Atlantic Monthly, Vol. 1, No. 4, February, 1858 by Various
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Various >> Atlantic Monthly, Vol. 1, No. 4, February, 1858
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19 THE ATLANTIC MONTHLY,
A MAGAZINE OF LITERATURE, ART, AND POLITICS.
* * * * *
VOL. I.--FEBRUARY, 1858.--NO. IV.
* * * * *
THE GREAT FAILURE.
The _crucial_ fact, in this epoch of commercial catastrophes, is not the
stoppage of Smith, Jones, and Robinson,--nor the suspension of specie
payments by a greater or less number of banks,--but the paralysis of the
trade of the civilized globe. We have had presented to us, within the
last quarter, the remarkable, though by no means novel, spectacle of
a sudden overthrow of business,--in the United States, in England, in
France, and over the greater part of the Continent.
At a period of profound and almost universal peace,--when there had been
no marked deficit in the productiveness of industry, when there had
been no extraordinary dissipation of its results by waste and
extravagance,--when no pestilence or famine or dark rumor of civil
revolution had benumbed its energies,--when the needs for its enterprise
were seemingly as active and stimulating as ever,--all its habitual
functions are arrested, and shocks of disaster run along the ground
from Chicago to Constantinople, toppling down innumerable well-built
structures, like the shock of some gigantic earthquake.
Everybody is of course struck by these phenomena, and everybody has
his own way of accounting for them; it will not, therefore, appear
presumptuous in us to offer a word on the common theme. Let it be
premised, however, that we do not undertake a scientific solution of
the problem, but only a suggestion or two as to what the problem itself
really is. In a difficult or complicated case, a great deal is often
accomplished when the terms of it are clearly stated.
It is not enough, in considering the effects before us, to say that
they are the results of a panic. No doubt there has been a panic, a
contagious consternation, spreading itself over the commercial world,
and strewing the earth with innumerable wrecks of fortune; but that
accounts for nothing, and simply describes a symptom. What is the cause
of the panic itself? These daring Yankees, who are in the habit of
braving the wildest tempests on every sea, these sturdy English, who
march into the mouths of devouring cannon without a throb, these gallant
Frenchmen, who laugh as they scale the Malakoff in the midst of belching
fires, are not the men to run like sheep before an imaginary terror.
When a whole nation of such drop their arms and scatter panic-stricken,
there must be something behind the panic; there must be something
formidable in it, some real and present danger threatening a very
positive evil, and not a mere sympathetic and groundless alarm.
Neither do we conceive it as sufficiently expressing or explaining the
whole facts of the case, to say that the currency has been deranged.
There has been unquestionably a great derangement of the currency; but
this may have been an effect rather than a cause of the more general
disturbance; or, again, it may have been only one cause out of many
causes. In an article in the first number of this magazine, the
financial fluctuations in this country are ascribed to the alternate
inflation and collapse of our factitious paper-money. Adopting the
prevalent theory, that the universal use of specie in the regulation
of the international trade of the world determines for each nation the
amount of its metallic treasure, it was there argued that any redundant
local circulation of paper must raise the level of local prices above
the legitimate specie over exports; which imports can be paid for only
in specie,--the very basis of the inordinate local circulation. Of
course, then, there is a rapid contraction in the issue of notes, and an
inevitable and wide-spread rupture of the usual relations of trade. But
although this view is true in principle, and particularly true in its
application to the United States, where trade floats almost exclusively
upon a paper ocean, it is yet an elementary and local view;--local, as
not comprising the state of facts in England and France; and elementary,
inasmuch as it omits all reference to the possibility of a great
fluctuation of prices being produced by other means than an excess or
deficiency of money.[A] In France, as we know, the currency is almost
entirely metallic, while in England it is metallic so far as the lesser
exchanges of commerce are concerned; there is an obvious impropriety,
therefore, in extending to the financial difficulties of those nations a
theory founded upon a peculiarity in the position of our own.
[Footnote A: A failure of one half the cotton or wheat crop, we suspect,
would play a considerable part among "the prices," whatever the state of
the note circulation.]
If, however, it be alleged that the disturbances there are only a
reaction from the disturbances here, we must say that that point is
not clear, and Brother Jonathan may be exaggerating his commercial
importance. The ties of all the maritime nations are growing more and
more intimate every year, and the trouble of one is getting to be more
and more the trouble of the others in consequence; but as yet any
unsettled balance of American trade, compared with the whole trade of
those nations, is but as the drop in the bucket. John Bull, with a
productive industry of five thousand millions of dollars a year, and
Johnny Crapaud, with an industry only less, are not both to be
thrown flat on their backs by the failure of a few millions of money
remittances from Jonathan. The houses immediately engaged in the
American trade will suffer, and others again immediately dependent upon
them; but the disturbing shock, as it spreads through the widening
circle of the national trade, will very soon be dissipated and lost in
its immensity. That is, it will be lost, if trade there is itself sound,
and not tottering under the same or similar conditions of weakness
which produced the original default in this country; in which event,
we submit, our troubles are to be considered as the mere accidental
occasion of the more general downfall,--while the real cause is to be
sought in the internal state of the foreign nations. Accordingly, let
any one read the late exposures of the methods in which business is
transacted among the Glasgow banks, the London discount-houses, and the
speculators of the French Bourse, and he will see at a glance that we
Americans have no right to assume and ought not to be charged with the
entire responsibility of this stupendous syncope. Our bankruptcy has
aggravated, as our restoration will relieve the general effects; but the
vicious currency on this side the water, whatever domestic sins it
may have to answer for, cannot properly be made the scapegoat for the
offences of the other side of the water. The disasters abroad have
occurred under conditions of currency differing in many respects from
our own, and we believe that if there had been no troubles in America,
there would still have been considerable troubles in England and France,
as, indeed, the financial writers of both these countries long ago
predicted from the local signs.
The same train of remark may be applied to those who impute the existing
embarrassments to our want of a protective tariff; for, granting that to
be an adequate explanation of our own difficulties, it is not therefore
an adequate explanation of those in Europe. The external characteristics
of the phenomena before us are everywhere pretty much the same,
namely,--a prosperous trade gradually slackening, an increasing demand
for money, depreciation and sacrifice of securities, numerous failures,
disappearance of gold, panic, and the complete stagnation of every
branch of labor; and it should seem that the cause or causes to be
assigned for them ought also to be everywhere pretty much the same. At
any rate, no local cause is in itself to be regarded as sufficient,
unless it can be shown that such local cause has a universal operation.
But who will undertake to contend that the absence of a protective
system here is enough to prostrate both Great Britain and France,--the
nations which the same theory supposes to have been chiefly benefited
by such deficiency? The scheme of free trade is often denounced by its
opponents as British free trade; but we respectfully suggest that if its
operations lead to so serious a destruction of British interests as
is now alleged, the phrase is at least a misnomer. No! as the
characteristics of the crisis are common to the United States, England,
and France, so the causes of that crisis are to be sought in something
which is also common to the United States, England, and France.
Now the one thing common to all these nations, and to all commercial
nations, is the universal use of Credit, in the transactions of
business. We conceive, therefore, that the existing condition of things
may be most correctly and comprehensively described as a suspension of
credit, and the consequent pressure for payment of immense masses of
outstanding debt. This, we say, is the central fact, common to all the
nations; and the solution of it, as a problem, is to be sought in some
vice or disturbing element common to the general system, and not in any
local incident or cause.
Credit has gained so enormous an extension within the last two
centuries, that it may almost be pronounced the distinctive feature
of modern times. It existed, undoubtedly, in ancient days,--for its
correlative, Debt, existed; and we know, that, among the Jews, Moses
enacted a sponging law, which was to be carried into effect every fifty
years; that Solon, among the Greeks, began his administration with the
_Seisachtheia_, or relief-laws, designed to rescue the poor borrowers
from their overbearing creditors; and that the usurers were a
numerous class at Rome, where also the Patrician houses were immense
debtor-prisons. But in ancient times, when the chief source of wealth
(aside from conquest and confiscation by the State) was the labor of
slaves, and the principal exchanges were effected either by direct
barter or the coined metals, the system of credit could not have been
very complicated or general. As for the lending of money on interest, it
appears to have been looked at askance by most of the ancients; and the
prejudice against it continued, under the fostering care of the Church,
far down into the Middle Ages. With the emancipation of the towns,
however, with the splendid development of the Italian republics, with
the noble commercial triumphs of the cities of the Hansa, credit was
recovered from the hands of the Jews, and began a career of rapid and
beneficent expansion. It was in an especial manner promoted by the
magnificent prospects unfolded to colonial and mining enterprise in the
discovery of the New World, by the stimulus and the facilities afforded
to industrial skill by the researches of natural science, and by the
emancipation won for all the activities of the human mind through the
free principles of the Reformation. Thus, by degrees, credit came to
intervene in nearly every operation of commerce and of social exchange,
from the small daily dealings of the mechanic at the shop, to the larger
wholesale transactions of merchant with merchant, and to the prodigious
expenditures and debts of imperial governments. Credit by note of hand,
credit by book account, credit by mortgages and hypothecations, credit
by bills of exchange, credit by certificates of stock, credit by
bank-notes and post-notes, credit by exchequer and treasury drafts,
credit, in short, in a thousand ways, enters into trade, filling up all
its channels, turning all its wheels, freighting all its ships, coming
down from the past, pervading the present, hovering over the future,
reaching every nook and affecting every man and woman in the civilized
world.
Such is the extent of credit; but let it be remarked in connection,
that, in all these innumerable and multifarious forms of it, in all the
stupendous interchanges of Mine and Thine, the ultimate reference is to
one sole standard of value, which is the value of the precious metals.
The civilized world has adopted these as the universal solvent of
its vast masses of obligation. It is assumed that some standard is
indispensable; it is asserted to be the imperative duty of governments,
if they would not make their exactions of taxes arbitrary, unequal, and
oppressive,--if they would render the dealings of individuals mutual and
just,--if they would preserve the property and labor of their subjects
from the merciless caprices of the powerful, and keep society from
reverting to a more or less barbarous state,--to supply a fixed and
equable money-measure; and the majority of the governments have selected
gold and silver as the best. As seemingly less changeable in quantity
and value than anything else, as imperishable, as portable, as
divisible, as both convenient and safe, the precious metals challenge
superiority over every other product; and accordingly every contract
and every debt is resolvable into gold and silver. From this fact, the
reader will see at once the prodigious significance of those materials
in the economy of trade, and the prime necessity that they should be
not only uniform in value, but so equally distributed that they may be
easily attainable when needed. Every change in their value is a virtual
change in the value of the vast variety of obligations which are
measured and liquidated by them; and every apprehension of their
scarcity or disappearance, by whatever cause excited, is an apprehension
of embarrassment on the part of all those who have debts to pay or to
receive.
But it happens that this standard is not an accurate standard. It does
not _stand_, while other things alone move, but moves itself; its value
is changeable,--fluctuating from time to time according to the relation
of supply and demand, and from place to place according to the
perturbations of the trade of the world. Moreover, its very preeminence
of function--the universality and the durability of its worth--renders it
peculiarly sensitive to accidental influences, or to influences outside
of the usual workings of trade. A great war or revolution occurring
anywhere, the loss by tempests or frosts of an important staple, such
as wheat or cotton, the fall and reaction consequent upon some great
speculative excitement, are all likely to produce enormous drains or
sequestrations of this valuable material. When the revolt of 1848 broke
out in Italy, every particle of specie disappeared as effectually as if
it had been thrown into the Adriatic or the mouth of Vesuvius; when
the corn crop failed in England in 1846, the Bank of England lost ten
millions of dollars in gold in less than nine days, and the country five
times that in about a month; and in our own late experiences, with three
hundred millions of gold among the people, we have seen it so put away,
that no charm or bait could allure it from its hiding-places.
Need we go any farther, then, than these simple truths, to lay our
finger on the primal fact which underlies all financial embarrassments
and panics? The mass of the transactions in commerce rests upon credit;
the solvent of that credit is gold; and gold has not only a sliding
scale of value, but is apt to disappear when most wanted. While business
is moving on in the ordinary way, it is more than ample for every
purpose; but the moment any event arises, such as a rapidly falling
market, inducing hurried sales, or a drain of specie, disturbing the
general confidence, everybody gets apprehensive, everybody calls upon
everybody for payment, and everybody puts everybody off,--till a feeling
of _sauve qui peut_ becomes universal.
If there were no currency anywhere but a metallic currency, this
liability to sudden revulsions would still hang over trade, provided
credit and paper tokens of credit continued to be the media of
exchanges; and the instinctive or experimental perception of this truth,
combined with other motives, is what has led men to their various
attempts to provide a money substitute for gold and silver. Lycurgus, in
Sparta, found it, as he supposed, in stamped leather; but modern wisdom
has preferred paper. The degree of success attained by Lycurgus we do
not know; but of the success of the moderns we do know, by some one
hundred and fifty years of recurring disaster. There are some steeds
that cannot be ridden; they are so fractious and intractable, that, put
whom you will upon their back, he is thrown, and invent what snaffle or
breaking-bit you may, they will not be held to an equable or moderate
pace. And of this sort, judging by the past attempts, is Paper Money.
All the ingenuity and efforts of the most skillful trainers of the Old
World, and of the most cunning jockeys of the New, have been tasked in
vain to devise an effective discipline and curb for this impatient colt.
Paper Money either refuses to be ridden, and runs rampant away, or, if
any one succeed in mounting him for a time, he performs a journey like
that which Don Quixote took on the back of the famous Cavalino, or
Winged Horse. In imagination he ascended to the enchanted regions,--but
in reality he was only dragged through alternate gusts of fire and of
cold winds, to find the horse himself, in the end, a mere depository of
squibs and crackers.
Paper money has been issued, for the most part, on the one or the other
of two conditions, namely: as irredeemable, when it has been made to
rest on the vague obligation of some government to pay it some time or
other in property; or as convertible into gold and silver on demand. But
under both conditions it seems to have been impossible to preserve it
from excess and consequent depreciation. Nothing would appear to be
safer and sounder, on the face of it, than a money-obligation backed by
all the responsibility and property of a government; and yet we do not
recall a single instance in which an irredeemable government-money has
been issued, where it did not sooner or later swamp the government
beyond all hope of its redemption. No virtue of statesmanship is proof
against the temptation of creating money at will. Even where there has
been a nominal convertibility on demand of the bills of government
banks, they have worked badly in practice. In 1637, for instance, the
monarch of Sweden established the Bank of Stockholm; yet in a little
while its issues amounted to forty-eight millions of roubles, and their
depreciation to ninety-six per cent. In 1736, Denmark created the Bank
of Copenhagen; but within nine years from its foundation it suspended
redemptions altogether, and its notes were depreciated forty-six
per cent. We need not refer to the extraordinary issues of French
_assignats_, or of American continental money,--nor to the deluges
of paper which have fallen upon Russia and Austria. During all these
experiments, the sufferings of the people, according to the different
historians, were absolutely appalling. One of these experiments of
paper money, however, begun under the most promising auspices, and on a
professed basis of convertibility, was yet so stupendous and awful in
its effects, that it has taken its place as a Pharos in History, and is
never to be forgotten. We refer, of course, to the banking prodigalities
of the Regency of France, undertaken in connection with the scheme known
as Law's Mississippi Bubble,--although the Bank and the Bubble were not
essentially connected. We presume that our readers are acquainted with
the incidents, because all the modern historians have described them,
and because the more philosophical impute to them an active agency in
the origination of that moral corruption and lack of political principle
which hastened the advent of the great Revolution. Louis XIV. having
left behind him, as the price of his glory, a debt of about a thousand
millions of dollars, the French ministry, with a view to reduce it,
ordered a re-coinage of the louis-d'or. An edict was promulgated,
calling in the coin at sixteen livres, to be issued again at twenty; but
Law, an acute and enterprising Scotchman, suggested that the end might
be more happily accomplished by a project for a bank, which he carried
in his pocket. He proposed to buy up the old coin at a higher rate than
the mint allowed, and to pay for it in bank-notes. This project was so
successful that the Regent took it into his own hands, and then began
an issue of bills which literally intoxicated the whole of France.
No scenes of stock-jobbing, of gambling, of frenzied speculation, of
reckless excitement and licentiousness ever surpassed the scenes daily
enacted in the Rue Quincampoix; and when the bubble burst, the distress
was universal, heartrending, and frightful. With millions in their
pockets, says a contemporary memoir, many did not know where to get
a dinner; complaints and imprecations resounded on every side; some,
utterly ruined, killed themselves in despair; and mysterious rumors of
popular risings spread throughout Paris the terror of another expected
St. Bartholomew.
In this case the phenomena were the more striking because they were
gathered within a short compass of time, and took place among a people
proverbial for the versatility and extravagance of their impressions.
The French are an excitable race, who carry whatever they do or suffer
to the last extreme of theatrical effect; and for that reason it might
be supposed that the tremendous revulsions we have alluded to were owing
in part to national temperament. But similar effects have been wrought,
by similar causes, among the slower and cooler English, with whom
commercial disturbances have been as numerous and as disastrous as among
the French, only that they have been distributed over wider spaces of
time, and controlled by the more sluggish and conservative habits of the
nation. Some twenty years before Law made his approaches to the French
Regent, another Scotchman, William Patterson, had got the ear of
Macaulay's hero, William, and of his ministers, and laid the foundations
of the great Bank of England. It was chartered in 1694, on advances made
to the government; and gradually, under its auspices, the vast system of
English banking, which gives tone to that of the world, grew up. Let us
see with what results; they may be expressed in a few words: every ten
or fifteen years, a terrific commercial overturn, with intermediate
epochs of speculation, panic, and bankruptcy.
We cannot here go into a history of this bank, nor of the various causes
of its reverses; but we select from a brief chronological table, in its
own words, some of the principal events, which are also the events of
British trade and finance.
1694. The Bank went into operation.
1696. Bank suspended specie payments. Panic and failures.
1707. Threatened invasion of the Pretender. Run upon the Bank,--panic.
Government helped it through, by guarantying its bills at six per cent.
1714. The Pretender proclaimed in Scotland. Run upon the Bank,--panic.
1718-20. Time of the South-Sea Bubble. Reaction,--demand for
money,--Bank of England nearly swept away,--trade suspended,--nation
involved in suffering.
1744. Charles Edward sails for Scotland, and marches upon Derby. Panic.
Run upon the Bank,--is obliged to pay in sixpences, and to block its
doors, in order to gain time.
1772. Extensive failures and a monetary panic. The Bank maintains the
convertibility of its notes for several years, at an annual expense of
L850,000.
1793. War with France,--drain of gold,--Bank
contracts,--panic,--failures throughout the country,--universal
hoarding,--one hundred country banks stop,--notes as low as five pounds
first issued,--general fall of prices.
1796. An Order in Council suspends specie payment by the Bank.
1799. Numerous failures,--chiefly on the Continent. The pressure in
England relieved by an issue of Exchequer bills.
1807-9. Great speculations in flax, hemp, silk, wool, etc.
1810. Recoil of speculation,--extensive failures, and great demand for
money.
1811. Parliament adopts a resolution declaring a one-pound note and a
shilling legal tender for a guinea.
1814-16. Heavy losses and bankruptcies,--failure of two hundred and
forty country banks,--the distress and suffering of the people compared
to that in France after the bursting of the Mississippi Scheme.
1819. Law passed for the resumption of specie payments in 1823,--after a
suspension of twenty-seven years.
1822. Great commercial depression throughout Europe,--agricultural
distress,--famine in Ireland.
1824. Speculations in scrips and shares of foreign loans and new
companies, to a fabulous amount.
1825. Recoil of the speculations,--run upon the banks,--seventy banks
stop,--a drain of gold exhausts the bullion of the Bank.
1826. Depression of trade,--government advances Exchequer bills to the
Bank.
1832. A run for gold,--bullion in the Bank again alarmingly reduced.
1834-7. Jackson vs. Biddle in America produces considerable derangements
in England,--drain of gold,--great alternate contractions and
expansions,--severe mercantile distress.
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