5360. MONEY, Circulating Medium.—[further continued].
One of the great advantages
of specie as a medium is, that being of
universal value, it will keep itself at a general
level, flowing out from where it is too
high into parts where it is lower. Whereas,
if the medium be of local value only, as paper
money, if too little, indeed, gold and silver
will flow in to supply the deficiency; but if
too much, it accumulates, banishes the gold
and silver not locked up in vaults and
hoards, and depreciates itself; that is to say,
its proportion to the annual produce of industry
being raised, more of it is required to
represent any particular article of produce
than in the other countries. This is agreed
to by [Adam] Smith the principal advocate
for a paper circulation; but advocating it on
the sole condition that it be strictly regulated.
He admits, nevertheless, that “the commerce
and industry of a country cannot be
so secure when suspended on the Dædalian
wings of paper money, as on the solid ground
of gold and silver; and that in time of war,
the insecurity is greatly increased, and great
confusion possible where the circulation is for
the greater part in paper”. But in a country
where loans are uncertain, and a specie
circulation the only sure resource for them,
the preference of that circulation assumes a
far different degree of importance.—
To J. W. Eppes. Washington ed. vi, 233.
Ford ed., ix, 407.
(M.
Nov. 1813)
