(3.xii.22) From the evils of hoarding, the community would be, in a great measure, secured,by the prevalence of paper money. And there are many reasons which may draw us to conclude, thatthose arising front the diminution of credit would be very little to be feared.
(3.xii.23) If the paper were issued by a government, which deserved the confidence of thepeople, a foreign invasion, which would concentrate the affections of the people towards thegovernment, would not destroy the credit of its notes.
(3.xii.24) It would not be the interest of the invaders to destroy their credit, even in that partof the country, of which they might be in possession; because it would not be their interest toimpair its productive powers.
(3.xii.25) Nobody would lose, ultimately; because, even if the circulation of the notes wereprevented in the districts possessed by the enemy, they would recover their value the moment theenemy were expelled.
(3.xii.26) The effects would not be very different, if the circulation were provided by awell-conducted system of private banking. It would be the interest of all parties to preserve thecirculating medium in credit. It would be the interest of the enemy to preserve it in the districtswhich he possessed. At most, he could only prevent the circulation for a time; for, after hisexpulsion, the notes would be redeemed; either by the responsible parties who had issued them;or, if they bad lost their property through the operations of the enemy, out of the compensationmoney which the government would allow.
(3.xii.27) It is not probable, that, even in a civil war, any considerable discredit should attendawell established paper currency. The country is, of course, divided between the hostile parties, inportions more or less nearly equal. It is evidently not the interest of the government, in that partof the country which it commands, to discredit the paper currency, whether it had been issued byitself, or by private bankers. As little is it the interest of the opposite party, to do any thing whichshall disorder the regularity of transactions, in that part of the country, where it governs, andfrom which all its means of prevailing over its opponents must be drawn. If the circulatingmedium consists of the notes of private bankers, situated within that part of the country, it is theinterest, on a double account, of the party to protect them. It is its interest to protect them, evenif they are paper of the government. For whom would it injure, as the holders of them, but itsown people? Whose business would it disturb by the want of a circulating medium, but thepeople upon whose means and affections it wholly depends? By protecting the paper of thegovernment, it makes it, in reality, its own.
(3.xii.28) Experience is in favour of all these conclusions; since it has been repeatedlyfound, that the presence of hostile armies, and even internal commotions, have occasioned littledisturbance to a paper currency, the value of which was but tolerably secured.
(3.xii.29) 2. Forgery, to which bank notes are exposed, is an evil of the same sort ascounterfeiting. This, though an evil of great magnitude, under so imperfect a system of bankingas that, which is created by the existence of a great monopolizing establishment, like the Bank ofEngland, would, under such a system of banking, as that which we have been just contemplating,be inconsiderable. Where one great bank supplies the circulation of a great part of the country,there is opportunity for the circulation of a great amount of' forged notes, and motive to incurboth a great risk and a great expense. But if every bank supplied only a small district, a smallamount of the forged notes of' such a bank could find their way into the circulation. Banks, too,which are subject to the useful principle of competition, are afraid to discredit their own notesand render the people shy of taking them, by refusing payment of such as are forged; they ratherchoose to pay them in silence, to detect as well as they can the authors of the forgery, andcircumscribe its amount. In this manner individuals severally are exempted from loss; and if aloss is willingly sustained by the banks, it is only because they find compensation.
(3.xii.30) 3. The last of the three inconveniences, liable to arise from the use of papermoney, is all alteration in the value of the currency.
(3.xii.31) This alteration is always an act of the government; and is not peculiar to papermoney.
We have already seen, that the value of a metallic currency is determined by the value of themetal which it contains. That of a paper currency, therefore, exchangeable at pleasure, either forcoins or for bullion, is also determined by the value or the metal which can be obtained for it.
The reason is obvious. If the paper should at any time be reduced below the value of the metal,every person who held a bank note, the less valuable commodity, would demand for it the morevaluable commodity, the metal. If the promise were, as in England, to pay an ounce of gold for 3l. 17 s. 10-1/2 d. of paper, it would be the interest of the holders of the notes to demand gold inexchange, the moment 3 l. 17 s. 10-1/2 d. in paper became of less value than an ounce of gold;that is, the moment gold rose above the mint price.
