conclusion, that it is not proper to blame a jury for expressing in their verdict the opinion which they have actually formed, whatever its merits may appear to the mind of another individual to be.

ARTICLE XVI.

COMMERCIAL DISTRESS.

(From a Correspondent.)

IT is a fundamental doctrine of ours, that the faculties common to man with the lower animals are inferior to those proper to man; and that the Creator has so arranged the world, that misery is the natural result of the predominance of the former, and happiness of the latter. We shall endeavour to apply these principles in accounting for the commercial distress which has of late so painfully engaged public

attention.

In a period of profound peace, and immediately after one of the finest summers and most abundant harvests ever showered by a bountiful Providence on Britain, this country has been a theatre of almost universal misery. In October and November, 1825, stocks began to fall with alarming rapidity; in November, numerous bankers in London failed; in December the evil spread to the country bankers; in January and February, 1826, the distress overtook the merchants and manufacturers, thousands of them were ruined, and their workmen thrown idle; agricultural produce began to fall, and suffering and gloom have extended over the whole empire. These events have carried awful misery into the bosoms of numberless families. The Phrenologist, who knows the nature of the propensities and sentiments, and their objects, is well able to conceive the deep, though often silent agonies that must have been felt when Acquisitiveness was suddenly deprived of its long-collected stores ;-when Self-esteem and Love

of Approbation were in an instant robbed of all the pride, pomp, and circumstance of worldly grandeur, that, during years of fancied prosperity, hadformed their chief sources of delight; and when Cautiousness felt the dreadful access of despair at the ruin of every darling project. The laceration of those feelings hurried some unfortunate victims to suicide, and spread mental and bodily distress widely over the land. So dire a calamity indicates to our minds, in the most unequivocal manner, some grand departure from the just principles of political economy, or, in other words, from the dictates of the higher sentiments, which we hold to be the real basis of all sound political philosophy.

This distress appears to us to have originated in our paper currency, which, so far as we at present perceive, is founded in injustice, and, consequently, is unsound, and dangerous in its consequences.

Suppose A to possess L.20,000 in money invested in land, houses, government stock, or some other fixed and productive form, yielding a return of 4 per cent., or L.800 per annum; that he pledges this investment to the public, and is permitted on the security of it to issue bank-notes to the value of L.20,000; in this case real property could be made forthcoming in case of necessity to retire the notes, and, according to the general opinion, no harm would arise to the public from the transaction. Let us, however, trace out its effects.

Suppose A to confine himself to the proper business of banking, and that he puts L.20,000 in notes into circulation, he would draw first L.800 a-year of interest from his capital, and then L.1000 a-year of interest at 5 per cent. from his notes, in all L.1800 per annum, It is obvious that he could afford to discount bills with his bank-notes, or lend them at interest at a lower rate than if he carried on the same operations with real money, which could not both be laid out at 4 per cent. in land or stock, and remain at its owner's disposal, yielding five per cent. more at one and the same time. The moment, therefore, A with his notes comes into competition

as a banker or money-lender with other individuals who employ real capital in these operations, he is able to beat them out of the market by lowering the rate of interest. If he draws 3 per cent. for his notes and 4 per cent. of regular return from the invested capital, he will receive 7 per cent. in all, when other capitalists, who do not first invest their money productively, and then issue notes, are drawing only 3 per

cent.

This is unjust; and yet this was the real state of matters during the prodigious fall of interest in 1824 and 1825. The bankers issued their paper in floods, and to keep it in circulation and increase its quantity, they lowered and lowered the rate of interest:-Nevertheless bank-stock rose, trade increased, and every one seemed to flourish except the holders of money capital, who were impoverished by the impossibility of finding investments, or obtaining a moderate interest for their stock. The bankers were well able to do this; for those who had capital profitably invested to the extent of their notes, drew the above-mentioned double return, and actually realized 7 or 8 per cent., when other capitalists were receiving only 3 or 4. Those bankers, again, of whom there seems to have been many in England, who had no invested capital or real stock of any kind, could discount bills with notes, or lend at a very low rate of interest; for, as their notes cost nothing beyond paper, engraving, printing, and stamp, and as they had nothing behind them to lose, whatever interest they received, if it exceeded these expenses, was all gain.

From these principles it follows, that every man who first invests his capital productively, and then issues bank-notes at interest on the credit of it, places himself in a situation of great advantage over those individuals who act as bankers, or lenders at interest, with money capital itself; and that the latter can never compete on equal terms with the former, except by investing their capital also in a productive form, and issuing bank-notes on the credit of it to the same extent as their rivals. If, to protect himself, every one were to issue notes to VOL. III.-No X.

Y

the extent of his invested capital, paper would become so redundant as to have scarcely any value, and would speedily be put down as a public nuisance; and yet, unless every man who possesses real property does this, he is injured by the issue of notes.

The effects of the paper system may be further illustrated. Let us suppose the trade of a country to be carried on by means of gold and silver as the medium of exchange, then the following results will take place. The precious metals are real commodities, which cannot be increased instantaneously to an unlimited extent. They are procured by labour, and require time for their increase. A small trade requires a small supply, while a great trade demands a proportionate quantity of them. If trade increases faster than the supply of gold and silver, they will become relatively scarce, and their value will rise; or, in other words, the price of goods will fall. This fall will check production until the supply of gold and silver has increased in proportion to the trade, when prices will again rise, and production proceed.

According to this principle, while gold and silver are the circulating medium, full scope is given for a gradual production of wealth, because those metals can be increased by time and labour in proportion to the increase of population, and the natural augmentation of commodities. At the same time a positive check to over-production in every branch of industry is supplied, because the metals cannot be instantaneously and indefinitely increased: whenever goods are produced with undue rapidity, money will become relatively scarce and prices fall.

On the bank-note system the order of nature is exactly reversed. If immense manufacturing, buying, and selling take place, even without corresponding consumption, bills are multiplied, and when bills are multiplied, discounts increase, and where these abound, the paper circulating medium increases; when the circulating medium increases prices rise; and hence we have the absurd anomaly of rising markets in

the face of a most enormous over-production. We have also the oddity of interest falling as trade increases, and the difficulty of finding employment for capital reaching its acmé when transactions to a most unwonted extent are going forward, requiring a vast amount of circulating medium. The result of this system renders the error of principle involved in it still more conspicuous. The bankers, tempted by the flood of wealth that flowed in upon them in the form of interest for their notes, preserved no bounds to their issues; they discounted bills at 6, 9, and 12, months date, lent on mortgages, and in England bought mills and lands, and even commenced manufacturers themselves. When their notes were returned, these securities were not convertible, the bankers failed, a panic arose, and paper was poured back upon them in a stream of frightful magnitude and extent. Those bankers, who had nothing to give in return for their notes, except the bills of merchants for which they had at first issued them, called on the merchants to pay; the latter, however, had nothing except the goods which the bills represented. The goods, unfortunately, had not been produced to meet the real wants of society, but had been fostered into existence by the temptation of profit, which dazzled first the manufacturer, and then the banker who discounted his bills; and at last, when the paper currency ceased to flow, and the goods required to be bought by real capital, they fell 50 per cent.; the merchants were unable to pay, and bankruptcy stalked far and wide over the land.

If, as in Scotland, the bankers had land, houses, stock, or other property behind their notes, they were able to make up the deficiency arising from the failure of the merchants; but they became alarmed at the extent of their losses, drew in their notes, lessened the circulating medium, and depressed the prices of goods to the lowest ebb. Real capital then came into request, interest rose, and L.100 in real cash bought more goods than L.150 would have done while the country was deluged with paper.