ON PAPER MONEY.

[Published at Baltimore, August 9, 1785.]

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.

3. That too much money in a commercial country will inevitably produce a scarcity.

4. That the wealth of a country does not consist in cash, but in the produce of industry, viz. in agriculture and manufactures.

5. That in a commercial country, where people are industrious, there can never be, for any long time, a want of cash sufficient for a medium.

The first proposition is universally acknowleged to be true.

The second is less obvious, but equally true. Too much money raises the price of labor and of its effects; deprives us consequently of a foreign market; produces indolence and dissipation; than which greater evils cannot happen to a State. The sudden increase of money, by large emissions of paper credit, at the beginning of the late war, produced more luxury, indolence, corruption of morals, and other fatal effects, than all other causes that ever took place in America. We feel these evils to this moment. On the other hand, a scarcity of cash, tho it cramps commerce for a moment, always checks the evils before mentioned, lowers the price of labor, and produce will of course find a profitable market; it produces economy and industry, and consequently preserves the morals of the people; for industry goes further in preserving purity of morals, than all the sermons that were ever preached.

This leads to an illustration of the third proposition. If too much money in a country raises the price of labor and of produce, the consequence is, that people will go abroad for articles, because they are cheaper in foreign markets, and they will purchase as long as they can get cash. Importations will be multiplied till the country is drained of cash, and then business will return to a new channel. The history of trade in America, the last two years, is an illustration of this proposition.

The fourth proposition, also, is illustrated by facts. I will suppose that ten millions of dollars are sufficient for a medium in America: Let that sum be instantaneously augmented to twenty millions, and the country is not a farthing richer, for the price of goods will be immediately doubled. Two dollars, in the latter case, purchase no more than one in the former. People ignorantly suppose that goods rise in value; when the fact is, money falls in value. Continental currency was a proof of this. There was cash enough for a medium in the country before the war; and the addition of two hundred millions of dollars did not increase the wealth of the country one farthing; nor would the whole purchase more than the ten millions of specie which circulated before the war. Had the paper all been Spanish milled dollars, the effect would have been the same, had they continued in the country, and not been hoarded. The fifth proposition depends on this simple fact, that money is a fluid in the commercial world, rolling from hand to hand wherever it is wanted, and there is any thing to purchase it. Let the produce of a country excel, in the least degree, the consumption, and it will never want money.

Admitting the foregoing observations to be true, both the necessity and policy of emitting paper, vanish at once. Supposing paper currency to preserve its credit, still so far from increasing the medium of trade, that in a few months it will drive all the specie from the country. Bank notes and bills of exchange are useful in facilitating a change or conveyance of property; but to issue paper credit, merely with a view to increase the circulating medium, in a country where the people may have just as much gold and silver as they are pleased to work for, is the height of folly. If people are indolent, or extravagant, all the paper currency under heaven will not make them rich, or supply their wants of cash. If people are industrious and frugal, and purchase no more foreign goods than they can pay for in superfluous produce, they will ever have cash enough. Their whole system of commerce stands on these single facts.

If the merchants bring more goods than people want, business must be dull; money with them must be scarce. At the close of the war, cash was plentiful and goods scarce. This made business lively, till people had procured a supply. Remittances were made in cash, so long as it could be obtained. That period is past, and the merchant must now look for remittances where alone they ought ever to be found, in the produce of the country. Business is just now returning into its proper channel, from which it had been diverted by the violence of war, and the fluctuations of paper credit. The rapid population of a country is an agreeable circumstance; but every profession ought to increase in a due proportion. Supposing ten thousand carpenters were to land in Baltimore at once, would they have business? Or would they not exclaim, business is dull, money is scarce? Every one might have a trifle of business, but they could not all make fortunes.

An event similar to this has taken place in Baltimore. The reputation for business which Baltimore had acquired just at the close of the war, brought merchants here from every part of the world, and almost one half of the town has been built within two years. How, in the name of common sense, do the merchants expect to find business? The people who come to this market, multiply gradually, and double in about thirty years. But the merchants who supply the goods have doubled, if not trebled, in numbers and stock, within three years. There is, however, an expedient which will yet enable them all to liv by trade. Let every merchant send abroad to Ireland or Germany, and bring over his hundred able industrious farmers, and fix them on the fertile lands of Maryland, which now lie useless and uncultivated in the hands of the Nabobs: Or let three fourths of the traders quit the business. Either of these expedients will make cash plentiful; and one of them must take place.

I will just make one further remark; the want of a proper union among the States, will always render our commerce fluctuating and unprofitable. We may do as much business as we please; but if the duties and restrictions on our trade remain, and the flag of the United States is insulted as it has been, and each State is laying duties on the trade of its neighbor, our commerce cannot be reduced to a system, and our profits must be uncertain. The want of a Continental Power to guard the honor of the whole body, and reduce our measures to one uniform system, is the great source of endless calamities. We shall feel national abuse, till Congress are vested with powers sufficient to govern and protect us; and till that period, foreigners, like so many harpies, will prey upon our commerce, and disappoint the exertions of our industry.