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resources than those which are afforded by the ordinary current of business must be applied to its extinguishment.
It should not be forgotten, however, that the accumulation of bank capital to an extent beyond the requirements of business, affords strong temptations to this species of over issues. And the instances are not rare, where individuals, at times when the banks have found it difficult to keep up their discounts for business purposes, or have been tempted to increase them beyond the requirements of business, have been tempted to borrow imprudently without being able to calculate upon the means of repayment, perhaps to embellish a farm— to erect buildings—or enlarge a mereantile capital.
For a time the borrower reposes in security; but when the imperious demands of business require the use of the capital thus invested, a new loan, and a sacrifice to procure an extension of credit, are the consequences; and so on from time to time repeatedly, uutil the observer who lately saw the outward appearance of thrift and prosperity, now discovers a significant placard by the way side : “This farm for sale.”
It is true that banks being out of the question, the same effect is produced when unemployed capital accumulates in the hands of individuals, in consequence of a depression of business; but the facilities afforded to the incautious borrower are less, as the surplus capital of individuals is not susceptible of augmentation by the power of issuing a circulation beyond its amount.
But these are minor considerations as regards the proposition under consideration, and giving them their due weight, and allowing them all the influence upon prices which may be produced by an increased artificial competition, we still think they fall very far short of having a decisive weight in proving that the value of money depends upon, or is essentially affected by, the issues of bank paper, as long as that paper is convertible into specie.
It certainly is not proved by the prices of 1816, which are adduced as the illustration.
It may be admitted to the fullest extent, that the prices of commodities were enhanced at that period, by the excessive issues of bank paper, and yet the proposition is not established, for the bank notes of that time were not redeemed in specie. Specie payment had been
suspended by all the banks in the Union, except New-England, in the autumn of 1814, and were not resumed until the spring of 1817.
It is not intended to be denied, for all experience testifies, that paper of any description, which is put into circulation as currency, always must depreciate unless easily convertible into specie, no matter how ample may be the security for its ultimate redemption. Neither the arm nor the credit of government itself, can sustain it as currency. A melancholy proof of this in our own country, during the late war, must be still fresh in the recollection of all.
The humiliating fact remains upon record in the history of the times, that the treasury notes of the government, negotiable by delivery and bearing an interest, were exchanged at a discount for the bank paper of private corporations, not convertible into specie.
Yet the proposition is untrue that currency of this description is depreciated in proportion to the quantity issued. The prospect of ultimate redemption, and the proximity of that event, are all in portant in ascertaining and regulating the scale of depreciation. To the latter consideration chiefly must be ascribed the apparent anomaly above alluded to. The community had confidence in the ultimate solvency both of the government and the banks; but the opinion was probably entertained that the banks would resume specie payments sooner than the government.
If it be true then that excessive issues of bank notes do not essentially depreciate the whole currency, as long as such notes are redecimable in specie with facility, it would seem to follow that the actual depreciation of irredeemable paper, at any given time, may be measured by the premium which specie bears when exchanged for such paper."
To what cause then were the high prices of 1816 attributable Although it is granted that in some degree they were iufluenced by the excessive issues of bank paper, not however in any considerable degree, because such issues were excessive, but because the paper was not convertible into specie, we think it may be affirmed that the principal causes were entirely unconnected with the state of the currency.
* That premium in New-York, during the first six months of 1816, averaged 11.6 per cent. and during the last six months of the same year 3.33 per cent. Those averages therefore may be said to be the actual depreciation in New-York in consequence of the suspension of specie payments. The premium upon specie in some of the other commercial cities, was somewhat hig er; but in Boston, where the banks paid specie, it was merely nominal.
In whatever relates to the currency, as well as many other important subjects, the history of the times immediately succeeding the late war is full of interest. But to apply it properly we should connect it with that during the war, as well as antecedent and subsequent.
For a long time previous to the war, the ordinary channels of intercourse with other nations had been obstructed by the belligerent state of Europe, and by our own countervaling restrictive system, the tendency of which were to enhance the prices of foreign commodities, by the danger and difficulty of procuring of them, until a state of open war put an end to nearly all supplies, except such as found their way by an illicit trade. The prices of foreign articles immediately took an extravagant rise, and continued to appreciate, while the demand for our own productions, stimulated by the wants of an army, and the withdrawal of laborers from their accustomed employments, nearly kept pace.
These and similar causes always incident to a state of war, and peculiarly operative in a country almost wholly dependent as this then was upon the workshops of other nations for manufactures, are sufficient to account for the extraordinary prices which were found to exist during the year 1814. The war too had excited the speculating enterprise of individuals, and called it into action, and the community gradually became reconciled to prices with which under other circumstances their judgments would have been shocked.
But when the peace of 1815 was concluded it produced a great comparative reduction of prices, but by no means a minimum, because the demand was unprecedented. The reduction created demand and the demand prevented a greater reduction. Overtrading was the consequence of not duly appreciating the temporary nature of the demand for consumption, and was induced by a succession of reductions in price, as the manufacturers in Europe were compelled by competition at home to submit to them.
The operation of causes like these would tend to keep up prices for a length of time before the demand and supply should become so regulated as to reduce them to a minimum. If we add to this the fact that the double duties upon merchandize were continued until July, 1816, and then only partially reduced, we can be at no great loss to account for the actual prices current of merchandize in 1816,
without much reference to the amount of circulating medium at that time.
The unsettled state of the agricultural interest also, at the period alluded to, and the peculiar unkindness of the seasons, were causes of appreciation in the prices of produce.
We have been proceeding upon the assumption that the prices of 1816 were excessive; they were so perhaps compared with the present, but they were less than those of 1815, and on the decline. How then does a reference to that period when prices were declining, and the circulation redundant, illustrate the proposition that prices are raised in proportion to the quantity of circulation?
But again, if the proposition is true, we must admit that prices will be least when the circulation is lowest; but the estimates quoted above show that the currency in 1815 was less than 45 millions, while in 1816 it had risen to rising sixty-six; and yet prices were decidedly higher in 1815 than in the following year.
It must also be admitted, that so far as the quantity of currency affects the price of commodities, all articles must be proportionably affected.
We entertain no doubt that an examination of the actual prices current at the times alluded to, will show conclusively that the prices of 1816 were on a rapid decline, notwithstanding the redundancy of the currency, and that different articles were by no means proportionably affected.
We have neither the time norstatistical facts necessary for such an examination, but the annexed table giving the prices of a few leading articles believed to be nearly correct, will give something of an idea of the result of such an examination.
1814. 1815. 1816. Iron, ........ $150,00 per ton. $180,00 per ton. $100,00 per ton. Tea,........ 2,00 per lb. 1,60 per lb. 1,00 per lb.
Sugar, ...... 20,00 per cwt. 20,00 per cwt. 14,00 per cwt. Rum, . . . . . . . 2,00 per gal. 1,69 per gal. 1,06 per gal. Molasses, . . . . 1,00 do 90 do 50 do
For the reasons above mentioned, we think it unfair to charge the prices of 1816 entirely to the account of excessive issues of bank paper, believing that other causes ought in justice to bear much the greatest proportion of the charge. There can certainly be but little accuracy in the assertions that prices were appreciated in consequence of over issues of paper to such an extent as to render two dollars then, of no more value than one at present.
If this conclusion is correct, it will follow that the severe pressure which was felt through the whole country in 1819, is not justly attributable as it has been said to be, to the resumption of specie payments by the banks in 1817.
A return to specie payments is undoubtedly always attended by a pressure upon the community, but that pressure may be measured by the extent to which the issues were excessive during the suspension, and if other causes than a redundency of paper, contributed to raise prices, they are fairly chargeable with their share of the depreciation when prices fall and losses and embarrassment ensue.
Besides, as the effect of the curtailment and pressure necessary to enable the banks to resume specie payments, the distress in 1819 would seem to have lingered too far behind the cause.
When it is not only claimed that the existence of a national bank would have prevented the excessive issues of the local institutions at the period above mentioned, but also that the state banks never would have resumed the payment of specie but for the coercion of the present United States bank, and that such an institution is necessary for the purpose of enforcing this most important of all banking principles, justice to our own institutions as well as to the character of the state would seem to require some examination of the reasons upon which so bold a proposition is advocated.
The argument rests upon the assumption that the United States bank did compel the local banks to resume specie payments, and that they could have been compelled by no other means; because as it was obviously their interest to keep up as large a circulation as pos-sible in order to ensure large dividends, they could not have been induced to co-operate voluntarily in the restoration of the currency, and they would not have been compelled by the state legislatures, first, because the tendency of a depreciated currency to attract importations by lessening the actual amount of duties paid to the government and to lighten the burthens of federal taxation, would have rendered it the interest of the states not to do so; and secondly, because as the banks were directly or indirectly the creditors of almost the whole community, their control over public opinion would