fest influence upon the question of exchange. There is, however, a consideration of yet greater importance which is generally lost sight of. We refer to the fact that all currencies, whatever may be their nature, whether exclusively metallic or mixed-composed partly of metal and partly of paper convertible into metal-or exclusively of paper, have two well defined values: one, which may be termed commercial; the other, which we shall take the liberty to style intrinsic; and this latter denomination, in so far as it refers to paper, being somewhat forced, a little farther on we shall explain the sense in which we have employed the word.

The commercial value of a currency is predicated upon the daily course or the daily fluctuations of the exchange, and is that value which does not admit of any disturbance by governmental interference. It is in respect to this value of a currency that all economists are agreed that it should be as free and unembarrassed as the ebb and flow of the tide, that it should serve as a barometer to the intelligent merchant. It is of this value that we have been treating in the remarks we have thus far made in answer to the second question. It now becomes necessary, however, that we should say something in reference to the intrinsic value of

a currency.

The intrinsic value of a currency, if of metal, is determined by its fineness; and, if of paper, in a forced sense, it depends upon its sum in relation to the legitimate wants of a country for a medium of exchange, or upon the relation which its sum bears to the amount of metal which would circulate in the absence of the paper.

The right to coin money is admitted in all civilized countries, whatever their form of government, to be a high prerogative of national sovereignty. In the United States-a confederation of sovereign States-it may be supposed that, jealous as they were of their sovereignty, at the adoption of the Federal Constitution, they were not moved by light considerations to invest the Federal Government with the exclusive prerogative of coining the metallic money of the country. It is therefore surprising the facility with which the several States, by means of charters granted to banks of issue, have, in effect, neutralized the high prerogative of coinage, with which they had so solemnly invested the Federal Government. By the Constitution of the United States no money is a legal tender but the coins issued by the Federal Government. Nevertheless, for many years after the adoption of the Federal Constitution the notes of the various banks established under charters from the several State governments were received in payment of public dues by the Federal Government; and the Federal Government was itself so far forgetful of its own dignity as even to condescend upon two occasions to become a stockholder in banks of issue, chartered by the Federal Congress, and known as National Banks, of which the notes were everywhere received in payment of the public dues.

More recently, however, at the cost of a very bitter experience, arising from the great abuse of the faculty of issue, wiser views have prevailed; a renewal of its charter was refused to the National Bank; and yet more recently it was ordered by the Federal Congress that all public dues should be paid exclusively in specie, thus vindicating the dignity of the government and the integrity of the National Constitution. We ask

pardon for this digression, and found our request upon the importance of showing that in the United States, the country of all others in which the greatest expansion has been given to the system of banks of issue, although the Federal Government lost sight for a time of the wise provisions of the Constitution in reference to the religious preservation of the standard of value, it found itself ultimately constrained to recognize the necessity of fulfilling its obligations. It would not be possible, at least our pen does not claim the power to paint, even feebly, the afflictions, the horrors, the terrible evils which, during the last seventy years, have emana ed, in that flourishing and giant country, from the detestable system of banks of issue-in that country, giant and flourishing by virtue of its great natural advantages, in virtue of the active and enterprising genius of its people, by the mercy of God, and in despite of banks of issue.

Great Britain has passed through an experience, in her monetary essays, none less bitter than that of the United States; and also found herself under the necessity of restricting the issue power. It was her good fortune that her constitution enabled her great statesman, Peel, upon an opportune occasion, to make a radical reform-a reform that should guaranty to her as far as possible, so long as issues were permitted to banks at all, the preservation of her standard of value. And it may be asserted, without fear of contestation, that Sir Robert Peel, by the reform of 1844 in the charter of the Bank of England, established the best system of mixed currency which, up to that time, had ever been known, and which, so far as regards the mixed system, does not really appear to be susceptible of any improvement.

The system of Peel was, without doubt, considered by economists as the ne plus ultra of monetary systems up to the crisis of 1857. That crisis, however, demonstrated that neither the mixed system of Peelperfect although it might be-nor the purely metallic system of Hamburg-this latter the realization of the dreams of the ultra-conservative economists-offered any guaranty against panic; and in some general observations, which we shall have the honor to present, after having disposed categorically of the questions which have been addressed to us, we shall set forth humbly, and with all due deference, our views upon what seems to us a possible improvement upon the systems of Peel and of Hamburg. In the meanwhile, however, we maintain, as of the most rigorous duty of all governments, as of the utmost necessity, of the highest social and economic interest, the religious and most scrupulous preservation of the standard of value. Fiat justitia, ruat cælum. What judgment would be formed of the statesman who should propose seriously to frank to each shop-keeper the making of his measure of the vara and covado of such length as his good pleasure might indicate; to the grocer the determining of how many ounces his pound weight should be? Certainly every one would say that such a statesman was not in his right mind, and would consign him to a mad-house. This privilege to the shop-keeper and to the grocer, although it involves so much injustice that no honest man could hesitate, for one moment even, to stamp it as monstrous, be it noted, affects only a comparatively limited class of daily transactions. How, then, should we qualify the franking to banks of issue of the faculty of depreciating or appreciating, at their good pleasure, the standard of value of a country, the basis, as this is, of all the

transactions amongst men? Nevertheless, this is done, and with a readiness and inconsistency altogether inconceivable to a reflecting man.

Having, by a sufficiently wide digression, sought to inspire all the importance, with which it presents itself to us, of the scrupulous preservation of the standard of value, we will now pass on to the application of what we have said to the question of exchange. We have stated that it is the general opinion that the course of exchange is a simple question, depending entirely upon the relation between the imports and exports, and that there could be no more erroneous opinion. We now give it as our opinion, that the course of the exchange is quite a complex question, and not a simple one, and that, besides the various moral or speculative influences hereinbefore referred to, there enter into this question two positive and legitimate elements:-One, "the balance of payments" equivalent to the external or foreign obligatory commercial debt at a given time. The other, the intrinsic value of the currency. And from the operation of this latter element, it may be predicated, that a long duration of a rate of exchange below par demonstrates incontestably redundancy, and consequent depreciation of the currency. For, as the tendency of the exchange, when redundancy does not exist, is always towards the equilibrium or par, the absence of this tendency, for a long time, being observable, leads necessarily to the conclusion that the currency dundant. And, as our foreign exchange has now for more than two years continued to rule below par, there should be no doubt that this arises from the redundancy of the currency, and consequent depreciation of the standard of value.

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Various phenomena are presented in connection with the course of exchange. It was remarked some time since, that at a time anterior to the crisis of 1857, the Bank of Brazil maintained a circulation much in excess of that which has been attained by all the banks together since the date of the crisis,and that at the same time the foreign exchange ruled above par. That such was the fact, there is no doubt, but it was a phenomenon, and a phenomenon due to a senseless competition for the products of the country, which resulted in the ruin of many houses engaged in the foreign commerce of the country. And the decline which subsequently occurred was precipitated only, and not caused by the crisis of 1857-it was caused by the excessive issues of the Bank of Brazil, and must have occurred, sooner or later, although there had not been any American crisis. We repeat, the decline of the exchange at the close of the year 1857 was precipitated only, and not caused by the crisis, and would have manifested itself in time, irrespectively of that crisis.

Question 3. What was the cause of the decline of the exchange amongst us at the period in which this event has occurred, and especially in the years 1857 and 1858?

Answer. We understand this question to refer to important variations in the exchange, and to its continuance for a long time below par, and not to the mere daily fluctuations. Thus understood, we give it as our opinion, that upon every occasion when an important decline of the exchange has occurred amongst us, the exchange continuing for more than a year below par, it was due principally, if not altogether, to a redundancy and consequent depreciation of the currency. And, at the period more especially referred to, it arose from the great expansion in the issues of the Bank of Brazil, and other banking institutions of the country exercis

ing the issue power. In our opinion this excess or redundancy continues, and we see as its inseparable, infallible concomitant depreciation. It is thus, and thus only, that the continuance of an exchange below par can be explained. Let this excess of the currency be removed, and there is nothing more certain than that the exchange will immediately rise to par. But whilst we maintain it to be the imperative obligation of all governments, never to permit any disturbance of the standard of value; once that this shall have occurred, once that the standard of value shall have been depreciated, be the origin of the evil what it may, let it arise from excessive issues by the government itself, or by banks of issue, we could, by no means, counsel violent measures for bringing the currency back again within its normal limits. Whatever measures may be employed for this purpose should be mild, but once adopted, they should be enforced with the most religious exactitude. There is nothing more prejudicial to all interests, than any uncertainty in reference to the future of the monetary system of a country.

Question 4. At this latter period did there occur in our market any shock or panic, in consequence of the commercial crisis in the United States, and which spread to Europe? What was the effects of that shock or panic, the number of failures which it produced, and the amount of the losses which result therefrom, the number and amount of the failures which have occurred from that time to the present?

Answer. There certainly did occur a great shock to our market as a consequence of the crisis of 1857. The great decline in the prices of our products in foreign markets, caused the ruin of many houses engaged in the foreign trade of the country, and some of these houses carried along with them others connected with them, but which were not directly interested in the foreign trade. So great was the collapse of credit, that many houses which were doing business on credit, although not only solvent, but possessed of large capitals, not being able to command these at the moment of necessity, found themselves in a great strait. We estimate at about thirty millions of milreis the total amount of all the failures which occurred at Rio de Janerio, in consequence of the crisis of 1857; and of this sum, perhaps not more than fifty per cent, at the outside, will be collected; there thus resulting a loss of not less than fifteen millions of milreis to the creditors. Nor let it be supposed that the losses of Rio de Janerio stopped here. Rare, indeed, was the house, whether employed in the foreign or domestic commerce of the country, which did not suffer loss, and, in our opinion, the amount of the losses, made known to the public through failures, should be considered insignificant in comparison with that larger one of which little or nothing is known.

Question 5. Is the course of the exchange always determined by the inequality between the imports and exports?

Answer. Certainly not. If the integer of the currency be at its norma, there existing no circumstances to invite the interposition of moral or speculative elements, then it may be said that the course of the exchange is determined by the inequality between the imports and exports. It cannot be doubted however that, notwithstanding the interposition of moral or speculative elements, the average rate of exchange for a period of ten years, would be determined by the relation between the imports and exports, it being, however, always understood that the value of the currency should meanwhile suffer no variation through badly advised diminution or increase of its volume.

Question 6. Do bill drawers always limit their exchange operations by the cost of the merchandise which they export, or do they make legitimate operations on credit drawing in advance of their shipments, or upon letters of credit for their correspondents?

Answer. Bill drawers do not always confine themselves in their exchange operations to the true or positive basis of their shipments. They make legitimate operations on credit, speculating, now upon the future course of the exchange itself, now upon a probable fluctuation in the export market. In the same manner bill takers speculate upon the course of the exchange, now remitting in advance of their collections, now in advance even of their sales; and upon other occasions, remitting large sums at a high exchange, that the proceeds may be returned to them in metal, or when this may not be, that they may serve as a basis for their own drafts should such a fluctuation occur as to favor this operation.

Question 7. Has there existed any combination amongst bill drawers to bring about a rise or a fall of the exchange?

Answer. We are not aware of any such combination. It would be impossible that any such combination could, of itself, for any length of time, maintain an exchange above or below the par. It could not impede or obstruct the free course of exchange, in opposition to the law of supply and demand.

Question 8. Can the decline of the exchange which has occurred from 1857 up to the present date, be attributed to the excessive issues of the banks? If yea, did it occur immediately and without the concurrence of other causes ?

Answer. It is our opinion, that the decline of the exchange at the close of the year 1857, should be attributed primarily to the excessive issues of the Bank of Brazil, its branches, and other banking institutions exercising the issue power. That the decline which then occurred, was precipitated by the great crisis of that period, we do not deny, nor do we deny that the decline was much aggravated by the great shock or panic which then occurred in the market of Rio de Janerio, and which, whilst it diminished the resources of country, through the great depreciation of its products, increased at the same time the necessities of those who had obligations to meet in foreign countries, upon which the effects of the crisis were also weighing, inducing every effort to hasten as much as possible their remittances.

Already, in answer to the second question, we have referred to a phenomenon which occurred in the year 1857, at a period antecedent to the manifestation of the crisis. At that period the Bank of Brazil maintained a circulation larger in amount than has been reached at any subsequent period, and the exchange, nevertheless, was sustained at a point above par. The explanation of this phenomenon is to be found in the abnormal condition of trade at that time. By force of the redundancy of the currency, to which was superadded an inordinate and gambling competition, exorbitant prices for the products of the country were maintained-prices which were not justified by those prevailing in any consuming market. And as the external or foreign commercial debt of the country is not estimated in foreign money, but in the money of the country, so long as it was possible to obtain for the products of the country an amount sufficient to meet the cost of what was bought from the foreigner, this cost being estimated in the money of the country, the depre