ditious
manner. The lender incurs less risk, and a larger proportion, therefore,
of the holders of capital are willing to be lenders.

When a banker, in addition to his other functions, is also an issuer of
paper money, he gains an advantage similar to that which the London
bankers derive from their deposits. To the extent to which he can put
forth his notes, he has so much the more to lend, without himself having
to pay any interest for it.

If the paper is convertible, it cannot get into circulation permanently
without displacing specie, which goes abroad and brings back an
equivalent value. To the extent of this value, there is an increase of
the capital of the country; and the increase accrues solely to that part
of the capital which is employed in loans.

If the paper is inconvertible, and instead of displacing specie
depreciates the currency, the banker by issuing it levies a tax on every
person who has money in his hands or due to him. He thus appropriates to
himself a portion of the capital of other people, and a portion of their
revenue. The capital might have been intended to be lent, or it might
have been intended to be employed by the owner: such part of it as was
intended to be employed by the owner now changes its destination, and is
lent. The revenue was either intended to be accumulated, in which case
it had already become capital, or it was intended to be spent: in this
last case, revenue is converted into capital: and thus, strange as it
may appear, the depreciation of the currency, when effected in this way,
operates to a certain extent as a forced accumulation. This, indeed, is
no palliation of its iniquity. Though A might have spent his property
unproductively, B ought not to be permitted to rob him of it because B
will expend it on productive labour.

In any supposable case, however, the issue of paper money by bankers
increases the proportion of the whole capital of the country which is
destined to be lent. The rate of interest must therefore fall, until
some of the lenders give over lending, or until the increase of
borrowers absorbs the whole.

But a fall of the rate of interest, sufficient to enable the money
market to absorb the whole of the paper-loans, may not be sufficient to
reduce the profits of a lender who lends what costs him nothing, to the
ordinary rate of profit upon his capital. Here, therefore, competition
will operate chiefly by dividing the business. The notes of each bank