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 is impossible to determine what is the proportion which the circulating money of any country bears to the whole value of the annual produce.  It has been computed by different authors, from a fifth* to a thirtieth of that value.’

* The real cash or money necessary to carry on the circulation and barter of a State, is nearly one third part of all the annual rents of the proprietors of the said State; that is, one ninth of the whole produce of the land.  Sir William Petty supposes one tenth part of the value of the whole produce sufficient.  Postlethwayt, voce, Cash.

In the United States it must be less than in any other part of the commercial world; because the great mass of their inhabitants being in responsible circumstances, the great mass of their exchanges in the country is effected on credit, in their merchant’s ledger, who supplies all their wants through the year, and at the end of it receives the produce of their farms, or other articles of their industry.  It is a fact, that a farmer, with a revenue of ten thousand dollars a year, may obtain all his supplies from his merchant, and liquidate them at the end of the year,