Another American writer upon the subject of money is Mr. William G. Sumner, Professor of Political Economy in Yale College, who has recently published a work entitled "History of American Currency." The only part of it calling for notice is that which discusses the report of the Bullion Committee, which, Mr. Sumner claims, solved the whole subject of money: "The question involved" (referring to the report), "was, therefore, this Is an adverse balance of trade the explanation of an outflow of gold? or: Is a favorable balance of trade the force to which we must look to bring an influx of gold? There is no question in finance which now demands our study so imperatively as this one. The false notions of the balance of trade infest almost every discussion of our present circumstances which one reads or hears. It is assumed that the movement of the precious metals from country to country is caused by the balance of trade one way or the other; and, as the movement of the metals is a phenomenon of the first importance in any question of resumption, the reasoning which starts with this doctrine is all fallacious. The balance of trade was exploded by Quesnay and his followers a century ago, and was gibbeted in the Bullion Report, but it stalks the money market and the national treasury to-day, an uneasy ghost, which it seems impossible to lay. "It is a vexatious task, and one which always makes a scientific man feel ridiculous, to set vigorously to work to demolish in what way, would be a proposition upon which the youths might exercise their wits to some profit. It is not true that money tends to flow from the Southern and Western to the Eastern States, and from them to England, in greater quantity than in opposite directions. If money (commodities) united to flow to those places at which it is the most utilized, it is from the cities and the richer part of the country to the poorer, from the Northern and Eastern to the Southern and Western States. Ten per cent is not an extravagant rate to be paid on loans of money either in Kansas or Texas, from the profitable manner in which it can be used in them. It consequently flows toward them from its greater utility there than elsewhere. There are ten dollars to-day in Kansas where there was one ten years ago; and this money came almost wholly from the Eastern States, in which the ratio of its increase within the period named has not been one-twentieth of that in Kansas. That money did tend to flow from the Southern and Western States toward the Northern and Eastern, and from these toward England, would, if true, be a very comforting proposition for the latter countries. Even the professor who propounded it seems to entertain doubts whether it ever reaches them. He alleges a tendency, without daring to affirm a result. This tendency, it is to be feared, is, after all, only a piece of sickly sentimentalism, not having force enough to surmount the Alleghanies in one case, or pass the Grand Banks in the other. Here is another puzzle put by the professor of Political Economy in that institution to the Harvard wits: “Mention the three classes into which commodities are divided in relation to their value. In which class do you place gold and silver?" an old error which no well-informed man any longer holds; but in our present situation, and under our political system, popular errors are of the utmost importance, and no pains should be spared in patiently exposing them. The fallacy here is in the word 'balance.' If it means equilibrium, it may be used correctly to denote the equality of exports and imports; but then it regulates itself, and no power can control it. If it means remainder, and suggests analogies of book-keeping, it is a mere myth to which no fact corresponds, and is to be entirely rejected. . . "The report of this committee is perhaps the most important doctrine in financial literature. Its doctrines have been tested both ways, by disbelief and by belief, by experiment of their opposites and by experiment of themselves. They are no longer disputable. They are not matter of opinion or theory, but of demonstration. They are ratified or established as the basis of finance. They may be denied, as the roundness of the earth was denied five years ago, and as Newton's theory of the solar system was denied until within twenty-five years; but they have passed the stage where the scientific financier is bound to discuss them. "The doctrines of this report may be summed up thus: "1. The value of an inconvertible currency depends on its amount relatively to the needs of the country for circulating medium (only to a very subordinate degree on the security on which it is based or the credit of the issuer). "2. If gold is at a premium in paper, the paper is redundant and depreciated. The premium measures the depreciation.1 "On a system of even nominal convertibility, the motives of speculation and of price fluctuations lie outside of the currency in industrial and commercial circumstances. Speculation, in the widest and best sense, controls the amount of the currency. On an inconvertible system, the amount of the currency controls speculation. If it is not redundant, its effect is slight; if it is very excessive, it floats' every thing, and becomes the controlling consideration. No one believes that an inconvertible currency suspends the operation of any of the economic laws which govern prices; but, if it is redundant, it decides whether the fluctuations in price of a unit of a given commodity shall be above and below $1, or above and below $2. Every contraction or expansion alters this general level.2 "Of the three questions involved in the report, as stated above: -Is the paper depreciated? why are the exchanges adverse? how ought the Bank to regulate its issues?- the first and third have no great importance for us. No one denies that our paper is depreciated, unless it be those who think that we have grown up' to the currency, though that notion seems to have gone out of fashion again. The question of regulating an inconvertible Bank paper is not our question, because our paper is fixed in amount. But the second question of the Bullion Committee has great im 1 History of American Currency, pp. 245-249. 2 Ibid., pp. 253, 254. portance. It is the one in regard to which doctrines opposed to those of the Bullion Report are most frequently affirmed and most profoundly believed amongst us, and there is no hope of any exit from our circumstances until we get to understand the laws which govern the distribution of the precious metals, and those laws of currency which are connected therewith. It will be remembered, as stated above, that the question about the exchanges is really this question: If the exchanges are adverse to such a degree as to produce a serious and prolonged outflow of the precious metals, where must we look for the cause? Is it due to the balance of payments, or to some deterioration of the currency? Or, to put the same question in another form: If we desire to produce an influx of gold, to what force must we look to cause it? Must we look to the balance of trade,' or can we do any thing in the matter save sit still and wait for the balance of trade to turn? Can we bring it about by correcting some error in the currency? "The answer to these questions given in the report, and by those who supported it, is, that the balance of imports and exports never can move the exchanges, either above or below par, more than just enough to start a movement of bullion. On a specie system, any outflow of bullion would bring down prices, and immediately make a remittance of goods more profitable than one of bullion; and, if the exportation of bullion was artificially continued (as, for instance, to pay the expenses of a foreign war), it would reduce prices until a counter current would set in and restore the former relative distribution all the world over. . . . If, therefore, there is an outflow of gold, serious and long continued, accompanied by an unfavorable exchange, it is a sign that there is an inferior currency behind the gold, which is displacing it. The surplus of imports of goods above the exports of goods is nothing but the return payment for this export of gold, and is not a cause, but a consequence. If, finally, we want to turn this tide and produce an influx, there is only one way to do it; and that is simply to remove the inferior currency. As for waiting for the balance of trade to turn and bring gold into a country which has a depreciated paper currency, one might as well take his stand at the foot of a hill, and wait for it to change into a declivity before climbing it. "The authorities of the Bank strenuously denied that their issues, so long as they were made at five per cent on bills representing real transactions, at three months' date, could become excessive. The Committee and their supporters held that this rule would not be a guarantee against inflation, but that, if the exchanges were adverse, and bullion was being exported, it was a sign that the paper was excessive, and that the Bank should check its issues. The Bank maintained that it had nothing to do with the exchanges, and could not govern its issues by any reference to them. The bullionists maintained that while the paper was inconvertible, the adverse exchange and the premium on gold were the only signs by which the Bank could judge when its issues were excessive. Thus the real issue was, whether, in case of a drain of specie, we must look at the ratio of imports to exports, or at the ratio of paper cur rency to requirement, for the explanation of it and the means of checking it." "There is no such thing or condition," says Mr. Sumner, "as balance of trade. If it means equilibrium, it may be used correctly to denote the equality of exports and imports; but then it regulates itself, and no power can control it. If it means remainder, and suggests analogies of book-keeping, it is a mere myth, to which no fact corresponds, and is to be entirely rejected." If a country export gold, it receives, he says in common with the Economists, an equal value of merchandise. If it import it, it exports an equal value of merchandise. Where is the "balance of trade" in transactions that mutually balance the one the other? they triumphantly ask, as if that were an end of the whole question. But is it certain that countries, in parting with their gold, always receive an equivalent, and are no worse off therefor? Suppose an individual possessed of a thousand dollars in coin to expend it in the purchase of the necessaries of life even, his means are reduced in like ratio. If he would reinstate his former condition, he must forego future expenditures to an equal amount. So, if a person run into debt to his shopkeeper to the amount of a thousand dollars, if he would pay it, he must forego a like amount of his future earnings. His indebtedness until paid would very properly be termed a balance of trade against him. So with a nation. If it import more in value of ordinary merchandise than it exports, its specie will have to go to make up the deficit. Now, no nation not producing gold can part with any considerable amount of it without causing embarrassment to its industries and trade; for the reason that that which it possessed and exported was a part of the machinery by which these were carried on. The tendency of the precious metals the world over is to distribute themselves according to the means and needs of those using them. If there be no movement in any direction, it is assumed that they are in proper equilibrium. If this be disturbed in any country, it must be restored. If England, for example, from any cause, lose £10,000,000 in coin, she must bring the amount back again, in order to prosecute her industries on their wonted scale. Now the imports that are made by an export of gold 1 History of American Currency, pp. 262-266. will always embrace a large number of articles which the nation might as well be without as with. The export of a large amount of coin is usually due to a vicious paper currency, and such a currency is always attended with wasteful expenditure. So far, the position of a nation is relatively weakened; for she has parted with that which is essential to her welfare, and must be reclaimed by future accumulations. Mr. Sumner admits that the condition of things described may exist, but says that no "balance of trade" has resulted: only that from an inferior currency an excess of a particular commodity has been exported, to be brought back by the re-exportation of that received for it, or its equivalent; and that, as soon as the inferior currency is removed, the equilibrium will restore itself. Admitting the cause, has not the export of coin resulted in a loss? and, if so, may not the loss as well be described as an "unfavorable balance of trade" as by any other term? Nor is there any want of scientific accuracy in that ordinarily used. The condition is something more than mere myth, Mr. Sumner's flippant assertions to the contrary. A nation that has parted with its coin, which has to be brought back again, would have been much better off had it never parted with it. That which has been received will never suffice to bring it back; and, if it would, the charges of transportation and interest would involve a large loss; so that, after all, "balance of trade" is a veritable fact, and always exists to a greater or less extent in commerce between nations, and must always exist until human affairs reach the accuracy and certainty of natural laws. But what is an "inferior currency"? One kind is the inconvertible notes of government, issued not for the purpose of loaning capital, but to supply the lack of it. The demand for merchandise must increase in ratio to its amount; for it is always superadded to the existing currencies. As such notes are always made legal tender, they not only drive coin out of the country, but keep it out till they are retired. Such a currency admits of no corrective by the laws of trade. Another "inferior" currency is that issued by Banks, without a constituent. This exerts, in the outset and to the amount of its issue, precisely the same effects as the notes of government. Both equally tend to drive coin out of the country, from the |