8. Adam Smith had laid it down as a principle that any permanent difference between the Market and the Mint price of bullion must be necessarily caused by the condition of the coinage itself; and Hume had observed that the Exchange never could vary but little beyond the cost of the transmission of specie. All these fundamental truths, which are as pure matters of demonstration as any proposition in Euclid, had been discovered and established long before the period we are now speaking of

4. Such were the truths established, when a Metallic Currency was the only one thought of, in estimating value. But at this time a new principle was introduced-there was what was substantially an inconvertible Paper Currency. At this period most men's ideas were transferred from the Metallic Currency to the Paper Currency. Ever since the issue of £1 notes people thought of them, when they spoke of prices, as being so many pounds. When the suspension of cash payments first took place, there was a general expectation that the Bank Notes would be depreciated, but the general resolution of bankers and merchants to support the credit of the Bank, the determination of the Government to receive Bank Notes in payment of taxes, at their par value, and the great caution exercised by the Directors during the first few years after the restriction, had removed all these apprehensions, and, for some years, Bank Notes circulated at par

5. At this time, however, phenomena occurred which directed the attention of many persons to the state of the Paper Currency. The market price of standard gold, up to September, 1799, had continued at £3 17s. 6d. per ounce, and the price of foreign gold in coin had been somewhat higher, on account of its greater use as coin than as bullion. But in June, 1800, the price of foreign gold experienced a sudden and extraordinary rise: it rose to £4 5s. per ounce ; silver rose 5s. 7d. per ounce; and the Foreign Exchanges fell below par. In January, 1801, gold and silver had each risen 18. per ounce, and the exchange at Hamburg was 298. 8d., being a depression of 14 per cent. below par. But the expense of transmitting specie to Hamburg was estimated not to exceed 7 per cent.; and, consequently, there remained a difference of 7 per cent. to be accounted for

6. It was at this time that the great and palpable truth was discovered, that if a deterioration of the coinage produced a rise of the Market price of bullion above the Mint price, and a fall in the Foreign Exchanges under a Metallic Currency, then that the opposite proposition was also necessarily true. That under a Paper Currency which was only the representative of a Metallic Currency, if the Market price of bullion (i.e., the paper price) exceeded the Mint price, and the Foreign Exchanges fell beyond the cost of the transmission of specie, that excess could only arise from the depreciation of the representative of the Metallic Currency, and, therefore, that when these circumstances occurred, they infallibly indicated that the Paper Currency was depreciated

7. We are not certain to whom the merit of the discovery of this great and important truth is due. If he had not the actual merit of discovering it, Mr. Walter Boyd was certainly one of the first to proclaim it, and call public attention to it. It was enforced with much greater ability and clearness by Lord King, and with not so much distinctness by Mr. Henry Thornton, in his Inquiry into the Effects of Paper Credit. To these three writers, however, as far as we have been able to ascertain, the merit is due of establishing this principle, which is as important in the subject of Currency as the Newtonian law of gravity is in astronomy

8. The preliminaries of peace with France were signed in October, 1801, at London, and the definitive treaty at Amiens, on the 27th March, 1802. The restriction on cash payments expired of itself six months after that event; but, though the Bank declared that its coffers were well supplied with specie, and that it was anxious and ready to resume payments in cash, the Chancellor of the Exchequer, Mr. Addington, brought in a bill on the 9th April, 1802, to continue the restriction till the 1st of March, 1803, which was passed. The arguments alleged in favour of this measure shew a wonderful decline in financial knowledge in the Government of 1802 compared to 1696. At the latter period the great reason alleged for the reformation of the coinage was the adverse condition of Foreign Exchanges, and the rise of the Market above the Mint price, caused by the depreciation of the Currency. Notwithstanding the vehement

opposition of the enemies of the Government, we have seen the triumphant success of the re-coinage, which restored the public credit and the Exchange. The sagacity of a Montague would at once have seen that the adverse state of the Exchange, and the high price of bullion, were entirely owing to the depreciated state of the Currency, and that the only method of restoring them to par was the immediate resumption of cash payments. So great, however, was the ignorance upon the subject, that the fact of the exchange being adverse was the very reason alleged why cash payments should not be resumed! Sir R. Peel said the course of exchange was, at this moment, against us all over Europe. Mr. Addington, in bringing in the bill, said—

"It cannot be necessary for me to inform the House that the Rate of Exchange between this country and foreign parts is disadvantageous to ourselves-that the export trade has been for some months at a stand, that while the Rate of Exchange is disadvantageous to us, an augmentation of the circulating cash would create a trade highly injurious to the commerce of this country. For several months past, there has been a trade carried on for purchase of guineas with a view to exportation. It is on these grounds that I submit to the House the expediency of continuing the restriction with regard to the cash payments of the Bank"

Why, these were the very reasons why a return to cash payments should have been made without delay! The reason why the trade of buying up guineas was going on was just because of the redundant quantity of paper; the paper "promises to pay" were falling in value as compared to the guineas, and, as a necessary consequence, guineas were exported, and, so far from a return to cash payments augmenting the circulating medium, it would infallibly have considerably diminished it by making the Bank reduce its paper issues. It was because the prices of articles were so high in this country that the export trade was unprofitable, and a reduction of the Bank notes would infallibly have compelled such a reduction in prices as would have facilitated the export

9. The result of this extraordinary amount of financial error could have been easily predicted. The circumstances of the country did not improve, as the Ministry had taken the most

effectual measures to prevent them doing so. In February, 1803, Mr. Addington had to come forward again to prolong the restriction. He said that the reasons which suggested it were too strong, and the necessity too urgent, to be resisted. The restriction was continued last Session because the Exchanges were adverse the Exchange at Hamburg was then at par-that with Amsterdam adverse. Upon these grounds, he said, it was expedient to continue the restriction, until the progressive advance of our commerce would produce such a steady inclination of the Exchange in our favour, as to render it safe to resume cash payments. That the scarcity of the last three years had made it necessary to export twenty millions of bullion in payment of corn, and until that came back cash payments could not be resumed. Mr. Fox said that such a mode of arguing went to establish it as a general axiom that, whenever the Exchanges were adverse, cash payments of the Bank ought to be suspended; and then he touched the right point. "Perhaps, even, it might happen that the unfavourable turn of the Exchange against this country might be owing to the very restriction on the Bank." And he said

"In 1772, or 1773, when there was a great quantity of bad money in the country, the course of exchange was then also much against us, but when, in the room of this adulterated money, good gold was substituted, the consequence was that the Exchanges turned almost immediately in our favour. As long as our Currency continued bad, the exchange was against us, so it is now, because paper is not much better than bad gold; as it is attended with the same inconveniences. May it not, therefore, be expected that, as in the former case, when our Currency was ameliorated, the course of Exchange turned in our favour, so also if the Bank now resumed its cash payments, the same favourable circumstances might attend the change?"

The trace of truth thus hit upon was not followed up; and, while the directors of the Bank alleged that they were perfectly able to resume cash payments, the Ministry enforced a continued restriction upon them, for political reasons, until six weeks after the beginning of the next Session of Parliament. In the Lords, Lord Pelham said that the idea of renewing the restriction at the present moment originated solely with the Government, who

had had no communication with the Bank on the matter. The great truth doubtingly hinted at by Mr. Fox, was much more strongly and fully stated by Lord King and Lord Moira in the House of Lords. The Ministry complained that the importation of bullion was hanging fire; was it not plain that the reason was that its value in this country was depreciated by the plethora of paper? and the true way to attract it was by diminishing the quantity of the paper, and so raising the value of the gold. The bill was carried without a division

10. If the resumption of cash payments was unadvisable under the preceding circumstances, the untimely end of the short and feverish peace in 1803 rendered it still more impracticable: and, immediately upon the opening of the Session, a bill was brought in to continue the suspension. We find it stated that the hoarding of guineas had been going on to such an extent, that it was with the utmost difficulty that they could be procured for the common purposes of life. The Chancellor of the Exchequer talked of the baseness of such a practice, which was inconsistent with public spirit and the duty of a good citizen. Precisely the same language had been held by the revolutionary leaders in the tribune of the French Convention regarding assignats. The debate in the Lords produced some excellent speeches. Lord Grenville, who had been of the Cabinet who proposed the suspension originally, now gave very evident signs that his opinion. was very much altered, and severely censured the attacks of the Chancellor of the Exchequer upon those who preferred to keep their guineas at home. Lord King now gave the clearest enunciation of the principles of a Paper Currency, which had before been rather feebly hinted at. He said

"The natural and only true limit of every Paper Currency was the power of compelling payment in specie, at the will of the holder. A Paper Currency, not convertible into specie, had no rule or standard except the discretion of the persons by whom it was issued. To determine the quantity of currency necessary for circulation was in all cases a difficult and delicate problem. A very strict attention to the price of Bullion, and the state of the Foreign Exchanges, was alone capable of affording a just criterion by which the quantity could be truly ascertained. Without a