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two years; and this decline on the whole continued | of the same general depression throughout the till November, 1878, when the price was $16.50, world, see“ Economist,” Com. Hist. and Rev. of scarcely one-third of what it had been in 1872, 1878, supplement to March 5, 1879.) A repetition even if we make allowance for the gold premium. of some of these phenomena has been seen in the In Great Britain the same change was still more last four years; notably in the case of steel rails, marked. Scotch pig, which in 1870 had sold as whose price increased from $42 per gross ton in low as 4948., rose in 1870 to 145s., and in 1878 May, 1879, to $85 in February, 1880, but at the had fallen to 42 s., less than three-tenths of what end of the year 1882 had fallen to $39. There it had brought five years before. A similar was the same reckless investment of capital to change was seen in America at the beginning of meet a temporary demand at high prices, and the 1880, when iron, which in July, 1879, was selling same impossibility of maintaining anything like at $19.25, rose to $40 and $41, only to fall, three those prices when the extra supply was thrown on months later, to $23. — The reason for these ex the market. Railroad production and iron protraordinary changes is to be found in the character duction furnish types of the two causes which of the demand for iron. A demand for iron at render disproportionate production a source of all often means a demand at any price, whether it lasting evil: in the former case, because the inbe for a railroad that can make no money till its crease of supply is permanent; in the latter, tracks are laid, or a factory that can make none because the high demand is only momentary. without new machinery. But the demand that The introduction of machinery is apt to produce forces up the price is moderate in quantity; and effects of the former character; the supply of though the high rates may be submitted to by the articles of fashion and luxury is subject to the latimmediate demand, they may check the future ter. It was the combination of these two that had demand. Thus, those who have gone into the a large share in causing the English crises of 1818 iron business under the stimulus of high rates and 1825. Agricultural produce is less liable to find that the pressure was only temporary; the these disturbances than anything else, the excepextra supply, by the time they are ready with it, tion in the case of cotton in 1837 and 1839 being no longer wanted; and iņ place of the readiness to only apparent; the evil was due to speculation on buy at any price, however high, comes an unwill the part of cotton producers rather than to disingness to buy at any price, however low. Just proportionate production of cotton. So in Engthis course of events is indicated by the statistics land in 1847, when an exceptionally good harvest of iron production. The American pig iron was the occasion of a crisis, it was not because product, which in 1870 had been about 1,859,000 there was more food than people had been in net tons, and in 1871 about 1,905,000, rose under the habit of demanding, but because to certain the stimulus of high prices in 1872 to 2,855,000, individuals, who had speculated in the price of and in 1873 to 2,868,000 tons. But by this time grain, normal production meant ruin. Results the fall in prices had been so marked that the iron like these may occur when any combination men checked production as best they might. In makes a speculative attempt to control production 1874 they reduced their product to 2,689,000 tons; and prices both. When such a combination is but in spite of this reduction and of the further powerful enough to form a monopoly, there is no fall in prices there remained at the end of the year doubt that a check to production generally in796,000 tons unsold in the producers' hands. The creases their returns, the prices rising more further course of events is shown in the following rapidly than the quantity diminishes. And, contable, compiled from figures in the report for 1881 versely, an increase of production, even under of the secretary of the American iron and steel their own hands, actually diminishes the gross association :

returns. If an individual extends his production his gross returns are commonly increased. If a monopoly extends its production the opposite effect

is quite as common. - We have hitherto spoken 825.50 2,267,000 781,000 of over-production only in the sense of dispropor

2,093,000 1877

2,315,000

642,000 tionate production. It was shown at the outset 2,577,000 575,000 that the same effect upon individual producers 3,071,000 142,000

might result from a failure to reach the right mar.

ket, or from a general fall in prices. The first From this it appears that in spite of diminished may be due to transportation difficulties, or to production and prices it was not until 1877 that tariff legislation; the second, to a contraction of they were able to reduce materially the proportion the currency; but by far the commonest cause of of their product unsold. As soon as they began both is a commercial crisis. It renders the credit to do this they were on a sounder basis; but what system so far inoperative that it is impossible to this involved may be inferred from the fact that place goods where they are the most needed; and out of 700 furnaces in the United States only it so far increases the demand for ready money about 250 were in blast in the year 1877; and that instead of credit documents that it has the same in the whole iron industry there was probably not effect upon prices as currency contraction. It a branch worked up to half the capacity which may thus happen that the appearance of over-proits fixed capital would admit. (For the statistics | duction will occur as the result of a crisis even in

YEARS.

Average
Price.

Tons Produced.

Tons
Unsold.

1875. 1876.

1878. 1879.

22.25
18.87
17.62
21.50

those lines where there has been no abnormal this article do not allow, see Roscher, Political production, merely in consequence of difficulty in Economy, & 215–217; J. 8. Mill, Principles of doing business and in paying debts. This is what Political Economy, bk. iii., ch. xiv.; Francis A. has given rise to the name and idea of general Walker, Political Economy, $ 214–224; George over-production. - For more extended theoretical Chesney, Fortnightly Review, September, 1881. discussion of certain points, which the limits of

ARTHUR T. HADLEY.

P.

. ,

when this business preserves its character of pu

rity, and does not degenerate into fiction. Let us PAPER MONEY. If there be an experiment suppose, for a moment, that gold and silver alone, which has been seriously made and as to the re without any mixture of fiduciary signs, are the sults of which there can be no doubt, it is the only instruments of exchange. As nothing preexperiment which demonstrates the chimerical vents the transportation of the precious metals, advantages and grave dangers of paper money, they will always resume their level by going employed as an instrument of production. Never- where a certain scarcity of them assures them theless, numberless deceptions, the injury done greater advantage, and abandoning those places to public credit and national good faith, and the in which an over-abundance causes their depreci

ruins of the past, do not seem to have entirely ation. An admirable law of attraction governs · dissipated a dangerous illusion ; recent facts, as them and proportions them to the useful services

well as the persistence of false doctrines, prove which they are called upon to render, by opposthis but too well; the human mind frees itself ing equally a sterile abundance and a scarcity of with difficulty from the fatal influence exerted specie. The very force of things establishes a over it by the mirage of wealth acquired without weir for metallic wealth, which always falls into labor, of a pretended increase of capital called equilibrium with the wants of circulation. — There into existence by the magic wand of credit, and of is a risk of the situation being modified from the a new species of alchemy which transmutes paper very moment that, in order to economize upon into gold. — Nothing, however, can be simpler the mechanism of exchange, an effort is made to than the examination of this problem, and noth- substitute for gold and silver artificial means ing easier of solution. It suffices to know what more or less ingenious, and more or less sure, by is the part played by money, to measure how lit- calling to its aid what is called the magic of tle such an arbitrary creation as paper money can credit, whose power people are inclined to exagdo, and to understand its dangers. — Ours is not gerate. Two ways are open to reach this end. the age in which the wealth of states was con- By following one of these ways the movement of founded with the possession of coin; money, the exchanges is simplified and the number of actual great wheel of circulation, as Adam Smith calls payments reduced; recourse is had to those ingenit, preserves nevertheless, however, an important ious creations which render the actual intervenplace in the economy of nations; it constitutes the tion of specie superfluous, or limited in a number mechanism of exchange in the clearest and surest of cases, by means of bills of exchange, of open conditions; it enables us to set a value on all prod- accounts in the banks, of set-offs and transfers ; ucts and services; it gievs activity to the crea or else circulation is accelerated in such a manner tion and facilitates the distribution of wealth. It as to increase the services rendered by each piece is in fact owing to money that all are impelled to of money. In this way we obtain an advantage the common work of the nation, and that the similar to that which two iron rails placed parallel result obtained is divided among those who have upon the ground afford by the saving in friction, contributed to it. It introduces a common lan- which increases the traction. The same result is guage into the operations of social commerce. obtained with less expenditure of force and capiBut it is not a language of the imagination; tal, thanks to the economy and energy of the money is the sign and measure of values, because springs set at work. Here all is gain and no it is their guarantee, because it represents a value danger; such is the largest function of credit and that is known, acknowledged and accepted every an inexhaustible source of fecundity. — But, by where. It is a universal commodity, while it at the side of these useful combinations, whose inthe same time affords each country its local instru- Auence is too often ignored, we have the creation ment of purchase and sale, and of remuneration of a sign easy to manufacture, which costs next to for both public and private services. — In our day nothing, and which is substituted in a greater or the fetters which cramp the international move ess proportion for metallic money: we refer to ment of exchanges are gradually disappearing, the bank note, which is called upon to act the part and a regular equilibrium may be established to of money, because it is or ought to be accepted in adapt to the wants of each market the quantity of l business transactions to liquidale debts. — If this

fiduciary sign rests on the guaranty of a metallic purpose of the exchange of wealth; if we take value, against which it may be exchanged at will, into consideration the necessary reserves, it does and if we may accept or refuse it at pleasure, it not amount to half a milliard of francs in England, constitutes money paper, which must be carefully and if it rises to two milliards in France, it is because distinguished from paper money. If it be im of an abnormal condition, the result of the Francoposed by authority, whether it emanates from the Prussian war, which can not last. It amounts, public treasury or from a private institution, and according to this showing, to the one four-hunwe are not at liberty to demand its equivalent in dredth part of the wealth of the United Kingdom, gold or silver, but are obliged to accept it, it de- and to about one-hundredth part of the wealth of generates into paper money. In the first case it | France. Regarding this comparison from another aims to supply in part the metallic money, of point of view, we may say that the interest of the which the country should reserve a sufficient metallic capital thus replaced frees England and amount to assure the exchange of bills for specie, France from an annual burden of twenty and and to serve in those transactions in which bank eighteen millions of francs respectively, calculatnotes can not enter. In the second case it has for ing the interest at 4 per cent. This is equivalent effect to replace metallic money even to the point to about the one-thousandth part of the producof the issue of paper money with compulsory cir- tion of England, and to about the one three-hun. culation or of so-called legal tender character, dredth part of the production of France. As a The aggregate of business transactions requires matter of course bank notes render much more but a certain determinate amount of specie in important service in France by the facility and each country at a given time. If bank bills are convenience which they afford, and by the saving substituted for a part of the instruments of ex which they render possible, even without taking change, the surplus disappears under the form of any account of the inconveniences of compulsory merchandise, in order to restore the level, unless circulation, to which France was subjected after the coin be reserved in the treasury as a pledge | 1870. — These gains are not without their accomof the paper money in circulation: thus it is that panying dangers, which grow more serious the paper money drives out coin. — We may in a cer more the volume of notes increases. In proportain limited measure, as we shall see, economize tion as this volume increases, the metallic supply upon the portion of the national capital employed decreases, and as confidence is the stuff of which in the making of the instrument of exchange. credit is made, if a period of calm and prosperity An institution of credit, solidly established, may be succeeded by one of uneasiness, or if imperamaintain in circulation a mass of bills which will tive needs require a great exportation of specie, be in as much favor as specie, provided the metal- every effort must be made to recall the absent lic reserve guarantees their payment at sight, and metal, even at the cost of great sacrifices and by provided the bill represents a sufficiently impor- paying dear for it; this it is that makes the emistant part of the monetary unit to facilitate trans- sion of bank notes so perilous; this it is that forportation and shorten accounts. However, we can bids us to go beyond a certain restrictive limit, supply in this way only a portion of the money unless we would resign ourselves to the dangers needed; but the amount of the latter relatively to of compulsory circulation. If this limit, which is the amount of business transactions diminishes in variable it is true, be passed, it necessarily leads proportion as civilization advances, as society to commercial crises when the fiduciary paper improves, and as credit is extended. In 1873 has been issued only as the representative sign the wealth of England was estimated at two of private engagements, and to a political crisis hundred milliards of francs, and its production when paper money has been issued to meet the at about twenty-four milliards; the total amount wants of the state. Adam Smith recognized the of money in the country, metallic and fiduciary, utility of the “wagonway through the air" of scarcely exceeded three milliards; the wealth of credit, which enables the “country to convert, as France in the same year was estimated at one hun it were, a great part of its highways into good pasdred and sixty milliards of francs; its production tures and corn fields,” highways represented by was scarcely inferior to that of England; it had metallic money. “Nevertheless,” he adds, "the twice the amount (about six milliards) in specie commerce and the industry of the country, it and bank notes. It would be an exaggeration to must be acknowledged, though they may be somereckon the wealth of Russia at 50,000,000,000 what augmented, can not be altogether so secure francs, and its products at 12,000,000,000; it em- when they are thus, as it were, suspended upon ploys about 4,000,000,000 francs in specie and the Dædalian wings of paper money, as when paper money. The possible economy on the they travel upon the solid ground of gold and amount of capital employed in the medium of silver.” After having pointed out the danger he circulation, is therefore in an inverse ratio to the endeavors to destroy the attraction of an imagsum total of national wealth. The richer a inary benefit: “the whole paper money

of every country is, the less it gains by abandoning the kind which can circulate in any country can solid ground of gold and silver. — The saving of never exceed the value of the gold and silver of capital effected by the regular use of bank notes which it supplies the place.” – Let us, by an exwould be reckoned high if placed at from one treme hypothesis, suppose ourselves in a society fourth to one-third of the sum required for the from which the use of the precious metals has en

tirely disappeared. If we should go beyond this, plague is in the physical order.” — By a singular as paper money does not unite in itself the char-concatenation of truths and errors the wisest acters both of sign and of pledge, and as it does operations of the most severely administered not become a commodity when it ceases to be a banks have in the end degenerated into a monmeans of discharge from debt, it can not flow into strous creation of paper money. Everywhere foreign countries, and its excess produces depre. in Europe, except in Poland, the right of the ciation. But who will flatter himself that he can crown to coin money, which had pretended to measure exactly the amount of the media of circula put an end to the fraud and pillage organized by tion necessary in a country? This amount depends local suzerains, ended by giving rise to successive not only upon the mass but also upon the rapidity lowering of the standard, lessening of the weight of exchanges. When the precious metals alone and debasing of the coin. The great Copernicus are employed, or when they effect the major part wrote, in the beginning of the sixteenth century, of business transactions, their level is maintained upon this important question in a treatise that is naturally, thanks to the weir which opens on for almost unknown: “However innumerable the eign markets: this level can not but be violently scourges that ordinarily lead to the decline of disturbed when the bounds of prudence are over- kingdoms, principalities and republics, the four stepped by the issue of money paper, and espe following are, to my mind, the most formidable: cially when the nation abandons itself to the dan discord, pestilence, barrenness of the land, and gerous seductions of paper money. — The danger the deterioration of the money. As far as the exists even when a private institution is granted first three are concerned the evidence is such that the dangerous privilege which excuses it from no one is ignorant of them. But as to the fourth, payment at sight; it assumes a much graver as if we except a few men of superior intelligence, pect when the state itself assumes this perilous very few concern themselves about it; and why? function. History furnishes most sad and strik Because it does not ruin the state at a single blow, ing examples of the chastisement everywhere vis-. but little by little, by a sort of hidden action.”_ ited upon these same mistakes. France, England, The diversity and variation of moneys was one of Austria, Russia, and the United States, not to the causes that led to the establishment of banks swell the list by citing the instances of secondary of deposit, which reduced these uncertain signs states, have paid the penalty of the system of Law to a common denomination, by creating bank and of the assignats, of the forced circulation of money fixed and invariable which took into conbank notes, of the Bankzettel, of paper roubles, .sideration the metallic value of the specie deposand of continental money. It is a curious fact ited. The notes issued were fully represented that Poland alone, a country which it is sought by the specie deposited in the banks; to convento blot out entirely from the map of Europe, pre-ience and accuracy they joined the most complete served itself from this plague down to the very security, and soon gained universal favor. — It time of its subjugation by Russia. This latter was noticed that the greater part of these titles country has, on the contrary, always had, upon a continued in circulation, without any demand large scale, a fictitious system of circulation, being made for the restitution of the specie which it inherited from Chinese, Tartar and guaranteeing them. Some banks employed the Mongolian traditions. We do not wish to make latter, thus leaving a part of their notes unseany vain display of erudition, nor to enter into cured, at least as far as the metallic pledge was investigations which could be of interest only to concerned. They were likewise led to attempt the curious, and we shall therefore confine our the inverse operation by issuing more notes than selves to recalling the fact that Genghis Khan they possessed reserve in money or in bullion, made use of paper money, and that, toward the thus increasing the profits of the institution and end of the thirteenth century, his grandson Kob- replacing a portion of their metallic stock by lai employed it in such a manner as to excite the what we may call trust notes. They had obliingenuous admiration of Marco Polo. This admi gated themselves to pay at sight: but as the deration proved only too contagious: the system, mands for coin were not made simultaneously, which from China and Mongolia had invaded these demands were met by diminishing the Russia, was also admitted into western Europe. amount of their reserve corresponding to the titles But we believe we ought to point out, as a re issued. The declivity was a dangerous one, the markable fact, the scrupulous care with which enticement of gain urged the banks of issue to Napoleon I. always guarded against a like at extend their operations, and to utilize more and tempt. He never consented to the issue of paper more the marvelous power they possessed of money. While England had resort to the com-coining in some measure money from sheets of pulsory circulation of paper money to resist him, paper rushed through a press. It is true that and while Russia and Austria issued prodigious their obligation to immediately redeem it forced quantities of assignats, Napoleon ever held aloofthem to incessant precaution, which was confrom this disorder, and de Montalivet, minister stantly opposed by the allurement of gain: they of the interior, said, in a circular addressed to the were in constant danger, if they had not sufficient prefects on the 25th of October, 1810: “ The em specie to pay at sight. The situation in this reperor regards paper money as the greatest scourge spect in our own day has not changed; it seems of nations, and as being, to morals, what the to us to lead to a clearer and clearer distinction

between the issue of notes which perform the resent real wealth, that is, commodities. An écu functions of money and banking operations prop- is a note conceived in the following terms: any erly so called, and to give a separate existence, by seller will give to its bearer the commodity or its concentration, to the power of creating these merchandise which he may need up to the amount notes. The two principles, which always made of three livres for as much of another kind of war upon the liberty of the banks and the oneness merchandise which has been given me; and the of the note payable to bearer and at sight, are effigy of the prince takes the place of his sig. thus reconciled. — At the time when the errors of nature. Now, what difference does it make the mercantile system estimated the wealth of whether this sign is of silver or of paper ? Is it states by the amount of gold and silver they not cheaper to choose a material that costs nothpossessed, the supplementary circulation fur-ing, and which one is not obliged to withdraw nished by the bank note could not but be received from trade, where it is employed as merchandise, enthusiastically. As paper was raised to the level which, in fine, is manufactured in the kingdom, of gold and silver, which were considered as the and which does not render us necessarily dependequivalents of wealth, wealth could be increased ent upon strangers and owners of mines, who at will. There remained, it is true, the trouble eagerly take advantage of the seduction or éclat of some condition of redemption; but this condition, gold and silver to cause the ruin of other nations; it was said, was superfluous, it was an obstacle to a material that can be increased according to his the expansion of capital, and the sovereign au- needs, without fear of ever exhausting the supthority, which was master of all, might readily do ply; finally, a material which no one will be away with it. What an admirable discovery! | tempted to use for any other purpose than for cirWas not the genius of Law, as the poets of the culation? Paper has all these advantages which time sang, to Enrichir à la fois, les sujets et les rois; render it preferable to silver.”— We see that the since he opened an inexhaustible source to the pretended discoveries, pompously vaunted by the spirit of enterprise, since Mississippi was called new social alchemists of our day, are but old rubby him to become what California has since be bish, long since condemned by good sense and come! Thus people began by seeking in banks experience! Doctrines similar to those of the of deposit a remedy for the degradation of the abbé Terrasson inspired Law's system, and led coinage: the bank note circulated because based to an emission of 2,696,400,000 livres of irredeem. upon a full specie guarantee; afterward this guar able notes, absorbed by a disgraceful bankruptcy, antee was diminished in the banks of issue, and at an epoch when the value of each piece of money finally disappeared in paper money. — Colbert de was, we must bear in mind, much greater, and nounced the unrestricted license to borrow, as a the needs of circulation much less, than to-day; cause of ruin to the state; what would he have these doctrines, allied with other errors in her said of this formidable instrument of paper coinage system, gave birth to the 45,000,000,000 money, which was on the point of handing over of assignats in France. The attempt has been vainabundant resources to the prodigality and rash ly made to palliate such a debauchery of credit, enterprises of governments, by drawing to itself by saying that the assignats saved the revolution, produced wealth, at the risk of destroying it by just as it has been said that the reign of terror foolish expenses and by the squandering of a part saved the republic. We protest against this view of the public fortune, which was destined to dis with all the energy of a conviction based upon a appear in smoke under the deceptive form of scrupulous study of facts. The able memoir notes having a forced circulation and of assig communicated to the academy of moral and nats? Sophisms were not wanting to give a brill political sciences by Levasseur shows how the iant coloring to these disastrous operations. To ruin brought about by the disordinate issue of procure for paper the value and efficacy of money assignats weakened France, and Michelet has was to make something out of nothing, and to eloquently said: “The reign of terror killed the have a share in divine power; wealth consisted republic by exciting in men's minds a feeling more in an abundance of money; thanks to paper, peo powerful than that of fear, the feeling of pity!" ple were no longer tied to the precious metals, - A young ecclesiastical student, twenty-two which would not increase at will, nor follow the years of age, who afterward became illustrious commands of man, while paper money, the fruit under the name of Turgot, completely annihilated ful and docile agent of the supreme power, could the errors professed by the defenders of paper be increased at will. The abbé Terrasson ex money in his admirable letter to the abbé de Cicé plains in a curious manner this phenomenon of (Paris, April 7, 1749). It would be difficult to financial optics. A merchant's note,” he says, find more cogent logic enlisted in a better cause. " as it may be refused in trade, does not circulate Save a slight difference, arising from the cost like silver, and consequently soon returns to its of production, uncoined silver is on a par with source; its utterer finds himself obliged to pay, coined silver, the money value being only a and deprived of the benefit of credit. This is not denomination. “It is as merchandise that silver the case with the king: as every one is obliged to is, not the sign, but the common measure of other accept his note, and this note circulates as silver, kinds of merchandise, and this not by any arbihe pays validly even with his promise.“Gold and trary convention, based upon the splendor of this silver,” he adds, are merely the signs that rep metal, but because, as it can be employed as mer

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