'
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
after the meeting of Parliament, as will
enable the Chancellor of the Exchequer to repay this
May 5,
sum. Application to purchase 2,000,000/.
1814.
Agreed
The Governor and Deputy Governor
to.
to
state to Lord Liverpool and the Chancellor of the
Exchequer the expectation of the Court, that the made by the Bank
present and former advances
be
repaid
out of the
instalments of the
next
ensuing loan.
June
Application to purchase 2,000,000/.
16, 1814.
Agreed
to
:
on account of the urgent necessity of
Government, under the peculiar circumstances of and also that so large a portion of the moment ;
the said advances
is
settled to
be paid off out of
the instalments of the present loan.
July
6,
1812.
Agreed
to
Application to purchase 2,000,000/. :
but the Chairman to acquaint the First
K
1.30
Lord of the Treasury and the Chancellor of tho Exchequer, that the Court cannot grant any further advances
;
and expect such arrangements may
be made as shall tend to a very considerable reducof
tion
the
present enormous
amount of
these
advances.
Application to purchase 2,000,000/.
July 28, 1814.
Reluctantly complied with
under the
:
assurance
that every endeavour will be made to bring the advances of the Court within reasonable bounds as
soon as possible.
March
19, 1815.
Application to purchase 2,000,000/.
Agreed to: on the terms, that the repayment of the 2,000,000/. shall, as well as the
memorandum, be provided cial
April 13,
sum
specified in a
for in the ensuing finan-
arrangements. Application to purchase 2,000,000/.
181,3.
Agreed
to
on the terms that the 2,000,000/. now
:
applied for, as well as the
Minute in the
March,
sum
specified in the
will be provided for
ensuing financial arrangements.
Aug. 24, 1815. Agreed to
made
of the 19th
Application to purchase 2,000,000/. :
upon condition that
the i-epayment
as soon as the public service will permit.
be
131 No. III. An Account of the Amount of Bank Notes in c"'culation on the undermentioned Days distinafuishins; the Bank Post Bii's, and the amount of Notes under Five Pounds, with the aggregate of ;
the whole.
— 13-2
Prices of Gold and SiLVEn, and Exch.'\ges on Hamto February, 18)9, extracted from the Appendix to the Second Report of the Secret Committee on the expediency the quotations after Feof the Bank resuming Cash Payments
No. IV.
burg and Paris,
;
bruaiy, 1819, are from Lloyd's Lists,