corn, silk, or any other commodities, and, among others, the public funds? And this has actually been tried in several instances, yet they have universally failed, and in many cases have been attended with the most dreadful calamities. Now, as this has uniformly happened, and, as we shall shew further on, it must happen, it necessarily follows that there must be some radical error in the principle, and that it must violate some great law of nature. And this is beyond all comparison the most momentous problem in Economics-Why is it improper to issue a paper currency on any other basis than that of bullion? All the most eminent British statesmen have instinctively resisted such proposals, although repeatedly pressed to do so. No doubt it has been a most fortunate instinct for the country; but all their reasonings on the subject, if only pursued to their legitimate consequences, tend to that result. The Bank Act of 1844 was the first occasion on which a small bit of this theory was introduced, which, if only followed out to its legitimate conclusion, would produce in this country the horrors of the Mississippi scheme in France. But though the British Parlia ment, by a blind, unreasoning instinct, has always, with the exception just named, resisted such fatal advice, this will not satisfy the demands of science. Science imperatively demands a reason why such a plan is wrong; she will not be satisfied with a simple dogmatic assertion that it is wrong, even though that dogma may be right, but she must know the reason why; and, until a true, scientific reason is given why such plans are fatal, there will be a constant demand for them 4. It is, moreover, the thing which has brought the name of Law into such unhappy notoriety. Law has, in many respects, very great merit as a writer. In many respects he had clearer and sounder views on monetary science; he had infinitely more practical insight and scientific knowledge of what he was writing about than the most eminent of modern political economists. In his various writings is to be found the refutation of all the absurd follies of the Government and of the Bank of England in 1811. But all this was marred by a single defect. He was the great advocate of what is now the popular cry-basing a paper currency upon any article of value beside bullion. The only difference between him and our greatest statesmen is that he carried out their arguments to their legitimate conclusion. He had the opportunity of carrying this theory into effect, and the result has been to obscure all his other merits, and brand him for ever as a charlatan. What, then, was his error? 5. Upon sifting his theory to discover his error, we shall obtain one of the most beautiful triumphs of pure reasoning to be found in any science. We shall find that the plausible scheme, which we shall designate by his name, is founded upon a direct contravention of the fundamental conception of the nature of a Currency which we have established in this work, and the proposition which directly flowed from it, viz., that where there is no Debt, there can be no Currency. We shall find that these awful monetary cataclysms which have shaken nations to their foundations, producing calamities more fell than famine, tempest, or the sword, have been brought about by attempting to carry into practice a philosophical fallacy which involves a contradiction in terms 6. It is impossible to say who first invented the theory we are going to notice; in fact, it must have sprung up indigenously among almost any people who began to form theories of Paper Currency. Several persons about the same time seem to have hit upon it. The earliest we know of was a certain Mr. Asgill, a Member of Parliament, who paid much attention to commercial questions. The most notorious precursors of Law were Dr. Hugh Chamberlain, who brought forward a rival scheme to the Bank of England in 1693, and Mr. Briscoe, one of the chief promoters of the Land Bank in 1696. Chamberlain's ideas will be noticed a little further on. He strongly accused Law of having stolen his ideas from him, which Law strenuously repudiates, and points out the distinction between them, and it must be allowed that Law's ideas were not so extravagant as Chamberlain's. Law first published his theory in a tract, called "Money and Trade Considered," at Edinburgh, in 1705. He was the son of a goldsmith, and of dissipated habits, but of an extremely acute intellect; and, up to a certain length, his views are sagacious and correctmuch more so, indeed, than those of many writers of the present day. He observed the extreme poverty and barbarousness of Scotland, which he thought might be cured by bringing an additional quantity of money into the country; and, as silver was scarce, he attempted to devise a scheme for providing a substitute for it 7. He begins by many very sound and acute remarks on the value of commodities, and the causes of their change of value. He describes the qualities which fitted silver to be used as money, above every other commodity. He attributes the very inconsiderable trade of Scotland to the small quantity of money she possessed. This is the first fundamental fallacy, because the fact was it was just the reverse; Scotland had little money because she had little trade. He, however, perceived the fallacy of lowering interest by law. He then goes on to consider the various means which have been employed to increase the quantity of money. He says that some countries have raised money in the denomination; some have debased it; some have prohibited its export under the severest penalties; some have obliged traders to bring home bullion in proportion to the goods they imported, But he says that all these measures have been futile and vain, and none of them have been found to increase or preserve money. He then says that the only effectual method hitherto discovered for the increase of money was the erection of Banks. He then describes various banks. Some made it a principle to issue no more notes than they had of actual bullion. He then mentions the Bank of England, and the superiority of its notes over those of the goldsmiths. He then describes the Bank of Scotland, and says that it issued notes to four or five times the value of the money in the Bank, which he very justly says were equivalent to so much additional money. He then points out the absurdity of supposing that raising the denomination of the money added to its value, that if the shilling was raised to 18d., it paid debts by two-thirds of what was due, but did not add to the money; "for it is not the sound of the denomination, but the value of the silver is considered." The wonderful philosophers of 1811, no doubt, looked down with prodigious disdain upon Law, but they might have studied him with advantage. He then points out with much detail the fraud and inutility of tampering with the currency. He describes the additional effect which credit may give to money; but says that credit which promises a payment of money cannot well be extended beyond a certain proportion it ought to have with the money. Nothing can be more judicious and sound than his remarks upon credit-that it must always vary in proportion to the metallic basis it is built upon; and up to this point his sagacity and penetration are in advance of the doctrines of a century later; but here is the boundary, after which he plunges into that fatal and delusive fallacy, which is the distinctive feature of what we denominate Lawism 8. Thinking that money was so scarce in Scotland that any credit that could be built upon it would be insignificant, he says "It remains to be considered, whether any other goods than silver can be made money with the same safety and convenience. "From what has been said about the nature of money, it is evident that any other goods which have the qualities necessary in money, may be made money equal to their value with safety and convenience. There was nothing of humour or fancy in making silver to be money; it was made because it was thought best qualified for that use "I shall endeavour to prove that another money may be established with all the qualities necessary in money in a greater degree than silver" 9. He then proceeds to shew at great length that silver had some peculiarities that disqualified it from being the best substance to form money of; that it varied in value; that it had increased much faster in quantity than the demand for it, and had, therefore, fallen much in value. In fact, he tries to prove that silver had varied in value more than any other kind of goods, within the last two hundred years; that goods would always maintain a uniformity of value, because they only increased in proportion to the demand; that land would always rise in value, because the quantity would always remain the same, but the demand would continually increase; but that silver would always fall in value, as the quantity increased faster than the demand 10. Law then proceeds to deny that he had taken his ideas from Chamberlain, of which the latter had accused him; and it must in candour be admitted, that his ideas were many degrees less mad than those of Chamberlain. Law asserts that he had formed his schemes many years before he had seen any of Chamberlain's papers-"Land, indeed, is the value upon which he founds his proposals, and 'tis upon land that I found mine; if for that reason I have encroached upon his proposal, the Bank of Scotland may be said to have done the same. There were banks in Europe long before the doctor's proposal, and books have been written on the subject before and since. The foundation I go upon has been known as long as money has been lent on land, and so long as an heritable bond has been equal to a quantity of land” 11. The difference between Chamberlain's theory and Law's was this. Chamberlain maintained that if land was mortgaged for 100 years, it was a good security for 100 times its annual value: so that, if a man had landed property worth £1,000 a year, and if he mortgaged it for 100 years to the State, the State might issue notes to him to the amount of £100,000, which were to be declared equal to value in silver, and made legal tender for their nominal value. Now, if this theory be true, there is no good reason why land should be pledged for only 100 years; why not for one million years? which would do the thing on a somewhat more magnificent scale. But what need of stopping there? Why not pledge it to all eternity? And then every inch of land might be covered with paper notes, and they might be piled high enough to reach the moon, where the deviser of this scheme would probably find his lost wits. Law properly points out that the fallacy of this theory was, that Chamberlain assumed that the value of £100 to be paid 100 years hence is still £100. He says "No anticipation is equal to what already is; a year's rent now is worth fifteen years' rent fifty years hence, because that money lent out at interest by that time will produce so much." But, says Lord Macaulay— "On this subject Chamberlain was proof to ridicule, to argument, even to arithmetical demonstration. He was reminded that the fee simple of land would not sell for more than twenty years' |