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speculate in the hope of suddenly increasing their fortune. "In speculation, as in most other things," says McCulloch, “one individual derives confidence from another. Such a one purchases or sells, not because he has any peculiar or accurate information in regard to the state of the demand and supply, but because some one else has done so before him." The interference of persons not experienced in business tends, of course, to fan the excitement, and, when the recoil comes, to render the catastrophe more general and more ruinous.

Two opposite theories prevail respecting the nature and causes of a commercial crisis. The first attributes nearly the whole evil to an unnecessary expansion of the currency, caused by the mismanagement of the banks, and undertakes to find a preventive or a remedy by placing very heavy restrictions upon the issue of bank-notes. The other regards the banks as necessarily passive in the matter, as they have nothing to do with buying or selling commodities, and finds the characteristic feature of the phenomenon in a great extension of the system of credit, which cannot be prevented by legislation, and which might take place, and, in fact, often has taken place, in countries where only a metallic currency was in use. The one party maintains that an expansion of the currency always precedes a commercial crisis, and that it is this expansion which produces the rise of prices; the other affirms that it is the rise of prices which produces what there is of an expansion, but that this increase of the currency, at the most, is inconsiderable;-that it is one of the attendant circumstances or consequences of the crisis, but is not its cause. Their doctrine is, that prices rise first, and that there is a slight increase of the circulation some time afterwards.

I have already endeavored at some length to prove, that a convertible paper currency cannot be issued in excess; that the whole amount of money needed by the country is a fixed quantity, and it is not in the power of the banks, however disposed they may be to do so, to make any direct addition to the aggregate of notes circulating in their respective districts. I shall now proceed to show that an expansion of the currency cannot produce the fever of speculation and the unnatural rise of prices which lead inevitably to a commercial crisis.

The currency theory is really founded upon the old error, so difficult to be entirely exploded, which confounds all wealth, and especially all capital, with money; which regards every debtor as a person who has borrowed money, and every creditor as an owner of money which is temporarily in the possession of another; and which therefore considers any excess in the contraction of debts as resulting from the abundance of money, and any general difficulty in the payment of debts as arising from the scarcity of money. The theory may be confuted, then, by a recurrence to first principles, which teach us, that what any person borrows is really not money, but the merchandise which he purchases with money; that what he pays is, in truth, only a certificate of the ownership of property, which is made over or transferred to his creditor; and that any general difficulty in the payment of debts arises from the fact, that many persons have contracted to deliver property at a future day, and have been deceived in their expectations of obtaining the property in season to fulfil their engagements. Money plays a very insignificant part in the whole circle of these transactions, being, in truth, only a means of effecting these transfers of property with somewhat greater facility; all the transactions might take place, though in an awkward and clumsy way, not only if the currency were exclusively metallic, but if there were no money whatever in circulation, so that all commerce should be reduced to barter. The same specific sum of money that is, the same coins or bills may be used to effect several payments in the same day; and if there was not money enough in the country to perform this office quickly and conveniently, the deficiency might, in great part, be made up by causing what money there was to do more work in a given time, or to effect, on an average, six instead of three payments a day; in other words, greater quickness of circulation might be made to compensate for any deficiency in amount. The office of money, then, in facilitating the exchange of merchandise and other values, is precisely analogous to that of carts and horses in effecting the transportation of merchandise. It would be absurd to affirm, that a superabundance of the means of transportation tempted merchants to transport more commodities than were needed, or that, in the present advanced state of the arts, there could be any serious

difficulty in fulfilling contracts for the delivery of merchandise arising from a want of carts and horses.

*

The doctrine which attributes all the evils of excessive speculation to the mismanagement, or excessive issues, of the banks, may be all summed up in the oft-repeated assertion, that "it is only the money in circulation that affects prices." Now it is certain and obvious, that the power of making extravagant purchases, and thereby enhancing prices and contributing to bring about a commercial crisis, does not at all depend upon the quantity of money, whether coin or banknotes, that is in circulation. It might be exercised, as I have already said, to any extent, though the currency were exclusively metallic, and even though there were no currency, so that all debts should be contracted, and all payments made, in kind, or by the delivery of specified amounts of particular merchandise. An individual may purchase by giving in exchange either his own notes, or bank-notes; that is, he may buy with his own promises to pay, or with the bank's promises to pay. The former promises may be issued in great excess; there is, in fact, no limit to their amount. The latter cannot be issued in excess. There is a check an instantaneous and decisive check-on the issue of bank-notes; specie or actual value may be demanded for them at any time at the bank counter; and such a demand is a certain consequence

Currency or Money; its Nature and Uses, and the Effects of the Circulation of Bank-Notes for Currency, by a Merchant of Boston. 1855. p. 60. This pamphlet contains a clear and able statement of the currency theory, by one of its most earnest advocates.

† Of course, when there is a currency, whether paper or metallic, it is not denied that, if the amount of that currency can be increased, prices will rise as a consequence of such augmentation. My only points are, first, that bank or convertible currency cannot be issued in excess, and, secondly, that an increase of the currency is not the only means of affecting prices, for prices might be raised, as is asserted in the text, though there were no circulation. A metallic currency can be augmented, as California and Australia have already taught us, and prices have risen in consequence. So, also, paper money properly so called, or inconvertible paper currency, can be issued in great excess, and prices rise enormously in consequence, as is proved in a preceding chapter. The great mistake of the currency doctors consists in obstinately confounding bank currency with paper money, though hardly any two things can be more unlike. Thus, in the pamphlet just cited, by "a Merchant of Boston," the instances given to prove that bank currency may be issued in excess are the paper roubles of Russia, the Continental money of the American Revolution, and the circulation of the Bank of England from 1797 to 1819,- all being instances of paper money.

even of a slight excess in the issue. There is no check on the excessive issue of the notes of any private person, because they are given on time, -for six months, a year, or more. Specie cannot instantly be demanded for them.

Over-trading, or excessive speculation, arises from an abuse of the purchasing power, which every man possesses in a greater or less degree. "The amount of purchasing power which a person can exercise," says Mr. Mill, "is composed of all the money in his possession, or due to him, and of all his credit. He is tempted to exercise the whole of this power only under peculiar circumstances; but he always possesses it; and the portion of it at any time which he does exercise is the measure of the effect which he produces on prices." In fine, credit as much exceeds currency in its influence on prices, as the number of purchases on credit exceeds the number of purchases for cash; and in the dealings of merchants with each other, every one knows that this ratio is at least as one hundred to one. Under ordinary circumstances, most traders find no difficulty in extending their credit, so far as the purchase of goods is concerned, to any extent that they may think desirable. They may not be able to borrow or hire capital directly, but they can purchase merchandise on credit, as it is termed, with no other check than their own judgment of what is honest and safe. Even in England, where a far more rigid rule of credit is applied than in the United States, Mr. Tooke says, "a person having the reputation of capital enough for his regular business, and enjoying good credit in his trade, if he takes a sanguine view of the prospect of a rise of price in the article in which he deals, and is favored by circumstances in the outset and progress of his speculation, may effect purchases to an extent perfectly enormous compared with his capital. The conditions requisite are, that the market should be a large one, and the article susceptible of great fluctuation of price from political or physical causes; and in fact, it is only articles of this description that are the subject of speculations sufficiently extensive to attract notice." Thus, when the difficulties with China, in 1839, produced a speculation in tea, one dealer was known, "who, having a capital not exceeding £1,200, which was locked up in his business, had contrived to buy 4,000 chests, value above £80,000"; and this was

done without the outlay of actual capital or currency in any shape. Another example given is that of an operation in the grain market between 1838 and 1842. "There was an instance of a person who, when he entered on his extensive speculations, was, as it appeared by the subsequent examination of his affairs, possessed of a capital not exceeding £ 5,000, but being successful in the outset, and favored by circumstances in the progress of his operations, he contrived to make purchases to such an extent, that, when he stopped payment, his engagements were found to amount" to over half a million sterling. These are English examples; I need not quote American ones, as the memory of any of our merchants will supply instances quite as striking as any that have been mentioned.

But to this doctrine, that credit may be indefinitely extended without any expansion of the currency, it may be objected, that credit is necessarily limited by the amount of disposable capital in the country; for no more capital can be borrowed than there is capital to lend. Exactly so; but then the instances given are, nominally, not loans, but purchases; and consequently, the limit to them is, not the amount of capital which is seeking a borrower, only interest being expended for it, but the amount of merchandise which is seeking a purchaser, and on which profits are expected. To buy on credit is only to borrow on the hard condition of paying for the sum borrowed, not merely the rate of interest, which is but six per cent, but the rate of profit, which equals at least ten or twelve per cent. Hence a merchant who would immediately refuse to lend a brother merchant $5,000 on interest for six months, will very readily sell him $ 50,000 worth of goods on six months' credit. Thus there is literally no limit to the expansion of credit; the whole amount of merchandise offered for sale, both in this country and in foreign lands, may be sold on credit, under the temptation of the high prices, and consequent expectations of large profits, which are caused by a speculating fever; and having been sold once in this manner, the purchasers may then sell them again to another set of speculators, and again, till their value is indefinitely multiplied. What a mountain of indebtedness may thus be created, without the intervention, at least before some months have elapsed, of one dollar of currency, or even any demand upon the banks for additional

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