value only, as paper-money, if too
little, indeed, gold and silver will flow in to supply the deficiency;
but if too much, it accumulates, banishes the gold and silver not locked
up in vaults and hoards, and depreciates itself; that is to say, its
proportion to the annual produce of industry being raised, more of it
is required to represent any particular article of produce than in
the other countries. This is agreed by Smith (B. 2. c. 2. 437.), the
principal advocate for a paper circulation; but advocating it on the
sole condition that it be strictly regulated. He admits, nevertheless,
that 'the commerce and industry of a country cannot be so secure when
suspended on the Daedalian wings of paper-money, as on the solid ground
of gold and silver; and that in time of war the insecurity is greatly
increased, and great confusion possible where the circulation is for the
greater part in paper.'(B. 2. c. 2. 484.) But in a country where loans
are uncertain, and a specie circulation the only sure resource for them,
the preference of that circulation assumes a far different degree of
importance, as is explained in my former letters.

The only advantage which Smith proposes by substituting paper in the
room of gold and silver money (B. 2. c. 2. 434.), is, 'to replace an
expensive instrument with one much less costly, and sometimes equally
convenient'; that is to say, (page 437,) to allow the gold and silver
to be sent abroad and converted into foreign goods,' and to substitute
paper as being a cheaper measure. But this makes no addition to the
stock or capital of the nation. The coin sent out was worth as much,
while in the country, as the goods imported and taking its place. It
is only, then, a change of form in a part of the national capital, from
that of gold and silver to other goods. He admits, too, that while a
part of the goods received in exchange for the coin exported, may be
materials, tools, and provisions for the employment of an additional
industry, a part also may be taken back in foreign wines, silks, &c.
to be consumed by idle people who produce nothing; and so far the
substitution promotes prodigality, increases expense and consumption,
without increasing production. So far also, then, it lessens the capital
of the nation. What may be the amount which the conversion of the part
exchanged for productive goods, may add to the former productive mass,
it is not easy to ascertain, because, as he says, (page 441,) 'It i