Blackwood's Edinburgh Magazine, Volume 69, No. 423, January 1851

THE CURRENCY EXTENSION ACT OF NATURE

Whoever has examined with attention the past annals of mankind, must have become aware that the greatest and most important revolutions that have occurred in human affairs have originated in the variations which from time to time have taken place in the supply of the precious metals which could be obtained for the use of man. As they constitute, by the universal consent of the world, the common medium of exchange and measure of value among nations, their plenty or scarcity has an immediate and powerful influence upon the remuneration of industry and the activity of the working-classes in all countries. According as they are increasing or diminishing, abundant or awanting, is the condition of the people prosperous or calamitous – the national prospects bright or gloomy. No amount of human exertion, no efforts of human patriotism, can sustain the national fortunes for any length of time, or diffuse general and enduring prosperity among the people, if the existing medium of exchange is below what their numbers and transactions require; because, in such a case, prices are constantly declining, credit is liable to periodical and ruinous contractions, and industry, on an average of years, ceases to meet with its due reward. No calamities are insuperable, no dangers insurmountable, when a currency is provided adequate to the wants of men, and capable of extension in proportion to their necessities; because, in such a case, prices are rising or remunerative, and individual effort, stimulated by the prospect of an adequate return, becomes universal, and acts powerfully and decisively upon the general welfare of society and the issue of the national fortunes.

The two greatest revolutions which have taken place in the annals of the species, and which have for ever left their traces on the fortunes of mankind, have arisen from the successive diminution and increase in the supply of the precious metals for the use of the world. There can be no doubt that the decline and fall of the Roman empire – so long and falsely ascribed to its latter extension, plebeian slavery, and patrician corruption – was in reality mainly owing to the failure in the mines of Spain and Greece, from which the precious metals in ancient times were chiefly obtained, joined to the unrestricted importation of grain from Egypt and Libya, which ruined the profit of the harvests and destroyed the agriculture of Italy and Greece, at once paralysing industry, and rendering taxes overwhelming.1 We know now to what the failure of these mines, attended with such portentous results, was owing. It was to the exhaustion of the auriferous veins in Spain and Greece near the surface, from long-continued working, and the extreme hardness of the rock in which they were imbedded farther down, which seems to be a general law of nature all over the world,2 and which rendered working them, to any considerable depth, no longer a source of profit. On the other hand, the prodigious start which Europe took during the sixteenth and seventeenth centuries, and which has implanted the European race for ever in the new hemisphere, is well known to have been mainly owing to the discovery of the mines of Mexico and Peru, and the continual rise of prices during nearly two centuries, which took place all over the world, from the constant and increasing influx of the precious metals drawn out of their rich strata.

The greatest and most momentous contests which have taken place among nations, have been in a great degree determined by the discovery or use, by one of the belligerents, of an expansive currency, to which the other was for a time a stranger. The most memorable strife in antiquity, that between Rome and Carthage, on which depended whether Europe or Africa was to become the mistress of the civilised world, was in reality determined by a great extension of the Italian circulating medium during the second Punic war; and that dreadful contest was less brought to a successful issue by the firmness of the senate or the arms of Scipio, than by the wisdom of a decree which virtually, at the crisis of its fate, doubled the currency of the Roman republic.3 The Transatlantic revolution was brought to a successful issue in the same way; and the independence of the United States is less to be ascribed to the imbecility of British counsels, or the wisdom of American generalship, than to the establishment of a paper currency, which sustained the efforts of the insurgent states when they had no other resources wherewith to maintain the contest. It was the assignats, as all the world knows, that set on foot those prodigious armies which, amidst the destruction of all private fortunes, enabled France, during the Reign of Terror, to repel the assault of all the European powers; and the coalition which at last overturned the empire of Napoleon was sustained by a vast system of paper currency, issued in 1813 in Germany, which, guaranteed by the four Allied powers, passed as gold from the Atlantic Ocean to the wall of China, and arrayed all the armies of Europe in dense and disciplined battalions on the banks of the Rhine. Of what incalculable importance it was may be judged of by the dreadful straits to which Wellington, for five previous years, had been reduced by its want. Great Britain emerged victorious from the strife, chiefly from the powerful influence of the same omnipotent agent. Vain would have been the constancy of Pitt, the genius of Nelson, or the wisdom of Wellington, if the paper currency, established in 1797, had not given her people the sinews of war, and the means of illimitable industry, when the Continent was shut to her commerce, and the whole precious metals were drained away by the necessities of Continental warfare. Nor have the effects of the opposite system, pursued since the peace, been less striking and momentous; for the contraction of British currency to one half of its former dimensions, by the bills of 1819 and 1844, has brought about the dreadful panics of 1825, 1837, and 1847, induced by the decline of prices and the sufferings it occasioned. The English revolution of 1832 transferred power in the British islands exclusively to the inhabitants of towns, and spread such misery through the rural population, that three hundred thousand emigrants now annually leave the British islands for Transatlantic or Australian shores.

As the expansion or contraction of the circulating medium is thus an agent of such prodigious power and irresistible weight, both upon the fortunes of particular states and the general progress of the species, so it will be found upon examination that it is by a withholding or letting loose the fertilising flood, that Providence appears often to act most directly and decisively upon human affairs. When a nation has performed its mission, and is to make room for other actors on the great stage of the world, if its power has rendered conquest by a foreign enemy impossible, a contraction of its domestic currency paralyses its internal strength, and renders dissolution, at no distant period, a matter of certainty. If a great start is prepared for human industry, if new continents are laid open to its energies, and an unusual impulse communicated to its activity by the development of social and democratic passions, a vast addition is suddenly made to its metallic resources, and the increased numbers or enhanced efforts of mankind are amply sustained by the newly opened treasures of the reserves of nature. Rome, impregnable to the assaults of undisciplined barbarians, yielded, at the appointed season, to the contraction of its domestic currency, which rendered the maintenance of armaments adequate to the public defence a matter of impossibility in the later days of the empire; and when the discovery of the compass, of the art of printing, and of the new hemisphere, had at once given a vast impulse to European activity, and provided new and boundless fields for its exertion, the mines of Potosi and Mexico were suddenly thrown open, and nature provided a suitable reward for all this enhanced effort by the continually rising price of its produce.

That a period of equal, perhaps greater activity, than that which followed the discoveries of Columbus, would succeed the outbreak of the social passions that occasioned the French Revolution, has long been familiar to the thinking part of men, and unequivocal proofs of the reality of the change may be seen in every direction around us. But sufficient attention has not hitherto been paid to the extraordinary encouragement which this increased mental energy has received, from the facilities which have been placed at its disposal by the mechanical discoveries of the last half century. Yet are they such as to throw all past discoveries into the shade, and give an impulse to human affairs which has scarcely been exceeded since the first separation of the dwellers in cities and the sojourners in the fields. The steam-engine has wrought these prodigies. Applied to mechanical invention, and the moving of machinery, it has multiplied tenfold the powers of urban industry, elevated the districts possessing the necessary fuel to the clouds, cast down places once the seats of commercial greatness, but destitute of that essential element in modern manufacturing energy, to the dust. Applied to the propelling of vessels, it has more than halved the breadth of the ocean, rendered navigable against the current the greatest rivers, sent the colonists of Europe in countless multitudes up the streams of the New World, and provided an entrance for civilised man into the greatest continents by the very magnitude of the waters which flow down from their inaccessible mountains, or are fed in their marshy plains. Applied to travelling by land, it has diminished distance to a third – brought the capital of every civilised state into close proximity to its most distant provinces; while the simultaneous discovery of the electric telegraph has rendered the communication of intelligence all but instantaneous, and made the circulation of ideas and, it is to be feared, also of passions, as rapid over a mighty empire as heretofore it was in the streets of a crowded capital.

When nature communicated this vast impulse to human activity, and placed these mighty instruments in the hands of men, she was not unmindful of the extended field for industry which their enlarged numbers and increased energies would require. The plain of the Mississippi, the garden of the world, containing a million of square miles, or six times the area of France, was thrown open to their enterprise. Steam power propelled a thousand vessels through the thick network of natural arteries which in every direction penetrate its vast and fertile plains. In 1790, five thousand Anglo-Saxons were settled in this magnificent wilderness; now their numbers exceed eight millions. Australia has opened its vast prairies, New Zealand its fertile vales, to European enterprise. The boundless plains of Central Russia and Southern Siberia, afforded inexhaustible resources to the rapidly increasing Muscovite population; and an empire which already possesses in Europe and Asia sixty-six million inhabitants, can without apprehension contemplate a continuance of its present rate of increase for centuries to come. The Andes even have been passed; the Rocky Mountains surmounted; and on the reverse of their gigantic piles new states, peopled by the Anglo-Saxon race, are arising, and increasing with unheard-of rapidity, in regions rivalling Italy in the variety and riches of their productions, and exceeding it tenfold in the magnitude of their extent. Proportionate to the wants and necessities of mankind, in an age of such intellectual and physical activity, has been the hitherto untrodden fields which the beneficence of nature has laid open to their industry.

These advantages, however, great and unbounded as they are, have been, till very recently, counterbalanced, and perhaps more than counterbalanced, by the serious decrease which, for the greater part of the period that has elapsed since the peace of 1815, has been going on, from the effect of human violence or folly, in the circulating medium of the globe. The South American revolution at once almost destroyed the working of the mines of Mexico and Peru: the annual produce of those mines sank from £10,000,000, to which, according to Humboldt, it had risen prior to 1810, to less than £3,000,000. The diminution in the supply of the precious metals for the use of the globe, from the effects of this most calamitous revolution, which Great Britain did so much to promote, was, during the thirty years which elapsed from 1810 to 1840, certainly not less than £150,000,000 sterling. Contemporaneous with this immense reduction, took place the great contraction of the paper currency of Great Britain, the commercial heart of the globe, which was reduced by the bill of 1819 from £60,000,000, which it had reached in 1814, to little more than £30,000,000, its average since that time. These two great causes of decrease, operating simultaneously during a period of general peace, unbroken industry, great increase in population both in Europe and America, and a vast addition to the transactions and mercantile dealings of men in every part of the world, produced that universal and unlooked-for decline of prices which has been everywhere felt as so discouraging to industry, and nowhere so much so as in the highly taxed and deeply indebted realm of Great Britain. It was the exact converse of the general and long-continued prosperity which the progressive rise of prices consequent on the discovery of the South American mines produced during the sixteenth and seventeenth centuries. It was apparently the commencement of a long and disastrous period of rise in the value of money, and fall in the price of every species of produce, similar to that which, in the first four centuries of the Christian era, crushed the industry and paralysed the strength of the Roman Empire, and at length prostrated the dominion of the legions before the arms of an untutored and barbarous enemy.

It is now ascertained, therefore, by the only sure guide in political science – experience – that if no addition to the circulating medium of the globe had been made at a time when so immense an increment was going forward in the numbers and transactions of the most active part of mankind, consequences the most disastrous to human industry and happiness must have taken place. If – when the United States, with their population of 25,000,000 doubling every twenty-five years, and Russia, with its population of 66,000,000 doubling every forty years, and Great Britain, with its population of 29,000,000 doubling in about the same time, and its exports and imports tripling in thirty years, were in a state of full and undiminished activity – there had been no addition made to the circulating medium of the globe, it is difficult to estimate the amount of embarrassment and distress which must have become all but universal. If the circulating medium of the earth had remained stationary, or gone on receiving only its wonted annual increment, when so prodigious an addition was going forward in the numbers and transactions of men, a universal and progressive fall of prices must have ensued. The remuneration of industry must have been halved – the weight of debts and taxes doubled. The fatal increase in the value and power of riches, so truly felt and loudly complained of in the declining days of the Roman empire, would have been everywhere experienced. A money famine would have been universally felt; and, paradoxical as it may appear, dear-bought experience has now taught us that such a famine is attended with more disastrous, because more widely spread and irremovable, consequences, than even a shortcoming in the supply of food for the use of man. The latter may be removed by increased rural activity and a good harvest in a single year. But the former is susceptible of no such remedy. On the contrary, the augmented activity which it brings on, from the general and pinching suffering with which it is attended, only tends to aggravate the common distress, because it multiplies the transactions in which money as a medium of exchange is indispensable, and consequently makes its scarcity in proportion to the existing demand be more severely felt.

To this must be added another and most important cause, which operated since the peace of 1815 in withdrawing the precious metals from the globe, arising from the very scarcity of these metals themselves. The addition which their enhanced value made to the riches of the affluent was so great, that it led to a rapid and most important increase in the consumption of gold and silver in articles of luxury. Gold and silver plate, jewels, and other ornaments set in gold, became general among the richer classes, and to an extent unprecedented since the fall of the Roman empire. Gilding was employed so much in furniture, the frames of pictures, the roofs of rooms, carriages, and other articles of state or show, as to withdraw a considerable part of that the most precious of the precious metals from the monetary circulation. The scarcer gold and silver became, the more was this direction of a large portion of it increased, because the richer did the fortunate few who possessed amassed capital become from the daily decline in the price of all other articles of merchandise. This effect was most conspicuous in ancient Rome in its latter days, where, while the legions dwindled into cohorts from the impossibility of finding funds to pay them in large numbers, and the fields of Italy became desolate from the impossibility of obtaining a remunerating price for their produce, the gold and silver vases, statues, and ornaments amassed in the hands of the wealthy patricians in Rome, Constantinople, Alexandria, and the other great cities of the empire, so prodigiously increased, that, with the currency, which formed but a small part of its amount, their value is estimated by Gibbon at the almost incredible amount of £350,000,000 sterling of our money.

Bills of exchange and paper money, which have become known and general only in modern Europe, might have gone far to mitigate these disastrous consequences in particular states, or even, if conducted with prudence and regulated by wisdom, might in some places have altogether prevented them. But as paper currency is a new element of surpassing power and efficacy, but recently introduced into common use among men, the principles on which it should be regulated are far from being generally understood. Even if understood, it requires for its due regulation a combination of wisdom and self-denial that can rarely be looked for among the rulers of mankind. The fundamental principles on which its due regulation must be rested – that of being based on certain and available property of some kind, and of being capable of extension in proportion to the increase in the numbers and transactions of men, and the abstraction of the precious metals forming the medium of international circulation, and yet duly restrained and over-issue prevented – were successively overlooked by the greatest and most enlightened nations of the world. Issued in unbounded profusion in France during the fervour of the Revolution and the terrors of European invasion, with no real basis of available property on which to rest, the assignats produced, simultaneously with the prodigious armaments which saved the country, an unheard-of confusion among the transactions and obligations of men, and destroyed in a few years the whole capital of that great country, the accumulated savings of centuries of industry. Contracted with equal rapidity from the influence of the opposite set of interests in Great Britain after the peace, the paper circulation of the British Empire was rendered the instrument of destruction of property as great, and misery as widespread and universal, among its inhabitants, as the assignats or confiscations of the Convention. Adopted with heedless eagerness, and without any adequate safeguards, at one time in America, and checked at another with precipitate and imprudent severity, four-fifths of the wealth of the United States were in a few years swept away by the fearful oscillation of prices consequent on these violent changes. And although wisdom and prudence could easily have devised a system of paper currency which, entirely based upon available property of some kind, and therefore perfectly secure, was yet capable of expansion in proportion to the increase of the numbers and transactions of men, and the temporary abstraction of the precious metals from a particular country by the mutations of commerce or the necessities of war, yet it was evident that no such wise and patriotic system was to be anticipated, till a vast amount of general suffering had enlightened the majority of men on the subject. Least of all could it be hoped for in Great Britain, where the increase and weight of the moneyed interests, and the consequent determination to enhance the value of money, without any regard to its effects on the remuneration of industry, had become such, that no other interest in the State, nor even all other interests allied, were able to make head against it.

The future destinies of mankind, and of this country in particular, seemed, therefore, to be involved in clouds and darkness; nor did any means appear to be within the bounds of possibility by which the difficulties which beset or awaited industry could be obviated. The greater the efforts made by industry, it was plain the greater would be the distress in which it would be involved; because an increase in the transactions of men required an augmentation in the circulating medium by which they were to be conducted; and an addition to the produce of labour, while the currency was fixed or declining, only rendered its remuneration less. The whole object of statesmen and legislators, both in Great Britain and America, had come to be to cheapen everything, and raise the value of money by contracting its amount – augmenting instead of relieving the general distress arising from the inadequacy of the existing circulating medium for the enlarged wants and numbers of men. The evil seemed to be beyond the reach of human remedy; for in the only country in which a remedy could be effectually applied, the moneyed interests had become so powerful, that Government was set chiefly on measures which, for the sake of private profit, most grievously aggravated it. But Providence is wiser than man: Nature is seldom awanting in the end to those who are suffering from the faults of others. A few bands of American squatters wandered into Texas – a war of aggression on the part of the United States succeeded to make good the settlement – a serious contest took place with Mexico – the Anglo-Saxon race asserted their wonted superiority over the Castilian – California was wrested from them – and by the ultimate effects of that conquest some of the greatest evils inflicted by human selfishness or folly were alleviated, and the destinies of the world were changed!

It is a striking proof how much the fortunes of men are in their own hands, and how vain are the choicest gifts of nature if not seconded by the vigour and industry of those for whom they are intended, that the rich auriferous veins, the discovery of which has been attended with such important effects, and is destined to avert so many evils arising from the absurd legislation or selfish desires of men in recent times, had been for three hundred years in the possession of the Spaniards, but they had never found them out! The gold was there, under their feet, in such quantities that its excavation, as will immediately appear, is adequate to double the annual supply of the precious metals for the use of man over the whole world; but they never took the trouble to turn it up! It was so near the surface, and so accessible, being mixed with the alluvial sand and gravel of the country, that it was first discovered in the cutting a common mill-course through a garden, and has since been obtained almost entirely by common labourers digging holes not deeper than ordinary graves through the level surface of the alluvial deposit of the mountains. They had never attempted agricultural operations, nor thought of an improvement which would have led to its detection. The Spaniards, as all the world knows, and as their history in every age has demonstrated, were passionately desirous of gold; and from the days of Columbus they had been familiar with a tradition or report among the native Indians, that there existed beyond the mountains in the far west a country in which gold was as plentiful as the sand on the seashore, and was to be had simply for the trouble of taking it. It was all true it was there, mixed in large quantities with the alluvial deposit of the mountains; yet during three hundred years that they held the country, they never found it out! A single ditch in any part of the flat region, which is above three hundred miles long and forty or fifty broad, would have revealed the treasure, but they never took the trouble to cut it. Before the Anglo-Saxons had been there three months, they had discovered the riches lying below their feet. Such is the difference of races! It is easy to see to which is destined the sceptre of the globe.