BANKS INCREASE THE COUNTRY’S CAPITAL 29

the Discourse of 1740.) He repeatedly denounced the authorization
 of paper money as debtor-class legislation, a “cheat” and
a “fraud.” 2 Douglass accepted the view that it was the paper
money that caused an unfavorable balance of trade by encouraging
 extravagance, and that it was necessary only to reduce the
amount of the bills in circulation to bring and retain an adequate
supply of specie in the country.? He used the history of the colonial
 bills of credit at considerable length # to prove his point, that
“large and frequent Emissions of Paper Money, sink their own
Credit, and increase the Necessity of making more, by continued
increasing Quantities to make good the depreciating Qualities of
the same: And thus by a continued Progression, render the
Quantity vastly great, and the Quality or Value contemptibly
small.” ® Douglass, in common with several of his predecessors,
understood the quantity theory, and urged that inflation renders
the balance of trade unfavorable by leading to extravagant expenditures
 for imported goods. But he does not seem to have seen
clearly the part higher prices play in making the balance of trade
adverse. Another writer, however, just before the close of the
half-century, did give a fairly good explanation of this.®

With the appearance of modern banks of deposit, discount,
and note issue, whose notes, convertible into coin upon demand,
served, apparently, the same purposes as metallic money, the

1 “This accursed affair of plantation paper currencies,” he confessed in one of
the frequent tirades that are found in his historical Summary, “when in course it
falls in my way, it proves a stumbling-block, and occasions a sort of deviation.”
Summary, Historical and Political (1751), ii, 130.
® Ibid., ii, 86n. Not only did the loan banks aid debtors by depreciating the
currency, but, when public, they seem to have commonly advanced their funds at
less than market rates of interest. A further complicating circumstance lay in the
fact that the bills frequently circulated in neighboring provinces, so that, when they
were redeemed at constantly increasing depreciation, the issuing province gained
at the expense of its neighbors.
3 Douglass, “Essay Concerning Silver and Paper Currencies’ (1738), Reprints.
iil, 233-235.
t Discourse (Professor Bullock’s edition), 1740, pp. 302-320.
5 “A Second Letter to a Merchant in London” (1741), Reprints, iv, 126.
6 “Brief Account of the Rise, Progress . . . of the Paper Currency of New England”
 (1740). Reprints, iv, 200, 301.