This section is from the "The Science Of Wealth" book, by Amasa Walker.
This is, doubtless, a very idle assumption, unworthy of discussion. Yet thousands are influenced by it.
A coincidence is taken, by force, for a cause.
The United States have prospered greatly, and at the same time there has been a large consumption of intoxicating drinks. Surely this does not prove that the prosperity of the country was caused by the use of liquor.
Has the country flourished by reason of, or in despite of, such use? Intoxicating liquors stimulate men to greater effort; therefore they increase production. Mixed currency stimulates exchanges, increases prices, promotes speculations; therefore it is favorable to production.
Such is the reasoning, and it is equally good in each case. In both, the misdirection of effort and the certain depression of energy are kept out of sight. Mixed currency never gave strength or wisdom or skill or economy to any human being, and therefore never can have increased the products of the country, or enlarged its wealth, in any manner whatever. Its unnatural excitements are followed by unnatural prostration. Men do not work more, but they trade more, speculate more, and squander more, during the flood-time of an expansion. More is expended for foreign luxuries; there is more extravagance and waste, which superficial observers take to be indications of prosperity. In the time of reckoning, trade is as much depressed as it was falsely stimulated.
Fallacy 4th. That there is not gold and silver enough in existence to form a currency adequate to the rapidly extending operations of commerce; and therefore resort must be had to paper substitutes.
Twenty years ago, this was regarded as an unanswerable argument in favor of credit currency. The recent discoveries of apparently inexhaustible mines, and the immense production already realized, have to a great extent silenced the senseless clamor once raised on this point. Yet the assertion is as true now as ever. Only about one-half of the whole amount of precious metals in possession of man, from the fifteenth to the middle of the nineteenth centuries, was required for coin; the balance remaining in plate and ornaments, mostly in Europe and the East.
The reason of such general error on this point is found in the totally inadequate ideas prevailing as to the amount of currency needed for trade. People are informed, that the annual products of the United States, for example, are, say, four thousand millions; and they fancy that four thousand millions of currency, or something near that sum, is necessary to transfer this immense production: whereas it is true that a very small fraction of the amount is required.
Mr. Colwell, in his "Ways and Means of Payment," estimates that all the securities issued in the United States, including " promissory notes, bank-notes, bank credits, and other currency, — in short, all which intervene between-buyer and seller," — amount to one thousand million dollars every three months, or four thousand million dollars per year. Yet we know that all this is wiped off with, at the most, not more than four hundred million dollars of currency, or about one-tenth of the aggregate indebtedness.
Now, that the people of the United States could not command sufficient gold to furnish a currency equal to their wants is preposterous, since the yearly production of California, for at least twelve years, has amounted to fifty millions, —in all, say, six hundred millions of gold; a sum about double our requirements for a sound currency.
Instead of using this, we find that the amount of specie in all the banks in 1848, the time of the discovery of the gold mines, was forty-six millions, and that on the first of January, 1860, the amount was eighty-three millions; showing, that, of all the gold obtained from California, only thirty-seven millions, or about one-sixteenth, had found its way into the bank currency of the country. In the mean time, the total exports of the nation had increased from one hundred and fifty-four to three hundred and sixty millions, or more than double. Again, the amount of specie per capita in bank for ten years prior to the discoveries, say from 1839 to 1848 inclusive, was $2.07; while for the succeeding ten years, 1849 to 1858 inclusive, it was but $2.10,—showing an actual gain of but three cents to each individual, notwithstanding the accessions of gold to the amount of six hundred millions, or twenty dollars per capita.
What had become of this gold? It had been exported. Why? Because the credit currency of the country expelled that part, which, but for itself, would have formed a reliable and sufficient currency for the nation. The actual percentage of specie to currency from 1840 to 1849, ten years, was twenty per cent; from 1850 to 1859, ten years, only seventeen per cent, — showing that the quality of the currency was actually poorer after than before the gold discoveries.
But, while it is thus seen to be practically untrue that there is not enough of the precious metals to furnish all the currency needed in the most extended commerce, it is plainly false in theory. We have already shown, that, as the currency is increased, prices advance; so that money becomes no more plenty by augmenting its quantity.
John Stuart Mill says: "The uses of money are in no respect promoted by increasing the quantity which exists and circulates in a country, the service it performs being as well rendered by a small as by a large aggregate amount. Two million quarters of corn will not feed so many persons as four millions; but two million pounds sterling will carry on as much traffic, will buy and sell as many commodities as four millions, though at lower prices."
Sufficient has been said in refutation of a fallacy, which, though popular, is really not entitled to much consideration.