there are already some things of which that money will no longer purchase as much as before. If, therefore, he knows what is going on, he will raise his price, and then the buyer will not have the gain, which is supposed to stimulate his industry. But if, on the contrary, the seller does not know the state of the case, and only discovers it when he finds, in laying his money out, that it does not go so far, he then obtains less than the ordinary remunera tion for his labour and capital; and if the other dealer's industry is encouraged, it should seem that his must, from the opposite cause, be impaired. § 5. There is no way in which a general and permanent rise of prices, or in other words, depreciation of money, can benefit anybody, except at the expense of somebody else. The substitution of paper for metallic currency is a national gain any further increase of paper beyond this is but a form of robbery But besides the benefit reaped by the issuers, or by others through them at the expense of the public generally, there is another unjust gain obtained by a larger class, namely by those who are under fixed pecuniary obligations. All such persons are freed, by a depreciation of the currency, from a portior of the burthen of their debts or other engagements: in other words, part of the property of their creditors is gratuitously transferred to them. On a superficial view it may be imagined that this is an advantage to industry; since the productive classes are great borrowers, and generally owe larger debts to the unproductive (if we include among the latter all persons not actually in business) than the unproductive classes owe to them; especially if the national debt be included. It is only thus that a general rise of prices can be a source of benefit to producers and dealers; by diminishing the pressure of their fixed burthens. And this might be accounted an advantage, if integrity An issue of notes is a manifest gain and good faith were of no importance to the issuers, who, until the notes are to the world, and to industry and comreturned for payment, obtain the use of merce in particular. Not many, howthem as if they were a real capital: | ever, have been found to say that the and so long as the notes are no perma- currency ought to be depreciated on the nent addition to the currency, but simple ground of its being desirable to merely supersede gold or silver to the rob the national creditor and private cresame amount, the gain of the issuer is ditors of a part of what is in their bond. a loss to no one: it is obtained by The schemes which have tended that saving to the community the expense way have almost always had some ap of the more costly material. But if pearance of special and circumstantial there is no gold or silver to be super- justification, such as the necessity of seded-if the notes are added to the compensating for a prior injustice comcurrency, instead of being substituted mitted in the contrary direction. for the metallic part of it-all holders of currency lose, by the depreciation of its value, the exact equivalent of what the issuer gains. A tax is virtually levied on them for his benefit. It will be objected by some, that gains are also made by the producers and dealers who, by means of the increased issue, are accommodated with loans. Theirs, however, is not an additional gain, but a portion of that which is reaped by the issuer at the expense of all possessors of money. The profits arising from the contribution levied upon the public, he does not keep to himself, but divides with his customers. § 6. Thus in England, for many years subsequent to 1819, it was pertinaciously contended, that a large portion of the national debt, and a multitude of private debts still in existence, were contracted between 1797 and 1819, when the Bank of England was ex empted from giving cash for its notes and that it is grossly unjust to bor rowers, (that is, in the case of the na tional debt, to all tax-payers) that they should be paying interest on the same nominal sums in a currency of ful value, which were borrowed in a depre ¡ciated one. The depreciation, accord ing to the views and objects of the particular writer, was represented to have averaged thirty, fifty, or even more than fifty per cent and the conclusion was, that either we ought to return to this depreciated currency, or to strike off from the national debt, and from mortgages or other private debts of old standing, a percentage corresponding to the estimated amount of the depreciation. To this doctrine, the following was the answer usually made. Granting that, by returning to cash payments without lowering the standard, an injustice was done to debtors, in holding them liable for the same amount of a currency enhanced in value, which they had borrowed while it was depreciated; it is now too late to make reparation for this injury. The debtors and creditors of to-day are not the debtors and creditors of 1819: the lapse of years has entirely altered the pecuniary relations of the community; and it being impossible now to ascertain the particular persons who were either benefited or injured, to attempt to retrace our steps would be not redressing a wrong, but superadding a second act of wide-spread injustice to the one al ready committed. This argument is certainly conclusive on the practical question; but it places the honest conclusion on too narrow and too low a ground. It concedes that the measure of 1819, called Peel's Bill, by which cash payments were resumed at the original standard of 3l. 178. 104d., was really the injustice it was said to be. This is an admission wholly opposed to the truth. Parliament had no alternative; it was absolutely bound to adhere to the acknowledged standard; as may be shown on three distinct grounds, two of fact, and one of principle. The reasons of fact are these. In the first place, it is not true that the debts, private or public, incurred during the Bank restriction, were contracted in a currency of lower value than that in which the interest is now paid. It is indeed true that the suspension of the obligation to pay in specie, did put it in the power of the Bank to depreciate the currency. It is true also that the Bank really exercised that power, though to a far less extent than is often pretended; since the difference between the market price of gold and the Mint valuation, during the greater part of the interval, was very trifling, and when it was greatest, during the last five years of the war, did not much exceed thirty per cent. To the extent of that difference, the currency was depre ciated, that is, its value was below that of the standard to which it professed to adhere. But the state of Europe at that time was such-there was so unusual an absorption of the precious metals, by hoarding, and in the military chests of the vast armies which then desolated the Continent, that the value of the standard itself was very considerably raised: and the best authorities, among whom it is sufficient to name Mr. Tooke, have, after an elaborate investigation, satisfied themselves that the difference between paper and bullion was not greater than the enhancement in value of gold itself, and that the paper, though depreciated relatively to the then value of gold, did not sink below the ordinary value, at other times, either of gold or of a convertible paper. If this be true (and the evidences of the fact are conclusively stated in Mr. Tooke's History of Prices) the foundation of the whole case against the fundholder and other creditors on the ground of depreciation is subverted. But, secondly, even if the currency had really been lowered in value at each period of the Bank restriction, in the same degree in which it was depreciated in relation to its standard, we must remember that a part only of the national debt, or of other permanent engagements, was incurred during the Bank restriction. A large part had been contracted before 1797; a still larger during the early years of the restriction, when the difference between paper and gold was yet small To the holders of the former part, an injury was done, by paying the interest for twenty-two years in a depreciated currency: those of the second, suffered an injury during the years in which the interest was paid in a currency more depreciated than that in which the loans were contracted. To have resumed cash payments at a lower standard would have been to perpetuate the injury to these two classes of creditors, in order to avoid giving an undue benefit to a third class, who had lent their money during the few years of greatest depreciation. As it is, there was an underpayment to one set of persons, and an overpayment to another. The late Mr. Mushet took the trouble to make an arithmetical comparison between the two amounts. He ascertained by calculation, that if an account had been made out in 1819, of what the fundholders had gained and lost by the variation of the paper currency from its standard, they would have been found as a body to have been losers; so that if any compensation was due on the ground of depreciation, it would not be from the fundholders collectively, but to them. striction, there was a parliamentary Thus it is with the facts of the case. But these reasons of fact are not the strongest. There is a reason of principle, still more powerful. Suppose that, not a part of the debt merely, but the whole, had been contracted in a depreciated currency, depreciated not only in comparison with its standard, but with its own value before and after; and that we were now paying the interest of this debt in a currency of fifty or even a hundred per cent more valuable than that in which it was contracted. What difference would this make in the obligation of paying it, if the condition that it should be so paid was part of the original compact? Now this is not only truth, but less than the truth. The compact stipulated better terms for the fundholder than he has received. During the whole continuance of the Bank re-end. So CHAPTER XIV. OF EXCESS OF SUPPLY. § 1. AFTER the elementary exposition of the theory of money contained in the last few chapters, we shall re turn to a question in the general theory of Value, which could not be satisfactorily discussed until the nature and operations of Money were in some measure understood, because the errors against which we have to contend mainly originate in a misunderstanding of those operations. tended in the First Book; but it was not possible, in that stage of our inquiry, to enter into a complete examination of an error (as I conceive) essentially grounded on a misunderstanding of the phenomena of Value and Price. We have seen that the value of everything gravitates towards a cer- The doctrine appears to me to intain medium point (which has been volve so much inconsistency in its very called the Natural Value), namely, conception, that I feel considerable that at which it exchanges for every difficulty in giving any statement of it other thing in the ratio of their cost which shall be at once clear, and satisof production. We have seen, too, factory to its supporters. They agree that the actual or market value coin- in maintaining that there may be, and cides, or nearly so, with the natural sometimes is, an excess of productions value, only on an average of years; in general beyond the demand for and is continually either rising above, them; that when this happens, puror falling below it, from alterations in chasers cannot be found at prices which the demand, or casual fluctuations in will repay the cost of production with the supply: but that these variations a profit; that there ensues a general correct themselves, through the ten- depression of prices or values (they are dency of the supply to accommodate seldom accurate in discriminating beitself to the demand which exists for tween the two), so that producers, the the commodity at its natural value. A more they produce, find themselves general convergence thus results from the poorer, instead of richer and Dr. the balance of opposite divergences. Chalmers accordingly inculcates on Dearth, or scarcity, on the one hand, capitalists the practice of a oral reand over-supply, or, in mercantile lan-straint in reference to the pursuit of guage, glut, on the other, are incident to all commodities. In the first case, the commodity affords to the producers or sellers, while the deficiency lasts, an unusually high rate of profit: in the second, the supply being in excess of that for which a demand exists, at such a value as will afford the ordinary profit, the sellers must be content with less, and must, in extreme cases, submit to & loss. Because this phenomenon of oversupply, and consequent inconvenience or loss to the producer or dealer, may exist in the case of any one commodity whatever, many persons, including some distinguished political economists, have thought that it may exist with regard to all commodities; that there may be A general over-production of wealth; a supply of commodities in the aggregate, surpassing the demand; and a consequent depressed condition of all classes of producers. Against this doctrine, of which Mr. Malthus and Dr. Chalmers in this country, and M. de Sismondi on the Continent, were the chief apostles, I have already con P.B. gain; while Sismondi deprecates machinery, and the various inventions which increase productive power. They both maintain that accumulation of capital may proceed too fast, not merely for the moral, but for the material interests of those who produce and accumulate; and they enjoin the rich to guard against this evil by an ample unproductive consumption. § 2. When these writers speak of the supply of commodities as outrunning the demand, it is not clear which of the two elements of demand they have in view-the desire to possess, or the means of purchase: whether their meaning is that there are, in such cases, more consumable products in existence than the public desires to consume, or merely more than it is able to pay for. In this uncertainty, it is necessary to examine both suppositions. First, let us suppose that the quantity of commodities produced is not greater than the community would be glad to consume: is it, in that case, * Supra, pp. 41-43, and that there is wealth in the country with which to purchase all the wealth in the country; but those who have the means, may not have the wants, and those who have the wants may be without the means. A portion, therefore, of the commodities produced may be unable to find a market, from the absence of means in those who have the desire to consume, and the want of desire in those who have the means. possible that there should be a defi- | ability to purchase, but the desire to ciency of demand for all commodities, possess, that falls short, and that the for want of the means of payment? general produce of industry may be Those who think so, cannot have con- greater than the community desires to sidered what it is which constitutes consume-the part, at least, of the the means of payment for commodities. community which has an equivalent It is, simply, commodities. Each per- to give. It is evident enough, that son's means of paying for the produc-produce makes a market for produce, tions of other people consists of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing ower. Everybody would bring a double demand as well as supply: everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange. It is probable, indeed, that there would now be a superfluity of certain things. Although the community would willingly double its aggregate consumption, it may already have as much as it desires of some commodities, and it may prefer to do more than double its consumption of others, or to exercise its increased purchasing power on some new thing. If so, the supply will adapt itself accordingly, and the values of things will continue to conform to their cost of production. At any rate, it is a sheer absurdity that all things should fall in value, and that all producers should, in consequence, be insufficiently remunerated. If values remain the same, what becomes of prices is immaterial, since the remuneration of producers does not depend on how much money, but on how much of consumable articles, they obtain for their goods. Besides, money is a commodity; and if all commodities are supposed to be doubled in quantity, we must suppose money to be doubled too, and then prices would no more fall than values would. § 3. A general over-supply, or excess of all commodities above the demand, so far as demand consists in means of payment, is thus shown to be an impossibility. But it may, perhaps, be supposed that it is not the This is much the most plausible form of the doctrine, and does not, like that which we first examined, involve s contradiction. There may easily be a greater quantity of any particular commodity than is desired by those who have the ability to purchase, and it is abstractedly conceivable that this might be the case with all commodities. The error is in not perceiving that though all who have an equivalent to give, might be fully provided with every consumable article which they desire, the fact that they go on adding to the production proves that this is not actually the case. Assume the most favourable hypothesis for the purpose, that of a limited community, every member of which possesses as much of necessaries and of all known luxuries as he desires: and since it is not conceivable that persons whose wants were completely satisfied would labour and economize to obtain what they did not desire, suppose that a foreigner arrives, and produces an additional quantity of something of which there was already enough. Here, it will be said, is over-production: true, I reply; over-production of that par ticular article: the community wanted no more of that, but it wanted some thing. The old inhabitants, indeed, wanted nothing; but did not the foreigner himself want something? When he produced the superfluous article, was he labouring without a |