Imágenes de página

1832.] On the Currency, and the Renewal of the Bank Charter.

dity, but while the stock of it is so small, it must be liable to a considerable rise from any extraordinary demand, consequently it is a most unfair standard of value.

The first Earl of Liverpool, to make it appear that gold was more steady in its value than silver, attributed the rise in price of the former, to a superabundance of silver, but it is evident this abundance was not greater than the demand created by commerce, which caused the use of it as a commodity to be carried to an extent that was complained of as inconvenient, consequently restrictions were imposed on the manufacture, and encouragement offered to the melting down of silver utensils to supply the Mint.

The demand created for silver as a commodity by the extension of commerce, to which paper currency is essential, prevents the substitution of the latter as its representative from lowering the value of silver. Instead of using it as money, we make use of it in the form of spoons, forks, and articles of higher luxury, which are convertible into coin in case of necessity. On one particular occasion the cities of Holland supplied the Government with nearly ten millions in plate, to meet the public exigency. Upon this and upon other points I am supported by the evidence of the Earl of Liverpool, as I shall hereafter show.

It is commonly asserted by theorists, as a reason for imposing restraints upon paper currency, that it can only supply the place of the coin which was previously in circulation, and save the expense of it; but the words of Adam Smith, quoted by the first Earl of Liverpool, admit the possible advantage to be much greater. The whole paper currency of every kind which can easily circulate in every country never can exceed the value of the gold and silver of which it supplies the place, or which the commerce, being supposed to be the same, would circulate if there was no paper currency. cording to this maxim of Adam Smith, there is no danger in any increase of paper currency, if it be attended by a proportionate increase of trade; yet because they acted on this sound principle, the Directors of the Bank were reprimanded by Lord Liverpool's Bullion Committee. The Bank of England was established for the purpose of increasing the trade of the kingdom,



upon the principle that increase of trade requires an increase of circulating medium, and Mr. Locke's description of the state of things before its establishment shews that it was wanted to supply not only a cheaper but a more abundant circulating medium. I shall insert it here at full length, because its correspondence with the recent consequences of Lord Liverpool's restrictions renders it very instructive.

Mr. Locke had vainly endeavoured to solve the problem which modern theorists think so easy of solutionthe proportion of money necessary for the trade of the country; for which purpose he traced the progress of money through the various channels of its circulation with the assiduity of a Rennell trying to anticipate the discovery of the final course of the Niger, and finding his research rendered fruitless by the standing pools which arrested the circulation of money at that time as they do at present, he drew the following picture, which shews that paper currency was wanted, not as a substitute for current coin, but to supply the deficiency of it.

"This was the ordinary course while we had money running in the several channels of commerce, but this now very much failing, and the farmers not having money to pay the labourer, supplies him with corn which in the great plenty the labourer will have at his own rate, or else not take it off his hands for wages; and as for the workmen employed in our manufactures, especially the woollen ones, these the clothier not having ready money to pay furnisheth with the necessaries of life, and so trucks commodities for work, which, such as they the master's rate, or sit still and starve; are, good or bad, the workman must take at whilst by this means this new set of ingrossers or forestallers, having the feeding and supplying their numerous body of workmen out of their warehouses, for they have now magazines of all sorts of wares, set the price upon the poor landholders; that the markets being destroyed, the farmers must sell to these ingrossers upon their own terms of time and rate. What kind of influence this is like to have upon land, and how this way rents are like to be paid at quarter day, it is easy to apprehend; and it wonder to hear every day of farmers breaking and running away, for if they cannot receive money for their goods at market it will be impossible for them to pay their landlords' rent. If any one doubt, let him enquire how many farmers are broke and gone since Michaelmas. Want of money being to


this degree, works both ways upon the landholder; first, the ingrosser lets not the money come to market, but supplies the workmen; secondly, as the tenant cannot coin his rent just at quarter day, but must gather it up by degrees and lodge it with them till pay day, or borrow it of those who have it lying by them, or do gather it up by degrees, which is the same thing, and is necessarily so much money for some time lying still."

This statement is dated four or five years before the establishment of the Bank of England, and five-and-twenty years later than the treatise of Sir J. Child, containing a proposal for the introduction of paper currency, and which Mr. Locke and all theorists

continued to oppose. Mr. Locke's objections are given in the following passage, which a little precedes the last extract :

"The necessity of a certain proportion of money to trade depends on money, not as counters, for the reckoning may be kept or transferred by writing, but in money as a pledge which writing cannot supply the place of; since the bond, bill, or other note of debt I receive from one man will

not be accepted as security by another, he not knowing that the bond is true or legal,

or that the man bound to me is honest or responsible, and so is not valuable enough to become a current pledge, nor can by public authority be made so, as in the case of assigning of bills. Because the law cannot give to bills that intrinsic value which

the common consent of mankind has annexed to silver and gold, and because foreigners can never be brought to take your bills or writings for any sort of payment, though perhaps they might pass as valuable considerations among your own people, did not this very much hinder it, that they are liable to unavoidable doubts, dispute, and counterfeiting, and require other proofs to assure us that they are good securities than our own eyes or a touchstone; and at best this course, though practicable, will not hinder us from being poor, but may be suspected to help to make us so by keeping us from feeling our poverty, which in distress will be sure to find us in greater disadvantage. Though it be certain it is better than letting any of our trade fall for want of current pledges, and better too than borrowing money upon use, if this way of assigning bills can be made so safe, easy, and universal at home as to prevent it."

Thus Mr. Locke acknowledged that paper currency might supply the deficiency of money, and prevent the necessity of borrowing it at a high rate of interest; and the fact that it has done

so is a sufficient answer to the assertion of the Ricardo professors, that paper currency cannot increase the quantity of monies, and lower the rate of interest. Many years after it had enabled us to reduce the interest of the national debt to 3 per Cent. it was represented by Adam Smith as merely supplying the place of the gold and silver which would otherwise circulate, and Lord Liverpool thought the amount of it ought not to exceed that of the gold alone. He imagined that we had abandoned the right of using silver, because he overlooked the fact that our bank notes, which constituted the chief part of our currency, were the representatives of silver, according to the literal and legal sense of their wording, and were therefore to be deemed payment in silver coin as much as bills payable at the Bank of Amsterdam were always considered upon the continent as payment in silver bullion, although gold taken at its market value formed part of the treasure of that bank. The use of gold as an equivalent, above the value it would otherwise have in the market as a commodity, does not create a gold standard any more than the use of platina at twenty shillings per ounce would constitute a platina standard; because, to make platina the sole legal tender in large payments without altering the value of our money, we ought to allow it to pass current at the rate of a hundred pounds per ounce, or perhaps much higher, on account of its scarcity. The use of two metals does not create a double standard, because it is an impracticable thing; this is evident from the attempts to define it made by the American President, Jefferson, who was Ambassador at Paris in 1788, when the price of the louis d'or was altered (without any alteration of the silver coin) upon the principle that silver was the sole standard of the currency, although gold was a legal tender in all payments. Upon the same principle an alteration in the price of the guinea was enacted in 1717 by advice of Sir I, Newton, who thus practically adhered to the opinion of Mr. Locke, that silver was the sole standard of our currency, and alone fit to be so.

The philosophical principle upon which Sir I. Newton lowered the price of the guinea to its value as bullion,

1832.] On the Currency, and the Renewal of the Bank Charter.

has been productive of great practical inconvenience by rendering our paper currency insecure. This point we shall have to consider after we have finished our enquiry into the difficulties which preceded the establishment of the bank.

Having had before us Mr. Locke's evidence of the scarcity of money, and his opinion of the impossibility of supplying the deficiencies by paper currency, let us now examine some of his own particular views of cause and remedy.

"The multiplying of dealers hinders the trade of any country, by making the circuit which the money goes larger, and in this manner more stops, so that the returns must necessarily be slower and scantier to the prejudice of trade; besides, that they eat up too great a share of the gains of the trade, by that means starving the labourers and impoverishing the landholders, whose interest is chiefly to be taken care of, it being a settled immoveable concernment in the commonwealth. If this be so it is past question, that all encouragement should be given to artificers, and things so ordered as much as might be, that those who make should also vend and retail their own commodities, and they be hindered as much as possible from passing here at home through divers hands to the last buyer. Lazy and unworking shopkeepers in this being worse than gamesters, that they do not only keep so much of the money of a country constantly on their hands, but also make the public pay them for the keeping of it. Here we may observe how much manufacturers deserve to be encouraged, since that part of trade, though the most considerable, is driven with the least

money, especially if the workmanship be worth more than the materials; for to the trade that is driven by labourers and handicraftsmen, one two-and-fiftieth part of the money yearly paid them will be sufficient,

but to the trade of our commodities of our bare growth a much greater proportion of money is required."

I have substituted dealers for brokers, the latter word having become obsolete in Mr. Locke's sense of it; he thought the multiplicity of dealers absorbed too large a part of the currency, locking it in standing pools, or causing stops in the circulation, and keeping it away from the productive classes, the manufacturer and the agriculturist. Undoubtedly the same amount of commodities may employ a greater quantity of money when they pass through divers hands, but this competition is rendered advantageous to the farmer and the manufacturer by the


assistance of paper currency. Whether it enhances prices to the consumer, is a question which causes much difference of opinion about the usefulness of paper currency in the present day.

In the Pamphlet on the Administration of Affairs, at the commencement of 1823, written in defence of Lord Liverpool's measure, and supposed to contain his views, the following words of Mr. Locke were quoted in support of them:


"If the number of dealings remain the and the number of money pieces (currency) be diminished, the value of money must be proportionally raised, inasmuch as a less portion of money pieces has to be distributed among the same numbers and dealings, and of course a less portion of money has to fall to the share of any single dealing."

The writer added

"This argument is unquestionably true, because it makes the conclusion depend on the premises."

If, instead of diminishing the number of money pieces, you increase the number of dealings, the result must be the same; therefore, according to this proposition, prices must be lowered by


passing through divers hands," but we have seen Mr. Locke argue that the passing through divers hands must raise prices; such are the perplexities of theory. The fact is, that prices are at the same time raised and lowered by the increase of competition. They were not, as Mr. Locke imagined they must be, (and were, perhaps, in his time, from the deficiency of circulating medium) raised to the consumer

and lowered to the manufacturer and farmer, but the reverse. The father of the late editor of the Morning Herald acquired a handsome fortune by selling at low prices, (he is said to have been the first person who ticketed the goods in his shop); and perhaps from this circumstance that journal has been less marked by servile adherence to popular prejudices on the subject of paper currency than many of its contemporaries. Paper currency enables the shopkeeper to sell cheaper, because it lowers the rate of interest, and thus lessens the expense of holding a stock of commodities. Mr. Locke imagined that a reduction of the rate of interest would raise the price of commodities, but he denied that it would raise their value.

[ocr errors]

By what has been said we may see what injury the lowering of interest is like to do

us by hindering trade, when it shall either make the foreigner call home his money, or your own people backward to lend.' He continued," there is another seeming consequence of the reducing the money to a low price, which at first sight has such an appearance of truth in it, that I have known it to impose upon very able men, and I guess it has no small influence at this time in promoting the alteration; and that is, that the lowering of interest will raise the value of all other things in proportion. For money being the counterbalance to all other things purchaseable by it, and lying as it were in the opposite scale of commerce, it looks like a natural consequence, that as much as you take off from the value of money, you add to the price of other things which are exchanged for it. The raising of the price of thing being no more but the addition to its value in respect of money, or which is all one, lowering the value of money."


From a passage preceding the above, it appears that at that time (the year 1690) a slight stimulus had been given to commerce by the introduction of private banking.

"In some great towns, where the bankers are ready at hand to buy bills, or in any other way to lend money for short time at great interest, there, perhaps, the merchant is not forced to keep so much money by him as in other places where they have not such a supply; but if you consider what money, to do this, must necessarily be constantly lodged in the bauker's hands, the case would be much the same."

This shews to what a limited extent the discounting of bills was practised; and how the prejudices of theorists, and their influence upon the legislature, contributed, as they still do, to debar us from those advantages, of which, at a much earlier date, other countries have availed themselves. We learn from Sir Walter Raleigh, that in the days of Queen Elizabeth, "the merchants of Ipswich, whose trade for Elbing is mostly for fine cloths, all dyed and dressed within our own land, do, for the most part buy their fine cloths upon time, and, by reason of this, go so much upon credit, they are inforced, not being able to stand upon their market, to sell and give fifteen or eighteen months' day of payment for their clothes; and having sold them, they then presently sell their bills taken for cloth, allowing after the rate of fourteen or fifteen, and sometimes twenty per cent., which money they employ forthwith


wares at excessive prices, and lose as much more that way, by that time their wares be sold at home." Thus

by overrunning themselves at home upon credit, they disable themselves and others, enhancing the price of foreign commodities, and pulling down the rates of their own. Sir Walter complained that we had been deprived of a part of the trade in our own manufactures by the Dutch; and, in order that we might better oppose those rivals, who by their wealth had been enabled to contend with us for mastery in our own seas and river, Sir J. Child recommended, in the third subsequent reign, that we should lessen the rate of interest. He advised that we should make debt-bills trans

ferable, as they were in Holland. He says this practice was objected to as being contrary to our statute against Champerty, and the continuance of prejudices of the same origin appears to have influenced the Earls of Liverpool and their abetters.

The buying a thing with intent to sell it again, and every form of commercial speculation, have at all times been viewed in this country, by statesmen and legislators, in the light in which Mr. Locke represented it. To our free form of government, and ourpolitical economists, in every age we have been indebted for greater restrictions in commercial dealings, than would have been tolerated in any other country.

When wheat fluctuated from three shillings to twenty pounds per quarter of our present money, as, according to Holinshed, it did in the days of the Plantagenets, laws were enacted against forestalling and regrating, or buying corn with the intent to sell it again, as if the proper and only effectual means of providing against scarcity were the cause of it.

The Encyclopædia Britannica tells us that Champerty, in our sense of the word, signifies the purchasing a suit, or right of suing a chose in action. A thing of which any one has the right but not the possession, is not assignable in common law. Hitherto, also, must be referred the provision of the statute 22 Henry VIII. c. 9, "that no one shall sell or purchase any pretended right or title to land, unless the vender hath received the profits thereof for one whole year before such grant, or hath been in actual posssesion of the reversion or remainder, on pain that both purchaser and vender shall each forfeit the value of such land to the king and the prosecutor." Yours, &c.


« AnteriorContinuar »