affectation*. Yet thefe faults detract but little from the praise of a contemporary Hiftory, which difplays fuch induftry of research, fuch powers of defcription, and, above all, fuch foundness of principle, in eftimating the true interests, and vindicating the genuine freedom, of mankind.

ART. IV. An Inquiry into the Nature and Effects of the Paper Credit, &c.

(Concluded from vol. xxiv. p. 624.)

IN the eighth chapter, Mr. Thornton propofes to refute the objection to country banks, resting on their alledged effect of raifing the prices of commodities. This he declares to be "particularly ill founded"; although he exprefsiy admits a general increase of paper to have that tendency. We do not Hop to prove, that his admiffion, and the point he contends for, will not stand together; but wave this, and go into his reasons.

He begins by explaining how this paper credit operates; and, on this occafion, introduces a principle which has been almost paffed over by fyftematic writers, which, although here laid down too exclufively, deferves it's full fhare of attention. When the fupply of the market, particularly of commodities of neceffity, or of the higher convenience, falls fhort, he says, without qualification, that the buyer is in the power of the feller; and, in the contrary cafe, the former dictates the terms: hence he ftates the queftion of price to be a queftion of force. We admit this in addition only to the received principle; and that the ingenious obfervations of Mr. Thornton upon this fubject go the full length to prove, that the ofcillation of prices very much exceeds what would be determined from the

"Thus we

* In vol. i. p. 244, we have the following fentence. have feen French aggreffion, after being for a time fuccefsful, roufing British energy, and producing British victory." Here, in two or three branches of the fentence, the adjective is joined, not to a quality, but an act or acts; which has a bad effect, except where cuftom has reconciled us to it, as in the term "French Revolution". Many fimilar intances might be produced.

3

compound

compound ratio of the fupply and demand of commodities and of currency.

That the paper of the bank of England raises prices, he admits: he next proceeds to the explanation of the mode in which it produces this effect; which, as far as it goes, has great ingenuity and clearness*. An addition made to the notes makes currency plentiful: men of known property think, that with less than their common reserve of it they can obtain a supply on any particular emergence: hence they will make larger purchases where a probable future profit presents itself to them; and the fame expectation will make them more tardy to fell; and the fpirit, in each cafe, becoming general, will cause some advance in the rates of the market. But this fecurity of being able to answer future demands, in cafe a man fhould be induced to diminish his flock of currency a little, will have a further effect, not here noticed. He will become, in fome measure, but certainly on the average in an inferior measure, a freer purchaser of articles for his own confumption, and that of his family, as well as of commodities for fale; and the new demand for commodities will increase the quantity produced, or general product. Here the effect of the augment of currency will be twofold; fome increase of product, and fome of prices alfo; which latter will be the greater. It is on this principle that the increase of the products and prices in the feveral ftates of Europe, fince the discovery of America, is to be accounted for; and the great increase of the incomes of nations and individuals, which have been in the compound proportion of both.

After a digreffion on the nature of foreign exchanges, Mr. Th. proceeds to confider the mode in which Dr. A. Smith has attempted to demonftrate the impolicy of those bankers who iffue more paper than can be employed in circulation; which is here fhown to be fully inconclufive. This leads him back to his main propofition; that a great emiffion of country paper in any district has no permanent effect in raising prices there.

The due method of confidering the point he had laid down would have led Mr. Th. next to have shown, in what the nature of the paper of the bank of England fo differed from that of the country banks, that although the augment of the first raised the prices of goods in the London market, that of the other had no fuch effect on thofe of the country. Inftead of that, the fubject of the bank of England notes leads him to that of exchange; but, as what he has faid on it here calls for fome obfervations, we have given them a place in a former part of our ftrictures on his work, where he fays fomething on the fame fubject.

A con

A confiderable local rife he admits it initially to produce; but he endeavours to prove, that they muft foon fall again to their former rates. The analyfis of his argument is as follows: the new bills being payable in London, or in bank paper, they will be either directly or circuitoufly employed in the cheaper markets of other diftricts, the commodities of which will be brought at reduced rates into that of the dearer; and prices muft fall again therein, and that to their firft rate, and not in part; otherwife this argument falls to the ground.

To this it will be replied, that fuch entire refloration of the level of the market cannot by fuch mode be brought about, although fome depreffion may fo take place; nor can any very near reftitution of the former values be fo occafioned; for the extraordinary demand for commodities in the diftriét now become the cheaper, will produce fome rife in its proper market; carriage will make a fecond addition to the firft coft of the commodity to the adventurer; and he muft, in the third place, make a due profit on his capital employed, and on thofe two charges; and, if the prices of the two diftris had been equal before the advance had taken place in the one, the commodities of the cheaper must be brought into the market of the dearer, with the fum of thefe four augments; and the prices of the proper commodities of the latter can be forced down no lower by the co-operation of thefe of the other*: and it may be with great facility demonftrated, that the effects of country bills in their proper diftrict, and the kingdom at large, are in kind the fame as thofe of the bank of England, locally and univerfally, that is, in England, and in the commercial world at large; for England is a diflrict, although an important diftrict, in the commercial world, and it's national paper but country paper there; yet the increase of this country paper raises the prices of the market of the whole commercial republic; and this Mr. Th. admits when he fays, that the iffue of an extraordinary quantity of bank paper [for the purpose of effecting the payments of London] in a confiderable degree refembles the creation of an extraordinary fupply of gold for the general ufes of the world. P. 268.

* Part of the arguments in the note to p. 6, apply here alfo. The market of the cheaper district will be raised, and it will obtain an addition to its currency for its commodities; if a third district increase its paper, there may be a fecond and rival demand for the commodities of the fecond, which thus will rife nearly to a level with the other two; and prices, in parts of the country where paper does or does not circulate, will be nearly equal

We

We cannot but think what follows this equally exceptionable; where Mr. Th. fays, that the whole aggregate of country paper does not add any thing to the quantity of that of London. On the contrary, it feems evident, that the amount of the London paper is always in fact greater, on account of the existence of the country paper; and, if the latter fhould ceafe to exift, the former might be diminished by the amount of that excefs; for the country notes being made payable by certain London bankers, and being paid in bank paper, they must keep by them a quantity of that paper, according to the demands on this head expected by them. Nor is it an answer to this to fay, that the bank can limit its notes to any certain amount, or even that it can diminish them; for, although the bank paper be reduced, fome will still be held by the bankers, to answer the demand for the country notes; and, after such limitation, the London payments (exclufively fo called) will be made with a certain degree of facility or difficulty, be it more or lefs, the country notes continuing to be brought for payment; but if they were to ceafe to exift, a fill lefs quantity would, with equal facility, tranfact the bufinefs of the mercantile metropolis: and the neceffity for the exiftence of the dif ference between the two quantities is caufed by the existence of the country notes.

The country banks never found a more zealous defender than Mr. Thornton. After having attempted to fhow, that the increase of their paper could have no effect on prices, he next endeavours to prove, that no increase of their quantity to excite apprehenfion can be made; and that there exifts a fuperior power, at all times able to reduce their actual amount. As the bafis of this, he lays down a pofition of the greateft confequence; that the limitation of the fingle article of the London paper limits the quantity of the whole paper of the country. This, he contends, arifes from the circumftance, that the iffers of the latter may be, and when their iffues are exceffive will be, compelled to exchange it for the former; but this argument, ingenious as it must be admitted to be, and apparently conclufive, is conclufive in appearance only. For, let the bank fix any limit to its notes, which it is determined not to exceed. the country bankers will be able to acquire all the notes which can be fpared, after all other payments are provided for; and, if this furplus be continually increafing, therr iffues may continually increase; and cæteris paribus, with at leaft an equal ceJerity with that quantity of bank notes of which they can get the command. Now, if the power of bank notes in all other payments be increased, or tranfactions to the fame amount can be carried on with a confiderable lefs quantity of that paper

than

than before, the total commerce remaining the fame, there will be a great quantity of bank paper to fpare, to fupport an increafed iffue of country paper; and the limitation of the notes of the bank will not prevent its increase; and, to a certain degree, not even the diminution of them.

a

But the quantity of bank paper required to make the fame payments is continually diminishing; à fact which Mr. Thornton every where inculcates; and, among the points of curious information which his work gives, to those who are not intimately acquainted with the more important points of the prefent hiftory of the money market, this is one of the most important. Modes, he perpetually repeats, have been difcovered of conomizing the ufe, not only of coin, but of bank paper. Of the origin and progrels of this new art, we fhall extract fome of the notices which his work contains. "The diftress that was felt in 1793 compelled many to refort to new expedients, tending to fpare the ufe both of bank of England notes and coin: and the measures that were adopted at firft through neceflity, are afterwards perfifted in because they are œconomical" (p. 305); " and the very circumftance of the fufpenfion of the call payments at the bank, by ferving to ftrengthen mercantile credit, has favoured the exercife of economy in the ufe of the paper of the bank of England" (p. 238); "merely by the transfer of the debts of one merchant to another, in the books of the banker, a large portion of what are termed cafh payments is effected at this time without the ufe of any bank paper" (p. 55); and this is extended to the cafe of the payments of merchants employing different bankers; for thefe bankers themfelves have, in their payments to be made. to each other, adopted the following mode. "To spare the ufe, both of paper and guineas, it is the practice of each to fend a clerk, at an agreed hour, to a room provided for that purpose, where each exchanges the drafts on other bankers received at his own houfe, for the drafts on his own received at the houfes of others"; and the accounts of each banker with all the reft is balanced in a manner very eafily to be conceived, by his clerk paying or receiving " the difference between the whole fum he has to pay to all the other city bankers, and the whole fum he has to receive of them", in bank notes or mo ney; a difference "much lefs in its amount than his several differences would be equal to"; and it is to be added, on the equality of chance, very much lefs. Mr. Th. does not de, fcribe the effect of this in very ftrong colours, when, in the next words, he fays, "this device ferves to fpare the use of hank notes". P. 55 (nate). It may be denominated a circuitous barter of banker's credits and debts: but he goes fur

ther;