Organization of Debt into Currency and Other Papers
by Charles Holt Carroll
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Chapter 15
Attributes of Money
(Reprinted from
Hunt's Merchants' Magazine and Commercial Review, XLI (July, 1859),
19-31.)
I had sketched for publication in your magazine some thoughts on the Attributes
of Money, when your May number came to hand, containing the strictures of your contributor
"B.," on my article relating to Commercial Value, published in March last. Finding
these thoughts pertinent to his questions, I will, with your leave, communicate
them, along with a reply to him, in this article.
Patience is not only a qualification, but a necessity, in the prosecution of any
science. I hope he will not get out of patience with political economy, because
students are not yet well agreed in all points regarding its principles. Enough
has already been developed to show that there must be a perfect consistency in its
parts, and there can be no doubt that its conclusions will be established sooner
or later with the unalterable precision of mathematics; they are irrefragable, like
the principles of astronomy, however men have differed, and may differ, in their
thoughts about them. Ptolemy taught astronomy as well as he knew; nevertheless the
earth did not stand still, according to his teaching. "And yet it moves," notwithstanding
the church, and its persecution of Galileo for saying so. Events are occurring that
will give an impetus to the study of political economy, and its practical application
to finance and trade, such as the world has never known before. The sudden and almost
fabulous supply of gold, for example, has opened upon our abnormal banking
system a power of expansion that must, in the nature of things, damage the interests
of trade and of society, to a degree past all endurance. With nothing to check or
control this system but the self-interest of men, who are authorized by law to issue
promises to pay money they never possessed, and that never existed, filling the
whole nation with obligations as impossible to comply with as promises to deliver
the stars of heaven; with the competition of thousands of banks now, or soon to
be, in getting interest on these fictions as money wherever a bank can be planted,
we cannot fail of being punished by a commercial crisis every three or five years,
that will convince our merchants that political economy is a science which has been
neglected too long in connection with their business.
Double entry, which compels an even balance of debit and credit, in real as well
as personal accounts, and the practical nature of the merchant's aims and habits
of thought, render him more competent to investigate this branch of the subject
than the closet student. Within a few days, in examining the attributes of money
for this article, I have arrived at a startling conclusion, that I believe has never
before been discovered or thought of, i.e., that one-half the amounts due on our
debt-circulating property are, from the necessity of the case, in virtual bankruptcy;
and, from a parity of reasoning, one-half the people concerned in it are hopelessly
bankrupt all the time. I think this will be made plain to any experienced accountant
in the following exposition.
I have assumed in a previous article that the currency of this country amounts to
$600,000,000, and the whole property as 25 to 1 of the currency, or $15,000,000,000.
Of this about two-fifths is in circulation, or $6,000,000,000, being 10 to 1 of
the currency. The currency is $200,000,000 of money circulating, at 10 to 1, $2,000,000,000
of property; and $400,000,000 of bank debt circulating, at 10 to 1, $4,000,000,000
of property. These sums and proportions are as nearly correct as they can be estimated
at this time in our actual business. Then we have $4,000,000,000 of property circulating
through debt and credit, depending upon the $400,000,000 of debt currency for the
adjustment of its obligations. In other words, somebody owes $4,000,000,000 on this
property, and, as the debt must be balanced by credit, somebody is creditor for
it all. The currency and property will mingle in all ways and in all proportions,
but the average, or settlement, must come to this; there is $2,000,000,000 of property
circulating in money without debt, $4,000,000,000 circulating in debt without money,
and $9,000,000,000 not circulating; that is, not in market and not in debt. It
follows that if anybody owns of the debt-circulating property more than he owes,
somebody owes for the same just so much more than he owns, thus:—
| A owes |
$20,000 |
.................................. |
$30,000 |
| B owes |
40,000 |
.................................. |
30,000 |
|
$60,000 |
|
$60,000 |
A being worth $10,000, B is bankrupt $10,000. The account must be held to the inexorable
law of double entry.
This condition of things is in accordance with the nature of the currency by which
it is produced, there being in this currency two obligations existing to pay one
and the same value. The bank cannot pay until it is furnished with value by, or
from, the discounted note to pay with, because it loans debt and not money. In fact,
the bank debt is merely a portion of the general debt of the community, organized
into currency, one-half fiction as to value, and circulating with the $4,000,000,000—part
and parcel of the same thing, the element of value being absent on the bank side.
Like parent, like child; the whole mass of obligations is therefore lame of one
leg. It will be observed that the $400,000,000 of bank currency is in excess of
the reserve of coin which performs its function in the money-circulating property.
The reader may at first suppose the debtor to have some interest in the money-circulating
property, or in the property out of circulation, to alter this relation of debt
and credit, but it is not so; the fact that he is a debtor makes him an exclusive
partner in the debt-circulating property, and subject to all its embarrassments.
It must be considered that the contraction of currency, which reduces the money
value of the assets of debtors, does not reduce the sum of their obligations, and
creditors gain the property that is lost by debtors in consequence of the contraction.
A false price determined the sum of the obligation that is required to be paid in
the appreciated value of a reduced currency. Sometimes it may require double the
property, on the new valuation, to procure the dollars necessary to discharge the
old obligation. He who owes nothing is not injured by the appreciation of the value
of money which causes a general fall of prices, because his money is worth just
so much more as his property is worth less than before. If I am bankrupt $10,000,
it does not help my case that my neighbor is worth $10,000, and I see no way to
relieve, or alter, the conclusion that about one-half the people concerned in the
business transacted through the debt-banking system, embracing nearly all our merchants
and manufacturers, are hopelessly bankrupt. Certainly this is curious and very lamentable
if true. I am not disposed to assert it dogmatically, but present it as an open
question for the investigation of merchants, bankers, and economists. If anyone
can point out any fallacy in the argument, I will thank him kindly to present the
figures in your pages; I cannot find it myself.
The popular and brilliant work of Buckle on Civilization, will, I think, have great
influence in promoting the study of political economy. Ralph Waldo Emerson also
gives it a prominent place in his admirable lectures, and I make no doubt teachers
are yet to come in this country who will demonstrate the truth with more accuracy
than the economists of England. I believe our greater rashness in banking will chasten
us into knowledge through suffering; but as for Mr. Carey, I apprehend he is too
much imbued with the old prejudice of partisan politics, and therefore looking for
the truth in the wrong direction—in the laws of man and not in the laws of God.
Now, I hope your contributor "B.," who seems to be getting out of patience with
all political economy but Mr. Carey's, will have patience with me if I remind him
that the nine questions he propounds for my consideration seem to imply that he
is groping in that ancient darkness of the science, into which Adam Smith cast illumination,
and which, among European economists, he has the credit of having dispelled, namely,
the belief that money alone is wealth, and things valuable only as they
will exchange for money. It is, I am sorry to say, far from being dispelled, and
is still directing thousands of misguided men to fabled gold fields, through danger
and suffering, to hopeless poverty, starvation, and untimely death.
I consider money to be the last thing we want; at the same time it should be the
exclusive currency, because money alone will prevent debt and embarrassment. It
is utterly impossible for an industrious community, pursuing the arts of peace with
an open commerce, to have too little money; it will come without their seeking.
They may substitute debt for money in the currency; then they
will infallibly have debt in their general traffic beyond their means of payment—too
much debt but not too little money. There must be always about
ten dollars of debt created by, and depending upon, every one dollar of convertible
debt currency, that without such currency could have no existence.
I have said that our banking system creates obligations impossible to fulfill; this
statement will be comprehended on perusal of the following article, taken from the
Shoe and Leather Reporter, published in New York and Boston simultaneously:—
DEBTS AND BAD DEBTS
According to a Boston print, Edward Everett sums up the
case of the financial crisis of 1857 in the one, short, expressive word DEBT. Doubtless
he would sum up the case of a conflagration in the one, short, expressive word FIRE.
If any other man should sum up in this way he would be considered no wiser than
the rest of us. Debt, like fire, is a good servant sometimes, but always a bad master;
it is well enough in its place, but very ill out of it. The cause of the crisis
of 1857 was not legitimate debt for value received, but debt for that bastard
thing, the promise to pay a value that was never RECEIVED and never
CREATED, and which is accepted for money—a fiction occupying the
place of a value. People do not comprehend that the promise to pay a thing
that never existed is an obligation impossible to fulfill; they suppose there is
an equivalent for every dollar, and they suppose rightly; there is an equivalent
for every dollar that exists, but none for the dollar that does not exist. There
can be no equivalent to fiction but fiction. Our bad debts are the consequence of
this transparent blunder; dollars of debt are issued against dollars of debt, and
when somebody demands dollars of money in exchange, there is a crisis.
The simplest mind ought to discover this at a glance, yet people are thoroughly
befogged with it.
I propose to make this matter plain by a simple illustration. There is one Kohinoor
diamond in the world, and only one. What if we create a corporation to deal in Kohinoor
diamonds, the one being put in for capital, with authority to issue ten different
promises to deliver the diamond on demand? So long as the diamond remains on deposit,
and people are satisfied they can get it by presenting the certificate of claim,
the certificate may pass, and command an equivalent in commodities, and the promise
to pay the diamond can be readily discharged, or, more properly, evaded, by presenting
another promise against it of the same sort. All these promises make good "deposits."
A checks upon B for one diamond, and B pays in the promise of C. The "grand confidence"
of the public will thus make the community worth, apparently, ten Kohinoor diamonds,
while they, and the world, possess but one; and that same confidence will pay interest
in cloth, and corn, and wine, and other good things, to the diamond corporation,
for their sound currency, as good as diamonds. But then somebody discovers
that where diamonds are so plenty, the equivalent in commodities is much smaller
than in Pekin or in London, where the lapidary finds a use for the article itself.
He pays the equivalent for one of our diamond promises, walks into the office of
the corporation, and walks out with the gem. Another, hearing the good report of
the London market, walks in with another of these promises. Mr. Teller hands out
the promise of C for the same thing.
"But, Mr. Teller, I want the diamond."
"Well, I give you C's promise, which is just as good; it commands the equivalent
in market; anybody will take it for dry goods, or wet goods, or hardware, or software."
"Perhaps so, but I happen to want nothing dryer, or wetter, or harder, or softer,
than a Kohinoor diamond for the London market. I have the promise of your corporation
for the specific thing, and know no equivalent. You will please hand out
the diamond."
At this point in the negotiation, the teller probably puts his finger to his eye,
and, lifting the lid, replies, "Do you see anything green under there?"
This reply is no invention of mine; it was once made by the teller of a bank out
West, and may be considered the improved Western method of declaring a crisis.
Perhaps the reader will think this trifling. There is no perhaps in my
opinion of the matter; it is trifling, and to just such trifling is committed the
vast business of this country—the hopes and aims of men, the happiness of families,
and all the serious material purposes of life. It is precisely as impossible to
discharge, with one dollar, obligations to pay ten dollars, as to discharge with
one diamond obligations to pay ten diamonds. Once make the promises to pay a thing
that never was, and exchange them against promises of the same sort, whether the
original existing thing be one diamond or a million of them— one ounce or one dollar
of gold or a million of them—and the opposite promises must discharge each other;
each is the equivalent of the other, and there is no equivalent anywhere else. If
anybody gets possession of one of these promises and demands the value—the thing
itself—and withdraws it from circulation, there is a corner somewhere.
It is exactly the cornering trick of the Stock Exchange, elaborated and extended
over the whole country. There are engagements out to deliver more shares than were
ever made, and settling day reveals the fact. But unhappily it is not usually the
issuer who gets cornered; it is the honest man who has given value for the worthless
promise. He is remote from the bank, and people do not see the finger of the bank
in the transaction, but it is there, ordering the attachment and directing the execution.
The man is aghast: he had worked hard and worked well—shows ten thousand dollars
clear net estate upon his books— upon his books, but alas, not anywhere
else; these dollars of his stock account are promises to pay as good as his own;
there is a corner, and he is in it.
If the diamond corporation had loaned only the one diamond they possessed, instead
of promises to pay nine more that nobody possessed, there would have been no corner,
no impossibility in their contract, and none in the contracts depending upon it,
because the diamond, or the equivalent to obtain it, would have passed in each transfer,
and would repass back to the original lender—the corporation—who would thus obtain
the diamond or their certificate for it, if they had loaned the certificate instead
of the diamond itself. This is all we of the shoe trade need, and all that anybody
needs, i.e., that an existing value, and not a promise to pay a value that never
existed, shall pass in each transfer. If we buy or borrow from the bank, we want
the thing we buy or borrow, as from an individual, and if we take a certificate,
or a credit from it, the bank must hold the thing until the return of the certificate
or presentation of our check, as ours, and subject to our order, precisely as a
merchant would hold wheat, or beef, or leather on storage, as the property of the
buyer after he had sold it; the certificate may pass fifty times from hand to hand,
without embarrassing anybody. As it is, the banks lend the ownership of the thing
several times over, when they never possessed the thing itself; and when called
upon to pay, they have only promises to meet the demand; then they demand of their
debtors a value they never loaned, and their debtors have only promises wherewith
to respond. Of course there is a crisis. They may screw the thing from their debtors,
so long as the debtors can obtain it by any sacrifice of their property, but there
is a corner that cannot be passed—shares that cannot be delivered, because they
were never made—dollars that cannot be paid, because they never existed.
It is among the marvels of the age that this business has continued so long, and
that men accustomed to mental exercise, like Mr. Everett, should see only an accumulation
of debt in the corner of 1857, and not the inevitable impossibility in
the obligations of the community that was clearly developed in that crisis, and
was its only cause. Nothing is so much needed as sound thinking and plain speaking
on this subject, by and from men who have the ear of the town. Awaken the public
to the facts of the case, and the abomination will be abated speedily, without injury
to anybody, even to the banks themselves, who can easily change from the existing
system to the legitimate business of borrowing and lending money. This would secure
an immediate and great increase of commerce, and lasting benefit to the nation.
Debt of an abnormal character is the canker of this country, and we need a sound
American political economy to remove it; yet it only embarrasses, it does not prevent,
the aggregate accumulation of wealth here for more than the sum of the precious
metals expelled by it, amounting, since the California gold reached its present
magnitude of production, to just about the whole manifested supply received in the
Atlantic States—say $50,000,000 yearly—with the accumulation that so much well-employed
capital would yield in addition thereto.
It has nothing to do with the character of our commodities, whether agricultural
or manufactured, that we of the Atlantic States either gain or lose the precious
metals, but everything to do with the character and volume of our currency. I do
not wish to controvert Mr. Carey's positions, but merely to state my own in reply
to the questions of your contributor. I cannot avoid saying, however, that Mr. Carey
repels simple students like myself by his involved and turbid manner of expressing
very simple ideas. For example, we are told that he "demonstrates that value is
determined by the cost of reproduction; that the cost of reproduction is the
only measure of value"; "that value is the measure of the resistance to be
overcome in obtaining those commodities or things required for our purposes—of the
power of nature over man." I really am not able to see anything
in all this but the simple idea labor, which is no measure of value to
me, more than any single commodity in which labor is embodied.
The first six questions of your correspondent may all be condensed into the first;
there is but one idea in all of them, i.e.— "How is it that prices in Europe have
not so increased within the last three centuries, as to have arrested long since
the continuous, never ceasing flow of the precious metals from America thereto?"
The reply is, that they flow out of Europe as they flow in, according to their value,
as measured by commodities. The precious metals move by a law as simple as that
which governs the movement of all other commodities; they go from where
they are produced to where they are worth the most, which is where they
are the most employed; and they leave Europe as they find more employment elsewhere.
Your correspondent's questions would seem to imply that the precious metals have
been embargoed in Europe for the last three centuries. They have often returned
from Europe to the United States; they flow wide and everywhere as they are needed,
and will not remain in any country beyond the true measure of relative value; as
compared with other commodities, in all parts of the earth accessible to trade.
The moment the currency of a nation, whether it be exclusively of money,
or mixed with debt convertible into money, exceeds in volume the currency of another
nation, in relation to commodities of general utility, the excess runs off. This
cannot be prevented by any law of Congress, or policy of government, in a state
of peace, and ought not to be if it could. At present the silver of Europe is flowing
to Asia, because gold is falling in value in relation to silver, as well as to everything
else. Gold spreads from its great sources of supply, in California and Australia,
through America and Europe, where the legal relation of l5½ of silver to 1 of gold
is still continued. Of course the silver coins are appreciating above their legal
value in relation to gold; they command a premium in France and elsewhere, and are
being rapidly transferred to Asia, where silver maintains its value because it is
in use for currency almost exclusively, and gold is taking the place of silver in
the currencies of Europe. M. Chevalier, in his recent work on "The Fall in the Value
of Gold," very justly says that France has served temporarily as a parachute to
retard the fall of gold, for France had an abundant supply of silver both in and
out of her currency. Gold will be substituted for this before its depreciation,
in relation to silver, will become very considerable in the world, but that depreciation
is as certain to take place as any other occurrence depending upon the operation
of natural law.
Your contributor's last three questions are:—
7th. In view of the phenomena presented in France, Northern Germany, Sweden, and
Denmark, into which the precious metals have been, and still are, flowing, is it
not probable, or even quite likely, that those metals possess some life-giving property?
May it not be that they impart activity to the movements and the industrial pursuits
of men? And would it not seem that their influx prevented other things from remaining
in supply and demand as before?
8th. If they do not possess any such property, why is it that while they can be
neither eaten, drunk, nor worn, they are held in more universal regard by man than
any other commodity known to him?
9th. Why, if they have no grand and distinctive quality, is it that they have been
thought worthy of so much legislation, and of so many disquisitions in State papers,
books, magazines, and newspapers, by distinguished and thoughtful men?
These surely are very singular questions to put to me, who, of all men in the world,
have persisted the most strongly on the utility of the precious metals as currency,
and on maintaining their value by use. They might be more appropriately asked of
his friend Carey, who is a paper currency theorist, and apparently expects by tariff
legislation to dam the outflow of the precious metals, so that we can circulate
certificates of the ownership of gold, and the gold for the same sum at one and
the same time; that is, eat our cake and have it too. We have tried this
for nearly eighty years, through much individual suffering; although the nation
prospers in the general accumulation of wealth, and in general progress, far beyond
either of those he names above, and notoriously beyond any other on the face of
the earth, and why? Because we so generally go to school, keep at peace, and WORK.
If your correspondent's questions are designed to controvert any position or opinion
of mine, it must be the one that the precious metals have no superiority to other
commodities as wealth. I infer that he thinks they have some special superiority
in forming the aggregate of wealth. As to their "grand and distinctive quality,"
I appreciate it more strongly than himself, without doubt. On this point I wish
to present some thoughts that may be new to him and to your readers in general;
he may be surprised to find that distinctive quality is the stronger and better
with the smallest possible proportion of money to commodities.
More distinctly in reply to his questions, 8th and 9th, I would remark, that the
"universal regard" in which the precious metals are held by man is owing to the
almost universal delusion still prevailing that they are the only wealth, and the
expression of value in money, which is mere price, the only value existing in property.
It is a canard to say, as do the English economists, and John Stuart Mill in particular,
that Adam Smith destroyed this fallacious idea, except in the minds of a few accomplished
economists. Every State Legislature in this country acts upon the idea that the
more dollars we have the more wealth we have, and, in their blind zeal to count
dollars, they are utterly unable to distinguish between the fact and the fiction;
they imagine that they make money out of promises to pay money that was
never created, and cannot be made to comprehend that the money flies before the
fiction as men flee from a pestilence.
Nearly all the members honestly believe the coin in our currency is all that belongs
properly to our commerce, and the $400,000,000 of debt, organized into currency,
an absolute addition of so much money that we should not otherwise possess.
Even a conspicuous Boston newspaper, claiming among its editors more culture and
intelligence than their fellows in the same city, ridiculed Mr. Walker's assertion
at the meeting of merchants there, to consider upon the suspension of specie payment
in October, 1857, that the paper currency drove the coin out of the country, as
worthy only of a note of admiration!
I except, however, the Legislature of Arkansas from the general charge of ignorance
on this subject.
Money possesses two attributes, co-existent and inseparable, yet totally distinct
in their functions; they are VALUE and PRICE. VALUE it derives from, and reciprocates
with, the metal of which it is composed. If half the use of the precious metals
is in currency in the world, as I suppose at present, then half their value is in
currency; if half their use is in the arts, half their value is in the arts. Money,
in this respect, being a metal, is a commodity—the product of labor—and its value
will be greater or less in the compound ratio of its utility and scarcity, like
that of every other commodity. This I carefully stated in the article cited by your
correspondent. Double the supply of money upon the market, all other things remaining
as before, and we must exchange two ounces or two dollars of gold for the thing
which would have exchanged for one ounce or one dollar before; just as doubling
the supply of wheat, other things remaining equal, will make it necessary to give
two bushels for that which we had bought with one before.
This is its office as a commodity; its value is intrinsic, and cannot be imparted
to anything else, but falls with an increase of volume and rises with a
decrease, like oranges, or apples, or flour, or cotton. It is merely one of the
commodities of commerce in general use, adopted by the common consent of the world
as the medium of exchange.
The other attribute, PRICE, it derives from its office of the medium of exchange,
or currency. In this respect it is not a commodity, but a vast public engine,
or institution, of immense power, and, in its normal condition, of immense usefulness.
This attribute it imparts to all the property and labor of the world. Much
as we see, and hear, and think of money, its function, or power, for good or evil
as currency—not as a commodity—is almost wholly misapprehended. Our whole
system of commercial finance is founded upon the misapprehension that price
is value,, and that increasing prices increases values; so we increase
dollars and fancy we are increasing wealth. It is all a mistake. The prices of wheat
and iron, for example, may be increased to any extent by the increase of money,
without increasing their value, except in relation to the commodity of money itself,
which is thereby cheapened. The bushel of wheat, or ton of iron, will procure in
exchange no more corn or wine, by reason of their enhanced prices, caused by the
increase of money, to double its former volume, but the ounce or dollar of money
will procure only half as much wheat, or iron, or corn, or wine, as before.
Now money, in its office of currency, with its attribute of price,
is not alone; it has a cunning and bad partner, that, pretending to the attribute
of value, which it does not possess, and assuming falsely the name of money,
has managed to get possession of the business, and do infinite mischief. That partner
is DEBT, dishonest in principle and destructive in practice.
Money as a commodity, with its attribute of value, is obviously wealth,
and forms its relative portion of the capital of the country, but it is not by any
means the best kind of wealth; because its metals are inferior in utility to iron
and many other commodities. It depends mainly upon the element of scarcity for its
value. Were either of the precious metals as plenty as iron it would no longer be
precious; with all its beauty it would be less valuable than iron.
Money as currency, or the medium of exchange, with its attribute
of price, is not wealth, for neither its increase nor decrease increases
or diminishes the wealth of the community a single fraction; it is an institution
whose power is increased by concentration, and it is an important function of sovereignty
to establish and control it for the benefit of the whole people. With one-half or
one-tenth the amount of currency we now possess we should have precisely as much
wealth as now—the same property and the same value of property as at this
moment, only at one-half or one-tenth the price. Precisely in the ratio of increase
of its volume it falls in value, and precisely as it declines in volume it rises
in value, other things remaining as before.
Such is the dual nature of money, but price being its greater and all-powerful
attribute, it follows that the less we have of it, and the more property that is
not money, the better, provided its metal pieces are not so diminutive as to slip
through the fingers. Once having an organized currency, the less we have of it,
in relation to our commodities, the greater will be its value, and the greater its
power, and, could we maintain the relation of more commodities and less currency
than any other nation, so long as we did so we should command the commerce of the
world. This may be effected either by a decrease of currency or by a relative increase
of merchandise and other property, but a decrease of the volume of currency would
infallibly secure the increase of merchandise and property, because it would secure
their production and their prompt exchange for money, with the nearest community
having a more expanded and cheaper currency than our own.
Let us return to the hypothesis of 25 of property to 1 of currency, and the circulating
property two-fifths of the whole, or 10 to 1. If we assume, for the sake of argument,
three hundred millions of dollars as the sum of the currency, the whole property
would be $7,500,000,000; then if we double the currency, without increasing the
property, the price of the property increases to $15,000,000,000; but there
is no more property than before; not a dime of value or wealth is added thereby.
The result is a fall in the value of money, or currency, of one-half; two dollars
of money being worth no more than one had been, because it will circulate no more
property, nor supply any more wants than one had done before. This is the immense
power of price in the currency, the addition of $300,000,000 of currency
adding $7,500,000,000 of price to the property of the nation, without altering
its value in the least degree, except in relation to the commodity of money,
and the altered relation is in the money itself.
But only two-fifths, or 10 out of 25 of the property, is in circulation, on the
average, against the whole currency; it follows that in estimating the power of
the currency to increase prices, we must take the ratio of 10 to 1; thus, two-fifths
of the whole property of $7,500,000,000 being $3,000,000,000, adding $300,000,000
of currency increases the price of the $3,000,000,000 to $6,000,000,000.
Now, I ask your correspondent to reflect upon this, and he will see why we part
with the precious metals to Northern Europe and the ends of the earth, notwithstanding
Mr. Carey's theory of value, or his notion of the movement of raw material and manufactured
commodities. Every dollar of currency increased, whether in gold or in bank debt,
adds ten dollars of price to our commodities in the aggregate. Assuming the original
currency to be $300,000,000, and our values level with Europe, so that the commodities
we produce the more advantageously go to Europe, and those Europe can produce more
advantageously come here, in a normal, wholesome traffic; then let California add
$50,000,000 in gold to our currency, and it will add 10 to 1, or $500,000,000 to
our prices—our commodities will be too dear, and many that were before exportable
cannot be exported; the average rise of price will be 16 2/3 per cent, and this rise
will be shared by the imports. What law of Congress, except a declaration of war,
or nonintercourse, can prevent this gold from being shared with the rest of the
world? Certainly none other. There never was a statute framed in any country, though
the thing has been often attempted, that prevented, or could prevent, money—the
metal—from leaving the market where it is worth less for that where it is worth
more, nor ever can be. It will flow to England, France, Northern Europe, and the
ends of the earth, until it finds the market where money, gold and silver, is at
the highest, and merchandise, relatively, at the largest value.
There is but one way, in a state of peace, for us to prevent this gold from leaving
the United States except by contracting the currency, which is to produce an additional
$500,000,000 in commodities, collaterally with the $50,000,000 of gold; nothing
less will do it, but this will, for this will prevent any rise of prices, and of
course any depreciation in the value of gold, and it will add $550,000,000 to the
wealth of the nation, not in price, but in absolute value, for the whole is the
clear product of labor, the value of the gold being maintained by the relative increase
of 10 to 1 of commodities. But this must be an accumulation over and above the ordinary
production of the country, which may or may not be possible. I am not quite certain
either way, for the natural power of this nation has never yet been put to speed
in the production of commodities. From the beginning of the century we have bought
gold and silver, and instead of retaining it for money, by producing commodities
and property, to maintain the relative value of the metals, we have gone to work
industriously in producing dollars of debt in currency, as if the money burnt our
fingers, and have thus cheapened and driven it out. I am not at all certain that
we could not produce an extra $500,000,000 of commodities and fixed property yearly,
and retain the California gold. Of course we should export $50,000,000 of additional
commodities yearly, instead of the gold, and I think a still larger amount, depending,
however, upon the degree of reduction of the other portions of the currency to which
we might resort.
But one thing is entirely certain; we can retain the California gold by contracting
the debt currency, and export $50,000,000 of commodities, instead of the gold, annually,
until we displace the whole amount of the debt currency, whenever the national government
choose to exercise the power expressly granted in the Constitution over this subject.
Except in a period of inflation of the currency, which is expelling gold in large
quantities, as now while I write, in the latter part of May, we can make this change,
putting money in the place of debt in the currency, with a great increase of business,
and without any appreciable fall of prices; for the moment the volume of our currency
falls to the level of the currencies of Europe, we must sell merchandise
and not money.
The more commodities of general utility a nation, or a community, can produce with
the least currency, the greater will be their exports, the more active, sure, and
prosperous their business, and the greater their wealth. It is strange that this
transparent fact should be overlooked or ignored, as it is, by the merchants and
legislators of this country. Where the dollar will buy the most there the dollar
will go. If fifty cents will buy as much in New York as one dollar in Boston, who
will take a dollar to Boston? If ninety-nine cents will do the same, customers will
not go to Boston; New York will do all the business. In my opinion this is the whole
cause of the acknowledged gain by New York upon the distributing trade of Boston;
it is the preposterous over-banking in Boston—a penchant for manufacturing dollars
of debt and using them in the place of dollars of gold, instead of manufacturing
commodities and increasing the business of the city and State by exchanging them
for gold. Boston usually keeps her dollars as cheap and saleable as possible, and
of course her commodities dear and unsaleable in proportion.
The same policy prevails throughout the State. In every small town, having any business
pretensions, a bank is established, the favorite and profitable issue of which is
the notes of the smallest denominations, and these are constantly hunting the money—
the gold and silver—out of every hole and corner of the Commonwealth as fast as
it comes in. People generally cannot be made to see that by this policy they are
involving their neighborhood unnecessarily in debt; they see and feel the debt with
all its embarrassments, and make pitiable complaint of the difficulty of getting
money, but do not comprehend the cause, for they have not the remotest idea that
the bank note is not money. For this reason it is quite impossible to get the Legislature
of Massachusetts to consider the petitions that have been repeatedly presented of
late years to restrain the circulation of bank notes below the denomination of five
dollars. What can be more obvious than that getting the money to replace this circulation
is equivalent to the production and sale of manufactures or other merchandise out
of the State to the same amount? It is the selling of goods for cash, and the creation
of so much absolute wealth. It is discreditable to the intelligence of the Massachusetts
Legislature that they cannot comprehend a truth so plain and undeniable as this.
If the expansion of debt banking were as great in relation to the exchanges in New
York as in Boston, New York would have 169 banks, instead of 54 as at present; or
if it were as much condensed, relatively, in Boston as in New York, Boston would
have only 14 banks, instead of 45 as now. It is like 169 men in Boston seeking subscribers
for a work of no value, against 54 among the same number of people in New York;
the 169 will get the most subscribers in the aggregate. All these are trying to
find a cranny in the same amount of business into which they can stick a dollar
of fiction to earn 6 or 10 per cent per annum from the credulity of the people,
as effectually as a dollar of value would earn it from their good sense. Boston
is ahead in this business, and customers having good dollars to sell are going where
there are fewer dollars in proportion to commodities, of course where the dollar
is worth the most. The law of value takes care of this sort of thing with lynx-eyed
precision.
Your correspondent perhaps may think Boston could remedy this by establishing a
tariff against New York, and she could, with the same propriety, and precisely as
much effect, as the nation can remedy the same difficulty by the same means—a tariff—in
our exchanges with Europe. There is no reason, that I can see, why the economical
rule of the division of labor, according to soil, condition, education, taste, capacity,
and all natural advantages, should not apply with equal force to nations, as to
States, towns, families, or individuals, and it does so apply in spite of human
statutes. I find no evidence in statistics that imports have ever been retarded,
or exports accelerated, by our tariff laws. We always import with the inflation
of the currency bubble, as we are doing now (in May), until we ruin so many merchants
that we think it not worth while to proceed any farther in that direction, when
we let down the currency and proceed to exporting merchandise again. Taxes could
scarcely be collected more unequally, or unjustly, than by our tariff scheme; the
rich man, who happens to be a bachelor or a small consumer, pays little, while the
poor man with a large family pays much.
Taxes, to be equitable, should be assessed upon the property that government protects,
or upon those who enjoy the property and have the means to pay. They should be laid,
if at all, as lightly as possible upon the mere labor employed in producing the
property that others enjoy. As a question of political economy, taxing consumption
is taxing labor and not capital. It is taxing production and adding cost to commodities,
thereby embarrassing our exports. "Protection" in this sense is a misnomer; it is
reactive, and by raising the cost of commodities and general prices here, it protects
or pays a premium to some special manufactures at the cost of the general production
of the country, and thus becomes a bounty on imports.
The government should tax capital and not labor, erase the word smuggling from our
vocabulary, put a stop to customhouse litigation, turn the customhouses to better
uses, join in the expense of collection, and collect the National with the State
taxes, and save the time and cost of much Congressional talking. The expense of
collecting the revenue from customs is three million dollars annually,
beside the cost of erecting new customhouses. A mere fraction of this sum would
pay the expense of collecting it with the State taxes by a simple rule of pro rata
assessment, without visiting any man's domicile. It would release an army of men
to perform some better service for their country, and save a great amount of labor
and of trouble to merchants. And it would produce a steady and properly increasing
revenue.
The multiplication table cannot be changed, even by Omnipotence, because Omnipotence
has made it a law unto himself; the Universe is its measure, and it measures the
Universe. When twice two shall produce five, the multiplication table and its author
will cease to be—the planets will fly from their orbits, and chaos come again. They
who believed the sun stood any stiller at the command of Joshua than it had stood
before, were false teachers, falsely taught, and it appears the world has not yet
outlived the delusion. We cheat ourselves transparently when we fancy the law of
gravitation and attraction to be suspended for an instant, and we are not less deceived
in respect to the law of supply and demand, when we think we improve its operation
by a law of Congress. Things will go and come where they are attracted by value,
the prime element of which is use, and not where they are directed by legislation;
they refuse to be mismanaged long.
True we have a margin of oscillation in our desires; we may accept an inferior in
place of a superior commodity for any use, and if we do not desire the superior
article we may save the employment, business, and creation of wealth that would
be necessary to procure and retain it. We can create and accept debt for currency,
with all the embarrassment and suffering that debt produces in the exchanges of
commerce, and save the employment, and business, and the creation of wealth, necessary
to procure and retain the money which alone will prevent the debt. We may
live in caves like bears, or in hollow trees like owls, and have very little to
do and less to enjoy, but if we would have good homes and escape barbarism we must
work.
Money is one of the greatest engines of civilization; perhaps it is the greatest
of them all; we can do without it, on condition of living in continual anxiety,
with perpetually recurring bankruptcies, and occasional frenzies like those of 1814,
'19, '37, and '57, but if we would have security in business, comfort in our dwellings,
and prosperity in the State, we must have no extemporized and cheaply constructed
currency; we must have no currency but money, that can only be procured
and maintained by LABOR.
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