Banknotes are considered by some as “representatives of specie.” But, for every silver dollar they have in their vaults, some of the Banks have two paper dollars in circulation, some three, some five, some eight, and some thirteen. Banknotes cannot represent that which the Banks have not, and which is not in the country. If Banknotes can, in any sense, be considered representatives of specie, the paper dollar of the same Bank sometimes represents fifty cents, and sometimes forty cents and the paper dollars of different Banks represent at the same time, thirty-three aJ)d a third cents, twelve and a half cents, ten cents, and seven cents of the silver dollar. Yet they are all current, and all have the same effective power as silver in exchanges.
Various other erroneous views are entertained of the nature of Banknotes, the consideration of which would be tedious. Examining them one by one would be merely showing what Banknotes are not. Instead of doing this, it will, it is presumed, be sufficient to show what Banknotes are. Banknotes are simple evidence of debt due to the Banks. This is their true character.
As mere evidence of debt, they differ not from the promissory notes of merchants. They are also, in common with bills of exchange and business notes, a commercial medium; but in some respects, there is an essential difference between Banknotes and the notes of merchants.
For their promissory notes, the merchants pay interest. For the promissory notes of the Banks, the Banks receive interest.
The promises to pay of the merchants are fulfilled when the notes arrive at maturity. Banknotes are never paid.t Payment of them in the aggregate is never demanded because what could be got in payment, would, for ·most purposes of domestic trade, serve no better purpose than Bank notes themselves.
Banknotes are thus a kind of paper money. In the countries where they are used, bills of exchange, the promissory notes of merchants, and balances of running accounts are paid in Banknotes, as they are· paid in other countries with metallic money.
The sales for prompt payment in Banknotes regulate sales for deferred payment in Banknotes, as, in solid money countries, cash transactions regulate credit transactions.
Like real money, Banknotes are instruments of valuation. The quantities they express are the exponents of the effective power in exchanges of land, labor, and commodities.
An increase or decrease of Banknotes in the United States, has the same effect on prices, that an increase of solid money has on prices in Spain or Switzerland.
Increase the amount of Banknotes, and, other things being little same, prices will rise.
Diminish the amount of Banknotes, and, other things being little same, prices will fall.
In our first chapter, the several qualities of gold and silver were enumerated, all which qualities an article must possess in the same degree, to serve as well as the precious Inetals the purposes of money. In proportion as the qualities of articles recede from those of gold and silver, they are unfitted for these uses. By a comparison of the different qualities of Banknotes and coins, the reader may acquire a clear conception of the difference between real money and fictitious.
In susceptibility of receiving an impression, and in comprising a great value (i. e. market value) in a small space, Banknotes agree with a coin. But in everything else they disagree. Of utility in the arts, the very attribute that gives gold and silver their value in commerce, Banknotes are utterly destitute. They are also destitute of the important qualities of the unchangeableness of value, and uniformity of value.
We, however, because we have never changed our money of account, fancy that we have never changed our standard of value. We call a Bank dollar by the same name as a silver dollar and then fancy there is no essential difference between them.
In our mensuration of other things which admit of increase or decrease by homogeneous degrees, we use instruments possessing the same physical properties as the thing to be measured. The judgment the mind forms of weight or length is regulated by a material standard. The judgment the mind forms of value is regulated by an ideal standard, for Bank credit is something altogether intangible.
In solid money countries, in all sales of goods for cash, the products of labor are exchanged for the products of labor. The product of the miner’s labor is made the instrument for circulating the products of the farmers and the manufacturer’s labor. The transactions are removed but one step from simple barter and do not differ from it in its essential principle. The exchanges on both sides are of articles possessing inherent value-articles in the production of which labor has been bestowed, and articles which possess the physical qualities which adapt them to the satisfaction of human wants and desires. We receive commodities from one another and give in return some uncertain representatives of credit, and fancy that trade is conducted with us on the same principles as it is in those countries where paper money is unknown. We pass from hand to hand certain promises to pay and call that making payment.
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