Messrs. Printers,
I observed a paragraph of intelligence in your Journal, of the 26th of July, respecting the circulation of paper currency in North Carolina. I am not disposed to dispute the truth of the fact, that paper currency passes in that State at par with specie; but I should be very sorry to see it drawn into a precedent for other States.
The scarcity of cash is a general complaint, and superficial observers impute the evil to a wrong cause, while shallow reasoners would remedy it by an emission of paper credit.
The real state of our commerce is this; since the ratification of peace, the quantity of goods imported into the United States has been much greater than what was necessary for the consumption of the inhabitants. Perhaps I shall not be wide of the truth, when I suppose that one third of the importations would supply the demands of people. The consequence is, the other two thirds continue on hand as a superfluity. The merchant finds no market for his goods, and erroneously imputes the evil to a scarcity of cash. But the real truth is, people do not want his goods; they purchase what they want, and find cash or produce to make payment; but the surplus remains in store.
In every trading nation, there ought to be a due proportion between the commercial interest, the agricultural and the manufacturing. Whenever the farmers and manufacturers are too numerous for the merchants, produce and manufactures will be plentiful and cheap; trade will of course be lucrativ. Whenever the merchants are too numerous for the laborers, the importations of the former will exceed the wants of the latter; of course goods will not find vent; and the merchant who owes nothing may lie and sleep in indolence, while the merchant who deals on credit must fail. The experience of almost every day proves the truth of this reasoning. I will suppose that the number of merchants, and the quantity of goods in Baltimore, are double to what they were two years ago; and the market for goods is nearly the same. The effect will be, that the same profit of business will be divided among double the number of men, while, at the same time, rents and the price of provision in market will be double. The clear profit of the merchant will therefore be reduced to one fourth part of what it was two years ago. I submit to the inhabitants of this flourishing town, whether this is a mere supposition, or a moderate state of facts; and whether this reasoning will not, in a greater or less degree, apply to every commercial town in the United States.
But is not money scarce? With respect to the quantity of goods in store, money is very scarce: With respect to the produce of the country, there is money enough. Almost every article of home produce will command cash; but the merchant cannot get cash for his goods. Money is the representativ of goods bought and sold. I will suppose, for the sake of argument, that two years ago there was cash enough in the country to purchase all the goods in market at the usual advance. I will suppose that the quantity of goods has been trebled since that time. In this case, had the quantity of money continued the same, there would have been cash enough to purchase just one third of the goods. But suppose what is true, that at the time the quantity of goods increases in this proportion, the quantity of money in circulation diminishes in the same proportion. In this case there will be but one third of the cash to purchase three times the goods. Thus but one sixth part of the goods can be purchased by the circulating cash. The merchant must then lower the price of his goods to one sixth of their value, or keep them on hand. This reasoning, however mathematical, is just, and applies to all commercial countries. It is a fair state of facts in America. But though the quantity of money is greatly diminished, yet there is sufficient to represent the produce of the country, which in quantity continues the same. The price is however lowered by the diminution of the quantity of circulating cash.
Whether the quantity of cash is diminished, and the quantity of goods increased in the exact proportion above stated, is not material, the foregoing reasoning being sufficient to illustrate the principle. The probability is, that the disproportion between the goods in market and the cash in circulation, is greater than I have supposed.
The following propositions, I venture to assert, are generally, if not universally, true:
1. That the imports of a country should never exceed its exports. In other words, the value of the goods imported should never exceed the value of the superfluous produce, or that part of the produce which the inhabitants do not want for their own consumption.
2. That too great a quantity of cash in circulation, is a much greater evil than too small a quantity.