LOUIS S. TlEMANN 38 EAST 37TH STREET NEW YORK, 16, NEW YORK Vxuiq. Book ColZ&cJU.on U^2cAAiia/ at LuaocMnO' uv UJixmirianjcwrv Digitized by the Internet Archive in 2010 with funding from Lyrasis Members and Sloan Foundation http://www.archive.org/details/isourprosperitydOOstet DEBT AND CURRENCY. IS OUR PROSPERITY A DELUSION? OTJR NATIONAL DEBT AND CTJEEENCY. AUG 2 1985 BY A BOSTON MERCHANT. BOSTON: A. WILLIAMS & CO., 1864. Press of Geo. C. Rand & Avery, 3 Cornhill. PREFACE. The prevalence of erroneous impressions rela- tive to our real condition, the tendency of which is to encourage general extravagance, excessive importations, and a prolongation of the war, has induced me to give expression in the following pages to a few thoughts upon the subject, based, as I believe, upon right principles, for the pur- pose of correcting popular misapprehension, and arousing the public mind to the consideration of the actual condition of our affairs, the right appreciation of which is so essential to our pros- perity as a nation. In speaking of the North, says Mr. Cobden : " They are mistaken if they think they can carry on a civil war like this, drawing a million of men from productive industry, to be engaged in the pro- cesses of destruction, — to spend £1,500,000,000, — they are deluded if they think they can carry on a war like that without a terrible collapse sooner or later, and a dreadful prostration in every part of the community." A. W. S. d I CONTENTS. SECTION 1. General impressions relating to prosperity. 2. These popular impressions one reason why the war is not prose- cuted with more vigor. 3. This so-called prosperity a delusion. 4. Illusive prosperity generally precedes misfortune. 5. Correction of popular errors. 6. True elements of prosperity. 7. An examination of our material prosperity. 8. Government consumption destructive of capital. 9. Productive employment of capital essential to real prosperity.. 10. Some elements of illusive prosperity. 11. The delusive character of these elements. 12. Enormous expenditures the main-spring of industrial activity. 13. A new element in political economy. 14. When industry is the offspring of debt, the community cannot be considered prosperous. 15. A speedy and successful termination of the war the only security for prosperity. 16. Blindness to our real condition is not the result of industrial activ- ity alone. 17. Consideration of national debt and currency. 18. National debt contracted without the reception of an adequate value. 19. Erroneous impressions relative to paper money. 20. Present issues of paper money, and debt. 21. Character of a paper currency. 22. Operation and effects of money. 23. Liability of paper to depreciate. 24. Gold and silver, recognized standards of value. 25. How to prevent depreciation of paper. 26. Instability of paper currency. 8 SECTION 27. Increase of money and enhanced prices no evidence of augmented wealth or value. 2S. Some evidences of the depreciation of money. 29. Only two methods of depreciation. 30. Over-issue of paper a direct cause of enhanced prices. 31. The volume of currency increased, its value becomes diminished. 32. Views of Secretary Chase. 33. The Hon. Secretary very inconsistent. 34. Bank issues not the originating cause of a depreciated currency. 35. The large over-issue has proceeded from the Government. 36. Contraction of issues would increase and expansion decrease the value of the currency. 37. Suppression of all bank circulation desirable. 3S. Reduction of the currency the only way of return to the " normal condition of prices and business." 39. Price of gold, and ratio of depreciation. 40. Other causes besides depreciation enhance prices. 41. Those causes operate universally, but in the United States are al- lied with a depreciated currency. 42. Effects of enhanced prices as seen in the clearing houses of New York and Boston. 43. The volume of currency increased, all commodities bear their pro- portion of the " augmented mass." 44. Over-issue of paper an expensive undertaking, and burdensome to Government and people. 45. Insatiable demand for more. 40. An additional issue disastrous. 47. Public welfare demands a contraction. 48. The method to accomplish it. 4'j. Stability of value craved by the people. 50. Issue of legal tender a fearful responsibility. 51 . Immense power of the Secretary of the Treasury. 52. Our apparent prosperity an illusion. 53. In extricating ourselves from this abnormal condition, we shall discover our real position. ARE WE PROSPEROUS? Section 1. Throughout the loyal States the hum of human industry is heard, labor is fully employed, human skill and ingenuity are opening new channels of production, new schemes and enterprises are constantly brought forward and prosecuted with ener- gy, trade is active, and money plenty ; and, everywhere, in the marts of trade, in the legislative hall, at the stock exchange, and the political gathering, are heard rejoicings over our prosperity. Eemote from the scene of conflict between contending armies, ignorant of the horrors of war, and experiencing but little inconven- 2 10 ience, and, as we think, large profits from its destructive powers, we are living happily under the impression that we are " prosper- ous; ' and are, to an alarming extent, indiffer- ent respecting its speedy and successful termination. 2. Our so-called " prosperity " has had the effect to draw off our attention, al- lay our excitement, quiet our fears, and stupefy our sensibilities relative to the great conflict in which we are engaged ; and the principal reason why men do not volunteer with alacrity is because of this delusive pros- perity which abounds at home. There is no want of able-bodied men, for our streets are filled with them ; but it is because neighbors, friends, and companions are sup- posed to be making their fortunes by spec- ulations, or because labor is completely supplied with steady employment and high wages, that even the heavy bounties pro- vided do not offer sufficient inducements 11 for men to enter the service. Thus it is that this nominal prosperity, which is to a great extent the product of the war, is the proximate cause why war languishes for want of men to fill up its armies. o. It appears to me, however, that this " prosperity " is to a great extent a popular delusion, that it rests upon a fictitious basis, and although presenting to the public mind a specious and plausible appearance when clothed in its a glittering generalities," it is nevertheless imaginary rather than real, and illusive rather than actual. Believing thus, and entertaining the conviction that the only way to secure prosperity, is by securing the speedy and successful termi- nation of the war, it seems desirable that some effort should be made to check the spread of this popular error, and bring the public mind to a more correct appreciation of our true condition. 4. Apparent prosperity generally pre- 12 cedes disaster. In our own history we have experienced severe monetary disasters, the most, if not all of which have been imme- diately preceded by great apparent pros- perity, the sequel of which proved conclu- sively that our nominal prosperity was, to a considerable extent, a phantom, as it re- sulted in disaster to thousands who were deceived by its pretentious appearance. 5. In attempting to correct a popular error, I am aware I have a difficult task to perform ; for popularisms, when they are supported by so many superficial appear- ances, and harmonize so beautifully with our feelings and desires, are with great difficulty overthrown. I approach the sub- ject, therefore, reluctantly. So general is the belief in "our prosperity," its super- ficial appearances are so fascinating and bewildering, that it seems almost unkind to disturb the tranquil course of thought by endeavoring to look beneath the surface. 13 6. In what does true prosperity consist? A short and, I believe, a correct answer is. in the productive employment of labor. For it is by the labor of the people that all subsist, and, when that labor is actively and productively employed, when the capital and skill of the nation are united with the industry of the country in acquiring the greatest possible amount of produce, then it is that the nation may be said to be truly prosperous, and to become wealthy to the extent of its surplus products. Con- versely, it must be admitted that, when a large proportion of people are non-pro- ducers, and another large proportion are engaged in unproductive employments, that people cannot be said to be truly prosperous, as it is by the unproductiveness of labor that nations decay. In dealing with this question, I wish to abstract it from all political relations and associations, and view T it, so far as it relates 2* 14 to the wealth and productive prosperity of the country. It is, therefore, material and not political prosperity which we are to examine. 7. According to common report we have nearly one million men in the service of the government. These men, with thousands of office-holders, are non-pro- ducers, and the value of their labor is an absolute loss of productive capital to the country. Then, we have nearly a million engaged in unproductive employments, or, in other words, the manufacture of the materials of war, which is like the complete destruction of so much capital, as far as any increase of wealth is concerned. Says J. S. Mill, u By unproductive labor will be understood labor which does not terminate in the creation of material wealth ; which, however largely or success- fully practised, does not render the commu- nity, and the world at large, richer in mate- 15 rial products, but poorer by all that is con- sumed by the laborers while so emplo} T ed." Our immense armies are therefore not only non-producers, but are destroyers and consumers of the capital of the country. And, while other labor produces more than it consumes, these classes produce compara- tively nothing, involving a loss to the coun- try, not only of the productive labor of these large classes, but also the losses which arise from waste and destruction of mate- rial incident to war. A vast amount of real capital or wealth is thus withdrawn from productive employ- ments, and annihilated. A value is thereby taken from the community without its receiving any in return, and that value is destroyed. 8. Government consumption, therefore, unless spent upon internal improvements, or other useful objects, is destructive of capital, and differs entirely in its character 16 from the consumption of the community ; for, in the community, the consumer repro- duces by his labor more than he destroys, whereas, the government being a con- sumer and a non-producer, extinguishes the capital it consumes, and reproduces nothing. When speaking of capital, I do not wish to be understood as referring to money, for paper money is not capital ; but by capital, I mean the accumulated pro- duct of man's industry, available for his support, or which will produce other com- modities. Paper money is simply a medium of ex- change for the transfer of commodities from one person to another ; and, when the government calls for a loan, it does not want money, but really wants commodities to consume and to destroy. " Nations," says J. B. Say, " never bor- row but with a view to consume." He also says. " War costs a nation more than 17 its actual expenses ; it costs, besides, all that would have been gained but for its occur- rence." 9. Had capital or commodities not been loaned to government, they would have been consumed reproductivelv, instead of unproductive!} 7 , and the wealth of the na- tion would have been thereby increased. "All material products," says Mill, " con- sumed by any one while he produces noth- ing, are so much subtracted, for the time, from the material products which society would otherwise have possessed." Labor and industry are therefore great promoters of wealth and prosperity, and if we wish to increase our wealth, or attain real prosperity, we must not only have our labor industriously and actively employed, but it must be employed profitably, in pro- ducing those material products which are valuable to society. In spite of all this, it may be said never- 18 theless, we are prosperous ; for it is apparent to every observer. 10. Now, having discovered some of the elements of true prosperity, let us specify some of the characteristics of this apparent or specious prosperity. In relation to it, Dr. Wm. Elder says, tt The knowledge of our immensely enhanced activity in all branches of industry is brought home to everybody in the Free States, by the almost perfect distribution of its benefits." " It is estimated that the manufacturing industry of the present year (1863), in the loyal States, is nearly equal to that produced in 1860, and when we consider the loss of our Southern customers, who took six times more of our products than all the world besides, such results awaken wonder." Other significant signs of prosperity are said to be the millions of property liberated from in- cumbrances, the large increase in number of depositors, and deposits in the Savings 19 Banks, the abundance of money, and property on the rise. The above are some of the prominent indications of this prevailing prosperity. 11. Now, considering the character of a gigantic war, in its consumption of products, its immense destruction of material, and its consequent enormous expenditures, it can- not be considered very surprising or won- derful that the remaining labor should find employment, and that nearly all branches of business should experience " enhanced activit}'." Hence, before adopting the con- clusion, that all this manufacturing industry, and apparent wealth, is proof of our prosper- ity, it would be well to examine into its causes and results. The great primary cause is the demand of the government upon the farmer, the woollen manufacturer, the ironmonger, the papermaker, the tanner, and other artisans and producers, too numerous to mention, for 20 the supply of a large army in the field, and a large army of public officials out of it, which inevitably furnishes a constant stimulant to traffic, the effects of which are felt through- out the whole fabric of society. It is thus that the loss of our Southern customers, who were producers, is made up. An army of government customers, who are non-producers, have taken their places at the marts of trade ; and hence, instead of obtain- ing products in exchange for our commodi- ties, Ave are receiving debt, or mortgages upon the property of the people, and this is called prosperity. That the expenditure of hundreds of mil- lions of dollars per annum, with the with- drawal of a large army of laborers from productive employments should stimulate industry and " enhance its activity " is not, therefore, a matter of so much u wonder ; " while the assertion that such a condition of things is an evidence of prosperity must be a great error of judgment. 21 For instance, suppose a nobleman, possess- ing a large estate, occupied by one thousand laborers, should authorize his son to withdraw a considerable portion of them from their productive employments to indulge in idle- ness, while another portion were engaged in the manufacture of materials, which those indulging in idleness destroyed, w T e should readily perceive that the remaining portion would be actively and industriously employ- ed in providing for themselves, and for the large body of their fellow-laborers withdrawn from productive employments. Then sup- pose the son to be short of money, and, by an agreement and with the indorsement of his father, is allowed to issue promissory notes and bonds to sustain his prodigality, — could that estate be termed prosperous? Would it not be a specious or imaginary prosperity because created and sustained by debt ? Is it not in some aspects a fair illus- tration of our position ? Is not this gigantic 3 22 war, and its consequent enormous expendi- tures, by promises to pay, the mainspring of our present national industry ? And is not this national industry created and sus- tained by debt ? 12. That this war, and consequent war- debt, is the mainspring of our present na- tional industry, and the symbol of so-called prosperity, I need only refer to the able Report of the Bank Commissioners of Mas- sachusetts for 1862, who, after a thorough investigation, say, " It becomes necessary to show the effect of the war on the business of the Commonwealth " : — "At the breaking out of the Rebellion, it was feared that the business of the country would be entirely prostrated, and the banks, which make their gains out of the activity of trade, expected to be the greatest sufferers. Neither of these fears has been justified by the event. Seldom, if ever, has the business of Massachusetts been more active, or profit- 23 able than during the past year. The war has brought into activity many mechanical employments for which there is little occa- sion in time of peace ; such, for example, as the manufacture of arms and ordnance, camp and garrison equipage, saddlery and artillery harness, and military clothing and accoutre- ments. It has also greatly stimulated the manufacture of boots and shoes, and of wool- len goods ; while the subsistence of the army has furnished a constant and remunerative market for breadstuffs and provisions. There is hardly a branch of domestic industry which has not been actively employed. * * * Nor has the condition of the operatives deprived of their usual employment been materially impaired. So great has been the draft upon the male population to fill the army, that there has been an unusual demand for men's labor in other directions, while female operatives have found occupation in the manufactories of clothing, &c. 24 u The railroads of the Commonwealth were never more profitably employed, and they have made larger dividends, and their stocks have borne a higher price, than at any former period. The vast grain crops of the West have sought a market on the seaboard or in foreign countries, and having been deprived of their usual water-carriage by the closing of the Mississippi, have poured through the canals, and over railroads lead- ing to New York and Boston. The carriage of troops and army supplies has, also, fur- nished a considerable business, even to the New England roads, while those of the Mid- dle and Border States, leading toward the seat of war, have been completely occupied with the new traffic. "The loss of the cotton crop, and the closing of the seaports and great rivers of the South seemed likely to destroy the oc- cupation of our mercantile marine; but here, again, new channels of business have 25 arisen, and anxieties have been dispelled. The necessity of transporting great bodies of troops from point to point along the sea- board, and of furnishing them subsistence, has called into the service of the government a vast fleet of transports, for the hire of which the owners have received rates of compen- sation greatly exceeding the ordinary profits of commerce. "Every steam-vessel, capable of navigating either the ocean, or harbors and rivers, has been thus employed; and many more, previ- ously regarded as worn-out, and no longer seaworthy, having been flimsily repaired, and made to pass through a hasty and cor- rupt inspection, have gone out laden with valuable property, or invaluable lives, to be wrecked or rescued, as the chances of weath- er or as skilful seamanship might determine. The shipyards, both public and private, have been worked to their utmost capacity, in the construction of iron-clad gunboats and 3* 26 other vessels of war ; while machine-shops, rolling-mills, and foundries, have been equal- ly busy in building their engines, rolling their armor-plates, and casting their guns. Nor has foreign commerce greatly declined, the grain-trade and the import of munitions and arms having come in to supplement the loss occasioned by the detention of cotton, * * * * In every department of labor the Government has been directly or indi- rectly THE CHIEF EMPLOYER AND PAYMASTER." Such is the decision of our Massachu- setts Bank Commissioners, that it is debt, national debt, the consumption and destruc- tion of so much of the capital of the nation, which amount — an incumbrance upon the property of the people — has produced this industrial activity. 13. Whereas, in former times, every ad- dition to the stock of one man's produce created a demand for another man's produce, and that was the constant stimulant of na- 27 tional industry and wealth, now a new element in political economy has been dis- covered, in which nearly every addition to the stock of one man's produce creates a demand for government debt. Industrial activity, created by running into debt, is thereby termed a prosperous condition, To me however it seems far other- wise ; as it partakes of a somewhat similar character to that of the father, whose son, a spendthrift, squanders his father's fortune, burdens his estate with debt, thereby anni- hilating so much of his father's capital, to the loss of its productive employment. 14. Debt is not and cannot be a healthy stimulant to prosperity, unless the amount of that debt has been spent in production. And if our national industry is the offspring, to any considerable extent, of the war which has created our great national debt, as all thoughtful minds must admit, such a condi- tion of things cannot, with any semblance of truth, be termed prosperous. If the rapid increase of debt — which is to a great extent the destruction of capital, and a mortgage upon the property of the citizens of the United States, for the payment of which their estates stand pledged — is the normal condition of prosperity, then indeed are we prosperous. But, if prosperity consists in the produc- tive employment of labor, the payment of debts, and the economical employment and accumulation of capital, then it cannot be said that we are prosperous. 15. It is therefore necessary that as a people, we should remember, that no real prosperity can exist, and that the impover- ishment of the masses of our people must ensue, unless this war is brought to a speedy and successful termination. Says Ricardo, " It is by the profuse expenditure of gov- ernment, and of individuals, and by loans, that a country is impoverished." 16. The prevailing blindness to our real 29 condition is not, however, the result of the industrial demands of war alone, but it has been greatly promoted and fostered by the issues of a paper currency, and a bonded debt by the government. And this brings me to the consideration of our National Debt and Currency. THE NATIONAL DEBT AND CURRENCY. 17. Our National Debt is an almost com- plete annihilation of capital; nearly its whole amount having been withdrawn from productive employment — it stands to-day a mortgage upon the property of the peo- ple, the interest upon which must be met by taxes paid by the people. That we have abundant ability to sustain the burden of a large national debt, I have not the slightest doubt. That a debt, of reasonable proportions, distributed among the people, would have the tendency to unite us more compactly and steadfastly as an undivided nation, I believe susceptible of proof. And that Mr. Chase, the Hon. Secretary of the Treasury, has played his 31 part with admirable shrewdness, tact, and skill, I fully believe. Nevertheless, I am of the opinion that debt created by war, and consequent de- struction of capital, cannot result in the material wealth and prosperity of the na- tion, whatever specious appearances it may possess. If, however, the hundreds of millions of capital destroyed, and debt creat- ed had been spent in improving rivers and harbors, the construction of railroads, the widening of canals, the advancement of learning, and the encouragement of science, all of which would have been a productive expenditure of capital, then indeed should we have been enabled to rejoice in our pros- perity as a people, and in the brilliant posi- tion we should have attained among the na- tions of the earth. It is often said, England is prosperous ; she sustains a large debt and so can we. This is all very true ; but we know not to what 32 higher degree of prosperity she might have attained, had she not been burdened with debt ; for with all her prosperity, the mass- es of her people are impoverished. " The poor of Great Britain," says Joseph Kay — than whom no one is more competent to express an intelligent opinion — "are more depressed, more pauperized, more nu- merous in comparison to the other classes, more irreligious, and very much worse edu- cated than the poor of any other European nation, solely excepting Russia, Turkey, South Italy, Portugal and Spain." We do not, therefore, want to imitate Eng- land, — far from it, there the rich grow richer, and the poor poorer, — but we desire to raise the masses of liberty-loving Ameri- cans to a higher level, and to a more pros- perous condition, rather than oppress them with a burden of government taxation, which, in all nations, inevitably falls directly and indirectly upon the poor and producing classes. 33 18. Our national debt, although for a noble purpose, has been contracted through the deceptive character of a paper curren- cy, without the reception of an adequate value. The increased prices of commodi- ties produced by paper issues have very much enlarged it. The nation has been, in fact, an immense borrower of a depreciated currency, which it agrees to refund in spe- cie. In other words, we are borrowing com- modities at high paper values, which are fifty per cent, premium over their specie value, and agree to pay for them in specie. Our debt is therefore undergoing a rapid increase, because we thereby agree to pay $150 in gold for every $100 we receive. 19. The doctrine of the celebrated John Law was, that money was the cause, and not the effect, of wealth ; and he favored large issues of paper money, as the high road to wealth. He tried the experiment, and met with complete disaster. O A o4 111 our day, there are thousands who be- lieve and advocate the same doctrine. There is a general impression that the more paper money issued, the better ; and the idea is commonly entertained that the more of it we have, the more wealth we possess. In some quarters it is asserted that there is now an actual necessity for an ad- ditional issue of legal tender currency. Thus, the public mind appears confused by the de- ceptive character of our paper currency. 20. The issue of legal tender currency was, on the 30th of September, $420,503,107 — and the national debt inclusive, $1,222,- 113,559.80 — which debt must be very con- siderably increased by outstanding claims against the government. 21. Our paper currency consists of two kinds, one of which rests upon confidence, and the other upon authority. If we would preserve its value at par with coin, the quantity issued must conform to the amount 35 required by the country to circulate its prop- erty and products at average specie values ; otherwise, it will be depreciated, or appre- ciated, as it is increased or decreased above or below its just proportion. 22. Money is properly a medium of ex- change for the transfer of property between man and man ; it represents and measures value, and facilitates the exchange of pro- ducts, and is endowed with legal power to represent actual value. Every nation re- quires a certain amount of money sufficient to make its exchanges, transfers of property, and circulation of commodities, and it is Graduated or distributed among; them in ac- cordance with the general law of supply and demand regulating all values. " Gold and silver," says Bicardo, u having been chosen for the general medium of cir- culation, they are, by the competition of commerce, distributed in such proportions amongst the different countries of the world 36 as to accommodate themselves to the natu- ral traffic which would take place if no such metals existed, and the trade between coun- tries were purely a trade of barter." There is then, we may say, a general level of val- ues, which are moved by the metallic circu- lating medium of the world. And when any one nation, by any method, increases its circulating medium, the values relative- ly remain the same, but the prices become enhanced, and those prices, in specie-paying countries check exports, while they increase imports, and turn the balance of trade against the country, until by the exporta- tion of specie, and consequent reduction of the currency, the circulating medium is re- stored to the general equilibrium. 23. In countries where the currency is exclusively paper, the effect is somewhat different ; in those countries, the values re- main the same, and prices become greatly enhanced, but they do not have the same 37 effect upon imports and exports, because as prices advance, the currency is inversely depreciated. If, therefore, the currency depreciates as rapidly as prices advance, as manifested in the premium on gold, then, although at higher prices, the values of gold and commodities are preserved at their just equilibrium, and scarcely any effect is pro- duced upon either exports or imports. 24. Almost universally amongst the civil- ized nations of the earth, gold and silver have been selected as the standard meas- ures of value for carrying on their relations, because, of all commodities they are the least fluctuating in value. Gold has a rec- ognized and stable value throughout the world, which value is determined, as a gen- eral rule, by the cost of production ; and the direct tendency of this metallic commodity and currency, is to distribute itself where it is most wanted ; thus preserving the gener- al level of value between the whole ocean 4* of currency and other values. In order, therefore, to ascertain the condition of our currency, or the currency of any people on the face of the earth, it must be tried by that standard. Bank-notes, paper-credits, and government-currency are not commodi- ties, and have no intrinsic value, and their marketable value must therefore be tried by the generally recognized standard of value. 25. To prevent depreciation, paper mon- ey must be so regulated as to keep it in the same condition, in regard to amount and value, in which the medium of exchange would exist, were the circulation purely metallic. When specie payments were suspended by the Bank of England in 1797, the value of paper currency was maintained for sev- eral years, because the issues of paper were regulated with reference to the indication of exchanges or the price of gold. 39 26. If there was perfect security for the issue of paper money in only such quanti- ties as would preserve its value relatively to the mass of currency and values through- out the world, it would never suffer depre- ciation, and would be of great advantage to the public. But no such security can be given ; the production of it is too easy and simple a process, and the temptation, when in want of money, too strong to restrain the issue. Hence the instability and unsatis- factory character of Paper Currency. 27. The large issues of paper money by our government have enhanced prices, but have not produced any augmentation of value ; yet, because of the general rise in prices, a popular impression prevails of a large increase in wealth. The prevailing opinion seems to be that a general rise in prices is indicative of increasing wealth, whereas, nothing is more absurd. Price does not create value. Neither can legislative 40 enactment. il Value/' says Mill, iC is a rela- tive term. The value of a thing means the quantity of other things which can be ob- tained in exchange for it," u By the price of a thing we understand its value in mon- ey; by the value or exchange value of a thing its general power which its possession gives in the purchase of other commodi- ties." "There may be a general rise in prices, but there cannot be a general rise in values." If there is a general rise in the money prices of all things, it cannot make the slightest difference as to the wealth of the community, because their exchangeable value, or relation to one another, must re- main precisely the same, although it may take more money to effect transfers. The great principle to be constantly borne in mind is, that the value of capital is the essen- tial thing, and constitutes the wealth of so- ciety. If half our currency was swept 41 away, the nation would not be any the poorer. With our present large issues of paper currency, values circulate at high prices, but, as a general thing, one product will not exchange for more of another than it would on the old specie basis, which proves that real value remains the same, while the variation in prices is caused by an alteration or depreciation in the value of money. But, why call it a depreciation in the value of paper money, I may be asked. 28. Because, paper money will not pur- chase as much of the commodities of life as the same amount of our former currency would do, which, after making all reasona- ble allowances for other operative causes, proves that money has lost its purchasing power, and become depreciated. If we take the two articles of consumption, sugar and coffee, we find, after deducting the ad- ditional duty, that the advance in price has been considerably over fifty per cent. It 42 consequently takes $150 in paper currency to pay for the same amount of those pro- ducts procured by our old currency, or the currency of the world, for $100, while the value of suo^ar and coffee holds its same relative proportion to each article. With two pounds of sugar one could procure one pound of coffee, under our old specie cur- rency, as they now can under our paper cur- rency. Our currency, therefore, has been unduly increased and depreciated, while values have not been in the slightest degree affected. The paper price and imaginary value of one hundred barrels of flour is nine hundred dollars, but with specie at fifty per cent, premium its exchangeable value is only six hundred dollars ; therefore, one hundred barrels of flour will pay for only six hundred dollars worth of foreign produce which we consume, and for which our flour is exchanged. Hence, its real value consists in its exchangeable value of six hundred 43 dollars, and not in its paper, fictitious, or imaginary value. 29. There are only two ways by which a currency can be depreciated. If metallic, by a debased or degraded coin, or a redun- dancy of gold ; if paper, by loss of confi- dence, or over-issue. Gold, being a com- modity, has its value based as a general rule, like all other values, upon the cost of production, and when redundant in one country, its price, being fixed, remains unal- tered, while the prices of all other values have advanced ; therefore gold, being the most valuable at its price, is taken in prefer- ence to other values which bear a high price, for exportation. Paper, however, when is- sued in excess, having no intrinsic value, does not rise relatively with other articles, and, though the price remains unaltered, is not wanted for export. 30. Hence, the excess of paper money in the United States never goes out of it ; but 44 is kept in constant circulation ; it cannot be returned to the issuer for redemption, but must be pressed upon the market, and passed from hand to hand : and, as it is not desira- ble for its own sake, but only for what it will accomplish, every holder is desirous of employing it in the purchase of something of value. It acts, therefore, as an originat- ing cause of speculations, and the activity of circulation engendered has the direct tendency to enhance prices and foster ex- travagance. Says Tooke, "Additional currency, in whatever way it comes into circulation, must eventually raise the price of com- modities and labor." 31. A certain amount of circulating me- dium is demanded, and no more ; when that amount is exceeded, its value is diminished, because it requires more of it to make ex- changes, and is not therefore worth as much as before. Money controls or commands 45 capital, and the more or less capital a certain amount of money will control, demonstrates its value. If the amount of money is so profuse, by the introduction of a paper cur- rency, that it takes fifty per cent, more to buy with paper what one could buy with gold, the currency of the world, it seems to me the depreciation of the currency must be manifest. As an illustration of deprecia- tion, simple and to the point, let us take the case of any man who laid by one hundred dollars of our old currency ; could he not to-day, with that, buy one hundred and fifty dollars' worth of any commodities as valued by our present currency? Will any one say, then, that one hundred dollars of our present currency is worth as much in real value as one hundred dollars of our old currency ? No. Has it not then, depreciated ? Money hav- ing a legal and nominal price, which is inva- riable, any depreciation in its value must show itself in the enhanced prices of com- 5 46 modities. In California, however, where gold is current at par, the depreciation is seen in the price of legal tender. " No government," says Say, " has the power of increasing the total value of mon- ey otherwise than nominally. The increased quantity of the whole reduces the value of every part." Says P. Webster, in relation to vain endeavors to increase the value of money by paper issues, " I have known people who had not milk enough to water it, but the nutritious particles of milk were not increased thereby. I have known chil- dren to change their pistareens to coppers to gain a greater heap of money ; in these cases the substance was wanting ; the show though increased was delusive." " Any further increase," says Mill, " of paper beyond the amount substituted for a metallic currency is but a form of rob- bery." " A circulation can never be so abundant 47 as to overflow," says Ricardo ; " for by di- minishing its value, in the same proportion, you will increase its quantity, and by in- creasing its value, diminish its quantity." 32. While Secretary Chase, as I have just noticed in his report to Congress, en- tertains somewhat similar views, relative to depreciation caused by increase of the cir- culating medium, expressed in these words : "Such addition tends inevitably to deprecia- tion, and depreciation, if addition be contin- ued, will find its only practical limit in the utter worthlessness of the augmented mass," yet, he seems to question the representation that any " large measure " of the increase of prices is attributable to the existing amount of circulation. With all his attempted explanations, how- ever, he is very cautious in his statements as to what proportion of the present en- hanced prices is properly chargeable to our depreciated currency, and goes on to say. 48 that " much the greater part of the rise of prices, not accounted for by other causes, as well as much the greater part of the difference between notes and gold, is attrib- utable to the large amount of bank-notes yet in circulation." And then, after giving the following excellent advice, viz : a all proper measures should be adopted to hasten the return to the normal condition of prices and business " — he urges the further estab- lishment of national banks. 33. It seems to me our Hon. Secretary is in this matter very inconsistent. For, in the first place, he says addition to the currency tends to its utter worthlessness. 2d. That bank circulation is the cause of the greater part of the depreciation between notes and gold. Then, after giving whole- some advice about returning to the normal condition of prices and business, he turns about and urges the further issue of bank circulation by the establishment of national 49 banks. He is really an advocate, therefore, by other instrumentalities, of the same results which he deplores. Suppose, for instance, our State banks were converted into national banks, would their circulation be thereby decreased ? Not at all ; their bills, instead of being furnished by themselves, would be provided by the government, and their cir- culation would be increased rather than decreased, because their bills would have an additional currency, being current for all government dues excepting duties on im- ports, and for all government debts except interest on bonded debt ; and, with the cur- rency of their bills increased, their circulation could not fail to be augmented. But, not only does the Hon. Secretary wish State banks to adopt the new system, but he desires to establish other banks throughout the country, the effect of which would be to increase bank circulation and foster specula- 50 tion, bringing about the very disastrous results which he deplores. 34. Our present bank circulation, how- ever, is not, in my opinion, the cause of the difference between notes and gold. That assumption is entirely unsupported by any good or sufficient reason. Mr. Chase says, with great truth and accuracy of statement, " that the currency cannot be materially aug- mented without evil consequences of the worst character." In order, therefore, to ascertain from what quarter evil conse- quences have proceeded, we must ascertain from what source the increase of our curren- cy has been derived. According to our returns nearest Jan. 1, 1861, the bank circu- lation of the loyal States was $140,000,000, and nearest Jan. 1, 1863, $168,400,000, an increase of only about $30,000,000, which amount is at the present time decreased, and does not equal the amount of government legal tender notes, now withheld by the 51 banks, as a basis for their own circula- tion. 35. Within the same time, the govern- ment has enlarged the volume of currency by adding over $400,000,000, which shows conclusively that the " material augmenta- tion of the currency," productive of these u evil consequences," has been derived from the government. 36. But, because of the "evil conse- quences " arising from a depreciated curren- cy the Hon. Secretary seeks to throw upon the State banks the odium thereof, and says : « Were these bank-notes withdrawn from use, it is believed that much of the now very considerable difference between coin and United States notes would disappear." That is true, very true ; but would not the same principle apply with equal force to the con- traction in the issue of legal tender, to the same amount? Certainly. Of this there can be no question. The reduction of the 52 currency to the amount of $200,000,000, whether by the withdrawal of bank notes or legal tender, must increase the value of the remaining currency, and cause " much of the difference between coin and notes to disap- pear." Its natural effect would be to cause a decline in the prices of all values, including gold, because gold is a value ; and the reason for the decline would be, because the amount of money being $200,000,000 — smaller than before, with the same values to circulate, those values must, in the very nature of things, be reduced in prices in order to be circulated by the remaining money ; and this decline in prices would demonstrate the increased value of money, because a certain amount of money would command more of commodities or values than before. This vital principle, namely, that by dimin- ishing the quantity of currency we increase its value, and by increasing the quantity we decrease its value, appears to be acknowl- 53 edged and approved by Secretary Chase. Still, notwithstanding his assent to its posi- tive truth, he persists in advocating the establishment of national bank circulation, thereby increasing the quantity of currency and decreasing its value, which, according to his own reasoning and belief, must be pro- ductive of evil consequences. 37. It is apparent that consistency, as well as the public welfare, requires the sup- pression of all bank circulation, both State and national. For, as Mr. Chase says, " it is believed, were State bank circulation with- drawn, much of the difference between notes and coin would disappear." Now the same principle applies with equal force to national bank as to State bank circulation ; conse- quently, if the suppression of State bank circulation would be productive of such happy effects, then certainly the public wel- fare demands the suppression of all other bank circulation, and the immediate discon- 54 tinuance of all projects calculated to create it. One class of circulation should not be suppressed for the creation of another, as no advantage would be gained, and all good effects would be neutralized ; but both classes should be suppressed, and our banks, both State and national, become simply banks of deposit, and allowed to circulate nothing but the legal tender currency of the country. 38. If we ever return to the " normal condition of prices and business," it must be through the reduction of the circulating medium, brought into just relations to the circulating value of the metallic currency of the world. This reduction can be accom- plished by two methods. One, the with- drawal or suppression of a portion of it ; the other, the introduction of it into the South- ern States, where it is now shut out. The entrance of a portion of it there, to circulate their values, would evidently reduce the 55 amount circulating in the loyal States, and the same effect would be produced on prices in both cases. Hence, if we are successful in suppressing the Bebellion, and open the country to the circulation of our currency in the transfer of values, then the currency existing here, in the loyal States, will be reduced by precisely the amount required to circulate values in the Southern States, and prices of gold and other values will decline, in consequence of the reduction of the currency, compared with values circu- lated, until those prices are brought to their proper level, as measured by the reduced volume of paper currency. But those prices will not be brought to their i: normal condi- tion " unless the whole volume of currency shall stand reduced to its just proportions relative to all values, or, to the same amount as it would be, were the currency of the country gold and silver. And unless it be so reduced bv one of these two methods, its 56 value must continue to be depreciated be- low that of our neighbors, or what is the same thing, redundant compared with the currency of other countries ; which depreci- ation is measured to a great extent by the price of gold. 39. Speculations and loss of confidence in our finances do of course produce their effect upon the price of gold, causing more or less variation, sending it sometimes higher, then by reaction lower, than its relative paper value to all other commodities ; but as a general rule it marks by its average price the depreciation of paper. If paper is not depreciated to the amount of the av- erage premium on gold, why should gold move out of the country, at so high a price ? In the present currency our products bear an inflated paper or fictitious value \ and after the premium on gold is subtracted, they are of no more real or intrinsic worth than gold. Consequently, legal tender is 57 depreciated to that extent. If our products were much cheaper than gold, after deduct- ing the premium on gold from their cur- rency prices, it is evident the exportation of gold would cease. 40. That the prevailing high prices of all commodities is wholly attributable to depre- ciation, no one pretends to assert. For, the comparative state of demand and supply is known to be one of the prominent opera- tive causes in prices. This is seen es- pecially in the two leading articles of cot- ton and wool. The short supply of cotton has greatly enhanced its price, and the great demand for wool, in consequence of a short supply of cotton and other causes, has greatly increased the price of wool. Never- theless it is apparent that these articles, whatever may be their prices, are just so much higher in legal tender notes, as those notes are lower than our old specie cur- rency. 58 41. Supply and demand have their ef- fects on prices the world over, and if we are engaged in a war, and are large consumers of certain articles, those articles in foreign countries, unless their importation or ex- portation is restricted, feel the effect of it, and are affected in price, there as here, from the same causes ; but, over and above that cause and every other operating upon prices universally, there is one cause which creates a large difference in the prices of the same values, between those in our own and for- eign countries. For instance, two hundred pounds of cotton are worth in Boston one hundred and fifty dollars. In Liverpool, the same value, two hundred pounds of cotton, are worth one hundred dollars. Now, the same causes with one solitary exception, which have operated to carry cotton up in Boston to one hundred and fifty dollars, have carried it up in Liverpool to one hun- dred dollars, and that, the circulation in 59 Boston of a large issue of legal tender notes ; hence, we may say with confidence that the difference in price of fifty per cent., must be caused by a depreciation of our currency. And that depreciation manifests itself throughout the whole range of money prices, at about the same ratio, whether high or low. According to the Merchant's Magazine for November, there are fifty-five articles upon the Prices Current, which show a rise since 1861 of eighty-one per cent, ; in the same time, the rise of the principal railroad stocks has been one hundred and thirty-nine per cent, These enhanced pri- ces are partially owing to increased values, common throughout the commercial world, while the remainder is owing to the exist- ence of a depreciated currency. 42. Some of the effects of enhanced prices are seen in the record of the Clear- ing Houses in New York and Boston. The 60 Clearing House, it is understood, is where the total amount of payment to be made by each bank is set off against the total amount to be received by each from other banks, every day, and the balance only paid in money. These clearings, therefore, indi- cate the amount of money transfers of property made by bank deposits, from clay to clay, although they do not cover those made from account to account in the books of each bank. In New York City, the clearings per clay were, in 1857, $26,968,371 ; in 1858, $15,- 393,735; in 1859, $20,867,333; in 1860, $23,477,737 ; in November, 1861, $19,590,- 177; in November, 1863, $76,573,118. In Boston, November, 1861, $3,715,969; in November, 1863, $8,545,813. Here, it appears, taking the highest aver- age in the year 1857, when speculation was rampant, and the expansion of the curren- cy had inflated prices, and brought upon the 61 country a monetary crisis, that the circula- tion of values, or the transfer of property, now takes three times the amount in our inconvertible paper currency which it then took in a convertible currency. To move commodities or values trans- ferred by high paper prices, bank deposits also are largely increased, as will be seen below. The deposits in New York City banks, in 1859, were $76,665,092; in 1860, $79,716,- 004 ; in 1861, $83,252,466; in 1862, $112,- 195,094; in 1863, $138;195,914. Deposits in Boston banks, in 1861, $24,760,563 ; in 1863, $32,371,254. It will be observed that the amount of clearings before the issue of legal tender notes was not so great in proportion to the amount of deposits as it now is, by one hundred per cent. ; which indicates that a lack of confidence in the circulating medium as a value, or a more than ordinary desire 6* 62 to turn whatever money is possessed into productive employment has greatly in- creased the circulation of deposits. 43. Paper money freely issued has large- ly augmented the volume of circulating medium, and raised its level, here, there, and everywhere it circulates. The quantity having been increased, all commodities or values circulated by it bear their proportion as to price, by partaking of the u - augment- ed mass ; " then prices being enhanced, de- posits and clearings must be increased, and the whole superstructure of trade, business, and values adjusted to the new level of cur- rency. 44. The over-issue of paper money by the government has been a most expensive undertaking. Not that it costs anything in itself, for it is an easy and fascinating pro- cess, to pay debt, by creating debt. So easy, that it is said, a member of the Continental Congress once exclaimed in debate, " Do 63 you think, gentlemen, that I will consent to load my constituents with taxes, when we can send to our printer and get a wagon- load of money." It is also reported of a patriotic old lady, that she considered it a shame tt that Congress should let the soldiers suffer, when it has power to make just as much money as it chooses." Yet, although so easy, it is a most expen- sive process ; it costs the government vastly more than they save in interest ; because, by being obliged to pay increased prices for all it consumes, its debt is increased with much greater rapidity than it otherwise would be. It virtually receives but seventy dollars in value for every one hundred dol- lars it agrees to pay. In other words, it agrees to pay in the currency of the world one hundred dollars for every seventy dol- lars it borrows ; because in that currency it could buy, for less than seventy dollars, the very same value for which it pays one hun- dred dollars in paper, or legal tender. 64 Thus the national debt is largely in- creased without any additional value being obtained, which increases the taxes and throws the burden upon the people. The effect of the issue of paper money has been likened to insensible perspiration, which weakens the body, and wastes the constitution before the patient knows he is sick ; and it is said, a man possessing a great bundle of it is apt to be cheated, in spite of his convictions, into an opinion that he is richer than he is, and led into extrava- gant expenditures by the delusion. There is a great deal of truth in those statements ; and although our government may not feel its weakness, nor the people their burden, owing to its strong constitution, and the il- lusion of a paper currency, yet, unless there is a contraction, rather than an expan- sion of our currency, those results are in- evitable. The depreciated currency has not only 65 increased the government debt and taxes upon the people, but it has been severely felt by the prudent, industrious, and eco- nomical portion of our people, especially by annuitants, and salaried men ; and their in- come in consequence of it, has been virtual- ly reduced one-third. While the better class of citizens have suffered, by the de- preciated currency, all money debtors have been enabled to pay their creditors in a sum of money really less than the fair claims. There are thousands of our citizens, however, who are really sufferers by the de- preciated currency, who are entirely igno- rant of it ; they look over their stock of goods, or other property, and cast up the amount, as estimated in paper prices, with evident satisfaction ; and, in consideration of large profits, spend their earnings and live extravagantly; but, when that clay comes, as come it must, and these enhanced paper prices vanish, as the bubble breaks, Q6 then they will have a glimpse of their real conclition ; and will conclude that all is not prosperous that appears prosperous. 45. It is often asserted that no more pa- per has been issued than the wants of com- merce require, that it is all employed and there are calls for more. We have no doubt that at the present high prices of all values, the currency is all wanted ; but it is also certain that if more were issued, more would be required, as prices would advance pro- portionally. " The wants of customers," says Lord Overstone, " never check issues ; they are absolutely illimitable in the nature of things ; money is wanted by everybody to any amount." It is impossible to satisfy the craving for money, so long as there is in it the slightest power to purchase values. When the Con- tinental Congress "poured out their currency like water," says Mr. Felt, " they perceived with anguish that its nominal abundance diminished its real value, and left the vacuum 67 of want unsuppliecl, whose sound continual- ly came to their ears, like a warning curfew, and whose cry increasingly was, Give, give." No, the desire for more money is no proof of the necessity for it, for that desire would continue, until it took $1000 (i to pay for a breakfast ; " and would increase as the value of money decreased. 46. Any increase of the now greatly expanded volume of currency, whether by the issue of legal tender or by an addi- tional bank circulation, will only intensify the cry, which we now hear ascending from all quarters, — from mechanics, soldiers, clerks, and artisans, for a further increase of wages and salaries, the tendency of which will be, in the words of Secretary Chase, u an extravagant increase of disbursements and an aggravation of the evil." 47. Instead of increase, the welfare and best interests of government and people demand a decrease. A contraction of the currency would result in saving the people 68 from the burden of a large increase of debt and taxes, and reduce it to the "normal condition of prices and business." Mr. Chase suggests it in one sentence, but, alas, in the next, proposes again to augment it by the establishment of a na- tional bank currency. 48. To accomplish so desirable an object, bank circulation, both State and National, should be suppressed, and a reduction of the issue of legal tender ensue, until the currency is brought to its normal condition, or at par with the precious metals. The currency of the country, so long as this war is in progress, should be confined exclu- sively to legal tender notes ; as the govern- ment is entitled and should possess whatever benefits may be derived from the supply of a circulating medium, but the volume of that currency should certainly be reduced to its proper level, which is at par with gold. 49. What the country is really suffer- 69 ing for, is a currency which possesses a fixedness of value ; to attain that, it is es- sential that there should be a fixed, positive, and permanent amount of currency, — an amount which cannot be increased or tam- pered with by further issues of tender, interest-bearing notes, or national bank cir- culation, — an amount, whatever may be the sum total, which shall represent in itself a certain percentage of real value, thereby furnishing stability to prices. Then values, having assumed their relative proportions to the circulating medium, would no longer CD ? O be affected by it, but would circulate at steady though high prices, or only as they were moved by causes operating univer- sally. 50. Our government has assumed a fearful responsibility, in the increase of the circulating medium by the over-issue of paper ; it is a power that has always been abused, whenever and wherever exercised, 7 70 generally resulting in disaster. When once the power is assumed, it being so easy to print paper, and impossible to create value by enactment, over-issue is inevitable ; money becomes depreciated, and values un- settled throughout the nation. 51. To-day our Honorable Secretary of the Treasury, Mr. Chase, holds, to a great extent, this power of issue — which he has received from the government — in his own hands. He has within his grasp the scale of value, the graduation of which he can vary at pleasure. It is a vast, responsible, and momentous power, of too great propor- tions, and weighty with too many precious interests, to be intrusted to the guardian- ship of any fallible man. Such is his power, that, by the reten-tion and issue of currency, he can carry monetary prices up or down at will. He can impoverish or enrich, cre- ate or destroy, at pleasure. It is fortunate for the country, however, 71 that our present Secretary is a man of so much sagacity and possesses such a high and honorable character. For it is by his prudence, foresight, and good judgment that we have been preserved from plunging still deeper into egregious folly. Whatever may be Mr. Chase's virtues, it is nevertheless one of the great evils of an inconvertible paper currency that it places in the hands of any one man such tremen- dous power ; for we know not who may suc- ceed him. 52. We are now apparently prosperous ; our financial machinery is running smoothly ; the paper mills are at work and are making certificates of debt, which the people take for their products; our currency is one of debt, and that we are passing from hand to hand for values at high debt prices; we are, in fact, submerged in debt ; it is over, around, and about us, the debt of towns, cities, counties, and of the nation, but as it presses like the atmosphere with such f 72 equality upon our system we feel not its pressure. 53. Persons under water, having tons of it over their heads, feel not its weight ; and it is only when they come out", and attempt to raise a portion of it, that they become aware of its ponderous character. Thus it will be with our people when they attempt to extricate themselves from their present position ; they will then begin to realize for the first time their burdened condition. We are apparently prosperous, but when we return to specie payments, these imagin- ary paper values which everywhere prevail will be destroyed, and the people will dis- cover that they were not really prosperous, but were much poorer than they had anti- cipated ; and they will then be convinced that wealth consists in the abundance of commodities money will procure, rather than in the amount of money that com- modities will command.