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decrease at pleasure the quantity and amount of their notes； and
the previously existing checks against an over…issue having been
thereby removed； those conductors have acquired the power of
increasing or decreasing the value of the paper currency。
In tracing the present evils to their source； and proving
their existence by an appeal to the two unerring tests I have
before mentioned； namely； the rate of exchange and the price of
bullion； I shall avail myself of the account given by Mr Thornton
of the conduct of the Bank before the restriction； to shew how
clearly they acted on the principle which he has expressly
acknowledged； viz。 that the value of their notes is dependent on
their amount； and that they ascertained the variation in their
value by the tests I have just referred to。
Mr Thornton tells us； 〃That if at any time the exchanges of
the country became so unfavourable as to produce a material
excess of the market above the mint price of gold； the directors
of the Bank； as appears by the evidence of some of their body；
given to parliament； were disposed to resort to a reduction of
their paper； as a means of diminishing or removing the excess；
and of thus providing for the security of their establishment。
They moreover have at all times；〃 he says； 〃been accustomed to
observe some limit as to the quantity of their notes for the same
prudential reasons。 〃 And in another place： 〃 When the price
which our coin will fetch in foreign countries is such as to
tempt it out of the kingdom； the directors of the Bank naturally
diminish； in some degree； the quantity of their paper through an
anxiety for the safety of their establishment。 By diminishing
their paper； they raise its value； and in rising its value； they
raise also the value in England of the current coin which is
exchanged for it。 Thus the value of our gold coin conforms itself
to the value of the current paper； and the current paper is
rendered by the Bank…directors； of that value which it is
necessary that it should bear in order to prevent large
exportations；…a value sometimes rising a little above； and
sometimes falling a little below； the price which our coin bears
abroad。〃
The necessity which the Bank felt itself under to guard the
safety of its establishment； therefore； always prevented； before
the restriction from paying in specie； a too lavish issue of
paper money。
Thus we find that； for a period of twenty…three years
previously to the suspension of cash payments in 1797； the
average price of gold bullion was 3 l。 17s。 7 3/4d。 per oz。 about
2 3/4d。 under the mint price； and for sixteen years previously to
1774； it never was much above 4 l。 per oz。 It should be
remembered that during these sixteen years our gold coin was
debased by wearing； and it is therefore probable that 4 l。 of
such debased money did not weigh as much as the ounce of gold for
which it was exchanged。
Dr A。 Smith considers every permanent excess of the market
above the mint price of gold； as referrible to the state of the
coins。 While the coin was of its standard weight and purity； the
market price of gold bullion； he thought； could not greatly
exceed the mint price。
Mr Thornton contends that this cannot be the only cause。 〃We
have；〃 he says； 〃lately experienced fluctuations in our
exchanges； and correspondent variations in the market； compared
with the mint price of gold； amounting to no less than eight or
ten per cent； the state of our coinage continuing in all respects
the same。〃 Mr Thornton should have reflected that at the time he
wrote； specie could not be demanded at the Bank in exchange for
notes； that this was a cause for the depreciation of the currency
which Dr Smith could never have anticipated。 If Mr Thornton had
proved that there had been a fluctuation of ten per cent。 in the
price of gold； while the Bank paid their notes in specie； and the
coin was undebased； he would then have convicted Dr Smith of 〃
having treated this important subject in a defective and
unsatisfactory manner。〃 （6*）
But as all checks against the over…issues of the Bank are now
removed by the act of parliament； which restricts them from
paying their notes in specie； they are no longer bound by 〃fears
for the safety of their establishment；〃 to limit the quantity of
their notes to that sum which shall keep them of the same value
as the coin which they represent。 Accordingly we find that gold
bullion has risen from 3 l。 17s。 7 3/4d。 the average price
previously 1 to 1797； to 4 l。 10s。 and has been lately as high as
4 l。 13s。 per oz。
We may therefore fairly conclude that this difference in the
relative value； or； in other words； that this depreciation in the
actual value of bank…notes has been caused by the too abundant
quantity which the Bank has sent into circulation。 The same cause
which has produced a difference of from fifteen to twenty per
cent。 in bank…notes when compared with gold bullion； may increase
it to fifty per cent。 There can be no limit to the depreciation
which may arise from a constantly increasing quantity of paper。
The stimulus which a redundant currency gives to the exportation
of the coin has acquired new force； but cannot； as formerly；
relieve itself。 We have paper money only in circulation； which is
necessarily confined to ourselves。 Every increase in its quantity
degrades it below the value of gold and silver bullion； below the
value of the currencies of other counties。
The effect is the same as that which would have been produced
from clipping our coins。
If one…fifth were taken off from every guinea； the market
price of gold bullion would rise one…fifth above the mint price。
Forty…four guineas and a half （the number of guineas weighing a
pound； and therefore called the mint price）； would no longer
weigh a pound； therefore a fifth more than that quantity； or
about 56 l。 would be the price of a pound of gold； and the
difference between the market and the mint price； between 56 l。
and 46 l。 14s。 6d。 would measure the depreciation。
If such debased coin were to continue to be called by the
name of guineas； and if the value of gold bullion and all other
commodities were rated in the debased coin； a guinea fresh from
the mint would be said to be worth 1 l。 5s。 and that sum would be
given for it by the illicit trader； but it would not be the value
of the new guinea which had increased； but that of the debased
guineas which had fallen。 This would immediately be evident； if a
proclamation were issued； prohibiting