Our Mechanical Industry as Affected by our Present Currency System
Chapter I.
Losses in our Mechanical Industry resulting from our Reliance upon Gold and Silver as the Basis of our Currency and Credit.
Our national industry now averages about four thousand millions of dollars per annum. In the most prosperous years, it probably amounts to five thousand millions. In the least prosperous years, it probably falls down to two or three thousand millions.
Thus it is proved that our industry is capable of producing five thousand millions in a year. And if it produce that amount in one year, it ought to be made to produce it in every year. But there is a falling off, in some years, of two or three thousand millions. The average falling off is doubtless one thousand millions per annum, or one fifth of what our industry proves itself capable of.
Here, then, is a loss, in some years, of about one half, and an average loss of one fifth, of what our industry is capable of.
Great as it is, this loss of one fifth of our industry could be born with comparative ease, if it came uniformly in each year, and fell equally upon all in proportion to their property. But it comes at intervals, and falls unequally. And it falls most heavily upon those least able to bear it. In the first place, it falls, in a greatly disproportionate degree, upon those who labor for daily or monthly wages; depriving them of a large part of their usual means of subsistence, compelling them to consume their accumulations, and often reducing them to absolute suffering. In the second place, it is attended with a fall in prices, which sweeps away, at half its usual market value, the property of thousands, in payment of debts, that had been contracted under high prices; thus bringing upon such persons either utter bankruptcy, or grievous impoverishment. In this way a large portion of the people are kept in perpetual poverty; whereas if their industry were but uninterrupted, and the prices of property stable, nearly everybody would acquire competence. Thus the inequality, with which the loss falls upon the people, makes the loss a far greater evil than it otherwise would be.
So large a portion of our industry depends upon credit, that it is probable that the entire difference between our industry in the most prosperous, and in the least prosperous, years—a difference of two or three thousand millions of dollars—is attributable solely to the great extension of credit in the former years, and the suspension, or restriction, of credit in the least prosperous years.
The suspension of credit operates principally to suspend mechanical industry. And the great losses, before mentioned, in our aggregate industry, are really little or nothing else than losses from the suspension of our mechanical industry.
That the suspension of mechanical industry is, in this country, attributable directly and wholly to a suspension of credit, is just as apparent as it is that the water wheel stops because the water is shut off from it.
Under our existing system of currency, these suspensions of credit are inevitable. They arise from various causes, which are inherent in the system, and can be avoided only by a change of system.
One of these causes is the occasional exportation of specie. Our credit being based upon our paper currency, and our paper currency being based upon specie, (that is, being legally redeemable in specie on demand), it follows that whenever any considerable exportation of specie occurs, the paper currency, having in part lost its basis, or means of redemption, must necessarily contract in a corresponding degree.
And here comes in a point to be noticed, viz: that even a small contraction in the currency is sufficient to produce a general suspension of credit; and not merely a suspension corresponding in amount to the contraction in the currency. The reason of this is that, as a general rule, any contraction of the currency operates equally upon all debtors in proportion to the amounts of their indebtedness respectively. That is to say, if the amount of currency in circulation be diminished to the extent of ten per cent. of the whole amount, each and every debtor, as a general rule, will find his facilities for meeting his engagements diminished by ten per cent. of what they were before. If the amount of currency in circulation be diminished to the extent of twenty per cent. on the whole amount, each and every debtor, as a general rule, will find his facilities for meeting his engagements diminished by twenty per cent. of what they had been. If, now, a man has been using his credit to its full limit, the diminution of his facilities, to the amount of ten or twenty per cent., is as fatal to his credit as the entire annihilation of those facilities would be. Because all his engagements stand on the same footing, and a failure to meet one is a failure to meet all. He cannot pay ninety per cent. of his debts, and refuse payment of the other ten per cent., and yet retain his credit, and continue his business. When, therefore, the currency contracts by the amount of ten per cent., this contraction, operating, as a general rule, upon all debtors alike, compels every debtor in the whole community to fail, except those whose margins of resources are ten per cent. above all their liabilities. When the currency contracts by the amount of twenty per cent., overy debtor in the whole community must fail, except those whose margins of resources are twenty per cent. above all their liabilities. When the contraction of the currency is still greater than ten or twenty per cent., a corresponding margin of resources, above liabilities, is required to save a man’s credit.
It is because few of the men, doing business on credit, have a margin of resources, above their liabilities, corresponding with the contractions which take place in the currency, that these contractions prove fatal to so large numbers of them; and correspondingly fatal to the industry of the country.
The author’s system of currency would save all disasters from this cause. Requiring very little specie itself, the exportation of specie would have no influence upon the amount of currency in circulation, or upon the stability of credit.
Under our present system, these exportations of specie, by suspending credit, and thus suspending our mechanical industry, occasion the loss, sometimes, of two or three thousand millions of dollars in our industry, in a single year. They undoubtedly occasion the loss of one thousand millions of dollars per annum, on an average. This is about ten times the amount of the whole stock of specie, that we usually have in the country. So that, by relying upon specie, as a basis of credit and currency, we lose, in our industry, annually, on an average, ten times more than our whole stock of specie is worth.1 And this loss falls, almost wholly, upon our mechanical industry. Is there any wonder that we cannot do our own manufacturing? Or that our manufacturers cannot compete with those of England in the markets of the world? Give us uninterrupted credit, and an abundant currency—a system of credit and currency that cannot be affected by the exportation of specie, and under which manufacturing industry need never be suspended, and our manufacturing capacities would stand on a wholly different basis from what they do now.
A second cause for the suspensions of credit is, that under our present system of currency, the avarice of the money lenders finally destroys the very business that employs their money.2 Thus after a general suspension of credit, and of mechanical industry, there being no use for money, the rate of interest falls to a low figure, say three, four, or five per cent, and no calls at that. When this state of things has continued until the money lenders are out of patience at the non-productiveness of their capital, their selfishness manifests itself in apparent liberality; and they are ready to lend money at