LECTURE III*. ON SOME EFFECTS OF GOVERNMENT PAPER MONEY. In the last Lecture I considered the effect on the value of metallic money which can be produced by paper money, issued by individuals. In the present Lecture I shall consider the effects of paper money issued by governments. My first instance shall be taken from the celebrated Mississippi scheme of Law. In the beginning of the year 1716, the specie circulating in France was supposed to amount to about £40,000,000 sterling, or 800 millions of * The following account of Law's transactions is taken from Sir James Steuart, book iv. part 2; Macpherson's Commerce, vol. iii. p. 107; and Storch, vol. iv. note xvi. The account of the financial transactions during the French revolution is taken from Storch, vol. iv. note xvi., and from vol. v. of the History of the French Revolution, by M. A. Thiers. The statements respecting the Russian, Danish, and Austrian paper monies, are also taken from Storch, vol. iv. note xvi. livres-the mark of silver, which is worth about 40 English shillings, being coined into 40 livres. But for some previous years the quantity of silver denominated a livre had been constantly varying; in 1715, the mark had been coined into 28 livres ; in 1709 it had been coined into 40; in 1689 it had been coined into 28; and between 1689 and 1709 had been subject to constant alteration. Under these circumstances Law established a bank at Paris, called the General Bank, issuing notes payable on demand in livres of the same weight and fineness as those which were current at its institution; promising, in fact, to pay, not a nominal, but an ascertained quantity of silver*. The security afforded by this promise enabled the bank in the course of three years to issue notes to the amount of 59 millions of livres; and if we suppose that about 19 millions of livres were consequently withdrawn from circulation, the notes of the bank may be supposed to have raised the whole currency of the kingdom to £41,000,000 sterling, or 840 millions of livres. * The notes ran thus: "The Company promises to pay the bearer at sight livres in coin of the same weight and fine ness with the coin of this day." On the first of January, 1719, the Government, that is, the Regent in the name of the King, took possession of the bank. The first alteration was in the form of the notes; the words, " of the same weight and fineness" were omitted, and the note no longer promised to pay any thing more definite than so many livres; being, in fact, a promise to pay whatever the debtor thought fit, as the debtor had the power, in fact was in the habit, of increasing and diminishing the quantity of silver denominated a livre according to his notions of expediency. The next change was in the amount of its issues. The bank issued notes to the nominal amount of millions of livres. of livres of the nominal value of rather more than £50 millions sterling; of which at least 600 millions must have been in circulation at one time. What part of the previously existing specie remained in circulation, is doubtful. It is clear, however, that it could not have been all withdrawn, as no run was ever made upon the bank for coin. Its notes, though Its notes, though they lost the premium which they had borne while the establishment continued in Law's hands, still exchanged for coin at par.-I must now turn a little backwards in the story, and state, that while the bank was in the hands of Law and his partners, they received from the government the exclusive privilege of trading to the West Indies and the French possessions on the continent of America, (whence the name of the Mississippi scheme has ever since adhered to the whole of the transactions originating with Law,) to all countries to the east of the Cape of Good Hope, and had been incorporated under the name of "The Company of the Indias." The mint, which in France is a source of profit, was afterwards made over to them, and they obtained a lease from the crown, first of the duties on tobacco, and afterwards of all those duties which were usually leased under the old régime, and they were at last entrusted with the receipt of all the revenues of the state. In return for these privileges, besides the annual rents for the duties leased to them, they engaged to lend the government 1,600 millions (£80 millions sterling) at three per cent. To enable them to do this, the bank was restored to them, on the 22d of February, 1720: their proceedings, however, were to be under the control of government, and the King guaranteed the payment of their notes. Five days after followed the celebrated arrêt of the 27th February, 1720, which prohibited any person or corporation from possessing any bullion, or more than five hundred livres (twenty-five pounds) in specie. The most extensive powers of search were given to the police, and informers were rewarded with all the excess found. At the same time the notes of the company were not only made a legal tender, but the only legal tender, and the payment of any sum beyond ninetynine livres, (four pounds nineteen shillings) in specie was made punishable by a fine of three thousand livres. The object of these laws was, |