ulates: the whole charge
for paper money may be considered as seignorage. Though it has no
intrinsic value, yet, by limiting its quantity, its value in exchange is
as great as an equal denomination of coin, or of bullion in that coin.
On the same principle too, namely, by a limitation of its quantity, a
debased coin would circulate at the value it should bear, if it were of
the legal weight and fineness, not at the value of the quantity of metal
which it actually contained. In the history of the British coinage, we
find accordingly that the currency was never depreciated in the same
proportion that it was debased; the reason of which was, that it never
was multiplied in proportion to its diminished value.[46]

After the establishment of banks, the state has not the sole power of
coining or issuing money. The currency may as effectually be increased
by paper as by coin; so that if a state were to debase its money, and
limit its quantity, it could not support its value, because the banks
would have an equal power of adding to the whole quantity of
circulation.

On these principles it will be seen, that it is not necessary that paper
money should be payable in specie to secure its value; it is only
necessary that its quantity should be regulated according to the value
of the metal which is declared to be the standard. If the standard were
gold of a given weight and fineness, paper might be increased with every
fall in the value of gold, or, which is the same thing in its effects,
with every rise in the price of goods.

"By issuing too great a quantity of paper," says Dr. Smith, "of which
the excess was continually returning, in order to be exchanged for gold
and silver, the Bank of England was, for many years together, obliged to
coin gold to the extent of between eight hundred thousand pounds and a
million a year, or at an average, about eight hundred and fifty thousand
pounds. For this great coinage the Bank, in consequence of the worn and
degraded state into which the gold coin had fallen a few years ago, was
frequently obliged to purchase bullion, at the high price of four pounds
an ounce, which it soon after issued in coin at 3_l._ 17_s._ 10-1/2_d._
an ounce, losing in this manner between two and a half and three per
cent. upon the coinage of so very large a sum. Though the Bank therefore
paid no seignorage, though the Government was properly at the expense of
the coinage, this liberality of Government did not preve