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of greater, value, he performs a service equivalent to the production of so much value; employing labor and tools of wood, iron, wind, steam, &c., differing in form but not in principle from those employed by the producer bimself. Indeed, it is to the mercbant we owe the variety and increase of employments that maintain labor and produce wealtb; but to the bank of the debt system we owe nothing but obstruction to labor, loss of national capital, bankruptcy, and distress. It is the system, and not the banks, that I condemn, and it is the people, not especially the bankers, who are responsible for it; but it is most especially the duty of the economist and the legislator to speak plainly, and put public opinion right upon this momentous subject.
I have taken occasion to say in these pages repeatedly that commerce consists of an exchange of material and immaterial products upon the simple principle of barter; commodity pays for commodity, and service for service, and the nearer we come to a direct exchange the less is the tax upon both producer and consumer, and the better it is for the community. Merchants and money are necessary to an economical accomplishment of exchanges, but not mere speculators nor a currency of debt. İf the natural law of value be not interfered with, business will provide the true and necessary volume of currency for itself in real money; less we cannot bave permanently, and more we cannot permanently retain ; the debt currency does nothing but sink the value of money, and drive so much money away; it is a false intruder of the most damaging character.
The population of the United States has been estimated of late at 32,000,000; on this estimate the currency as above would be $19 16 per capita ; but the progress of the census of 1860 thus far seems to indicate that this is an overestimate of the population; probably the currency at the beginning of the year was $20 for each inhabitant, approximately.
The estimate of $84,000,000 of specie outside of the banks is, I am aware, very much below that of other writers, but I feel very confident there is not over $200,000,000 of money in the whole nation, including the California currency and the hoards. Estimates in round numbers very generally exceed the truth, and are often wild. In the inveterate paper-currency States, like those of New England, where one dollar notes are in circulation, it is rather difficult to find change for a dollar in the hands of any family; the omnipotent bank note of one to five dollars is everywhere, and is counted upon to buy the smallest commodity; there is a constant running about for change from house to house, and the till of the retailer is poorly supplied. There seems to be a penchant for shin plasters in New England, and inoney flees from them as from a pestilence. I doubt if there is an average of three dollars of real money to a family in the State of Massachusetts outside of the banks, including the money.drawers of the shops, sums in the hands of money dealers, and all reserves outside of the hoards; of hoards, there are a few among the foreign population. In the South, and of course in those States where the circulation of bank bills below the denomination of five dol. lars is prohibited, there is some money to be found; but I defer considerably to official estimates in placing the average so high as fifteen dollars to each family in the nation, deducting the slaves, and make no doubt it is an overestimate sufficient to counterbalance any amount the slaves may have in possession.
Supposing we have a free population of 28,000,000—an extravagant estimate, I think—and allowing five members to each family, there are 5,400,000 families, to whom I assign $15 each, making $84,000,000. There must he large reserves—not hoards—somewhere, and large sums in the hands of money dealers, travelers, and immigrants, to make up so large an amount this, outside of the banks; for there is a bank wherever a bank can be planted throughout the country, to gather all the money in its neighborhood. The New York Journal of Commerce cyphers up $283,000,000 in the whole country. I cannot conceive where they find it; but I believe Mr. Snowden of the Mint thinks with me, that $200,000,000 is a large estimate. At any rate, I do not think the money in the currency can exceed the sum I have named. With such a leak as there is in the course of exchange, that we keep almost constantly adverse to ourselves, which is neither more nor less than keeping money cheaper here than elsewhere, specie must run out in ways that cannot be discovered, or brought within the range of statistical investigation.
Some writers have placed promissory notes and bills of exchange in the category of currency, but it is altogether a mistake; their affinity is with circulating property, not with money. They may be exchanged for property, and so might the property upon which they are drawn; and if offered for sale for money they are still more like property; they are exchanged against money, and are more likely to have the effect of increasing tbe exchange value of money than of reducing it, as they would if they were of the nature of currency. They are, however, neither money, nor currency, nor property, but mere records of an unfinished bargain ; the purchase money is not paid, and these are memoranda or written evidences of what the debtor is to do to complete the contract. One species of property excbanges for another; this is barter, the fundamental principle of trade; and when promissory notes and bills of exchange are exchanged for money, they take the position of property as essentially different from money as the goods that were delivered for them, or for the fund upon which they are drawn.
We must clearly understand, and I therefore repeat, that the currency is that, and only that, which ought to be money, and would be if not interfered with by an abnormal legislation that authorizes debt to take its place. The public mind should be disabused as to the existence of capital or value in promissory notes and bills of exchange; then people would comprehend that there is neither money, capital, nor value in the debt currency erected upon them, or into which they are converted, nor in the so-called “ bank capital,” which stands upon no other foundation. He who buys 1,000 barrels of flour for $5,000, holds the capital in the flour; arid if he pays for it in gold, it is an exchange of capital; he has so much more of one commodity, and so much less of another--more flour and less gold—while the flour seller has so much less flour and more gold. If, instead of paying money, the buyer gives his note for the flour, it is preposterous to say or suppose that he creates a value of $5,000, and that the community are in possession of $10,000 of capital because he bas run in debt $5,000, and made his note for the same. And now, if the note be exchangd for gold, or hemp, or cloth, or any other property, there is only a legitimate use of credit in the transaction; it may be exchanged fifty times for value received in each transfer without affecting the value of money, or doing any harm; the payee or original holder of the note simply receives gold, or hemp, or cloth, or some other property in exchange for his four; the note is all the while nothing but a written evidence of the debtor's verbal promise; adding nothing to the volume of gold, or of currency equivalent in use to gold, or to property of any kind. In effect, the whole is legitimate barter; flour being exchanged for gold, and gold for bemp, and hemp for cloth, &c., through the entire circuit of exchanges. I wish to direct attention particularly to this point, and ask for it the most careful consideration, that there is not in this note an increase of anything but debt; there is nothing in it of the nature of an increase of money, currency, or property, and the transfers effected, as I have described, are merely transfers of pre-existing money or property.
But now let us suppose that the note is discounted in bank, and the bank, instead of delivering the material equivalent, money, that is, gold or silver, for the proceeds of the discount, issues its notes, or inscribes a credit to be checked upon as money in excess of the money in its coffers ; it is then a very different thing; the act is the creation of debt currency, for which there is no material equivalent; there is no such money or value in existence as the bank promises to pay; and, therefore, although it receives an obligation to return something for nothing, at the ultimate settling day the thing cannot be done; if the bank gets the material equivalent, it belongs to some other obligation that it is required to meet, and somebody must break for it when the bank can no longer maintain the fiction in circulation. The continued existence of this fiction in the currency is absolutely necessary to maintain the price it created in the circulating property, and support the obligations of debt in the circuit of exchanges made by and resting upon it. Its withdrawal by a set-off between the two debtors, the bank and its customer, in the contraction of loans, is inevitable bankruptcy to all these obligations that must fall somewhere upon wholesale or retail dealers within the circuit of its operation, for it is the annihilation of so much currency.
But when it is created, being accepted without bargain or question as money, it degrades the value of all the capital of the community invested in money, precisely as much as it adds to the volume of the currency; this is the sure effect of an increase of bank loans. Obviously, if the bank loan is not increased by the discount; if it be merely relending a fund previously in the currency and just paid in, there is neither an increase of currency nor degradation of the value of money in the discount transaction; but I am treating of the principle of the thing, the construction of the debt currency, and I aver that we might as well make a free gift of so much gold to some other portion of the world, as to organize this note into a currency equivalent in use to money, without a special reserve of coin in the bank, dollar for dollar, against the sum placed at the disposal of the party obtaining the discount; it is converting fiction into a currency of price that is not value, and is a dead loss of capital to the nation, excepting so far as it adds to the price of our products in foreign countries, which is inappreciable, as the expelled coin Hows into the great ocean of the currency of the world. Its effect is entirely adverse to ourselves, because, by raising general local prices, it cbecks our production and exports, and brings returns in foreign goods with precisely the whole amount of the fiction of money added to their price, which we must pay in the solid value of gold and silver. Your
constant readers will excuse the repetition of this truth, which I have presented in previous numbers of this Magazine ; it must be repeated, ** line upon line and precept upon precept," until our people are fully awakened to its vast importance. It is the absence of money and value in the currency, and of capital thus expelled from the country, that is the cause of the cruel bankruptcy that cankers the life of our business men.
With 613 millions of currency at the beginning of the year, sterling exchange was at par, or somewhat in our favor; we were shipping products but no money. Now, late in August, sterling exchange rules against us, and we are shipping money, twice as much as we receive. Are we short of exportable produce ! Certainly not; there is an abundance of it that we want to sell; but we have expanded the currency and cheapened money ; 613 millions is no longer the volume of the currency. The city banks of New York and Boston alone have since increased their loans $11,000,000, and the Northwestern States are breeding red dogs and wild cats as fast as possible; new banks are going into operation in all directions, and there is a general expansion of the debt currency, with the single exception of New Orleans, while the increase of gold would expand the currency more than fast enough. There is now currency enough to maintain the prices of many exportable products above the exporters' limits, and to turn the export demand to that extent upon gold and silver—just enough of currency to sink the value of money for the amount of the export of specie. The volume of currency is now above the specie measure, and no human statute, unless by destroying a portion of the debt currency in the contraction of loans, can prevent the excess from being exported in solid money. Who does not see, if we exported merchandise to the amount of $50,000,000 instead of gold, that we should have room for the reproduction of 50 millions more of merchandise; and that we should reproduce it, leaving the money in the currency and so much more capital in the nation, than we shall have by the present destructive policy at the close of the year? We want the business of exporting this 50 millions and of producing 50 millions more of mer: chandise, and the relief from debt that would come with the accession of so much capital.
But the so-called balance of trade is now against us. The “ balance of trade” is a chimera; money is cheapened by an increased supply like beef, and is exported like beef when it is cheaper here than in the foreign market. It is perfectly in the power of a few gentlemen who control the New York city banks, to turn the so-called balance of trade in favor of the United States in six weeks, and, it judiciously managed, without any considerable disturbance of prices; excepting perhaps among the fancy stocks in Wall-street. The clear reduction of six or seven millions of bank loans would reduce the volume of currency one per cent, and general or average prices one per cent, but for the continued supply of California gold; and even with that, a reduction of seven millions in six weeks, would so enhance the exchange value of money as to reduce sterling exchange below the par rate of 94 per cent. This is not a mere conjecture, but a matter in which the country has had practical and ample experience, and which intelligent bank directors understand perfectly well; then the “ balance of trade” would be in our favor, and we must export merchandise ins:ead of money.
The vast power of regulating the value of money, and thence the commerce of the United States, is very properly delegated by the States to Congress in the constitution; it is the chief function of sovereignty, without which, the stipulation for regulating commerce, as well as that for maintaining the inviolability of contracts, is an utter nullity.* But, by reason of the neglect of Congress, this great function is given over to the cupidity of the banks; and to suit first their profits and then their necessities, the value of money is first degraded, then enhanced ; the import of foreign goods is, by the same process, first stimulated, then checked; the production, as well as the export, of our domestic merchandise, is first diminished, then increased, inversely as the increase and diminution of the currency; the government revenue is first over supplied to a surfeit, then depleted to starvation ; the people are first thrown into debt for a huge sum in price, and then compelled, by the inevitable fall in the money value of their assets, to settle the whole sum of price in their obligations, above value, in bankruptcy. Indeed, the chief object of the business of the nation, or of its conduct, seems to be first to make dividends for the banks, and then save them from the consequences of their cupidity in the suspension of specie payment; while the prosperity and happiness of the people are of secondary consideration, or of none at all. This mighty power over the public welfare is now practically exercised by a few gentlemen who control the discounts of the leading banks of the city of New York, the creditor city and center of the exchanges of the nation.
It would be no hardship to the banks of issue to be converted into "savings banks," and compelled to borrow all they lend in excess of their capital, paving interest on deposits, and making their support and profit out of the difference between the interest they pay and the exchange and interest they receive; because there would then be no linnit to the loans in excess of their capital; then they would get money without creating a fictitious currency. I presented a statement of this principle of banking in your issue of May last, showing its practicability and profit. The public would be protected in this principle by the bank capital, of which there is none in the present savings banks; and the capital would be reat, which, to a very great extent, it is not in the present banks of issue. It is in effect bullion banking, although the circulation may be in checks and certificates, the deposits being borrowed on stipulated time, and the loans being carefully averaged to be returned before the deposits fall due. There could be no contraction of the currency in this principle of banking; on the contrary, there would be a continual and normal increase of the currency by and with the increase of circulating property; the only way in which it can be steadily or profitably increased. The banks would be under no immediate liabilities without coin in reserve, dollar for dollar, to meet them; for the undrawn loans would be retained on special deposit, with the fund belonging to the circulating certificates, in coin not to be loaned again, while its ownership exists in the loans and certificates. It puts an end to the present unjust and ruinous principle of lending the same dollar several times over, upon which
Strictly speaking, no human government can regulate the value of money, excepting by restraint upon any interference with it. Money may be diverted from its true course, or obstructed in its natural flow, like the current of a river'; and it is vitally important in the matter of money that government shall prevent such diversion and obstruction. It can have no other power to regulate the value of money. Coinage is simply inspection.