HKB
to the Banker or merchant, whether the whole be issued in discounting bills, or a part be so issued, and the remainder be issued by means of these cash accounts.
It may perhaps be necessary to say a few words on the subject of the two metals, gold and silver, which are employed in currency, particularly as this question appears to perplex, in many people's minds, the plain and simple principles of currency. "In England," says Dr. Smith, "gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or proclamation; but was left to be settled by the market. If a debtor offered payment in gold, the creditor might either reject such payment altogether, or accept of it at such a valuation of the gold, as he and his debtor could agree upon."
In this state of things it is evident that a guinea might sometimes pass for 22s. or more, and sometimes for 18s. or less, depending entirely on the alteration in the relative market value of gold and silver. All the variations too in the value of gold, as well as in the value of silver, would be rated in the gold coin,--it would appear as if silver was invariable, and that gold only was subject to rise or fall. Thus, although a guinea passed for 22s. instead of 18s. gold might not have varied in value, the variation might have been wholly confined to the silver, and therefore 22s. might have been of no more value than 18s. were before. And on the contrary, the whole variation might have been in the gold: a guinea, which was worth 18s. might have risen to the value of 22s.
If now we suppose this silver currency to be debased by clipping, and also increased in quantity, a guinea might pass for 30s.; for the silver in 30s. of such debased money might be of no more value than the gold in one guinea. By restoring the silver currency to its mint value, silver money would rise; but it would appear as if gold fell, for a guinea would probably be of no more value than 21 of such good shillings.
If now gold be also made a legal tender, and every debtor be at liberty to discharge a debt by the payment of 420 shillings, or twenty guineas, for every 21l. that he owes, he will pay in one or the other according as he can most cheaply discharge his debt. If with five quarters of wheat he can procure as much gold bullion as the mint will coin into twenty guineas, and for the same wheat as much silver bullion as the mint will coin for him into 430 shillings, he will prefer paying in silver, because he would be a gainer of ten shillings by so paying his debt. But if on the contrary he could obtain with this wheat as much gold as would be coined into twenty guineas and a half, and as much silver only as would coin into 420 shillings, he would naturally prefer paying his debt in gold. If the quantity of gold which he could procure could be coined only into twenty guineas, and the quantity of silver into 420 shillings, it would be a matter of perfect indifference to him in which money, silver or gold, it was that he paid his debt. It is not then a matter of chance; it is not because gold is better fitted for carrying on the circulation of a rich country, that gold is ever preferred for the purpose of paying debts; but simply because it is the interest of the debtor so to pay them.