CIRCULATION OF WEALTH. The word circulation (of wealth) is one of those politico-economical terms which has been most misused. The framers of systems have often employed it to build upon the data which it expresses airy castles in which nothing was wanting to make the world supremely happy but a basis on which the structure might rest. But the circulation of wealth is none the less an important fact well worthy of being observed, and one which has not been studied, perhaps, as much as it deserves. If utopists, while mistaking its law, have too often exaggerated its importance, this is no reason for extimating it below its real significance.

—The circulation of wealth, says J.B. Say, “is the passage of a thing having value from one hand to another.”

—The passage merchandise from one hand to another is the first elementary fact which constitutes, by its repetition, the general phenomenon of the circulation of wealth. But it is necessary
to give circulation a broader sense, and J B Say himself, in the sentence which immediately follows that which we have just quoted, gives it a broader one. He says: “Every article of merchandise is in circulation when it is ready to pass into another hand, that is to say, when it is offered for sale.” It is evidence that here circulation means not merely the passage of merchandise from one hand to another, but the general movement of goods or values. It is even more than this; it is the readiness of merchandise to be moved. Mr. Fr. Skarbek, who has treated this subject at much length and with care in his Theory of Social Wealth, understands by circulation the general movement of wealth passing from one hand to another; but he adds that it is less the movement of things than the movement of values.

—Circulation, he says, is not a movement of the mass but a movement of the value of things; just as production is not a creation of things but a creation of values. Things which have value may undergo a rapid and continuous movement without circulation taking place. A sum of money, for example, sent by mail may pass through many hands without circu7lating; for then it is only transmitted or confided to several persons consecutively in order that it may be made to reach the one who has the right to dispose of it. The effect is the same as if the person who sends the money should deliver it to him to whom it is sent. All those who have served as intermediaries to facilitate the transmission of this sum have had no profit from the sum itself, and could not have been able to employ it as a productive force. Value may circulate rapidly and the thing which contains it remain motionless. Such is the circulation of the value of real property, the ownership and the enjoyment of which may pass from one to another, although it is not capable of undergoing any movement whatever. Even personal property may circulate without any change of place. A merchant who has paid a landed proprietor the price of wheat stored up in the granary of the latter, may resell this wheat without moving it. Thus this value will have circulated twice without taking the wheat from one place to another.

—In a savage state, when man works only for himself and is limited to the consumption of what he produces himself, there are no exchanges, consequently no circulation, though certain products may sometimes be transported from one place to another by a person who is both a producer and consumer. Circulation begins when men commence to exchange what they possess over and above what they possess sufficient to supply their own wants; but as long as they confine themselves to simple exchange of their superfluities, it is still inclosed within very narrow bounds. It is only really active and great when the division of labor, having become the common law of industry, brings men to exchange not only their superfluities, that is to say, the excess of what they produce respectively above their own wants, but almost all the values which they produce, for almost all those which they consume.

—In the state of civilization to which the greatest part of the peoples of Europe have advanced, division of labor having been introduced everywhere, circulation has become an important fact. There are few values in reality consumed on the spot and by those who produced them. They pass from hand to hand by successive exchanges, and sometimes it is only after a great number of transmissions or migrations of this nature that they arrive at their final destination. It is not only to pass from the hands of the producer to those of the consumers that products are exchanged and circulated. They circulate still and sometimes for a considerable period among their producers, when they need, as is generally the case, several successive preparations before being entirely finished. To say that in virtue of the division of labor each man connects himself with a particular industry the fruits of which he afterward exchanges, is not to say enough. It should be added that there is scarcely a producer from whose hands a finished product comes. Men confine themselves for the greater part to the execution of one or another of the articles which the product requires, turning it over afterward to other manufacturers who are to continue the work or finish it. Through how many changes has cloth passed, through how many hands has it gone, before the tailor converts it into clothing? A bale of cotton does not become printed cloth in a moment. It must first be converted into thread, then into texture, and between these principal manipulations how many intermediate ones there are; each one of these is performed not only by different hands but also in different places. The bookmaker, no matter how simple his work may appear, does not make a boot until the tanner has prepared the leather. A boot then is the result of several kinds of successive labor; it reaches its final condition only after several exchanges. It is the same with the greater part of other products and particularly with manufactured articles, some of which undergo so many different modifications and become the object of so many exchanges before coming to the condition of consumable values that it would be difficult to follow tem in their migrations. Thus, in a state of civilization exchanges are multiplied and circulation is widened, not only by reason of the various products which industry gives birth to, but also by reason of the vastly greater number of processes which these products demand.

—This circulation, we say then, becomes so important a fact that none of the particulars connected with it should be overlooked.

—It is, in the first place, easy to understand how important it is to society in general that this circulation should be carried on without trouble, without confusion, without disorder, and that no foreign obstacle should stop its course. Should its stoppage really take place for a moment, production, one of the essential conditions of which it has become,
itself would stop, and society would find its very existence in peril. It is true that an absolute stoppage of circulation is almost impossible, for this reason alone, that it would be fatal; since if any cause should tend to produce it, there would be immediately, on the part of threatened society, such a general and powerful reaction against this cause that the obstacle would recede or at least behalf removed. But if it is not to be feared that circulation will ever be stopped entirely, it may sometimes be disturbed or retarded in its course. This happens in practice almost always in consequence of civil troubles, political revolutions, foreign invasions, and all serious disorders, whatever their nature may be. At such times there is generally a twofold obstacle to the easy circulation of products, one physical, the other moral. The first arises from material disorders which prevent products from journeying peaceably toward their respective destinations; the second, more serious and difficult to overcome, arises from the mistrust of producers toward others and the lack of credit which affects every one. In all these cases, if society does not perish it endures at least cruel suffering. Production is retarded for want of nutrition; consumption is narrowed, savings previously accumulated are consumed: in addition to the present evils endure men see the accumulated fruits of several years of labor lost in a few days.

—Commercial crises which so often afflict modern nations, and particularly those in which industry exhibits its greatest power, are nothing else, considered in themselves, than checks if not absolute stoppages of circulation. There may be a difference of opinion as to the causes, perhaps yet ill defined, of these calamitous accidents, but whatever their origin they have always the same character at bottom, that of retardation, more or less great, in the exchange and circulation of products. From this, and from this alone, come all the evils which these crises give birth to: so true is it that circulation is the life of modern nations.

—Without speaking of the accidental troubles to which circulation is sometimes subject, and which will be particularly treated under the words COMMERCIAL CRISES, looking at it only under its ordinary conditions, in that which forms in each country its normal condition, it still gives occasion to a large number of observations full of interest. Its conditions are not the same in every country; it is more or less general, more or less active according as local circumstances are more or less favorable to it; and we should hasten to add that it is the relative activity of circulation which constitutes, more than any other circumstance, the industrial superiority of this or that country.

—Under the word CAPITAL we spoke of the importance of the increase of capital to the industrial activity of nations; but at the same time we took care to distinguish active from dormant capital by adding, that the industrial superiority of one nation over another depends much less on the sum total of the capital which it possesses than the relative sum of its active capital. This is the place to insist on this distinction, which most economists have neglected, and which appears to us fundamental.

—If capital is useful, it is only in so far as it passes into the hands of those who can put it to work. While it lies idle, or, what comes to the same thing, while it remains in the hands of those who can not make use of it, it is of no real utility; it aids in no way the increase of production. M. Ganith, going a little further in this direction, says that idle capital is not capital at all, since it is useful to no man, not even to him who possesses it. He was wrong, no doubt. Idle capital is always capital, for it is at least a reserve, which can be of use later; often it needs but an insignificant circumstance to rouse it from its torpor. But it is true that a value at rest renders no actual service, and if there is much of such capital in a country no matter how great the sum of this real capital which the country possesses, labor will show little activity there.

—To say nothing of actual stoppages, if it happens that in a given country capital, or values intended for reproduction, occupy twice as much time in passing from one hand to another as would be necessary in a well ordered state of things, it is easy to understand that production would be less by one-half than it might be. It is important, therefore, that circulation be at once general in the sense of embracing all products, and of being active in the sense of causing products to pass rapidly from the hands which possess them to the hands of those who can give them useful employment.

—This truth, we say, has not always been adequately understood by economists. It must not be thought, however that they have entirely misunderstood it. Their only fault is in not having brought out its importance, nor given it all the attention which it merits. This, for example, is how J. B. Say expresses himself on the subject: “Values employed in the course of production, can not be
realized in money and be employed in a new production until they have arrived at the state of a complete product and are sold to the consumer. The sooner a product is finished and sold, the sooner also can it, as capital, be applied to a fresh productive use. Capital used for a shorter time pays less interest; there is economy in the cost of production. Next it is of advantage that the transaction which takes place during the production should take place quickly. Let us follow the effects of this activity of circulation, in the case of a piece of printed calico. A merchant of Lisbon imports cotton from Brazil. It is of moment to him that his agents in America should make his purchases and shipments quickly; it is also important for him to send his cotton to a French merchant promptly, in order to be reimbursed for his outlay as soon as possible, that he may begin a new and equally profitable operation. Portugal, up to this point, has reaped the benefit of this activity of circulation. Now it will be France; and if the French merchant does not
keep this Brazilian cotton in his storehouse long, but sends it promptly to the spinner; if the spinner, after having made it into thread, sends it promptly to the weaver, and if the latter sends the cloth without delay to the calico printer, and if he sends it to the retail merchant quickly, and the retailer to the consumer, this active circulation will have occupied for a less time that portion of the capital employed by the producers. Consequently there will be less interest lost, less expense, and the capital can be employed in new production.”

—The utility of an active circulation is certainly indicated in the preceding lines, but we do not believe that it is felt strongly enough; and we are the more authorized to believe so, since the passage just quoted is the only one which J. B. Say has devoted to this important subject, at least in his treatise. There is certainly more to say on such a subject. It is true, that the relative activity of circulation is that which constitutes, more than any other circumstance, the industrial superiority of a people? This should have been examined first of all. Then it should have been inquired what the principal causes are which influence the rapidity or the retardation of circulation.

—Mr. Fr. Skarbek, who has treated this subject more at length and with care, is more explicit on all these questions. Instead of a few lines he devotes several chapters to the subject. He concludes the first chapter thus, “What we have stated up to the present concerning social wealth, authorize us to lay down the principle, that the mass of values and bases or sources of wealth possessed by a nation, do not in themselves constitute its wealth, because they are inert by nature and do not turn into a cause of well-being and improvement of a people,
except in so far as circulation imposes on them a productive movement capable of bringing out all the advantages which society extracts from the values, before they become objects of consumption.”

—The lines we have underscored in the preceding are also underscored in the original text, and it can be seen that the author there justly makes the circulation of products the
sine qua non of their utility. Nothing is truer with regard to industry at the present time when exchanges and division of labor have become universal. It is not enough, however, that products should circulate; it is necessary, also, that circulation be as rapid as the work of production will permit, in order that there may be no interruption in the service they render. This, Mr. Fr. Skarbek brings out with much force in the following passage: “The advantage which society gets from circulation consists, as we have seen above, in this, that by each transfer of value, from one hand to another, a profit is gained by him who disposes of it, and a power of working is attained by him who acquires it. This advantage is all the more considerable in proportion as circulation becomes more extensive and rapid. From the moment that all exchangeable values are put in circulation, and circulate with the greatest rapidly possible, the inhabitants of a country make as much profit as they can possibly make from them. They are able to give continual employment to all the productive forces which they are able to put to work; and whatever be the mass of value produced by a nation, it is evident that in this case it returns all the advantages and all the services which can be expected of it. This is why
national wealth consists not only in the great mass of values which can be produced in a country, but
in the general productive movement, continuous and rapid, of these values.

—In the lines which precede, the activity of circulation is presented in all its importance, but it is perhaps still better done in the passage which follows, where the author supports his assertions by an example. We only regret that he has taken as his example the circulation of a piece of money; and we believe it our duty to remark in advance, that the same reasoning would apply to every productive value of whatever nature it might be. “Let us suppose that a one franc piece is given in the morning of the first day, by an inhabitant of the capital, to a milkwoman, in exchange for milk which she is taking to market; that she uses it immediately in buying an ell of cloth; that the cloth dealer lays in with this same piece of money his stock of meat at the butcher’s shop; that the butcher spends it at a wine store; that the wine merchant employs it in buying bottles; that the bottle dealer spends it for bread; the baker for wood; and the timber merchant lays it up for future expenses and leaves it without employment during the next day. The difference of the services rendered by this piece of money in the course of two days is very considerable and may be expressed by figures; for it is as 7 to 1. During the first day the one franc piece performed the function of 7 francs because it served to make seven consecutive purchases, whereas on the second day, it represented only a unit in the hands of the timber merchant. If the latter made no use of it in the course of the second day, it might be said with truth that, for society in general, the differences of services rendered by the piece of money in the two days is as 7 to 0, because, having remained inactive in the hands of the timber merchant, it did not fill its office as an instrument of exchange, and the effect is the same as if it had not existed at all. Its value the first day is equal in services rendered to that of 7 francs, and it is easy to become convinced of this by collecting all the products which were brought by its means; for by estimating the value of the milk, the cloth, the meat, the wine, the bottles, the bread and the wood bought consecutively with the same one franc piece, we can easily see that it would be necessary to spend 7 francs in order to buy all these things at once.”

—This reasoning, certainly exact in reference to a piece of money, is just as exact, as we have said, with reference to any other kind of value. Let us suppose, indeed, that any kind of raw material, iron, for example, which must
pass, we will suppose, through the hands of 20 or 30 different producers, in order to receive as many different modifications before arriving at its final form, accomplishes this series of migrations in one month instead of 12; it is evident that in the 30 days it will have rendered all the services that it could have rendered in a year. It is not less evident, that if all the capital of a nation could be employed in this manner and with this relative activity, that the nation would have an immense advantage over all others. With an equal capital it would create 12 times as much wealth; or even with a much smaller capital, it would still succeed in surpassing them in the labor of production.

—But are such great differences in the relative value of circulation possible? Why not? In theory there is nothing simpler. As a general rule, for each producer, the work of production, which, properly speaking, consists almost always in a single modification to be given the material submitted to him, does not take long to accomplish. Generally he requires more time to sell his products than to finish them. The spinner who makes his thread in a few days, keeps it sometimes for several months in his storehouse before selling it to the weaver, who is to make it into cloth, and this is the case with nearly all other productions. Now these periods of stopping and waiting between the finishing and the sale of products being so many accidental stagnations, so many interruptions in the service of capital, it is easy to see that they may be and are more or less frequent according to the country; and in this way is explained in theory the enormous difference which may exist between one country and another in the productiveness of capital. As a matter of fact it is certain that these differences exist, as great at least as we have just supposed them to be. It seems to us beyond doubt, that capital acts more than 12 times as fast, for example, either in the United States, or in England, as in Turkey. Why? Because there are fewer delays in sales, as there is also an incomparably greater rapidity in the transportation or transmission of products; and it is this circumstance which explains, to our thinking, much more than the real abundance of capital, the extreme superiority of the first two countries over the other.

—Now what are the two chief causes which influence the activity or the slowness of circulation? Here again we find in the work of Mr. Fr. Skarbek more satisfaction than we have met elsewhere. Among the causes which, according to this writer, contribute to render circulation active may be mentioned the following, which are the principal: the extent of production and the abundance of products; the density of population and the concentration of population in a certain number of cities; the number and convenience of means of communication, such as roads, railways, canals, etc.; freedom of trade under all its forms, as well at home as abroad; security in all transactions; and, above all, confidence and credit, which alone render possible a rapid transfer of products for sale, and without which even all the other conditions are present in vain.

—That the extent of production contributes to hasten the circulation of products, is a truism. But this signifies particularly—and it is a truth which it is well to note—that activity of circulation does not increase simply in proportion to the extent of production, but in a greater proportion still, in the sense that it is always much greater where production is abundant and large than where production languishes. It is true that it is difficult, in this case, to distinguish the effect from the cause. If the abundance of production influences the activity of circulation, which is not at all doubtful, the activity of circulation in turn, and in a very energetic manner, influences the increase of production. The two circumstances are connected; they are at once cause and effect. But all this amounts to saying what is literally true, that products circulate in a more general manner and more rapidly in wealthy countries, provided with large capital, and which work on a large scale, than in poor countries which operate with small means and for medium results.

—That the density of population, and above all the concentration of population, in certain cities contribute also to quicken circulation, and consequently to increase the services which products may render, is another truth much less generally understood than the first, and consequently very proper to be mentioned. It is all the more important since it must be taken into account in the theory of population in which it is often ignored. It is beyond doubt, to our thinking, that dense populations, that is to say, those grouped in considerable masses on narrow spaces, have certain great disadvantages in comparison with scattered populations, and this especially that they obtain in less abundance, with less ease and at a higher price, certain products, and particularly raw material. But they enjoy this great advantage which compensates for many drawbacks, that the circulation of products among them is easier, more active, quicker, and that consequently every product which they obtain renders them incomparably greater service. This is rather a new view in political economy, which has not been sufficiently examined by men devoted to the science, and which merits, nevertheless, the most serious consideration. Mr. Fr. Skarbek seems to have realized it more than the greater number of economists before him, but perhaps no writer has thrown more light on it than Mr. H. Carey, of Philadelphia, in an important work published in 1848, (The Past, the Present and the Future; by H. Carey, Philadelphia, 1848). In this work the American publicist tries to prove, and in this he has succeeded in a certain measure, that the condensation of population in certain countries, far from creating for the men who inhabit these countries a relative disadvantage, is for them, on the contrary, extremely advantageous, through the facility and multiplicity of relations which it
engenders; and that, taking everything into consideration, a dense population, other conditions being equal, should be richer and better supplied than one which is scattered over a vast space of land. We will not enter here into a minute examination of this question which would require a separate study, but in whatever way it be solved, the influence of the density of population on the activity of the circulation of products is none the less a demonstrated fact. As to the influence exercised by the number and convenience of the ways of communication, it is so easy to understand it that it suffices almost to mention it. Let us merely say that a good system of roads, canals and railways is itself the first fruit of an industry already powerful; that if it contributes to stimulate circulation, it is nevertheless the fruit of a pre-existing circulation, and that it supposes in the country where it is established a well understood public administration, well directed, well managed. It supposes also a great store of wealth previously acquired.

—Freedom of trade under all its forms is not less necessary to the activity of circulation than the other conditions.—”No matter what the primitive sources of a country’s wealth may be, no matter what its population and its capital may be, no matter how powerful may be the influence of these bases of its wealth on circulation, the latter can be neither extensive nor rapid if there are not in the country circumstances favorable to exchange; or if the power of exchange is limited either by prohibitive regulations or the lack of outlets. For it is this power of exchange which exercises the most potent influence on circulation, since values circulate for the most part by means of exchange. Supposing then in a country a concurrence of circumstances favorable to the production of value, they will not be able to constitute the well-being of the inhabitants if there are causes which limit or hinder the exchange of products.” The causes which may limit or hinder exchange are varied. Restrictive or prohibitive regulations at home and abroad, form one of the most serious. The absence of credit is another, not less powerful though less easy to define.

—Finally, we have as the last cause of the circulation of products, confidence or credit, which renders exchange possible whenever it is useful and can be carried on without danger. Let us hear again Mr. Fr. Skarbek, whose ideas on this matter fit in perfectly with ours.—”In order that exchange should become the motor of circulation, it is necessary, other things being equal, that it be accomplished with the greatest facility, that is to say, that all goods should find an easy and instant sale, and that all the inhabitants of a country should sell their goods on the shortest time possible. The sale of goods depends on three circumstances: first, a demand corresponding to the amount of goods offered; in the second place, on the facility and freedom of delivering the goods where they are demanded; and last, the power possessed by the purchaser to give always the equivalent of the merchandise demanded by him. Demand is more considerable in proportion as there are more purchasers, and as they are richer; the facility of sale becomes greater in proportion as commerce enjoys greater liberty and as there are easier means of transport and communication between the countries which maintain commercial relations with one another. But all this is not yet sufficient to give circulation the extent and degree of rapidity of which it is susceptible, for it is necessary besides that every value offered for exchange should be really exchanged at the moment it is offered and demanded: for this purpose it is necessary that the purchaser should possess a value which the seller consents to receive, in exchange for this merchandise, and that he should be in a condition to give it immediately and as often as he desires to make an exchange. As exchange is generally effected by means of money, it follows that if sale is to hasten circulation, it is necessary that the power of paying should always equal the extent of the demand. Now, as the value of the goods of every country surpass by far the value of the money which is found therein, it may often happen that a man who possesses a considerable fortune finds it impossible to make an immediate payment for the values which these means allow him to demand. The result of this is a species of stagnation which takes place in the circulation of values. The value of the merchandise demanded will remain inert until the person demanding it shall have acquired the power of paying, or he will be deprived of an enjoyment or of a means of employing his productive powers profitably. However, there is always a decrease of activity in the circulation and a loss of time and values to the national wealth. To remedy this drawback, to obviate a default in power of payment which does not come from a lack of revenue and fortune, and to facilitate exchange as much as possible, men have had recourse to a
social virtue,
confidence, which, applied to exchange, has given birth to credit; and credit to-day is the most powerful motor of exchange and the circulation of social wealth.

—By a sort of ultra reaction against the exaggerations of the utopists, many distinguished economists are only too much inclined to misunderstand the admirable power of credit. It is well therefore to put it before them whenever a natural occasion presents itself.

—Unfortunately these are the same ideas which have been misapplied to build up vain projects. Foreseeing vaguely the power of credit as well as the advantages of an active circulation, but without rendering to themselves an exact account of the nature of these two phenomena, a great number of men have endeavored to inflate credit, if it be permitted to say so, and to hasten circulation by artificial means.

—They did not consider, that after all, the practice of credit supposes confidence, and that circulation, no matter how active they may wish to have it, should not and can not run ahead of production. To complete the misfortune they
have never imagined a better way to arrive at their end than to multiply without measure the instrument of exchange, money, or, in default of money, that which they call representative signs of its value, in other words, paper. The general examination of these different projects will find its place under the heads CREDIT and PAPER MONEY. Let us hasten to say, in a few words, that they rest ordinarily on a two-fold error, in this that, on the one hand, credit, such as they pretend to establish, would crumble quickly for want of a basis, and, on the other, circulation, such as they conceive it, even supposing that it could be established, would be still barren circulation. (