Movements of Specie, 1830–1840.

The cases we have had to deal with hitherto have presented us with the simple phenomenon of the export of the precious metals and increased importations of commodities, due to the repetition of the grossest error possible in currency—the attempt to use two kinds of circulating medium, one inferior to the other. In no other way than this can a country be “ drained of its specie,” and in no other way can a permanent and heavy “ balance of trade” against it be brought about. It may indeed send money abroad to support armies, or to buy food, or for foreign investment, but these are arbitrary acts, not effects of the laws of trade. Their influence is also slight and temporary, for the specie tends at once to return, if it is needed, to where it was. The United States do not need to contemplate either of these contingencies.

The case now before us is different. We have here a large excess of imports over exports, a vitiated currency, and at the same time a flow of specie towards the country.

The Secretary of the Treasury speaks of the movement of specie which escapes the Custom House. He does not seem to place implicit reliance on his statistics, and it must be understood of them that they are not trustworthy, either as to goods or specie, save for general results. The fact, however, may be accepted as true, that the movement was as here shown.

There were certain arbitrary interferences with the natural movement. The banks were induced by government regulations to import specie, and the government itself caused payments this way to be made in coin at every opportunity. By altering the rating of gold to silver also it made gold a profitable remittance to this country until the metals and prices had adjusted themselves to the new arrangement. The operations of the Bank of the United States in 1839 were of a character to traverse all natural laws, and render scientific inferences extremely difficult.

None of these things, however, could have kept the specie in the country, if there had not been other causes at work.

Condy Raguet says that there were but very few small notes in the country until after the suspension of 1837. The habit of calling for specie had never been formed, and it was sternly discountenanced by public opinion. It is indeed extraordinary that, as the currency increased so rapidly, it should not have depreciated, for the fact, as shown by public documents, is that it did not depreciate more than the cost of transporting specie from the place of issue to the place of circulation; but this fact is a strong support of the opinion stated above, that the bank expansion only kept pace with the speculative expansion and rise of prices, and that the issues, although opposed to all sound rules of banking, and sure in the end to prostrate banks and dealers together, were not made faster than they were called for.

Beyond and below all these circumstances we must look for a more permanent law of the movement of the metals, and we find it in the scientific principle which these things only modify more or less. The metals move away from the country in which prices are high to the country in which prices are low, that is, they go from the countries where they have low value to the countries where they have high value. Evidently in a natural state of things there would be some things in each country (those for whose production that country has the best advantages) which would be lower in price, would be given in larger quantity for a given quantity of the precious metals, in that country than in others. The movement of metal from country to country would in that case be very slight, but whenever the average of prices in one country rose above the average in others, an outflow of specie would bring them down to the level, and whenever they fell below the average, an influx would raise them. Some argue that high prices make prosperity: others that low prices make prosperity. High and low prices are only relative terms, and in fact have no meaning when we embrace the production of the world. The true place for prices in each country to occupy is in their due relation to the general average the world over, for then each country gets the utmost possible gain from its relative advantage in those things which it can produce best. The movement of specie would therefore be, if the whole world used the metals and regulated prices by them without interference, as regular, as self-controlled, and as beneficent as the movement of the tides. This, too, is the grand fundamental reason why inconvertible paper is a suicidal folly in the country which adopts it.

In the case before us prices were unduly inflated by speculation and over-issues in nearly all the countries of Europe, as well as in this country. Hunt's Merchant's Magazine for July, 1844, gives a table of English prices showing that if the prices for fifty articles in

This relative inflation in the countries with which our relations were closest, shielded us from the effects which must have followed if their finances had been in a sound condition.

There was one thing, however, which was dearer here than in Europe, and which therefore made this the best market for those who wanted to sell or lend it, and that was capital As has been said above, the country was new, its natural advantages undeveloped, and only just made available by improved means of commmunication. The remuneration for all sorts of investment was high. In the crisis of 1837 the crash was not in production, but in those real estate investments which were to become profitable by the results of productive labor. Even in 1837, and especially in 1838, the European investments in American securities were, as we have seen, very large in amount. When the Bank of the United States finally failed it owed in Europe over fifteen millions. Its failure, with the total loss of its capital, much of which was owned in Europe, the failure of many injudicious enterprises, and, above all, the repudiation of indebtedness by several of the States, ruined American credit abroad. Up to 1840, however, that credit had been high, and it was acknowledged that in 1837 the American merchants had generally exerted themselves to the utmost to meet their obligations. These continual loans and investments from Europe kept down the exchanges. They were transferred, as far as it was profitable to do so, in goods, for the rest, in specie, and the surplus import of merchandise and specie, was, in great part, a real transfer of capital highly advantageous to all parties concerned. The same may be said in general of that “ increasing indebtedness to Europe” which has been going on more or less ever since, and has caused so many good people great anxiety.