war, circulation in these United States almost ceased, labor was everywhere being wasted, and money was almost unattainable at any price. After the passage of the Act of 1828, every thing was different: the circulation became rapid, labor was in demand, and money became cheap. With the Compromise tariff of 1833 the scene once more changed; production declined, while money rose with such rapidity that banks suspended, States defaulted, and the Federal government became absolutely bankrupt.* Once more, in 1842, the protective policy was adopted; and production rapidly increased, while the rate of interest fell. It is now (1856) high, because production is steadily declining in its ratio to the population. The facts of the present time, therefore, correspond with those observed in 1836, and there is every reason to expect a crisis as severe as that which then occurred.†

§ 2. Money is often spoken of as the exclusive capital; and we are told that interest is high because “capital is scarce." There would, however, be as much propriety in saying that rents, tolls, or freights, are high because of the scarcity of capital. Houses, roads, ships, money, equally constitute portions of the capital of a community. Interest is always high when this last, from whatsoever cause, is scarce; and the high price then paid for its use constitutes a deduction from the rents of the first, and freights of the others. The owner of money then profits at the expense of all other capitalists. Interest is the compensation paid for the use of the instrument called money, and for that alone. In countries in which that is high, the rate of profit is necessarily so, because the charge for the use of his money enters so largely into the trader's profits.

The mistake of confounding money with capital appears in a recent work by a leading French economist, who regards it as an error to say that "money is plenty, or money is scarce, to indicate the state of things that exists when the artisan seeking for capital obtains it with facility or finds it difficult to be obtained." In his opinion, the English expression, money market," should be changed to "capital market;" and when the farmer complains that "money is scarce," he

* In the closing years of the protective policy of 1828, the Federal government paid off a large amount of debt bearing interest at three per cent. In the free-trade period of 1841-2, it was totally unable to borrow money even at six per cent.

†This prediction was realized in the following year, 1857.

regards him as being "the dupe of a metaphor, in virtue of which, in ordinary speech, capital is termed money, because money is the measure of capital."*

The error would seem here to be on the side of the economist, and not on that of the farmer, whose daily experience teaches him that when money circulates freely, he is prosperous, and that when it is scarce his prosperity disappears. It is not capital that is then needed, but money, and that alone. The capital of the United States, in houses, factories, mines, ships, and other property, has (1856) within ten years increased by thousands of millions, yet are there on all sides visible roads half finished, laborers unemployed, mills stopped, and men of business compelled to curtail their operations. Why? Because the drain of money has produced an extreme sluggishness of the societary motion. Were it possible now to announce, that by reason of a change of policy the export of gold would henceforth cease and the produce of California be here retained, money would at once become abundant and cheap, circulation would recommence, and prosperity would reign throughout the land; and yet, the difference in the ensuing year in the quantity of the machinery of circulation, would not amount to a fourth of one per cent. of the value of the land, and labor, and other capital of the country.

3. It is not, however, in the quantity of money held by a country that we are to find the test of its prosperity, but in the rapidity of its circulation. The gold held by the banks, the people, and the government of these United States, is said to exceed by $100,000,000 what was held a few years since; but, there being no regularity in the societary motion, credit is much impaired, circulation is sluggish, and interest is high. The monied capitalist profits by this, but it is the cause of ruin to the cloth-maker and the miner.

France has a large stock of the precious metals; but fre quent revolutions have so impaired confidence that much of it is hoarded, and performs no part of the societary service. The rate of interest is therefore high, while wages are low because of frequent intermissions in the demand for labor. The manner in which all this would be terminated by a small increase of the machinery of circulation is thus shown by a distinguished French economist in the following passage:

* CHEVALIER: De la Monnaie, p. 380.

On one side we see a machinist, a blacksmith, and a wheelwright, whose shops are closed, not because of any want of raw materials, but because of the absence of demand for their products. Elsewhere are manufacturers in want of machinery, and farmers in need of agricultural implements. Why do not the latter give to the former the orders for want of which they continue idle? Because they must be paid in money, which the others have not to give; and yet they have, in shops or barns, abundance of commodities that they desire to sell, and by the possession of which many of their neighbors would be greatly served. Why do they not exchange? Because, direct exchange being impossible, they must begin by selling, and as they, in their turn, must demand money, they cannot find purchasers. Here we have a suspension of labor on both sides; and in cases like this, production is languid and society vegetates, though surrounded by all the elements of activity and prosperity. Means might, however, be found for removing this difficulty. If the machinist, the blacksmith, and the wheelwright, refuse to deliver their products except for ready money, it is not because they entertain any doubt of the future solvency of the farmer or the manufacturer; but because it is not convenient to them to make credit sales that would diminish their active capital, and perhaps prevent them from continuing their operations. Let each one, then, in delivering his articles, as he has confidence in the future ability of those who now demand them, require only, in place of money, a note that he can use in his turn with those who furnish him. On this condition, circulation will be re-established, and labor resumed. True, but we must first be sure that these notes, when accepted, will be received elsewhere, or otherwise it becomes at once a simple sale on credit. This certainty, however, cannot be obtained, therefore they refuse the notes; not because of any suspicion of their ultimate value, but because of doubts of the possibility of disposing of them. At this moment, a bank intervenes, and says:-'You, machinist, deliver your machinery; you, blacksmith, your instruments; you, ploughman, your raw materials; you, manufacturer, your manufactures; accept freely notes payable at a future time, provided you have confidence in the goodness of those who will then become your debtors. I will take charge of all those notes, and hold them until they shall become due, giving you in exchange other notes, issued by me, that you will be certain to find of universal acceptation.' Forthwith all difficulty is at end;

sales are made, goods circulate, and production become animated. There are no longer raw materials, instruments, nor products of any description, remaining, even for a moment, unemployed."*

There is here no change whatsoever in the quantity of capital owned by the community; and yet its members are seen passing at once from a state of inactivity to one of productiveness. But what was it that gave value to these notes, making them circulate so much more freely than those of the blacksmith and the farmer? It was the confidence that existed in the community that behind them stood a pile of money sufficient to redeem each and every one of them, whensoever and by whomsoever presented. Without that belief they could not have circulated, as would soon be seen were there established a drain of gold, producing a steady diminution of the quantity in the bank, until even a single one of the notes failed to be paid on presentation. Instantly their circulation would be stopped, suspension of movement would again take place, and the exchanges they had facilitated would be at an end. Money is to society what fuel is to the locomotive and food to the man: the cause of motion, whence results power. Withdrawal of food from the man is followed by paralysis and death; and such is, precisely, the effect of a failure of the necessary supply of the machinery of circulation.

When, therefore, men complain that money is scarce, they are right; it is money that is needed. Money is capital, but capital is not necessarily money; and there is strict propriety in the use of the term "money market" in preference to that of "capital market," which it is proposed to substitute for it.

§ 4. With increase in the supply of money, there is a steady tendency towards an equalization of the price paid for the services of this great instrument of association. When money is scarce, the rich man borrows at ten or twelve per cent., while the small manufacturer can scarcely do so at any price: so soon as it becomes abundant, the prices charged for its use tend towards a level-the small operator of good character obtaining loans at nearly as low a rate as his opulent neighbor.

With increase of the supply of money, there is, too, a diminution of the burden imposed by pre-existing capital.

* COQUELIN: Du Crédit, et des Banques.

Mortgages become more oppressive as money becomes scarce; but as the supply increases, there is a diminution of the weight of the mortgage, both as regards the interest and the repayment of the capital. In the former case, if the movement be long continued, it results in the forced sale of the encumbered property, as has been seen in this country at the close of every free-trade period, and as is now to be seen in every one that fails to appreciate the great fact that the raising of raw produce for the supply of distant markets is the proper work of the slave and the barbarian. The rich are thus made richer, but the poor are ruined.

Again, with every increase in the abundance of money, taxes become less oppressive to those who pay, and less beneficial to those who receive them, except in so far as the consequent reduction in the prices of finished commodities makes amends for diminution in the quantity of money received.

§ 5. The strength of a nation grows with that decline in the rate of interest which is always a consequence of that influx of the precious metals, and that increase of their utility which is observed in all those countries which place the consumer by the side of the producer. In such countries credit grows, commerce becomes rapid, mind is developed, land acquires value, and man becomes more civilized, more happy. and more free.

The strength of a nation declines with the increase in the rate of interest resulting from the efflux of the precious metals, or from diminution of the rapidity of their passage from hand to hand. This takes place in all those nations in which the tendency towards exportation of their produce in its rudest form is a growing one. In all such, credit declines. commerce decays, the societary circulation becomes more sluggish, and man becomes more and more the slave of nature and of his fellow-man.

Of all the machinery in use among men, there is none whose yield is so great in proportion to its cost as that employed in effecting exchanges from hand to hand, none whose movements are so strong an evidence of increase or decrease of the productive power of the community,-none, therefore, that affords the statesman so excellent a barometer by which to judge of the working of his measures. It is, nevertheless, the one whose movements are generally regarded by modern economists as being least worthy of their consideration. All their teachings on this subject are in direct opposition to the