if it should so fall； it is in consequence of the cheapness and
redundance of currency； which 〃would originate almost entirely in
the fresh supplies which are yearly poured in from the mines of
the New World。〃 This； then； is not another point in which the
Reviewers differ with me； but the same。
If 〃it is well known that most states； in their usual
relations of commercial intercourse； have an almost constantly
favourable exchange with some countries； and an almost constantly
unfavourable one with the others；〃 to what cause can it be
ascribed but to that mentioned by Mr Huskisson？ 〃The fresh
supplies of bullion which are yewly poured in； （and in newly the
same direction） from the mines of the New World。〃 Dr A。 Smith
does not seem to have been sufficiently aware of the powerful and
uniform effects which this stream of bullion had on the foreign
exchanges； and he was inclined much to overrate the uses of
bullion in carrying on the various roundabout foreign tades which
a county finds it necessary to engage in。 In the ewly and rude
transactions of commerce between nations； as in the early and
rude transactions between individuals； there is little economy in
the use of money and bullion； it is only in consequence of
civilization and refinement that paper is made to perform the
same office between the commonwealth of nations； as it so
advantageously performs between individuals of the same country。
The Reviewers do not appear to me to be sufficiently aware of the
extent to which the principle of economy in the use of the
precious metals is extended between nations； indeed they do not
seem to acknowledge its force even when confined to a single
nation； as from a passage in page 346； their readers would be
induced to suppose their opinion to be； that there are frequent
transfers of currency between the distant provinces of the same
country； for they tell us that 〃there have been and ever will be
a quantity of the precious metals in use destined to perform the
same part with regard to the different nations connected with
each other by commerce； which the currency of a particular
country performs with regard to its distant provinces。〃 Now what
part does the currency of a country perform with regard to the
distant provinces？
I am well persuaded that in all the multiplicity of
commercial transactions which take place between the distant
provinces of this kingdom； the currency performs a very inferior
part； imports being almost always balanced by exports*； and the
proof is； that the local currency of the provinces （and they have
no other） is seldom circulated at any considerable distance from
the place where it is issued。
It appears to me that the Reviewers were induced to admit the
erroneous doctrine of the merchants； that money might be exported
in exchange for commodities； although money were no cheaper in
the exporting country； because they could in no other way account
for the rise of the exchange having； on some occasions；
accompanied the increased amount of Bank notes； as stated by Mr
Pearse； the late deputy…governor and now governor of the Bank； in
a paper delivered by him to the Bullion Committee。 They say；
〃according to this view of the subject； it certainly is not easy
to explain an improving exchange under an obviously increasing
issue of notes： an event that not unfrequently happens； and was
much insisted upon by the deputy…governor of the Bank； as a proof
that our foreign exchanges had no connexion with the state of our
currency。〃
These are circumstances； however； which are not absolutely
irreconcileable。 Mr Pearse； as well as the Edinburgh Reviewer；
appears to have wholly mistaken the principle advanced by those
who are desirous of the repeal of the restriction bill。 They do
not contend； as they are understood to do； that the increase of
bank notes will permanently lower the exchange； but that such an
effect will proceed from a redundant currency。 It remains；
therefore； to be considered whether an increase of bank notes is
necessarily； at all times； accompanied with a permanently
increased currency； as if I can make it appear that it is not；
there will be no difficulty in accounting for a rise in the
exchange； with an increased amount of bank…notes。
It will be readily admitted； that whilst there is any great
portion of coin in circulation； every increase of bank…notes；
though it will for a short time lower the value of the whole
currency； paper as well as gold； yet that such depression will
not be permanent； because the redundant and cheap currency will
lower the exchange and will occasion the exportation of a portion
of the coin； which will cease as soon as the remainder of the
currency shall have regained its value； and restored the exchange
to par。 The increase of small notes； then； will ultimately be a
substitution of one currency for another； of a paper for a
metallic currency； and will not operate in the same way as an
actual and permanent increase of circulation*。 We are not；
however； without a criterion by which we may determine the
relative amount of currency at different periods； as
distinguished from bank…notes； on which though we cannot
infallibly rely； it will probably be a sufficiently accurate test
to determine the question which we are now discussing。 This
criterion is the amount of notes of 5l。 and upwards in
circulation； which we may reasonably calculate always bear some
tolerably regular proportion to the whole circulation。 Thus； if
since 1797 the bank…notes of this description have increased from
twelve to sixteen millions； we may infer that the whole
circulation has increased one…third； if the districts in which
bank…notes circulate have neither been enlarged nor contracted。
The notes under 5l。 will be issued in proportion as the metallic
currency is withdrawn from circulation； and will be further
augmented； if there be also an augmentation of notes of a higher
denomination。
If I am correct in this view of the subject； that the
increase in the amount of our currency is to be inferred from the
increased amount of bank…notes of 5 l。 and upwards； and can by no
means be proved by an increase of 1 l。 and 2 l。 notes which have
been substituted in the place of the exported or hoarded guineas；
I must wholly reject the calculations of Mr Pearse； because they
are made on the supposition that every increase of this
description of notes is an increase of currency to that amount。
When it is considered that in 1797 there were no notes of 1 l。
and 2 l。 in circulation； but that their place was wholly filled
with guineas； and that since that period there have been no less
than seven millions issued； partly to supply the place of our
exported and hoarded guineas； and partly to keep up the
proportion between the circulation for the larger and for the
smaller payments； we shall observe to what errors such reasoning
may lead。 I can consider the paper in question of no authority
whatever as opposed to the opinion which I have ventured to give；
namely； that an unfavourable balance of trade； and a consequently
low exchange； may in all cases be traced to a relatively
redundant and cheap currency。 * But if the reasoning of Mr Pearse
were not incorrect as his facts are； he is no way warranted in
the conclusions which he has drawn from them。
Mr Pearse states the increase of bank…notes from January；
1808； to Christmas； 1809； to have been from 17 1/2 to 18
millions； or 500；000 l。； the exchange with Hamburgh during the
same period having fallen from 34s。 9g。 to 28s。 6g。 an increase
in the amount of notes of less than three per cent； and a fall in
the exchange of more than eighteen per cent。 But from whence did
Mr Pearse obtain this information； of 18 millions of bank…notes
only being in circulation at Christmas in 1809？ After looking at
every return； with which I have been able to meet； of the amount
of bank…notes in circulation at the end of 1809； I cannot but
conclude that Mr Pearse's statement is incorrect。 Mr Mushet in
his tables gives four returns of bank…notes in the year。 In the
last； for the year 1809； he has stated the amount of bank…notes
in circulation
at 19；742；998
In the Appendix to the Bullion Report； and in returns lately
made to the House of Commons； the amount of bank…notes in
circulation appears to have been on December 12； 1809
19；727；520
On the 1st January； 1810 2；669；320
On the 7th January； 1810 19；528；030
For many months previously to December it was not lower。 When
I first discovered this inaccuracy I thought Mr Pearse might have
omitted the bank post bills in both estimates； although they did
not in December； 1809； exceed 880；880 l。； but on looking at the
return of bank…notes in circulation； including bank post bills；
in January； 1808； I find Mr Pearse has stated it larger than I
can any where find it： indeed his estimate exceeds the return
made by the Bank for the 1st of January； 1808； by nearly 900；000
l。； so that from the 1st of January； 1808； to the 12th of
December； 1809； the increase was from 16；619；240 to 19；727；520； a
difference of more than three millions； instead of 500；000； as
stated by Mr Pearse； and of two millions if Mr Pearse's statement