p>The Atlantic Monthly, Volume 01, No. 04, February, 1858 / A Magazine of Literature, Art, and Politics
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.1 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.
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,
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.
