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If； whilst the Bank paid their notes on demand in specie；
they were to increase their quantity； they would produce little
permanent effect on the value of the currency； because nearly an
equal quantity of the coin would be withdrawn from circulation
and exported。
If the Bank were restricted from paying their notes in
specie； and all the coin had been exported； any excess of their
notes would depreciate the value of the circulating medium in
proportion to the excess。 If twenty millions had been the
circulation of England before the restriction； and four millions
were added to it； the twenty…four millions would be of no more
value than the twenty were before； provided commodities had
remained the same； and there had been no corresponding
exportation of coins； and if the Bank were successively to
increase it to fifty； or a hundred millions； the increased
quantity would be all absorbed in the circulation of England； but
would be； in all cases； depreciated to the value of the twenty
millions。
I do not dispute； that if the Bank were to bring a large
additional sum of notes into the market； and offer them on loan；
but that they would for a time affect the rate of interest。 The
same effects would follow from the discovery of a hidden treasure
of gold or silver coin。 If the amount were large； the Bank； or
the owner of the treasure； might not be able to lend the notes or
the money at four； nor perhaps； above three per cent。； but having
done so； neither the notes； nor the money； would be retained
unemployed by the borrowers； they would be sent into every
market； and would every where raise the prices of commodities；
till they were absorbed in the general circulation。 It is only
during the interval of the issues of the Bank； and their effect
on prices； that we should be sensible of an abundance of money；
interest would； during that interval； be under its natural level；
but as soon as the additional sum of notes or of money became
absorbed in the general circulation； the rate of interest would
be as high； and new loans would be demanded with as much
eagerness as before the additional issues。
The circulation can never be over…full。 If it be one of gold
and silver； any increase in its quantity will be spread over the
world。 If it be one of paper； it will diffuse itself only in the
country where it is issued。 Its effects on prices will then be
only local and nominal； as a compensation by means of the
exchange will be made to foreign purchasers。
To suppose that any increased issues of the Bank can have the
effect of permanently lowering the rate of interest； and
satisfying the demands of all borrowers； so that there will be
none to apply for new loans； or that a productive gold or silver
mine can have such an effect； is to attribute a power to the
circulating medium which it can never possess。 Banks would； if
this were possible； become powerful engines indeed。 By creating
paper money； and lending it at three or two per cent。 under the
present market rate of interest； the Bank would reduce the
profits on trade in the same proportion； and if they were
sufficiently patriotic to lend their notes at an interest no
higher than necessary to pay the expences of their establishment；
profits would be still further reduced； no nation； but by similar
means； could enter into competition with us； we should engross
the trade of the world。 To what absurdities would not such a
theory lead us！ Profits can only be lowered by a competition of
capitals not consisting of circulating medium。 As the increase of
Bank…notes does not add to this species of capital； as it neither
increases our exportable commodities； our machinery； or our raw
materials； it cannot add to our profits nor lower interest。 （11*）
When any one borrows money for the purpose of entering into
trade； he borrows it as a medium by which he can possess himself
of 〃 materials； provisions； etc。〃 to carry on that trade； and it
can be of little consequence to him； provided he obtain the
quantity of materials； etc。 necessary； whether he be obliged to
borrow a thousand； or ten thousand pieces of money。 If he borrow
ten thousand； the produce of his manufacture will be ten times
the nominal value of what it would have been； had one thousand
been sufficient for the same purpose。 The capital actually
employed in the county is necessarily limited to the amount of
the 〃materials； provisions； etc。〃 and might be made equally
productive； though not with equal facility； if trade were carried
on wholly by barter。 The successive possessors of the circulating
medium have the command over this capital： but however abundant
may be the quantity of money or of bank…notes； though it may
increase the nominal prices of commodities； though it may
distribute the productive capital in different proportions；
though the Bank； by increasing the quantity of their notes； may
enable A to carry on part of the business formerly engrossed by B
and C； nothing will be added to the real revenue and wealth of
the country。 B and C may be injured； and A and the Bank may be
gainers； but they will gain exactly what B and C lose。 There will
be a violent and an unjust transfer of property； but no benefit
whatever will be gained by the community。
For these reasons I am of opinion that the funds are not
indebted for their high price to the depreciation of our
currency。 Their price must be regulated by the general rate of
interest given for money。 If before the depreciation I gave
thirty years' purchase for land； and twenty…five for an annuity
in the stocks； I can after the depreciation give a larger sum for
the purchase of land； without giving more years' purchase；
because the produce of the land will sell for a greater nominal
value in consequence of the depreciation； but as the annuity in
the funds is paid in the depreciated medium； there can be no
reason why I should give a greater nominal value for it after
than before the depreciation。
If guineas were degraded by clipping to half their present
value； every commodity as well as land would rise to double its
present nominal value； but as the interest of the stocks would be
paid in the degraded guineas； they would； on that account；
experience no rise。
The remedy which I propose for all the evils in our currency；
is that the Bank should gradually decrease the amount of their
notes in circulation until they shall have rendered the reminder
of equal value with the coins which they represent； or； in other
words； till the price