This section is from the "The Science Of Wealth" book, by Amasa Walker.
Fallacy 1st. That, by means of mixed-currency banks, the capital of a country is greatly increased.
Capital is the portion of wealth employed in reproduction. Money is one form of capital. To the banker or money-lender, it may be his entire capital; but, to the merchant, manufacturer, or agriculturist, it is capital only as the instrument by which he obtains those commodities which constitute his main capital, upon which he does his work, and from which he makes his profits.
Of the great mass of the world's capital, money is but a small fraction. Credit is no part at all. Capital, we have said, is that portion of wealth employed in reproduction. Money is that portion of capital which is employed in reproduction, for the special purpose of effecting easily that exchange of values which itself confers value, because done by labor.
To the greater part of mankind, money is only the means by which capital is obtained from those who have it.
Now, were it not for mixed-currency banks, all the capital loaned in the form of money would be reliable. Mixed currency, for the time being, takes the place of actual money, and becomes an instrument by which capital is transferred. But its nature is, as we have seen, to issue in greater volume than necessary for the wants of commerce, and, by this, to disturb the business of the country, cause an unnatural rise of prices, an increase of imports, a decrease of exports, and finally a call for real money, which will cause the withdrawal of all the extra currency at the very moment when, owing to the increased indebtedness it has caused, it is more needed than at any other period. It will then be discovered that this excess was not capital, or actual value, but credit, in the guise of capital, which the mixed-currency banks had issued, and which they were compelled to withdraw when most wanted.
Fallacy 2d. That mixed currency is cheaper than a value currency, more economical, and therefore more desirable.
Specie costs much labor. Paper costs but little in comparison: therefore, as it answers the same purpose, and is more conveniently handled, it confers a benefit. This is a popular idea.
Money, we have said, is an instrument, nothing else; we do not eat, drink, or wear it. All tools, instruments, or appliances should be as cheap as possible, provided, always, they are safe and efficient. It would be cheaper to have ploughs made wholly of wood. They would be lighter, and quite as handsome, as when made partly of iron. But would they be as useful, and, in the end, as profitable?
A paper cap is cheaper than one of leather or cloth; but would it be as durable and comfortable? If not, although in the first instance it costs less, it would not be desirable for use. The same principle applies to money.
If what we have already said of a mixed currency is true, it is wanting in those qualities which would make it cheaper than a value currency. It does not discharge fully or perfectly a single function of money. It deranges trade, because it does not obey the laws of trade. It increases credit enormously, by its expansions, because it is itself credit; and impairs it by its contractions when its own credit is blown upon.
But the gain by this substitution of credit for value in the currency is insignificant, when compared with the great interests of trade.
The average of paper circulation in the United States from 1850 to 1859, inclusive, ten years, was not more than $6.25 per capita. If from this we deduct the average specie per capita for the same time held by the banks, viz. $2.25, we shall have left $4.00, as the amount for each individual of credit circulation. On that amount, the saving, if any, is to be made. If we compute the interest at six per cent, we have twenty-four cents as the annual saving to each individual by the use of credit currency; a saving worth the attention of the statesman, if it could be properly and safely made, but paltry in comparison with the losses and disturbances incident to a mixed currency.
In this connection, it seems proper to introduce a distinct calculation of the damage occasioned to the people generally from this cause.
On the 7th of January, 1841, Congress requested of the Secretary of the Treasury, first, a return of the losses sustained by the government from using banks as depositaries, and by its connection generally with them; and, secondly, the amount the people had lost on account of the banks and their issues. The replies were in substance as follows: * —
Losses sustained by government to the year 1837 . . $15,492,000
„ sustained by the public.........108,885,721
„ by bank suspensions and by depreciated notes . 95,000,000
„ by destruction of bank-notes......7,121,332
„ by counterfeits beyond losses by coin.... 4,444,444 „ by fluctuations, revulsions, sacrifices .... 150,000,000