BANKS DRIVE SPECIE OUT

53

H. Carroll devoted to the problem the major part of a number of
acute articles in Hunt's Merchants’ Magazine. Smith’s reasoning,
he asserted, overlooks the fact that our mixed currency of metal
and paper is not such a combination as occurs in an alloy of two
metals. The elements are readily separated. Thus when the
currency is temporarily debased twenty per cent by bank-note
inflation, the foreign merchant “sells us the value to himself of
$5, and takes $6 away for it, first separating the paper from the
gold, and taking only the gold.” If the coin were debased twenty
per cent with pewter, or some worthless compound, he would take
away the whole mixture and the exchange would be one of equivalent
 values. As it is, the foreign tradesman will take none of the
mixture, but, separating the dross from the substance, he leaves
the dross with us, and takes the solid gold at the value we place
upon the mixture. The issue of bank notes “degrades the value
of money, locally, causing a loss in the capital of the community
invested in money, precisely like the loss to a merchant by the
fall of price of the goods in his warehouses.” > We must pay a
larger amount of gold for our imports, exactly in proportion to
the inflation of the currency, and thus the paper currency costs
us the loss of its whole sum in standard gold.
One more attempt to confute the theory that bank notes tend
to expel specie must be considered — the familiar one of Henry
C. Carey. Carey contented himself with no half-way job; denial
of the Ricardian theory of gold movements itself was his purpose.
In its accomplishment he was aided by his habit of formulating
generalizations, easily dubbed “laws,” as superficial as they were
novel, and not infrequently equally fantastic.
“Every commodity, as yielded by nature to man, tends toward
those places at which it has the highest utility, and there it is that
the labor value of the finished article will be found the smallest.
Wheat tends toward the gristmill, and there it is that flour is
cheapest.” Thus do the precious metals tend toward those places
' Carroll, “Gold from California and Paper Money,” Hunt's Merchants’ Magazine
 (1856), xxxvii, 168. Cp. “The Banking and Currency Systems,” Ibid. (October,
1858), xlix, 448, 449.
? “Financial Heresies,” Ibid. (September, 1860), xliii, 318; cp. “Specie Prices
and Results,” Ibid. (October, 1857), xxxvii, 430-433.