which is not recorded on any material at all, in such a way that it can be lost, or stolen, and passed away by manual delivery Thus the gigantic mass of Bank Credits and Book Debts of traders have all effected a Sale, or Circulation: and therefore they are all Circulating Medium: but they are not Currency in a legal sense because they cannot be mislaid or lost, or stolen, and passed away by manual delivery. So, also, private Debts between individuals termed Verbal Credits: they only arise out of the Transfer of Money, or Commodities: and they exist equally whether they are recorded on any material substance or not. They are equally Circulating Medium. The private debts among traders affect prices exactly like so much Money. Consequently, though they are not Currency in strict Law, they must all be included under that term when used in a scientific sense in Economics, synonymous with Circulating Medium: because these Rights of action are exactly the same in their nature and effects whether they are recorded on paper or not This truth was well expressed by the Marquis of Tichfield in the House of Commons, in speaking of the various forms of Credit used as substitutes for Money-"When it was considered to how great an extent these contrivances had been practised in the various modes of Verbal, Book, and Circulating Credits, it was easy to see that the country had received a great addition to its Currency. This addition to the Currency would have the same effect as if Gold had been increased from the mines" The different Forms of Currency 35. Adopting, then, this Definition of Currency, or Circulating Medium, we may enumerate its different forms or species as follows 1. Coined Money: Gold, Silver, or Copper 2. The Paper Currency: Bank Notes, Bills of Exchange and Promissory Notes, in all their Varieties 3. Simple Debts of all sorts: not recorded on Circulating Paper; such as Credits in bankers' books termed Deposits: Book Debts of Traders and private Debts between individuals : It is obvious that there is no distinction in principle between these two latter species. They each denote that a transaction of some sort has taken place, and are a Title to future payment. As a matter of convenience some of them are recorded on paper: but that does not alter their nature. It is certainly true that some of these descriptions of Currency are more eligible and secure than others and perform their duties with different degrees of advantage. The Metallic Currency rests upon the good faith of the State that it is the proper weight and fineness, and the universal readiness of the people to receive it in exchange for products and services. Paper Currency, in this country at least, rests upon private Credit and is of all degrees of security from a Bank of England Note down to a private I O U. These different forms of Currency, therefore, though they may possess different degrees of Circulating Power, though they may be more or less eligible or secure, represent but one Fundamental Idea-Debt. From these considerations it follows that the amount of Currency or Circulating Medium, in any country, is the sum total of all the Debts due to every individual in it—that is, all the Money and Credit in it : Postage Stamps must also be included under the term Currency. Though the point has not been decided in the Courts of Law, there can be no doubt that Postage Stamps possess the attribute of Currency. They are a most usual form of remittance: they pass in small payments: and since the Law has ordered that the Post Office should cash them, they are in reality One Penny Notes. And if any one were to steal Postage Stamps, and pass them away, and if they were taken honestly in payment, there can be no doubt that the same principle of Currency would apply to them as to Bank Notes, Bills, and Cheques: hence they are strictly Currency On the Channel of Circulation 36. When unequal exchanges take place of commodities or services, it has been shewn that Money and Credit represent the balances which arise from these unequal exchanges. The total of these balances is the Circulation; and in monetary discussions the amount of these balances is sometimes called the Channel of Circulation This Channel of Circulation is filled with some material: and Prices are estimated in pieces of this material The Quantity of the material which represents any given amount of Debt, and is equivalent to any amount of commodities or services, is determined by the general Laws of Value, and need not be adverted to here Let us first suppose that Gold is used at any time to represent Debt, and to fill the Channel of Circulation. This Gold metal is divided into certain pieces of fixed quantity and weight, termed Coins and Prices are estimated in these Coins : But suppose that at any time Gold was suddenly discontinued as the representative of Debt, and Silver substituted for it and suppose that pieces of Silver were coined of exactly the same weight as the previous Gold pieces, and substituted for them as the representative of Debt Then, as Silver is about fifteen times less valuable than Gold, it is clear that it would require fifteen times as many pieces in Silver to represent any amount of Debt as it would Gold pieces : and Prices would rise fifteen-fold: but other commodities would still preserve the same relations among themselves. Hence, though Prices would rise, yet the Values of commodities with respect to each other would remain exactly the same Again, suppose that Silver was taken away as the representative of Debt, and Copper substituted: and Copper coins struck of the same weight as the previous Gold and Silver ones, and called by the same name. Then prices would be estimated in Copper and as Copper is about 900 times less valuable than Gold, Prices estimated in Copper would rise to about 900 times the amount in Gold: the relative Values of all other commodities remaining the same Now, as the Value of Gold in representing Debt depends upon the Quantity of the Gold which represents any amount of Debt, it would manifestly follow that if the Quantity of Gold were suddenly increased which represented any amount of Debt, the Value of Gold would greatly diminish. And if Gold became as plentiful as Silver, it would have no more Value than Silver: and consequently, even while the weight of the coins and their quality remained the same, Gold would fall to the fifteenth part of its former Value as a Purchasing Power So, also, if Gold were to become as plentiful as Copper, while it still represented the same amount of Debt, it would be of no more Value as Purchasing Power than Copper: that is, it would fall to about the 900th part of its former Value Thus, in a general way, if a certain Quantity of Stuff of any sort is used to represent any Quantity of Debt at any time, and if the Quantity of Stuff is greatly increased while the Quantity of Debt remains the same, it necessarily produces a great diminution in the Value of the Stuff and a general rise of Prices : But the Quantity of Stuff which represents Debts, and fills the Channel of Circulation, need not be all of the same material. It may be partly Gold, partly Silver, and partly Copper and Prices will be estimated by the whole Quantity of Stuff which fills the Channel of Circulation: and not by any particular portion of it In modern times a new kind of Stuff has been employed to a gigantic extent to fill the Channel of Circulation: and that is Credit, or simple Rights of action in different forms Thus the whole Quantity of Stuff which fills the Channel of Circulation is composed of Gold, Silver, Copper, and Credit: and the Prices of commodities are estimated according to the aggregate of all these different kinds of Stuff: and not according to any single one. Hence the creation and use of Credit in modern times produces exactly the same effects, and acts upon Prices exactly in the same way as an equal Quantity of Gold. And this to an extent which is very imperfectly appreciated and understood. It will be shewn hereafter that in this country the Quantity of Credit which is used in commerce may be approximately estimated at about fifty times the quantity of metallic coin. Hence the thorough comprehension of the principles and mechanism of the great System of Credit is the very foundation of all modern Economics: and it is the excessive creation of Credit which produces more changes in the Prices of commodities at the present time than any other causes whatever The Fundamental Concept of Monetary Science 37. The preceding considerations now enable us to perceive the Fundamental Concept of Monetary Science We have seen that writers of all classes are agreed as to the fundamental Nature of Money. It represents Debts which are due to persons who have done services to others, and have received no equivalent service in return. It is merely the Right to demand these equivalent services when they please and its special function is to measure, record, and preserve for future use these Rights If all the services exchanged in society exactly balanced there would be no need for Money Supposing, then, that there was nothing but Metallic Money in use, the following axiom is evident "The Quantity of Money in any country represents the Quantity of Debt that there would be, if there were no Money But, as we have seen, that in modern civilised countries these Debts or Rights are recorded in the simple abstract form of Rights against particular persons, as well as in Metallic Coin, which are Rights against the general community, the term Currency includes these Debts or Rights in both forms Hence it is clear that the Currency represents nothing but Transferable Debt, and that whatever represents Transferable Debt is Currency, whatever its nature or form may be Consequently, the proposition necessarily follows "Where there is no Debt there can be no Currency" We shall see hereafter that all erroneous Theories of Currency have been founded on not perceiving the fundamental nature of Currency and the greatest monetary disasters the world has ever seen have been produced by violating these fundamental axioms On Securities for Money and Convertible 38. We must now explain the distinction between Securities for Money and Convertible Securities A Security for Money always means a Security, or Obligation, for the Payment of a definite sum of Money by a definite person at a definite time. There is, therefore, always some Person who is bound to pay it. There are different forms |