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of commerce, with their

array

of statistics of industrial progress of every kind spread out every day in the year in the columns of the newspapers, of the most newspaper-reading people in the world, it was not possible to be ignorant of it. And yet two months ago witnessed the first steps towards an insolvency, which is now scarcely less than universal. Temporary, indeed, this insolvency must prove, but actual, none the less, and disastrous beyond all computation, before its depths are fully sounded.

We will not stop for any description of our condition. No words can do it justice. Every man feels that wholesale ruin came upon us, and that it descended upon us with the rushing speed of a tornado. The particular route by which we have come, whether it was the best, or a safe, or necessary one at all; and still more the causes of it, may better

engage our attention. To these we shall revert hereafter. But first

What is this disaster which has come upon us, when our resources are 80 magnificent ? Debt—not to foreign countries, but among ourselvesnot on the European account, but to one another. The American house is indeed sound, and both can and will pay its foreign debt, but the partners are in debt to one another. Their accounts with each other, instead of being adjusted daily, or quarterly, or half-yearly, or yearly, have run on, and the balances from time to time have been charged over. There has been no actual settlement these twenty years, and the account between the partners is now a formidable one.

The agricultural partner has bought more land than he could pay for down, in the assurance of good times—his credit was good, and the security upon his land undoubted—why shouldn't he ? His surplus profits he put into more acres, instead of paying up his debts of bonds and mortgages and the tradesman's account. This latter as a sound financier he ought not to have had at all, for, as he got ready pay for the products of his acres, he should have given ready pay for his supplies, and paid up his tradesman's account before he invested in more land. He has been easy about his mortgages too, but there was a reason for that, for the merchant's friend, the capitalist

, could use the mortgage more profitably than the money they represented, and so they are undischarged on the record, though many of them are past due.

And the mercantile partner, he is in debt. He had shown rare enterprise, skill, energy, and versatility, his credit was good; why should'nt he ase it? To the rest of the world he represented the American house, its purchases being made by him for the benefit of the concern. His credit ought to be good certainly, and buying on credit he could give the agricultural partner credit, and take from him profits on larger sales, than if he gave none. Besides, after his mortgages were paid, there would be a good margin of property, on real estate basis, and the improvements clearly belonging to the former—it was safe to trust him.

Linked in with the mercantile and agricultural partner, is the manufacturer. He had no capital to begin with, but the other partners having got along in the world, he persuaded them to let him into the partnership and lend him some money to start with. This they did, and took certitieates of ownership and right to a share of the profits, which were called stock. The new partner's business promised not only to pay them directly good profits upon their investment, but indirectly to benefit the former by making a better and more convenient market for the products of the farm, and ultimately, if not immediately, to furnish the manufactured

fabrics better and cheaper than any foreign houses could. It was a good idea for all times, but especially in case any misunderstanding should arise with foreign houses, as might sometimes be tne case in spite of the best intentions. But though supplied with his fixed capital by the other partners on easy terms, he could not buy his cotton and other materials except for cash, and as he sold through the merchant only, and the merchant

gave

credit to bis customers, the manufacturer must give the merchant credit. And so the manufacturer must borrow money of somebody to buy his cotton with. He too was in debt.

After a while the railroad partner was admitted into the firm on the same conditions as the manufacturer. He had no capital, but the others had done well, and because the railroad partner promised the merchant to bring him more customers, and the farmer a market with better prices for his produce, all concluded to lend him some money, and take certificates of ownership in his road and cars, which also were called stock, and upon which they were to draw a portion of the profits of the new business, the prospects of which were so inviting. And so this was done, and railroads were built every which way, and they quickened business amazingly, and every one of the partners reckoned it an excellent arm of the general enterprise. But as we have seen, this railroad partner was in debt too.

From the beginning of the common enterprise—the American housethere had been in the partnership, rather as a silent than active partner, a member of whom no account has been given—the money partner. As he bad no trouble in disposing of his goods as the merchant had, or in making them as the manufacturer bad, or in raising them as the farmer had, instead of a variable profit, he had come to receive for the use of his money, a fixed yearly rate called “interest,” which was regarded by all as about the share which he, taking no risks of bad crops, shipwrecks, fires, etc., and performing little or no labor, was fairly entitled to. This rate was about what he would get in any of their employments, upon an average of good and bad years for agriculture, commerce, and manufactures, over a long period of time and after the losses had been paid, less only by the value of his labor, which he not being an active partner, had not given. For it was always understood that his loans should be amply secured and paid at the day. He undertook to supply money to the partners, as their exigencies might require and his purse hold out.

The money partner was held in high repute by the other partners. His share-interest was promptly and cheerfully paid, because it was reasonable in its rate, and the success of the other partners in their respective employments enabled them to do this and still prosper.

There was a little chafing at times to be sure, because the money partner would not wait for his payments a day after they were due, and sometimes, a large part of his money being in the hands of the agricultural or other partners, there was not enough left for the merchant's wants; but such disappointments were in some way got along with and all were thrifty. The money partner though a little crisp and positive, was sagacious and cautious, and a favorite in the firm, and the others were not unfrequently saved from losses by his constitutional and babitual prudence. And when by sales to foreign houses beyond their purchases from them, the agricultural or manufacturing partners received money balances, this enabled them to extend their operations in their several departments, and the shortness of the money partner's purse to be less sensibly felt. In process of time many

of their loans from the money partner had been paid up; but new avenues for enterprise and capital were constantly opening, so that the money of the capitalist never wanted employment for any considerable period. And when by industry, by skill, and by plenty of hard work (for the American house had been brought up to that) they produced larger crops, or manufactures than usual, so that prices fell, they sold off' a part to foreign houses, and got in a little money, which added to the money partner's stock, made prices rise again to a fair average. The introduction of laborsaving machines was quite in their way—(for they liked to set the brooks and streams, the steam and iron, and everything else, to work)—which had also a tendency to bring down prices, and there seemed no good reason why, in time, the American house should not be the cheapest house to trade with in the world, as well as live the best.

At this point the money partner grew jealous of the rapid advance in prosperity of the other partners, and became ambitions to emulate their good fortunes. If getting credit was the source and secret of their success, which seemed to be the prevailing opinion, (for hard work was too much a second nature with all the partners, for them to think much about that,) why should not the money partner do business on credit ? If borrowing was so much for their advantage, it could serve him, none the less. Surely, if their obligations to pay were good, his would be.

And so he bethought himself to issue his promises to pay, and lend them as money. Everybody said they were just as good as money, and vastly more convenient to carry. The proposition was hailed with general acclamation. The manufacturer, the merchant, the farmer, all the partners could use more money than they already had to manifest advantage, and with it put on foot many new and splendid enterprises. By all means, let it be done, was the general cry.

The money partner wrote his notes of hand payable on demand, and lent them as money to his clamorous partners, who cheerfully paid the interest on them, and bought, sold, built, and ran in debt, on a larger scale than before. Prices rose and the disposition to trade was greatly stimulated, for every buyer expected to become a seller upon a rising market. It was a time of great prosperity. Everybody said so, and the enterprise of the money partner was undoubtedly the cause of it. The more money the house had, the richer it was, that was self-evident. And the money partner's notes were just as good as money; ergo, they were money. Were they? They served to raise prices and to exchange goods between the partners just as money would. But, were they equally good to pay debts with?

We shall see. Enlarged operations and enhanced prices soon used up the new money, and the demand was as great as ever for more.

Meanwhile the money partner, finding his business increasing, had opened an office, called a bank, where besides his usual business of loaning, he would undertake to keep securely for the other partners such money as for short periods they could not profitably employ, and return it to them on demand. The service was a good one, and promptly welcomed by all. And so the other partners made deposits with the money partner for safe keeping. But he very shortly discovered that what one depositor drew out, another depositor soon brought in, and that a large amount of deposit money remained steadily on hand. Why should not he borrow that and lend it out on interest? To this the depositors offered no objection, provided he

kept himself always prepared to return it to them on demand. It was so much more available money in the community and all wanted money; besides, the banker could turn an honest penny by getting interest upon it, wbile he borrowed it for nothing. Indeed, it came to be the established custom and law that the other partners must lend the money partner a handsome sum in deposit money for nothing, if they expected him to loan them any on interest.

With the new supply of money thus made available, prices of course rose, and as everybody said the banker could pay bis debts both to his noteholders and depositors

, nobody thought of asking him to pay, and he lent his notes more freely than before. The American house grew with astonishing rapidity. What caused it? Why, the banker's enterprise. It was that which made us, undeniably.

And the State also became a borrower of the money partner of the American house. The credit of the State was so good that it never paid risk-rates for the use of money. The security was undoubted, and being so, the State had usually borrowed at low rates of interest when it had occasion to borrow at all. But the money partner could do better, lending to the manufacturing, or commercial, or railroad partner, than to the State. How was it arranged? To loan the State at low interest as heretofore, and permit the money partner to make a profitable thing of it? Simply thus. The State permitted the money partner to issue his promises to pay to just as large an amount as the State had promised to pay him; and these, with the State's indorsement, he could loan to the other partners. It was adunirable. He could loan all his money to the State and draw interest upon it, and then have just as much money as before to lend the other partners of the house and take interest from them. And the statistics of his office showed that from the State, from the mercantile and other partners, upon his notes and deposits, he could and often did obtain interest upon from two and a half to three times his capital. For instance, suppose the money partner had $100,000 to begin with. This he loaned to the State, and got interest upon it. The notes which he was thereupon permitted to issue he loaned to the other partners of the house, which was a second interest; this usual reported soundness, and the guaranty of the State, brought other handsome deposits into his hands, and these also in considerable amount he loaned and took interest upon.

On the whole, it was clear that the money partner of the American house was by far the shrewdest of the firm. For his notes with the indorsement of the State came to be reckoned as money; and nobody thought of asking him to pay them. With such extraordinary credit, he easily distanced the other partners of the house, in doing business profitably upon borrowed capital. There were some inequalities indeed, which those not embarked in the rush and rivalry of the house could not but remark. One was, that while all the other partners had to pay interest on their notes which they lent to the money partner, he had none to pay on his, but on the contrary got interest upon them. Another was, that while they were obliged to pay up the principal on theirs, he was seldom troubled with such a demand. It was the singular facility of the money partner of the house, to be so good, that he was almost never called on to pay his debts :- and he might go on, and get rich upon the interest of what he owed.

But prices were rising, all kinds of business increasing, new lands settling, new cities springing up, new railroads building, and new mines of unexampled richness were opening. The prosperity of the various partners was unprecedented and indisputable. For their teeming plans, money was in still more fierce demand, and the slight inequalities just mentioned, disturbed nobody, seriously. The demand for money was unflagging, notwithstanding its enormous plentifulness. The money partner reposed in his old security, high as ever in the confidence of all. Of his solvency, guarantied as his notes were, by the State, it was idle to doubt. The money system which he had built up, was regarded by all the partners as the perfection of finance.

Besides the satisfaction with the money partner, which the other partners would naturally feel, arising from the “ facilities,” (as they were accustomed to call his loans to them,) which he afforded them for enlarged undertakings, and the advancing prices which followed in their wake; there were other grounds for the good will they cherished towards him. The discovery being once made that bis promises to pay, or notes, would answer just as well as money, and provided there was a property basis, the money partner's promises might be indefinitely multiplied; the other partners had a desire to enter the new field which the money partner's sagacity had opened. From two-and-a-half to three legal interests on money was a handsome profit, and left a good margin after paying office expenses. As by taking each other into limited partnerships or by investments with each other, as it was called, the merchant had become entitled to a slıare of the profits of the manufacturer, the railroad and the other partners, each other's enterprise, while each in turn was enabled to do a larger business by what he borrowed from the others; and the common bond of mutual debt and mutual ownership, while it fostered the private interests of each, by the same cord of self-interest constrained them to stand by and uphold each other-why not make a similar arrangement with the money partner? To this the money partner readily accededfor it being agreed now on all hands, that provided there was a property basis, it was immaterial how many promissory notes the money partner issued, he could enlarge his loans and of course his profit by all the property which they could contribute. It was removing the foundation stones of their houses and putting them into superstructure, but then the houses were mutually supporting, and did not need so much.

The other partners, therefore, took stock or ownerships with the money partner, entitling them to a participation in his profits. For instance, the agricultural partner mortgaged his land for a part of its value to the money partner, and paid him thereon 7 per cent. With the money

thus obtained he bought of the money partner an interest in his business, or stock, upon which he often received 10 or 15 per cent dividends. And so with the others. Each of the partners of the American house became, as it is seen, a participator in the profits, in the losses, and in the risks of the other partners. Each was doing business on borrowed capital, and the actual property of the house in the aggregate was less than the nominal, by the aggregate of all the debt the partners owed each other.

Was the debt large? Yes, but the partners had entire confidence in the solvency of each other, and the credit system, by cominon consent, had been the making of them. Confidence was just as good in their transactions with each other as California gold, and a much cheaper article.

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