Having shown that a mixed currency is certain to expand and contract, without reference to the healthful and harmonious provisions of value, and to a degree more extreme and dangerous than a currency composed of real money, we are prepared to answer summarily the principal question.

Does a mixed currency perform satisfactorily the functions of money?

1st, Does it act efficiently as a medium of exchange? Currency, regarded merely as a medium of exchange, may be said to perform two offices: (a) To transfer commodities from one person to another. For this purpose, a mixed currency, having a circulation wholly of paper, is found to be portable, readily counted, easily carried, safely kept, and is, consequently, as convenient as any agent that could reasonably be desired. (J) To discharge indebtedness between different parties. For this purpose, the thing to be desired is, that currency should be reliable; that is, that there should be nothing in its own nature, which disqualifies it to act fully, at all times, as a means of discharging obligations.

Coin is always perfectly reliable for the payment of debts. When one debt has been discharged by it, the coin is just as available and acceptable for the discharge of a second or any succeeding debt. If gold and silver are called for by foreign obligations, they retain their full power to discharge them.

There can never be a scarcity of them that an earnest demand will not create a supply for. If a community wants them very much, it will certainly get them.

They crowd to their best market, as truly as cotton or wheat.

We here make two principal statements: —

A foreign demand is the only cause that can take away the real money of a people. We have seen that an indefinite number of causes may take away a currency based, in any degree, on credit.

But, again, a foreign demand can only take away its own amount of real money. We have seen that such a cause takes away an amount of mixed currency of which the quantity required abroad is only one factor; the other factor being that number which represents the proportion between the bulk of the currency and the specie basis. In these two statements are clearly shown the entire unreliability of mixed currency to discharge indebtedness. The man who promises to pay money can never know what may be the demand for specie, arising from a want of confidence in the banks, or from a necessity of export; and, of course, can never be safe in giving his notes predicated upon the currency as it exists at the time.

So far as the fluctuations we have shown derange general plans of business, distort prices, work injustice to one party of every bargain, and tend, by such inequalities and uncertainties, to discourage steady enterprise, they do not present themselves here for examination. We shall meet them, when discussing a mixed currency as performing its function as a standard of value. We have to do here, not with the unfairness and injustice with which indebtedness is discharged under such a currency, but with the difficulty or impossibility of discharging it at all.

To falsify the standard of value is a serious, but not necessarily a ruinous error. It takes from one unjustly, and adds to another; but it destroys nothing directly. There are fluctuations in the currency, found in our national experience and depicted in the diagrams given, which proceed to an entire revulsion of the body of trade. Panic is not a century plant. It blossoms and bears fruit once or twice while a child is growing up; many times while a man remains in business.

How does a mixed currency perform the functions of money, so far as discharging indebtedness in such times?

Let us suppose the case of the best man in the community. He has, in the legitimate course of business, contracted obligations, all within the limit of his abilities, now coming due. The banks are withdrawing their circulation as largely as possible, and do not mean to let it out again. The fact of his own excellent standing is of no moment in securing discounts; for there is just as much danger to the banks in his having their notes as in their being anywhere else. It is the peculiar hardship of good men, in such times, that it is not their credit, but the credit (that is, the condition) of the banks, which is to decide the question of loans. With a value currency, on the other hand, the only matter of importance is the solvency of the applicant himself.

If he cannot get money, he cannot meet his obligations; for he cannot pay in merchandise or real estate. The money is not to be had; that is, if the banks would accomplish what they must do to save their credit.

Of course, there are individuals and institutions, who, in consideration of high premiums and full security, will grant accommodations to a limited amount. He may try to get along, sacrificing his property to save his name, and paying twenty-four or thirty-six per cent for loans. Perhaps, if others stood well, he might get through; but all are not so firm as himself. Most have less accumulation and less credit. His debtors fail to pay: how can he answer his creditors? If he tries to go through, the payments are all one way, like the tracks about the lion's den. He has to pay both sides of the ledger.

We have spoken of the credit element of a mixed currency. But panic, suspicion, apprehension, are the deadly enemies of credit: when these are aroused in the community, it cannot go abroad. Just as nearly as the object can be accomplished in the time given, all forms of credit will be withdrawn. But this will produce, in its several degrees, stringency, distress, panic, ruin.

Is it, then, too much to say that credit is not reliable for the discharge of indebtedness?

The element of credit introduces a direct hostility between the interests of those who control the currency and those who wish to use it. The interest of the one requires that the notes shall be withdrawn. The interest, nay, the life, of the other requires that they shall be kept in circulation. Is there any such hostility in a value currency? Not at all. No matter how intense the apprehension, how manifold the suspicion, how frenzied the panic, there is never a moment when it is not better for the owner that such money should be used than kept out of use.

"We have said that a sudden and severe contraction is necessary whenever any cause threatens the specie basis of a mixed currency. Such a contraction deprives the community of the means of meeting obligations undertaken when the currency was redundant.

But this contraction, when it has become inevitable, does not take place without danger and loss to the banks themselves; danger and loss being the proper consequences of such operations. The banks make no more loans, or as few as possible. The means of discharging debts become less and less in the community each succeeding day, until the rate of interest goes up to two or three per cent a month, and money can hardly be had at all.

The banks now find themselves in this dilemma: if they make loans, they must keep paying out their specie. This will soon become exhausted, and they must suspend and be dishonored. If they do not continue to accommodate their customers with the usual means of paying debts, the latter must succumb. But, if their customers generally fail, the banks will lose their capital (it being chiefly in the form of notes given by individuals), and be permanently ruined. The history of the country shows on which horn of the dilemma they choose to be impaled. They suspend or stop specie payments, and then furnish the public with an abundance of their notes, such as they are.

After this has been accomplished, and after the credit of the banks has been exchanged for the credit of the individuals who owe them, and after the demand for specie has ceased, the banks can resume payments.

It may be said, at this point, that the result we have reached does not seem very formidable; that, let it but be understood the banks are to suspend in such circumstances, we can by this means still have the advantages of a mixed currency in favorable times, and relieve the distress when a contraction is threatened. The answer to this plea will be deferred to the chapter on " Fallacies," in preference to interrupting the present line of argument.