But there is a final limit to this delusion. The depreciation of the currency has become so great, from these extraordinary issues, that timid people become alarmed, and make a run upon the banks, whilst coin is also demanded for exportation. The banks are called upon to pay their notes, and they in turn call upon their debtors, who are by this means first awakened from their dreams. Money becomes scarce, and prices of property and commodities fall. The operation which the banks require is merely that those with whom they exchanged notes upon such unequal terms, shall exchange back again. But with this demand the merchant cannot comply, because he has long since parted with his bank notes, and has in their place a store full of goods, which he has been induced to import or purchase, on account of the high prices created by the issues of the banks, but which he cannot now sell without a loss that will render him insolvent. Or he has parted with his bank notes in exchange for goods which he has sold to country merchants, who cannot pay him owing to the fact that the planters or farmers whom they trusted have overplanted or over-farmed, or over-speculated in lands, or over-expended. The manufacturer pleads the same inability, because the same high prices and appearance of universal prosperity induced him to erect buildings and machinery, not required under a diminished demand for goods, which he cannot now dispose of at any price; whilst the farmer or planter confesses, that the temporary rise in the prices of land agricultural produce, and slaves, which he thought was a permanent rise in value, had induced him to

and deposites of all the banks in the United States, according to returns nearest to the periods mentioned.

Jan. 1, 1835, $103,692,495 $83,081,365 $186,773,860

Jan. 1, 1836,

140,301,038 115,104,440

255,405,478

Jan. 1, 1837, 149,186,890 127,397,185

276,584,075

invest in unproductive improvements on his estate, and in the purchase of slaves and new lands, the notes which he had received from the banks; or, that his belief in his apparently growing wealth had led him into extravagance and luxurious expenditures.

The speculators in railroads and canals, who subscribed to those improvements, not because they had capital to invest, but because they fancied that the delusion under which they labored was a reality, and that consequently they would be able to sell their stock at an advanced price, cannot pay their notes, because they can find no purchasers with actual capital who are willing to take their bad bargains off their hands. At this winding up of the catastrophe, it is discovered that during the whole of this operation, consumption had been increasing faster than production that the community is poorer in the end than when it began-that instead of food and clothing it has railroads and canals adequate for the transportation of double the quantity of produce and merchandise that there is to be transported-and that the whole of the appearance of prosperity which was exhibited while the currency was gradually increasing in quantity, was like that appearance of wealth and affluence which the spendthrift exhibits whilst running through his estate, and like it, destined to be followed by a period of distress and inactivity.*

* In confirmation of these views, as well as of others expressed in this work, the following remarks of the Bishop of Llandaff (Copleston), are presented. They are contained in a note to a volume published in London, in February, 1840, page 322, entitled "Letters of the Earl of Dudley, to the Bishop of Llandaff."

"This letter (dated 17th June, 1822) relates to a paper in the Quarterly Review on the Currency Question, which was reprinted as a pamphlet in 1830. That paper was written by me after long study of the subject, and nearly twenty years of experience since it was written have confirmed me in the opinions there maintained, and have, I think, proved the correctness of its reasoning: but mankind are unwilling to believe that

But even admitting all this to be true, it may be argued, that at any rate banks of circulation, by liberal issues of their notes, make what is called money plenty. That they make it plenty with those who first get their paper is undoubtedly true, as is evinced by the speculative operations which have been above described; but as soon as time has been afforded for that general rise in the prices of property and com-' modities which is inseparable from increased issues of paper after it has become diffused throughout the circulation, the plenty disappears. It requires, at the

what skilful practical men find difficult and perplexing, can be resolved into a few simple principles, the forgetfulness of which had caused all the difficulty. The temporary prosperity also which springs from an extensive paper currency not only blinds the eyes of the public at large, but raises up numerous interests among individuals whose profits depend upon a continuance of the delusion. The patient is accordingly flattered by nostrums which give immediate ease, but really increase the malady; until at length a crisis comes, which demands a desperate remedy. The alternative is, either a debasement of the coinage (which is national bankruptcy, i. e. paying so much in the pound-and this has been the usual remedy for insolvency with all the governments of Europe,) or a severe reaction on the victims of the delusion, which causes embarrassment and stagnation in trade, and ruin to thousands who lived and flourished upon the ideal property. A dreadful dilemma! America is now suffering under it, and is probably doomed to undergo greater convulsions before the cure can be effected, boundless as her physical resources are.

"Unfortunately too, in such a state of things, a large party are ever prone to run into the opposite extreme. Struck with dismay at the fatal consequences of excess, they preach up, not temperance, but total abstinence. They are for no paper money. Thus it ever is-Dum vitant stulti vitia, in contraria currunt. They are disposed to any thing except moderation. The plain truth is, that convertibility at the will of the holder is the one sufficient security against depreciation:-and if ever this convertibility is restrained, either by the law (as it was in England for more than 20 years) or by public opinion equivalent to law (as it has been for many years in America,) the system becomes bloated and plethoric, although exhibiting many of the outward appearances of health; and a course of depletion must be submitted to, with all its mortifications, in order to save life."

new prices, the whole existing quantity of currency to circulate the commodities which at the old prices were circulated by the original quantity, and a scarcity of money is just as likely to be felt under a depreciated currency as under a sound one, as soon as the expansion has ceased by the banks refusing to extend their discounts any further, and more especially when they begin to contract their loans.* The case is precisely the same as would exist if all the specie in the world were suddenly doubled, the effect of which would be that it would require two ounces of gold or silver to purchase as much of all other commodities as could previously have been purchased with one. Money would be no more plenty than before. Gold and silver would be more plenty, but money would' not be, for the simple reason, that the prices of pro-. perty and commodities would be expressed by double the number of coins; and any one can perceive that the disappearance of any portion of the augmented quantity of specie would occasion a scarcity of money, even though it were true that the quantity still left in circulation should be fifty per cent. more than the quantity which existed before the doubling took. place. This would continue until the excess should be carried off by manufacturers or exportation, when prices would fall to their old rates.

In reference to a general suspension of specie payments, a very singular phenomenon sometimes

*The truth of this proposition was most remarkably illustrated in this country for six months prior to the stoppage of specie payments in May, 1837. Although the amount of the currency was greater than it had ever been before in the United States, yet the scarcity of money was so great, than in all the commercial cities of the north it would readily command from one to three per cent. a month.

† In stating the effect of a doubling of the curreney, I do not intend positively to declare that the prices of property and commodities would be precisely doubled. The proportion might be different, but the one I have assumed is the plainest for illus

tration.

presents itself, which is worth being noticed in this place. It will appear to the reader at first sight as quite incredible, and yet it is demonstrably true. It is, that a mixed currency, whilst the paper portion of it is nominally, and to a certain extent really convertible, may be immediately before a general stoppage of specie payments absolutely more depreciated than it is immediately after the stoppage, when the paper is not convertible at all. The reason is thisbefore the stoppage the currency is composed of two elements, coin and paper; after the stoppage, it is composed of nothing but paper, and consequently the aggregate mass of the whole is diminished to the whole extent of the specie thus withdrawn from circulation; and as depreciation in such case is the result of quantity, its degree must diminish with every reduction of the mass whether the reduction be of the metallic or the paper portion. This is the reason why after a stoppage of specie payments, prices do not always rise and sometimes even fall, which gives color to the idea entertained by many, that the difference between specie and paper is occasioned by an enhancement in the value of the former, and not by the depreciation of the latter, and hence we see under an inconvertible paper currency, specie quoted at a premium.

CHAPTER II.

OF FLUCTUATIONS IN THE MARKET PRICE OF SPECIE AND OF BILLS OF EXCHANGE UNDER AN INCONVERTIBLE PAPER CURRENCY.

As soon as a general stoppage of specie payments by the banks has taken place, it is evident that the