FARMERS' REGISTER— ESSAY ON USURY LAWS. 



Ill 



Blink by unprofitable mamifacturing' establishments. 

 Let us now examine tor a moment into the 

 efiect which a rise or tiill in prices may produce on 

 the circulating medium ol' a country, and how this 

 reacts again on prices. First then, I will premise 

 what I consider an axiom on this subject: that the 

 efficiency of a circulatlag wedium depends on the 

 cvmpimnd ratio «f its rjuaniity and velocity of cir- 

 culation. If -S 100 change hands but once during 

 a month, it has effected no more in the way of 

 exchanges than iftlO which have passed through 

 ten hands and ellected ten changes. In consider- 

 ing the nature ol" a circulating medium, our states- 

 men are led into great errors by confining their at- 

 tention too exclusiveh" to bank paper and the me- 

 tallic circulation. Every thing in fact which per- 

 forms the functions of currency in society ought to 

 be regarded as a component of the circulating me- 

 dium. Money performs the functions of circula- 

 tion most perfectly, because it represents value, 

 but bears no interest during its detention in our 

 hands: Bonds, promissory notes, bills of ex- 

 change and stocks of all descriptions, are far in- 

 ferior to money in performing the functions of cir- 

 culmion. For, first, they bear interest, and the 

 holder is in no hurr^' to part Avith them — and wlien 

 they are transferred to another, interest is to be 

 calculated on them; then they are to be discounted, 

 and the amount of discount depending on so Ta:\ny 

 fluctuating causes, the value of such paper be- 

 comes very fluctuating and uncei'tain. Hence it 

 has a very sluggish circulation; but so far as it 

 does circulate, it most undoubtedly supplies the 

 place of money. If I buy a tract of land for 

 ^10,000 and pay in bonds, the bonds have un- 

 doubtedly pro hue vice at least answered in the 

 stead of money. "Liverpool and Manchester" 

 says Thorntonj! "effect the whole of their larger 

 mercantile payments, not b)^ country bank notes, 

 of which none are issued by the banks of those 

 places, but by bills of one or two months date, 

 drawn on London." In the great manuiacmring 

 county of Lancasliire "says Mr. McCulloch," and 

 in part of Yorkshire; a bill on London at three 

 months is reckoned a money payment; * and by 

 far tJie largest projiortion of the currency consists 

 either of bills of bankers drawn on their corres- 

 pondents, or of those of the merchants and dealers 

 scattered up and down the countiy. The same 

 practice is Ibllowed, though to a less extent, in 

 other districts; so that the aggregate amount of 

 such bills afloat is enormous." Mr. Wade has 

 estimated the bills of exchange alone in Great 

 Britain as equal to ten times the amount of the 

 money in the countrj'. In our country the pro- 

 portion is not so great; but bills constitute here a 

 very large portion of our currency. "The amount 



* A bill of this character, when passed from one to 

 another is endorsed, and each endorser is held responsi- 

 ble for the solidity of the bill, the number of endorse- 

 ments therefore shows pretty accurately the circulation 

 through which the bill has passed. We would be aston- 

 ished at the circulation of small bills of exchange in 

 Lancashire. When Mr. Lloyd, the principal partner 

 in the opulent house of Jones, Lloyd St Co. was asked 

 by a committee of the House of Commons whether 

 he had not seen bills of exchange of £10 value with 

 fifty or sixty names upon them? Answered, "Yes ! ivHh 

 hvice that number. I have seen slips of paper attached 

 to a bill as long as a sheet of paper could go, and when 

 that was filled^ another attached to that!" 



of domestic bills of exchange" says Mr. Binney 

 purchased in all parts of the union in 1832 (by the 

 United States Bank alone) was i67,.516,673, "the 

 half year ft-om December 1832, to June 1833, was 

 .S'41,312,.982, showing a large increase in that 

 time." The amount of domestic bills in 1832 col- 

 lecteil by the United States Bank ibr others, was 

 .<;42,096,062. And thus we find that the bills pur- 

 chased and collected by the l^iited States bank 

 alone in 1832, amounts to more tlran S 100,000,000; 

 equal to all the paper money and specie in cir- 

 culation. 



Having now explained my opinion as to the 

 components of a circidating medium, 1 will pro- 

 ceed to show how it is influenced by a rise in 

 prices, and a spirit of speculation. As prices ad- 

 vance, we have already seen that credit will be 

 enlarged. The tarmer in buying land, gives his 

 bond instead of money. The retail merchant not 

 only buys goods to the amount of his capital, but 

 buys to as great an extent as he can get credit. 

 At the same time "tlie exporting merchant, 

 says Tooke, gives his acceptance to the manu- 

 facturer for the utmost amount which the latter 

 will grant him credit for; the manufacturer at 

 the same time having cleared his hands of fin- 

 ished work, buys an additional quantity of the 

 raw material, not only sufficient to replace, but 

 probably to extend his stock, and possibly his 

 buildings, machinery, &c. For these purposes he 

 gives his acceptance as far as his own credit is 

 available, and may further discoimt the accept- 

 ances- which he has received, thus converting the 

 credit of his customer conjointly with his own, into 

 the means of obtaining the temporary command 

 of capital beyond what his own property or credit 

 Avould afford him;" and thus it is, that bonds, prom- 

 issory notes, bills of exchange, &c., are greatly 

 multiplied by the enhancement of prices and a 

 spirit of speculation in the community. Again — 

 the bank issues on such occasions are very apt to 

 be excessive. The spirit of speculation, and the 

 rise of prices, produce a disposition to borrow from 

 the banks, and the banks arc disposed to accommo- 

 date on such occasions, for the very same reasons 

 that individuals are. This produces a redundant 

 currency, which at first increases the spirit of spec- 

 ulation, and enhances prices until there is a return 

 of the notes on the banks for specie to send abroad; 

 at this point the banks must cease to issue more 

 under the penalty of being drained of their specie.* 



* It will be perceived that I have made the over- 

 issue of the banks to bo rather the etlect than the cause 

 of a rise in prices and a spirit of speculation. I be- 

 lieve, in the great majority of cases, this will be found 

 to be the fact. The banking system however, although 

 first stimulated by the rise in prices to over-issue, im- 

 mediately becomes in turn a powerfully operating 

 cause, carrying up prices still higher, and increasing 

 the speculative mania, by the facilities it otters in the 

 money market. I have no doubt but that a bank like 

 that of the United States, or the Bank of EnHand, 

 might of itself, generate this tendency, without the in- 

 tervention of causes which have been mentioned above, 

 and this is one serious objection to such banks. For 

 some able views on this subject, I must refer to the 

 work of Mr Gouge, which would have supphed a de- 

 sideratum in this country, if he had only given a fair 

 and full statement of all the causes which generated 

 the several money crises which have occurred in this 

 country, all of which he has however, with too much 

 cj- parte ingenuity referred to the operations of the 



