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Outlines of a Plan for the Regulation of the Circulating Medium of the United States.

In a preceding article of this Number, we took a cursory view of the late proceedings of congress, and established, from the general aspect of our situation, the conclusion, that something must be wrong in the arrangement of our national concerns. We also undertook to investigate particularly the question of our finances, under the impression, that a solid system of finance is indispensable to national prosperity.

Finding, however, that financial power depends on an ample revenue, and on public credit, which is itself, in part, a consequence of the former, we thought that the task could not be well accomplished, without going back to the source of revenue, which is taxation. We, of course, briefly discussed the principles, and enumerated the characteristic features, of a good system of taxation, and then proceeded to pass in review, the different modes of taxation, which have been devised, carefully pointing out their defects, particularly as far as they have been adopted, or are intended to be resorted to in the United States.

We showed, that internal taxes on consumable commodities, besides violating in their operation, in a high degree, the fundamental principle of justice, are particularly incompatible with the character of our country, and government; that duties on imports,-less objectionable in many other respects-make the public revenue entirely dependent on foreign commerce, and thereby place a nation, which has no other resource, when assailed, or wronged by a maritime power, in the miserable dilemma, of being obliged to choose between impotent resentment, or ignominious submission. We finally endeavoured to prove, that a direct personal tax, properly organized, and always concomitant with the customs-so as to enable government, by a small increase of the rate of the former, at any time to supply a temporary deficiency in the latter -is the only one, strictly correct in principle, and congenial to our federal republic.

During this discussion we took it for granted, that the country is sufficiently supplied with a medium of circulation, but, remarked in the outset, that it forms an essential branch of the duties of the financial department, "so to regulate the circulating medium of the country, that an adequate supply of it, for the exigencies of the nation, never shall be wanting.

Upon reflection, it has occurred to us that our disquisition must seem imperfect, did we omit to show in what manner this important object may be best accomplished. We have, therefore, resolved upon devoting a separate article to this topic, as one of no less importance to the public than those, which we have already handled, of the same nature.

Before we proceed, we must again request our readers to bear in mind, that a sufficient supply, of a good circulating medium, is indispensable, in order, both to render taxes productive, and public credit, efficient. There cannot, absolutely, exist any financial power without it.

Were a country ever so exuberant in wealth; were it flowing with milk and honey, yet could not taxes be paid in either; nor could its wealth be brought into action against an enemy, except through a circulating medium.

The more extensive a country, the more its wealth must, of necessity, be diffused: of course, the greater the difficulty of bringing it into action; the more decided the impossibility of bringing it promptly into action, unless there be a sufficiency of something, representative of that wealth, and coefficient with it, that can be quickly collected, and employed whenever wanted;-in other words, unless there be a sufficiency of circulating medium. It is, therefore, particularly indispensable in a country such as ours, and in our times, when the success of military movements depends so much on rapidity of execution.

A metallic circulating medium has intrinsic value. A nation not possessing mines of her own, has no legal means of obtaining it, except by exchange of commodities. The amount and description of these, produced at home, as well as the demand for them abroad, depend on circumstances, which, generally, cannot be considered as within the control of government. Of course, the supply of circulating medium, in this case, lies also beyond its control.

Governments have tried often, but always in vain, to bring money into a country, or to prevent its going off, when the situation of things had a contrary tendency. Under such circumstances, and in a season of war,-rapacity and violence, favoured by military success, have proved the only effectual means of replenishing the public chest; or else, forced circulations of fictitious values-precarious expedients, with bankruptcy in their rear,-have been resorted to: or poverty has compelled to submission and peace. A metallic circulating medium, besides many other inconveniencies attending it, is highly objectionable on this ground; and ought, by a nation

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without mines, no more to be relied on exclusively, for purposes of circulation and loans, than customs for revenue. Both disappoint the country, and government, at the time when supplies are most wanted.

A contrivance, vastly superior, for purposes of circulation, to the use of the precious metals, is the use of paper, as a sign of credit, issued, without the interference or participation of government, on the security of individual property. Banks are the institutions, through which the issues of paper, thus qualified, are effected.

As soon as one, or more banks, have been established in a country, where, previously, circulation was performed by means of the precious metals, the notes, which they issue, and the transferable book credits which they grant, become the principal, and may be considered as almost the sole circulating medium. The precious metals, partly retire to the vaults of the banks, and partly leave the country.

This is the necessary result of two circumstances. The superior convenience of paper for the purposes of circulation, and the usefulness of coin, in its character of an exportable commodity.

As this position is of importance, and has been contested, we must dwell on it for a moment.

The first secretary of the American treasury was of opinion, that banks had no tendency to prevent the increase of the precious metals, or to banish them, in some degree, from the country. "A nation," he remarks, "that has no mines of its own, must derive the precious metals from others; generally speaking, in exchange for the products of its labour, and industry. The quantity it will possess, will therefore, in the ordinary course of things, be regulated by the favourable, or unfavourable balance of its trade; that is, by the proportion between its abilities to supply foreigners, and its want of them; between the amount of its exportations, and that of its importations. Hence, the state of its agriculture and manufactures, the quantity and quality of its labour and industry, must, in the main, influence and determine the increase, or decrease of its gold and silver.

"If this be true, the inference seems to be, that well constituted banks favour the increase of the precious metals. It has been shown, that they augment in different ways, the active capital of a country. That it is which generates employment; which animates, and expands, labour and industry. Every addition, which is made to it, by contributing to put in motion a greater quantity of both, tends to create a greater

quantity of the products of both. And by furnishing more materials for exportation, conduces to a favourable balance of trade, and consequently, to the introduction and increase of gold and silver."*

This argument, however, is defective. That banks-and the energies of credit, the rapid circulation, and greater punctuality, which attend them-multiply the products of industry, and of course the means of a nation to purchase the precious metals, cannot be doubted.-Whether it actually will purchase them, is a different question.

The nation certainly must dispose of its surplus produce. If it could not, industry would languish, and produce diminish. The surplus produce-whether natural, or manufactured is therefore exported. But, for what will it be exchanged? If people, though becoming richer, were not inclined to increase their enjoyments; if they would not consume more, though able to buy more; if they were willing to work, for the mere pleasure of working; then an exchange of the exported produce for the precious metals might be a necessary consequence. But our merchants, who are the agents in this. affair, and whose interests regulate the course of the different transactions, know better. They will not import the precious metals if they can avoid it-because their importation occasions expense, and brings no profit. They will, on the contrary, bring back every imaginable commodity, that can stimulate consumption-because by such returns they gain. The nation, therefore, enabled, on the one hand, to increase its enjoyments, by an accession of means; and tempted, on the other, by desirable objects, placed within its reach-inevitably consumes more, in proportion as it has more surplus produce to exchange, and no additional importation of the precious metals, will result from the process.

Specie will only be imported from places, which yield no other returns for produce sold. Produce will be the less frequently sent to those places, the dearer it is at home; because, unless the difference of price is very considerable, the operation can yield no profit, and will therefore be relinquished. But produce will always be dearer at home, if there is an abundance of convertible paper in circulation, than it would be if there were none. Of course, importations of specie will be so far less frequent.

Supposing even that, through the multifarious combinations of business this effect should be partially counteracted, and

*The Works of Alexander Hamilton, vol. I. p. 75.

that considerable importations of specie should take place, still will the specie, thus imported, soon emigrate, if it can be advantageously invested any where abroad. It is not in the nature of things, that a commodity of no use should be retained, if it can be exchanged for one, the possession of which is desirable; and a nation has hardly any, we may say, has no use for the precious metals, when it has learned to perform its circulation, more conveniently, more advantageously, and, above all, more independently, by means of portable credit,of bank notes.

Banks, therefore, in the first place, necessarily lessen the quantity of coin which, cæteris paribus, would be in the country-if they did not exist. In the second place, they put the remaining coin out of circulation.

The introduction of banks, in fact, assigns to coin a new duty. It is relieved from that of circulating property; but the substitute, though in itself perfectly equal to the task,* labours under a want of confidence, particularly with those who are deficient in information, and coin is therefore required for its support. A young practitioner, though superior, perhaps, in talents, to him under whose auspices he begins his career, would often find it difficult to maintain himself in business, but for the knowledge, among his employers, that the tutor is always at hand, to be resorted to on trying occasions. Coin is no longer necessary abroad, but it has a post assigned it, where prudence requires that it should always be found. It is no longer wanted in the field, but placed on garrison-duty, in which new situation its functions are by no means unimportant. The safety of the operations of the many thousands in active service, requires that the fast holds of the country should be well secured against surprise.

Thus we see that the introduction of bank paper, not only causes a smaller amount of the precious metals to be retained in the country, than would be retained but for its existence; but also that the amount remaining is proportionably taken out of circulation, inasmuch as they have stations assigned them, namely the vaults of the bank, whence they cannot be removed without imminent danger. Of course, we are warranted in the assertion, that after the general establishment of banks in a country, coin ceases to be, and bank credits, in the

• The present situation of England, in this respect, strongly corroborates the assertion. Notwithstanding all we have heard, for two years past, on the depreciation of the paper of the bank of England, the latest accounts mention, that exchanges improve, and gold falls. There was indeed by the last accounts, but a trifling difference between the market and mint price of gold!