tion of the two metals fixed in 1718, heavy silver coins were withdrawn from circulation, and gold only being used in all the larger payments, it became, in effect, what silver had formerly been, the standard of the currency. The act of 56th George III., regulating the present silver coinage, was framed, not to interfere with this arrangement, but so as to render silver entirely subsidiary to gold. For this purpose, it is made legal tender only to the extent of 40s.; and 66s., instead of 62s., are coined out of a pound Troy, the 4s. being retained as a seigniorage, which, therefore, amounts to 6 per cent. The power to issue silver is vested exclusively in the hands of government; who have it, therefore, in their power to avoid throwing too much of it into circulation, and, consequently, to prevent its fusion, until the market price of silver shall have risen to above 5s. 6d. an ounce."

"Under these regulations," adds McCulloch, in another place, "silver has ceased to be a standard of value, and forms merely a subordinate or subsidiary species of currency, or change, occupying the same place in relation to gold that copper occupies in relation to itself. This system has been found to answer exceedingly well." Our copper coins, like those of England, are rated about 75 per cent above their real value; but as the government alone determines how many of them shall be issued, and as they are legal tender to the extent only of the smallest silver coin, this over-valuation is not productive of any bad effect. As no more of them are issued than are needed, they do not tend to fall below their nominal valuation, they cannot be exported or melted up without great loss, and the coinage of them affords a considerable profit to the government. About $1,300,000 worth of them have been issued in this country, nearly three fourths of which sum is clear profit. It has been objected to the law of 1853, that, by making gold the sole measure of value, it will enable "the debtor to pay in gold perhaps worth only as one to ten [in silver], when he contracted to pay worth as one to sixteen." But the misstatement here is obvious. The debtor has not contracted to pay gold which shall be worth sixteen times as much as silver; no such obligation is expressed, none is implied, in his contract. He has simply bound himself to pay as many times 23.22 grains of pure gold as he owes dollars, be the worth of

that gold more or less. The law under which he made his contract, and which still exists, declares that the coin containing 23.22 grains of pure gold shall be legal tender for a dollar. Accordingly, to increase the quantity of gold in a dollar, — to declare, for instance, that it should in future contain 30 grains, -unless the declaration were accompanied with a proviso that all debts previously contracted might be discharged by payment of the old coin or its equivalent, would be to violate that clause in the Constitution which forbids the passage of any law impairing the obligation of contracts. A debtor no more insures the future value of the dollars which he promises to pay, than the grain-dealer insures the future price of a cargo of flour, which he sells before it has yet come into port. The contingency of a rise or fall in the value of the article is what the buyer knowingly takes upon himself.

There are some particular reasons why a decline in the value of money, such as is now taking place, should not be regarded with apprehension in this country, but rather as a great addition to the future sources of our national well-being. As has been mentioned, those countries which have a large national debt are most likely to be benefited by the change. The burden of taxation will be essentially diminished, while the loss sustained by the fund-holders will fall on shoulders that are most capable of bearing it, and will also be distributed among many, and over a long period of years, the frequent changes in the ownership of the stocks, moreover, tending to render their real depreciation almost imperceptible. For this reason, the present revolution in the monetary world seems to be contemplated without terror in Great Britain; at any rate, no one hints at the expediency of giving up the present exclusive gold standard, which exposes the currency to the full shock of the alteration. There are few advocates there of the plan of making silver the standard, and gradually increasing the quantity of pure metal in the gold coins. Our national debt, it is true, is but small, and what little there is will quickly be extinguished. But the debts of the individual States are large, amounting in the aggregate to over two hundred millions of dollars, a large portion of which is owned in Europe. There are also stocks to a very large amount, issued by cities, railroads, and other corporations, in which English

capitalists have made large investments; while there are no foreign stocks owned in this country. The rate of interest being higher here than in the Old World, European capital has been attracted here in so large quantities, that our annual remittances for interest already constitute no small portion of our exports. We do not call these remittances "a drain upon the resources of the country," as they are often denominated by the unthinking; for the transactions on which they are founded have swelled those resources far beyond the limit which would otherwise have bounded them. Still, it is satisfactory to remember, that, as the monetary revolution will operate exclusively to the benefit of the indebted party, our own land will derive as much benefit from it, in proportion to our means, as any other country on earth.

CHAPTER XXIII.

EFFECT OF SPECULATION UPON PRICES.

THE THEORY OF A

COMMERCIAL CRISIS.

HAVING considered at length the nature and uses of money, we are now prepared to explain the adjustment of prices in the market, and especially the causes of fluctuations of price. The price of a thing may be defined to be its present market value, or temporary exchangeable power reckoned in money. Its permanent or natural exchangeable value, as I have already shown, depends on the cost of its production, and is the pivot about which the price, or immediate market value, is perpetually oscillating, never departing from it far, or for any considerable length of time, in either direction. If the price falls below the cost, a smaller quantity of the article will be produced, and therefore the price will soon begin to rise; if it considerably exceeds the cost, production will be stimulated, more of the article will be offered in the market, and then the price will fall.

The general principle is, that the price so adjusts itself that

the demand shall be just equal to the supply. If the supply be too great for the present demand, if the market be overstocked with the article, a fall of price must ensue, and this diminished price will bring the commodity within the means of a larger class of consumers; that is, the demand for it will be increased enough to take off the quantity which was a drug in the market at the higher price. For instance, when flour is ten dollars a barrel, it is beyond the means of a large class in the community, who will then be obliged to live on corn-meal and potatoes. We will suppose that 600,000 barrels of flour can be disposed of at this price, because this quantity will satisfy the wants of all who are able to pay ten dollars a barrel. But if the price should fall to five dollars, the poorer class can purchase flour, and a million of barrels may consequently be disposed of. On the other hand, if the supply should not be equal to the demand, if only 500,000 barrels should be brought to market, the competition of the buyers with each other will cause the price to rise (say) from ten to twelve dollars; and this enhancement of price will lessen the number of those who are able to purchase, so that now only half a million of barrels are required. Thus the fluctuations of price are the means through which the demand is always made just equal to the supply.

But there is one remarkable exception to the principle, that cheapening the price will increase the demand, or augment the number of consumers. It is not true that purchasers will always buy what they can buy cheapest. If the pursuit of wealth, or, what is the same thing, the desire to make savings, were always the ruling motive, the principle would hold good. But it is not so; in many instances, the ruling motive is, notoriously, not the love of gain, but the love of display. Through the rivalry of individuals in the display of wealth, some articles are prized only on account of their high cost. Cheapen them, and the demand will not be enlarged, but diminished, for the consumption of them will then be abandoned by this class of persons, who will immediately seek out other and more costly articles with which to gratify their love of ostentation. Render them very cheap, and they will go out of use altogether. If pearls were as common as oysters, pearl bracelets and brooches would never be manufactured. If equally

serviceable articles of intrinsically higher cost cannot be found, the aid of that capricious goddess, Fashion, will be called in to create a factitious enhancement of the price of certain commodities. The demand for these commodities is then increased by the addition to their price; when cheap, they were neglected; when they have become scarce and high in price, they are eagerly sought after, and persons even of moderate means will submit to considerable sacrifices in order to obtain them. And the cases are neither few nor unimportant, in which the rule is thus inverted. Most of the finer manufactures of cotton, wool, and silk, together with fine cutlery, expensive pieces of furniture, and nearly all the fancy articles which become articles of desire because they are fashionable, belong to this class. Lower their price, and the demand for them is diminished.

What Political Economists term the demand, consists of two elements, the ability to purchase, and the desire for the thing itself, or the disposition to purchase. These two must coexist in order to constitute an effectual demand, and thus affect the price. In the case of the poorer classes, including persons of moderate means, it is the want of the former element, the ability, which limits the demand. In this case, then, lower the price, and the consumption is increased. But for people of wealth, it is the lack of the second element, the desire or disposition, which restricts the demand; to diminish the price will not increase their consumption of the commodity, but in most cases will lessen it, as the possession of the article will no longer be a token of wealth.

The price is usually said to vary in inverse ratio with the supply, or to diminish as the supply increases, and vice versa. But not all the commodity which is in being, not all even of that portion of it which is intended sooner or later to be sold, constitutes what is properly termed the supply. This term is restricted to that portion of the article which is already in the market, or is now offered for sale. The quantity which is held in store by speculators, awaiting an expected rise of price, has no more effect on the present market, than the quantity which is already purchased and held in store only for consumption; as when the government has purchased sufficient stores for the army six months in advance.