The wheels of Government, without it, cannot much longer be kept in motion. Including Loan-office certificates, and State emissions, we have about four hundred millions of dollars in circulation. The real value of these, is less than seven millions, which is the true circulating medium of these States: for though the price of specie is and the rate of exchange for sterling bills the nominal value of every commodity is at least sixty to one, on an average. All the reasonings against the possibility of raising the current expenses on the foundation of thirty millions, apply to our present situation in the ratio of thirty to seven; that is, it is as thirty to seven less practicable now than when our emissions amounted to only thirty millions. Could every dollar in circulation be brought annually into the treasury, which never was effected in any country, and is politically impossible, the revenue would not be equal to the yearly expense.
The hope of appreciating the money, by taxes and domestic loans, is at an end. As fast as it could be received, it must be issued in the daily expenditures. The momentary interval between its being drawn out of circulation and returning into it, would prevent its receiving the least advantage.
These reasonings may appear useless, as the necessity of a foreign loan is now acknowledged, and measures are taking to procure it. But they are intended to establish good principles; the want of which has brought us to the desperate crisis we are arrived at, and may still betray us into fatal mistakes.
How this loan is to be employed, is now the question; and its difficulty equal to its importance! Two plans have been proposed: one, to purchase up at once, in specie, or sterling bills, all superfluous paper; and to endeavor, by taxes, loans, and economy, to hinder its returning into circulation. The remainder, it is supposed, would then recover its value. This, it is said, will reduce our public debt to the sterling cost of the paper.
Suppose two hundred millions were to be purchased, and the rest called in by taxes. At this would require bills to the amount of of dollars. But I doubt whether four times this sum would be sufficient. The moment it was known such purchases were to be made, the avarice of the speculators would begin to operate: the demand would immediately occasion an artificial appreciation; each successive million would cost more than the preceding. But this appreciation would be more relative to the purchasing medium than to the prices of commodities. The raising the value of the paper relative to the former, would depend on the combination of a few artful individuals, and would be easily accomplished. The diminution of prices must be slow, as it implies a change in the sentiments of the body of the people with respect to the money. A sudden revolution in the general rates of all the necessaries of life is not to be expected. The prices of these, as they have reached their present summit by degrees, must, by degrees, revert to their former station. The minds of the people will not readily admit impressions in favor of the currency. All their past experience has given a habit of diffidence; and the epidemical spirit of extortion will maintain a violent struggle with whatever has a tendency to produce a fall of prices. A permanent reduction of the quantity of circulating cash, will alone gradually effect it. But this will not happen on the present plan.
The necessity of continuing the supplies at nearly the same rates now given (which would be the case if my reasonings are true), would have nearly the same effect mentioned with respect to taxes and domestic loans. The money would return into circulation almost as fast as it was drawn out: and at the end of the year we should find our treasury empty; our foreign loan dissipated; and the state of our finances as deplorable as ever. At a moderate calculation, we should have spent ten or twelve millions of real dollars, for the sole purpose of carrying on the war another year. It would be much better, instead of purchasing up the paper currency, to purchase the supplies out of our specie or bills. In the first instance, the public would suffer a direct loss of the artificial appreciation, relative to the purchasing medium: in the last, it would buy at the value of the commodities in specie or bills.
A great source of error in disquisitions of this nature, is the judging of events by abstract calculations; which, though geometrically true, are false as they relate to the concerns of beings governed more by passion and prejudice, than by an enlightened sense of their interests. A degree of illusion mixes itself in all the affairs of society. The opinion of objects has more influence than their real nature. The quantity of money in circulation is certainly a chief cause of its decline: but we find it is depreciated more than five times as much as it ought to be by this rule. The excess is derived from opinion; a want of confidence. In like manner we deceive ourselves, when we suppose the value will increase in proportion as the quantity is lessened. Opinion will operate here also; and a thousand circumstances may promote or counteract the principle.
The other plan proposed, is to convert the loan into merchandise, and import it on public account. This plan is incomparably better than the former. Instead of losing on the sale of its specie or bills, the public would gain a considerable profit on the commodities imported. The loan would go much further this way, in supplying the expenses of the war; and a large stock of valuable commodities, useful to the army and to the country, would be introduced. This would affect the prices of things in general, and assist the currency. But the arts of monopolizers would prevent its having so extensive and durable an influence as it ought to have.
A great impediment to the success of this, as well as the former scheme, will be the vast sums requisite for the current expenses. The arguments adduced in the former case are applicable here also, though not with equal force. The necessity the public will be under of parting with its stock to defray the daily demands, will give designing men an opportunity, by combinations not to purchase, to oblige it to sell at a rate below the real value of money. This they may the more easily effect, as the demand for foreign commodities is much less than formerly, on account of the general spirit of parsimony which has obtained from necessity, and the manufactures carried on in private families for their own use. The greatest part of the country people now almost entirely clothe themselves.
The public must either sell very cheap, to collect rapidly the superfluous paper in hopes of raising the value of the remainder; or it must sell very slow, to preserve the due proportion between the articles it has for sale and those it wants to buy. By pursuing the first method, it will soon exhaust its stock at a very considerable loss, and only give temporary relief to the currency. According to my principle, though it sells cheap, it must still buy dear; and, consequently, the money collected cannot remain in the treasury long enough to preserve the rise in its appreciated state. If it pursues the second method, the expenditures will be equal to the income; and though the public will make the natural profits on its goods, as it will lay up nothing, it will do nothing towards the appreciation.[7]