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THE UNIVERSITY OF ILLINOIS LIBRARY

352.

B875 V.27


LETTER TO

LORD GRENVILLE, ON THE

EFFECTS ASCRIBED TO THr

RESUMPTION OF CASH PAYMENTS ON THE

VALUE OF THE CURRENCY.

Bv

THOMAS TOOKE.

Esq., F.

R

S.

LONDON

JOHN MURRAY, ALBEMARLE STREET. MDCCCXXIX.


-*

^

LONDON PRINTED BY WILLIAM CLOWES, Stamford-Btreet.


CONTENTS.

Page

Intruduction Section

1.

.

.

.

— On the supposed

ments Sections.

.

— On, the

the

3.

— On

Bank

tlie

Bank

of

Measures adopted

Resumption of Cash Pay-

.

.

supposed

Bill in contracting the

Sbction

to

.1

.

Contraction of the

England Issues attributed in 1819, for the eventual

.

.6

.

,

Influence of Mr.

Peel's

Country Circulation

.

27

the general State of the Circulation of

of England during the Restriction

.

39

APPENDIX

—Paper communicated by Mr. Pennington No. II — Applications from the Chancellor of the ExcheNo.

I.

.

quer, to the Bank, to purchase

No.

III.

—An Account

circulation on

the

Bank Post

of the

the Bills,

Exchequer

Amount

of

days mentioned

j

Bills

— Prices

of Gold and Silver, and

Hamburg and

Paris

in

distinguishing

and the amount of Notes under

Five Pounds, with the aggregate of the whole

No. IV.

128

.

Bank Notes

117

.

.

131

.

Exchanges on .

.132


LETTER,

My

Lord^

Having adopted

the form of letters for this

whom

with so

much

propriety as regards the subject,, or with so

much

publication^ there

no one

is

to

gratification as regards myself, I

as to your Lordship

:

there

a more distinguished part

is

in

can inscribe them,

no one who has taken the discussions which

occurred on the great questions of the Restriction

and Resumption of Cash Payments, and no one who, from personal experience, as well as from extensive research, can bring

upon the

more various information

subject, or

who can

bear

better appreciate the

arguments brought forward by others. Lordship takes a

to

And

as your

lively interest in all that relates to

the preservation of the integrity of the Currency, I

myself with the prospect of your

venture to

flatter

concurrence

in the object of

my present

attempt.

In the discussion which took place in both Houses of Parliament, at the close of last Session, on the

Small Note

Bill,

and

in the different pamphlets

and


2 articles of the periodical press

which have appeared

subject of the Currency,

upon the

it

seems

have

to

been impHcitly assumed that Mr. Ricardo and those

who

ration of

all

with him maintained that the utmost ope-

Mr. Peel's

Bill

on the value of the Currency

could not exceed three or four per cent.^ have been manifestly wrong-, for that the notorious effect of that Bill

had been

to depress prices to

puted by the most moderate at not five

per

cent.,

much higher

but by

tli^

an extent comless

than twenty-

generality of persons at a

rate *.

Assertions to this effect have of late been repeated

so

often_,

and with so much confidence, while hardly

any, or only a very feeble contradiction has been

seem

offered to them, that they

to pass current

and

unquestioned as a part of our financial and commercial

These

creed.

upon them, are *,

The

and the doctrines founded

assertions,

while they remain un-

calculated,

following quotation from Sir

James Graham's "

Currency, in an Address to the Land-owners,"

may

Com

and

serve for a sample

of the assertions to which I allude.

" This argument and authority combine shelter of which, in 1819, the Bill for the

passed.

by .

Mr. Ricardo

prove the

at first estimated the value

wood and Mr.

Ellice rate

five to thirty

and when we come

its full

;

it

operation, I think

preponderates," p. 43.

at

it

it

near

to

added to money,

have been ten

fifty,

;

;

after

while Mr. Att-

and Mr. Baring from twenty-

to trace the effect of the

will

under

fallacy,

the restoration of the ancient standard, at three per cent.

experience, in 1822, he admitted

in

to

resumption of cash payments

measure

be evident on which side the truth


contradicted and unrefiited, not only to falsify an im-

portant portion of the history of our monetary sys-

tem^ but to exercise a considerable and mischievous influence on the future proceedings of the Legislature

regarding the Currency. with a view^ therefore^ as well to guard the

It is

public against

all

projects founded

upon those doc-

trines for depreciating the value of the Currency, as

by the

to vindicate the opinions delivered in 1819,

promoters of Mr. Peel's BiU) that

my

take up I

am

I

pen.

have already^

indeed_, in a

work published some

years since, adduced reasons which

and

still

induced to

then thought,

I

think, sufficient to justify the conclusion that

Mr. Peel's

Bill

was wholly inoperative

in the resto-

From

ration of the value of the Currency.

the con-

tinued prevalence, however, of the opinions which

was the object of

that

work

the arguments contained in

or not

deemed

to

to

combat,

it

are either

ditional facts bearing

on the

without hopes that

may succeed

subject,

clear that

little

But

be conclusive.

I

it is

it

I

and

known,

have adI

am

not

in placing the

general argument in points of view in which

it

has

not hitherto been considered.

The

assertions

and which

it

is

and assumptions

my

to

which

I allude,

present purpose to controvert,

are to the following effect, viz.

:

B 2


That the provisions of Mr. Peel's it

Bill,

rendering

incumbent on the Directors of the Bank of England

to

make

preparations with a view to the resumption

of cash payments within the period prescribed, had the direct and necessary effect of contracting the circulation

and that the contraction which did take

;

place was such, in order of time and in degree, as to

account for the whole of the

being

at the

I

in prices, there not

same time any other causes

account for such

Now,

fall

think

sufficient to

fall.

I

can satisfactorily make out

That a contraction of the Currency was not a

1.

nor, in point of fact, pro-

necessary consequence

of,

duced by, Mr. Peel's

Bill,

paration

or by any anterior pre-

on the part of the Bank, with a view to

cash payments

:

for that^ according to the rules

which the Bank regulated

its

by

issues, there is every

reason to believe that, without any reference what-

ever to that

Bill,

or to

the circulation of the

any anterior preparation^

Bank

of

England notes and

coin together, would have been neither less

than

2.

it

more nor

actually has been.

That the assumed contraction of the

circu-

lation did not occur in such order of time as to justify

the assignment of such contraction as the originating or

moving cause of the

fall

of prices, even supposing

that there were no other adequate causes to account


for it;

but that the

being- explained

fall

of prices does admit of

by circumstances

affectiHg- the

ply relatively to the demand, as regards

sup-

commo-

dities^

independently of any alteration in the amount

of the

Bank

The

circulation.

present letter will be entirely devoted to the

developement of the former of these propositions.

The

latter will

form the subject of another

letter.


Section

On

I.

the supposed Contraction of the

of England Issues, attributed in

1819 for

the eventual

to the

Bank

measures adopted

Resumption of Cash Pay-

ments. It

is

than

impossible to conceive any thing more vague the

manner

Peel's Bill

and

writers

is '

in

which the operation of Mr.

referred to

on

the

by most of the speakers

subject.

them the operation of

that measure

and used synonymously with the value of the paper to restoration_,

By

its

almost is

all

of

confounded

restoration of the

This

metallic standard.

however, of the value of the paper had

already taken place in 1816 and 1817, and the sub-

sequent deviation had lasted only a few months.

But the persons who

attribute

enormous

evils to

the restoration of the value of bank-notes previous to

1819^ must adopt a different line of argument

from that which supposes Mr. Peel's

have

Bill to

been the great cause of derangement of the sys-

tem of our Currency. ever^

as will be

neral answer.

This argument

admits,,

how-

hereafter seen, of the

same ge-

mean time

to be ob-

In the

it

served, that the great majority of those

is

who declaim

on the increased value of the Cuirency confine their invectives to Mr. Peel's Bill^ as the source of

all

the


And

which they lament.

evils

least, that the

it

is

obvious^

at

charges against Mr. Ricardo and the

other promoters of that

of having underrated

Bill_,

its

operation^ must be limited to the state of things at

and

They are taunted

after the time of its passing.

with having said, that the utmost effect of that measure would not exceed three or four per cent.^ or, at

Of

the utmost^ ten per cent.

course they must be

understood as having given their opinion prospec-

Any

tively.

contraction of the circulation

had taken place antecedently

was

which

to the Session of

naturally taken into consideration.

It

was

assumed^ as well in the evidence

distinctly

before the Bullion Committee as in the debates the Bill in 1819, that the

was with reference

gave

it

to that

as his opinion, that

would be found necessary. a similar opinion

in

my

upon

amount of Bank of England

notes then in circulation was about 25 millions. it

1819

amount little,

I

And

that Mr. Ricardo

if

any contraction

had occasion

to give

evidence before the Bullion

Committee.

Now, Bank

it

does so happen,

that

the

amount of

of England notes in circulation, on the 26th

of August,

1819, was no less than 25,657,610/.;

and the price of gold had by that time actually fallen to 3/.

18,?.,

or, in other

price, the difference

In that interval,

words, to the Mint

not being worth mentioning. viz.,

from February, 1819, to


8

was there no

August,, 1819, not only

ment by Government

further repay-

Bank, but an actual

to the

in-

crease of the advances by the latter

On

the 26th of Februay, 1819, the advances

26th of August, 1819,

Thus the

were £22,628,900. 24,528,900.

restoration of the value of the paper

had

taken place without any reduction in the amount of

Bank

of England notes, and without any further re-

payment by Government. This was not a nominal

in the price of gold,

fall

made

actual purchases having been tions.

The exchange

from 23.50, which to

it

at the quota-

with Paris had risen rapidly

had been

25.10 in August following.

in February,

1819,

In the interval, not

one of the ingots provided by the Bank, and which the holders of bank-notes were entitled to at the rate of 4/. 2^. per oz.,

matter of business, although

two were applied

for as

was called

it

is

for as

a matter of curiosity.

and were

still

a

said that one or

as from the state of the exchanges, which

reached par,

demand

rising,

And

had already

there could be

no doubt of a further influx of bullion in the actual state

of the circulation,

it

was

perfectly clear that

no reduction of the amount of bank-notes was necessary, at that time at least, to

provisions of Mr. Peel's

Bill.

comply with the

No

part of those

provisions had influenced, in the slightest degree,


9 the operations of the

Bank*

since the passing of

the Bill, or even since the appointment of the

mittee terval, calls

— no repayments or —no

in that in-

limitation of discounts_,

refusal

upon the Bank

scale fixed

by Goyernment

Com-

gold at the prices of the

for

by Mr. Peel's

—no

Bill.

In what conceivable way^ then^ can

it

be main-

tained that Mr. Peel's Bill operated in obliging- the

Bank

to curtail its issues^ with a view to prepare

for cash

payments

And

?

after the rise of the Paris

exchange to and above par^ with an quently^ of gold,

Bank

what possible motive could the

of England have to reduce

certainly.

influx, conse-

its

issues

?

None_,

But a reduction of bank-notes did take

place in the six months following August,

1819,

and the average of February, 1820, was somewhat and a half below that of

more than one

million

August, 1819.

Whether

this

reduction of bank-

notes was compensated by an equal issue of sovereigns, or whether the issue of sovereigns, to which

the Governor of the

Bank

alluded in his speech at

a Court of Proprietors, of 21st March^ 1822, did not * The Bank

did, indeed, object to

Scrip, for the loan in 1819

:

by that time ceased

if it

would have been

;

and

but

all

make

the usual advances on the

pressure on the money-market had

had

not, the only effect of the

measure

to increase the applications for discount to the full

extent to which the scrip receipts would otherwise have been lodged,

so that the circulation would in

all

probability have been the same.


10 take place

my

to

till

after

February, 1820,

present argument, viz.,

is

immaterial

—

that the reduction

was not rendered necessary by the provisions of Mr. Peel's

The

Bill.

state

of the exchanges in August,

1819,

which they insured, proved

and the

influx of gold

that no

reduction of circulation

was required

The

the eventual resumption of cash payments. therefore,

reduction,

can

only

on one of two suppositions: rectors designedly

and

with

gold

which case, as

;

in

contraction

be accounted

for

that the

Di-

either

forcibly contracted the cir-

a view

culation

to

prepare for paying

for the reasons stated,

tors

them* on

that specific

were simply passive

guided previously to 1819.

little

the

such

fall in

ground

made

or the Direc-

;

in the regulation of their

issues, following the routine

From

in

was unnecessary, and would involve the

charge of mismanagement which Mr. Ricardo against

for

by which they were

The

was the

latter

fact.

the market rate of interest, and the

inducement to speculation, the applications

discount of mercantile

bills

fell

off rapidly

:

for

these

stood at about eight to ten millions in Feb. 1819,

and

it

that

amount by the end of the year

is

probable that they were reduced to half ;

not from any

* See Mr. Ricardo's speech on Mr. Western's motion concerning the Resupiption of Cash Payments, 12th June, 1822.


11

on the part of the Bank to grant the

disinclination

accommodation^ but from want of inducement on the part of the merchants to give five per cent,

when

they could readily obtain discount through private

channels at one or two per cent.

Government^ from the improved

And

less.

as

state of the finances,

required no further advances from the Bank, (sup-

posing that the

had been disposed

latter

them,) there remained no the circulation of

balances.

by the Bank, that the

may be urged

* It

Bank might and ought

market

at a

to adopt either or

have done

premium.

How

far

it

both of these modes, I

either would,

their ordinary rules,

at

and

any it

risk that its efforts

rate,

its

might be too great

amount

bought Exchequer

Bills

might have been expedient will not

now

stop to discuss

;

have involved a departure

would have been

wieldy a body to abandon suddenly

to have reduced

order to keep up the

bills, in

issues through that channel, or to have

its

from

that the

on mercantile

rate of interest

in the

to

circula-

was not more reduced*.

tion

of

notes but the purchase of

owing to these two channels

It is

for the issue of notes

its

for maintaining

and possibly a reduction of the Govern-

bullion,

ment

Bank

medium

to grant

difficult for so

un-

established habits, without the in^the opposite direction.

The

event proves that they might have ventured upon a considerable for enlarging their issues

eflfort

contend that they ought to have

;

and Mr. Ricardo was

made

this effort,

and that

entitled to if

they had,

the alteration in the value of the currency would not have been so great as right,

course not at

it

proved to be.

My

own opinion

is,

that the Directors were

under the circumstances, in not deviating from their regular till

all

after they

had

actually

resumed cash payments.

And I am

sure that any evil consequences did arise from their having


12

The

any contraction at

question^ whether

took

all

place subsequently to the passing of Mr. Peel's

Bill, is

confined to the six months following August, 1819 for,

according

Governor of the Bank of England,

at a

on the 21st March,

Proprietors,

held

issues of the

Bank were

Court of

1822, the

greatly extended in the two

years following March, 1820 :—'' If," said he,

Bank had

erred,

it

was not on the

duction of the circulating at the

amount of

medium

their issues,

;

" the

side of a refor,

he found

on looking that,

on the

9th March, 1822, their issues exceeded, by the of 3,859,000/., those of the

ding year

;

;

the following declaration of the

to

and that the

same date

sum

in the prece-

latter, viz. the

9th March,

1821, exceeded the issues of the 9th March, 1820,

by the sum of 3,440,000/. clear that the

It

was, therefore, quite

repayment of the Government debt,

called for in July, 1819, did not induce the

Bank

to

diminish their issues, for they had been increasing

them

in the years

which had since followed*."

In

answer to a question from a Proprietor^ the Governor adhered to their ordinary rules. forcibhj, that

is,

their issues, they

and would so to diminish its it

at the

If,

by a departure from

would have hastened the

far only

close of 1819, they

had

their ordinary rules, extended fall

in the rate of interest,

have hastened the inducement to Government

unfunded debt, and consequently'to repay the Bank, as

eventually did. *

Times

of

March

22, 1822.


13

added

" That the amount of issues from which he

:

had quoted^ of course, included the sovereigns issued by the Bank.'* According" to this declaration, the amount of the circulation, as emanating-

from the Bank of England,,

and forming the basis of the Currency, stood thus Amount of bank-notes, Uth March, 1820 Add increase by the 9th March, 1821

.

.

ÂŁ22,719,732

.

3,440,009

Issues on the 9th March, 1821

ÂŁ26,159,732

Increase by the 9th March, 1822

3,859,000

Total on the^th March, 1822

Now,

this

authority

the fact^

blish

that,

constituting

issues^

there was a

is

ÂŁ30,018,722

quite

as far

the

:

sufficient

as

basis

to

esta-

regards the

Bank

the

of

circulation,,

considerable increase of the amount,

notes and sovereigns together*^ (and from the state

of the exchanges the whole of the sovereigns must

have remained

amount

* 1

at

and

;

am

between March^.

the country ;,)

and March, 1822, as compared

1820,

Bill

in

the time of the this

aware that

interval

this

with

the

passing of Mr. Peel's

of two years

being that

statement of the Governor has been con-

troverted by Mr. Mushet, on the Currency, p, 112, although not, as it

appears to me, on sufficient grounds; but as he admits some,

although not so large an increase, and as

it is

ment, that there was no diminution of the

Bank

together,

it is

sufficient for ray

issues,

argu-

paper and coin

superfluous here to examine the grounds of difference.


14

which the principal phenomena of the

ill

and the general depression ascribed

prices,

operation of Mr. Peel's Bill, occurred,

consequence

to

argument,

general

the

it

was or was not a small reduction

there

amount of the Bank

issues in the six

fall

of

to the

of no

is

wliether in the

months be-

tween August, 1819, and March, 1820. It

appears, then, from this statement, that, as far

as regards the

Bank

of

England

issues, there

was

not only no contraction of the circulation following the passing of Mr. Peel's Bill, but an actual increase of the amount (with the trifling exception of

the six months following August,

1819) down to

1822. The mere amount of bank-notes was certainly diminished, but that diminution was more than com-

pensated by the issue of a larger amount of coin

;

and

whatever coin was issued in that interval must, as observed,

already

have remained

in

circulation,

because there would have been a heavy loss on

its

exportation

The

restoration,

paper to

its

therefore,

of the value of the

metallic standard,

having taken place

within six months after the appointment of the Bullion

committee, and within three months after the

passing of Mr. Peel's

Bill,

no reduction of the amount

of bank-notes having taken place in the interval

and the

final

resumption of cash payments having


15 taken place in 1821-2^ after a substitution of sove-

Bank

reigns for

of

England ÂŁ1

coincident

notes^

with an increase of the issues^ of paper and coin toge-

from the Bank, Mr. Peel's

ther^

must be pro-

Bill

nounced to have been wholly inoperative

any contraction, none having occurred^

Bank

of the

But

it

producing

in

amount

in the

circulation.

has been urged^ that the provisions of Mr.

Bank

Peel's Bill^ by directing a repayment to the

of a certain amount of

its

advances to Government_,

necessarily occasioned the withdrawal of bank-notes

from circulation to that extent.

I

am

pared to admit that the repayments

ment

to the

Bank would have

ing the circulation,

if

quite pre-

by Govern-

the effect of diminish-

there were no other channels

through which the bank-notes cancelled

by such

repayment^ admitted of being re-issued.

But

I

have quoted

be relied upon, there were other

channels_, in-

evident that, is to

it is

if

the authority which

cluding the purchases of gold, by which the sums, repaid by Government, were re-issued question lation,

is

as to the total

;

and the main

amount of the Bank

and not the manner

in

circu-

which the issues were

made. It

may

still

be contended, however, that

payments had not been made, the

Bank

if

the re-

circulation of the

of England might have been larger by that

amount.

This does not exactly follow, as

I

think

I


16 could show.

upon

It

would, however, lead too far to enter

Mr. Peel's

here to observe, that

It is sufficient

that point.

with any fairness, be charged

Bill cannot,

with having rendered necessary the repayment of any part of the

Bank advances

them as they stood what would, 1822,

if

in

all

1819), beyond

February,

in

amount of

(taking the

have been made by

probability,

that measure had not passed.

When

the pi'ovisions of Mr. Peel's Bill, directing

the repayment of 10 millions to the Bank, were dis-

cussed in Parliament,

it

repayment should be

bers, that the time of

prescribed.

But

was proposed by some mem-

was objected

this

to

strictly

by ministers

as being liable to inconvenience; and

it

was ob-

jected to by Mr. Ricardo, because he considered,

and, as the event proves, justly, that such

ment might not be

The

or even desirable.

necessary,

time, therefore, of repayment,

arranofement between the

How

little

tening such

was

statement at page 8,

left

open to

Bank and Government.

influence Mr. Peel's Bill

repayment,

repay-

been

has

where

it

had seen

in

has-

by

appears that, by

August 26, 1819, the amount of advances was tually increased

by nearly two

the

millions,

ac-

compared

with that at which they stood on the 26th February,

1819.

These two millions were repaid by the

26th February, 1820, when the amount stood at 21,920,900/.^ nearly the same

as

it

had done a


17 twelvemonth before

most important

and

;

fact,

I

have

to repeat, as

it is

a

enlargement of the

that the

amount of advances between February and August^ 1819, (being- within

little

more than two

and

millions

a half of the highest amount at which they stood in 1817,) took place coincidently with a rapid rise of the

exchanges, a restoration of the paper to par, and a decided tendency of gold to flow into the country.

The repayments which took

place subsequently to

1819, were clearly not necessary or desirable to the

The exchange,

Bank.

at short,

on Paris on the 3d

March, 1820, was quoted 25.20, and by the 4th July following,

it

This rapid

rose to 25.80.

rise

insured a great influx of gold, and proved that the circulation

required,

at

least,

no

reduction.

It

would, therefore, have argued great mismanagement

on the part of the Bank Directors, such

urged

circumstances,

the

if

they had, under

repayment

Government, as the means of enabling them gold

;

and the promoters of Mr. Peel's

have been accountable

for the

Bill

to

from

pay

in

would not

consequences of such

mismanagement. But

1

do not impute to the Bank Directors of that

The

time such ignorance of their position.

sumption

is,

that

it

pre-

then suited Government, in

financial arrangements, to reduce the

its

amount of the c


18 unfunded debt, which was inconveniently and dangerously large

presented

and the opportunity

;

itself in

the great

fall

for such reduction in the

market rate

of interest and the rise of the funds, which occurred

between 1820 and 1822,

in

which interval the

re-

payment was completed. Whether,

the repayments by Govern-

therefore,

ment had produced an

Bank

issues,

diminution of the

actual

(which they did not,) or whether they

prevented such an enlargement of the circulation as

might otherwise have taken place^ (which they possibly did,) in neither case could the effect to

Mr. Peel's

Bill, as

it is

be imputed

highly probable that such

repayments were regulated mainly by the views of Government

;

and

it

somewhat dangerous doctrine

ment ought

to

financial

would be a new and contend that Govern-

to enlarge or diminish the

unfunded debt^

not according to views strictly financial, but accord-

ing to their notions of the proper amount of the circulating

The soning

medium.

inference from the preceding facts and reais,

that

Mr. Peel's

Bill

had no influence

whatever on the Bank circulation. In comparing the state of things which followed

Mr. Peel's

Bill^

with what

it

might have been,

measure had not been introduced,

I

am

if

that

supposing


19 the adoption of either of the alternatives which pre-

sented themselves at the time, putting out of the

These

question the degradation, of the standard. alternatives were, it

first,

had been from time

To

to

continue the restriction as

time extended, for one, two,

or three years further, without any intermediate pay-

ments

in

gold at a fixed price

;

or, secondly.

To

leave

the continuance of the restriction to the convenience

and discretion of the Bank Directors according to their to

pay

own

;

they engaging,

suggestion, in the

mean

their notes in gold, if required, at the

time,

market

price.

The debates upon Mr. upon the compulsory

Peel's Bill turned chiefly

clauses enforcing the

payment

These clauses

of bullion according to the scale.

were considered objectionable, as being calculated to oblige the for the

periods

Bank

forcibly to contract

its

circulation,

purpose of paying in bullion at the prescribed ;

and any very

strict limitation

of time for

the eventual resumption was objected to by the friends

But

of the paper system on the same ground.

to the principle of the eventual restoration of the

value of the paper to gold at

3/. 17?.

lO^d. per oz.

there was a pretty general assent, the chief exception

being Lord Folkstone, who proposed to take the depreciation as

it

then stood, and to degrade the stand-

ard to the market price of gold, viz.

41.

per oz., and

c 2


so Mr. Hudson Gurney^ who considered that the standard ousrht to be altered*. was

* If I succeed in showing that the vakie of the Currency

re-

stored without the operation of Mr. Peel's Bill, I may, of course,

pass over altogether the question of the expediency of debasing the standard.

Even

if

had been of any puts

it

pared

the reasons for attempling such a measure in 1819

mere

force, the

fact that

out of the pale of discussion with

to

produce anew the very same

complained

evil

to wit, a disturbance of

of,

the value of

In

fixed incomes.

all

it

all

all

fact, the

was not then adopted

who

persons

are not pre-

which has been so much contracts,

and a change

scheme

now

is

in

entertained

by none but those who are quite careless of consequences, and conmaintenance of

sider the

faith

with

all

and the security of every business of

creditors, public or private,

life,

as of trifling importance,

Even

compared with reducing the incumbrances of landlords.

when it might have been entertained as a means of and not as now oi unsettling the value of the Currency, the

in 1819,

settlhigy difficulty

of choosing any one degree of depreciation rather than another, after

many

the old standard should be once abandoned, compelled

who were

favourable to Mr. Peel's Bill in practice,

—This

so in principle.

is

well illustrated by the following quotation

from the speech of Mr. Denison,

mons on "

the Scottish Bank-note

What would

in the debate in the bill, last

Session

have diminished the pressure upon them.

the evils which

of

Com-

in

1819

To

?

Such a measure would have prevented the

ruin of the farmer, the tradesman, and the artisan wcftild

House

:

have been the proper course to take

have altered the standard.

to be

from being

far

we had endured, and which we

;

or, at least,

The cause

are

still

of

enduring,

it

all

was

the fatal policy of conh'acting a large debt in one description of cur-

rency, and trying to pay this so strongly, if I

standard, truth

is,

I

it

in another.

was convinced of

I

may be

this

asked, wh)',

did not myself luring forward such a proposition

that the question

be pardoned

for

was one of such

having shrunk from

many Hon, Members,

that

my Hon.

it.

if I felt

expediency of altering the

difficulty, that I

But

friend,

it

is

well

the late

?

Tlie

may

well

known

Member

to for

Coventry, and myself, did, in 1819, bestow great attention on the subject, with a reference to bringing

it

under the consideration of the


21

Whichever of the

alternatives before referred to

had been adopted^ the same

amount of the

circulation of

the restoration of

Bank

paper, the time of

and the

value,

its

result, as relates to the

resumption

final

of cash payments, would have occurred as the inof things which

evitable consequence of the state

existed, independently of the Currency, in

1819 and

1820. I refer to

the

in

fall

the market rate of interest,

and the consequent contraction of the channel issue of bank-notes

the

mercantile

bills

—

through

improved

-the

for

discount of

the

state of the finances,

which enabled and induced Government to diminish the unfunded debt

—the large sums due from abroad,

the unusually

for

means of

extensive exports of

1818, the

returns, excepting in gold, being at the

same time abridged by the shutting of our against the importation of corn, and by

which in

prevailed

here of other

foreign

ports

the glut products,

consequence of the large importations of 1818

House

;

but that we found

shrunk from

it.

I will also

it

a matter of such difficulty that

candidly admit, that

we could not

agree as to what ought to be the amount of the standard.

opinion that

it

ought to be

41. lOs.,

or

41. 15*.,

while

I

was of

my Hon.

friend,

concurring with a noble Lord in the other House, thought that to be

5l. 5s.,

or 5l. 10s.

The current appeared

ever, against either proposition, that

of Parliament, part

xvii.,

it

pp. 177-5, 6.

to

we

exactly

it

ought

run so strong, how-

—See Mirror

was abandoned."'


22

—

combined

circumstances

these

determine

to

the tide of the metals so strongly into this counthat

try,

most

unusual effort on

veiy

a

Bank, involving" a departure from

.the part of the its

but

nothing-

settled

creased issue of

habits, its

forcing a

in

of the

Bank

Peel's Bill,

any

in-

paper, could have prevented, or

even materially have retarded, such therefore, of

greatly

effort

Instead,

influx.

being requisite on the part

comply with the provisions of Mr.

to

would have required an extraordinary

it

render them operative. *

effort to

* Mr. Ricardo does not appear to ciated this state of things,

mismanagement

me

to

when he charged

have the

sufficiently appre-

Bank

Directors with

and unnecessarily enhanced

in having prematurely

the value of the Currency by their large purchases of gold after the

passing of Mr. Peel's that the Directors

demand

for

purpose.

moved

it

it

effort to

buy gold

;

that they created a

by a designed reduction of their issues for that

Now,

the truth

is,

it

was brought

was a matter of

specific

that they were perfectly passive,

only in the ordinary routine of their business

gold simply as

And

His mode of expression conveys the idea

Bill.

made an

to

them

at or

:

below the Mint

indifference as concerned the

and

they bought price.

amount of the

Currency, whether the gold were taken by the importers to the Mint,

and thence brought in the

directly into circulation as coin, or

Bank Commons, upon

shape of bullion to the

In the House of

were taken

in return for its notes.

a discussion on the subject of the

Currency, 12th June, 1822, Mr, Pearse, (one of the senior Directors of the Bank,)

said, "

That the Honourable Member for Portarlington

(Mr. Ricardo) had charged the Bank with error and indiscretion, in

having become too extensive purchasers of gold, in consequence of the passing of the

Act of 1819.

The

fact was, that the

quite passive in taking the gold from the merchants for their

purchase.

The consequence,

who

however, had

Bank were offered

been,

it

that


23 But

if

Mr. Peel's

was thus inoperative, and

Bill

therefore innocent of all the evils which have been so

abundantly and with so much superfluous eloquence laid to its charge,,

merit of the

Bill^

it

may be

and what was the ground of the

importance attached to that the

same

asked^ what was the

result

it

by

its

promoters

—seeing

would have attended any of

the alternatives proposed^ an alteration of the stan-

dard only excepted

The

?

merit of Mr. Peel's Bill waSj as

That merit

turned out^ independent of the event. consisted in the sanction which principle, that the

Bank has

it

has since

it

afforded to

the power, by the regu-

lation of its issues, to preserve the value of

on a level with that of gold attached to the Bill by fied

its

by the consideration

was under

:

was

its

paper

and the importance

promoters,

that,

discussion, there

the

is fully justi-

at the time fair

ground

when

it

for con-

templating circumstances under which the compulsory clauses of the Act would

Among

of

had been paid whenever

ten or

Ever

eleven millions

since he

into operation.

the numerous contingencies which might

have rendered Mr. Peel's

iDullion

come

of

it

Bill

operative

had been demanded

;

in

con-

that an issue

gold sovereigns had taken

place.

had been connected with the establishment, he had

been invariably against

all

forced

or artificial measures."

sard's Parliamentary Debates, June 12, 1822,

p. 954.

Han-


24 tracting" the circulation^

great improbability^

1820, proving

in

deficient it

involving no very

fevv_,

may be

(instead of being, as

than a

a

The

noticed.

hai-vest

by more than a

fourth,

more

productive by

was_,

fourth above an average,)

and the conse-

quent opening of the ports to a very large importation of corn

— speculations upon

deficiency of cotton

or of other imported commodities

— any

great finan-

operation of the French government,

cial

—or

an

mining schemes_, and

earlier direction of capital in

loans to South America.

Some

of these separately, but

more

especially if

combined, would, in an advanced state of their pro-

have created such a mass of mercantile paper^

gress,

and such a demand

employment of borrowed

as materially to raise the rate of interest.

capital,

The

for the

applications

for

discount

have been greatly increased viz.

;

at the

Bank would

and the same cause,

a rise in the rate of interest, would have

difficult,

ment

to

made

it

or at any rate very inconvenient, for Govern-

make any repayment

of

its

advances

;

or

it

might, under such circumstances, have been induced to ask for further state

accommodation.

But while

in this

of things there would have been an increased

demand metals

for paper,

to

answer

a tendency to an efflux of the the

sudden

call

for

payments

abroad, before any return for increased exports of


25 commodities could meet that

call,

would have

indi-

cated the expediency of contracting- the circulation.

In such case

that

it is

Mr. Peel's

The Bank

been operative.

Bill

would have

Directors

not

could

then, without putting themselves out of condition to

conform to

its

dation in the

enactments, have granted accommo-

way

applications for

of discounts to the extent of the

it

and instead of making further

;

advances to Government, the early repayment of the

amount contemplated by Mr. Peel's

must have

Bill

been rigidly insisted on.

The for^

limitation of discounts

below the sums applied

and the necessity which government would be

under of raising a loan, or of issuing Exchequer at a higher rate of interest to enable

it

to

Bills

make

the

repayment^ would have produced a great deal of mercantile pressure

and

distress.

This state of

things would have been compatible, as

spring

of 1796,

it

was

with a high price of corn.

in the

Al-

though, under such circumstances,, Mr. Peel's Bill

would have been

upon

strictly

and severely operative

other classes, the landed interest,

so long as

the prices of agricultural produce were maintained,

would not have made the discovery that measure calculated

it

was a

to diminish the value of all pro-

perty. It is curious

to remark, that the state of things


26 which

really

for the

first

rendered

Mr. Peel's

few years after

have been taken as the clamours against cumstances,, cive^

there

when

it^ it

its

Bill

inoperative

enactment, should

specific

ground

for

the

while, under the opposite cir-

would have been

would not have

been

pretence for the complaints of those

most violently opposed

to

it.

strictly coer-

the

slightest

who have been


27

Section

— On

II.

the

supposed Injluence of Mr.

Peel's Bill in contracting the Countnj Circulation.

As

regards,

.then_,

the issues of the

Bank

of England,,

there appears to be no ground whatever for the assertion^ that they

of Mr. Peel's

Bill.

were contracted by the operation But

is

it

contended by some of

the opponents of that measure^ that^ although

not the effect of reducing the issues of the

England^

it

greatly contracted

the

issues

it

had

Bank

of

of the

country banks^ and thus occasioned the subsequent fall

of prices.

That a considerable contraction of

country bank-notes took place subsequent to the

passing of Mr. Peel's Bill

I

am

perfectly willing to

admits and that this contraction fall

accompanied the

of prices which occurred between the beginning

of 1819 and the close of 1822 ceded.

equally con-

But how that contraction was occasioned by

Mr. Peel's torily

may be

Bill^ has^ in

no instance^ been

satisfac-

shewn.

/\

The commonly-received

opinion,

has been sanctioned by that of mittee of 1810^

is,

tlie

which indeed

BulUon Com-

that the variations in the

amount


28 depend

country bank-notes

of

and usually

Bank

of

follow,

the

amount

variations in the

of England issues.

upon,

essentially

were

If this

the

so,

argument against the assumed operation of Mr. Peel's Bill on the country circulation would be simple and conclusive.

If the

controlled in their issues

Bank

country banks are so

by the

circulation of the

of England as to follow that circulation in

regular order of time and in proportion of amount,

then

is

it

clear,

of any cause

England

issues,

must apply

the

to

Bank

And

as

it

Bank

of

to the circulation of the

Mr. Peel's

Bill

have had no influence on the of England,

or negation

the amount of

influencing

country banks.

shewn

that the assignment

would

has been

circulation of

follow, that

it

was

in-

operative on the issues of the country banks.

But there are

facts

innumerable, to prove the

absence of any immediate or direct influence of the

Bank

of England issues on the circulation of the

country

banks.

Indeed,

the instances

of diver-

gence are more numerous than those of coincidence.

And on

several occasions the tendency of the

of England, and of the

was

country bank circulation,

in opposite directions *

* It is

far in its

Bank

.

Thus, to go no further

not here meant to deny that the

Bank

of England has

power to control the issues of the country banks,

as,

it

so

by a


29 back than the year immediately preceding- that of the Mr. Peel's

passing- of

Bill,

land^ in 1818^ reduced millions^ the country

ing to

all

circulation

wards of four forced reduction of

issued in

that

Eng-

of

by nearly three

banks extended

the computations hitherto

number of stamps .

its

Bank

while the

theirs^,

accord-

made from year

*_,

the

by up-

millions. its

own paper

compel

for that specific purpose, to

All that I contend for

the country banks to reduce theirs.

is

that,

Bank has been, and under its ordinary rules, the country bank circulation may fluctuate largely, while the Bank of England paper is uniform and that the variations may be, as they administered as the

;

often

have been,

in opposite directions.

* The only materials from whence any estimate can be made of the amount of the country circulation, consist in the number of stamps issued. As the notes are re-issuable with the same stamps, and as no

allowances are

made

for contingent use,

drawn from

for

such as are retained by the country bankers

or for such as are, soon after their issue, with-

circulation by failure of the bankers or other causes

nothing can be more vague than any attempt at computing the amount

The subjoined statement gives the number of stamps and two computations, the one by Mr. Sedgwick of notes actually in circulation.

(as stated in the Bullion Report),

pamphlet on the Currency inferred from the stamps

and the other by Mr. Joplin

in 1825), of the

amount

(in his

in circulation to

:

Computation of Amount,

be


30

On

the other hand, in the interval from 1819 to

1822, but more especially after the close of 1820, while the circulation of the ins:

Bank

of England, includ-

the sovereiofns issued as a substitution for

pound

notes,

was rather increased than diminished,

that of the country banks

is

gone a great reduction.

The degree

supposed to have under-

variously computed, although stating

am

it

to

all

claimed,

after

to the utmost

it

but

of reduction

I

still

is

accounts concur in

be very considerable

ready to admit

can be

one

its

1819.

I

extent that

contend

that

such

reduction was not produced by Mr. Peel's Bill, but

was the distinct

result of circumstances

it

morally impossible for the country

banks to keep up their

issues.

Of the circumstances which the country it

totally

from any operation of that measure, and

which rendered

press

which were

bank

circulation

on the other,

planation at

I

some length

favour an extension of

on the one hand, or

re-

have already given an exin

a former work.

have been seen by that explanation, that

it is

It will

of the

nature of the circulation of country banks to be ex-

tended under circumstances favourable to a general speculation upon the prospect of an advance of prices,

more

especially as regards agricultural produce, or

upon the opening of any new to

fields for enterprise,

and

be diminished with the cessation or absence of any


31 adequate grounds

for

Now^

such speculation*.

at

the time immediately preceding the passing of Mr. The supposition of an immediate dependence of the country circulation on the circulation of the Bank of England, and of a

*

bank

consequent correspondence in a greater or of the former with those of the latter,

is

less ratio in the variations

founded upon the reasoning

of which the following passage of the Report of the Bullion Committee of 1810

may be

exceed country

district,

while the

due proportion, there

its

district,

who have

"

considered as an epitome.

issued in a country

will

an excess of paper be circulation does not

be a local

rise

of

who

it,

and

fi-om

upon the

issuers

of England paper, the quantity of the latter necessarily and

As

effectually limits the quantity of the former."

vent a rise of prices in a country paper, while ;

demand

will

England notes or bDls upon London; and thus, the

ing goes to point out the check which

rect

return that

will therefore

issued

excess of country paper being continually returned

Bank

Those

the country paper in their hands, will prefer buying in

London, where things are cheaper, and

for

of prices in that

but prices in London will remain as before.

country paper on the banker

him Bank

If

London

London

prices

and the same reasoning

is

far as this reason-

constantly operating to pre-

district

from an excess of local

remain as before,

it is

undoubtedly cor-

applies, to prove the impossibility of

any

importance in the country generally, from extended issues of

rise of

the local banks without a rise in the

London

prices.

lative advance' of prices generally originates in

In

fact,

a specu-

London, and then

it

means and inducement to an extension of country bank But in some instances the rise of prices in London, as well as

affords the

paper.

in the country, has taken place without of the

Bank

of

England

issues,

the face of a great extension of

any contemporaneous increase

and the eventual faU has occun-ed

Bank

of

therefore, of the reasoning in the preceding extract,

tion that the whole

amount

surate or identical at

of the

The

England paper.

London

is

in the

circulation

any given time with the Bank

is

of

in

error,

assump-

commenEngland

paper circulating in the metropolis, and accordingly the conclusion that a

don

is

demand upon the country bankers for demand for Bank of England

equivalent to a

bills

on Lon-

notes and re-

quires an increase of these to support extended issues of the country


32 PeePs

there

Bill,,

was a

cessation, from causes totally

independent of that measure, of obvious grounds for extensive speculation

the

summer

of 1820^

when

of any kind.

And

after

the extraordinary produc-

tiveness of the harvest began to be appreciated,

there was not only no reasonable ground for speculating on an

advance of the price of corn, but a well

founded apprehension of a

There was, accord-"

fall.

inducement to farmers,

ingly, a greatly diminished

with a view of being enabled to hold, and to dealers

and

millers with a

by the high

rate of interest

is

had

any limited period.

incorrect, as referring to

the still

which these continued

to charge long after the general rate

bankers,

from

The inducement was rendered

country banks.

planation which I gave in a former work,

Part

to increase

stock of corn, to obtain advances

their

less

view of being enabled

fallen to

In the ex-

{High and Low

Prices,

Sec. 7 .), of the expansive and contractile nature of the country

I.

and London circulation, independently of any alteration of the amount

Bank

of England notes, I referred only in general terms to the

London

circulation as being susceptible of gi'eat enlargement or con-

of

traction through the credit.

I

means

of

am

medium

indebted to

making

my

my

of more or less of resort to the use of friend

Mr. James Pennington

for the

conclusion on this point more complete.

He

has addressed a paper to me, noticing an analogy, which has not, as far as I

am

aware, before been distinctly observed, between the book

London bankers and

credits of the

banks. The point subject, that I

is

the promissory notes of country

so important, and bears so

am induced,

the paper containing his views upon

connected with

it,

in the

much upon

the present

with Mr. Pennington's permission, to insert

Appendix.

it,

and upon one or two topics

•


S3 and even three per cent

four,

Independently,

*.

then, of the other causes which have been noticed

as tending- to

diminish

,

notes, the

mere

fall

in

demand

the

country

for

the market rate of interest

below that charg-ed bv the bankers would account for

a considerable degree of contraction of their

issues.

was, therefore, the operation of the high rate

It

of interest charged by the country bankers, and the

inducement, with perhaps

little

diminished means,

and consequently reduced credit on the part of

their

customers to borrow, that so greatly contracted the country circulation in the years 1820 and

Mr. Peel's to

had ceased

Bill

be thought of

tracting

paper

be talked

sion to notice hereafter, there

among

for

the

I shall

when

in con-

have occa-

was an increased

employment of monied

persons engaged

branch of commerce.

;

or even

of 1823, when, fiom

the state of the corn trade, which

ducement

of,

the circulation of country

commencement

the

821

These causes operated

and keeping down

till

to

1

in

And

that

in-

capital

very extensive

as the largest proportion

of that class of persons are customers of the country * It

Bank

is

exactly the

same cause which reduced

the discounts of the

of England in 1820, 21, and 22, to a most insignificant amount,

and which induced the Directors

to resort to other expedients

getting out their notes.

D

for


34 banks, they naturally afforded^ under these circumstancesj

an extended channel for the issue of local

notes*. I

do not mean to say, that the absence or dimi-

nished number of borrowers

is

at all times the only

cause of a diminished circulation of country notes. In times of commercial revulsion, the country bankers

may, and commonly do

feel

the effect of the

general discredit, by having- their notes occasionally rejected, issuers.

on the score of distrust of the

And,

in

the cases in which extensive

lures of country bankers

been created

solidity of the fai-

have occurred, a chasm has

in the circulation of local notes,

which

has admitted, and even required an extension of

Bank

of

England

issues to

Peel's Bill could be g-reat

shown

If,

it.

fill

to

therefore,

Mr.

have produced any

commercial revulsion which affected the credit

of the country bankers, so as to disable them from

accommodating applicants who had adequate to call

in the

advances

—then, indeed, some

effect,

although

to offer, or to induce

already made,

*

them

security

Mr. Hudson Giirney, on being asked by the Bullion Committee

of 1819

— " What determines,

in

your opinion, the fluctuations

in the

amount of country bank paper ? " answers " The price at which the staple commodity of each district is selling for example, I consider :

:

that our circulation

would increase with a high price of corn, and

would decrease with a low price of corn corn being the :

folk."

staple of

Nor-


35 of very short duration^ might be ascribed to that

measure

in the contraction of the circulation

took place.

which

But^ although there were several ex-

tensive failures of mercantile

and manufacturing-

esta-

blishments in 1819, the greater number of these had already been embarrassed by the general stagnation

which occurred

at the close of

1818, in consequence

of the overtrading of that and the preceding year.

And, upon the whole^ the commercial

failures in

1819,

were neither so numerous nor extensive as might

have been expected from the

alteration of prices^

and

from the extent of the previous overtrading.

But as

to failures of country banks^ there

were hardly

any, and none of any consequence, at the period of

the passing of Mr. Peel's Bill, or for a considerable

time after*.

Indeed,

it

would be

difficult

to point

out an interval of equal length, in which there were so few, or in which the conntry banks enjoyed fuller credit than they did in five

1819, and in the four or

years following, or had larger balances in the

hands of the London bankers. fore,

from want of

credit,

It

was

or from any deficiency

* This comparative stability of commercial, but

banking failm-es

cleared

or

credit,

may be

unsound

the greater part, in trade

overtrading of 1818

more

especially of

as cribed to the circumstance that the great

which had occurred

away

not, there-

in 181 4-1 5-1 G, if

were

still

recent,

and had

not the whole of what had been rotten

and banking, so that the losses arising from the fell

on establishments that could bear them.

D

2


36 of power to

make

their usual advances, but simply

from want of demand, upon adequate security, for their notes, that they

were under the necessity of

limiting- their issues.

may here be objected, that the diminution of demand for the country notes might arise not only It

from the causes stated, but from the distressed condition of the farmers, in prices,

consequence of the

fall

of

which must so far diminish the number of

applicants for accommodation having good security

This

to offer.

may be granted

without proving any-

thing in favour of the assumed operation of Mr. Peel's Bill.

I

have always admitted, that a

diminished the ability of

many

fall

of the usual customers

of the country banks to borrow to the

before such

as

fall

traction of country

and became

fall,

;

and

of prices

same extent

therefore,

that,

the con-

paper was a consequence of the in its turn

an accelerating cause.

Whereas, the argument which

I

have been combat-

ing supposes that Mr. Peel's Bill operated directly in originating the contraction,

tion

and

that such contrac-

was the immediate and only cause of the

fall

of

prices.

In

fact,

the circumstances of 1820 to 1822 were,

as regards the state of the country culation, very similar to in the early

and London

what they were

part of 1828.

in

cir-

1827 and

The country bankers had

large balances in the hands of their

London bankers


37 and these, having larger deposits than usual from their

town as well as country customers, w^ere

loss for the

at

a

employment of their funds, and were thus

compelled to hold unusually large reserves, getting only a very low rate of interest for what they could

employ, and lodging

which they could not employ, It

sums

the very considerable

Bank

in the

of England.

may, however, be contended, that though the

general provisions of Mr. Peel's Bill for the resumption of cash

payments had not any material influence

in the reduction

which took place

in the circulation

of the country banks from 1819 to 18:22; yet, that the particular part of the enactment which enjoined the suppression of the

was calculated

to

1/.

country notes in 1823,

produce a considerable

inducing country bankers to

make

effect,

by

preparations for

withdrawing that portion of their paper.

The importance

of the country

1/.

note circulation,

upon the value of the whole of the currency, other words, in

my

ever

its

influence on prices, has been,

opinion, extravagantly overrated.

may be

in

and

is,

But what-

the importance of that part of the

culation, the provisions

which related to

Peel's Bill did not practically

asmuch

or,

come

it

in

cir-

Mr.

into operation, in-

as that clause of the Act, which directed the

suppression in 1823, was repealed in June, 1822.

And

there

is

no reason whatever to suppose that any

curtailment of that description of notes had taken


38 provisions of Mr. Peel's

place^ with a view to the Billj

Had

previous to the prolongation of the term.

such curtailment taken place before the bring-ing in of the Bill for continuing the circulation^ a proportionate enlargement

would of course have occurred

immediately after such prolongation

amount did not reach

lowest

its

after the passing of the

Act

years longer the circulation

The

rise in

whereas the

;

some months

till

for continuing for ten

of country

the price of corn, which

notes.

1/.

so generally

is

ascribed to the supposed influence of the prolongation, the

Bill for

of 1822,

months distinct

did

after^

not

which was passed take place

from that measure.

therefore, for imputing to

There

six

to causes totally

as

is

Mr. Peel's

the spring

more than

till

and may be traced

in

little

ground,

Bill the contrac-

tion of this, as of the rest of the circulation of country

notes*. * If Ministers

had been weak enough,

last Session, to yield to the

clamours of the country bankers, for a prolongation of the circulation of small notes beyond April next, the rise in the price of corn, which

took place so soon after the adjournment, would inevitably have been attributed, in great part, if not wholly, to the influence of the

We have

fortunately been saved, not only from the

evils of the

to

more

1/,

notes.

substantial

continuance of that system, but from the false inferences

which the coincidence of the prolongation of

high prices would have given

rise.

And

it

with the return of

there has been this further

advantage from the approaching suppression of the small notes

—that

the apprehension of the effects of the measure in cramping the circulation,

and

in increasing the value of the currency, operated in

a certain

degree to check the tendency to general speculation, which the deficiency of the last haivest

was calculated

to engender.


39

Section

On

III.

the general state

of the Bank of England during

The argument^

against the supposed ope-

far,

Currency, appears to

tion of the

and may,

the Restriction.

Peel's Bill^ in producing- a contrac-

of Mr.

ration

thus

it

of the Circulation

is

presumed^

be conclusive

be considered a

full

vindication of the correctness of the opinions ex-

pressed by the promoters of that

Bill.

But many of the writers and speakers who are opposed

to that

measure, as

if

conscious of the weakness

of their ground, frequently shift their position^ and refer to periods anterior to the passing of Bill, or to

Mr. Peel's

the appointment of the Bullion Committee

of 1819, for the origin of the evils which they ascribe to the restoration of the value of the Currency.

cording as fasten

it

suits the

purpose of their argument, they

upon Mr. Peel's

more general ground. instance of a

fall

Bill,

or they abandon

They contend,

it

that, in

for

a

every

of prices, and consequent distress,

subsequent to the termination of the war, such to

Ac-

fall is

be ascribed wholly to a contraction of the Cur-

rency, occasioned by preparations on the part of the

Bank ments

of ;

England

for the

restoration of cash pay-

and that every intermediate

rise of prices,


40 and consequent return of prosperity, are

to be attri-

buted to a suspension of such preparation,, by an en-

largement of issues upon the occasional prolongation of the Restriction Act.

But

it is

clear that the question of preparation for

cash payments on the part of the Bank, after the ter-

mination of the war, must be referred to the general

system pursued by them, in the regulation of their issues, before that

Accordingly, in nearly

event.

the discussions upon the effects of the resumption

all

of cash payments, a reference has been state of the circulation

from the

the termination of the war in

made

restriction in

to the

1797

till

1814, as contrasted

with the circulation and with prices from 1814, to the full

restoration of the convertibility of

Now,

I

am

ready to admit, that

charge against Mr. Peel's of the

Bill

Bank

notes, our

notes.

the specific

be abandoned

more general one against the

convertibility of

if

Bank

in

favour

restoration of the

judgment must be

formed upon the whole monetary history of that period. In order, therefore, not to avail myselfof what might

be considered a

cavil, if I

were

to

confine the dis-

cussion specifically to the alleged effects of Mr. Peel's Bill,

I

am

prepared to enter again upon the more

general ground of the effects upon the amount of the circulation and upon prices, of the system of our

currency during the whole period of the striction.

Bank

re-


41 I will,

the

ill

first

instance,

endeavour to show,

that the restoration of the value of the paper must

have been without the intervention of the Legislature,

and without any

effort

on the part of the Bank

the consequence of the rules observed by that esta-

blishment in the regulation of

issues,

its

as well

during, as prior and subsequent to the Restriction.

Of

the rules by which the Directors were guided

during the interval

in

which they were absolved

from the necessity of attending to the only safe guides for the correct regulation of their issues viz.

the

price

and the

of gold

of the ex-

state

changes, the information thus far before the public is

indeed very imperfect.

With

the exception of the scanty materials to be

gleaned from the evidence of the Directors before the Bullion Committees of 1810 and 1819, the

means of

judging of the working of the machinery of the Bank, are confined to the printed statements which have,

from time to time, been laid before Parliament, of the amount of bank-not.es in circulation, and of the

advances by the Bank to Government,

The

ad-

vances, however, to Government form only one of several channels through which

notes are issued.

The

Bank

of England

other principal channels are

purchases of bullion, and discounts of mercantile bills

;

and

it

must be evident

that,

without a refer-


42 ence to the amounts issued under these heads, as well as under that of advances to Government, all reasoning-

must be the most vague imaginable as

what would have been the

to

state of the circulation if

the restriction had not taken place, or had not been

removed.

A

knowledge of the quantity of bullion

coffers of the

diminish,

is

Bank, and of its tendency

the

in

to increase or

especially important, as being indicative,

with the exchanges, of defect or excess of the circulation,

compared with the currency of other

The amount

of discounts, too,

is

countries.

very material in

considering the degree in which the issues through this

channel operated, sometimes as a compensat-

ing,

and

at

others

as

an aggravating cause,

in

determining the whole amount of the circulation. Indeed, the information to be derived under these

two heads was of such obvious importance,

that' the

Bullion Committee of 1819 required to be furnished

with

it

;

and accordingly the Directors supplied

it,

but in so mystical a form as greatly to detract from its

use.

done

Following the precedent of what had been

in the case of the Secret

Committee of the Lords

in 1797, they communicated two

cash and bullion, and another of for every

month

to February,

in

scales bills

— one

of

discounted,

each year, from January,

1

797,

1819, indicating the proportions only of


43

These scales were

each, and not the actual amount.

Com-

delivered to the Committees of the Lords and

mons

1819*, with an injunction against publica-

in

which had been imposed

in

1797.

particulars of the scales delivered to the

Com-

tion similar to that

The

mittee of 1797 transpired very soon after they

been

communicated, and appeared,

Monthly Magazine^

for

in

first,

October of that year

had the sub-

;

sequently in Mr. AUardyce's book on the Affairs of the

Bank

which

in

1802

and, more recently, in a work

;

published in

I

on the State of the

1826,

Currency.

The Committee of 1819 have more strictly observed

A

the injunction.

copy of the scale delivered was,

me

indeed, communicated to

and although

confidentially,

at the time of

my

I

some* time since, but

was

last publication, I

to avail myself of

it,

as I could

ever, from

my making

question

now removed, and

should be so

;

full

was not

it

at liberty

have wished,

The

purpose of that discussion.

is

in possession of

for the

how-

restriction,

use of the information in it

is

high time that

it

ten years having elapsed since the

now matter

last of the dates to

which

of remote history

and whatever may have been the

*

The

;

scales delivered to the

the Governor of the

Bank

to be a continuation of,

it

refers.

It is

Committees of 1819 were stated by

in his evidence {p. 152,

Commons

Report),

and founded upon the same principles with,

those scales that were delivered to the Committee in the year

]

797.


44 motives which induced the Bank Directors at that period

to

withhold

it

from the public, there cannot

at this distance of time be

ground

What it

apprehending- any sinister influence on

for

their affairs

even the shadow of a

by the publication of it.

reason they can have had against making

public in 1819, along with the other information

which they supplied to the Committee of Inquiry,

am

at a loss to conceive.

So

far,

indeed,

am

thinking that any detriment can arise to the

from

this disclosure, that I consider

regret, not only

Bank

since been

made, not

only,

from

I

Bank

a matter of

it

on the part of the public, but on the

part of the

scale

I

of England, that in its

had not long

it

cabalistical

form of a

but in a distinct statement of actual

amounts.

The

public would, in that case, have been better

informed on a topic of vital importance to

Bank Directors might, by a

it

;

and the

reference to such a state-

ment, have offered a much better justification of some

management during

parts of their

the restriction,

than they did by their evidence before the Bullion

Committees of 1810 and 1819.

And

cidentally add, that the information

given

is

likely to

I

may

here in-

now about

to

have the further advantage of

be

fur-

nishing better materials for judging of the mechanism of the

Bank

of England, with a view to the discus-


45 sions which

must soon take place on the question of

the renewal of the charter.

Of lion

the correctness of the scales of cash

and of discounts,

;

for the perfect accuracy of the

to be represented

sums are the

bul-

in the following- Table, I

speak with the utmost confidence

vouch

and

by the

but

I

cannot

sums supposed

figures of the scale.

result of a

can

These

computation made out ac^

cording to a key derived from certain data, for the state of the

Bank

circulation from

1783

to

1797, ex-

plained in a table of a similar kind inserted in the

Appendix although

to I

my

last

work on the Currency.

do not engage

of these sums,

I

for the perfect

have reason

But

accuracy

to believe that they

are near the truth^ and quite sufficiently so for all

purposes of argument. in

And

it

must be obvious, that

reasoning upon a comparative view of the amount

of the circulation through different channels, the in-

ference factory

mere

is

likely to

be much more clear and

by a reference

to positive

scale of proportions.

sums than

satis-

to

a

In the following Table are

comprised, likewise, the amount of advances by the

Bank

to

Government, and the amount of bank-notes

in circulation.


I.— showing the Scale ami Amount of Cash and Bullion in the Bank; of and the Amount of Advances to Government and of Bank Notes in circulation from 1797 to 1819.

Table

Bills discounted

;

;

;


47 I

proceed to observe upon each of the heads

comprised

Table.

in this

Cash and Bullion.

Under

head the following important remarks

this

are suggested 1.

:

That the Bank was

cash payments

nounced

in

in a

condition to resume

1798, when the Directors an-

in

the prescribed form their competence

and readiness

do

to

(And

so.

it

is

greatly to be

regretted that cash payments were not^ at that time, If the

restored.)

ments

Bank had then resumed

an inspection of the table, that I

mean,

pay-

can hardly be a doubt, after

in specie, there

by which

its

little, if

little,

if

any, effort,

any, contraction of paper

would, except for a very short interval in 1800 and

1801, have been requisite for continuing vertibility

con-

during the ten or eleven years following.

The magnitude

of the

amount of cash and

the average of the period from particularly observable, having

of the amount of Cash and

its

Bank

1798

bullion on

to

1808,

is

been nearly 7-16ths

notes in circulation.

bullion

April 1798 to April 1808, both inclusive

£0,892,500

Bank-notes

February 1798 2.

to

February 1808,

That the Bank Directors

did,

£10,008,626

consequently,

during that long interval, regulate their issues with a


48 pretty constant reference to their eventual liability to

pay

in specie

what other possible motive could

for

;

they have for keeping so large a part of their capital

an unproductive state *

in

?

That a considerable

3.

influx of the metals into

Bank took

the coffers of the

place in the four years

following January, 1804, and, consequently, that the price of gold during that interval, viz.

per oz.,

4/.

indicated the utmost depreciation of the value of the

currency f. *

They might,

indeed, and I believe they did, consider themselves

bound

to preserve, at all events, such a stock of bullion as

enable

them

to assist

emergency requiring extended foreign payments half of the

might

Government with a supply upon any sudden

amount which they

;

but less than one

actually did hold,

would have been

sufficient for the purpose.

f

probable that

It is

Bank had

the

if

diciously,) bought gold at that rate, the

to the

Mint

In

paper.

fact,

its

mation, the difference against 41.

And

its

:

according to

paper was that between

who wanted

the holder of bank-notes

less value

;

in other words, they

than the gold.

The

Cash Payments

in 1819,

were

him

to

Appendix

page 317,)

own

esti-

gold for them, sacrifice

of just so

much

from the minutes

to the Lords'

relative to the

its

3^. 17*. lOJc?.

make a

to

follov/ing are extracts

of the Bank, (as inserted in the

three

actually established the

it

own paper

which they promised but did not pay, was obliged of that difference

fallen

would have been no depreciation of

by those purchases,

value of gold beyond that of

and

think inju-

as (I

The Bank might then indeed have had two or

price.

millions less of treasure, but there its

not,

market price might have

Committee on

purchase of gold.

At a Committee of Treasury, 28th of March, 1804. Resolved, That, in the opinion of this Committee, it will be advisable to attempt an encouragement to the importation of gold, by

—

offering a higher price than the coinage price

right for the it

Bank

to give Al.

an ounce, and to

will continue to give this price for three

and that

;

let it

months

it

will

be

be known, that

to come.


49

That the

4.

between January,

hiflux of treasure

1804^ and January, 1803^

being-

coincident with^

or rather preceded by an increase of bank-notes,,

compared with the amount which was tioii

when

in

the drain of the coffers of the

circuki-

Bank was

progress^ affords a strong ground of presump-

in

tion that the efflux of the metals

was not caused by

the issues of bank-notes^ however

it

power of the Bank

in the

forced reduction of 5.

its

might have been

to stop the

drain by a

paper.

That the argument which supposes a greater

diminution of the vahie of the currency, during the At a Court of Directors, 7th of June, 1804. Resolved, That tlie Bank do continue to purchase gold

at 4/.

per ounce, until the 30th of September next.

At a Court of Directors, 20th of September, 1804. That the Bank do continue to purchase gold

Resolved,

per ounce, untirthe

1st of

At a Court of Directors, Gth of December, 1804. Resolved, That the Bank do continue to purchase gold

per ounce,

until the 31st of

per ounce, for three months, from the 3 1st

per ounce, for three months, from the 30th

Resolved, Al. per

gold

at 4/.

inst.

26th of March, 1807.

tion of the

at 4/.

1805.

the 'Bank do continue to purchase

At a Court of Directors,

at 4/.

inst.

At a Court of Directors, 27th of June,

—That

4L

March, 1805.

At a Court of Directors, 7 th of March, 1805. Resolved, That the Bank do continue to purchase gold

Resolved,

at

January next.

At

the

recommenda-

Committee of Treasury.

—That the Governor be

authorized to continue to give

ounce for such standard gold as

shall be offered to the

within the period of twelve months from the present time.

E

Bank


50 restriction, than

paper and gold, tity

indicated by the difference between

is

in

consequence of the large quan-

of the metals assumed to have been let loose

from

this

country and added to the circulation of the

rest of the worlds if

opinion^

it

not,) to

it is

were applicable^ (which^ any period of the

moment be

cannot for a

admitted,

in

my

restriction,

in reference

to

the ten or twelve years immediately following the suspension.

The

larger than was

reserve of the

Bank being

commonly imagined, and the amount

of gold in the hands of individuals being siderable, the

the

rest

much

so

sum

left

to swell

still

the circulation

value of the metals;

on the general

even supposing that

effect

had not been more than counter-balanced, it

of specie

of

world must have been the most

of the

insignificant conceivable in its effect

believe

con-

as I

was, by the absorption of a large amount

by the

military chests of the

numerous

armies which were on foot during the whole interval, and, for the tilities

rope.

most

part,

engaged

over a great portion of the continent of Eu-

But the question of the

effect

engagement of the metals from the this

in actual hos-

which the

dis-

circulation

of

country had on the bullion prices of the rest of

the world will

come more properly under

discus-

sion hereafter. 6.

That the phenomenon of a very low amount of


51 treasure, with a greatly increased notes,

is

amount of bank-

confined to the interval of the five years

from the close of 1809 to that of 1814,

amount of

est

treasure^

—the small-

and the largest

issues of

paper, in that interval, being observable in 1814.

That

7.

in

the three years following 1814^ the

cash and bullion in the coffers of the

Bank expe-

rienced a most rapid augmentation, and reached an

amount,

was ever

at the close of 1817, larger than

before in possession of the Bank*.

That

8.

this vast influx of

patible with a larger

the metals was com-

amount of Bank of England

paper, than had ever before been in circulation

thus

:

affording a ground of presumption that the low state of treasure in the five years preceding

1815 had not

originated in the increased issues of the

though

it

may be

Bank

:

al-

admitted that a forced reduction

of the issues of paper would have prevented so great

a diminution of the treasure as occurred in those five years. 9.

That the great reduction of the cash and bul-

lion in the coffers of the

Bank,

in the interval

December 18 17 to February 1819, (being

nearly nine

millions,)

was accompanied by a reduction of

half that

amount of paper

*

:

from

less

than

leaving the amount of

See Mr. Harman's evidence, Lords' Report, 1819,

E 2

p. 37.


52 and the amount of bank-notes,

tieasure,

in

Febru-

ary 1819, as nearly as possible the same, both positively

and

1816;

—the whole

as they

relatively,

had been

in

February

intermediate increase and dimi-

nution of the circulation of bank-notes being

less

by about four millions than the intermediate

fluc-

tuation of treasure.

The

causes of the great fluctuations of treasure,

or, in other words, the

circumstances operating upon

the exchanges, through the

medium

of which the

efflux or influx of the metals is determined, will

be

adverted to when the column of the preceding Table, exhibiting the

amount

of bank-notes in circulation,

comes under consideration,

in connexion with the

exchanges and the price of gold.

Discounts.

The

generally received

opinion

respecting

this

channel for the issue of bank-notes, as compared with that of advances to Government, is

not only the

means

most beneficial

in

bills

it

extending the

of commercial enterprise, but that

most manageable, because, the

that

is,

it

is

the

having only a


53 short time to run^ afford to the Directors the

means

of constant control over the amount of their issues

;

whereas, in the case of advances to Government_, they possess no such control.

On

two channels

now

the advantage

the comparison of

the issue of bank-notes

for

The immediate

enter.

question

is,

of these I will

not

how

far,

according to the system adopted by the Bank, the

amount of the

circulation

and whether the

was influenced by them through the medium

issues,

;

of

discounts, were, in point of fact, so regulated as to afford to the Directors the control over the

amount

of their paper, and to admit of their preserving

an uniform value,

it

at

either with reference to the price

of gold, or to any other criterion.

According to the

avowed

in

mittees of

theory

which

their evidence before

the

Directors

the BuUion

Com-

1810 and 1819, and upon which they

appear to have acted throughout the period of the restriction, they

considered that the

demand

for dis-

counts, at the rate of five per cent, per annunr on

good mercantile transactions,

was the

bills,

founded on real commercial

and payable

at short

criterion of the real

and that they could not issue this rule.

and fixed periods,

wants of the circulation

their notes to excess

;

under

There were, however, regulations respect-

ing the form and nature of the

bills,

and the sums


54

.

allowed to be running' with and upon any particular

which had practically some

firm,

They

the application of that theory. fore,

in point of fact, act fully

which they broadly asserted

effect in

up

to, in

issues under this

did not, there

to the principle

but the rule, subject

;

only to the modification alluded

been adhered

modifying

to,

seems

have

to

determining the amount of the

head

and, as might be expected,

;

the circulation tended, so far as this source of issue

was concerned,

to overflow, or run dry, according as

the market rate of interest exceeded or

fell

short, in

any marked degree, of the rate prescribed by the

Bank.

On

reference to the preceding Table,

sible not to

From

channel.

retrograde movements,

till

their greatest height of

From

imposin the

four millions,

commencement of 1798, they

ber, 1810.

is

be struck by the great fluctuation

issues through this at the

it

rose, with

few

1810, when they reached

20^ *

millions in

Septem-

this point they fell rapidly

below

twelve millions in September, 1811, and fluctuated

between ten and seventeen millions after which, in the short viz., *

great increase of the

March, 1816

space of a year and a

by the end of 1817, they

The

till

fell

to little

amount of applications

half,

more than

for discount in

1810 was connected with the violent revulsion of commercial credit in that year, originating in the extravagant speculation 'in 1808.

which had occurred


55

two

ten millions in

By

millions.

no

Bill,

;

January, 1819, they rose again to

and there

reason to suppose^ that

is

passing of Mr. Peel's

long" interval after the (for

extend beyond the

the scale does not

beginning of 1819^) they again

fell

to or

below two

millions.

appears, then,

It

under

this

that

the issues

of the

Bank

head, instead of being within the control

of the Directors, were, by the rule of an invariable rate of discount,

and that

if

most unmanageable and irregular

the amount of bank notes in circulation

had depended exclusively on have been

liable

to the

convenient fluctuations. dwell

upon

this

point,

this

source,

it

would

most extraordinary and It is

the

more important

in-

to

because the Directors, in

urging Government to a repayment of a part of the advances of the Bank, stated that such repayment

was

essential to

of their issues.

their

possessing the

They might,

said to possess the

full

indeed, in strictness be

power over the supply of paper

through the medium of discounts, but they

a rule of not exercising

The

rule,

pie, did not,

control

made

it.

however, although unsound

in princi

in point of fact, lead to great fluc-

tuations in the total

amount of the

circulation

of

bank-notes from year to year, or to such perma-

nent excess from progressive increase as might have


been apprehended^ or

indeed^ might, and pro-

as,

have occurred under other circum-

bably would,, stances.

If the market rate of interest for such bills as

came

within

fluctuated

the prescribed rules of the

more than

it

did,

Bank had

and had likewise on

an average very materially exceeded the fixed rate of discount, and more especially

if it

had

risen pro-

gressively during the whole period of the war, or of

the restriction, not only would the fluctuations in the amount of bank-notes have been greater, there would also

have been such a constant ten-

dency to excess through

this

channel of issue,

would not have admitted of compensation by minished issues through

as di-

and the

other channels,

of the circulation would have been

total increase

greater than

but

it

But

has proved to be.

it

so hap-

pens, that the market rate of interest, for such as came within the

Bank

nor materially exceed

five

rules,

bills

did not constantly

per cent.

;

nor did

it

rise

progressively through the greater part of the interval of the restriction. bifls

was

at its highest

of the war, as

may be

The

rate of interest for such

long before the termination inferred from the circumstance

that, in the three last years of

discount at the

Bank

fell

off",

it,

the applications for

compared with what

they had been for some years before.


57

The

fact of

a rate of interest in some degree steady

at about five per cent, curities,

is

on

description of se-

this

perfectly compatible with

variations in the

money market

considerable

for other securities.

It is well

known

such

have occasionally been eagerly sought by

bills

and other

bankers

these few years

that^ within

capitalists at

past_,

a rate as low as

two per cent, per annum^ while, on mortgages or other securities

not immediately

or readily convertible,

advances were never to be had under four, and

On

quently not under five per cent.

during the war, while

and

at short dates,

about

five cent.,

mortgages or on

it

bills

fre-

the other hand,

of undoubted solidity,

were generally discountable

was

difficult to

securities

raise

at

money on

imperfectly or distantly

convertible, on any terms but such as, by annuities,

premiums, or other evasions of the usury laws, were equivalent to from six to ten per cent, per annum. It

was, therefore, the coincidence, through the

greater part of the interval of the restriction, between

the market and the

Bank

rate of interest, that pre-

vented the tendency to progressive increase and

mediable excess of issues through

might have been apprehended

if

this

the

irre-

medium, which

Bank

rate

had

been for any length of time much below the market rate.

The

principal causes of the

fluctuations in the


58 amount of discounts

at the

Bank down

to 1816^ be-

sides those which are incidental to the

growth and

varying exigencies of trade, the greater or less in-

ducement

to speculation

of commercial

credit;,

and occasional derangements

may be

traced to the financial

operations of Government.

When or

considerable public loans were negociatedj

when Exchequer

usual,

Bills_,

were issued on the money market, the imme-

diate effect

floating

was

to create

rise

by increased applications

discount at the Bank.

when Exchequer

or by the

But

Bills

was a

is,

chequer

amount than

portion of

for discount.

large proportion of Ex-

1816 and 1817, that occasioned an

almost total cessation of the the latter year.

off the

the rate of interest, hastened pro-

Bank taking a

Bills in

them

making advances upon them, there

fall in

bably by the

less

by Government not issuing so many,

would be diminished applications It

for

in the interval of loans,

were in

Bank taking a

market, that

This would

in the rate of interest.

naturally be followed

usual, either

a temporary absorption of

consequently, to occasion a

and,

capital,

temporary

or

amount than

to a larger

On

by Government of

demand

for discounts in

the other hand, the repayment five

of the loan of 1818,

millions to the

Bank, out

tended, concurrently indeed

with other causes, to raise the market rate of in-


59

and accordingly

terest,

it

will

be

by

seen_,

re-

ference to the Table^ that there was an immediate

medium

increase of the issues,, through the counts, to a greater

Government.

And

of dis-

amount than the sum paid if

the repayment by

off

by

Government

1818^ had been to the utmost extent stipulated,

in

there

is

every reason to believe that an increase^ to at extent^ would, as the

money market

have taken place

in the issue of

least the

same

was then

situated^

bank-notes through the

medium

amount of which, upon

of discounts^ to the

bills

coming within the

prescribed rules^ there was no limitation.

As

long, therefore, as the Directors

their rule of not limiting their issues

medium for

of discounts, their call

adhered to through the

upon Government

repayment of their advances, as a means of plac-

ing the amount of the circulation within their control, involved an inconsistency, as such control could only

be exercised by a departure from that rule which they had, throughout, held to be a sufficient limitation. If,

however, the Directors, had, in 1818,

to prepare for cash

the

sum

at

their issues,

which

order

payments, adopted a fresh prin-

ciple of limitation, so as forcibly to

amount of

in

it

keep down the

through that medium,

stood in the

to

commencement

of 1818, viz., to between two and three millions.


60 while the government five millions^

a reduction of the

to

be

would, in

circulation

Such

effective. all

pro-

have occasioned a rapid improvement of

exchanges.

the

might the preparation

then^ indeed^

payments be said

for cash

bability^

advances were reduced by

occurred

in

preferring

improvement might have

This

time to deter the

the alternative

Bank

Directors from

of a parliamentary in-

quiry to holding out the prospect of being able to

resume cash payments

at

any

and

definite period,

the resumption would then have taken place without

the intervention of Mr. Peel's Bill.

Such a limitation of discounts would, doubtless, have aggravated the pressure which^ previous repayment^ was

felt in

any

to

the commercial world *, and

would have hastened the

fall

And

other causes^ was inevitable. traction of the circulation,

of prices, which, from in this case,

and a consequent

a con-

earlier fall

of prices^ might have been attributed to a preparation

1818, on the part of the Bank_, for cash payments.

in

But

as

it

was_, the increase of discounts

rendered

in-

operative the repayment in 1818 by Government.

Subsequent to the commencement of 1819^ the * this

The stagnation and country, at the

failures at

partial

derangement of commercial

close of 1818,

fall

credit, in

had been preceded by extensive

Paris and Amsterdam, which,

independently of

other

causes, were calculated to produce a reaction from the facility of credit

which had just before prevailed.


61 in the

market

rate of interest^ frOiii general causes^ di-

minished the demand

for discounts, and,

under the

system pursued by the Bank Directors, led to such a diminution of their issues under this head, as, sup-

posing no other channel to have presented their paper,

would have greatly contracted the

Such contraction would have been

tion.

effect of the ordinary rule

clearly the

The

contrac-

however, as has been stated in the earlier part

of this argument, did not occur, because the

of paper issued in

came

circula-

pursued by the Bank, and not

of any preparation for cash payments. tion,

itself for

in rapidly

counts.

And

it

payment

for the

amount

gold which then

compensated the diminution of

may be observed by

dis-

the instance

of 1817, that an increase of circulation, by notes

issued against purchases of gold,

is

perfectly

patible with all the effects of high prices

com-

and appear-

ances of prosperity which have been so generally ascribed to an abundant supply of paper circulating tÂť

the exclusion of gold.

Advances

to

Government,

Statements of the advances by the Bank to govem-

ment have been

periodically laid before Parliament^


62 and have therefore always been known to such part of the public as has taken any particular interest in

But

the subject.

innumerable discussions to

in the

which the controversy respecting- the Bank tion has given

stance in which the

position with the It

is

am

not aware

of any in-

amount of advances^ during the

whole interval of the

lation.

I

rise,

restric-

restriction,

was placed

amount of bank-notes

in juxtain

circu-

however obvious, that a compari-

son of that kind

is

essential to a correct estimate of

the influence to be ascribed to this channel for the issues of the

the

amount of the whole

cir-

In the Bullion Report of the House of

culation.

Commons

Bank on

in

1819

lowing passage

(p. 8.),

" From the year 1790

to

is,

indeed_, the fol-

to the year 1797_,

Restriction Act passed, the

by the Bank

there

:

when the

amount of advances made

Government, and of the notes out-

standing on the 25th of February in each year, was as follows

:


63 does not appear to have borne, for some time pre-

much

vious to the Restriction Act^ a to the total

amount of notes

proportion

less

outstanding-, than the

advances since 1814 have borne to the notes issued corresponding periods."

in

But the inference suggested by

statement

this

would have been greatly strengthened

if

the com-

parison during the restriction^ instead of being confined to the interval

from 1814

had em-

to 1819_,

braced likewise the interval from 1797 to 1814*.

would then have been^ as

It

now

it

be seen by a

will

reference to the preceding Table_, that the advances to

Government were, during the period from the

first

suspension of cash payments to the termination of the

war^ (with the single exception of the last year of

on a smaller scale

(relatively to the

it,)

amount of bank-

notes in circulation) than they had been, on an average

of several years preceding the restriction or than they

were during the period of peace from 1814

to 1819,

more

striking

which the Table extends.

to is

But

still

the smallness of the advances to Government,

if

the comparison be, in the

first

the interval from 1797

1811, as in no instance

till

did they equal, and in ably short of the *

instance,

most cases

amount of bank-notes

Average of advances

to

confined to

fell

consider-

in circulation.

Government from

Feb., 1797, to Feb., 1814, both dates included

Bank-notes in circulation'

do.

do.

.

.

ÂŁ14,626,229 17,600,639


G4 But moderate as

is

the scale of advances to

Go-

vernment, as here exhibited, during the whole of the war^

it

would be reduced

to absolute insignificance if

we were to deduct from it the balances in the hands such balances of the Bank belonoino- to Government

beino' allowed

against so

on

much

hands to be a leoitimate set-off

all

of the advances, in their effects on

the issue of bank-notes*.

This comparative smallness of the advances to

Government completely negatives the supposition so *

From documents

laid before Parliament, in consequence of the

attentiomcalled to the subject by the repeated motions of Mr. Grenfell,

appears that the amount of the Government deposits,

it

or

balances in the hands of the Bank, was as follows :—

....

In 1800, the aggi-egate average was

In 180G,

From

Now

ditto

1806 to 1817, the amount fluctuated between 11 the average of the advances by the

...

£6,251,488

.

.

Bank

to

12,197,303

&

12,000,000

Go-

vernment, from 1806 to 1810, both years included,

amounted Average

to

of public

money

in the

.

.

14,492,970

hands of the Bank,

about £11,500,000, from which are to be deducted about

having

£500,000] for

been

unclaimed

Bank advances

dividends, these

.....

deducted from the

amount of

Leaving the actual cash advance, and the amount fore

.

.

Or little more than medium of discounts five millions,

Bank, as a medium

medium, only 3,500,000

one-fourth of the amount issued through the in the

Since the year 181C,

about

11,000,000

there-

....

of bank-notes issued through this

fihout

the

and

same

intei-val.

the pul)lic balances have been diminished to this extent the effective

for the issue of

as having been increased.

its

by

advances by the

notes, should be considered


65

commonly

entertained and reasoned upon as a point

beyond doubt, that the Bank was rendered by the restriction a

ment

mere engine

for facihtating its

whether

this

in the

hands of Govern-

And

financial operations.

moderation

in the

amount of advances

resulted exclusively from the forbearance of Govern-

ment

in not requiring", or

from the firmness of the

Directors in refusing* such accommodation,

tends (especially

when combined with

tion of the large

amount of treasure

the

Bank during the greater

equally

the considera-

in possession of

part of the restriction)

Government

to strengthen the presumption, that the

and the Directors

it

of that period were sincere in the

declaration, that there constantly existed, on the part

of both, a reference to the eventual resumption of

cash payments. In

fact,

the whole charge of an undue proportion

of the issues of the is

Bank

in

advances to Government

confined to the two last years of the war, and the

five years following the peace.

But

advance that was ever made, for a short interval, the

will

it

hereafter, that, in the instance of by

1814, when,

amount reached nearly 35

millions, the increase in the circulation

casioned was

the largest

fl^r

viz., in

which

not sufficient to check a

price of gold, which was then

the temporary increase of

be shown

fall

in progress.

Bank paper

it

oc-

in the

Indeed

at that precise

F


66 period, was called for to

make up

for the

sudden

deficiency in the general circulation occasioned

considerable country banks,

the failure of several

which occurred

had not been

it

notes through

would, in

all

for the additional supply of

this

channel,

probability,

stances

bank-

have been made up by a

was the case

somewhat

if

whole difference

the

proportionate increase, through the discounted, as

And

July and August of 1814.

in

by

medium

of

bills

1810, under circum-

in

similar, with

regard to the dis-

credit of the country circulation*.

Every instance vernment tions

to the

since

Bank

which have of

1814 of repayment by Go-

has, in late

most of the publica-

years

appeared on the

subject of the Currency, been adduced as a proof,

or presumption of a preparation for the resumption of cash payments.

But how happens

it, if

such were

the only view of Government, that there should have

been instances of repayment of a large part of the advances,

when no such view can by

inferred ?

Take, for example, the reduction between

possibility

be

February and August, 1805, from 16,826,000/. to 11,368,600/., besides other instances, although not

*

See the evidence of Mr. Thornton, Lords'

Payments, 1819,

p, 11

—" In

Report on Cash

the latter part of the year 1814, de-

mands were made upon the Bank

to supply the deficiency in the

country, particularly in Northumberland and Durham.'


67 quite so striking, which the Table exhibits in the

between 1797 and 1811.

interval

has likewise been assumed, that the urgent appli-

It

cations

made by

the Bank to

and especially in 1818,

for a

Government

since 1814,

repayment of a part of its

advances, were the consequence of the near approach of the terms fixed by the successive restriction acts for

the eventual resumption of cash payments. will

But

it

be seen by a statement in the Appendix, extracted

from the Report of the Lords' Committee, 1819, p. 277, of the applications from the Chancellor of

the Exchequer to the Bills,

Bank

and of the answers of the Bank,

nearly every occasion

Exchequer

to purchase

upon

that,

when those advances exceeded

the usual amount, the applications were complied

with reluctantly, and stipulations

ment

at

that

was not merely a matter of

it

short

intervals.

It

made

appears, tacit

ing, but of clear stipulation, that such

should be

made

;

and

it

for

repay-

therefore,

understand-

repayments

must be obvious, that they

would have been made without any reference whatever to the prospect of cash payments, as soon as suited the financial arrangements of

make them*. *

Government

it

to

In the only instance in which the re-

There can be no doubt that the financial arrangements of Go-

vernment might and ought

to

have been so made, as

to fulfil with

the utmost punctuality, the stipulations of repayment to the

F 2

Bank


68 payment seems

accelerated^ (for

m

have been

to

it is

the slightest degree

only a question of

the five millions in 181 8_,

it

has been seen that such

repayment was immediately neutralized on the circulation

in its effect

and a similar consequence of a

;

compensation by discount would have followed,

had been made,

further repayment

which the money market then was. terest in

the

rising', or, to

money market, money was

partly in

the

1818 was

a

if

in the state in

The

rate of in-

use the language of

in increased

consequence of a commencing

spirit

of

tirae^) viz._,

demand

;

reaction, from

had

of general speculation which

just

before prevailed, but chiefly, as has been observed, of the great financial

consequence

in

operations

of the continental governments, especially of those

Of

of France and Russia.

would be

Now,

or

however

by our own Government, to the Bank. as the

market rate of interest was already

Whatever occasional

sacrifices

greater solidity of

Indeed

positive loss

the system of finance which it

would be no

was incurred

in

most

difficult

made up by

the

such punctuality

matter to show that a

of the instances in

funded debt had been suffered to accumulate. of 1812 and 1815 were

at.

were made for the preservation of

punctuality in repayment, would have been amply

supposes.

by a repay-

temporarily/ further increased

ment, to however small an amount, effected,

demand

course, such

which the un-

Thus the

made on much worse terms than

large loans if

the

sums

required for 1811 and 1814 had been at once provided for by funding.

And

the

same remark

applies to the

unfunded debt

in 1817.


69 or rather above five per cent., any additional repayment

by Government would inevitably have had the

effect

of greatly increasing the inducement to discount at

Bank

the vast

;

and as there

amount of

Bills of

is

necessarily in existence a

Exchange^ (coming within the

prescribed rule of the Bank,) which are usually dis-

counted by bankers and other private channels, or held ^for maturity by the payee,

no particular demand,

is

it

when money

in

is

perfectly conceivable,

that in the case supposed_, so large a proportion of

those bills might be sent into the

Bank

as

would

actually enlarge the circulation in a greater degree

than that in which the repayment was calculated to contract

it.

If the circumstances tending to

rate of interest

above

five

keep the market

per cent, had been of a more

permanent description, every repayment by Government, subsequently to 1818, would have been

tended with a counteracting

effect

on the

circulation,

through the medium of increased discounts it

at-

;

and

if

had then been found that the maintenance of the

amount of the

circulation

was incompatible with a

compliance with the provisions of Mr. Peel's

Bank

Bill,

the

Directors must have been reduced to the alter-

native of hastening the repayments by

Government

keeping down the discounts

at the

same time,

forcibly

to the

amount

which they were immediately before

at


70 such repayment.

Or^ failing of being able to obtain

such repayment^ they must have reduced the

dis-

counts forcibly from their former amount, or (by a deviation from the practice which they

had before

uni-

formly observed, but from which they have since, I

believe^ departed)

have sold Exchequer

the market at a discount^ terest

if

the market rate of in-

had been, as here supposed,

Upon any

cent.

at or

above

per

five

of these suppositions, which were,

Mr. Peel's

at the time of the passing of all

Bills in

Bill,

not at

improbable, the provisions of that Bill would

have been operative what

it

in

reducing the circulation below

would otherwise have been.

has been before observed, operative coincidently, as

it

the

Although,

Bill

if

as

had become

might have done, with

a bad harvest, and a consequent rise in agricultural

produce, to those

we

should have had no complaints similar

which have been preferred against

But the circumstances which raised the

it.

rate

of

1818 were not of a permanent cha-

interest

in

racter.

The

tinental

governments, and the funding by our own

loans to the French, and other con-

Government, did not cause an absorption of monied capital, as

in

the case of a

war

;

they merely oc-

casioned an alteration in the direction of

was only while that

alteration

was

in

it,

and

it

progress that

they could have any influence on the rate of interest.


71

As

soon, therefore, as the operations connected with

those loans were completed, the rate of interest tended

Even

to its former level.

state of the

effort

;

and there would,

have been no consequent tem-

in all probability, rise in

as would

on the part of Govern-

make a further repayment

to

porary

autumn of 1819, the

money market had become such

have entailed no great

ment

in the

the rate of interest

only might have been a

little

;

further, fall

its

retarded

:

and there

would not have been any increased application

for

discounts in consequence.

But subsequently rate

to the close of 1819, the

market

of interest progressively declined during the

following three or four years, and the repayments,

which

it

then suited the financial views of Govern-

make

ment

to

debt,

were not attended by any counteracting

in

of the unfunded

the reduction

on the amount of the

circulation,

effect

by applications

increased discounts at the Bank.

Mr. Peel's

for

Bill

was consequently inoperative, as has already been shown, in occasioning the repayments beyond those

which were made

1818, and which were com-

in

pensated by increased discounts.

But although thus

inoperative, yet having been accompanied by a

of prices, from causes totally distinct,

shown

hereafter,)

it

(as

will

fall

be

has been fastened upon as the

exclusive cause of that

fall.


7^

BanJc-Notes in Circulation.

In estimating- the influence to be ascribed^ either to

amount of bank notes within

the fluctuations in the

short periods,, or to the increase which

on the average

in the later,

earlier stages of the

Bank

as

is

observable

compared with the

restriction^

it is

necessary

premise that the circulation was contracted in

to

a very unusual

degree in February^ 1797^

when

cash payments were suspended.

The subsequent

increase of bank-notes^, therefore,

supposed to be

occasioned by the restriction, should not be com-

pared with the amount

in

February, 1797, but with

the average of the five years preceding, viz. about

10,500,000/.

down

It

is

likewise to be observed, that,

to the period of the suspension of cash pay-

ments, there were no notes in circulation in England

under the

51.

The

increase, therefore, as exhibited in

which

preceding Table,

amount of bank-notes

includes

in circulation,

the

should be sub-

ject to the deduction of the notes under 51. filled

whole

;

which

the place of the guineas that disappeared from

the circulation.

A statement

will

be found

tinguishing the notes of

under

51.

5/.,

in the

Appendix,

dis-

and upwards, from those


73 In the

first

instance^ however^ I shall refer to the

amount of Bank of England notes

total

in

circu-

contained in the preceding Table, in juxta-

lation, as

position with the three principal channels through

which

issued.

it is

heads of cash, discounts, and advances,

If the

comprised

all

the channels through which bank-notes

were issued or cancelled, and

if

the dates in the

columns under each head coincided, that the variations in the

it

gate of the three columns. that I

Bank,

for

am

aware

of,

obvious

amount of bank-notes would

correspond exactly with the variations

rials

is

in the

aggre-

But there are no mate-

out of the possession of the

making the dates coincide

;

and, more-

over, there are other channels, besides those

enume-

rated in the Table, through which the paper of the

Bank

way

finds its

balances of public

form one the

;

Bank

as any posits,

money

England

of the

acts in

the

individuals, to

the

London bankers,

Bank upon

whom

same capacity

in

receiving

and answering cheques, form another.

were likewise, during the

the

hands of the Bank

in the

and the balances of of

Of these,

into circulation.

restriction,

the scrip receipts of the

de-

There

advances by

Government

loans.

The

variation of the issues, through these chan-

nels alone,

must occasionally have been consider-


74 able:

sometimes proceeding- in conjunction,

Thus they

sometimes in compensation.

will,

and inde-

pendently of the difference caused by difference of dates, account for a great part of the discrepancies

observable

between the variations of the

bank-notes in circulation, and those

of

total

the

of

ag-

gregate amounts under the three before-mentioned heads.

Upon an

inspection of the Table,

remark how

is

it

small, from year to year,

whole period of the

restriction,

obvious to

during the

were the variations

of the amount of bank-notes in circulation *, com-

pared with those under the three principal heads of issue.

issue,

It

follows,

therefore, that these heads of

combined with the

and individual

deposits,

issues against

Government

must have generally been

under the influence of a principle of compensation. It

might, indeed, at

first

sight be supposed, that

the Directors, having neglected the consideration of the exchanges in the regulation of their issues, had substituted for their guide a reference to the

of their notes in circulation

;

amount

and had controlled

through each of

its

several chan-

nels, so as to preserve a considerable

degree of uni-

their circulation,

*

The

instances of the greatest sudden increase occurred in 1810

and 1814, when the enlarged issue the

chasm occasioned

and the stagnation of

of

Bank paper was made

in the circulation credit.

by the

to supply

failure of country banks


75 But

formity in the amount. case.

tliis

was not

Tlie issues against deposits of the

and of

were not

individuals,

trol of the

The

Bank.

at all

really the

Government

under the con-

variations in the

amount of

treasure were dependent on the exchanges^, which the

professedly disregarded,, and over which

Directors

To

they disclaimed the exercise of any influence.

amount of discounts, provided the

bills

the

came under

the prescribed regulations, and were offered at the rate of five per cent, per

annum, there was no

And, with regard

limitation.

Government, (although their rate, to

effectual

to the advances

total

to

amount was mode-

an exemplary degree, through the whole of

the war,)

it is

well

known how

little

reliance

was

to

be placed upon the punctual fulfilment of the stipulated conditions of repayment.

having had so

little

The Bank,

therefore,

direct control over the different

channels for the issue of

its

paper, the approximate

uniformity of the amount in circulation must have resulted from

some

principle of compensation inherent

in the routine of the

Bank, during the whole interval

of the restriction.

What it

this principle

was, and the manner in which

operated, cannot be fully explained without a

more

complete knowledge of the internal working of the

machinery of the Bank, than the public possess, It

certainly had,

however, a close connexion with


76 the state of the

with the rate of

money market,

or, in other

may be

interest_, as

words,

partly collected

from the following extracts of the evidence of Mr.

Thornton before the Lords' Committee on the Resumption of Cash Payments

in

1819.

Report, pp.

:—

233, 234

" Does

Bank

not the

abundant supply of

its

find

by experience that an

paper, whether issued for

the purchase of gold, for advances to Government, of Exchequer

or for purchases

Bills,

by enabling

bankers and merchants to discount commercial

Bank

at a lower interest than the

discounting them, diminishes the

Bank

for discounts at five

is

bills

in the habit of

demand upon

the

per cent., and of course

diminishes the amount of their profit on that part of their transactions ? *^

When the amount of circulation is abundant,

general rate of interest of money

demand on the Bank is

small.

I

tion,

as

it

Bank

it

to

brings them nearly an equal profit as an

on Government

Does not

securities at a this

direct pecuniary

I think

it

is

then advanced

low rate of

interest.

circumstance give the

interest in

abundant issue of their notes ? '*

be more advan-

to maintain a reduced circula-

extended circulation, for a great part

^*

low, and the

for discounts at five per cent,

have always held

tageous to the

is

the

does."

Bank a

not making an over-


7t Leaving- the causes^ and recurring to the fact of the

absence of considerable variations in the amount of

Bank

the

circulation

under consideration,

from year

to year, in the period

important to remark that

it is

it

negatives the supposition of violent changes in the

Currency having- been produced by the Bank

and completely

tion*,

*

As

the

refutes

a specimen of the charge against the

restric-

assertion, that

Bank

restriction, of

having produced violent changes in the quantity of the paper circu-

from Sir James Graham on Corn

lation, take the following extract

and Currency, &c., " Mr.

Pitt,

striction,

p. 28.

when he

Bank

introduced his bold measure of the

re-

which rendered the paper of the Bank of England no longer

convertible into cash on

beyond the

will of the

demand, and imposed no

Government, or the caprice

declared, with prophelic warning %

charged with paper,

it

'

that

if

limit

on

its

issues

of the Directors,

the country be once sur-

would have as ruinous

effects

would be

as

produced by lessening the quantity of the paper circulation

;

a sudden

diminution of the paper currency would prove the most violent shock

which the trade and

credit of this country could receive.'

" Notwithstanding this sound prediction from the

measure, his successors,

who

author of the

profess to tread in his steps,

and to

venerate his nanio, have despised the warning, have rejected the admonition, and applied the power precisely in the two modes which

Mr. Pitt thought most dangerous. with paper

;'

— there

not once, but repeatedly

rency,'

each violent change, tions

'

;

'

sudden diminution of the cur-

and exactly as Mr.

in either direction,

in as far as the quantity of it is

it

was before

of

England paper

was not

is

con-

so great during

the suspension, and has been since

the resumption of cash payments. *

Bank

"

quite certain that the fluctuation

the restriction as

Pitt foretold,

has shaken to their founda-

the trade and credit of the country."

Now, cerned,

The country has been surcharged

'

has been a

And

HA^SABD's Parliamentary Debates,

as to the

amount of that

vol. xxxiii. p. 71.


78 any great contraction was made^

in preparation for

cash payments^ prior to 1818, which year

But although the

consider separately.

amount of the

in the

from year whole

ytm\ was

to

upwards

it

to

of England,

was nearly doubled

;

Yet

descriptions nearly trebled.

the,

end of 1817, was

the,

In notes of

very considerable.

fluctuation

so small, the increase in

from 1798

'period,

Bank

issues of the

I shall

five

and

pounds and notes of

in

all

at several intervals

of that period, the exchanges and the price of gold *, after

a great

intermediate divergence from

par, exhibited a tendency to revert to

it

their

coincidently

with a larger issue of bank-notes than were in circulation

when

the exchanges were at their lowest, and

the price of bullion at

its

of that period, viz. in 1817, the

notes in circulation being then at

changes rose to par; gold

and

fell

amount than

establishment.

it

its

highest, the ex-

to the

therefore,

as regarded the exchanges

England,

it

is

is

end

Mint

price,

Bank

to a

had ever possessed since

The Bank,

part of the circulation which

at the

amount of bank-

bullion flowed into the coffers of the

greater

tion,

And

highest.

was

and the

in

its

a situa-

state of its

exclusive of the paper of the

Bank

but too well known, that the violent changes which

of it

has experienced have not been confined to the interval of the restriction.

But

if

been greater than

it

the uniformity of the circulation of the

was,

it

Bank Bank had

would not have been a compensation

the manifold evils attending an inconvertible paper currency. *

For the exchanges and price of gold,

see the Appendix.

for


79 treasure,,

had begun

The

resume cash payments^ which indeed

to

it

partially to do.

fair

siderations

presumption from the preceding conthat if there

is^

had been no suspension

payments^ the amount of the circulation

of cash

would, in the absence of the depressing causes^ or of those

termination

at the

nearly,

if

not

equal

quite,

have been

intervals^

to

what

it

actually

was.

This conclusion time it

may appear

will

is

to

be necessary

more length than proof of

it,

I

so important^ and at the

many persons

me

for

to

so startling, that

enter, at

had intended,

same

somewhat

into the further

as afforded by several striking facts at

different epochs of the

Bank

restriction.

In the two years immediately following the suspension of cash payments, the exchanges were so high,

and the in

influx of bullion so great, that the

Bank would,

a convertible state of the Currency, have been jus-

tified in

issuing a greater

then in circulation.

amount of paper than

it

had

In February 1799, the amount

of bank-notes was only 12,636,145, (including about

1,450,000 of one and two pound notes,) while treasure was upwards of nine millions.

of gold was

change 37.7.

most correct

3/.

175.

9f/.,

price

and the Hamburg ex-

The Bank might principles,

The

its

then,

have increased

upon the its

issues


80 (in

any way that would have preserved

its

control

over them) to fourteen or fifteen milHons.

But

1799^ and more especially

in the course of

towards the close of that year, there arose a combination of circumstances which entailed the necessity for the

payment of

uniisualli/

violent commercial revulsion which took place at

burg

in the

autumn of 1799,

vagant speculations

The

large sums abroad.

Ham-

in

consequence of extra-

in colonial

produce^ required,, on

the part of the merchants here^ an immediate transmission of funds to a very large amount. sufficient extent to

obtained, have been nego-

if

Hamburg at the moment of such a

of credit.

The

a

meet the exigency could not be pro-

cured^ and would not, ciable at

Bills to

suspension

only alternative was, to send bullion,

which was accordingly exported

(chiefly

silver)

in

large quantities.

The

harvest in this country had failed

such

to

an extent as to require an unusually large importation of corn, which, as

tinent of

Europe and

obtained

at

it

in

was scarce on the ConAmerica,

very high prices.

could only be

The war on

Continent was resumed on such a scale to create

of

an absorption of gold and silver

military chests

by

as,

;

but

it

subsidies to foreign

the

itself,

for the

was, moreover, accompanied

powers from

this

country,

which rendered our foreign expenditure unusually large*


81

Under

the exchanges

these circumstances^

without any

previous enlargement

paper

the

of

fell,

worth mentioning-, and with an actual amount of circulation

much below

the state of

its

what,

with

reference

to

treasure, the

Bank would have been

justified in issuing, previous

to these occurrences.

exchanges should

have

warned

the Directors to contract their issues.

On

the con-

This

of

fall

the

however, they enlarged

trary,

2oth February,

1800,

there

them,

was

on the

for,

an increase

of

2,000,000 compared with August, and of 2,600,000

An

compared with February preceding.

enlarge-

ment, however, to the same extent, would, in

have taken place

bability,

Currency,

been the

(or, if

1799,

in

it

a convertible state of the

had been enlarged, as

commencement of 1800.

advances

to

On

extended

proportion still

of

large,

further It

improbable, that the amount of

similar grounds,

1800,

and in circumstances

have stood

in other

respects

analogous, in 1795, the Bank, while paying in specie,

its

too, in 1824,

the

might have

Government, were most urgent*.

bank-notes would, in February, *

The

notes in circulation was

not, therefore,

singularly

it

applications for discount, and for

and the

pro-

would not have been contracted,) at

it

treasure to the

is

in

all

issues.

It

had likewise done so

in 1781.

More

recently,

under a convertible state of the Currency, the issues of

Bank were

increased in the face of a falling exchange, and a drain

of treasure.

G


82 state of the Currency, as

under a convertible

viz. in

fifteen

milUons*.

of a second bad harvest in succes-

The occurrence sion,

about

restriction^ at

under the

did

it

1800, rendered importations of corn

necessary, through that year and 1801, on a larger scale than ever

and

;

all

the political causes tending

exchanges were

to depress the

increased operation.

in

Under such

limitation of issues, at least to the

they stood in the

commencement

been expedient.

or rather

full,

circumstances, a

amount

of 1799, would have

culation at a nearly uniform (to

ary 1800,)

which

till

Bank

Instead of contracting, the

was, by the restriction, enabled to keep up

millions,

which

at

it

its

amount of about

had been increased

the force of the

cir-

fifteen

Febru-

in

disturbing causes

which had operated upon the exchanges reached

its

maximumf The

harvest

preliminaries early in

of 1801

of

proved

and

peace with France were signed

The exchanges

October of that year.

* If the paper

abundant,

had then been

convertible, so powerful were the cir-

cumstances operating upon the exchanges, that a considerable contraction of the circulation

would have been necessary

;

or, if

enlargement had taken place, a forcible limitation to

amount, by the Bank refusing the increased applications

and

for

treasure,

advances to Government,

and

to preserve

its

in

no previous its

original

for discounts,

order to check the drain on

power of paying

its

its

notes on demand.

t The lowest quotation was, in January 1801, 29.8 on

Hamburg.


83 thenceforward

exhibited

improve-

tendency to

a

ment, and rose in January^ 1804, to 36.4 on

Ham-

burg, and to 25.10 on Paris, coincidentli/ with an

of the Bank circulation

increase

than seventeen millions.

to

somewhat more

In this state of the ex-

changes, and with a consequent tendency to an flux of the metals, or, at

tion of

rate,

with a total cessa-

any inducement to the export of gold,

Bank had in

any

my

in-

if

the

not thought proper (very injudiciously,

opinion)

and thereby

to

give

4/.

per ounce for gold,

to establish a depreciation of

its

own

paper to the extent of the difference between that

and the Mint

doubt that

price, there is little reason to

the price would have fallen to price of dollars did

3/. 17*.

in 1804,

fall,

It is quite clear, therefore, that

to

\0\d.

5.5.

The

per ounce.

the value of the Cur-

rency of this country had been restored to a par with that of the continent.

In the interval, then, of

five years,

between the

beginning of 1799 and the beginning of 1804, there

had been an

alteration in the value of the

of this country,

compared with

Currency

that of the Continent,

as indicated by the exchanges, of upwards of twenty

per cent.

;

and

in the

value of paper, compared

with gold, of about ten per cent*. * There

is

no quotation of standard gold

gold was quoted as high as

4/. 5^.

in this interval;

per ounce.

g2

but foreign


84 But the value of our Currency had recovered^ according to one

test,

completely to par, and, ac-

cording to the other, to within the merest it

;

not

only without any

coniraciion,

trifle

but

of

coin-

cidently with an incrtase of two millions of bank-

notes at the end, as compared with the beginning, of that term.

Whatever,

therefore, might

have been the

inttT-

mediate contraction necessary to counteract the depression of the exchanges in 1800 and 1801,

if

the

paper had then been convertible, there inust have

been a subsequent increase of the Bank

issues,

till

1804, to the amount which they actually attained

by that time,

viz. to

about 17,000,000/*.

Between 1804 and 1807, the war between the great powers of the Continent was again renewed,

and caused a further foreign expenditure by our Government.

There was, moreover,

in

1805, a consi-

derable importation of corn, in consequence of the deficiency of the harvest of 1804.

* T

should say

to, at least,

that

amount

;

The exchange on because, in

all

probability,

when disturband more rapid influx

the intermediate contraction would have been followed,

ing causes had ceased to operate, by a greater

of the metals, and the payment in bank-notes for the extra quantity, would (other things being the same) have occasioned a temporary ex-

tension of the

reached.

Bank

issues

beyond the amount which they actually


85

Hamburg, from these

causes,

was depressed^ towards

the close of ISOo^ as low as 32.9*.

But as the depressing- causes were

than

far less

those before mentioned^ both in degree and duration, the exchange gradually recovered to 34.10 in 1807.

This tendency to improvement continued, with trifling

into the

fluctuations^,

the exchange on

beginning of

Hamburg having

1808^

reached 35,5 in

July of that year^ notwithstanding that the foreign

expenditure of Government had been considerably creased,

and that the

issues of bank-notes

in-

had ex-

perienced no intermediate contraction worth mentioning.

From

the

cursory

of

the

circulation

state

ending

in

1809,

it

stances producing

however,

(chiefly,

1804)

in the

country.

glance

here taken

the

at

during the eleven

years

appears that there were circum-

sudden and in

the

great

interval

fluctuations

from

1799

to

balance of payments from and to this

But the Bank

circulation,

during

the

greater part of this interval, exhibited a gradual

progress of increase

;

during which the exchanges

* It seems doubtful, whethei*,

if

the paper

had been

convertible,

material contraction would have been required on this occasion treasure of the

Bank having been

;

any the

so considerable as to have ad-

mitted, without inconvenience, of an export of bullion to such an

amount as

to counteract the causes operating

on the exchange.


86 and the price of gold showed a constant tendency to revert to par^ whenever the force of the disturbing

causes abated.

A reference,

therefore, to this interval_, not only

negatives the charge of sudden changes in the amount

Bank

of the that,

circulation, but confirms the conclusion,

under the system pursued by the Directors,

(however erroneous their theory) there was a constant tendency to a restoration of the value of the paper, without any visible effort for that purpose in the regulation of their issues.

But the circumstances which were calculated

to

disturb the Currency, in the relation between paper

and gold,

in the interval

which has here been

briefly

sketched, between 1797 and 1808, were as nothing in

extent or duration compared with those which

operated between 1808 and 1814. In the

commencement of 1808, the exchanges

and the price of bullion were nearly

amount of bank-notes,

in

9,000,000/.,

on

of

an

the circulation great actual

and

ported commodities*. * It

began

is

speculations

prospective

The

effect

scarcity

:

more

or

than one-half the amount of the paper. state

the

February, was 16,873,054/.

above

the treasure being

at par;

In this arose,

of

im-

of these specu-

of importance to observe that these speculations, which

at the close of 1807,

were not preceded, nor, during the greater


87 to induce importations in the following

was

lations

year on a scale of unprecedented magnitude, and the payments for a considerable portion of them

made

were, of necessity,

The

in anticipation.

here alluded to were in progress,, and

culations

had attained

their greatest height, before

part of their progress, accompanied by any increase in the

Bank

But the extraordinary

paper.

modities, in

spe-

some instances of 100

any en-

amount of com-

rise of prices of nearly all

200 per

to

cent.,

could not have

taken place without an expansion of country and London paper, and

supply the means of successive purchases at such greatly

credit, to

advanced prices, while the amount of Bank of England paper

mained

As

stationary.

the extent of the articles

embraced, and the per centage of advance,

it

greater than that which occurred in 1824-5,

I

should apply to

computation somewhat similar to that which

I

had occasion

when

referring to the latter period, estimating

part of the circulation, which

and coin,

The Bank

viz.

is

exclusive of

did enlarge

somewhat prolonged

its

that

speculation,

But

it.

if it

is

may

of England paper

be considered as having this

im-

accompanied by an enormous increase of Loncredit,

began, and had rim nearly

Bank

paper,

it

is

no

its

less so

termination was, not only, not occasioned nor even hastened

by any contraction of Bank paper, but that ceded by an enlargement of issues of notes

it

—the

was immediately pretotal increase of these,

between the beginning of 1809, when the speculative

had reached

its

height, and the

vulsion of credit occurred, increase,

a

the increase of that

Bank

worthy of remark that

career without any extension of its

it

make

circulation just before the termination of the

don and country paper and full

to

of private credit, to have been upwards of 50 per cent.

speculation, viz. in 1809, and, so far,

mense

re-

the speculative rise of prices was, both as to

the

greatest

that

autumn

of 1810,

rise of prices

when the

great re-

being no less than six millions.

occurred during the

whole

This

period

of

same time, was upwards of 30 per cent, February 1809, and upwards of 40 per cent, on

the restriction within the

upon the amount in the amount as it stood

in

August 1808; and, great as was

this in-


88 largement took place

the issues of the Bank.

in

There was, indeed, an inconsiderable increase be-

1808 and February 1809.

tween February

But

while the variation in the amount of bank-notes was thus trifling,

1808^

fell

exchange, towards the close of

the

considerably*

;

in

consequence, partly, of

the preparations by anticipated

payment

for the large

imports which were forthcoming in the following year, and, partly, of an increased foreign expenditure by

Government. In 1809, the causes tending to depress the excrease,

by the

was

it

insufficient,

discredit

some

time, to

paper.

The

for

private

of

in

refer,

to

and

;

this instance,

there were no other,

if

proof of the position to which of the susceptibility of the

expand and contract

or contraction of as there

Bank paper

was there any

astrous termination.

*

proves, likewise, that,

great a speculation,

from that circumstance against

The only

its

It

or inducement arising out of the in-

if

the

Bank had

Exchange on Hamburg, December 1808,

indication lation

;

contracted

issues in 1809. 31.3.

It

remarked, that the speculations, and consequent great

had proceeded

its dis-

difference seems to be, that the catas-

trophe might have been somewhat hastened instead of extending

would be decisive

coiTesponding enlargement

to the origin of so

security

is,

country and London circulation

without any

facility

therefore,

have so often had occasion to

of England paper.

was no peculiar

convertibility of

neither

Bank

I

chasm caused

the

had been more than 50

that the previous growth of the circulation

per cent.

fill

inference,

may

here be

rise of prices,

to a very considerable extent long before the slightest

was given by the exchanges of any excess

in the circu-

thus furnishing another instance, in addition to those which I

had occasion circulation

exchanges.

to give in a former work, that

may

exist for

some

an excess

interval before

it

is

in the general

indicated by the


89

.

changes operated with increased port

of

rendered

corn,

by

necessary

harvest in this country, was

An

im-

the

wet

force.

now superadded

to the

large imports,, in progress, of other commodities, and

the foreign expenditure of

At

extended.

Government was

further

same time, increased obstructions

the

arose to the export of commodities, and to the ne-

The exchanges,

gociation of bills on the Continent.

from these causes, continued to that on

Hamburg was quoted

the close of that year. quotation of standard 4/. lis.,

and

as low as 28.6 at is

no

rose

to

Foreign gold (there gold

in

and

rapidly,

fall

this

year)

silver (dollars) to 5s. Id.

Under

cir-

cumstances operating so violently on the exchanges, the Bank,

if

the paper had then been convertible,

must have contracted, its issues.

But

it

or, at

least,

strictly

limited

enlarged them, though not very

considerably, say by about one million at the close

of 1809, and by about one million

ary 1810,

when the

Notwithstanding

more

in

Febru-

circulation stood at 20,429,281/. this increase

of bank-notes,

great commercial revulsion began in the

a

summer

of 1810, as a consequence of the extravagant speculations, connected with a great extension of credit,

which had occurred

in

the

two preceding years.

Besides numerous and extensive mercantile failures.


90 no fewer than twenty-six country banks

The

failed.

applications for discount at the

Bank of England

to an unprecedented height,

and an addition was

made

of four millions to

amount,

in

its

circulation,

rose

making the

August 1810, 24,446,175/.— the greatest

amount which

it

reached before the termination of

the war.

But

this addition to the

Bank

circulation of nearly

eight millions, compared with the

amount

in

Febru-

ary 1808, and of six millions and a half compared

with the amount in February 1809, was hardly cient to

fill

suffi-

the void in the general circulation created

by the diminution of banking and mercantile

credit.

For, notwithstanding a greatly increased import of corn,

and an increased foreign expenditure, with

greater obstructions than ever to exportation from this country, the

exchange on Hamburg, which

1809 had been as low as 28.6, to 31.6

1809

and the price of gold

fell

October 1810,

from

41. I2s. in

to 41. 4s. Qd. in 1810.

It is

1809,

;

rose, in

in

highly probable, therefore, that although, in if

the paper had then been convertible, a con-

traction or a coercive limitation of bank-notes mig-ht

have been necessary, a great enlargement would have been required

in

1810.

Between August 1810 and February 1812 a

re-


91 duction took place to the extent of one million and

a

half, viz.

from £24,446,175, August, 1810, to

.

.

£22,998,187, February, 1812,

be seen hereafter, with a con-

(coincidently^ as will

siderable ever,

rise

was

This

of prices).

insufficient to

check the

changes;,

and the consequent

bullion.

The imports

article of

wheat reached,

rise

reduction, fall

in

how-

of the ex-

the

price of

of corn, (of which the single in

1810, to the extent of

1,500,000 quarters, and made an item of no less than seven millions and a half; the average cost, including the freight least

lOOs.

the

by foreign ships, being

quarter,)

the

enlarged

at

of

scale

our foreign expenditure, and the increased absorption of gold

vast

and

silver

by the military chests of the

armies whose sphere of operations extended

from Moscow to Cadiz, and the disposition which existed

among

the only

individuals to hoard the metals, as

means of

in

security

the countries over

which the military operations extended other circumstances, which

it

— these,

and

would be tedious

to

enumerate, created a constant and increasing demand for

payments

even

if

no

to the Continent,

political

which could hardly,

obstructions had existed, have

been kept pace with by increased exports of com-


92 modities.

Accordingly, notwithstanding the reduc-

tion above-mentioned^ to the extent of a million

a half of bank-notes, rapidly,,

fell

sion,, viz.

the exchange on

and reached

its

and

Hamburg

lowest point of depres-

23.6. in 1811^ and the price of gold rose

to 41. 195.

Through 1812 and 1813 our importations of corn were greatly reduced

;

and

in

consequence of the

admission of British commodities into some of the ports of the Continent from which

we had

before

been excluded^ there was an increased exportation from

this

though they were fall in

But these circumstances,

counti-y.

sufficient to

the exchanges,

dency to a further

al-

prevent the further

did not countervail the ten-

rise in the price of gold.

The

Government

scale of the foreign expenditure of our

was extended, not only on the Continent of Europe, but in America,

in

consequence of the war which

then broke out with the United States*.

At the same time

the absorption of the metals by

the military chests, and by private hoarding, must

have gone on increasing to the close of the struggle in the spring of 1814.

*

The

Without any

increase, ac-

foreign expenditure of government, in the twelve

months

ending in the spring of 1814, has been stated to amount to about twenty- six millions.


93 cordingly, worth mentioning', in the

amount of bank-

notes in circulation, viz. from ÂŁ22,998,197 to

.

.

ÂŁ24,024,809 in August, 1813,

(and this increase, be

it

the amount to what

it

the price of g-old rose to at the close of

in February, 1812,

1813

*,

observed, did not quite raise

had been

August, 1810,)

in

5/. 10.y., its

greatest height,

and during the

first

few weeks

of 1814.

And

the most

decisive feature of the whole history of

Bank

the

this brings us to the consideration

In

restriction.

February,

1814,

of

the

amount of bank-notes was increased by one

million^

compared with August, 1813, and stood

actually

higher, viz. 25,095,415/., than at any period of the war.

Now

it is

perfectly clear that, under the circum-

stances which I have described, the notes, in the interval if

amount of bank-

between 1811 and 1814, must,,

the paper had then been convertible, have beent

greatly reduced in order to counteract the pressurt^

on the exchanges

;

but

it is

equally clear that,

upon

the removal or abatement of those disturbing causes, * It will appear hereafter that this trifling increase of bank-notes,

and

this great rise in the price of gold,

50 per cent, in the price of wheat.

were accompanied by a

fall

of


94 an enlargement of the circulation soon

commencement

of 1814^ might and most probably

Bank had then been

would have taken place

if

paying- in specie, to the

same amount

it

after the

the

as that which

actually did attain, viz. about twenty-five millions.

For

it

appears that, notwithstanding- a further

crease of

Bank

issues,,

which took place

in-

Febru-

after

ary 1814, the exchang-es rose rapidly and (with the

exception of their retrograde

movement during

the

short but violent operation of the circumstances con-

nected with the return of Napoleon from Elba, in

1815) progressively,

till

they reached their utmost

height in 1816, followed by an extraordinary influx

of gold.

The

influx of bullion continued

nearly

till

the close of 1817, accompanied by an increase of

bank-notes

till

the amount reached the highest point,

viz. 30,099,908/. in

August 1817, being an increase

of about five millions since February 1814.

In this interval of four years,

we have

the converse

of the circumstances which operated on the exchanges in the four years preceding.

The

greatest part of

our foreign expenditure had ceased by the

summer

of 1814, renewed only for a short interval in 1815,

and

it

was

latter year,

At

the

at

an end altogether at the close of the

by the peace with the United

States.

same time there was a great diminution

in the


95 to the close of 1816^ so that the

amount of imports, payments from

this country

while the payments usual,

were greatly reduced,

country were larger than

to this

by the returns which were becoming due from

abroad

for the increased exports, of

which a great

part were speculative, and on long credits, in 1814.

And

as

it

would have required a great

part of the Bank,

effort

and a departure from

a forced limitation of

its

on the

rules

its

by

discounts in the last few

years of the war, to counteract, by a sudden and violent reduction

of

issues,

its

the circumstances

tending to depress the, exchanges

have required an rules,

effort

—

so

it

would

and a departure from

by a great and sudden reduction

its

in its rate of

discount, to counteract the tendency to a rise of the

exchange above par, and

to a consequent rapid influx

of bullion in 1816*.

The exchanges reached

their

utmost height at the

close of 1816, but the influx of bullion continued into

1817

;

and the increase of bank-notes between

August 1816 and August 1817, was only commensurate with, and consequently * This influx of bullion

may be

considered as

was not checked by the increase of ad-

vances to Government, which, by August, 181G, had reached seven millions

The

beyond the amount they stood

discounts,

portion.

it

may be

observed,

fell

at in

February preceding.

off in nearly the

same pro-


96 having been issued only

in

payment

for,

much

so

gold which would otherwise have come through the

Mint

into circulation*.

The

Bank, then,

position of the

garded the amount of its

notes,

was such as

would have been, specie,

and

if

if

might, and in

intermediate this

probability

all

had then been paying

it

no

And

taken place.

it

compared with

treasure,

its

1817, as re-

in

in

had

suspension

was attained with-

position

out any deviation by the Directors from the rules

by which they had governed

their issues throughout

the whole period of the restriction.

Nothing can be more

destitute of, or

rather con-

upon

trary to, evidence, than the supposition that,

the conclusion of peace in 1814, the prospect of the

near termination of the Restriction Act induced the

Bank *

Directors to contract their issues, in prepa-

The Bank,

indeed, paid

so far acted injudiciously

;

31. 18s.

it

it

instance of

having so done

ment

;

ounce for the gold, and

should ever pay more than the Mint price

principles that its

Gd. per

being utterly inconsistent with correct

is

an imputation upon

but, in the present instance, the difference

is

its

:

every

manage-

hardly worth

mentioning, and there can be no doubt, from the state of the exchanges, that

if

the Mint price, for

it

House

the it

Bank had

abstained from giving anything above

would equally have succeeded

appears by the evidence of of

Commons on Cash Payments,

were no other buyers the Bank.

in the

market

in filling

its

coffers

:

Mr. Goldsraid (Report of the 1819, page 4), that there

at the price

which was given by


97 Their

ration for cash payments. close of 1815,

discounts,,

till

the

were as high as they had been at any

time during the war, excepting iu the single year of

1810

;

and

advances to Government were, on

their

the average, considerably higher than during any

There was, indeed, a repayment

period of the war.

by Government, which reduced the advances, on the 26th of February, 1816, to about nineteen millions but this repayment seems to have been compensated

on the circulation by other sources of

in its effect

issue ; the reduction of bank-notes at that period being

At the

the most trifling possible*.

a sudden diminution of discounts took place this diminution

was simply the

market rate of

interest,

compensated culation

in its effect

by the

purchased.

effect of

a

and not of any

the Directors to discount.

1816

close of

fall

;

but

of the

refusal of

This diminution was

on the amount of the

cir-

issues of bank-notes against bullion

But

it

may be argued

that the very

circumstance of the purchase of gold implies preparation on the part of the Directors for cash pay*

The Table

exhibits a reduction to 25,680,069/.

February of that year

single week, for, in the

on the 26th of

the reduction was, however, confined to that

;

week

following, viz.

on the 2nd of March, 181G,

although nearer the quarter, the amount was 27,724,150/, (Lords' Report, p. 325), and had been at about the same amount in the week

preceding the 26th of Februaiy, 1816, being a difference of only

about 400,000/. compared with August 1815 or August 1816, when the advances stood at a

much

higher amount.

H


98 ments.

as

Preparation^,

far

chases of bullion by the Bank^ of

my argument was made

sense,

deny

to

as it

has been no part

and preparation,

;

pur-

to

relates

in this

several periods in the eleven

at

years following the suspension of cash payments in

All that I have contended for

1797.

the nega-

is,

tive of preparation, as consisting in a designed con-

traction

of the circulation,

for

the

pose of rendering the exchanges

The

forcing an influx of gold.

express pur-

favourable,

Directors, to the

examinations in 1819, denied

latest period of their

the influence of their issues upon the

and made repeated Parliament,

of

and

both in and out

declarations,

that

they

exchanges,

had proceeded

in

the

regulation of their issues according- to their usual routine, without any designed reduction of the

of their circulation*.

amount

These declarations are

fully

borne out by a reference both to the amount of the circulation

and

to the channels

supplied

and

it

*

Of

;

through which

the inefficacy of any regulation of their issues

resolution of the 25th of

from

that the

adverting: to

Bank has

was

has been shown that the circum-

changes, they recorded their conviction as late as

refrain

it

March, they

state

— " This

an opinion, strongly

only to reduce

its

upon the

ex-

1819, when, in a

insisted

Court cannot

on by some,

issues to obtain a favourable

turn in the exchanges, and a consequent influx of the precious metals.

The Court conceives

it

to

be

its

duty to declare that

discover any solid foundation for such a sentiment."

it

is

unable to


99 stances operating* to raise the exchanges in 1815-16

were such as sistible

to render the influx of the metals irre-

under the system which had been pursued

by the Bank during the whole period of the

re-

striction.

That there was a great contraction of the 1815 and 1816, and that

circulation in

this contrac-

which have

tion co-operated with the circumstances

been noticed,

to raise the

the influx of bullion_,

I

g-eneral

exchanges and to hasten

am

quite ready to admit.

This contraction_, however, was not the effect of any

measures of the Bank, but simply of the

recoil

which took place between

the great speculations

the close of 1812 and the spring of 1814. speculations

had

from

their origin

in

These

the extraordinary

political

and commercial changes of that period,

without

any immediately preceding

of

Bank

although

of England their

range

paper was,

enlargement

worth

mentioning,

doubtless,

somewhat

extended by an increase of Bank paper during their progress.

But the termination of them,

in

the autumn of 1814, which was followed by failures, to the spring of 1816,

reduction of the

Bank

revulsion of credit

was not occasioned by any issues

;

on the contrary, the

commenced while

Engfland was increasing-

the

its circulation.

Bank

of

A further

and very considerable enlargement of Bank paper

h2


100 took place towards the close of 1814^ to supply the

chasm created by the

A

failures of the country banks.

small part of this enlarged issue was afterwards

withdrawn

in

1815 and 1816.

In this and in other essential respects, the state

of the circulation

and of

credit

in

the

interval

between 1810 and 1812 was so similar to that the interval under consideration,

that

worth while to notice the most

striking-

In

of resemblance.

both cases the

it

in

may be features

speculations

of the two years preceding- the revulsion had ori-

ginated in

the

great

and commercial

political

changes which then occurred, without any coincident

enlargement of the Bank of England paper.

In

both cases an increase of bank notes followed the progress of the speculations, and a great enlarge-

ment of the Bank sudden chasm

in

issues took place to supply the

the

circulation

from

shock to general credit,

created

by the

the failures conse-

quent upon the disastrous termination of those speculations.

In both cases,

had been struck by the lingered for

although the death-blow

first

many months

revulsion, the parties

after

:

thus the

number

of bankrupts*, on the average of 1811 and 1812, * See Lords' Report on Cash Paymsnts, 1819, Appendix, p. 426.

There were no fewer than twenty-nine country banks against

commissions of Bankruptcy were issued in 1814.

whom


101

was greater than and 1816 cases, issues

it

had been

was greater than

it

after the

credit;,

1810 in

;

1815

as in

In both

1814.

sudden enlargement of the Bank

which had been made

shock to

in

to

meet the

first

great

a part of the enlarged issues was

withdrawn.

The average From

of

Bank

notes.

July to December, 1810, was £24,188,605 £23,094,046

July to December, 1811,

£1,094,559

July to December, 1814, was £28,291,832 July to December, 1815, £26,618,213

£1,673,619

being a reduction of four and a half per cent,

in the

former, and of six per cent, in the latter case; or,

if the

average of the

first

six

months of 1816 betaken,

26,468/283/., the reduction would

under six and a half per

cent., or

still

viz.

be somewhat

two percent, only

beyond that which had occurred under circumstances singularly analogous in 1811.

From a

comparison,

therefore,

periods, so strikingly similar in the particulars,

conclude

bank

seems

it

that

notes,

to

most

of

two

essential

be just as reasonable to

great contraction of

the

and

of these

the

general

country

circulation

in

1811-12, was caused by the Bank of England and


102 the country banks preparing for cash payments, as

preparation was the cause

that such

of the

con-

traction of the general circulation in 1815-16. It

has been assumed

that the reduction of

sues was designed on the part of the

Bank

land and of the country banks^ and that the is

it

is-

Eng-

of

preceded

of prices and the failure of credit*.

fall

however

notorious,,

that the

fall

It

of prices^ and

the failures^ and revulsion of credit^ began before

1815^ and necessarily entailed a great contraction of the general circulation^ but

more

especially of

the country bank issues, independent of and pre-

ceding any reduction of the Bank of England paper.

To

on the question of the order of

enter, however,

time in which the contraction of the circulation

is

alleged to have taken place, relatively to the fluctuations of

and the consequent

prices

distress or

* The total misconception which prevails regarding the state of the Bank circulation, and the supposed preparations, by the Directors, in

collecting gold in 1815

and 1816, cannot be

better illustrated than

by

the following quotation from a recent publication, entitled " Free

Trade

in

Com, by

a Cumberland Landowner, 1828," supposed to be

from the pen of Sir James Graham. next turn

is

" The matter to which

the treasure kept in the coffers of the

Bank

This treasure, from 1806 to the close of 1814, could have influence

upon the general currency. The Bank

throughout the period.

of

we

shall

of England. little

or no

England had none

In 1815 they, however, began to collect one.

In 1816, by reducing the amount

of their notes in circulation, thereby

forcing the country bankers to do the same, and gold being no longer in

demand

for the

purposes of war, they were enabled to buy up a

considerable sum." p. 46.


103 prosperity of the classes affected by

themj would

be to anticipate the discussion which to reserve for another letter.

tion of the

shown

to

Bank have

propose

For the present

to observe that there

is sufficient

I

it

was no contrac-

or country circulation, that can be orig-inated

in

preparations for the

resumption of cash payments.

But those who argue of the

currency^

the assertion

circulation

between 1814

payments, main-

enlargement of the issues of the Bank

in 1816^ arose

the

Bank

in preparation for cash

tain that the

of a debasement

not satisfied with

of a contraction of the

and 1816,

in favour

from an abandonment on the part of

Directors, in concert with the government^ of

The

such preparation.

1816 been prolonged are supposed

to

Restriction

for

Act having

in

two years^ the Directors

have availed themselves of

this

delay, to increase the supply of paper, with a view to relieve

the then existing agricultural

mercial distress. of

England

increase

And

issues

to

an enlargement of Bank

hence arising, they ascribe an

of the country

circulation,

a

of prices, and the return of prosperity*. that increased

issue,

against the purchase *

being,

James Graham's

as

great rise

How

amount of

Parliamentary Debates,

publication on

far

already noticed,

of an equivalent

See Mr. Attwood's speech,

also Sir

and com-

vol. vii,

Corn and Cun-ency, &c.

;


104 gold^ produced the effects ascribed to further on.

Here

I

which are alleged

have only

to

it^

be seen

will

examine the grounds

for the extension^

and which are

wholly without foundation. It

has already been seen that the Bank was,

in 1817, in a position,

sure relatively to

by the amount of

circulation,

its

tors,

so

far

for

this

the Direc-

from taking advantage of the pro-

longed term of the sures

trea-

extended as

And

was, to resume cash payments.

its

restriction,

anticipating

it

:

were adopting mea-

for

in

the months

of

April and September, 1817, they actually undertook,

by public

notice, to

notes in coin. ration for cash

pay a large proportion of

their

Instead, therefore, of their prepa-

payments having been, as

is

stated,

the cause of their contracting their issues, the only

make

preparation which they did

in

the

interval

between 1814 and the termination of 1817, was

accompanied by an extension of the

actually

cir-

culation.

Seeing, then, that there for the allegation of

is

no foundation whatever

a contraction of the currency

in that interval, as a preparation for cash I shall

proceed to

payments,

examine whether there are any

better grounds for the supposition that a reduction

of the amount of

the

Bank

issues in

1818, was

the effect of renewed preparations for cash payments.


105 In February, 1819^ there appears to have been a reduction of millions,

notes to the extent of about four

compared with the highest amount

mean

But, in the of the

Bank

which

notices

paratory to

time, the

If the coin

a diminution of

the

exchang-es havinopart of so issued

and

it

is

had remained

was

increase

the

gold.

in

1818^

But the

the latter

gold

the

greatest part^

The

if

not

reduction,, then^

simply from the Bank can-

paper^ against the issue of so

The whole

of the fluctuation^ then, in

Bank of England

England notes and It

basis.

amount of the basis of the currency, whether

consisting of

of

its

than

rather

remain in circulation,

to

that the

in the circulation^ arose

much

its

throughout

the whole, was sent abroad.

celling a part of

greater

amount of that part of the

not likely

known

still

in the country,

become adverse

and

1817,

well

pre-

1817_,

paper to a

its

which constitutes

circulation

pursuance

intended resumption of cash pay-

its

would have been an

there

in

published in

it

ments, issued coin against

amount.

Bank had,

in 1817.

coin,

notes only, or of

may be

Bank

thus explained.

has been seen that the increase of Bank notes,

from 1815 to 1817, was not equal to the addition

made

to the treasure of the

Bank

in

that interval.

Supposing, therefore, that the Bank had refused to

purchase the bullion, and that the Mint had been


106

open so as

to

have returned

it

immediately in coin,

the circulation would equally have been increased^

and prices must equally have distress consequently

risen,

and the previous

have equally disappeared,

though the amount of

Bank

would

notes

al-

have

been diminished rather than increased, as compared with either 1815^ or the

And

in this case

remarked.

commencement of 1816,

the further effect deserves to be

The bullion which had flowed in between

1815 and 1817, would, by the turn of the exchanges, have simply flowed out

amount of Bank notes exactly what

it

was

the intermediate

should

in

1818, and have

at the

at

its

commencement

lowest in

1815, without

We

not then have heard of the doctrine which

and the whole subsequent

traction of to cash

the

of 1819

enlargement of the paper.

1817

ascribes the whole rise of prices in

crease,

left

fall

to the in-

to the

paper in 1818, preparatory, as

is

con-

alleged,

payments.

That the whole of the contraction of Bank notes in

1818 was only equivalent

to the

efflux

between

December, 1817, and January, 1819, of a part of the bullion which had

come

June, 1816, and June, 1817,

ence to the preceding Table.

was

into the

Bank between

may be

seen by a refer-

The position of the Bank

in all other essential respects the

same.

The

advances to Government were increased in 1816

;


107 but the discounts

fell

Government repaid

in the

same proportion.

millions

between August,

off

five

1818, and February, 1819

and the discounts

;

The whole

creased by upwards of six millions. the fluctuation of the

Bank

into the variation of that

part only which, on the one hand,

brought

in,

was paid

paper

for

for bullion

and, on the other hand, was cancelled

against coin or bullion demanded, there

pretext

of

between 1815 and

issues

1819 being then resolvable

in-

referring

in the

the difference of

latter case

payments, than there

is

to

is for

no more

Bank

the

a preparation for cash ascribing the increase in

the former case to the prolongation of the restriction.

Cash payments were, formally,

truth, virtually,

if

restored in 1817, without an effort,

the part of the Bank,

parture

in

from the

—

rules

that

is,

by which

And

as

it

on

without any de-

been governed during the war, and after its termination.

not

its

issues

had

in the interval

appears that there

was no enlargement of Bank of England paper, except in jicii/ment for bullion, in 1817, the

fall

of the

exchanges which occurred in that year (but which did not

become decided enough

of the metals

till

to occasion

an export

1818) cannot, with a shadow of

reason, be ascribed to such enlargement of bank notes as

its

originating cause

having been merely the

;

the enlargement in

1817

effect of the influx of gold.


108 the whole of which, on the occurrence of the peculiar

circumstances^

and commercial, be-

financial

tween the close of 1817 and the commencement of 181 9_, could not be retained*.

The amount were at

Bank

of

when

the exchanges

their lowest point of depression in 1818,

Bank

the drain on the as low as

it

treasure was most rapid,

and was

had been when the exchanges were

and when the

rising,

notes,

four years before

;

influx of the metals

had begun,

and much lower than when the

exchanges had got above par, and when the influx of the metals had reached

We

must seek, then,

pendent of the Bank fall

*

its

utmost height.

in

circumstances

inde-

circulation, for the origin of the

of the exchanges in the latter part of 1817 and

At

same

the

time, although the increased issue in August,

1817, was so far justifiable, as

was merely made against purleast, to have compenby a reduction through some other channel, seeing that it

chases of bullion, the Directors ought, at sated

it

the exchanges

They may plead that it was inasmuch as Govern-

were looking down.

not in their power to

make such

reduction,

ment would not repay any part of and the applications

for discounts

they might, as they have since in the market,

done,

and so have hastened the

and stopped or abated the manifesting

the advances in that year,

were

itself.

abatement of the

By

this

spirit

spirit

at their

minimum.

have sold Exchequer

But bills

rise in the rate of interest,

of speculation

which was then

earlier rise in the rate of interest

and

of speculation, the further decline of the

exchanges might have been prevented, and a good deal of the overtrading checked.


109 throuo^h

1818

;

them.

tracing-

and there can be no

difficulty in

Foremost among them was that of

the financial operations of the French and Russian

governments^ which were^

unprecedented

those two years,

in

The temporary

magnitude.

of interest, caused by

in the rate

of rise

the magnitude

of the loans, naturally occasioned the transmission of capital

to

was

this single

that

it

the

continent

:

indeed,

so powerful

circumstance as a depressing cause,

might be considered as of

account for the whole of the

itself sufficient

of the exchanges.

fall

There were, however, other causes tending to the same

effect.

to

in

operation

The importation

continued to be on a large scale

and

;

of corn

at the

same

time there was a great increase in the imports of

almost (in

all

other articles of raw produce in

order to

make up

for the deficient

1818*,

imports of 1816

and 1817,) while a great part of the exports of 1817 and 1818 were speculative, and on long

credits,

returns for which were not forthcoming-

Under surprise

these circumstances that

the

it

is

1818.

1819,

rather matter

exchanges were not

pressed, than that they were so

till

the

of

more de-

much depressed

in

At the same time there can be no doubt

* The imports of 1818 were increased in quantity, and purchasetl at a higher cost, in consequence of the speculative rise of Ibat

preceding year.

amd the


no that

it

was

counteract

in the

power of the Bank of England tendency to a

this

depression of the

exchang-es and consequent

efflux of bullion,

timely foi'ced reduction of

issues,

its

to

by a

whether through

a limitation of discounts, or a sale of Exchequer It

bills.

fied

of

did not adopt either measure*. It was satis-

with urging Government to a repayment of part

its

sions

;

advances

and

;

but so

in this^ as in

it

had done on former occa-

some former

instances^

when

the market rate of interest was above five per cent.^ the repayment made by Government was fully compen-

sated in

its effects

discounts.

The

on the circulation, by an increase of Directors,

as they have repeatedly

declared in and out of Parliament_, and as the facts

show, continued to regulate their issues exactly

fully

as they

had done throughout the Restriction

in this instance (as likewise in the former ones I

and

;

which

have pointed out), upon the cessation of the

dis-

turbing causes in 1819, the exchanges rose, and the tide of the metals

set in

again into this country.

* Mr. Harraan, in his evidence before the Lords' Committee on Cash Payments, 1819, page 217, in answer to the question "Did

—

the Bank, during any part of that period (1818), on perceiving that these large

deem

it

demands were made

necessary to

make any

vipon

their treasm*e, previously accumulated,

of their paper ?" replied, "

a view

No

them

of coin for exportation,

effort for counteracting that drain

;

we

of checking the export of gold

by any reduction of the

did not

and

make any

silver."

of

issues

reduction with


Ill

Bank

without any diminution in the amount of

compared with what

it

had been

notes,

at the lowest point

of the depression of the exchanges,,

and

at the highest

for

imputing any

quotation of the price of gold*.

There

is,

therefore,

no ground

contraction of the issues of the

Bank

of

England

to

preparations, before 1819, for the resumption of cash

payments is

as Uttle

legislative *

and

;

it

ground

has already been shown that there for ascribing

any such

effect to the

measures in 1819.

The argument,

that our large foreign expenditure,

combined

with the obstructions to exportation caused by the war, was sufficient to account for the depression of the exchanges

and the difference

between paper and gold, without ascribing these phenomena to an alteration originating in the paper, has

been urged with

much

force

and ingenuity by Mr. Blake. (" Observations on the Effects produced by the Expenditure of Government during the Restriction of Cash Payments. 1823.")

Mr. Blake has arrived

at the

same conclusion

as that which I have been here contending for, viz. that the rise of the

exchanges, the

fall in

the price of gold, and the idtimate resumption

of cash payments, have been the natural consequence of the mere cessation of the disturbing causes, without any alteration of the ordi-

nary routine of the Bank in regulating Bill

But

was, therefore, inoperative.

when he maintains

that,

I

its

issues,

and that Mr.

Peel's

cannot agree with Mr. Blake

supposing the gold to have diverged from

the paper, and not the paper from the gold, the paper could not be called depreciated.

Depreciation

is

a term implying reference to a cer-

tain standard, and, in this case, the standard

paper, therefore, although

it

was

the gold.

were perfectly unchanged

reference to other commodities,

had become

"When the

in value with

less valuable with refer-

ence to gold, the coiTect use of language obliges us to say that depreciated.

it

was


112 If

my

conclusion be

correct,,

that the restoration of

cash payments was brought about without any contrac-

Bank

tion of the

asked how

it

issues for that purpose,

can

consist

with

the

it

may be

estimate

of

Mr. Ricardo, that a difference between three per

and ten per

cent,

cent, in the value

of

the cur-

rency, was caused by that measure ?

Mr. RicardOj as

far as I could collect his opinion

on

this point, considered the alternatives, in the event of

Mr. Peel's

Bill not being- passed, to

be an

alteration

of the standard to the market price of gold as stood

;

it

or such a reg-ulation of the issues of the

then

Bank

as to maintain the price of gold at about the rate at

which it then was. The market price of gold had varied during the agitation of the question,

from

ÂŁ4

to

ÂŁ4. 2^. peroz.; and according as one or other of these quotations was taken, would the alternatives

above alluded to have made a difference of three or

five

ÂŁS.

per cent,

I7s. lO^d.

compared with the standard of

per oz.

Mr. Ricardo afterwards

added, that the preparations of the Bank for supplying

itself

with gold, might have the effect of raising

the value of that metal.

Of

the degree in which

the value of gold might be raised by the purchases of the Bank, the relative price of silver would, he

supposed, form some criterion.

Now,

as the price of silver had fallen in the in-


113 terval between

about

five

1819 and 1831^

per cent.

I believe, to

;

relatively to gold,

and as Mr. Ricardo continued,

think that the

Bank

Directors had regu-

lated their issues subsequently to the passing of

Peel's Bill, in a

manner

they would have pursued

from that which

different if

Mr.

the measure had not been

adopted, he was disposed to allow that the effect of the resumption of cash payments on the value of the

currency might be estimated at about ten per cent.

But

if

the resumption of cash payments was, as I have

endeavoured

to show,

the necessary result of the

system by which the Directors of the Bank regulated, and, according to their ordinary routine, would,

under the circumstances as they occurred, have continued to regulate their issues,

had not passed, there seems

if

to

Mr. Peel's

be no

Bill

reason

to

allow the effect upon the value of the currency to

even the extent which Mr. Ricardo was disposed

to

admit. If it

were granted, however,

for the

that the utmost contraction

sake of argument,

contended

for did take

place in the amount of the circulation subsequently to the passing of Mr. Peel's Bill,

whether as a conse-

quence or not of that measure, or of any anterior preparation for cash payments, Letter which

I

I

shall, in

another

propose to address to your Lordship,

endeavour to show

—

that the

assumed contraction of


114 the circulation did not occur in such order of time as to justify the assignment of such contraction as the orig-inating"

moving cause of the

or

fall

of prices,

even supposing- that there were no other adequate causes to account for does admit

of

it

;

but that the

fall

of prices

being explained by circumstances

affecting the supply of commodities relatively to the

demand the

for

them, independently of any alteration in

amount of the Bank I

circulation.

have the honour

My

to be.

Lord,

Your most obedient humble

servant,

THOMAS TOOKE. Richmond

Terrace, W}iite?iall,

January 26, 1829.

To

the Right Honourable 8)'c, S,-c.

Lord Grenville,

&^c.


APPENDIX.

I

2


APPENDIX.

No.

I.

Paper communicated by Mr. Peimington.

Mr. Tooke took place

shown

lias

in

the value

the

that

of

which

fluctuations

the currency,

beyond

the

degree indicated by the difference between paper and

during

gold,

the

and

suspension,

those

which have

occurred since the resumption of cash payments, were

power of

circumstances which

of

the result

the

Bank of England

it

was not

to control

in

the

or regulate.

In describing the effect of those circumstances upon that portion of the currency which

Bank

of England,

argument and

to

credit,

show are

it

was

is

not dispensed by the

sufficient for the jourpose of his

that country

bank

susceptible of

notes, private paper,

considerable increase or

diminution, without a corresponding enlargement or contraction of the basis on which they rest.

appear to have thought ticular

mode

stituted

in

which

it is

He

does not

necessary to describe each par-

credit, in

for currency,

showing that

it

its

various forms,

is

sub-

but has contented himself with

much more

extensively employed at one

period than at another.

There with the

is,

however, one modification of credit connected

private banking establishments of London, of


118 which, although the explanation can add nothing to the force and correctness of Mr. Tooke's argument, it may

some of the

possibly serve to place in a clearer view

cir-

cumstances and considerations to which he has adverted. Those establishments are commonly regarded merely as

banks of deposit

;

and

it

supposed that they cannot,

is

under any circumstances, by enlarging or contracting the currency, affect

its

value.

This notion, which has long been a prevailing, and

is

apparently a very natural one, will be found, on examination, to be wholly incorrect.

they are essentially

It

may be shown

that

banks of circulation, differing from

the country banks chiefly in the

mode

in

which

their joro-

mises to pay are transferred from one person to another,

and not

in

any material circumstances connected with the

promises themselves. In some respects, undoubtedly, they resemble the old

banks of deposit

— they receive and pay money on account

of merchants and others, and they allow no interest upon the

But

money lodged with them.

and important

difference,

that

there

is

this

material

while the former

are

allowed to make what use they please of the money intrusted to their care, upon the sole condition of being able to discharge, with promptitude and regularity, the fluctuating and occasional demands made upon them by the depositors, the latter are not permitted to avail themselves of this advantage,

but are bound

to preserve, in

kind, the coins and bullion deposited with them.

Of

the money placed in

the

bankers, the largest proportion

is

hands of the London

employed

in discount-

ing bills of exchange, in the purchase of Exchequer Bills, in

advances upon stock, and on other readily convertible

securities.

Now,

as the

money

so

employed, although


119 drawn out of the hands of bankers by one set of persons, repaid to them by another, it is obvious that the aggregate amount of money, in the hands of all the bankers

is

always be the same

collectively, will

and that their en-

;

gagements, or the balances due to the merchants, traders,

and others,

for

creased by the

whom

money

they act as bankers, will be in-

so repaid to them.

In order to simplify the consideration of this subject, let it

there

be supposed

that, instead of seventy

the business of the metropolis

Bank of England

that the

amounted, on

its first

notes and gold lodged with

Bills,

were employed

whether the State or private

for the

it

was

nience,

pay

account

;

it

finally

indivi-

unless they

had

purpose of discharging a debt or

of effecting a purchase

whom

in

obvious that the

it is

would not have parted with them

wanted money

it

establishment, to ten millions, and

Exchequer

sellers of the bills,

all

be further supposed

let it

that, of these ten millions, five millions

the purchase of

duals,

London bankers,

only one, and that this single bank engrosses

is

in either case,

the parties to

own conveBank on their own

paid would, for their

into the hands of the

and thus the Bank would become repossessed of

the identical five millions which

and the balances which would, by

this

new

owed

it

it

to

had previously its

lent,

various depositors

from ten to would be repre-

deposit, be increased

fifteen millions, of which

five millions

sented by Exchequer Bills.

In whatever degree the

Bank multiplied

of a similar kind, the result would be additional loan or purchase

its

transactions

similar

would terminate

in its

— every having

the same amount of Bank of England notes and gold in its possession as before, and in its liabilities to its depositors

being increased.


120

we

If

take the case of two or more bankers, instead of

one, the process above described will be found essentially

A and B have each millions deposited with them, and A lend two millions

similar, five

upon

and

its effects

the same.

If

securities bearing interest,

it

is

probable that one

of the two millions will be re-deposited with A, and that the other million will be deposited with

owe

six millions,

wards,

two

B

and

B

will

lend two millions,

owe

B

;

A

six millions.

will then If, after-

probable that one of the

it is

millions will be re-deposited with B, and the other

million with

A

:

owe seven

they will then each

and thus the process

will be continued

millions

;

until, together,

they owe fifteen millions, of which five millions will be

represented by Exchequer

Whether

Bills.

there are one, or two, or seventy banks, the

real state of the case

the same, the

is still

money with-

drawn from one bank being always again lodged in that or in some other bank the total amount of Bank of England ;

notes and coin in the hands of distributed

in

varying

all

the bankers, although

proportions

neither increased nor diminished.

amongst them,

is

The more, however,

they enlarge their loans, the more are the balances due to depositors

augmented

others, rate their

;

and

command

which they are credited

as merchants, traders,

and

of money by the amount for

in the

books of their respective

bankers, these credit balances transferred, in whole or in part, in the

from the account of one person

to that of another,

books of the bankers, perform precisely the same

functions as the like circulating

amount of bankers' notes would do depositors. They are transfer-

amongst the

able book-debts, convertible into the coin of the realm at the pleasure of those to

whom

they are due

;

the

notes of a country banker are essentially the same thing


121

book

the

London banker, and the notes of a

credits of a

countiy banker, are but two different forms of the same species of credit.

In the imaginary cases above stated,

it is

supposed that

the operations of the bankers, which produce an enlarge-

ment of the currency suddenly and at once

slow and gradual extend

and

in the :

manner described, take place

in reality,

however, they would be

each banker would be disposed to

;

his discounts

and increase

purchases by

his

little

and a considerable time would probably elapse

little,

before they became of considerable magnitude.

perhaps, be said that, although such a process

It will,

as

is

here described

may

when there when there are operate as a check upon

possibly take place

are only two banking establishments, yet so

many

as seventy they will

each other

unduly

;

and

be warned of nution of this

that, if

to extend

its

its

its

any one of them should venture

discounts or

purchases,

its

it

would

imprudence by an inconvenient dimi-

cash reserve

:

the cheques

all

bank, for the amount of

its

new

drawn upon

investments, might

be paid into the hands of other bankers, and a regard to its

own

safety

would then be an inducement

to re-discount

or re-sell them.

This

consequence

would

undoubtedly ensue

advances were hastily and injudiciously made precisely

this

consideration

bankers, whose circulation

is

which in the

;

if

and

restrains

the it

is

country

same neighbourhood

or within the same sphere, from a sudden and improvident extension of their issues.

There

are, in

Edinburgh,

five

or six circulating banks, of which the notes of each are continually falling into the hands of the others.

Twice

a week they exchange notes with each other, and liquidate the balance arising therefrom by a payment of

Bank of


122 England

notes, or

by a short-dated

the same

exactly ujion

principle,

bill

upon London,

and with the same

intention, as require the daily liquidation, at the clearing-

house, of the cheques upon each other by the

bankers.

If

to increase its issues, a greater

notes

London

any one of the Edinburgh banks were unduly

would

into

fall

banks, and that bank

number than usual

the hands of

would have

of

its

the neighbouring

to pay a larger balance

than usual, in London money, at the period of weekly

Each

liquidation.

and they are

all

is

thus a restraint upon the other

;

obliged to manage their business with

care and circumspection.

But neither the extension of the book

London bankers, nor an increased notes, ever takes

credits of the

circulation of country

place so suddenly or so largely as to

create the inconvenience here alluded to.

and gradually, when credit

is

It

is

slowly

high and expectation on the

wing, and under circumstances which encourage extraordinary speculation, that bankers are induced greatly to

extend their circulation

such a period,

his

;

each being persuaded that, at

competitors will pursue the same course,

andj by so doing, prevent the inconvenient payment to

each other of large balances, at the period of mutual liquidation.

On

the other hand, during a period of distrust

difficulty, the

Each banker to

lessen

But

if

the

reverse

of these

operations takes

and

place.

anxious to increase his cash reserve, and amount of his outstanding engagements. amount of Bank of England notes and gold, in is

the

the hands of the seventy

London bankers,

collectively,

remain the same, the aggregate amount of their outstanding engagements can be lessened only by parting with a portion of the productive securities in their possession.


123

To

part with any jjortion of their productive securities

will,

upon the

principle above explained, necessarily di-

minish the amount of the deposits.

what

money by

money

called

is

—and the

— of what

is

There will be

less

of

substituted for metallic

pressure and the obstruction, occasioned

this contraction

of the currency, will, in

bility, continue, until fallen

all

proba-

prices, a rise of the foreign

exchange, and an influx of bullion, have restored the

currency to It

its

former

level.

may, however, be

said,

that the

money advanced

by the bankers may, very possibly, be withdrawn from them in the shape of Bank of England notes and coin, and that the notes and coin so withdrawn may be paid into the hands of those, the nature of whose business and pecuniary operations does not require the intervention of a banker

;

and

that,

whenever

this

happens, not only will

the bankers be dejDrlved of a portion of their cash reserves,

but the aggregate amount of deposits will be

lessened.

This, no doubt, that

class

of

would frequently be the

persons,

whose

receipts

and

are of such a nature as not to require intervention of a banker,

bore a

large

case,

if

payments

the aid and

proportion, in

point of numbers, to those whose business cannot conveniently be carried on without one. far

But, in London, by

the largest proportion of the ordinary receipts and

payments are

effected

through the medium of the private

bankers, and most of the cheques drawn upon them are, therefore,

paratively,

liquidated at the clearing house;

being paid in gold and

few, com-

Bank of England

notes at the counter.

As

this objection applies,

vincial

examine

with equal force, to the pro-

and the London currency, it

more

at large.

it

may

be useful to


124

Two tlie

things are necessary to the existence of a paper in

place of a metallic currency, namely

A

1.

:

perfect willingness on the part of the people to

use paper instead of coin, as the instrument of circula-

and

tion,

its

equal or greater convenience for that pur-

pose.

The charge

2.

of no higher a rate of interest than

current rate, by the issuers of

With that

respect to the

condition,

first

tlie

it.

it

may be

observed,

the willingness and the convenience therein in-

if

volved, should class of jjersons,

extend

no

only to

efforts

comparatively small

a

of the bankers, no loans or

discounts at a low rate of interest,

would enable them

to

keep out their notes to a greater extent than the persons of that class, collectively, deemed

them

it

necessary to keep by

answer current and occasional demands.

to

issues of the

paper went beyond that

notes would

fall

limit, the

If the

redundant

into the hands of the other classes of the

community, and immediately be brought to the Bank for payment they would not remain out, for the channel in ;

which alone they

would not lower to

can circulate

produce that

time

;

is

already full

j

they

the value of the rest of the currency, for, effect,

would require a considerable

they would immediately recoil upon the bank that

issued them.

But when the habitual use of paper money obtains amongst all classes of the community, and no preference, arising

from convenience, caprice, or habit, of paper to any class when its quantity far exceeds in

coin, exists in

amount that of the

—

coins which circulate alons with

it

there will exist, so far as the internal trade of the country

is

concerned, no motive for

its

conversion.

It

then be issued to excess, and continue in circulation

may suffi-


125 ciently

long to raise

general

prices

and depress the

foreign exchange, the check arising from which will ulti-

mately bring It should

it

down

to its natural level.

seem therefore, that

paper circulation

is

in a

country of which the

confined to the convenience of a few,

and of which a very large proportion of the currency

is

metallic, a check, independent of the foreign exchange

and the rate of issue

;

interest, exists, to prevent

and that when the

obtains amongst

all classes

an excessive

paper money

liabitual use of

of the community, and the coins

bear buf a small proportion to the paper, the only checks are the discretion of the bankers, the charge of a high rate of interest, the depression of the exchange,

and the

efflux of the metals.

a country of which the currency

in

If,

tallic,

a bank, similar in

its

mainlv me-

is

plan to that of the private

banking-houses of London, were established, the managers of that bank would lend at interest a large proportion of their deposits, and, by that means, lower the

value of the currenc}', and force forth the country a of

money

equal, or nearly equal, to the

By

loans.

this process

be restored to

its

amount of

sum their

the value of the currency would

original level.

If,

for instance, pre-

viously to the establishment of the bank, the currency

amounted

and deposits were made to the extent often millions, the bankers might think themto sixty millions,

selves safe in lending eight millions.

Those eight mil-

no long time, be forced out of the country, and fifty-two millions (of which two millions would be the

lions

would,

in

dead reserve of the bank) would perform tions

which

sixty millions

bable that whenever loan

or

it

all

had done before.

made advances

discount, five-sixths

the funcIt

in the

is

pro-

way of

of those advances would


126 fall into

and one-sixth only be would, therefore, be acted upon by a

the external circulation

re-deposited

:

it

*,

double check, namely, the external currency, and the foreign exchange

immediate

But

the operation of the

:

— that of the

would be

latter slow.

the practice of depositing

if

first

money

in a

bank

so

constituted should prevail to such an extent as to increase the deposits to fifty millions,

external currency to ten

would then

and to reduce the

millions, the

whole currency

which

consist of sixteen millions of coin (of

six millions

would be the dead reserve of the bank) and book debts, or promises to pay. The

millions of

fifty

power of the Bank

to

the value of the currency

alter

would, now, be very different from what former case.

Now, whenever

sixths of those advances

it

would,

re-deposited, and one-sixth only

it

was

in

all

fall into

the

in

made advances,

five-

probability,

be

the external cir-

The check

arising

from the external currency

would be diminished

in the

proportion of five-sixths to

culation.

one-sixth

;

that arising from the foreign exchange

be the same as before slow in

its

;

would

the latter, however, would be

operation.

on the nature and instru-

If the foregoing observations

mentality of the private banking establishments are correct, they

lessen

may

possibly serve to obviate, or, at least, to

some of the

difficulties

with which the subject of

They will money of the metropolis does not cononly of Bank of England notes and coin, but that

the currency has heretofore been surrounded.

show sist

by *

that' the

far the largest portion of

The phrase external

circulation

it

is

is

formed of the trans-

here used to denote those pay-

ments which are made without the instrumentality and intervention of a

])anlvpr.


127 ferable

book debts of about seventy private banking

establishments into

Bank

whom

which book debts, although convertible

;

notes and coin at the pleasure

of those to

they are due, are susceptible of considerable ex-

pansion and contraction, without a corresponding enlarge-

ment or diminution of the basis on which they rest. This state of the London currency this capability of increase and diminution of the money created by the London bankers is productive of many important consequences. The provincial circulation, as well that part of it which consists of country bank notes, as that which consists of bills drawn upon London, is mainly dependent on it. Practically, indeed, and upon all ordinary occasions, the book debts of the London bankers, and not Bank of England notes, are the solvent of the country circulation and as the London currency may increase or diminislt without a corresponding alteration of the Bank

—

—

;

of England issues, so likewise

That the

may

that of the country.

variations of the latter have not been conform-

able to the

Bank

issues,

is

a well

known

fact

;

that the

book-credit money of the London bankers has as

been conformable to them, tured.

Hence

it

may

little

reasonably be conjec-

has not unfrequently happened, that

general prices have risen, and been kept at a high range for a considerable period of time, without tion of the issues of the

have frequently

Bank of England

fallen,

any augmenta;

and that they

and been for a long time de-

pressed, while those issues have continued uniform, or

been on the increase.


128 No.

II.

Applications from the Chancellor of the Exchequer to

Bank

the

May

to

imrchase Exchequer Bills.

Application to purchase 2,000,000/.

16, 1811.

Agreed

to

on condition that the Bank be relieved

:

from a corresponding sum within three months

and that a reduction be made, by degrees, of the

amount of Exchequer

bills at

present held by the

Bank.

Aug. 29, 1811. Agreed to to

Application to purchase 2,000,000/.

but the Governor and Deputy Governor

:

communicate

to

the

Chancellor of the

Ex-

chequer the anxious wish of the Court that he will not avail himself of any part of this credit whilst

Exchequer

bills

can be sold in the market.

Application to jDurchase 1,000,000/.

Jan. 2, 1812.

Agreed to

in full reliance that the

:

Exchequer will carry

Chancellor of the

into effect the

arrangement

referred to in his letter, for the reduction of Ex-

chequer

May

bills

Application to purchase 2,000,000/.

19, 1812.

Agreed

held by the Bank.

to

:

on condition that provision be made for

a further reduction of the amount of Exchequer bills

held by the Bank.

June 4, 1812. Application to purchase 1,000,000/. Agreed to on condition that this, as well as the two :

former advances of

1,000,000/.

and

500,000/.,

should be repaid out of the loan for the service of the year 1812.

April

1,

1813.

the East India

Agreed

to.

Application to purchase, on account of

Company, 2,000,000/. The Governor and Deputy Governor


129 to present a Statement of all Eschequei- bills held

by the Bayk, to the First Lord of the Treasury and the Chancellor of the Exchequer, with a renewed application, that the amount may be considerably reduced out of the Ways and Means of the year.

May

Application to purchase 2,000,000/.

20, 1813.

Agreed

to

on condition that

:

it

be reimbursed out of

the early instalments of the present loan

a further reduction held by the

bills

in

the

;

and that

amount of Exchequer

Bank be made, agreeably

to the

promise of the First Lord of the Treasury and the Chancellor of the Exchequer. Oct.

Application to purchase 2,000,000/.

1813.

6,

Agreed

to

on condition that such arrangements be

:

made soon