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.

COMMERCIAL CRISIS.

THE THEORY OF A

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.

And even in reference to what is now offered for sale, it should be observed that the price does not vary in the same ratio with the deficiency or excess of supply. This depends upon the nature of the commodity, or rather upon the nature of the desire to possess it, whether it be a natural and imperative want, or only an artificial one. If the article be a mere luxury, or desired only for purposes of ostentation, a deficiency of one third in the amount offered for sale will not make the price one third larger; rather than purchase it at a cost so much enhanced, many persons will do without it altogether. If the annual supply of diamonds from the mines were reduced one half, it is not probable that the price of them would be doubled, or even that it would be materially increased; as they are of little use except for purposes of display, persons would gratify their ostentatious feelings by purchasing some other commodity at a price nearly equivalent to what they formerly paid for diamonds. Large pearls, or other gems of high cost, would answer just as well. On the other hand, if the article is a necessary of life, so that people will submit to any sacrifice rather than resign it, and especially if it be of such a nature that an apprehended scarcity of it operates strongly on the fears of the multitude, a deficiency of one third may double, triple, or quadruple the price. "The price of corn in England," says Mr. Tooke, "has risen from one hundred to two hundred per cent, when the utmost computed deficiency of the crops has not been more than between one sixth and one third below an average, and when that deficiency has been relieved by foreign supplies."

case

To what point, then, will the enhancement of price in either whether of luxuries or necessaries be carried? "To that point," says Mr. Mill, "whatever it be, which equalizes the demand and supply;-to the price which cuts off the extra third from the demand, or brings forward additional sellers sufficient to supply it." It appears, also, contrary to what might have been anticipated, that articles of high cost, and therefore in comparatively limited demand, are most steady in price; while those of prime necessity and in general use, such as breadstuffs and other provisions, are liable to sudden and violent fluctuations.

The influence of mercantile speculations on price has been