CURRENCY AND BANKING SYSTEM
BY ALBERT GALLATIN.
Originally published by Carey & Lea in 1831
First Greenwood reprinting, 1968
Library of Congress catalogue card number : 68-28630
This Essay was prepared for the American Quarterly Review of December, 1830. The labor of digesting and condensing several hundred bank returns proved much greater than had been anticipated ; and the time was too short for a thorough investigation. They have been now carefully examined, and the general results are, it is believed, as correct, as can be expected from the materials on hand. Several transpositions and verbal alterations have also been made ; some short explanatory notes have been added ; and tabular statements are annexed, which could not be inserted in a Review.
THE framers of the Constitution of the United States were deeply impressed with the still fresh recollection of the baneful effects of a paper money currency, on the property and on the moral feeling of the community. It was accordingly provided by our National Charter, that no state should coin money, emit bills of credit, make any thing but gold and silver coin a tender in payment of debts, or pass any law impairing the obligation of contracts ; and the power to coin money and to regulate the value thereof, and of foreign coin, was, by the same instrument, vested exclusively in Congress. As this body has no authority to make any thing whatever a tender in payment of private debts, it necessarily follows, that nothing but gold and silver coin can be made a legal tender for that purpose, and that Congress cannot authorize the payment, in any species of paper currency, of any other debts but those due to the United States, or such debts of the United States as may, by special contract, be made payable in such paper. All the engagements previously contracted at home, by the United States, were expressed in Spanish dollars ; all the moneys of account of the several states, were estimated and payable in that coin ; there might be some uncertainty as to the precise weight of pure silver which it contained ; and the assays made at the time, may not, for want of proper means, have had all the accuracy of which that process is susceptible. But they were made in good faith ; and the Act of Congress of the year 1791, which declared that the dollar of the United States should contain 371¼ grains of pure silver, has irrevocably fixed that quantity as the equivalent of a dollar of account, and as the permanent standard of value, according to which all contracts must be performed. The relative legal value of gold and foreign coins to that standard, may from time to time be varied, provided that neither shall be so overrated, as to authorize the payment of a debt with an amount in such coin of a less actual value, than that of the silver to which it may be made to correspond.
The provisions of the Constitution were universally considered as affording a complete security against the danger of paper money. The introduction of the banking system, met with a strenuous opposition on various grounds ; but it was not apprehended that bank notes, convertible at will into specie, and which no person could be legally compelled to take in payment, would degenerate into pure paper money, no longer paid at sight in specie. At a later date, although occasional bankruptcies had taken place, and might again be anticipated, there was no apprehension of a general failure of the banks in three-fourths of the states. Still less was it expected, and it was the catastrophe of the year 1814 which first disclosed not only the insecurity of the American banking system, as then existing, but also, that when a paper currency, driving away, and superseding the use of gold and silver, has insinuated itself through every channel of circulation, and become the only medium of exchange, every individual finds himself, in fact, compelled to receive such currency, even when depreciated more than twenty per cent., in the same manner as if it had been made a legal tender. The establishment of the Bank of the United States was recommended by the Treasury, and that Institution was incorporated by Congress, for the express and avowed purpose of removing an evil, which the difference in the rate of depreciation, between the paper currencies of the several states, and even those of different places in the same state, had rendered altogether intolerable. The object in view has been obtained. The resumption of specie payments, which the state banks had been unwilling or unable to effect, took place immediately after that of the United States had commenced its operations. And it has, for a number of years, supplied the country with a currency safer, and, it must at least be allowed, more uniform, than that which the state banks could furnish. The question, whether the charter, which expires in a few years, should be renewed has been brought by the President before Congress, with a suggestion that a national bank, founded upon the credit and revenues of the government, might be advantageously substituted, to that now in existence. Reports favorable to the continuance of the present bank, have been made by committees of both houses of Congress. Another report, on the relative value of gold and silver, and intimately connected with the subject of currency, has also been made by the Secretary of the Treasury to the Senate. Availing ourselves of the information afforded by those documents, and particularly of the arguments adduced in Mr. MDuffies able report, we intend to examine this important question, principally in reference to the currency of the country, considered as the common standard, by which the value of all the other commodities is estimated, and every contract is performed.
Whatever commodity or species of paper may, by law or general consent, be universally received in any country, in exchange of every other commodity, and in payment of all debts, is the circulating medium or currency of such country, or in other words, its common standard of the value of all commodities whatever, and that which regulates the performance of all contracts not specially excepted. It is therefore of primary importance, that the commodity or substitute, which may be selected for that purpose, should be of a value as permanent as practicable, and the same in every part of the same country ; and it is also highly desirable, that the same circulating medium should be common to all countries connected by commerce. Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations. It is not necessary to enumerate the well-known properties which rendered them best fitted for a general medium of exchange. They were used, not only as ornaments and objects of luxury, but also for that particular purpose, from the earliest times. We learn from the most ancient and authentic of records, that Abraham was rich in cattle, in silver, and in gold ; that he purchased a field for as much money as it is worth, and in payment weighed four hundred shekels of silver, current (money) with the merchant. And when we see that nations, differing in language, religion, habits, and on almost every subject susceptible of doubt, have, during a period of near four thousand years, agreed in one respect ; and that gold and silver have, uninterruptedly to this day, continued to be the universal currency of the commercial and civilized world, it may safely be inferred, that they have also been found superior to any other substance in that permanency of value, which is the most necessary attribute of a circulating medium, in its character of the standard, that regulates the payment of debts, and the performance of contracts.
There is not, however, in nature, any perfect or altogether permanent standard of value. There is not a single commodity, the relative value of which, as compared to that of all other commodities, is not subject to great and permanent changes as well as to temporary fluctuations. But it will be found, that the nature of the demand for precious metals, the comparative regularity of the supply, and especially their much greater durability and intrinsic value, than those of any other substance otherwise fitted for a circulating medium, restrain the fluctuations to which the relative value is liable, within far narrower limits, than is the case with any other commodity which might have been selected for a currency.
It is well known that the discovery of America was followed by a great and permanent change in the price of the precious metals, which reduced it to one-fourth of their previous relative value as compared to all other commodities. This great revolution was due to a simultaneous vast increase of the supply and corresponding reduction in the cost of production of the metals. The American mines of silver do not lie nearer the surface of the earth than those of other countries ; the ore rarely yields more silver than one-fourth per cent. of its weight ; nor was there at the time any improvement adopted that tended materially to lessen the expense of extracting the silver from the ore.* The superiority of the silver mines of America, appears to consist, principally, in the magnitude of the beds, and the much greater quantity of ore which can accordingly be dug out with the same labor. The annual labor of one miner at the mine of Valenciana, the most fertile of Mexico, was sufficient, in 1803, to extract from the bowels of the earth, four hundred quintals of ore, which produced one quintal of silver ; and the annual produce of the mine exceeded three millions of dollars in value, (about 220,000 lbs. troy weight) : whilst, at the richest mine of Saxony, the annual labor of eleven miners was necessary to extract the ore sufficient to produce a quintal of silver ; and the annual produce was less than ninety thousand dollars, (about 6,200 lbs. troy weight). Although the money price of mining labor appears to be five times greater in Mexico than Saxony, and notwithstanding the want of fuel and other circumstances which increase the current expenses, the cost of production was still much less at the Mexican than at the Saxon mine, and left a considerable rent to the owner. The Saxon mine, though probably as rich as any that was in operation in Europe prior to the discovery of America, could not, on account of the difference in the rate of wages, be worked if situated in Mexico. It follows, that all the American silver mines are superior to it in fertility, though in that respect differing from each other, and gradually decreasing from that of Valenciana, down to the poorest, which probably affords no rent to the owner.
The American mines, or washings of gold, are in the same manner more fertile, or, with the same labor, produce much greater quantities of pure metal than those of Europe. But the difference must have been less with respect to gold than to silver mines. The relative value of gold to silver was, before the discovery of America, at the ratio of 11 or 12, and is now at that of 15 or 16 to 1. If the depreciation in the value of silver has been at the rate of 4 to 1, that of gold has been only at the rate of about 3 to 1 : and this may afford some reason to think, that, of the two metals, gold is probably the most permanent standard of value. It must be observed, that, though wanted for similar purposes, the relative value of gold to silver does not depend on any supposed similarity or connexion between the two metals, but is the result of their respective prime cost, which determines the value of each in relation to that of all other commodities.
As the total importation of precious metals from America to Europe had not, prior to the year 1596, exceeded a quantity equal to that contained in eight hundred millions of dollars, and the depreciation was then already at the rate of about 3½ to 1, it is probable that the total amount of gold and silver existing in Europe prior to the discovery of America, though worth then four times as much, did not in quantity exceed that contained in three hundred millions of dollars, money of the present times.
The total amount of gold and silver produced by the mines of America, to the year 1803, inclusively, and remaining there or exported to Europe, has been estimated by Humboldt at about five thousand six hundred millions of dollars ; and the product of the years 1804-1830, may be estimated at seven hundred and fifty millions. If to this we add one hundred millions, the nearly ascertained product to this time of the mines of Siberia, about four hundred and fifty millions for the African gold dust, and for the product of the mines of Europe, (which yielded about three millions a year in the beginning of this century,) from the discovery of America to this day, and three hundred millions for the amount existing in Europe prior to the discovery of America, we find a total not widely differing from the fact, of seven thousand two hundred millions of dollars. It is much more difficult to ascertain the amount which now remains in Europe and America together. The loss by friction and accidents might be estimated, and researches made respecting the total amount which has been exported to countries beyond the Cape of Good Hope ; but that which has been actually consumed in gilding, plated ware, and other manufactures of the same character, cannot be correctly ascertained. From the imperfect data within our reach, it may, we think, be affirmed, that the amount still existing in Europe and America certainly exceeds four thousand, and most probably falls short of five thousand millions of dollars. Of the medium, or four thousand five hundred millions, which we have assumed, it appears that from 1/3to 2/5 is used as currency, and that the residue consists of plate, jewels, and other manufactured articles. It is known, that of the gross amount of seven thousand two hundred millions of dollars, about 1800 millions or ¼th of the whole in value, and 1/48th in weight, consisted of gold. Of the four thousand five hundred millions, the presumed remaining amount in gold and silver, the proportion of gold is probably greater, on account of the exportation to India and China having been exclusively in silver, and of the greater care in preventing every possible waste in an article so valuable as gold.
In order, therefore, to produce a revolution in the price of gold and silver, such as was caused by that event, mines must be discovered, which, in thirty or forty years, should produce, in addition to the supply required by the increasing demand, thirteen or fourteen thousand millions of dollars, or three times the quantity now existing ; and this increased supply must be accompanied with a corresponding reduction in the cost of production. It is obvious, that the discovery of one hundred new mines, even superior in magnitude, and equal in other respects to that of Valenciana, would only cause mines of inferior fertility to be abandoned, and could produce no greater effect on the price of silver, than reducing it to the actual cost of production at the mine of Valenciana. The expense of extracting the silver from ore of a given quality, once brought to the surface of the earth, bears too small a proportion to the whole expense of working a mine, to render it possible that any improvement in that process should cause any great reduction in the price of the metal. It does not appear that such reduction can be effected, otherwise than, either by the discovery of numerous and large beds of ore, much richer in silver than any yet worked, or by a great reduction in the money price of labor in America. Judging from analogy, the first event, at least to a sufficient extent, is altogether improbable ; and the last contingency cannot take place but slowly and gradually. On the other hand, the diminution in the annual supply for the last twenty years, having been exclusively caused by the convulsions attending the revolutions of the new American states, is but temporary ; and the successive numerous discoveries of new mines, during the seventeenth and eighteenth centuries, render it highly probable, that, after order and security shall have been restored in those states, a similar progress will take place, and continue, as heretofore, to produce an increasing annual supply, corresponding with the increasing demand. This demand, also, being always proportionate to the wealth and prosperity of the civilized world, can increase but gradually. It is, therefore, highly improbable, that any new revolution should again occur, producing effects in any degree similar to those which followed the discovery of America, or that there should be any other permanent alteration in the price of the precious metals, but such slow and gradual changes as cannot substantially affect the due performance of the great mass of ordinary contracts. Before we examine the temporary fluctuations in price, to which both gold and silver are liable, it is necessary to inquire into the nature of the demand for those metals.
Mines being, like tillable land, private property, and of different fertility, the rent of either, as well as the intrinsic value of their respective produce, are regulated by analogous laws. But there is an essential difference between the demand for corn and that for the precious metals. That for corn, or the ordinary article of food, is for an amount in quantity, without much regard to value. That for gold and silver is for an amount in value and not in quantity. More food is consumed and may be wasted in plentiful years, than in those of scarcity. But there is always a certain quantity of corn, or other usual article of food, determined by population, and which must necessarily be supplied at any price, without any other limits than actual deficiency in the supply, or absolute inability to pay the market price ; and in either case a portion of the suffering population must perish. In a country requiring annually at least fifty millions bushels, or any other quantity of corn, for the necessary subsistence of its inhabitants, there is a most imperative demand for that amount, or a substitute for it ; and this must be satisfied, if the amount can be procured at all, and at any price, provided the country can by any means pay for it. The demand for corn is therefore for a certain quantity regulated by the population, and not for a certain value proportionate to the income, capital, or wealth of the country.
But the demand for gold and silver is, either for plate, jewels, and other manufactured articles, such as plated ware, gilding, &c.; in which those metals are used, or for currency. It is evident, that all, or nearly all those objects of demand being, with the exception of currency, articles of luxury, the effective demand for them, including both the wish to possess and the means to pay, must be proportionate to wealth, and therefore for a certain amount in value and not in quantity. No individual can lay out more than a certain portion of his income or capital in plate and jewels. If the price of the precious metals is reduced to one fourth of what it previously was, as happened during the latter end of the sixteenth century, he will be able, with the same income, to obtain four times the quantity of plate and gold ornaments which he formerly possessed, because their value remains the same. But the increased cheapness will in a very inconsiderable degree, if at all, have a tendency to increase the amount in value of gold and silver articles which will be used. An individual may be induced by such great reduction in the price of silver, to substitute silver spoons or forks to those made of inferior metal ; but so long as silver spoons or forks are dearer than those of any other metal, he cannot, his income remaining the same, indulge his wish without retrenching his expenses in some other respects, and without depriving himself of some other comforts. What is true of every individual in every country, is equally so of the aggregate of individuals, or of every country. The demand for an increased value of plate, jewels, and other articles manufactured, in whole or in part, of gold or silver, with the exception perhaps of a few articles in general use amongst all classes, will everywhere be nearly in proportion to the wealth of each country respectively. And what is nearly correct, as regards the demand far manufactures of gold and silver, is strictly true as applied to the demand for those metals for currency.
As a silver dollar, or dollar bank note, passing from hand to hand, effects in a given time, a year for instance, a great number of payments, the amount of currency wanted in any country is always much less than the gross amount of payments made in currency within the same time. The amount thus wanted is that which is necessary and sufficient, for the payment of all such purchases of land, labor and product of labor (embracing every species of commodities and capital) as are paid with currency. Its value must always, therefore, bear a certain proportion to the aggregate value of the land, labor, and all objects whatever, thus paid for with currency. That proportion, as well as that which the value of the annual purchases effected with currency may bear to the value of the whole amount of annual exchanges and purchases of the country, whether effected with currency or by any other means, mint vary, and cannot be precisely ascertained. But, whatever either of these two ratios may be, the average value of the various objects purchased, which are paid for in currency within a given time, a year for instance, will always require a certain proportionate value of currency. The average value of the objects, thus annually paid for, determines the total average amount in value of currency which is requisite, and in the case before us, the average value of precious metals which is wanted for currency, and for which there is an actual demand for that purpose.
Let it be supposed that the amount of currency wanted in a country, is one-tenth part of the whole amount of the annual payments made there in currency ; and that the currency consisting exclusively of silver, there are annually in that country one million of bushels of wheat sold and paid for in currency. It is clear, that if the relative value of silver to wheat be such in such country, that one ounce of silver is the equivalent and common price of a bushel of wheat, one hundred thousand ounces of silver will be necessary and sufficient to effect the payment of all the wheat annually sold and paid for in currency. If on account of a reduction m the cost of its production, or from any other cause, the value of silver, as compared to that of all other commodities, should be reduced to one-half of what it previously was, the value of wheat, as compared with that of all other commodities, silver excepted, remaining the same as before, two hundred thousand ounces of silver would be necessary to effect the payment of the one million of bushels of wheat sold for currency during the year. But although the quantity of silver (or nominal amount of currency) wanted, was twice as great as before, the value would remain precisely the same, two hundred thousand having become worth no more than one hundred thousand ounces had previously been. If, instead of this, the value of silver had undergone no change, and either the quantity of wheat, annually sold and paid for in currency, had increased to two millions of bushels, its price remaining the same, or, the quantity thus sold remaining the same, the value of wheat as compared to all other commodities had doubled, as the two hundred thousand ounces of silver, wanted to effect the payments of the sales of wheat, would actually be worth twice as much as the one hundred thousand ounces had been, the value of currency wanted would be twice as great as theretofore.
What is true of the proportionate value of the currency, wanted to effect the payment of the quantity of wheat annually paid for in currency, to the value of that wheat, is equally true of the proportionate value of the currency, wanted to effect the payment of the whole amount of land, labor, and products of labor, annually paid for in currency, to the aggregate value of all those objects. Although the proportion may vary, according to the rapidity of the circulation, and to the means used in order to economize the currency, it is always that aggregate value, which determines the value of the currency wanted in any country. Whilst that aggregate value remains the same, any great variation in the amount in quantity of the currency must be due to a change, or cause a change, in its value, as compared with that of all other commodities. Where gold and silver are the only currency, any great and permanent increase in the quantity of those metals used as currency, (the aggregate value of the objects annually paid for in currency remaining the same,) must be due to a corresponding reduction in the cost of production of gold and silver ; which cost, leaving to the owners of mines a greater or less rent according to their fertility, determines the value of those metals as compared with that of all other commodities. Where a paper has been substituted to a metallic currency, any similar considerable increase in its amount must cause a corresponding depreciation in its value, if the aggregate value of the objects, annually paid for in currency, remains the same.
The amount in value of the currency wanted to effect the necessary payments, though but a comparatively small portion, is one of the most important, productive, and necessary portions of the capital of a nation. Its use is substituted to an inconvenient barter or exchange of one commodity for another ; it enables every individual to dispose at all times, and with facility, of the whole surplus of the products of his industry, and to purchase with the proceeds any of the products of the industry of others which he may want ; it promotes the division of labor, and vivifies the industry of the whole country. But whenever the precious metals used as currency exceed in any country the value wanted to effect the necessary payments, the surplus becomes a dead and unproductive stock ; and it will, accordingly, be either converted into manufactured articles of those metals, or be exported to other countries. If on the contrary the currency should consist of an irredeemable paper, having only an artificial and local value, and none whatever, either in other countries or for any other purpose ; it is evident that any excess in the nominal value of such currency, beyond the actual value sufficient to make the necessary payments, must cause a corresponding depreciation in that nominal value. If fifty-five millions of ounces of pure silver, at its present value as compared with all other commodities, are sufficient on an average to effect all the payments made in the United States in currency, the whole quantity of a paper currency substituted to silver, cannot, on an average, whatever its nominal amount may be, exceed in value fifty-five millions of ounces of pure silver, or about seventy-one millions of dollars in our present coin. Whether such currency amounted nominally to seventy-one, one hundred, or one hundred and forty millions of dollars, its value would not, on an average, exceed that of the seventy-one millions of silver dollars wanted to effect the necessary payments ; and the paper money would generally depreciate at least in proportion to the excess of its nominal amount beyond seventy-one millions of silver dollars. Having recurred to numbers by way of illustration, it is proper to observe, that we do not mean to assert that the total value of currency wanted in any country is a fixed sum. Even when no alteration has taken place in the industry and commerce of a country, the amount of currency may occasionally, to a certain extent, exceed that which is actually wanted, without affecting its price. An approximation of the average amount, which always fluctuates within certain limits, is all we pretend to give.
It is obvious that the aggregate value of the annual payments made in currency, which regulates the value of the currency wanted, must itself principally depend on the aggregate value of the land, labor, products of labor, and in short of all the objects which are or may be annually sold or exchanged. The amount of the value of currency wanted, or the demand for currency in every country, depends therefore principally on its wealth, but is modified in some degree by the state of society. The wages of labor, and the rent of land, are, in most countries no inconsiderable portion of the objects which must be paid for in money. Countries where slave is generally used instead of free labor, or where, as in the United States, the greater part of the land is occupied and tilled by the owners, or, when rented, let generally on shares, will, therefore, with equal wealth, require a less proportionate amount of currency in value. Less is also wanted in purely agricultural countries, and everywhere by those engaged in agriculture, than in any other profession. As a far greater part of the income of almost every individual is expended on articles of food, than on the product of any other one branch of industry, farmers consume a much greater part of the products of their own industry, and they therefore have a less proportionate amount of those products to exchange for the products of the industry of others, than any other profession. Barter continues also to be a principal mode of exchange in the country, at least in a great portion of the United States, where the planter and farmer obtain from time to time their supplies from the merchant, and pay him annually with their crop. It may be said, generally, that, with respect to the state of society, the want and demand for currency increase in proportion to the density of the population, the consequent multiplication and growth of towns, and the division of labor. And these being almost exclusively the result of the increasing growth, prosperity, and wealth of a country, it may be correctly asserted, that the demand for currency in any country is generally proportionate to its wealth.
That demand increases in proportion to that of population, only in as far as population is a principal element of wealth; and both will increase together, nearly in the same proportion, in a country which in other respects is nearly stationary. But the ratio of the population to the actual amount of currency, which always corresponds nearly with the demand for it, will be found to differ materially in various countries, according to the productiveness of labor, to the accumulated amount of products of labor or capital, and generally to the wealth of each respectively. The perpetual melting of coins, makes, indeed, the amount of coinage alone, and without many subsidiary investigations, a very imperfect criterion of the amount of gold and silver coins existing in any country. A much more correct estimate may be made, where paper or debased coin, neither of which can be advantageously exported or used for any other purpose, constitute the whole or greatest part of the currency. And resorting to both means, an approximation sufficient for the purpose may be obtained.
We learn from Storch, that the paper money of Russia, amounted, in 1812-1814, to five hundred and seventy-seven millions of rubles, and the copper currency to about twenty-five millions. Both being depreciated to one-fourth part of their nominal value, were equivalent to one hundred and fifty millions of silver rubles ; to which adding the estimated amount of twenty-five millions of silver rubles still in circulation, gives a total of one hundred and seventy-five millions, equal to less than one hundred and thirty-two millions of dollars. The paper circulates, almost through the whole empire, from Archangel to Odessa, and from the banks of the Dwina to the confines of Asia. Excluding Riga, Courland, and the Asiatic provinces, the one hundred and thirty-two millions of dollars are the total value of currency, for at least thirty-five millions of souls, that is to say, at the rate of less than four dollars a head.
It will hereafter be shown, that the amount of currency of the United States, did not, in 1829, probably exceed seventy-three millions of dollars, or at the rate of about six dollars a head ; a result nearly the same as that of the year 1819. The reasons, why the amount is less than might have been inferred, from the extensive commerce of the United States, and the wealth of our large cities, have already been briefly indicated.
In France, where great pains have been taken to ascertain the facts, as far as it is practicable, in a country, nine-tenths at least of the currency of which consist of the precious metals, the estimates vary, for different years and different amounts of population, from two thousand to two thousand five hundred millions of francs, but only from seventy-two to eighty francs, or from thirteen and a half to fifteen dollars a head.
The bank notes of the Bank of England, and of country banks, amounted, in the year 1811, to forty-four and a half millions sterling, and those of Scotland to three millions and a half, equivalent, together, to about forty-four millions specie, to which adding about four millions worth of debased silver, gives, on a population of about twelve millions of souls, about £4 sterling, or 19 dollars a head. In 1829, the amount has been stated to be twenty-two millions in gold, eight millions in silver, and twenty-eight millions in English bank notes, to which, adding four millions of Scotch notes, gives sixty-two millions, or about the same result in proportion to the population ; since this, allowing the same rate of increase since 1821, as between 1811 and 1821, must now amount to between fifteen and sixteen millions of souls. But, including the population and the bank notes of Ireland, we would have a population of about twenty-three millions, and a currency of about sixty-six millions sterling, or, as in France, about fourteen dollars a head.
From these and more imperfect data, in relation to other countries, we believe that the total amount of currency in Europe and America, may be estimated at two thousand to two thousand three hundred millions of dollars ; three-fourths of which consist of the precious metals, and the residue of bank notes and irredeemable paper money.
The amount in weight or quantity of gold and silver, is now fifteen times as great in Europe and America, as it was prior to the discovery of the last country. But the three hundred millions previously existing, were then worth as much as twelve hundred millions at this time. The increase, so far as it consists only in amount, and has been caused by the reduced cost of production, is, with respect to currency, of no importance whatever. It is quite immaterial to the community, whether one thousand ounces of silver, will, on an average, purchase one thousand or four thousand given measures or weights of every other commodity. Had not that reduction taken place, four hundred millions of dollars in currency would have answered the same purpose as is now effected by sixteen hundred millions, without any other difference, than probably the use of coins of base metal, instead of our dimes and half dimes. But the increase from twelve hundred millions, (the present worth of the former three hundred millions,) to four thousand five hundred millions ; is an increase in value, and indicates a corresponding, and, on account of the numerous substitutes for currency introduced by commerce and credit, a still greater proportionate increase of the wealth and prosperity of Europe and America together, during the two last centuries. That increase of value has no otherwise contributed to this increased wealth, than as far as it has added to the amount of exchangeable commodities ; and the same effect would have been produced by a similar increase in any other commodity. The increased wealth and prosperity of Europe and America are the cause, and not the effect, of the increased amount in value of gold and silver, which they now possess. The causes of that great increase of wealth, are not to be found in the fertility of the mines of America, but in the general progress of knowledge, skill, and every species of industry, in the consequent improvement of governments, laws, and habits, in all that constitutes what is called civilization. The influx of precious metals follows in every country, and does not precede the corresponding increase of wealth.
As the regularity of the annual supply of the precious metals is not affected by the seasons, the changes in the amount of that supply, had, during the two last centuries, been gradual, and hardly sensible from year to year. That, which has taken place within the last twenty years, has been greater than had been experienced, since the first great revolution caused by the discovery of America. The annual supply of the mines of America, Asia, and Europe, had reached its highest point, in the years 1803-1810, and amounted then to fifty millions of dollars, or to about one and one-fourth per cent. Of the whole quantity of precious metals then existing in Europe and America. The convulsions of the former Spanish colonies have, for the last twenty years, reduced the total annual supply to about twenty-seven millions, or to about three-fifths per cent. of the whole amount now existing. A diminution of one-half of the ordinary supply of any other commodity, the demand remaining the same, would have produced a still greater proportionate increase in its price. Continued during twenty years, this diminished supply of the precious metals, whilst the demand is still gradually increasing, cannot but have affected, in some degree, their price ; and if prolonged much longer, the effect would be visible ; but it has been gradual, from year to year imperceptible, and affecting in no sensible manner the performance of contracts. This is obviously due to the comparative small amount of the ordinary supply, which does not exceed one hundredth part of the stock on hand, whilst the annual supply of corn and of most other natural products always exceeds, and that of most manufactured articles often equals, the amount of the old stock. The superior durability and value of the precious metals, over every other substance (including even iron, copper, and other metals) fitted for a circulating medium, which produce and preserve the great accumulation of gold and silver, are the principal cause of their great superiority over every other commodity, as a permanent standard of value.
For the same reasons, any accidental inequality in the distribution of the precious metals, amongst the several countries, in proportion to their respective wants, is promptly and easily repaired ; and any extraordinary demand from a particular country met without difficulty, or sensibly affecting the price of the metal required. The general supply of stock on hand, is always sufficient to meet such demand, and the expenses and charges of transportation are, on account of the greater value of an equal bulk, far less than those of any other commodity, hardly ever exceeding in time of peace one per cent. on the value, even when brought from the most distant countries of the civilized world. During the four years which immediately followed the resumption of specie payments in England, that occurrence caused an extraordinary demand of more than twenty millions sterling in gold, or about twenty-four millions of dollars a year, being near three times as much as the annual supply of that metal ; and this demand was met without any difficulty, or sensibly enhancing the price of gold. As the gold coins of France are, by the mint regulations of that country, a little overrated in relation to those of silver, they always command a small premium, varying generally from one-fifth to one-half per cent. This premium never exceeded the last rate during the years of that demand ; which is a conclusive proof that it could not at most, and at any time, have enhanced the price of gold more than three-tenths per cent.; since, in that case, the advance would have also taken place in France, whence, in fact, a considerable portion of that demand was supplied. This decisive fact also shows, that it is erroneously that the exportation of American gold coins, which commenced in the year 1821, has been ascribed to that extra ordinary demand. The exportation has been continued uninterruptedly, after that cause had ceased to operate, and, as will be seen hereafter, is due to the alteration from that epoch in the rate of exchanges.
But it is nevertheless true, that as the value of the various objects exchanged or sold annually in a country, and, what is still more important, as the proportion of that value to the amount of the actual payments which must be made in currency, are both subject to variations, the amount of currency wanted in a country does, exclusively of the gradually increasing demand caused by an increasing prosperity, vary at different times in the same country. That amount ought, therefore, in prosperous seasons, to exceed that which is then necessarily wanted, in order to be able to meet the greater demand which at times takes place. There are, in every country, banks, bankers, and great dealers, in whose hands the currency of the country accumulates, to be thence again distributed amongst the members of the community, according to their respective wants. Obliged to meet those demands, it is their interest and duty to keep always those reservoirs sufficiently full. In countries where no artificial substitute has rendered the task more difficult, and where specie is the sole or principal currency, although there may be occasional varieties in its value, they are of rare occurrence and restrained within narrow limits ; and an actual want of specie is hardly ever known.
* Humboldts New Spain.