obliged an increase of paper money, and the discount on national bank notes and government notes increased to 19 per cent in July, 1866, and 21 per cent in January, 1867, and was reduced again to 15 per cent by the end of that year. During the years 1874 and 1875 the premium on silver over bank or government notes averaged about 5 per cent.

ITALY.

In Italy there was scarcely any paper money in circulation previous to 1859, but the war of Italian liberation, which caused the Bank of Austria to suspend in 1859, also obliged great expenditures on the part of the new Italian government, and the National Bank of Italy, which had been founded under a royal decree in 1863, by the consolidation of the National Bank of Turin with that of Tuscany, had already made large advances to the new government. The latter, finding that it could no longer raise money by popular loans (the price of its "rentes" having fallen to 45 per cent), and requiring still further aid from the bank, authorized it, in 1866, to issue inconvertible legal tender paper money. The total of government and bank notes in circulation in April, 1865, had been stated at 247,000,000 francs, or $49,000,000, but the result of the new law was that by 1874 the total paper money amounted to 1,500,000,000 francs, or $300,000,000. In 1866 the depreciation of the paper money was 19 to 20 per cent, but with a largely increased amount in 1874 the depreciation was only 3 per cent, and at the beginning of 1876 about 7 per cent.

RUSSIA.

Specie payments have been suspended in Russia for more than 60 years. During the period from the suspension to 1870 the depreciation of the paper money fluctuated over a range from 17 to 29 per cent. According to the reports of the last few years the range of depreciation has been from 10 to 15 per cent.

BRAZIL.

Specie payments have been suspended in Brazil for nearly 50 years. During that time there have been various unsuccessful attempts to resume. One plan upon which these attempts were made was to reduce the value of the metallic monetary unit. Thus the millreis, which is the monetary unit, and is now established at the equivalent of 54 cents in United States money, was originally established at $136.35. The other method, upon which there have been several attempts to resume -the last one in 1858-was by contracting the currency. In 1848, incident to the cessation of the slave trade,* there was a large importation of gold bullion. This was coined and put into circulation by the government, and for a time it was claimed specie payments. were resumed, but the gold soon went out again in the adjustment of balances created against Brazil in her foreign trade. On this occasion it was thought that the specie once put into circulation at par with paper would maintain the latter at par. But after the specie had

* Bankers' Magazine for April, 1875.

disappeared the theory was that the temporary equality of the two was caused by a depreciation of gold, which was recovered when the metal disappeared.

EFFECTS ON THE VALUE OF PAPER MONEY.

The foregoing summary of the effects of the suspension of specie payments in various countries to depress the value of the currency affords the following facts:

First. That the depreciation by no means corresponds to the volume of the currency. This is illustrated by the experience in France and Italy, where the value of the currency increased concurrent with an increase of its volume.

Second. That coin put forcibly into circulation at par with an inconvertible currency, as was the case in Brazil, will immediately flow out of the country. Not being used to redeem the currency, it is only a commodity for which there is no use, and like other commodities is temporarily depressed in value to an extent which, though slight, is sufficient to cause its exportation.

The causes which operate upon the value of an inconvertible currency, as compared with gold and silver, may be specified as follows, viz.:

First. The prospect of redemption. This is, of course, the most potent, producing much the greatest effect and in much shorter periods of time. This prospect may be diminished by the unfavorable aspect of a war, as was frequently the case in the United States, or by a decrease of revenue or a decrease of the stock of coin in the treasury, or by a failure of important crops, which

would show the probability of a larger export movement of coin. The prospect of redemption would, however, be increased by the opposite of any of the above circumstances. In the case of France, which M. Victor Bonnet considers so remarkable, there was an increase of coin in the Bank of France concurrent with the increase of paper money, and though it was not near so large as the increase of bank notes, it was sufficient to inspire the public with confidence in the ability of the French financiers to borrow the whole amount for the indemnity to Germany, and also to redeem the notes of the bank. In short, this was "confidence"-confidence in the redemption of the paper money in coin.

Second. The demand for currency to use in the usual payments in trade-this demand, of course, fluctuating with the increase or decrease of the general volume of trade—and causing an increase in the coin value of the currency. Thus, if we assume that the prospect of redemption of the currency in coin would fix its value for the time being at say 75 cents on the dollar, an increase of internal traffic might cause a premium on this price. The inconvertible paper money having expelled coin from the channels of circulation might be inadequate to supply the requirements for money, and yet the prospect of redemption be so remote that the premium paid for the paper money as the only instrument of exchange would not be sufficient to raise it to par with coin. The operation of this was, I think, visible to some extent in Italy. Previous to the establishment of the new kingdom, in 1860, there had been but little progress of any kind in Italy; the habits and ideas of its people seemed fossilized in the forms of the seventeenth century. But with the new kingdom a new era

began in economic and industrial affairs. Bank notes were scarcely known in Italy before 1860, but between 1866 and 1874 the six banks of issue in the kingdom had increased their branches from fifty-two to ninetyfive, and productive and manufacturing industries were greatly stimulated. From 1869 to 1872 the imports of foreign goods increased 25 per cent, and the value of the total annual exports increased 50 per cent. But with all this increase of traffic and industry the annual expenditures of the government exceeded the revenue by nearly $50,000,000 each year, and the aggregate of these deficits from 1861 to 1873 was about $500,000,000. Notwithstanding this continued increase of debt and the increase of the inconvertible paper money from $49,000,000 in 1865 to $300,000,000 in 1874, the value of the paper money, as compared with gold and silver, advanced from an average of about 80 cents in 1865–6 to about 93 to 95 cents in 1874-6. There were, of course, many concurrent features in the political and industrial affairs of the country which exercised their influence to cause fluctuations in the prospect of redemption; but coin had been practically expelled from the country, and the volume of paper money being limited, the premium paid for it over its real value, though not sufficient to raise it to par, was, I think, largely the cause of the advance of 12 to 15 per cent from 1866 to 1876.

Third. The temporary depreciation in the value of gold and silver, either brought from abroad and forced into the market by coinage and issue by the government, as in the instance in Brazil, or by production, as in our own country. The inconvertible paper currency having deprived the gold and silver of their function as