Organization of Debt into Currency and Other Papers
by Charles Holt Carroll
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Chapter 1
The Currency and the Tariff
(Reprinted from
Hunt's Merchants' Magazine and Commercial Review, XXXIII (Aug., 1855)
, 191-99.)
FREEMAN HUNT, Esq., Editor of the Merchants' Magazine, etc.:—
Dear Sir:—I ask the attention of your readers to some plain thoughts on the currency
and the tariff, differing from those generally promulgated. Some misapprehension
of the difficulty and the profound depths of the science of political economy, in
its relation to these subjects, so intimately blended in their action upon the industry,
commerce, and prosperity of the nation, appears to have oppressed the minds and
embarrassed the arguments of most of the writers upon them. But the normal principle,
that genius, intelligence, industry, and integrity are entitled to their equivalent
reward, underlies the science of political economy; and it is the duty of every
man who has a thought to spare, to give it voice, and claim for this principle its
just prerogative in the institutions and policy of the nation.
We see that our commercial system is in a state of antagonism to this normal principle,
or national law of industry and trade; and the most marked peculiarity of our history
is found in the constant drain of the precious metals—the frequent mercantile failures,
the severe money pressures, and consequent prostration of industry, and the violent
and unjust transitions of property that succeed—notwithstanding the genius, intelligence,
and unparalleled industry of the people. Nothing of this sort occurs to any comparative
degree in any other country, and in some countries such events are wholly unknown.
It is the wont of businessmen to look widely abroad, or to dive deep into the unfathomable
science of political economy for the cause of the frequent pressures and panics
that disturb the trade and industry of this country. It appears to me that cause
is near at hand—on the surface, and capable of a very simple illustration. Let me
present one that I have already published elsewhere.
Suppose, Mr. Editor, that you and I, and Peter and John, and ninety-six others,
form a community large enough for varied in` dustry and mutual support, engaged
in the business of life. Peter and John dig gold, and we adopt the produce of their
labor for our medium of exchange and measure of value. It is plain that the produce
of their labor in gold will be exchangeable for, and will properly represent the
same amount of labor in your magazine, my leather, our neighbors' corn or potatoes,
or anything else. This is the just condition or natural law of this state of things.
Of course, he who works the most intelligently as well as the most industriously,
will accumulate the most property. There will be some oscillation from excess of
production in some branches, and deficiency in others, but the margin of that oscillation
will be limited, soon observed, and we shall return to the proper distribution of
labor, with the certainty of the vibrating pendulum to its center. It matters not
how much or how little gold Peter and John produce, it will serve our purpose equally
the same, and prices will keep parallel with the quantity brought into or deducted
from the currency.
Some of us now discover that we can live with less labor by banking. We obtain a
charter, offer the security of a strong vault, and by this and other temptations
gather all the gold in the community into the coffers of our bank. We then, according
to the charter, discount notes and bills receivable, credit the proceeds of the
discounts to depositors, and issue bank notes, till the deposits and circulation
payable in specie on demand amount to three times the sum of the gold previously
constituting the currency. How much does this operation increase our property? Nothing.
It will inevitably increase prices and expand our obligations of debt on the same
quantity of property transferred threefold. It will give us magnitude of name for
everything, but of wealth not a picayune more than before.
Now, there is another community of one hundred men in a country accessible to us—they
have their Peter and John digging gold—they have no bank of credit discount—nothing
of money but gold—they have as much gold as we, but only one-third the sum of money
to settle the balances of trade—their price of a day's labor is necessarily one-third
of ours, and the value in money of all their indigenous commodities and property
must be one-third of ours. We open a commerce with this community. Does any sensible
man need to be told that they will glut our markets with their commodities—nay,
that they will manufacture our raw material, and sell the product back to us, charged
with only one-third the sum for labor that we must pay on our own similar production,
and by fair and legitimate commerce drain us of our specie? This is no mere hypothesis.
It is very much the condition of our trade with Germany. Notwithstanding our reputation
for whittling, they whittle out penny-whistles and Nuremburg babies, and with them
whittle our specie out of our pockets. We deal with France upon similar terms for
silks and gew-gaws, and with every other country in the world to a disadvantage
in the exact proportion that we have depreciated our currency below theirs by the
issue of bank notes and bank credits, redeemable in specie, beyond the equivalent
value of bullion. With equal industry, under equal conditions of labor, they can
help themselves to our gold almost without stint; and no tariff within any collectable
scale of duty could prevent this result.
I make this statement broadly, to show the principle upon which this system of discounting
upon the credit of the bank virtually operates. There is great protection to us
in the folly and weakness of other nations, rather than in our tariff or our wisdom,
which we will consider hereafter.
Meanwhile, this Briareus sits in our midst, grasping with his hundred hands our
whole industry and commerce. Sometimes he appears to be reinforced by his two equally
hideous brothers, who were once buried by their father in the bowels of the earth,
in disgust at their deformity, and the whole three hundred handed giants are "huddling
in our necks with their damned fingers," tickling us into a fancy that the dollar
is almighty, and teaching us, pagans that we are, to worship its graven image in
a paper note. It is but a kite. We are charmed with its graceful sweeps
and curves and gyrations in the breeze; but the first squall snaps the twine, and
lands our paper deity in a distant field, where other boys as foolish and as fond
as we, launch it again into the air, to be admired, and lost, and found as before.
The immense variations in the quantity of this delusive currency that we call money,
the greater part of which is but a mere "promise to pay" money that has no existence,
produce corresponding variations in the money value of property and debts, so that
no reliable estimate can be made of property for any considerable period of time.
There can be no reasonable reliance that the quantity of money which measures an
obligation for six months will be anywhere at its maturity to discharge the debt;
and this baffling uncertainty renders the trade of the country but little better
than licensed gambling.
Statisticians demonstrate that only three to five of every hundred who enter into
trade in this country pass through life without failure or dying in poverty. When
we consider the opportunities thus afforded to the unscrupulous of grasping the
fruits of the labor of others, the distress of the conscientious, the sufferings
of families, the broken health and broken hearts thus occasioned, this fact is perfectly
appalling.
Perhaps the mode of estimating the exports and imports by our currency may be the
only practicable way of aggregating them for statistical purposes; but it is a very
indecisive and unsatisfactory account of their quantity; for it is quite possible
that the quantity may remain the same, while by name in money value they would be
doubled, or vice versa; and the same is true, of course, in regard to the
wealth of the nation. Inflations or contractions of the currency may double the
figures at one period, or reduce them fifty per cent at another. For this reason,
our tabular statements of commerce and of consumption per capita are wholly unreliable;
they can be frequently impressed into the service of falsehood as well as truth,
and made to prove anything or nothing, to accommodate the theory or the prejudice
of the writer.
In the city of Baltimore I observed for about twenty-five years the variations in
the value and rent of a warehouse in the most central position for business, occupied
in the first instance by Mr. Peabody, the present London banker, at the annual rent
of $750 per annum. It had been built upon a ground rent of $900 per annum four or
five years previously. The owner had been compelled by the monetary crisis attending
the operations of the branch of the United States Bank in that city in 1819 to relinquish
it to the owners of the ground, who, with one of the finest warehouses in the city
added to their property, could not obtain for it within $150 per annum as much as
they had before received for the ground alone. Flour at that period was worth $3.75
per barrel, so that 200 barrels of flour would represent the yearly rent of that
warehouse. In the subsequent years during which it was under my observations, the
rent increased from $750 to $2,000; and it is an instructive coincidence that at
each new lease, 200 barrels of flour nearly or exactly represented the price of
that rent, varying as it did in money, and increasing nearly threefold. No doubt
that rent is worth nearly or precisely 200 barrels of flour today. This ought to
show the little reliance to be placed in tabular statements of property in money,
with our defective currency. The property in this case is unchanged, excepting by
the depreciation of age. It is a warehouse, costing a certain amount of human labor
and ground, in the same central position in regard to trade as at first. It is the
same wealth, and nothing more. Yet a tabular statement of the property of Baltimore
would contain this item at three times its value in 1823. Certainly flour is not
a very stable measure of value, depending as it does upon varying crops and an uncertain
foreign demand. Nevertheless, it is more reliable for long contracts than money,
under our system, as this illustration demonstrates. The builder and owner of the
warehouse in this case was wronged; he was despoiled of his property by our money
system, and others possess the fruit of his labor without having granted any equivalent
therefor. Every other city in the Union can furnish similar examples of this inaugurated
iniquity.
Of what avail, then, is the provision of the Constitution of the United States that
"Congress shall have power to coin money and regulate the value thereof," or the
negative provision, that "no State shall emit bills of credit, make anything but
gold and silver coin a tender in the payment of debts, or pass any law impairing
the obligation of contracts"?
The value of money is regulated to disorder, to the impairing of contracts,
and to the confusion of all just ideas regarding the rights of property, as effectually
by the powers exercised by the States in granting bank charters, with authority
to issue "bills of credit,"—for bank notes are nothing less nor more—and those bills
are as effectual and forcible a legal tender in practice as if the several State
Legislatures passed direct laws upon the subject at every session, or even authorized
the issue of base coin. And the following strange anomaly or rank absurdity presents
itself to every ingenuous mind disposed to consider language to mean what it says:—
"A principal authorizing a thing to be done, does it himself, and what a principal
cannot do himself, he cannot authorize to be done." This is good law and good common
sense; in defiance of which, and in defiance of the plain provisions of the Constitution,
we find the States creating banks, authorizing the issue of notes— bills of credit,
in fact, and nothing else—and directly emitting bills of credit in the form of bonds
themselves. I am aware that special pleading has proved to the satisfaction of many
minds that these bank notes and State bonds are not bills of credit within the meaning
of the Constitution, and I once saw a letter to this effect from Mr. Webster to
Mr. Peabody, of London, who with others entertained some scruples in regard to the
validity of State bonds. I suppose it satisfied Mr. Peabody; it did not satisfy
me. If the bank notes and State bonds are not bills of credit, it is impossible
for a candid mind to determine what else they can be.
In the matter of State debt, which I believe is one difficulty in the way of the
interpretation of this part of the Constitution, it seems to me that a sufficient
voucher might be provided by entering the amount subscribed to a loan in a book
in the hands of the creditor, after the manner of our bank deposits, and by transfers
on orders from the creditor, recorded in the books of the State Treasurer. There
would seem to be no constitutional objection to this; but in regard to the "bank
bill of credit," that huge power of evil, a traveling tinker among the currency,
changing values all the time, causing violent transfers of property, a constant
discouragement to the conscientious, enterprising merchant, urging the unscrupulous
and cunning to dash boldly forward and occupy, to the exclusion of better men, the
avenues of trade, the great source of poverty and distress to honest, industrious
men and their families, and, finally, the cause of broken hearts, recorded in the
bills of mortality under every name but the true one; it should be utterly repudiated
and abolished, along with the credit deposits that belong to its system.
In our government scheme of finance, for raising surplus from impost duties, we
must meet a struggle of opinion between the advocates of the principles of protection
and revenue, so purely political and partisan, as to blind the opponents to the
plain facts that lie at the bottom of all prosperity, whether of the individual,
the family, the community, or the State. This prosperity rests upon the free untaxed
labor, genius, and intelligence, of the people; and the less the government has
to do with it the better. One man working ten hours of the day, and exchanging his
surplus produce with another, working with the same intelligence and industry only
seven hours of the day, must bring the latter in his debt, if both are equally prudent
in their consumption, and exchange their products on an equal measure of value.
This simple fact we lose sight of in our arguments upon the tariff question. There
cannot be a doubt that the labor of the people of this country, with their power
of machinery and unequaled general intelligence applied to the production of wealth,
is in the ratio of ten to seven of that of England, the next most favored nation
of the world, or even greater. We need no protection against such weakness, and
we should ask of the government no teaching, only protection for life, liberty,
and property, and the smallest possible tax of any kind. The principle of protection
applied to the tariff, is in my opinion, a chimera; and it is clearly a method of
inflating prices, and checking exports; thereby increasing the evil it was designed
to remedy; causing the export of specie, the returns of which come to us in luxuries
and manufactured articles, in competition with our home industry. If I pay my neighbor
for his home-made article more than the foreign one would cost, I charge him the
more for my labor in return, and we reciprocally raise prices on each other, and
on all other producers, and thus aid the credit banking system to raise the prices
of all commodities, till their export becomes unprofitable.
In a recent controversy upon this subject I took occasion to present the following
proposition. Suppose it costs you $600 to maintain your family for a year, without
any tariff on your cotton and woolen cloth, tea, coffee, and other necessaries;
and during the year you can produce flour and potash, that can be sold for export
to England at the extreme limits of $650. What will be your condition and that of
the export trade, if, by reason of a tariff on the necessaries consumed in your
family, your living is made to cost you $700? You could not afford to sell your
produce at the exporter's limits of $650, and would not be likely to do it. England
would procure her supplies from the Baltic ports or elsewhere, and draw on us for
$650 of specie that we should otherwise pay in flour and ashes. This principle must
run through the whole field of domestic labor, as I view the subject, and through
all the ramifications of trade: therefore it appears to me the lower we can keep
the duties the better. My correspondent replies by another question that covers
the whole argument for the protective policy, so called. "If," he says, "by the
aid of a tariff we create a home market, that enables you to realize $800 for your
flour and ashes—how then?" Why then, I rejoin, it is nonintercourse and nothing
else. But the export of such specie and the receipt of such commodities as will
and must come to buy it, for if our usual products cannot be exported by reason
of their high cost, it is plain that we must sell our specie or our foreign trade
is at an end, and the industry it fosters is at an end with it. It would be a severe
tariff, the scale of which its advocates have never measured, that under the operation
of our system of inflated prices would prevent the importation of foreign products,
more than sufficient to drain us of all the specie we could well spare, and run
us in debt for a large balance into the bargain. The true policy under this supposition
would be to have a nonintercourse act at once. This would at least save to us the
California gold. Nonintercourse, embargo, and war, first established our cotton
and woolen manufactures, and nothing else will sustain them if they are not sustained
abroad, for the tariff does not help us.
I have no prejudice against the tariff policy. Badged with the log cabin, drilled
in the Whig procession, fed with hard cider, and taught to consider hard money and
free trade devices of the enemy, my prejudices and my reading have been all the
other way. I read the Tribune dutifully still, and have never voted any
but a Whig ticket, but the issues of that party are dead, and the party is dead
along with them. There has been time for some calm consideration and independent
thought upon the subject, and I make no doubt that ere long, most practical merchants
will agree with me, that the protective tariff policy, and paper money, are both
mistakes that need to be rectified.
I do not now propose to examine the question of a revenue tariff: but I must say
that I cannot see its justice. I cannot comprehend why the producer with a large
family, who must necessarily be a liberal consumer of foreign products, and who
is apt to be a poor man, should be taxed more than a wealthy unproductive
bachelor, or a wealthy childless man, or as much as any wealthy man, who consumes
less or no more of foreign products than he. It would seem therefore, that the more
equitable mode of raising revenue for the government would be by direct taxation.
Our true and efficient protective tariff is the intelligence, enterprise, industry,
and integrity of the people, to which nothing in the known history of mankind bears
any comparison, and the folly and weakness of Europe. These are our protection and
our strength.
With the people of Europe war is the most honorable employment and the chief business
of life, requiring and using the strongest men; and it operates with a more than
twofold power against the resources of the nation. It changes an able producer to
an exhausting consumer. It employs large numbers of the population in furnishing
food and material for the army, and the labor and the cost of supporting men, women,
children, and brute animals thus employed, are lost to the accumulative power and
wealth of the nation. Judicious writers assert that no nation can carry on an aggressive
war for any considerable period that shall require for its army more than one-fifth
of its able-bodied men, the remaining four-fifths being indispensable for the maintenance
of the army abroad and the mass of the population at home.
"In peace prepare for war," is the motto of all Europe. Accordingly, we see the
nations bristling with bayonets in time of profound peace. It is a common idea that
extravagance is the reason of the balance of trade being so generally against this
country, and the cause of our commercial embarrassments; but there is nothing in
it. Exceptional individuals there are who are extravagant, and spend more than they
earn; but, as a whole people, we earn and pay for all the elegancies and luxuries
we enjoy, and have abundant means left. No nation on the globe is so little extravagant
as our own, in the true sense of that term.
But war is an extravagance. A standing army in time of peace is an extravagance.
The army of France, which I think rarely falls below 400,000 men on the peace establishment,
is a plaything more costly and exhausting to the resources of the nation than all
the gay equipages, rich furniture, silks, satins, jewels, operas, and the other
baubles that furnish interest and amusement to all the vain men and frivolous women
in our land; and from these the principal nations of Europe are no more exempt than
we. A privileged aristocracy, exempt from labor; an established church, costing,
as in England, $35,000,000 per annum; a cumbrous mass of pauperism—all these are
extravagances, the results of an old and decaying civilization, from which we, as
a nation, are almost wholly free. Our comparative exemption from these, and the
intelligent industry of the masses of the population, promoted and secured by our
common schools, are carrying us forward to a height of power and prosperity, and
with a rapidity such as the world never before saw equaled; and we are teaching
the world with emphasis the important lesson for human happiness, that peace,
not war, is the true mode of securing power, and the true policy for mankind.
Nevertheless, we exploiter each other in our business relations at home, and we
fritter away a considerable portion of our productive labor for the benefit of other
nations. With a productive power in proportion to our consumption, constantly applied,
equal to 10 to 7 at least of the next most favored nation of the world, the balance
of trade is almost constantly against us. True, we can spare this balance, and have
the means of prosperity left, but it is wasted on wars and on objects foreign to
our interests, or to the advancement of mankind. We should do better to keep it
at home.
The explanation of this apparent paradox, this constant unhappiness and continued
prosperity, is before us in the inflated, staggering currency, which is never anywhere
in a reliable position twelve months at a time, and in the never-ceasing industry
of the people. The tariff is of secondary importance.
It remains to consider the remedy for the evils we experience. This is a matter
requiring the careful consideration of our merchants. As a class, it appears to
me they have unaccountably neglected a subject easy of comprehension, the right
understanding of which is of vital importance to their prosperity, and to the general
welfare of the nation.
It is a trite remark, that it is easy to point out an evil, but not so easy to devise
a remedy. Perhaps it may be a sufficient answer to this to say, that an idea must
be created before it can have power to discover or enforce its remedy; and I think
the true idea in regard to the currency has yet almost to be created in this country.
The evil is the offspring of State legislation; and most men look to legislation
for the remedy. The efforts of several of the States to pass laws to suppress the
issue and circulation of small bank notes, are in the right direction. Such laws
have been passed in several of the States, but are effectually enforced, I think,
only in Maryland and Virginia; they have had a most beneficial effect in strengthing
the currency of those States, and none passed through the money pressure of the
latter half of last year with so little inconvenience or suffering.
But it would be impossible to get a uniform system of legislation in the several
States upon the subject. An attempt to pass a law in the Massachusetts Legislature
at its last session, restraining the issue and circulation of small bank notes,
was defeated by the selfish interest of the members, many of whom, and some of the
members of the banking committee, were bank officers or directors, and by the general
ignorance of the whole, who were satisfied with the shallow idea that a one-dollar
note will buy as much as a silver dollar, and they seemed to think that it would
be an affliction to carry the weight of specie in their pockets. But such a measure,
if adopted by all the States, would be only an alleviation—not a cure.
The true remedy I conceive lies with the people, and more immediately with the merchants
in their individual capacity. If any number of merchants in New York or Boston would
realize one or two millions of dollars in coin, and establish therewith a "mercantile
treasury," it could, I think, be so directed as to become the nucleus of a power
that would shortly reform the whole system of the currency of this country.
There are men in New York, and in every other city and community, thank heaven,
who can be trusted. We know them and we trust them now. Their note is as good as
any bank note of the best quality, and their word is as good as their bond. If such
men would establish an institution or commercial firm of this character, manage
it themselves, pledge themselves to each other and to the public, to receive, pay,
and loan nothing but specie or the precious metals—unless it might be desirable
to the public for the convenience of portability, to receive certificates of deposit,
and never to issue one dollar of that description unless for the equivalent coin
retained in hand—it could be made a substitute for our savings banks, that are now
little else than satellites of the other banks of the credit system. They could
borrow money at four, and loan it at six or seven per cent; they could charge a
commission on accounts, loans, or transfers; they might deal in exchange, perhaps
make advances for a commission on bullion or plate deposited; and other sources
of profit might be found in the practical working of the institution to remunerate
the proprietors. But it would operate with power, I think, in the correction of
the evils of the present diseased currency, by keeping in check the issues of the
banks of the credit system, for whose notes, to the extent of its operations, it
would substitute specie.
It is a circumstance generally unknown or unthought of, that when the alarm in regard
to the Provident Institution for Savings in Boston took place last fall, in consequence
of the fact becoming known to the public that the institution had invested largely
in the stock of the Webster Bank, the deposits in that institution and the other
savings banks in the city and suburban towns, amounted to between eight and nine
millions of dollars. They had nothing to pay out but notes of the Boston banks.
The whole sum of specie in those banks was only $2,400,000, and they had before
as much as they could do to take care of themselves, their customers, and their
circulation previously issued. New York was as much pressed for specie as Boston.
There was no resource for an immediate additional supply. In this emergency, a Catholic
priest and a wealthy Irishman addressed the assembled multitude, who were clamoring
for the return of their deposits, assuring them of their safety; and the excitement
subsided. It was full time. Such a state of things is preposterous, and should carry
a condemnation of the system that produces it.
The reduction in the quantity of money, and the fall of prices that would follow
the substitution of coin for our entire paper currency, I have not now time to consider.
It may form the subject of a future article; but it may be well now to say that
great misapprehension exists concerning this. The change would be almost entirely
a substitution of the one for the other, and not a great reduction in quantity to
cause a general or disastrous fall of prices in this country; for the balance of
trade is legitimately in our favor, as I have already demonstrated, to secure the
coin to any desired extent as soon as we shall require its use. No nation in the
world could exchange products with us on a specie, or any other equal measure of
value, without falling in our debt. This is the explanation of the early and entire
success of the subtreasury that politicians supposed would require and absorb all
the specie, and break every bank in the United States. That admirably devised scheme
of finance now retains in the country twenty or thirty millions of dollars of specie
that would inevitably cause inflation, fluctuation, and widespread disaster, as
before, and would disappear like magic, if the government funds should be again
committed to the custody of the credit banking system. That money alone, in my opinion,
preserved our banks from a general suspension of specie payments during the recent
pressure.
In the present delusion of the public mind regarding banks, the system of expansion
and inflation cannot stand still. The establishment of a bank is generally considered,
in a country neighborhood, equivalent to the creation of wealth to the sum of its
capital at least; and the legislature cannot equitably refuse a loan so valued,
and already so freely granted, to any town that may petition for it. More capital,
more capital, is the constant cry. Everyone thinks it necessary to provide more
money for increasing prices and increasing demands. Nobody thinks of the natural
remedy for a deficiency of money—lower prices, till they fall in an avalanche on
all the property touched by the magic finger of the idolized bank. The sapient member
of the Legislature, a duality of statesman and bank director, says a bank note will
buy as much as the specie. It is money, in his opinion, real money, therefore the
making of a bank is the making of money; and so we apparently go ahead, but really
advancing backwards; and so we must go, so far as I can see, if we depend on legislation,
till the bubble bursts in a general suspension of specie payments. Then will a specie
deposit bank, or an institution such as I have described, be the only one having
character or capacity to do anything; and then will its merits commend it to public
favor in a manner that will probably put an end to the present credit banking system
in this country forever.
Now, a "mercantile treasury" of this character might place and keep in circulation,
in coin, a large portion or all of the money usually held on deposit in the "savings
institutions," so called, which serve at present in a great degree as a means of
inflation in other banks, and it could not be pressed for its engagements. It would
substitute the thing promised to be paid for the mere "promise to pay," and it would
be a public benediction.
I am not alone in this opinion. A new sentiment wholly independent of politics is
fast growing into importance, that would rally around and sustain any reliable institution
established to give it practical effect.
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