30 Oct. 1800

Ordo & Brouillon

Paper Mischief

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Ordo

I. Introductory Matter+

II. Mischiefs of Paper Money Announced.

III. Advantages, real or supposed announced

IV. Mischiefs proved

V. Advantages disproved or admitted

VII. Case as between Bank and Banker’s paper.

VI. Adam Smith considered.

Conduct. Post-off the long[?] description to an Appendix?

Title

Thoughts on Paper Money. Shewing the mischiefs produced by/flowing from it—including its share in the present pressure[?]—together with an indication of the remedy.

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+Remedies that can not be [...?] at the [...?] draw attention[?] from the [...?].

Facts indisputable or acknowledged

1. That the prices of commodities must be regulated by the proportion between commodities and money.

2. That within these 50 years prices in general have undergone a great encrease.

3. That within do money has received a great encrease.

4. Deductions &c.

4. The rise of prices (taken all together) is an exact measure of the encrease of the quantity of money above that of vendible commodities.

5. Mischief of a rise of prices, the defalcation from the income of fixed-incomists.

6. This overlooked by A. Smith, who has attended more to wealth than feeling.

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Instead of Real Price—say Cost or Charge of production.

As the rise of prices equal to one third of the whole sum of prices gives one third part of the value false, This of itself serves as a proof that the addition to the quantity of money has been productive of no addition to the quantity of wealth.

When once an error has got into the universal[?] language, it is next to impossible to get it out again. Propositions and those false, are imperceptibly involved in terms[?]. The true opinion is dug out and brought to view, with great labour by a few thinking men: while the false opinion is declared every moment by all the world.

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7. Adam Smith specter[?] of the rise of prices not resulting purely from encrease of metal money.

8. Accordingly he considers any addition to money by paper money as impossible—as he considers the expulsion of an equal quantity of metal money as a necessary effect.

9. Were this the case paper money would not be chargeable with the mischief in question—but would be purely beneficial.

10. It appears not to have been productive of any such effect—[...?] by testimony of Mr Rose.

11. 2. by the testimony of the known matter of fact viz: the rise of prices.

There can be no rise but as the ratio of money to commodities encreases.

11. (1) Scarce any cash remained he says, along with the American currencies—True: because the demand for foreign commodities encreasing faster than the stock of their own commodities they had to give in exchange, the deficiency was necessarily filled up by cash—

Apply this to the expulsion of cash from the Country.

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12. This shews that money has no such tendency to drive out money as he supposes.

13. He sometimes seems to suppose the quantity of money to be limited by the quantity of commodities.

14. If it were—metallic money would drive out metallic money—which he does not seem to suppose—and which is disproved by the rise of prices.

15. Rise of prices ought naturally to affect all commodities alike, and would were it not for particular causes—viz:

1. Unequal rise or fall of real price.

2. Unequal rise or fall of demand.

3. Taxation.

4. In case of imported articles like causes acting in the producing country.

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16. Of Cloathing &c. the prices have risen less than provisions—because the real prices have been reduced by manufacturing improvements.

17. Of Corn the price has been kept down by the improvements in Husbandry.

18. Of {provisions}cattle the price has risen above corn by the encreased demand produced by Horses which are the effects as well as causes of wealth and the instruments of security as depending on national defence.

19. Of Mutton, A. Smith has shewn how the price has been kept up by the prohibition of the export of Wooll.

20. The keeping up the price of Mutton must have contributed to keep up the price of other Butcher’s meat?

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21. Besides cash Paper must not Bills of Exchange, as far as they go have contributed as well as the encreased fertility of the mines, and consequent encrease of metal money to the rise of prices?

22. They must have done so, as much as Cash paper of equal magnitude. Is it the money paid by Dealers or that by Consumers, that produces the rise?

23. As the number of hands through which a piece of money passes in a year is inversely as its magnitude does not small money contribute more than large to the rise of prices?

24. Unfortunately the reduction of real price has fallen more on luxuries than necessaries. Fine Cloathing Liquors &c.

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25. But in regard to Liquors has been very happily counteracted by Taxes.

25. In so far as Paper money has contributed to the encrease of vendible commodities

Sources of illusion

26. Neither encrease of paper nor of metal money has contributed any thing to the encrease of vendible commodities. But as both have encreased at the same time the encrease of money has been deemed the cause of the encrease of vendible commodities. Gradual encrease of money produces not rise of prices; sudden, does.—Why does gradual not?—not because the fresh money has time to produce the fresh stock of vendible commodities, but because the savings have time to produce the encrease./the addition to intrinsically productive capital with the existing stock of money have had time to produce this encrease

Had it not been for the encrease of money money prices would have grown lower and lower while wealth was encreasing.

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Mischiefs and Advantages of Banking.

I. Mischiefs

1. Rise of prices thence taxation of the distressed classes. A. Smith censured for his indifference.

2. Commercial insecurity by excess.

3. by occasional defects/

4. Support to monopoly by enabling Growers witholding from sale.

5. by enabling dealers to buy up.

6. By speculating themselves by engrossing articles of inferior importance and quantity.

* 7. Diminution quantity of exports and thence of profit by exports and imports. True the fact—But quære as to the evil? So much less capital employd in foreign trade—so much the more in home[?] production and improvement.

8. No good—no real addition to wealth.

*The whole community is thus taxed by the issuing of the paper for the purpose of taxing them another way by the application made of it.

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9. Stoppage would produce no evil as the fall of prices would be gradual—Picture &c.

10. Error Sources

11. Rise—amount of

12. Adam Smith.

II. Advantages

1. Encrease of the general mass of wealth—by the advantage attending to management on a large scale.

The advantage is real—but quere as to the share of Bankers in producing it—

Their trade is ill-suited to the slowness of production

Better suited to the quickness of exchange.

The additions made by paper money to real wealth are seen[?]

The defalcations (by defalcations from income & thence from savings) though not less real, are indiscernible.