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Organization of Debt into Currency and Other Papers
by Charles Holt Carroll

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Chapter 2
The Gold of California and Paper Money

(Reprinted from Hunt's Merchants' Magazine and Commercial Review, XXXV (Aug., 1856), 160-72.)

FREEMAN HUNT, Esq., Editor of the Merchants' Magazine, etc:—

The admirable article in the May number of your Magazine, on "the Gold of California," by the Hon. Thomas G. Cary, of Boston, deserves the careful attention of all who desire information as to the great movements which operate upon the commerce of the world, and influence the life and well-being of individuals and the nation. Gold is a lever of immense power in moving the fabric of society, the action of which should be understood by every businessman, at the cost of some study, for a higher purpose than his own immediate traffic or selfish ends. The custom of ages has so identified gold with money, that we have come almost to consider it as nothing but money. As money it is in everybody's thought, on everybody's tongue, and in many hands; but thought about, talked about, and desired as it is by all, it is as little known, or as poorly comprehended in its character of money, as if it had been appointed to that office by the present Congress of the United States. It is said that we, of this country, worship the almighty dollar. Surely, it is best to know whether our deity be a God or a devil.

Much has been written about gold since its discovery in California; but most of the writers have so involved the subject in the metaphysical mists of political economy, that common men can derive very little assistance or knowledge from their labors. It is, therefore, refreshing to meet with a good, plain, comprehensive essay, like the one in question, adapted to the purpose of instructing the many, and to the many I commend it for its practically plain teaching, and generally sound doctrine.

The purpose of Mr. Cary appears to be, mainly, to explain why the anticipations of a great rise of the prices of all property, from the influx of gold, have not been realized, and to show that gold is not an important addition to wealth, excepting as it is used for utensils or ornaments, or necessarily as an instrument of exchange.

With reference to the anticipated rise of prices, he relates the experience of a "merchant of sagacity," who, having $100,000 employed in loans on short time, invested it in property, from an apprehension that the influx of gold would reduce the rate of interest, and raise the price of all kinds of property rapidly. Sagacity is a relative term. We may not doubt that the merchant in question possessed the attribute in the comparative degree in this community, where so little is known of the true character of money, that we suppose its efficacy to be improved by adulteration, and its strength increased by weakness; but his sagacity failed him in this instance. The stocks fell, while interest rose and ruled high—8 to 15 per cent.

If he had carefully examined the history of money, and compared the periods of high and low prices in this country and elsewhere, he would have discovered that interest is always high when and where the prices of property are high. In other words, interest is always dear where money is cheap. Gold runs away from those countries where interest is high, to countries where interest is low, and flies from paper money as mankind flee from a pestilence. We can do nothing so effectual to raise the rate of interest, as to increase the quantity of money, whether metallic or paper; but more especially of paper, for that is debt, having the preference of every other debt. It is the debt of institutions holding the purse-strings of society; in every adverse state of the exchanges, turning the screw upon all other debtors, and raising the rate of interest with irresistible power. California furnishes an example of a high rate of interest, with a plenty of gold, and consequent high prices of property. Our Atlantic States, where money is made plenty with paper, come next, and the rate of interest continues to decline, successively, in England, France, &c, to those German States and the Eastern countries, where money is the least abundant, but exclusively metallic and most valueless; and the precious metals are traveling in the direction indicated by the declining rate of interest with the steadiness that belongs only to the operation of a natural law.

Mr. Cary very justly says, that "currency, like water, seeks a level, and the gold of California becomes mingled with the metallic currency of the world. If prices rise here, because our gold is falling below its value in Europe, some of it will be taken away to Europe till prices will cease to rise with us." Plainly, gold will go where it is worth the most, and the only way in which the worth of gold can be measured or determined is by the general price of commodities and property. This fact is rendered somewhat obscure to many minds by the term dollar, which means but a given weight of gold or silver. If we fix the mind upon gold by the ounce, and consider the exchanging of it for cloth or cotton as simple barter, which in fact it is, we shall find that having on hand cotton, corn, ashes, gold, copper, lead, silver, &c, that commodity will be taken for export which is the cheapest here and the dearest abroad, and we thus better comprehend that the dollar, being but a commodity consisting of 25 8/10 grains of gold, must follow the same law.

If 20 bushels of corn, 1 ounce of gold, 100 pounds of copper, and 5 yards of broadcloth, are equivalent value in England, and the English merchant having broadcloth to sell here, can lay down in England 21 bushels of corn, or 101 lbs. of copper, or 1 ounce of gold for his 5 yards of broadcloth, he will leave the gold and take the corn and copper. If he can obtain 1 oz. 1 dwt. of gold, but only 20 bushels of corn, or 100 lbs. of copper for his cloth, he will take the gold. Either of these articles is virtually the measure of value of the others; 20 bushels of corn being, in the case supposed, as truly the value of 1 oz. of gold, or 100 lbs. of copper, as 1 oz. of gold ($18.60 in our coin) is the price of 20 bushels corn, and so of the rest. Therefore, if by reason of our increased supply of either of these articles more of it is required to be given in exchange for the other than before, that article has fallen in value, and if it be cheaper here than in England, by more than the difference of cost of transportation, it will be exported to England, and it will be distributed to the ends of the earth on the same principle. There is no magic in gold to release it from the operation of this universal law. The average rise of prices and fall in the value of money, are, consequently, one and the same thing, and must permanently bear a just relation to the increase of the precious metals upon the stock of the world.

What the sum of this increase, and consequent rise of prices may be, Mr. Cary does not indicate; and I think the reader might infer from his essay, that the rise of prices has been very small, but a careful comparison of the prices current of 1849 and 1856 seems to show that it has reached 20 to 25 per cent on the prices of 1849, as nearly as such calculation can be made, including real estate and rents.

Bringing the estimates of Humboldt, Gallatin, and other reliable authorities, down to 1849, when the California gold came into commerce, the whole stock of the precious metals appears to have amounted at that time to about $500,000,000 in the world. Since that period, the increase for the whole world cannot greatly have exceeded an average of $150,000,000 per annum. Allow the excess for abrasion and contingent losses, and the increase would amount to 3 per cent per annum; this compounded for seven years gives an increase of 23 per cent.

Dry hides, a large and important article of commerce, have risen during this period in this country from 8½ to 26½ cents per lb., and in like proportion in all other commercial countries. Store rent in favorable locations is 100 per cent, and flour and grain were, when Mr. Cary's article was penned, about 50 per cent higher than in 1849. Now, if some things have risen so enormously, it follows that other things cannot have risen at all, and some may be worth even less than in 1849; otherwise the sum of money, with only 23 per cent increase, would be insufficient to settle the balances of trade. This deviation of value, among the various commodities, in relation to each other, may be caused by speculation, but it is usually the result of the common law of consumptive demand and supply. Money always finds customers, because of its power to exchange readily for everything else; consequently, there is no limit to price but the limit to the quantity of money. If one commodity rises, another must fall, to make room for it in the currency; and if one falls, another will be sure to rise, for, with rare exceptions, the great mass of the currency is always in use or in immediate demand. But deviations of this sort occupy public attention too exclusively, almost totally obscuring the effect of the expansion and contraction of the currency, exhibited in the aggregate rise and fall of the prices of property in relation to money, a vastly more important matter, causing more rapid and extreme deviations of price, and involving the consideration of the proper administration of the monetary system of the country. But such extreme deviations could not occur from the use of specie alone.

Obviously, the increased supplies of gold, coined into money, become mingled with the currency of the world, and prices will be averaged accordingly.

Precisely the same consequence results from the increase of paper money; fitful and mischievous only—never permanent anywhere, because, being nothing but debt, it cannot be long sustained beyond the sum of specie property belonging to the local currency with which it mingles.

The simple illustration before presented in the exchange of corn, gold, copper, etc., which some may think too simple to offer to an intelligent reader, is of the greatest significance, for it proves conclusively that we do not have any permanent accession to the currency, by reason of paper money. All we can use of paper and of credit discounts on deposit, permanently, must occupy the place of the same amount of specie, thereby driven abroad, the export of which takes the place, and prevents to the same extent the export of corn and of flour, that sour on a glutted market at home, or of other exportable commodities, the production of which would furnish profitable employment to the laborer, and give use and value to land and other property, now neglected, and perhaps unknown. More than this can only be put in circulation temporarily, to be cut down by the more lively outpouring of gold, till the currency is again reduced to the amount required within the specie measure, and the amount of paper thus remaining and substituted for specie, costs the labor of the country interest, and something more for the benefit of the banks—robbing Peter to pay Paul—while the use of specie would be a common benefit, costing nothing beyond the labor of its production, which must be supplied in either case. When the export of gold entirely ceases, we may reasonably conclude that the average price of merchandise is at specie value here, and the amount of the currency the same as it would be if no bank note or credit deposit existed.

Mr. Cary considers that gold is not an important addition to wealth, with the qualification, "excepting as it is used for utensils or ornament, or necessarily used as a mere instrument of exchange." As he admits that we had gold enough for all such purposes before, it follows that he does not consider the present increased supplies of gold any important addition to wealth at all. He does not state this as distinctly as could be desired, but his illustration of this point is good, and to the purpose. "The blacksmith and the carpenter contribute largely to the wealth of the community, but the head and the hand of the artisan are not wealth, however they may be productive of it, although the hammer and anvil, with the saw and plane, are also wealth to the extent of the necessary cost of such tools. But if the smith should spend his substance in procuring fifty or a hundred anvils, when his business required only the use of one, and there was no market for the rest, he would hardly be thought to have increased his own wealth or that of the community by the addition." This, it appears to me, is precisely the principle of our doings in California.

There is a distinction generally unnoticed or unknown, that it is most important to observe for the proper understanding of this matter, namely, the difference between value and price. Value is the power of a commodity or of property to exchange for other property, and is in the compound ratio of the utility and scarcity of the property valued. Price is simply the power of property to exchange for money. A bushel of corn at $1.00 is of equivalent value with 5 lbs. of butter at 20 cents per lb., or 10 lbs. of lead at 10 cents per lb. Now, if the quantity of money should be doubled, while the supply of and demand for the other articles remained the same, their price would probably be doubled, but their value would remain unchanged, for each would exchange for the same quantity of the other as before, and for the same quantity of all other property as before. Either would purchase double the quantity of money; but as we could neither eat, drink, nor wear the money, nor do anything with it but exchange it for other property, the sum of $2.00 would be of no more value than $1.00 was before. Money, then, would have fallen in value 50 per cent, but property, though increased in price 100 per cent, would have no additional value; for it would not, by reason of the greater price, supply an additional human want. Obviously, then, the mining of gold in California is labor lost to the country and to the world, so far and so long as its product is used for money; and its use for ornament and utensils, being for the gratification of luxury or vanity, is of the least possible consequence; therefore, we may safely conclude that the universal supply of gold is not an important addition to wealth.

Thus far, excepting the matter of paper money, which is not embraced in his essay, I accord with Mr. Cary fully. But almost every subject admits of an honest difference of opinion, and I find room in this for such difference from some of his opinions.

He thinks the high prices said to be caused by gold are more properly attributable to the emigration to California, which diminished the number of valuable laborers here—to wants of flour and grain in Europe, and to two years of unusual drought here. The two latter are good reasons for the enhanced price of particular commodities, and so far as their increased price taxes labor it would affect in some degree other property, and raise its price, but not, I think, to a great extent. They are the ordinary fluctuations of value from variations of supply and demand. There must be a large increase of money to supply any considerable general increase of the prices of all property, or the enlarged balances of trade must produce bankruptcy. But as to the emigration, I think it could have had but a very temporary effect upon prices, if any at all.

A small community may be able to produce property as cheaply as a larger one. The element of consumption combines with production in determining the economy of labor, and the wealth of individuals and nations. Every man has all other men for his competitors in production and traffic, yet by industry and frugality he may keep the balance of trade in his favor and accumulate wealth.

And here let me travel a little out of the record to correct a common misapprehension. It seems to be forgotten or disregarded by most thinkers on the subject, that the labor of every community vastly exceeds what is required by the necessities of life. Probably one-twentieth part of the labor performed in the United States would feed, clothe, warm, and shelter the whole population, and perhaps put us in possession of all the plain comforts enjoyed by the community of Shakers; the remainder, of nineteen-twentieths, goes to the support of luxury, pays for silks, satins, and jewels; for war and intemperance; maintains the government; builds palaces and monuments; creates beauty and refinement; supports religion and literature, idleness and pauperism, theaters, fiddling and dancing, and folly in general. Some persons have been startled at the statistics of intemperance—its enormous cost. Why, we very wisely spend one day in seven for the sabbath of perfect rest. We might institute another sabbath of bacchanalian orgies, and most unwisely rest another day of every seven in the gutter, pay for the necessary liquor, and have abundant means left, not only to support the whole population, but to keep the balance of trade with other nations in our favor, if we would traffic with them in an equally valuable currency.

The measure will not be recommended by me, nor obtain my support; but there is not a nation with whom we hold commercial intercourse, that does not waste in war, ignorance, idleness, and in the support of abnormal institutions, contrived by the cunning and established by the strong to compel a luxurious and profitless maintenance from the hands of labor, more than such a bacchanalian sabbath would cost, over and beyond any waste or idleness here. We are not wholly without such abnormal institutions, but they are comparatively few and harmless. The worst among them is our banking system, which substitutes debt for useful, constitutional currency, as I have already shown, and gains its support and profit from the labor of the country, for doing nothing but mischief.

No nation known to history has ever been so generally industrious, or applied so much intelligence and power to the creation of wealth in proportion to population, and the result is manifest in the most rapid and vigorous material progress the world has ever witnessed.

"Large numbers of people left useful occupations here, and went to California for gold. Probably 50,000 men," in Mr. Cary's opinion, "whose labor was of great value, left with this object. But many vagabonds went with them, who were no loss here, and did nothing but mischief there." I can conceive that the sudden withdrawal of many valuable laborers may have temporarily enhanced the price of labor in the trades they deserted, but their places were soon filled; some departments of less profitable labor supplied the trades that paid best. Boys are growing to men all the time, and such matters soon regulate themselves. Under such circumstances, we might have for a time a smaller community, less consumers— profitably less so far as the vagabonds are concerned—as well as less producers; and there would be a diminished supply of articles of the least necessity—luxuries probably—perhaps fewer fiddlers, players, or organ grinders, but there would be "a few more left." It is impossible to employ the whole population in productive labor; they would soon overstock the market with useful things, and then some would be obliged to take to fiddling to gain a living and make themselves useful as consumers. This would seem to be all the effect the emigration to California could have produced here. I cannot think it had any but a momentary influence upon prices. I must therefore differ from Mr. Cary on this point, and conclude that the high prices are solely to be attributed to the increase of gold, disproportionate with the production of other capital.

He thinks if such were the fact that money should be more abundant than it is, and the rise should be nearly uniform. Paradoxical as it may appear, the more money we have in this country the scarcer it is, according to the common mercantile idea of the scarcity of money. The currency never was so full before as in 1837, when money became so scarce that the banks of the United States suspended specie payments. Speculation and overproduction grow with the increase of money; prices rise so that we become large buyers, but small sellers, in our foreign trade. The demand for money outruns the supply, no matter how great the supply may be, and competition keeps up the prices to the full measure of the currency. Overproduction, which should reduce the price of its special commodities, furnishes merchandise for speculation. When the currency is increasing, perishable articles are held till they decay. At such time the producers or holders of breadstuffs in the West always expect prices higher than the highest, and corn and flour sour before being thrown upon the market. They tell the jobber in the city that they cannot pay because they have not sold their wheat, and the jobber extends the credit because he can get a discount at the bank—fly kites—and pay an old debt with a new one.

Thus the demand for money is the greatest when money is really the most abundant, and debt is increased, creating customers for money and disquieting the whole community. Nobody is benefited by this state of things, but the bank-owner and capitalist; they get the best security and the best pay, and when settling day arrives, the banks, being themselves the great debtors of the community, control all the money and take care of themselves. Their bank notes and deposits, which we have been foolish enough to consider and use as money, now show themselves in their true character of preferred debt; it must be paid, and the contractions of bank "accommodations" necessary to enable the banks to do this, and the consequent reduction of the currency, must continue till the value of money is increased, and the prices of property reduced to the true level of specie measure. At any appreciable amount below this point merchandise will be received by creditors in preference to specie. It begins to pay to export merchandise again, and having settled among ourselves the whole sum of the contraction by bankruptcy, we make haste to forget it and the widespread misery it occasioned; the newspapers read us a few wise lessons on the subject of overtrading—the great benefit of such painful experience—say a good deal about the prudence that is now to regulate the concerns of trade, and then we are driven by the system (it is a mistake to suppose that we go voluntarily) round the same unhappy circle again, grinding the masses to poverty, and filling their hard earnings into the coffers of those who manage the currency.

What Mr. Cary means by the greater or less abundance of money is, doubtless, the common understanding of the term on 'Change, as I have here considered it, that is, more or less plenty in relation to the demand. It can hardly be supposed that, according to the natural law of the case, which he understands so well, that "currency, like water, seeks a level," he would expect any greater increase of currency in the United States than has already taken place.

For the reader's information respecting this I furnish the following comparison between the two periods of 1849 to 1856—

In 1849— Bank Circulation $114,743,415
   "     Deposits 91,178,623
Specie in Bank 43,000,000
   "       "  Circulation 77,000,000

Total of Currency in 1849 $325,922,038
In 1856— Bank Circulation $177,157,412
   "     Deposits 237,964,981
Specie in Bank 60,000,000
   "       "  Circulation 190,000,000

Total of Currency in 1856 $665,122,393

Excess of 1856 $339,200,355

The specie estimates are taken from the Report of the Secretary of the Treasury.

This is an enormous increase of currency—over 100 per cent in seven years—a greater ratio than ever before, excepting for the seven years prior to the disastrous 1837; and notwithstanding the great influx of gold, it indicates, in my opinion, a state of inflation. The gold received, instead of passing into the currency, is used as the means of expansion by the banks, their debt to the community being increased, and the specie thereby expelled. As we see by the above statement, they hold but $14 45/100 of specie for $100 of immediate liabilities. In 1837, they suspended specie payments with $13 71/100 of specie for 100 dollars of immediate liabilities, being only ¾ of one per cent more than their present condition. I am aware that the increase of gold makes a present difference in their favor.

According to Mr. Cary, a great deal of the California gold belongs to foreigners, and "is sent first to New York, merely as the most convenient channel for it, and not because it is due to us." There can be no doubt of this. Since the gold came forward freely from California, say for the last five years, 1851 to 1855 inclusive, we have exported nearly $200,000,000 in all, or $40,000,000 per annum. As the total receipts have been but about $50,000,000 per annum, during the same period, and we furnish the great bulk of the shipments to California, it is probable that not more than $10,000,000 per annum of the gold belongs to foreign account. The balance of trade in merchandise is therefore against us $30,000,000 per annum. Now, in my opinion, we lose this, virtually getting nothing for it. By reason of the paper inflation of our currency, we pay false or paper prices for imports, and for the same reason many things that England and other countries want are produced here at too high cost to export, or are not produced at all, and land and labor are lying idle that would otherwise be profitably employed, while breadstuffs and other commodities are being furnished to England by the ports of the Baltic and Black Sea; and various nations, by using a better currency, are enabled to undersell us in the different markets of the world.

If we measured our values by a currency as good as theirs, our commodities would be cheaper to Europe than gold; and their gold, which now passes through New York, might be arrested here, and form capital for the further employment of labor and the further extension of trade. Indeed, there can be no doubt that with an unmixed specie currency, and our greater general industry, we could turn the current strongly in our favor, and draw gold from Europe as freely as they now draw it from us, until values should be brought to a level, when the advantages of trade would be equal.

All we need to accomplish this is, to know, and to act upon the knowledge, that adding $5 of paper money to $10 of gold, reduces value as much as it adds to price; that the sum of ten dollars is precisely the same value as fifteen dollars, when it will buy the same property, and supply the same wants of life, and that one-tenth part of the money we now employ would move the same property, transact the same business, build the same cities, and command the same capital, as a whole, only at a lower name in money, and it would be the same wealth. As our currency now operates upon our foreign traffic, we might as well plunge $30,000,000 of gold annually into the sea.

The true policy for every nation is to keep the currency sound and strong. As gold and silver form the acknowledged money of the world, we can do no better than to use them in their standard purity, and permit nothing to be acknowledged as a dollar that is not a dollar. The addition of $5 in paper to $10 of gold has the same effect in reducing our money as adding one-third more alloy to the coin; it reduces the eagle to $7.50. Reversing Iago's simile, it filches from the eagle $2.50, but leaves its good name unsullied. And we ought to know that a "promise to pay," either of a bank or an individual, so far from being money, is a debt that must be paid, and will be sure to come in for liquidation at the most inconvenient moment. The scarcer the real money may be, the faster the imaginary money—the "promise to pay,"—will return for settlement, and thus paying both sides of the billbook—payable and receivable, an operation that cannot be long continued—are debtors driven to the wall, and bankruptcy and distress spread broadcast over the land.

The principle of our mixed currency is a philosophical injustice. It is of unequal value to debtor and creditor, and to buyer and seller. As we say in technical language, its elements are not chemically combined, only mechanically; they do not permeate each other, as the alloy and other metal in coin, but are laid together in pieces of gold and pieces of paper, so as to be easily separated by the creditor; the gold retained and the paper thrown aside. Thus the seller having a commodity produced elsewhere by a given amount of labor and capital, represented by $5 in gold, finds here the same capital and labor represented by $6 of a mixed currency. He sells us the value to himself of $5, and takes $6 away for it, first separating the paper from the gold, and taking only the gold. Obviously we must be large buyers and small sellers upon these terms; and if we sell at all, must supply one-fifth more labor or capital to get back the same sum of gold or the same intrinsic value of anything else. It is in this way that we live and thrive, by laboring for the same capital more generally, intelligently, and industriously, than any other people; spending extra time in hard work, which is lost in our exchanges with countries possessing a better currency.

Now, if our coin were debased and chemically combined with 20 per cent of pewter, or some worthless compound, the seller or creditor would be obliged to take away the whole mixture, and the exchange would be made on an equivalent value—gold for gold. The creditor or the seller would receive no more gold than the due proportion in the currency, and would allow for no less, and no injustice would be done to either party. The trick of mixing currency is that the seller from abroad gives only $5 of his gold or labor for $6 of ours, by reason of the facility with which the gold is separated from the paper, a jugglery in the system not understood by the people. I assume this position merely for illustration, not pretending to say that the currency can be permanently debased by paper one-sixth, and kept convertible, although it may be so debased temporarily.

I have said that one-tenth part of our present money would answer every purpose of the whole; still less would answer equally well. There is no limit to the reduction that might be made, and with sustained prices, if the weight or fineness of the coins should be reduced in the same ratio, until a degree is reached beyond which the divisibility of the metal would not admit of expressing amounts sufficiently small. With the coarser metals—silver and copper—to fall back upon, this could scarcely occur. But such a measure would cause endless confusion in the value of coins of the old weights and standards that could not be immediately withdrawn from circulation. The true policy in every variation in the supply of metals is to keep the coins permanently of the same weight and fineness, letting the prices of property change as they may. To secure perfect accuracy and justice in this matter is impossible. One metal will vary in relation to another. The decrease of the precious metals or of the currency injures debtors, and their increase injures creditors, most especially annuitants, and in a great degree laborers and salaried men, for wages are the last things to rise as the currency falls in value. I do not, therefore, see the propriety of the following remark of Mr. Cary, and it does not seem to agree with his general teaching: "With the use of steam for manufactures and navigation, of railroads, of electric telegraph and other modern inventions, nations are roused to an activity in the arts of civilization that may require vast additions of the precious metals for circulation." I cannot think so. It is true that a great increase of property, with no increase of money, would necessarily reduce prices, but that would be no more unjust than the advance of prices from the present increase of money. It would not affect unfavorably a different class—debtors instead of creditors—and annuitants would be benefited, as their income would be relatively more valuable. But no conceivable increase of transactions or of property, it appears to me, can render any great additions of the precious metals necessary.

This notion that trade requires more money is the fallacy upon which our paper-money system is erected, from a blind ignorance of its principles, and an unwillingness in the community to submit to any fall of prices; but, as I have already shown, it is not money but debt that is thus created, and the fall of prices, under the screen of this system, that succeeds every rise, is doubly severe, for the money that the community count upon to discharge their obligations, is not only abstracted, but, being of itself a debt, requires for its payment just as much more, precisely as any two debts of equal amount require twice as much money as one to discharge them.

I think it was in the year 1836 that several of the leading merchants of Boston, alarmed at the immense amount of commercial engagements running to maturity, and the inadequate sum of money in the community to discharge them, and impressed with the fallacious idea that bank debt is money, petitioned the Massachusetts Legislature for the charter of a bank, with a capital of $10,000,000, to enable the people to discharge their obligations. Even the prominent and judicious firm of Perkins & Co. were among the applicants for this charter. Such was then the delusion upon this subject. The establishment of a bank with such a capital, for such a purpose, at that time, would have been like an attempt to extinguish fire with oil, and it is somewhat surprising that the Legislature, under the solicitations of such esteemed and practical merchants, should have had the penetration to discern the truth, and the good sense to refuse the grant, as they did, by reason of which the State was saved from much additional embarrassment in the disastrous period which immediately followed. We cannot be too emphatic in denouncing the idea that an increasing trade necessarily requires an increase of money, as an error and a delusion. It might be otherwise if value and price were the same, but as the value of property may be the same at a very different price at different periods, it is of very much less consequence to alter the quantity of the currency to suit the altered conditions of trade, than to restrict trade to the proper values of a stable currency. Indeed, to accommodate the currency to the continual fluctuations of trade, so as to regulate prices, would be utterly impossible; while if the currency be let "severely alone," trade will accommodate itself to the currency with perfect equity. Debtors and creditors must always be more or less affected by the increase or diminution of the currency, and so they must be by the increase or diminution of commercial transactions, that alter prices by requiring greater or smaller quantities of money to represent and adjust them. They must take their chance in the revolutions of the wheel of fortune. But if there should not be another ounce of the precious metals raised for a century, trade would not suffer, nor the supply of any want of the community be in any degree affected thereby, unless some ornament or utensil of gold or silver, the value of which would be necessarily represented by more of other property than now. Prices would fall, but only gradually, or trade increased, and not perpendicularly, as during a severe bank contraction. Values would be the same as now, and would fluctuate the same, depending upon the supply of and demand for each particular commodity. The same quantity of wheat or beef would feed the same number of men, who would build the same sort of house or ship or railroad. What if at one-half the price? Would the house, or ship, or railroad be less useful, because of the lower price, and if the one-half price will buy the same quantity of wheat or beef, or anything else, pay for the labor and support of the same number of men then as the whole price now, is it not clear that its value will be the same, neither more nor less?

So much of repetition of this idea, I trust, may be pardoned by the reader, for it involves the whole question of the currency so necessary to be comprehended, and so little attended to, respecting which I find Mr. Cary's article, although treating only of gold, highly suggestive. But the present condition of things clearly indicates that the addition of the precious metals for a long future period will far exceed the relative increase of trade, so that, without the aid of paper money or credit banking, prices, however they may fluctuate at times, must in the aggregate surely rise. It is deeply to be regretted that this certain effect cannot be foreseen by the majority of our people and legislators, and thus remove the excuse for credit banking, which rests wholly upon the false presumption that the constitutional currency is insufficient to supply the medium of trade.

But several of the States of Europe are running deeply into the folly of credit banking and paper money; and the "credit mobilier" is covering the Continent with debt. This will place them at a disadvantage in their trade with England and this country, if we do not pursue the same folly to the same extent. I learn from a German merchant, connected with Hamburg, that already prices have risen there, so as to embarrass their export trade, and that interest, which was formerly two-and-a-half per cent, has been of late 6 and 7 per cent per annum.

The bonds of the "credit mobilier" are, of course, expressed in currency, but a house is not a given quantity of francs and centimes, and when those bonds, given and received for houses, stocks, and other property, become sufficiently numerous, and the holders find it necessary to realize to meet the increasing money engagements, to which the immense transactions of that society are giving rise, they will be thrown on the market in large numbers and amount, and although payable only at the expiration of ninety years, they will be likely to create a pressure for money that will destroy their own value, for they, like all other property in movement, will require money for their exchange, and they can only command the share of the currency that belongs to them according to their value or price in proportion to other property moving in the market at the same time, for all of which the supply of real money will sooner or later be inadequate. But the whole system is running to debt and inflation, and by raising prices in Continental Europe, we may expect that the people there will be compelled to perform extra labor to balance their trade with us, as we have done under our banking system to balance ours with them, till the bubble bursts, as similar bubbles have burst before.

That prince of financial mountebanks, John Law, in the beginning of the last century, forwarded his celebrated scheme for a land bank, essentially upon the same idea as the credit mobilier. He proposed to coin the whole landed property of the kingdom of France into money, by getting it pledged for his bank notes, and finding an easy instrument in the regent—the spendthrift Duke of Orleans—he succeeded in coining nearly the whole property into debt, and plunging the kingdom into the most inextricable financial confusion. The preternatural excitement in business which attended this scheme required a great addition to the currency, at the same time that the bank notes, under the operation of the natural law by which an inferior always drives before it a superior medium, forced the coin rapidly from the kingdom, and a grand explosion, at the end of four years, terminated the existence of the mammoth absurdity, with the fortunes and happiness of great numbers of the best people of France.

The extent to which the present French Emperor is involving his nation in debt—the concern of himself and his ministers, or the men connected with him in the "credit mobilier," and the enormous stock-jobbing and speculations now being carried on, through the instrumentality of that society, lead prudent men to doubt whether Louis Napoleon is a less extravagant man or a better financier than the credulous Duke of Orleans, and to anticipate for France, at no distant day, a climax of commercial and financial embarrassment little, if any, inferior to that produced by the necromancy of Law.

If I have engaged the reader's attention in the foregoing pages, I trust he may be convinced:—
   That a merely local increase of money cannot be maintained, excepting by productive labor, which requires as it earns money; and that increasing the currency of the United States in any other way is like pouring water into a full vessel to run over as fast as supplied into the broad ocean of the commerce of the world.
   That the present influx of gold is no addition to wealth, so far as it is used for coin, because the increase of money is all expended in price, adding nothing to value; so far, therefore, the mining of gold is labor lost.
   That the increase of gold for ornament and utensils is not an important addition to wealth.
   That interest is always dear where money is cheap; interest being the rent of loanable capital, bearing no relation to the value of money.
   That there is great disadvantage and loss in credit banking or paper money, because it checks productive labor, by forcing unnaturally the export of gold in the place of merchandise, and by its necessary contractions, causing bankruptcy and distress, making the rich richer, and the poor poorer.
   That the aggregate rise of prices and fall of money are corelative terms.
   That the extinction of paper money and credit discounts would reduce the currency only the sum of the excess beyond the specie measure, which exists but temporarily, producing evil while it lasts, and that merchandise would be immediately exported to bring back the coin for which bank notes and credits are now substituted in the currency.
   That debt in any form is not money, and will not supply the place of it, except when money is seeking customers, and not customers money.

These are the leading points that I have endeavored to impress upon the mind of the reader.

It seems necessary frequently to repeat, what ought to occur to every intelligent man, that the objections so constantly urged against gold or a hard currency of its being troublesome and unwieldy, could, and in practice would, be removed through the issue by respectable parties or institutions—doubtless banks of deposit—of certificates of deposit for coin, the coin being retained to meet the return of the certificate.

The advocates of a specie currency object only to the falsehood of inaugurating into money what is in fact debt, that must be collected from the banks before it can become money—they cannot pay till they can collect it from the community, and the community cannot pay till they can ship goods to California or Europe and get returns. All that we require is that no token shall be added to the currency as money that is not money, to create false and enhanced prices for foreign products, or to prevent the sale of our own, or to create false obligations, that in the nature of things cannot be discharged. Against the certificate of deposit no objection lies, as it would add nothing to the currency, nor depreciate in any degree the value of money.

It is strange that men who can see the sun of a June day do not see the glaring evils of our present system, and unite in measures to reform it altogether by the establishment of deposit banks, earning their support and profit by borrowing money at a low rate of interest, and lending at a higher, and charging an honest commission for honest service, instead of interest on capital blindly loaned by the public, against whom the interest is charged, or, as in Massachusetts and some other places, an illegal and unjust rate of exchange.

Thus, in a commentary on Mr. Cary's article, finding it suggestive for the purpose, I have endeavored to furnish a plain essay on our mixed currency system of coin and paper money, that I deem an element of great unhappiness in the community, and the most ingenious device for taxing the people without their knowledge or consent, that could be conceived.

I may appropriately conclude with the well-known remark of Mr. Webster: "Of all the contrivances for cheating mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man's field with the sweat of the poor man's brow."

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