A TREATISE ON
CURRENCY & BANKING

Letter
From the author to John W. Cowell, esq.
agent of the Bank of England in the United States,
Philadelphia, April 15, 1839.

MY DEAR SIR.

As you are upon the eve of departure for England, after, as I understand, a highly successful issue to your financial mission to this country, I take occasion to hand you a copy of the "Treatise on Currency and Banking," of which you have seen a few of the early chapters, in the hopes that you will find them, in the main, in accordance with your own views of those important subjects.  I am the more inclined to this expectation, from recollecting the tenor of the frequent conversations I have had with you, from which I need hardly say, I derived much valuable, instructive, and practical information, as well as from a perusal of the unpublished pamphlet, with a copy of which you favoured me, setting forth your individual opinions upon the best system of reform for the paper currency of England.

In regard to the latter subject, I am free to confess, that the United States have a deep interest in its discussion, and they will owe much to the political economist or statesman, who shall be so fortunate, as successfully to advocate a reform that shall prevent fluctuations in the currency of Great Britain.  It was some years since remarked in our congress, by a member, that the barometer of the money market of the United States was hanging up in the stock exchange of London.  Since the conflagration of that building, I would say that the barometer has been hanging up in the "parlour" of the Bank of England;  and in truth, so closely allied are our two currencies by the ill advised change in our gold coinage, which took place in the year 1834, that it is impossible that any expansion or contraction of the currency can take place in England, that will not be felt here;  in the one case, inviting our banks to extend their discounts, and thereby excite overtrading and speculation, and in the other case, compelling them to contract their loans, and thereby produce a general commercial embarrassment.

The plan you have suggested, and to which I have above referred, appears to me to be eminently adapted to accomplish the end proposed;  and if the paper currency of this country were under the control of a single legislative body, as it is in England, instead of thirty bodies, as it is, I would recommend it as the best plan I have yet met with, for enabling the public to enjoy all the benefits of a paper circulation, without any of its evils.  According to that plan, as I understand it, the mint is to issue certificates for sums of one pound, five pounds, and any greater denomination, upon a deposite of gold of equal amount;  and such fixed proportion of the gold so deposited, as may be ascertained, from experience, to be the amount that may, with the most perfect safety, be withdrawn by exportation from the metallic portion of the currency, is to be immediately invested in the public funds, by commissioners appointed for the purpose.  By this process, the following results will be effected:

First.  The mixed currency, after the exportation of the gold above referred to, will be precisely equal to the quantity of coin that would have existed in the country, had there been no mint certificates.

Secondly.  The country would derive the profits resulting from the employment of a certain amount of capital in commercial pursuits, which would otherwise have been unprofitably employed as currency.

Thirdly.  The public, and not private corporations, or individuals, would enjoy a profit resulting from the circulation of the paper money, precisely equal to the accruing interest on the public debt held by the commissioners;  and,

Fourthly.  The country would be entirely exempted from any fluctuation in the currency, other than that to which a metallic currency is liable;  it being necessarily incident to the plan, that whenever mint certificates should be returned for payment in gold, the commissioners should obtain in the market, by a sale of public securities, an amount of coin precisely equal to that which was invested, on the issue of the notes so returned.

Against the soundness of this plan, I am not able to see any objections.  How far a general panic, arising from war, or domestic disturbance, might render it difficult to sell public securities in a time of emergency, you are better able to judge than I am.  Certain is it, however, that no depression of the stock market could result from a reaction of an expanded state of the currency, the most frequent cause of depressions at the present day, for, as there would be no expansion, there could be no reaction.

Before parting, I cannot omit the occasion to say to you, that, although the political horizon is, at this moment, somewhat overcast, I cannot persuade myself that two countries like Great Britain and the United States, so peculiarly adapted to supply each other's wants, and whose mutual interest it so manifestly is to maintain an eternal friendship, can, at this enlightened day, be guilty of the folly of going to war.  And now, wishing you a safe and expeditious voyage,

I subscribe myself, very truly and respectfully,
Your Friend and Servant,
Condy Raguet.

Clement Biddle, esq. as a mark of respect, due to an enlightened political economist, and as a testimonial of a friendship, commenced in childhood, continued without interruption for more than forty years, and strengthened by a harmony of opinion on most of the political subjects that have of late divided the people of the United States, and especially on those of currency and banking, this work is, with sentiments of the most affectionate regard, dedicated by the author.

THE suspension of specie payments by all the banks in the United States, south of New England, in the year 1814, and of all, with a very few trifling exceptions, in the year 1837, has strongly impressed the public mind with the belief that there is something defective in the present banking system of this country;  and it is not, perhaps, venturing too much to assert, that there are now elements at work, which will ultimately overthrow the whole fabric, unless those who have the power to remedy the evil, shall introduce the reforms which can alone render a repetition of such a calamity impossible.

It must be evident to every observant mind, that a dislike to hear the truth, when opposed to one's interests or prejudices, is the principal cause of a large portion of the mischievous errors which so generally prevail.  Men of education and capacity, who are best qualified to investigate and understand the important principles which belong to the science of public economy, are too apt to view them as of no account, or to despise them when they come in conflict with their purses, or with their political promotion;  and hence that knowledge, which is the most entitled to regard, because most intimately connected with the prosperity of a country, is of all others the most neglected.  I assert it, and, in so doing, I think I do not overestimate its value, that political economy is the most important of sciences;  and if its practical branches were introduced as a study into all our colleges and principal schools, it would do more towards exempting the country from erroneous and destructive legislation, than any other study to which the attention of our youth could be directed.

Of these practical branches, the science of banking is one, but it is one, to the attainment of a knowledge of which there is no "royal road," any more than there is to any other species of learning.  He who wishes to understand it, must study and reflect, and this not with the feelings of a partisan, but in the true spirit of philosophy, unbiased by self-interest, or by any other consideration than a pure love of the truth.  The rapid strides which the banking system has been making of late in France and other countries of Europe, accompanied, as it has been, by indications of unsoundness, in Belgium and elsewhere, gives just ground for apprehension, that the same spirit which has characterised the management of most of our institutions, as well as those of Great Britain, producing alternate expansions and contractions of the currency, to the great injury of the public, will also there extensively prevail.  In such event, the check to over-issues in this country and England, which now exists from the reaction of the metallic currencies of continental Europe, would be greatly diminished, and in consequence of it, inflations and convulsions hitherto unknown in the commercial world, because extended over a wider field, would most certainly overtake us all.  That the interests of a country are best to be promoted by a stable currency, precisely as they are by a fixed standard of weights and measures, will hardly be disputed;  and if it can be shown, that a defective, or mismanaged banking system, produces exactly the same results upon the pursuits of industry, and the property of individuals, as would the decrees of a despot, who should alter, at his pleasure, without any previous notice, as often as he thought it expedient, the weight of the pound, or the length of the yardstick, it is to be hoped that there is not a patriot in the land, who would hesitate to assist in the entire eradication of such a monstrous evil.  That such is the effect of our present system, as it has been of late conducted, must be obvious to all who have closely examined its operations, and hence the necessity, before it is too late, of an application of the appropriate remedy.

The author of this treatise in offering it to the public, has no private ends to promote.  He has been for twenty years a student of the science which he proposes to discuss, and has during that time in some reports to the senate of Pennsylvania, and in many detached publications, presented his views in relation to currency and banking;  and if in the present volume there should appear here and there an expression familiar to the reader from former acquaintance, he may be assured that not a phrase has been employed as original, which is not his own property.  He knows that in his opinions respecting the influence and operation of banks of circulation, upon the public prosperity, he differs from some of his personal friends, and from many others engaged in the management of such institutions, for whose intelligence and purity of character he entertains the highest respect.  But the truths of science cannot be forced to accommodate themselves to man's imperfection or interests.  If what he advances be not such truths, they can be easily refuted, and he invites the severest criticism to be applied to his doctrines, in order that their solidity may be tested, and if found to be false or unstable, that their true character may be exposed.  If, on the other hand, the principles which he asserts, be in reality, as he honestly believes them to be, incontrovertible truths, he will not do any of his readers the injustice of supposing, that they would reject them, because they are not profitable.

With these preliminary remarks, the author will briefly state, that the plan he has adopted, is one which he thinks the best calculated to simplify the subject to those who have not heretofore made it a study.  He has divided the volume into four books.  The first treats of the laws which regulate a currency composed entirely of the precious metals; the second, of those which regulate a currency composed of coin and convertible paper united; the third, of those which regulate an inconvertible paper currency; whilst the fourth treats of some miscellaneous matters, which could not have been well comprised under either of the former heads.

In the language and style of the work, the author has sought rather to render his positions intelligible to practical men, than to appear to be scientific, and hence the reader will find some familiar expressions, which have been purposely adopted, because every body could understand them.

April 15, 1839.

The stoppage of specie payments referred to above, in 1814, commenced in Baltimore about the 27th of August, soon after the battle of Bladensburgh and the capture of Washington, which events took place on the 24th of that month, and was followed by Philadelphia on the 30th, and by New York on the 1st of September.  A general resumption took place on the 20th of February, 1817.  The second stoppage commenced at New York on the 10th of May, 1837, and was followed at Philadelphia on the 11th, at Boston and Baltimore on the 12th, and in all other places in quick succession.  Resumption took place at New York on the 9th of May.  In Boston, Philadelphia, and places further south it was delayed until the 13th of August.  Since the publication of the first edition of this book, all the banks in the United States, south of New York, which pretended to pay in specie, suspended payment again.  This event took place first in Philadelphia, on the 9th of October, 1839, and was followed by the rest in rapid succession, leaving only New York and New England in the enjoyment of a convertible currency.  This suspension has continued to this time, and is expected to continue until 1841.

June 1, 1840.

BOOK FIRST.

Adam Smith, and other elementary writers on the science of Political Economy, have shown the principles upon which commodities must have been exchanged in that rude condition of society which preceded the use of metallic money, and it is not my intention to travel over the same ground, and occupy the attention of the reader in recapitulating details with which he is probably already familiar.  Nor is it my intention to give a history of the various inventions to facilitate barter, which have been adopted at various periods in different countries, such as the use of cattle, cowry shells, tobacco, iron, and some other objects, each of which has been at some period employed to perform the function of what has been appropriately denominated "a medial commodity," by which the relative value of other things could be determined.  I propose at once to enter upon the subject of currency as we find it at the present day in commercial nations, and shall first point out the laws by which commerce is carried on in a country where there are no bank notes or paper money of any kind, and where gold and silver alone constitute the currency;  and, as it would be carried on in every country, if there did not exist paper money.

chapter i.

Gold and silver, it is well known, are produced in various parts of the globe, at the cost of labor and capital, precisely in the same manner that iron, lead, and other metals are produced;  and with regard to all the mining countries, they constitute, if not the only, at least the most inviting product of industry to which a portion of the land, labor, and capital, of their inhabitants can be applied.  As products, therefore, of industry, they possess an intrinsic value, like all other commodities, dependent upon the cost of producing them;  that is, upon the amount of the rent paid to the owner of the land for the privilege of mining them, the amount paid for the wages of the laborers employed in digging and smelting the ore and in refining the metal, and the amount of the ordinary profits on capital invested in the enterprise.  Were this not the case, it is evident that mines would not be worked, for no proprietor of land or capitalist would embark in an undertaking that would lead to certain loss, the object of mining not being to produce gold and silver, but to produce gold and silver of a value greater than that of the capital expended in its production.  This much is premised, in order that the reader may have at the outset a clear view of this fundamental truth in political economy, that gold and silver being products of industry, possess a value af real and substantial as that which belongs to any other commodities;  not indeed founded upon the basis of convention, as some people imagine, but upon their well known applicability to various purposes of utility and ornament for which no other materials possess equal qualities, and which renders them on that account universally sought for.

They are therefore not mere representatives of wealth as many persons fancy, but real wealth itself to the full extent of their value.  What proportion of the actual value of gold and silver, as exchangeable for other commodities, is due to their applicability to objects of utility and ornament, and what proportion to their fitness for the purposes of a circulating medium, now that they are applied to that purpose, it would not be easy to determine;  nor is it at all necessary to this investigation that it should be determined.  It is sufficient for us to know, that almost every individual who can afford a silver spoon, or a gold watch, or a plated or gilt ornament, will have one;  and that if gold and silver were to be wholly disused as money, they would retain a large share of their present value for the purpose of being converted into plate and other objects of manufacture, and in process of time, would again rise to the cost of their production, which would be an indispensable requisite to ensure a future fresh supply.

It will, perhaps, remain for a future day to develope all the reasons why gold and silver have become so universally adopted by all civilised people as the medial commodity, that is, the commodity in exchange for which any other commodity can almost always be readily had.  Those with which we are already acquainted, are the following:---

1.  Their uniformity of value, varying from one year to another, and from one period of years to another, less than any other known commodities, and therefore well adapted to be the commodities of contracts and obligations payable at a future day.

2.  The universality of this uniformity of value, by which they serve not only as standards for comparing prices at different periods of time, but prices in different countries at the same time.

3.  Their convenient portability, possessing a great value in a small bulk, and yet a bulk not too small for all practical purposes.

4.  Their divisibility into pieces of any weight, and of the most exact quantities, and their convertibility by fusion back again into larger masses without loss.

5.  Their malleability and toughness, which render them not liable to break.

6.  Their susceptibility of receiving impressions as coins.

7.  Their uniformity of physical quality, pure gold or silver being the same at all times and at all places, and thus unlike most other metals and commodities which have different degrees of excellence.

8.  Their capacity of admixture with alloy which renders them as coins less destructible by wear and tear, and of their being again separated from it with very little loss.

9.  Their durability, not being easily destroyed by fire, and not at all by rust.

10.  Their clear sound when dropped upon a hard substance, by which they can be known from base metals, and be thus distinguished from counterfeits.

11.  Their specific gravity, which differs from that of other metals of the same bulk, and thus renders the detection of counterfeits easy by a practised hand.  The beauty of the metals adds to their value for purposes of utility and ornament, but perhaps not to their value as money;  and hence I have not embraced that quality in the foregoing enumeration.

chapter ii.

All the gold and silver annually produced in the four quarters of the globe, and not required for consumption in manufactures or for currency in the countries where produced, are in the constant course of distribution throughout the commercial world in exchange for commodities which are more desirable to the producers than the metals themselves;  and when thus distributed, they are liable in common with that portion of the pre-existing mass which retains the form of coin and bullion, to such further changes of place as the wants and circumstances of each particular country may require.  In these distributions, each country does not equally participate, but each draws to itself that proportion of the whole quantity which is called for by the extent of its wealth, its population, its commerce, and the state of confidence or credit existing amongst its inhabitants.

A rich nation, cœteris paribus, will require more gold and silver than a poor one ---a large population more than a small one ---a nation carrying on much trade more than one which carries on little ---and a nation where confidence and credit are circumscribed, more than one in which they are expanded.  The first three of these propositions are self-evident.  The fourth needs perhaps some illustration, and as I wish to leave nothing in dispute as I go along, I will state more plainly what is meant by it, which is, that in a country where no credits or comparatively few are given on the sale of property or merchandise, and where consequently payments are made entirely or chiefly in coin on the delivery of the articles sold, a larger amount of gold and silver is required, than in another country of equal wealth, population and trade, in which sales are usually or frequently made on credit.

What proportion the supply of the precious metals which each country secures to itself as a circulating medium bears to its wealth, its population, its trade, or, to the existing state of confidence or credit, it would not be easy to ascertain:  nor is it indeed necessary that it should be ascertained, as far as any practical good can result from the knowledge.  Those who carry on the operations of trade will take care that a country has neither too much nor too little of them, and it may be assumed as a safe position, that when the precious metals neither flow out from a country in which there are no gold or silver mines, nor flow into it faster than is incident to her additional share of the new annual production of the mines, she has her exact proportion.  These proportions, when once attained as nearly as the nature of circumstances will permit, establish what may be called the general level of currencies, and it is to this level, as to a species of standard, that reference is made, when we say that money like water will find its level.

It is true, that owing to the constant production of the mines, which may at times occasion unequal distributions, or, distributions other than through the accustomed channels, as was the case after the revolutions in Spanish America took place, which caused to be sent first to the United States or England, the metals which formerly all went to Spain, as well as to a great variety of other circumstances which disturb the currency of particular countries, this level may never be a perfect one.  It is sufficiently so, however, for all purposes of reasoning upon it, and perhaps as much so as fully warrants the figure by which a fluid-like property is ascribed to the precious metals.  The surface of the ocean is never free from undulation, and the daily operation of the tides is constantly interfering with its level, as well as with that of rivers.  Moral causes, operating like the physical causes which influence the movement of the waters, operate upon gold and silver, in driving them from one place to another, but it is easily to be seen, that were the extent of wealth, population, commercial transactions, and confidence, in all countries to remain the same for a long period together, and were the new productions of the mines to be distributed in due proportions, and the old stock in each country to be diminished by consumption in an equal ratio, gold and silver would assume such a uniformity of exchangeable value, as to arrive at a perfect state of quiescence.

Indeed, as it is, gold and silver are of all commodities the least likely to be exported from any country, except from those in which they are produced, and where of consequence they form a portion of the produce of the land and labor of the people, as iron and lead do in some other countries;  or, from those which, in addition to their supply for the purpose of currency, have possessed themselves of an amount specifically intended for exportation to countries having products not procurable by any other means than by purchase with gold and silver.*  We may therefore conclude, that a level does exist, created, as will be seen hereafter, by the imports and exports of commodities other than the precious metals themselves, towards which the currencies of all countries have a perpetual tendency, and from which, if they do not precisely conform to it, they do not greatly depart.

* From the period of the Independence of the United States up to about the year 1823, nearly all their imports from China and India were paid for by an exportation of silver dollars, brought into the country in addition to the supply required for the currency.  Since the year mentioned, the chief part of the China and India cargoes, are paid for by credits or bills on London, exports of manufactures, and by coin procured in Europe.

chapter iii.

Gold and silver, like all other commodities, have each their own peculiar value founded upon the immutable law of supply and demand, by which all values are determined.  The scarcity of the one compared with that of the other, in connection with the difference in their respective costs of production, that is, of the expenses of mining and smelting the ore, and of refining the metal, establish between them a very wide difference as regards their relative value.  An ounce of pure gold has always been, and probably always will be, worth more than an ounce of pure silver.  But the ratio of this difference, it must be manifest, is not fixed by any law of nature, any more than the ratio between any two other commodities.  Nature does not say, that an ounce of gold shall always be worth so many ounces of silver, any more than she says that a pound of copper shall always be worth so many pounds of iron, or a pound of cotton so many pounds of flour, and hence it is clear, that there is no law of nature applicable to gold and silver, which is not equally applicable to all other commodities.  What nature, however, has left undone, man in his limited wisdom has attempted to accomplish, by the enactment of laws fixing the ratio at which gold and silver shall be exchangeable for each other.  These laws, when first enacted,were no doubt founded upon the observation of the fact, that in the general market of the commercial world, these two metals had, for long periods together, preserved something like a fixed proportion, and it was no doubt conceived, that chaining them together by statute, would prevent them from ever separating.

We learn from Adam Smith, that prior to the discovery of the American mines, which first began to show its effects somewhere about the year 1570, in the diminished value of both the precious metals by the new and annually augmenting supplies which were derived fron that fruitful source, the value of pure gold to pure silver was established in the different mints of Europe, at proportions varying from one to ten, to one to twelve;  that is, one ounce of pure gold, was declared to be the equivalent of ten to twelve ounces of pure silver;  and in their respective coinages these proportions were consequently observed.  At about the middle of the 17th century, that is, about the year 1650, the ratio between gold and silver came to be regulated in the proportion of one to fourteen, and one to fifteen ounces of silver, no doubt occasioned by the fact, that although both metals had become more abundant in proportion to the demand, and had both been depreciated below their former value, yet silver had depreciated more than gold, to an extent that had created new proportions in the general market, which it was the design of the new laws to follow up.

From the period last mentioned, there does not appear to have been any material change in the relative value of gold and silver in the general market of the trading world prior to the beginning of the present century, when a further depreciation of silver in reference to gold began to show itself, so that by the year 1820, an ounce of gold came to be worth near sixteen ounces of silver, of which the consequence was, that all the gold coins of the United States, where the mint proportion had been fixed at one to fifteen, were exported from the country, to be exchanged for their proper equivalent.*

* In corroboration of this fact, the following statement of the coinage of gold by the mint of the United States at, and about the period referred to, is adduced.
1818, .. $242,940,
1819, .. 258,615,
1820, 1,319,030,
1821, .. 189,325,
1822, ... 88,980,
1823, ... 72,425,
1824, ... 93,200.
This diminution in the coinage of gold after 1820 arose from the circumstance that nobody wished to import gold into the country to have it coined into eagles at ten dollars each, when the gold contained in an eagle was worth more than ten dollars.

The author believes that he was one of the first, if not the first, writer in this country who called the attention of the public to this new change, and apprehensive at the time, that the legislative folly of attempting to establish by law what nature herself could not establish, would be repeated by a new enactment, he urged in December, 1821, upon the late Mr. Lowndes, a representative in congress from South Carolina, and chairman of the committee of finance, the expediency of abolishing the coinage of eagles and their fractional parts, and of substituting in their place new pieces, to weigh respectively an ounce, a half ounce, and a quarter of an ounce of standard gold, under the full conviction that they would soon be introduced into circulation at their proper equivalent, without involving us in the absurdity of having two legal tenders.*  The arguments presented to Mr. Lowndes in conversation were at his particular request reduced to writing, together with answers to two points raised by him, and were published in the National Gazette of 26th January, 1822.

* The ducat of Holland is current all over the continent of Europe at its fair equivalent.  Gold in France circulates at the market rate of premium, silver being the ordinary currency.

The death, in the course of the last mentioned year, of Mr. Lowndes, who was one of the few individuals in congress who had studied the subject of the coinage, appeared to suspend the action of that body in regard to the alteration of the mint regulations, and although several propositions were at different periods subsequently submitted, yet nothing was done until the 28th of June, 1834, when the law usually known as the gold bill was passed.

In connection with this subject, it may not be amiss to remark, that the proportion of one to fifteen or sixteen in the relative value of gold to silver, does not by any means warrant the inference that there is just fifteen or sixteen times as much silver as gold in existence.  Adam Smith advances conclusive arguments to show that the quantity of silver at the time he wrote was far greater than the proportion which it bore to gold called for, and indeed any one may be convinced of this fact if he will reflect upon the very small value of gold compared with silver, that is consumed in plate and ornaments.  The relative value of no two commodities determines their relative quantities, and it is easy to be perceived, that if a barrel of flour were worth ten dollars, and a box of Spanish segars twenty dollars, it would not necessarily follow that there were in existence only twice as many barrels of flour as there were boxes of segars.

Appendix A.
on the relative value of gold and silver,
from the National Gazette, of January 26th, 1822.

Messrs. Editors:---
In the autumn of the year 1820, an article written by me was published in your Gazette, explaining the cause of the disappearance of gold from the United States.  It was there shown that, in spite of all the attempts made by the laws of various nations, to establish fixed proportions between gold and silver, those two metals had confirmed their right to be governed by the same laws of supply and demand, which regulate the relative value of all other commodities, and had actually in the market of the trading world assumed proportions different from those which had for many previous years been maintained.  It was also shown, that one ounce of gold was at that time worth in Europe near sixteen ounces of silver, and that so long as the laws of the United States decreed that the proportions should be as one to fifteen, gold would not circulate, but would be exported from the country, in payment of debts, or in exchange for silver.  The truth of that assertion has been verified; for although during the year 1820, gold was coined at our mint to the value of $1,319,030, and during the year 1821, to the amount of $185,325, yet not a gold coin is any where to be seen in circulation.

During the last session of congress, this subject of the disappearance of gold was considered by a committee, who made a report, recommending an alteration of the legal proportions, so as to make them correspond with the proportions which were at that lime supposed to exist in Europe.  At the present session, the same matter will probably come before the committee, to whom the subject of the coinage has been referred;  and as it is an important one, a few observations in relation to it may not at this time be inappropriate.

Any attempt to fix by law, what cannot be fixed by nature, carries on its face an air of absurdity.  Without animadverting upon the policy which led our predecessors to follow the footsteps of many of the European nations, and which may perhaps be justified by the then existing state of the country, it is certainly not the part of wisdom to pursue a course, which the lights of science and experience so clearly prove to be unsound.  The very fact that gold and silver have departed from the proportions established by our laws, is ample proof that no such laws should ever have been enacted;  and the certainty of a future change is equally conclusive against any further legislation on the subject.  Even since the date of the report of the committee above referred to, a more wide separation between the two metals has taken place;  and had a law been enacted a year ago, agreeably to their suggestion, it might possibly have required an additional one in the present year to give it effect.  The truth is, that until the physical and moral causes, which operate upon a currency, shall combine to establish an immutable relation between gold and silver, laws to determine their relative value can be nothing more than temporary expedients, at war with the true interests of the country, and the genuine principles of political economy.  No nation ought to attempt to create two legal tenders;  and as we have virtually, at least for a time, got rid of one of them, we ought not to be hasty in restoring it.

In a discussion upon this subject, it is not essential to consider the question, whether a gold or silver coinage is to be preferred.  Many weighty arguments might be advanced in favor of each, but as the American people are best acquainted with silver, and as most ancient contracts stipulate for the payment of silver coins, there would seem to be a propriety in adhering to that metal;  especially, too, as the universal establishment of banks of deposite, obviate almost entirely the expense and inconvenience of transporting and counting large sums.  I take it for granted, that if one metal was alone declared to be a legal tender, that metal would be silver;  and under that impression, I submit my remarks.

The first objection against an alteration of the relative legal value of gold and silver, is that there would be no certainty of the new proportions being maintained for any length of time in the general market.  ---Gold might rise still higher, and in that event the law would be of no avail.  Or, gold might fall, and in that case, the silver would all be exported from the country, upon the principle that gold now is, as being the dearest of two commodities, which are declared by law to be equally legal tenders in discharge of the same debt.  In case of such an event as the exportation of all our silver, it is easy to foresee what evil consequences would result.  Gold would become the only circulating medium, and as it is impossible that the ordinary transactions of life could be carried on with such small pieces of gold as would correspond with our small silver coins, congress would be compelled to pass another law to bring silver back, and there would be no end to our legislation on the subject.  If silver should be legislated out of the country, and afterwards be legislated back again, the nation would lose the whole value of the expense and risk of a double transportation, without an equivalent in return.

The second objection against this measure is, that it would be an improper interference with the rights of all creditors, public as well as private, in relation to contracts, existing at the time of the change.  By the present laws, an individual or the nation has its option, in discharge of a debt, to pay one ounce of gold or fifteen ounces of silver; but if the proportions were altered as proposed, creditors could be compelled to receive in satisfaction of their claims, a less quantity of gold than they stipulated for.  It is true, that no absolute injury would be sustained by creditors, so long as the new proportions should be maintained in the market, because with the new quantity of gold they could purchase as much silver, as the debtor had contracted at his option to pay.  But the case would be widely different in the event of a falling back in the market to the present proportions.  All debts would then be paid in gold, and creditors would be compelled to take in discharge of their contracts, a less quantity of gold* than they had bargained for.  Whether or not congress possesses the power of enacting laws which shall thus impair the obligation of contracts, it is not necessary here to inquire.  Be that as it may; it is a matter of deep concern, to the people of this republic, that their representatives should cautiously shun every measure, which hus a tendency to countenance those frauds upon creditors which some European nations have practised, by debasing their coins, or by diminishing their weight without altering the denomination.  The pound sterling was originally a pound of standard silver, which was coined into twenty equal pieces called shillings.  The same quantity of silver is now coined into sixty-six shillings, twenty of which are a pound sterling.  The livre of France, now worth less than nineteen cents, originally was a pound of silver of the French standard, which is nine-tenths pure metal and one-tenth alloy.

Let it never be said, that the American eagle contained at one period of time two hundred and seventy grains of gold, eleven parts fine, and one of alloy, and at another, a different weight or a different degree of purity.  Although an alteration of our mint proportions, may not be as flagrant a violation of the public faith, as those above referred to, yet we have seen that creditors, by its operation, may be deprived of their just rights, in case of a restoration of the present legal proportions, of one to fifteen, when perhaps, as a remedy for that evil, the next step might be to reduce the quantity or to alter the purity of the silver contained in the dollar, and thereby authorise a second fraud more odious than the first.  Tampering with the metallic currency of the nation is a dangerous employment, and if it be commenced, there is no foreseeing where it may stop.

But it may be asked, is it not necessary that something should be done in relation to our coinage ?  In answer to this question I would reply, that if it is at all desirable that gold coins should be struck at our mint, it should be upon a different principle from that which prevails.  The whole present expense of our gold coinage, is an absolute loss to the nation.  Nearly all the pieces which are coined are exported to Europe, where they are exchanged for their proper equivalents, and melted, and thus our mint is occupied at no trifling cost, in assaying and stamping, free of charge to the owners, the bullion which our merchants are daily shipping abroad.  I would suggest that the further coinage of eagles and their fractional parts be abolished, and that authority be given for the coinage of new pieces to be called by new names, to contain respectively an ounce, a half an ounce, and a quarter of an ounce of standard gold.

Between these pieces and silver no proportionate value should be attempted to be established, but they should be left to find their value in market like all other commodities.  The advantage of such coins over the eagles would be, that as every body would soon become acquainted with their weight, without being obliged to resort to books in order to ascertain the precise number of pennyweights and grains contained in them, the mode of estimating their value in silver would soon become familiar, and those who possessed them would have less difficulty in exchanging them for their proper equivalents, than they would have with any coin, of which the weight could not be universally and readily recollected.  The circumstance of the British and American standards being the same, would render this course the more advisable.  The quotations of the price of gold and silver, which are brought by every ship, would keep us as regularly advised of the value of an ounce of gold, as of a barrel of flour;  and there is every reason to believe, that as the fluctuations in the relative value of the two metals are not diurnal or monthly, nor even always annual, the proposed coins would find their way very readily into circulation.

It is a fact, familiar to all who are acquainted with the affairs of the western country, that depreciated bank notes pass amongst the merchants there, with perfect facility for what they are worth;  and to such a system has this practice been reduced, that the newspapers regularly publish the prices current of bank notes at the principal money markets to be referred to as the scale of value.  So would it be with gold coins of a well known weight and standard, which might even maintain for a long period together something like a settled proportion to silver.  An additional reason why eagles cannot readily pass by weight, is that the idea of their being by law the equivalent of ten silver dollars, is so deeply rooted in the minds of the community, that it would be next to impossible to eradicate it.  Those only who understand the subject, or whose trade renders them conversant with it, are acquainted with the true value of an eagle, and they are thereby enabled to take advantage of those who are less enlightened than themselves.  But, let a new coin make its appearance of a familiar and well known weight, untrammeled by legal proportions, new views would present themselves to the public, and even common minds would be able to comprehend, what now appears to them to be enveloped in mystery.  Suppose further, that this new coin, instead of containing an ounce, should contain the precise quantity of gold contained in the sovereign, or true pound sterling, lately emitted from the British mint, what incalculable benefits would not result ?

The important question of our exchange with England would be exhibited in its true light, and the whole clamor about the balance of trade, an excess of imports over exports, and the necessity of laws to restrict the former, would cease, and leave our law makers at liberty to study the true interests of the country.  It would then be seen, that the high nominal exchange on England is not the result of a balance of trade against us, but chiefly the effect of a change in the relative value of gold and silver, and that the gold pound sterling is the equivalent of 484 cents, and not 444 cents in silver.

It has been inquired by some, in case such a coin as the one first suggested were authorised, whether it would not be advisable, in order to give it, a currency by tale, to declare by law that it should be receivable in all dues to the government, as the equivalent of a fixed quantity of silver ?  I reply, that such a course would be liable in a great degree to the objections urged against the principle of establishing legal proportions;  and I do not conceive that it would be attended with any advantage sufficient to counterbalance the risk of being obliged to take the gold, if at any time it should so fall in relation to silver, as to make it the interest of the public debtor to discharge his obligations in the former rather than in the latter metal, in which case the government would be a loser of part of its revenue, and, in addition to that, be obliged to become bullion dealers for the purpose of selling the coin paid into the public treasury.  It would also be giving a forced currency to a coin, which, if it cannot find its way into circulation by the operation of natural means, had better not circulate at all, and would be laying the foundation for a course of legislation, which might ultimately be productive of mischief.  If no such law should be enacted, the price of an ounce of gold would regularly conform to the variations of the market, which, being in their nature slight and gradual, could produce a serious loss to nobody.  Whereas a law to establish a fixed value in payments to the government might be repealed at a moment unexpected by those who had received the coins at such valuation, by which a considerable loss might fall upon many, who were not conversant with the principles which determined the proportions.

It has also been asked, upon the supposition of the establishment of new mint proportions conforming to the actual relative value in the markets in Europe of gold and silver, what would be the effect of a seignorage on coins, that is, a charge for coinage at the mint, in restraining their exportation ?  To this question I would reply.

1.  That if the seignorage were of an equal per centage upon both metals, it would leave the matter where it stood, inasmuch as their relative value would remain the same, as if no seignorage was exacted;  and that as regards the question of exportation, the seignorage would be a nullity.  The causes which operate upon the precious metals, in driving them from one country to another, have reference only to the intrinsic worth of coins, and not to their denominations.  The quantity of silver contained in a Spanish dollar, would be just as much subject to the laws of exportation, as it would be, if it was denominated a French crown, and declared by our laws to be the equivalent of 110 cents;  and so would an eagle be just as liable to exportation, if it was called by any other name, and declared by law to be the equivalent of eleven dollars.

2.  That if the seignorage was charged upon one of them only, it would be difficult to foresee upon which of them it ought to be charged;  for in the course of the ensuing five years, it is quite as possible that silver will rise in relation to gold, as that gold will rise in relation to silver.

3.  That if it be placed upon gold only, under the impression that gold might rise still further, it ought to be ascertained, in order to render it effective, how far gold will rise, which is impossible;  for unless the seignorage be equal to the extent of the departure of gold from the proportions existing at the time of fixing the seignorage, it would be of no avail.  A seignorage of six per cent. on the present eagles, had it been originally imposed, would not have prevented their exportation;  for at $10 60-100 a-piece, they would constitute a more profitable remittance to Great Britain, than bills purchased at the present rate of exchange.

A very small seignorage on gold, therefore, might answer no purpose, as a measure restrictive of exportation;  for if it were limited to one or two per cent. a change in the relative value of gold and silver abroad to that extent, would neutralise it, if gold should become more valuable, whilst a high seignorage would unquestionably be productive of injurious consequences.  This will be shown from the following illustrations, founded upon the assumption of one to sixteen as the new mint proportions, deducting five per cent for the seignorage, the market proportions being also one to sixteen.

First.  So long as the market and mint proportions of the two metals remain exactly the same, gold may be coined as fast as it is brought into the country;  for if the holder of one hundred ounces can get it promptly coined at the mint into ninety-five ounces of pieces, which are declared by law to be a legal tender of the equivalent of sixteen hundred ounces of silver, it will be the same thing to him, whether he does so, or sells it in the market for sixteen hundred ounces of silver.

Secondly.  In case gold and silver should vary in the market, and assume a greater difference than the new mint proportions of one to sixteen, the event attempted to be guarded against, then no more gold would be sent to the mint;  for the possessor of one hundred ounces of that metal, who could exchange it in the market for even a small fraction more than sixteen hundred ounces of silver, would not be willing to have it coined into ninety-five ounces, which he could by law only pass for 1600 ounces of silver.

As regards the coins which had been previously emitted, they would continue to circulate, until ninety-five ounces of them would sell as bullion for more than 1600 ounces of silver, and they would then be exported, because the possessor of them would in that case be able to sell them in the market for more than their legal value.  This event, if the coins were new, would happen when the new market proportions should be about one to seventeen;  but if they were old, clipped, or worn, it would not happen until afterwards.

Thirdly.  A high seignorage on gold would operate as a bounty on counterfeiting, and might even be sufficient to induce ingenious rogues to manufacture gold coins of full weight and of the true standard.  This might be done to advantage in those countries from which we should derive our gold when restored to circulation, and we might perhaps import eagles of foreign manufacture of lawful weight and purity, at a cheaper rate than that at which they could be procured at our mint, in the same manner as, it is supposed, many a cask of copper cents has been imported.

Fourthly.  If, however, on the other hand, gold, instead of rising, as is supposed under the second head, should fall in the market in relation to silver, and bear the proportion of one to fifteen, in that case, great quantities of gold would be sent to the mint to be coined, for the simple reason, that the possessor of one hundred ounces could, by that means, procure ninety-five ounces of coin, equivalent in the payment of debts to sixteen hundred ounces of silver, whereas, by selling his hundred ounces of gold in the market, he could procure but 1500 ounces of silver.  In such an event, the silver would leave the country to be exchanged for gold in order to be coined, and in a few months silver coins would be as scarce as gold ones are now, excepting indeed the small ones, which are so diminished in weight by friction, as already to have lost a considerable part of their intrinsic worth.

In addition to the above observations, it must be kept in mind, that all the objections urged against a variation of the mint proportions, as regards the obligation of contracts, apply with equal force against the adoption of a seignorage, inasmuch as creditors would be compelled, in discharge of debts, to accept a less quantity of gold, than they originally stipulated for.

It may perhaps be useful to some readers to know what are the existing proportions in the relative value of gold and silver in the European market.  Of this matter we know nothing more at this moment, than what is furnished by the London quotations, which owing to the facility of intercourse, and the cheapness of transportation of the precious metals between that city and the principal continental cities, may be considered as furnishing materials for an estimate, not far from the truth.  By dates of November 2, we learn that dollars were 4s. 4½d. per ounce.  The mint price of gold, which is also the present market price, is 3l 17s 10½d. per ounce.  These two prices stand in the proportions of 1 to 16¼ and a small fraction, but as the purity of each metal is not precisely the same, a nice calculation would vary a trifle from these proportions.

chapter iv.

In a preceding chapter, it was stated that the precious metals are distributed by the operations of commerce throughout the trading world, in such a way as to establish what is called a general level of currencies.  I shall now proceed to show the mode by which this distribution is accomplished, which is according to the laws of what is termed the balance of trade.

It must be manifest to every observant mind, that even under the most perfect level which the currencies of all commercial nations can attain, that is, under such a state of things as may be imagined where no motive of profit could lead to the importation or exportation of the precious metals, except as relates to the annual production of the mines, the prices of other commodities will not be in all countries the same.  Were this the case there could be no commerce, for the only object of commerce is to transport commodities from countries where they can be purchased for a comparatively small quantity of gold and silver;  that is, at a comparatively low price;  to other countries where they can be sold for a greater quantity of gold and silver;  that is, at a higher price.*

* The reader will be pleased to keep in mind, that price in political economy is the value of a thing expressed in money only, and therefore differs from the term value, which expresses the worth of things as compared with other things than gold and silver.  Thus we would say that five dollars is the price of a hat, where money is to be paid for it, but we would say that five pairs of shoes are the value of a hat, if the hat is to be paid for in that many shoes.

Any one can perceive that iron would not be imported into the United States from England unless it could be sold here at a higher price than it cost at the place of production, and that cotton would not be exported from the United States to Europe unless it could be sold there at a higher price than it could be purchased for here.  The prices of different articles, it is self-evident, in every country, are regulated by causes peculiar to themselves, such as the soil, climate, wages of labor, degree of skill required, extent of population, capital, and taxation;  and this it is which sets in motion the whole machinery of commerce.

Even in the case of barter with savage nations, although gold and silver be absent, yet the trader has reference in his calculations to the metallic standard, in order to enable him to determine how much he can afford to give of what he has to dispose of, in exchange for the commodities which he is to receive in payment.

The foreign commerce of a nation is usually of two kinds.  The first is that wherein the export and import trade are carried on by the same individual, in the same vessel, and in the prosecution of the same voyage.  Such is the trade of the United States with most parts of the West Indies, South America, Africa, some parts of India, and some other countries.  The imports from those regions consist of the articles purchased with the proceeds of the outward cargoes, and this trade is strictly an exchange of equal values, and although it may exhibit what is called a balance of trade on one side or the other, yet it calls for no payment.  The same is true of the whale and other fisheries, wherein although the amount imported may far exceed in value the amount exported, yet no balance of trade is left to be paid, the difference being made up by the value of the labor expended by the crew, of the freight earned by the ship, and by the profits of the enterprise.

The second trade is that wherein the exports and imports are made by different classes of merchants, without any previous consultation or agreement with one another.  Such is our trade with Great Britain and most of the other maritime nations of Europe.  The exporters of cotton, rice, tobacco, flour, and the other commodities which form the bulk of our exports to Europe, are very rarely the same individuals who import the dry goods, hardware, and the infinite variety of other manufactures and productions which constitute the bulk of our imports from Europe.  The former ship their cargoes to foreign countries, without any knowledge of the quantity or value of the commodities which the importing merchants intend to order from abroad, and the latter send their orders abroad for goods without any knowledge of the amount for which the exported cargoes will be sold.  The former class, that is, the exporters, get paid for their cargoes by drawing bills of exchange upon the proceeds in the hands of their foreign correspondents;  and the latter class, or the importers, pay for their goods by purchasing and remitting these same bills.

Under a course of operations carried on by so many independent traders, it would indeed be miraculous if the exports and imports should be so exactly equal as to leave no balance one way or the other.  In truth, experience shows that the exports will sometimes exceed the imports, and that sometimes the imports will exceed the exports, leaving a balance of trade in the former case in favor of the country, and in the latter case against it.

Let us now suppose, that in a given country where the currency is at its proper level, where no gold or silver flows out or flows in, and where consequently exchange would be at par, an excess of imports should take place.  What would be the first effect ?  The answer must be, a demand for more bills of exchange than are for sale in the market, the effect of which is a rise in the rate of exchange above par, which obviously holds out an inducement for the exportation of commodities for which a sufficient inducement did not previously exist.  A rise in the exchange of one or two per cent. may sometimes determine shipments, which without such rise would not have been thought of;  not that so small a profit would of itself induce shipments, but because one or two per cent, added to the profit which might have been made without such addition, would elevate the gain to the height of the average mercantile rate of profit requisite to warrant a shipment.

A profit in advance is a powerful stimulus to exportation, especially where two thirds or three fourths of the capital employed in the purchase of the exported commodities can be immediately replaced by the sale of a bill of exchange.  The additional demand, therefore for bills, to assist towards paying the balance is met, we will suppose, at once by additional exports, it sometimes even happening that the remitting merchant, to save, as it is called, the premium on bills, becomes himself an exporter.

Thus far it is manifest that the balance of trade occasions no exportation of the precious metals, and that consequently the general level ef currencies is not disturbed.  But it may happen that the increased demand for exportable commodities arising from the augmented premium on exchange, may raise their price to an extent equal to the rise in the price of bills, and thus put an end to their exportation, by taking away the additional profit.  A new expedient is then resorted to by capitalists to take advantage of the premium on exchange, which is to obtain a credit abroad upon which they may draw bills, under the calculation that at some future, not very distant period, they will be able to replace the funds at a lower rate of exchange, and thereby realise a profit by the operation.  The transmission, too, of public securities, bank, railroad, and canal stocks, and the extension of credits by the consent of the foreign creditors upon allowing interest for the extended term, are all well known levers in the mechanism of trade, (to say nothing of bankruptcy), by which the tendency of an unfavorable balance of trade to cause an exportation of the precious metals is frequently neutralised.

But it may happen, however, that all these measures combined will not keep down the price of bills of exchange to the rate which will render them more advantageous to remit than gold or silver.  That an exportation of the precious metals will then commence is quite apparent, but compared with the whole balance that may be due, it will be exceedingly trivial, as I will proceed to show.

We will suppose ten millions of dollars to be the circulating medium of the supposed debtor country, and that that is the amount which is requisite to circulate her commodities and to maintain her currency at an equivalency with the currencies of other countries.  No sooner does this quantity become diminished by the exportation of any part of it, than a scarcity of money begins to be felt.  A scarcity of money invariably occasions a fall in the prices of commodities, as every body knows, and that fall operates as an incentive to exportation, inasmuch as domestic products, which were before too high to export, will now afford a profit.  A fall in the price of cotton of one cent a pound has sometimes occasioned the exportation of immense quantities in a short period;  and it is very clear that there is a price at which almost any article might be exported to advantage, and that a gradual diminution of the currency, if continued long enough, will eventually establish that price.

It is idle to say that possibly the debtor country may not have on hand a sufficiency of products to discharge the debt, and that therefore she must be drained of her precious metals to the last dollar.  This can never be.  If her wealth or her powers of production had not been commensurate to her demand for foreign commodities, she could not have had sufficient credit to run deeply into debt.  At all events, she would have on hand a large portion of the foreign commodities in the purchase of which the debt was incurred, and a scarcity of money might even bring down prices so low as to render the exportation of foreign commodities a profitable trade.  It might even be an object to send back to the place of production the very commodities, the importation of which created the unfavorable balance.*  It is quite probable that a very small reduction of the amount of coin would produce such a fall in the prices of commodities as would lead to their exportation to an extent adequate to keep down the price of bills so as to prevent any further exportation of the precious metals;  but if this should not be the case, and if the scarcity of money should continue to increase, those who had remittances to make would either become bankrupt and make no remittances at all, or become so embarrassed as to default in their punctuality, either of which events would diminish the demand for funds abroad, and stop pro lanto the exportation of gold and silver.**

* British goods have frequently been sent back from the United States to England, as affording the best market for them, and it is a very common thing for vessels to bring back from the West Indies part of their outward cargoes, owing to their being worth more at home than they could be sold for abroad.
** All the propositions here laid down, have recently been fully established as practical truths in the United States, and especially at New York even to the reshipping of British goods to England.

And here it may be remarked by the way, that a real scarcity of money is always accompanied by an artificial scarcity which aggravates the effects of the former.  If, for instance, a million of dollars in coin be exported, so as to produce an outcry about scarcity of money, timid people and speculators will withhold another million from circulation;  the former because they are afraid to lend it, and the latter because they expect to profit by forcing down the prices of property and commodities to a still lower point, the effect of which would be to diminish the demand for the exportation of coin by reducing the prices of commodities.

But independent of the tendency of the causes above enumerated, to restrain the exportation of specie, another operation simultaneously takes place, which adds to their efficiency.  This is, the cessation of fresh imports, owing to the fall in prices of foreign commodities, occasioned by the existing scarcity of money.  This cessation, even though it be but for a short period, affords time for the exportation of the products of the country which had not previously been brought into market;  and although the tendency of an unfavorable balance of trade is unquestionably to drive the precious metals from a debtor country;  yet in point of fact it does not effect it, for the reasons above stated, beyond a very limited extent.  But were this, however, not the case, an outward stream would soon be met by an inward one.  The low prices of domestic products would soon invite the attention of foreigners, who, to obtain them, would bring into the country, not foreign commodities, which from their low price could only be sold at a loss, but the precious metals.*  Whilst gold and silver would be flowing out of the country in some directions it would be flowing into it from others, and sooner or later the equilibrium would be restored, and the double current arrested.

* During the panic of 1834, when the scarcity of money greatly lowered the prices of commodities, the amount of specie imported into the United States for the purchase of cotton at the low price of the period was very great, as will appear from the following official table.
Table of Imports and Exports of gold and silver coin and bullion from 1821 to 1838, each year ending on 30th of September.

t A part of this amount was the result of the passage of the gold bill of 28th of June of this year, and to the same bill is to be ascribed the large importations of 1835 and 1836.

It may here be remarked, that the accounts current between nations in their commercial dealings, that is, between the individual merchants of one country and those of another, which is the only sense in which we speak of commercial transactions between nations, are not periodically settled like the accounts between individuals of the same country, which are generally settled by the actual payment of the balance.  National accounts current are never settled.  The balance may be one way to-day and another way to-morrow, and as there is no general pay day, like the first of January, upon which a general balance is struck, facilities are afforded for warding off such a pressure on the bill market as would exist if a periodical punctuality were rigidly enforced.

Having thus given a detail of the operations which would take place under an unfavorable balance of trade, I will say a few words upon those which would occur under a favorable balance.  And in doing this, we will take for illustration the same country that we have just been considering, and will suppose that an excess of exports should take place.  Of such a state of things, what would be the first effect ?  The answer must be, a fall in the price of bills of exchange in the market.  More money would have to be drawn for than the amount required to pay for the imports, and the competition of the bill drawers might reduce the rate of exchange down to the point at which it would be more profitable for them to import gold and silver from abroad, than to draw bills.  Still the quantity that would be thus imported, would be comparatively limited.  The very existence of a foreign balance in favor of the country, would be proof of the ability of the nation to consume an additional amount of foreign commodities, and the gain which could be made by the importing merchants of one or two per cent, on the exchange, by buying bills below par, in addition to the usual profits, would invite to more extensive importations.  Additional importations would in fact take place, and the supply of these new commodities would be met by a corresponding demand on the part of those whose means of consumption from extraordinary crops or extraordinary profits on their business, had thus become augmented.

But a fall in the price of bills would have a tendency to discourage the exports of domestic products, and this discouragement, in its turn, would have the effect of raising the price of bills by a diminution of the supply in the market, and thereby of removing the motive for the importation of the precious metals.  The importation of gold and silver, however, should it commence, would make money plentier than before, and thus raise the prices of commodities, foreign as well as domestic.  This rise in price would encourage the importation of foreign commodities, because tbey could be sold at an increased profit, whilst it would discourage the exportation of domestic products, by which means a part of the specie previously imported would again be exported, in preference to the domestic products, which could only be procurable at an augmented price.  It thus appears, that a favorable balance of trade, although it has a tendency to bring the precious metals into a country, yet in point of fact it does not effect it beyond a limited amount, resembling in this particular, the former case of an unfavorable balance;  two streams might be flowing, one into the country and one out of it, and sooner or later the equilibrium would be restored, and the level regained.

Thus it would be impossible to retain in any country any more than its true share of the aggregate mass of the gold and silver of the trading world, or to exclude from it any portion of that share.  No human contrivance or legislation could possibly effect either, and hence all the efforts which have been made in all parts of the world to alter what the natural laws of commerce have decreed, by prohibiting the exportation of the precious metals under heavy penalties, or by attempting to encourage their importation by protective or prohibitory duties on merchandise, or by resorting to any other expedient, have proved utterly futile.  Money, as has been said, like water, will find its level, and although the former like the latter, may for a period be forced into unnatural channels, the deviation cannot long continue.

And here, I will take occasion to remark, that in forming an estimate of the comparative value of the exports and imports of the United States, the custom house returns, as they appear in their aggregates, are but imperfect guides to determine the balance of trade.  The value of the exports given is their value at the time and place of shipment, as furnished by the shippers under oath, in the form of manifests.  The value of the imports, is their cost abroad, as ascertained by the invoices, also furnished under oath, subject to such revision by the custom house appraisers as may, in case of suspected fraud in the valuation of goods chargeable with ad valorem duties, be deemed right and just.  These foreign invoices embrace the cost of the articles, and what are called the shipping charges, that is, the charges without the payment of which they could not be put on shipboard, but include no freight, or insurance;  and where they are made out in Brazil, Buenos Ayres or other countries, where a depreciated paper currency exists, due allowance is made for the depreciation.

Now, as cargoes shipped abroad from the United States, are burthened with the expenses of freight and insurance, their value at foreign ports must generally be augmented by the amount of these expenses and the profits on the voyage, and consequently the nett proceeds of their sales must always furnish a fund adequate to the purchase of foreign commodities to a greater value than their cost at home.  On this account it necessarily follows, that where the trade of a country is profitable, its imports will always exceed its exports, and this too, just in the degree that it is profitable, and nothing is clearer than that if the voyage out and home does not give a greater amount of imports than of exports, the trade would be abandoned.  Of this proposition there can be no dispute, and it is quite probable that an export of a hundred millions of dollars would purchase abroad as many commodities as would show an import on the custom house books of a hundred and twenty or more millions of dollars, thus overthrowing the theory of that class of reasoners who maintain that the balance of trade is against a country when it imports more than it exports, and who consequently believe that a "nation is growing poor when she is in reality growing rich.

But to make this matter perfectly plain, I will illustrate it by a practical case that every body can understand.

A merchant in Philadelphia purchases one thousand barrels of flour at eight dollars per barrel, and ships it to the West Indies.  The custom house books in this case would show an export of eight thousand dollars.  On the arrival of the cargo abroad it sells for twelve dollars per barrel, and after paying freight, duties, commissions, and all other charges, leaves the nett proceeds ten thousand dollars.  This sum is invested in coffee, and brought home, where it is entered upon the custom house books as an import of that amount.  Here, then, we would have an export of eight thousand dollars and an import of ten thousand dollars, showing a clear gain of two thousand dollars, without leaving any balance due one way or the other.

A stronger illustration than this even, is to be found in the operation of our whaling ships.  A vessel with a cargo consisting of nothing but provisions sufficient to feed a crew for a voyage, and as many staves, hoops, and headings, as will make casks enough to hold a cargo of oil, clears out at New Bedford for the South seas.  The custom house books show an export of ten thousand dollars, perhaps, and when the ship returns with a cargo of oil, they give us an import of fifty thousand dollars, thus showing what the superficial reasoners above referred to would call a balance of trade against the country of forty thousand dollars, but which is a clear evidence of a gain to the owners and crew, and consequently to the country.

But even if the custom house books were to furnish accurate statements of the nett proceeds of the sales of the cargoes exported, as well as of the foreign cost of the homeward cargoes, they would not be sufficient to enable us to form a correct estimate of the real balance of trade.  Debits and credits are created in the foreign trade of every country, which never appear on the custom house books.  Specie is imported and exported by emigrants and passengers in their trunks, or secretly shipped by merchants to avoid penalties or odium, or, exposure of their operations.  Goods are smuggled, and others are purchased with funds earned by vessels abroad, engaged in the carrying trade, and thereby augment the imports, whilst ships are frequently sold abroad, and thereby augment the exports.  Large amounts of property are also exported from some countries for which no proceeds are to return, or at least, to return at an early day, such as happens in the case of foreign subsidies, the maintenance of troops and navies abroad, the transmission of revenues to non-resident capitalists, and funds for the expenses of travellers in foreign countries.  To these may be added losses at sea, or by fires abroad, the bankruptcy of the persons to whom the exported commodities are sold, and investments in foreign loans and joint-stock companies.  In most of these cases property of some kind or other is sent abroad which appears on the custom house books amongst the exports;  and, although in many of them the actual transmission for these specific objects may be in the form of bills of exchange, yet it is manifest, that these bills could only be drawn upon shipments of property.

In the foregoing remarks it has been laid down as an axiom, that the price of bills of exchange is determined by the balance of trade.  Strictly speaking, however, this is not always the case, for this balance is liable to be modified by what is called the balance of payments;  and in truth this latter principle it is which regulates the daily rate of the exchanges.  If all the merchandise exported and imported was to be immediately paid for at the time of its changing hands, the balance of trade and the balance of payments would be identical.  But, in the intercourse between nations we know that this is not always the case, and that circumstances occur to prevent the immediate influence of the balance between imports and exports from acting directly upon the exchanges.  Amongst these circumstances are the following:---

1.  Where the imported articles are bought on a credit, and are to be paid for at a distant time, whilst the exported articles are sold for cash, or vice versa.

2.  Where in the case of both imports and exports the sale is on credit, but the credits are not of the same length.

3.  Where the articles shipped abroad from one of the countries should not meet with a ready sale, and should be kept on hand for a length of time without being drawn upon, whilst on the other side a prompt sale is made, and bills drawn for the proceeds.

In either of these cases, the operation of the balance of payments on the exchanges might be such as not only to neutralise for a time the operation of the balance of trade, but to turn the exchanges against the country which had the balance of trade in its favor.  A case in point can readily be referred to.

If an account current were to be made out of the past state of debits and credits between the United States and Great Britain, it would no doubt be found, that from the date of planting the first British colony in this hemisphere, we have owed a balance of trade that has never been discharged, and which at times may have amounted to a hundred millions of dollars or more;  and yet, owing to the credit that has been extended to us, by which the pay-day has been deferred, the exchange has not always been against us, but has, on the contrary, been so controlled by the balance of payments as frequently to have been in our favor.

chapter v.

Bills of exchange are those commercial instruments by which a merchant in one country or place directs money which is subject to his control in another country or place to be paid over to a third party.  In the commercial transactions of every nation, some of the merchants become indebted to other merchants in foreign countries for commodities purchased there upon credit, whilst some others have funds in those foreign countries arising from the sale of cargoes disposed of there.  If bills of exchange did not exist, the debtor class of these merchants would be obliged to incur the expense and risk of transporting coin or bullion to foreign countries in discharge of their debts, and the creditor class would also be obliged to incur the same expense and risk in importing coin or bullion in payment of their cargoes sold abroad.  By this double transmission, the merchants, and consequently the nations to which they belonged, would be losers to an amount equal to all the expenses and risks so incurred, together with interest on their capitals for the time they were out of their reach.  Nor could this be avoided unless the importers and exporters were always the same identical individuals, in which case the merchandise purchased abroad would be paid for by the proceeds of the merchandise sold.

By the operation, then, of bills of exchange, the necessity of this double transmission is entirely avoided, and the funds abroad, instead of being sent home, are transferred to those who have debts to pay abroad, and who are thus exempted from the expense and risk of sending coin or bullion in payment of their debts.  But this benefit, in which the whole nation participates, is not limited to the mere application of funds in any given place to the payment of a debt due in that place.

It matters not whether the fund and debt both stand on the books of merchants at the same place, or whether the debt be due at Manchester and the fund be at Paris.  The magic power of bills of exchange transfers the payer and receiver both to London, the great seat and centre of British and indeed of European commercial operations.  But the merchants who make remittances of bills of exchange to foreign countries, to pay for merchandise purchased there, do not, it is manifest, procure those bills of exchange for nothing.  They must purchase them from those who have funds abroad to draw for, and in doing this they will endeavor to procure them at as cheap a rate as they can.

It is, on the other hand, the interest of those who have bills for sale, to secure the highest price for them they can, and it is this competition between buyer and seller that determines the market price, which, like the market price of commodities, must always depend upon the proportion which the supply bears to the demand.  If bills of exchange are scarce, their price will be high.  If they are plenty, their price will be low.  There is, however, one peculiarity belonging to a bill of exchange, which is not common to any commodity, and which ought always to be kept in mind in discussing this subject.  It is, that if it cannot be sold at a price that will suit its owner, he has it in his power to avoid the necessity of a sale at great loss by importing his funds in coin;  and if it cannot be purchased at a price that will suit a purchaser, the latter can avoid the necessity of a disadvantageous purchase by exporting coin in payment of his debt.  The existence of this peculiarity places a limit upon the fluctuations in the rate of exchange, which cannot for any long period together fall and remain below par, or rise and remain above par, to a greater extent than to an amount equivalent to the expense of transporting the precious metals from the debtor country to the creditor country.  For, if a merchant owes a debt abroad, and cannot procure a bill of exchange at an advance above par equal to the freight, insurance, commission, and brokerage, and to the value which he attaches to that certainty of punctuality in the fulfilment of his engagement abroad, which a set of bills of undoubted credit, sent by two or three different vessels affords, but which a shipment of coin cannot always furnish, how solvent and prompt soever might be the underwriters in settling in case of loss, he will unquestionably transmit coin as being the most economical mode of making a remittance.*  And so, on the other hand, the drawer of a bill, if he cannot sell at a price which will yield him as much money as the importation of coin would do, taking into the account, besides the charges of importation, the interest for the time he must wait before his money can arrive, and if money be scarce, the inconvenience or loss he would sustain by the delay, he will undoubtedly order his funds to be shipped to him in coin, as the most advantageous mode of getting them into his possession.

* Specie was shipped from New York to England, at a loss, in October, 1839, in preference to bills at par, owing to the apprehended difficulty of getting them discounted under the pressure of the London money market.  Other shipments were made, at the same time, of specie, under the impression that the Bank of England was about to stop cash payments, in which event, the specie would have commanded a premium in London.  The cost of freight and insurance on specie from the United States to Europe, may be computed at one per cent.

Of the correctness of these positions there cannot be a doubt, and whenever the market price of exchange differs from these rates, it must have its cause in one of the following circumstances.  If the exchange be above, it must either be that the merchants who have remittances to make are ignorant of their business, and therefore pay more for a bill than it is worth, or that small profits are not worth their attention, or that there is a penalty or a degree of odium attached to the exportation of coin which they are not prepared to encounter, or that the punctuality which is expected of them by their correspondents abroad is of a character that would not justify the hazard of a miscarriage by a single ship.

If the exchange be below, it must be because the owner of the funds abroad cannot afford to wait the time requisite for the transmission of the coin, or because in the actual state of the money market, money is worth to him more than the ordinary interest, or because there exists a penalty or a degree of odium attached to the exportation of coin in the country from which his fund is to be drawn.

It must, however, be remarked, that it sometimes happens that bills are sold below the limits here designated in the following cases, viz:

1.  Where the commanders of ships of war on foreign stations have occasion to draw bills upon their government, at ports of limited trade, or at which the course of trade does not call for such bills.  I have known a bill on the navy department drawn at a port in South America to be sold at twelve per cent. below the true par.

2.  Where masters of vessels and supercargoes, at such ports, have not merchandise enough to fill up their vessels, and on that account find it for their interest to sell bills at a great discount, for the purpose of buying bulky commodities to bring home, and thereby earn a freight more than equivalent to the loss sustained on the bills.

3.  Where masters of vessels enter such ports in distress, and are obliged to draw bills upon their owners for necessary repairs.

In wealthy countries, however, where bankers are prepared with large capitals devoted to speculations in bills of exchange, great fluctuations from the par are not likely to take place, inasmuch as bills can always be bought from or sold to them, by allowing a small profit beyond the expenses of exporting or importing coin.  The trade of a banker in Europe is to study the exchanges not only between the place at which he resides and all other places, but also between all those places and each other, by which means he is generally enabled, by a combination of operations, by selling bills on one place and by buying them on another, not only to raise the fund with which he deals, but to realise a profit.  Thus, for instance, if he reside at London, and can sell a bill on Hamburgh at half per cent. premium, and buy one on Paris at half per cent. discount, and with the latter buy one through his correspondent at Paris on Hamburgh at par, he will have realised one per cent. by the transaction, without the employment of any capital;  the bill remitted from Paris to Hamburgh arriving in time to meet the bill drawn upon his correspondent at the latter place.

Having in the foregoing remarks spoken of the par of exchange, it is proper that the meaning of that term should be explained.  Exchange is an operation, which, strictly speaking, has relation only to the precious metals, and every bill of exchange is in reality a mere order for the delivery, on a certain day, of a given quantity of gold or silver.

Exchange is at par or equality, when a merchant in one country can purchase with an ounce of pure gold, or an ounce of pure silver, a bill at sight upon a foreign country, which will there put him in possession of an ounce of pure gold or an ounce of pure silver, and the coins of full weight of the two countries which are the respective equivalents of an ounce of pure gold or an ounce of pure silver, will express that par.  This is an axiom in political economy, and should never be lost sight of, whatever appearances to the contrary may at times be presented.  Exchange is above par when a greater quantity is required for the purchase of a bill that will command an ounce of pure gold or pure silver;  and it is below par when a less quantity is required.  Now, if all the trading nations of the world were to use only one of those metals as their currency, and if their coins were of the same standard as to purity, and of the full mint weight, the science of exchange would be as simple as the plainest calculations in arithmetic.  But this not being the case, each nation having its own standard of fineness, and its own particular coins, some having one metal and some the other, and some both, to constitute their currencies;  and the coins of some countries being worn by wear and tear more than those of others, without being prohibited from passing by tale, and there being in some countries a seignorage charged on the coins, whilst in others there is none, the subject is involved in an obscurity which very few persons are disposed to take the trouble to penetrate, and indeed which very few persons have the means of penetrating.  This has been particularly the case in reference to the exchange between the United States and England, which, being for many years past, up to the present day, quoted in all the newspapers, prices current, and correspondence, upon false principles, has occasioned a wide-spread error, the origin of which will now be explained.

By an act of congress, passed on the 31st of July, 1789, it was declared, that the British pound sterling (which, although not at that time a coin, was the equivalent of the quantity of gold contained in a guinea, less the one and twentieth part, the guinea being twenty-one shillings) should be taken as of the value of four Spanish silver dollars and fourty-four hundredth parts of a dollar in estimating ad valorem duties upon British merchandise at our custom houses.  This estimate was founded upon the circumstance, that at that period, the Spanish dollar, the only coin of that denomination in circulation in the United States, was the well known equivalent in the British market, of four shillings and sixpence sterling, and very nearly such equivalent at the British mint.*

* The mint price of silver at that period, as well as at the present, was 5s. 2d. per ounce.  The weight of the dollar was 17dwt. 8 grains, hut somewhat inferior in quality to the British standard, so that if sent to the mint, it would have produced about 4s. 5d.  As an exportable foreign coin, it was probably worth in the market an additional ½d., there being at that time a prohibition against the exportation of British coins.

By another act of congress of 2d April, 1792, establishing the mint, and authorising a coinage for the United States, it was provided, that there should be silver dollars coined, "each to be of the value of a Spanish milled dollar," to contain 17dwt. 8 grains of standard silver;  and that the proportion which the gold and silver coins should bear to each other, should be that of 1 to 15, that is, that one ounce of pure gold should be the equivalent of fifteen ounces of pure silver.*

* The adoption of this proportion was probably the result of a sort of average, founded upon the comparison of the mint proportions of several different countries.  What they were at that precise date, I cannot say, but, by some tables that I have seen, it appears that the mint proportions in 1810, at the places named, were as follows, and probably had been so for a long period.

But there is no natural proportion between gold and silver, as has been observed on a former occasion, any more than there is between lead and iron, and it is therefore very manifest that no law can permanently fix a par of exchange between them.  When any change in their relative value takes place in the market of the trading world, whether it be by an increased or diminished supply, of one or the other metal, or, by an increased or diminished demand for one or the other, the par becomes changed.  This event did in reality take place, and in process of time, an ounce of gold, as has been already stated, became gradually worth more than fifteen ounces of silver, and finally reached the proportion of one to sixteen.  With this gradual change in the relative value of gold and silver, the silver dollar ceased to be the equivalent of four shillings and sixpence sterling, and consequently the pound sterling became the equivalent of more than four dollars and fourty-four hundredth parts of a dollar, for the simple reason, that any person who possessed the quantity of gold represented by the pound sterling before the coinage of the sovereign, and now actually contained in that coin, could obtain for it more than four dollars and forty-four hundredth parts of a dollar in silver.

But the mercantile usage did not conform to this change.  The merchants adhered to the old par, as if a pound sterling was the equivalent of four dollars and forty-four cents by some unchangeable law of nature, and for many years continued to ascribe the nominal premium on sterling bills of exchange, which was the mere exponent of this change in the relative value of gold and silver, to the influence of the balance of trade.  The delusion was partly removed by the act of congress of 14th July, 1832, which raised the value of the pound sterling for the calculation of ad valorem duties at the custom house to $4.80, and by two subsequent acts, one of 28th June, 1834, by which the British sovereign was made the equivalent in American gold coins of $4.87.075+, and one of 18th January, 1837, by which it was made the equivalent of $4.86.65+, which is now the true par on London, corresponding within a very small fraction to 9½ per cent. premium on the old computed par.

I say "partly removed" because, strange as it may appear, there are thousands of persons at this very day, who have no other belief on this subject, than that the nominal premium quoted on exchange, is a real advance which takes so much money out of their pockets.  To remove, however, the vestiges of this deep rooted error, the Chamber of Commerce of New York, early in the year 1839, recommended to the merchants of that city, to quote the exchange on England in dollars and cents for the pound sterling, instead of designating the per centage above or below par;  a recommendation which was soon after followed up by the Chambers of Commerce of Philadelphia and other places, and will perhaps in time be generally adopted.*

* The author has been politely furnished, by Joseph Perry Esq., of the General Post Office at Washington, with a very detailed statement of the value of the sovereign in American currency under the different acts of congress, ascertained by algebraical calculations, from which it appears, that the par of the pound sterling, was---
By the act of 2d April, 1792--$4.5657+ which was 2.7 per cent above the computed par of $4.4444.
By the act of 28th June, 1834, commonly called the gold bill--$4.87075+ which was 9.591875+ or within a small fraction of 9.6 per cent, above the same computed par, and
By the act of 18th January, 1837, now in force--$4.8665+ which is 9.496+ or very nearly 9½ per cent. above the same computed par.
The British mint price of standard gold is £3. 17s. 10½d. per oz. and consequently the weight of the sovereign, the coin of one pound sterling is 123.2744+ grains.  The British standard of gold is, 22 carats fine, that is, 11 parts pure metal and 1 part alloy, and consequently the quantity of pure gold contained in a sovereign is 113.001 grains.
The standard of gold in the United States by the existing act of 18th January, 1837, is 21.60 carats fine, that is 9 parts pure metal and 1 part alloy, and the weight of the eagle, the coin of ten dollars, is 258 grains standard, or 232.2 grains pure gold.
Now as the sovereign of full weight and standard purity contains precisely as much pure gold as is contained in 4.866563+ parts of an eagle, it follows that the true par of the pound sterling is $4.866563+ that is $4.86 and a fraction of nearly 0.6 of a cent.
But it appears by the Report of the Director of the Mint of the United States of March 19, 1839, that by the latest assays made by him of the British gold coins, their standard does not exceed 915½ thousandths, whereas by the British mint regulations, it ought to be 916.66 thousandths, which is equal to 22 carats.  Taking this then as the true standard of the sovereign, it contains when of full weight only 112.8577 grains pure gold, and consequently the par of the pound sterling thus found, is but $4.860366, that is $4.86 and a very small fraction, equal to 9.35+ or 9.35 per cent above the old computed par.
But this is not all.  The act of congress of June 28, 1834, entitled "An act regulating the value of certain foreign gold coins within the United States," declares that the sovereign when of Standard purity, shall be a legal tender, at the rate of 94.8 cents per pennyweight.  By this act which has never been altered, a sovereign of full weight and of the legal standard is worth in our gold currency the same as by the gold bill of 1834, above referred to, that is $4.87 and a fraction, thus presenting the anomaly of foreign coins having a higher value attached to them than their intrinsic worth in the coins of the country.
It so happens, however, that many of the sovereigns that reach this country, have been somewhat worn, and on this account, no doubt, in connection with the deficiency of purity above referred to, they have been received and paid out by the banks at $4.85.

chapter vi.

If the principles laid down in the preceding chapters be sound, as it is believed they are, it must necessarily follow that the operations of commerce in countries employing a metallic currency, are as regular and as little liable to fluctuations as the nature of things will admit, and more than this can no where be looked for.  That there will be occasional over-trading and over-speculation wherever there is credit, is too self-evident to require proof, and hence no country in which credit exists, can be entirely exempt from individual bankruptcies.  Foreign wars, domestic disturbances, extensive conflagrations, storms and hurricanes, the failure of crops, the insolvency of foreign debtors, and a variety of other causes, may produce individual or even extensive commercial embarrassment.  Too much credit may even lead incautious men into extravagance of expenditure, which may bring on their ruin, but in none of these cases is the currency chargeable with the catastrophe.  The mischief, whatever it may be, can only be ascribed to the operations of credit;  but as credit, when properly regulated, is far more influential in producing good than evil, as will be shown hereafter, it is not to be annihilated on account of the misfortunes or imprudence of a comparatively few individuals.

Such being the theory of this branch of my subject, I have the satisfaction to state in regard to the practice under it, upon the testimony of a respectable American merchant, who resided and carried on extensive operations for near twenty years at Gibraltar, where there has never been any but a metallic currency, that he never knew during that whole period, such a thing as a general pressure for money.  He has known individuals fail from incautious speculations, or indiscreet advances, or expensive living;  but he never saw a time that money was not readily obtainable, at the ordinary rate of interest, by any merchant in good credit.  He assured me, that no such thing as a general rise or fall in the prices of commodities, or property was known there;  and that so satisfied were the inhabitants of the advantages they enjoyed from a metallic currency, although attended by the inconvenience of keeping in iron chests, and of counting large sums in Spanish dollars and doubloons, that several attempts to establish a bank there were put down by almost common consent.