
of goods were substituted for the payment of
money, it was to be considered as a sale, was
warmly debased for 150 years by the two famous
sects of Roman Lawyers, tbe Proculians and the
Sabinians, from the time of Augustus to that of
Hadrian. Both parties appealed to Homer in
support of their views, but the opinion of
Froculus finally prevailed, that a iole and an
exchange were operations essentially distinct in
their nature. This was confirmed by the Em-
perors Diocletian and Maximian, and was ratified
by Justinian (InstUutei L. iii. c 24 J. The con-
clusion was ju8t, though the reason assigned for
it was scfu^y satisfactory, "that in the ex-
change of two things it can never appear which
has been sold, and which has been given as the
price of the thing sold, and it is contrary to
reason that each should appear to have been sold,
and that each should appear to have been given
as the price of the other.*' It would rather ap-
pear that when we exchange one commodity for
another, we exchange one whose useful qualities
are known, for another whose useful qualities are
also known; that is, we exchange two things
which are acknowledged to be equivalents. But
the currency represents an abstract quality, or
right. In changing a commodity for currency
we commute a known useful quality for an

abstract right ; that is, we give a commodity, and
receive in return only the power of obtuning an
equivalent; or we exchange something that is
definite, for another that is indefinite, two opera-
tions which are essentially distinct, and it is
better to appropriate different expressions to
operations of a different nature.

We must carefully observe that the word
currency is a complex term involving two simple
ideas, and we must resolve it into them. From
its first representing a debt, its f^damental idea
was, that it was something that denoted power
of demanding services, and secondly, it also
passed from hand to hand itself. Of these two
ideas it must be especiallv observed that the
former is the fundamental idea, but it has re-
ceived its name from the latter. Resolved into
its elementary ideas, it is therefore —

1. That which ciretdates commodities, &c^
t. e., which causes commodities, &C., to circulate,
where circulates is an active verb.

2. That which circulates itself, where eircu"
latee is a neuter verb.

From the first of these ideas it has acquired a
name in modem times significative of its quality,


The amount of the currency or circulating
medium in any country, is the aggresate amount
of it belonging to every individual. Now, what-
ever represents the amount of debt due to any
individual, over and above his possessions in
commodities, in whatever ftmn that debt may
be recorded, whether metal or paper, or whether
it exist simply as a debt, is the amount <^ cur-
rency belonging to him. Whatever, therefore,
confers the power of demanding services or
commodities, or professes to confer the power of
demanding them, is the currency or circulating
medium of any single person, and includes, not
only the current coin of the realm, but all its
substitutes of every description, and whatever
else represents or displaces it. Adopting this
definition we may enumerate the different species
of it as follows : —

1. Coined money; gold, silver, and copper.

2. The paper currency — including promissory
notes and bills of exchange, with all tiieir

3. Simple debts of all sorts, such as credits
in bankers' books, called deposits, book debts of
traders, and private debts between individuals.

It is certainly true that some of these descrip-
tions of currency are more eligible and secure
than others, and perform the same duties with
different degrees of advantage. The metallic
currency rests upon the credit of the state, that
it is of proper weight and fineness, and the
universal readiness of people to receive it in
return for services. Pi^[>er currency, in this
country at least, rests entirely upon private
credit, and is of all possible degrees oi security,
from a Bank of England note down to a private
L O. IT. There are several different kinds of
pwer currency possessing more or less of circu-
lating power ; but all these different desmptions
of cnrrency, though more or less eligible and
secure, represent but one fhndamentol idea —
Debt. From these considerations it follows
that the amount of currency, or circulating
medium in any country, is the sum total of oil Ae
debts due to every individual in it

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It is most particularly to be observed that it is
the essential qaality of currency that it is a
general charge of debt on the person of the
debtor, or obligant, and is not a title to any
specific goods. In all cases whatever, it in vol v^
the idea of personal liability. Thus, when we
suppose a wine merchant to take a grocer's
promise to pay so much tea when required, in
return for the wine he lets him have, it must be
distinctly remembered that this is only a general
power to demand so much tea, and not a parti-
cular appropriation of any specific quantity of
tea. The whole of the grocer's stock of tea
remains his own property until the demand is
made upon him for payment ; consequently he can
sell or dispose of it all if he pleases, which he
could not do if any particular part were set aside
as the property of another person, and he was
merely the keeper of it.

This distinction is of the utmost importance,
and it serves to shew that transferability from
hand to hand is not the fundamental conception
of a currency. There are certain commercial
documents which, so far as negotiability is con-
cerned, bear a resemblance to bills of exchange,
and are by many supposed to be of the same
nature. These are dock warrants and bills of
lading. Theu* nature is so fully explained under
Bill OF Exchanob ; Bill of Lading; CaEDiT;
and Dock Wabbamt ; that we need not repeat
it here. We need only observe that, by their
very nature, bills of lading and dock warrants
can never exceed in quantity the property they
represent; but bills of exchange, and other
instruments of credit, enormously exceed the
quantity of coin in the country, because they are
only a promise that the debtor shall pay them in
money if demanded at some given time, and so
the same coin may discharge an infinite number
of bills of exchange in succession.

Every one now can see, we hope, that a simple
abstract pledge, or right to command some-
thing, is a separate and distinct article of pro-
perty from the thing itself, and may be trans-
ferred separately and independently of anything
else, and is, therefore, by virtue of our funda-
mental axiom, an Economic Quantity. Now
these pledges, or rights, or debts, being pur-
chaseable separately, may be bought with other
pledges, or rights, or debts. Thus a debt may
be bought by creating another debt. Just in the
same way as there are money changers for ex-
changing one species of coin for another, so there
are debt changers, whose express business it is
to buy debts by creating other debts, or to ex-
change one species of debt for another. These
are bankers. Commercial debts are an enor-
mous species of property, but they are in general
not very well adapted for general circulation^
except in a few cases; and it is the express
business of bankers to buy these commercial
debts by creating others of greater convenience,
and better adapted for general circulation. The
mechanism of this system is fully explained
under Bank and Crbdit. And a point of some-
what subtle uatm*e has arisen from these trans-
actions, it is clear that as it is the business of
bankers to buy debts by creating others, there
will constantly arise a state of mutual obligation ;
each party will hold some of the other's pledges.


Now, it is supposed by many that when such a
state of things takes place, the mutual debts
should be set off against each other, and as each
party owes and possesses the same sum, that the
two amounts cancel, the result is zero, and the
effect is just the same as if neither of these
debts existed. But it is quite clear that this is an
erroneous method of stating the question. A custo-
mer takes a bill to be discounted by his banker,
who, we may say, lives in the country, and issues
his own notes. The bill arose out of a commer-
cial transaction, and, therefore, has circulated
commodities. It is then discounted by the banker,
who buys it by creating another debt, either
in the form of a deposit, or a bank note. Here,
then, is a new property created, with which
the customer may go into the market and
buy fresh goods. But it is by no means un-
common in the country for bankers to re-issue
the bills they discount, with their own indorse-
ments. Here, therefore, are two circulating or
exchangeable quantities, each operating indepen-
dently of the other. Hence it is quite clear that
there are two existing economic quantities, and
while they continue to exist and circulate sepa-
rately, they must each be reckoned as an inde-
pendent quantity. It may be, that after a certain
time, when the bill becomes payable, the acceptor
of it may pay it in the banker's notes, and wen
if it be in his hands there will be a mutual re-
lease or extinguishment of debts, which will then
each cease to exist. But until this is done, they
are each of them economic quantities as much as
any others.

We may as well take this opportunity of re-
ferring to the article on Credit, § 241-247, where
we have shewn that J. B. Say, who is the writer
to whom most of the modem confusion on the
subject of Credit is due, expressly admits the
independent existence of debts, or credit, as valu-
able property, and classes it under the title of
Wealth, and says that bills and notes have a
present value, and may be made exactly of the
same value as a sum of money, and used pre-
cisely in the same way, and fuithermore calls it
Capital. In | 248-257 we have shewn that Mr.
Mill over and over again treats Credit as inde-
pendent exchangeable property, which is of the
value, and may perform all the functions of
money. And yet these two writers ridicule
those who say that Credit is Capital.

It is a matter of considerable interest to dis-
cover what are the proportions which credit and
money bear to each other in modem commerce.
The difficulties, however, which prevent private
inquirers arriving at any reliable mformation are
very great, and those opportunities which are
presented by Parliamentary inquiries into Com-
mercial Crises are very rarely made use of for
any but their immediate purpose. In the Report,
however, of the Committee of the House of Com-
mons on the Conunercial Crisis of 1857, there
occurs a very interesting statement, made by Mr.
Robert Slater, the managing partner of the great
house of Morrison^ Dillon, and Co. Having
analysed the operations of the house for the year
1856, he gave m the following statement as shew-
ing ihe proportions in which each million of pav-
ments and receipts were made in money, bank-
notes, and other instruments of credit : —


Digitized by






In Baaken* Drafts, and Mercantile
Bills of Exchange, payable after

date 583,696

In Cheques on bankers, fto., payable

on demand 857,715

In Country bankers* notes 9,627

In Bank of England Notes 68.554

In Gold 28,069

In Silver and Copper ^ 1,486

In Post Office Oiders ^ 938



By BiUs of Exchange, pasrable after

date 302.674

By Cheques on London Bankers ... 668,672

By Bank of England Notes 22,748

By Gold 9,427

By Silver and Coppar .........^ 1,484




Here we hayo it shewn that in this great hoose,
which there is no reason to suppose we may not
consider a fair representative of commerce in
general, it appears that in receipts, gold and
silver only entered to the extent of 3 per cent,
and Bank of England notes to the amount of less
than 7 per cent.; the remaining 90 per cent,
being entirely in credit. Of the payments, gold
and silver were only 1 per cent, and bank notes
2 per cent., the remaining 97 per cent being
effected by pnre credit. In Scotland specie
enters even in a far less degree into payments.
This will give some idea of the stupendous power
of credit in this country.

THb Opifdom of variawt Writers on the Nature
and Extent of the Currency.

Within the last thirty or forty years strong
differences of opinion have manifested themselves
among economists as to the nature and extent of
the currency. It may be said, we think, that
these discordances have arisen from writers noj;
well ascei*taining the true philosophical import
of the terms they use. We shall now place
before our readers the opinions of various persons
of eminence on the subject. Whenever we clearly
understand that the true function of the currency^
er circulating medium^ is to circulate commodities,
&c., ».«., to obviate the necessity of barter, or
exchange, by substituting a pledge of future
payment of some sort in place of an actual
equivalent, there can be no reasonable donbt but
that currency must include money and credit in
all its shapes and forms; and such was the
opinion of speakers and writers until a compara-
tively recent period, when an influential sect
sprung up, who restricted the term currency to
money and bank notes payable to bearer on
demand, and excluded all other forms of credit
from it.

We shall first place before our readers the
opinions of several writers who held the former
opinion, and then examine the opinions of those
who hold the latter view, and the reasons they
allege in support of it

The discoflsions on the nature of enrreney bad
not arisen in Smith's time. The name itself was
new. What we call paper currency he usoally
calls paper jnoney, which is an error, the two being
very different But it is manifest that he in-
cludes all forms of credit under the title of
money, or currency.

We have already shown under Cbbdit,$ 231 —
236, that Adam Smith includes credit under the
titleof capital. He specifies money as one form
of circulating capital, and under the title of
money he incluaes all forms of paper credit
Thus he says, B. II.,c. ii.— "Money, therefore,
the great wheel of circnlation, the great instro-
meut of commerce, like all other instruments of
trade, though it makes a part, and a very valu-
able part of the capital.*^ He then speaks of
the substitution of paper for specie, and saya,-^
"There are several different sorts of paper
money [currency] ; but the circulating notes of
banks and bankers are the species which is best
known, and which seem best adapted for this
purpose.** Now, what can the other species of
paper currency be, except bills of exchange, &c. ?
Cheques had only just b^;un to be used in
London a few years before the publication of the
Wealth of Nations^ and the probability is that
Adam Smith had never seen a cheque when he
wrote his work, but manifestly they are included
under his designation. In B. III.« c. i., he says,
— " The great commerce of eveiy civilised society
is that carried on between the inhabitants of the
town and those of the country. It consists in
the exchange of rude for manufactured produce,
either immediately, or by the intervention of
money, or of some sort of paper which repre-
sents money.** Now what sort of paper, brides
bank notes, does this mean, but billa of exchange
and cheques ?

The controversies about the meaning of cur-
rency and circulating medium seem to have begun
about the time of the Bank Restriction Act, in
1797. In the debate on that measure fP^orL
Hist. vol. xxxiii. p. 340), Mr. Fox said that he
wished " that gentlemen instead of amusing them-
selves with new terms of circulating medmm and
the like.*' In his reply Mr. Pitt said, ^ As so
much had been said on the nature of a circulating
medium, he thought it necessary to notice that he
did not, for his own part, take it to be of that em-
pirical kind which had been generally described.
It appeared to him to consist in anything that
answered the great purposes of trade and com-
merce, whether m specie^ poper^ or any other term
that might he used. Hence we see that Mr. Pitt
expresaly included all forms of Credit under the
term Circulating Medium.

The next writer we may cite is Mr. Henry
Thornton, one of the authors of the Bullion
Report In his Inquiry into the Nature and
Effects of the Paper CredU of Great Britaim^ he
says, p. 40 — "A multitude of bills pass between
trader and trader in the country in the manner
which has been described; and they evidently
form, in the strictest sense, a part of the circu-
lating medium of the country.** And in a note
on this passage he says — "Mr. fioyd, in his
publication addressed to Mr. Pitt on the subject
of the Bank of England issues, propagates the
same error into which many others have ftUen,
of considering bills aa no part of the circulatiag

Digitized by





medium of the country.** After quoting a passage
from Mr. Boyd, which is given below, he says—-
•* It will be seen, in the progress of this work,
that it was necessary to clear away moch con-

Online LibraryHenry Dunning MacleodA dictionary of political economy: biographical, bibliographical ..., Volume 1 → online text (page 173 of 180)