We see, then, how utterly impossible it is to ascertain the precise effect of the contraction of issues of banks upon prices, because the change is principally produced by the quantity of produce which traders are compelled to sell to meet their engagements, when the negotiability of their debts receives a check, and, of course, similar circumstances not only compel traders to sell, but prevent others from buying. Consequently, the supply is greatly increased, and the demand greatly diminished. If, however, the holders of one commodity are possessed of much independent capital, and are not compelled to realize to meet their engagements, a contraction of issues would not affect them much. On the other hand, if the holders of another commodity were in general men who depended chiefly on credit, and were compelled to sell at a sacrifice to meet their engagements, a sudden refusal to discount for them would cause an extraordinary quantity of their produce to be thrown upon the market, and cause a ruinous depression of price.

It is the sudden failure of confidence and extinction of Credit which produces what is called in commercial language a pressure on the money market," and which causes money to be "tight." When money is said to be scarce, it does not mean that there is a smaller quantity of money actually in existence than before; there may be more, or there may be less in the country; no one can tell what the amount of money in existence is; but a great amount of CREDIT which serves as a substitute, and was an equivalent for money, is either destroyed altogether, or is suddenly struck with paralysis, as it were, and deprived of its negotiable power, and, therefore, practically useless. A vast amount of property is expelled from circulation, and money is suddenly called on to fill the void. When a new field of commercial adventure is found by sagacious discoverers, or a new market is suddenly thrown open by a change in the commercial policy of foreign nations, the first adventurers usually reap enormous profits. As soon as this becomes known, a multitude of other speculators rush into the same field, excited by the profits reaped by the first. Numbers of merchants and traders purchase commodities on credit, that is, they incur obligations which they must discharge at a future day, in the hope that the returns will come in before the day of payment. But the immense quantity of goods poured in usually

gluts the market in a short time, and, from the excess of supply, prices tumble down often to nothing, so that the goods become unsaleable, and either no returns at all come in, or such as are quite inadequate to meet the outlay. When this occurs, it is called overtrading, and when this has been extensively practised, it is necessarily and inevitably followed by a great destruction of Credit, and a great demand for cash. Thus, credit is destroyed faster than operations can be reduced in proportion. Those traders who have not received the returns they counted upon to meet their engagements, must raise money on any terms, and perhaps sell what property they have, at any sacrifice, to save themselves from ruin. The effect of this will be that money, for which there is an intense demand, will rise greatly in value, that is, discount will rise very high. But as a necessary concomitant of such a state of things, a great quantity of goods will be thrown upon the market, and their price will be enor. mously depressed. These circumstances will, therefore, produce a very high rate of discount, and ruinously low prices, which must continue until the excessive supply of goods is exhausted and confidence revived. In such cases as these, traders who, have not sufficient capital of their own to meet their engagements, and hold on their goods until prices rise, will infallibly be ruined. Under such circumstances, the rate of discount bears no relation whatever to the rate of profit. The use of ready money to persons who have overtraded, is of infinitely more consequence than the price they have to pay for it. It may be well worth their while to pay 15, or 20, or even 50 per cent. for the use of money for a temporary emergency, which may save them from ruin, and enable them to maintain their position.

It is, therefore, not the scarcity of money, but the extinction of confidence, which produces a pressure on the money market; and an examination of all the great commercial crises in this country, will show that they have always been preceded and produced by a destruction of this Credit, which has usually been brought about by extravagant overtrading and wild speculation.

The principle that the relation between supply and demand is the sole regulator of value, combined with the action of the credit system, will explain all the phenomena witnessed during a pressure on the money market. The failure of credit in any one branch of business will produce its full effect on the general

market rate of interest, because that is regulated by the intensity of the demand for money from whatever quarter it comes; but it will not necessarily follow that the market prices of all commodities will be depressed. The market price for each commodity will be governed entirely by its own peculiar circumstances. If the holders of one commodity have independent capital, and have prudently abstained from overtrading, the price of such a commodity will not suffer much, because the ratio of supply and demand will not be altered to any great extent, but it cannot help sympathising to a certain extent with other commodities. But if the holders of another species of commodity have overtraded, and depended too much on credit, without sufficient means, they will necessarily be obliged to throw a great quantity of their produce on the market to realize, and this excessive supply will depress the price. And this effect will be increased because such are the very times when persons who have ready money are particularly cautious in buying, partly because they always hope the market will fall still lower, and they hope to buy cheaper when prices have fallen to a minimum, and they will certainly not buy more of any commodity than they can help, which is diminishing in value; and partly because they must keep their ready money to maintain their own position. From these causes, not only is the supply increased, but the demand is diminished, so that the fall is doubly aggravated. Thus, we see at once, that a falling market will always be well supplied, because people who must sell, hasten to do so before the price falls still lower; and buyers hold aloof, waiting as Jong as they can, to see the lowest. On the other hand, when markets are rising, the case is reversed. The sellers hold aloof, hoping the price will be still higher, and buyers crowd in, hastening to purchase before the price rises more. A market that is desponding and inactive will usually continue so until people are persuaded that things are at the lowest, and are at the turn. It is evident that these considerations and observations apply to home produce, or at least to produce which is already in this country, and which can be thrown on the market immediately. In order to attract foreign produce, the market must rise high for a considerable time, with the appearance of continuing so.

Considering that any bill whatever which is drawn against

bona fide produce is in commerce technically a real bill, it will
be seen at once that their supposed security is greatly ex-
aggerated, because any operation, however foolish and absurd, is
a good basis for a real bill. In times of rapid changes in price,
multitudes of bills will be generated by speculative purchasers,
and when the price falls as rapidly as it rose, as it usually does,v
it is simply occupat extremum scabies. Hence, losses, and very
severe ones, too, are sure to happen in such times. But there is
always at least this certainty with real bills.
When persons
have speculated unluckily and lost their fortunes, they are
brought to a standstill. When a man has ruined himself by
speculation, no banker out of Bedlam would advance him more
money to speculate with. IIence, ill-judged speculation must
stop a man's mischievous career in a comparatively short space
of time, that is, whenever he has lost the value of the goods he
has been speculating with. We shall find in the next section,"
unfortunately, that traders have devised a method to extract
funds from bankers to speculate with, by which they can go on
long after they have lost all they ever had, many times over, and
adding loss to loss, until, perhaps, they may bring down their
bankers, whom they duped and defrauded, as well as themselves.
We have shewn, in the next section, that there are symptoms
which will often indicate a commercial crisis.

On Credit created for the purpose of being applied to the
Formation of a New Product.

59. The operations on Credit, which we have hitherto been considering, were all based on an anterior operation, or one in which an exchange of commodities was effected by the creation and sale of the Credit, which Credit was afterwards sold or exchanged for another Credit. Such Credit is, therefore, manifestly limited by operations which have been made, and by commercial exchanges. The number of bills created could by no possibility exceed the number of transfers of commodities, although they might be greatly less, because, as we have seen, a single bill might be used to effect many transfers of property. In all these cases, a Debt has been created, which was expected to be paid out of the proceeds of the sale of existing property.

F

But since Credit is, as we have shown, exchangeable property, and a substitute for money, it is clear that it may be applied as well as money to bring new products into existence. The limits of it in this case will be exactly the same as those in the former case, namely, the power of the proceeds of the work to redeem the Credit.

As an example of such a creation or formation of a product, haru, we may take such a case as the following:-Suppose the corpoWäre Allo

ration of a town wishes to build a market-hall, but has not the

griff ready cash to buy the materials, and pay the builder's and work

men's wages. It may be a matter of certainty, that if the market were once built, the stalls in it would be taken up immediately, and the rents received from them would liquidate the debt incurred in erecting it. But, as the workmen cannot wait until that period, but require immediate cash to purchase necessaries, it is clear that, unless there is some method of providing ready payment, they cannot be employed. In such a case, they might borrow money upon their own bonds, repayable at a future period. Now here we observe that these bonds are the creation of property. They are the right to demand a future payment, and are valuable exchangeable property, which may be bought and sold like any thing else. In this case we observe there is an exchange. But the corporation need not borrow money. They might make their own obligations payable at a future date. And if these were made small enough, and were readily received by the dealers in the town, they might be used in the payment of the workmen's wages, and perform all the functions of a currency, and be equivalent to money. Each of them is a new RIGHT created, and valuable property which is exchangeable, and, therefore WEALTH by the definition. They would be quite as efficacious in producing, or forming, the market-hall as real capital. And the market-hall itself would be capital, because it produces a profit. As the stalls were let, and rent received for them, the bonds might be redeemed, and the debt cleared off. It is said that many market-places have been built by adopting such a plan. This case shews the utter futility of the notion that Credit cannot be applied to the formation of products, and here we see it was not based on any anterior operation.

This is an instance of the creation of a product by credit, and not merely the transfer of an existing product. The result to