Such would be the state of things if the interchange betweenthe English manufacturer and the American agriculturist were aslittle restricted as the interchange between the Englishmanufacturer and the Irish agriculturist is.But they are and mustbe different: if England imposes a duty on American tobacco of fromfive hundred to one thousand per cent; if she renders theimportation of American timber impossible by her tariffs, andadmits the American means of subsistence only in the event offamine, for at present the American agricultural production cannotbalance itself with the American consumption of Englishmanufactured goods, nor can the debt incurred for those goods beliquidated by agricultural products; at present the Americanexports to England are limited by narrow bounds, while the Englishexports to North America are practically unlimited; the rate ofexchange between both countries under such circumstances cannotequalise itself, and the indebtedness of America towards Englandmust be discharged by exports of bullion to the latter country.
These exports of bullion, however, as they undermine theAmerican system of paper circulation, necessarily lead to the ruinof the credit of the American banks, and therewith to generalrevolutions in the prices of landed property and of the goods incirculation, and especially to those general confusions of pricesand credit which derange and overturn the economy of the nation,and with which, we may observe, that the North American free Statesare visited whenever they have found them selves unable to restorea balance between their imports and their exports by S tate tariffregulations.
It cannot afford any great consolation to the North Americanthat in consequence of bankruptcies and diminished consumption, theimports and exports between both countries are at a later periodrestored to a tolerable proportion to one another.For thedestruction and convulsions of commerce and in credit, as well asthe reduction in consumption, are attended with disadvantages tothe welfare and happiness of individuals and to public order, fromwhich one cannot very quickly recover and the frequent repetitionof which must necessarily leave permanently, ruinous consequences.
Still less can it afford any consolation to the NorthAmericans, if the popular theory maintains that it is anindifferent matter whether large or small quantities of preciousmetals are in circulation; that we exchange products merely forproducts; whether this exchange is made by means of large or smallquantities of metallic circulation is of no importance toindividuals.To the producer or proprietor it certainly may be ofno consequence whether the object of his production or of hispossession is worth 100 centimes or 100 francs, provided alwaysthat he can procure with the 100 centimes as large a quantity ofobjects of necessity and of enjoyment as he can with the 100francs.But low or high prices are thus a matter of indifferenceonly in case they remain on the same footing uninterruptedly for along period of time.
If, however, they fluctuate frequently and violently,disarrangements arise which throw the economy of every individual,as well as that of society, into confusion.Whoever has purchasedraw materials at high prices, cannot under low prices, by the saleof his manufactured article, realise again that sum in preciousmetals which his raw materials have cost him.Whoever has bought athigh prices landed property and has left a portion of the purchasemoney as a mortgage debt upon it, loses his ability of payment andhis property; because, under diminished prices, probably the valueof the entire property will scarcely equal the amount of themortgage.Whoever has taken leases of property under a state ofhigh prices, finds himself ruined by the decrease in prices, or atleast unable to fulfil the covenants of his leases.The greater therising and falling of prices, and the more frequently thatfluctuations occur, the more ruinous is their effect on theeconomical conditions of the nation and especially on credit.Butnowhere are these disadvantageous effects of the unusual influx orefflux of precious metals seen in a more glaring light than inthose countries which are entirely dependent on foreign nations inrespect of their manufacturing requirements and the sale of theirown products, and whose commercial transactions are chiefly basedon paper circulation.
It is acknowledged that the quantity of bank notes which acountry is able to put into and to maintain in circulation, isdependent on the largeness of the amount of metallic money which itpossesses.Every bank will endeavour to extend or limit its papercirculation and its business in proportion to the amount ofprecious metals lying in its vaults.If the increase in its ownmoney capital or in deposits is large, it will give more credit;and through this credit, increase the credit given by its debtors,and by so doing raise the amount of consumption and prices;especially those of landed property.If, on the contrary, an effluxof precious metals is perceptible, such a bank will limit itscredit, and thereby occasion restriction of credit and consumptionby its debtors, and by the debtors of its debtors, and so on tothose who by credit are engaged in bringing into consumption theimported manufactured goods.In such countries, therefore, thewhole system of credit, the market for goods and products, andespecially the money value of all landed property, is thrown intoconfusion by any unusual drain of metallic money.
The cause of the latest as well as of former Americancommercial crises, has been alleged to exist in the Americanbanking and paper system.The truth is that the banks have helpedto bring about these crises in the manner above named, but the maincause of their occurrence is that since the introduction of the '
