2. Being the established standard, the precious metals, so long as they continue unchanged in amount, have a precise and definite relation to all other commodities. But they do not continue unchanged; and neither do other commodities continue unchanged. There is more gold at one time than another, and more wheat at one time than another; so that the relation between the two is not a determinate, but a variable one; and it is this variation which causes or constitutes the fluctuation of prices. If wheat increases in quantity, more of it will be given for the same money; and if it decreases, less of it will be given for the same money; on the other hand, if money increases, more of it will be given for a specific quantity of wheat, and if it decreases, less will be given; while if they increase or decrease together, a relative equilibrium will be maintained. But the beauty of the precious metals, as we have said, is that they are not liable to very sudden or considerable increase or decrease; only twice in the course of history, on the occasion of the discovery of the South American mines by the Spaniards, and of the California mines by the Americans, has there been recorded an unusual production of gold and silver; and in both cases, it is important to note, the same effect followed,--a very considerable enhancement of prices; that is, all other articles seemed to grow dear, although the real fact was that money had only grown cheap. In Spain every commodity rose; everybody experienced that delicious feeling, which we sometimes enjoy in dreams, of going up without spring or effort; and Spain was considered to be enviably prosperous and happy. As for San Francisco, we all remember the fabulous prices which ruled in that vicinity. An acquaintance of ours wrote us then, that he gave five dollars for a dinner consisting of half a pullet and two potatoes, and when he added a pint of champagne, it came to five dollars more. He allowed his washerwoman one hundred and fifty dollars a month, paid fifty dollars for a pair of second-hand cow-hide boots, and hired a cellar, seven feet by nine, and six feet under ground, at the rate of fifteen thousand dollars a year. But both in Spain and in San Francisco this ludicrous exaggeration of values cured itself. The manufacturers and merchants of all the world sent their goods of all sorts to such tempting markets; and it was not long before the goods, not the money, were in excess. Prices came down, as sailors say, by the run, and Spain and San Francisco were reduced once more to rationality and comfort. These were exceptional cases, but they illustrate the general principle, that the increase of money raises prices, and the decrease of money lowers them, which is all we wish to state. In ordinary cases, however, when the currency is in its normal condition, this rise and fall of prices is like the rise and fall of the tides, the mere pulsations of the great sea, which drown and damage nobody, and rather keep the waters more clear and wholesome by their gentle agitation.
3. The same law is observed to operate, whenever anything is made, either by the decrees of government or the usages of society, to take the place of the precious metals as money. Paper, in the shape of bank-bills, promising to pay money on demand, is the most frequent, because the most cheap and convenient substitute; accordingly, when convertible paper-money is increased, it raises prices, and when it is diminished, it depresses prices, just as in the case of a metallic currency. But there are these two signal points of distinction between a paper and a metallic currency: first, that paper money may be increased or diminished much more easily than metallic money; and, second, that any excess or deficiency of the former is not so easily corrected by the natural operations of trade. The sudden or large increase of the metals is prevented by their scarcity and the laborious processes necessary to produce them, and a sudden or large decrease of them could be brought about only by some great public calamity which should destroy them or cause them to be hoarded. But paper money, whether made by a government or made by authorized corporations, may be issued and put in circulation almost at will, and again be withdrawn at will. We do not mean that the issue and withdrawal of it are wholly unchecked, but that the checks, as the entire history of banking would seem to prove, are comparatively inefficient and delusive. If the rise and fall of prices, caused by the fluctuations of metallic money, are to be compared to the rise and fall of the tides, the rise and fall of paper prices are more like the increase and decrease of steam in a boiler, which is an admirable agent, but demanding an incessant and scientific control. The sea-tides, even after a tempest, will regulate themselves, because they have all the oceans and all the rivers of the globe to draw upon; but the steam in a boiler is a thing confined, and yet capable of immense and destructive expansion. A metallic currency runs from nation to nation, and has its perturbations corrected from nation to nation; but a paper currency is local, and cannot be so well corrected by the great interchanges of the globe. Let us make this clearer in another way.
4. It is universally conceded, by all the writers on finance, that any unusual production of currency occasions a rise of prices; the relative value of money is less than it was before, while the relative value of other articles is greater; a greater quantity of money is given for other articles, and fewer of other articles are given for the same amount of money. This rise has the double effect of provoking the importation of foreign commodities, and of preventing the exportation of domestic commodities; inasmuch as the same enhancement of rates, which opens a good domestic market for the former, closes the foreign market to the latter; and thus an unfavorable balance accumulates rapidly against the country where the rise occurs, in respect to other countries where it has not occurred. Now sooner or later this balance must be paid; and as products cannot be profitably shipped abroad to furnish a fund whereupon to draw bills of exchange, it must be paid in coin. The coin is therefore abstracted from circulation; and if coin were the only currency, such an abstraction would of itself induce a fall of prices, which would operate as a check upon importations until the old relation of equilibrium should be restored. But where the government, or where individuals, whether organized or alone, have the power to replace the departed coin by issues of paper money, prices are for a while maintained, and importations continued as vigorously as ever. All this, however, is but a postponement of the day of settlement. The balance to be extinguished is a substantial balance, which can be discharged only by substantial means; a mere promise to pay, a mere sign and representative of debt, will not extinguish it, any more than the smell of a cook-shop will extinguish a ravenous appetite. The insatiable creditor will have money; and the depositories of that essential become, under his assaults, more and more meagre and tenuous. The managers of them at last get alarmed, and begin to withhold their issues of paper; which means that they begin to reduce their loans to the community. The money-market grows "tight," as it is phrased; the money-world feels generally as if it had taken an overdose of persimmons. Merchants and dealers, shorn of their usual accommodations, are compelled to borrow at ruinous usuries, or to fail to meet their payments. Their default involves others; others fail, and others again. The bowels of the banks, with us the great money-lenders, close with the snap and tenacity of steel-traps; and then a general panic, or want of commercial confidence, brings on a paralysis of the domestic exchanges, and wide-spread bankruptcy and ruin. Importations are checked, of course; but they are checked in a sharp, rapid, and violent way, accompanied by the most painful embarrassments and convulsions.
This we believe to be an outline of the history of all our commercial catastrophes, stripped of those local and incidental circumstances which vary from time to time: over-issues of money,--speculative prosperity,--all the world getting rich in the most agreeable manner,--fairy palaces rising on all sides, without the sound of trowel or hammer; then,--the day of adjustment,--the rapid contraction of the currency,--all the world getting poor in the most drastic and disagreeable manner,--and those fairy palaces, which rose under our very eyelids over-night, vanishing, like the palace of Aladdin from the vision of the Grand-Seignior after he awoke in the morning. But, alas! the revulsion does not stop with the overthrow of the palaces which had been reared without labor; it is not satisfied with the dissipation of mere fancies and dreams; but, being itself a most real thing, it carries with it many a stately structure, which the toil, the economy, the self-denial of years had hardly raised. Extraneous causes,--a short crop,--a reduced tariff,--a peculiar mania of enterprise,--may hasten or retard the various steps of the process which has been described; but its cause and its course are almost always the same, and the discerning eye may easily detect them, from the beginning to the end of our modern commercial experience. In the existing difficulties, in this country, the railroad speculations have had much to do with producing and aggravating the effect; but the primary source of it, we think, is to be found in the ease with which our currency is inflated, under a banking system which varies from State to State, and which, outside of New England and New York, where it is by no means perfect, is as bungling a contrivance, for the ends to be answered, as was ever inflicted on the patience of mankind. Much of the trouble is due also to the extravagance and reckless waste of our people, which, though owing in some degree to our want of good manners and good taste, are directly traceable to the stimulus given to expense by the over-issue of artificial money. While the paper which passes for money is plenty, and every man can easily get "accommodations" from the banks, we squander without thought. No matter how costly the articles we buy; the expansion of the currency is greater than the rise in market values; and it is only when the contraction comes that we see how foolishly lavish we have been.
What, then, is the remedy? "Why, away with paper currency altogether!" says one. Yes,--tear up your Croton-water-pipes, because the breaking of a main sometimes submerges your dwellings; destroy your railroads, because the trains sometimes run off the track; arrest your steamships, because an "Arctic" and a "Central America" go disastrously down into the deep, deep sea! That were not wise, surely; that were very unwise, even were it possible, which it is not.--"Give us a high protective tariff," says another. Most certainly, friend, if we are to be perpetually flooded with paper, a high tariff is needed;--your theory is at least consistent, however it may have worked in practice. But a high protective tariff is an impossibility, because it can be attained only by favor of the Federal legislature; and, as we all know, at the door of that legislature stands the inexorable shape of the Slave Power, which consults no interest but its own in the management of government, and which will never make a concession to the manufacturers or the merchants of the North, unless it be to purchase some new act of baseness, or bind them in some new chains of servility.--But have you inquired whether that flood of paper is necessary? We frankly tell you that we do not believe it is; we believe that a better system is possible,--to be brought about, not by greater restrictions on banking, but by greater freedom; and we only regret that we have not now space to discuss that faith with you in all its reasons and results. We hope to be permitted to do so at some other time. Meanwhile, let us rejoice that the whole subject is in a position to be frankly discussed. A few years ago, when the question of the currency was a question of party politics, there was no aspect in which it could be presented, which did not arouse all the restless jealousies of party prejudice. If you talked of hard-money, you were denounced as a Benton bullionist; if you talked of credit, you were called a Whig banker, plotting to devour the poor; and the calmest phrases of science were turned into the shibboleths of an internecine warfare. A better hour has come, and let us improve it to our mutual edification.