INFERENCES
DERIVED FROM THE THEORY

continued

Essay on Money VII

As a Medium of Commerce;
With Remarks on the Advantages and Disadvantages
of Paper Admitted into General Circulation.

by John Witherspoon

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Benefits of Paper

What benefit arises from paper money? If paper then is not needed as a circulating medium, what benefit arises from it? I answer, the uses of paper substituted for money may be summed up under the two following heads.

1. It is useful for facilitating commerce.

2. It is useful for anticipating property or extending credit.

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Facilitating Commerce

First, It is useful for facilitating commerce. Nothing can be more advantageous for that purpose than bills of exchange, which, without the actual transportation of money or goods, can transfer property even to the most distant places with the most perfect facility. There have been many persons who have doubted whether any other sort of paper currency is not upon the whole hurtful, but the benefit of this is beyond all question. We shall afterwards compare the advantages and disadvantages of paper money; but at present let us leave out the consideration of the evil that it does, and it is manifest that there is so great a facility and safety in the transportation of paper above that of gold and silver, that it must greatly expedite all mercantile transactions, internal and external.

Suppose one hundred thousand pounds were to be transported but three hundred miles, if it were to be carried in silver, what an immense load would it be? But besides the weight, as it could not be concealed, there would be a very great risk of inviting robbers to share in it. Let it be carefully observed, that this good effect of paper is not from the additional quantity thrown into circulation, but from its possessing some advantages superior to gold and silver, provided that the credit of it is supported. Nor must it be forgotten, that it is in great and extensive negotiations only, that this advantage is possessed by paper; for in smaller bargains and that intercourse between man and man that is carried on every hour, it possesses no advantage at all; on the contrary, it is liable to wear and waste, and therefore the smaller coins are in all respects to be preferred.(41.9)

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Extension of Credit

Another use of paper in commerce is to extend credit. Though in very large transactions the advantage of paper may be great, as it facilitates commerce; yet when we consider paper as generally circulating, and doing the office of gold and silver, it is by the extension of credit only, or chiefly, that it can be of any advantage.

It is unnecessary for me, and perhaps not in my power, to mention all the ways in which credit may be increased or facilitated by paper. Some will probably be mentioned afterwards; at present my business is to show, that giving credit is one of the advantages, and indeed in my opinion it is the principal advantage, to be derived from paper circulation of any kind.

There are many people whose industry is damped or limited by want of stock or credit, who if they were properly assisted in these respects, might do signal service to themselves, and the community of which they are members. It has been generally said, and I believe with truth, that the institution of the banks in Scotland has improved the country in the course of little more than half a century to a degree that is hardly credible. It is also probable that the manufacturers and commerce of England have been greatly promoted by the easy and regular methods of obtaining credit from the public and private banks.

I am aware that some very intelligent persons in Britain have condemned the paper circulation even there, and affirmed that it does more harm than good. It is not necessary for me to enter into the arguments on either side of that question. All that I am concerned to prove is, that if it does good upon the whole, or whatever good, it does more harm than good. It is not necessary for me to inter into the arguments on either side of that question. All that I am concerned to prove is, that if it does good upon the whole, or whatever good it does in any degree, arises from the credit which it is the occasion of extending; and this I think can hardly be denied. (43.1)

Continue to Essay on Money VIII for a discussion of the Evils of Paper.

Return to Essay on Money Outline

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