The Sun.
London, England, 1857-11-27 00:00:00

DIALOGUE.

A. What is money ?
B. Money is a security for obtaining its equiva-
lent value in capital. It is usually defined to be
the measure of value, the medium of exchange, and
the universal equivalent ; but these qualities com-
bined constitute another—its most practical charac-
ter—which appears to have been overlooked, and
which willgo a great way to solve the mysteries of the
currency question—l mean its cardinal function as
a security for obtaining its equivalent value in
capital, on which security capital is transferred from
one party to another, and direct barter superseded.
The first step taken after emerging from a state of
barter, is to purchase money; the labourer instead
of exchanging his labour for food and clothes, re-
ceiving his wages in kind, exchanges it for, or buys
with it, such a sum of money as will enable him
to repurchase the samo quantity of food and
clothes. Thus capital (ordinarily defined to be
services and commodities used in production), is
the 'original purchasing power, and not money,
which is merely a security for repurchasing. A
banker does not lend his capital, but his money
which be has bought with his capital. "Itis a
very common fallacy," says Lord Overstone, in
answer to question 3,721, by the late Bank Com-
mittee, "to consider money and capital as the same
thing ; " and a higher authority, Adam Smith,
says, " The great wheel of circulation (money) is
altogether different from the goods (capital) which
are circulated by the. means of it." A banker con-
verts his capital into- anoney,' and then lends the
money as the means of obtaining a return 'for his
capital • just as another capitalist invests his iu
land and looks to rent ; or in trade, and looks to
profit for his return. The Bank Committee and
Lord Overstone, after battling about the nature'of
money, come to a somewhat similar conclusion as
to its character. Lord Overstone is asked by the
committee, question 3,759—"Money is merely a
means by which capital is obtained ?" And he
answers "Now we have got to a common locus
_

ccildi."
A. If your definition of money be correctthat its
most practical character is that of a security, for
obtaining its equivalent value in capital ; then, any-
thing possessing that character is money ?
B. Yes ; amongst the anoients, furs, cowrie
shells, &c., circulated as money—as securities for
obtaining their equivalents in value, estimated by
the labour necessary to procure them—these were
succeeded by coin, as a more accurate measure of
value, and of greater convenience, being divisible
into smaller sums ; and lastly came paper credit
monoy—paper promises to pay money—the most
useful, convenient, and economical money of all,
provided it be as safe as coin.
A. Then what could bo better money than the
promissory note of a Government, for which the
whole country wouldbe the guarantee ?
B. Nothing ; if you could guard against over-
issuing; but the power of issuing has been so often
abused for political purposes, that it is desirable to
apply the drag-chain of convertibility.
A. Do not Bank of England notes constitu-
ting our paper legal tender money, possess then
the character ofinouey in an eminent degree ? being
issued against Government securities or gold, and
being subject to convertibility on demand.
B. Yes ; their quality is as near perfection as
possible, though in' public opinion they might be
more perfect were they issued directly by the Go-
vernment ; but this slight degree of imperfection
is counterbalanced by the greater facility which the
businesi of a Bank affords of bringing them iato
circulation.
A. But does not the principle of convertibility
expose us to all the evils of drains of gold ? and
is not the main object of the Act of 1844 to coun-
teract foreign drains by curtailing our domestic
currency, and making money dear, and everything
else cheap, in order to bring back the gold ?
B. Yes; and a most suicidal and unnecessary
policy it is, drying up the str am which turns the
great wheel of circulation and keeps trade in motion
—throwing all hinds out of empl,-)yment. How
different to the proceedings of a sensible man of
business, who, having a mill turned by water power,
constructs a dam to feed the stream in times of
drought, and thereby obtains a more constant and
ste3.dv supply of circulating power. We possess
such a reservior of gold iu the sovereigns absorbed
in the retail trade, through the means of which by
substituting one pound notes for sovereigns we can
t n ai u.
Regarding
ai n our stream
m omoney i
of
ti circulationthelig
light
steady.
security ;
y*
how can a sufficient supply of such securities be ob-
tained, as you say, at a moderate and steady rate ;
A
so as never to exceed 5 per cent. by the Bank of
England.
B. By establishing Free Trade in a sound cur-
rency, and leaving the supply and demand of such
securities to adjust themselves to each other—al-
lowing all to issue notes of 5/. and upwards, on
giving adequate security fortheirconvertibility, and
making the note only of the Bank of England, (as
being the representative of the Government) a
legal tender—reserving to the Bank of England the
right of issuing one pound notes as substitutes for
sovereigns when evertheir minimum rate of discount
reaches 5 per cent., on condition of depositing two-
thirds of the amount of such issues in Government
Securitiei, and one-third in gold, and paying 4
per cent. to the Goternment for the two-thirds of i
the notes of which they would have the beneficial
use. By this means an adequate supply of money
could be obtained at a moderate rate, so as never
to exceed 5 per cent., by the Bank of England, and
such equable and moderate rate was maintained by
the Bank of England for 140 years previous to the
Act of 1844, excepting for a few months in 1839.
A. But were not the usury laws then in force,
prohibiting a higher rate than 5 per cent. to be
charged ?
B. They
w
c iu influence,
which haveth ehy
rangedea
rd
mayenroehnlf
aareoxv
meeo
hadrelaxed in it nth
oe1p58;
a3i
po3t
eer, r
tafeorneoclumltB.l33:lheB,ax3t
ete3ehypeettyor.
ing for a few months in 1839 when it rose to 6 per
cent.

A. What would be the effect if 30,000,0001. o
notes were substituted for sovereigns on the plan
you suggest 7
B. The Bank of England would retain
10,000,0001. in its coffers as a guarantee for the
convertibility of the 30,000,0001. of notes issued
(a proportion greater than the Bank have hitherto
considered to be safe, having acted on the principle
that one-third to mee tall their liabilitiesboth of depo-
sits and notes was sufficient), this would set atliberty
twenty millions of sovereigns ; which could be
either sent abroad in exchange for cotton, corn, and
other capital, thereby adding so much to the float-
ing capital of the country, or be added to the Bank
reserve and lower the rate of discount, for on the
amount of the Bank reserve of legal tender money
i depends the rate of discount, and so long as the
twenty millions of notes remained in circulation
they would yield a revenue of 800,0001. per annum
to the Government.
A. But would not a lower and steadier rate of
money lead to over-trading and speculation t
'B. It might lead to greater competition ; so
much the better for the public ; but not to greater
over-trading and speculation. The degree to which
these have been carried on under the Act of
1844, cannot be exceeded. Witness the railway
mania in 1845 ; and the present over-banking fluc-
tuations in the value of money are the mainsprings
of speculation. Under the Act of 1844 money has
been lent by the Bank at 11 per cent., and is now
not to be had at the Bank under 10 per cent.
A. By allowing the Bank of England, when its
rate of discount reaches 5 per cent., to increase its
quantity of gold ; by
,substituting 11. notes for
sovereigns, and thereby preventing any further rise
in the rate of discount, are you not interfering with
the natural value of money ?
B. No, not with the natural but with the un-
natural value of money, occasioned by such extra-
ordinary drains of gold'as the Indian mutiny and
the American panic give rise to. It is prepos-
terous that our monetary laws cannot spare a few
millions without bringing the trade of the
country to a stand. Were this the inevitable
consequence of convertibility, some modifica-
tion of the principle would be necessary, but it is
not, as it may be obviated. Moreover, the natural
value of money is not interfered with, as the safety
valve is only opened when the monetary pressure
has raised the rate of discount to 5 per cent.—a
rate higher than rules in ordinary times on the
Continent—and one which admits the rectification
of the exchanges naturally. Under such a plan,
were a foreign drain of bullion to arise, to pay a
balance of trade due from us, say to the amount of
5,000,000/., that sum could be spared from this
national reserve, without any disturbance of our
domestic currency—the debt would be paid--the
I'adverse rate of exchange be rectified—trade would
pursue its usual course, and gold .ho left to find its

level by natural laws. When a reflux took place,
producing, of course, a fill in the rare of discount,
tile sovereigns (of which we have 70 millions In
would tiud thair w;iy again int.) tha retail trade,
as it would no longer suit the BAIA to pay
.4 per
cent. for the use of the notes. •