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the resolutions of his honourable friend, who, in spite of the casual errors which had crept into them, was fully entitled, not merely to the gratitude of the house, but also to the gratitude of the whole country.
Mr F. Douglas and Mr C. Hutchinson followed on the same side, and generally urged the same topics as Mr Calcraft and Colonel Davies
had done, attempting to palliate or explain the numerous blunders which had crept into the resolutions of the honourable Baronet. Lord Palmerston also spoke at some length in explanation, going over the grounds he had previously stated; and after a few words from Sir G. Cockburn, the resolutions were put and negatived without a division.
RESUMPTION OF CASH PAYMENTS.
Introductory remarks.-Bank Restriction Act of 1797.-Effects of that measure.-General Principles.-Necessity of returning to a convertible currency. -Safe method for effecting that object.—Mr Tierney's Motion on the Bank Restriction, as it affected foreign exchanges and the state of the circulating medium.-Bill for restraining the Bank from paying in specie notes under L.5.-Opinion of the Bank Directors on the Reports of the Secret Committees of the two Houses of Parliament.-Debate in the Lords on the Report of the Secret Committee.-Lord Lauderdale's Resolutions negatived.-Debate on the Report of the Committee of the Commons.-Bill for regulating Cash Payments brought in by Mr Peel.-Lord Lauderdale's motion for obtaining the opinion of the Judges on the subjects of legal tender and standard of value. -Cash Payments Bill carried through both Houses of Parliament.
THAT the original Bank Restriction Act was a measure of indispensable necessity at the time, can only be doubted by those who are either blinded by theory, or ignorant of the circumstances of the country when it was had recourse to. False alarms excited by the enemies of Government, at that period both numerous and daring, had spread like wildfire among all classes of the community. The instability of the Government, and the concomitant insolvency of the Bank of England, were loudly and pertinaciously as serted. Those having a pecuniary interest in the permanent credit of any concern are naturally timid, credulous, and suspicious. Holders of notes and Bank securities caught the panic which it had been the object of evil and designing men to propagate; and the consequence was a run upon the Bank for cash, which, had it not been checked by the prompt and opportune interference of Mr Pitt,
must have been speedily productive of the most disastrous consequences. Hence, on the 3d of May 1797, the Restriction Act was passed, for the purpose of confirming and continuing the restriction contained in the Minute of Council of the 26th of February preceding. This restriction, originally limited to a very short period, was continued from time to time by subsequent acts, till the 28th of May 1818, when an act was passed, by which, after reciting in the preamble, that it was highly desirable that the Bank of England should return as soon as possible to the payment of its notes in cash, and that unforeseen circumstances had occurred since the passing of the last of the preceding acts, (on the 21st of March 1816,) which rendered it expedient that the restriction should be further continued, and that another period should be fixed for the termination thereof," the restriction was
further continued till the 5th of July 1819. Of the " unforeseen circumstances" here alluded to, the most important was the apprehension of the effect of further foreign loans (particularly those of France) upon the exchanges, and the market price of gold.
The effects of this measure upon property of all kinds could not fail to be in the highest degree important, as it enabled the Bank, no longer checked by the convertibility of their paper into cash, to increase the amount of their notes in circulation beyond all former precedent.
In the first instance, however, the effects of this enormous augmentation of the currency were in the highest degree salutary. Not only did a greater number of individuals become possessed of capital, but the quantities in the hands of individuals was likewise increased. The wages of labour consequently rose as the demand for it improved; commerce received a fresh and powerful impulse; enter prise assumed new activity and vigour. Agriculture felt equally the influence of the change that had taken place in the circulating medium. Prices improved, rents increased, and inferior soils were brought into cultivation and this state of things was favoured by the circumstances of the war, the extraordinary demands which it necessarily created, and the monopoly which, to a certain extent, we enjoyed of the commerce of the world. But it was impossible this state of things could always endure. The abundance of money, like that of any other commodity, necessarily depreciated its value, and caused gold to disappear from the market. Bank notes accordingly became depreciated, or, what amounts to the same thing, gold rose in nominal value; so that a guinea, for which a twenty shillings note and a shilling continued the legal tender,
VOL. XII, PART I.
rose as high as 25, 26, and even 27 shillings. A gradual accommodation in the price of commodities to the depreciated state of the currency soon took place. They rose in nominal price; the real price still continuing affected, in some degree, by the same causes as formerly; in some instances falling, and in others rising, in proportion to the quantity produced, as measured by the demand. Now, it is obvious that this state of things must have continued,-that prices must have varied in proportion to the issues of the Bank,-and that there was absolutely no limit to the depreciation, which must eventually have taken place, had the Bank been suffered to augment, at pleasure, an inconvertible currency, and had all the property of the country been thus placed at their mercy. But this was not all. The depreciation, which had already taken place, had in some measure affected the whole frame and constitution of society. Annuitants, mortgagees, the public creditor, and the Government in the taxes, had respectively sustained losses to the amount of the actual depreciation, and which were liable to be increased in amount as that depreciation proceeded in its course. Hence the greater part of the community, as well as the Government, were sufferers by this measure; while the principal gainers by it were the Bank, whose profits were necessarily enormous, and unaccompanied by any risk,-and the landlords, whose rents had been raised beyond all former precedent, and to an amount much greater than the amount of the difference between the market and mint price of gold, which was of course the measure of the depreciation.
The return of peace rendered it absolutely imperative that something should be done to check this evil, which, though it had been foreseen, could only be remedied by a return
to payments in cash or bullion. longer enjoying the monopoly of the commerce of the world, and not only our manufacturers, but our agriculturists being exposed to the consequences of foreign competition, it was clear that the system of an inconvertible paper currency could no longer be persevered in, without entailing indiscriminate ruin upon all classes of the community, for the purpose of enriching of a single overgrown Corporation, which had thriven by the very means which pressed so hard on the other branches of the community. It is perfectly obvious, from the preamble to the act of the 28th of May 1818, that Parliament saw the necessity of this return; and the measures we are about to record were the natural consequences of that foreseen necessity, and led to the consummation which, by almost all classes of politicians, had been so devoutly wished for. But, before proceeding to our task, it may be necessary to make a few observations more in detail, both as to the nature of money as a measure of value, and also as to the plan for a safe, resumption of payments in bullion, proposed by Mr Ricardo, and afterwards in substance adopted by Parliament, in consequence of the recommendation of the different committees to whom the subject was referred for inquiry and consideration. We would here particu. larly refer to the able and luminous Report of the Secret, Committee of the Lords (given in the Appendix,) in which the reader will find embodied a mass of the most valuable and authentic information on this most important subject.
It is a maxim in political economy, that the standard of value should be rendered as little subject to variation as possible. That which measures the value of other commodities should itself possess the greatest possible uniformity of value. Absolute exemp
tion from variation is not attainable; but every plan which promotes an approximation to this desirable object, by diminishing the causes which disturb uniformity of value in the standard, is an improvement of the highest order, and ought unquestionbly to be adopted. While the precious metals continue the standard of our currency, money can undergo no other variations than such as are incidental to these metals; but as these variations are, from a number of causes, comparatively rare, and as gold and silver have been found to maintain a steadiness in value for periods of some duration, they have, for that reason, been fixed upon, by most countries, as the standard by which the value of other commodities is to be measured and determined.
A perfect currency, therefore, is that which is at once invariable and economical; and in proportion as the currency of any country approaches to, or recedes from this limit, it is more or less perfect. But, in comparing a paper and a gold currency, it is obvious that different principles must be employed in determining their relative importance, as well as that a paper currency possesses some peculiar advantages which do not belong to a currency composed exclusively of the precíous metals. The value of gold depends almost entirely upon the quantity of labour necessary to be expended before it can be brought to the market; in other words, upon the cost of production. The value of paper, employed as currency, can be in no degree affected by this principle, but must depend, either upon its convertibility into the precious metals at the option of the holder, or the relation which it bears in amount to the quantity of productions of every kind which are to be circulated by it. If more paper be issued than is necessary for this purpose,
it must fall in value, or become depreciated. The market price of gold will exceed the mint price, and provisions will rise. If, on the other hand, less be issued, it will rise in value, and be accompanied with results exactly the reverse of the former. Hence, therefore, the convertibility of paper into the precious metals contributes no otherwise to maintain its value at par than as it tends to restrict the quantity issued to the amount which is barely necessary to circulate the whole mass of commodities, for which a common medium of exchange is required. Amongst the advantages of a paper over a metallic circulation," says Mr Ricardo*, "may be reckoned as not the least, the facility with which it may be altered in quantity, as the wants of commerce and temporary circumstances may require, enabling the desirable object, of keeping money at an uniform value, to be, as far as it is otherwise practicable, securely and cheaply attained." But the very circumstance which constitutes the great advantage of a paper currency, the facility with which it can at any time be increased or diminished, renders it necessary that some check should be imposed to prevent its too sudden, or improper increase or diminution. Before the passing of the Restriction Act in May 1797, this check consisted in the convertibility of paper into the standard coin, at the option of the holder; but by the passing of that act this check was removed. The Bank of England were no longer compelled to pay their notes in specie, and the holders of country bank notes could only deraand in exchange for them those of the Bank of England. On the Restriction Act, as a measure of necessity, created by the panic which
had been raised, and the run which took place on the Bank, we have already expressed our opinion; nor can we agree with Mr Ricardo, that had the Bank continued paying in cash the panic would probably have subsided before their coin had been exhausted. At the period in question, the Bank had about 11 millions of notes in circulation, and only about 5 millions in cash and bullion. Now, it is extremely probable that, during the operation of this panic, in the creation of which the enemies of Government were mainly instrumental, at least one-half of their notes must have been presented for payment. But if, after they had paid away their five millions in cash and bullion, one single note had been presented, the Bank must have been instantly declared insolvent. Would it not have been little short of madness to risk such a consequence? And would not the Government, who knew well that specie was demanded for exportation, have hazarded its very existence, had not strong measures been instantly resorted to, in order to save this great establishment, so indissolubly connected with the public interest, from threatened bankruptcy and ruin ?
But, be this as it may, it is plain, from what has been already said, that the removal of the natural check on the superabundance of paper issues left the quantity, and consequently the value of money, entirely at the mercy of the Bank, whose profits were thereby increased in a double proportion; first, by their being no longer compelled to keep in their coffers a quantity of unproductive cash and bullion to meet demands for the payment of their notes in specie; and, secondly, by the profits arising from increased issues, to which they had thus every temptation. Let us not,
• Proposals for an Economical and Secure Currency, p. 8.