How can paper money increase the wealth of a nation?

[Home] Project in progress:

The extract below is from an 1851 Retford Currency Society booklet with essays and reports of the success of government issued interest free money. The N American colonial financial structures are reviewed as is a issue on the island of Guernsey. The most complete facsimile of the Retford document (Flip book 2.4MB) is located at:

The contents lists:- 1. Currency, agriculture, and free trade. 1851. 4. How can paper money increase the wealth of a nation? 1849. 5. Second address to the farmers of England. [1851] 6. Market Bosworth Farmers' Association meeting, held October nd, 1850, at the Dixie Arms Inn. 1851

London :
Simpkin, Marshall, and Co. stationers hall court ;
W. Skeffington, 192, Piccadilly ; J. Ollivier, 59, Pall Mall ;
and A. Metcalfe, Retford . 1849. HG 938 R45

How can paper money increase the wealth of a nation?
This is a question often asked. To many persons it appears impossible that bits of Paper, inscribed with certain characters, can promote the prosperity of a nation, or increase its wealth. This question shall not now be answered by explaining the true theory of money, but by an appeal to facts. Land and labour being admitted to be the primary sources of a nation’s wealth, let facts shew how Paper Money assists land and labour to create wealth.

Look, first, at the great fact of the prosperity and wealth of the United States of America. As a testimony to their growing prosperity, let us take a short extract from a speech of EDWARD BURKE, on American Taxation, delivered in the House of Commons so far back as the 14th. of April, 1774. Alluding to the Americans, he says :—

“Nothing in the history of mankind, is like their progress. For my part, I never cast an eye on their commerce, and their cultivated and commodious life, but they seem to me rather nations grown to perfection through a long series of fortunate events, and a train of successful industry accumulating wealth in many centuries, than the colonies of yesterday ; than a set of miserable outcasts, a few years ago, not so much sent as thrown on the bleak and barren shore of a desolate wilderness, three thousand miles from all civilized intercourse.”

Such is the recorded opinion of one who richly deserved the name of a “ statesman.”
And how was this miracle effected ? The celebrated DAVID HUME shall answer that question. Here is an extract from his correspondence with the Abbe Morellet :—

“ In our colony of Pennsylvania, the land itself, which is the chief commodity, is coined, and passes into circulation. A planter, immediately he purchases any land, can go to a public office and receive notes to the amount of half the value of his land, which notes he employs in all payments, and they circulate through the colony by convention.

To prevent the public being overwhelmed by this representative money, there are two means employed ; first, the notes issued to any one planter must not exceed a certain sum, whatever may be the value of the land ; secondly, every planter is obliged to pay back into the public office every year, one tenth of his notes.

The whole is of course annihilated in ten years, after which it is again allowed him to take out new notes, to half the value of his land.”

Now observe here how completely the Currency Question is a Farmers’ Question. Paper Currency, or “ representative money,” as David Hume here calls it, would enable the English Farmer to drain his land, to improve its cultivation, and to employ more labour, just as it enabled the American Planter to convert a barren wilderness into fruitful fields. The means adopted for issuing the Paper Currency, viz. through a public office of government, were suitable to a colony in its infant state. In such a state there would be no body of men of sufficient wealth and responsibility to act as Barkers.

In an old country, like our own, where capital has been accumulated, Bankers discharge the function, which the government of the American colonies assumed of issuing commercial money. A more useful body of men does not exist. No government machinery could provide agents so well adapted for furnishing the money of commerce as the wants of the people require it, as are the Bankers of this county. As men of education and probity, resident in every district, acquainted with the character, resources, and peculiar circumstances of each individual, Bankers—under just and liberal enactments for securing the stability of their houses—occupy an honourable and important position, and exercise a most beneficial influence, morally and politically, on the community. Their interests, rightly understood, and the interests of the agricultural and commercial bodies, are identical. In promoting the general prosperity of the country, they secure their own.*

But we proceed to adduce another authority as to the advantages resulting from a Paper Currency, viz. DR. BENJAMIN FRANKLIN. In 1764, before the Stamp Act was proposed in Parliament, (which was passed the next year, and repealed the year following) Dr. Franklin, writing in England in defence of the Paper Money of the Colonies, says :—

“ On the whole, no method has hitherto been framed to establish a medium of trade in lieu of money, equal in all its advantages to bills of credit, founded on sufficient taxes for discharging them, or land securities of double the value for repaying them at the end of the term, and in the mean time made a GENERAL LEGAL TENDER. The experience of now near half a century in the middle colonies, (New York, New Jersey, and Pennsylvania) has convinced them of it among themselves, by the great increase of their settlements, numbers, buildings, improvements, agriculture, shipping, and commerce. And the same experience has satisfied the British merchants who trade thither, that it has been greatly useful to them, and not in a single instance prejudicial.”

ADAM SMITH’S version of this system is worthy of observation :— “ It is convenient,” he says, “ for the Americans, who could always employ with profit, in the improvement of their lands, a greater stock than they can easily get, to save, as much as possible, the expense of so costly an instrument of commerce, as gold or silver ; and rather to employ that part of their surplus produce which would be necessary for purchasing those metals, in purchasing the instruments of trade, the materials of clothing, several parts of househould furniture, and the iron work necessary for building and extending their settlements and plantations ; in purchasing, not dead stock, but active and productive stock.”

Again he says,
“ The redundancy of paper money necessarily banishes gold and silver from the domestic transactions of the colonies, for the same reason that it has banished those metals from the greater part of the domestic transactions in Scotland ; and in both countries, it is not the poverty, but the enterprising and projecting spirit of the people, their desire of employing all the stock which they can get as active and productive stock, which has occasioned this redundancy of paper money.”

He also says,
“ In those branches of business which cannot be transacted without gold and silver money, it appears that they can always find the necessary quantity of those metals.”—Wealth of Nations, B.V.CH.III.

The “representative money” which could in the Colonies be converted, at pleasure, into land, labour, and produce of every kind, could, of course, as easily be converted, at the market price, into gold and silver.

Now a country prospering, as was the case with the American Colonies, is generally well satisfied with its form of government. In 1776, Dr. Franklin was examined before a Committee of the whole House of Commons ; he was asked, “What was the temper of America towards Great Britain before 1763 ?”

He answers, “ The best in the world. They submitted willingly to the government of the Crown, and paid in all their courts obedience to Acts of Parliament. Numerous as the people are in the several old provinces, they cost you nothing in forts, citadels, garrisons, or armies, to keep them in subjection. They were governed by this country at the expense only of a little pen, ink, and paper. They were led by a thread. They had not only a regard, but an affection for Great Britain, for its laws, its customs, and manners, and even a fondness for its fashions that greatly increased its commerce. Natives of Britain were always treated with particular regard ; to be an Old England man was, of itself, a character of some respect, and gave a kind of rank among us.”

In an evil hour, the British Government took away from America its “ representative money,” commanded that no more paper “bills of credit should be issued, that they should cease to be a legal tender,” and collected the taxes in hard silver. This was in 1773. Now mark the consequences. Ruin seized upon these once flourishing Colonies, the most severe distress was brought home to every interest and every family ; “ human nature,” as Dr. Johnson phrases it, “ rose and asserted its rights.” In 1775, the American Congress first met in Philadelphia. In 1776, America was declared an independent State.

Take another fact as to what Paper Money has effected, on a smaller scale, and in more recent times.
Starting in1815 by 1829 there was £48 000 Island government money in circulation

“ The STATES OF GUERNSEY, having determined to build a Meat Market, voted £4,000. to defray the cost. The notes were guaranteed by the whole of the property of the island, said to be worth four millions. These notes did not bear any interest, nor were they convertible into the precious metals. They were tokens, not possessing any intrinsic value, but only that conventional or representative value which they received from the authority of the States by whom they were issued. They were the symbols of the real money of the island. They were worthless to any other community than Guernsey, and therefore there was no inducement to their exportation. Consequently they remained permanently in local circulation for local purposes. They were inscribed “Guernsey Meat Market Notes,” and numbered from 1 to 4000, each note representing £1. of account in the currency of the island. They were legal tender by universal assent.

With these notes the States paid the contractor, and with them he paid his work men, and all who supplied him with materials. They were freely taken by tradesmen for goods, by landlords for rent, by the authorities for taxes.

In due season the market was completed. The butchers’ Stalls, with some public rooms constructed over them, were let for an annual rent of £400. At the expiration of the first year of this tenancy, the States called in the first batch of notes, numbered from 1 to 400, and with the £400. of real money received for rent, redeemed the £400. of representative money, expressed by the “ Meat Market Notes.” At the end of ten years, all the notes were redeemed through the application of ten years’ rental ; and since that period, the Meat Market has returned a clear annual revenue to the STATES, and continues to afford accommodation, without having cost a farthing in taxes to any inhabitant.”**

Can it be doubted that—as this able writer infers—the system which enabled the States of Guernsey to build their Market, would, if the restrictions on the issue of Representative Money were removed, reclaim the bogs of Ireland ?

These facts prove that either on a small scale, as in the instance of the GUERNSEY STATES, or on a large one, as in the case of the AMERICAN COLONIES, the judicious application of representative money—PAPER CURRENCY—is attended with the most beneficial effects to the community.

The American Colonies grew great and prospered, not only with Paper Money, but in consequence of it. Their Paper Currency was withdrawn—distress, ruin, and revolt followed. Again, in recent times, an attempt was made to establish, to a great extent, a Metalic Currency. Commercial depression, stagnation of trade, and panic, were the results. “The Americans,” says an experienced Liverpool merchant, Alexander Henry Wylie, Esq. who was examined before the Committee of the House of Lords on the Commercial Distress of 1847, “have paid for their experience, and profited by it ; and so far as I have been able to compare different systems of Banking, and to look into the subject, I believe that in no part of the world whatever, is there a system of Banking more perfect than that now working under the General Banking Law of New York. It has now been in operation ten years, and it is found to answer securely and profitably : that is, profitably to the proprietary, and usefully to the public. The great peculiarity of the General Banking Law is, that it enables any party or parties desiring to form a Banking Association to do so, on complying with certain provisions of the Law, the principal of which is the deposit with the State Comptroller, of an amount of state stock equal to the amount the projected Banking Association intends to issue.”

Here is a return to the system of Paper Bills of Credit, under which the American Colonies originally flourished, and under which we may expect to see the United States rapidly advancing in prosperity. Great Britain has paid for her experience, but has not yet profited by it. The Americans will every day grow richer, and we shall grow poorer.

Again, MR. ALISON, the able and distinguished historian, gives this testimony to the power and superiority of Paper Money. “ When sixteen hundred thousand men were engaged in active warfare, on the two sides in Germany and Spain alone, where nothing could be purchased but by specie, it is not surprising that guineas went where they were so much needed and bore so high a price. In truth, such was the demand for the precious metals, owing to that cause, that at length all the currency of the world, attracted to Germany, as a common centre, could not supply it ; and by a decree on September 30th, 1813, from Peterswaldau in Germany, the allied sovereigns issued paper notes, guaranteed by Russia, Prussia, and England, which soon passed as cash from Kamskatkha to the Rhine, and produced the currency which brought the war to its successful issue. There was an instance of the manner in which a paper circulation, based on proper security, supports credit and supplies the want of specie at the decisive moment. Whereas, according to the present system, the paper would of necessity have been contracted, when the specie became scarce—credit would have been ruined at the critical period, and the vast armaments of the allies would have been dissolved for want of funds for their support.” England in 1815, and 1845. p. 76, 77.

And in a recent edition of the History of Europe, he gives this additional evidence of the important advantages which EXPERIENCE HAS DEMONSTRATED to result from a Paper Currency. “ To the suspension of cash payments by the Act of 1797, and the power in consequence vested in the Bank of England, of expanding its paper circulation, in proportion to the abstraction of the metallic currency and the wants of the country, and resting the national industry on a basis not liable to be taken away either by the mutations of commerce, or the necessities of the war, the salvation of the empire is beyond all question to be ascribed.
A similar crisis, and from a similar cause, occurred in 1810, but it led to no injurious results ; on the contrary, it was contemporary with the greatest exertions of the nation. The prodigious absorption of specie for the use of the French and Austrian armies during the campaign of 1809, joined to the immense cost of the campaign in Portugal, and the importation of one million five hundred thousand quarters of wheat, to supply the deficiences of a bad harvest in 1810, had occasioned so great a dearth of specie in Great Britain in the latter year, that gold and silver had almost disappeared from the circulation ; and a light guinea was worth twenty-five, and sometimes as much as twenty-seven shillings. But what then ? The Banks increased their issue in a similar proportion ; that of the Bank of England was raised to twenty-eight millions ; its discounts reached twenty millions in a single year. All other Banks did the same ; and, by this means, not only was the crisis surmounted without difficulty, but a hundred thousand combatants and forty ships of the line were assembled round Lisbon, which hurled back the French from the lines of Torres Vedras. A commercial and monetary crisis which, beyond all question under our present system, would have involved the nation and all the commercial interests in a general public and private bankruptcy, was not only surmounted without distress, but the property of the industrious classes was unimpared during its whole continuance ; and the nation commenced in the middle of it, those gigantic efforts which at length turned the tide against France, and brought the contest to a glorious termination. It is remarkable that this admirable system, which may be truly called the MOVING POWER OF THE NATION during the war, became towards its close, the object of the most determined hostility on the part both of the great capitalists and chief writers on political economy in the country. Here, however, as everywhere else, EXPERIENCE, THE GREAT TEST OF TRUTH, HAS DETERMINED THE QUESTION. The adoption of the opposite system of contracting the paper in proportion to the abstraction of the metallic currency, by the Acts of 1819 and 1844, (followed as it was necessarily by the monetary crises of 1825, 1839, and 1847) has demonstrated beyond a doubt that it was in the system of an expansive currency that Great Britain during the war found the sole means of its salvation.” Alison’s History of Europe, vol. xx. p. 79, 80.

And moreover, the fact that from 1797 to 1815, commerce, agriculture, and wealth advanced (in spite of all the evils of war) with a rapidity greater than they had previously done in centuries, proves still further the power of Paper Money, to increase the wealth of a nation.
In 1819 we took a step backwards. Peel had not the power of destroying the system of Paper Money. Had he been able to do so, and had he done it, the nation would have retrograded as speedily as it had advanced. But Peel’s Bill crippled the monetary system which Mr. Pitt had introduced. Peel went as far as he dared to restore an exclusively metallic money—the money of the early ages of barbarism. Nor shall we ever permanently prosper as a nation, till we return to a Representative Paper Money—the money of civilization and progress. Money which is capable of expanding with expanding wealth and increasing population. Money based upon the great truth that a nation’s wealth consists not only in the precious metals, which are drawn out of the mine ; but that there is wealth lying hid in the nerves and sinews of the labourer, the enterprise of the merchant, the skill of the artizan, the discoveries of science ; which, therefore, gives to every wealth-producing power of man, to land and to labour—no less than to gold and silver—its representative, as well as its real value.

* Those Bankers who seem to think that their individual interests require that the advantages of Paper Money should be doled out under the most restrictive system that the country can bear, resemble the Dutchmen in Sumatra, who used to destroy half their crop of spices, in order to enhance the value of the remainder.
** Letters on Monetary Science—by Jonathan Duncan, Esq.


No comments: