UNIVERSITY OF 
 
 AT LOS ANGELES 

 
 /
 
 THE 
 
 INSTRUMENT OF ASSOCIATION I 
 
 MANUAL OF CTJEEENOY. 
 
 BY 
 
 GEORGE A. POTTER. 
 
 Political economy, at least, is found to have sound principles, founded in the moral 
 and physical nature of man, which, however lost sight of in particular measures,— 
 however even temporarily controverted and borne down by clamor, — have yet a 
 stronger and stronger testimony borne to them in each succeeding generation, by which 
 they must, sooner or later, prevail. — Hekschel. 
 
 In all countries, however, men seem at last to have been determined by irresistible 
 reasons to give the preference, for this employment, to metals above every other com- 
 modity. — Origin and Use of Monet/. — Adam Smith. 
 
 NEW YORK: 
 
 PUBLISHED BY HURD AND HOUGHTON. 
 
 ffiambrtDge: Hfbersf&e 33ress. 
 
 1868. 
 
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 Entered according to Act of Congress, in the year 1868, by 
 
 George A. Potter, 
 
 in the Clerk's Office of the District Court for the Southern District of New 
 
 York. 
 
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 CONTENTS. 
 
 INTRODUCTION V 
 
 I. ITS NATURE AND USE IN THE ECONOMY OF 
 
 SOCIETY 15 
 
 II. OF ITS COMPONENT PARTS .... 29 
 
 III. THE PRINCIPLES OF POLITICAL ECONOMY 
 
 WHICH LIMIT ITS VALUE . * . . .45 
 
 IV. ON ITS ADJUSTMENT 62 
 
 V. THE EFFECT OF THE ADJUSTMENT ... 82 
 
 VI. A PERFECT INSTRUMENT .... 95 
 
 VII. THE INSTRUMENT AS AFFECTED BY THE 
 
 PRODUCT OF PRECIOUS METALS . . .112 
 
 383103
 
 INTRODUCTION. 
 
 The author of this book has been impelled, by 
 a sense of the deplorable and almost universal 
 ignorance of the true theory of money, which 
 prevails among - all classes of the community, — 
 in Congress, in the Treasury Department of the 
 government, in the various Chambers of Com- 
 merce throughout the country, and among the 
 members of the press, — to demonstrate as briefly 
 as possible, not his own opinion upon the subject, 
 but the Law, as laid down by the most eminent 
 writers on political economy, and as confirmed 
 again and again by the history of modern na- 
 tions. The consequences of this ignorance to 
 our own country have been most ruinous, im- 
 measurably evil, and well-nigh irremediable. 
 The fiscal administration of the government 
 since the close of the war, has been character- 
 ized by the most fatal ignorance and disregard 
 of the laws of political economy, while the peo- 
 ple are being rapidly impoverished, and sunk
 
 VI INTRODUCTION. 
 
 deeper and deeper (government and people 
 alike) into the bottomless abyss of bankruptcy. 
 And yet, while many are sensible of this disas- 
 trous tendency, both the legislative and executive 
 departments of the government seem to be 
 utterly imbecile, and wholly incapable of agree- 
 ing upon any salutary measure of reform. In- 
 deed, the whole cause of this unfortunate condi- 
 tion of affairs, seems to be entirely obscured from 
 the vision of those whose high duty it is to pro- 
 vide for the general welfare of the country. The 
 press, in the mean time, teems with chimeras of 
 every conceivable shape, and pamphlets are mul- 
 tiplied upon pamphlets, till universal bewilderment 
 seems to have settled, like a dense fog, upon and 
 around the whole subject. The country is in a 
 position similar to that at the close of the Revo- 
 lution, and on the whole, perhaps, a worse con- 
 dition than then. Since then, it has never been 
 in a situation approaching that in which it now 
 is. The evils of paper money — a revolutionary 
 currency — are upon us, and the common fate of 
 nations under the devastating influences of such 
 a currency can only be averted by a careful con- 
 sideration and observance of the laws of political 
 economy. It has been the aim of the author to 
 elucidate, as clearly as possible, the laws which
 
 INTRODUCTION. vii 
 
 regulate the value of money, and to show how 
 these natural, immutable laws have been violated ; 
 and also, to show that it is owing to this auda- 
 cious, reprehensible defiance and violation of these 
 eternal laws, that such overshadowing calamities 
 are threatening the destruction of public and 
 p rivate credit. The author has not attempted 
 to propound any new doctrine. There is no 
 new doctrine. The law as laid down by Adam 
 Smith and affirmed by John Adams nearly a 
 century ago, is still the same, — yesterday, to- 
 day, and forever. The law is substantially this : 
 that the value of the currency of a nation is 
 limited by natural law ; that whenever this limit 
 is exceeded, whether the currency be of coin or 
 paper, it becomes depreciated ; that if the depre- 
 ciated currency be of coin, the precious metals 
 will be exported, till the volume of the currency 
 is brought within the limit ; that if the depre- 
 ciated currency be of paper, it must remain de- 
 preciated, and if it be considerably depreciated, 
 it can never be disposed of except at its depre- 
 ciated value, — that is to say, it cannot be restored 
 to the true standard, by contraction or funding ; 
 that if a paper currency be issued ad infinitum, 
 the whole value of the issue can never exceed the 
 natural limit. To state this law specifically, it
 
 viii INTRODUCTION. 
 
 will be sufficient to say, that if the natural limit 
 of the currency be $500,000,000, and the nomi- 
 nal paper issues be $1,500,000,000, the paper 
 dollars are not worth more than thirty-three and 
 one third cents each. If the natural limit be 
 $500,000,000, and it were possible to put $1,- 
 500,000,000 coin in use as currency, then the 
 value of these dollars would only be equal to 
 one third the value of the dollars that were in 
 use previous to the increase ; that is to say, the 
 price of all commodities would be three times as 
 great. Price and value are quite distinct from 
 each other. Price is the power to command 
 money. Value is the power to command labor. 
 The author has been enabled to ascertain the 
 natural limit of the currency of this country, 
 and to fix its true value, beyond controversy. 
 He has also been enabled to arrive at the ap- 
 proximate nominal value of the irredeemable 
 paper currency, and has demonstrated, incontes- 
 tably, that the present value of our le gal tender 
 and national bank-notes is about thirty-three 
 and one third cents each in the common currency 
 of the world. He has shown that the fiscal em- 
 barrassments of the nation, as well as the almost 
 frightful amount of our foreign indebtedness, 
 are wholly due to the dogged persistence of the
 
 INTRODUCTION. IX 
 
 Treasury Department, in maintaining the price 
 of the legal tender notes above seventy cents, 
 when their value is only about thirty-three and 
 one third cents — in selling gold and tampering 
 with the currency. Congress is obnoxious to 
 censure in 1 the highest degree, for conferring 
 such corrupt and corrupting power upon the 
 Minister of Finance, though he be the most pure 
 and incorruptible of men. If pure-minded, he 
 is almost as ignorant as Congress, and has 
 wielded a terribly destructive power, without 
 hindrance, and with the most disastrous results. 
 Congress, in this respect, it cannot be denied, 
 has manifested utter incapacity for good, and 
 capacity only for evil. The Administration is, 
 perhaps, equally to blame ; for the Finance Min- 
 ister should, by virtue of his office, be able to 
 inform Congress upon the true principles of 
 political economy. But, unfortunately, fitness 
 for office seems to work a disqualification there- 
 for, in this country. Not only has this fatal 
 policy of selling gold been persisted in, but the 
 equally fatal dogma of contraction has been 
 pursued with a relentlessness of purpose which 
 deserves the execrations of every citizen. His- 
 tory furnishes no instance where an irredeem- 
 able paper currency, — revolutionary currency,
 
 INTRODUCTION. 
 
 or bills of credit, — when once issued to great 
 excess, has ever been considerably appreciated in 
 value ; and history never will furnish such an 
 instance, for the simple reason that it is impos- 
 sible. The very attempt to do so necessitates 
 increased issues, because it destroys the revenues 
 of the government. 
 
 The attempt has been pursued with greater 
 obstinacy and to a greater extent, perhaps, in 
 this country than ever before. The currency 
 cannot be contracted, still less can it be funded. 
 The only method of disposing of this currency 
 is such as has been employed by other nations, 
 and which is pointed out in the text. The mal- 
 administration of the Treasury Department has 
 been the greatest tax upon the people, but there 
 are others equally unjust. The national bank 
 circulation is a tax upon the people to the extent 
 of about fifteen millions of dollars per annum, 
 and. unfortunately, the system, while ostensibly 
 under the control of Congress, has or seems to 
 have its attorneys in both legislative branches, 
 and in the various departments of the Treasury. 
 It is not fit that the people should be compelled 
 to bear this incubus longer. The dominant party 
 seems to be without the moral courage to resist 
 it, if, indeed, the party itself be not within its
 
 INTRODUCTION. XI 
 
 stern control. An enormous income tax, with- 
 out color of legality under the fundamental law, 
 endurable during the war, but intolerable now 
 that the war is ended, has pressed heavily upon 
 the middling classes, and in many cases en- 
 croached upon their capital. The excise on 
 distilled spirits, one of the most just and least 
 oppressive of taxes, seems to be appropriated by 
 the vultures who hover about and pollute all 
 departments of the government, and sit at the 
 receipt of customs. Preposterous imposts have 
 been levied upon foreign products, with the futile 
 design of shutting them out from ruinous com- 
 petition with home industry ; but the money 
 king, whom Congress has enthroned above the 
 law, and the smuggler, laugh them to scorn. 
 It is not easy to contemplate these things with 
 composure, nor is it agreeable to dwell upon 
 the criminal neglect of the interests of the 
 country, when one's political sympathies are 
 drawn towards the dominant party. But the 
 country has stronger and paramount claims, even 
 if each person's individual interest did not con- 
 strain him to rebuke those, who, intoxicated with 
 power, apparently care for little else than its 
 retention. It is true that a factious opposition 
 has been presented to the legislative power, but
 
 Xll INTRODUCTION. 
 
 it cannot be concealed that the dominant party 
 has retained a controlling 1 power of the machin- 
 ery of legislation, and, instead of a well-devised 
 system of taxation, we seem to have an artful 
 scheme of spoliation. The author has discussed 
 the question of subjecting the capital invested in 
 government bonds to taxation with entire free- 
 dom, as he was in duty bound to do. Whoever 
 has read history attentively, will perceive the 
 danger likely to arrive from this exemption of 
 accumulated property of any description from 
 taxation, and throwing the burden upon pro- 
 duction. The history of the French Revo- 
 lution is most instructive in this particular. It 
 was the refusal of the nobles and privileged 
 classes in France to submit to taxation, and to 
 acquiesce in the wholesome reforms proposed by 
 Turgot, and afterwards by Necker, which drove 
 the latter repeatedly from office, necessitated the 
 issue of paper money, brought on the Reign of 
 Terror, and culminated in the ascendancy of 
 the military power. The frightful sequence of 
 events in France could not have taken place, had 
 the suffrage been general and impartial, and 
 therefore, such calamities are impossible here. 
 The danger is not that injustice will be done to 
 the tax-payers in this country, but that the at-
 
 INTRODUCTION. Xlll 
 
 tempt to commit a wrong upon them, either in 
 exempting bonds from taxation or in settling the 
 public debt by a standard thrice as high as that 
 by which it was contracted, will react with fatal 
 injustice to the public creditor, and be prejudicial 
 in the last degree to the permanence of the 
 Union. Especially has it been the desire of the 
 author to embody the elementary principles of 
 currency in the smallest possible compass, since 
 it is well-nigh impossible to induce the general 
 community to undertake the careful perusal of 
 an elaborate treatise on political economy. He 
 has drawn freely from the fountains of knowledge 
 and the history of human experience. He has 
 commented with freedom upon the executive and 
 legislative departments of the government, as 
 well as upon the political party which is in the 
 ascendant, and he conceives it was his right and 
 duty so to do. He has done this with none 
 other than kind feelings, so far as any persons in 
 either department of the government are known 
 to him. He has not sought popularity at the 
 expense of truth, but rather incurred the risk of 
 censure for the sake of justice. He has en- 
 deavored to submit to the guidance of his in- 
 stincts, which, he hopes, are patriotic, honest, and 
 republican. So far as he may have advanced
 
 XIV INTEODUCTION. 
 
 principles of political economy, he invites intelli- 
 gent criticism. So far as he may be judged in 
 matters of opinion, or in the manner of this book, 
 he invokes fairness only. 
 
 GEO. A. POTTER. 
 
 Brooklyn, June 4, 1868.
 
 THE 
 
 INSTRUMENT OF ASSOCIATION. 
 
 I. 
 
 ITS NATURE AND USE IN THE ECONOMY OF 
 SOCIETY. 
 
 rnHE credit of a state depends on the propor- 
 tion of its revenue to its expense, and the 
 ease and satisfaction with which the necessary 
 taxation is borne by the people. 1 The revenue 
 of a state depends entirely upon the i ndust ry of 
 the people, for labor is the only source of wealth. 
 The industry of the people consists in utilizing 
 the matter already created by God. Man pro- 
 duces nothing but utility. 2 The industry of man 
 takes three general but different forms — trans- 
 mutation, transformation, transportation. 3 Trans- & 
 mutation is the appropriation and change of 
 matter by the agriculturist, miner, chemist, 
 hunter, fisherman, and so on. Transforma- 
 tion is the change of form wrought by the man- 
 ufacturer, which branch of human industry is 
 susceptible of the greatest extension of the prin- 
 i Burke. 2 McCulloch and Mill. 3 Walker.
 
 16 THE INSTRUMENT OF ASSOCIATION: 
 
 ciple of the division of labor. 1 The greater the 
 extent of the division of labor, the greater its 
 efficiency in the aggregate ; hence, manufactur- 
 ing industry is the most profitable for any na- 
 tion, so long as it can obtain a market for its 
 products at home or abroad. Transportation 
 is the change of place wrought by the merchant, 
 the seaman, and the carrying and distributing 
 trade generally ; in a word, it is commerce. 
 This branch of industry is also susceptible, in 
 a great degree, of the application of the princi- 
 ple of the division of labor, and includes bankers, 
 brokers, and dealers in money generally, so far 
 as they help to utilize capital. These are the pro- 
 ducing classes, and so far as the value of their 
 production exceeds the value of their consump- 
 tion, so far have they increased the fixed or cir- 
 culating capital of the country. The prosperity 
 of each class is intimately associated with, and 
 dependent on, the prosperitv of the other two. 
 If from any cause the prosperity of manufac- 
 turing industry declines, agriculture and com- 
 merce will also decline. 2 The one grand con- 
 necting link between these three general branches 
 of industry, in all their multifarious subdivisions, 
 
 1 Progress of the Mechanical Arts. A Lecture before the 
 Boston Mechanics' Institution. 1828. Webster. 
 
 2 Webster.
 
 ITS NATURE AND USE IN SOCIETY. 17 
 
 — the one instrument of association? — is money 
 and its substitutes, comprehended in the general 
 term — currency. 
 
 It is obvious that the material welfare of a 
 state depends upon the perfect adaptability of the 
 instrument of association. And in order to be 
 perfectly adapted to its functions, it must pro- 
 mote a rapid societary circulation? By a rapid 
 societary circulation, is meant rapid production, 
 and interchange, and consumption, of the prod- 
 ucts of labor. The more rapid the circulation, 
 the more perfect the power of association, the 
 greater the power to support taxation, the greater 
 the economy of labor, the more advanced the 
 civilization of the community, the greater the 
 extent of the division of labor, and the more 
 secure the democratic form of government and 
 the liberty of the people. 3 The instrument of 
 association then must not be unwieldy, other- 
 wise the circulation will be sluggish ; if the cur- 
 rency is excessive, it begins to lose the character 
 of a medium and becomes itself the thing to be 
 
 1 I am indebted to Mr. Carey for this term. No other lan- 
 guage so completely embodies the idea developed in this book 
 as to the functions of the currency. Hence the appropriate- 
 ness of the title. 
 
 2 Carey. 
 
 3 De Tocqueville. " Industry is essentially social." — Ev- 
 erett.
 
 18 THE INSTRUMENT OP ASSOCIATION : 
 
 circulated. It must be elastic, otherwise values 
 and prices will be constantly fluctuating ; pro- 
 ducers will stop producing and begin speculat- 
 ing, and the demoralization and poverty of the 
 people will ensue. It must possess the element of 
 value in itself, or by proxy, in order to command 
 value at all times. It must be as inexpensive 
 as possible, otherwise it will be a burden on the 
 people. Finally, it must be self-regulating and 
 secured against the interference of empirics, 
 whether in the executive or legislative depart- 
 ments of the government. 1 In order to illus- 
 trate, by analogy, the economy of a rapid circu- 
 lation, let us suppose a given quantity of freight 
 to be transported from one point to another. 
 This freight, we will suppose, can be transported 
 by one hundred cars making one trip per day, 
 or it can be transported by ten cars making ten 
 trips per day. Now it is obvious that when the 
 ten cars only are employed as the instrument of 
 commerce, the more rapid will be the circulation, 
 and the less expensive in point of cost will be 
 that instrument of commerce. Let us also sup- 
 pose that the use of a thousand cars every day 
 to transport this freight is made compulsory ; 
 
 1 " He who tampers with the currency, robs labor of its 
 bread." — Webster.
 
 ITS N A TUBE AND USE IN SOCIETY. 19 
 
 then, obviously, the instrument of commerce -is 
 not only very expensive, but each car will only 
 be a tenth part loaded. In these supposed cases 
 the utility of the ten cars, and the hundred cars, 
 and the thousand cars is the same. Their re- 
 spective values as instruments of commerce are 
 equal. So it is with the currency of a nation ; 
 the momentum * (mass multiplied by velocity), 
 or utility, being 1 the same when the volume of 
 the currency is small and the circulation rapid, 
 as when the volume is large and the circulation 
 sluggish. 2 Hence, the smaller the volume of 
 the currency of a nation, the more rapid the cir- 
 culation, and the greater the material prosperity 
 of such nation. 3 The minimum as well as the 
 maximum of the volume of the currency of a 
 nation, however, is fixed by a principle which 
 will be laid down hereafter. The elasticity of 
 the currency of a nation depends upon its mate- 
 rial, and whether there be any use for such ma- 
 terial within or without such nation, other than 
 for currency. If the currency be of irredeem- 
 able paper, it will have no elasticity, because its 
 
 1 Bowen and Perry. 2 Mill. 
 
 3 Mr. Carey contradicts this proposition, but Smith, Hume, 
 and nearly all the British economists, as well as Say, Bastiat, 
 and Chevalier, sustain it. Bowen, Walker, and Perry also 
 substantially admit it.
 
 20 THE INSTRUMENT OF ASSOCIATION: 
 
 volume remaining" the same, the constant ebbing 
 and flowing of the tide of commerce will fall as 
 upon the sea-shore, marking a depreciation, or 
 it will rise as upon the sea-shore, marking an 
 appreciation of the currency. If the currency 
 be of inherent or representative value, it will go 
 abroad or be consumed when in excess ; when 
 deficient, it will be increased by accretions from 
 abroad, or by production. The ceaseless opera- 
 tion of the eternal law of supply and demand, 
 which acts on everything of value, whether 
 movable or immovable, will cause a currency of 
 value to remain, or go where it will command 
 the greajtest value of other commodities in ex- 
 change. It is rather a truism than a similitude 
 to say that the laws of trade will preserve a per- 
 fect adjustment of a currency of value, just as 
 the law of gravitation preserves a perfect level 
 of the sea. In saying that the currency must 
 possess the element of value in itself, it is in- 
 tended to use the word value in the sense given 
 to it by Bastiat ; that is to say, it must be the 
 embodiment of human service or labor already 
 performed, or rather it must embody the power 
 to command service or labor. It doubtless seems 
 paradoxical to assert that a metallic currency is 
 comparatively inexpensive, but experience has
 
 ITS NATURE AND USE IN SOCIETY. 21 
 
 proved it to be the cheapest currency that human 
 ingenuity can devise. Its utmost cost is the loss 
 of interest, and the insignificant loss by abra- 
 sion. It is the cheapest because it is the most 
 efficient ; 1 but if we consider the immense loss 
 resulting 1 to private individuals and corpora- 
 tions, and to the industrial classes and capital- 
 ists, from the frequent expansions and revul- 
 sions of a paper currency, the absurdity of the 
 pretense that such a currency is cheap, will 
 be readily perceived. The Secretary of the 
 Treasury, in 184*1, in answer to a request of 
 Congress, estimated that up to that time the 
 losses sustained by the government and the peo- 
 ple by allowing banks of issue, was $380,943,- 
 
 497- 2 ~ 
 
 Having described the essentials of a perfect 
 currency or instrument of association, it only re- 
 mains to say that of all materials known to 
 civilized man, the precious metals alone possess 
 all the indispensable qualities of a perfect cur- 
 rency. It is the opinion of many able writers, 
 that the precious metals were designed by the 
 Creator to be the instrument of association. It 
 is no figure of speech to say (and I speak it 
 with the utmost reverence), in the language of a 
 i Walker. 2 ibid.
 
 22 THE INSTRUMENT OF ASSOCIATION: 
 
 stump-orator, that gold and silver is the money 
 of God and of democracy. 1 The pernicious 
 doctrine of Adam Smith, that paper could be 
 advantageously substituted for a metallic circula- 
 tion, thus displacing the coin with an instrument 
 less costly, has been abundantly refuted by expe- 
 rience, and it may well be doubted whether he 
 would not be an implacable enemy of paper 
 money in any form, were he now living. It 
 should be borne in mind that when Smith wrote, 
 the science of political economy was in its in- 
 fancy ; indeed, he has been regarded as its fa- 
 ther ; moreover, political economy is an experi- 
 mental science ; it assumes nothing but the 
 universality of human selfishness, which is a 
 law of human nature. 2 But if history has 
 proved anything, it has proved that a paper 
 currency intended to be convertible at all times, 
 under any circumstances, into gold at the will 
 of the holder, is a chimera, and nowhere more 
 so, than under a popular government. Political 
 economy, therefore, being an experimental sci- 
 ence, it must be conceded that on the facts as 
 they are in history, a paper currency cannot 
 stand the test to which that science subjects 
 all theories, before admitting them to be sound. 
 1 Speech of S. S. Cox. 2 Bowen.
 
 ITS NATURE AND USE IN SOCIETY. 23 
 
 Adam Smith, however, entertained a whole- 
 some contempt for circulating notes of small 
 denomination, for he says, " Where the issuing 
 of bank-notes for such very small sums is al- 
 lowed, and commonly practiced, many mean 
 people are both enabled and encouraged to be- 
 come bankers. A person whose promissory 
 note for five pounds, or even twenty shillings, 
 would be rejected by everybody, will get it to be 
 received without scruple when it is issued for so 
 small a sum as a sixpence. But the frequent 
 bankruptcies to which such beggarly bankers 
 must be liable, may occasion a very considerable 
 inconveniency, and sometimes a very great ca- 
 lamity to many poor people who had received 
 their notes in payment. It were better, perhaps, 
 that no bank-notes were issued in any part of 
 the kingdom for a smaller sum than five pounds." 
 Speaking of the lawfulness of restricting the 
 issue of circulating notes, Dr. Smith further 
 says : " Such regulations may no doubt be con- 
 sidered as in some respects a violation of natural 
 liberty. But those exertions of the natural 
 liberty of a few individuals, which might en- 
 danger the whole society, are, and ought to be, 
 restrained by the laws of all governments ; of the 
 most free, as well as the most despotical. The
 
 24 THE INSTEUMENT OF ASSOCIATION: 
 
 obligation of building party walls, in order to 
 prevent the communication of fire, is a violation 
 of natural liberty, exactly of the same kind with 
 the regulations of the banking trade which are 
 here proposed." The arguments of those who 
 advocate paper money, do not differ widely from 
 those of John Law, who held " that money owes 
 its value to the public confidence ; and that pa- 
 per, or anything else, may answer this purpose 
 as well as the precious metals (the first, as well 
 as the last, he regarded as the mere signs of 
 wealth) ; that land was a better commodity for 
 money than silver, and that the currency of a 
 country might be increased to the whole value 
 of its lands ; that the effect of such an increase 
 would be not depreciation, but merely a lower- 
 ing of interest, by which trade would be 
 encouraged and wealth augmented." * Notwith- 
 standing that such a fallacious doctrine has been 
 again and again exploded, it seems to find new 
 advocates in every generation. These advocates 
 do not, perhaps, claim that land is a suitable 
 basis for a circulation, but they do claim that 
 interest bearing bonds are a safe basis for circu- 
 lation, which is equally a heresy. Government 
 bonds are not money, and as a basis of circula- 
 
 1 The Mississippi Scheme in France. — Tucker.
 
 ITS NATURE AND USE IN SOCIETY. 25 
 
 tion, " the mischief is, that they are least 
 available when they are most wanted ; the very- 
 causes which might prevent the hanks from 
 redeeming their issues promptly, would cause a 
 fall in the value of the stocks and mortgages on 
 the ultimate security of which their notes have 
 been issued." 1 A circulation based on govern- 
 ment bonds is a circulation based on debt, and 
 not on value, than which, nothing can be con- 
 ceived more unsubstantial. A circulation based 
 on staple merchandise of general consumption 
 throughout the world, and imperishable in its own 
 nature, such as cotton, valued at about the cost 
 of production in the chief producing country, and 
 rendered secure against damage by fire and wa- 
 ter, would be a comparatively sound currency, 
 but much more expensive than a circulation 
 based on gold. With such a currency, the ele- 
 ment of value would be ever present ; but it is 
 precisely this evasion of value and the substitu- 
 tion of debt in its place, which is always sought; 
 this foisting upon the people as money that 
 which, when put to the crucial test, has always 
 been found to be its counterfeit and not its rep- 
 resentative, which is always persisted in ; it is 
 this insufferable fraud on the people, originally 
 1 Gouge, quoted by Bowen.
 
 26 THE INSTRUMENT OP ASSOCIATION : 
 
 granted as a privilege, but now claimed as a 
 right, which has been the abundant cause of so 
 much loss and distress in the mercantile com- 
 munity, so much discord between capital and la- 
 bor, such acrimonious strife between free-traders 
 and protectionists, and the remote cause of civil 
 war in the country. If the instrument of asso- 
 ciation be imperfect, the power of association 
 becomes weakened, and the danger of dissocia- 
 tion is always impending. Men are too apt to 
 regard this Union as the result of extraordi- 
 nary abnegation on the part of our fathers, with 
 a view to demonstrate, in the uncontaminated 
 society of a new world, a liberal principle of po- 
 litical philosophy which had hitherto failed else- 
 where. That the framers of the Constitution, 
 especially Washington who presided at the con- 
 vention, were animated by such lofty sentiments, 
 is not doubted ; but that the States and people 
 at large participated in, and were influenced by 
 patriotic considerations to any important degree, 
 neither history nor a knowledge of the springs 
 of human action will permit us to believe. The 
 recorded failure of the Confederation to promote 
 the general prosperity, was regarded as a proof 
 of what the exigencies of the Union demanded 
 in a general government. 1 
 
 1 History of the Constitution, Curtis.
 
 ITS NATURE AND USE IN SOCIETY. 27 
 
 That the evils of paper money were generally 
 considered to be the parent of the commercial 
 distress, is perfectly clear. " One of the prin- 
 cipal causes which led to the experiment of 
 making - a national government with power to 
 prevent such abuses, had been the frauds and in- 
 justice perpetrated by the States, in their issues 
 of paper money ; and there was at this very time 
 a loud and general outcry against the conduct of 
 the people of Rhode Island, who had kept them- 
 selves aloof from the national convention, for 
 the express purpose, among others, of retaining 
 to themselves the power to issue such a cur- 
 rency." * But the exigencies of the Union 
 demanded that no State should " make anything 
 but gold and silver coin a tender in payment 
 of debts," 2 and so the prohibition was incorpo- 
 rated into the fundamental law. 3 " Whatever we 
 may think of it now, the Constitution had its im- 
 mediate origin in the conviction of the necessity 
 for this uniformity or identity in commercial 
 regulations. The whole history of the country, 
 of every year and every month, from the close 
 of the war of the Revolution to 17§9, proves 
 this. Over whatever other interests it was made 
 
 1 History of the Constitution, Curtis. 2 Ibid. 
 
 3 Constitution, art. 1, sec. 10.
 
 28 THE INSTRUMENT OP ASSOCIATION: 
 
 to extend, and whatever other biessings it now 
 confers, or hereafter may confer, on the millions 
 of free citizens who do or shall live under its 
 protection ; even though in time to come, it shall 
 raise a pyramid of power and grandeur, whose 
 apex should look down on the loftiest political 
 structures of other nations and other ages, it will 
 yet be true, that it was itself the child of press- 
 ing commercial necessity." 1 It is readily con- 
 ceded that slavery was the immediate cause of 
 the late civil war, but slavery grew and flourished 
 under a condition of society that was wholly due 
 to the inefficacy of the instrument of association. 
 This will be shown hereafter. 2 
 
 1 Webster. 2 Post, pp. 101-104.
 
 ITS COMPONENT PARTS. 29 
 
 n. 
 
 OF ITS COMPONENT PARTS. 
 
 ^T^HE circulating medium of a country, whether 
 of notes or coin, is commonly supposed to 
 form the entire currency thereof, whereas, only 
 a very small portion of the commercial exchanges 
 is effected by circulating notes or coin. The 
 greater portion of our commercial exchanges are 
 effected by bank deposits, represented and trans- 
 ferred by means of checks. The magnitude of 
 the exchanges effected at the clearing house in 
 New York, without the intervention of circulat- 
 ing notes, is very great. The larger proportion 
 of customs duties are paid by coin certificates of 
 deposit, and before the use of these, certified gold 
 checks were the common means of effecting ex- 
 changes in a gold currency. The mercantile 
 classes seldom use circulating notes in payments 
 of one hundred dollars or more. In the seven- 
 teenth century, the commercial currency of some 
 of the smaller European states consisted entirely 
 of deposits. 1 The banks of Venice, Genoa, Amster- 
 
 1 Smith.
 
 30 THE INSTRUMENT OF ASSOCIATION : 
 
 dam, Hamburg, and Nuremburg, held deposits 
 of bullion, which was considered the standard 
 money, and was transferred by means of receipts 
 which were in the nature of certificates of de- 
 posit. This practice arose in consequence of the 
 coin of those states having become degraded by 
 clipping, and by the admixture of foreign coin 
 in the circulation, so that bank money com- 
 monly bore an agio ; that of the Bank of Ham- 
 burg was about fourteen per cent, above the 
 degraded coin. For the purpose of conveniently 
 elucidating this subject, I propose to draw a dis- 
 tinction between the retail or trading currency, 
 and the wholesale or commercial currency, — a 
 distinction between trade and commerce without 
 a lexical difference perhaps, and arbitrary withal, 
 but yet essential to a clear presentation of the 
 subject. Some writers consider that bills of 
 exchange form a part of the currency, but the 
 proposition cannot be admitted. Suppose A in 
 Chicago, by means of his own check, purchases 
 of the bank a bill of exchange on New York. 
 What is the result ? A has reduced his deposit 
 account, the bank has reduced its liability to A, 
 and the bank in New York has reduced it lia- 
 bility to the bank in Chicago by reducing its 
 balance, out of which the bill of exchange has
 
 ITS COMPONENT PARTS. 31 
 
 been paid and passed out of existence ; and the 
 party in New York, from whom the bill of ex- 
 change was redeemed, has increased his deposit 
 account. The bill of exchange, in this instance, 
 was merely the agency by which a deposit was 
 transferred from A in Chicago to the payee in 
 New York. No additional deposit was created ; 
 the aggregate deposits in the country remained 
 the same. Suppose A, instead of giving his 
 check for the .bill of exchange in Chicago, had 
 handed bank-notes. Without stopping to in- 
 quire where A procured the notes, it will be 
 sufficient to say that the active circulation of the 
 country was, for the moment, reduced so much, 
 and the deposits in New York were increased 
 so much, if the proceeds of the bill of exchange 
 had been credited to the deposit account of the 
 payee, as we have supposed was the case. If 
 the payee received bank-notes in payment, then 
 the active circulation was increased at New York 
 and decreased at Chicago, the circulation in the 
 aggregate remaining the same. The aggregate 
 circulation and deposits of the country were not 
 changed in either case ; only the bank balances 
 were reduced. If, however, the bill of exchange 
 was drawn on time, and the payee had merely 
 procured acceptance thereof, and locked it in his
 
 32 THE INSTRUMENT OP ASSOCIATION : 
 
 safe, then the circulation and deposits having 
 been decreased in Chicago, without being in- 
 creased in New York, the net result is a dimi- 
 nution of the aggregate circulation and deposits 
 in the country. The character of the transaction 
 effected by the bill of exchange, is the transfer 
 of currency by proxy, as it were, which is in 
 essence the same as a telegraphic or manual 
 transfer. Clearly then, bills of exchange are 
 not currency. Fictitious exchange may be cre- 
 ated thus. If A in Chicago wishes to obtain 
 money, he draws on B in New York at thirty 
 days and sells the bill in Chicago, which B in 
 New York accepts ; at, or near maturity, A will 
 draw on C in New York for the same amount 
 plus interest, and send the bill to B, which B 
 will have accepted and discounted, and with the 
 proceeds will meet the first bill, and so on. In 
 this case, no addition to the currency is made 
 until B gets the second bill drawn on C dis- 
 counted at a bank, thus creating a deposit, against 
 which he draws his check to meet the first bill. 
 Then the addition to the currency is made by 
 creating a deposit in the bank, and the bank will 
 add to its resources by loans and discounts, and 
 increase its liabilities by deposits, and the cur- 
 rency of the country (circulation and deposits)
 
 ITS COMPONENT PARTS. 33 
 
 becomes increased. But the bill of exchange, 
 by itself, is not currency any more than a prom- 
 issory note, or government bonds, or anything 
 else upon which the bank may have loaned. 
 This practice of drawing and redrawing is justly 
 condemned by Adam Smith, and is similar to 
 what is technically known in finance as making 
 paper. If, however, A was possessed of mer- 
 chandise not already hypothecated, and equal 
 in value to the amount of the bill of exchange, 
 the transaction was legitimate. Nor are for- 
 eign bills of exchange currency, in any sense. 
 Foreign exchange is drawn against commodities 
 in transit, and is the same in effect as if A 
 telegraphed to B, to pay C in London, and 
 charge to consignment of cotton, per " Friend- 
 ship," bill of lading and invoice per mail. In 
 case the exchange is drawn against bullion or 
 coin, it is the same thing. Bullion is a com- 
 modity, and so is coin which loses the form of 
 currency, and becomes a commodity only, when 
 it leaves its native shores. I have dwelt on this 
 subject because it has been involved in some ob- 
 scurity. Bank balances have no effect upon the 
 volume of the currency ; if obliterated, the vol- 
 ume of the currency would remain the same ; the 
 debts are set off against the credits, and being
 
 34 THE INSTRUMENT OP ASSOCIATION : 
 
 payable in current funds on demand, thus neu- 
 tralize each other. Bank balances, however, 
 are exceedingly prejudicial to the stability of 
 debit banks at the commercial centre, in the in- 
 ception of a revulsion. 1 Nor do bank reserves 
 constitute any portion of the working cur- 
 rency, whether they consist of specie or lawful 
 money. They ought to be composed entirely 
 of lawful money under the present system, for 
 specie is no more fit to exercise a salutary influ- 
 ence as a reserve, than would be so many bales of 
 cotton of equal value. Nor are compound inter- 
 est notes, nor anything else that the banks would 
 be reluctant to part with, except under a panic 
 pressure, fit to be considered as a reserve. The 
 reserves of the banks are intended to perform 
 very much the same office as that portion of an 
 army which is held in reserve, during a battle, 
 and which, if destitute of mobility, is worse than 
 useless. 
 
 It is seen, then, that "the amount of the cur- 
 rency of a country dependent upon the move- 
 ment of its banks, is to be found in the circula- 
 tion and the deposits, minus the quantity of spe- 
 cie retained on hand," 2 or whatever beside specie 
 may be held as the reserve. It is a matter of 
 1 Walker. 2 Carey and Walker.
 
 ITS COMPONENT PARTS. 35 
 
 much surprise that Professor Perry should dis- 
 pute the proposition that deposits are a portion 
 of the currency, and the very high character of 
 his work justifies an examination into his reasons 
 for disputing - a point so well settled. His rea- 
 son (1.) is, "Because so long as they remain 
 unchecked there is no function of currency ahout 
 them." The answer to this is, that they do not 
 remain in the bank unchecked, but are constantly 
 being transferred by check from one account to 
 another. An active day in Wall Street will 
 witness the transfer of millions, several times 
 during business hours. (£.) " Because payments 
 made by check do not cancel the debt at once, 
 as when made by currency." The answer to 
 this is, that if a check is ..good, it cancels a debt 
 just as effectually as a good bank or legal tender 
 note, and with more convenience, since checks 
 can be drawn to a point for any fraction of a 
 dollar. If a check is not good it will not cancel 
 a debt; neither will a bank-note that is bad. (3.) 
 "And because especially checks never perform 
 but one of the functions of currency ; they are 
 provisionally a medium of exchange, but no 
 matter how multitudinous they may become, or 
 how actively they may pass in payments, there 
 is no tendency whatever, as there would be in a
 
 36 THE INSTRUMENT OF ASSOCIATION : 
 
 corresponding increase of currency, to vary the 
 meaning of the word dollar." This is the most 
 important objection urged by Professor Perry, 
 but it is fallacious. There can be no general in- 
 flation of prices, without increasing the circu-. 
 lating notes or retail currency, 1 and this increase 
 of retail or trading currency precedes, or follows, 
 or accompanies an increase of loans and dis- 
 counts, and consequently deposits, thus increasing 
 the wholesale or commercial currency. The 
 increase of deposits is as essential to a general 
 inflation as an increase of circulating notes. 
 Deposits are a demand liability of the banks in 
 the same degree and kind as their circulating 
 notes. 
 
 The following table shows the course of an 
 inflation : — 
 
 Tear. Circulation. Deposits. Year. Circulation. Deposits. 
 
 1854 millions 205 187 1858 millions 155 186 
 
 1855 " 187 190 1859 " 193 259 
 
 1856 " 198 210 1860 " 207 253 
 
 1857 " 215 230 
 
 1 " The circulation of every country may be considered as 
 divided into two branches ; the circulation of the dealers with 
 one another, and the circulation between the dealers and the 
 consumers The value of the goods circulated be- 
 tween the different dealers, never can exceed the value of 
 those circulated between the dealers and consumers."— Smith. 
 
 Mill is also very clear on this subject, quoting Tooke and 
 Fullarton. Book iii. chap. xxiv. ; also chap. xii.
 
 ITS COMPONENT PARTS. 37 
 
 It is thus seen that in theory and practice 
 neither increase of circulation alone, nor of 
 deposits alone, can materially affect prices or 
 " vary the meaning of the word dollar," but an 
 increase of both is essential to an inflation, and 
 that each is a co-worker with the other. What 
 I shall have to say upon the subject of interest, 
 or the " charge for the use of money," may as 
 well be said here as elsewhere. It is the vulgar 
 theory, that the greater the quantity of the cir- 
 culating medium, the lower the rate of interest 
 in consequence. 1 This theory is also maintained 
 by Mr. Carey, but Mr. Carey's whole theory of 
 money, as well as interest, is at variance with 
 that of all the known writers of reputation, I 
 believe, without a single exception. 2 I cannot 
 account for the eccentricity of Mr. Carey's 
 views, except upon the hypothesis that he fails 
 to determine the relation of cause and effect, 
 throughout the whole course of his reasoning- on 
 the subject. It is not without deliberation and a 
 sense of presumption, perhaps, that I venture so 
 to express myself, but I must not shrink from 
 the task I have undertaken, and in treating the 
 
 1 This was John Law's theory. 
 
 2 If it be said that Steuart, who preceded Smith, is an 
 exception, I answer that his views, in the language of Say, 
 " exhibit but a narrow and insignificant scope." 
 
 389109
 
 38 THE INSTRUMENT OF ASSOCIATION: 
 
 subject, I must observe the necessity of entire 
 candor. As a general rule, it may be stated that 
 the rate of interest depends upon the law of sup- 
 ply and demand. Money is circulating capital 
 in its greatest mobility of form, and it is capital 
 in its most convenient form that is needed when 
 money is borrowed. Money is no sooner re- 
 ceived by the person borrowing, than he converts 
 it into some other form of capital, circulating or 
 fixed ; and it is upon the profitable use made of 
 this latter that depends the fund out of which 
 interest is to be paid, with advantage to the bor- 
 rower. Money is circulating capital, but all 
 circulating capital is not money; and the rate of 
 interest depends upon the supply of floating or 
 circulating capital to be loaned and the demand 
 for borrowing such capital. Money is only the 
 medium by which capital is transferred to the 
 borrower. 1 It is quite true that an inordinate 
 and sudden scarcity of money would necessitate 
 a high charge for its use until prices had become 
 generally affected by a considerable decline ; and 
 vice versa, an inordinate and sudden abundance of 
 money would create a low rate of interest until 
 prices had become generally affected by a con- 
 
 1 " It is, as it were, but the deed of assignment, which con- 
 veys from one hand to another those capitals which the 
 owners do not care to employ themselves." — Smith,
 
 ITS COMPONENT PARTS. 39 
 
 siderable advance. It must be borne in mind, 
 however, that the value of the circulating me- 
 dium of a nation is controlled by the international 
 or universal laws of trade, or by the "equation 
 of international demand." 1 This most important 
 principle seems to have been ignored by Mr. 
 Carey throughout. Without dwelling on this 
 subject, it may be said the rate of interest de- 
 pends, first, upon the supply, that is to say, the 
 amount of accumulated capital seeking invest- 
 ment ; second, upon the demand, which is cre- 
 ated by various circumstances, — such as the 
 profits of industry, the state of the societary cir- 
 culation, the extension of the democratic princi- 
 ple in the body politic and the general distribution 
 of wealth, the amount of the funded debt of the 
 nation and the rate of interest thereon, rate of 
 taxation and the wages of labor, and the ma- 
 terial of the currency of a nation, whether of 
 paper or otherwise. All these considerations, 
 perhaps, have a bearing on the demand for the 
 use of money, and there may be others which it 
 were tedious and unnecessary to analyze. But 
 the volume of currency, even if of gold, does 
 
 1 Mill, Perry, Bowen, Smith, Ricardo, Hume, Say, and 
 others. Mill considers Ricardo as the real originator of this 
 principle, but this is not so. The axiom laid down by Smith 
 covers the -whole ground, and contains the germ of the whole 
 principle, in all its ramifications. Post, pp. 52, 65.
 
 40 THE INSTRUMENT OP ASSOCIATION : 
 
 not, by any means, determine or affect the rate 
 of interest. 
 
 The instrument of association now in use is 
 constituted in a somewhat peculiar manner, upon 
 a basis of government paper money or bills of 
 credit, irredeemable promises to pay at some in- 
 definite time in the future, but at present paya- 
 ble in nothing, otherwise than as they are received 
 for taxes, and whose circulation is therefore com- 
 pulsory. We are to deal with things as we find 
 them, and therefore it is not necessary to go into 
 an extended argument to show the necessity, or 
 otherwise, of the resort to a revolutionary cur- 
 rency when the war broke out. It may be useful 
 to say, however, that when in the course of hu- 
 man events two opposing social forces close in 
 deadly conflict for the mastery ; when the civil 
 power of the- State is successfully resisted to 
 a degree which renders the existence of the 
 State itself contingent upon the fortune of 
 war ; when the foundations of society are over- 
 thrown and chaos reigns ; when the habeas 
 corpus is suspended and the laws are silent, 
 it needs but the issue of paper money to com- 
 plete the picture. It is easy for so-called finan- 
 ciers, by ingenious arguments a priori, to show 
 that the issue of paper money is unnecessary
 
 ITS COMPONENT PARTS. 41 
 
 and therefore wrong ; but history teaches that 
 when bloody revolutions are undertaken, paper 
 money is as necessary as powder and guns, and 
 is, in fact, part of the materiel of civil war. 
 History teaches that it always has been so, and 
 political economy inculcates that it always will 
 be so. Moreover, in our case, it was especially 
 necessary, because, when the war broke out, the 
 channels of circulation were choked up and over- 
 flowing with a paper currency, that was on the 
 point of becoming inconvertible. It is one of 
 the arguments in favor of a metallic circulation, 
 that a nation possessing such is always on a 
 war footing. The genius of republican liberty 
 teaches that large standing armies are dangerous 
 in time of peace ; and the genius of political 
 economy and republican liberty both teach that 
 a bloated paper currency in time of peace is an 
 unmitigated curse to society, likely to provoke 
 civil strife, and always waging unrelenting war 
 against the industry of the people. The com- 
 ponent parts of the instrument of association 
 may be described and enumerated as follows : — 
 
 April 1, 1868. Plain legal tender notes . $356,144,727.00 
 
 National bank-notes in cir- 
 culation . . . 295,017,089.00 
 
 State bank-notes in circulation 3,310,177.00 
 
 $654,471,993,00
 
 42 THE INSTRUMENT OF ASSOCIATION : 
 
 Amount brought forward ..... $654,471,993.00 
 Individual and other depos- 
 its of national banks 556,399,480.76 
 
 1,21CT,871,473.76 
 
 Deduct actual legal tender 
 
 &" 
 
 reserve l 83,926,780.00 
 
 Total depending on the government and 
 
 national banks 1,126,944,693.76 
 
 To which must be added currency equiva- 
 lent of gold certificates of deposits . . 24,838,884.00 
 
 $1,151,783,577.76 
 
 Deposits of State banks throughout the 
 
 country, exclusive of the Pacific and 
 
 gold-producing States, estimated 2 . . $100,000,000 
 Circulation of California, and other 
 
 gold-producing States, according to 
 
 the report of the Comptroller of the 
 
 Currency, November, 1867, in gold 
 
 coin $50,000,000 
 
 Estimated bank depos- 
 its in those States . 50,000,000 
 
 $100,000,000 ( currency ) 140,000,000 3 
 
 I value J ■ 
 
 $240,000,000 
 
 1 The reserve of the national banks is compose.d of com- 
 pound interest notes, coin, three per cent, certificates, bank 
 balances, and legal tenders. The amount given here was plain 
 legal tender notes. 
 
 2 I have no accurate data for this estimate ; but the deposits 
 of the State banks of New York alone on Dec. 28, 1867, 
 were $32,957,573. The total of $100,000,000, is probably an 
 under-estimate. 
 
 3 This total is perhaps over-estimated, though, if the popu- 
 lation of those States be three millions, it probably is not.
 
 ITS COMPONENT PARTS. 43 
 
 The nominal value of circulation and deposits 
 throughout the country, is thus seen to be 
 $1,151,783,57776, + $240,000,000, equal to 
 a total of $1,391,783,5777^; or, estimating the 
 population at 35,000,000,* equal to a per capita 
 total of about forty dollars in currency value. 
 The instrument of association, then, is com- 
 posed of mixed elements equal in currency value 
 to about forty dollars per capita. In the next 
 chapter I shall attempt to show the value of this 
 instrument, as estimated in the common currency 
 of the commercial world. It will be observed 
 that the fractional currency is omitted from the 
 above, for the special reason that it supplies the 
 place of the gold and silver that was carried 
 about in the pockets of the people before the 
 war. 2 This amount prior to the war was an un- 
 known quantity, and if we make a due allowance 
 
 1 The Director of the Bureau of Statistics in 1866, esti- 
 mated the population at 34,505,882, a gain of about ten per 
 cent, in six years. 
 
 2 The official estimates of the gold in the country in 1861 
 ■were $275,000,000. It would be interesting to know the basis 
 of this estimate. The banks held less than $90,000,000 ; the 
 people, perhaps, $30,000,000. Where was the remainder? 
 It is possible that the estimate included the gold used in the 
 arts, and regarded it as still in the country. It seems pre- 
 posterous to suppose that there was so much gold coin in the 
 country.
 
 44 THE INSTRUMENT OP ASSOCIATION: 
 
 for increased prices now, it will perhaps be con- 
 ceded that the nominal value of this fractional 
 currency is probably greater than the value of 
 the gold and silver which constituted that un- 
 known quantity, especially as the small note cir- 
 culation before the war was abundant. The 
 amount of fractional currency was $32,588,- 
 689.94*. Most extravagant estimates have been 
 made of this portion of the currency. It con- 
 stitutes a part of the instrument of association, 
 and bears a uniform proportion to the general 
 currency, and is therefore thrown out as not be- 
 ing material. The circulating notes and deposits, 
 less the reserve, are, for the purpose of this dis- 
 cussion, sufficient to be considered as constituting 
 the instrument of association.
 
 PRINCIPLES LIMITING ITS VALUE. 45 
 
 III. 
 
 THE PRINCIPLES OF POLITICAL ECONOMY WHICH 
 LIMIT ITS VALUE. 
 
 TT is a self-evident proposition that there is 
 some limit to the value of the instrument of 
 association, whether the circulation consist of 
 coin or of paper, which is fixed by some un- 
 written law that is superior to statute law, and 
 which cannot be set aside by legislative enact- 
 ment. The very idea of value may be expressed 
 by the word scarcity. It is quite obvious that 
 Congress cannot authorize the unlimited issue 
 of bills of credit, without impairing their indi- 
 vidual value, and finally their aggregate value, 
 if the issue be carried to a great extent. There 
 is a point at which depreciation begins, another 
 where it ends in absolute worthlessness, and 
 intermediate points throughout the gamut in 
 the scale of depreciation. It is easy to define, 
 with tolerable accuracy, the point at which de- 
 preciation commences, and it is here where the 
 demoralization of society and the decay of in- 
 dustry begins. " All increase of money beyond
 
 46 THE INSTRUMENT OP ASSOCIATION : 
 
 this point, which the very nature of money itself 
 marks out as the boundary, leads to an inevitable 
 depreciation of the whole mass, to a consequent 
 disturbance of all existing money contracts, to 
 a universal rise of prices which are illusory and 
 gainless, to unsteadiness and derangement in all 
 legitimate business, and to a spirit of restless 
 enterprise and speculation, which seeks to draw 
 off the excess of money in untried and reckless 
 experiments." * It is not so easy, however, to de- 
 fine the point where depreciation ends, because 
 such a currency is commonly discarded by the 
 people before the issue has reached the point of 
 nothingness in value; for the moment that depre- 
 ciation and fluctuations begin, the instrument is 
 impaired, and as the fluctuations grow wider the 
 instrument becomes useless, although its compo- 
 nents parts may not be without value. In prac- 
 tice, a paper money currency is intolerable long 
 before it becomes without value in theory, that 
 is to say, on the basis of supply. The value of 
 any commodity is limited by the cost of repro- 
 duction. 2 This axiom is true when applied to a 
 metallic currency, because coin is a commodity 
 possessing a value independent of that which 
 it derives from the fact of its being the instru- 
 1 Perry. 2 Carey.
 
 PRINCIPLES LIMITING ITS VALUE. 47 
 
 ment of association. Paper money, on the other 
 hand, derives value from one fact only — that of 
 its being - the instrument of association. But 
 the instrument of association, whether composed 
 of coin or paper, is limited in value, as I have 
 said before, by an unwritten law. If it be 
 sought to increase the value of the instrument 
 of association, when composed of coin, beyond 
 the limit, the coin will flow out of the country, 
 or be used in the arts, or cease to be produced. 
 If it be sought to increase the value of the in- 
 strument of association, when composed of pa- 
 per, beyond the limit, the paper must suffer de- 
 preciation. The law which limits the value of 
 the instrument of association, is one of the most 
 important laws of political economy. 1 It is also 
 a law which, I think, has received less attention 
 and elaboration than any other of equal impor- 
 tance. It may be stated in the form of a syllo- 
 gism thus: (1.) The money value or price of 
 the instrument of association, or wheel of circu- 
 lation, 2 bears a certain proportion to the money 
 value or price of commodities which it is used 
 to circulate, and by a physical law it is confined 
 
 1 " Few writers since Ricardo have had an adequate con- 
 ception of the scientific value of this principle." — Mill, book 
 hi. chap. xxi. 
 
 2 Smith.
 
 48 THE INSTRUMENT OF ASSOCIATION : 
 
 within this limit. This is a self-evident propo- 
 sition. (2.) The average money value or price of 
 commodities within any nation, is regulated and 
 limited to the average money value or price of 
 commodities throughout the commercial world, 
 by the operations of international trade, anything 
 in the tax laws of any nation to the contrary not- 
 withstanding. 1 (3.) Therefore, the money value 
 or price of the instrument of association within 
 any nation is independent of statute law, and is 
 fixed by the natural laws of trade, or by the 
 tides of commerce, or, as it were, by the law of 
 gravitation. The major premise of the syllogism 
 is, as I have stated, self-evident ; but it may be 
 said that the proportion of value borne by the 
 instrument of association, to the value of the 
 commodities circulated, has been variously esti- 
 mated from one fifth to one thirtieth, 2 and a 
 recent writer has estimated it as low as one for- 
 tieth; 3 but it is impossible to ascertain the values 
 exchanged in any community, and consequently 
 it is impossible to ascertain the ratio of value 
 borne by the medium of exchange, though, as 
 will be demonstrated hereafter, it is not difficult 
 to determine, very nearly, the approximate value 
 
 1 " The 'equation of international demand, is the law of 
 international trade." — Mill. 
 
 2 Smith and Say. 3 Perry.
 
 PRINCIPLES LIMITING ITS VALUE. 49 
 
 of the medium itself. Whether the instrument 
 be of coin or paper, the premise is the same. 
 " England, in its actual state, requires, for the 
 effectuation of its sales and purchases, an agent 
 or medium equal in value, say to 1,284,000 
 pounds weight of gold ; or, what is the same 
 thing, to 1 ,200,000,000 pounds weight of sugar ; 
 or, what is still the same thing, to 60,000,000 
 pounds sterling of paper." * Now, if the propor- 
 tion borne by the medium of exchange to the 
 products exchanged was, in value, as one to 
 thirty, then the value of the commodities ex- 
 changed was 1,800,000,000 pounds sterling. 
 Now, suppose the instrument of association to be 
 increased to 2,568,000 pounds weight of gold, 
 or to 2,400,000,000 pounds of sugar, or to 
 120,000,000 pounds sterling of paper, what is 
 the effect % Simply that the wages of labor will 
 be doubled, and that the prices of all other com- 
 modities will be doubled, but the ratio of value 
 between the instrument and the commodities will 
 remain unchanged. 2 Two pounds weight of gold, 
 or two pounds weight of sugar, or two pounds 
 sterling of paper will purchase no more value 
 than would one pound of gold, or sugar, or pa- 
 
 1 Say, in 1803. 
 
 2 Prices will be doubled, but values will remain unchanged. 
 
 4
 
 50 THE INSTRUMENT OF ASSOCIATION : 
 
 per before the change was made ; and the price 
 of the total commodities exchanged would be 
 doubled as estimated against the medium of ex- 
 'change, but as estimated against the wages of 
 labor, the value of the commodities would remain 
 unchanged. It is quite true that rapidity of cir- 
 culation is important to be considered ; and hence, 
 if commodities of the value of 1,800,000,000 
 pounds sterling were to be circulated by 30,000,- 
 000 pounds sterling of paper, or 600,000,000 
 pounds weight of sugar, or 642,000 pounds 
 weight of gold, then the circulation must be twice 
 as rapid as when the medium of circulation was 
 twice as great, thus proving the axiom stated else- 
 where, that the smaller the volume of the currency, 
 the more rapid the circulation, and the greater 
 the prosperity of the nation. 1 " If each piece of 
 money changes hands on an average ten times 
 while goods are sold to the value of a million 
 sterling, it is evident that the money required to 
 circulate those goods is .£100,000." 2 It is impor- 
 tant to preserve the distinction between money as 
 an instrument of commerce, and as a measure 
 of value. " There is the same difference between 
 money as a medium and money as a measure, 
 that there is between a bushel of wheat and that 
 i Ante, p. 19. a Mill.
 
 PRINCIPLES LIMITING ITS VALUE. 51 
 
 round thing- by which we determine that there is 
 a bushel." 1 A bushel of wheat weighs about 
 sixty pounds ; but supposing that the use of two 
 measures, each denominated bushels, was made 
 compulsory in order to measure sixty pounds of 
 wheat, then, of course, two bushels of wheat 
 under the new rule are only equal to one bushel 
 under the old rule, and the medium of exchange 
 has depreciated fifty per cent., though the sixty 
 pounds of wheat as a measure of value is un- 
 changed. It seems supererogatory to attempt 
 to demonstrate this premise any further, and 
 I pass on to the elucidation of the minor prem- 
 ise. It remains to demonstrate that the prices 
 of commodities within any nation are limited, 
 by the operations of international trade, to the 
 prices of corresponding commodities throughout 
 the commercial world. When the currency of 
 a nation is redundant, prices of commodities 
 are high, especially such as are the product 
 of labor, rather than the product of the soil ; 2 
 and the consequence is, that similar com- 
 modities produced within a nation where there 
 is a sound currency, and where they can 
 be produced at cheaper price, will inevitably 
 flow in to the highest market, and so continue, 
 1 Perry. 2 This is an important fact.
 
 52 THE INSTRUMENT OF ASSOCIATION : 
 
 until the prices are equalized by a reduction of 
 the currency. The rate of exchange is alio ay 8 
 against that country ivhich maintains a depreci- 
 ated currency} This is an axiom. Any cur- 
 rency that is in excess of the prescribed limit, is 
 a depreciated currency, whether it consist of gold 
 or paper. It is wholly in vain that recourse is 
 had to the tariff' to prevent the importation of 
 commodities, especially manufactured commodi- 
 ties ; for taxes, whether internal or external, so 
 far as they operate upon the cost of producing 
 any commodities within any nation, tend to en- 
 hance cost of production, and therefore do not 
 prevent importation. Suppose, for instance, that 
 woolen goods are barred out beyond the possi- 
 bility of smuggling. What is the consequence'? 
 Why, the cost of home-made woolen goods is 
 immediately advanced by the law of supply and 
 demand, and the advance in these home-made 
 woolen goods is felt by the producers of domestic 
 cotton, linen, and silk goods ; and the productions 
 
 1 Smith. It is not intended to say that the rate of exchange, 
 owing to the shipment of bonds and securities, may not be for 
 a time, and occasionally, in favor of a country which has a de- 
 preciated currency. The fact that bonds are shipped proves 
 the rule, rather. The balance of account on merchandise 
 transactions will always be against the nation whose currency 
 is redundant.
 
 PRINCIPLES LIMITING ITS VALUE. 53 
 
 of iron and of the soil, and their products are 
 all enhanced in cost in consequence, until they, 
 in turn, become subjected to foreign competition. 
 Moreover, the government must have revenue, 
 and if it cannot collect from woolen goods, it 
 must collect from some other products, domestic 
 or foreign, which taxation must finally fall on 
 the producer of domestic commodities. 1 " If by 
 any means one nation should obtain a larger por- 
 tion of the whole currency of the world than 
 falls to it by the regular course of trade, all arti- 
 cles of merchandise belonging to that nation 
 must rise in price ; they must be exchanged for 
 a larger quantity of money. Articles of foreign 
 growth and manufacture would be irresistibly 
 attracted thither by this alteration of values. A 
 single article might possibly be excluded by pro- 
 hibitory legislation. But no arbitrary enactments 
 can so clip the wings of commerce as to prevent 
 it from seeking a market in a country where the 
 prices of all commodities have risen above their 
 average value all the world over. Foreign goods 
 must necessarily be imported in such a case, 
 whether by open trading or by smuggling ; and 
 
 1 It is a mistake to suppose that all taxation does not finally 
 fall on the producer. An exception to this rule, however, is 
 noted hereafter.
 
 54 THE INSTRUMENT OP ASSOCIATION : 
 
 being imported, they must be paid for. Money- 
 is the only redundant article in such a commu- 
 nity, the only one which can be offered in pay- 
 ment ; for all other goods are, by the hypothesis, 
 of a higher price with them than in any other 
 country, and cannot be sent abroad but by a sac- 
 rifice. Money, then, will be exported, in spite 
 of all coast guards, and even of the penalty of 
 death ; and the currency would thus be reduced 
 to its natural level." * Money advances in value 
 as it declines in quantity, and declines in value 
 as it advances in quantity, 2 like anything else. 
 Money is not a commodity of which an un- 
 limited quantity can be absorbed by business, but 
 is an instrument for a certain specific purpose. 3 
 So are sewing-machines. 4 Therefore, money 
 being for a certain specific purpose, that of ex- 
 changing commodities (it does not create com- 
 modities, on the contrary, it checks production, 
 when in excess 5 ) already existing and waiting to 
 be exchanged, it follows that an increase of sup- 
 ply must decrease the value, in obedience to the 
 law of supply and demand. So that, when 
 money is unduly increased in one country, it will 
 go abroad where it will be more appreciated. 6 
 
 1 Bowen. 2 Say. 3 Perry. 4 Ibid. 
 
 5 It temporarily stimulates trade. 
 
 6 Ante, p. 20. Ricardo.
 
 PRINCIPLES LIMITING ITS VALUE. 55 
 
 *• 
 
 It therefore follows, that when prices are high 
 in one country, commodities are imported, and 
 money is exported, until the prices are equalized 
 throughout the commercial world. 1 The con- 
 verse of this proposition is also true, namely, the 
 value of the currency of any nation cannot re- 
 main below a certain point for a lengthy period, 
 because commodities will fall in price and be 
 exported, and money will be imported. The 
 lower the value of the currency of a nation, the 
 more advantageous its foreign trade, showing 
 again the truth of the axiom elsewhere stated. 2 
 I trust I have satisfactorily demonstrated, the 
 minor premise of the syllogism, and the conclu- 
 sion follows, — that the value of the instrument 
 of association is fixed by natural law, and is 
 wholly independent of legislation. 
 
 One of the most important principles of 
 political economy having been demonstrated, it 
 becomes a question how to apply it to the instru- 
 ment of association in this country. How shall 
 we ascertain the value of the instrument of 
 association as fixed by the natural laws of trade, 
 
 1 " If a country has more money than is sufficient to accom- 
 plish its exchanges, it sends it abroad, and receives back some- 
 thing that it needs more." — Wayland. 
 2 Ante,' p. 19.
 
 56 THE INSTRUMENT OF ASSOCIATION 
 
 *• 
 
 and what is that value X We have seen that the 
 nominal value in paper of our currency is close 
 upon ll^OOjOOO^OO, 1 and it is proposed by 
 some to increase this nominal valuation. It is 
 said occasionally, that the " opinion of some of 
 our best financiers " is, that we have no more 
 money than we need ; and one of the leading- 
 metropolitan journals stated, that it preferred "to 
 resume specie payments by a moderate expan- 
 sion rather than by contraction." The premium 
 on gold is no more a criterion of the value of the 
 instrument of association, than the price of cot- 
 ton, for gold is demonetized, and has become a 
 commodity only, in the domestic market. Be- 
 sides, it is higher now than when the volume of 
 currency was greater, three years since, and is 
 or has been governed by the caprice of one man. 
 Nor are the wages of labor any criterion of the 
 value of the instrument of association, for, com- 
 pared with the cost of living and the precarious 
 and unsteady character of the demand for labor, 
 they are below what an industrious and honest 
 man has a right to expect in this country. Po- 
 litical economy, as I have said, is an experimental 
 science and deals with facts ; it does not advance 
 gratuitous assumptions ; it has nothing to do with 
 
 1 Ante, p. 43.
 
 PRINCIPLES LIMITING ITS VALUE. 57 
 
 false premises and illogical conclusions. If Adam 
 Smith were alive to-day, with more modesty 
 than " our best financiers," 1 he would say, — Un- 
 less I turn to your history, I cannot form any 
 opinion of what the value of your currency may 
 be, because there is nothing upon which I can 
 base an intelligent opinion ; but judging from the 
 fact that, since the abandonment of the specie 
 standard, besides exporting rather more than 
 your gold product, you have accumulated an in- 
 terest bearing debt to foreign nations of, perhaps, 
 a thousand millions of dollars ; the gold value of 
 your currency is maintained very much above its 
 true value, and unless adjusted to its true value, 
 you will be overtaken by the greatest catastrophe, 
 considering its probable effects, that is yet re- 
 corded in history. Turning then to history, and 
 beginning at the period when the influence of the 
 accession of the precious metals from the mines 
 of California and Australia was felt by the com- 
 mercial world, it is seen that the value of the 
 instrument of association is there defined with 
 
 1 " The results of such an education were most disastrous 
 to England, for there arose a race of so-called financiers ; — 
 men who drew their political economy from the traditions of 
 the Exchequer, and their financial knowledge from the Stock 
 Exchange." — British Finance in 1816 : iV. A. Review, April, 
 1867, Art. ii. p. 379.
 
 58 
 
 THE INSTRUMENT OP ASSOCIATION : 
 
 marvelous accuracy. 
 
 Let the following- table 
 
 show 
 
 ; 
 
 
 
 
 Year. 
 
 Cir. & Dep. 
 
 Cir. & Dep. 
 
 Specie 
 
 Movement. 
 
 
 Millions. 
 
 Per Capita. 
 
 Net Import. 
 
 Net Export. 
 
 1849 
 
 $205 
 
 $9.18 
 
 $1,246,592 
 
 
 1850 
 
 240 
 
 10.32. 
 
 . 
 
 . $2,894,202 
 
 1851 
 
 284 
 
 11.71 
 
 . 
 
 24,019,160 
 
 1852 
 
 328 
 
 13.38 . 
 
 • . • 
 
 . 37,169,091 
 
 1853 
 
 348 
 
 13.90 
 
 . 
 
 23,285,493 
 
 1854 
 
 392 
 
 15.25 . 
 
 . 
 
 . 34,478,272 
 
 1855 
 
 377 
 
 14.22 
 
 • • • 
 
 52,587,531 
 
 1856 
 
 408 
 
 14.90. 
 
 . 
 
 . 41,537,853 
 
 1857 
 
 445 
 
 15.60 
 
 . . . , 
 
 56,675,123 
 
 1858 
 
 341 
 
 11.56 . 
 
 . 
 
 . 33,358,651 
 
 1859 
 
 452 
 
 14.87 
 
 . 
 
 57,517,708 
 
 1860 
 
 460 
 
 14.84 . 
 
 . 
 
 . 57,996,104 
 
 By the foregoing table, the average per cap- 
 ita proportion of circulation and deposits, was 
 <$13i G 8 o during the twelve years from 184*9 to 
 1860 inclusive, and under this average, the en- 
 tire product of the mines, excepting what was 
 consumed in the arts, has been exported. In 
 1854, the annual product of the mines was not 
 only exported, but the specie reserves of the 
 bank were drawn on ; on the following year, the 
 banks made a small gain in the specie reserve, 
 and in 1856 they began to lose again, till in 
 1857 they were drawn down lower than they 
 were in 1837, 1 and the banks suspended specie 
 
 1 In proportion to circulation.
 
 PRINCIPLES LIMITING ITS VALUE. 59 
 
 payments. The incontestable — the historical 
 fact then is, that the value of the instrument of 
 association in this country is at the rate of IStVo 
 dollars per capita ; and beyond this point the 
 currency, whether it consist of coin or paper, be- 
 comes depreciated as estimated against the cur- 
 rency of the commercial world, and imports are 
 greater than exports by the value of our gold 
 product; * and if foreign nations do not take our 
 gold product, we shall begin accumulating a 
 debt. Estimating our population at 34,500,- 
 000, the value of the instrument of association 
 is $4*71,960,000, and whenever any additiun is 
 made to this value, the coin equivalent thereof 
 must go abroad, or we must run in debt to for- 
 eign nations. This, I say, is the value in the 
 common currency of the world, and if we go on 
 and issue paper forever, the whole mass will be 
 worth no more than this sum. 2 Why is this \ 
 Because the business of circulating- all the values 
 
 1 And in proportion as we exceed the limit, so is the excess 
 of imports. If with gold at SI. 40, the per capita is $30, or 
 more than twice the limit, then the imports of merchandise 
 must be more than twice the exports of merchandise. That 
 is, if the exports of merchandise are, gold, S200, 000,000, then 
 the imports will be, $400,000,000, or $200,000,000 in excess. 
 If we export $50,000,000, gold, then we must create a debt 
 of $150,000,000, gold. I state this as a general principle. 
 
 2 John Adams.
 
 60 THE INSTRUMENT OF ASSOCIATION : 
 
 of the United States requires no larger value. 1 
 Of what value then is " the opinion of some of 
 our best financiers," in the face of these facts'? 
 But the circumstances of the country are not the 
 same as they were, it may be said. Granted ; 
 but the circumstances of other countries are very 
 much the same, and it is the value of the com- 
 mon currency of the commercial world that lim- 
 its the value of our currency. But there has been 
 a general rise of prices throughout the commercial 
 world, it may be said. Granted ; but the agency 
 of steam and electricity, increase of book credits 
 and other expedients have so economized the use 
 of money, that no more per capita is required 
 than half a century since. The circulation and 
 deposits of the Bank of England are no greater 
 per capita than thirty years ago. 2 But we are 
 subjected to heavy taxation, and taxation tends to 
 enhance the cost of commodities, and therefore 
 we require a greater value to circulate those com- 
 modities. The conclusive answer to this objec- 
 
 1 Say. 
 
 2 In 1836 it required $17.60 per capita to cause a revulsion, 
 and in 1856 it required only $15.60. The genius of the age 
 tends to a less amount of money being employed as the instru- 
 ment of association. As wealth increases, more gold is used 
 in the arts and less for money. " Proportion borne by money 
 to commerce, decreases in advancing countries." — Carey.
 
 PRINCIPLES LIMITING ITS VALUE. 61 
 
 tion is, that the average prices of commodities 
 in this country cannot rise above the average 
 prices of commodities throughout the commercial 
 world, and consequently, if taxation is increased, 
 the wages of labor, rent, and profits 1 must be 
 reduced. 2 If this were not so, manifestly there 
 would be no limit to the ability of a nation to 
 support taxation. If the consequence of taxa- 
 tion was the increase of prices merely, we could 
 support any amount of taxation ; but the moment 
 that prices are increased beyond a certain limit, 
 excessive importation results, production ceases, 
 and labor starves. " The quantity of precious 
 metals retained in circulation as coin, for the 
 whole world, regulates itself through the aggre- 
 gate amount of money actually needed by all 
 mankind to effect their exchanges — regulates 
 itself wholly irrespective of the efforts made by 
 one government, or by all governments, to in- 
 crease or diminish its amount." 3 Such is the 
 inexorable law, — " Hitherto shalt thou come, 
 but no further ; and here shall thy proud waves 
 be stayed." 
 
 i Smith. 
 
 2 This is why taxation is finally paid by the producing 
 classes. 
 
 3 Bowen.
 
 62 THE INSTRUMENT OF ASSOCIATION : 
 
 IV. 
 
 ON ITS ADJUSTMENT. 
 
 TF the circulation consist of coin, the instru- 
 ment of association will be self-adjusting - ; but 
 if the circulation consist of bills of credit, 
 whether the exigency which called them forth be 
 passed or not, the instrument must be adjusted 
 by the sovereign power, or bankruptcy, — the 
 universal bankruptcy of the people, accompanied 
 perhaps by civil strife, 1 will become a question of 
 time only. In order to effect the adjustment 
 of the instrument it is necessary, first, to exam- 
 ine its condition. The value of the instrument 
 of association in the United States does not 
 exceed about 13^0% dollars of the common cur- 
 rency of the world per capita., or in the lump, 
 about $500,000,000, or about £ 1 00,000,000 as 
 a maximum. 2 This is its value, fixed, not by us, 
 but in spite of us, by a law over which neither 
 
 1 Shay's Rebellion and the " Reign of Terror " were caused 
 by paper money. 
 
 2 Ante, p. 58, or little more than 2,000.000 pounds, troy 
 weight, of pure gold.
 
 ITS ADJUSTMENT. 63 
 
 this nor any other nation exercises the slightest 
 control. The value in paper, as we have seen, 1 
 is about $1,400,000,000, and by maintaining 
 the price of gold at $1.40, the artificial price [not 
 value in the common currency of the world), 2 
 or gold weight, is about $ 1 ,000,000,000. With 
 the price of gold at $5.80, the gold weight 
 of the instrument will be reduced to its true max- 
 imum value — $500,000,000 in the currency of 
 the world. It is here necessary to repeat an 
 axiom elsewhere stated 3 (and I ask careful at- 
 tention, else my proposition will be regarded a 
 paradox), laid down by Say, to wit: Money ad- 
 vances in value as it declines in quantity, and 
 declines in value as it advances in quantity* 
 In other words, as the gold weight of our paper 
 instrument increases, so it becomes unwieldy and 
 depreciated as an instrument of association. 
 Suppose that our circulation were coin instead of 
 paper. Then the circulation and deposits would 
 be $1,400,000,000 in gold weight, and estimated 
 against the wages of labor, would be more depre- 
 
 1 Ante, p. 43. 
 
 2 The common currency of the world is gold, but gold that 
 will purchase more labor than American gold will in the 
 United States. 
 
 3 Ante, p. 54. 
 
 4 The idea is not Say's own, but the language merely.
 
 64 THE INSTRUMENT OF ASSOCIATION : 
 
 ciated than now. 1 I crave attention then to the 
 very important proposition, that the value of the 
 instrument of association is inversely as its gold 
 weight, and the depreciation of the instrument 
 of association is vice versa, directly as its gold 
 weight. It is not that, our circulation and de- 
 posits being - $ 1 ,400,000,000 in paper, the ex- 
 change with foreign nations is, in consequence, 
 against us ; but it is because the gold weight of 
 our circulation and deposits is $1,000,000,000, 
 that exchange is against us. If the gold weight 
 of our circulation and deposits does not exceed 
 $500,000,000, our merchandise transactions will 
 balance each other by the aid of the export of 
 our gold product, and we shall cease to run in 
 debt. It will be seen that, with the average of 
 $13 T 6 8 o per capita, our gold product was ex- 
 ported, so that if the gold value of our circu- 
 lation and deposits now be |13 tVo, the cur- 
 rency will be restored to its ante-war value. I 
 ought to state that $500,000,000 is the true 
 maximum value of the instrument of association. 
 If we wish to turn the exchange in our favor, so 
 as to accumulate gold wherewith to establish a 
 sound currency, then we must contract the in- 
 
 1 Under such circumstances our export trade would be 
 brought nearly to a halt.
 
 ITS ADJUSTMENT. 65 
 
 strument of association below the measure of 
 $500,000,000 gold. Our legal tender notes, 
 in themselves, convey no definite idea of value 
 at all ; l whatever value they possess, accrues to 
 them from the fact that they form the materials 
 of the instrument of association, and the value 
 of the instrument of association cannot exceed, 
 at present, $500,000,000 gold. If, by reason 
 of drawing gold from the people by taxes, and 
 selling it, the value of the instrument is nomi- 
 nally enhanced to $1,000,000,000, the enhanced 
 value is apparent only, for the real and true result 
 is that the gold itself is depreciated fifty per cent. ; 
 and as the exchange is always against that 
 country to Inch maintains a depreciated currency? 
 it results that as a nation we are owing a demand 
 debt of a thousand millions of dollars, 3 with in- 
 terest thereon at the rate of six per cent, per 
 annum, besides having exported the annual gold 
 product. The nation has been consuming more 
 than it has been producing even since the war 
 closed, and taxation is encroaching upon capital, 
 and we seem to be approaching the abyss of 
 bankruptcy, slowly, perhaps, but yet surely. 
 
 1 Say. 2 Smith. 
 
 3 It is not probable that this estimate is excessive. As 
 between commercial nations, these bonds constitute a demand 
 debt.
 
 66 THE INSTRUMENT OP ASSOCIATION : 
 
 Was ever the insensate folly of empiricism at- 
 tended bv more disastrous results] It seems to 
 me that the administration of our fiscal affairs 
 has been profligate beyond any possible parallel. 
 I know not whether the people will ever realize 
 the truth of our terrible financial situation in 
 time to prevent a great catastrophe ; but I believe 
 that, sooner or later, they will learn to execrate 
 the authors of a policy which has impoverished 
 thirty millions of people, and brought disgrace 
 upon their cherished name and fame among the 
 nations of the earth. 
 
 The adjustment of the instrument of associa- 
 tion consists in establishing its value to the sum 
 of $500,000,000 gold, or less, in order to turn 
 the exchange in our favor. There is only one 
 method by which this adjustment can be made. 
 It is the popular idea that the currency can and 
 must be contracted or funded, until the circulation 
 and deposits are reduced to the nominal limit. 1 
 Can this be done \ I lay it down as a law of po- 
 litical economy, that the currency can neither be 
 contracted nor funded, and that the attempt to do 
 either will ruin the debtor classes, destroy the cap- 
 
 1 This seems to be the idea of Secretary McCulloch. It 
 may also be entertained by many others, but a little reflec- 
 tion will suffice to dispel it.
 
 ITS ADJUSTMENT. 67 
 
 ital of the banks, national and state ; it will 
 destroy the value of the public securities and the 
 credit of the nation, and perhaps cause the over- 
 throw of the government itself. I lay it down 
 as a law of political economy, that our paper 
 money is worth about thirty-three cents on the 
 dollar, and that it is as impossible to restore this 
 currency to the value of one hundred cents on 
 the dollar, as to transmute one third of a dollar's 
 worth of gold into one dollar's worth of gold. 
 It does not represent sufficient value. Facilis 
 descensus} It is easy to take from that which is, 
 but it is impossible to take from that which is not. 
 There is not an instance in history where govern- 
 ment paper money once issued to excess, has 
 ever been contracted or funded, nor is it likely 
 there will be. Nay, more, I lay it down as a 
 law of political economy, that if the present 
 condition of the instrument of association be 
 
 1 . . . . Facilis descensus Averno ; 
 Noctes atque dies patet atri janua Ditis : 
 Sed revocare gradual, superasque evadere ad auras, 
 Hoc opus, hie labor est. 
 
 The currency is precisely in the same condition as if the 
 circulation were coin, and the coin had been clipped from 
 time to time, so that two thirds had been clipped away, leav- 
 ing only one third of the original coin to represent a dollar, 
 and this third made a legal tender. The deceit is perfect : the 
 value has disappeared.
 
 68 THE INSTRUMENT OF ASSOCIATION : 
 
 maintained ; if the government is able to main- 
 tain the price of the legal tender notes at seventy 
 cents when their value is thirty-three cents, and 
 persists in so doing, it will have to make addi- 
 tional issues from time to time,' or the people 
 will starve. I mean to say that if the govern- 
 ment wishes to maintain the price of the currency 
 above its value, then it must supply the people 
 from the printing-press ; for the industry of the 
 people will not enable them to supply themselves. 
 I do not, of course, expect the people will starve, 
 but I expect the present status must be radically 
 changed, or the people will demand a further 
 issue ; and if any party attempts to stand in the 
 way of their necessities, it will be their right and 
 duty to assert their sovereign power. Towards 
 the close of the French Revolution "the arbitrary 
 government of the Jacobins, who were then in 
 power, having put in forced circulation the an- 
 ticipated proceeds of the property, 1 now under- 
 took to sustain the value of its currency by penal 
 enactments. They might as well have enacted 
 laws to prevent the sun from setting at the close 
 of the day. Six years' imprisonment was de- 
 nounced against any one who should exchange 
 
 1 In this country it is the anticipated proceeds of the public 
 revenue which is exhausting the people.
 
 ITS ADJUSTMENT. 69 
 
 any amount of silver or gold for a greater nomi- 
 nal value of assignats ; and a maximum of price 
 was established for bread and the other necessa- 
 ries of life. The only consequence was, that the 
 owners of grain and other commodities refused to 
 bring them to market at all, and thus what was 
 a scarcity became a famine. The starving peo- 
 ple then became furious ; the severities formerly 
 exercised only against the nobles, the clergy, 
 and the royalists, were now turned against the 
 rich, the farmers of the public revenue, the trad- 
 ers, who were accused of monopolizing food and 
 holding it back from sale ; and these were sent in 
 crowds to the guillotine. But all the terrors of 
 that period, which was emphatically called the 
 ' Reign of Terror,' were not enough to arrest the 
 depreciation." l The attempt to conceal the de- 
 preciation of the paper currency in this country 
 by making it command a certain quantity of 
 gold, is much more reprehensible than the attempt 
 of the French Jacobins to make their currency 
 command a certain quantity of bread ; it probably 
 will not be followed by such bloody consequences 
 as those which marked French history, but it 
 will be succeeded by very unpleasant results, 
 equally fatal to public credit; it is more insidious, 
 
 1 Bowen.
 
 70 THE INSTRUMENT OP ASSOCIATION: 
 
 and, therefore, more dangerous. The French 
 assignats were finally made exchangeable into 
 mandats, at the rate of thirty for one ; but the 
 mandate became as much depreciated as the assig~ 
 nats before them, and by a spasmodic effort the 
 currency was discarded. 1 A feeble attempt was 
 made by the Continental Congress to take up the 
 paper money by issuing notes of new tenor, at 
 the rate of forty of old tenor for one of new 
 tenor; but the attempt failed, and finally the bills 
 ceased to circulate. 2 It is probable that both the 
 assignats and Continental bills had some value on 
 the basis of supply, but as constituting the in- 
 strument of association they were worthless, for 
 the fluctuations were so constant and violent, that 
 it was impossible to tell one moment how much 
 bread could be purchased the next moment with 
 the same bill. 3 Austria retired its bills of credit 
 that were issued during the Napoleonic wars, by 
 issuing notes of redemption at the rate of five 
 of old to one of new ; but the old . notes were 
 over-estimated in value, so that the notes of re- 
 demption were, in fact, depreciated when issued, 
 and they had to be taken up at the reduced rate 
 
 1 Bowen. 
 
 2 Hildreth, vol. iii. chap. xlvi. 
 
 3 Ante, p. 46.
 
 ITS ADJUSTMENT. 71 
 
 of forty cents on the dollar. 1 It is probable, 
 perhaps, that had Austria issued its new notes 
 of redemption at the rate of seven or eight for 
 one, the expedient would have been successful. 
 In a measure of this kind, great care must be 
 taken not to over-estimate the value of the old 
 currency that is to be disposed of, otherwise the 
 expedient will not be successful ; on the other 
 hand, if it be under-valued, no harm can arise, 
 because coin will flow into and fill any vacuum 
 in the channels of circulation. Russia, after 
 suffering from excessive issues of paper money 
 that were made during the Napoleonic wars, 
 fixed their value in 1839, by making them con- 
 vertible into notes of the Commercial Bank of 
 St. Petersburgh, at the rate of four to one, 2 and 
 now their value is fixed at the rate of three and 
 one half paper roubles for one silver rouble. 
 
 The history of England, during the bank re- 
 striction from 1797 to i821, is interesting and 
 instructive. I shall quote from one of the best 
 and most intelligent authorities on the subject. 3 
 " The year 1797 i s > however, the most important 
 epoch in the recent history of the bank. Owing 
 partly to events connected with the war in which 
 
 1 Hulburd, Comptroller of the Currency, 1867. 
 
 2 Ibid. 3 McCulloch.
 
 72 THE INSTRUMENT OF ASSOCIATION: 
 
 we were then engaged — to loans to the Emperor 
 of Germany — to bills drawn on the treasury at 
 home by the British agents abroad — and partly 
 and chiefly, perhaps, to the advances most unwil- 
 lingly made by the bank to government, which 
 prevented the directors from having sufficient 
 control over their issues — the exchanges be- 
 came unfavorable in 179-5, 1 and in that and the 
 following year large sums in specie were drawn 
 from the bank. In the latter end of 1796 and 
 beginning of 1797? considerable apprehensions 
 were entertained of invasion, and rumors were 
 propagated of descents having been actually 
 made on the coast. In consequence of the fears 
 that were thus excited, runs were made on the 
 provincial banks in different parts of the country; 
 and some of them having failed, the panic be- 
 came general, and extended itself to London. 
 Demands for cash poured in upon the bank from 
 all quarters ; and on Saturday, the 2.5th of Feb- 
 ruary, 1797, she had only £1,272,000 of cash 
 and bullion in her coffers, with every prospect 
 of a violent run taking place on the following 
 Monday. In this emergency an order in council 
 was issued on Sunday, the 26th, prohibiting the 
 
 1 That is to say, the currency became depreciated, and the 
 exchange turned against England.
 
 ITS ADJUSTMENT. 73 
 
 directors from paying" their notes in cash until 
 the sense of Parliament had been taken on the 
 subject. And after Parliament met, and the 
 measure had been much discussed, it was agreed 
 to continue the restriction till six months after 
 the signature of a definitive treaty of peace." 
 Such were the events preceding the restriction. 
 The issues of the bank were so moderate, how- 
 ever, that during the first three years they some- 
 times bore a small premium ; but in the latter 
 part of 1800, they fell to about 8 per cent, dis- 
 count, as compared with gold ; then rose again, 
 soon after, nearly to par, and so continued till 
 1809, when, owing principally to increased is- 
 sues of country banks, they fell to \S\ per cent, 
 discount ; then, mostly in consequence of dimin- 
 ished volume of country bank issues, rose to 
 about 8 per cent, discount ; then, owing to in- 
 creased issues both of Bank of England and 
 country banks, they rapidly depreciated to a little 
 more than 25 per cent, discount in 1 8 14 1 ; so that 
 in the middle of the year 1814-, the circulation 
 of the Bank of England was £58,979-876, and 
 that of the country banks £22,709,000, or 
 both combined, £51,688,876. At this point it 
 will be useful to resume the narrative. "But 
 the harvest of that year (1813) being unusually
 
 74 THE INSTRUMENT OF ASSOCIATION: 
 
 productive, and the intercourse with the Conti 
 nent being- then also renewed, prices, influenced 
 by both circumstances, sustained a very heavy 
 fall in the latter part of 1813, and the beginning 
 of 1814. 1 And this fall having proved ruinous 
 to a considerable number of farmers, and pro- 
 duced a general want of confidence, such a 
 destruction of provincial paper took place as has 
 rarely been paralleled. In 1814, 1815, and 
 1816, no fewer than 240 country banks stopped 
 payment ; and eighty-nine commissions of bank- 
 ruptcy were issued against these establishments, 
 being at the rate of one commission against every 
 ten and a half of the total number of banks ex- 
 isting in 1813. The great reduction that had 
 been thus suddenly and violently brought about 
 in the quantity of country bank paper, by ex- 
 tending the field for the Bank of England paper, 
 raised its value, in 1817, nearly to a par with 
 gold. The return to cash payments being thus 
 facilitated, it was fixed in 1819, by the act 59 
 Geo. III. c. 78, commonly called Mr. Peel's Act, 
 
 1 Mr. Carey says that the revulsion in England was started 
 by the Bank of England, but I find no evidence that such 
 was the fact. The circulation and deposits of the bank were 
 nearly eiglit millions sterling greater in August, 1814, than at 
 the same period in the previous year.
 
 ITS ADJUSTMENT. 75 
 
 that they should take place in 1823." l In point 
 of fact, specie payments were resumed May 1, 
 1821, and in that year the circulation of the 
 Bank of England was £20,327,740, and that of 
 the country banks, .£8,414,281, or both com- 
 bined, £28,741,921. Judging from history, the 
 consequences of the wholesale destruction of 
 country bank paper, and the failure of these 
 banks, was well-nigh appalling. And the final 
 reestablishment of the standard that existed in 
 1797> was one of the " most remarkable meas- 
 ures of confiscation to be found in the annals 
 of legislation." 2 The Comptroller of the Cur- 
 rency takes a very superficial view therefore, in 
 saying, — " With a sturdy good sense, however, 
 that did credit to their national character, the 
 English people set themselves to work to retrace 
 their steps, and after years of struggling and 
 suffering, the Bank of England again resumed 
 specie payments, but not until the paper cur- 
 rency had been reduced by the withdrawal of 
 £43,467,978-" 3 The historical fact is, that the 
 
 1 MeCulloch. 2 Carey. 
 
 3 Hulburd, 186 7. " How far this depreciation was the cause 
 of speculation and over-trading, it is difficult to prove. It is, 
 however, agreed, that there was a very considerable rise in 
 prices from 1812 to 1814, and that country bankers undertook 
 to do more business than their capital justified on security that
 
 76 THE INSTRUMENT OP ASSOCIATION: 
 
 combined circulation of the Bank of England 
 and the country banks never reached fifty-two 
 millions sterling - at any time during the restric- 
 tion, and the decrease in the combined circula- 
 tion, when resumption took place, was less than 
 twenty-three millions sterling. It seems almost 
 travesty, therefore, to characterize the indiscrimi- 
 nate robbery as something creditable to the good 
 sense of the British people. There are two 
 points that force themselves on our attention, in 
 reviewing the experience of England. First, 
 it is obvious that nothing of the kind can occur 
 here, since the government is responsible for the 
 whole circulation. Second, if a reduction of 
 forty-five per cent, of the circulation caused such 
 destruction of property in England, 1 what would 
 
 was of too fluctuating a value to be safe. The consequence 
 was, that when, in 1814 and 1815, a reaction took place, first of 
 all in the price of corn, and then in that of almost every staple 
 article of trade, there ensued a crash among the private bank- 
 ers, accompanied by a collapse of their credit as banks of 
 issue, which at once purged the circulation of a vast amount 
 of paper, and substituted that of the Bank of England in its 
 place. But the relief thus given to the currency showed it- 
 self toward the close of 1816 by the restoration of the Bank 
 paper to a par with gold." — British Finance in 1816 : N. A. 
 Review, April, 1867, Art. II. pp. 376, 377. 
 
 1 The mischief in England was all done in 1814, 1815, and 
 1816, by a reduction of less than twenty per cent, of the cir- 
 culation. The revulsion in 1857, in the United States, effected 
 a reduction of only twenty-five per cent, in the circulation.
 
 ITS ADJUSTMENT. 77 
 
 be the probable effect of the reduction of sixty- 
 five per cent, of the circulation in this country, 
 even if it were possible % It would be of no 
 avail to attempt to distribute this reduction over 
 a series of years. If done at all, it must be 
 done at one fell swoop, without regard to the 
 political consequences, or the inconceivable suf- 
 fering's of the people. 
 
 The instrument of association, as stated else- 
 where, 1 is substantially composed of paper money, 
 about equally divided between national bank cir- 
 culation and legal tender notes. It is necessary 
 to examine the national bank system in order to 
 arrive at the object of our inquiry, — the adjust- 
 ment of the instrument of association. It is 
 probable that the abolishment of the old state 
 banks of issue, and the establishment of the na- 
 tional banks under government auspices and con- 
 trol, in giving the government exclusive control 
 of the channels of circulation, was an indispen- 
 sable measure of safety, both for the Union and 
 the people. It was necessary to the success of 
 the government, that it should obtain and hold 
 possession of the channels of circulation, other- 
 wise the country would have been deluged with 
 irredeemable paper, and the financial ruin of the 
 
 1 Ante, p. 40.
 
 78 THE INSTRUMENT OP ASSOCIATION: 
 
 nation completed at a very early stage of the 
 war. That the state banks of issue could have 
 been abolished, without something being offered 
 in lieu thereof, may well be doubted, for even 
 the establishment of the national banks met 
 with a most determined opposition, notwithstand- 
 ing the pecuniary advantages of the system. As 
 a war measure at a critical period, the super- 
 sedure of the state banks of issue, by national 
 banks of issue whose circulation was controlled 
 and limited by the central power, must be re- 
 garded as an act of signal, and, probably, of 
 saving advantage. There is no elasticity to this 
 national bank circulation, and considering the 
 inutility of its reserves, 1 and the fact of its in- 
 convertibility into anything but bills of credit, it 
 seems to be a hybrid, produced from interest 
 bearing and non-interest bearing certificates of 
 government indebtedness, in the composition of 
 which the interest bearing element largely pre- 
 dominates. Stripped of the cobwebs that have 
 been sedulously thrown aboiyj it, 2 this national 
 bank circulation takes from the producing classes 
 every year, about $15,000,000 net, 3 and is 
 
 1 Ante, p. 34. 
 
 2 The Comptroller showed that the banks actually were the 
 losers of five and one half millions. 1867. 
 
 3 Interest on circulation, less tax, and interest on plain legal
 
 ITS ADJUSTMENT. 79 
 
 therefore a tax to that extent. But perhaps the 
 worst feature of it is, that, instead of being" un- 
 der control of Congress, Congress seems to be 
 controlled by the national banks. In the present 
 condition of the country, therefore, and in view 
 of the pressure of taxation upon all branches of 
 industry, it seems to be a criminal act to sur- 
 render the channels of circulation, or any portion 
 thereof, to any banks of issue, whether organized 
 under state or federal laws. If the privilege of 
 circulating notes were not immensely profitable, 
 it would not be contested ; being profitable, the 
 profit should enure to the benefit of the tax- 
 payers. 1 " If paper currency is to be substituted 
 for metallic currency, the profits of the substitu- 
 tion ought to accrue for the benefit of those who 
 make it — of those who are willing to give up 
 coin, and accept paper with all its attendant 
 risks. The act of substitution is the act of the 
 community at large ; to be the agents in this act 
 is a usurped function of the banks, in no wise 
 
 tender reserve. As banks of deposit, the national banks are 
 properly taxed, but as banks of issue, the privilege of 'circu- 
 lating notes is worth about $15,000,000 net, which comes out 
 of the people. 
 
 1 The saving effected by abolishing the national bank circu- 
 lation and substituting legal tender notes in place thereof, will 
 be equal to a reduction of one per cent, in the income tax.
 
 80 THE INSTRUMENT OP ASSOCIATION : 
 
 connected with their other and proper offices. It 
 belongs to the state, and ought to be exercised 
 for the benefit of the tax-payers — that is, of the 
 persons who, by giving up coin and accepting 
 paper, make a saving of the precious metals, and 
 ought to profit by that saving." l In order to 
 adjust the present instrument of association to 
 its proper value and efficiency, it will be impor- 
 tant to displace the national bank-notes, and sub- 
 stitute legal tender notes in their place. 2 This 
 done, the repeal of the legal tender act should fol- 
 low, with a provision that all existing debts, public 
 and private, that were contracted in paper money, 
 shall be paid in paper money, unless there is 
 some existing law or agreement to the contrary. 
 Lastly, the government shall issue notes of re- 
 demption, or specie notes, payable in specie on 
 demand, into which the legal tenders shall be 
 converted at the rate of three dollars of legal 
 tender for one dollar of specie notes, 3 and the 
 legal tenders shall be thereafter cancelled and 
 
 1 Mill and Bowen. The language is Bowen's. 
 
 2 TJiis will release the legal tender reserve of the banks, 
 and so add to the circulation and deposits, probably bringing 
 the nominal value of the instrument of association up above 
 $1,500,000,000, and it is this fact which necessitates great 
 care not to overvalue the legal tenders. 
 
 3 Existing debts due in paper money to be cancelled by 
 specie notes at the rate of one for three of legal tenders.
 
 ITS ADJUSTMENT. 81 
 
 destroyed. This is the only method of disposing 
 of our paper money, without injury to the 
 people, or danger to public credit. There are, I 
 may safely say, but two ways of disposing of an 
 excessive issue of bills of credit. One method 
 is that already suggested. The other method, 
 is to resort to continuous issues, till the whole 
 fabric explodes, leaving a misgoverned and 
 ruined people to mourn over the imbecility of 
 their chosen and trusted servants. History may 
 be searched in vain for any exception to the law 
 here laid down. It is useless to argue that it 
 should not be so, or that it need not be so. His- 
 tory teaches that it always has been so, and we 
 may be assured that it always will be so.
 
 82 THE INSTRUMENT OP ASSOCIATION 
 
 V. 
 
 THE EFFECT OF THE ADJUSTMENT. 
 
 nnHE instant effect of the adjustment of the 
 instrument of association to its normal 
 weight of about 2.013,888 pounds troy, of 
 pure gold, or about 2,239,583 pounds troy, of 
 standard or coin gold, or about $500,000,000 
 in coin, will be to restore prosperity to all 
 branches of industry throughout every section of 
 the country ; and if this adjustment be perma- 
 nent, that is to say, if, having fixed the value of 
 our paper money at three dollars for one dollar 
 of coin, there be no further issues of paper 
 money, either by banks or by government, the 
 industry of the country will know no relaxation 
 from its prosperous condition. 1 The average 
 wages of labor, rent, and profits, will be restored 
 to their most prosperous ante-war basis, less the 
 difference between the present and ante-war taxa- 
 
 1 1 assume that there will be no tariff legislation hostile to 
 industry.
 
 EFFECT OF THE ADJUSTMENT. 83 
 
 tion. 1 Not only that, but the gold value of taxa- 
 tion will be reduced, even if the public securities 
 remain untaxed at their present rate of interest, 
 because the gold value of the expenses of the 
 federal and the municipal governments will 
 be reduced very largely. It may be useful to 
 repeat the principle upon which the instrument 
 of association is adjusted. (1.) The average 
 prices of commodities are equalized throughout 
 the commercial world by the operations of 
 international trade. (2.) The gold weight, or 
 money value of the instrument of association, 
 or the money value needed to circulate money 
 values, bears a fixed ratio to the money values 
 circulated. (3.) Therefore, if the average prices 
 or money values of commodities within any na- 
 tion are regulated by the natural laws of trade, 
 then the money value of the instrument of asso- 
 ciation is regulated by the natural laws of trade. 
 And when the natural laws of trade are no 
 longer obstructed by empirical devices, the coun- 
 try will derive the utmost benefit from its un- 
 bounded natural resources. I have said that the 
 prosperity of the country would know no relaxa- 
 tion. The reason is, that when the instrument 
 of association is adjusted to its normal value, 
 
 1 Ante, p. 61.
 
 84 THE INSTRUMENT OF ASSOCIATION : 
 
 and further issues of paper are prevented, it is 
 obvious that any addition to the instrument of 
 association will require value ; and value is the 
 product of labor rather than the product of leg- 
 islation, and will not remain where it has become 
 superfluous or depreciated, but will go where 
 it will command the most value in exchange. 
 Therefore, if the currency be a currency of val- 
 ue, it will remain at or near the minimum ; and 
 since it is a law that the smaller the value of the 
 instrument of association, the greater the pros- 
 perity of the nation, 1 it follows that with a cur- 
 rency of value, the prosperity of the nation will 
 be uniform and assured. The instrument of as- 
 sociation in this country has never been com- 
 posed of self-adjusting material, nor has there 
 been any effectual control over its nominal pa- 
 per value ; consequently, the prosperity of the 
 country has been subjected to constant and un- 
 expected vicissitudes. People have become afflu- 
 ent from no merit or sagacity of their own, and 
 others have become impoverished through no 
 fault of their own. It is the inevitable effect of 
 any currency which is not a currency of value, 
 that " it enriches without merit, and ruins without 
 
 1 Ante, p. 19.
 
 EFFECT OF ITS ADJUSTMENT. 85 
 
 blame." 1 The currency per capita of the coun- 
 try for twenty-five years previous to the war, 
 varied from $6iVo to $17iV<r. From 1849 to 
 1860, it varied from $9rVo to $15A°<j, 2 conse- 
 quently there has been no uniform prosperity, no 
 social concord, no domestic tranquillity. 3 It is 
 the vulgar opinion that a rise in the premium on 
 gold will cause a corresponding rise in the cur- 
 rency prices of all domestic commodities. I say, 
 such is the vulgar opinion, because it is the 
 opinion of the uneducated and unreflecting mind. 
 It is also the vulgar opinion that high currency 
 prices are injurious, whereas there can hardly be 
 anything more remote from the truth. The pa- 
 per money prices of domestic commodities are 
 not regulated by the international laws of trade, 
 but by the quantity of paper money in use, and 
 by the condition of the societary circulation. 
 The law of supply and demand regulates price, 
 but the elements of supply consist of the supply 
 of commodities and the supply of paper money 
 in which the price is expressed. It should be 
 remembered that our paper money is of forced 
 circulation, that it is the floating debt of the 
 government bearing no interest, and payable at 
 
 1 Walker. 2 Ante, p. 58. 
 
 3 There has been a constant tariff war.
 
 86 THE INSTRUMENT OP ASSOCIATION : 
 
 some indefinite time in the future, consequently, 
 be its quantity more or less, it will all be used 
 to circulate whatever commodities are circulated ; 
 and no more than is in circulation can be used 
 to circulate whatever commodities are circulated ; 
 therefore, a rise in the currency price of gold 
 will have no natural or great effect on the aver- 
 age price of domestic commodities. There will 
 be a wholesome rise of prices, and this is what 
 the people need. They need high currency 
 prices, and low currency taxes. But unless the 
 supply of currency be increased, there can be no 
 great rise in currency prices. Whatever rise 
 takes place, will be due to increased momentum 
 of the currency, to increased activity of the so- 
 cietary circulation, and consequently, the higher 
 currency prices rise, the more prosperous will 
 be the people, provided such rise comes from an 
 increased demand for commodities, and not from 
 an increased supply of currency. Such a rise 
 in currency prices will be evidence of increased 
 production and consumption, and interchange of 
 domestic commodities, creating an increased de- 
 mand for the domestic currency ; and conse- 
 quently, as the demand for domestic currency 
 increases, the exchangeable value of this domestic 
 currency is prevented from going below a certain
 
 EFFECT OF THE ADJUSTMENT. 87 
 
 point, or, in other words, currency prices cannot 
 advance beyond a certain point, if the supply of 
 currency be fixed. The important point to be 
 gained is the adjustment of commercial relations 
 with the external world; and the adjustment of 
 the instrument of association, as measured by the 
 common currency of the world, will adjust those 
 relations. The smaller the value or gold weight 
 of the instrument of association, the more we shall 
 sell and the less we shall buy of foreign nations. 
 The greater the value or gold weight of the in- 
 strument of association, the more we shall buy 
 and the less we shall sell to foreign nations. If 
 the gold weight of the instrument of association 
 exceed $500,000,000 coin, we shall buy from 
 foreign nations more than we can pay for, and 
 shall give to them evidences of debt (bonds), 
 bearing interest, instead of value, in exchange 
 for value; and so long as the value or gold 
 weight remains in excess of §>l3i%\ per capita, 
 the process will go on ad infinitum. The aver- 
 age price of domestic commodities cannot rise 
 materially, in consequence of a rise in the price 
 of gold. There are some domestic commodities, 
 however, that will be affected more than others, 
 especially cotton. At, or above the cost of 
 production, the price of cotton is regulated by
 
 88 THE INSTRUMENT OP ASSOCIATION : 
 
 the price in England, the chief consuming - coun- 
 try. As an axiom, it may be laid down that at 
 or above the cost of production, the price of any 
 staple commodity is regulated by the market of 
 the chief consuming country ; and that at or be- 
 low the cost of production, the price of any sta- 
 ple commodity is regulated by the market of 
 the chief producing country. In other words, 
 the demand is regulated by the chief consuming 
 country, and the supply, by the chief producing 
 country, and supply and demand govern price. 
 Consequently, the adjustment of the instrument 
 of association at the rate of three for one, will 
 enable the cotton producers of this country to 
 lay down their product in Liverpool at five pence 
 sterling per pound, plus freight and charges 
 (which is about the ante-war price), at a very 
 handsome profit in currency here. The currency 
 cost of production will increase somewhat, but 
 not materially. Products of the soil will be af- 
 fected less than anything else in the cost of pro- 
 duction. Thus, our cotton producers will be 
 enabled to regain their monopoly. I do not say 
 that it is good policy to exhaust our soil in sup- 
 plying Europe with food and raw materials; but 
 in the present condition of the country, political, 
 industrial, and financial, it will be advantageous
 
 EFFECT OF THE ADJUSTMENT. 89 
 
 for a few years. 1 Other commodities, such as 
 tobacco, and wheat, and corn, will be affected, as 
 well as the wages of labor, but chiefly in conse- 
 quence of the increased rapidity of the societary 
 circulation, and to a very limited extent compared 
 with cotton. The large advance in the currency 
 price of cotton, as well as the advance in the 
 currency price of foreign staples, such as tea, 
 coffee, and sugar, will absorb so much currency 
 in the circulation of those commodities, that the 
 prices of other commodities cannot possibly ad- 
 vance materially. As a rule, it may be said that 
 the average price of domestic commodities can- 
 not possibly advance pari passu with the price 
 of gold, unless the currency be increased, nor 
 can they decline pari passu with the premium on 
 gold, unless the currency be decreased. The 
 wasres of mechanical labor are, as a rule, about 
 one hundred and fifty per cent, higher than be- 
 fore the war, while the price of gold is only forty 
 per cent, higher. The volume of currency, per 
 capita, is about two hundred per cent, greater 
 than before the war, and if the societary circula- 
 tion were rapid, the average price of commodi- 
 
 1 If the instrument of association be adjusted, these things 
 •will regulate themselves. The economy of labor will become 
 perfected.
 
 90 THE INSTRUMENT OP ASSOCIATION: 
 
 ties and the average wages of labor would be two 
 hundred per cent, higher than before the war, 
 without regard to 'the premium on gold. The 
 average prices of commodities and the average 
 wages of labor cannot advance more than two 
 hundred per cent, above ante-war prices, unless 
 the per capita volume of the currency be in- 
 creased more than two hundred per cent, above 
 the ante-war volume. Such commodities as are 
 chiefly exported, will advance the most in cur- 
 rency price, as the price of gold advances, and 
 such commodities as are not exported at all, will 
 advance the least. Rent will not be so much 
 affected, nor will the price of land. The eternal 
 law of supply and demand governs price. If 
 the currency value of the instrument of associa- 
 tion be $1,500,000,000, so will be the average 
 currency prices, if the societary circulation be 
 healthy. If the gold value, or weight, of the 
 instrument of association be $500,000,000, so 
 will be the gold prices, if the societary circu- 
 lation be healthy. Hence, the lower the gold 
 prices of commodities, the greater the exports 
 and the smaller the imports ; and the higher the 
 gold prices of commodities, the greater the im- 
 ports and the smaller the exports. Nothing can 
 be more favorable to the industry of the country,
 
 EFFECT OF THE ADJUSTMENT. 91 
 
 and the credit of the government, than to per- 
 manently contract the gold value of the in- 
 strument of association to its minimum. Yet, 
 strange as it may seem, the whole power of 
 legislation, and the whole energy of the Treasury 
 Department has heen exerted to keep down 
 the premium on gold, to expand the gold value 
 of the instrument of association, to force ex- 
 cessive importation, to restrict exportation, to 
 destroy the industry of the country, to imperil 
 the credit of the government, to increase the 
 burden of taxation, and to expel by hundreds 
 of millions the interest bearing securities of the 
 government. It cannot be denied that this em- 
 pirical interference with the price of gold has 
 been countenanced by public opinion, but the va- 
 garies of public opinion on the subject of money, 
 furnish a curious commentary on the philosophy 
 of the human mind. 1 Precisely the opposite was 
 the course that should have been pursued ; the 
 price of gold should have been maintained at its 
 maximum point, but so infatuated is the public 
 mind with the idea of the immense advantage to 
 be derived from a low premium on gold, that 
 those who entertain different views are regarded 
 as fools ; while the science of political economy 
 seems to be held in unmeasured contempt. Nor 
 
 1 Bowen.
 
 92 THE INSTRUMENT OF ASSOCIATION : 
 
 will the currency prices of foreign commodities 
 advance pari passu with the premium on gold. 
 On the contrary, the gold prices of such foreign 
 commodities as can be produced in our own 
 country, especially manufactured articles, will be 
 forced below cost of production, and cease to be 
 imported, and the nation will become a large ex- 
 porter of manufactures. The currency prices of 
 articles of unnecessary and luxurious consump- 
 tion will advance sufficiently high to check 
 consumption and importation thereof, to a very 
 considerable extent, thus exerting a salutary 
 influence on the habits of the people, which have 
 become corrupted by excessive exoticism. Cof- 
 fee, tea, and sugar will, perhaps, advance in cur- 
 rency price more than any other commodities ; 
 but their gold prices will remain at little more 
 than the cost of production, for the producing 
 countries, whence these commodities are im- 
 ported, will be affected somewhat by the change 
 in the instrument of association. Absenteeism 
 will no longer cause such a heavy drain on our 
 resources, for absentees will find they can obtain 
 more for their money at home than abroad, and 
 will accordingly return. Smuggling will be 
 prevented to a great extent, for most commodi- 
 ties will be produced cheaper at home than
 
 EFFECT OF THE ADJUSTMENT. 93 
 
 abroad, and therefore, smuggling will not pay. 
 The art of ship-building will return from its 
 voluntary exile, and the ringing blow of the axe 
 will again reverberate throughout the land. 
 American ships will no longer make their repairs 
 and procure their outfits abroad ; on the contrary, 
 foreign ships will, to a great extent, make re- 
 pairs and procure outfits in the United States ; 
 and if we do not regain our share of the carry- 
 ing trade immediately, we shall be in a fair way 
 of doing so very soon. Our public funds will no 
 longer take wings and fly unto the uttermost 
 parts of the earth, — sad evidences of maladmin- 
 istration, and of the abuse and neglect of the 
 abundant resources vouchsafed to us by a benefi- 
 cent God. The burden of taxation will no 
 longer hang like a millstone on the necks of the 
 people, eating up their capital, and sinking them 
 deeper and deeper into the slough of bankruptcy. 
 The present weight of the instrument of associa- 
 tion, with gold at $1.4<0, is twice what it will be 
 when it is adjusted : and it is this great weight 
 which is breaking the people down ; this is the 
 tax that must be removed, or society will fall back 
 on its reserved rights — its natural rights that 
 never lapse, 1 and repudiation of the public debt 
 
 1 Gibbons.
 
 94 THE INSTRUMENT OP ASSOCIATION: 
 
 will follow from necessity. Let not this danger 
 be regarded as improbable, for it is now impend- 
 ing ; and if the current of events be not reversed, 
 it will surely come, and before a very long time 
 shall have passed. If repudiation does come, it 
 will not be the fault of the people, who have 
 borne taxation as no other people ever did be- 
 fore ; but it will be the fault of those in the 
 executive and legislative departments of the gov- 
 ernment, who, intent only upon power and 
 gorged with the spoils of office, have manifested 
 neither the disposition nor capacity to manage 
 the affairs of state. Finallv, the effect of this 
 adjustment upon the public credit, which is now 
 tottering, will be such as to render it secure be- 
 yond peradventure.
 
 A PERFECT INSTRUMENT. 95 
 
 VI. 
 
 A PERFECT INSTRUMENT. 
 
 OEFORE discussing the essentials of a perfect 
 instrument of association, it will be useful to 
 examine into the character of that which was in 
 use prior to the war. There are three sorts of 
 currencies, from which it has been attempted, at 
 various times, to form the instrument of associa- 
 tion, here or in other countries. First, a pure 
 currency, whose deposits are debt, and whose 
 circulating moiety consists entirely of coin or 
 coin certificates. Second, a mixed currency, 
 whose deposits are debt, and whose circulating 
 moiety is partly of coin, but mostly of prom- 
 issory notes, supposed to be convertible into 
 coin at the will- and pleasure of the holder 
 at all times. Third, an unmixed paper cur- 
 rency, whose deposits are debt, and whose cir- 
 culating moiety is entirely of promissory notes 
 inconvertible. 1 An instrument of association 
 
 1 In a pure currency, the measure of value is comparatively 
 fixed; in a mixed currency, it is constantly changing; in an 
 unmixed paper currency, it is entirely abandoned.
 
 96 THE INSTRUMENT OP ASSOCIATION : 
 
 formed from a pure currency, is an inestimable 
 blessing, hitherto unknown to this country. An 
 instrument of association formed from a mixed 
 currency, is a chimera, a curse, an instrument of 
 dissociation rather, a device of Satan to enthrone 
 capital and enslave labor, and, insensibly and by 
 slow degrees, to establish a moneyed aristocracy, 
 disguised (if the disguise be not discarded in 
 the course of time) under the form of democ- 
 racy. An instrument of association formed from 
 inconvertible paper, is a machine for creating 
 civil war ; for destroying both capital and labor, 
 and for perpetuating military despotism as the 
 alternative of anarchy. Before the war, the in- 
 strument of association was composed of a mixed 
 curreucy — of circulating notes pretending to be 
 convertible into specie on demand, and whose 
 ultimate redemption was secured (I) 1 by state 
 stocks bearing interest ; and also of deposits, 
 or inscribed credits on the books of the banks, 
 which also pretended to be payable in coin on 
 demand. These banks were banks of discount 
 and deposit, and of issue, the last being an 
 usurped function, 2 in order to perform which, the 
 
 1 When the rebellion broke out, the circulation of those 
 Western banks that was based on Southern stocks, became 
 worthless. There can hardly be anything more absurd than 
 to base a circulation upon debt. Debt upon debt. 
 
 2 Bowen.
 
 A PERFECT INSTRUMENT. 97 
 
 banks pretended to keep sufficient coin on hand 
 to be in a position to pay their bill-holders on 
 demand. They also pretended to retain coin 
 sufficient to meet all demand liabilities that were 
 likely to be called for, but they never did ; the 
 whole system, from first to last, was a fraud. 1 
 An inconvertible paper currency does not profess 
 anything, but this system professed everything ; 
 it professed to be as good as gold, and cheaper : 
 it was neither ; it was much more expensive. 
 The instrument of association thus formed was 
 never of uniform weight or measure. 2 Society 
 was pretty much in the same condition as if a 
 bushel of wheat were the standard of value, and 
 as if the bushel measure were sometimes shrunk 
 to a half bushel, and sometimes expanded to a 
 bushel and a half. Men incurring a debt to-day 
 on a basis of thirty pounds to a bushel, might, 
 through no fault of theirs, be suddenly called 
 upon to pay at the rate of ninety pounds to the 
 bushel. 3 The banks expanded this instrument 
 like a balloon, and then, with great suddenness, 
 pricked it, so that it would instantly collapse, 
 spreading ruin all about. Industry sometimes 
 
 i Walker. 2 Ante, pp. 58, 85. 
 
 3 In 1837 the per capita was $17.60, and in 1843 it was 
 $6.18; in 1857 it was $15.60, and in 1858 it was $11.56. 
 7
 
 98 THE INSTRUMENT OP ASSOCIATION: 
 
 would be rushing at fever heat, and at others, it 
 would be paralyzed, as if under the cold hand 
 of death. I do not charge all this upon individ- 
 uals or corporations, 1 but I charge it upon the 
 system. The fatal defect of the system is that 
 the entire active currency 2 is debt, and is not 
 self-adjusting - , because debt bearing no interest 
 cannot be exported. The process of inflation is 
 initiated by an increase of loans and discounts, 
 and an increase of circulating notes ; prices 
 begin to rise ; speculators begin without capi- 
 tal, and buy merchandise, giving promissory 
 notes (on time) in payment ; the payee gets 
 the notes discounted, thus increasing the de- 
 posits or wholesale currency ; and wholesale 
 prices thus rising higher, retail prices respond, 
 which enables the banks to increase their circu- 
 lating notes, or retail currency, and so the in- 
 strument is expanded without any increase of 
 value. 3 Price only is gained. 4 Imports then 
 begin to flow in, to be sold in a market where 
 
 1 I have stated elsewhere that political economy assumes 
 nothing but the universality of human selfishness. Profit is 
 the motive of these inflations. 
 
 2 Circulation and deposits. 
 
 3 If the currency be a currency of value, it cannot be ex- 
 panded without adding value. 
 
 4 Walker. The increase of deposits may be preceded by 
 increase of circulation, but the increase in both is, necessarily, 
 nearly simultaneous.
 
 A PERFECT INSTRUMENT. 99 
 
 the prices are high, and exports cease to flow 
 out as usual, because prices are too high to 
 show anv profit abroad ; and finally, coin begins 
 to go, because coin or gold is the cheapest 
 commodity we have to offer. Instead of pur- 
 chasing wheat of us, England will take gold 
 and purchase wheat in Russia. Now, if this 
 currency were a currency of value, the coin 
 would be taken directly from the active cur- 
 rency itself, thus reducing its weight, and prices 
 would begin to fall ; but the gold for export is 
 not taken from the currency, and here is where 
 the whole mischief lies ; this is where the defect 
 shows. If the currency were a pure currency, 
 it could not be unduly inflated, because the 
 export would reduce it as fast as it was increased. 
 But the export is taken from the reserve of the 
 banks, and not from the currency, therefore 
 prices do not fall ; on the contrary, they increase, 
 for the movement has not spent its upward force, 
 and the more they increase, the more gold is 
 called for, till the banks get alarmed ; and, having 
 shrunk the measure of value, or lowered the stand- 
 ard, so that a half a bushel of wheat, or thirty 
 pounds, is worth as much price as a whole 
 bushel, or sixty pounds, was before the inflation, 
 they are obliged to contract, because the founda-
 
 100 THE INSTRUMENT OP ASSOCIATION : 
 
 tion of the superstructure is being rapidly under- 
 mined ; for every dollar of coin taken from the 
 bank reserves, they are obliged to contract several 
 dollars of circulation and deposits, 1 panic ensues, 
 bill-holders run on the banks for specie, and the 
 depositors (as in 1857) threaten to draw their 
 deposits in coin, and the banks must suspend or 
 break ; the final result being that the standard is 
 raised so that the banks can resume. Then 
 those who have contracted debts on a basis of 
 thirty pounds to the bushel, are obliged to pay 
 on a basis of sixty pounds to the bushel, and the 
 result is failure and confiscation. The whole 
 process of contraction under this mixed system 
 is precisely as if the walls of a brick building 
 that had been carried to an extreme elevation, 
 had to be reduced in height by undermining, 
 and taking out bricks from the foundation, thus 
 making a crash inevitable. With a pure currency, 
 the elevation could never attain extreme height, 
 because the bricks would be taken off as fast as 
 they were put on. This is why, under the 
 present system, the national banks could not 
 suffer any considerable contraction of legal 
 tenders ; and this is one reason why the national 
 bank circulation should be displaced by legal 
 
 1 Walker's chapters on mixed currency give an excellent 
 analysis of the subject.
 
 A PERFECT INSTRUMENT. 101 
 
 tenders. Such is the character of the instrument 
 of association, formed of a mixed currency, that 
 was in use antecedent to the war. The inevit- 
 able consequence was disorganization of our 
 whole social system. Manufacturing industry, 
 that is to say, the products of labor alone, could 
 not possibly compete with the products of labor 
 of those countries where they had a currency less 
 inflated. Our currency was constantly inflated ; 
 our channels of circulation were overflowing 
 all the time. Hence our industry was diverted 
 from manufacturing to agricultural pursuits ; 
 the products of the soil, and of our mines, 
 were the only commodities that we could export 
 to advantage. This state of things created an in- 
 ordinate demand for the products of slave labor, 
 and the system of slavery grew apace under this 
 powerful material influence. Foreign nations 
 were the largest consumers of the products of 
 slave labor — the largest and best customers of the 
 Slave States — and so the material interests of 
 the Slave States were different from and op- 
 posed to those of the Free States. The Free 
 States devoted themselves to manufacturing 
 industry, partly on account of peculiarities of 
 soil and of climate, and partly on account 
 of the absence of slavery — of the presence
 
 102 THE INSTRUMENT OP ASSOCIATION : 
 
 of a purer democracy, and a higher degree 
 of civilization. It is difficult, perhaps, to dis- 
 tinguish the relation of cause and effect be- 
 tween manufacturing industry and a high civ- 
 ilization. It is stated elsewhere that manufac- 
 turing industry is susceptible of the greatest 
 extension of the principle of the division of 
 labor, 1 and the greater the extent of the division 
 of labor in any community, the higher the civil- 
 ization of such community. 2 Be that as it may, 
 the Free States devoted themselves extensively to 
 manufacturing industry ; but manufacturing in- 
 dustry could not flourish as it ought, under such 
 a currency ; therefore recourse was had to pro- 
 tection. A protective tariff was insisted upon 
 by the Manufacturing States of the North, not 
 for revenue especially, but avowedly for protect- 
 ing manufactures that could not flourish under an 
 inflated currency. The South objected to such a 
 tariff; it vehemently denounced the " accursed 
 policy " of the tariff, if not justly, certainly nat- 
 urally, and perhaps with feelings akin to those 
 which actuated John Hampden. He did not 
 oppose taxation because it would ruin his fortunes, 
 but because the principle upon which it was 
 levied made him a slave. 3 The material interests 
 
 * Ante, p. 10. 
 
 2 Everett, Guizot, Cbenevix. 3 Burke.
 
 A PERFECT INSTRUMENT. 103 
 
 of the South were wholly alienated from those 
 of the North hy a detestable currency. " What 
 interest," asked Mr. Hayne, " has South Caro- 
 lina in a canal in Ohio ] ' None whatever, from • 
 his point of view. The system of slavery was 
 nurtured by a currency that was discouraging to 
 manufactures and civilization, and favorable to 
 the products of forced, unskilled labor, and to 
 barbarism. And so alienation begat strife, and 
 strife begat civil war. Slavery went down in the 
 struggle, bequeathing a heavy debt and onerous 
 taxation, and a currency with which our public 
 men seem utterly incompetent to deal. Such is 
 the result of violating the law of God in substi- 
 tuting a miserable paper currency — the imma- 
 terial shadow — in place of the real substance, 
 which, so far as finite wisdom can comprehend 
 the Infinite, was intended by the Creator to be 
 the money of society — the instrument of asso- 
 ciation. 1 Credit is useful in its place. Mr. 
 Wehster never uttered a truer aphorism, perhaps, 
 than when he said that the phrase " Those who 
 trade on borrowed capital ought to break," was 
 
 1 " Thou shalt not have in thine house divers measures, a 
 great and a small. 
 
 " But thou shalt have a perfect and just weight, a perfect and 
 just measure shalt thou have; that thy days may be length- 
 ened in the land which the Lord thy God giveth thee." — 
 Deut. xxv. 14, 15.
 
 104 THE INSTRUMENT OP ASSOCIATION : 
 
 the most aristocratic sentiment ever spoken in 
 this country. Credit has its appropriate func- 
 tions in the economy of society, but it never has 
 t supported, and never will support a note circu- 
 lation that will perform the functions of money 
 with any degree of satisfaction or security. 
 Value is the indispensable quality of money, 
 and the precious metals embody value in its 
 most convenient and economical form. They 
 constitute the only proper material for the instru- 
 ment of association ; and had it never been at- 
 tempted to supersede a value currency in this 
 country by a debt currency, it is not too much 
 to sav that there would have been no motive to 
 extend slavery, but a motive to extinguish it ; 
 there would have been no inducement to break 
 up the Union, but every incentive to knit the 
 fraternal bond more closely. It is proper to say 
 that a demand for specie from this country may 
 arise from a sudden contraction of the circulation 
 and deposits of the Bank of England, in conse- 
 quence of an export of coin from thence, or on 
 account of political troubles ; and in order to 
 strengthen the Bank of England, our banks 
 under the old system might at any time be 
 obliged to suspend. It is a law of political 
 economy, that any considerable contraction of the
 
 A PERFECT INSTRUMENT. 105 
 
 currency of any commercial country will cause 
 a flow of precious metals thither, precisely as air 
 will flow into and fill a vacuum. 
 
 Having 1 said thus much of the instrument of 
 association as it existed anterior to the war, and 
 having analyzed the instrument of association as 
 it exists at present, 1 and having - pointed out the 
 necessity and the method of adjusting the instru- 
 ment, 2 it will be observed that the adjustment of 
 the existing instrument will, when it is effected, 
 leave us with a debt currency of circulation and 
 deposits, whose circulating moiety will consist 
 of notes of redemption, convertible into coin on 
 demand. The problem then presenting itself for 
 solution, is to substitute a metallic circulation in 
 place of the notes of redemption ; for it will be 
 observed, that although the notes of redemption 
 will be payable on demand, they will be, never- 
 theless, a note circulation, or, a circulation of 
 debt, and not a circulation of value. If the 
 present legal tender issue be not increased, 3 there 
 will be about §660,000,000 to be displaced by 
 the notes of redemption, at the rate of three for 
 one, making a circulation of the redemption notes 
 of about $220,000,000, an amount which is 
 
 1 Ante, chap. ii. 2 Ante, chaps, iii., iv. 
 
 3 There is great danger of this.
 
 106 THE INSTRUMENT OF ASSOCIATION : 
 
 quite as much as can be sustained at a con- 
 vertible point. 1 It will be necessary to prohibit 
 banks of issue in the United States, thus leaving 
 the channels of circulation to be filled by the re- 
 demption notes alone. The withdrawal of the 
 notes of redemption should be very gradual, not 
 exceeding the value of our surplus gold product, 2 
 say at the rate of about fifty millions per annum, 
 and in order to fill the vacuum created by the 
 withdrawal of these notes, 3 the Secretary of the 
 Treasury should be authorized and instructed by 
 law to receive deposits of bullion, and grant 
 certificates of deposit or receipts therefor, paya- 
 ble to bearer on demand, in sums of not less 
 than $5,000. 4 He should also receive deposits of 
 coin, and grant certificates of deposit or receipts 
 therefor, payable to bearer on demand, in sums 
 of not less than <$5, nor more than $1,000; and 
 such certificates of deposit, or receipts for bullion 
 or coin, should be lettered and numbered so as 
 
 1 This is a little more than $6 per capita. The currency 
 in 1857 became inconvertible when the circulation was about 
 % 7 per capita. 
 
 2 Beyond what may be needed for consumption in the arts. 
 
 3 As these redemption notes are withdrawn, value will be 
 needed to circulate other values, and the precious metals will 
 begin to flow into the circulation. 
 
 4 The object of these deposits of bullion is, that when there 
 is an export drain, bullion will be taken instead of coin, thus 
 saving the seigniorage.
 
 A PERFECT INSTRUMENT. 107 
 
 to preserve the individuality of each certificate or 
 receipt ; and whenever any certificate or receipt, 
 having been once issued, shall be presented and 
 received into the Treasury for redemption, such 
 certificate or receipt shall thereupon be canceled, 
 and new certificates or receipts, with different 
 letters and numbers, shall be issued against each 
 new deposit of bullion or coin. 1 And whenever 
 all the notes of redemption shall have been with- 
 drawn, such certificates of deposit or receipts 
 for bullion or coin, shall form the exclusive sub- 
 stitute 2 circulation of the country, the metallic 
 circulation itself being used in sums under five 
 dollars. It will be observed that the withdrawal 
 of the notes of redemption will be a reduction 
 of the debt, and the means to withdraw those 
 notes must come from revenue. I have sug- 
 gested fifty millions per annum as the amount to 
 be withdrawn, because that is about our surplus 
 gold product, and if the gold is not used for that 
 purpose it will be sent abroad; but it cannot be 
 exported except at a loss equal to the cost of 
 transmission, and other products can be advanta- 
 geously used instead, under a sound currency, in 
 paying for our imports. 3 The revenue necessary 
 
 1 This is intended as a check against forgery. 
 
 2 That is to say, the substitute or proxy of the metal itself. 
 
 3 If fifty millions per annum be thought excessive, a less
 
 108 THE INSTEUMENT OF ASSOCIATION : 
 
 to retire this debt currency, could be derived 
 from a tax on United States securities. I am 
 aware that existing laws forbid the taxation of 
 United States securities, and this restriction 
 should remain in force as against state and mu- 
 nicipal taxation. But the exemption of so large 
 a portion of accumulated capital from taxation, 
 and the imposition of the whole burden of taxa- 
 tion upon the wages of labor, rent, and profits, is 
 subversive of public morals, calculated to cast 
 odium upon the law, unendurable under a dem- 
 ocratic form of government, 1 and menacing to 
 the stability of the Union. Law is beneficence 
 acting by rule. 2 Law is an instrument of justice, 
 and whenever, from any cause, it becomes an 
 engine of oppression, it will be more honored in 
 the breach than the observance. Whenever the 
 notes of redemption shall have been entirely with- 
 drawn, the circulation will have become filled 
 with the money of God and nature, and we 
 shall have a pure currency, a perfect instrument 
 of association. Labor will be no longer despoiled 
 of its just rewards ; commerce may safely spread 
 
 sum could be applied for the purpose. The reasons for sug- 
 gesting fifty millions are cogent. 
 
 1 This exemption of capital from taxation is a violation of 
 political economy, and contravenes the first of the four prin- 
 ciples of taxation laid down by Adam Smith. 
 
 2 Burke.
 
 A PERFECT INSTRUMENT. 109 
 
 its wings to the perennial breeze ; partisan warfare 
 will cease its tumult, 1 and the country will have 
 attained the happiest epoch in its history. Let 
 it be forever understood that there shall be no 
 banks of issue in the United States ; let Congress 
 fulfill its constitutional duty regarding the money 
 of the country, and " regulate the value thereof;" 2 
 and then banks of deposit and discount may be 
 established without limit, under wholesome reg- 
 ulations. 
 
 But here again, perhaps, the argument may be 
 pressed upon us, that the notes of redemption, 
 if not in excess, will remain convertible, and that 
 it will be a great saving to use them, instead of 
 the precious metals, 3 for the instrument of asso- 
 ciation. The answer to this is that the govern- 
 ment, through its sub-treasury agencies, cannot 
 exercise the functions of a bank of issue, and 
 regulate the volume of these notes of redemption 
 according to the changing pulse of commerce. 4 
 
 i It is not expected that political divisions will cease, but 
 party spirit will lose much of its malignity. Political rivalry 
 will be a rivalry for good and not for evil; it will exercise 
 salutary restraint upon the ascendant side. 
 
 2 Constitution, art. 1, sec. 8, clause 5. 
 
 3 Ante, p. 22. 
 
 4 " It is not desirable that to the ever-growing attributions of 
 the government, so delicate a function should be superadded." 
 — Mill
 
 110 THE INSTRUMENT OP ASSOCIATION : 
 
 The volume of notes will depend upon the condi- 
 tion of the public revenue and expense. Again, 
 these notes are evidences of debt, and it is and 
 has been the inevitable fate of such a currency, 
 that, under some pretext or other, the issue is 
 always increased to excess. The least deficit in 
 the revenue, the least complaint of the burden 
 of taxation will be the signal for increased issues. 
 It must be conceded that the mass of the people, 
 and the legislators of our country, are ignorant 
 of the true principles of political economy, and 
 especially of the theory of money. Nor do 
 those who fill positions of trust in the executive 
 departments of the government, seem to possess 
 anything more than a superficial knowledge of 
 this important subject. The deplorable igno- 
 rance of political economy manifested by our 
 public men since the beginning of the war, has 
 been most unfortunate in its results. And, 
 especially, the management of the Treasury De- 
 partment since the close of the war has been 
 charlatanical and profligate in character. The 
 history of the civilized world affords no parallel 
 for such outrageous abuse of fiscal authority, 
 and it is to be hoped that it never will. We 
 have probably accumulated a foreign debt of 
 eiffht hundred millions of dollars since the close
 
 A PERFECT INSTRUMENT. Ill 
 
 of the war, which is entirely owing to mal- 
 administration of this high trust. Congress 
 must be held responsible for investing any min- 
 ister of finance with such destructive power. 
 The past and current history of the executive 
 and legislative departments of our government 
 is a warning to us not to trust any power 
 over the currency to any man, or any body of 
 men. 1 Such a power is seldom understood 
 and always abused. The money of the country 
 must be self-regulating, and if it be composed 
 of value and not debt ; if it be composed of the 
 precious metals, though it bear the image and 
 superscription of Caesar ; it is still the money of 
 God, designed, doubtless, as one of the agents 
 in preserving the harmony of the universe. 
 
 1 The office of finance minister in this country, of late 
 years, has commonly been occupied by what Adam Smith 
 termed "that insidious and crafty animal, vulgarly called a 
 statesman or politician, whose ' counsels are directed by the 
 momentary fluctuation of affairs." Great national emergen- 
 cies expose incompetent officials. It was so in England. Mr. 
 Vansittart, who was Chancellor of the Exchequer from 1812 
 to 1S22, "was simply a thoroughly incompetent mind;" and 
 it was said by the opposition members of the House of Com- 
 mons at that time, that " the present distresses were occasioned 
 by having a miserable, miscalculating, puny Chancellor of the 
 Exchequer, who did not know the resources of the country, 
 owing to the ignorance and want of power of his little mind."
 
 112 THE INSTRUMENT OF ASSOCIATION : 
 
 VII. 
 
 THE INSTRUMENT AS AFFECTED BY THE PRODUCT OP 
 PRECIOUS METALS. 
 
 FTTHE method of creating a perfect instrument 
 of association has been shown, and it re- 
 mains to demonstrate how this instrument can 
 be maintained in all its perfection, notwithstand- 
 ing that the surplus product of precious metals 
 constantly tends to increase its weight and thus 
 impair its efficiency; for it is a fundamental prin- 
 ciple that the smaller the weight and value of the 
 instrument, the greater its efficiency, and the 
 greater the prosperity of the community. 1 By 
 surplus product of precious metals, is meant that 
 portion not needed for consumption in the arts, 
 and which cannot remain in the country ; for 
 if it be attempted to increase the value and 
 weight of the instrument, industry will languish, 
 and beyond a certain weight the instrument will 
 not be susceptible of further addition, and then 
 the precious metals are expelled from the coun- 
 try as fast as produced. Supposing that 2,239,- 
 
 1 Ante, p. 19.
 
 AS AFFECTED BY THE GOLD PRODUCT. 113 
 
 583 pounds, troy weight, of standard gold, or 
 $500,000,000, is the maximum value and 
 weight of the instrument compatible with a 
 flourishing' condition of society, it becomes mani- 
 fest that the weight and value of this instrument 
 cannot be increased except at the expense of the 
 prosperity of the whole community. It may be 
 increased, perhaps, twenty per cent., or possibly 
 more ; but there is a limit beyond which it will 
 be impossible to increase it under any circum- 
 stances, and when this limit is reached, it will be 
 impossible to retain the surplus in the country. 1 
 It might as well be attempted to stop the eternal 
 flow of waters over Niagara Falls. Since it is 
 impossible to retain this surplus product of the 
 precious metals, and since the prosperity of the 
 country depends entirely upon the weight of 
 the instrument of association being maintained at 
 the lowest, point permissible by the international 
 laws of trade, it is clearly the interest of the 
 people, that there be every possible, as well as 
 profitable inducement offered, for the exportation 
 of the entire surplus product of precious metals 
 as soon as produced. 2 What inducement to ex- 
 
 1 It is unnecessary to demonstrate this again. Nothing is 
 more fully established in the science of political economy. 
 
 2 Time is an important element in the economy of society. 
 
 8
 
 114 THE INSTRUMENT OF ASSOCIATION: 
 
 port the precious metals may be offered without 
 detriment to the country at large, it is my pur- 
 pose now to inquire. In doing this, I shall 
 touch upon a most interesting branch of the sci- 
 ence of political economy, a branch which I 
 might well have wished to avoid, if it were pos- 
 sible, because it necessitates a survey of that 
 which has been the battle-ground of contending 
 parties since the formation of our separate 
 national existence. It is clear, from the forego- 
 ing, that so long as we continue to produce the 
 precious metals, the balance of account, or the 
 exchange, or, as it is called, the balance of trade, 
 will always be against us. But though the bal- 
 ance of trade may always be against us, the 
 balance of consumption, under proper legislation, 
 will always be in our favor. 1 It is obvious that 
 there can be no profit in exporting the precious 
 metals ; on the contrary, there will Jbe a loss 
 equal to the cost, of transmission ; but if the 
 precious metals can be used abroad to purchase 
 some commodity that will be reproductively con- 
 
 1 " There is another balance, indeed, which has already 
 been explained, very different from the balance of trade, and 
 which, according as it happens to be favorable or unfavorable, 
 necessarily occasions the prosperity or decay of every nation. 
 This is the balance of the annual produce and consumption." 
 — S7nith.
 
 AS AFFECTED BY THE GOLD PRODUCT. 115 
 
 sumed at home, such as wool, for instance, for 
 less value than it will cost if produced at home, 
 it is clear that the exchange will be to our ad- 
 vantage. 1 If, for instance, a dollar's worth of 
 bullion exported will bring back three pounds 
 of wool, of a quality equal to that which costs 
 half a dollar per pound to produce at home, 
 then it is clear, that while the balance of account, 
 or balance of trade, will be against us, the bal- 
 ance of consumption will be largely in our favor. 
 But if this bullion is exported at a loss, to pur- 
 chase abroad that which is unproductively con- 
 sumed at home, such as a finished silk fabric, 
 whereon the science of production is ended, the 
 balance of consumption is largely against us ; and 
 in this case it were better that the bullion had 
 been thrown into the sea, 2 rather than we should 
 lose the cost of transmission abroad, and then 
 again lose the unproductive-consumption-market 3 
 
 i The exchange is profitable, not because we get more of 
 human service or labor for a dollar than we could at home, 
 but because we get more wool, which is not, except to a small 
 extent, the product of human effort. Wealth is said to be the 
 product of labor ; more strictly speaking, it is the product of 
 antecedent consumption, for labor itself is the product of pre- 
 vious consumption of food. Consumption and labor both may 
 be unproductive, in which case poverty, and not wealth, is 
 the result. 
 
 8 Bowen. 
 
 3 I mean by this, the home market for all commodities that
 
 116 THE INSTRUMENT OF ASSOCIATION : 
 
 for commodities of home production ; for this 
 silk fabric, if consumed at home, interferes with 
 the product of home industry, and labor is the 
 only source of wealth. Price is no criterion of 
 the advantage or disadvantage of commerce. 
 The money balance for or against us is no 
 evidence of a favorable foreign trade, or oth- 
 erwise. In the case we have supposed, the 
 labor of those who extracted the bullion from 
 the mines and brought it to the seaboard was 
 thrown away. " The balance of consumption," 
 says Adam Smith, " may be constantly in favor 
 of a nation, though what is called the balance 
 of trade may be generally against it." 1 This 
 was the case where we supposed the wool was 
 received in exchange for the bullion. And, on 
 the other hand, where the finished silk fabric 
 was received in exchange for the bullion, both 
 the balance of trade and balance of consump- 
 tion were against us. In the cases which we 
 have supposed, the so-called free trader contends 
 that it is advantageous to import that which 
 is unproductively consumed (the finished silk 
 fabric), if it can be imported for less money than 
 it will cost if produced at home. And the so- 
 
 are unproductively consumed. " The division of labor is lim- 
 ited by the extent of the market." — Smith. 
 
 1 This principle seems to be entirely ignored by modern 
 writers who advocate what is called free trade.
 
 AS AFFECTED BY THE GOLD PRODUCT. 117 
 
 called protectionist would prohibit that which 
 is reproductively consumed (the raw wool), if 
 it can be produced at home, and so protect 
 home industry. Both ignore the balance of 
 consumption ; both are wrong ; 1 both may be 
 honest in their views. " Of all these false theo- 
 ries," says Mill, " the most notable is the doctrine 
 of Protection to Native Industry ; a phrase 
 meaning the prohibition, or the discouragement 
 
 1 The protectionist forgets that wool is chiefly the creation 
 of Omnipotence, and that it is reproductively consumed. The 
 value added to the wool when it has become a finished textile, 
 is entirely the work of man, and this finished textile is unpro- 
 ductively consumed. So far as that parcel of wool is con- 
 cerned, the science of production is ended. The labor em- 
 ployed in making up the materials is the same, whether 
 using foreign or domestic goods. 
 
 If the money value of commodities exchanged were the cri- 
 terion of the advantageousness of foreign trade, I am quite sat- 
 isfied that the protectionist of the present Congressional school 
 occupies an untenable position. As it is, duties upon raw 
 wool, or any other commodity of reproductive consumption, 
 are wholly indefensible upon any principle of political econ- 
 omy; they necessarily work injury to the material prosperity 
 of the country; they favor foreign industry and are inimical 
 to home industry. I can conceive of no possible circumstances 
 justifying such a violation of economical law. The greater 
 the fiscal embarrassments of a nation, the stronger the argument 
 for the free admission of all commodities reproductively con- 
 sumed. Reproductive consumption is wealth itself, and should 
 be encouraged, especially since the " balance of trade " must 
 be against us so long as we produce a surplus of the precious 
 metals. If we cannot preserve a favorable balance of trade, 
 we must preserve a favorable balance of consumption.
 
 118 THE INSTRUMENT OF ASSOCIATION: 
 
 by heavy duties, of such foreign commodities as 
 are capable of being produced at home." This 
 is a perfectly fair statement of the doctrine of 
 protection as exemplified by Congress, but it is 
 not the doctrine of protection as sanctioned by 
 the laws of political economy. It is the attempt 
 to get rich by legislation ; it is the everlasting 
 search after the philosopher's stone. The true 
 doctrine of protection may be stated thus : the 
 discouragement, by heavy duties, of such foreign 
 commodities as are unproductively consumed, 
 and the encouragement, by free admission, of 
 such foreign commodities as are reproductively 
 consumed. Unproductive consumption of do- 
 mestic commodities is the consumption of that 
 which had previously been produced within the 
 nation ; and so far as the wealth of the nation is 
 concerned, the effect thereof is negative. 1 I am 
 not speaking of the consumption of matter, for 
 that is created by God ; but I am speaking of 
 the consumption of utility — that "unsubstan- 
 tial, intangible, abstract commodity, composed of 
 time, intellect, and exertion," 2 commonly known 
 as labor, utility, or value, which is all that man 
 
 1 If unproductive consumption exceeds production, wealth 
 decreases. If it equals production, wealth is neither increased 
 nor decreased. If it be less, wealth accumulates. 
 
 2 Chenevix.
 
 AS AFFECTED BY THE GOLD PRODUCT. 119 
 
 produces. Unproductive consumption of foreign 
 commodities that were not produced within the 
 nation, on the other hand, is a net loss. In the 
 first instance, the nation gains by production and 
 loses by consumption. In the latter instance, 
 the nation loses by consumption but had not pre- 
 viously gained by production. The modern free 
 trader says this is of no consequence, for the 
 whole world is one community, and what Amer- 
 ica loses some other nation gains, and so it is the 
 very best thing that could happen. The partisans 
 of the two opposing doctrines are thus spoken of 
 by Say : " The merchants and manufacturers, 
 who seldom look beyond the actual sale of their 
 products, or inquire into the causes which may 
 operate to extend their sale, have warmly sup- 
 ported a position apparently so consistent with 
 their interests ; the poets, who are ever apt to 
 be seduced by appearances, and do not consider 
 themselves to be wiser than politicians and men 
 of business, have been loud in the praise of 
 luxury; and the rich have not been backward 
 in adopting principles that exalt their ostenta- 
 tion into a virtue, and their self-gratification 
 into benevolence." The motto, free trade, 
 expresses an abstract, impracticable, Utopian 
 idea. No commercial nation, civilized or uncivil-
 
 120 THE INSTRUMENT OP ASSOCIATION: 
 
 ized, practices free trade ; nor is it possible that 
 they should, for free trade is incompatible with 
 national existence. 1 International free trade is 
 destructive of national free trade. There is a 
 vast field for philanthropic enterprise at home, 
 within the jurisdiction of our own laws, where rail- 
 road, telegraph, and other monopolies flourish. 
 But when other nations preach to us the human- 
 izing-, Christianizing, liberalizing, civilizing doc- 
 trines of free trade, is it too much to ask them to 
 practice at home what they preach abroad 1 And, 
 on the other hand, the doctrine of protection, as 
 it is too commonly understood among us, seems to 
 be nothing more than an attempt to counteract the 
 effects of a redundant currency, and to get rich by 
 excessive duties on foreign commodities. The ad- 
 vocates of this kind of protection seem to forget 
 that the prices of commodities in this, or any coun- 
 try, depend upon the condition of the currency, and 
 upon the law of supply and demand. The principle 
 of protection within its proper limits is undoubt- 
 edly sound, and it is the sacred duty of every 
 government to extend the shield of its protection, 
 so far as may be needful, over every laudable 
 
 i " To expect, indeed, that the freedom of trade should 
 ever be entirely restored in Great Britain, is as absurd as to 
 expect that an Oceana or Utopia should ever be established 
 in it." — Smith.
 
 AS AFFECTED BY THE GOLD PRODUCT. 121 
 
 enterprise of its people ; but the first step towards 
 protection is the establishment of a sound cur- 
 rency. This theory of spontaneity, however ; 
 this idea that industry and the various arts will 
 spring into existence without careful culture and 
 solicitation, is unfounded in political economy or 
 common sense. We might as well expect fields 
 of wheat and corn to spring into existence 
 without the aid of the physical and mental powers 
 of man. 1 In this exceedingly practical age, when 
 the jealousies of trade are sharp and unscrupu- 
 lous, it is criminal for any government to hold 
 itself neutral in the contest, not caring whether 
 those from whom it derives its support by heavy 
 taxation, sink or swim under the weight of their 
 accumulated burdens. " Strictly speaking," says 
 Say, " there is no act of government but what 
 has some influence on production." A gov- 
 ernment, therefore, cannot be neutral in such a 
 contest ; it must aid in striking down its own 
 people's industries, or it must extend its help- 
 ing hand to hold them up. Adam Smith him- 
 self admits that the establishment of any new 
 manufacture, or branch of commerce, or new 
 practice in agriculture, is always a speculation, 
 and the losses contingent thereupon are com- 
 
 i Phillips.
 
 122 THE INSTRUMENT OF ASSOCIATION : 
 
 monly greater than the profits ; but when the 
 new enterprise becomes well known, the competi- 
 tion reduces the profits to the level of other trades. 
 But the free trader will say, that the artisan who 
 employs his time in making 1 a finished silk fabric 
 with the aid of machinery can be more profitably 
 employed at some other pursuit, if the silk fabric 
 can be imported for less money than it will cost 
 when produced at home. 1 The answer to this is, 
 that so far as the nation is concerned, no amount 
 of reasoning can show it to be advantageous to 
 import that which is unproductively consumed, 
 no matter what the price may be. Price is not 
 alone to be considered. The character of the 
 consumption is the criterion. If the consump- 
 tion of any imported article be productive, or re- 
 productive, it increases the wealth of the nation. 
 If it be unproductive, it destroys the wealth of 
 the nation. Manufacturing industry is susceptible 
 of the most extended application of the principle 
 of the division of labor, and therefore manufac- 
 turing industry is most profitable and most civil- 
 izing 2 to the nation. Nothing can compensate a 
 nation for diverting its industry from the mechan- 
 
 • 
 
 1 His labor cannot possibly be so productive, either to him- 
 self or his country, in any other pursuit than that for which 
 he is especially adapted by habit and natural gift. 
 
 2 Ante, pp. 16,102.
 
 AS AFFECTED BY THE GOLD PRODUCT. 123 
 
 ical arts, provided that form of industry be not 
 excessively cultivated, to the exclusion of agri- 
 culture. 1 Mechanical industry is preeminently 
 the conquest of mind over matter, 2 and whenever 
 that form of industry is assailed, the revenue of 
 the state suffers, and its civilization is impaired. 
 But the free trader says, to restrict the importa- 
 tion of foreign manufactures, is to destroy foreign 
 commerce. Supposing this were so, is foreign 
 commerce the summum honum of our existence ? 
 But it is not so. " The increase of domestic 
 industry lays the foundation of foreign com- 
 merce." 3 To what is the vast and profitable 
 foreign commerce of England owing, except it 
 be to the enormous development of her manu- 
 facturing industry \ A form of industry, the 
 vast extent of which was called into being by 
 the most unscrupulous and tyrannical commercial 
 policy that has yet disgraced the annals of history. 
 A policy which Adam Smith characterized as 
 a " manifest violation of the most sacred rights 
 of mankind." It need not be wondered at 
 that Adam Smith was a free trader, living, as he 
 did, at a time when such atrocious legislation 
 
 1 This is the great economical mistake of England. 
 
 2 A. von Humboldt. 
 
 3 Hume. " Manufactures are, in almost all countries, the 
 chief support of foreign trade." — Smith.
 
 124 THE INSTRUMENT OF ASSOCIATION : 
 
 was resorted to, for the purpose of establishing 
 a manufacturing monopoly, against which no 
 competition was allowed to lift its head, — a 
 monopoly which it is now sought to perpetuate, 
 under pretensions of liberality. 1 If, then, it be 
 disadvantageous to the nation at large to import 
 the finished silk fabric, how does it affect the 
 artisan himself, whose occupation is thus cruelly 
 destroyed 1 He can become a scavenger, perhaps ; 
 but the ranks of that useful class of people are 
 already full, and if he adds himself to that class, 
 it will tend to break down the wages of the 
 whole. He can become a farm laborer, perhaps ; 
 but there is already a surplus of labor in that 
 direction, so much so, that corn has been used 
 for fuel in the Western portion of our country. 
 He has no capital but his industry. " He does not 
 choose to expatriate himself. His whole capital, 
 like himself, is American. He is rooted in the 
 soil. He is not a cosmopolite as to industry and 
 arts ; he is an American." 2 The pursuit of 
 
 1 England gives free admission to cotton, because it is 
 reproductively consumed ; she lays a heavy impost upon raw 
 tobacco, which is unproductively consumed; and a still heavier 
 impost upon manufactured tobacco, which is even more un- A 
 productively consumed. (Taritfof 1859.) This is sound eco- 
 nomical policy, but a policy which only by a gross abuse of 
 language can be denominated free trade. It is a policy pre- 
 cisely that for which I contend. It is protection. 
 
 2 Phillips.
 
 AS AFFECTED BY THE GOLD PRODUCT. 125 
 
 happiness is declared to be one of the unalien- 
 able rights of man, with which he has been 
 endowed by his Creator ; and it is no less a 
 crime against God than an outrage upon the 
 artisan, to rob him of his capital, and condemn 
 him, and those whom God has given him, to the 
 pursuit of wretchedness. No ! there is no 
 nobler, no more sacred duty of a government, 
 than that which imposes upon it the necessity of 
 protecting the industry of a patriotic people, who 
 hold everything that is most dear to them at the 
 call of their country. But the most efficacious, 
 and the only method of protecting the industry 
 of the people, is to perfect the instrument of 
 association, and to maintain it in perfection by 
 encouraging the export of the surplus product 
 of precious metals. In order to encourage the 
 export of precious metals, it will be necessary to 
 encourage the import of all commodities that 
 are productively or reproductively consumed, and 
 to discourage the import of all commodities that 
 are unproductively consumed. This is the only 
 principle involved in tariff' legislation. There 
 can be no greater blow to industry than to 
 maintain the instrument of association at an ex- 
 cessive value, or weight. It is most singular 
 that the protectionist mind has generally favored
 
 126 THE INSTRUMENT OP ASSOCIATION : 
 
 an enlarged currency. 1 A recent convention of 
 manufacturers favored the maintenance and ex- 
 tension of the national bank system ; 2 while a 
 leading metropolitan journal, devoted to the 
 interests of protection, advocated the immediate 
 resumption of specie payments, without any 
 preceding contraction of the currency, but 
 rather with an expansion, if anything, as a 
 means to protect home industry, — a measure, 
 than which, nothing could be more fatal to the 
 industry of the country, if it were possible. A 
 pestilence which should sweep off every mechanic 
 and artisan in the country, could scarcely be 
 more fatal. Our export trade would be brought 
 to a halt, and our import trade would be im- 
 mensely increased, till the people were rapidly 
 exhausted, as they are now being exhausted. 
 Yet such is the fatuity of the popular mind upon 
 this subject. It seems a paradox to the unre- 
 flecting mind, but it is true, that the lower the 
 premium on gold, the greater the depreciation of 
 the currency, and vice versa. As money increases 
 in quantity it declines in value, and as it declines 
 in quantity it increases in value. This is an 
 
 1 Mr. Carey seems to be no exception to the rule. Professor 
 Bowen, however, is clear upon the subject. 
 
 2 Cleveland, May 27, 1868.
 
 a 
 
 AS AFFECTED BY THE GOLD PRODUCT. 127 
 
 axiom. 1 If, therefore, our currency (circulation 
 and deposits) is $1,400,000,000 nominally, 
 then, with gold at $1.40, the quantity of this 
 currency is $1,000,000,000; with gold at 
 $2.00, the quantity is $700,000,000. Hence, 
 as the premium on gold advances, the currency 
 depreciates in quantity and appreciates in value ; 
 and (reversing the language but retaining the 
 sense of the axiom laid down by Smith) as the 
 exchange is always in favor of that nation which 
 maintains an appreciated currency, imports de- 
 crease, and exports increase. Our public men 
 seem too obtuse to perceive this pregnant truth. 
 The instrument of association is constantly in 
 danger of being injuriously affected by the prod- 
 uct of precious metals, and if the instrument of 
 association is impaired, agriculture, manufactures, 
 and commerce decline ; civilization is retarded, 
 and internecine strife is sure to follow, with 
 stronger reason, now that there is a heavy burden 
 of taxation to be borne. Therefore, the surplus 
 product 3 of precious metals should be exported 
 
 1 Ante, p. G3. 
 
 2 The agio of the currency is one thing, and its deprecia- 
 tion quite another and very different. The depreciation is in- 
 versely as the agio. The public mind is confused on this point. 
 
 3 It is hardly necessary to say that by surplus product is 
 meant that portion for which there is no profitable use in the 
 country.
 
 128 THE INSTRUMENT OP ASSOCIATION: 
 
 as soon as produced, and every economical 
 means should be employed to facilitate that laud- 
 able purpose, taking - care that we receive an 
 equivalent in exchange, so as to preserve the 
 balance of consumption in our favor. If our 
 bonds can be bought back, thus canceling our 
 interest bearing debt to foreign nations, it will be 
 a beneficent result. The tariff legislation, there- 
 fore, should be framed to preserve the instrument 
 of association unimpaired, and to provide rev- 
 enue. To this end, all commodities of repro- 
 ductive consumption, such as raw materials, raw 
 produce, the constituents of paper, unmanufac- 
 tured metals, chemicals, and dye-stuffs, should be 
 admitted free. All commodities of productive 
 consumption should be taxed at the maximum 
 revenue rate ; that is to say, the duties should 
 not be so high as to check consumption nor 
 afford very great inducement to smugglers to 
 pursue their nefarious traffic. The alimentary 
 substances, such as tea, coffee, and sugar, 1 chiefly 
 come into this category, and I judge that 
 $65,000,000 per annum can be realized from 
 these three commodities. If industry be well 
 employed, such a scale of duties would not 
 operate to check consumption. All commodities 
 
 1 Drugs and medicines, so far as they produce health, are 
 productively consumed.
 
 AS AFFECTED BY THE GOLD PRODUCT. 129 
 
 of unproductive consumption, such as finished 
 textiles, manufactures of all kinds in their, last 
 stage of completion, wines and spirits, tobacco, 
 cosmetics, bijouterie, and all articles of luxurious 
 consumption, should be subjected to such a scale 
 of duties as would tend to prohibit and discour- 
 age consumption thereof. It is no hardship to 
 lay a heavy impost upon luxuries, and other 
 commodities unproductively consumed. The 
 payment of such taxes is entirely within the 
 option of the people ; if any person pays such a 
 tax, it is because he voluntarily subjects himself 
 to it. The commodity is not essential to his 
 comfort nor included among his necessities; 
 rather the reverse. Such taxes do not neces- 
 sarily fall upon the wages of labor, rent, or 
 profits; they differ from all other taxes, in that 
 they fall upon and are paid by the consum- 
 ers without any retribution. 1 They are espe- 
 cially just and politic, because the consumption 
 of such commodities of foreign production is 
 hostile to the public interest. 2 With such tariff 
 legislation, the instrument of association would 
 remain perfect, and home industry be amply 
 protected. 
 
 1 Smith. 
 
 2 " And is in every respect hurtful to the society." — Ibid. 
 
 9
 
 .130 THE INSTRUMENT OP ASSOCIATION : 
 
 I have not thought it proper, in this volume, 
 to discuss the terms upon which the public debt 
 can be funded into bonds, terminable only by re- 
 demption, at the pleasure of the government. I 
 have merely to suggest that the burden of taxa- 
 tion should be made as light as possible ; that the 
 people hereafter shall have no reason to complain 
 of injustice. So long as the material inter- 
 ests of the people are subserved by the mainte- 
 nance of the Union, so long will the Union en- 
 dure. If the instrument of association be perfect, 
 and the burden of taxation be not excessive, we 
 may reasonably expect it to endure for cen- 
 turies. But if the true principles of political 
 economy and political philosophy are contemned, 
 there are those living who will see it shattered 
 into fragments. 1 
 
 l " Abstract liberty," said Burke, " is not to be found. 
 Liberty inheres in -some sensible objects. . . . The great 
 contests for freedom in this country (England) were from the 
 earliest times chiefly upon the question of taxing. . . . 
 On this point of taxes, the ablest pens and most eloquent 
 tongues have been exercised ; the greatest spirits have acted 
 and suffered. . . . The colonies draw from you, as with 
 their life-blood, these ideas and principles. Their love of lib- 
 erty, as with you, fixed and attached on this specific point of 
 taxing. Liberty might be safe or might be endangered in 
 twenty other particulars without their being much pleased or 
 alarmed. Here they felt its pulse ; and as they found that 
 beat, they thought themselves sick or sound."
 
 AS AFFECTED BY THE GOLD PRODUCT. 131 
 
 " Taxes," as Adam Smith truly remarks, " are badges of 
 liberty;" but it is essential that they should be levied for just, 
 laudable, and necessary purposes. When levied for other ob- 
 jects they become badges of slavery, and whatever laws Con- 
 gress may have passed, or shall hereafter pass, "nobody will 
 be argued into slavery." 
 
 " Est igitur respublica res populi ; populus autem non om- 
 nis hominum coetus, quoque modo congregatus, sed coetus mul- 
 titudinis juris consensu et utilitatis cominunione soeuitus." — 
 CiCcfO.

 
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