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i 
 
THOUGHTS 
 
 ON 
 
 THE CIJKRENCY. 
 
 
 u m. 
 
 pr 
 
 ■\\ 
 
 i'l 
 
 LONDON : 
 JAMES H IDG WAY, PICCADILLY. 
 
 1842. 
 
 
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 l# 
 
 THE CURRENCY. 
 
 It is understood that when Parliament shall 
 again meet, one of the principal subjects to which 
 its attention will be directed, will be that of the 
 present state of the Currency. This subject has in 
 the course of the last few years been discussed in 
 many pamphlets of great ability, and much light 
 has also been thrown upon it, by the very interest- 
 ing and instructive evidence taken before the Com- 
 mittee of the House of Commons on Banks of 
 Issue, which sat in the Session of 1840 and 1841. 
 But, notwithstanding all that has been said and 
 written upon the question, it appears to the writer 
 of the following pages, that before measures of legis- 
 lation, upon a matter of so much importance come 
 under consideration, it still will not be superfluous 
 to enquire first what is the precise object to be 
 aimed at in any attempt to accomplish a reform in 
 our Monetary system — and next, what are the 
 means by which this object may best be attained. 
 It may seem at first sight hardly worth while at- 
 
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 tempting to I'xpluin that wliicli is in itself so clear 
 and simple as the object oi' a good currtuicy ; but 
 if we look carefully at the course which discussion 
 upon this subject has taken, it will be found that 
 much of the confusion and difficulty with which it 
 is beset, have arisen from its having been too com- 
 mon to neglect the precaution of keeping steadily 
 in view the real purpose which a circulating me- 
 dium is meant to answer ; it is only by forming to 
 ourselves a clear and definite idea of what that pur- 
 pose is, and then judging of the various measures 
 which are suggested by their fitness to effect it, that 
 we can hope to arrive at a satisfactory practical con- 
 clusion. In entering upon this enquiry no preli- 
 minary attempt need be made to shew that our 
 currency is not at present in a satisfactory state, 
 or to determine in what proportion the responsibi- 
 lity for its past mismanagement properly attaches 
 to different parties; because as to the fact that some 
 improvement in the existing arrangements is re- 
 quired, there seems to be a universal concurrence 
 of opinion amongst all who have considered the 
 subject, however widely they may differ as to the 
 nature of the measures it would be expedient to 
 adopt ; and because it is of much less importance 
 to determine who may have been to blame for past 
 errors than to establish a better system for the future, 
 while the calm consideration of the best means of at- 
 taining this end would be little likely to be promoted 
 by a discussion of which the tendency must neces- 
 
 sar 
 del 
 
 of 
 
sarily he to ])ut sorno party or other upon the 
 defensive. 
 
 The ultimate olyoct then of all legislation with 
 reference to the currency seems to he simply that 
 of providing a medium by which the numberless 
 exchanges which take place between the members 
 of civilized communities may be effected with the 
 greatest possible fiicilily. Those who have been 
 accustomed to look to measures affecting the cur- 
 rency as the means by which the nation may be 
 indefinitely enriched, or irretrievably ruined, will 
 doubtless regard as too narrow such a statement of 
 the objects of legislation upon this subject ; it 
 would, iiovvever, be a mistake to suppose that 
 object even thus limited not to be one of high im- 
 portance. Without exchanges, Adam Smith has 
 remarked that there could be no division of labour, 
 and it is to the division of labour, as he has shewn, 
 that we are mainly indebted for the superior 
 productiveness of industry, and the consequently 
 increased command of the comforts and luxuries 
 of life, by which a civilized is distingui'iJied from a 
 barbarous soeiety. But without some general 
 medium of exchange in which the value of all 
 commodities could be measured, nothing but the 
 simplest barter could exist, and the greater the 
 facility with which, by means of such a medium, 
 exchanges can be effected, the farther can be car- 
 ried that process which Adam Smith has termed 
 the division of labour, and which has been since 
 
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 4 
 
 X 
 
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 rnon.' accurately described as the combination of 
 labour and division of employments. A well rogii- 
 gulatcd currency as tlie instrument by vvbicb 
 exclianges, or in otber words, by wliicb commerce 
 may be carried on, is therefore one of the most 
 indispensable wants of a civilized society. 
 
 Of all the (|iialities which a currency must pos- 
 sess, in order to Ht it for answerin<^ this purpose of 
 carrying on exchanges, tiie most essential of all it 
 may easily be perceived, is that its value should be 
 certain and uniform. Before a man will consent 
 to part with the produce of his industry in exchange 
 for some article which he does not intend to use, 
 except for the purpose of obtaining at a future 
 time, by means of a second exchange, some other 
 commodity he may require, he must be well as- 
 sured of the value of that which he thus takes in 
 order again to part with it. Just as the security 
 of property is necessary to encourage industry, so 
 confidence in the value of the medium in which 
 payments are to be made is essential to the prospe- 
 rity of commerce, because unless individuals who 
 calculate upon having to pay or to receive certain 
 sums of money, have the most perfect assurance 
 that they will not be called upon to give or to ac- 
 cept what is in fact worth either more or less than 
 they had expected, it is utterly impossible that they 
 should engage freely in those transactions by which 
 commerce becomes U^e instrument of so va>t an in- 
 crease of a nation's wealth. 
 
A very reinarkaMe illustration ofthistruth has been 
 aft'orded, vvitliin the hist few years, by the effects pro- 
 duced in the United States oF America, by the de- 
 rani^onient of their currency. In the year 1837 these 
 States had suffered from no interruption of peace 
 abroad, or of trancpiillityat home, liiere had been no 
 failure of the productiveness of their soil, or of the 
 seasons, and no diminution of tin; spirit of enterprise 
 and industry, by which their inhabitants are so emi- 
 nently distinguished : it might therefore, perhaps, 
 have been supposed that while the nation thus con- 
 tinued to possess all the elements of production, 
 the sum of its wealth could not be diminished, 
 th<mgh property might be made to change hands, 
 and debtors might be benefitted at the expense of 
 their creditors, by the general suspension of specie 
 payments by the banks, and the great depreciation 
 of their paper currency. The result has shown 
 that such anticipations would have been altogether 
 erroneous ; the derangement of the currency was 
 the cause not men^ly of a transfer of property, but 
 of a real diminution in the productive power of the 
 nation, in consequence of the obstacles opposed to 
 the most effective distribution of its labour and 
 capital by the want of a safe and easy medium of 
 exchange. All classes were sufferers by this state 
 of things, labourers were thrown out of employ- 
 ment, and business was paralyzed, because, in the 
 utter uncertainty as to what, at a short distance of 
 time, might be the real value of tlie currency, in 
 
 
 !ri^ 
 
 
(J 
 
 which all ent^jijjeinciits would liavc to bo tlis" 
 chai'^ocl, IK) man could vrnturc to embark with 
 eonfidciicn in coiurntTc/ial or industrious enterprises 
 not promisinpf an immediate return, and because 
 the great and rapid fluctuations in the rates of ex- 
 change, not only with foreign countries, but be- 
 tween diti'erent states of the Union, rendered it 
 hazardous in the extreme to carry on even the or- 
 dinary operations of trade, by wliich the daily and 
 most pressing wants of society are supplied. Such 
 have been the eft'eets in America of a deranged cur- 
 rency, and unlike ordinary commercial embarrass- 
 ments, these still continue, because the assistance to 
 the operations of trade, afl'orded by an easy medium 
 of exchange, has not yet been restored.* 
 
 * The New York Express gives the following account of the 
 state of affairs in the United States, at the beginning of September, 
 1842. 
 
 " The veto and the various reports df the House, particularly that 
 of Mr. Adams, is still uppermost in the minds of all. Our public 
 affairs at Washington are approaching a crisis of an unprecedented 
 character. Whether the public debts and the public credit are tc be 
 sustained, another week will determine. The revenue of the country, 
 since the new tariff went into effect, has fallen off to a most alarm- 
 ing extent, leaving the country in a position that requires immediate 
 action to save it from discredit and disgrace. All accounts seem to 
 agree that the crops throughout the country are good, almost beyond 
 parallel, and yet with abundance and plenty every thing is at a stand. 
 This is the usual month when business revives. In former years the 
 merchants in Baltimore and at the far West appeared here in great 
 numbers to lay in their supplies. This year comparatively few have 
 appeared. Peurl and other leading streets arc as dead and dull an 
 
1)0 dis" 
 pk with 
 [Tprises 
 because 
 ; of ex- 
 biit be- 
 leri'd it 
 1 the or- 
 aily and 
 I. Such 
 ged cur- 
 ibarrass- 
 stance to 
 medium 
 
 ount of the 
 September, 
 
 icularly that 
 Our public 
 nrecedentcd 
 >dit are tc be 
 the country, 
 most alarm- 
 es immediate 
 unts seem to 
 most beyond 
 is at a stand, 
 mer years the 
 here in great 
 vely few have 
 1 and dull as 
 
 Thus far there appears to be liitlt room for dif- 
 ference of opinion ; men of the most opposite views 
 will concur in admitting that the utility of a cur- 
 rency arises from its facilitating exchanges, and 
 that for this purpose it must, in the first plnce, 
 poss' ss u?iiforniity and certainty of value. Mr. 
 Gilbart has stated, in language as strong as could 
 have been used by Mr. Loyd or Mr. Norman, that 
 he " tlunks it necessary to keep the standard of 
 value at as fixed and invariable a rate, as far as 
 can be, as the yard measure or the bushel mea- 
 sure."* We may proceed one step further with- 
 out entering upon disputable ground, and it may 
 be asserted, without fear of contradiction, a^ a mat- 
 ter of fact and of experience, that no currency has 
 hithi'i'to existed which has been found to possess 
 these qualifications of uniformity and certainty of 
 
 1 ft V 
 
 value in so high a degree, as one consisting exclu- 
 sively of the precious metals. Where such a cur- 
 rency has been in use, no instance can be shewn 
 of the occurrence of those evils which, with a cir- 
 culating medium of a different description, have 
 been occasioned by fluctuation in its value. It is true 
 
 during the month of July. One great cause is, credits are done ; 
 our merchants will not give credit as formerly ; indeed they cannot 
 if they would, for in several states there is no currency, — viz. 
 Florida, Alabama, Mississippi, Arkansas, Missouri, Illinois, In- 
 diana, and Michigan. Seven states and one territory have no cur- 
 rency whatever, and will have none for a year to come." 
 
 * Report on Banks of Issue, 1 S M— Qu. 1380. 
 
 Lt 1 
 
 i'f! 
 
 i i 
 
 li: 
 
8 
 
 that even the precious metals themselves are subject 
 to variations of value, but the experience of the world 
 has shown that such variations take place, either 
 by such slow degrees, or within such narrow limits 
 that they may practically be disregarded, and that 
 for all the purposes of commerce, a metallic cur- 
 rency may be considered as having an uniform and 
 certain value. 
 
 But in an advanced stage of society both the 
 number and the magnitude of commercial transac- 
 tions increase so much, that a pu.«;iy metallic cur- 
 rency is found not to afford a medium by which 
 exchanges can be effected with sufficient ease and 
 rapidity. The stock of coin which would be re- 
 quired, if it were the only circulating medium of 
 a highly commercial and wealthy nation, could not 
 be obtained and kept up, except at a very great 
 expense, while an inconvenience still more serious 
 than the expense would result from the difficulty 
 and delay which would be experienced in trans- 
 ferring large sums in coin from hand to hand, and 
 from place to place. Hence the utility of paper 
 money, and in regulating a currency of which 
 paper is to form a large proportion, the problem 
 to be solved is, how to obtain in the highest de- 
 gree the economy and convenience which are its 
 recommendations, together with the still more in- 
 dispensable requisites of uniformity and certainty 
 of value which belong to a metallic currency. 
 
 One opinion as to the mode in which this pro- 
 
9 
 
 i II 
 
 blem is to be solved, that namely of which Mr. 
 Loyd and Mr. Norman have been of late years the 
 most distinguished advocates, may in substance be 
 thus stated : The value of any description of cur- 
 rency, it is held, depends mainly upon the propor- 
 tion which its total amount bears to the exchanges, 
 of which it is to be the medium ; or, in other 
 words, to the wants of the country where it is in 
 use. A paper currency may be enhanced in value 
 by limiting the amount in circulation, and on the 
 other hand, by excessive issues, it may be more or 
 less depreciated according to the degree of excess. 
 This may be ci^nied so far that the paper circula- 
 tion may be rendered worthless, as has twice hap- 
 pened in France ; — it may be such as to occasion 
 a depreciation to a minor, but still very considerable 
 extent, as during our own Bank depreciation ; — or 
 finally, there may be only that temporary and com- 
 paratively trifling amount of depreciation, which 
 is produced by such a degree of excess in the issue 
 of a paper circulation, as is consistent with the 
 maintenance of its convertibility into the precious 
 metals. A depreciation of the last kind can take 
 place only within very narrow limits, both as to 
 amount and duration, but may nevertheless be 
 productive of very serious inconvenience. The 
 value of the currency, and the proportion which 
 exists between its total amount and the extent of 
 the transactions for which it is wanted, are not (it 
 is held) less mutually dependent upon each other. 
 
 MU 
 
 I 11 
 
 11 
 
 
 I 
 
 
10 
 
 wljen tlje precious metals only are employed, than 
 when paper is made use of as a circulating me- 
 dium, but as the precious metals possess an in- 
 trinsic value, ultimately determined by the cost of 
 producing them, it is found that the amount of a 
 metallic currency is not liable to be arbitrarily 
 varied in the same manner as that of a paper cur- 
 rency, but is self-regulated by the wants of the 
 country in which it circulates. It is well known 
 that this self-rcgnlation of the amount of a metallic 
 currency is eftbcted by the operation of the ex- 
 changes, and the tendency wiiich always exists (in 
 the jjart of the holders of the precious metals, to 
 transfer them from the countries where their value 
 is lowest, to those in which it is highest. So powerful 
 is this tendency, that when the wealth and trade of 
 a country increase, so as to render necessary an in- 
 crease of the circulation, a natural influx of bullion 
 never fails fo take place to the extent to which it 
 is re(iiiired,* while on the other hand an extension 
 of a metallic circulation, when not wanted, cannot 
 be artificially maintained. The enormous supplies 
 of the precious metals formerly received by Spain, 
 together with the severe laws in force a<;ainst their 
 
 * A progressive improvement in the contrivances ailopled to 
 economize the use of money, generally counteracts to a certain ex- 
 tent, sometimes more than counteracts, the tendency of an increasing 
 trade to create a necessity for an increasing circulation ; it is to the 
 wants of each country, under its actual nv do of conducting busi- 
 ness, that the amount of a metallic currency acccniimodates itself. 
 
 
11 
 
 ), than 
 ig me- 
 an in- 
 cost of 
 It of a 
 itrarily 
 ler cur- 
 of the 
 known 
 netallic 
 the ex- 
 «cists on 
 3tals, to 
 ir value 
 owerful 
 trade of 
 f an in- 
 bullion 
 vhich it 
 ctension 
 cannot 
 supplies 
 \- Spain, 
 ist their 
 
 ulopted to 
 certain ex- 
 I increasing 
 it is to the 
 iitiiif; bnsi- 
 tcs itself. 
 
 or ortation, had scarcely any effect in keeping up 
 t; . amount in circulation in that country. The 
 uniformity of value of a metallic currency is be- 
 lieved to be in consequence of its amount being 
 thus self-regulated, and hence it is inferred, that 
 in order to ensure the same steadiness of value 
 which belongs to a currency consisting exclusively 
 of the precious metals, to one of which paper forms 
 a large proportion, the latter ought to be so regu- 
 lated that it may vary in amount according to the 
 same laws, and by the operation of the same causes, 
 as one of the former description — that is, accord- 
 ing to the state of the exchanges. 
 
 Such appears to be the principle on which, 
 in the opinion of the majority of those who have 
 considered the subject, n good paper currency 
 ought to be regulated ; this opinion, however, is 
 very far from being universally received ; on the 
 contrary, it has many eager opponents, who con- 
 tend that the amount of the circulation ought not 
 to be made in any degree dependent upon tlie 
 state of the exchanges. The chief supporters of 
 this doctrine, before the Committee on Banks of 
 Issue, were Mr. Hobhouse and Mr. Gilbart; and 
 though it is not the object of these pages to 
 enter into a critical examination of their evi- 
 dence, it may not be out of place to remark that 
 whether the theory of the currency, which has 
 been stated above be sound or not, it is at least 
 simple, easily understood, and consistent with 
 
 'li 
 
 
 I 
 
 If 
 
 i 
 

 12 
 
 itself, while the same thing certainly cannot be 
 said of the views of its opponents. The evidence 
 of Mr. Hobhouse, Mr. Gilbart, and Mr. Muntz, 
 together with the writings of their supporters, 
 leave us to search in vain for any clear and definite 
 principle on which they think that measures regu- 
 lating the currency should proceed, in order that 
 it may constitute (as they admit it ought to do) a 
 medium of exchange of certain and uniform value. 
 It does not appear to be denied by Mr. Gilbart 
 that if the currency is excessive in amount it will 
 be depreciated in value; but while he denies the 
 state of the exchanges to be a test of such excess, he 
 furnishes us with no other as a substitute for the 
 one he rejects ; the utmost he can be brought to 
 say is, that the rate of interest is one test, but not 
 an exclusive one, of excess in the amount of the 
 currency, refusing, however, to fix upon any par- 
 ticular rate of interest which he thinks may be 
 so considered.* — Nor is it easy to reconcile with 
 each other the opinions he has given in different 
 parts of his evidence ; he has stated that converti- 
 bility into gold is a necessary check against over 
 issues, yet he declares that iu the case of war, 
 cash payments ought again to be suspended, and 
 that if under such circumstances the Bank of Eng- 
 land abstained from lending to the Government, 
 and made its issues only according to the demands 
 
 * EvKleiice on 15 inks of Issmv 184 I -Qiu'stiuns 994 and 1086. 
 
 ii 
 
13 
 
 of commerce, they could not be excessive.* In 
 like manner, though h'^ seems to recognize gold as 
 the standard of value, he maintains that there may 
 be an over-issue of paper in exchange for gold jt 
 not explaining how this could happen, and how it 
 could be the interest of the holders of gold, which 
 cannot be supposed to be reduced in value, to ex- 
 change it for paper issued to excess, and therefore 
 depreciated . 
 
 It is surely not too much to say that opinions so 
 much wanting in precision and clearness, could 
 not safely be followed in legislating upon any sub- 
 ject, nor is it probable that they will have much 
 influence in deciding upon the practical measures 
 to be adopted with reference to the currency ; judg- 
 ing of the tendency of public opinion, from the tone 
 both of the proceedings of the Committee on Banks 
 of Issue, and of the pamphlets which have obtained 
 most attention, it is less to be apprehended that 
 changes will be made in the direction which Mr. 
 Gilbart, and those who concur with him in opinion, 
 would recommend, than that Parliament virtually 
 recognizing tlie opposite views as sound, and prac- 
 tically acting upon them to a certain extent, will 
 yet stop short of explicitly adopting, and consis- 
 tently carrying into effect the simple principle, that 
 a currency, of which paper constitutes a large pro- 
 portion, ought to be so regulated that its amount 
 
 I 1. 
 
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 m 
 
 
 * Questions 043, 10f)4, 1149, J 152, 1156. 
 I Question 951. 
 
 ,1* 
 ■mi 
 

 H 
 
 
 14 
 
 may vary precisely in the same manner, and in the 
 same degree, as if it consisted only of the precious 
 metals. As the witnesses, who have given the 
 strongest evi:'ience in favour of this principle before 
 the Committee on Bunks oF Issue have hesitated to 
 recommend its decided adoption in practice, and 
 have suggested various measures, more in the 
 nature of palliatives than of remedies for the evils 
 now complained of, it seems not improbable that 
 the Government and Parliament may be guided by 
 the same feeling, and that the course to be followed 
 l)y them will rather be determined by the desire to 
 preserve as much of our present system as may be 
 possible without extreme inconvenience, than by a 
 well considered judgment of what would be best for 
 the real and permanent interests of the country. 
 It will be the object of the following pages to shew 
 that this would be a most mistaken line of conduct 
 to pursue, and that if the principle laid down by 
 the highest authorities be recognized as sound, an 
 entire change of system, carrying it into full effect, 
 is what ought to be attempted. 
 
 It has already been shewn, that to answer this 
 description, a measure must have for its object to 
 assimilate the circulation of the country to one 
 exclusively metallic, as nearly as is possible, with- 
 out giving up the convenience and economy of 
 using paper money ; hence, as the issue of gold and 
 silver money is retained by the State in its own 
 hands, instead of being entrusted to private indi- 
 
15 
 
 viduals and trading corporations, the same rule 
 ought to be adopted as to tlie issue of pa))er, and 
 this issue should be kept entirely distinct from the 
 business of dealing in money or banking, with 
 which it has no necessary or legitimate connexion. 
 The first provision, therefore, of an effectual reftjrm 
 of the currency would be to put an end to the 
 anomaly of allowing so important a function as 
 that of issuing money to be exercised by any other 
 hands than those of some responsible public autho- 
 rity ; the circulation ought to be a national one, and 
 should be managed by Commissioners appointed 
 for the purpose. 
 
 The other essential requisite of a good currency 
 is, that its amount should be rendered strictly 
 dependent upon the state of the exchanges ; the 
 mode of rendering it so, which has been repeatedly 
 recommended, and which appears calculated to be 
 perfectly effectual, is to have the national paper 
 represented partly by a fixed amount of securities, 
 and the remainder by bullion, the duty of the Com- 
 missioners being to extend or contract the issues 
 only by giving out or receiving back their notes in 
 exchange for gold. To this it would be necessary 
 to add that the securities held by the Commis- 
 sioners should not be of a kind requiring to be fre- 
 quently changed, the managers of a national cur- 
 rency should be no less carefully deprived by law 
 of any power of trafficking in securities, and of 
 exchanging one description of them for another at 
 
 i 
 
 u 
 
 9 M 
 
W-: 
 
 \6 
 
 tlieir discretion, tlian of tlie power of regulating 
 according to their judgment the amount of the cir- 
 culation. By this arrangement a national currency, 
 consisting in part of paper, would be assimilated as 
 closely as possible to one exclusively metallic, since 
 the notes issued under these regulations would be, 
 in the strictest sense of the word, the mere repre- 
 sentatives of bullion ; they would not only be con- 
 vertible into gold, but their whole amount in circu- 
 lation would be regulated by the very same laws, 
 and vary precisely in the same manner as that of a 
 purely metallic circulation. An increase of the 
 notes issued, and a consequent expansion of the 
 circulation, could take place only when the state of 
 the exchanges made it the interest of the dealers 
 in money to carry bullion to the Commissioners, 
 demanding paper in return, just as with a metallic 
 currency, they would in a similar case carry gold 
 to the Mint to be converted into coin ; and in like 
 manner the circulation would be contracted only 
 when the opposite state of the exchanges led to a 
 demand for bullion from the Commissioners, for 
 the purpose of exportation. Thus, the maintenance 
 of the circulation at its proper level, and therefore 
 of an unvarying standard of value, would not be 
 left to depend upon the exercise of a sound discre- 
 tion by the Bank of England, by the various other 
 banking establishments of the country, or by the 
 Government ; but we should trust for it to the 
 operation of the law which regulates the distribu- 
 
 
i^ 
 
 the 
 the 
 bu- 
 
 17 
 
 tion of the precious metals amongst the different 
 countries of the world, and which experience has 
 proved to work with unfailing regularity and cer- 
 tainty. 
 
 It can scarcely be disputed, that by placing the 
 circulation of the country upon this footing, we 
 should merely be following out to their legitimate 
 conclusion, and practically applying the principles 
 which have been contended for by Mr. Loyd and 
 Mr. Norman ; it may, however, be thought, that so 
 extensive a change in a system which has been 
 long established could not be easily accomplished, 
 and that it would be better to aim at only improv- 
 ing the existing arrangements .vith reference to the 
 currency, preserving their general outline, than to 
 endeavour to sweep them away with the view of 
 substituting others of an entirely novel character. 
 This is a view of the subject which at first sight 
 is likely to be favourably received ; but before it is 
 adopted, it ought to be considered that any partial 
 reform of our Monetary system which may be pro- 
 posed, cannot be expected to escape opposition 
 because its scope is limited to the changes most 
 urgently required: on the contrary, any such 
 scheme will be sure to meet with a determined 
 resistance, for which its very incompleteness would 
 afford plausible grounds. Suppose, for instance, 
 the suggestions of Mr. Norman* should be adopted ; 
 - the Bank of England would in this case be di- 
 
 * Reports on Banks of Issue, 1840.— Q. 2601. 
 
 w 
 
 ( 1], 
 
 I .H 
 
I\ 
 
 1 1 
 
 18 
 
 videtl into two departments, and its paper would 
 be only issued in exchange for bullion ; no new 
 corntry Bank of Issue would be allowed to be 
 established, and even those already existing would 
 lose the privilege they possess at the end of a few 
 years ; inducements being in the mean time held 
 out to them for its earlier abandonment, while 
 those that persevered in issuing their own notes 
 would be subjected to severe regulations, requiring 
 them to give security for the amount of their 
 issues, and to publish returns of their circulation 
 and reserves. 
 
 It is obvious, upon an attentive consideration of 
 Mr. Norman's evidence, that even in his own opi- 
 nion the adoption of this plan would afford an 
 exceedingly imperfect remedy for the evils now 
 complained of, and that its practical working would 
 be impeded by very great difficulties : — The 
 issues of the country banks in England, still more 
 those of the Scotch and Irish banks, would be 
 under no effective controul, nor would it be easy 
 for these establishments (however much they might 
 wish it) to make the result of all their separate 
 and independent operations correspond accurately 
 with the measures of the Bank of England. The 
 latter in its turn would find extreme difficulty in 
 maintaining the division of departments and the 
 strict rule of issuing paper only in exchange for 
 gold, unless the whole paper circulation of the 
 kingdom were managed upon the same principle. 
 
 'I II 
 
)'■ 
 
 of 
 
 19 
 
 But without dwelling ^upon these very palpable 
 faults in the scheme, as it appears to have been 
 suggested under thn impression that it might be 
 carried with greater facility than a larger measure, 
 what most deserves our notice is the fact tliat 
 it is hardly possible to conceive a proposal calcu- 
 lated to raise up against its adoption a greater 
 variety of interests and opinions, and open to more 
 plausible objections. A measure of this kind would 
 unite against it all the existing banks of issue in 
 the three divisions of the kingdom, all the parties 
 who are eagerly seeking to be admitted to a share 
 of the great profits they conceive to be obtained by 
 the issue of paper in the metropolis, all the advo- 
 cates of what is called a liberal management of the 
 currency, and all those who, entertaining the opi- 
 nions put forward in the Report of the Chamber of 
 Commerce of Manchester, regard the Bank of Eng- 
 land not merely with distrust but with hostility. 
 Nor would these powerful opponents of such a mea- 
 sure be at a loss for arguments against it ; they 
 would enlarge upon the odious monopoly which it 
 would create, or rather confirm and extend, and 
 upon the unjust and vexatious interference with 
 private affairs which it would establish, while they 
 would have in their mouths the popular watch- 
 words of free trade and the protection of the private 
 trader from the overbearing domination of a great 
 Corporation. It requires but a moderate acquaint- 
 ance with the opinions and prejudices prevalent 
 
 c ^2 
 
 % 
 
 i 
 
 ■t; 
 
20 
 
 'i'," 
 
 
 .1 
 
 f .' 
 
 butli in tlie House of Commons und in the country, 
 to perceive that the success of a measure so opposed 
 would be neither easy nor certain. 
 
 These difficulties which would have to be en- 
 countered by the plan just adverted to would stand 
 equally in the way of any other proposing to eft'ect 
 only a partial reform in our Monetary system, since 
 all such plans involve some increase of the power of 
 the Bank of England over the circulation. The case 
 would be different if the measure brought forward, 
 instead of being avowedly imperfect, were one as 
 complete as possible ; a proposal to establish a ua> 
 tional currency, upon whatever other grounds it 
 might be objected to, would at least avoid provok- 
 ing the opposition of those who regard the Bank of 
 England with feelings of commercial hostility and 
 jealousy, or who think (not without reason) that it 
 ought not to be left to a trading corporation, of 
 which the first object must naturally be its own 
 profit, to regulate the currency of a great empire. 
 Nor would such a proposal afford to its adversaries 
 any ground for declamation on such popular topics, 
 as the extension of an odious monopoly, and the in- 
 justice of interfering with the management of private 
 affairs; whatever might be thouphr of the policy, 
 none could deny the justice . '' :j r -sumption, by 
 the supreme authority of the State, of the exercise 
 of its ancient right of retaining exclusively in its 
 own hands the power of creating money for the 
 M-^e of the nation. 
 
 
 a 
 
21 
 
 try, 
 osed 
 
 en- 
 tand 
 iftect 
 cilice 
 ^erof 
 case 
 Arard, 
 [ic as 
 a na- 
 ids it 
 •ovok- 
 [ink of 
 [y and 
 tliat it 
 on, of 
 s own 
 inpire. 
 rsaries 
 topics, 
 the in- 
 )rivate 
 policy, 
 Oil, by 
 xercise 
 J in its 
 for the 
 
 It may, hovever, very probably be objected, that 
 however desirable if might be under other circum- 
 stances, the eit3Mi»hm<'n< of a national currency 
 could not Hiiccessfull be now attempted in thw 
 country, from the shock which it would give to 
 vested interests, and to the deep-rooted opinion or 
 prejudice which the experience of other countries 
 has created against a governtnent pa'j)er money. 
 This objection would be conclusive, w«re it pro- 
 posed to effect a complete change in our monetary 
 system without regard to existing interests; or were 
 there any real similarity between such a national 
 currency as has been suggested, anrl the various 
 government paper currencies which have existed 
 in other countries. With respect to vested inte- 
 rests, it appears that the existing baiiks of issue 
 have in general established the paper circulation 
 they possess by the employment of capital, skill, 
 and labour ; it would be unjust, therefore, to de- 
 prive them without compensation of the a I vantage 
 they enjoy. Nor would it be less impolitic than 
 unjust to attempt to do so, since any dire« t pecu- 
 niary advantage to the State by the establishment 
 of a national paper currency is an object cf such 
 very trifling importance, compared with tliat of 
 giving to the country the benefit of a convenient 
 and certain measure of value, that it would be most 
 unwise to increase the difliculty of attaining the 
 latter for the sake of securing the former. But 
 happily there would not be the slightest difficulty 
 
 
 
22 
 
 f; 
 
 '' I 
 
 r ^' 
 
 % ■ 
 
 in providing against the infliction of any injury t( 
 existing interests by the proposed change; the 
 simple and obvious means of doing so vi^ould be to 
 follow the example already set by the Bank of 
 England, and to effect the substitution of the na- 
 tional paper for that actually in circulation, by 
 advancing at a low rate of interest to the various 
 establishments now in existence, sums equal to 
 their average issues for the one or two previous 
 years.* It appears by the evidence of Mr. Norman, 
 that the Bank of England, when it has made 
 arrangements for substituting its own paper for 
 that of country banks, has made advances to the 
 latter at the rate of 3 per cent. ; but as every effort 
 should be made to conciliate the country banks to 
 the proposed measure, and as some service in the 
 way of agency would be required from them, it 
 would be better that these advances made by the 
 public should bear an interest not higher than 
 2.J per cent. With the Bank of England (which 
 might still perform wliat is properly speaking the 
 banking business of the country) a separate arrauge- 
 
 * These advances should he made for such a period as might he 
 considered sufficient, to compensate the Banks for the loss of the 
 advantage they now enjoy from the issue of their own notes ; per- 
 haps with this view the repayment might he made to commence at 
 the end of ten years, and to he completed in ten more, hy the same 
 numher of equal annual instalments. It might, however, deserve 
 consideration whether the advances nu<j\\t not be permanent, in 
 return for the assistance local hank:^ nnght render in the manage- 
 ment &f a national currency. 
 
23 
 
 ment would have to be made : with a disposition 
 on both sides to act fairly, there could be little 
 difficulty in agreeing upon its terms ; but it is not 
 necessary at this moment to discuss what they 
 ought to be. 
 
 In this manner all real injury to existing banks 
 of issue might be avoided ; and, looking to the 
 evidence which has been given by several gentle- 
 men connected with these establishments before the 
 Committee of the House of Commons, there seems 
 no reason for apprehending that if they were thus 
 fairly dealt with, they might not be brought very 
 generally to acquiesce in a change which, by esta- 
 blishing a certain and uniform measure of value, 
 would promote their true interest even more perhaps 
 than that of all other classes of the community. 
 A more formidable obstacle to the proposed crea- 
 tion of a national currency would arise from the 
 opinion which must be admitted to be very gene- 
 rally entertained, that the issue of paper money by 
 the State is attended with great danger, and liable 
 to great abuse. This opinion is most just as re- 
 gards any description of pajjor money, which is 
 placed upon such a footing as to enable the Execu- 
 tive Government to exercise any sort of discretion 
 in regulating the amount of the issues to be made. 
 Whenever the smallest discretionary power of this 
 sort exists, the temptation to abuse it in seasons of 
 financial distress is so great that no Government 
 can be expected always to resist it; but the same 
 
24 
 
 objection does not apply to a national paper circu- 
 lation, so regulated by positive law that its amount 
 should be determined in the manner already de- 
 scribed by the operation of the exchanges, the 
 Executive Government being deprived of all power 
 of interfering with this operation under any cir- 
 cumstances whatever. If the controul of a national 
 paper circulation were placed in the hands of com- 
 missiuiiers responsible to Parliament, and strictly 
 bound by law to adhere in all cases to the simple 
 rule of only issuing notes in exchange for gold, it 
 is difficult to conceive how those evils, the danger 
 of which is commonly supposed to be inseparable 
 from the use of any kind of government paper, 
 could possibly occur. Such a circulation could 
 give rise to no abuse : above all, it would be safe 
 against excessive issues (the rock upon which the 
 credit of government paper has generally been 
 wrecked,) unless Parliament itself should be 
 tempted openly to depart from the fundamental 
 principle of the whole system by sanctioning an 
 improper issue of paper. It is to be hoped that the 
 bitter experience of former errors, and the great 
 advance which has of late been made by the public 
 in knowledge of these matters, together with the 
 fact that the very first step out of the right road 
 must be an act of the Legislature of which the 
 effect would be clear, would afford a sufficient secu- 
 rity against such a contingency ; but if not, and if 
 we must sui)pose that at some future time there 
 
25 
 
 may be a Parliament capable of adopting the short- 
 sighted policy of seeking relief from even the most 
 pressing financial difficulties by what would be an 
 undisguised alteration of the standard of value, the 
 same Parliament, though there should be no na- 
 tional paper currency, would equally have the 
 power (and would be equally likely to use it) of 
 resorting in some other way to the same fatal ex- 
 pedient ; it might, for instance, quite as easily adopt 
 the frequent resource of barbarous times and bar- 
 barous countries, by reducing the real value of the 
 coin. Our only security against the adoption of 
 measures of this sort, whether we have a paper 
 currency or not, is in the knowledge of iheir true 
 nature which is now generally diffused. The argu- 
 ment may be pushed still farther : those who object 
 to any plan for the issue of paper on behalf of the 
 State, because they dread our being again afflicted 
 with an inconvertible and depreciated paper circu- 
 lation, would do well to remember how much 
 greater is the danger under our present system 
 than it would be under that which has been sug- 
 gested. At present such is the division of respon- 
 sibility and of power over the circulation, between 
 the Legislature, the Executive Government, and the 
 Bank of England, that it is not only possible but 
 easy for the Government and tlie Bank of England, 
 if they were to look only to what is for their imme- 
 diate convenience, to adopt measures, the blame of 
 which it would be difficult fairly to apportion be- 
 
 r 
 
 IS- 
 
 H 
 
26 
 
 ir. 
 
 n 
 
 11 
 
 14', fi! 
 
 tweeii them, and of which the effect would he to 
 bring about a state of things in which a cessation 
 of cash payments would be inevitable. Such mea- 
 sures too might have been in part sanctioned by 
 the Legislature, without their necessary conse- 
 quences ever being perceived until it was too late 
 to correct the error. In point of fact, this is pre- 
 cisely what actually occurred in 1 797. It seems 
 clear that neither Mr. Pitt nor the Bank delibe- 
 rately contemplated beforehand having recourse to 
 a suspension of cash payments, still less did Parlia- 
 ment anticipate such a result from the financial 
 measures to which it gave its assent ; yet by a 
 course of proceedings, for which all these parties 
 were more or less to blame, affairs were insensibly 
 brought into a situation in which it may be doubted 
 whether the unfortunate step of authorizing the 
 Bank to discontinue paying its notes in specie, 
 could possibly have been avoided by any means 
 which could have been adopted after the extent of 
 the danger became known. There is nothing in 
 our legislation since that time to prevent the re- 
 currence of a similar event from similar causes. 
 Instead, therefore, of its being true that a national 
 paper currency regulated as above described would 
 be objectionable, upon the ground that it might 
 lead to a departure from the standard of value, it 
 is precisely as being the best safeguard against 
 this change tliut its adoption would be most im- 
 portant. 
 
27 
 
 i 
 
 But the proposed measure will be met by another 
 class of objections, resting not merely on different, 
 but precisely opposite grounds from those just con- 
 sidered. It will be contended that the regulations 
 suggested would be far too strict, and would entirely 
 deprive the country of what are the main advan- 
 tages of paper money and of banking. It is said, 
 that at present the duty is imposed upon the 
 Bank, and that it is also invested with the power, 
 of supporting trade and credit in periods of diffi- 
 culty, and of assisting the Cjlovernment when in 
 temporary want of money, in the manner so long 
 practised by advances on deficiency bills. The 
 greatest public inconvenience it is asserted must 
 result from taking away the means by which 
 these objects are accomplished, and from exposing 
 the country to a sudden contraction of the circula- 
 tion whenever an extraordinary and temporary 
 demand for gold happened to arise from such 
 causes as an unusual foreign expenditure by the 
 Government, or a large importation of corn, owing 
 to a bad harvest. By those who best under'^'tand 
 the subject, no weight will be attached to these 
 objections ; but as they arc those which will have 
 most influence with no inconsiderable proportion of 
 the public, it is necessary to offer a few observations 
 upon them. 
 
 It will be perceived at once that the arguments 
 now referred to are entirely founded upon tlie mis- 
 taken notion that a paper circulation ought to be 
 
 ■I 
 
 1 
 
28 
 
 I 
 
 something more than merely a cheap and conve- 
 nient instrument of exchange, and upon the pre- 
 valent error so well exposed by Mr. Loyd, of sup- 
 posing that the issue of paper money forms any 
 necessary, or even proper part of the business of 
 those whose trade is dealing in money or banking, 
 correctly to called. It is perfectly true that large 
 capitalists in general, and the Bank of England in 
 particular, frequently render great service to the 
 public by the pecuniary assistance it is in their 
 power to afford in seasons of temporary difficulty, 
 both to private merchants and to the Government 
 of the country ; but in order to render this assist- 
 ance really useful, the means of giving it ought to 
 be derived from the capital and credit of those by 
 whom it is granted, not from an increased issue of 
 j)aper. A moment's consideration must shew that 
 an increased issue of paper can add nothing what- 
 ever to the real wealth of the country ; this must 
 remain precisely what it was before, when there- 
 fore the Bank issues notes for the purpose of mak- 
 ing advances to the Government or to private mer- 
 chants, it necessarily follows that she merely trans- 
 fers for a time, to the party receiving the advance, 
 a portion of the national means which must pre- 
 viously have been in some other hands. Now the 
 issues made by the Bank on such an occasion may 
 be met by a corresponding contraction of the cir- 
 culation in some other direction, so as to prevent 
 the value of the currency from being affected; if 
 
20 
 
 so, the transaction is a perfectly legitimate one ; 
 but it is clear that the assistance is really afforded 
 by the use of the capital and credit of the Bank, 
 and by a change in the employment of her means. 
 Money is withdrawn from some quarter where the 
 demand for it is less pressing, and applied where it 
 is most wanted, to effect such changes in the dis- 
 tribution of capital, being the proper office of 
 bankers and of dealers in money ; in this case the 
 power of the Bank of England to render the ser- 
 vice expected from her is derived, not from her 
 privilege of issuing her own notes, but from the 
 magnitude of her capital, and the credit she enjoys 
 on account of her well known wealth. 
 
 But on the other hand, the issues made by the 
 Bank for the purpose of affording the assistance 
 which is required from her, may not be met by any 
 corresponding reduction in the circulation in other 
 directions, and the whole amount of the circulation 
 of the country must therefore be increased beyond 
 what it would otherwise have been. Whence in 
 this case are the funds derived, which the Bank, by 
 her advances, places at the disposal of those who 
 apply to her for assistance ? As before, there is no 
 new value created— no addition is made to the 
 national wealth, and by the supposition the Bank 
 does not withdraw any part of the funds at her 
 command from their previous uses, there remains 
 but one source from which the means of making 
 the advances in question can be obtained ; when 
 
 It 
 
 (i*' 
 
 h 
 
 1\ ■ 
 
 r 
 
30 
 
 the additional issue increases the whole nominal 
 amount of bank paper in circulation, it will leave 
 its real total value the same, and must therefore 
 proportionably reduce the value of any given part 
 of it ; thus the command over a certain portion 
 of the national wealth will be withdrawn from all 
 previous holders of money, the sum of what they 
 lose being that which is transferred to the receivers 
 of the loan ; that is to say, the Bank makes the 
 loan, not from her own resources, but from the 
 resources of others, which she takes from them 
 indirectly, and without their consent. But this is 
 not the only effect of the operation ; the same dimi- 
 nution in the value of money, which imposes a 
 tax on all the holders of money, to supply the means 
 of making a loan to the parties requiring it, will 
 likewise tax creditors generally for the benefit of 
 their debtors, and in seasons of great commercial 
 distress, this is probably the effect of the operation 
 which is really most desired, and that which is in 
 fact meant by the plausible phrase of supporting 
 credit. Now it surely can hardly require an argu- 
 ment to prove that such a power of relieving 
 debtors, and of drawing upon the whole class of 
 monied men without their knowledge or consent, 
 for the purpose of giving pecuniary assistance to 
 particular individuals, or to the Government, is 
 one which can, under no circumstances, be safely 
 exercised, and which ought not to be intrusted to 
 any authority in the state, much less to a trading 
 corporation. 
 
 I ,i. 
 
31 
 
 But, perhaps, it may be denied that an extension 
 of her issues by the Bank, for the pur» e of in- 
 creasing lier loans, either to private individuals or 
 to the public, would be attended with tlie conse- 
 quences just described, and it may bo said that 
 some case in which tliey have been practically ex- 
 perienced ought to be produced. To such an argu- 
 ment it may be replied, that the question is not 
 whether the Bank has practically acted in the 
 manner objected to. If she has not, there is an 
 end of tlie allegation that it is necessary to main- 
 tain a power of temporarily increasing the issues of 
 paper, for the purpose of alleviating tlie pressure 
 of commercial or financial difficulties. If, on the 
 other hand, she has used such a power, what proof 
 beyond the mere statement of the fact can be given, 
 that her doing so has had the effect asserted ? It 
 is self-evident that a depreciation of the currency 
 must virtually impose a tax upon all who are 
 holders of money at the time it takes place, and 
 upon all creditors for the benefit of their debtors, 
 and whenever the amount of the circulation is arti- 
 ficially increased, this of necessity implies that it is 
 depreciated. Will it be said that this last assertion 
 is inaccurate, and that there can be no depreciation 
 of a paper circulation while its convertibility is 
 maintained? If so, to what purpose has an enquiry- 
 been instituted into the best mode of improving our 
 monetary system ? For many years the converti- 
 bility of our paper circulation has been successfully 
 
32 
 
 ■t( - I 
 
 ti 
 
 Iff 
 
 1 :-■ 
 
 maintained, yet the variations to which its value 
 has during this period been exposed, have been the 
 subject of universal complaint, and have in fact 
 led to the important investigation which, for two 
 years, occupied the Committee on Banks of Issue. 
 Tliere is no doubt a limit fand it is one which is 
 soon attained), beyond which the depreciation of a 
 paper currency cannot be carried, either in extent 
 or in duration, if its convertibility is to be main- 
 tained, but within this limit experience seems 
 clearly to prove that depreciation may take place, 
 and unfortunately the evils produced by even a 
 very small and temporary alteration in the value of 
 money are found to be of a most serious kind. But 
 if it is admitted that even a convertible paper cir- 
 culation is not entirely exempt from variations of 
 value, as no other test has been proposed by which 
 this can be ascertained, ex-^ept that afforded by 
 the state of the exchanges, it follows that whether 
 we say that the exchanges shew the circulation to 
 be redundant or to be depreciated is immaterial, 
 we merely use different words to describe the same 
 fact and to express the same idea. 
 
 Again it is urged, that if the efflux of gold from 
 this country were always to be met by a contraction 
 of the circulation, great and needless difficulties 
 would be inflicted upon the community whenever 
 an extraordinary demand for gold for exportation 
 should arise from such causes, as an unusual im- 
 portation of corn, or a necessity for carrying the 
 
33 
 
 expenditure of tlie Government abroaa, miicli be- 
 yond its ordinary limits. In cases of tins sort, it 
 is said, that there would be no diminution in the 
 demand for money at home, and that it would 
 therefore be unreasonable to expose all classes of 
 society to the pressure, which they all feel in some 
 way or other, from a material contraction of the 
 circulation. It is undoubtedly true, that much in- 
 convenience, and even distress, must always attend 
 such a contraction of the circulation j but to argue 
 from this, that the contraction ought not to take 
 place is to mistake the symptom of the evil for its 
 cause. Whenever the country is called upon to 
 provide the means of making heavy payments 
 abroad, beyond those which can be eftected by the 
 ordinary exportation of the produce of its own in- 
 dustry, some sacrifice must be submitted to, and 
 the contraction of the circulation which, under such 
 circumstances, naturally takes place, instead of being 
 itself the cause of the pressure which is experienced, 
 is the only means by which still greater evils can 
 be averted. 
 
 This will be best shewn by observing what has 
 actually occurred. After some years of productive 
 harvests, in which little foreign corn had been re- 
 quired, the partial failure of our own crops com- 
 pelled us in about two years, beginning in 1838, to 
 import corn to the value, as has been calculated, of 
 seven or eight millions of money, and we had to 
 find the means of paying this large sum to the 
 
 D 
 
i: 
 
 34 
 
 countries whence our supplies had been drawn. 
 Tiiis heavy demand being one not arising in the 
 ordinary course of trade, could oidy be met in part 
 by the exportation of goods, so that the balance 
 had (in the first instance at least) necessarily to be 
 paid in bullion. Now if a contraction of the cir- 
 culation had taken place at the same time, and to 
 the same extent that bullion was exported, prices 
 would have been to a certain degree affected, Jind 
 in almost every branch of our industry the diffi- 
 culties usually experienced when there is a ten- 
 dency of prices to fall would have been felt. No 
 doubt such difficulties arc always to be regretted, 
 but the general lowering of prices by which they 
 had been occasioned, would have had the effect of 
 promoting the exportation of British commodities, 
 by which it would have facilitated the payment of 
 the debt due to foreign countries, and have checked, 
 so soon as this was accomplished, the exportation 
 of bullion, and the contraction of the circulation. 
 The result would have been, that the industry of 
 the country would have been taxed to purchase the 
 supply of food, which the deficiency of our own 
 harvests, and our vicious legislation with respect to 
 the corn trade, had made it impossible for us to 
 obtain without this sacrifice. In point of fact, how- 
 ever, the contraction of the circulation did not 
 commence at the same time with the drain of 
 bullion, and what was the consequence? Why, 
 that this drain proceeded to a most alarming ex- 
 
 I ^ 
 
3r> 
 
 t<»iit» Mild that at lenpjth, in order to stop it, and to 
 maintain the convertibility of the notes of the l^ank 
 of Eno^land, it became necessary to adopt very 
 stringent measures for the contraction of the circu- 
 lation ; the result being, that far more severe and 
 prolonged commercial distress was produced than 
 could have been occasioned by an earlier and a 
 more gradual contraction. In 1797 the course of 
 events was very similar, except as to their original 
 cause and their ultimate result. At that period 
 there was a heavy balance of paynunts to be made 
 by this country to foreign nations, not in conse- 
 quence of an unusual importation of corn, l)ut 
 owing to tlu! large subsidies it had been thought 
 necessary to give to the Powers of Europe which 
 had taken part with us in the war against France. 
 This balance of payments to be made, produced, as 
 in 18S9, a drain of bullion, and as in the latter 
 year it was not met from the first by a correspond- 
 ing coutraction of the circulation, the consecpience 
 was, that the drain continued, and as neither the 
 Minister nor Parliament had resolution enough to 
 impose upon the country the sacrifices by which 
 alone, under such circumstances, the convertibility 
 of the Bank Paper could have been maintained, 
 recourse was had to the fatal expedient of legalizing 
 the suspension of cash payments. 
 
 The experience of what happened iu these two 
 instances serves remarkably to confirm the con- 
 clusion to which we should equally have been led 
 
 1)2 
 
 
if; 
 
 'AG 
 
 by general reasoning, namely, that the only effect 
 which can be produced l)y an attempt to maintain 
 the circulation of this country undiminished when 
 a drain of bullion shews it to be redundant as com- 
 pared to the rest of the world, will be that of post- 
 poning for a time that contraction which must 
 ultimately take place if cash payments are to be 
 maintained, and which will be the more violent, 
 and the more injurious to commerce the longer it 
 is delayed. 
 
 To resume, in a few words, the substance of 
 the preceding observations, w'e conclude that it 
 is of the greatest importance, under all circum- 
 stances and contingencies, to maintain the stand- 
 ard of valiu' unaltered; that the value of the 
 currency is determined by the proportion which 
 its amount bears to the wants of the country ; and 
 that therefore a discretionary power of regulating 
 the amount, and conse(juently the value of the cur- 
 rency, ought no more to be entrusted to any autho- 
 rity whatever, than a similar j)ower of varying the 
 standard measures i)y which goods are bought and 
 sold : also, that where an exclusively metallic cur- 
 rency is cmj)loyed, its amount is self-regulated by 
 the operation of the exchanges, and its value thus 
 rendered what may be practically considered as 
 uniform ; and that therefore a paper circulation 
 ought in this respect to be assimilated to one con- 
 sisting of the precious metals. Lastly, that as the 
 best mode of reforming our monetary system in 
 conformity with these principles, all ))rivate issues 
 
 iH 
 
37 
 
 of paper, payable on deinaml, sliouM be put an end 
 to, making way tor a paper circulation issued under 
 the authority of the State, the amount of which 
 should be determined, not by the judgment of any 
 individuals, however able, or however honest, but 
 by the operation of tiie exchanges. The State 
 would thus again take upon itself its ancient duty 
 of supplying the country with the money by which 
 all transactions are ultimately adjusted, and doing 
 so it would leave the trade of banking, or dealing 
 in the money thus supplied, perfectly free and un- 
 fettered, giving no monopoly or suj)erior advantage 
 to the Bank of England, or any similar body, but 
 allowing full scope for the exercise of private enter- 
 prise and judgment. 
 
 In this manner complete security would be ob- 
 tained for the maintenance of a standard of value as 
 nearly nniform as the condition of human society ad- 
 mits,without giving np those advantages which have 
 been so commonly, but with so little reason, sup- 
 posed to result from the privilege enjoyed by banks 
 of issuing their own notes. These advantages have 
 in reality been obtained from the use of the powerful 
 instrument of credit, which would be rendered in no 
 degree less available by theado|)tion of a State Cur- 
 rency ; on the contrary, the legitimate use of credit 
 wonld be facilitated by the existence of a medium 
 of unvarying value, to which all transactions would 
 refer, and by the security which would thus be 
 afforded. It would still be the interest of the 
 
 iJh 
 
38 
 
 'i 
 
 capitalists who have adopted the business of bank- 
 ing to economize, as far as possible, the use of 
 money, and carry on the trade of lending money to 
 those by whom such assistance is required, and 
 receiving it from others not having an immediate 
 use for it. All the ingenious and useful mechanism 
 of the modern system of banking would continue 
 to work precisely as it now does, only with greater 
 ease and safety ; and it would, as at present, per- 
 form the important task of distributing the capital 
 of the country into the channels in which it can be 
 used with most effect. The evidence given upon 
 this point by Mr. Wright and Mr. Paul Moon 
 James, in their examination before the Committee 
 of 1841, is exceedingly important, as they have 
 shewn, speaking from actual experience, that all 
 the advantages of a good system of banking may 
 be obtained by means of banks not issuing their 
 own notes. The same conclusion, though contrary 
 to his own opinion, may be drawn from the facts 
 stated by Mr. Kennedy, in his very clear and in- 
 structive account of the system of Sco^^h banking. 
 That system, though not free from faults, is, upon 
 the whole, an admirable one, and has been pro- 
 ductive of the greatest benefit to Scotland, but this 
 benefit seems to have arisen, not from tiie power 
 which the banks possess of issuing their own notes, 
 but from the skilful arrangements by which the 
 employment of money has been economized to the 
 utmost, and by which credit has been rendered 
 
 \k 
 
39 
 
 more extensively useful, and in a better manner 
 than in this country. This is the conclusion which 
 appears to be plainly deducible, from the fact 
 stated by Mr. Kennedy, that notwithstanding an 
 immense increase in the industry, trade, and bank- 
 ing capital of Scotland since the year 1826, the 
 amount of local notes in circulation has diminished 
 about one-fourth, a striking proof of the extent to 
 which the economy of money has been carried ; it 
 is certainly difficult to understand why this eco- 
 nomy and the judicious use of redit, should be 
 checked by the establishment of a national cur- 
 rency of unvarying value. 
 
 Whatever doubts may be entertained as to the 
 feasibility of at once efi'ecting so extensive a change 
 as that recommended in the preceding pages, it can 
 hardly be denied, that by adopting it, we should 
 merely carry out to their legitimate and natural 
 consequences, the principles which have been very 
 ably stated and enforced by those writers and 
 those of the witnesses examined by the Bank Com- 
 mittee, whose opinions will carry with them the 
 greatest weight ; but there is a further suggestion, 
 which seems to deserve consideration, though there 
 is little recent authority to be quoted in its sup- 
 port, and though it seemingly at least runs counter 
 to the opinions which have of late years been most 
 in credit. The suggestion alluded to is, that the 
 above plan for the establishment of a national cur- 
 rency would be in itself greatly improved, and at 
 
 I 
 
 I 
 
-:tO' .^. ' -j f ''T /tL '^ 
 
 40 
 
 f I 
 
 *^'»i 
 
 
 I 
 
 f 
 
 If.' 
 
 J 
 
 1 f 
 
 the same time some important facilities towards 
 effecting the change would be afforded, by issuing 
 small notes, and by making the national paper 
 payable, not in coin, but in bullion, in the manner 
 formerly recommended by Mr. Ricardo. 
 
 It is obvious, that if tliis suggestion were adopted, 
 the employment of a gold currency must be alto- 
 gether discontinued, and notwithstanding the 
 strong prejudice which exists against such a mea- 
 sure, there seem to be some very powerful reasons 
 for adopting it. In the first place, it is to be ob- 
 served, that the pecuniary saving which would 
 thus be effected, is one of no small importance. 
 The cost to tlie country of maintaining the gold 
 coinage is undoubtedly heavy, though it may not 
 be possible to obtain any data by which its amount 
 can be accurately ascertained. According to Mr. 
 M'Culloch,* the gold actually in circulation, ex- 
 clusive of that in the cuflersof theBank of England, 
 and her branches, may be estimated at about 30 
 millions, the annual cost of which he calculates to 
 be 5^ per cent, or 1,625,000/. ; nor does this seem 
 by any means an extravagant calculation, consi- 
 dering that in addition to the interest of the ca- 
 pital invested, it includes the wear and tear and 
 occasional loss of the coins, together with the whole 
 expense of the manufacture, which in the absence 
 of any seignorage, cannot fail to be considerable.t 
 
 * Statistical account of the British Empire, Vol. ii. p. 26. 
 t The extensive recoinage of gold, which has lately been neces- 
 

 41 
 
 All these charges together must directly or indi- 
 rectly throw upon the country a bi rthen, which 
 there appears to be every reason for believing not 
 to have been over-estimated by Mr. M'Culloch. A 
 paper circulation is, no doubt, also attended with 
 some expense ; but if we estimate the small notes, 
 destined to replace the sovereigns now in use, to 
 cost half as much as the latter, there can be little 
 question that the saving by the use of the former 
 would be considerably understated ; even thus 
 calculated, however, the annual saving would 
 amount to upwards of 800,000/. ; not that the 
 revenue would benefit to this extent, but the 
 saving to the countr}^ would be not the less real, 
 because a large part of the charge on which it 
 would be effected now falls on individuals. 
 
 Another advantage which would result from the 
 issue of small notes would be that of putting an 
 end to the great anomaly of allowing such notes 
 to circulate in Scotland and in Ireland, while they 
 are prohibited by law in England. ISothing surely 
 can be more absurd than to sanction the issue of 
 
 sary, must have been attended with a very considerable expense, to 
 which muiit be added the loss thrown upon the holders of light 
 sovereigns, by the proclamation which appeared a few months ago ; 
 the inconvenience arising from the general lightness of the coin, and 
 from the necessity of weighing it, was even a greater evil than the 
 loss ; its periodical recurrence is, however, probably inevitable, 
 under the present system of maintaining a large amount of gold 
 coin in circulation. 
 
42 
 
 i 
 
 Ml 1 
 
 l! J. 
 
 <■■ I 
 
 notes of this description on one side of the Tweed, 
 and to make it penal to offer them in payment on 
 the other ; to say that a farmer from the English 
 side of the border, in selling the produce of his 
 land, at Kelso or at Coldstream, may accept pay- 
 ment in notes, which he will incur a penalty by 
 even oifering in discharge of a debt to his neigh- 
 bour on his return home. Of course such a law 
 cannot by possibility be enforced ; and in point of 
 fact nothing can be more notorious than its daily 
 and hourly violation. This is a state of things to 
 which it is undoubtedly desirable to put an end, since 
 the example of a systematic violation of the law, 
 even in matters of minor importance, is always in- 
 jurious ; but as no Chancellor of the Exchequer will 
 probably provoke another Malagrowther, by at- 
 tempting to deprive the Scotch of the advantage 
 they conceive to be derived from the use of small 
 notes, the anomaly can only be corrected by issu- 
 ing notes of tliis description in England also. 
 
 But the pecuniary saving to the country, and the 
 removal of a great anomaly in the law, by apply- 
 ing one uniform system to the three divisions of 
 the United Kingdom, though they are advantages 
 by no means unworthy of our consideration, are 
 yet of minor importance, when compared with the 
 increased security which would be given to a na- 
 tional paper currency by making it convertible, 
 not into coin, but into bullion, and by the issue of 
 small notes with that view. It is obvious that it is 
 
 \ I, I 
 
13 
 
 not possible, without sacrificing the greater part of 
 the advantages derived from the use of a paper 
 currency, so to regulate it, as to provide the means 
 of meeting a demand for the payment in specie at 
 the same time, of any very large proportion of the 
 notes issued. The whole system rests upon the 
 assumption that no such demand will be made ; and 
 in all ordinary cases this assumption is perfectly 
 safe, but in seasons of political alarm it is much 
 otherwise. In times of public danger and distur- 
 bance, fear may produce a general desire for the 
 conversion of paper money into coin, and a run 
 may thus be produced, which no previous good 
 management could be sufficient to guard against or 
 to afford the means of meeting. Mr. Norman 
 and Mr. Loyd have both distinctly admitted, in 
 the evidence they have given, that even if the 
 paper circulation were regulated strictly upon the 
 principles they have laid down, no security whatever 
 would be afforded against the effects to be appre- 
 hended from political alarm ; depreciation arising 
 from over issue or mismanagement, might be 
 effectually guarded against, but the other danger 
 would still remain. Mr. Norman indeed says that 
 it is not necessary to provide against such a con- 
 tingency ; but surely this is far from a satisfactory 
 mode of passing by a question of very great im- 
 portance. It is obvious, that a run upon the Bank, 
 and the discredit of the paper circulation, might, 
 in a season of political difficulty, be Uie source of 
 
 
44 
 
 I;. 
 
 i1; 
 
 m 
 
 i ^^ 
 
 sii 
 
 the very greatest peril to tlie country, and might 
 almost paralyze its powers of exertion, when most 
 urgently called for. This is no mere speculative 
 danger, but one of which the reality has been de- 
 monstrated by experience. So lately as tlie year 
 1832, it is well known that a demand for gold arose, 
 not in consequence of any mismanagement on the 
 part of the Bank, or of the too great amount of 
 paper in circulation, but entirely owing to the 
 alarm created by the state of public affairs ; the 
 run thus created went to such an extent as to give 
 rise to very serious apprehensions, and was stopped 
 only by the cessation of the political alarm by which 
 it had been created. Now, in this case, if the 
 alarm iiad continued only a day or two more, the 
 result might have been most calamitous. In pro- 
 portion as the reserve of gold in the Bank became 
 smaller, the desire of the holders of its notes to 
 convert them into coin, would have become stronger, 
 and many persons, not in the first instance affected 
 by the prevailing alarm, the moment it was be- 
 lieved that the Bank might not be able to resist the 
 run upon it, would have hastened to anticipate the 
 catastrophe which they would thus have rendered 
 inevitable. 
 
 But considering the agitated and excited state 
 of the country, at ihii time, it is indeed difficult to 
 say how it might have got through the crisis, if to 
 all the other causes of confusion and difficulty then 
 existing, there had been added the stoppage of the 
 
45 
 
 Bunk, and tlie sudden check wliicli this must liave 
 given to trade, and to tlie employment of the mul- 
 titudes whose daily bread depends upon their daily 
 labour. Inis danger, it may be urged, has been 
 exaggerated, since it supposes a total blindness as 
 to their own real interest, on the part of the holders 
 of Bank-notes ; no doubt it does so, but as in a 
 shipwreck, the only chance of escape for those on 
 board is often thrown away, by a confused and 
 hurried rush to the boats, wlien, with a little pa- 
 tience and presence of mind, all might have been 
 saved, so the same sort of panic, the same blind 
 desire of each man to save liimself without regard 
 to his neighbours, renders it a matter of the very 
 greatest difficulty to stop a run upon a bank, when 
 it has once gone so far as to create a belief that it 
 will eventually exhaust the means of meeting it. 
 Hence, whatever may be the system of pa])er cir- 
 culation, which is to be adopted, tlie danger of a 
 run, caused by political alarm, is one which ought 
 to be considered, and so far as human foresight 
 will allow, provided against ; if we cannot guard 
 against it completely, we should endeavour at least 
 to diminish the risk as far as may be practicable. 
 
 Now the disuse of a gold circulation, and mak- 
 ing the paper currency convertible not into coin, 
 but into bullion, would, for the following reasons, 
 greatly tend to effect this object : — 
 
 First. — Ingots of gold could not be used as 
 money in the ordinary transactions of life, it wou^d 
 
 h. 
 
!f '! 
 
 ri 
 
 
 i^ 
 
 
 it 
 
 A I 
 
 I 
 if 
 
 lI ^: 
 
 n- 
 
 I f 
 
 it I 
 
 46 
 
 require, therefore, a much greater degree of appre- 
 liension to lead men to turn their money into bul- 
 lion, than that which makes them endeavour to 
 exchange bank-notes for sovereigns, which are 
 equally available for ordinary purposes, with the 
 advantage of possessing intrinsic value. 
 
 Secondly. — The same circumstance of bullion not 
 being applicable to the ordinary purposes of money, 
 is farther of importance, since it follows, that every 
 demand for bullion, in exchange for paper, would 
 contract the circulation to the extent of the notes 
 so paid in, and this could not proceed far without 
 raising the value of the paper circulation above that 
 of gold, and thus powerfully discouraging its fur- 
 ther presentation for payment. When bank-notes 
 are paid in sovereigns, the same effect is not j)ro- 
 duced, the coin is substituted for paper, but no 
 contraction of the circulation necessarily follows ; if 
 the demand for gold has arisen from the state of the 
 exchanges, the circulation will be contracted, be- 
 cause the sovereigns will be exported, but when the 
 demand has been cr^nted only by political alarm, 
 the sovereigns will merely take the place of the 
 notes withdrawn, no reduction of the circulation 
 being effected by the change. 
 
 Thirdly. — Lastly, it would further contribute to 
 diminish the danger of a run caused by political 
 alarm, that the power of demanding bullion would 
 naturally be confined to a much smaller number of 
 persons than are now entitled to require specie for 
 
 I 
 
47 
 
 the notes they Ijohl. Tlie only object of the con- 
 vertibility of a national paper would be that of 
 regulating the amount of the circulation, and this 
 would be sufficiently answered without requiring 
 the Commissioners either to give or receive bullion 
 in exchange for paper, in small quantities ; it may 
 be assumed, that no transaction of the kind would 
 be allowed for less than one hundred ounces of gold. 
 The efl'ect of such a regulation would be to confine 
 the power of asking for gold, to the comparatively 
 few individuals able to command a sum little short 
 of £400. The importance of this restriction, in 
 times of political alarm, must be obvious, since it 
 is well known that a panic of any kind is invariably 
 more ungovernable the greater the number of per- 
 sons it affects, and that a run upon a bank is gc!ie- 
 rally found to commence with those who hold notes 
 only to a small amount. 
 
 Such are the considerations which seem to justif}^ 
 the conclusion, that the issue of small notes would 
 in itself be productive of no trifling advantage, it 
 would also considerably facilitate the accomplish- 
 ment of the proposed reform in the currency, by 
 affording greater means of dealing, in the most 
 liberal manner, witii all vested interests. It remains 
 to be considered wjiat are the objections whicli 
 may be urged against the use of notes of a lower 
 denomination than £5. If tjjese objections are to 
 be gathered from the reasons assigned for the act of 
 1826, by which the issue of such notes in this part 
 
If 'I 
 
 ■^ 
 
 tv 
 
 'I : 
 
 il 
 
 
 4S 
 
 of tlui kin;;(lom was prohibited, the a(roi)ij;cst arg^ii- 
 nieiit agjiiiist ilivm la t\ air supposed tendency to 
 produce great fluctuations in the value of the cur- 
 rency, and as the necessary consequence of these 
 fluctuations, such commercial distress as tliat which 
 had just been so severely felt when the Act in ques- 
 tion was passed. But even at the time it was argued 
 that it was not to the use of small notes, as distin- 
 guished from those of higher value, that the mis- 
 fortune which hod occurred was really attributable, 
 since precisely similar efl'ects had been observed to 
 have been produced in the years 1793 and 1797, 
 when notes of a lower value than £10. were not 
 allowed by law. The consternation ])roduced by 
 the greatness of the calamity, which hod so recently 
 fallen upon the country, prevented this argument 
 from being attended to at the time, but it is now 
 pretty generally admitted to have been just, and to 
 have been borne out by what has since occurred ; 
 most of those who have carefully considered the 
 state of our currency, are now agreed that the abo- 
 lition of small notes has afforded no security what- 
 ever against the recurrence of difiiculties, precisely 
 the same in character with those of the well-known 
 panic of l8'25-6. If we have suffered less on recent 
 occasions of the same sort, than we did in that in- 
 stance, the difference is attributable not to the disuse 
 of small notes, but to the fact, that imprudence has 
 not since that calamity been carried quite to the 
 same pitch as it had been immediately before its 
 
 i h i I 
 
49 
 
 st aro^ii- 
 (Micy to 
 tlic cur- 
 af these 
 it which 
 ill ques- 
 i urgucd 
 ii (listin- 
 tlic mis- 
 bu table, 
 ?rved to 
 d 1797, 
 k'cre not 
 need by 
 recently 
 gument 
 is now 
 , and to 
 cur red ; 
 red the 
 he abo- 
 y what- 
 reciselv 
 
 known 
 1 recent 
 that in- 
 e disuse 
 ince has 
 
 to the 
 ifore its 
 
 occurrence. Kv(^n, however, it' it should be ad- 
 mitted, that the use of small notes aggravates the 
 evils of an ill-regulated currency, this would be no 
 argument against them as forming part of a national 
 Paper Currency, regulated upon sound principles ; 
 it is impossible that, as such, they could in any 
 manner tend to produce fluctuations in the value 
 of monev. 
 
 At the time when the bill for prohibiting the 
 issue of small notes was under discussion, another 
 argument, a good deal relied upon by tlip advocates 
 of the measure, was, that it would be the means of 
 maintaining a larger reserve of gold in the country. 
 As the very end in view in using a paper currency 
 is to substitute for the precious metals a cheaper 
 instrument of exchange, it is difl^cult to understaud 
 the force of this argument in the mouths of those 
 who do not object to the use of paper money alto- 
 gether, uulesM they merely mean, that by increasing 
 the proportion of gold to paper, the danger of its 
 being found impossible to maintain the converti- 
 bility of the latter would be diminished ; but if 
 this is all that is intended, the argument rests on 
 an assumption, which, for the reasons already 
 stated, must be considered to be altogether un- 
 founded. 
 
 The risk of forgery is a nore serious objection 
 which may be urged against the use of small notes; 
 indeed, it would be one which ought to be con- 
 clusive, if it could be shewn that the real reason 
 

 50 
 
 <\, 
 
 ' III 
 
 4' ■ 
 
 '<;■■! 
 
 V;' ■"" 
 
 J'' 
 
 I 
 
 I i ■ 
 
 
 ,1 s, 
 
 i ■ 
 
 ,1 
 
 wliy the forgery of bank notes was so niucli more 
 frequent some years ago than it has hitely been, 
 was, that notes of a k)wer denomination than £5. 
 were at that time in circulation. But tliis has not 
 yet been shewn ; nor is it likely to be so : on the con- 
 trary, there seems to be every reason for supposing 
 that tlie former frequency of a crime novv so com- 
 paratively rare, was much less owing to the use of 
 small notes, than to the absurd severity of the Iaw% 
 and to the mistaken policy of relying for the pre- 
 vention of the ofl'ence upon the terror which it was 
 supposed this severity would inspire, instead of 
 upon the adoption of the most obvious measures of 
 precaution and prevention. It may be observed in 
 support of this opinion, that there is no complaint 
 of the frequency of forgeries of bank notes in 
 Scotland or in Ireland, tliough small notes still 
 circulate in both countries ; and although, in the 
 former especially, there are not wanting the facili- 
 ties for the crime, afforded by large towns of active 
 commerce and crowded population.* If, therefore, 
 upon other grounds, the i.^e of small notes should 
 be considered expedient, it can hardly be necessary 
 that it should be abandoned from the danger of 
 forgery ; particularly as regulations might easily 
 be adopted, which would throw great difficulties in 
 the way of those who should attempt to commit the 
 crime, and render it highly improbable that they 
 could escape detection. 
 
 * See evidence of Mr. Blair, Report of 1841, Question 1710. 
 
 I ■' 
 
51 
 
 III. 
 
 1710. 
 
 This g^ntral statement of a proposed change fn 
 our monetary system, and of the reasons upon which 
 it is founded, will he rendered more intelligible, 
 and a more complete and connected view of the 
 whole plan will be afforded, by the following short 
 heads of a bill, by which it might be carried into 
 effect. 
 I. Commissioiicrs to be appointed for the manage- 
 ment of the national paper currency, not re- 
 movable, except upon a joint address to the 
 Crown from the two Houses of Parliament. 
 11. The issue of notes, payable to the bearer on 
 demand, by the Bank of England, or by any 
 other bank, to be prohibited. 
 The Commissioners to be authorized to issue 
 notes, constituting a national currency. Such 
 notes to be the only legal tender in payment 
 of all sums exceeding forty shillings. 
 The Bank of England, and all other existing 
 banks, to be required to call in and cancel all 
 their notes now in circulation; for the purpose of 
 enabling thevn todoso, theCominissioners to ad- 
 vance them in national paper sums equal to their 
 average circulation of the two preceding years ; 
 the national notes so advanced to them to be 
 onlv issued as their own should be withdrawn. 
 V. The sum thus advanced to the Hank of England 
 to be considered — 1st, as a repayment of the 
 eleven millions now lent by that body to the 
 public ; 2nd, as payment for the bullion now 
 
 1^ -> 
 
 1< ^r 
 
 1\ 
 
ir !• 
 
 
 
 
 :| . 
 
 0i 
 
 i i 
 
 1 
 
 ) I 
 
 
 5^ 
 
 lield by the Bank, which should be made 
 over to the Commissioners ; 3rd, the surplus 
 (if any) as a loan from the public at 2J per 
 cent, per annum. 
 
 VI. The advances to all * other banks to be con- 
 sidered as loans from the public, bearing inte- 
 rest at 2J per cent., for which security should 
 be required. 
 
 VII. The Commissioners to divide the country 
 into districts, (say eight for England, four for 
 Ireland, and three for Scotland,) for each of 
 which there should be distinct notes, like 
 those of the branch banks of England ; these 
 district notes, however, to be good in all parts 
 of the country. 
 
 VIII. In each district the Commissioners to esta- 
 blish a subordinate office, for tlie examination 
 of notes issued in that district, and also for the 
 purpose of issuing notes of that district in ex- 
 change for those of other districts, and for 
 sovereigns. 
 
 IX. All revenue officers and others receiving 
 money on account of the public, and all 
 bankers having advances from the Commis- 
 sioners, to be required to send to the office 
 of the district in which they reside, for the 
 purpose of being exchanged, all sovereigns, 
 
 * Except the Bank of Ireland, with which a diflPcrent arrange- 
 ment, upon the same principle with that with the Bank of England, 
 would be required. 
 
 J 
 
53 
 
 t: 
 
 all notes of existing banks, all national ijotes 
 of other districts, or notes of their own dis- 
 trict not stamped as having been examined 
 within the previous six months, which should 
 come into their hands. 
 
 X. The district offices to be furnished with a re- 
 
 serve of notes for the purpose of effecting such 
 exchanges. Notes of existing banks thus senl 
 to any of the district offices to be presented for 
 payment, and then cancelled ; notes of the 
 district, unless worn out or of old dates, to be 
 examined, and if found genuine to receive a 
 stamp, shewing the date of the examination, 
 and to be placed in the reserve for re-issue ; 
 notes not intended to be re-isf/ied, notes of 
 other districts, and sovereigns, to be trans- 
 mitted to Commissioners in London. 
 
 XI. Commissioners to cause sovereigns transmitted 
 to them to be melted into ingots, and to be 
 sold ; such a proportion, however, to be re- 
 tained as should be sufficient, with the bullion 
 received from the bank, to constitute a reserve 
 of bullion to the value of £10,000,000. 
 
 XII. The Commissioners, out of the money thus 
 received, to make up the advance from the 
 public to the Bank of England to the sum 
 of ^10,000,000; provided that in considera- 
 tion of this advance, which should bear inte- 
 rest only at the rate of 2^ per cent , the Bank 
 should undertake the payment of deficiency 
 
X 
 
 w- 1 
 
 
 ' i 
 
 i. i;< 
 
 n 
 
 
 
 .1 
 
 II: I 
 = i- i 
 
 54 
 
 bills to the saiiiu extent, ami on the same 
 terms as at present. 
 
 XIII. Commissioners to invest iii the funds the 
 surplus of money received from the sale of 
 melted sovereigns ; also any repayments of 
 capital received from banks. The interest 
 arising from loans to banks, and from stock 
 Iield by the Commissioners, to be applied by 
 them in defraying the expenses of their office, 
 and of ..applying the notes issued by them ; 
 any surplus to be paid over to the Commis- 
 sioners for the reduction of I he Naiional Debt. 
 
 XIV. The Commissioners to be bound to deliver 
 at their office in London nunonal paper in ex- 
 change for bullion, or bullion in exchange for 
 paper, to all applicants ; provitled that not 
 less than 100 ounces of gold should be ofl'ercd 
 or demanded ; and that for every 100 ounces 
 of gold received or delivered, a fee of £1. 
 should be paid ; the amount of such fees to be 
 carried to the account of the general receij)ts 
 of the Commissioners, and applied as before 
 stated. 
 
 XV. The reserve of bullion in the hands of the 
 Commissioners to be £10,000,000. In order 
 to keep it at this amount, in caise of its being 
 reduced too low, the Connnissioners to suj)ply 
 the deficiency by the side of stock and pur- 
 chase of bullion ; in the contrarv case of 
 bullion accumulating in their hands, the Com- 
 

 missioners to dispose of tlie surplus to the best 
 bidder, receiving payment for it in stock ; pro- 
 vided, however, that bullion should not be 
 thus eithe- purchased or disposed of unless 
 the deficiency or excess to be thus met should 
 amount to £2,000,000. Between the limits 
 of £12,000,000 on one side, and £8,000,000 
 on the other, the reserve of bullion to be 
 allowed to vary without interference. 
 
 XVI. The (Jommissioners to appoint inp.})ccting 
 officers to visit the district offices at uncertain 
 times, in order to ascertain the correctness of 
 the books, and of the reserves of notes ; to 
 have also the power of making all necessary 
 regulations as to the modes of transacting 
 business, the dates at which notes should cease 
 to be re-issued, &c. 
 
 XVII. The Commissioners to publish in the 
 Gazette weekly statements of the total amount 
 of national paj)er in circulation, and of the 
 amount of notes received in exchange for bul- 
 lion, or of bullion, in exchange for notes, during 
 the previous week ; also to make an annual 
 report to both Houses of Parliament, giving a 
 full account of all their j)roceedings, and of 
 their receipts and expenditure. 
 
 Such would be the chief provisions (many of 
 minor importance, which would be required, liave 
 been purposely omitted) of an Act of Parliament, 
 by which it is conceived that our currency might 
 
i: 
 
 
 iAi 
 
 be placed upon a secure und satisfactory footing ; 
 their general design will, it is hoped, be sufficiently 
 intelligible from what has already been said; but 
 upon one or two points a few words of cxplana- 
 '■' Ml rnay be added. 
 
 The object of the clauses V. VIII. IX. and.X., 
 which relate to the division of the kingdom into 
 different districts, each having its distinct notes, is 
 that of guarding against forgery ; the proposed 
 regulations would ensure the examination at short 
 intervals, of all the national paper in circulation, so 
 tha'.. the existence of any spurious notes could uot 
 fail speedily to be discovered, while obvious facili- 
 ties would also be aflPorded for tracing to their source 
 any forgeries which might thus be ascertained to 
 have been committed. At the same time as the 
 notes of any one district would be received in all, 
 no inconvenience could be occasioned to the public 
 by the assignment to each of these divisions of the 
 country', of a distinct portion of the circulation. 
 
 With respect to the clauses V. and VI., and 
 those from XI. to XV. inclusive, it will be proper 
 to shew, somewhat more in detail, the grounds 
 upon which these arrangenicnts are recommended. 
 Tlie average amount of notes now in circulation 
 may be taken, in round numbers, at forty millions 
 — namely, about eighteen millions issued by the 
 Bank of England, and about twenty-two millions 
 by the various other Banks in the United Kingdom. 
 The sovereigns in circulation have been estimated, 
 
 « i 
 
 ill ll 
 
57 
 
 as already stated, at £30,000,000 ; but, as it is 
 probable that for some time at least the announce- 
 ment of the intended withdrawal of the gold coin- 
 age from circulation, might create a disposition to 
 hoard it, and as it is better to err on the side of 
 under-rating than of exaggerating the amount, it is 
 assumed that ;£20,000,000 only of coin would in 
 the first instance be received by the Commissioners 
 in exchange for notes. The total amount of na- 
 tional paper to be issued would thus be £60,000,000, 
 giving, of course, an equal sum to be invested as 
 representing that issue. Of this £ 1 0,000,000 would 
 be required to pay for the reserve of bullion it is 
 proposed to maintain, this is probably a much larger 
 reserve tha^ ..ould be necessary for the real security 
 of a currency regulated as has been suggested ; but 
 as it is far more important that the confidence of 
 the public should be ensured, an that the pecu- 
 niary saving, from the adoption of tlie plan, should 
 be carried to the utmost possible extent, it would 
 be, upon the whole, expedient that the Commis- 
 sioners should retain this large sum in bullion in 
 their hands. Twenty-two milHons more would 
 be absorbed by the advances to the country banks, 
 nhich would be deprived of the privilege of issuing 
 their own notes ; and it has already been shewn 
 that their receiving, in consideration of the loss of 
 this privilege, these advances at 2^ per cent., would 
 be an arrangement more advantageous to them, 
 than that which has in some cases been voluntarily 
 
58 
 
 i\ 
 
 iH 
 
 .4 
 
 «! 
 
 i I f 
 
 I I I- 
 1 1; Sij 
 
 agreed to by tliese establishments. TIjc Bank of 
 England stands upon a different footing, it owes 
 its present circulation to the monopoly created in 
 its favour by the law, and has no claim to the con- 
 tinuance of the advantages it has thus enjoyed 
 beyond the time for which it has been granted. 
 On the other hand, it would probably he greatly 
 for the public convenience that the Bank should 
 continue to afford the same assistance it has hitherto 
 done to the Government, by making advances of 
 money when required, upon the credit of the grow- 
 ing revenue ; and for this service it would of course 
 be entitled to remuneration. Hence it is proposed, 
 that £21,000,000 of the national paper should be 
 issued to the Bankof England, namely, £1 1,000,000 
 in payment of the money now lent by that Corpo- 
 ration to the public, and £10,000,000 more as an 
 advance, bearing interest at 2^ per cent., being a 
 permanent balance which the Government should 
 leave with the Bank in consideration of the assist- 
 ance received from that body in carrying on the 
 pecuniary affairs of the country. The existing 
 arrangements \mder which the revenue is paid into 
 the Bank, while it provides for the payment of the 
 public creditor, and for the demands of the public 
 service, charging interest for the advances which 
 arc occasionally required for that purpose, woidd 
 thus continue unaltered, to the mutual advantage 
 of both parties. To make up the £00,000,000, at 
 which the whole amount of national |)apor to I)e 
 
59 
 
 issued in the first instance, has been calenlated, 
 tlierc would remain a sum of £7,000,000, wliich it 
 is proposed to invest in tiie funds, in tlie name of 
 tlie Commissioners. This investment would afford 
 the means, in the event of the reserve of bullion 
 being reduced below the amount at which it is in- 
 tended that it should be kept, of supplying the 
 deficiency ; in this case it would be the duty of the 
 Cc umissioners to convert a portion of the stock 
 standing in their names into bullion, but ii would 
 be scarcely possible that such a contingency should 
 arise ; what would probably happen would be, that 
 owing to the conversion of a larger amount of sove- 
 reigns into paper, than has been assumed, and to 
 the gradual extension of the circulation with the 
 increasing wealth and population of the country, 
 the Commissioners would be enabled to increase the 
 amount of stock stan':^ing in their names by having 
 a surplus of bhUion to dispose of. The account, 
 however, in the first instance may be taken as 
 standing thus : .£60,000,000. in national paper 
 would be issued to replace the paper of various 
 descri|)tions, and the gold coins now in circulation, 
 and would be invested as follows: 
 £10,000,000 ill bullion. 
 
 '22,000,000 lent to existinir Banks of Issue. 
 
 1 1,000,000 repaid to tlic Iknk of England. 
 
 I 0,000,000 lent to ditto. 
 
 7,000,000 in stocK standing in the names of the Coni- 
 uiisNioners. 
 
 Total £()0,0()0,000 
 
I**^ 
 
 i 
 
 hi 
 
 if I 1 
 
 I 
 
 (30 
 
 Tlie interest arising from the stock standing in 
 the names of the Commissioners, and from the 
 sums lent to the Bank of England, and to the other 
 banks now issuing their own notes, together with 
 the interest saved upon the sum now lent by the 
 Bank to the public, would constitute an annual 
 receipt of nearly £1,400,000,* applicable to the 
 expense of maintaining the establishment of the 
 Commissioners, and the district offices, and that of 
 supplying the national paper currency. The cost 
 of a national paper currency ought obviously to be 
 very much smaller in proportion to its amount than 
 that of the paper circulation of private bankers, or 
 of the Bank of England under our present system; 
 there appears therefore to be no reasonable ground 
 for doubting that the receipts just mentioned would 
 be fully sufficient to meet the expenses charged 
 upon them ; if they should fail to do so the defi- 
 ciency would of course have to be provided for by 
 an annual Parliamentary grant, nor w^uld the 
 necessity for such a grant involve the imposition of 
 
 \i 
 
 '> ■ 
 
 t*- 
 
 I;! 
 
 ; i |i 
 
 * Namely — Interest at 2^- per cent. 
 
 £ 
 
 £ 
 
 on loans to country banks of 
 
 22,000,000 = 
 
 550,000 
 
 Ditto, on loans to the Bank of 
 
 
 
 England .... 
 
 10,000,000 = 
 
 250,000 
 
 Interest at 3 per cent, saved on 
 
 
 
 loan from Bank, repaid . 
 
 11,000,000 r= 
 
 330,000 
 
 Interest on money invested in funds 
 
 
 
 by Commissioners (say in 3 per 
 
 
 
 cents, at 93) 
 
 7,000,000 = 
 
 225,000 
 
 Total 
 
 £•1,355,000 
 
/;?V.-V 
 
 01 
 
 any new burthen upon the public, unless its umount 
 sliould exceed the whole cost of the present gold 
 coinage. It is scarcely possible to suppose that 
 this would be the case, on the contrary, it might 
 confidently be predicted, that even in the first in- 
 stance there would be a direct pecuniary gain to 
 the public from the adoption of the proposed mea- 
 sure, and that eventually this gain would become 
 more considerable as the money lent to the present 
 banks of issue was repaid. 
 
 It will be observed, that it is chiefly by with- 
 drawing the present gold coinage from circulation, 
 and by saving of expense, and of interest of capital 
 thus produced, that the means would be afforded of 
 effecting the change of system in a manner which, 
 in a pecuniary point of view, would be so much for 
 the advantage, both of the public and of individuals; 
 but after all, this pecuniary advantage is but of 
 secondary importance, the first and paramount 
 object is to establish a circulating medium, not 
 liable to injurious fluctuations of value, and this it 
 is conceived would be efftctually accomplished, 
 though the issue of small notes, in the place of 
 sovereigns, should form no part of the measure 
 adopted. The omission of this part of the plan 
 would indeed be attended with the sacrifice of a 
 large pecuniary saving, as well as of other important 
 advantages, which the writer of these pages can see 
 no good reason for giving up ; b.ut by adopting the 
 proposal, even in this shape, we should secure the 
 
HP 
 
 m 
 
 02 
 
 great advaiitagt! of getting rid of a paper circula- 
 tion, issued under no efTcctivc responsibility and 
 according to no certain rule, by trading corpora- 
 tions and private individuals; and of substituting 
 for this circulating medium, which experience has 
 shewn to be liable to fluctuations of value productive 
 of great inconvenience, a national paper currency 
 issued on behalf of the State, under regulations by 
 which its value would be guarded from any varia- 
 tions which would not equally affect a purely 
 metallic circulution, and managed by Commis- 
 isioners bound to give publicity to all their proceed- 
 ings, and directly responsible to Parliament for 
 their conduct in the discharge of duties imposed 
 upon them, and at the same time strictly defined 
 by the law. 
 
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 THE END. ;} f'lMlDl'Mi Ol t;'' ) II 
 
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