[Published at _Baltimore_, August 9, 1785.]
Messrs. PRINTERS,
I observed a paragraph of intelligence in your Journal, of the 26th of
July, respecting the circulation of paper currency in North Carolina. I
am not disposed to dispute the truth of the fact, that paper currency
passes in that State at par with specie; but I should be very sorry to
see it drawn into a precedent for other States.
_The scarcity of cash_ is a general complaint, and superficial observers
impute the evil to a wrong cause, while shallow reasoners would remedy
it by an emission of paper credit.
The real state of our commerce is this; since the ratification of peace,
the quantity of goods imported into the United States has been much
greater than what was necessary for the consumption of the inhabitants.
Perhaps I shall not be wide of the truth, when I suppose that one third
of the importations would supply the demands of people. The consequence
is, the other two thirds continue on hand as a superfluity. The merchant
finds no market for his goods, and erroneously imputes the evil to a
scarcity of cash. But the real truth is, people do not want his goods;
they purchase what they want, and find cash or produce to make payment;
but the surplus remains in store.
In every trading nation, there ought to be a due proportion between the
commercial interest, the agricultural and the manufacturing. Whenever
the farmers and manufacturers are too numerous for the merchants,
produce and manufactures will be plentiful and cheap; trade will of
course be lucrativ. Whenever the merchants are too numerous for the
laborers, the importations of the former will exceed the wants of the
latter; of course goods will not find vent; and the merchant who owes
nothing may lie and sleep in indolence, while the merchant who deals on
credit _must fail_. The experience of almost every day proves the _truth
of this reasoning_. I will suppose that the number of merchants, and the
quantity of goods in Baltimore, are double to what they were two years
ago; and the market for goods is nearly the same. The effect will be,
that the same profit of business will be divided among double the number
of men, while, at the same time, rents and the price of provision in
market will be double. The clear profit of the merchant will therefore
be reduced to one fourth part of what it was two years ago. I submit to
the inhabitants of this _flourishing_ town, whether this is a mere
supposition, or a moderate state of facts; and whether this reasoning
will not, in a greater or less degree, apply to every commercial town in
the United States.
But is not money scarce? With respect to the quantity of goods in store,
_money is very scarce_: With respect to the produce of the country,
there is _money enough_. Almost every article of home produce will
command cash; but the merchant cannot get cash for his goods. Money is
the representativ of goods bought and sold. I will suppose, for the sake
of argument, that two years ago there was cash enough in the country to
purchase all the goods in market at the usual advance. I will suppose
that the quantity of goods has been trebled since that time. In this
case, had the quantity of money continued the same, there would have
been cash enough to purchase just one third of the goods. But suppose
what is true, that at the time the quantity of goods increases in this
proportion, the quantity of money in circulation diminishes in the same
proportion. In this case there will be but one third of the cash to
purchase three times the goods. Thus but one sixth part of the goods can
be purchased by the circulating cash. The merchant must then lower the
price of his goods to one sixth of their value, or keep them on hand.
This reasoning, however mathematical, is just, and applies to all
commercial countries. It is a fair state of facts in America. But though
the quantity of money is greatly diminished, yet there is sufficient to
represent the produce of the country, which in quantity continues the
same. The price is however lowered by the diminution of the quantity of
circulating cash.
Whether the quantity of cash is diminished, and the quantity of goods
increased in the exact proportion above stated, is not material, the
foregoing reasoning being sufficient to illustrate the principle. The
probability is, that the disproportion between the goods in market and
the cash in circulation, is greater than I have supposed.
The following propositions, I venture to assert, are generally, if not
universally, true:
1. That the imports of a country should never exceed its exports. In
other words, the value of the goods imported should never exceed the
value of the superfluous produce, or that part of the produce which the
inhabitants do not want for their own consumption.
2. That too great a quantity of cash in circulation, is a much greater
evil than too small a quantity.
3. That too much money in a commercial country will inevitably produce a
scarcity.
4. That the wealth of a country does not consist in cash, but in the
produce of industry, viz. in agriculture and manufactures.
5. That in a commercial country, where people are industrious, there can
never be, for any long time, a want of cash sufficient for a medium.
The first proposition is universally acknowleged to be true.
The second is less obvious, but equally true. Too much money raises the
price of labor and of its effects; deprives us consequently of a foreign
market; produces indolence and dissipation; than which greater evils
cannot happen to a State. The sudden increase of money, by large
emissions of paper credit, at the beginning of the late war, produced
more luxury, indolence, corruption of morals, and other fatal effects,
than all other causes that ever took place in America. We feel these
evils to this moment. On the other hand, a scarcity of cash, tho it
cramps commerce for a moment, always checks the evils before mentioned,
lowers the price of labor, and produce will of course find a profitable
market; it produces economy and industry, and consequently preserves the
morals of the people; for industry goes further in preserving purity of
morals, than all the sermons that were ever preached.
This leads to an illustration of the third proposition. If too much
money in a country raises the price of labor and of produce, the
consequence is, that people will go abroad for articles, because they
are cheaper in foreign markets, and they will purchase as long as they
can get cash. Importations will be multiplied till the country is
drained of cash, and then business will return to a new channel. The
history of trade in America, the last two years, is an illustration of
this proposition.
The fourth proposition, also, is illustrated by facts. I will suppose
that ten millions of dollars are sufficient for a medium in America: Let
that sum be instantaneously augmented to twenty millions, and the
country is not a farthing richer, for the price of goods will be
immediately doubled. _Two_ dollars, in the latter case, purchase no more
than _one_ in the former. People ignorantly suppose that goods rise in
value; when the fact is, money falls in value. Continental currency was
a proof of this. There was cash enough for a medium in the country
before the war; and the addition of two hundred millions of dollars did
not increase the wealth of the country one farthing; nor would the whole
purchase more than the ten millions of specie which circulated before
the war. Had the paper all been Spanish milled dollars, the effect would
have been the same, had they continued in the country, and not been
hoarded.
The fifth proposition depends on this simple fact, that money is a fluid
in the commercial world, rolling from hand to hand wherever it is
wanted, and there is any thing to purchase it. Let the produce of a
country excel, in the least degree, the consumption, and it will never
want money.
Admitting the foregoing observations to be true, both the necessity and
policy of emitting paper, vanish at once. Supposing paper currency to
preserve its credit, still so far from increasing the medium of trade,
that in a few months it will drive all the specie from the country. Bank
notes and bills of exchange are useful in facilitating a change or
conveyance of property; but to issue paper credit, merely with a view to
increase the circulating medium, in a country where the people may have
just as much gold and silver as they are pleased to work for, is the
height of folly. If people are indolent, or extravagant, all the paper
currency under heaven will not make them rich, or supply their wants of
cash. If people are industrious and frugal, and purchase no more foreign
goods than they can pay for in superfluous produce, they will ever have
cash enough. Their whole system of commerce stands on these single
facts.
If the merchants bring more goods than people want, business _must be
dull_; money with them _must be scarce_. At the close of the war, cash
was plentiful and goods scarce. This made business lively, till people
had procured a supply. Remittances were made in cash, so long as it
could be obtained. That period is past, and the merchant must now look
for remittances where alone they ought ever to be found, in the produce
of the country. Business is just now returning into its proper channel,
from which it had been diverted by the violence of war, and the
fluctuations of paper credit. The rapid population of a country is an
agreeable circumstance; but every profession ought to increase in a due
proportion. Supposing ten thousand carpenters were to land in Baltimore
at once, would they have business? Or would they not exclaim, _business
is dull_, _money is scarce_? Every one might have a trifle of business,
but they could not _all make fortunes_.
An event similar to this has taken place in Baltimore. The reputation
for business which Baltimore had acquired just at the close of the war,
brought merchants here from every part of the world, and almost one half
of the town has been built within two years. How, in the name of common
sense, do the merchants expect to find business? The people who come to
this market, multiply gradually, and double in about thirty years. But
the merchants who supply the goods have doubled, if not trebled, in
numbers and stock, within three years. There is, however, an expedient
which will yet enable them all to liv by trade. Let every merchant send
abroad to Ireland or Germany, and bring over his hundred able
industrious farmers, and fix them on the fertile lands of Maryland,
which now lie useless and uncultivated in the hands of the Nabobs: Or
let three fourths of the traders quit the business. Either of these
expedients will make cash plentiful; and one of them must take place.
I will just make one further remark; the want of a proper _union_ among
the States, will always render our commerce fluctuating and
unprofitable. We may do as much business as we please; but if the duties
and restrictions on our trade remain, and the flag of the United States
is insulted as it has been, and each State is laying duties on the trade
of its neighbor, our commerce cannot be reduced to a system, and our
profits must be uncertain. The want of a _Continental Power_ to guard
the honor of the whole body, and reduce our measures to one uniform
system, is the great source of endless calamities. We shall feel
national abuse, till Congress are vested with powers sufficient to
_govern_ and _protect_ us; and till that period, foreigners, like so
many harpies, will prey upon our commerce, and disappoint the exertions
of our industry.