Currency and prices.
The fact is patent to all persons who have been compelled to purchase anything that prices have been greatly enhanced since the passage of the act of Congress to reduce the amount of the currency.
Some persons who know better may have used the bill as a pretense for raising their prices, but there is in the community generally a lamentable ignorance on the subject of currency, and their fears of what is to be the effect of the bill are leading them to do great injustice to themselves or to others.
We believe it is demonstrable that the bill must operate in favor of the holders of treasury notes, notwithstanding the tax of one-third upon their amount, and that in fact they will reap the whole benefit of the tax upon property which shall be applied to the reduction of the amount of the treasury notes in circulation.
Our opinion is based upon a few elementary and recognised principles, of the correctness of which we believe there is little or no difference of opinion among writers upon the currency, and to these principles we ask the attention of our readers.
The wealth of a country consists of its property and labor, including its skill.
Currency is merely an instrument to facilitate the exchange of property and the employment of labor.
The material of which currency is composed may be a part of the wealth of a country, but the currency as such is no part of that wealth.
The currency value of the material is distinct from the intrinsic or real value.
The currency value may be immense, whilst the intrinsic value of the material may be very small.
We can readily comprehend this fact when paper is the currency; but it is also true of gold
If the whole world should at once put an end to the currency of gold
, their value would be fixed, like that of iron and lead, by the uses to which they could be applied.
Again: It is the experience of the world that the prices of property and labor are regulated by the amount of the currency in the country.
This is the general law, though there may be partial and temporary exceptions to it, as by the excess or failure of one of the staple crops of the country, or a temporary obstruction to the transportation of supplies.
The amount of currency which is necessary in any country to facilitate the exchanges of property and the employment of labor will depend upon the amount of property, the activity of commerce and labor, and the extent of credits employed in carrying on business.
All these vary from time to time, and therefore the amount of currency actually employed varies also, as prices are affected.
If the amount of currency is unchanged, whilst property is increased and commerce and labor are active, prices go down.
If the amount of currency is increased, whilst property, commerce, and labor is diminished, prices go up. And if the currency increases in greater progression than property and labor, prices continue to rise; and by the inflation of prices and the facility of obtaining money, with the apprehension that the currency will fail, a spirit of speculation is aroused which carries prices much higher than is required to meet the increase of the currency.
This is our condition now.
It is immaterial what the currency is — whether paper or gold — the result is substantially the same.
It requires only so much currency to carry on the business of a country, and when that is increased, whatever it may be, the necessity of finding employment for it compels the rise of prices.
It is true that where commerce is open there never can be this great accumulation of gold in one country, because the demand for it in other countries will carry it off. But if a country were wholly separated from the rest of the world, and gold accumulated in it, the effect on prices would be the same as it is in the case of paper money.
And whilst it is true that the accumulation of gold in a country would affect prices just as the accumulation of a paper currency would and does affect them, it is equally true that though the currency is wholly of paper, yet if it is not greater in amount than is required for carrying on the business of the country, prices will be as moderate and stable as if it was gold.
From 1796 down to 1822 specie payments were suspended in England
; but until about 1810, we believe, the currency was not increased beyond the demands of the business of the country, and there was no depreciation of the currency.
At that time the amount of the currency was increased, and it immediately began to depreciate.
It is, then, a fact that the prices of property and labor are regulated by the currency.
If there is more currency than the business of the country requires, prices will go up, and where the currency becomes very much inflated, speculation will carry up prices even higher than the due proportion between the amount of currency and the property and labor of the country.
It is estimated that the amount of currency in the Confederate States
at the commencement of the war, was from eighty to one hundred millions.--The better authority is, we think, in favor of the last amount.
But at the present time, deducting that part of the Confederate States
occupied by the enemy, where our currency does not now circulate, probably the currency at the commencement of the war amounted to from seventy to eighty millions.
At this day we have within this territory a currency of eight hundred millions of treasury notes; or ten times as much as we had at the commencement of the war.--No doubt the change in the mode of doing business from extensive credits to cash, involves the necessity of a larger amount of currency than we then had, and has had some effect in keeping prices below what they would otherwise have been.
But we have in the present prices of all property and labor the evidence that the currency is greatly beyond what the necessities of the country require.
If the foregoing facts and principles are true, then, it follows inevitably that if the eight hundred millions of treasury notes are reduced to an amount not more than enough to perform the legitimate office of currency, which is to facilitate the exchanges of the property and the employment of the labor of the country, this reduced amount will purchase the same amount of property, and employ the same amount of labor, as the whole eight hundred millions now does. --We say the same amount — though, in fact, it would do more, because it would put an end to the wild spirit of speculation and extortion which exists in the country, and enhance prices above what the mere increase of the currency would have done.
The object of the act of Congress is to reduce the currency to the proper amount.--As to what that amount is, there may be some doubt.
For reasons which we cannot state here, we suppose that it is about two hundred and fifty millions.
There is some doubt too as to the extent of the reduction which will be effected by the act. But it we have not over estimated the amount of currency which will be necessary to carry on the business of the country, there is little doubt that the effect of the act will be to reduce it sufficiently.
Even if there shall have been issued eight hundred and forty millions of Treasury notes by the first of April, the tax on property will reduce this amount by two hundred and fifty millions, leaving five hundred and ninety millions; and one-third deducted from this amount leaves but three hundred and ninety-four millions, or about one hundred and fifty millions above what we suppose to be necessary, to be retired by the investment of the one hundred dollar notes in four per cent bonds, which shall not be paid in for taxes, and in the six per cent, bonds authorized by the act, and which are exempted for all time from taxation.--That this amount of Treasury notes will be so invested we do not doubt.
And the effect of the whole operation will be to enable the holders of Treasury notes which, after paying the tax, will be sixty six and two third's cents in the dollar, to buy property at a price regulated by a currency equal to less than one-third of its present amount.
That is, whilst the holders of Treasury notes have lost by the tax but one-third of their amount, and therefore hold two-thirds, they will buy property and employ labor at less than one third of its present prices; and the holders of property after paying the taxes assessed upon it, will sell it at one third of its present prices.
This, we believe, must be the true operation of the act, though at the present moment the opinion seems to be general that anything is more valuable than money.