176.  One of the most obvious differences between a metallic and a paper circulation is, that the coin can never, by any panic or national danger, be reduced below the value of bullion in other civilized countries; whilst a paper currency may, from the action of such causes, totally lose its value.  Both metallic and paper money, it is true, may be depreciated, but with very different effects.

1.  Depreciation of coin.  The state may issue coin of the same nominal value, but containing only half the original quantity of gold, mixed with some cheap alloy; but every piece so issued bears about with it internal evidence of the amount of the depreciation:  it is not necessary that every successive proprietor should analyse the new coin; but a few having done so, its intrinsic worth becomes publicly known.  Of course the coin previously in circulation is now more valuable as bullion, and quickly disappears.  All future purchases adjust themselves to the new standard, and prices are quickly doubled; but all past contracts also are vitiated, and all persons to whom money is owing, if compelled to receive payment in the new coin, are robbed of one-half of their debt, which is confiscated for the benefit of the debtor.

2.  Depreciation of paper.  The depreciation of paper money follows a different course.  If, by any act of the Government paper is ordained to be a legal tender for debts, and, at the same time, ceases to be exchangeable for coin, those who have occasion to purchase of foreigners, who are not compelled to take the notes, will make some of their payments in gold; and if the issue of paper, unchecked by the power of demanding the gold it represents, be continued, the whole of the coin will soon disappear.  But the public, who are obliged to take the notes, are unable, by any internal evidence, to detect the extent of their depreciation; it varies with the amount in circulation, and may go on till the notes shall be worth little more than the paper on which they are printed.  During the whole of this time every creditor is suffering to an extent which he cannot measure; and every bargain is rendered uncertain in its advantage, by the continually changing value of the medium through which it is conducted.  This calamitous course has actually been run in several countries:  in France, it reached nearly its extreme limit during the existence of assignats.  We have ourselves experienced some portion of the misery it creates; but by a return to sounder principles, have happily escaped the destruction and ruin which always attends the completion of that career.