and silver, though the least variable in value of all commodities, are not invariable, and do not always vary simultaneously. Silver, for example, was lowered in permanent value more than gold, by the discovery of the American mines; and those small variations of value which take place occasionally, do not affect both metals alike. Suppose such a variation to take place; the value of the two metals relatively to one another no longer agreeing with their rated proportion, one or other of them will now be rated below its bullion value, and there will be a profit to be made by melting it.

Suppose, for example, that gold rises in value relatively to silver, so that the quantity of gold in a sovereign is now worth more than the quantity of silver in twenty shillings. Two consequences will ensue. No debtor will any longer find it his interest to pay in gold. He will always pay in silver, because twenty shillings are a legal tender for a debt of one pound, and he can procure silver convertible. into twenty shillings for less gold than that contained in a sovereign. The other consequence will be, that unless a sovereign can be sold for more than twenty shillings, all the sovereigns will be melted, since as bullion they will purchase a greater number of shillings than they exchange for as coin. The converse of all this would happen if silver, instead of gold, were the metal which had risen in comparative value. A sovereign would not now be worth so much as twenty shillings, and whoever had a pound to pay would prefer paying it by a sovereign; while the silver coins would be collected for the purpose of being melted, and sold as bullion for gold at their real value, that is, above the legal valuation. The money of the community, therefore, would never really consist of both metals, but of the one only which, at the particular time, best suited the interest of debtors; and the standard of the currency would be constantly liable to change from the one metal to the

other, at a loss to the public, on each change, of the expense of coinage on the metal which fell out of use.

It appears, therefore, that the value of money is liable to more frequent fluctuations when both metals are a legal tender at a fixed valuation, than when the exclusive standard of the currency is either gold or silver. Instead of being only affected by variations in the cost of production of one metal, it is subject to derangement from those of two. The particular kind of variation to which a currency is rendered more liable by having two legal standards, is a fall of value, or what is commonly called a depreciation; since practically that one of the two metals will always be the standard, of which the real has fallen below the rated value. If the tendency of the metals be to rise in value, all payments will be made in the one which has risen least; and if to fall, then in that which has fallen most.

§ 2. The plan of a double standard is still occasionally brought forward by here and there a writer or orator as a great improvement in currency. It is probable that, with most of its adherents, its chief merit is its tendency to a sort of depreciation, there being at all times abundance of supporters for any mode, either open or covert, of lowering the standard. Some, however, are influenced by an exaggerated estimate of an advantage which to a certain extent is real, that of being able to have recourse, for replenishing the circulation, to the united stock of gold and silver in the commercial world, instead of being confined to one of them, which, from accidental absorption, may not be obtainable with sufficient rapidity. The advantage without the disadvantages of a double standard, seems to be best obtained by those nations, with whom one only of the two metals is a legal tender, but the other also is coined, and allowed to pass for whatever value the market assigns to it. This is the case in France. Silver alone is (I be

lieve) a legal tender, and all sums are expressed and accounts kept in francs, a silver coin. Gold is also coined, for convenience, but does not pass at a fixed valuation; the twenty francs marked on a Napoleon are merely nominal, Napoleons being never to be bought for that sum, but always bearing a small premium, or agio as it is called; though, as the agio is very trifling, (the bullion value differing very little from twenty francs,) it is seldom possible to pass a Napoleon for more than that sum in ordinary retail transactions. Silver, then, is the real money of the country, and gold coin only a merchandise; but though not a legal tender, it answers all the real purposes of one, since no creditor is at all likely to refuse receiving it at the market price, in payment of his debt.

When this plan is adopted; it is naturally the more costly metal which is left to be bought and sold as an article of commerce. But nations which, like England, adopt the more costly of the two as their standard, resort to a different expedient for retaining them both in circulation, namely, to make silver a legal tender, but only for small payments. In England, no one can be compelled to receive silver in payment for a larger amount than forty shillings. With this regulation there is necessarily combined another, namely, that silver coin should be rated, in comparison with gold, somewhat above its intrinsic value; that there should not be, in twenty shillings, as much silver as is worth a sovereign; for if there were, a very slight turn of the market in its favor would make it worth more than a sovereign, and it would be profitable to melt the silver coin. The over-valuation of the silver coin creates an inducement to buy silver and send it to the mint to be coined, since it is received back at a higher value than properly belongs to it; this, however, has been guarded against, by limiting the quantity of the silver coinage, which is not left, like that of gold, to the discretion of

individuals, but is determined by the government, and restricted to the amount supposed to be required for small payments. The only precaution necessary is not to put so high a valuation upon the silver, as to hold out a strong temptation to private coining.

CHAPTER XI.

OF CREDIT, AS A SUBSTITUTE FOR MONEY.

1. THE functions of credit have been a subject of as much misunderstanding and as much confusion of ideas, as any single topic in Political Economy. This is not owing to any peculiar difficulty in the theory of the subject, but to the complex nature of some of the mercantile phenomena arising from the forms in which credit clothes itself; by which attention is diverted from the properties of credit in general, to the peculiarities of its particular forms.

ance.

As a specimen of the confused notions entertained respecting the nature of credit, we may advert to the exaggerated language so often used respecting its national importCredit has a great, but not, as many people seem to suppose, a magical power; it cannot make something out of nothing. How often is an extension of credit talked of as an equivalent to a creation of capital, or as if credit actually were capital! It seems strange that there should be any need to point out, that credit, being only permission to use the capital of another person, the means of production cannot be increased by it, but only transferred. If the borrower's means of production and of employing labor are

increased by the credit given him, the lender's are as much diminished. The same sum cannot be used as capital both by the owner, and also by the person to whom it is lent; it cannot supply its full value in wages, tools, and materials, to two sets of laborers at once. It is true that the capital which A has borrowed from B, and makes use of in his business, still forms part of the wealth of B for other purposes; he can enter into engagements in reliance on it, and can even borrow, when needful, an equivalent sum on the security of it; so that to a superficial eye it might seem as if both B and A had the use of it at once. But the smallest consideration will show, that when B has parted with his capital to A, the use of it as capital rests with A alone, and that B has no other service from it than in so far as his ultimate claim upon it serves him to obtain the use of another capital from a third person, C. All capital (not his own) of which any person has really the use, is, and must be, so much subtracted from the capital of some one else.

§ 2. But though credit is never anything more than a transfer of capital from hand to hand, it is generally, and naturally, a transfer to hands more competent to employ the capital efficiently in production. If there were no such thing as credit, or if, from general insecurity and want of confidence, it were scantily practiced, many persons who possess more or less of capital, but who from their occupations, or for want of the necessary skill and knowledge, cannot personally superintend its employment, would derive no benefit from it; their funds would either lie idle, or would be, perhaps wasted and annihilated in unskilful attempts to make them yield a profit. All this capital is now lent at interest, and made available for production. Capital thus circumstanced forms a large portion of the productive resources of any commercial country, and is