The rise of prices that follows an expansion of Bank medium, and the fall that follows a contraction, do not affect all descriptions of labor and commodities, at the same time, in an equal degree. The usual effect of an increase of issues appears to be to raise still higher those articles which are rising from some natural cause; and the effect of a contraction, to sink still lower those which are falling from some natural cause.
As Malthus has observed, the tendency of paper money is in some instances to sink prices to their lowest point and raise them in others to their highest. The natural value no longer regulates exchanges. We had melancholy proof of this effect of contraction in 1820, when, according to Mr. Niles’ calculation, the average price of flour throughout the country was only two dollars and fifty cents a barrel. Of the rise of prices produced by expansions of Bank issues, we had striking examples in 1825 and 1831. Wages appear to be among the last things that are raised by an increase of Bank medium. The working man finds all the articles he uses in his family rising in price, while the money rate of his own wages remains unchanged. In the year 1831, which was a year of great expansion, rents rose enormously in many parts, store goods advanced in price, and.such fresh provisions as are sold in the market were higher than they had been at any time since the resumption of specie payments, but the money rate of wages was hardly affected. of wages are not the first to fall on a contraction of issues, it is because the effects of the contraction fall unequally on different kinds of labor. ” Contractions” never proceed far, without breaking up some productive establishments.
Some men are thus deprived of employment: they enter into competition with the workmen in other establishments, and finally reduce wages in the branches of business not immediately affected by the contraction of Bank issues. Hence the complaint we sometimes hear of” all branches of trade being overdone.”
A great number of enterprises, undertaken with a cheering prospect of success when the Banks “make money plenty,” come to an unfortunate conclusion when the Banks “make money scarce.” As one man is thrown out of employment, his effective demand for the product of his neighbor’s labor is diminished, and he, perhaps, becomes the competitor of his neighbor, instead of his customer. The merchant is compelled to offer his services as a clerk.
The master mechanic becomes a journeyman. If a clerk is thrown out of employment, the shoemaker has one good customer less. If twenty clerks are deprived of employment, the shoemaker may find it necessary to dismiss one of his assistants. If twenty shoemakers are without employment, the baker may find his sales of bread materially diminished: and so of all other trades. If the real wants of the community, and not their ability to pay, be considered, it will not, perhaps, be found that anyone useful trade or profession has to marry members. The number of educated physicians, for example, is not too great for the population.
But, not a few physicians remain without employment, while many persons from an inability to pay for medical advice, suffer all the evils of sickness. It cannot be said that we have too many shoemakers, tailors, or cabinet-makers, while multitudes are but indifferently provided with clothing and furniture. But, in one sense, “all businesses” may be said to be “overdone,” since all businesses are by this system rendered unprofitable to some who arc engaged in them. On the operations of manufacturers, these contractions and expansions are productive of most pernicious consequences. Expansions of Bank medium are always incitements to them to extend their business.
The paper need not be put in circulation by direct loans to the manufacturers. Lending it to such as will buy their commodities has the same effect. Having, by the increase of Bank medium, been enabled to sell his goods at an advanced rate, the manufacturer re-commences operations with a new spirit. So facile is a production with modern machinery, that a small rise of prices causes a great increase in cotton and woolen goals. The production of the articles for which these fabrics are ultimate to be exchanged, cannot, unfortunately, be increased with equal facility,.
Unfortunately, also, the Bank medium is soon contracted. There is then a glut of manufactures, and a scarcity of money On the operations of the agriculturists, these expansions and contractions operate more slowly, but not less perniciously. Of this, we had a striking example in 1825, when the speculations in cotton (speculations which can be distinctly traced to an extension of the paper system in Europe and America,) caused much corn to be uprooted that cotton might be planted in its place. The consequence was, a glut of cotton in the next year, and a scarcity of corn, in some districts of the South.
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