Capital and Currency.

Our other resource when straitened for capital, the one to which we had betaken ourselves before, was now also employed—a multiplication of the paper representatives of capital. Capital is that portion of all the previous product of a nation which at any given time is available for new production. This will be a certain amount of tilled land, houses, buildings, stock, tools, food, clothing, roads, bridges, etc., etc., which have been made and are ready for use in producing, transporting, and exchanging new products. These things are all the product of labor, and require time for their production. Nothing but labor spent upon them can produce others, and time is required for this labor to issue in new and increased possessions. Currency only serves to distribute this capital into the proper hands for its most efficient application to new production. Banks, it must be repeated, only facilitate the transfer of capital from hands where it is idle, or is distributed in too small quantities, into hands by which it will be usefully employed, being collected in the necessary amounts. Currency, therefore, is not capital, any more than ships are freight; it is only a labor-saving machine for making easy transfers. Banks do not create wealth, they only facilitate its creation by distributing capital in the most advantageous manner. If, therefore, currency is multiplied, it is a delusion to suppose that capital is multiplied, or, if “money is plenty,” by artificial increase of its representatives, it is only like increasing the number of tickets which give a claim on a specific stock of goods—the ticket-holders would be deceived and could, in the end, only get a proportional dividend out of the stock. If banks not only lend capital but also lend “ coined credit,” some time or other a liquidation must come, there must be an effort to touch the capital which the notes pretend to convey. Then it is found that they represent nothing; then “ credit breaks down,” and there must be a settlement, a liquidation, a dividend, and a new start. We do not get away from the facts at all. The real amount of capital which we possess is divided up, and we have to make up our minds that we possess only 50 or 75 per cent. of what we thought we possessed. We put smaller figures for everything, and reconcile ourselves to smaller hopes, but the experience is soon forgotten, and the old process of inflation and delusion begins again.

Some have wondered that we go on in this way with a grand crisis only once in twenty years, while the oldest and most prudent nations have one every ten years. The explanation no doubt is, that the future which we discount so freely honors our drafts on it. Six months’ restraint avails to set us right, and our credit creations, as anticipations of the future product of labor, become solidified. So long as we understand that we have anticipated future production, and must apply that production to make good the anticipations, we run on without very great risk, but whenever we lose our heads in the intoxication of our own achievements, look on the credit anticipations, which are only fictitious capital, as if they were real, use them as already earned, build other credit expansions upon them, do away with our value money and export it to purchase articles of luxurious consumption, then we bring a convulsion and a downfall. The mistake is then; realized, the lesson is taken to heart for a little while, but a new generation grows up which forgets or never knew the old experience, and the mistake is repeated. The relations of trade are often spoken of as a machine, and such indeed they ought to be—a complex machine, with parts so regulated that it can go on at any speed and for any length of time, without danger of anything more than an occasional and temporary derangement; but this reckless, although skilful, extension of groundless credit is more like the performance of the juggler who keeps first three, then four, then five, and so on, balls in the air at once. If he goes on continually increasing the number, it is physically certain that he will sooner or later miss one of them, and the whole will fall to the ground in confusion.