UNIVERSITY OF CALIFORNHA 
 AT LOS ANGELES
 
 THE BANK ClIARTEll ACT, 
 
 ETC., ETC. 
 
 6 '
 
 TUE BANK CHARTER ACT: 
 
 OUGHT THE BANK OF ENGLAND OR THE PEOPLE 
 
 OF ENGLAND TO RECEIVE THE PROFITS OF 
 
 THE NATIONAL CIRCULATION ? 
 
 BY 
 
 JONATHAN DUNCAN, B.A., 
 
 Author of " Aladdin" s Letters on Monetary Science" §fc., Sfc. 
 
 " Was man ordain'd the slave of man to toil, 
 Yok'il with the brutes and fettered to the soil, 
 AVeigh'd in the tyrant's balance with his gold .' 
 No ; Nature stanip'd him in a heavenly mould ; 
 She bade no wretch his thankless labour urge, 
 And trembling take the pittance and the scourge." 
 
 Campbell's Pleasures of Hope. 
 
 " Nothing can be more absurdly presumptuous than to substitute machinery in such 
 a case for human intelligence. A very short time ago, the interest of money was at 
 2i to 3 per cent. Everybody found it difficult to employ their capital ; Now, nobody can 
 obtain it for the best security under 8, 10, or 12 percent. The stagnation of the most 
 legitimate trade is complete ; the manufacturer stops his works, the minister is obliged 
 to double the interest of his Exchequer Bills." — Lord Ashburton on the Commercial Crisis 
 of 1847. 
 
 " We believe that for fifty years at the least, labour, taking its quality into account, 
 has been cheaper in this country than in any part of Europe ; and that this cheapness of 
 labour has contributed vastly to the improvement and powers of the country, to the suc- 
 cess of all mercantile pursuits, and to the enjoyment of those who have money to spend. 
 This same cheapness has placed the labouring classes must effectually under the hand of 
 money and the heel of power.'' — ' Times ' Atwspaper, ith July, 1851. 
 
 LONDON: 
 DANIEL F.^OAKEY, 10, PATERNOSTEE ROW. 
 
 M.DCCC.LVII. 
 
 > • • « ' • »
 
 GROVE AND SON, PUINTKKS, 
 HAKP [>.\NK, OKEAT TOWER STREET, tITV.
 
 
 >§ 
 
 ^ 
 
 ^S^/J- 
 
 DEDICATION. 
 
 TO FRANCIS BENNOCH, ESQ. 
 
 I FEEL it my duty to address this volume to you, as 
 
 an enlightened and persevering advocate of monetary 
 
 ^ reform. To that important subject you have con- 
 
 <c 
 
 DC 
 
 3 tributed a large and valuable amount of practical 
 
 ^ knowledge. Public indifference has never damped your 
 
 o 
 
 - energy, nor has your moral courage ever quailed before 
 
 the sneers of ignorance and prejudice. 
 
 CD 
 
 Q On personal grounds it is grateful to my feelings to 
 associate your name with this publication, as it affords 
 me an opportunity of testifying my appreciation of 
 your generous and unswerving friendship. 
 
 JONATHAN DUNCAN. 
 
 ^^tlp^'^C
 
 r R E F A C E. 
 
 A Parliamentary Committee has been appointed to 
 investigate the merits and demerits of the Bank Charter 
 Act of 1844, and to report to the House of Commons 
 whether that Act ought to be renewed, modified, or 
 abrogated. Under these circumstances this pamphlet 
 is submitted to public consideration. 
 
 That law known as the " Bank Charter Act" is one 
 of a series of monetary enactments commencing in 
 1816, consolidated in 1819, and complemented in 
 1854; and those collective measures are erroneously 
 believed by many to have restored the ancient standard 
 of value, the action of which was suspended during the 
 Bank Restriction Act. 
 
 When the Bill of 1819 was passed, it was supposed 
 that it would only lower prices four or five per cent. ; 
 in fact, it doubled the amount of the national debt. 
 Mr. Ricardo was the author of that gigantic and 
 ruinous mistake; but he honestly confessed tlie mag- 
 nitude of his error before his death. Mr. Bankes 
 declared that eveiy member of the committee wlio
 
 Vlll PREFACE. 
 
 reported to the House of Commons in fVivour of the 
 Bill of 1819 were grossly deceived as to its character. 
 It was a measure passed in ignorance. 
 
 After the practical experience of a quarter of a 
 century, its evils had become so patent that Sir 
 Robert Peel, who had introduced it, brought forward 
 the Act of 1844 as a buttress to prop up a falling 
 edifice. That Act has been characterised by Mr. 
 Samuel Jones Loyd, now Lord Overstone, in the fol- 
 lowing terms : — 
 
 " It has been justly described by its author as the 
 complement of the Bill of 1819 — as the further step 
 which was necessary to render that measure complete, 
 and to give to the public every possible security for the 
 effectual maintenance of specie payments. This is the 
 true object of the measure; and by its efficacy or 
 otherwise in this respect, the success or failure of the 
 measure ought to be tested."* 
 
 The panic of 1847 was the result of the Act of 
 1844, and thus both the original building and its sus- 
 taining buttress were condemned. 
 
 Committees of both Houses of Parliament were 
 appointed to inquire into the causes of that panic. 
 The committee of the House of Commons held nineteen 
 meetings. Of those members who recorded their votes 
 in favour of the legislation of 1844, in support of the 
 report of the Chancellor of the Exchequer, Sir Charles 
 Wood, who was chairman of the committee, one never 
 attended, and therefore never heard one word of the 
 
 * Thoiig'lits on tlie Separation of the Two Departments of the 
 Bank ol" Eng'land, p. 1 and 2.
 
 PllIiFACE. IX 
 
 evidence ; two attended four times, and one five times. 
 Of those who opposed the report embodying the resolu- 
 tions, and who were present and voted Avhen the 
 resohitions were discussed, none attended the committee 
 less than twelve times. Government only carried the 
 Report by a majority of two votes ; but the votes would 
 have been equal had not Mr. Herries and Mr. Thomas 
 Baring who had manifested a decided opposition to the 
 Act of 1844, been unavoidably absent. 
 
 Seventeen witnesses were examined before the com- 
 mittee; of these, thirteen condemned the Act of 1844, 
 and its four supporters were three directors of the 
 Bank of England, avIio supported their own monopoly ; 
 and Mr. Samuel Jones Loyd, its real author. 
 
 It was condemned by the most eminent bankers and 
 merchants; by the late Mr. Samuel Gurney, by Mr. 
 George Carr Glynn, by Mr. Lister, Mr. Horsley 
 Palmer, Mr. Bevan, Mr. Bates, INIr. Pease, and Mr. 
 Birkbeck of the Craven Bank, Yorkshire, who, on that 
 occasion, was the accredited representative of all the 
 country bankers. 
 
 In defiance of this adverse, preponderatingly adverse 
 evidence, Sir Charles Wood, as chairman of the com- 
 mittee, reported to the House of Commons in favour of 
 the Bill, in the following terms : — 
 
 " Your committee, after a careful review of all the 
 evidence upon tliis part of the subject, are of opinion 
 that it is not expedient to make any alteration in the 
 provisions of the Bill." 
 
 The committee of the House of Lords condemned 
 the Bill.
 
 X TREFACE. 
 
 It is under such circumstances that the whole subject 
 is to be reviewed; and it is to be hoped that Mr. 
 Cardwell, the chairman of the present committee, will 
 not follow the unworthy example of Sir Charles Wood ; 
 that he will not act on his own preconceived opinions, 
 whatever they may be, but on the evidence of the wit- 
 nesses, as the judges act in the courts at Westminster. 
 The nation requires the verdict of truth, not its per- 
 version by the baleful spirit of party. 
 
 In all the efforts made by philanthropists to remove 
 
 or mitigate the evils of society, the question of money 
 
 has been ignored ; and hence their lamentable failures. 
 
 It has never occurred to them that money is the half 
 
 of every bargain, or that modern usury is extorted, not 
 
 for the legitimate use of money, but for its artificial 
 
 scarcity. 
 
 Interest at 3 per cent, replaces capital in 33 years. 
 
 25 
 
 V 
 
 1 
 
 j; 
 
 }} 
 
 UK) 
 
 7> 
 
 }> 
 
 5 
 
 }} 
 
 }} 
 
 20 
 
 j> 
 
 i) 
 
 10 
 
 }> 
 
 }} 
 
 10 
 
 j> 
 
 }} 
 
 20 
 
 }7 
 
 n 
 
 5 
 
 J? 
 
 Is it surprising, then, under the Acts of 1819 and 
 1844, that the rich grew richer, and the poor poorer? 
 
 The people should be made to understand that their 
 labour alone supplies the country with gold, and that 
 cupidity exports that gold to foreign nations, in loans 
 to governments, or to sustain foreign speculations, that 
 usurious interest may be perpetuated at home. The 
 currency question is emphatically a labour question, 
 and till the working classes study it, and master it, 
 they will never obtain any efficient relief from social
 
 TREFACE. XI 
 
 evils or political grievances. It would be well also for 
 the rich to study and to master it; for all history 
 proves to those who can look beneath the surface, that 
 usury is the precursor of revolution, and extinguishes 
 nationality. 
 
 Panics, the offspring of metallic money, have 
 destroyed in this country, since 1816, as much pro- 
 perty as would have redeemed the national debt twice 
 over ; is such a system to continue for another period 
 of ten years? Should that be the decision of par- 
 liament, the measure of injustice will be full to over- 
 flowing. But we will not despair. We look for the 
 aid of the landed proprietors and of the old families of 
 England ; for they have never said, as the money lords 
 have said, " Capital owes no allegiance to Country." 
 We hope much from Sir James Graham, a member of 
 the new committee, for he has never formally repu- 
 diated the admirable truths he expressed in " Corn 
 and Currency." Now that the gag is removed from 
 his mouth, let him speak out boldly as a man, and 
 atone for his long silence. 
 
 London, 25tli Fehniary, 18o7.
 
 CONTENTS. 
 
 Prefacje, &c. 
 
 CHArXER I. 
 
 PAGE. 
 
 i. — X. 
 
 The Nature of the Controversy between the Advocates of 
 Bullion ism and the Supporters of Representative Money 
 stated. Principles of Mr. Huskisson, of Lord Over- 
 stone, of the second Sir Robert Peel, and of the Times 
 newspaper. Those Principles examined and contro- 
 verted. Mr. John Taylor's Definition of Money - 1 — II 
 
 CHAPTER II. 
 
 Adam Smith's Eighth Chapter "On Wages" examined. 
 David Hume on the Expansion of Money. Views of 
 Sismondi. The Difference between Political Economy 
 and the Science of Society. The Fallacies of Over- 
 production, Over-trading, and Over-population. Mr. 
 James Mill on the Relation between Money and Com- 
 modities. Views of Mr. Thomas Attwood and of Air. 
 Huskisson. The Representative Character of Imperial 
 Money and of Commercial Currency. Opinions of 
 Plato, Seneca, and Xenophon. Influence of Prejudice 12 — 31
 
 XIV CONTENTS. 
 
 CHAPTER III. 
 
 Historical View of the Origin of Com. Etymology of the 
 words "Money" and Capital." Ancient British Money. 
 Its Representative Character. The Exchequer Tallies 
 of King Henry the First of England. Reduction of 
 the Metallic Standard in Rome and England. Lord 
 Liverpool's Statement. Report of j\Ir. William Lowndes 
 in 1695. Duties of the King's Exchanger. Effect of 
 the Discovery of the Silver Mines of South America 
 on our Money. Statement of Mr. Davenant. The 
 Monetary Act of 1 774. Suspension of Cash Payments 
 by the Bank of England in 1797 . . - - 
 
 .32—54 
 
 CHAPTER IV. 
 
 Rise of Prices under the Bank Restriction Act. The Rise 
 caused by Increased Taxation, not by an increase of 
 Bank Notes. Mr. Huskisson's Pamphlet on the " Do- 
 iweciation of the Pound," answered by ^Mr. John 
 Taylor. Definition of the terms Debasement, De- 
 terioration, and Depreciation. The effect of Indirect 
 Taxation on Money considered. Debates in the House 
 of Commons on the Report of the Bullion Committee 
 in 1811. Speeches of Lord Castlereagh and Mr. Can- 
 ning. John Law's Bank. The French Assignats. The 
 Continental Money of the American Colonies. David 
 Hume. Benjamin Franklin. View of a "Depreciated 
 Pound," taken by Mr. Ricardo, Mr. Tooke, and other 
 Economists. Answered by Mr. Mathias Attwood. The 
 Balance of Trade and the Foreign Exchanges - - 5-5 — 90 
 
 CHAPTER V. 
 
 Attempts to renew Cash Payments. Letter of Mr. Mathias 
 Attwood to Lord Archibald Hamilton. View of Sir 
 James Graham. The Monetary Act of 1816. Did it 
 fix the Price of Gold In British Coin? Fallacies of the
 
 CONTENTS. XV 
 
 Bullionists on that subject. The Copper Coinage of 
 1798. Reports of Committees of both Houses of Par- 
 liament on the Market and Mint price of Gold, Tes- 
 timony of the late Lord Ashburton. The Monetary 
 Act of 1819. Denounced by Sir James Graham. Pro- 
 tested against by the first Sir Robert Peel. Repudi- 
 ated by the Bank Directors. Its injustice pointed out 
 by Mr. Mathias Attwood. Carried by the suppression 
 of Evidence and the ignorance of Parliament. Re- 
 tractation of his opinions by Mr, Ricardo. The fall 
 of prices which followed the Act of 1819. Riots in 
 the Manufacturing Districts. The Small Note Act of 
 1822. The Panic of 1825, Quieted by an issue of One 
 Pound Notes, Abuse of the Country Bankers by the 
 Government, Government Loans to the Manufacturing 
 Districts to avert Revolution. The Reform Bill. Re- 
 port of the Manchester Chamber of Commerce. Mone- 
 tary disasters of 1836 and 1839, Fall of the AVhig 
 Party through the decline in the Revenue, the con- 
 sequence of a vicious system of Money - - - 91 — 128 
 
 CHAPTER VI. 
 
 Administration of Sir Robert Peel. The Monetary Act of 
 1844, The erroneous assumption on which it proceeds. 
 View of Mr. Edward Capps. Opinion of General 
 Harrison, President of the United States. Dogmas of 
 Lord Overstone. His Theory of Trade. " What ought 
 to be a Pound ?" versus " What is a Pound ? " Clauses 
 of the Bank Charter Act of 1844. Issues of Notes 
 permitted on nominal Securities and on no Securities 
 at all. Division of the Bank into the Banking and 
 Issue Departments. The Lords' Report on the Sus- 
 pension of the Act of 1844 in 1847. Errors of Sir 
 Robert Peel 129—1.59
 
 XVI CONTENTS. 
 
 CHAPTER VII. 
 
 Lord Overstonc ou the Defects of the Bank of Euglaiul. 
 Character of Imperial or National Money. Its 
 limitation and periodical redemption, rendering depre- 
 ciation impossible. The Guernsey Market. American 
 Independence due to paper Money. The power of 
 Napoleon broken by paper ]Mon2y. Prussia rein- 
 vigorated by paper Money, by Frederick the Great. 
 Scotland enriched by paper Money. Commercial Money 
 and Security Banks. Opinions of the first Sir Robert 
 Peel. Yiew of Mr. John Taylor on "Prices." Gold at 
 its Market Price. Evidence of Mr. W. Brown, M.P., 
 before the Lords' Committee on the rate of discount. 
 The late Sir Robert Peel's defence of Usury. Answered 
 by Mr. James Taylor. Arbitrary Limitation of Legal 
 Tender. Opinion of Sir Josiah Child on interest of 
 Money. The inverted pyramid of Gold. Error of Mr. 
 James Mill. View of David Hume. How markets are 
 created and sustained. Mr. Cayleyandthe Governor of 
 the Bank. The Fall of Rome. Sismondi. Michelet. 
 Gibbon. Summary of Monetary Principles - - 160 — U»4
 
 THE BANK CHARTER ACT, 
 
 ETC., ETC. 
 
 CHAPTER I. 
 
 The Nature of the Controversy between the Advocates of BuUionism 
 and the Sujjporters of Representative Money stated. Principles of 
 Mr. Iluskisson, of Lord Overstone, of the second Sir Robert Peel, 
 and of the Times Newspaper. Those Principles examined and con- 
 troverted. Mr. John Taylor's Definition of Money. 
 
 The Currency Question is generally represented as 
 abstruse, and difficult of comprehension, i'erhaps the 
 confusion in which it is involved arises from the mode 
 in which it has been argued, each controversialist 
 putting forward a theory of his own, and entirely sup- 
 pressing the arguments of his opponents. By such 
 tactics an easy. victory is obtained, but truth is never 
 reached. On the threshold of this inquiry, the nature 
 of money ought to be clearly defined, or we shall waste 
 time in a mere verbal dispute, and realise the fable of 
 the two knights, who looked only at opposite sides of 
 the same shield. In the following pages, an attempt is 
 made to join issue on all major points hitherto discussed 
 in print, or debated in parliament. It is theretbre 
 proi)Osed, as an introductory text, to state succinctly 
 the leading principles of those wlio advocate bullionism, 
 and the objections urged against it by those who recom- 
 mend the adoption of representative money. Thus both 
 
 B
 
 2 The Currency Controversy. 
 
 parties will be brought before the court of a candid 
 criticism, and the pretensions of each fairly exhibited. 
 The substance of this pamphlet will be an expanded 
 commentary on their conflicting opinions. 
 
 THE ARGUMENT STATED. 13ULLI0NISM. 
 
 1. Mr. Huskisson assumed that it was the essence 
 of money to possess intrinsic value. 
 
 2. Mr. Samuel Jones Loyd, now Lord Overstone, and 
 who is generally understood to be the "Mercator" of The 
 Times., accepting the definition of Mr. Huskisson, insists 
 that the expansion or contraction of bank notes should 
 exactly correspond with the oscillations of bullion 
 held by the Bank issuing the notes. In his judgment, 
 the perfection of a monetary system requires the con- 
 vertibility of the paper pound into the gold pound. 
 In this theory, all the processes of exchange must be 
 subordinate to the instrument of exchange; and he 
 contends that, whenever bullion is withdrawn from the 
 Bank, from Avhatever cause, the circulation of notes 
 must be proportionately curtailed. Keferring to the 
 Reports of the Select Committees of both Houses of 
 Parliament, upon the expediency of resuming cash 
 payments, in 1819, Mr. Loyd makes the following 
 remarks : — 
 
 " The convertibility of the notes of the Bank was to 
 be secured by regulating the amount of the issues with 
 reference to the state of the foreign exchanges; and 
 the increase or diminution of gold, in the hands of the 
 Bank, was to be taken as the only safe and certain test 
 of the favourable or unfavourable state of the ex- 
 changes; consequently, the amount of her paper issues 
 was to vary with a direct reference to the fluctuations 
 in the amount of the bullion in the possession of the 
 Bank."* 
 
 * Remarks on the Management of the Circulation, p. 1. Lon- 
 don, 1840.
 
 Tlie Currencij (Umtronersy. .'> 
 
 Mr. Loyd gives the following definition of money : — 
 
 " Money, it must be remembered, is not only useful as 
 a medium of exchange in lieu of barter or credit, but 
 also as a rneasiire of value ; and when paper, in itself 
 possessing no intrinsic value, is used as a substitute or 
 reprcscntJitive of tlie precious metals, the convertibility 
 of that paper becomes essential for preserving its cha- 
 racter as a standai'd of value. Wlien the convertibility 
 ceases, there is no longer any fixed limit to the amount 
 which may be issued, nor any means of obtaining in 
 exchange for the notes that of Avhich they purport to 
 be the representative."* 
 
 ]\Ir. Loyd thus describes the effect of a contraction 
 of the currency : — 
 
 " A reduction of the circulation must at all times 
 tend to clieck the facility of credit and to lower prices; 
 an arbitrary or capricious reduction is, therefore, 
 wholly unwarrantaljle. But if the bullion is diminish- 
 ing, then the Bank ought to have no option; it is 
 bound to make a corresponding reduction of its issues, 
 otherwise the paper circulation could not act as a me- 
 tallic circulation Avould have acted, "f 
 
 3. The late Sir Kobert Peel, on introducing the 
 Bank Charter Act of 1844, expressed himself in the 
 following terms : — 
 
 " The whole foundation of my measure rests on the 
 assumption that, according to practice, according to 
 law, according to the ancient monetary policy of this 
 country, the meaning of a pound is neither more nor 
 less than a definite cpiantity of gold, with a mark put 
 upon it to determine its weight and fineness; and that 
 the engagement to pay a pound means nothing, and 
 can mean nothing else than the promise to pay to the 
 holder, when he demands it, a definite quantity of the 
 precious metals." 
 
 4. The Times newspaper, following the three autlio- 
 
 * Dtidem, p. 10."). t Ibidem. 
 
 i; '1
 
 4 The Currency Controversy. 
 
 rities whose names have been mentioned, asks its 
 opponents, " How do you interpret the words inscribed 
 on tlie Bank note, ' I promise to pay on demand one 
 pound?' " 
 
 Such, in substance and spirit, are the fundamental 
 principles and leading- propositions of the most ac- 
 credited expositors of bullionism, and they demand an 
 answer. It is here fully conceded, (72 limme, that if 
 their premises are logical, their deductions must be 
 admitted, however destructive of industry, however 
 provocative of revolution. If man has no option in 
 the clioice of the instrument of exchange, if, of neces- 
 sity, legal tender must be fabricated out of the precious 
 metal, we must submit with patient resignation to the 
 inexorable decree. But we contend that man is not 
 bound bv any such necessity, and that he has an 
 option ; tliat he is the MASTER, not the SLAVE of 
 BULLION. 
 
 THE ARGUMENT STATED. REPRESENTATIVE MONEY. 
 
 1. With every respect for Mr. Huskisson's great 
 abilities, it is submitted that an assertion is not a 
 proof. It appears to us that he mistook an hypotliesis 
 for a demonstration. If an appeal be made to the 
 usages of antiquity, as much evidence can be adduced 
 in favour of representative as of metallic money ; but 
 that form of argument is inadmissible on either side of 
 this controversy, for it negatives the law of progress, 
 which law admonishes each generation to improve, if 
 possible, on the i)ractices of their ancestors. Surely 
 we are not to be bound by the bargain made by Abra- 
 ham, when he purchased the field of Macpelah, for 400 
 shekels of silver, " money of the merchant." We 
 admit that debts due by us to foreigners ought to be 
 discharged in bullion, coined or uncoined, of a defi- 
 nite weight and fineness; but it does not follow that 
 debts due among ourselves ought to be liquidated in
 
 The Currency Controversy. 6 
 
 the S11111C3 metal. Finally, it is contended, in direct 
 opposition to Mr. Huskisson, that money, confined in 
 its circulation to the realm of an independent kingdom^ 
 need not and ought not to possess intrinsic value, but 
 only a representative value. 
 
 2. In noticing the theory of Lord Overstone, there 
 is no desire on our part to engage in a verbal dispute, 
 for our business is with ideas, not with mere words; 
 but we submit that the term, " exchangeability," is 
 preferable to the term, " convertibility." 
 
 We take exception to the rule of regulating our 
 issues of money by the state of the foreign exchanges. 
 Why should our internal trade be in any degree coerced 
 by our foreign trade? Why should not the several 
 counties of England possess an instrument of exchange 
 of their own? If the continent claims bullion from us, 
 let it in all honour be paid; but on what ground of 
 policy or justice can it be argued that the home trade 
 should be interrupted Avhen the bullion is exported. If 
 bankers, bullion brokers, or loan contractors send away 
 gold to some foreign prince, is that a reason why our 
 farmers, manufacturers, and shopkeepers should be 
 deprived of the means of exchanging their commodities 
 amono- each other? 
 
 In his definition of money, his lordship confounds 
 the standard and measure of value — a source of many 
 errors. The mistake is here oidy mentioned, as it will 
 be dwelt upon more at length in subsequent pages. 
 
 He states that " when the convertibility of the notes 
 ceases, there is no longer any fixed limit to the amount 
 which may be issued." When Ave treat of the nature 
 of iMi'EitiAL and Commercial Money, it Avill be shown 
 that a defined limit may be imposed on paper issues, 
 and that they never can be issued in excess. Further, 
 that they will always exchange for gold at its market 
 price, wiiich is all that justice and common sense can 
 require. In contrast with Mr. Loyd's definition of
 
 6 The Currency Controversy. 
 
 money, -we submit that of Mr. John Taylor, which we 
 entirely adopt. 
 
 " ^loney is a tern> properly applicahle only to that 
 sort of circulating medium which is constituted a 
 universal legal tender in the country wliere it is 
 issued : which depends for its value not on its intrinsic 
 worth as a commodity^ but on the circumstance that 
 the government Avhich issues it at a certain rate in 
 discharge of its obligations to the people, will receive 
 it again at the same rate from the people in discharge 
 of their obligations to the State. In this respect, 
 coins of the genuine stamps however deficient in weight, 
 and that paper money also, which is issued by the 
 authority of the State, are money. They are 
 entitled to be universally current, and will be so 
 among the people of that country to which they 
 properly belong. All such money it is within the 
 province of a government to interfere with and 
 regulate. On the other hand: — 1. All coins which 
 depend for their acceptance as a legal tender, on the 
 condition that they shall be of fidl weight, are not 
 money., but hits of bidlion., estimable in all countries 
 according to their intrinsic value, and dei'iving no 
 advantage in any way from privileges conferred by 
 the State. 2. All promissory notes to pay on demand 
 those same bits of bullion, of a certain weiglit and 
 fineness, are not money., but evidence of a contract 
 entered into between man and man. 3. All pro- 
 missory notes to pay a certain sum in that legal tender 
 whicli is money, are themselves not money ; they are 
 merely an acknowledgment of debt, of the claim to 
 which debt they constitute a transfer when they are 
 endorsed and paid away. With all such commercial 
 currency, improperly called money, a government has 
 no more right to interfere, under the pretext of regu- 
 lating its quantity., than it has to interfere with the 
 manner in which men conduct their own affairs of
 
 The Currency Controversy. 7 
 
 business, and niauagc the concerns of their own 
 families." 
 
 Mr. Loyd insists, that when bullion is diminishing, 
 the Bank ought to be compelled to diminish its note 
 circulation ; Avhence it follows, that if there were no 
 bullion at all in the country, there ought not to be 
 any legal tender whatever. If there is a danger that 
 the notes and the bullion should not always be in 
 exact equipoise, why permit the issue of a single note? 
 Wliy not confine the legal tender of the country to 
 bullion? Whether the trade of the country could go 
 on for twenty-four hours under such a restriction, it 
 is for Lord Overstone to prove, not for tliose who 
 object to his whole system. If the theory cannot bear 
 the strain of such a metallic test, it is worthless, for, 
 to will the end and refuse the means, is folly. 
 
 That legal tender should diminish when a single 
 commodity is scarce, and all other commodities are 
 abundant, is to subordinate the general to the particu- 
 lar, and to inliict the most cruel injustice. Take a 
 case. Government contracts for a certain number of 
 steam vessels of war, and binds the contractor to 
 complete the order within a specified time, under a 
 penalty. Let us assume (and the assumption is 
 founded on experience), that when the contract was 
 taken, the Bank rate of discount was 3 per cent., but, 
 before it is completed, that the rate rises to 8 per 
 cent. This difference transfers the legitimate profits 
 of the contractor into the till of the discounter ; if the 
 work is not finished, government enforces the penalty — 
 the same government that maintains the Act of 1844, 
 which raises the disc(HUit ; thus, in either way the 
 contractor suffers; and what is true in this case, is 
 true in all others of a similar character. Work is 
 stopped, because gold disappears, for, with its disap- 
 pearance, notes are withdrawn from circulation.
 
 8 The Currency Controversy. 
 
 Against such a system the contractor might protest 
 in the following hinguage. " I have abundance of 
 iron, timber, coal, machinery, and skilled and unskilled 
 labour, and am quite willing to complete the contract; 
 1 have not hoarded, or exported gold, or lent it for 
 profit to a foreign State; I had no control over its 
 de|)arture from the cellars of the Bank of England ; is 
 it then just that I should be plundered of my legitimate 
 gains by extortionate discounts on account of the 
 statutable scarcity of legal tender, or be ruined by 
 government exacting the penalty for not executing the 
 contract." " Yes," replies the theory of Lord Over- 
 stone; " you are justly impaled on one of the horns of the 
 dilemma." A reduction of circulation must at all 
 times tend to check the facility of credit, and to loAver 
 prices." Gold is thus made the master^ not the servant of 
 labour. Surely such a system is self-condemned. 
 
 Had the late Emperor Nicholas given through 
 agents five pounds an ounce for coined sovereigns, the 
 Mint price of them being only £3 17s. lO^d., could 
 we have fitted out the military and naval armament 
 which rescued Constantinople from his grasp ? Cer- 
 tainly not, on the theory of Lord Overstone. 
 
 3. Had Sir Robert Peel adhered to his ow^n 
 definition of a pound, he ought to have abolished all 
 Bank notes, in which case there would have been no 
 need of " 1 promise to pay on demand one pound," and 
 no possibility of the promise being violated. But, 
 with strange inconsistency, his measure allowed the 
 Bank of England, the Provincial Banks, tlie Banks of 
 Ireland and Scotland, collectively, to issue among 
 them upwards of 31 millions of promises to pay, 
 Avithout compelling them to hold a solitary grain of 
 gold to redeem those promises. His scheme exploded 
 in 1847, and the countrv was only saved from barter 
 by the suspension of his law; and that law has only 
 held its ground since, by the unexpected discovery of 
 the mines of California and Australia.
 
 The Currencif Controversij . 9 
 
 If the present system is to continue, a distinction 
 ought to be made in the appeai-ance of tlie notes. 
 Those issued against bullion might be printed, as at 
 present; l)ut those not issued against bullion ought to 
 have their edges marked with a black border. A 
 false credit arises when the bullion notes and the 
 bubble notes are not distinguishable. But, we repeat 
 it, put an end to all notes ; circulate coin and notliing 
 but coin, and thus honestly test the metallic theory. 
 
 4. The question asked by the Editor of The Times 
 in every leading article which he devotes to the 
 Currency Question proceeds on the fallacious assump- 
 tion of Mr. Iluskisson ; and is but a repetition, under 
 a chanc^ed form of words, of the interrogatory of Sir 
 Robert^eel, " What is a Found ? " The Editor of The 
 Times aims at no more than a puerile triumph when 
 he seeks to puzzle or confound his opponents 
 with a truism. Resolved and admitted that a pound 
 means 123 grains of gold; then what is the promise 
 to pay a pound? The question involves a Ibregone 
 conclusion, and is plainly answered in the mind before 
 it can be expressed in language. If the editor of The 
 Times wished to solve a disputed or unsettled pro- 
 blem, he would ask, "What ought to be a pound?" 
 When that is determined, it may be that the words, 
 " I promise to pay," would no longer be inscribed on 
 the note; but the words, " I promise to receive." It 
 is the latter formula that will be supported in the fol- 
 lowing pages, when the reasons for its preference will 
 be assigned. 
 
 It is objected to the city editor of The Times, that 
 he constantly plays fast and loose with language. 
 When it suits his purpose, he speaks of money Avith 
 coi-rectness as the medium of circulation and the instru- 
 ment of exchange; at other times he treats it as 
 capital. In this^ last sense, wdien sovereigns are ex- 
 ported, he declares the country has become poorer, as
 
 10 The Currency Controversy. 
 
 though the sovereigns were parted with without our 
 receiving a full equivalent. If we sent away every 
 ounce of bullion, coined and uncoined, and received 
 wheat in exchange when we were starving, would it be 
 correct to say we were poorer by the operation? The 
 city editor of The Times exults when exports of 
 capital, in the form of iron, or of cotton or woollen 
 fabrics, increase; why, then, complain when capital is 
 exported in the form of sovereigns? The city editor 
 of The Times fails to perceive, or, if perceiving, 
 conceals the fact from his readers, that, under our 
 monetary system, bullion, in its character of commo- 
 dity^ is always fighting against bullion in its character 
 of coin ; as commodity^ its market price varies under 
 the law of supply and demand ; as com, it is tied down 
 to the Mint price, be it abundant or scarce. In either 
 character, we are none the poorer when it is exported ; 
 but as the coin is the basis of our notes, and these 
 latter are withdrawn when the former disappears, the 
 loss of the sovereign becomes the loss of legal tender. 
 True, the foreigner gives us an equivalent in commo- 
 dities, as wheat, wine, or sugar ; but these are not legal 
 tender; we give our money and receive goods, but 
 those goods will not pay taxes, or discharge debts. 
 Hence evil arises ; but it could never arise if we had a 
 legal tender not possessing intrinsic value ; for, in that 
 case, it never would be exported as a commodity; and 
 it is only as a commodity that the foreigner estimates 
 our gold coin, for to him it is the same as uncoined 
 bullion. 
 
 We have now, with as much fairness as we can bring 
 to bear on the subject, stated the main points in the 
 controversy between the advocates of bullionism and 
 the supporters of representative money. The former 
 insist on that character and quality of money which is 
 liable to exportation ; the latter contend for a character 
 and quality of money not liable to exportation. Bui-
 
 The Currency Controcersij. li 
 
 lionism (ItMimnds a commodity for money ; its opponents 
 contend tliat money ouglit not to 1)e a commodity. 
 This is tlie real nature of the dispute ; on the one side 
 we have a reality, on the other side, the symhol of the 
 reality. It is respectfully submitted to the members of 
 botli Houses of rarliament that no sound conclusion 
 can be arrived at till the nature of money is rigidly 
 defined. The question is not, "What is a pound?" 
 or, "What has been a pound in past ages?" but, 
 " What ought now, and in future, to he a pound?"
 
 CHAPTER II. 
 
 Adam Smith's Eighth Chapter " On Wages " examined. David Hume 
 on the Expansion of Money. Views of Sismondi. The difference 
 between Political Economy and the Science of Society. The fallacies 
 of Over-production, Over-trading, and Over-population. Mr. James 
 Mill on the Relation between Money and Commodities. Views of 
 Mr. Thomas Attwood and of Mr. Huskisson. The Representative 
 Character of Imperial ]\Ioney and of Commercial Currency. Opinions 
 of Plato, Seneca, and Xenophon. Influence of Prejudice. 
 
 In England, Adam Smith's " Wealth of Nations," 
 is generally accepted as the text book of political 
 economy ; and it appears to the writer of this pamphlet, 
 that a blind devotion to his doctrines has exercised a 
 most baneful influence on the best interests of society. 
 It is, therefore, desirable to expose the fundamental 
 errors of his system, before approaching the nature and 
 action of money. The reader is noAv referred to the 
 eighth chapter of the " Wealth of Nations," in which 
 he will find the following extracts : — 
 
 " The produce of labour constitutes the natural 
 recompence or wages of labour. 
 
 "In that original state of things which precedes 
 both the appropriation of land and the accumulation of 
 stock, tlie Avhole produce of labour belongs to tlie 
 labourer. lie has neither landlord nor master to share 
 with him. 
 
 " Had this state continued, the wages of labour 
 would liave augmented with all those improvements in 
 its productive powers to which the division of labour
 
 Adam Smith on IVages. 13 
 
 gives occasion: all things would gradually have 
 become cheaper. They would have been produced by 
 a smaller quantity of labour; and, as the commodities 
 produced by equal c[uantities of labour would naturally 
 in this state of things be exchanged for one another, 
 they would have been purchased likewise with the 
 produce of a smaller quantity. 
 
 " But this original state of things, in which the 
 labourer enjoyed the whole produce of his own laljour, 
 could not iast beyond the first introduction of the 
 appropriation of land and the accumulation of stock. 
 It was at an end, therefore, long before the most con- 
 siderable improvements were made in the productive 
 powers of labour, and it would he to no purpose to 
 trace further ichat might have been its effects upon the 
 recompence or wages of labour^ 
 
 The passage underlined is the condemnation of Adam 
 Smith's work. He commences by truly describing the 
 just relations that once existed between the producers 
 and products, and what is just ought to be permanent. 
 If the appropriation of land and the accumulation of 
 stock necessarily wrought injustice, and robbed the 
 labourer of his fair recompence, they ought to have 
 been condemned ; nevertheless, had those two processes 
 not come into existence, Avhat is termed civilization 
 would not have been known. Adam Smith, as a 
 teacher, ought to have solved the industrial problem, 
 instead of declaring that it would be to no purpose to 
 trace it to its ultimate consequences. 
 
 In another sentence he writes thus : " What are the 
 common wages of labour, depends everywhere upon the 
 contract usually made between those parties Avhose 
 interests are by no means the same. The workmen 
 desire to get as much, the masters to give as little as 
 possible." Here he indicates a perpetual antagonism 
 of classes, without making the slightest eflbrt to har- 
 monise interests Avhich are really identical.
 
 14 Adam Smith on Wages. 
 
 " No society," says Adam Smith, " can surely be 
 flourishing and happy, of which the far greater part of 
 the members are poor and miserable. It is but equity., 
 besides, that they who feed, clothe, and lodge the whole 
 body of the people should have such a share of the 
 produce of their own labour as to be themselves toler- 
 ably well fed, clothed, and lodged." 
 
 The equity of the case is indisputable, especially as, 
 in the natural state of thinsrs, accordins; to Adam 
 Smith, the whole produce of labour belongs to the 
 labourer, who then has neither landlord nor master to 
 share with him. And what a mighty boon does Adam 
 Smith confer on those who feed, clothe, and lodge the 
 whole body of the people, Avhen he simply insists, in 
 his narrow view of eqiuty, that they who perform this 
 great work should themselves be iolerahly well fed, 
 clothed, and lodged. 
 
 Here is another passage, which appears to the writer 
 of these Essays absolutely revolting : — 
 
 " The wear and tear of a slave, it has been said, is 
 at the expense of his master; but that of a free ser- 
 vant is at his own expense. The wear and tear of the 
 latter, however, is, in reality, as much at the expense 
 of his master as that of the former. The Avages paid 
 to journeymen and servants of every kind must be such 
 as may enable them, one with another, to continue the 
 race of journeymen and servants, according as the 
 increasing, diminishing, or stationary demand of the 
 society may happen to require. But, though the Avear 
 and tear of a free servant be equally at the expense of 
 his master, it generally costs him much less than that 
 of a slave. It appears, accordingly, from the experi- 
 ence of all ages and nations, I believe, that the work 
 done by freemen comes cheaper in the end than tliat 
 performed by slaves.^' 
 
 Sentiments so heartless merit unqualified reproba- 
 tion, but Adam Smith does not accompany them with
 
 David Hume on the Exjmnsion of Money. 15 
 
 a single word of censure. He accepts them as express- 
 ing an inevitable condition of society. Journeymen 
 and servants are permitted, in this system of political 
 economy, to multiply a race of operatives sufficient to 
 minister to the wants and luxuries of the rich, but 
 that limit they must not overstep. In point of indus- 
 trial reward the free labourer is worse oif tlian the 
 slave : for, though he produces more, he receives less, 
 so that his nominal liberty is a real delusion. 
 
 " It deserves to be remarked," says Adam Smith, 
 " tliat it is in the progressive state, while the society is 
 advancing to the further acquisition, rather than when 
 it has acquired its full complement of riches., that the 
 condition of the labouring poor, of the great body of 
 the people, seems to be tlie happiest and the most com- 
 fortable. It is hard in the stationary, and miserable 
 in the declining state. The progressive state is in 
 reality the cheerful and the hearty state to all the 
 different orders of the society. The stationary is dull; 
 the declining melancholy." 
 
 Here it may be asked, what is to be understood by 
 the " full complement of riches?" Surely the term is 
 vague, if not meaningless. This " fulness" is a point 
 to which society is ever tending, but never reaches. 
 If every man, woman, and child had a constant com- 
 mand over all that they desired to possess — if all were 
 well fed, well clothed, well lodged, and well educated 
 — and if the labouring classes were relieved from the 
 excessive toil they are compelled to endure, and had 
 leisure to cultivate their minds and invigorate their 
 bodies — it might be said, and yet only in an hypo- 
 thetical sense, that a full complement of riches had 
 been realized ; but the phrase would still be loose and 
 imperfect; for, were such an advance in social pro- 
 gression attained, it would only be a new point from 
 which to start in a new race. 
 
 David Hume had a deeper insight into this question
 
 ir> Political Econoimj and the Science of Society. 
 
 than Adam Smith, for he points out the true condition 
 on which alone society is enabled to make ceaseless 
 progress from epoch to epoch. 
 
 '' In every kingdom," says Hume, " into which 
 money begins to How in greater abundance than for- 
 merly, everything takes a new face; labour and 
 industry gain new life ; the merchant becomes more 
 enterprising ; the manufacturer more diligent and skil- 
 ful; and even the farmer follows the plough with 
 greater alacrity and attention. The good policy of 
 the magistrate consists only in keeping it, if possible, 
 still increasing ; because, by that means, he keeps alive 
 a spirit of industry in the nation, and increases the 
 stock of labour, in which consist all power and riches."* 
 The comments made on Adam Smith's Chapter on 
 Wages, have been introduced for the purpose of pointing 
 out the wide difference that exists between the science 
 of political economy and the science of society. The 
 former simply calculates the product, and forgets the 
 producer; the latter proclaims that the labourer is 
 worthy of his hire, lifts him from the degradation 
 of being a mere hewer of wood and draAver of water, 
 recognises the dignity of manhood in every class, and 
 insists on the equitable distribution of wealth. The 
 school of Adam Smith, solely intent on material things, 
 and forgetting persons, has vainly endeavoured to 
 establish a social equilibrium, and though it has taught 
 many useful truths in reference to the division of la- 
 bour, and the production of wealth, it has done nothing 
 to elevate the standard of humanity. It does not 
 profess to take any heed of morals, or of the feelings 
 and affections. Its philosophy dwells on insentient 
 matter, not on sentient beings. Certainly, this utili- 
 tarian school has a right to adopt its own course, and 
 if it did not venture beyond the sphere of accountants 
 and statisticians, no fault could be found with its 
 
 * Essay on Money.
 
 Political Economy and the Science of Society. 1 7 
 
 teachings; but when it succeeds in infusing its false 
 and lietirtless precepts into practical legislation, it be- 
 comes dangerous to society. This school forgets that 
 wealth, riglitly understood, is not an essence, but an 
 attribute, and that its nature changes witli the per- 
 sons and the things to which it is attribut(^d. To 
 accumulate riches, and place them beyond the reach 
 of the producers, is simply to realise the lable of 
 Tantalus. 
 
 The Genevese Sismondi attempted to found another 
 school, but he failed to solve the industrial problem, 
 because he never perceived the baneful action of me- 
 tallic money; but he saw the evils of the system of 
 Adam Smith, and contributed some valuable materials 
 to the science of society. A single quotation will show 
 the aspect under which he contemplated the subject. 
 
 " That product of human labour, which, with sub- 
 sistence, represents all the material good which man 
 can enjoy, and almost all the intellectual good to which 
 he can only attain by the help of the first, has been 
 called Avealth. Wealth, or the theory of the increase 
 of wealth has been regarded as the special object of 
 political economy, an object better designated since the 
 time of Aristotle by the name of " Chresmatistics." 
 Ideas are not made clearer by disputes upon words, 
 and we should not bring this forward, if it did not 
 serve to define precisely the course of the false direc- 
 tion which has been followed in our time, in one 
 branch of social science. This science has always had, 
 and ahvays must have, for its object, men gathered to- 
 gether in society ; economy, according to the proper 
 sense of the word, is the regulation of the house; poli- 
 tical economy is the regulation of tlie house applied to 
 the city; these are the two great human associations, 
 the primitive associations which are the objects of the 
 science ; all proceeds from man ; all nuist relate to man, 
 and to man united by a common tie. But wealtli is 
 
 C
 
 18 Political Economy and the Science of Society. 
 
 an attribute — shall we say of men or things? Wealth 
 is a term of comparison which has no sense, if it is 
 not distinctly expressed at the same time to what it 
 relates. Wealth, which is an appreciation of material 
 things, is at the same time an abstraction, and cliresma- 
 tistics, or the science of the increase of wealth, laaving 
 considered it abstractedly, and not with relation to 
 man and society, has raised its edifice on a basis which 
 is dissipated into air. — Wealth, we have said, is the 
 product of human labour, which procures for man all 
 the material good which he wishes to enjoy ; it is the 
 representation of all physical enjoyments, which pro- 
 ceed from them. Very well; but for whom? This 
 question should never be lost sight of; whilst, on the 
 contrary, it never presents itself to theorists. For 
 whom? According to the answer which is given to 
 this question, man himself belongs to wealth, or wealth 
 belongs to man !"* 
 
 Personal slavery is the sternest and most absolute 
 form in which man himself belongs to wealth. Cuba 
 is a rich island, but its riches belong to the white man 
 alone, the slaves being the most valuable part of their 
 property. Cotton enriches the planters of the Southern 
 States of the American Union, and the negroes bought 
 and sold at public auction are included in the balance- 
 sheet of their wealth. — The serfs of Russia create 
 riches in which they never participate. In some coun- 
 tries, the nominally free labourer, receiving wages, 
 is only one remove from this degradation. — Thus the 
 Irish peasant raises bread and meat, but rarely tastes 
 father. The cultivator of the vine in the Gironde, on 
 the banks of the Rhine and the Douro, never quaffs 
 tlie juice of the high flavoured and fully ripened grape. 
 Our weavers and spinners, whose industry clothes the 
 distant Chinese, are scantily supplied with raiment; 
 and in the general interchange of commodities between 
 
 * Etudes sur les Sciences Sociales par Simonde de Sismondi.
 
 Political Economy and the Science of Society. 19 
 
 dijQferent nations, only the select few of the wealthy- 
 classes enjoy the luxuries produced by a scattered and 
 diversified labour. The school of Adam Smith admires 
 this system. Some of his disciples assert tliat a na- 
 tional debt is evidence of wealth, whereas it is plain 
 that they who pay the dividends are the bondsmen of 
 those who receive them ; if the debt did not exist, the 
 power of production would not be the less, but the pro- 
 duce would remain in the pockets of the producers. 
 This unequal distribution is defended by Ricardo, who 
 did not blush to maintain that the productive classes 
 should be limited " to the necessaries and conveniences 
 required for the support of the labourer and his family ; 
 or that quantity which is necessary to enable the la- 
 bourers, one with another, to subsist and to perpetuate 
 their race, without either increase or diminution." 
 
 These selfish dogmas are founded upon narrow views 
 of the science of society, to which the science of politi- 
 cal economy ought to be subordinate. The science of 
 society teaches that labour is the appointed destiny of 
 man, and that to sustain physical existence he must 
 raise his own food, fabricate his own clothing, and 
 construct his own dwelling. Had the materials on 
 which industry can exert itself, been withheld by the 
 Creator, the condition of the human race would have 
 been the most pitiable ; but Infinite Power, directed by 
 Infinite Wisdom, and prompted by Infinite Bene- 
 volence, has made a boundless provision for all His 
 creatures. The three kingdoms of nature, teeming 
 with all the elements of enjoyment, are placed at our 
 command. The surface of the earth is endowed with 
 endless fertility; the race of domestic animals will 
 never be extinct; the mining districts, rich in metals 
 and minerals, are inexhaustible. What is deficient in 
 one hemisphere is redundant in another. Tlie trade 
 winds are the unerring auxiliaries of transmarine 
 intercourse, while the magnet is the pilot of navigation 
 
 c2
 
 20 Political Economy (ind the Science of Society. 
 
 Moreover, man is gifted with inventive faculties, 
 which enable him to mould and fashion all raw mate- 
 rials according to his necessities ; and the triumphs of 
 science are measured by the extent of his conquests 
 over the external world. 
 
 The argument deducible from this statement affirms 
 that all things needful to the happiness of man have 
 been abundantly bestowed on him by the benevolence 
 of the Deity, and that the sole condition of human 
 enjoyment is labour. Such, in its purity and sim- 
 plicity is the relation established between the Creator 
 and the creature, so far as the sustentation of physical 
 existence is involved. But God has also endowed man 
 with reason, to distinguish between good and evil — with 
 liberty of choice, to determine his conduct under the 
 influence of motives — and with liberty of action, to 
 execute the determinations on which he may resolve. 
 All this constitutes him a responsible being, the subject 
 of reward and punishment, and establishes his moral 
 relations with Deity. If then, man abuse his reason 
 or liberty, he becomes the author of his own suffering. 
 Under tliese views the science of society is made to 
 rest on a religious basis, which recognises God as the 
 sole Proprietor of His Earth, and of all that it contains ; 
 while it declares man to be the accountable trustee, 
 answerable for its usufruct. In this sense it funda- 
 mentally opposes that utilitarian school of political 
 economy, which, calculating the produce and forgetting 
 the producer, takes as its motto, " am I my brother's 
 keeper?" This school has affirmed that a country is 
 over-populated when millions of acres susceptive of 
 culture are abandoned to sterility; that industry has 
 been guilty of the sin of over-production, when millions 
 of men, women, and children, are destitute of the 
 necessaries of life ; and that money is redundant, Avhen 
 millions of pockets are penniless. 
 
 The science of society denies these dogmas. Main-
 
 Political Economy and the iScience of Societij. '21 
 
 taining, as a fundamental principle, that all the 
 materials of food, clothing, and lodging, exist in pro- 
 fusion, it contends that if every mouth is a consumer, 
 every hand is a producer. It insists that human 
 desires and appetites are the permanent incentives to 
 labour, and that, as these are insatial)le, the motives to 
 production can never be suspended or even enfeebled, 
 unless through some vicious interference of legislation, 
 militating against the laws of nature. It holds that 
 production and consumption having free liberty and 
 full scope, would act and re-act reciprocally and con- 
 stantly on each other, so that supply and demand would 
 never fail. Nothing could be either deficient or in 
 excess; scarcities and gluts would be unknown. It 
 rejects the fallacies of over-production and over-popu- 
 lation, terms, Avhich rigidly analysed, imply a contra- 
 diction ; for a superabundance of people relatively to 
 food and clothing, and, at the same time, a superiiuity 
 of food and clothing relatively to })eople, are propo- 
 sitions mutually subversive of each other. In real life 
 it is unfortunately true that hunger invades the dwel- 
 lings of the poor, while granaries are filled with corn ; 
 jind that millions are insufficiently clothed, Avhile the 
 warehouses of the manufacturers are stocked with 
 raiment to repletion. The desire to consume, however, 
 exists in undiminished force, and if the natural law 
 had free play, both the granaries and the Avarehouses 
 would be emptied. This, then, is not a case of over- 
 production or of over-population, but clearly one of 
 obstructed distribution. 
 
 These fallacies of over-production, over-population, 
 and over-trading, have become so familiar by constant 
 repetition, that few pause to investigate their real 
 import, but accept them as truisms, conveying the 
 sense of a foregone conclusion. It is therefore 
 desirable to dwell a little longer on the point. What 
 is the precise significancy of tlie preposition " over "
 
 22 Fallacies of Over-production and Ouer-trading. 
 
 prefixed to the words "trading" and "production?" 
 None object to trading or production, but to an excess 
 in those operations, implied in the word " over." But 
 "over " is evidently a term of relation; to what, then, 
 is it related? Does it relate to natural demand 
 measured in the desires and appetites implanted in 
 humanity? Clearly not; for those desires and appe- 
 tites remain unsatisfied, the great body of the people 
 still wanting food, clothing, and lodging; to them, 
 therefore, the terra over-production cannot apply, 
 unless we are prepared to afiirm that they ought to be 
 starved, ragged, and houseless. It is necessary, there- 
 fore, to resort to some other alternative, to arrive at a 
 solution. Let then, the term " over " be applied to 
 mercantile demand. But the measure of mercantile 
 demand consists in the amount of monetary instruments 
 in which the equivalency of exchange is expressed; 
 consequently it follows that the term " over " really 
 means that the supply of commodities is in excess of 
 the supply of legal tender, so that an apparent over 
 production of the necessaries and comforts of life is 
 confounded with a real under production of legal 
 tender. Under these mistaken views a full market is 
 made to depend, in England, on the presence or absence 
 of a single commodity — gold — the desires and appetites 
 of humanity being altogether excluded from considera- 
 tion ; for if gold is not forthcoming, then it is affirmed 
 by the bullionist school that a case of over-production 
 is establislicd. Distribution can only be efiected 
 through the agency of a suitable instrument; that 
 instrument is legal tender. If it be inadequate, dis- 
 tribution fails, and production is arrested. The 
 expansion or contraction of trade is measured by the 
 dimensions of a golden girdle, and this fact being 
 understood, the problem of " poverty in the midst of 
 abundance," admits of a ready and easy solution. 
 The relation that ought to exist between legal tender
 
 Relation between Commodities and Money. 23 
 
 and commodities, has been well illustrated by the late 
 Mr. James Mill* Suppose the case of a limited market, 
 in which there were one hundred loaves and one 
 hundred shillings. Under the law of supply and 
 demand each loaf would exchange for a shilling, and 
 each shilling for a loaf. Stimulate production so that 
 the loaves are doubled in number, while the shillings 
 remain stationary. Here it is evident that under the 
 law of supply and demand, Is. will exchange for 
 two loaves; whence it follows that the price of each 
 loaf, thougli possessing the same intrinsic value that 
 it had when it exchanged or sold for a shilling, falls to 
 sixpence. If production be still further stimulated, 
 and 400 loaves are created while the shillings are not 
 increased in number, then the price of each loaf must 
 fall to threepence. The result is, that when labour 
 has quadrupled its exertions, the reward of labour is 
 reduced 75 per cent. When such a system is maxi- 
 mised, production is arrested, and the materials of 
 physical existence are rendered unavailable to man. 
 But the remedy is obvious. If one shilling were the 
 proper price for one loaf, which is here assumed in the 
 illustration of this argument, that price ought to be 
 permanently maintained, to hold the balance even 
 between the producer and the consumer; and this can 
 only be effected by preserving the equation between 
 the shillings and the loaves. As the latter are multi- 
 plied, exactly in the same proportion ought the former 
 to be increased. If it be objected that the hypothesis 
 of a market limited as described is an unfair mode of 
 stating the case, since no such market actually exists, 
 the following illustration is submitted in an abstract 
 form, to which, it is presumed, no exception can be 
 taken. The fraction I expresses unity, and is equiva- 
 lent to the reduced fraction \. Multiply the numerator 
 
 * Commerce defended, 1)V James Mill, in leplv to Mr. Spence. 
 1806.
 
 24 Error oj Adam Smith. 
 
 by 5, but do not multiply the denominator. Then we 
 have I X 5 = V = i. Let the numerator in both cases 
 express loaves, or any other product, and the denomi- 
 nator express shillings, or any other form of legal 
 tender. In the first case, the equation between legal 
 tender and produce is uniformly preserved, but in the 
 second it is violently disturbed. In the first case, five 
 circulates or exchanges for five; in the second, one 
 circulates or exchanges iov jLve; therefore five times as 
 much produce must be given in the second case for the 
 same amount of money, as was given in the first case. 
 The balance is restored by multiplying the denominator 
 by five as well as the numerator. 
 
 The question then arises, " Is it in our power to 
 increase mettdlic legal tender-money, as an instrument 
 of distribution, as rapidly and extensively as it is in 
 our power to increase exchangeable commodities?" 
 That question must be answered in the negative ; and 
 experience has shown that in spite of the recently 
 discovered mines of California and Australia, the Bank 
 of England has been unable to make any permanent 
 addition to its stock of bullion. On this subject Adam 
 Smith has committed a grave error, which requires to 
 be noticed. 
 
 " The quantity of money," says the author of the 
 Wealth of Nations, " must in every country naturally 
 increase as the value of the annual produce increases. 
 The value of the consumable goods annually circulated 
 within the society being greater, Avill require a greater 
 quantity of money to circulate them. A part of the 
 increased produce, therefore, will be naturally employed 
 in purchasing, wherever it is to be had, the additional 
 quantity of gold and silver necessary for circulating the 
 rest." 
 
 This paragraph deserves the serious attention of all 
 monetary reformers. It is admitted that the instru- 
 ment of exchange ought to increase in proportion as
 
 Views of Mr. Thomas Attwood. 25 
 
 the commodities to be exchanged are multiplied; for, 
 if it did not, production must be arrested. It is then 
 assumed that " a part of the increased produce " would 
 be sent abroad to purchase gold or silver ; but the fact 
 of increased production cannot be conceded, unless we 
 presume that an etlect can precede a cause, which is 
 aljsurd. Moreover, on Adam Smith's own admission, 
 legal tender must exist before the increased produce 
 can be created, and proj)ortionately to that increase. 
 His reasoning, therefore, completely fails. 
 
 As the object of this introductory Section is to esta- 
 blish certain principles, and point out some popular 
 fallacies, the writer now proceeds to notice what is the 
 false, and what ouglit to be the true sense of the term, 
 " plenty of money," a subject ably treated by Mr. 
 Tliomas Attwood, in a work entitled the " Scotch 
 Banker." " The rise of the value of money," he says, 
 " in its principal, is attended with a correspondent 
 fall in the value of its interest or use. The money 
 which exists in the country, instead of being scattered 
 and ditVused generally througliout the general pursuits 
 of industry, is disproi)ortionately drawn away from those 
 pursuits into the money markets of London, and there 
 it lies inactive, in the hands of bankers, brokers, and 
 retired capitalists ; or it is employed in jobbing and 
 dealing in the public funds, or in lending upon short 
 and undoubted securities, when few are Avilling to 
 borrow, and still fewer are willing to extend their 
 trading operations. The legal tender of the country, 
 instead of being employed throughout the country in 
 enabling the population to produce and consume the 
 masses of their own and of each other's productions, is 
 drawn from those great and vital operations, and is 
 determined into channels where its holders have not 
 the means of employing it themselves, nor the conli- 
 dence to lend it permanently to others, who, in their 
 turn, have not suflicient contidence to embark it in
 
 26 Views of Mr. Tho?nas Attwood. 
 
 business, if liable to be called upon for an early return 
 of the loan. A kind of apoplexy is thus promoted; 
 the head is deluged, while the great limbs of the 
 country are cold and torpid for want of circulation. 
 The money market is glutted in the way of temporary 
 and secure loans, whilst the markets of property and 
 labour are everywhere deficient in that supply of legal 
 tender which is necessary to give remunerating prices, 
 to enable the property and labour to interchange with 
 each other, and discharge the debts, taxes, and obliga- 
 tions imposed on them." 
 
 It may, perhaps, be asked, how is this apoplexy 
 produced? and by what means is the money of the 
 country determined into the money markets of London? 
 By what means is the money sucked up from the 
 employment of industry, and from working the great 
 processes of production and consumption in order to 
 glut the markets of interest, and there to lower the 
 interest of money, at the same time that the principal 
 of money is raised in value? To understand this 
 clearly, clear ideas must first be realised. The prin- 
 cipal of money must be essentially distinguished from 
 the interest of money ; or, in other words, the purchase 
 or ownership of money must be distinguished from the 
 mere borrowing and lending of money. In the one 
 case, the ownership of money is transferred in exchange 
 for property or labour; in the other case, the mere 
 temporary use of money, or the mere right of employing 
 it for a short period, is transferred in exchange for 
 some given rate of interest per cent. Entirely diflerent 
 as these two operations are, nothing is more common 
 than to see them confounded in the minds of men. 
 The banker, the broker, and the jobber, when speaking 
 of the plenty of money ^ mean thereby the facility of 
 harrowing it cheaply upon good securities. But when 
 the farmer, the manufacturer, and the labourer, speak 
 of the plenty of money, they mean thereby the facility
 
 Hypothesis of Mr. Huskisson. 27 
 
 with which their customers or employers pay them 
 their debts, and with which they obtain good prices 
 for the sale of their agricultural and manuflicturing 
 produce, and their labour. This kind of plenty of 
 money, this facility of acquiring the ownersliip of 
 money, may exist, and sometimes does exist, when a 
 great scarcity of money is experienced in the markets, 
 where the use of money is borrowed and lent; and, 
 vice versd^ the plenty of money in the markets of 
 interest may exist at the same time that a great 
 scarcity of money exists in the markets of property and 
 labour, where the ownership of money is bought and 
 sold. It is of great importance ever to keep in mind 
 these distinctions. 
 
 No man will ever enter upon any discussion of the 
 details or incidents of the currency question, unless he 
 has previously settled in his mind the fundamental 
 principles on which monetary science ought to be 
 established. — What is a pound? is an idle question; 
 what ought to he a pound? is the true problem to be 
 solved. No satisfactory answer can be given to the 
 question till it has been determined whether legal 
 tender money ought or ought not to possess intrinsic 
 value. 
 
 Mr. Huskisson, the founder of the modern school of 
 bullionism, affirmed, but never proved, " that it was 
 the essence of money to possess intrinsic value." The 
 Earl of Liverpool, adopting this hypothesis, insisted 
 that the richest country in the world ought to use the 
 most costly material for its coinage. Lord Overstone, 
 better known as ]\Ir. Samuel Jones Loyd, also adopted 
 the views of Mr. Huskisson, and contends that a 
 paper circulation must not only be convertible into 
 metallic money, but to ensure that convertibility at all 
 times and under all circumstances, it is necessary that 
 all the oscillations of the paper must be made to cor- 
 respond exactly with what would be the oscillations of
 
 28 Hypothecs of Mr. Huskisson. 
 
 a purely metallic currency, as indicated by the state 
 of the bullion in the bank which issued the paper. 
 This entire dogma proceeds on a mere peiitio principii^ 
 a sheer begging of the question, and takes for granted 
 the very point at issue. The laws of nature always 
 vindicate themselves, and punish tliose who violate 
 them. Now, had it been a law of nature that legal 
 tender should possess intrinsic value, the earliest in- 
 habitants of the earth would never have been permitted 
 to apply primitive industry to agriculture, but would 
 have been forced to discover gold and silver before 
 they began to raise food, which is absurd, because they 
 must have all perished from hunger before they 
 extracted ore, smelted it, coined it, and perfected a 
 system of mintage; yet all this must have occurred, 
 or the bullion hypothesis is false. It is plain that the 
 character of money is not fixed by any law of nature, 
 and that man is not bound to use the precious metals 
 as an instrument of exchange ; it is entirely a matter 
 of expediency. 
 
 Accordingly, another school of economists hold that 
 legal tender is purely representative, and that it 7ieed 
 not, and ought not, to possess any intrinsic value. 
 That school regards legal tender as the symbol of the 
 reality, not the reality itself; the sign, not the thing 
 signified; the token, not the substance. It affirms that 
 every independent State is entitled to issue legal tender 
 for its own internal purposes in discharge of private 
 debts and public taxes within its own realm, such legal 
 tender not possessing intrinsic value, but only a con- 
 ventional value derived from the authority of the 
 State which calls it into existence. 
 
 Of course this national or imperial money is not 
 designed to pay the balances of foreign trade, since the 
 foreigner could not be compelled to take it in payment 
 of any debt due to him. It would be valuable at 
 home, but valueless abroad, which would prevent its
 
 Opinions of Ancient Philmophers. 29 
 
 export. Tims secure of being always kept within tlie 
 realm of the State which created it, tliis legal tender 
 would be the special monetary instrument in which 
 all fiscal obligations and mercantile liabilities would be 
 discharged at home, to whicli function it would be 
 limited. 
 
 How, then, are debts due to foreigners to be liqui- 
 dated? In gold or silver, coined or uncoined, at the 
 market price of those metals. In these distinctions 
 there is nothing new, but simply a revival of wliat is 
 old. The use of what may be called a " double cur- 
 rency," was well known to the people of antiquity. 
 It was soon observed that the precious metals did not 
 increase proportionately Avith all other commodities; 
 and the wisdom of ancient legislators perceived that 
 production must be arrested if no other distributive 
 instruments than gold and silver were employed. One 
 of the earliest plans adopted to surmount the difficulty 
 was the creation of a national currency in each inde- 
 pendent State for internal trade; and its distinctive 
 characteristic was the total absence of intrinsic value 
 which eflectually prevented its exportation. Tliis 
 invention greatly economised the use of the precious 
 metals, allowing them to be wholly employed in dis- 
 charging the balances of foreign trade. Thus the 
 cities of Byzantium and Clazomenoi provided iron 
 money for their own citizens, which circulated at home 
 for the nominal value impressed upon it by public 
 authority. The monetary laws of Lycurgus were 
 founded on the same principle ; but that great legis- 
 lator deprived his money of all value as merchandise^ 
 by destroying the malleability of the iron of which it 
 was composed. Seneca states that the Spartans also 
 used leather money, having a stamp to show by what 
 authority it was issued. Plato, in his imaginary 
 republic, recommended a double currency in every 
 State. " Coin," wrote that illustrious philosopher,
 
 30 Efects of Prejudice. 
 
 " is for the purpose of daily exchange, which exchange 
 it is almost a matter of course that artisans must 
 make, and indeed all persons who need their services, 
 and to pay wages to hired servants, slaves, and settlers ; 
 for which purpose we affirm there must be a coin 
 having a value among the members of a State, but no 
 value to the rest of the world." For the purpose of 
 visiting other States, Plato proposed a common Greek 
 coin of intrinsic value, which would pass current in all 
 the States of Greece. Xenophon observes that " most 
 of the States of Greece have money, which is not cur- 
 rent except in their own territory ; hence merchants 
 are obliged to barter their wares for other wares." 
 These examples abundantly prove the early adoption 
 of a double currency in the sense in which we have 
 explained the term. 
 
 The general design of this chapter has been 
 confined to throAving open the broader outlines 
 of monetary science. As to what will follow, the 
 candid inquirer after truth is requested to suspend 
 his judgment. Many prejudices exist against symbolic 
 money, and an idle fear of what is vulgarly called 
 depreciation, weds the timid to bullionism. — Others 
 revolt at what is new, but they should remember that 
 what is now old was once new. — Nor should it be 
 forgotten that progress has always been checked by 
 the stubborn resistance of preconceived opinion. When 
 Harvey announced the circulation of the blood, and 
 .Tenner the principle of vaccination, both were denounced 
 as ignorant quacks. The fate of Galileo is well known. 
 Winsor had to beg his bread by the light of the gas 
 he discovered. Fulton on the Hudson, and Bell on 
 tlie Clyde, were deemed drivellers when they proposed 
 to propel vessels through the water, not by sails but 
 by steam. Stephenson was suspected of being a lunatic 
 when he was projecting his locomotive, and the Quar- 
 terly Review declared tliat he who expected that the
 
 Effects of Prejudice. 31 
 
 speed on a railroad would exceed ten miles an hour, 
 was only fit for Bedlam. Such examples of error 
 should check rash and precipitate judgments. Taper 
 money has, no doubt, had its abuses, but so had the 
 steam engine before the safety valve was invented; 
 and it will be attempted to be shown that the invention 
 of a paper money was as vast a step as from spoken to 
 written language, from manuscript to print.
 
 CHAPTER III. 
 
 Historical View of the Origin of Coin. Etymology of the words 
 " Money " and " Capital." Ancient British Money. Its Represen- 
 tative Character. The Exchequer Tallies of King Henry the First 
 of England. Reduction of the Metallic Standard in Rome and 
 England. Lord Liverpool's Statement. Report of Mr. William 
 Lowndes in 1695. Duties of the King's Exchanger. Effect of the 
 Discovery of the Silver ISIines of South America on our Money. 
 Statement of Dr. Davenant. The Monetary Act of 1774. Suspen- 
 sion of Cash Payments by the Bank of England in 1797. 
 
 At the date of tlie Trojan war, the use of money 
 was not known to the Greeks. Homer and Hesiod 
 never speak of gold or silver coin. They express the 
 value of things by saying that they are worth so many 
 sheep or oxen, estimating the riches of a man by the 
 number of his flocks and herds, and the wealth of a 
 country by the abundance of its pastures. Homer 
 values the golden armour of Glaucus at 100 oxen, and 
 the brazen armour of Diomedes at nine oxen. Laertes 
 bought the beautiful slave, Euryclea, for 100 oxen. 
 
 Each in excliang;e proportioned treasures gave, 
 Some brass or iron, some an ox or slave. 
 
 [Iliad, Book vii., v. 46G. — Pope. 
 
 There was no coined gold in Egypt till the time of the 
 Ptolemies. 
 
 Liican attributes the invention of money to Itonus, 
 king of Tliessaly, and son of Deucalion, the hero of the 
 mythological deluge, who re-peopled the eartli. Otliers
 
 IJhtorical View of llie Origin of Coin. ,"3 
 
 ascril)e it to Erictliouiiis, king ol" Athens, the reputed 
 son of Vulcan, "who luul been hrought up ])y the daugli- 
 ters of Cecrops. Aglaosthenes gives the honour of the 
 invention to tlie inliabitants of Naxos. However, the 
 more received opinion is that Phidon, king of ^Vrgos, 
 and cotemporary witli Lycurgus and Iphitus, first 
 introduced the use of money at .Egina, to enable its 
 inhabitants to earn a subsistence by commerce, their 
 own island being too barren to yield a sufficient supply 
 of cereals. 
 
 According to Herodotus, the first people who coined 
 gold and silver were the Lydians. Some historians 
 refer the fact to Demodice, the wife of Midas, king of 
 Phrvgia, Darius, the son of Plystapses, was the first 
 sovereign who coined gold in Persia, and the C(.)ins 
 which he struck were called, after his name, Darics, in 
 the same manner as the gold coins of Philip of Mace- 
 don, father of Alexander the Great, Avere called Philips. 
 
 Itettulit acceptos, rej^'ale noinisma, Philippos. 
 
 [Hon. Epist., lib. ii., v. 23. 
 
 The Persian coins had so little alloy that they were 
 nearly pure gold. The one in Lord Pembroke's col- 
 lection weighed 129 grains, the exact weight of an 
 English guinea. While Persia Avas independent the 
 Darics were largely in circulation, l)ut after the Gre- 
 cian conquest of the country it is supposed they Avere 
 melted down, and re-coined Avith the effigies of Alex- 
 ander. Dr. Prideaux says that in those parts of the 
 8crii)ture Avhich Avere Avritten after the Babylonish 
 captivity, the Darics are mentioned under the name of 
 Adarkonim, and in the Avi-itings of the Talmudists, 
 under the name of Darkoneth.* 
 
 The silver coins of Aryandes, avIio Avas appointed a 
 prefect in Egypt by Cambyses, Avere of Persian mint- 
 age, and, like the Daric, had an indentation t»n one 
 
 • Beloe's Notes to Hei'Ojlotus Melpoiuent;, tlie 4-tJi edition.
 
 34 Historical Vieio of the Origin of Coin. 
 
 side, and the effigies of an arclier on the other. The 
 specimens of these silver coins in EngLand weigh from 
 79 to 81 grains. No doubt, when minted, they were 
 of uniform weight, and the diflerence is due to differ- 
 ence in wear and tear. They were called Aryandics. 
 
 The word " talent" in Homer is used to signify a 
 balance, and, in general, it was applied either to a 
 weight or a sum of money, differing in value according 
 to the ages or countries in which it was used. Every 
 talent consisted of sixty mince, and every mina of one 
 hundred drachmas ; but the talents differed in weight 
 according to the mina and drachma of which they 
 were composed. When Darius Hystapses became sove- 
 reign of Persia, he divided the wiiole country into 
 Satrapies or provinces, each of which was assessed at 
 a fixed tribute. The provinces that paid in silver 
 were ordered to take the Babylonian talent for their 
 standard. The Euboic talent was the standard ap- 
 pointed to those who paid in gold; according to 
 Herodotus the Babylonian talent Avas equal to seventy 
 Euboic m'mse, and this estimate is confirmed by Julius 
 Pollux and by iElian. 
 
 The Euboic talent was so called from the island of 
 Euboea; it is generally thought to ])e the same as the 
 Attic talent, because Athens and Euboea used the same 
 weiglit; the mina Euboica and the mina Attica con- 
 sisted, each, of 100 drachmie. In English money, the 
 Babylonian talent amounted to £226; the Euboic or 
 Attic talent to £193 15s. 
 
 It may be obsei'ved that the famous treasuries of 
 Attains and Croesus only contained gold and silver in 
 the mass, as did those of Alyattes, father of Croesus. 
 They obtained their wealth fi'om mines in Lydia, situ- 
 ated between Atarna and Pergamos. 
 
 Neither gold nor silver was permitted at Lacedtemon. 
 It was a capital offence for any one to have those me- 
 tals in his house. Plato and Lycurgus thought tliat of
 
 Historical View of the Origin of Coin. 35 
 
 all the metals iron and brass wei'c suflicient for mone- 
 tary purposes. Plutarch, in his life of Lysander, tells 
 us of a man named Tlierax, who, though the friend and 
 colleague of Lysander, was put to death by the Ephori, 
 because some silver Avas found in his house. This 
 ' sumptuary law took its origin from an oracle, which 
 aflirmed that avarice would cause the destruction of 
 Laceda?mon. Even after Lysander had plundered 
 Athens, and wdien the Lacedaemonians began to have 
 large amounts of gold and silver, they were only allowed 
 to use precious metals in cases of public emergency, 
 under the penalty of death. 
 
 Among the ancients the relative proportion of gold 
 and silver varied at diiferent times. — In the reign of 
 Darius, son of Hystapses, gold was thirteen times as 
 valuable as silver ; in the time of Plato, twelve ; and 
 in that oC the comic poet Menander, it was only ten. 
 In the epoch of Julius Ca?sar, the value of gold to silver 
 fell to nine to one. This arose from the prodigious 
 quantity of gold which Cresar had obtained from the 
 plunder of cities and temples. It is generally supposed 
 among learned numismatists, that in the gold coin of 
 the ancients one fiftieth part was alloy. It merits 
 attention that when the East was opened to commerce 
 by means of the Persian war, and the great Macedonian 
 expedition to further Asia, gold gradually accumulated 
 among the Greeks, so that in the age of Demosthenes, 
 the precious metals were of nearly five times less value 
 than in the time of Solon.* Such fluctuations warn us 
 that the continued metallic supplies of gold from Cali- 
 fornia and Australia may occasion its very serious 
 depreciation. 
 
 The word " money" is derived from mo7ieta, which 
 itself is derived from the verb r)ionere^ to admonish or 
 advise. The Anglo-Saxon word monige^ the German 
 
 * An Essay on tlie Eluctuations in the Su})pliGS of Gold, p. 0. 
 Bv Alexander Von IJuniboldt. London^, Simpkin & Co. 
 
 D 2
 
 36 Etymology of the words *' Money'' S^ " Capital 
 
 muntz. the French monnoie^ the Italian moneta, and 
 the Spanish monecla^ are all traceable to the same Latin 
 root as our English word "money.'* Our Avord "pecu- 
 niary" is derived from the Latin " pecunia," and we 
 learn from Cicero that " pecuniosus" denoted a man 
 rich in flocks of sheep; for he says of such men, "J. 
 pecore pecuniosi appellati.'^ 
 
 We have borrowed our word "capital" from the 
 Latin. In tlie language of the Romans, capilale^ or 
 ccqytale^ or catallum, all equivalents, denoted cattle. 
 Du Cange, in his Glossary, gives the following expla- 
 nation of these terms : " Catallum idem quod capitale. 
 Bona omnia qute in pecudibus sunt. Ex capitale enim 
 formata vox captale; et ex captale, catallum. Gallico, 
 chatel et catel." In the progress of society, language 
 loses its primitive acceptation ; thus Ave now confine 
 " chattels" to such dead stock as is movable ; but, ori- 
 ginally, chattels and cattle had a common root, and 
 expressed Avhat Ave noAv nnderstand by the term 
 " capital." They denoted real money in those times 
 when buUionists Avere nnknown. 
 
 When Britain was subjected to the Romans, no 
 coined money Avas laAvful unless stamped Avith the effi- 
 gies of Cajsar. It Avas tribute money, representing a 
 tax to be paid, and Avas issued by the government in 
 anticipation of such payment. It bought stores, &c., 
 and, Avhen the tax became due, it Avas taken from the 
 holders in payment of the tax or tribute at the same 
 nominal value at which it was issued. It Avas a token 
 or symbol of the fiscal relations Avhicli existed betAA'^een 
 the rulers and tlie ruled. It enabled the former to 
 make tlieir purchases Avithout Avaiting for the actual 
 receipt of reA'enue; Avhile it enalded the latter to dis- 
 cliaige tlieir taxes in an instrument Avhich they had no 
 cost or trouble in providing. This tribute money Avas 
 not only impressed Avith the effigies of Ca3sar, but with 
 certain inscriptions indicating real money represented
 
 Tribute and Taxation Moneij. 37 
 
 by syiiil)olic coins. Tims, fur greater cattle, they were 
 staui})ed with the figure of a horse; I'or less, Avith 
 that of a hog ; for cornfields, with an ear of corn ; for 
 a poll tax, with the head of a man. 
 
 The coins of the British Prince Cunol)oline, were 
 not only stamped with the hgures of animals, but with 
 the Avord tascio, which signified task, tax, or tribute. 
 The payment of them into the exchequer acquitted the 
 payer of duties on merchandise, and was a com- 
 mutation for personal services. " I have thought," 
 says the learned Camden, " that in old time, there Avas 
 a certain sort of money coined on purpose for this use, 
 seeing, in Scripture, it is called tribute money; and I 
 am tiie more confirmed in this opinion, because, in 
 some of the British pieces, there is the mint master 
 stamping the money Avith tascio, Avhich among the Bri- 
 tons signified tribute money." 
 
 In these historical facts, avc have evidence that ALL 
 things of value, capable of being transferred from man 
 to man, Avere accounted real money, and they AA'ere all 
 represented by symbols or tokens, by Avhich devise they 
 were rendered movable in the shape of currency. The 
 real money Avas the basis and security on Avhich 
 the tokens ,|5.Avere issued, and whoever held a token Avas 
 admonished by it that he Avas a creditor to its amount 
 on the real money of the conntry. It may surprise 
 some of our readers t(j be told that, from the reign 
 of Henry the First doAvn to the establishment of 
 the Bank of England, the legal tender money of 
 England Avas fabricated out of Avood. This Avooden 
 instrument was called an exchange tally; but liefore 
 explaining its nature and use, it is desirable to make- 
 some fcAv remarks on the monetary system Avhich 
 prevailed anteriorly to its introduction. 
 
 In the earliest periods, all taxes or tribute due to 
 the CroAvn, Avere paid in kind, excepting those Avhicli 
 Avcre discharged l)y personal services. lie avIio dcli- 
 
 M t^^^fx r- r*
 
 o8 Oriyin of Er chequer Tallies. 
 
 vered to the king's receivers or purveyors an animal or 
 a commodity, discharged his tax or tribute in kind, 
 that is to say, in real money; it might be an ox or a 
 war horse, or a measure of corn, or clean straw for the 
 royal bed ; but whatever the article, the fiscal obliga- 
 tion was liquidated by such tender. They who had no 
 real money to oiFer, were acquitted of their obligations 
 by the performance of personal services. To follow the 
 king to battle, to plough his land, or thresh his corn, 
 are instances of this mode of taxation. This primitive 
 system was eminently just, and as little onerous as 
 possible, since, with rare exceptions, every one had in 
 his possession the instrument of tribute, amongst the 
 endless varieties of real money ; while they who had it 
 not, could always perform some act of la1)our, or other 
 personal service. 
 
 Henry the First, finding this system inconvenient, so 
 far as payment in kind was concerned, introduced a 
 token or symbol of real money, Avhich received the 
 name of an Exchange Tally. He knew it would have 
 been most burdensome to compel the payment of taxes 
 in gold and silver, because those metals were not found 
 in England; he felt the injustice, when he changed the 
 form of tribute, of aggravating its pressure, by exact- 
 ing from the cultivator of the soil that which the soil 
 was incapable of producing. He, accordingly, pro- 
 vided the instrument of taxation, with which he pur- 
 chased all he wanted of his subjects, instead of their 
 delivering in kind what lie wanted to the royal pur- 
 veyors and receivers. When taxes fell due, the king 
 took back the fiscal wooden instrument as payment. 
 He fixed the value of the instrument, which became 
 the unit of account, and received it back at the same 
 conventional value as that at Avhich he issued it. 
 
 Mr. John Taylor, in his " Essay on Money," has 
 lucidly described tlie Exchange Tally, citing for his 
 authority the Dialogus de Scaccario^ written by
 
 Orujin of Exchequer Tallies. 39 
 
 Ricliiird Fitz Nigel, Treasurer to King Henry the 
 Second, and printed at the end of jNladox's History of 
 the Exchequer. 
 
 " Under our Norman line of kings, tallies of wood 
 were issued, by virtue of which the holder was entitled 
 to receive from the crown the value inscribed thereon; 
 if his claim was satisfied by another, the tally was sur- 
 rendered to that person, who might sell it in like 
 manner to a third, and so on, till the last holder 
 pleaded it in the Exchequer, as an acquittance of debt 
 to the crown to its nominal amount. — This tally was 
 one half of a four sided rod or staff, on which, in its 
 entire state, the sum it purported to represent was 
 carved in transverse notches, varying in width for 
 thousands, hundreds, scores, pounds, shillings and 
 pence; £1000 Avas represented by a notch as broad as 
 the palm of the hand; £100 by one the breadth of 
 a thumb; £20 by the thickness of the little linger; 
 £1 by that of a barleycorn; for a shilling the least 
 ])iece possible was cut out ; a penny was marked merely 
 l)y an incision, no wood being taken away. These 
 signs were for tlie unlearned. For others, as well as to 
 ijuard against frauds, the sum was written in ink on 
 two opposite sides of the staif, the notched side not 
 being one ; and, finally, with a knife and mallet, the 
 staff was cleft in two lengthwise ; one part, called the 
 tally, staff, or cheque, bearing one inscription and half 
 the notclies, being given to the person for whose service 
 it was intended ; the other, called the counter tally., 
 being laid up in a safe place, until its tally should be 
 brought in by the person Avho had last given value 
 for it." 
 
 Such is Mr. Taylor's account of this instrument, 
 and from his description it is obvious that the tally 
 was a symbol. Its intrinsic value was no more than 
 the value of the wood out of Avhich it was fabricated,
 
 4U lieduction of lUtiallic Standards. 
 
 but its representative value denoted large sums. It 
 was a token of real money, and served to distribute 
 real money from man to man by exchange. From this 
 primitive tally was derived the Exchequer Bill, first 
 issued in 169G, by Mr. Montague, then Chancellor 
 of the Exchequer, afterAvards Earl of Halifax. 
 
 It is curious to trace the etymology between the 
 wooden and the paper instrument. — During the 
 reigns of the Xorman kings of England, Norman 
 French was the official and lesral lano^uafi^e, and in that 
 tongue BiLLE means a staif, and Billet still signifies a 
 small piece of wood. In our times we have the Bill of 
 Exchange and the Bank Post BiU, paper being used 
 instead of wood. In the army a similar etymology 
 may be recognised. Under strict feudalism there was 
 no standing army; the chief tenants, or, as they were 
 styled, the tenants in capite, furnished troops to the 
 crown in lieu of rent; but if the king chose to take 
 an officer into his own pay, that officer was said to be 
 put on the Stait, that is to say, he was paid with 
 Exchequer Tallies ; and, at this day, when a soldier is 
 quartered temporarily on a licensed victualler, the sol- 
 dier is said to be billeted^ because formerly he tendered 
 to the victualler a wooden tally, witli which tally the 
 victualler paid his taxes to the extent of course of the 
 value of the tally. The cheque books of modern 
 bankers are so prepared that a part always remains 
 with the drawer of the cheque, and it is usual to 
 indent it like the teeth of a saw ; so that in case of a 
 fraud, the two parts may ha l^rought together again to 
 eee if they tally/. 
 
 In all countries which have had a protracted ex- 
 istence, it has jjeen customary to lower, from time to 
 time, the standard of coinage. In tiie palmy days of 
 ancient Home a gold coin about the size of an English 
 guinea was the representative and equivalent of twenty
 
 Reduction of Metallic Sta/idards. 41 
 
 silver coins, ciich silver cctin bi'inu" e([ual to twelve of 
 co])])er or sixteen of bronze; from this money both the 
 French and English derived their divisions and de- 
 nominations of money. As the population increased 
 and the ])o\ver of the patricians became greater, enor- 
 mous quantities of these coins Avere amassed by those 
 who had the opportunity, and the great bulk of the 
 j)cople sunk into the most abject condition. It then 
 became necessary to reduce the size of the coins. The 
 copper unit sank from a pound weight to the seventy- 
 second part of a pound; the gold coin, which was of 
 later date in its institution, but which at its com- 
 mencement appears, from specimens still preserved, to 
 have been coined at the rate of thirty-five in the pound 
 weight in the time of Sylla, was bi'ought down, judging 
 from iictual coins in the absence »>f historical informa- 
 tion, to forty in the pound weight in the time of Julius 
 Ceesar, to forty-live under Nero, to fifty under Aurelius 
 Antoniiuis, to sixty under Gordian, and to seventy-five 
 under Constantine, being a reduction of more than one- 
 half of its original value. The silver coins underwent 
 a similar reduction. The yis was a pound weight of 
 bronze, and originally, that is in the time of Servius 
 Tullius, was equal to one shilling of our money. In 
 the year 322 B.C., it was reduced to twopence or one- 
 sixth of its ]u-imitive value; from that time it con- 
 stantly kept falling, and in the year 8G A.D., it did not 
 exceed the twenty-fourth i)art of its original weight.* 
 
 In the time of William the Concpieror the English 
 pound was a pound weight of silver, coined into twenty 
 shillings; now a pound is worth less than four ounces 
 of silver, and the pound is coined into sixty-six shil- 
 lings. Here is the scale of reductions taken from Lord 
 Liverpool's Treatise on coin: — 
 
 * John Taylor.
 
 42 Reduction of Metallic Sta7idards. 
 
 !L'8th Edward 1st,, a pound weig'lit of silver was coined into 20s. 3d. 
 
 IStli Edward ;3rd „ „ 22s. Od. 
 
 20 th Edward 3rd „ „ 22s. Gd. 
 
 2rtli Edward 3rd „ „ 25s. Od. 
 
 13t]i Henry 4th „ „ 30s. Od. 
 
 4tli Edward 4th „ „ 37s. Cd. 
 
 ISth Henry 8th „ „ 45s. Od. 
 
 2nd Elizabeth „ „ 60s. Od. 
 
 43rd Elizabeth „ „ GOs. Od. 
 
 56th George 3rd „ „ 66s. Od. 
 
 In 1695 Mr. William Loimdes wa.s ordered to draw up 
 an historical account of practices adopted at the Mint, 
 and from his report the following extracts are taken : — 
 " That it has been a policy constantly practised in 
 the mints of England (the like having been done in all 
 foreign mints belonging to other governments) to raise 
 the value of the coin in its intrinsic denomination from 
 time to time as any exigence or occasion required ; so 
 that in the whole number of years from the 28tli of 
 Edward the Eirst until this time (1695) by such vari- 
 ations, the intrinsic value or denomination of the silver 
 is raised in about triple proportion; that is to say, in 
 the reign of the said king Edward the First, a pound 
 weight troy of silver was shorn at twenty shillings and 
 three-pence, and consequently two hundred and forty- 
 three pence or twenty shillings and one fourth of a 
 sliilling, or one pound and an eightieth part of a pound 
 by tale, were then coined out of the said pound weiglit 
 troy; whereas at this day, and for about ninety years 
 past, a pound weight of troy of like silver is and hath 
 been coined into seven hundred and forty-tour pence, 
 or sixty-two shillings, or three pounds and one-tenth 
 of a pound by tale, the pound weight troy having then 
 and now the same weight and fnieness. And as to the 
 gold coin I Jieed only to observe from the foregoing 
 induction, that in the Eighteenth of Edward the First, 
 a ])0und weight fine, twenty-three carats, three grains 
 and a-half, was coined into fifteen pounds, by talc;
 
 The King's E.cchauger. 43 
 
 whereas, at this day (1695) a ])uun(.l ^vcigllt ol" gokl of 
 the rmeiicss only of twenty-two carats, is coined into 
 rorty-four pounds ten sliillings; and this method of 
 raising the intrinsic value of the gokl and silver in the 
 denominations of the coins, as it has been constant in 
 the reign of every king, so no inconvenience, disgrace, 
 or mischief (as can be observed) has ever occurred by 
 the doing thereof at any time, when a just, necessary, 
 or reasonable cause gave occasion thereunto." 
 
 These variations in the coinage are important, as 
 they show that when the precious metals wei'e scarce, 
 an increasing population and an increasing trade com- 
 ])elled a lowering of the coin, or there would have been 
 no adequacy of circulating medium; and they furnish 
 a fitting answer to the puerile question " What is a 
 Pound?" that answer being that it is i\ fixed quantity 
 of gold or silver at the time a bargain is made, but not 
 an immutable quantity at all times and under altered 
 circumstances, Avhich will be more fully dwelt upon 
 wlien the monetary act for restoring cash payments in 
 1819 is discussed. 
 
 In the earlier period of English history, a public 
 officer existed, called the King's Exchanger, lie ap- 
 pears not only to have exchanged the coins of one metal 
 made at the royal mint for those made of another 
 metal; but as the exportation of the coins of the realm 
 was then prohibited, he furnished persons going out of 
 the kingdom with foreign coins in exchange for English 
 coins, and also merchants and strangers coming into 
 the country with English in exchange for foreign coins. 
 This officer had his deputies in uiany of the outports 
 and principal cities of the kingdom. A considerable 
 profit was made by this practice, of which the king is 
 said to have had his share. When gold coins were ex- 
 changed for silver coins, a silv<'r ])enny of that time 
 was taken in exchange for each gold noble, being tlie 
 largest gold coin then in currency, and in like proper-
 
 44 The Standard of Elizabeth. 
 
 tion for smaller o;old coins ; and when silver coins were 
 exchanged for gold coins, a silver penny was given for 
 each gold noble received in exchange for them, and in 
 like proportion for smaller coins ; and the exchanger is 
 said to have gained 1^ per cent. AYhen the officer ex- 
 changed foreign coins for English, or English for foreign, 
 the exchange was regulated by a table hung up in each 
 of his offices. The last person appointed to the office 
 of King's Exc'lianger was the Earl of Holland, in the 
 third of Charles L The head office was in the Mint. 
 Mr. Mushet states that the office of the Exchanger was 
 in the Mint. He certainly had an office in Old Change, 
 a street leading out of Cheapside, w^hich still retains its 
 name. 
 
 The discovery of the silver mines of South America, 
 particularly that of Potosi, necessarily affected the 
 value of that metal in relation to gold ; but it does not 
 appear to have had ^\\j sensible effect on prices in 
 England till after 1570, though the Potosi mine was 
 known and Avorked in 1550. When the statesmen of 
 England perceived that silver was falling in relation to 
 gold, they prepared to legislate on the subject, and the 
 first movement of this kind ^vas undertaken in the time 
 of Elizabeth, by Lord Burleigh, and it was continued 
 in later years by Lord Bacon, Sir Edward Coke, Mr. 
 Locke, and Sir Isaac Newton. What is called the 
 standard of Elizabeth was established in 1601, by 
 which the ounce of gold was coined into £2 15s. lid., 
 and the ounce of silver into 5s. 2d. In 1605, gold 
 again advanced, as compared with silver, eleven per 
 cent. Lord Bacon and Sir Edward Coke, then the 
 principal advisers of the Crown, adhered to silver as 
 the national standard, and dealt with gold in the man- 
 ner presently described. The advance in seven years 
 more was ten per cent. It continued to advance, and 
 by the time of Charles the Second, the advance was 
 thirty-two per cent. By King William's time the ad-
 
 Gold at £o 17.9. lO^d. per ounce. 45 
 
 vnnee avus tliirty-iiinc per cent. During all this period 
 of derangement in gold, the course of the government 
 was uniform. Silver money, as already stated, had 
 been coined by the 4ord of Elizabeth at 58. 2d. per 
 ounce, and gold money at £2 15s. lid. per ounce. 
 By the 4th of James the First, gold money was lessened 
 in weight by being coined at £3 2s. Id. In the 9th 
 of James the First, gold money was again altered ten 
 per cent, by proclamation, which brought the ounce of 
 gold to £.3 7s. 7d. In the loth of Charles the Second, 
 gold was coined at £3 14s. 2d , and at that rate it 
 continued, by the mint indentures, until the 3rd of 
 George the First, when the ounce of gold was coined 
 into £3 17s. lO^d. During all this period, silver 
 money was held immutable ; the same shilling, the 
 same crown, possessing always the same weight and 
 fineness. But the gold sovereign of the 43rd Elizabeth, 
 coined for 20s. as now, weighed 7 dwts. 4 grains, 
 nearly 40 per cent, heavier than the present sovereign. 
 The sovereign, in four years, was reduced in weight 
 eleven per cent., and called '"'■An Unite ;" — seven years 
 elapsed and the unite was raised by proclamation to 22s. 
 Then the Laurel was coined at 20s., ])ut in weight 
 having sixteen to seventeen per cent, more metal than 
 the present sovereign. Charles the Second took away 
 from eight to nine per cent, from the weight of the 
 laurel, and called it a guinea ; the guinea being fixed 
 at 20s. by the mint indentures passed current among 
 the people for 21s. and 22s. During all these muta- 
 tions, silver money Avas never changed ; the silver 
 standard, the ancient predominant standard of the 
 country, was retained. To this Avas entrusted the faith 
 of contracts; on this standard rested the security of 
 property, and gold Avas dealt Avith as convenience re- 
 quired.* It may render this statement clearer if the 
 changes are placed in a tabular form. 
 
 * Speecli of Matliias Attwood in tlie House of CoiniiKms, Stli 
 June, 1830.
 
 46 Gold at t^ lis. lO^d. per ou7ice. 
 
 By 43rd Elizabeth the ounce of g-old was coined into £2 15 11 
 
 4th James 1st „ „ „ 3 2 1 
 
 9tli James 1st „ „ „ 3 7 7 
 
 13tli Charles 2nd „ „ „ 3 14 2 
 
 3rd Georg-e 1st „ „ „ 3 17 10| 
 
 This appears to be an appropriate place for asking 
 and answering the question, Avhat is understood by 
 saying that an ounce of gold is worth £3 17s. lO^^d? 
 When our ordinance of coinage was fixed in the 3rd 
 of George the First, an ounce of gold Avas deemed to 
 be the equivalent of fifteen ounces and a small fraction 
 of an ounce of silver, both metals being referred to 
 labour as their true standard of value. " Gold and 
 silver," says ^fr. Ricardo, " like all other commodities, 
 are valuable only in proportion to the quantity of 
 labour necessary to produce them and bring them to 
 market. Gold is about fifteen times dearer than silver, 
 not because there is a greater demand for it, not because 
 the supply is fifteen times greater than that of gold, 
 but solely because fifteen times the labour is necessary 
 to procure a given quantity of it." As it has been 
 shown, the ounce of silver was coined into 5s. 2d. by 
 the 43rd Elizabeth, and remained so when the ordi- 
 nance of George the First was passed. Now the object 
 of the legislature was to retain in the denomination of 
 coinage the same relation of values as existed in their 
 state of bullion. But, as bullion, gold was fifteen 
 times more valuable than silver, and something in 
 excess ; therefore, nothing more was required than to 
 multiply .5s. 2d. by fifteen to determine the monied 
 denomination of the ounce of gold, and it amounted 
 to £3 17s 6d. The fraction beyond fifteen amounted 
 to three pence; accordingly, the Bank of England was 
 bound to give £3 17s. 9d. for raw gold, and sell it 
 coined for £3 17s. lO^d., the extra three half pence 
 being in the nature of seignorage. 
 
 Before the establishment of the Bank of England, 
 the currency consisted of gold and silver coins, Ex-
 
 Establishment of the Bank of Englcm d. 47 
 
 chequer tallies, and the notes of the goldsmiths, Avho 
 were indeed pawnbrokers, lending on the deposits of 
 securities, chiefly plate, for determinate periods. In 
 1694, the Bank of England was founded, and soon 
 possessed itself of the royal prerogative to issue money. 
 Davcnant, a financial writer of the period, contrasts 
 the state of the currency before and after the bank was 
 instituted. 
 
 "In 1698," he says, "we had upwards of £14,000,000, 
 in tallies, lottery tickets, ])ank stock, malt tickets 
 and securities, which went from hand to hand, having 
 their foundation in the public faith ; and, in lliis cur- 
 rency, the landlord received his rent duly, and the 
 fai-mer sold the product of his land at a jiigh price. 
 Wool, tin, leather, and lead bore a high price, and, 
 which was of great consequence, the manufactures of 
 the country went on cheerfully. 
 
 Ten years after the commencement of the national 
 debt, Avhen it had reached twenty-one millions, he says : 
 
 " Of late, when the coin grew so corrupted, gold and 
 silver did, as it were, but minister in the market, 
 while all great dealings were transacted by tallies, bank 
 bills, and goldsmiths' notes. — Paper credit did not only 
 supply the place of running cash, but greatly multi- 
 plied the kingdom's stock. For tallies and bank bills 
 did, to many uses, serve as Avell as, and to some 
 better, than gold and silver; and this artificial wealth, 
 which necessity had introduced, did make us feel the 
 less want of that real treasure which the Avar, and our 
 losses at sea, had draAvn out of the nation." 
 
 At this time the Exchequer Tallies, the representa- 
 tives of value, having no intrinsic value in them- 
 selves, sustained trade ; but what ha})pened Avhen the 
 tallies were nearly extinguished, and the monied pre- 
 rogative of the Crown Avas transferred to the Bank of 
 England? Let us once more listen to Davenant: — 
 
 " The government appeared like a distressed debtor,
 
 48 Estahlishment of the Bank of England. 
 
 who -was daily squeezed to death by tlie exorbitant 
 greediness of the lender ; t]:e citizens began to decline 
 trade, and to turn usurers ; foreign commerce, attended 
 ■with the hazards of war, had infinite discouragements; 
 and people in general drew home their effects, to 
 embrace the advantage of lending money to the Govern- 
 ment. We are going headlong to destruction with 
 carr\ing un losing trades with our neighbours. And 
 what has l)rought us to this low ebl)? Certainly, our 
 excises, customs, prohibitions, ill-judged laws, monopo- 
 lies, and national debts; these are the causes; the 
 effects are lost trades and decaying rents. When 
 paper credit flourished, tallies, bank bills, and gold- 
 smiths' notes performed all the offices of money ; the 
 great payments for land, or rich goods, "^vere therefore 
 easily made, the king's duties paid, and all kinds of 
 business easily transacted." 
 
 We noAv have reached the period when the Bank of 
 England, a Joint Stock Company of successful adven- 
 turers became, as it were, a copartner witli every 
 succeeding government. Around this gigantic corpo- 
 ration clustered what is known as the " monied power." 
 The national debt assumed Titanic proportions, and 
 with every augmentation labour became more and more 
 subject to capital. 
 
 In 1774, it was ascertained that a considerable por- 
 tion of the silver coin was deficient in weight, where- 
 upon, in that year, an Act of Parliament was passed, 
 decreeing that " no tender in the silver coin of this 
 realm, for any sum exceeding £25 should be accounted 
 a legal tender for more than the value by weight, at 
 the rate of 5s. 2d. per ounce;" but this Act was 
 purely exceptional, for if the silver was of full weight 
 it was legal tender to any amount. This restraining 
 law expired in 1783, and Mr. Vansittart, when Chan- 
 cellor of the Exchequer, stated in the House of Com- 
 mons that, prior to the Bank Restriction Act, " the
 
 Suspensioji of Cash Payments in 1797. 40 
 
 interest of the public debt might luive been paid in 
 crooked .sixpences." 
 
 It is, then, an historical fact that IVoni IGOl to 1797, 
 our silver standard was never dumped. Durinix the 
 whole of the same period gold was dealt with as public 
 convenience required. — Both metals were a legal tender 
 to any amount, Avith the exception of the nine years 
 mentioned. It is also to be ol)served that in those 
 two centuries the exportation of coin was proliibited 
 under severe penalties, and the usury laws were enforced. 
 These two provisions were great protections to the 
 standard ; for though the coin was at times smuQ-ffled 
 out of the country, the di-ead of detection operated as a 
 che(dc; and, at any rate, the legislature did all that it 
 could do to keep the instruments of legal tender circu- 
 lating within the realm. 
 
 We now appi'oacli the memorable epoch wlien cash 
 l)ayments at the Bank of England were suspended, and, 
 in this historical sketch, it appears desirable to draw, 
 at least, the outline of the main circumstances which 
 led to tiiat event. The prospects of the country, as 
 Sir Arcliibald Alison remarks, were of the most gloomy 
 description. Lord IMalmesbury had returned an unsuc- 
 cessful ambassador from France — party spirit was 
 i-aging fiercely — petitions for a change of ministers, 
 and for an organic change in the form of government, 
 ])Oured into both Houses of Parliament — Ireland was 
 in a state of insurrection — commercial embarrassments 
 Avere very severe — and an active and constant demand 
 Avas miule on the Bank of England for the precious 
 metals, both for export and private hoarding — the 
 three per cents liad fallen from 98 in 1792 to 51 in 
 1796 — in sliort, that general distrust and depi-ession 
 prevailed, Avhicli are at once the cause and effect of 
 prolonged misfortune. So early as 1795, the Bank of 
 England begged the ministers to raise advances required 
 fnr tlie public service Avitliout its aid. and tlie dillicul-
 
 50 Suspension of Cash Pay merits in 1797. 
 
 ties of that corporation became so stringent in 1796, 
 tliat they were compelled to gain breatliing time by 
 paying their notes in sixpences. Mr. Pitt had paid 
 large subsidies to our Continental allies in bullion, 
 which, added to the previous drain on the Bank. In 
 1795, or two years before the Restriction Act was 
 passed, the Governor of the Bank wrote to Mr. Pitt, 
 informing him that the market price of gold was four 
 guineas an ounce, at which rate the Bank was com- 
 pelled to buy it; though it was obliged to redeem its 
 notes in gold at the mint rate of £3 17s. lO^d. In 
 1794 we remitted as subsidies to our allies £2,550,245 ; 
 in 1795, another sum of £5,724,961. These advances 
 were made in specie ; hence gold at home became scarce 
 and dear. The credit of the country was now in 
 jeopardy. Its real wealth, as the results proved, was 
 immense ; but its wealth in gold was small. A mode 
 of escape from this dilemma was an imperious necessity ; 
 at length, on the 26th February, 1797 (remarkable as 
 being a Sunday) the Privy Council issued an order 
 forbidding the Bank to pay its notes in specie, which 
 was communicated to both Houses of Parliament on 
 the following day. The order in Council Avas posted 
 on the walls of the Mansion House, and all the leading 
 merchants in the city, publicly convened, declared their 
 readiness to receive the notes of the Bank of England, 
 inconvertible into coin at the mint price, in full pay- 
 ment of debts due to them. Five days afterwards, that 
 is on the 3rd March, 1797, the statute permitting the 
 issue of notes under five pounds, received the Royal 
 Assent, being the 37th of George the Third, c. 28. 
 
 It is here necessary to observe that this statute did 
 not make the Bank Note a legal tender, for it did not 
 receive that sanction till the year 1833. It must also 
 be noted that at this period the circulating medium of 
 the country consisted of gold and silver coin. Bank of 
 England notes of not less than £5 (promissory notes of
 
 Sii.y)c?isio?i of Cash Paj/ments. 51 
 
 a less amount being forbidden) payable on demand in 
 gold at £o 17s. lO^d. per ounce, or in silver at 5s. 2d. 
 per ounce, and also country bank notes payable on 
 demand at the same rates. 
 
 Tlie Bank Restriction Act of 1797 is entitled " An 
 Act for removing doubts in respect to promissory notes 
 of the Government and Company of the Bank of 
 England, for payment of sums under £5," and its pre- 
 amble thus explains the object of it, namely, to provide 
 for the deficiency of gold «oin, thus : — " Whereas it is 
 expedient for the pul)lic service, and for the conveni- 
 ence of public circulation, that the Governor and Com- 
 pany of the Bank of England should issue promissory 
 notes, payable to bearer, for sums of money under £5," 
 and to avoid any doubt as to the validity thereof, it 
 was enacted, that all promissory notes, payable to 
 bearer for sums of money under £5, and other notes 
 for tlie payment of money, which, since the 2nd of 
 March, 1797, had ])een or thereafter should be issued 
 by the Governor and Company of the Bank of England, 
 should be as good and valid as if issued for sums over 
 £5 ; all persons being declared exempt from the penal- 
 ties to which they ought otherwise to be liable. 
 
 This short act was sufficient to relieve the Bank 
 from its immediate necessities, but another was required 
 to make the new issue beneficial to the public ; and it 
 is a fact Avorthy to be noted that the same fjicility was 
 not accorded to the act for this purpose as to the other. 
 While the first was hurried through tlie House in a few 
 days, two months were cojisumed in the passage of the 
 other, as it was not till the 3rd of May that the restric- 
 tive measure was completed by the Act 37 George 3, 
 c -45, entitled " An Act for continuing the restrictions 
 contained in the Minutes of Council of the 25th Feb- 
 ruary, 1797, on payments of cash by the Bank of 
 England." — The preamble of the act is so eminently 
 deserving of attention tliat it ought not to be curtailed. 
 
 B 2
 
 52 Suspension of Cash Payments. 
 
 '• Whereas ].y a minute of liis Majesty's Privy 
 Council of the 26th February, upon the representation 
 of the Chancellor of the Exchequer, stating that from 
 the results of the information which he had received, 
 and the inquiries Avhich it had been his duty to make, 
 respecting the unusual demands for specie that have 
 been made in the metropolis, in consequence of ill- 
 founded ur exaggerated alarms in different parts of the 
 country, it a]>])eared that unless some measure Avas 
 immediately taken, there might be reason to apprehend 
 a u-ant of a sufficient supply of cash^ to answer the 
 exigencies of the jmblic service, it was declared to be 
 the unanimous o])inion of the Board that it was indis- 
 pensably necessary for the public service, that the 
 Directors of the Bank of England should forbear 
 issuing any cash in payment of their notes, until the 
 sense of parliament could be taken on the subject, and 
 the ])ruper measures be adopted thereupon, for main- 
 taining the means of circulation^ and supporting the 
 public and commercial credit of the kingdom, at this 
 iuportant conjuncture. And it was ordered that a copy 
 of the said minute should be transmitted to the Bank 
 of England ; and they were thereby required, on the 
 grounds of the exigency of the case, to conform thei'eto 
 until the sense of parliament could be taken as afore- 
 said. And whereas, in pursuance of the said minute, 
 the said Governor and Company have since forborne to 
 issue cash in payment, except for purposes for which it 
 was unavoidable; and it is necessary that the restric- 
 tion contained in the minute, although not warranted 
 hrj laiL\ should be continued for a limited time by 
 autliority of parliament." 
 
 Tlie first section indemnified the Baid*: for every thing 
 done in accordance with the Minute of Council ; the 
 second enacted that the notes authorised by the Act of 
 the 3rd March, should be I'eccived as money, by pro- 
 viding that it should not l)e lawful for the Bank to
 
 Suspension of Cash Payments. 53 
 
 issue uny cash in payment of any debt or dcniand 
 during tlie contimiancc of the restriction, except under 
 circumstances hereinafter mentioned, and conferring 
 powers on the Courts of law to stay actions to recover 
 payment in any other form until the removal of the 
 restrictions, the costs being left to tlieir discretion. 
 The third section declared the restrictions not to 
 extend to sums of money, or fractional parts less than 
 twenty sliillings which were to be paid in cash as usual. 
 But the Baidv Avas expressly authorized to issue cash 
 for the service of the Army, Navy, and Ordnance, in 
 pursuance of an order of the Privy Council, stating the 
 special purposes for which such sums were required, 
 and the necessity for it, a copy of this order being 
 required to be laid before Parliament Avithin three 
 days. 
 
 Other sections forbade the Bank to advance more 
 for the public service than £600,000 on the credit 
 of Exchequer Bills, but allowed advances in cash 
 to the amount of £100,000 to London Bankers, and 
 £25,000 each to the Bank of Scotland, and the Royal 
 Bank of Scotland. The Bank was permitted to receive 
 cash from any person in sums not less than £500 on 
 an engagement to return any portion on demand, not 
 exceeding three-fourths in cash. A power was reserved, 
 however, notwithstanding these enactments, to issue 
 cash out of any cash coming into their hands subse- 
 quently to the 20th February following, in payment 
 of any debts, on giving live days notice to the Speaker 
 of the House of Commons, who Avas required to insert 
 one copy of such notice in the London Gazette^ and 
 another to the Exchequer. The duration of this Act 
 was limited to June 24th, 1797. Such is the substance 
 of a statute which, though declared to be only in force 
 for little more than a month, was actually in force for 
 twenty-two years — a remarkable proof of the fallibility 
 of human Iccislatiou, and of human foresight.
 
 54 Siispension of Cash Payments. 
 
 To make this narrative of the liestriction Act more 
 complete, it may he observed that the short period of 
 six weeks was probably fixed upon in deference to the 
 fears and wishes of others, rather than on any hope 
 entertained by the goverment that the bank wouldb e 
 able to meet its engagements in bullion at so early a 
 date. Accordingly, before the time expired to which 
 it was limited, another Act, the 37th Geo. 3rd, c. 91, 
 renewed and repeated all its provisions but two, — that 
 permitting an advance of cash for the public service, 
 whicli the Bank was now forbidden to make during 
 the restriction of cash payments — and that relating to 
 the duration of the restriction which w^as now extended 
 to one month after the commencement of the next 
 session of Parliament. 
 
 Parliament again met on the 30th November of the 
 same year, 1797, but so distant had the prospect 
 become of the Bank resuming cash payments, that an 
 act was immediately passed continuing the above acts, 
 not to any specified date, but " to one month after the 
 conclusion of the present war." This last act, however, 
 renewed the permission to the Bank to advance money 
 for the public service; though only on the credit of 
 duties to be laid on malt and land tax.
 
 CHAPTER IV. 
 
 llise of Prices under the Bank Restricttiou Act. The rise caused 
 by increased taxation not by an increase of Bank Notes. Mr. Hus- 
 kisson's Pamphlet on the " Depreciation of tlie Pound," answered by 
 :Mr. John Taylor. Definition of the terms Debasf-ment, Deterio- 
 ration, and IDepreciatiox. The effect of Indirect Taxation on 
 Money considered. Debates in the House of Commons on the 
 Beport of the Bullion Committee in 1811. Speeches of Lord 
 Castlereagh and Mr. Canning. John Law's Bank. The French 
 Assio-nats. The Conthicnla"! Money of the American Colonies. 
 DavrdHume. Benjamin Franklin. View of a "Depreciated Pound," 
 taken by ]\Ir. Ricardo, Mr. Tooke, and other Economists. Answered 
 by Mr. Matthias Attwood. The Balance of Trade and the Foreign 
 Exchanges. 
 
 Prior to the suspension of Casli Payments, it was 
 with extreme difficulty that Mr. Pitt raised a revenue 
 of £20,000,000. This pressure on the industrial class 
 Avas most severe, provoking discontent and threatening 
 rehellion; but, in 1798, the very year after the Bank 
 of England was exempted from the obligation of 
 redeeming its notes in gold, the revenue was raised to 
 £30,000,000, and collected without a murmur. During 
 the whole period in which the Bank Kestriction Act 
 was in force, the prices of all commodities rose prodi- 
 giously as compared with the rate of prices that were 
 obtained previously to 1797, the rise being caused by 
 the vast increase of taxation necessary to sustain the 
 war, and permitted by the paper expansion of the 
 circulating medium. — Of this we have complete 
 evidence in Tables of Taxation, Currency and Prices, 
 ranging over a period of fifty-four years, commencing
 
 5f! Rise of Prices under the Restriciion Act. 
 
 ill tlie year 1783, and ending in 1837, compiled by 
 the London Cliainber of Commerce. In these tables 
 eiglity-eiglit princii)al articles are enumerated. All 
 those articles are giwon free of any special duty; the 
 rise or fall of prices, therefore, is independent of jt>ar- 
 iicular taxation, and can only be explained by the 
 altered jamount of general taxation, or by some alter- 
 ation in the principle of the currency. Every article 
 is placed in succession, according to its rise and fall, 
 in comparison with its first price. By this arrange- 
 ment it is seen at a glance what articles have risen or 
 declined most, compared with prices obtained before, 
 during and after the w\ar. Some of the principal are 
 here enumerated, as a specimen uf the whole catalogue : 
 malt, hops, beer, wine, spirits, sugar, tea, cofiee, tobacco, 
 snuff, corn, butter, cheese, cotton, wool, silk, printed 
 goods, hides, skins, paper, soap, candles, tallow, coals, 
 glass, timber, bricks. The prices are classified in cen- 
 tesimal proportions, thus : — 
 
 1784 to 1790 £100 
 
 1791 to 1797 121 
 
 1798 to 1801 — , 149 
 
 1805 to 1811 175 
 
 1812 to 1818 180 
 
 1819 to 1825 - 12G 
 
 1820 to 1832 105 
 
 1833 to 1837 105 
 
 While the Bank Restriction Act w^as in Ibrce during 
 the earlier series of these septennial periods, taxation 
 increased and prices rose in proportion. In the interval 
 from 1797 to 1818, the national debt and the annual 
 taxation were more than doulded, thus fully accounting 
 for the I'ice in prices; but these were not excessive, 
 but pr(.i)ortionate to the augmentation of fiscal burdens 
 iiiil)osed by the govei-nment on the ])roductive classes; 
 and since it is admitted by all Avriters tliat indirect 
 taxation, be it liglit or heavy, ought to fall ultimately 
 on the consumer, the producers who received £180 in
 
 like of Prices under the Reslriction Act. bl 
 
 the years ruuiiiiig from 1811 to 1818, were not better 
 paid tliiiu the producers who received only £100 in tlie 
 period included between 1784 and ITUO. The difference 
 between the varying scales of prices was caused by the 
 enormous war expenditure, for which the government 
 was solely responsible. True it is, that the issue of 
 Bank notes increased, but that Avas also the act of the 
 government, avIio first gaA^e their Exchequer Bills to 
 the Bank as security for advances, and received the 
 notes of the Bank in exchange for them ; and it will 
 presently be shown that those notes were not excessive 
 as Mr. Hubkisson most erroneously declared them to 
 have been in his celebrated pamphlet. Our immediate 
 purpose is to remove a popular fallacy Avhich insists 
 tliat an increase of paper pounds causes a rise of 
 prices; it mQvc\y permits a rise. Tliis distinction is 
 most important, and has been ingeniously and clearly 
 explained by Mr. Edward Capps, from whom the 
 following extract is taken : — 
 
 " It is a well kno^vn fact, that by the pressure of 
 the atmosphere, water will rise in. a vacuum (the barrel 
 of a pnmp for instance) to about 33 feet. Now, 
 suppose that the water in a certain vacuum had always 
 been jirevented by the interposition of a plug, from 
 rising higlier than ten feet, it would follow that when 
 this plug was raised one, two, or ten feet Jiiglicr, tlie 
 water would immediately rush up and fill the additional 
 vacuum created. Had the plug never been entirely 
 withdrawn, and people had not known what was the 
 cause Avliich produced the rise of the water, they 
 might have concluded that the water would rise ad 
 infniitum, and that it was necessary to interpose a 
 limiting power, to prevent it overllowing and deluging 
 everything around. But it is obvious that the removal 
 of the plug was not the cause of the rise of the water, 
 but was only that which permitted it to rise; the cause 
 was the weight of the atmosphere^ and ceased to act
 
 58 Mr. John Taylor and Afr. Iluskisson. 
 
 when tlie oquilibriiini was gained. So, in like manner, 
 tlie extension of tlie currency is not the cause of the 
 rise of prices, as many think, but is only tliat which 
 perniits it; tlie cause is the iceight of ta.vation, and 
 the rise will cease whenever a price, Avhich will form 
 an equilibrium with the weight of taxation, is obtained. 
 Competition will infallibly prevent prices rising higher 
 than this."* 
 
 This fallacy assumes another form. It originated 
 with the bullionists during the continuance of the 
 Bank Restriction Act, and maintains its ground to the 
 present day. The assertion is, that notes would become 
 redundant if they were not made convertible into gold 
 at the Mint price. The fallacy proceeds on the false 
 assumption that currency calls mercantile transactions 
 into existence, but the truth is just the reverse, since 
 mercantile transactions call currency into existence. 
 No 1 tanker can force his notes into circulation. If a 
 rich and safe customer applies for a loan of £1000, the 
 l)anker might urge him to borrow doulde that sum; 
 but the prudence of the customer would decline the 
 additional credit, for why should he pay interest on 
 money he does not want and cannot use? If the cus- 
 tomer were speculative, but poor and unsafe, the 
 banker would not discount his bill on any terms, so 
 that in this second case the prudence of the banker 
 limits his own issues. It is demand tliat creates supply, 
 not supply that creates demand. Notes not demanded 
 remain in tlie till; therefore they never can be in 
 excess. If a certain quantity of salt be poured into a 
 vessel containing water, the salt will be held in solution; 
 if an indefinite quantity be added, the excess Avill be 
 precipitated to the bottom of the vessel. So with paper 
 money; whatever amount is not absorbed by commerce 
 and held in active circvdation, is returned to the Bank. 
 
 In the year 1810, Mr. Iluskisson wrote his cele- 
 TLe Cm-rency Question in a Nut Shell. By Edward Cnpps, Esq. 
 
 • MM
 
 Mr. John Taijlor and Mr. Huskis.son. 59 
 
 brated pamplilet, entitled " T\w Question of Depre- 
 ciation Stated and Examined," in wlueh he affirmed 
 that the Bank of Enghind had designedly, with a view 
 to the exclusive benefit of its own pi-oprietary, depre- 
 ciated the pound of account by an excessive issue of its 
 notes. The doctrines of this pamphlet were adopted 
 by the Bullion Committee, and the arguments, or 
 rather fallacies, that it contained, mainly contributed 
 to the enactment of the law of 1819 for the 
 resumption of cash payments. Ever since its publica- 
 tion, the economists of this school have been 
 devising schemes for " regulating" the currency, and 
 restricting the amount of legal tenders, in the face of 
 an increasing population and an increasing trade, their 
 grand policy l)eing to guard against the bugbear of an 
 excess of money. Mr. John Taylor answered ^h. 
 Pluskisson in a pamphlet entitled " The Minister Mis- 
 taken," and from the two we shall embody the spirit of 
 the controversy. 
 
 Mr. Huskisson admits (p. 8) that from the estab- 
 lishment of the Bank in 1694 to 1797 " there had 
 been no interruption to the convertibility of the notes 
 into money, nor any interference on the part of the 
 State, in anything that concerned the issue and circu- 
 lation of those notes;" and he makes this further 
 admission; "It is but justice to them (the Bank Direc- 
 tors) to remark that they did not resort to this 
 measure till they had tried, and found unavailing, all 
 those means of checking the drain of cash which had 
 been effectual on former occasions." 
 
 According, tlien, to the clear admission of their 
 accuser, the Bank had not committed any fault, and 
 had not been guilty of any excess in their issues, Avhii-h 
 is the specific charge, up to 1797. The reader will 
 now please to observe that in 1795, or two years })eforc 
 the Bank Bestriction Act was passed, the Governor of 
 the Bank Avrote to Mr. Pitt, and informed him that gold
 
 60 Errors of Mr. Huskisso7i. 
 
 iu the market was £4 4s. per ounce, though the returns 
 of prices paid hy the Bank were not above £3 17s lO^d 
 per ounce: and Mr. Iluskisson admits (p. 88) that it 
 did not rise above that level for tlie next 10 years. 
 Tliese are his Avords : — ^'Foy some years to prior 1808, the 
 price of standard gold was pretty steady at £4 per 
 ounce, and this was the buying price at the Bank." 
 
 The c|ucstion to be determined is simply one of fact, 
 and tlie fact rests on figures. If the Bank, as charged, 
 did wilfully and designedly extend its issues for the 
 purpose of increasing its own dividends by depreciating 
 the pound of account, the evidence must be found in 
 statistical returns. To this kind of testimony, then, the 
 appeal will be made ; but it is of the utmost importance 
 to an inquiry of this nature, to bear in mind that the 
 Bank of England never issued its notes except on the 
 deposit of Exchequer Bills, handed over to it by the 
 First Loi'd of the Treasury and the Chancellor of the 
 Exclietjuer; the amount of those deposits regulated the 
 amount of the notes; the Government, therefore, 
 always took the initiative in tliose monetary operations 
 as a Ijorrower, and its necessities created and governed 
 the issues. If Mr. Huskisson could have proved that 
 the Bank exceeded the amount of Exchequer Bills, 
 he would liave made out his case; but the facts are 
 just the reverse, as the following figures wall denion- 
 sti'ate : — 
 
 Acerage Amount of the Unfunded JDeht ( Kvchequcr Bills) and 
 of Bonk Notes in circidafion. 
 
 Seven years Average amount Average amount Proportion of notes 
 
 inclu.-ive. of unfumled debt. of notes issued, to unfunded debt 
 
 ]7iiltoir07 £1:3,172,500 ^•11,001,000 84 per cent. 
 
 1798 to 1804 L';3,019,700 1.5,1.51,100 QQ „ 
 
 180.5 to ISII 37,424,400 19,751,700 .53 ,, 
 
 1812 to 1818 50,345,500 20,202,900 62 „ 
 
 From this table it appears that while the proportion 
 of notes to the unfunded del)t was 84 per cent, prior 
 to tlic Ilcstriction Act, that })roportion, during its con-
 
 Errors of Mr. Huskisson. 01 
 
 tinuance, graduall}' I'ell, and averaged for the wliule 
 period only 57 per cent., or one-third less than the 
 proportion maintained during the period when the Bank 
 Directors, according to Mr. Hnskisson's admission, 
 conducted their atfairs with nnimpcacliable integrity 
 and discretion. The evidence, therefore, conclusively 
 refutes the charge of the Directors having issued their 
 own notes in excess to swell the profits of their sliare- 
 holders. 
 
 There is another mode of testing the truthfulness of 
 Mr. Iluskisson's accusation. 
 
 The Average Amount of Anmuil Taxation coinpaved with 
 Banh Notes hi Circnlation. 
 
 Proportion of 
 Seven years Annual Taxation. Annual Circulation. Banli Notes 
 
 inclusive. to Taxation. 
 
 1784 to 1790 £14,400,700 £ 8,574,100 GO per cent. 
 
 1791 to 1797 19,030,000 11,001,000 67 „ 
 
 1798 to 1804 30,140,400 15,151,100 50 „ 
 
 1805 to 1811 47,430,700 10,751,700 42 „ 
 
 1812 to 1818 53,195,700 20,202,900 50 „ 
 
 Here then we have evidence that the Bank, so 
 far from increasing its notes, actually reduced them in 
 proportion to taxation immediately the w^ar broke out; 
 the reduction was from 60 to 57 per cent. l)efore the 
 Restriction Act was passed, and from 57 to 50 per cent, 
 after that time; or reckoning the Avliole 21 years from 
 1798 to 1818, the proportion was brought down to 
 47 per cent., being a reduction of one-fifth. Mr. 
 Iluskisson's charge is again refuted by this evidence, 
 Avhicli is too cogent to be evaded. Nevertheless, the 
 fact remains indisputaldy true, that the price of gold 
 in 1808 did rise from £4 to £4 10s. per ounce, and it 
 must be accounted for in some manner. It is clearly 
 to be attributed to the sole act of the government in 
 exporting gold to subsidise its continental allies. The 
 proof will be found in the following table.
 
 62 Errors of Mr. Husldsson. 
 
 Statement of the Amount of Bank Notes in Circulation, and 
 
 of BuUion in the Banh of England, Jrom 
 
 1800 to 1801), inclusice. 
 
 Amount of Bank Amount of Amount 
 
 Notes in Bullion held of 
 
 Circulation. by the Bank. Deposits. 
 
 180G, Feb. OS £17,730,1-30 £5,987,190 £ 9,980,790 
 
 Auf.-. 31 21,027,470 0,215,020 9,036,330 
 
 1807, Feb. 28 10,950,680 6,142,840 11,829,320 
 Alio-. 31 19,678,300 6.484,350 11,789,200 
 
 1808, Feb. 28 18,188,800 7,855,470 11,961,960 
 Aug-. 31 17,111,290 6,015,940 13,012,510 
 
 1809, Feb. 28 18,542,860 4,488,700 9,982,950 
 Aug-. 31 19,574,180 3,652,480 12,257,180 
 
 These tables are taken from Mr. John Taylor's reply to Mr. 
 Huskisson, in his pamphlet entitled " The Minister Mistaken." 
 
 At page 366 of Mr. Porter's Progress of the Nation, 
 2nd vol., it is stated that, in 1808, England sent 
 to Spain, Sweden, and Sicily, an aggregate sum of 
 £2,897,873, as subsidies, and this remittance was 
 made in gold. Now this was effected through the 
 agency of the Bank to accommodate the government. 
 By referring to the preceding tabular statement, it will 
 be perceived that the difference in the bullion held by 
 the Bank on 31st August, 1808, and 28 ch February, 
 1809, amounted to a reduction of £1,527,240; Avhile 
 in the same period, the deposits were reduced by 
 £3,029,560. It further appears, if we compare the 
 amounc of Bank Notes in circulation at the same dates, 
 that the amount on the 28th February, 1809, exceeded 
 the amount on the 31st August, 1808, by £1,431,570. 
 If we add this excess to the £1,527,240, which last 
 represents the reduction of bullion in the periods com- 
 pared, we shall have £2,958,810; and the loan in the 
 year, as cited from Mr. Porter, were £2,897,873. 
 There is an approximation within a fraction to arith- 
 metical identity, and it proves that the imputed excess 
 in the issues was caused by the Bank lending its bullion 
 t<j the government, which compelled it to bring an
 
 Errors of jlfr. Huskisson. 63 
 
 equivalency of its deposits into active circulation. J>e 
 it noted, that in 18U8, we remitted as loans and sub- 
 sidies to foreign powers more than we had done in the 
 preceding seven years, in proof of which we refer to 
 the statement of Mr. Porter, same page and volume 
 already quoted, where it appears that from 1801 to 
 1807, both included, the aggregate amount was only 
 £2,781,533, being about £100,000 less than we 
 remitted in the single year 1808. Is it then surprising 
 that this sudden and large export of the precious 
 metals raised their price? What other result could 
 have been expected under tiie law of sui)ply and 
 demand? The unprejudiced reader ought now to be 
 convinced that the charge brought by Mr. Iluskisson 
 against the Bank is utterly -without foundation. No 
 doubt that gentleman possessed a large and discrimi- 
 nating intellect, and is a deservedly eminent authority 
 in many matters of commerce and finance; but not 
 suffering his mind to dwell long enough on the prin- 
 ciples of monetary science, he hastily drew deductions 
 from illogical premises; when he asserted that it was 
 the essence of money to possess intrinsic value, he 
 simply put forth an hypothesis as baseless as the 
 vortices of Des Cartes; and his charges against the 
 Bank of England were as silly as they were unjust. 
 
 But this subject cannot be dismissed without some 
 additional remarks. There are three words which the 
 most accredited writers employ in a vague sense, as if 
 indeed they were synonymous; the words are Debase- 
 ment, Deterioration, and Depreciation, and unless 
 we affix a clear signiiicancy to language, Ave are 
 almost certain to fall into a verbal dispute. No public 
 man committed the error here alluded to more frequently 
 than the late Sir Robert Peel, or Avith more pernicious 
 effect. 
 
 Debasement means the fraudulent admixture of an 
 inferior witli a superior metal, as copper Avith silver,
 
 GJ: IJ^hat is Depreciation 
 
 9 
 
 or silver with gold ; in such a case the weight of the 
 coin is preserved, but its purity is lost. Tliis is 
 Debasement. 
 
 Deterioration results from fair wear and tear, or 
 from illegal clipping or sweating. In this case tlie 
 o-enuine weight of the coin is reduced below the 
 standard, though what remains of the metal is pure. 
 Now, it is ])lain, in the very nature of things, that a 
 Bank note can neither be debased nor deteriorated, for 
 it does not admit of being blended with substances 
 foreign to its character, which is paper; and, however 
 worn, or torn, or dirty it may be, it loses none of its 
 purchasing power from those circumstances. 
 
 It remains, then, only to consider the true import of 
 the term '^ depreciation." Mr. Huskisson and the Bul- 
 lion Conmiittee after him, affirmed tliat the Bank of 
 Kngland note was depreciated in the year 1810. This 
 was true in one sense, but false in another sense ; so 
 that we must carefully discriminate between those 
 senses. The argument of Mr. Huskisson Avas to this 
 effect: — Previously to the Bank Eestriction Act, a 
 pound note and a shilling would purchase a gold 
 guinea, but during the war it required a pound note 
 and six or seven shillings to purchase a golden guinea. 
 The inference was that the note was depreciated, or, 
 as some American writers phrase it, pejorated; that is, 
 become worse through an enfeeblement of its pur- 
 chasing power. Let it be remembered, in reply to this 
 mode of stating the case, that during the liestriction 
 Act, guineas ceased to be legal tender coin of the realm, 
 the Bank being exonerated from redeeming its notes in 
 gold; guineas, therefore, during this period, were re- 
 duced to mere bits of bullion, and were treated strictly 
 as commodities, and in common with all other com- 
 modities tlicir price rose and fell in Bank notes under 
 tlie law of supply and demand. Instead, therefore, of 
 speaking of guineas, let us speak of bits of bullion
 
 What is Depreciation ? G5 
 
 weiglilng, each, 129 grains. Tliis quantity of tlie metal 
 rose in price, as did tlie quantity of all other articles 
 under the pressure of increased taxation, wliich lias 
 ali-eady been sliown on the autliority of the tables com- 
 piled hy the London Chamber of Commerce. Under 
 this view, the answer to the Bullionists is, that tliey 
 confound the appreciatio?i of gold with the depreciation 
 of notes, just as the uninstructed peasant confounds the 
 apparent movement of the sun round the earth with 
 the j^eal movement of the earth round the sun. 
 
 But the argument against bullionism is far from 
 exliausted. "\)'e have to take into account the effect of 
 taxation on money, as the instrument of exchange. 
 Let us first assume that the tax is direct on property 
 and income, and, for the sake of illustration, fix 
 it at five per cent. On these terms, every person 
 having an income of £1000, would have to pay 
 £50 to the receiver of taxes. This is equivalent 
 to one shilling in one pound. Is this a depreciated 
 pound? In one sense it certainly is, since the effect of 
 the tax is to leave only nineteen shillings where, had 
 the tax not been imposed, twenty shillings would have 
 been left. But no govermnent can exist without taxes 
 of some kind; and in this sense tlie pound, though 
 fiscally excised, cannot be said to be depreciated; or, 
 if a captious ol)jector insists that it is, he must admit 
 tliat it arises, not from any inherent vice or defect in 
 the pound, ])e it gold or paper, but from the ol)vious 
 act of the government, which certainly has no right to 
 complain of its own act. It is indeed a grave error to 
 suppose a paper currency alone is susceptive of this 
 kind of depreciation, if tlie term be insisted on. Any 
 currency, of whatever material formed, depreciates in 
 the sense we are now considering, when prices 
 generally rise in it, for these are convertible terms. If 
 we say that goods have l)ecome dearer, it is just the 
 same thing as saying tliat currency has become cheaper; 
 
 F
 
 66 What is Depreciation'^ 
 
 for in proportion as commodities are dearer in relation 
 to currency, currency is cheaper in relation to com- 
 modities. 
 
 Let us now consider the case of indirect taxation. 
 It does not take effect on property in its first incidence, 
 but on commodities, in consequence of which every 
 thing rises in price, or rather ought to rise in price. 
 Everything ought to be dearer in proportion to tlie tax, 
 and therefore money ought to be cheaper in proportion 
 to the tax. When the tax was direct, Ave have seen 
 tlie purchasing power of tlie pound fall to nineteen 
 shillings, when the rate was five per cent. ; if it were 
 ten per cent., the pound ought to fall to eighteen shil- 
 lings. Now, if this were right and inevitable when a 
 direct tax was levied, it ought to be riglit and 
 inevitable Avlien an indirect tax was levied; for when 
 the form of taxation is changed, it is manifestly unjust, 
 on that account, to thi-ow fiscal burdens on labour by 
 removing them from property. A proper legal tender 
 sliould, therefore, be fiuxional in its nature, because it 
 has not only to represent intrinsic values, but taxation. 
 This afforded protection to industry during the war, 
 and enabled the government to raise loans and ad- 
 ditional taxes. The pound was enfeebled in its pur- 
 chasing power; more pounds had, in consequence, to 
 be given tlian formerly Avere given for commodities; 
 lience, profits and wages rose, and they Avho liad 
 advanced the indirect tax to government, levied on 
 food and clothing, raw materials and manufactured 
 articles, recovered that tax from the consumers of the 
 products of their labour. Thus, Avith a fiuxional pound, 
 sucli as Ave luid during the Bank Restriction Act, the 
 reid action of indirect taxation Avas precisely the same 
 as direct taxation Avould have been. 
 
 But it may be urged, surely some follacy lurks in 
 this reasoning, since, if prices rose, all things must 
 have Ijecomc as mucli dearer to the productive classes,
 
 ». 
 
 What is Depreciation^ 67 
 
 as they beeanie to the uuproductive chisses. This is 
 true, so fur as the foniier chisses were consumers, hut 
 not true so far as they ^Yere producei's. It needs no 
 proof that a Avorking man always produces more than 
 he consumes, or else there could be no interest on 
 money, and no profit on capital. How much he pro- 
 duces more than he consumes, depends on his particular 
 trade; but it is sufficient for our argument that he does 
 produce more than he consumes. Let him produce five, 
 whatever that may be, and consume one out of the five; 
 on the one he pays the tax as a consumer, but on the 
 four, as a producer, he recovers the indirect tax from 
 the purchaser. But they who consume without pro- 
 ducing, pay the whole tax Avithout recovery, since they 
 have nothing to sell as the result of their labour. The 
 rise of prices, therefore, in a paper money, Avhich per- 
 mits such a rise, is a boon to the working man, as it 
 throAvs the tax from labour to property, except so far 
 as the Avorking man is himself a consumer, and to that 
 extent he ought in justice to be taxed. 
 
 When a man is asked — What is the lieiglit of the 
 barometer? he requires to kuoAv, before ansAvering the 
 question, Avhat is the pressure of the atmosphere. In 
 a similar Avay, Avhen he is asked — AVhat is a pound? 
 he requires to knoAv Avhat is the pressure of taxation. 
 As the Aveight of the atmosphere varies the heiglit of 
 the mercury in the barometrical tube, so does, or so 
 ought, taxation to affect the Aveight of metal contained 
 in the gold pound. If it required a tax of tAventy per 
 cent, on all property to raise the revenue, the gold 
 pound Avould l^e fiscally excised of one-fifth of its 
 Aveight; or, in other Avords, the gold pound Avould be 
 coined out of four pcnny-Aveights of that metal instead 
 of out of live, and this depreciation, if men Avill insist 
 upon tlie term, Avould exactly measure the national 
 indebtedness. He Avho receives an income of £'1,000, 
 considers himself Avorth £T.000 a-year; but this is an 
 
 F 2
 
 68 What is Depreciation'^ 
 
 illusion, as it depends on the forbearance of the public 
 creditor; should tlie latter demand payment of the 
 debt, and have the power to enforce the payment; and 
 if the payment required a contribution of 20 per cent, 
 on all property for its liquidation, it is plain that the 
 income of £1,000 would be reduced to £800, since 
 one-lifth would have to be cut off the principal yielding 
 the rent or interest of £1,000 a year. TJiis would not 
 be depreciation, but the payment of a just debt, 
 lioAvever long the payment may have been postponed. 
 We are aware that the national debt is treated as a mere 
 transferral)le annuity, as the government can only 
 redeem £100 stock by £100 sterling; but this arrange- 
 ment between debtor and creditor does not invalidate 
 the preceding argument, or its illustration of the 
 tluxional character of a pound. 
 
 Ml". liuskisson and the bullion ists are in error when 
 they claim invariability for their pound. This is 
 easily shoAvn by comparing the rate of interest at 
 various periods. It is known to have fluctuated since 
 Peel's Bills came into operation, though never before, 
 fi'om 2^ to 6, 8, and 10 per cent. If at one time the 
 use of £100 for twelve montlis can be obtained by the 
 payment of £3 per cent., while at another time 9 per 
 cent, is demanded for a similar accommodation, what 
 becomes of the invariability of the purchasing power 
 of tiie pound ? Again ; if at one time it requires two 
 sovereigns to purchase a quarter of wheat, and at 
 another time four sovereigns, what becomes of the 
 invaria1)ility of the pound as a pretended immutable 
 standard of A'alue? These remarks are designed to 
 ap])ly to tlic vexed question of " depreciation," but the 
 subject will be more fully discussed, because more con- 
 veniently, when we arrive at the Act of 1816. We 
 now proceed in the chronological order of this historical 
 retrospect to some of the leading debates in 1811 on 
 the Keport of the Bullion Committee.
 
 What is Depreciation'^. 69 
 
 Mr. Vansittart, Cliancellor of the Exclie(|ucr, obsti- 
 nately denied the depreciation of the pound in any 
 sense whatever., although its purchasing power had 
 notoriously fallen during the Avar, since it then 
 required a pound note and six or >^q,\'Q,\\ sliillings to buy 
 a guinea. We shall presently see that Mr. Canning 
 alluded to this obstinacy in caustic terms. -^L or d 
 Castlereagh put the case of the government in the 
 following point of view, which deserves a most careful 
 perusal. 
 
 " The law is clear. No person can deface or melt 
 down tlie current coin of the realm being standard 
 weight. It cannot, therefore, be converted into the 
 shape of standard bullion to be sold, wdthout a violation 
 of tliat law, with reference to Avhich the obligation of 
 payment in gold by the Bank must be interpreted to 
 have been contracted. Gold, obtained from coin not 
 of standard weight may be melted down, but it cannot 
 be sent abroad without fraud or perjury, or both 
 combined. The person receiving the guinea ought, 
 therefore, in strictness of law and good faith, to apply 
 it to purposes of internal circulation only, and, so 
 used, there is no reason to presume that it passes at a 
 value, in Great Britain, superior to a Bank note. If 
 the note commands the same value in commodities and 
 performs all the same functions, so far as relates to 
 internal circulation, as the coin, there is no just reason 
 to consider the note as depreciated. Both the note 
 and the coin were intended for internal circulation and 
 for internal circulation alone. The contingent but 
 illegal profit derived from diverting the coin from its 
 legitimate purpose, is a species of value, which the 
 bank paper never was in equity, or in fact, intended 
 to represent. It is only through the operation of 
 causes destructive of the establislied system of onr 
 standard coinage that this advantage can attach 
 to coin over >)ank jiaper. To derive such an
 
 70 Speech of Lord Castlereagk 
 
 illicit benetit is an abuse, and, so far as it may operate 
 at this moment, to occasion a disparity of value 
 between coin and notes, the difference is very incor- 
 rectly stated under the term ' Depreciation of Bank 
 Paper.' 
 
 " The Bank of England," continued his lordship, 
 " is not, in its constitution, simply a Bank of Deposit, 
 as the Bank of Amsterdam, where no other value is 
 received than deposits of silver ; and for the retnrn of 
 which silver, on demand, to the person holding the 
 note, or receipt of the Bank, there can be no justifiable 
 excuse. But the Bank of England is a Bank of dis- 
 count, as well as of deposit. It is obvious that the 
 law which makes the standard coin the only legal 
 tender on the part of the Bank of England in discharge 
 of their notes, proceeds on the supposition of a 
 natural state of things. It never could have been 
 intended, under extraordinary circumstances, to enforce 
 impossibilities; and the rights of persons, under that 
 law, must be considered as circumscribed within certain 
 practicable limits. It cannot be the right of a portion 
 of the community, holding such security to pi'ess 
 forward for payment, to take a benefit which cannot 
 be partaken of l)y others similarly entitled. We should 
 never forget that this measure (the restriction of cash 
 payment) by supplying the country with a circulating 
 medium of undoul)ted credit, proportioned to its Avants, 
 has, for the first time, solved the problem of reconciling 
 national prosperity witli a state of wai-. In former 
 contests, the country invariably declined in its com- 
 merce, in its revenue, and even in its industry. In 
 this war, wliilst our exertions both by land and sea 
 have in extent surpassed all former efforts, the country 
 has risen in manufactures, internal improvement, 
 revenue and commerce, with a velocity which has 
 never been experienced in a period of profound peace. 
 in the American war, its inevitable termination might
 
 Sjjeecli of Lord Castlerea^/h. 7 1 
 
 be calculated from the decline of our resources; in this 
 war Ave feel that our resources are augmenting, and 
 that there is no necessary limit to our exertions in 
 point of time, so long as the injustice of the enemy shall 
 leave us no other choice hut perseverance in the 
 contest." 
 
 Powerful as this reasoning was at the time it was 
 used, and under the peculiar circumstances of the 
 period, it must be admitted that Lord Castlereagh did 
 not perceive that no conventional act of coinage can 
 alter tlie natural character of gold as a commodity. — 
 Foreigners who come into our market never treat our 
 coin as money, but as a commodity, though it sustains 
 both characters among ourselves; and these must ever 
 be in antagonism, so long as we make a distinction 
 between the mint price and the market price of 
 bullion. — The impress of the Queen's head or of the 
 ligure of Britannia on the sovereign adds nothing to 
 its intrinsic value, the whole of which it derives simply 
 and solely from the quantity of labour it condenses. 
 The ornamental devices and the mint mark merely 
 certify the weight and purity of the coin, thus render- 
 ing unnecessary the trouble of weigliing and assaying 
 the metal Avhen it passes from debtor to creditor. The 
 conventional character of coined gold, therefore, in no 
 respect supersedes or changes the native cliaracter of 
 bullion ; it still remains a commodity, merchantable by 
 its own inherent qualities. If tlie London Goldsmiths' 
 Company were empowered to fabricate sovereigns they 
 could discharge the duty as eftectually and as satis- 
 factorily both to ourselves and foreigners as the mint; 
 and their mark would be as authentic a certificate of 
 the weight and fineness of the coin as the mint mark. 
 It is, tlierefore, plain, that whatever monicd denomi- 
 nation may be put upon gold coin by autliority, it will 
 always retain its character as a bit of bullion, and in 
 tliat character its market price Avill always have a 
 tendency to depart from the mint price.
 
 I J 
 
 i John Law. 
 
 During the debates, now under review, tliehullionists 
 attempted to strengtlien their arguments in favour of 
 depreciation, hy citing the failure of John Law's paper 
 money, and of the revolutionary assignats of France. 
 Tliose fallacies are not yet worn out, but are repeated 
 with an air of authority by persons least conversant 
 with even the rudiments of monetarv science. It is 
 proper, therefore, to give them a refutation. 
 
 John Law, of Lawriston, a Scotchman by birth, 
 established a Bank in Paris, in 1716; in 1717, by an 
 order in Council, the Western or Mississippi Company 
 was created, and, by Command of the Duke of Orleans, 
 Regent of France, during the minority of Louis XV., 
 the Company and the Bank were incorporated. This 
 was an act of power which Law could not resist, and 
 he ought not to be held responsible for the results. They 
 who took shares in the united undertaking Avere allowed 
 to pay a part of their subscriptions in State paper, 
 which was then at a depreciation of 54 to 60 per 
 cent. A grant Avas made to the Company, and then 
 to the Bank conjointly, of all Louisiana, then a 
 ]irovince utterly uncultivated, and of course of no real 
 value, but it Avas forced upon Law as the basis of the 
 Company's credit. In 1718 the subscriptions were 
 declared Royal, and thus the government stretched its 
 hands over the whole concern, and John Law at once 
 became a subordinate. The Regent now became the 
 sole pro[)rietor of the shares. LaAv Avas made Director, 
 under the Regent and the minor king, and from that 
 time a stroke of the Regent's pen Avas all sufficient for 
 Avhatever Avas to be done. At the end of that year. 
 Banks, de[)endent on the one described, Avere estab- 
 lislied in several great toAvns. In 1719 the interest of 
 money Avas reduced to 3^ and 2 J per cent., and at last 
 to 2 per cent., thus keeping the value of money in a 
 constant state of lluctuation by contradictory edicts. 
 In 1720, a ncAV edict AA^as issued, commanding that no
 
 Laiv^s Notes and French Asslgnats. 73 
 
 corporation or individual should keep more tlian 500 
 livrcs (francs) in specie, on pain of heavy line and 
 confiscation of cash discovered; and the officers of 
 justice were ordered to make all the inquisitorial visits 
 and searches I'equired of them by the Directors of the 
 Bank. 
 
 At an assembly of stockholders, the Regent being 
 present, a profit of 120 millions of livres, and 40 per 
 cent, as the next year's dividend on the sul)scril)ed 
 capital, was held out. Then followed a prohiljition to 
 all persons in France, corporate bodies included, to 
 keep any gold lohatever after the 1st of May, 1721, 
 on pain of confiscation. By that date every louis d'or 
 was to be deposited in the bank. On the 21st of May 
 a reduction of one-half of the sluires was ordered, and 
 on the 27th an edict was passed to restore the paper 
 to its full value ; but all payments at the Bank were 
 suspended. Of course it was not long before the 
 scheme, founded on so shameless a fraud, and wliicli 
 had not any basis, exploded. The premium which the 
 shares at one time bore was so excessive that the 
 value of the whole mass was calculated by M. Neckar, 
 at six milliards of francs, or the gigantic sum of 
 £230,000,000 sterling. 
 
 Such is a brief liut accurate account of John Law's 
 Bank. Having begun, he was ol)liged to continue, or 
 a leitre de cachet would have immured him in the 
 Bastile, perhaps for life. Every one who knows the 
 history of France at that period, is aware that the 
 Duke of Orleans was one of the vilest of men, and his 
 courtiers the most dei)raved of parasites and flatterers. 
 They would liave raked money from the filthiest ken- 
 nels. Their Jkmk was started, after its junction with 
 the Mississippi Company, for the single pur])Ose of 
 swindling, and their paper was no more tlian the 
 symbol of a lie. It had no representative chai'acter 
 whatever, not being backed by any reality.
 
 7 1: Lavfs Notes and French Assignals. 
 
 AVe noAv turn to tlie assiguats of revolutionary 
 France. Tliese were first issued on the proposition of 
 ]\Iirabeau, when the Church property of France was 
 confiscated to national uses. At that time fear had 
 eitlier exported the bulk of the gold and silver coin 
 and plate, or concealed it in secret places. The go- 
 vernment, thus pressed, issued assignats in which the 
 pul)lic service was paid, but agreed to take them back 
 at the same nominal value at which they were issued 
 from the holders, in payment for purchases of the con- 
 fiscated Churcli lands. Thus provision was made for 
 their gradual redemption and extinction. They were 
 the bond fide representative of an equivalent reality, 
 and were called assignats^ because he who possessed 
 tliem, on surrendering them to the treasury, had land 
 assigned to him in exchange. They may be in some 
 sense compared to English Exchequer Bills, and on 
 their first emission bore a premium of two and three 
 per cent. 
 
 Ihit when the king and queen were murdered, and 
 the reign of terror prevailed— Avhen the scaffold daily 
 demanded fresh victims, and the streets ran red with 
 human blood— Avhen ruflianly governments succeeded 
 each other month by montli, and all credit and security 
 were anniliilated — when assignats were forced into cir- 
 culation at the point of the bayonet, when no provision 
 was made for tlieir redemption, and when they repre- 
 sented nothing but the worthless signatures of regicides 
 and assassins — then those instruments Avere not only 
 depreciated, but became utterly valueless. 
 
 The rise and fall of assignats is thus summed up l>y 
 Henry Storcb, tlie liussian political economist: — 
 
 " Assignats were first issued by the National or 
 Constituent Assembly, in 1790, to the extent of 
 £48,000,000, tlie government receiving them back in 
 taxes, and in payment of confiscated estates sold by 
 auction. Tn 17!)5, the Convention, being at war Avith
 
 David Hume and J)r. Franldin. 75 
 
 the wliolc of Europe, issued them to the extent of 
 £787,980,000, by wliicli tlie vahie of 100 francs, in 
 paper, fell to about 100 pence, in copi)er. In 179G, 
 the issue of assignats under the Directory reached the 
 almost incredible amount of £1,823,160,000. Then 
 an assignat of 100 francs currently exchanged for six 
 sous, or 3d." 
 
 In 1790, the assignat was truly and honestly what 
 it pretended to be, the representative of a reality. In 
 1795 and 1796, it was a fiction and a fraud, repre- 
 senting nothing but the scaffold and the dungeon. It 
 was no longer a monetary instrument, for there Avas no 
 provision made for its periodical redemption. Every 
 issue was cumulative, and the inevitable result was 
 that the bloated mass burst. A bullionist who argues 
 against the safety of paper money, redeemable from day 
 to day by its conversion into taxes, because the notes 
 of John LaAv and the assignats were NOT redeemable, is 
 as illogical as he is dishonest. 
 
 Let us now listen to high authorities who have advo- 
 cated the principle of paper money, properly regulated 
 and secured, though not convertible into gold at a fixed 
 price. David Hume, in a letter to the Abbe Morellet, 
 makes the following remarks : — 
 
 " In our colony of Pennsylvania, the land itself, 
 which is the chief commodity, is coined and passes into 
 circulation. A planter, immediately after he purchases 
 any land, can go to a public office and receive notes to 
 the amount of half the value of his land, wliicli notes 
 he employs in all payments, and they circulate through 
 the colony by convention. To prevent the public 1)cing 
 overwhelmed by this representative money, there are 
 two means employed; first, the notes issued to any one 
 planter must not exceed a certain sum, whatever may 
 be the value of the land; secondly, every planter is 
 obliged to pay back into the public office, every year, 
 one-tenth of his notes. The whole, of course, is annihi-
 
 76 David Hume and Dr. Franklin. 
 
 lated ill ten years; after wliich it is again allowed him 
 to take out new notes to half the value of his land." 
 
 In 1764, before the Stamp Act Avas proposed in Par- 
 liament (Avhich was passed in the next year, and re- 
 pealed in the year following), Dr. Benjamin Franklin, 
 writing in England in defence of paper money, expressed 
 iiimself in the following terms: — 
 
 " On the whole no method has hitherto been found 
 to establish a medium of trade in lieu of money, equal 
 in all its advantages, to bills of credit, founded on 
 sufficient taxes for discharging them, or on land secu- 
 rity of double the value for repaying them at the end 
 of the term, and in the meantime made a general legal 
 tender? The experience of now near half a century in 
 the middle colonies (New York, New Jersey, and 
 Pennsylvania), has convinced them of it among them- 
 selves, by tlie great increase of their settlements, 
 numbers, buildings, improvements, agriculture, ship- 
 ping, and commerce. And the same experience has 
 satisfied the British merchants who trade thither, that 
 it has been greatly useful to them, and not in any 
 single instance prejudicial." 
 
 It has already been remarked that " had it been a 
 law of nature that legal tender should possess intrinsic 
 value, the earliest inhabitants of the earth would never 
 have l)een permitted to apply primitive industry to 
 agriculture, but would have been forced to discover gold 
 and silver before they began to raise food;" and this 
 applies to the state of the American colonies when tliey 
 were dependencies on great Britain. They must all 
 have perished before California was discovered. We 
 have seen how they flourished with paper money, on 
 the testimony of Dr. Franklin. The celebrated Edmund 
 Burke, in his speech on American taxation, delivered 
 in the House of Commons, 19th April, 1774, corrobo- 
 rates that testimony : — 
 
 " Nothing in the history of the world," said that
 
 Mr. Canning. 11 
 
 consummate orator, " is liko their progress. For my 
 part, 1 never cast an eye on their Nourishing commerce, 
 and tlieir cultivated and commodious lite, but they 
 seem to me rather nations grown to perfection througli 
 a long series of fortunate events, and a train of suc- 
 cessful industry, accumulating wealtli in many centuries, 
 than the colonies of yesterday ; than a set of miserable 
 outcasts, a few years ago not so much sent as thrown 
 out on the bleak and barren shore of a desolate wilder- 
 ness, three thousand miles from all civilised inter- 
 course." 
 
 Had modern bullionism prevailed in those times, 
 Burke never Avould have pronounced this panegyric. 
 The desolate wilderness would never have been con- 
 verted into the cultivated garden. 
 
 During the bullion debates Mr. Canning made an 
 able speech, though he opposed the government, and 
 sided with the opponents of the paper money ; but the 
 speech is meritorious and memorable in this sense, that 
 ]\Ir. Canning distinguished between the mint and mar- 
 ket price of gold. The following passages are im- 
 portant :— 
 
 " If he (IMr. Vansittart, Cliancellor of the Ex- 
 chequer) will consent to let guineas go for what they 
 are worth in the market, he will have a gold currency ; 
 he will prevent the exportation of our coin ; he will get 
 rid of fraud and perjury; and all this benefit he Avill 
 purcliase at no greater expense than that of being one 
 argument out of })ocket. It will then, to be sure, be 
 vain for him to contend against the daily evidence of 
 men's senses, that Bank paper and guineas are, at their 
 present respective denominations, equivalent to each 
 other; but at least we shall have them both, and they 
 mav circulate amicablv together. — ^That by no other 
 possible means the coin of the country can be retained 
 in circulation, so long as the precious metal of which 
 it is composed is intrinsically of a value so much higher
 
 78 Mr. Canning. 
 
 tlum tlie rate at Avhicli it is estimated in our currency 
 — is a proposition of wliicli all experience, as well as 
 reason, establishes the truth. The present state of our 
 law, in the present state of our currency, operates, in 
 fact, as a bounty upon the exportation of our coin. . . 
 
 Independently, liowever, of these causes, the 
 
 difference between tlie real value of the precious metals 
 and tliat at which it is rated in our currency, would be 
 itself sufficient to ensure us against the continuance of 
 a guinea in circulation. Demand on the continent 
 might be counteracted by demand here; and gold 
 Avould cease to be a preferable article for transmission 
 abroad from the moment at which it, like other articles, 
 could be sold for its real value at home. But, impri- 
 soned in the coin, and degraded by its imprisonment, 
 gold has an unconquerable tendency to escape from a 
 situation so unnatural, and it would make its escape 
 from sucli a situation, even altliough you did not owe 
 the continent anything, and although there w^ere no 
 more demand on the continent for gold than for any 
 
 other merchandize The foreigner knows 
 
 nothing of the value of the currency of any other 
 country, except that a portion of that currency repre- 
 sents, and will procure, in liis own country, a certain 
 quantity of the precious metals." 
 
 In this speech Mr. Canning rightly treated gold, 
 whether coined or uncoined, as merchandize in the eye 
 of the foreigner, who cares nothing about the different 
 nomenclatures employed by different countries, as 
 pounds, francs, florins, thalers, roubles, rix-dollars, 
 pitistres, &c. To the foreigner, gold is always a mere 
 merchantable metal, neither more no less. He busies 
 liimsclf witli nothing more than its relation to silver as 
 laillion, whicli lie knows to be in the relation of fifteen 
 to one. Tlie late j\Ir. James Mill thus clearlv shows 
 tliat metallic money is nothing more than a mere bul- 
 lion commodity : —
 
 False View of Depreciation. 79 
 
 " When British goods, soUl abroad, arc paid for in 
 money, it is not the denomination of the foreign coin 
 which the merchant regards; it is the quantity of gold 
 and silver it contains, it is its value as bullion merely 
 that he estimates in the exchange ; and it is in the 
 form of bullion, not of foreign coin, that the gold and 
 silver, -when it is in gold and silver that he receives his 
 payment, is imported. The importation of gold and 
 silver, therefore, difteis in no respect, from the importa- 
 tion of platinum, zinc, copper, or any other metal. A 
 certain part of it being taken occasionally to be stamped 
 as money, makes not an atom of difference between 
 the cases."* 
 
 Tliere is another view of depreciation taken up by 
 Mr. Tooke, Mr. llicardo, and others, which must not 
 be passed over without notice. With those writers the 
 depreciation of i)aper means an advance in bullion be- 
 yond £3 17s. lO^d. per ounce, and they contend that 
 the rate of advance is the measure of depreciation. 
 But it should always be remembered that during the 
 Restriction Act, the Mint neither gave a price nor paid 
 a price; there was, in the most absolute sense, no Mint 
 price at all. The notes of the Bank were not demand- 
 able in gold; guineas became a mere merchantable 
 metal, although the government most foolishly made it 
 penal to give more than a one pound note and a shil- 
 ling foi- a guinea, and it was for this that Mr. Canning 
 justly reproved Mr. Vansittart. The fact, however, 
 remains indisputable, that there was no mint price. 
 The government itself had secret agents wlio daily 
 bought guineas for the market price of bullion, and 
 sent those guineas to the peninsular army. Now, in 
 all the re:isonings of Messrs. Tooke, Kicardo, and 
 others of the same school, they illogically referred to 
 an open state of the mint; to a state of things in which 
 bullion and money increased and diminished in ([uantity 
 * Commerce Defended. By James Mill.
 
 80 False View of Depreciation. 
 
 and value togetlier; and attempted to measure by 
 bullion the value of a money, no more depending on 
 bullion for its increase or its limitation, than upon iron 
 or calico ; and of the value of which the one no more 
 formed a measure than (3ither of the two others. The 
 money of the Restriction Act had no connection what- 
 ever with the Mint, for we had departed entirely from 
 the metallic standard. Tlie whole reasoning of jMessrs. 
 Tooke and llicardo, therefore, proceeds upon false 
 premises. As already observed, depreciated money, in 
 the honest interpretation of the word, means money 
 lowered in purchasing power, in reference to all things 
 against whicli money exchanges; consequently, to 
 estimate any alteration in the value of money by a 
 scale drawn from the market price of a particular 
 commodity, such as bullion, is fdse in its principle. 
 During the Restriction Act, the prices of all commo- 
 dities advanced owing to taxation, just as bullion 
 advanced. Wheat at one period trebled in price, but 
 it was never said on that account, that the one pound 
 note had fallen to 6s. 8d. Gold alone was arbitrarily 
 and falsely selected to test the measure of depreciation, 
 and the miserable delusion has continued to the present 
 hour. 
 
 Tliis section of our inquiries aftbrds a convenient 
 opportunity for speaking of the Balance of Trade and 
 the doctrine of the Foreign Exchanges, on both of 
 which subjects much deplorable ignorance has been 
 spoken and printed. Our ancestors, in common with 
 the people of other countries, imagined that gold and 
 silver alone constituted wealth. Hence the export of 
 those commodities Avas rigidly prohibited under severe 
 penalties. iSeighbouring nations adopted the same 
 error, so that there was a constant struggle to obtain 
 and keep permanent possession of what were, and still 
 stupidly arc, called the precious metals, for in point of 
 usefulness, and as agents of civilization and social
 
 Balance of Trade mid Forehjn E.r changes. 81 
 
 happiness, gold and silver are dross compared with 
 coal and iron. The gradual decline of Spain, which 
 at one time commanded all the gold and silver of 
 South America, and the industrial rise of Holland, 
 which possessed neither in any large amount, were 
 practical proofs of the current mistake, and induced 
 reflecting men to examine into the verities of a doctrine 
 transmitted by their ancestors. The result was, that 
 the old law Avas repealed, and the free export of raw 
 bullion was permitted, though that of coin was still 
 prohibited. Then arose the dogma of the Balance of 
 Trade, which was based on the supposition that the 
 excess of exports over imports was ahvays paid to the 
 exporting country in the two metals, or in one of 
 them; from which it was inferred that the annual 
 wealth of a nation, derived from foreign trade, was 
 measured by the excess of its exports over its 
 imports. 
 
 " In consequence of these popular notions," says 
 Adam Smith, " all the different nations of Europe have 
 studied, though to little purpose, every possible means 
 of accunudating gold and silver. Spain and Portugal, 
 the proprietors of the principal mines which supply 
 Europe with those metals, have either prohibited their 
 exportation under the severest penalties, or subjected 
 them to a considerable duty. The like prohibition 
 seems anciently to have made a part of the policy of 
 most other European nations. It is even to be found 
 where we should least expect it, in some old Scottish 
 Acts of Parliament, which forbid, under heavy 
 penalties, the carrying gold and silver forth of the 
 ki'igdom. Tlie like policy also took place botli in 
 France and England." 
 
 Although Adam Smith and David Hume demon- 
 strated the fallacy of these silly and pei-nicious preju- 
 dices, they still pervade the minds even of men in 
 authority, and influence the decisions of Parliament. 
 
 6
 
 82 BaJanre of Trade and Foreign Ej'changes. 
 
 ClmnccUors of the Exclieqiier congratulate the country 
 in proportion as our exports exceed our imports; and 
 unless this cause of rejoicing is to be referred to the 
 old doctrine of the Balance of Trade, which taught 
 that the excess was paid in gold, it is extremely 
 difficult to understand in what source those felicitations 
 originate. Let us examine the soundness of this 
 theory. 
 
 Common sense concludes that the aggregate of 
 connnodities in general constitute riclies; that 
 gold is only one of the forms of riches; and that 
 riches accumulate wdien the incomings exceed the out- 
 goings. If, in a given time, more water escapes from 
 a tank than enters it, we have only to prolong the 
 time to empty the tank. But if a merchant export 
 produce worth £20,000, and imports produce in ex- 
 change worth £25,000 in his own country, lie justly 
 considers that he has gained £5,000 by the operation. 
 Now, as a nation is but an aggregation of individuals, 
 it might be presumed that Avh at is true of an individual 
 was true of a nation ; but this conclusion is denied by 
 the theory of the Balance of Trade, which affirms that 
 the excess of exports over imports contributes to the 
 riches of a nation and measures the profits of foreign 
 trade. 
 
 This dogma was established wlien gold and wealth 
 were used as synonymous terms, and when tlie riches 
 of a country were computed by the accunuilation of 
 bullion. In those days people reasoned thus : — If, in 
 the course of a year, or any other given period, 
 England sells to France goods Avortli £100,000, and 
 France sells to England goods worth only £90,000, 
 this excess of £10,000 is remitted to England in 
 bullion, and forms a permanent addition to English 
 Avealtli. Now, assuming that this balance was always 
 discharged in gold or silver, it would not prove tlie 
 slightest acquisition of gain, since it is clear that a full
 
 Balance of Trade and Foreign Exchanges. 83 
 
 equivalent Avas given for the bullion in commodities, 
 as we exported goods worth £10,000 more than the 
 value of the goods we imported. A nation, therefore, 
 is not enriched a solitary farthing by sucli an operation 
 as we have described. The error originated in the 
 assumption that riches consisted exclusively of gold 
 and silver — no other commodity being accounted 
 riches. 
 
 The theory involves another absurdity. It proceeds 
 on the principle of accumulation ; but, to render that 
 principle sound, it should be shown that bullion is 
 permanentlij detained in the country into which it is 
 imported. If a country adds to the number of its 
 houses, bridges, railways, or docks, these become en- 
 during accessions to its real wealth ; but the posses- 
 sion of bullion is transitory. '"Twas mine, 'tis his, 
 and may be slave to thousands." It is exported as 
 merckandize whenever it is dearer al)road tlian at 
 home ; and when thus re-appropriated to the purposes 
 of trade, the country reverts to the very same position 
 in which it stood previously to the receipt of the 
 metallic balance. 
 
 The theory, then, is groundless; first, because it 
 exhibits no mercantile balance of profit; secondly, 
 because it is based on the false assumption tliat the 
 two metals alone constitute wealth, while it denies that 
 wheat, coals, iron, and all other commodities are wealth, 
 but afiirms that they are merely subordinate instru- 
 ments by which gold may be secured ; thirdly, because 
 it implies tluit imported bullion may be detained as a 
 permanent deposit. 
 
 " Had tlie apparent excess of exports over imports," 
 observes ^Ir. McCulloch, " as indicated by the Custom 
 House books for tlie last hundred years, been always 
 paid in i)ullion, as the supporters of the old theory 
 contend is the case, there ought at this moment to be 
 about £:! 50,000,000 or £500,000,000 of bullion in 
 
 ' G 2
 
 84 Balance of Trade and Foreign Exchanges. 
 
 the country instead of £50,000,000 to £60,000,000, 
 to Avhicli it is supposed to amount." 
 
 The fact is, that the exports and imports must 
 always practically halance each other, there ever being 
 a tendency to equalization, however momentarily de- 
 ranged by passing fluctuations; and it should be 
 remembered, that though between merchant and mer- 
 chant an account may be closed within the year, yet 
 between nation and nation the accounts are never 
 closed, so that it is impossible, in the aggregate, to 
 discriminate between the adjustments and renewals of 
 business. 
 
 The theory of the Balance of Trade has led to a 
 mischievous abuse of the word " Capital." When the 
 commodity gold leaves the country to purchase the 
 commodity wheat, we are told by the bullionists school 
 of economists that we have become poorer, liecause we 
 have parted with our capitdl; but surely w^e have 
 received an equivalent for the gold in the wheat; and 
 having merely exchanged o?ie capital for anrther, 
 our real riches have not undergone any diminution by 
 the mutation of form. We are congratulated on the 
 briskness of trade, wlien we export large quantities of 
 coal or iron, cotton or calico — how, then, does it 
 happen that large exports of gold, for wdiich we receive 
 a full equivalent, are always attended with mercantile 
 convulsions, and an enormous loss of property? 
 Because we perpetrate the folly of making gold our 
 legal tender in the home trade, and command that 
 home trade to be suspended, or carried on to the loss of 
 the producer, whenever gold is exported. If Ave really 
 become poorer, as the l)ullionists contend, by such an 
 operation, common sense would put industry to w^ork 
 with increased activity to repair the loss with as little 
 delay as possible; but t]ie bullionists remedy is to keep 
 our operatives in idleness, as tliough v;e could recover 
 our i)osition by closing the factories, blowing out the 
 furnaces, and bringing the steam engine to repose.
 
 Balance of Trade and Foreign Exchanges. 85 
 
 Another fallacy, involved in the bahmce of trade 
 doctrine, arises from an assumption that the profits of 
 foreign trade are paid by foreign nations. When an 
 English merchant buys from the inhabitants of England, 
 a quantity of the sur})lus productions of their soil and 
 industry,' and exports those productions to foreign 
 parts, he receives from the inhabitants of those foreign 
 parts, by the intervention of their merchants, some for 
 the surplus productions of their soil and industry in 
 exchange. These he imports into England, and sells 
 to her inhabitants, and receives from them more for 
 these imports than he gave them for the goods which 
 he previously purchased from them, and exported ; and 
 the difference between what he receives for the imports 
 and what he gave for the exports ( after deducting from 
 that difference the expenses of the freight, insur- 
 ance, &c., both of the imports and exports,) constitute 
 his profit. His profit, therefore, is clearly paid, not 
 by the inhabitants of the foreign country, but by the 
 inhabitants of England. The inhabitants of the foreign 
 country have lost nothing by the exchange, otherwise 
 they would not have made it, for all honest and 
 legitimate trade resolves itself into an exchange of 
 equivalents; and the foreign custom house accounts 
 maybe, and probaldy are, so composed as to show a 
 balance of trade, upon the same conmiodities, in Avhat 
 is called their ftivour. For example, when a merchant 
 sits down to calculate a speculation, he reasons thus : 
 If I send to Jamaica 10,000 yards of broadcloth, which 
 I can buy in London and send to Jamaica for £10,000, 
 [ind if that cloth will sell in Jamaica for such a 
 quantity of the money of the island as will purchase a 
 quantity of sugar that will sell in England for £12,000, 
 I will do the business. By such an operation the 
 merchant gains £2,000; but who has l)een his pay- 
 master? Who but the inhabitants of Yorkshire who 
 made the cloth, and the same inhabitants (perhaps the
 
 SQ Balance of Trade and Foreign E,vchm(jefi. 
 
 very same,) oi' tlioir noiglibours in the counties of 
 Liiu'olu or Norfolk, wlio coiisumed the siigiir. The 
 incrcliant in Jninnicii avIio sohl the sugar, gave less for 
 it tt> the inhabitants of Janiaien than those Inhahitants 
 paid him for the broadeUith. Who furnished his profit 
 l)ut the inhahitants of JamaieaV 
 
 The Bullionists, in \irging the doctrine of deprecia- 
 tion during the war, complained that in consequence 
 of that depreciation the foreign exchanges had become 
 unfavourable to Enghmd. There is no subject on 
 which more coni'used ideas exist, than on that of 
 foreign exchanoes. In reality this mvsterions operation 
 resolves itself into the simple operation of buying ot 
 foreiiiners and sellinii; to foreiirners. When the 
 exchange is favourable to England, other countries 
 owe to England more than England owes to other 
 countries. When the exchange is unfavourable to 
 EndanJ, she owes to other countries more than other 
 countries owe to her. In the first state of things, 
 English exports are checked, foreigners being nnwilling 
 to increase their debt, while imports are pi'omoted 
 that the debt may be liquidated in commodities. In 
 the second state of things, English exports are stimu- 
 lated, while imports are resti'icted. If the debt of one 
 country to another is not liquidated in goods, it is dis- 
 charc;ed in l)ullion. All these iluctuations have a 
 necessary tendency to correct themselves. They nevei* 
 can, for any lengthened ])eriod, exceed the expense of 
 tra.nsmitting bullion ti'om the debtor to the creditor 
 country. The true par of exchange forms the centre 
 of these oscillations: and althousrh the thousand cir- 
 cumstances which are daily and lumrly alfecting the 
 state of debt and credit prevent the ordinary course of 
 exchange from being almost at any time precisely at 
 jiar, the tluctuations, Avhether on one side or the other, 
 are confmed within certain limits, and have a constant 
 tendency to disappear. Wliat the ebb tide takes
 
 Balance of Trade and Foreujn L\vchan;/cs. 87 
 
 iiwjiy, fcli(3 llond I'ctiinis, and this cflliix and rellux is 
 incessant. 
 
 Thus nuich l»cing' pivniised on the general cluiracter 
 of what is termed tlic Foreign Exclianges, it is desir- 
 sihle to injpi'css on the render a passage already cited 
 iVoni the s))eech of Mr. (,'anning: — 
 
 " The foi-eigner knows notiiing of the value cf the 
 currency of any otlier country excc])t that a cej'tain 
 ])ortion of that currency represents and Avill procure, 
 in his own country, a certain rpiantity of precious 
 metal." 
 
 In this passage the whole })hiloso})hy of tiie foreign 
 exchanges, so iar as the doctrine of depreciation is 
 concerned, is involved. If we choose to enact that our 
 pound note shall only pass for sixteen shillings, or that 
 our gold sovereign shall henceforth contain four dwts 
 of that metal, instead of live dwts, the matter is one of 
 perfect indillcrence to the foreigner, if he wanted an 
 ounce of gold for his goods, he would price them at 
 five of our pounds, instead of at four of oui- pounds. 
 It is (piite imnuiterial to him how Ave deal with each 
 otlier; we may say that our pound shall only be 
 current at home for ten shillings; he Avoiild protect 
 himself by charging us two pounds where he formerly 
 charged us only one pound, and the relation between 
 us and him would relatively be unchanged. 
 
 The exchanges are mere simple calculations of the 
 value of our own money denoniination, the pound, in 
 the money of other countries. — For instance, the 
 Englisli sovereign is found, on comparing it Avith the 
 French denomination of monev, the franc, to be worth 
 intrinsically 25 francs 20 centimes; or, in other words, 
 25 francs 20 centime will purchase 123 grains of gold, 
 which is the weight of the Fntrlisli sovereisjrn; while 
 123 grains of gold will ])urchase 25 francs 20 centimes. 
 They ari\ thei'efore, C'luivalents and this relaticiu 
 conslilutcs the par <>f exchange l)etween London and
 
 88 Balance of Trade and Foreiyii Exclionges, 
 
 Paris. Ill like manner compared with the money of 
 Amsterdam, tlie sovereign is found to be worth eleven 
 florins. Now, during the war against revolutionary 
 and imperial France, our paper pound, sinking in 
 purchasing power through taxation, ceased to be w^orth 
 25 francs 20 centimes, and gradually fell, till at last 
 it w^ould only purchase seventeen francs, or thereabouts. 
 Did that injure us in our dealings with foreigners? 
 Quite the reverse. It was our protection. Prices 
 rose in our markets, say from four nominal pounds to 
 six nominal pounds, owing to taxation, because paper 
 money permitted that rise. Had the foreigner w'ho 
 sold us goods at that time, received six gold pounds for 
 that for w^hich he formerly received only four gold 
 pounds, he would have obtained six times 25 francs, 
 or 150 francs, for what was only worth 100 francs. 
 But our pound was only worth a little less than 
 17 francs, and six times that amount was 100 francs. 
 That was our protection, and the foreigner Avas not 
 injured. — We will put the same problem in another 
 form. 
 
 Take a given quantity of wheat, and let its intrinsic 
 value be equivalent to one ounce of gold, or four pounds 
 in a metallic currency ; let the wheat, through taxation, 
 rise to six pounds in that metallic currency ; in these 
 circumstances let the foreigner import wheat; he would 
 sell it in our market for six gold pounds, because 
 though by the hypothesis it is intrinsically worth only 
 four gold pounds, he has the advantage of selling it at 
 our taxation i)rice. lie then calculates Avhat he shall 
 take back to liis own country as a return cargo. He 
 finds, on inquiry, that as taxation raised wheat from 
 ibur gold pounds to six gold pounds, so, in like pro- 
 ].'ortion, it has raised tlie price of all other commodities 
 fifty per cent. Why, then, should he buy our iron, for 
 example, at £12 per ton, when lie can l)uy an equally 
 good article in Sweden for £8). Why should he
 
 Balance of Trade and Foreign Exchanges. 89 
 
 purchase our cottons or calicoes, if he can purchase 
 the same goods at a cheai)er rate in Saxony or Prussia? 
 He clearly ^viil not. He is content to sell at our high 
 prices, but is too wary to butj at our high prices, lie 
 ascertains that taxation does not take etrect on our 
 gold coin, which is fettered down to its invariable 
 natural price by certain acts of parliament; the 
 consequence is that he leaves our dear goods in our 
 warehouses, and takes away our cheap gold. By this 
 operation he gets one ounce and a half of gold for his 
 wheat, which is onlv intrinsically worth one ounce of 
 gold, as in the terms of the hypothesis, for the other 
 half ounce is due to taxation, which adds to the cost 
 of production, but adds nothing to the value of the 
 product; and of this taxation the foreigner pays not 
 one farthing. Noav, the reader is requested to watch 
 the progress of such an operation. The foreigner has 
 six pounds in our bank notes; he presents four for 
 conversion into the yellow metal, and receives for them 
 one ounce of gold, which was the assumed value of his 
 wheat; but he has two other pounds remaining; he 
 presents them for conversion, and receives another half 
 ounce of gold. Thus he gives us four pounds estimated 
 in wheat, and takes from us six pounds estimated in 
 gold; so that by this operation we lose half an ounce 
 of gold on every quarter of wheat we purchase. This 
 is precisely what would have happened during the war, 
 had it not been for the enfeeblement which took place in 
 the purchasing power of the Bank note. From so 
 ruinous a loss we were only saved by what is stigmatized 
 as depreciation ; the unfavourable state of the Exchange, 
 as it was foolishly called, was our protection.* 
 
 We will now present the problem under the diil'erent 
 aspect. As we have seen, during the Eestriction Act, 
 the price of Avlieat advanced from four paper pounds to 
 
 * See 3Ir. Capps' Lecture on the Act of 1844, delivered at the 
 British Hotel.
 
 9U Balance of Trade and Foreign Exchanges. 
 
 tiix ])apcr pounds, owing to taxation. Tlie foreigner 
 sold his Avlieat, intrinsically -worth one ounce of gold, 
 for six paper jiounds; he exchanged them for gold at 
 the market price of that metal, not at the mi?it price, 
 for the mint price no longer existed. The paper pound 
 expressed taxation, and both the wheat and the gold 
 had advanced from 4 to 6, which of course is the same 
 as an advance from 2 to 3. Therefore the fluxional 
 })aper pound, fluxional because it rose or fell in pur- 
 chasing power, as taxation rose or fell, receded from 
 3 to 2 ; that is to say, while nominally passing among 
 ourselves for twenty shillings, its real value, measured 
 in bullion, had sunk to 13s. 4d. Six of such depre- 
 ciated notes, therefore, Avonld not purchase an ounce 
 and half of gold but only one ounce; the foreign wheat, 
 however, by the hypothesis, was only intrinsically 
 AYorth one ounce of gold, and to that, but to no more, 
 was the foreigner entitled. On receiving it he was 
 not wronged; in paying it we w^ere not injured; we 
 did not reallfj give six for four, but only nominallij; 
 really we gave four for four; and thus, by paper 
 money expressing taxation, our foreign trade, during 
 the restriction act, resolved itself into a fair exchange 
 of equivalents. 
 
 Under such a system the foreigner had no induce- 
 ment to take away our gold ; he had every motive to 
 buy our goods, instead of leaving them in our ware- 
 houses, thus practically realising Avhat we have quoted 
 from Xenophon : " Hence merchants are obliged to 
 barter their wares for other wares." How bullionism 
 enables the foreigner periodically to ruin our home 
 trade, we reserve till we examine the theory of Mr. 
 Samuel Jones Loyd, now Lord Overstone.
 
 CHAPTER Y. 
 
 Attempts to renew Cash Payments. Letter of Mr. Mathias Attwood 
 to Lord Arcliibalil Hamilton. View of Sir James Graham. The 
 Monetary Act of 18 IG. Did it fix the Price of Gokl in British Coin? 
 Fallacies of the Bullionists on that subject. The Copper Coinage 
 of 1798. Reports of Cmnmittees of both Houses of Parliament on 
 the Market and AlTn/^ price of Gold. Testimony of the late Lord 
 Ashburton. The Monetary Act of 1819. Denounced by Sir James 
 Graham. Protested against by the first Sir Robert Peel. Repudi- 
 ated by the Bank Directors. Its injustice pointed out by IMr. 
 Mathias Attwood. Carried by the suppression of Evidence and the 
 iffiiorance of Parliament. Retractation of his opinions by Mr. 
 Ricardo. The fall of prices which followed the Act of 1819. Riots 
 in the Manufacturing Districts. The Small Note Act of 182-2. The 
 Panic of 1825. (Quieted by an issue of One Pound Notes. Abuse 
 of the Country Bankers by the Government. Government Loans 
 to the Manufacturing Districts to avert Revolntion. The Reform 
 Bill. Report of the INJanchester Chamber of Commerce. Monetary 
 disasters of 1836 and 18;59. Fall of the Whig P.arty through 'the 
 decline in the Revenue, the consequence of a vicious system of 
 Money. 
 
 Wk have now traced our monetary system from the 
 suspension of cas]i payments, to the close of the war at 
 tlie battle of ^Vaterloo, and arrived iit the period when 
 the legislature commenced its efforts to resume cash 
 payments. It has been stated that a pledge vv^as given 
 to restore metallic money six montlis after the signa- 
 ture and ratification of a definitive treaty of peace, and 
 the bullionists clamoured for the literal execution of 
 the contract. It is here to be observed that tliis idedge 
 or promise Avas disrcg-irded at the peace of Amiens, so 
 that constructivclv it Avas ;tbandoned; nor wiis it ulti-
 
 92 Efforts to Restore Metallic Paijments. 
 
 mately carried in the terms of the statute, since it did 
 not take effect till 1819, and even then the Bank was 
 exonerated from a full payment of all its notes in coin 
 till tiie 1st of May, 1823, though the directors of their 
 own accord anticipated that date, and paid in sovereigns 
 on the 1st of May, 1821. It may be well here to re- 
 mark that the words, " The Bank Restriction Act," 
 are used properly as a compendious term for that whole 
 system of measures and acts of parliament, commencing 
 with 1793, and ending with 1814, by which the value 
 of money was lowered; as the words, "Mr. Peel's 
 Bill," are used as a compendious term for those other 
 measures, commencing in 1814, by which the value of 
 money was unjustly raised. 
 
 Let us now examine the spirit and policy of the re- 
 sumption of cash payments. In 1793, the national 
 debt stood at £239,350,148. At the end of the war 
 it figured for £864,822,540. The former sum was 
 contracted in gold. The balance, £625,472,392, was 
 borrowed in paper. In one sense it would have been 
 just to merge the whole in the character of the money 
 of the Restriction Act ; for the war had become one of 
 defence, and had England become a province of France, 
 th^re can be no doubt that the whole debt would have 
 been extinguished. To treat the whole as paper, was 
 simply to charge the difference as a premium of assur- 
 ance against the risk of confiscation. Whoever holds 
 the securities of an indebted government must, in all 
 honour and equity, be considered as responsible for his 
 share of that indebtedness in proportion to his property, 
 precisely in the same sense as the holder of land, ship- 
 ping, houses, or mines. If it were at any time deter- 
 mined to liquidate the national debt, a tax for that 
 purpose would not exempt the fundliolder, who is now 
 compelled to pay the income tax. 
 
 But whatever difference of opinion may exist as to 
 the manner in which the debt existing prior to 1783,
 
 Mr. Matliias Attxwod. 03 
 
 ouglit to liavc been dejilt witli, tlicre oiiglit to Imve 
 been none in regard to tluit portion Avliicli was con- 
 tracted in the money of the Restriction Act. Certainly 
 the letter of the law ought not to htive been complied 
 with. No doubt a man is bound by a law, although he 
 should not know of its existence or meaning. Ikit, as 
 Mr. Matliias Attwood, in his letter to Lord Archibald 
 Hamilton, Avell observed, " it must be one which the 
 makers of it themselves well understood. It is in that 
 sense in which a law is understood generally in the 
 country, and by those who made it, that any man is 
 bound to understand it, and to know of its existence, 
 and it is in that sense only in which he can be justly 
 made to suffer by it. That act of parliament, the 
 weighty import of which was tliat, at the return of 
 peace, all the debts and taxes contracted and imposed 
 during the war should be discharged in money of 
 double value., was not believed nor intended by those who 
 framed it to possess any such meaning. What they 
 meant was, to secure the return to a standard of a 
 more steady character than that in use ; but not to one 
 of a different value. It was denied that the standard 
 which that act provided for the abandonment of, at a 
 distant date, was of a lower value than that to Avhich 
 it proposed to return. The very existence of an act of 
 parliament to return to the gold standard at a distant 
 day, is a conclusive proof that it could not have been 
 understood in that sense in which it is now said that 
 it was justly binding. Could an act possibly have 
 had an existence providing openly and in explicit 
 terras, that at a distant and uncertain day, all debts 
 should be discharged in money of a higher value than 
 that in use?" 
 
 The process of government in this nef irious fraud, 
 unparalleled in the annals of crime, was this. During 
 the Avar, they contracted })ermanent loans, the lenders 
 receiving, on an average, £G0 in three per cent, stock,
 
 94 Sir James Graham. 
 
 the government jDinding themselves not to pay it off 
 till that stock reached £100. This alone may be 
 deemed a handsome bonus, even had it been paid to 
 a foreign enemy, for it wears all the character of a 
 " ransom." But their generosity or injustice went 
 further. These loans were contracted in paper, not 
 in gold, and the paper was depreciated 33 per cent., 
 for £60 in paper Avas only equal to £40 in bullion. 
 As the ounce of gold at mint prices is coined into four 
 pounds sterling, minus a small fraction, £40 repre- 
 sents ten ounces of gold. That was what the fund- 
 holders lent; and by the resumption of cash payments 
 they became entitled to receive 25 ounces of gold for 
 those 10 ounces.* 
 
 While the Kestriction Act was in force, all pensions 
 and official salaries were raised to meet the deprecia- 
 tion of money. The judges received £5,550 instead 
 of £3,500, while the pay of the soldier, which, in 
 1792, had been 6d. per day, was raised to lod. These 
 advanced rates are still enforced ; but if it was just 
 to increase salaries while cash payments were sus- 
 pended, surely it would have been equally just to have 
 reduced them when cash payments were resumed. 
 But they Avho prided themselves in keeping faith 
 witli the public creditor, had no scruples of conscience 
 in breaking faith with tlie public debtor. 
 
 Sir James Graham, before lie sold himself to Peel, 
 thus animadverted on the fraud committed in resuming 
 cash payments : — 
 
 " It was strange, also when reliance was placed on 
 historical examples, under circumstances totally dis- 
 similar, that the course pursued by other countries, in 
 a state of affaii's identically the same, should have been 
 entirely overlooked ; for, in France, after the abolition 
 
 *' Tliis is t.lic hfiinoiis State crime which attaches to the memory 
 of tlie second Sir Rohert Peel, and wliicli tlic future liistorinn 
 will brand witli withcrin!*' condemnation.
 
 Sir James Graham. 95 
 
 of assignats and mandats, and the rc-establisliment of 
 ii metallic currency, the government ascertained the 
 value of the Louis d'or as compared with assignats 
 at different periods, and in this simple manner, on 
 reference to the given market price of the Louis d'or, 
 at any given time, contracts were reduced to their rciil 
 value ; and more recently, Avhen the French government 
 altered the value of its money to the extent of five per 
 cent, only, it provided by law for a corresponding- 
 adjustment of all debts. The United States of America 
 also, when, in the last extremity of their struggle of 
 independence, they resorted to a depreciation of their 
 currency, guarded against the fatal effects of their own 
 measure, by enacting that no l)argain or contract for 
 land should be valid, if on a credit of longer term than 
 three days. In the example of France we find retribu- 
 tive justice; in the example of America, prospective 
 wisdom; but in vain shall we seek to discern the 
 slightest vestige of either virtue in the British enact- 
 ments of 1797 and 1819. Here, by law, we depre- 
 ciated the currency, and by a solemn resolution of the 
 House of Commons, denied the fact of depreciation. 
 Here, by law, we raised the value of mone}^, and in- 
 stead of avowing our purpose and preparing for its 
 effects, we mystified the intention and Avere blind to 
 the results."* " 
 
 When the Louis d'or of 24 livres purchased 600 livres 
 in assignats, it is clear that an engagement made in as- 
 signats at that rate was twenty-five times the value in 
 good money. "When the Louis d'or was worth 1,200 
 livres, a conti'act made in assignats was fifty times 
 the value of the metallic monev. In this simple nuin- 
 ner, according to any given market price of the Louis 
 d'or at a given time, contracts were reduced to their 
 real value. The eminent French economist, M. Say, 
 considers that the course that ought to have been 
 "" Corn and CuiTency. By Sir James Graham.
 
 9G The Monet(iri) Act of 1816. 
 
 adopted in England was to fix the standard at £5 9s. 
 for the ounce of gold, instead of at <^3 17s. lO^d., 
 being a depreciation of 40 per cent., which he con- 
 siders to have been the fact in 1819. He distinctly 
 says that such a measure was dictated by justice and 
 policy. 
 
 On the 2nd May, 1815, the market price of gold 
 in London was quoted at £5 6s. per ounce; but after 
 the battle of Waterloo, the exchange against England 
 rapidly declined, and a bill being passed to continue 
 the restriction of cash payments until the 5th July, 
 1816, the Bank obtained time to reduce the mercantile 
 value of gold in relation to its own notes; and in 
 January, 1816, gold was brought down to £4 2s. per 
 ounce. In the prices of all other commodities there 
 was a proportionate fall. These reductions were 
 efiected by government acting on the circulating me- 
 dium which was at its highest in 1814, but was reduced 
 to nearly one half in 1816. The consequence was a 
 scene of agricultural and mercantile distress of unpre- 
 cedented severity. In 1815, the total number of bank- 
 ruptcies was 1,285; in 1816 they increased to 2,089, 
 being an addition of 55 per cent, in one year. In re- 
 ference to this period, Sir James Graham asserted, and, 
 as he declared, on the authority of the most competent 
 judges, that the losses sustained by individuals at that 
 period " counterbalanced all the profits of all the 
 bankers during the w\ar." The government became 
 alarmed, and the restriction of cash payments was fur- 
 ther extended from July, 1816, to July, 1818. The 
 bankruptcies which, in 1817, had been 1,575, were 
 reduced to 1,056 in 1818, being a decrease of 33 per 
 cent. The national distress Ijegan to disappear; 
 in fact, remunerating prices and prosperity were 
 restored, but distress again returned, Avhen it was 
 ascertained that gold Avas again rapidly leaving the 
 country. Before the close of the session of 1818, the
 
 The Monetanj Act 0/I8I6. 97 
 
 Chancellor of tlie Exchequer announced to parliament 
 that it was not advisable for the Bank to resume cash 
 payments in July, 1818, as had been intended, and 
 the Kestrictiou Act* was extended to the 5th July, 
 1819. It is here desirable to till up the outline of this 
 short but memorable period. 
 
 On the 22nd June, 1816, an act was passed to pro- 
 vide for a new silver coinage, and to regulate the cur- 
 rency of the gold and silver coin of the realm. Its 
 first clause repealed the 18th Charles 2, c. 5, which 
 permitted any person, native or foreign, to take plate, 
 silver bullion, or foreign coin to the mint, to be there 
 coined into the current money of the realm of England 
 without charge. It then directed that the pound troy 
 of standard silver, eleven ounces, two dwts. fine, which 
 had hitherto been coined into sixty-two shillings, 
 should henceforward be coined into sixty-six shillings. 
 Clause 11. enacted that in future gold coin should be 
 the only legal tender in payment of debts, exceeding 
 forty shillings. It was falsely pretended that this act 
 and the act of 1819, presently to be noticed, restored 
 the ancient standard ; and this palpable untruth has 
 been repeated over and over again in the various 
 pamphlets of Lord Overstone, and the speeches of the 
 second Sir Robert Peel ; and no extent of charity can 
 permit us to assign any other reason for so gross a vio- 
 ation of veracity than the deliberate purpose of wilful 
 deception. The ancient standard to which those gen- 
 tlemen referred was the standard of Elizabeth, A.D., 
 1601, which allowed the debtor to discharge his obli- 
 gations, according to his pleasure, either in gold or 
 silver; Avhereas the act of 1816 restricted him prac- 
 tically to gold, silver being lowered to the character of 
 a subordinate counter, and restricted as a legal tender 
 to forty shillings. 
 
 We now come to the vexed question of the fixed 
 price of gold in our coinage, which the bullionists deny, 
 
 H
 
 98 Is the Price of Goldjixed in our Coin? 
 
 asserting that the 123 grains in the sovereign are 
 merely a weight to which no price is attached. To 
 expose this stupid and pernicious fallacy, we must 
 quote at some length from the Act ef 1816. Clause XIII. 
 is thus worded : — 
 
 " And be it further enacted, that from and after the 
 passing of this Act no person shall by any means, 
 device, shift, or contrivance whatsoever, receive or pay 
 for any gold coin lawfully current within the United 
 Kingdom of Great Britain and Ireland any more or 
 less in value, benefit, profit, or advantage than the 
 true lawful value Avhich such gold doth or shall by its 
 denomination import; nor shall utter or receive any 
 piece or pieces of gold coin of this realm at any greater 
 or higher rate of value, nor at any less or lower rate 
 of value, than the same shall be current for in payment, 
 according to the rates and values declared and set 
 upon them pursuant to law; and that every person 
 who shall offend herein shall be deemed and adjudged 
 guilty of a misdemeanor, and being thereof convicted 
 by due course of law, shall sufier imprisonment for the 
 term of six calendar months, and shall find sureties for 
 his or her good behaviour for one year more, to be 
 computed from the end of the six months ; and if the 
 same person shall afterwards be convicted of the same 
 oflfence, such person shall for such second offence 
 suffer one year's imprisonment, and find sureties 
 for his or her good behaviour for one year more, to be 
 computed from the end of the said last mentioned year; 
 and if the same person shall again offend against the 
 Act, and shall by due course of law be convicted of 
 any subsequent offence, he or she shall be imprisoned 
 for the term of two years for every such subsequent 
 offence." 
 
 Clause XIV. orders that when a person is brought 
 to trial for a second offence, the Clerk of the Peace 
 shall certify the former conviction. Clause XV. takes
 
 la the Price of Gold fixed in our Coin? 99 
 
 away from the party accused the right to traverse. 
 Chiiise XVI. releases the prosecutor from the obligation 
 of proving the money lawful. 
 
 In these clauses it would be difficult to discover a 
 sentence, line, or word, which treats the gold sovereign 
 as a mere weight. They expressly enact that current 
 gold coin shall not be received or paid for more or less 
 than its value, according to its denomination. What 
 can the monied denomination of the sovereign signify, 
 but twenty shillings; The denomination can not mean 
 weight. The intent of the Act, therefore, is most 
 plainly that he Avho gives more or less for a sovereign 
 than twenty shillings, is liable to imprisonment, and 
 the penalty proves that the legislature intended to fix 
 the price of the gold contained in the sovereign. 
 
 On this subject the bullionists have put forward the 
 following fallacy. Take say they, a definite quantity 
 of wheat, and call it a quarter; divide it into eight 
 equal parts and call each part one bushel ; here they 
 contend there is nothing but weight and division. — 
 Granted. They then proceed thus : Take a definite 
 quantity of gold, and call it an ounce ; divide it into 
 four equal parts and call each part one sovereign; 
 here also the bullionists declare that there is nothing 
 but weight and division. But this can not be con- 
 ceded. There is no parallel between the two cases. 
 On the wheat no monied denomination is placed. — 
 The weight of tlie quarter or bushel of wheat is 
 immutable, but the price fluctuates from market day 
 to market day; the weight and price of the ounce, 
 and quarter ounce of gold are both immutable. There- 
 fore the assumed parallel between the two substances 
 has no real existence, and it is demonstrated that 
 while the price of Avheat is variable, the price of gold 
 in our coinage is fixed. It is difficult to believe that 
 any man who can realise in his mind the operative 
 sienificancy of the term " a monied denomination," 
 
 H 2
 
 100 Fallacies of the Bullionists. 
 
 can resist the reasoning adduced ; but if such a person 
 is discovered, he might be asked what he takes to be 
 the difference between the mint price and the market 
 price of gold ; and it is to be presumed that he would 
 be sorely puzzled to give any answer that did not 
 convict him of error. 
 
 The bullionists refuse to listen to the voice of 
 experience. In 1798 a new copper coinage was 
 adopted. By a mere accident the market price of 
 copper then happened to be 16 pence per pound. The 
 bullionists deluded themselves into a belief that an 
 ounce of copper ought to be identical with a penny in 
 money. Accordingly, the copper penny was coined of 
 one ounce, and for an evanescent period the market 
 and mint price corresponded. Loud was the exultation, 
 but short-lived the triumph. Copper advanced in the 
 market to 20 pence per lb. when the bubble burst and 
 the vision vanished. The braziers melted the penny 
 pieces, worth only 16 pence per lb, instead of buying 
 copper at the market rate of 20 pence per lb ; and then 
 ceased the equivalency between the legal ounce weight 
 and the legal penny. But this warning, which settled 
 the principle in dispute, was disregarded, though the 
 fact was remembered, for the Report of the Committee 
 of the House of Lords stated that, "unless the 
 market price of gold was so jixed^ and shall continue 
 to be afterwards, so near the mint price as not to afford 
 a profit upon the exportation of that metal, it has been 
 abundantly proved by past experience that no law can 
 prevent such exportation, and the consequent demand 
 upon the Bank." The Report of the Committee of 
 the House of Commons was to the same effect : — "No 
 accumulation of treasure," it says, " to whatever extent 
 it may be carried, can render the Bank competent to 
 satisfy the demands which will inevitably be made for 
 gold, if the Banks are under an obligation to issue it 
 at the rate of £3 17s. lO^d. per ounce, and if the
 
 Fallacies of the Bullionists. 101 
 
 parties having a right to demand it can continue to 
 derive a prolit of live or six per cent, on its expor- 
 tation." 
 
 This part of the subject may now be dismissed, for 
 the writer has exhausted fact and argument ; and he 
 considers it established, both by authority and reason- 
 ing, that the price of gold in British coinage is fixed 
 by Act of Parliament. 
 
 We have seen in the numerous bankruptcies which 
 took place in 1815 and 1816, evidence of the discredit 
 into which the country had fallen, in consequence of 
 the circulation having been reduced one half, compared 
 with the circulation of 1813 and 1814. In the early 
 part of 1816 the effective circulation of the Bank stood 
 at little more than twenty-five millions; but by the 
 autumn of 1817, the terrified government induced the 
 Bank to raise the circulation to £30,112,661. The 
 consequence was that prices again rose actually to the 
 level of the war, and general prosperity returned, thus 
 refuting the silly idea prevalent among many classes 
 that a state of hostilities had caused the war, the truth 
 being that it was wholly due to the emission of paper 
 money. If historical evidence be demanded to sustain 
 the doctrine, such evidence can be adduced. During 
 the American war of independence, the colonies used 
 paper money, while England retained its metal money. 
 At that period all prices advanced in America; in 
 England no advance took place. In the war against 
 revolutionary and Imperial France, England adopted 
 paper money; France maintained its metal money. 
 Land and all products advanced in England ; they 
 maintained an equal level in France, after the suppres- 
 sion of assignats and mandats. — Prices did not advance 
 in England dui'ing the American war of independence, 
 nor in France during the war to which we have 
 referred. — From these examples it is evident that tax- 
 ation lifts prices, and paper money permits or enables 
 them to be lifted.
 
 102 Fallacies of the Bullionists. 
 
 It has been stated that prices rose in 1818 to the war 
 level, and that rise has been referred to an expansion of 
 legal tender of seven millions over and beyond the 
 amount of circulation prior to the autumn of 1817. It 
 was shewn before the Agricultural Committee of 1821 
 that, in 1818, wheat was 84s. Id. per quarter. As com- 
 pared, not with the consumption of the war, but with 
 the consumption of 1818, taking the large towns of 
 Liverpool, Manchester, Birmingham, Sheffield and 
 Leeds, not only bread, but meat, fell in 1819, 1820, and 
 1821, that is, after gold payments were ordered to be 
 resumed. The fall in meat in those towns was proved 
 before the committee to have been 15 per cent. ; and 
 proved by the most decisive evidence, the diminution of 
 hides being 15 per cent. If any one superficially considers 
 that a fall of 1 5 per cent, was a proof of cheapness, let 
 him bear in mind that the supply of animal food had 
 declined to the same scale of per centage; and let him 
 further take notice that a petition from Birmingham 
 to Parliament in 1821, stated that less butchers' 
 meat was consumed as butchers' meat fell, showing 
 such a decline of wages simultaneously with the decline 
 of food, as deprived the working classes of that com- 
 mand over commodities which they had enjoyed in 
 1818, when the supply of the legal tender was ample. 
 The year 1818 was not only a prosperous year for 
 agriculture, but a prosperous year for commerce 
 and shipping. In reply to questions asked by the 
 Committee on Foreign Trade, which sat in 1820, 
 Mr. Tindall, an eminent ship builder, said, that in 
 1818, the value of ships had recovered from depression; 
 and that there was enough employment for all ships, 
 including the transports discharged after the war, at 
 good freights. Mr. Tooke stated, "in 1818, I had 
 very great difficulty indeed in getting the requisite 
 quantity of shipping." But, in 1819 and 1820, that 
 is after Peel's Bill was passed, ships were again too
 
 The Act of 1819. 103 
 
 numerous for commerce ; then Mr. Tooke said, " he 
 could have procured double the quantity of tonnage he 
 desired." Mr. Marrvatt, a member of the House of 
 Commons, and a most extensive West India merchant, 
 averred in a speech delivered by him in Parliament in 
 1820, that a vessel called " The Sesostris," which cost 
 in 1818, £12,175, was sold in 1820 for £6,300. If 
 this case stood alone, it would be insignificant in 
 support of the present argument; but Mr. Marryatt 
 declared that the rule was universal, of Avhich he cited 
 numerous instances. In fact, during 1818, commerce, 
 manufactures and agriculture all flourished.* But of 
 this prosperity one more crowning proof may be given. 
 The following statement is taken from the report of 
 the finance committee of 1819, in which it comments 
 on the revenue of 1818 : 
 
 " It appears that the total revenue of Great Britain, 
 in the year 1818, exceeded the same revenue for 1817 
 by the sum of £1,705,510; and that the total revenue 
 of Ireland for the year 1818, exceeded that for 1817 by 
 the sum of £192,969, making a total improvement of 
 the revenue of the United Kingdom, as compared 
 with 1817, of £1,898,479; but this comparison 
 will be rendered still more correct, and the result will 
 be more favourable, if the sum of £2,330,531, being 
 the amount of unappropriated war duties received in 
 1817, be deducted from the income received in that 
 year; and if the sum of £566,639, the amount of 
 appropriated war duties received in 1818, be also 
 deducted from the total revenue received in 1818. It 
 will then appear that an improvement to the amount 
 of £3,662,371 has actually taken place in the perma- 
 nent revenue of the United Kingdom in 1818, as 
 compared with 1817." 
 
 The bullionists, being in possession of Downing 
 
 * These facts are taken from a letter addressed to Lord, 
 Archibald Hamilton by Mr. Mathias Attwood.
 
 104 Statement of Lord Ashburton. 
 
 Street, were obstinately bent on resuming cash pay- 
 ments, tliough, as we have seen, they had been 
 compelled to postpone the measure from time to time. 
 They urged the Bank to commence an issue of sove- 
 reigns to keep up appearances, and prepare the public 
 for the change; and the Bank did issue some in 
 October, 1817. At this very juncture, the French 
 government commenced a series of monetary operations, 
 the object of which was to provide itself with gold. 
 They had borrowed a loan from English capitalists, 
 and as the price of our sovereigns had been fixed, by 
 the act of 1816, at ,J;3 17s. 10|d. an ounce, though 
 the market price of gold in December, 1817, was de- 
 clared to be £4 Os. 6d., the French agents, of course, 
 took away our cheap gold; the consequence was, 
 that by the end of 1817, the Bank was drained of 
 £1,240,422, Avhich it had been laboriously collecting 
 and converting into coin. This process went on, and 
 by the end of 1818, the Bank had parted with the 
 enormous sum of £6,756,000. Thus were we punished 
 for our folly in fixing the price of gold, and thereby selling 
 it for less than the market price. The preceding account 
 of this drain rests on the autliority of Mr. Alexander 
 Baring, whose house contracted for the loan. The 
 following passages are extracted from the evidence he 
 gave before a Committee of the House of Commons, 
 and embodied in their report : — 
 
 " In France it appears, by the report of the minister 
 of Finance, that there has been carried to the mint of 
 France in the sixteen months preceding the 31st 
 December, 1818, gold to the amount of 125 millions 
 of francs (being equal to about five millions sterling); 
 and silver to the amount of a little more than three 
 millions of francs. Of that gold^ upwards of three- 
 fourths was in coin from, this country ; and this 
 operation has continued during the present year 
 (1819), though the amount of the importations of 
 this year has not been reported."
 
 Statement of Lord Ashburton. 105 
 
 This export arose because the Bank was compelled by 
 law to sell its coined gold for less than it was worth, 
 that is, at the mint price, not at the market price ; and 
 if any sceptical reader refers it to the only other cause 
 that could then have operated, viz., an adverse balance 
 of exchange, the crushing answer is, that the balance 
 of trade was in our tavour during the whole period, 
 every part of the Avorld being indebted to England. 
 We have seen the Emperor Napoleon the Third act on 
 similar tactics in 1855 and 1856; he has bought our 
 coin at a fraction above our mint price, and drained us 
 of all that we received from Australia. True, he paid 
 a premium for it, and that premium yielded a profit to 
 the London brokers; but how has it fared with our 
 own merchants and manufacturers? Discounts have 
 been raised to them to such a height as to deprive 
 them of all their profits by the French operation. How 
 evident, then, is tlie remedy, and how imperative its 
 enforcement for such a state of things, Avhich may 
 happen at any time that it suits the foreigner, and 
 against which the English can ofier no resistance. 
 Treat gold as a commodity, and put it at its market 
 price in national paper money. That is the efficient, 
 as it is tlie sole corrective. 
 
 Nothing daunted by their abortive attempts to carry 
 their point, and making no provision for a recurrence 
 of a drain such as that just described, the bullionists 
 persevered in their policy, and in 1819 Mr. Peel's bill 
 was carried. It provided that between the 1st of 
 February and the 1st of October, 1820, the Bank 
 should pay in standard gold for notes tendered to an 
 amount not less than the value of sixty ounces, after the 
 rate of £4 Is. per ounce. Between the 1st of October, 
 1820, and the 1st of May, 1821, it was enacted that 
 such payments should be made in gold calculated after 
 the rate of £3 19s. 6d. per ounce. Between the 1st 
 of May, 1821 and the 1st of May, 1823, it was ordered
 
 106 Protest of Sir James Graham. 
 
 that payment sliould be made in gold, calculated at 
 the rate of £3 17s. lO^d. Chiuse 10, permitted the 
 export and melting of the coin, which was a violation 
 of the act of Elizabeth, 1601. The Bank was allowed 
 to anticipate each of the three periods mentioned ; but 
 any of the intermediate rates being once fixed, the 
 Bank was not allowed again to avail itself of the pre- 
 scribed scale. Tlie Bank Directors of their own accord 
 commenced paying their notes in sovereigns on the 1st 
 of May, 1821, and thus this measure was completed. 
 
 Sir James Graham, in his pamphlet on " Corn and 
 Currency," thus exposes the machinations by which it 
 was carried : — 
 
 " The government, in the course of the year pre- 
 ceding, had resolved to return to cash payments, and 
 Avith this view it had reduced its debt to the Bank of 
 England, and thereby diminished the paper circulation, 
 both of the Bank itself, and also of the country banks. 
 The approximation of the price of gold to the mint 
 price, in 1819, was efiected by these means. More- 
 over, no less an amount than seven millions of gold 
 coin had, at the instigation of the government, with a 
 view to this measure, been poured into the market at 
 the standard price of the Bank of England ; and this 
 operation was in progress at the time when the com- 
 mittee on Mr. Peel's bill assembled. An artificial re- 
 duction in the price of gold was the consequence ; and 
 the committee, and even the legislature Avere thus be- 
 trayed into the error of estimating the extent of the 
 depreciation of paper by the current price of gold. 
 Hence they adopted the fallacy that the paper money 
 was then only four or five per cent, below the value of 
 the ancient standard which they sought to restore. 
 They formed their judgment of the value of money at 
 that time, not by the price of commodities generally, 
 but from the price of a single commodity — gold — with 
 which the government had been tampering, for the 
 express purpose of forcing down its value."
 
 Protest of the First Sir Robert Peel. 107 
 
 The first Sir Robert Peel, on presenting a petition 
 from the bankers, merchants, traders, and others, of 
 London, in favour of the continued restriction of cash 
 payments, and against the bill of 1819, made the fol- 
 lowing remarks, showing that the committee were 
 wholly incompetent, or most grossly prejudiced: — 
 
 " In looking at the reports which had been published 
 on the subject, he must say that the witnesses were 
 not men likely to give any information to the public, 
 not men acquainted with the state of the country ; the 
 last men who should have been questioned if govern- 
 ment wanted to arrive at the merits of the case. He 
 begged to state his opinion, that the petitioners were 
 the best judges of such a measure. He would also add, 
 that though they Avere intimately connected with all 
 that concerned the welfare of the country, the most 
 experienced men, and the best qualified from their 
 connection with our manufacturers and commerce, yet 
 they had not been examined before the committee^ 
 
 The Bank Directors protested against the Bill, 
 saying that tliey could themselves meet their engage- 
 ments perfectly Avell, but that mercantile industry 
 would be crushed; and, as they had been misrepre- 
 sented on former occasions, they entered their present 
 protest, lest at some future date, it might be asserted 
 they had acquiesced in so ignorant and ruinous a 
 scheme. To shew that the Act of 1819 was passed in 
 utter ignorance of its character, we must here deviate 
 from strict chronological order, to what transpired in 
 1832, when Mr. Mathias Attwood was examined 
 before the Select Committee on the state of Agricul- 
 ture. That gentleman Avas asked, " Do you remember 
 what Avas stated at the time in Parliament on that 
 subject — that the Act of 1819, would not alter prices 
 more than four or five per cent, at the utmost?" 
 Mr. AttAvood gave this ansAver : — 
 
 ''It was never stated that the abolition of the silver
 
 108 Mr. Mathias Attwood. 
 
 standard would alter prices at all. It was stated, with 
 reference to the Act of 1819, which established the 
 present standard, that this would alter prices to the 
 extent of four, or perhaps five per cent. A member of 
 the Committee of 1819, stated in his place in the 
 House of Commons, nine years after that time, that he, 
 as a member of the Committee, was entirely misled as 
 to the character of the measure which was founded 
 on its recommendation and report. He stated that, 
 in his belief, every member of that committee was 
 similarly misled ; he addressed himself to the Chairman 
 to ask if this was not so ; he stated that the Committee, 
 entirely inexperienced in sucli matters, were misled by 
 witnesses perfectly uninformed, who talked of a fall of 
 prices of four or five per cent., when it was since 
 rendered undeniable that a fall of prices had been pro- 
 duced, and an alteration in the value of money, not of 
 four or five per cent., but of twenty, thirty, or forty 
 per cent; that if the character of that measure, the 
 Act of 1819, had been known to him he would not 
 have voted for such a measure, or supported it in the 
 House or in the Committee, nor did he believe that 
 any one member of the Committee, knowing the 
 character of the measure, would have supported it, or 
 that the Chairman of the Committee would have 
 done so." 
 
 Mr. Attwood was then asked whether Mr. Robert Peel 
 was not the Chairman alluded to? The answer was 
 " yes. He was present, and made no answer to that 
 statement. It was Mr. Bankes who made the statement. 
 Another member of the House of Commons, Sir 
 James Graham, put a question to the Chairman of the 
 Committee (Mr. Robert Peel) in the House, imme- 
 diately after the statement of Mr. Bankes, whether he 
 contradicted that statement, and he gave no contra- 
 diction." 
 
 We return to the year 1819. Not one word was
 
 Mr. Ricardo. 109 
 
 said in debate of that clause in the Suspension Act 
 which pledged parliament to restore cash payments six 
 months after a definitive treaty of peace. It was felt 
 that such a pretention, several years after peace had 
 been signed, was ridiculous. The reasoning of the 
 bullionists was of a very different character. As their 
 spokesman they put forward Mr. Ricardo, a gentleman 
 largely engaged in stock exchange operations, and who 
 was looked up to as an authority on trade and finance, 
 he being the author of some able works on political 
 economy. He gave it as his opinion that the return 
 to cash payments would only lower prices about four 
 per cent., and he was believed as an oracle is believed. 
 This fall Avas so trifling that all efi'cctive opposition 
 ceased. Mr. Baring, Mr. Attwood, and Mr. Ellice, 
 warned the House that the fall would be at least 25 
 and probably 50 per cent., but their counsel was 
 unheeded. But it must be stated in justice to Mr. 
 Ricardo, that he afterwards had the magnanimity to 
 confess the gravity of his error, thus favourably con- 
 trasting with Peel, whom a false pride, or some motive 
 still more unworthy, rendered obstinate and callous. 
 On Mr. Western's motion in 1823, Mr. Ricardo said 
 that he had computed the whole rise in the value of 
 money since Mr. Peel's act at ten per cent., but at the 
 same time avowed that he had very little ground for 
 forming any correct opinion on the subject. " By 
 comparing money," he said, " with the standard value, 
 we had certain means of judging of its depreciation, 
 but he knew of none by which we were able to ascertain 
 with certainty alterations in real or absolute value. 
 
 In his " Protection to Agriculture," Mr. Ricardo 
 makes a similar admission in the following Avords : — 
 
 " That it is a question exceedingly difiicult to deter- 
 mine what the effect has been on the value of gold, 
 and consequently on the value of money produced 
 by the purchases of bullion made by the Bank. When
 
 110 Mr. Rlcardo. 
 
 two commodities vary, it is impossible to be certain 
 ■whether one has risen or the other fallen; there are 
 no means of approximating to the knowledge of the 
 fiict, but by a careful comparison of the value of 
 the two commodities with the value of many other 
 commodities." 
 
 Mr. William Ward, formerly one of the members for 
 the city of London, published the following curious 
 and interesting details in his remarks on the " Com- 
 mercial Legislation of 1846 :" — • 
 
 " Mr. llicardo was asked, in 1819, why the reduc- 
 tion of four millions of notes had not corrected an 
 unfavourable exchange? His answer was, 'It ought 
 to have done so, and would have done so, had not 
 counteracting causes, of which I know nothing, and 
 could know nothing, operated.' He was afterwards 
 asked whether a reduction of five per cent, in prices 
 and currency might not be greatly embarrassing after 
 speculation, stagnation, &c. His answer was, ' An 
 alteration in value of five per cent, does not appear to 
 me very formidable, but of this matter I do not profess 
 to know much. I have had very little practical know- 
 ledge upon these subjects.' It is most remarkable that 
 on this very point Mr. Ricardo was in reality greatly 
 mistaken. When • asked what the effect would be on 
 the price of commodities by a reduction of Bank issues, 
 his answer was, to the amount of about five or six per 
 cent., being the excess of the market over the mint 
 price of gold. Mr. Ricardo lived to change his opinion, 
 and shortly before he died, expressed that he had done 
 so. The late Sir William Heygate was with him, 
 when he said ' Ay, Heygate, you and the few others 
 who opposed us on cash payments have proved right. 
 I said that the diflference at most would only be five 
 per cent., and you said at the least it would be 
 twenty-five per cent.' " 
 
 Thus it appears that the Act of 1819 was condemned
 
 Riots in the Manufacturing Districts. Ill 
 
 by its cliief promoter ; and it will be remembered that 
 Mr. Bankes, a member of the committee which had 
 recommended the House to pass it, declared that it Avas 
 passed under a complete misapprehension of its nature 
 and consequences. These facts are important; they 
 refute the silly assertion that the currency question is 
 settled, and furnish the strongest argument in favour 
 of a serious reconsideration of the whole of our monetary 
 system. 
 
 Immediately on the passing of the Bill, prices began 
 to fall. Those persons were fortunate who obtained £75 
 for Avhat had previously sold for £100. Profits and 
 wages rapidly and extensively declined. Riots broke 
 out in the manufacturing towns. The Luddites attri- 
 buted their sufferings to machinery, and destroyed 
 it when they were able. Large meetings were held, 
 demanding parliamentary reform as the proper cure 
 for the evils endured. To aggravate the pressure, and 
 add fuel to the flames of discontent, three millions of 
 fresh taxation were imposed. The agricultural labourers 
 now emulated the mechanics of towns, burning corn 
 stacks and hay ricks, for which some of them were 
 hanged. The harvest of 1821 and 1822 proved 
 abundant; wheat fell to 43s. 3d., and the ruined 
 farmers petitioned for agricultural relief. Government, 
 infatuated with bullion errors, and spurning the idea 
 that any distress could arise from the resumption of 
 cash payments, attributed all the misery of which the 
 farmers complained to the extraordinary productiveness 
 of the crops. Such ignorance and impiety are scarcely 
 credible, but the fact is not to be disputed, as the 
 parliamentary debates in Hansard attest; nay more, 
 the walls of parliament rang with approving cheers 
 when the doctrine was enunciated. However, the 
 ministerial triumph was short. Not only were the 
 English labouring classes unable to obtain bread in the 
 midst of this imaginary over-production, but quickly
 
 1 1 2 The Small Note A ct. 
 
 news arrived that there was a famine in Ireland. Sub- 
 scriptions were raised ; every pulpit, by royal command, 
 was put into requisition to solicit alms, and the bubble 
 of over-production burst. 
 
 The contraction of money, which had caused the 
 crisis of 1816, produced in 1822, a recurrence of 
 distress, failures, and general embarrassment; and as 
 in the former, so in the latter period, relief was afforded 
 by expanding the circulation. On the 29th April, 1822, 
 Lord Londonderry gave notice of the introduction of 
 the Small Note Act, which Avas a modification of the 
 Bill of 1819. Among other obligations which the 
 ncAv system imposed on all bankers, was one which 
 bound them to pay cash on demand for all their notes, 
 and to discontinue the issue of paper for any sum 
 under five pounds, after the year 1824. The Small 
 Note Act removed that obligation, and private bankers 
 were permitted to issue one and two pound notes. 
 Four millions were added to the circulation. There 
 were loans to government, loans to parishes, loans to 
 landed proprietors, loans to public works. Thus the 
 crisis of 1822 was averted, by an addition to the 
 circulating medium. Country Bank paper was greatly 
 enlarged. The Bank of England pushed out its notes 
 in all directions. It lent on mortgage and on stock ; it 
 purchased the dead weight annuity, and made advances 
 to government to pay off dissentients on the conversion 
 of the five per cents, into four per cents., and granted a 
 loan of two millions, at two and-a-half per cent, to the 
 East India Company. In 1825 the circulating medium 
 exceeded, or nearly so, by 50 per cent., the amount 
 that was in circulation in 1823. This was the epoch 
 of " Prosperity Robinson," now Earl Ripon. On 
 opening parliament in 1825, his Majesty said, " There 
 never was a period in the history of the country, wlien 
 all the great interests of society were, at the same 
 time, in so thriving a condition." But the sunshine
 
 Panic of 1^2'). 113 
 
 wjis soon to be succeeded by the mui'lvicst gloom. As 
 all our goods liad risen in price, from the pressure of 
 indirect taxation, and that expansion of pnper wliicli 
 l)ermitted the rise, they became dearei- than untaxed 
 gold, which the statute had tied down to the barter 
 level of £3 17s. 10^ d. per ounce. Tlie foreign 
 merchant, therefore, to whom our gold was not money, 
 but a commodity, took away the gold as merchandise, 
 because it was the cheapest commodity he could find in 
 tliis country, and to him the most profitable. This 
 drain caused the panic of 1825. One eighth of the 
 English country banks were ruined, and six of the 
 London Banks stopped payment. Tlie increase of the 
 circulating medium, which had been progressing for 
 two years, was annihilated in a few weeks. The 
 aggregate losses of the nation would have redeemed at 
 least two-thirds of the national debt. 
 
 Lord Liverpool, i)rime minister, gave the following 
 account of this catastrophe, in February, 1826. " In 
 March, 1825," said his Lordship, " the Bank saw the 
 necessity which was pressing on them, and they then 
 did begin to draw in and reduce their issues. In 
 the month of March, they reduced their issues by 
 £1,300,000; between the 15th March and 15th May, 
 they made a reduction of £700,000; between August 
 and November, they further contracted their issues, 
 making altogether a reduction of £3,500,000 in their 
 issues." This avowal, as Mr. Mathias Attwood remarked 
 in the House of Commons in 1830, explains the whole 
 mystery of tliis monetary convulsion. " The measures 
 of relief, by the issue of four millions of government 
 paper, commenced in the distress of 1822; the notes 
 were drawn back in 1825; the last of them in 
 November, 1825, and early in December broke out the 
 panic." 
 
 Government, of course, accused the bankers of cre- 
 ating all the i-uin. But the truth is that the bankers 
 
 1
 
 114 Government Abuse of Co untnj Banker};. 
 
 merely furnished the paper instruments which per- 
 mitted prices to rise to the level of taxation ; and had 
 not parliament fixed the mint price of gold, gold would 
 have risen with all other commodities, in which case no 
 temptation would have been held out to the foreigner 
 to take our gold instead of our goods. But the act of 
 parliament offered the foreigner a premium to abstract 
 the metal, and ruined the industrial classes by its egre- 
 gious folly. However, the legislature, too obstinate to 
 acknowledge its own blunders, or too conceited to ima- 
 gine that its pretensions to wisdom w^ere less than 
 perfect, determined to wreak its vengeance on the 
 innocent. The absolute suppression of all the small 
 notes in three years, and the immediate suspension of 
 the issue of any more stamps, were the first measures 
 introduced and sanctioned by parliament, although the 
 law had guaranteed the issue of such small country 
 notes up to 1833. As to the ruined manufacturers 
 who petitioned and remonstated, they were flip- 
 pantly told that they had brought all the mischief of 
 which they complained on themselves, by producing 
 excess of commodities. We have already seen that 
 agricultural suffering in 1821 was attributed to a su- 
 perabundance of corn, which was refuted by an Irish 
 famine; a kindred sagacity, in 1826, ascribed the 
 prostration of manufacturing industry to over-produc- 
 tion of clothing ; but before the ensuing winter was 
 over, the very ministers who had propounded the 
 wortldess doctrine were compelled to send old army 
 clothing to the very people whose skill and toil had 
 been deemed worthy of parliamentary censure for 
 having overstocked the world with linen and calico, 
 woollen and blankets. This same government, when 
 it ordered appeals to be made in the churches and 
 chapels to assist the spinners and weavers, so strongly 
 reproved for their ignorant and suicidal activity, ofii- 
 cially declared that places containing two hundred
 
 The Panic of 1H25. 115 
 
 fiimilies, in tlie very heart of the manufacturing 
 districts, had only four blankets among tliem ! 
 
 We Avish to impress on our readers that tliis memorable 
 panic arose solely out of the want of a single commodity 
 — gold. All other commodities were plentiful. The 
 prosperity of the country is attested by the speech 
 from the throne at the opening of the Session of 1825, 
 already mentioned. " There was, literally," says 
 Mr. Francis, in his History of the Bank of England, 
 " a whole population, with food in abundance staring 
 them in thefoce, unable to procure it, as nothing but 
 gold would be taken." " Many a firm of unimpeacliable 
 lionour and unquestionable solvency Avas compelled to 
 bend before the storm. It was remarked that the 
 question would soon be, not who goes, but who stands; 
 It Avas stated that the distress arose from Avant of 
 confidence in men able to pay 40s. to 50s., and 60s. in 
 tlie pound." The terrified and stupified government 
 ordered the officers of the mint to coin sovereigns Avith 
 all possible despatch ; they worked night and day, and 
 during the space of a week, one hundred and fifty 
 tliousand Avere manufactured every twenty-four hours. 
 But this activity did not stay the panic or remove the 
 pressure; and the reason is obvious. It was not a 
 question of quantity that was involved, but one of 
 price. The sovereigns Avere still kept doAvn at the 
 mint price, and being cheaper than other commodities 
 Avere exported as fast as they Avere coined. The 
 operation did not help British subjects, but enriched 
 foreigners. Notliing could have averted tlie ruin that 
 ensued but putting gold at the market price, for that 
 alone could have checked the exportation of the metal. 
 As a striking pro f that stagnation was complete and 
 confidence utterly lost, it may l)e stated that no one 
 Avonld purchase Bank Stock or East India Bonds. 
 Exchequer Bills, that species of Government paper for 
 which the Avhole resources of the empire Avere responsible, 
 
 I 2
 
 ilG The Panic of \m5. 
 
 fell to a discount of sixty-five shillings. We are told 
 by Mr. Francis, that " owing to the difference in the 
 money and account prices of consols, those bankers who 
 were compelled to sell stock to raise cash, paid at the 
 rate of 72 per cent, for the necessity." It cannot be 
 too often repeated, that all this calamity was caused 
 because parties, possessing abundance of valuable com- 
 modities, could not convert those commodities into 
 gold, or printed bank notes payable in gold. Peel's Bill 
 having offered a high premium to foreigners to export 
 the coin. 
 
 On the subject of the panic of 1825, Mr. Jeremiah 
 Harman, who had been Governor of the Bank of 
 England, was examined before the Secret Committee 
 on the Bank Charter in 1832, and his evidence is too 
 important to be overlooked in this historical sketcli : 
 
 " Question 2220. Did the government recommend 
 to the bank an increased issue of one pound notes at 
 the time? Whether they recommended it or not, may 
 admit of a doubt ; but that they encoui'aged it is most 
 certain," 
 
 There we have proof that the bullionists had no 
 faith in their own doctrines; they sought safety in 
 the very paper they had repudiated, though, as 
 Mr. Harman declares, they refused the application of 
 the bank for an Order in Council to restrain payments 
 in gold. Had the bank issued more paper, as the 
 government encouraged it to do, without the protection 
 of an order in council, their bankruptcy must have 
 been inevitable. What is to be thought of such admi- 
 nistrators of public affairs, who desire the end but 
 refuse the means? But we must proceed further with 
 Mr. Harman's evidence. 
 
 " Question 2230. It was stated by the late Mr. 
 Huskisson to a member of the House of Commons, that 
 he, as a member of the administration at that time, 
 suggested to the Bank that if their gold was exhausted,
 
 The Panic of 1S25. 11? 
 
 tliey should place a paper against their doors, stating 
 that they had not gold to pay Avith, but might expect 
 to have gold to recommence payment in a short time? 
 There was such a suggestion." 
 
 Here is another remarkable proof of the utter 
 incompetency of those men to whom the interests of the 
 community were confided at that period. Their only 
 device for sustaining the credit of the Bank of England 
 was to placard the doors with " Call again to-morrow." 
 Had that insane course been taken, it is highly pro- 
 bable that the panic would have been aggravated into 
 a revolution. Every debtor might fairly have claimed 
 the same privilege, and the whole country would have 
 been thrown into a state of commercial anarchy. And 
 now let us see how the nation was saved from the con- 
 sequences of blundering legislation and ministerial 
 incapacity. 
 
 " Question 2232. The Bank issued one pound notes 
 at that period ; was that done to protect its remaining 
 treasure ? 
 
 Decidedly, and it worked wonders; it was by great 
 good luck that we had the means of doing it, because 
 one box, containing a quantity of £1 notes, had been 
 overlooked, and they were forthcoming at the lucky 
 moment." 
 
 Question 2323. Had there been no foresight in the 
 preparation of these notes ? None whatever, I solemnly 
 declare." 
 
 " Question 2234. Do you think that issuing the 
 £1 notes did avert a complete drain? As far as my 
 judgment goes, it saved the credit of the country." 
 
 At this juncture, Mr. Huskisson declared that the 
 country was within twenty -four hours of barter. So, 
 then, tlie despised paper, the vituperated rags, the out- 
 cast flimsies, rescued the country from a state of barter, 
 and, probably, kept mitres and coronets on the heads 
 of bishops and peers. For aught that can be
 
 118 The Panic oj 1825. 
 
 affirmed to the contrary, they may have preserved the 
 monarchv. 
 
 111 a letter written in 1826, by the Earl of Liverpool 
 and Mr. Frederick Robinson, Chancellor of the Ex- 
 chequer, now Earl Eipon, the crisis of 1825 was 
 mainly attributed to speculation, fostered by the 
 country bankers, a charge as stupid and as groundless 
 as the over-production of food in 1821, and the over- 
 production of clothing in 1826. Mr. Harman was 
 referred to that letter and asked if he concurred in the 
 opinion it expressed; he answered most decidedly in 
 the negative. The truth is, that any continuance of 
 internal prosperity is incompatible with gold money 
 fixed in price at the bai^ter level. In 1825, every 
 labourer in the country was fully employed at good 
 wages, and the profits of the employer were equivalent ; 
 consequently, goods became dearer than gold, and, of 
 course, gold was exported, the foreigner taking our 
 cheapest article in payment for his imports. Then the 
 whole monetary system collapsed. 
 
 It is difficult to believe that the Earl of Liverpool 
 was not fully conscious that the system he upheld was 
 false and ruinous, or ignorant that the contraction of 
 the circulating medium had produced all the mischief, 
 since he immediately adopted measures for expansion ; 
 but he had not the high-mindedness to confess his 
 error, as Mr. Ricardo had done. He addressed a letter 
 to the Bank of England, in which he observed, " that 
 under all the circumstances of the present distress in 
 the city and country, it appears to us that it would be 
 advantiigeous, with a view to public and private credit, 
 if the Bank were to give directions for the purchase of 
 Exchequer bills to the amount of £2,000,000.'' This 
 recommendation was complied with, and some relief 
 was afforded. Joint stock banks were then proposed, 
 and the Bank of England established branches in the 
 countrv. It was next determined that the Bank of
 
 The Pernio of iS2b, 119 
 
 England should advance money on the security of 
 goods, to an amount not exceeding three nullions. 
 All these measures prove that the contraction of legal 
 tender had prostrated industry; and, indeed, the nature 
 of the remedy shows the nature of the disease. Assist- 
 ance was rendered to the following manufacturing 
 toAvns in the following proportions : — 
 
 Manchester £115,490 
 
 Glasgow 81,700 
 
 Sheffield 59,500 
 
 Liverpool 41,450 
 
 Huddersneld 30,800 
 
 liirming-Laui 19,000 
 
 Dundee 1G,500 
 
 Norwich 2,400 
 
 The body politic and the body commercial, as well 
 as the body natural, are all left languid after pro- 
 tracted disease. It requires time to recover from a 
 state of torpor or prostration. In reference to monetary 
 affairs, in spite of the new measures to which Ave have 
 alluded, a gloom rested on business. Men did not 
 know the secret enemy which had trodden them into 
 dust, and became apathetic, discontented, and then 
 revolutionary. Wages and profits were kept down at 
 the barter level. Every cause was suspected but the 
 right one. At length the pent-up passions burst forth ; 
 the whole blame was thrown on the rotten boroughs, 
 and the people, convinced that they were on the right 
 scent, united and energetically demanded a reform in 
 parliament. There was more danger of a levelling 
 revolution than the statesmen of the day chose to 
 confess. The Duke of Wellington, still popular as 
 a soldier, became odious as a politician. The King had 
 accepted an invitation to dine with the Lord ^layor 
 at the Guildhall, but when his Majesty heard, that on 
 the occasion of this intended visit, all the walls of the 
 city would be placarded with an exhortation to the
 
 120 The Panic of l^'lb. 
 
 public, to '' l\un to the Bank for gold," he determined 
 to remain at the palace. But the placards told ; the 
 Bank was besieged, and its specie reduced to about 
 five millions. This panic of 1832 arose from causes 
 purely political, but those causes Avere themselves of a 
 secondary character ; for the demand of parliamentary 
 reform Avas obviously traceable to the fall of prices and 
 the contraction of trade, Avhich not only lowered profits 
 and wages, but drove hundreds of thousands out of work 
 into compulsory idleness. It was Peel's act of 1819 
 that called the political unions into existence. Who 
 organised them? Thomas Attwood, the brother of 
 Mathias, from whose writings we have so frequently 
 quoted. Why did he organize them and threaten to 
 march at the head of 400,000 men, bivouacked at 
 Birmingham, as the point of departure, to London? 
 Because he knew that the true remedy for industrial 
 prostration was monetary reform, which he could not 
 expect from the pledged hacks of the legislature, 
 pledged to cash payments, and who were compelled to 
 vote as the holders of rotten boroughs commanded. He 
 had hopes, reasonable hopes, that if the large towns 
 were admitted within the parliamentary pale, they 
 would send to the House of Commons commercial men 
 who understood the money juggle, and abolish the 
 iniquitous bill. He was no revolutionist, but a wise 
 conservative; a wise physician who desired to purge 
 the body politic of its peccant humours, and infuse 
 fresh and healthy blood into its putrescent veins. True, 
 he was deceived and disappointed ; the new constitu- 
 encies and the new representatives were as ignoi-ant as 
 their predecessors, and as subservient to the woi-ship of 
 the golden calf. 
 
 The reform bill passed in 1832. Men of business 
 then became more active and enterprising, thinking 
 they had entered into the promised land. Speculation, 
 in 1834, directed itself into channels of railways and
 
 The Reform BiU. 121 
 
 mining, joint stock banks and foreign loans. But no 
 sooner did activity begin than, as the inevitable con- 
 sequence, gold began to escape from the Bank cellars. 
 By June, 1835, the full effects were manifested. Com- 
 pared with 1833, tlie specie had declined nearly five 
 millions. But Bank of England notes had been de- 
 clared legal tender by the charter of 1833, for all 
 sums above five pounds, except at the Bank of England 
 itself, and at its provincial branches. That establisli- 
 ment therefore increased its note circulation by five 
 millions, and at the same time refused to discount any 
 paper drawn or endorsed by any joint stock banks of 
 issue. This determination was enforced in 1836, and 
 in that year the Manchester Chamber of Commerce 
 aflirmed that the loss on cottons, wool, silk, linen, and 
 hardware amounted in Manchester alone to forty mil- 
 lions. However, in spite of this loss, the metropolis of 
 the manufacturing districts is one of the strongholds of 
 bullionism. It is fond of money tliat " rings on the 
 counter." The admirers of the solidity of gold, and 
 the practical men regard paper as a fiction or shadow, 
 if not " a mockery, a delusion, and a snare." The 
 Chamber of Commerce published a report in Man- 
 chester, on the 12th December, 1839, about the losses 
 the town had sustained in 1836, in which the authors 
 of it showed themselves utterly ignorant of monetary 
 science, for they attributed all the calamity they had 
 suffered to tlie Bank of England, instead of to those 
 acts of parliament which the Bank of England had 
 vigorously opposed. The following introductory re- 
 marks preface the report:- — 
 
 " It is little more than two years since this Chamber 
 was assembled on a similar occasion to consider the 
 sufferings which the country was labouring under in 
 consequence of a commercial panic. At that time reso- 
 lutions were adopted by the Chamber, that those 
 sufferings had come over the country while we had been
 
 122 Manchester Chamber of Commerce. 
 
 in possession of the blessings of peace, ample harvests 
 and mitigated taxation, but they resolved that they 
 were unable to find a rational cause for this adversity 
 among those blessings. The recurrence of another 
 period of distress so soon after the last has naturally 
 directed the attention of this Board to the causes of 
 those frequent panics which were paralysing trade, sus- 
 pending our commerce, and bringing distress upon the 
 whole community ; and the directors might, as their 
 predecessors had done, resolve that they were unable to 
 find any general cause for the recurrence of adversity. 
 But they felt that it would be departing from their 
 duty if they took such a course. They found there 
 were causes, and that those causes were the erroneous 
 management of the currency by the Bank of England." 
 
 It is plain, from this exordium, that these acute and 
 experienced merchants had made but a very imperfect 
 study of monetary legislation. Their predecessors 
 frankly acknowledge that they knew nothing of the 
 matter, honestly confessing their ignorance; and as 
 they were among the most intelligent members of the 
 town, it may be presumed that up to the date of their 
 administration no light had shone upon the darkness 
 of IManchester. Panics, however, were not a novelty. 
 They had periodically occurred since the earliest 
 attempts at resuming cash payments, but the Directors 
 of the Chamber of Commerce had never been able to 
 trace them to the true cause. It is, however, very 
 remarkable that, in the report now under consideration, 
 the real nature of the disease is distinctly pointed out ; 
 but those who prepared it did not allow their minds to 
 dwell long enough upon the subject, or they must have 
 seen their way out of the difiiculties. The fourth 
 section of the report contains the following paragraph : 
 
 " Towards the close of 1836, the stock of bullion in 
 the Bank had fallen to little more than four millions ; 
 while, at the same time, it was indebted to the world
 
 Manchester Chamber of Commerce. 1^3 
 
 upu^ards of thirty millions for its circulation and 
 deposits. The directors now determined to check the 
 drain upon their coffers, and to increase the stock of 
 bullion on hand. It had been stated on the authority 
 of the Bank Directory, in a memorandum presented to 
 a Committee of the House of Commons in 1832, 'that 
 a supply of gold cuuld be procured from abroad only 
 by reduced prices of commodities ;' in other words, at 
 the expense of the mercantile and manufacturing classes, 
 and the object of advancing the rate of interest in two 
 months, from four to five per cent., to which we have 
 alluded, was undoubtedly Avith a view to depreciate the 
 value of commodities twenty-five per cent." 
 
 The passage quoted from the statement of the Bank 
 Directory is most significant. " A supply of gold can 
 be obtained from abroad only by reduced prices for 
 commodities." Here the fact is avowed, and the clue 
 given to an outlet from the labyrinth. It was a hint 
 Avliich ought to have led the shrewd population of 
 Manchester to a more searching inquiry. Had this 
 been the case, the question must have arisen, why does 
 gold go abroad ? Why do foreigners take it in payment 
 of their imports instead of goods? But no such inquiry 
 was instituted. Manchester did not perceive that the 
 price of gold was fixed in our coinage at the barter 
 level, while its price was permitted to rise in other 
 countries, under the law of supply and demand. It 
 failed, also, to perceive that while the price of the 
 metal in a coined form was kept permanently low by an 
 inexorable law of parliament, its representative, the 
 bank note, was allowed to rise in price, as indicated by 
 an advance in the rate of interest. The thing signified 
 remained cheap, but the representatives of the thing 
 signified became dear. So palpable a contrast ought 
 to have arrested the attention of the chamber, and 
 stimulated research into the contradiction involved. 
 But it was entirely unnoticed. Reproof fell on the
 
 124 Manchester Chamber of Commerce. 
 
 wrong parties. In the judgment of the Chamber of 
 Commerce, the Bank of England, as manager of the 
 circulation, was alone to blame. It was forgotten that 
 that institution was merely a creation of Law ; and that 
 the same law which sanctioned its existence, compelled 
 it to act on prescribed rules. The innocent party is 
 censured in the following severe, unreliective, and 
 unmerited terms : — 
 
 " Although it scarcely comes within the scope of their 
 present object, the board will add a reflection upon the 
 subject of the undue privileges possessed by the Bank of 
 England. That such a power over the property, and, 
 as has been seen, the health, morals, and very lives 
 of the community should be vested in the hands of 
 twenty-six irresponsible individuals, for the exclusive 
 benefit of a body of bank proprietors, must be regarded 
 as one of the most singular anomalies of the present 
 day ; — that the secret acts of these individuals, veiled 
 as they are even from the eyes of their own constituents, 
 should decide the fortunes of our capitalists, and the 
 fate of our artizans — that upon the error or wisdom of 
 their judgment should depend the happiness or misery 
 of millions — and that against the most capricious exer- 
 cise of this power, there should be neither appeal nor 
 remedy — that such a state of things should be allowed 
 to exist must be regarded as a reproach to the intelli- 
 gence of the age, and as totally irreconcilable with 
 every principle of public justice." 
 
 The report gives copious evidence of the evils inflicted 
 by commercial panic, showing that it not only ruins 
 fortunes, but frightfully increases disease, crime, and 
 mortality. The proofs are not confined to Manchester. 
 It is stated that, in 1837, the Savings' Banks were 
 drained by the depositors at Leeds, Sheffield, Birming- 
 ham, Stockport, Huddersfield, Blackburn, and Bolton; 
 that in the manufacturing counties of Stafford, Notting- 
 ham, and Leicester, " a cessation of the demand for
 
 Manchester Chamber of Commerce. 125 
 
 labour took place in 1837, more sudden in approach, 
 and more extensive in its operations, than has been 
 known on any previous occasion." The same industrial 
 prostration happened at Coventry, at Foleshill, Nun- 
 eaton, and Manslield. " In Birmingham large subscrip- 
 tions were raised to relieve the distress of the almost 
 unprecedented numbers of unemployed labourers." In 
 Glasgow 18,000 people were fed from the soup kitchen. 
 Similar distribution prevailed at Paisley, Dundee, and 
 in many other towns. The Report of the Dublin 
 Mendicity Society, in 1837, states they " l;ave struggled 
 through a year of almost unparalleled difficulties, and 
 that within the recollection of the oldest inhabitant, 
 there has seldom or ever occurred a period when out- 
 door employment was so much restricted." The Belfast 
 House of Industry Report, on the 10th of March, 1837, 
 gave a most lamentable description of the state of the 
 poor, and attributed the depression of trade " to a panic 
 in the money market." 
 
 The distress was general and overwhelming in the 
 three kingdoms, and the cause is every where traceable 
 to the monetary system. So far Manchester was per- 
 fectly in the right, but it put the saddle on the wrong 
 horse. It is evident that the parties who drew up the 
 report knew very little of the legal constitution of the 
 Bank of England, and far less of the Acts of Parliament 
 which controlled the currency. Their ignorance not 
 only made them unjust, but rendered their labours 
 utterly useless in preventing a recurrence of the disasters 
 they so bitterly deplored. 
 
 When Mr. Cobden was examined, in 1840, as a 
 witness before the Committee of the House of Commons, 
 on banks of issue, he made the following statement : — 
 " I believe that srreat evils have been occasioned to the 
 trade and manufactures of this country, in 1836 and 
 1837, and in the subsequent period, by fluctuations in 
 the currency — greater evils, pecuniary, social, and
 
 12G Monetary Disasters of 1836 and 1839. 
 
 moral, than by the direct failure of all the banks of 
 issue since they were first established in this country." 
 Notwithstanding tliis statement, Mr. Cobden voted for 
 the complement bill of 184-J:, wdiich rendered the act of 
 1819, Avhich he had condemned, infinitely more disas- 
 trous in its operation ; he also voted with the majority 
 in the committee of 1848, who affirmed, notoriously in 
 the teeth of overwhelming evidence, that the panic of 
 1847 was not aggravated by the act of 1844; and that 
 gentleman even now denies, in opposition to common 
 sense and the clauses in the act of 1816, already quoted, 
 that the price of gold in our coinage is fixed. 
 
 While ruin, borne on the wings of monetary 
 pestilence, smote to the dust tlie most prudent and 
 experienced merchants and traders in the great marts 
 of British industry. General Jackson, President of the 
 United States, determined to follow the policy of the 
 English bullionists. In consequence of this infatuation 
 the great Bank of Pennsylvania stopped; scores of 
 minor banks shared the same fiite; of those which 
 stood the shock, the dividends of many ceased to be 
 paid, while some repudiated the principal. British 
 capitalists, who had made large investments in Trans- 
 atlantic funds, were seriously impoverished, or wholly 
 ruined. In addition to these calamities, the measures 
 of General Jackson tended to some extent to drain 
 bullion from the Bank of England, and on the 7th of 
 February, 1837, the amount had fallen to £4,032,000. 
 Several large American firms foundered in the storm, 
 and one of the greatest must have become bankrupt 
 had not government come to its aid. The pressure 
 continued for the next two years, and, in October, 1839, 
 the bullion in the Bank had fallen to £2,522,000. 
 The Bank struggled hard to keep its ground. It raised 
 the discount to five per cent., but without efiect. It 
 increased it to five and a-half per cent., but still the 
 specie disappeared. It oftered to sell tlic dead weight,
 
 Fall of the IVhig Parttj. 127 
 
 either for money or stock ; but finding no purchasers 
 at an eligible price, it actually pledged a portion of it, 
 and borrowed £750,000 in Exclic(pier Bills from the 
 East India Company. Yet all these elForts were 
 fruitless; bankruptcy stared the corporation in the 
 face, and it only escaped destruction by obtaining a loan 
 of two million and a-lialf from the Bank of France. 
 
 The whole period from 1833 to 1839 is a memorable 
 and warning epoch in the history of bullionism. It 
 was an era in which legislation, more bustling than 
 wise, busied itself in barren attempts in reforming the 
 monetary system. Some of the exclusive privileges of 
 the Bank of England were withdrawn, and joint-stock 
 banks were called into existence for the purpose of 
 enlarging the amount of the circulating medium, and 
 guaranteeing its solidity. Between these new establish- 
 ments and the old corporation a jealous rivalry sprang 
 up, which aimed at personal profits instead of at the 
 promotion of the general interests of commerce : for we 
 have seen that the Bank of England refused to discount 
 any bills, however unexceptionable, which emanated 
 from its competitors ; while the government, Avhose 
 duty it was to give fair play to all, especially to those 
 called into existence by its own act and encouragement, 
 secured to the old corporation that amount of monopoly 
 which invested it with a trading dictatorship. The 
 London private banks, acting on the same narrow and 
 selfish ])rinciple, excluded the London and Westminster 
 Joint Stock Bank from the facilities of the clearing 
 house. In fact, a monstrous monied power had arisen 
 on which all industry was dependent. The State, 
 having abdicated its functions, transferred the monetary 
 prerogative of the Crown to a handful of its subjects, 
 who, })ossessing the instrument of exchange, controlled 
 every market, now exalting, now depressing — encou- 
 raging enterprise by low discounts, then hurling it to 
 the ground by high discounts — introducing uncertainty
 
 128 Fall of the iVhig Purtij. 
 
 into every transaction that ranged over any lengtliened 
 period, and luring the inexperienced to destruction by 
 tempting them to borrow, and compelling them to pay, 
 before their most legitimate transactions could be 
 matured. This is the power of despotism maximised. 
 When a state delegates that power or permits its 
 exercise, it becomes the most cruel oppressor of the 
 people. 
 
 Let us continue the history of events. Prices con- 
 tinued to fall. Men were thrown out of work. The 
 consumption of taxed articles declined. The revenue 
 was diminished. In 1839 ministers endeavoured to 
 make the income square with the expenditure. Mr. 
 Baring, then chancellor of the exchequer, proposed an 
 addition of five per cent, on all taxes. By this 
 scheme he anticipated an augmentation of revenue of 
 £1,895,575; the actual increase was about one-ninth 
 of his calculation, or £206,715. Proof was thus 
 aiforded that the great body of the people had reached 
 the fiscal limits of consumption ; we say fiscal limits, 
 since the natural desires of hunger and thirst remained 
 undiminished but unsatisfied. The excise fell because 
 wages were reduced or withdrawn. From 5th January, 
 1838, to 5th April, 1843, the total deficit was 
 £10,072,638. 
 
 We are now on the threshold of the Bank Cliarter 
 Act of 1844.
 
 CHxiPTER YI. 
 
 Administi-ation of Sir Robert Peel. The Monetary Act of 1844. The 
 erroneous assumption on whicli it proceeds. View of Mr. Edward 
 Capps. Opinion of General Harrison, President of the United States. 
 Doo-nuis of Lord Overstone. His Theory of Trade. " What ought to 
 be a Pound ? " versus " What is a Pound? " Clauses of the Bank 
 Charter Act of 1844. Issues of Notes permitted on nominal securities, 
 and on no securities at all. Division of the Bank into the Banking 
 and Issue Departments. The Lords' Report on the Suspension of the 
 Act of 1844 in 1847. Errors of Sir Robert Peel. 
 
 A CONSTANTLY failing revenue overwhelmed the Whigs 
 with unpopularity. Their parliamentary majorities 
 became fractional. To weather the storm they proposed 
 an eight shilling duty on wheat. This most paltry 
 expedient clearly showed that tliey were grossly 
 ignorant of the true state of the nation. The ol)ject of 
 the corn laws had been to raise and sustain prices at 
 the taxation level, but the object of the money laws 
 had been to drag down all prices to the barter level. 
 This antagonism between the two conflicting statutes 
 the Whigs never perceived, and hence the grand and 
 fundamental error of their policy. What tlie people 
 wanted was high prices, for these alone could yield high 
 profits and high Avages ; and these again were the 
 necessary antecedents to a high revenue, derived from 
 indirect taxes levied on articles of consumption. A 
 population unemployed, or, if employed, unrewarded, 
 cannot purchase; ceasing to purchase they cannot 
 recruit the funds of an exhausted treasury ; and the 
 
 K
 
 130 Admimstration of Sir Robert Peel. 
 
 deficiency in tlie whig revenue might he accurately 
 measured hy tlie deficiency of recompense earned hy 
 the industrious chisses. To them high wages, not 
 cheap bread, was the primary consideration, for if 
 wages w^ere not obtained bread was l;eyond their reach. 
 It was under these Lamentable blunders that the Whigs 
 were ignominously driven from Downing-street, and 
 Sir Robert Peel took the helm of the state vessel. 
 
 The failure of Mr. Baring's scheme had convinced 
 the new minister that the consumption of those Avho 
 lived on wages had reached its limits. Out of them 
 no more was to be squeezed under a system of metallic 
 money, to which he pertinaciously adhered. There- 
 fore the Property and Income Tax were introduced to 
 make up the deficiency in the revenue; but no eflbrt 
 was made to raise the condition of the labourer by 
 augmenting his purchasing power over commodities 
 through increased wages. Whig and Tory both agreed 
 in keeping him down in the scale of civilisation ; and 
 in order that this slavery of the industrious classes 
 should be riveted by the strongest and heaviest fetters, 
 Sir Robert Peel proposed and carried the Bank Charter 
 Act of 1844, wliich was complementary to the Act of 
 1819. The real {luthor of this measure was Mr. Samuel 
 Jones Loyd, now Lord Overstone. 
 
 The Act of 1844 proceeds on the assumption that an 
 equilibrium of prices exists all over the world. The 
 assumption is wholly false. Prices are made up of two 
 constituent parts, intrinsic value and taxes; conse- 
 quently if taxes are unequal in difierent countries, 
 there can be no equilibrium of prices. The national 
 debt of England is about equal to the aggregate of all 
 the national debts of Europe; the standard of living is 
 superior to that of all the other countries in Europe ; 
 these two circumstances compel higher prices in England 
 than in any other country in Europe. The assumption 
 of Peel is, therefore, false.
 
 The Bank Charter Act of 1844. 131 
 
 " It is evident," writes Mr. Capps, " that with sucli 
 a currency as Sir Robert Peel proposes, where the 
 pound is invariably 5 dwts. 3 grs. of gold, any increase 
 of prices must be a larger quantity of gold. If the 
 pound of 20s. be 5 dwts- of gold, 3()s. must be 7^ dwts. 
 of gold. Now suppose, ibr the sake of argument, that 
 a commodity wliich is naturally worth 5 dwts. of gold, 
 or 20s., should be required to be sold for 30s., in 
 consequence of the additional charges caused by taxation, 
 how, we ask, is 30s., which would be 7^ dwts. of gold, 
 to be obtained from the foreigner for the article, if it is 
 only intrinsically worth 5 dwts. ? No ordinance of 
 government can ever make things exchange in a free 
 market for more of the commodity gold, or of the 
 commodity silver, than they are intrinsically worth. 
 Government may choose to put a tax of 5s., 10s., or 
 15s. upon any article beyond its intrinsic value; but 
 it cannot make the foreigner give the 5s., 10s., or 15s. 
 more for tlie article, if that be so much beyond its 
 intrinsic value ; nor can it make the home consumei- 
 pay it, if he have free access to a cheaper foreign 
 
 market If the higlier prices Avliich indirect 
 
 taxation renders necessary are to be secured to the 
 producers, wlio, in the iirst instance, advance the taxes, 
 a currency system must be established upon a totally 
 different }>rinciple to that of Sir Robert Peel's currency 
 scheme. It is useless to look for higher prices, if those 
 prices are to be realised in a gold currency ; for the laws 
 of nature and commerce forbid such prices to be 
 realised." 
 
 Experience had taught Sir Robert Peel that foreigners 
 preferred clieap gold to dear goods. His device, there- 
 fore, was to prevent goods becoming dearer than gold. 
 It was obvious that the difference in value between 
 gold and goods could ])e prevented l)y limiting the 
 circulation of legal tender monev in Ennland, in 
 accordance with the foreiun demand for "-old. Now, 
 
 K 2
 
 132 Erroneous Assumption on ichich it proceeds. 
 
 tliis foreign demand depended on the i")rices of our 
 products ; if the home prices rose above the mint price 
 of gold, at that instant the foreign demand for gokl 
 commenced and continued till the price of taxed 
 products fell to the level of untaxed gold. Then, but 
 not till then, the drain of metal ceased. Now, prices 
 can only rise in the medium of money ; increase the 
 quantity of money, prices ascend ; contract the quantity 
 of money, prices descend. Accordingly the Bill of 
 1844 enacts, that as soon as prices reach the point at 
 ■which it becomes more profitable to the foreigner to 
 take irold than <]roods, the Bank shall draw in its notes 
 and refuse to discount except at enhanced rates. Then 
 all holders of goods, who are under acceptances and 
 lial)ilities, are forced to sell, prices sink to the level of 
 untaxed ixold, and the threatened drain of bullion is 
 averted. The system is termed, '' The theory of regu- 
 lating the issues of the Bank of England by the Ibreign 
 exchanges." The contrivance is ingenious; the means 
 are admirably adapted to the end ; but the perfection of 
 the machinery is the condemnation of the inventor. It 
 is the Procrustean bed of industry. It is a bill to 
 depreciate the value of British labour. While it exists 
 it is hopeless for the mechanic to expect any improve- 
 ment in his condition. No prudence can ensure the 
 merchant from the stealthy steps of ruin. No young 
 man can hope to rise above the status in which he starts 
 in life. Cheapened labour and cheapened commodities 
 will continue to swell the opulence of all who live on 
 fixed incomes — Belgravia will shine with burnished 
 gold : Bethnalia Avill be squalid in sackcloth and ashes. 
 " The idea of making it (money) exclusively 
 metallic," said General Harrison, President of the 
 United States, " however well intended, appears to me 
 fraught with more fatal consequences than any other 
 scheme, having no relation to tlie personal rights of 
 the citizens, that has ever been devised. If any single
 
 General Harrison 133 
 
 scheme could produce the effect of arresting at once that 
 mutation of condition by which tliousands of our most 
 indigent citizens, by their industry and enterprise, are 
 raised to tlie position of wealtli, this is one. If there is 
 one measure better calculated than anotlier to produce 
 tliat state of things so much deprecated by all true 
 republicans, by which they are daily adding to their 
 hoards, and the poor sinking deeper into penury, it is 
 an exclusive metallic currency. Or, if there is a 
 process by Avhicli the character of the country for 
 generosity and nobleness of feeling may be destroyed 
 by the great increase and necessary toleration of usury, 
 it is an exclusive metallic currency." 
 
 The bill of 1819 had proved a failure. It had been 
 accompanied by frequent and destructive panics. Sir 
 Robert Peel, and his tutor, Mr. Loyd, felt the urgency 
 of some change. They were too nmch committed to 
 bullionism to abandon it, and determined to make the 
 system more stringent; for this end they proposed to 
 take from the Bank Directors all discretionary power. 
 It is proper in this place to put ^Ir. Loyd's monetary 
 views before the reader, as lie has expressed them in his 
 various pamphlets and in his evidence before parlia- 
 mentary committees. 
 
 " The convertibility of the notes of the Bank was to 
 be secured by regulating the amount of the issues with 
 reference to the state of the foreign exchanges ; and the 
 increase or diminution of gold, in the hands of the Bank, 
 w^as to be taken as the onlv certain and safe test of the 
 favorable or unfavorable state of the exchanges ; consc- 
 (piently the amount of her paper issues was to vary with 
 a direct reference to the fluctuations in the amount of 
 bullion in tlie possession of the Bank."* 
 , In this passage the requirements of the home trade 
 are absolutely ignored; no provision whatever is made 
 
 * Remarks on the ^ManagemenT of the Circulation, by Samuel 
 Jones Loyd, p. CI. Edition 1810.
 
 134 Dogmas of Lord Overdone. 
 
 for sustaining our domestic agriculture or manufactures ; 
 so that when foreigners drain away gohl, internal pro- 
 duction and distribution are to be suspended, if not 
 entirely destroyed. 
 
 " In the case of the contraction of the paper circula- 
 tion of any given country, tlie void created by the 
 contraction cannot be filled up by a corresponding 
 increase of the paper issues of any other country ; the 
 contracted circulation must produce its legitimate effects 
 in enhancing the value of money and lowering prices in 
 the country in which it takes place."* 
 
 The following passage is to the same effect, but the 
 atrocity of the measure is more unblushingly avowed. 
 
 " Against the actual exhaustion of its treasure by a 
 drain through the foreign exchanges, the Bank, under 
 almost any circumstances, has the power of protecting 
 herself; but to do this she must produce upon the money 
 market a pressure ruinous from its suddenness and 
 severity; she must save herself by the destruction of 
 all around her."| 
 
 Wliat description of bullionism can be more con- 
 demnatory of its character ? 
 
 " Unless the paper circulation of the country be 
 regulated by a fixed rule, not fitful and capricious in its 
 operation, but constant and invariable, its convertibility 
 cannot at all times be effectually secured, and the main- 
 tenance of the value of the currency, as measured by its 
 ancient metallic standard, must become precarious and 
 uncertain." 
 
 The Avord " ancient" requires some comment. It 
 would be uncourteous to say that it was used for the 
 purposes of wilful deception, l)ut most assuredly it does 
 not ex]>ress truth, but the very reverse of truth ; and it 
 lias already been shown that tlie act of 1819, professing 
 
 * Ibidem, p. GO. 
 t lieimirks, &c., p. 88. Edition 1839.
 
 Hog mas of Lord Over stone. lo5 
 
 to restore the ancient system of casli payments, did 
 notliing of the kind, but introduced a totally new 
 system, violating the ancient standard in five diilerent 
 points. lUit we shall refer again to this matter Avhen 
 we examine Sir Robert Peel's detinition of a pound. 
 
 " It is not suflicient merely to ordain, us Feel's Bill 
 did, (the act of 1819) the convertibility of the note; 
 it is further necessary to see that eliectual means are 
 provided for that end. It is now discovered that there 
 is a liability to excessive issues of paper, even while that 
 paper is convertible at will ; and that to j)reserve the 
 value of a paper circulation, not only must that paper 
 be convertible into metallic money, but that the whole 
 of its oscillations must be made to correspond exactly, 
 both in time and amount, with what would be the 
 oscillations of a metallic currency, as indicated by the 
 state of the bullion. Such a system, therefore, for the 
 management of the circulation must be constructed as 
 shall secure that due and steady regulation of the amount 
 of the issues through whicli alone any permanent security 
 for their convertibility can be maintained."* 
 
 If Mr. Loyd had been consistent witli himself he 
 ought to have insisted on the complete disuse of bank 
 notes, Avliich would iiave saved all the trouble of inquiring 
 from week to week Avhether the paper and the gold 
 Avere exactly proportionate ; but he knew perfectly well 
 that a purely and strictly gold circulation was imprac- 
 ticable, that it could not hist for forty-eight hours ; had 
 paper been abolished, the blind would liave been removed 
 from tlie eyes of the public ; they could no longer have 
 been plundered, for all trade must have been annihi- 
 lated. 
 
 The following questions and answers are extracted 
 from the evidence of Mr. Loyd, given by him before 
 the Bank Committee of the House of Commons in 18-10. 
 
 * Il.ideni, p. 111. Edition 1810.
 
 136 Dogmas of Lord Overstone. 
 
 " By the Committee. — Do you think that the internal 
 trade of the country should be regulated and maintained 
 by as steady and equable prices as possible? 
 
 " Mr. Loyd. — The idea of regulating the trade of the 
 country by equable prices, if I may say so with proper 
 deference to the Committee, seems to me to be nonsense. 
 
 " By the Committee. — Have you ever considered 
 Avliat would be the effect upon the minds of the indus- 
 trious classes, if their wages fluctuated with the foreign 
 exchanges ; or, what would be the feeling of the internal 
 trading community towards the sole bank of issue were 
 tlieir stocks to be subjected to sudden depression by the 
 sale of foreign stock, or the payment of an instalment 
 of a foreign loan, occasioning temporary depression in 
 the exchanges? 
 
 "Mr. Loyd. — I must admit that I have never 
 reflected upon such topics, because I am quite sure that 
 if I was to make the attempt, I should only lead my own 
 intellect into great confusion, and come to no satis- 
 factory or useful result, either to myself or to the 
 communitv." 
 
 The first member of this last sentence is a confession 
 of ignorance, the second is a mean evasion; and 
 neither are the fitting qualifications of a teacher of 
 such inflated pretensions as Mr. Loyd. Had he pur- 
 sued the subject to the extent wliich the Committee 
 fairly presumed he had done, considering that he deems 
 himself an oracle, it is probable that his conscience 
 might have reproved his avarice; but, at any rate, he 
 must liave seen that as a l)anker he gained enormously 
 wlienever the Bank of Enghmd put on the screw. 
 When lie said that "equable prices" were "nonsense," 
 lie assigned no reason for that censure; Ave are, there- 
 fore, driven to conjecture what Avere the grounds of his 
 condemnation ; are Ave to conclude that " equable 
 pi-ices" Avere " nonsense," because they are accompanied 
 by e([uable discounts, Avhich are not so profitable to
 
 Dogmas of Lord Overstone. 137 
 
 l)aiikers as variable discounts? Tliat gambling specu- 
 lations are preferable to steady trade, or that the 
 sudden rise and fall of markcits are the sheet anchors 
 of mercantile stability? Mr. Loyd has never been a 
 producer or seller of commodities ; he has simply been 
 an airent of distribution, in which character he has 
 realized millions, while hundreds of thousands of up- 
 I'ight traders have been ruined by his system. On that 
 system he has built up what may be termed a " Theory 
 of Trade," enunciated in the Ibllowing terms : — 
 
 " The history of what we are in the habit of calling 
 tiie 'state of trade' is an instructive lesson. We find 
 it subject to various conditions which are periodically 
 returning; it revolves apparently in an established 
 cycle. First we find it in a state of quiescence — next 
 improvement — growing confidence — • prosperity — ex- 
 citement — -over-trading — convulsion — pressure — stag- 
 nation — distress, ending again in quiesence." 
 
 Were this theory founded on truth, melancholy would 
 be the condition of the human race. The fabled 
 Sisyphus, condemned to the eternal toil of heaving ji 
 stone up a hill only to roll down again to his feet, 
 while an inexorable destiny compelled him for ever to 
 renew his unavailing efforts, would be the type of 
 human industry. According to the theory, labour may 
 climb the m(;rcantile ladder and reach its summit, not, 
 however, to retain a. firm footing on the eminence 
 reached, but to be precipitated to the earth. Prosperity 
 mav be touched, not grasped; it eludes the hand, as 
 the' stream of water approached the parched lips of 
 Tantalus only to retreat. We may till and sow, but 
 the crop vanishes before it can be garnered. Thus 
 doomed to perpetual and unrewarded toil, it is our 
 hard fate to pass our lives, — 
 
 Still dropping- buckets into empty wells, 
 And g-i-owing old in drawing nothing up.
 
 138 Dogmas of Lord Over stone. 
 
 Siirelv this is not a law of Providence. It is diffi- 
 cult to understand, if industry, guided by intelligence, 
 is capable of raising a luition to prosperity, that the 
 same industry, improved by its exercise, and the same 
 intelligence matured by experience, should not, at 
 least, render that state of prosperity permanent! The 
 reasonable presumption, indeed, would be that the state 
 of prosperity would advance, since practice sharpens 
 aptitude, and experience discovers and amends defects. 
 But, according to j\Ir. Loyd, the theory of trade is an 
 exception to this rule; the cycles of prosperity and 
 ruin are inevitable. Before giving our assent to this 
 disheartening doctrine, let us inquire if the evils said 
 to be inherent in the system are not the consequences 
 of ignorant or fraudulent legislation; for if they are, 
 then they are remediable. 
 
 If the intrinsic value of a commodity be represented 
 by x^ and that commodity is not charged with any 
 taxation, it can be sold for x^ giving to the producer 
 the ordinary rate of profit; but if it is charged Avitli a 
 tax, represented by y, then it cannot be sold for less 
 than X plus y, if the producer is still to receive the 
 ordinary rate of profit. If x equals four, and ij equals 
 two, then x plus y must equal six, whether six express 
 pounds, shillings, or pence. By the application of this 
 simple formula, we propose to test Mr. Loyd's theory 
 of trade. 
 
 His initial point is quiescence, which we shall desig- 
 nate by X. The culminating point in the ascending 
 scale is pros^:erity, which we shall denote by x plus y. 
 The final point in the descending scale is again 
 quiescence, which again we must express by x. 
 
 (Quiescence, then, is that state in which commodities 
 are sold for their barter price, from which taxation is 
 altogether excluded. In that state, employment is 
 difficult to be obtained, wages and profits being at the 
 lowest ebb. In this sense, quiescence does not signify
 
 Dogmas of Lord Ucerstone. 130 
 
 an invigorating repo.s(>, but a deatli-like torpor. Im- 
 provement denotes that prices have somewhat risen 
 above the barter level, so that the productive classes 
 are enabled to recover from the consumers a slight pro- 
 portion of the tax they have advanced. Growing con- 
 fidence shows that a further rise in prices has taken 
 place, tliat Avages and profits have risen, and that 
 additional taxation has been recovered by the produc- 
 tive classes. When we have reached prosperity, we 
 have completely attained to the taxation level, ex- 
 pressed by .r plus y; and the industrial classes are fully 
 employed and self-sustaining. But we cannot, accord- 
 ing to the theory of J\Ir. Loyd, retain our position; 
 we already tread upon the slopes of the declivity, and 
 enter upon the descending scale. Excitement denotes 
 the giddiness with which we are seized while standing 
 on the summit of the ascent, and overtrading the 
 slipping of tlie feet. Some disturbing power, presently 
 to be described, has commenced to drag prices down. 
 Terror seizes the holders of commodities, who all, and 
 simultaneously, become sellers, lest prices should still 
 further decline, and convulsion agitates the markets. 
 Panic ensues; none are able or willing to buy, except 
 the bullionists, who have been watching their oppor- 
 tunity. We proceed from panic to stagnation. Pres- 
 sure follows, and drives the merchant, the manufacturer, 
 and the tradesman into the Ga2ette. Having now 
 travelled tlirough the cycle, we reach the final point in 
 the descending scale — quiescence — denoted by .f, Avhere 
 no particle of taxation can be added, and we sink to 
 the barter level. Such, according to Mr. Loyd, is the 
 circle in wliich trade is compelled to revolve. 
 
 But is this compulsory ? Under l)ullionism, as taught 
 and applied by Mr. Loyd and Sir Kobert Peel, it is; 
 but that is the condemnation of the system. Having 
 reached prosperity, why are we unable to keep our 
 ground? Li other words, why cannot we sustain prices
 
 140 l)ogmas of Lord Overstone. 
 
 at the taxation level, which alone can be remunerating? 
 We have alluded to a disturbing power which drags 
 prices down. That poicer is the Ji.ved price of gold in 
 our coinage. Coined gold being tied down by Act of 
 Parliament to the barter level, represented by .f, above 
 which it can never rise, when commodities rise to the 
 taxation level, they become dearer than gold — dearer 
 by the exact difference between the barter level and the 
 taxation level. In such circumstances, the foreigner 
 will not take our commodities in payment of his com- 
 modities, but our cheap gold, because, though it is his 
 interest to sell in our clear market, it is not his interest 
 to buy in our dear market. Thus our senseless legisla- 
 ti(^u offers the foreigner a premium to export our gold, 
 and leave our goods in the warehouses. 
 
 Suppose an Act of Parliament were to decide that 
 all our measures of w^eight, length, or capacity, w^ere to 
 be of gold of a certain fineness, certified by a Mint 
 mark, and fixed in price ; and let us further suppose 
 that the foreigner got possessed of them, and took them 
 out of the country, or even locked them up in a ware- 
 house. What would the draper do without his measure 
 of length? His shop might be full of goods, and 
 crowded with customers, but he could not sell a yard of 
 cloth. He must either abandon his business, or submit 
 to any terms the foreigner might dictate. If the foreigner 
 proposed to return the gold measure on receiving 48 or 
 56 inclies for the yard, instead of 36, the draper would 
 have to yield to this sacrifice on his cloth, and on all 
 the other articles of his trade. Here the illustration is 
 direct; but precisely the same result happens, tliough 
 in an indirect form, when our gold coin is abstracted. 
 Then discounts are suspended, or only granted at ruinous 
 rates. The ])rivate banks are paralysed as well as the 
 Bank of England, since none of them dare advance 
 their notes, except for very short periods, even to the 
 most solvent customers, lest the notes should be pre-
 
 Fallacy of Cheafness. 141 
 
 sented, and gold demanded in payment. Tlie 1)aiiks 
 must save themselves, but they can only do so by pros- 
 trating trade, and unirillingly driving the most prudent, 
 upright, and established firms into the Gazette. The 
 interpretation Ave have given of the ascending and 
 descending scale in Mr. Loyd's " Theory of Trade," 
 clearly shows that his cycles are not caused by any law 
 of nature, but by incompetent or malignant legislation ; 
 that periodical ruin is not, as he contends, an irre- 
 sistible necessity, but the Avicked contrivance of Parlia- 
 ment. That the system should find favour with the 
 monied class, Avho sweep into their pockets, every five 
 or six years, the hardly- earned savings of labour, 
 through the most usurious extortions Avhen panics arise, 
 is not surprising, considering the short-sighted selfish- 
 ness of human nature. They Avho live on fixed 
 annuities also have their avarice gratified by the fraud. 
 It is their interest to keep prices down to .r, or the 
 barter level, for then the purchasing poAver of their 
 annuities is maximised; but Avhen prices rise to the 
 taxation level, or x plus y, the purchasing poAA'er of those 
 annuities is minimised. Therefore it is that the monied 
 classes, and those Avho live on fixed annuities, make an 
 ally of the foreigner through Mr. Loyd's system, and 
 offer him a premium to knock doAvn home prices by 
 abstracting gold, Avhenever those prices reach or are 
 tending to reach the taxation level. 
 
 The distinction pointed out l)etAveen the 1)arter IcA'el 
 and the taxation level, will enable us to point out more 
 fully than Ave have already done the fallacy involved in 
 the indiscriminate use of the term " cheajjuess." It 
 has been obserA'^ed that cheapness is of tAvo kinds; it 
 may mean a great deal of money for fcAv products, or 
 many products for little money. In the little algel)raic 
 formula avc have used,x denotes cheapness, Avhile x plus y 
 denotes dearness. Let x, expressed in figures, be 4, 
 and y, expressed in figures, be 2 ; then x plus y must
 
 142 FallacD of Cheaimess. 
 
 be 6. Now introduce clieapness, so that x plus y be 
 reduced to 5. But tins diminution of one must come 
 out of X or out of y. If out of y, there is no possible 
 objection to such a form of cheapness, for y represents 
 taxation, and the fall in prices Avould in this case be 
 evidence that taxation had been reduced. If, however, 
 the diminution comes out of x, then there must be 
 deduction either from the profits of the employer or 
 from the Avages of the employed, while taxes remain as 
 high as ever. If the profits of the employer fail, wages 
 must fall, for the very condition of high wages is a state 
 of higli profits, since high wages cannot continue to be 
 paid out of low profits. Wages are paid for creating 
 products to be sold in a market; to suppose, then, that 
 they can be permanently sustained at a high scale while 
 products are permanently sold at a low scale, is absurd, 
 and indeed contradicted by all experience. When, 
 therefore, the fall in prices is eifected by taking one out of 
 X, this form of cheapness reduces the income of working 
 men, while it adds to the purchasing power of all who 
 live on fixed annuities. The injustice to the working 
 man is really greater than as yet described. Taxes 
 remaining the same as they were before this second form 
 of cheapness Avas introduced, he has now only three 
 pounds to spend on his own Avants, Avhereas before this 
 second form of cheapness was established, he had four 
 pounds to spend on his oAvn Avants. 
 
 Such is the system which finds favour Avith Mr. Loyd, 
 and to render it obligatory on the productive classes 
 Avas his object Avhen presenting his plan to Sir Kobert 
 Peel. 
 
 The Bank Charter Act of 1844 Avas introdnced into 
 the House of Commons on the 6th May, 1844, Avhen 
 Sir Robert Peel made the following statement. " The 
 Avhole foundation of my measure rests on the assump- 
 tion that according to practice, according to kiAV, 
 according to the ancient monetary policy of this
 
 What ought to he a Pound? 143 
 
 coiiiitiy, tliG meaning of a ponnd is neither more nor 
 less tliiin a certain quantity of gold, witli a mark npon 
 it to determine its weight and fineness; and that tlie 
 engagement to pay a pound means nothing else than 
 tlie promise to pay tlic holder on demand, wlien he de- 
 mands it, a detinite quantity of the precious metals." 
 
 Supposing this statement were true, it v>'ould simply 
 show what is a pound, not what a pound ought to be; 
 and then the question would fairly arise, if our 
 ancestors fixed on a pound Avhich suited them, but 
 which is unsuited to us, are Ave to be bound by their 
 decision ? If so, there would be an end to all progress, 
 and we need not dwell on so silly a proposition. 
 
 A pound, according to Sir liobert Feel, is a definite 
 quantity of gold or of silver. There he is vague, for 
 he may mean a definite or unchanging quantity from 
 the foundation of the monarchy; or only a definite 
 quantity at the time a bargain is made. If he means 
 the former, he is greatly in error, as the reader will 
 have perceived from the table of Lord Liverpool, in 
 which the successive variations in tlie weight of our 
 gold and silver coins have been traced. It is true that 
 in a later part of his speecli Sir Ivobert Feel confined 
 the invariability of tlie gold pound to the period 
 which has elapsed since the concluding part of the 
 reign of Queen Elizabeth, that is since 1601 ; but here 
 also he displays his ignorance of history, for the sove- 
 reign of Elizabeth weighed 7 dwts. G4 grains, whereas 
 that of A'ictoria wi'ighes only 5 dwts. 3 grains. 
 
 AVlien Sir Fvobert was palming his false definition on 
 the ignorance or credulity of the House of Commons, 
 he took a sovereign from liis Avaistcoat pocket, threw 
 it up in the air, and caught it in his hand as it 
 descended; then with a smiling and seU'-complacent 
 countenance, as if exulting in the ingenuity of his 
 felicitous illustration, he exclaimed, showing the sove- 
 reign, "This, gentlemen of the House of Comm(»iis, is
 
 144 What ought to be a Pound? 
 
 a Pound." It avqs the exhibition of a mountebank. 
 Any other member of the House of Commons might 
 have held up eight half crowns, or twenty shillings, or 
 forty sixpences, and exclaimed " Behold a Pound." If 
 any member, prepared with a blow pipe, had fused the 
 sovereign, and then asked Sir Ptobert Peel, " Is this 
 ingot a pound? is it legal tender for a debt?" the ab- 
 surdity of the whole process would have been apparent 
 to the dullest man whoever parted with Bank notes to 
 obtain a seat in the House of Commons. The silliness 
 of the whole proceeding is so ably exposed by Lieut. 
 Colonel Macdonald, a recent but most able writer on 
 monetary science, that we shall submit liis criticism to 
 our readers. 
 
 " The error lies in not perceiving that these coins 
 possess two distinct properties, the one as metal^ the 
 other as money. As metal, both the sovereign and the 
 silver coins are of the value of a pound sterling ; in 
 other words, they possess value to that amount. As 
 money, as the stamped coins of the realm, they are the 
 legal representative of that amount or portion of Yalue 
 adopted by the nation as the measure of value, and are 
 used solely for the purpose of facilitating exchanges of 
 all things valuable. As a mere piece of gold, there- 
 fore, what Sir Piobert Peel displayed was not a pound, 
 but only a pound's worth of gold. This he would 
 speedily have discovered by melting the sovereign. 
 For, although he would have exhibited the same iden- 
 tical piece of gold, he Avould not have ventured so to 
 stultify himself with the House as to have held up the 
 now shapeless lum]) of gold and declared it to be a 
 'pound.' He might with truth have stated that it w^as 
 equal in value to a pound, but he might have displayed 
 a new hat or umbrella, and with as much truth declared 
 the same thing. But in neither case w^ould he have 
 displayed the pound itself. It was, therefore, solely in 
 its representative character, as attested by the national
 
 What ought to he a Pound? 145 
 
 stamp of autliority, and thereby universally recognised 
 tlirougliout the country as legal tender to that amount, 
 that the sovereign could be declared with any truth to 
 be a pound sterling. If this be not so, then might Sir 
 Robert Peel have held up his gold ring and declared it 
 to be a pound, or two pounds, or ten pounds; and no 
 bullion ist will, I suppose, be bold enough to make any 
 such assertion. If, then, the sovereign be a pound 
 sterling, in its representative character as money, the 
 important question arises — what does it represent? I 
 answer, what the sovereign represents is value. All 
 money in its true character is only the legal represen- 
 tative of value; and a pound sterling in its present 
 day is only the English term for a certain fixed portion 
 of value, and wliich we may find contained in so many 
 grains of gold, in so many ounces of silver, and in so 
 much wheat, iron, calico, tea, sugar, and other valuable 
 tilings. The sovereign, as the symbol of this pound, 
 continues to represent this portion of value, and tlie 
 shilling a less portion of tiie same property, long after 
 tlie materials of whicli they are composed have been 
 greatly reduced in quantity, and, tlierefore, are no 
 longer equal to a pound. From these i)remises I con- 
 clude that a pound sterling is merely that portion of 
 value employed by us in estimating or measuring the 
 amount of value in all things possessing that property. 
 But to conclude that any material substance, a portion 
 of which may contain value to the amount thus fixed 
 upon, must alone be tliis pound, is as illogical and un- 
 reasonable as to declare tliat any article which occupies 
 or fills that portion of space we call a yard is itself 
 that yard. To say that the piece of gold weighing 
 123 grains is necessarily a pound is as false and foolisli 
 as it would be to assert, that any piece of wood or iron, 
 capable of being formed into the representative of a 
 yard, is that yard ; and we know the yard itself exists 
 as much before as after its material representative is
 
 146 Issue of Notes on Nominal Securities. 
 
 made. The fallacy, as I said before, lies in mistaking 
 the material substance itself, as that portion of value 
 we call a pound, which it is merely made to represent." 
 
 Bearing in memory Sir Robert Peel's definition of a 
 pound, that it is " neither more nor less than a certain 
 quantity of gold, with a mark upon it to determine its 
 weight and fineness ; and that the engagement to pay 
 a pound means nothing, and can mean nothing else, 
 than the promise to pay the holder on demand, when 
 he demands it, a definite quantity of the precious 
 metals," let us consider whether he acted upon or 
 violated his own definition when constructing the Bank 
 Charter Act of 1844. 
 
 His arrangement with the Bank of England was to 
 allow it toissue^l4,000,000 of notes without its holding 
 a single grain of gold to meet those issues ; herein is 
 involved the first palpable contradiction. For whatever 
 amount of notes the Bank of England puts into circu- 
 lation above and beyond those £14,000,000 it was 
 compelled to hold gold in its coffers. Supposing, then, 
 that the total issue was £21,000,000, two-thirds would 
 be mere wind-bills, havin^^ no metallic basis or G-uarantee 
 
 7 O 
 
 whatever, while for the other third there would be a 
 metallic basis. This equivocation arose out of the fact 
 of government being indebted to the Bank in the sum 
 of £14,000,000 ; it could not pay that sum in gold, and 
 therefore connived at this credit issue of wind bills, 
 while rigorously exacting from every merchant, manu- 
 facturer, and tradesman the immediate payment of all 
 their debts in gold, under pain of bankruptcy. Ought 
 not the mercantile community to appreciate the justness 
 and tender care of the paternal government ! ! 
 
 The English private banks and the English joint 
 stock banks were dealt with in the following fashion. 
 They were called upon to give a return of their average 
 circulation of notes during four weeks after the 10th of 
 October, 184o, and that was fixed upon as the maximum
 
 Issue of Notes on Nominal Securities. 147 
 
 for all future time, the legislators of the day assuming 
 to themselves a degree of foresight which enabled them 
 to look into all the monetary wants and commercial 
 operations of the most distant periods. To the extent 
 of the average circulation during four weeks after the 
 10th October, 1843, these banks were allowed to issue 
 notes without any metallic basis whatever ; but beyond 
 and above that amount they were to hold gold in their 
 coifers. Here, again, Sir Robert Peel violated his 
 definition of a pound ; there was a shadow of an excuse 
 in allowing the Bank of England to issue wind bills; 
 but in the case of private and joint stock banks there 
 was none. How admirable was his consistency ! 
 
 The Banks of Scotland and of Ireland were placed 
 upon the same footing (in 1845) as the English private 
 and joint stock banks. The summary of wind l)ills, 
 then, stands thus : — 
 
 1 The Bank of Eno-land i:14,000,000 
 
 190 Eno-lish Private 'Banks 4,999,444 
 
 07 English Joint Stock Banks 3,418,277 
 
 204 English Banks, Total £22,417,721 
 
 18 Banks in Scotland 3,087,209 
 
 8 Banks in Ireland 0,354,494 
 
 Total issues for the United Kingdom* £31,859,424 
 
 From this table it appears that, whilst the average 
 amount of the fixed issues for the 264 banks of issue in 
 England gives £32,000 for each bank, that of Ireland 
 is £794,000 for each of its eight banks; and that, 
 although Scotland has more than twice the number of 
 banks that Ireland has, the amount of the circulation 
 of Ireland is more than twice the amount of that of 
 
 * By an order in Council, dated 7th December, 1855, the Bank 
 obtained power to increase its issues to the extent of .ij475,U00, 
 being two-thirds of the lapsed circulations of tlie jirovincial banks 
 which had failed since 1844. 
 
 L 2
 
 148 Issues of Notes on Nominal Securities. 
 
 Scotland. Here, tlien, we discover no adaptation of 
 means to an end, which is generally looked for in the 
 wisdom of statesmen. Where trade is most extensive 
 and most active, there the monetary instruments by 
 which trade alone can be carried on, are the least. It 
 may here be added that the 17th section of the Act 
 provides that " any banker issuing notes beyond the 
 amount authorised by the commissioners shall forfeit a 
 sum equal to the amount in excess," so that the section 
 rigidly limits trade, and violates the important principle 
 which proclaims to all men of common sense that it is 
 trade that calls out monetary instruments, not monetary 
 instruments which call out trade. 
 
 It appears then that Sir Eobert Peel's Bank Charter 
 Act flagrantly violates his own definition of a pound, 
 since the total issues of the United Kingdom, not 
 guaranteed by the deposit of a single grain of gold, are 
 permitted to the extent of £31,859,424. Indeed, 
 they have no guarantee whatever, and are essentially 
 wind-bills ; or, to use the choice and elegant phraseology 
 of the bullionists, "kites, flimsies, rags, shin-plasters." 
 This violation of the definition of a pound clearly proves 
 beyond all cavil, that a purely metallic circulation is 
 impracticable ; or else wliy did not Sir It. Peel establish 
 such a circulation? It also shows that Mr. Loyd's 
 dictum " that to preserve the value of a paper circu- 
 lation, not only must that paper be convertible into 
 metallic money, but the whole of its oscillations must 
 be made to correspond, both in time and amount, with 
 what would be the oscillations of a metallic currency, as 
 indicated 1)y the state of the bullion," amounts to mere 
 verbiage. In the case before us there is no bullion 
 indicator whatever, since it is expelled from considera- 
 tion. The £31,859,424 are completely independent of 
 bullion. In the construction of the Bank Charter Act, 
 bullion, the professed basis of the Avhole scheme, is made 
 subsidiary and subordinate to the wind bills, since it
 
 JJivlsion of the Bank iiito two Departments. li!> 
 
 oii]y conies into pl;iy wlien tlic amount of circulation 
 exceeds the amount of those wind bills. 
 
 Tlie next important feature in the Act was the 
 division of the Bank of England into two separate 
 departments, called the Banking and Issue departments. 
 On this ridiculous conceit was founded what its authors 
 styled " the self-acting system." In the panic of 1847 
 it covered them Avitli ridicule, though ]\Ir. Loyd had 
 considered it the perfection of wisdom. In the Issue 
 dei)artment was placed a credit for the £14,000,000 of 
 debt due by government to the Bank, and notes to that 
 amount were therein deposited, uncovered by an ounce 
 of gold. For issues beyond tliat amount gold was 
 lodged in the same department. The notes thence 
 issued are lodged in the Banking department. Now 
 comes the juggle to those who arc not initiated. It is 
 well explained by Islw Wright, the eminent banker of 
 Nottingham. 
 
 " The public labour under the ftiUacy of supposing, 
 when they see the Bank has ten millions in her coffers, 
 that she has ten millions to dispose of. No such thing. 
 When the circulation of notes is twenty millions, and 
 the entire stock of gold ten millions, the available 
 surplus is only four millions. According to this new 
 system, should the Banking Department say to the 
 Issue Department, I want gold, or I want notes, 
 the Issue Department would answer — you have got 
 twenty millions of our notes, that is, six millions above 
 the fourteen millions without gold to cover them; we 
 have only six millions of bullion in our coffers, and, 
 therefore, cannot give you gold unless you bring us 
 notes, or give you notes unless you bring us gold. 
 Thus the Banking Department cannot touch any portion 
 of the six millions in the Issue Department without 
 taking in a corresponding amount of notes to be can- 
 celled. The Banking Department obtains notes from 
 the public by selling securities, and letting the bills of
 
 150 21ie Lords' Report on the Suspension 
 
 exchange she holds run out without discounting any 
 more ; and this plan is represented by the supporters of 
 the Act as very easily accomplished. But what is the 
 effect on the country? The country is sacrificed to 
 fulfil an improvident law; and yet, after all the 
 stringent measures that may be adopted to pay the 
 six millions in gold, the remaining fourteen millions 
 are not convertible." 
 
 It is difficult to conceive of any arrangement more 
 absurd than the one described. ' It resembles the mar- 
 shalling an army in the field where one arm of every 
 soldier is tied up, or where a certain amount of powder 
 and shot is brought into the field with an express order 
 from the commander-in-chief that they are not to be 
 used. It is sheer delusion to make a display of gold 
 with an interdict against its circulation ; and its barren 
 exhibition can subserve no other purpose than to dupe 
 the credulous public into the belief that a shadow is a 
 substance. But let us test the wisdom of this division 
 of the Bank into two separate departments by stubborn 
 facts and actual experience. The following is taken 
 from the Lord's Eeport of 1848, on the commercial 
 distress Avhich occurred in the Panic year of 1847. 
 For the sake of clearness we will first describe the con- 
 dition of the Bank before we set down the questions 
 and answers. 
 
 The reserve of notes, which had been £2,630,000 
 on the UUh October, 1847, had fallen on the 23rd to 
 £1,547,000, and to £1,17G,000 on the 30th October, 
 having decreased nearly £1,500,000 Avithin the short 
 space of fourteen days. At this last period, of the 
 total reserve of notes amounting to £1,176,740, no 
 more tlian £568,470 was held in London, making with 
 the gohl coin in the Banking Department £719,523. At 
 the same time the private deposits for which the Bank 
 was responsible amounted to £8,580,000, independently 
 of upwards of £4,766,000 of Government deposits.
 
 of the Act of 18-i4 in 1847. 151 
 
 The total (lepositson tlieoOtliOcto])crwere£ 14,500,000 ; 
 tlic deposits of the London bankers Leing more than 
 £2,000,000 at the same time. In reference to this 
 state of tilings, the following im])ortant evidence was 
 given by the governor and deputy governor of the 
 Bank of England : — 
 
 " Question— You had only £1,600,000 in the bank- 
 ing department for the payment of your liabilities? 
 Yes. 
 
 " Question— If any body had called upon you for 
 anything beyond that million and a half, you must 
 have stopped payment? Yes we must. 
 
 " Question — At that time, if there had been no 
 separation between the two departments, and the Bank 
 of England had been conducted on its old principle, 
 instead of being within one million and a half of 
 stopping, there would have l)efin nearly £8,500,000 
 of treasure in your vaults? We should have had 
 ^8,500,000 in our vaults." 
 
 So it appears from this evidence, the most complete 
 evidence that could be given, since tendered by the 
 governor and the deputy governor of the Bank, that 
 under the same roof the estal)lishmeut was bankrupt 
 in one room and solvent in another room; that had the 
 London bankers demanded their deposits, they would 
 only have received about 15s. in the pound; that the 
 Government deposits, the deposits of the merchants 
 and all the notes in the hands of the public, nmst have 
 been wholly repudiated; and that when the affairs of 
 the Bank had been ■\70und up, they would have shown 
 i^8, 500,000 as their available assets. Surely no addi- 
 tional argument is needed to show that the division of 
 the Bank of England into two separate departments 
 was most unwise. 
 
 But the admirers of the system take credit to them- 
 selves for securing the convertibility of the bank note. 
 The statement is only true in this sense, that the
 
 152 Sham Convertibility of the Note. 
 
 holdere of the notes did not press for payment ; so that 
 the vaunted convertibility was only one on suiferance. 
 It is known that the London bankers who held the two 
 millions of deposits, went to the governor of the Bank, 
 and stated their reluctance to demand payment; but 
 that unless a Treasury order was issued for the suspen- 
 sion of the Act of 1844, they would be compelled to 
 do so in self-defence. The result was that the Act was 
 suspended, and this shows that the convertibility of the 
 note was really a fiction. Moreover, it was proved by 
 calculation made by Mr. Ayres, of the " Banker's Cir- 
 cular," that in January, 1847, the power of the Bank 
 to discliarge its notes in gold was at the highest, or 
 lis. 9d. in the pound, Avhile on the 30th of October it 
 was reduced to 6s. 7d. in the Issue Department. On 
 the 1st of May, 1847, in the Banking Department, 
 the metallic power of the Bank, in silver and gold, was 
 only one shilling and one penny in the pound; while 
 on the 6 th of October it barely exceeded fourpence in 
 the pound, silver and gold included. 
 
 The third clause of the Bank Charter Act runs thus : 
 " And whereas it is necessary to limit the amount of 
 silver bullion on which it shall be lawful for the issue 
 department of the Bank of England to issue Bank of 
 England notes : Be it therefore enacted, that it shall 
 not be lawful for the Bank of England to retain in the 
 issue department of the said bank at any one time an 
 amount of silver bullion exceeding one-fourth part of 
 gold coin and bullion at such time held by the Bank in 
 the issue department." 
 
 In one sense this was a farce, in another a deliberate 
 piece of deception. By the Act of 1816, still unre- 
 pealed and unchanged, silver was declared to be legal 
 tender for oidy forty shillings at one payment; it was 
 a mockery, therefore, to introduce silver as a basis for 
 notes concomitantly with gold, since, practically, under 
 the limitation mentioned, silver was no security at all;
 
 Sham Convertibility of the Note. 153 
 
 smd this was proved in 1847, wlicn ^\\\ Tlioiiias Baring 
 stated, in the House of Commons, that a foreign mer- 
 chant arriving in London during the panic, with silver 
 bullion worth £G0,000, was unable to procure either 
 bank notes or gold, to discharge some liabilities he had 
 incurred. 
 
 Sir Robert Peel had two great advantages in the 
 House of Commons; the first was his facility of 
 assertion ; the second, the credulity of his dupes. It 
 cannot be denied that every alteration of plans or 
 opinions is conclusive evidence of prior imperfection 
 of judgment; and, tried by this unerring canon of 
 criticism, the intellect of Peel is reduced to small 
 dimensions. He was among the last to seize truth. By 
 liis repeated tergiversations — and these, too, of the most 
 flagrant character — he convicted himself of an absolute 
 deficiency in foresight. Let us first quote an instance 
 of his facility of assertion. When he introduced the 
 bill for resuming cash payments into the House of Com- 
 mons, on the 24th May, 1819, he made the following 
 grossly unfounded statement, which threw dust into the 
 eyes of many of the members. He said — 
 
 "From 1774 to 1797, they (the Bank) did that to 
 which now the objection is made, — during that period 
 they confined their issues to the price of gold: and he 
 challenged any man to produce an instance during that 
 period when the price of gold exceeded £3 17s. 6d. per 
 
 ounce." 
 
 Mr. AT)raham Newland, for many years Chief Casliier 
 of the Bank of England, gave the following evidence 
 before the Lords' Committee of Secrecy, in 1797, and 
 Sir Eobert Peel, pluming himself on being an authority 
 on finance, ought to have known the facts. 
 
 " Question. Do the banks ever pay more in the 
 purchase of gold than the Mint price? — Frequently. 
 
 " Question. Do the bank, in such cases, carry their 
 gold to the Mint to be coined? — They do.
 
 154 Evidence of AbraJiam Ne I dand. 
 
 " Question. What is tlie highest price you ever kneAV 
 the bank pay for gohl per ounce?— £4 Is. Od. ; 
 £4 2s. Od. ; £4 6s. Od. ; and as high as £4 8s. Od. ; 
 but very seldom at those prices. 
 
 " Question. State to the Committee at what time the 
 bank gave so large a price as £4 8s. Od. per ounce for 
 gold ? — I believe it was about two years since the bank 
 gave so large a price as £4 8s. Od. per ounce for gold ; 
 it was but\ small quantity — it was soon stopped on 
 account of its price; the bank at that time tliought it 
 expedient to obtain gold from Portugal, which their 
 accent conld not do at a less price than £4 8s. Od. per 
 
 ounce." 
 
 This ought to be decisive of Peel's historical igno- 
 rance on this important point in these inquiries, as it 
 certainly is of the coolness with which he imposed on 
 the House of Commons. But he knew his audience, 
 and had not much fear of detection. 
 
 In introducing the Bank Charter of 1844, in one 
 single speech he floundered in contradictions, nor were 
 these errors of the nev/spaper reporters, icr he revised 
 that speech, and printed it as a pamphlet. These are 
 specimens of the confusion of his ideas : 
 
 "I say that coin and bullion, as articles of commerce, 
 are regulated by precisely the same principles as those 
 which regulate other articles of commerce." 
 
 Here coin and bullion are treated asidcntical,which 
 is not true, for the former is money, and the latter is 
 not money ; moreover, we fix the price of coin, but do 
 not fix the price of bullion. 
 
 In contrast to this foolish dictum we have the fol- 
 lowing : — 
 
 " Bullion is distributed according to certain laws 
 which Ave cannot understand, and which we cannot 
 control." 
 
 How this was reconciled witli the former statements 
 Ave are not told, but when a man does not understand a
 
 ( 
 
 Standards and Measures. 155 
 
 subject it is difficult for him to state it so as to be under- 
 stood by others. Here is another extract : — 
 
 " Now it is just because it (bullion) is an article of 
 commerce, and subject to the same laws as other articles, 
 that it becomes lit to be taken as the standard, and 
 our security as a measure of value ; because the same 
 laws which regulate the import and possession of all 
 articles of commerce, regulate the import by this 
 country of bullion." 
 
 The second passage contradicts the first, and the 
 third demolishes the second. If we put the three 
 together, the amalgamation is a chaos. 
 
 Sir liobert Peel, in the third extract, confounds the 
 
 standard witli the measure^ the source of innumerable 
 
 blunders. " Bread corn," said Mr. Horner, " is the 
 
 paramount and real standard of all values." The 
 
 diflerence between a standard and a measure may be 
 
 readily explained. A perfect standard is only found in 
 
 nature, and is therefore immutable at all times, and 
 
 under all circumstances ; but a measure is the creation 
 
 of man, and variable at his will and pleasure. The 
 
 annual revolution of the earth round the sun is an 
 
 i-mmxitwhlo, standard of time, fixed in nature, but certain 
 
 portions of that revolution which we call months, 
 
 weeks, days, minutes, are measures of time. Speaking 
 
 philosophically, a standard of length is found in the 
 
 400,000,000th part of the earth's circumference, which 
 
 is equal to 39.370 English inches. This is the length 
 
 of the French metre, a measure deduced from the 
 
 standard. In England the philosophical standard of 
 
 length is a pendulum vibrating seconds in the latitude 
 
 of Greenwich, Avhich is acted upon by the earth's 
 
 attraction combined Avith its rotation, and is an 
 
 invariable standard of length, because all laws of nature 
 
 are invariable; from this standard Ave form the yard 
 
 and all other measures of lenc-tli. The standards of 
 
 weight and capacity are founded on similar pliilo-
 
 i56 Standards and Measures. 
 
 sopliical principles, based on nature, Avliile their 
 corresponding measures are mere artificial arrange- 
 ments. A very complete illustration of these distinctions 
 is afforded by the thermometer. The points at which 
 water boils or freezes constitute the standard of heat, 
 Avhile mercury, expanding or contracting in the tube as 
 it receives or loses heat, constitutes the measure of heat. 
 Thus in the three differently graduated scales of Fahren- 
 heit, Reaumur, and Gay Lussac, the boiling and freezing 
 points are indicated by different numerical degrees 
 marked on the sides of the tube, but all of them are 
 referable to the same standard. The standard of heat, 
 being found in nature, is unchangeable by any act of 
 man ; but the measure of heat, being only a mode of 
 testing the variations of its intensity, accommodates 
 itself to the contrivances or the conveniences of the 
 scientific, as it may seem to them best adapted to bring 
 the virtues of the standard into practical operation. 
 
 Of these distinctions Sir Robert Peel does not aj)pear 
 to have had the most remote conception, treating the 
 terms standard and measure as identical. The standard 
 of value is bread corn ; the measure of value is gold 
 or silver. Every labourer must be subsisted by the 
 produce of his labour ; he must replace the food he has 
 consumed while labouring; therefore he practically 
 refers his wages to the quantity of corn (wliich is used 
 here as a compendious term for " general subsistence") 
 which those wages will purchase. To such a man 
 gold and silver can never be standards of value; 
 the question with him is not whether he gets a shilling 
 a day or a sovereign a day, a dwt. of gold or 
 5 dwts. of gold, but whether what he does get will buy 
 half a loaf or a wliole loaf^ for the test of wages, as of 
 all other income, is their purchasing poAver. The 
 money contained in the wages is the measure of the 
 standard to which thev are referred, and that standard 
 is corn.
 
 I 
 
 Standards and Measures. 157 
 
 The legislation of Peel and Loyd requires that all 
 commodities shall be convertible, each into another, that 
 is, exchangeable, each into another, not according to the 
 measure of value, but actually into the measure of value 
 itself. This obligation is not imposed on measures of 
 length, weight, or capacity. In reference to them we 
 are only Ijound to observe the measure or rule of pro- 
 portion whicli they prescribe. We should laugh out- 
 right if ])arliament decreed that articles sold by lengtli, 
 weight, or capacity, should be converted into their 
 respective measures, and not according to their respec- 
 tive measures; cloth into maple-yard wands, sugar into 
 leaden weights, and wine into wooden pipes, thus sub- 
 stituting the thing containing for the thing contained, 
 or the thing measuring for the tiling measured ; this, 
 however, is the kind of absurdity we are compelled to 
 perpetrate in reference to the measure of value, for 
 unless, being indebted, we can convert or exchange our 
 property into gold, even at the time when the govern- 
 ment itself is exporting gold to take up a foreign loan, 
 w^e are doomed to bankruptcy, however solvent we may 
 be . in land, houses, ships, and all other commodities 
 except gold. Sucli an atrocious process could never be 
 sanctioned by any legislature whose members under- 
 stood the difterence between a standard and a measure. 
 Considering the frequent tergiversations of Sir Robert 
 Peel, it is highly probable that he would have repu- 
 diated his monetary opinions had his life been prolonged. 
 This probability is more than a shadoAvy conjecture, 
 considering a letter he wrote to Sir Roderick Im|)ey 
 Murchison, shortly before his death, and which appeared 
 in the Quarterly Review^ vol. xci., p. 530, June and 
 September, 1852. We reprint it. 
 
 " On the 6th ^lay, 1844, in bringing in the Bank 
 Charter Act, I adverted to the rai)i(l increase of the 
 annual supply of gold from mines wirhin the dominions 
 of Ptussia, and recommended those who wished for a
 
 158 Standards and Measures. 
 
 diminution in the standard of value to benefit the deljtor, 
 to consider whether their objects might not be effected 
 by natural causes — the decreasing relative value of gold 
 in consequence of a more abundant supply — 'witliout 
 the aid of legislative intervention. Your arguments 
 are powerful to show that there is no probability (risk 
 I should say,) of precipitate and violent disturbance. 
 It takes a long time and a great disproportion in the 
 amount of supply to affect the relative value throughout 
 the world of two such articles as gold and silver. The 
 united influence of Siberia and California will, however, 
 I think, justify my inference of 1844, that there is a 
 tendency towards diminished value on the part of the 
 gold. An extraordinary increase in the supply of both 
 gold and silver might concurrently take place, not affect- 
 ing their relative value between each other, but affecting 
 the price of all other commodities, estimated with 
 reference to the precious metals, and the interest of 
 debtor and creditor." 
 
 The first sentence in this extract would justify the con- 
 clusion that Sir Robert was aware of the iniquity of his 
 system, and that he knew the creditor had an advantage 
 over the debtor Avhich he ought not to possess. But as 
 we read on and come to the parenthesis (risk, I should 
 say) the extract admits of a directly ojiposite interpre- 
 tation. When the letter was written, Australia was 
 not known as a gold field, ])ut the writer expresses his 
 conviction that the united influence of Siberia and Cali- 
 fornia would diminish the value of gold; if so, the 
 creditor would be wronged, and he would call for an 
 equitable adjustment; as in past times, and as at present, 
 the debtor called for, and still calls for, such an adjust- 
 ment. If the recent discoveries do not lower the value 
 of gold, injustice Avill be perpetuated; if they do, 
 suffering must overtake the class hitherto favored. 
 Peel had a glimpse of the future, and it is highly 
 probable that, either to protect the bullionists, or to do
 
 Standards and Measures. 150 
 
 an !ict of tardy justice, he avouIcI have hrought the 
 Avhole monetary system under a fresli discussion. 
 
 There is one more clause in the Act of 1844, alhision 
 to wliich must not be omitted. It gave a banking 
 monopoly to all existing bankers. Henceforward, no 
 new bank of issue could be established, and this bribe 
 secured the adhesion of all those who were established. 
 In this arrangement Sir Robert Peel contradicted his 
 free trade principles.
 
 CHAPTER YII. 
 
 Lord Overstone on the Defects of the Bank ^of England. Character 
 of Imperial or National IVIoney. Its Limitation and periodical 
 redemption, rendering depreciation impossible. The Guernsey 
 Market. American Independence due to paper Money. The power 
 of Napoleon broken by paper Money. Prussia reiuvigorated 
 by paper Money, by Frederick the Great. Scotland enriched 
 by paper Money. Commercial Money and Security Banks. 
 Opinions of the first Sir Robert Peel. View of Mr. John 
 Taylor on " Prices." Gold at its market Price. Evidence of Mr. 
 W.' Brown, M.P., before the Lords' Committee on the rate of 
 discount. The late Sir Robert Peel's defence of Tsury. Answered 
 by Mr. James Taylor. Arbitrary Limitation of Legal Tender. 
 Opinion of Sir Josiah Child on interest of Money. The inverted 
 pyramid of Gold. Error of Mr. James Mill. View of David Hume. 
 How markets are created and sustained. iMr. Cayley and the 
 Governor of the Bank. The Fall of Rome. Sismondi. Michelet. 
 Gibbon. Summary of Monetary Principles. 
 
 Certal\ passages have been cited from the writings 
 of Mr. Jones Loycl, on which adverse comments liave 
 been pronounced ; but he has expressed other opinions 
 which are sound and Avorthy of encomium. He uses 
 the following langutige in reference to the incompatible 
 functions which the Bank of England are required to 
 discharge : — 
 
 " The union of banking functions with those of 
 issue ; the obligation imposed on the manager of the 
 circulation to supply the uncertain and fluctuating 
 demands of Government on account of the public 
 service; the existence of rival and competing (though 
 subordinate) issuers, not directly subjected to the ob- 
 ligation of regulating their issues with reference to the 
 state of the foreign cixchunges; the application of tlie
 
 Lord Orrrstone. 101 
 
 rule whicli tlie Bank has laid down for its guidance to 
 the joint liabilities (deposits as well as circulation) 
 instead of applying it to the circulation only ; the too 
 intimate connection of the manager of the circulation 
 witli commercial affairs, and the implied duty which 
 arises out of its supporting public and private credit: 
 to Avhatever extent in these respects our present system 
 deviates from that which sound views Avould dictate, 
 the blame cannot with any justice be exclusively thrown 
 upon the Bank. They are the remaining traces of a 
 false system which was established when questions of 
 currency were less understood than they now are.* * * 
 * * * * jjq^ j^ -^ possible that the proper rela- 
 tions between the paper issues and the bullion can be 
 properly maintained whilst the Bank is liable to be 
 compelled to issue on her deposit accounts, upon the 
 discount of commercial bills, and for the supply of the 
 public wants of Government? The consequence of 
 uniting these, which are strictly banking operations, 
 with a power of regulating the amount of the currency, 
 which is a duty of a very different character, must be 
 embarrassment to the party in whom these conflicting 
 functions are united, and ultimately an abuse of all the 
 power which is entrusted to her. * * * Xhe con- 
 nection of the Bank with commerce is the leading 
 cause of its mismanagement of the circulation; and 
 yet you complain that the Bank is unable to extend 
 and complicate its relations in that respect. The 
 manager of the circulation ought to have no con- 
 nection with trade and commerce. If they are allowed 
 to approach her, they are sure to undermine her prin- 
 ciples, to seduce her from the path of duty, and to 
 destroy her character." f 
 
 Putting out of view the recommendation that the 
 issues of notes should be regulated by the foreign ex- 
 changes, the incompatible functions of the manager of 
 * Rf>m.irks, &c., p. 101. f Letter fo 1, B. Sinilli, Esq., p. 21. 
 
 M
 
 1G2 Lord Overstone. 
 
 the circulation are strongly shown ; it is most true that 
 a national bank of issue should have nothing to do with 
 trade and commerce, or discounts, or profits ; it should 
 stand aloof from all such operations, and be utterly 
 independent of home transactions or foreign exchanges. 
 A national bank should take for its motto, 
 
 — Fung-ar vice cotis que reddit acutum Exsors ipsa secandi. 
 It should resemble the whetstone, which sharpens, itself 
 incapable of cutting. 
 
 On this branch of the subject we must quote one 
 more passage from Mr. Loyd : 
 
 " The profit to be derived ^'-om a paper circulation 
 legitimately belongs to the government; and a perma- 
 nent advance to it of a fixed sum, as representing that 
 portion of the taxation which is beyond the reach of 
 fluctuation, is an arrangement to Avhich no valid objec- 
 tion can be urged."* 
 
 Here it is difiicult to understand what the writer 
 really means. Who is to advance this paper circula- 
 tion to the government ? Who is to decide what amount 
 is beyond the reach of fluctuation? Is the advanced 
 paper to be based on gold, and convertible into the 
 metal? And if convertible, is it to be at the mint or 
 market price? And how are the profits to be indicated, 
 and wdience derived? These queries obviously suggest 
 themselves, but Mr. Loyd does not even hint at any 
 grounds on which an answer can l)e framed. He seems, 
 however, to have some vague notion that the crown is 
 entitled to some kind of equivalent for the prei'ogative 
 it has surrendered te "".he Bank of England. This is a 
 great concession for so confirmed a bullicliist, but it 
 seems rather to have escaped from him, than to be based 
 on any broad principle. Having ourselves raised various 
 objections to the system now enforced, it becomes us to 
 propound a plan, and, having done so, to anticipate the 
 more popular criticisms by which it may be assailed. 
 
 * Remarks, p. 45.
 
 Character of Imperial or National Money. IG^-J 
 
 National or imperial money, as the name imports, is 
 that form of legal tender which derives all its conven- 
 tional value from the authority of tlie state which calls 
 it into existence. It is the monetary servant of the 
 community, not its master. Its special function is to 
 circulate at home, and it should he deprived of all power 
 of travelling al)road. Being essentially a credit instru- 
 ment, it need not possess any intrinsic value. To secure 
 it against depreciation, provision should be made for 
 its periodical redemption. Its proper limit is the 
 amount of annual taxation voted by parliament. The 
 metliod l)v which this le^al tender would be brought 
 into circulation is tlie following : —The crown would pay 
 all its creditors with this money — as the army and navy, 
 official salaries, pensions, the dividends of the fund- 
 holders, and indeed every outlay which it incurred. As 
 it would be legal tender from man to man, every re- 
 cipient of it would be enabled to purchase with it what 
 he desired to possess ; it would discharge all fiscal duties, 
 as customs and excise, and every desci-iption of tax. 
 When paid back to the crown in liquidation of taxes, 
 the notes would be cancelled, which would prevent the 
 issues being cumulative from year to year; and they 
 would be so received back at the same conventional 
 value at which they were originally issued. A single 
 case will illustrate the operation. Let the adndralty 
 advertise for a supply of beef and pork, to be furnished 
 to the victualling department of one of the royal dock- 
 yards. Let it be assumed that the contract is taken for 
 £100,000. The treasury gives that sum in national 
 notes to the contractor, who lodges them with his banker. 
 This 1)eing done, let a distiller go to the same banker, 
 w^anting his bill discounted for £100,000; the banker 
 hands to him the £100,000 paid in by the victualling 
 contractor, and with it the distiller discluirges his duties 
 t-o the excise. The notes are then forwarded to 
 the treasury, whei-c thcv aio cancelled. Thus the 
 
 M 2
 
 164 Character of Imperial or National Money. 
 
 government would get all that it wanted — provisions 
 in the dockyard — first, by advancing national money 
 to the contractor, and then receiving that money hack 
 in the form of taxes from the distiller. This would be 
 effected without the intervention of a single ounce of 
 gold, which would not be required. All other transac- 
 tions would partake of a similar character. Soldiers 
 and sailors would pay the butcher and baker with these 
 national notes, and with them they would pay the tax 
 gatherer. They would, in fact, pass from hand to hand 
 as freely as sovereigns now pass, and for every purpose 
 of buying and selling as sovereigns now pass, finally to 
 be absorbed by the collectors of taxes. The security 
 on which national money would be based, would be the 
 whole property of the kingdom which called it into 
 existence and put it into circulation. 
 
 Against such a system it is frequently but unre- 
 flectingly urged, that taxation might be indefinitely 
 expanded through the facilities afforded by national 
 paper money. Were this a valid objection, it could not 
 apply to the monetary instrument, with whatever force 
 it might be brought to bear against the construction 
 of Parliament, for the amount of notes would be exactly 
 proportioned to the amount of taxation voted by Par- 
 liament. An unskilful or unprincipled engine-driver 
 might run a railway train down an embankment or 
 over a bridge : this would be proof of the incapacity or 
 criminality of the driver, but it would be no argument 
 against the usefulness of railway travelling. The 
 remedy would not be a return to stage coaches, but the 
 dismissal of an untrustworthy servant. In like manner 
 a Ministry that violated its duty ought to be 
 cashiered. 
 
 But the vague dread of excessive and indefinitely 
 augmenting taxation is groundless. National money 
 is designed to express taxation; and, by its use, the 
 prices of all produce would necessarily rise as much
 
 Character of Imperial or National Money. 165 
 
 above the barter price as the scale of taxation 
 demanded; tlieretbre the purchasing power of money 
 wovi\<\.Jall proportionably to tlie rise of taxes, so that 
 if the riclier chisses, who sit in Parliament and make 
 the laws, wantonly increased the taxes, they would, 
 precisely in the ratio of such increase, diminish the 
 eifective power of their own incomes. This is a con- 
 clusive answer to the objection. 
 
 National paper money would not bear any interest. 
 At present when the Government wants money it 
 borrows it from the Bank of England. This is the 
 process. Government deposits Avith the Bank exchequer 
 bills bearing interest, receiving in exchange Bank 
 notes, that is an inferior for a superior security ; for 
 the exchequer bill is guaranteed by tlie whole property 
 of the country, while the Bank note has no other basis 
 than the credit of the Bank corporation. Thus the 
 nation pays interest to the members of a joint stock 
 corporation, which only exists by the permission of the 
 nation, and that interest is an addition to taxation. 
 National paper money would be in the nature of a 
 small exchequer note, issued directly by the Crown, 
 without the intervention of the Bank. 
 
 It must be observed that under this system taxes 
 raised within the year would be wholly discharged 
 within the year; consequently there never could be 
 any outstanding liabilities, or any addition to the 
 national debt. 
 
 National money would have much of the character of 
 the postage stamp, which has no intrinsic value, but 
 only a conventional value. Both are national credit 
 instruments. Many small debts, fractional parts of a 
 pound, are now paid in postage stamps, Avhich thus 
 become a currency. Why are they taken ? Not for 
 their intrinsic value, because they possess none, but for 
 their conventional value; and on what does their con- 
 ventional value rest? On faith — on the conviction
 
 166 The Guernsey Market. 
 
 that the Queen's Head placed on a letter will carry it 
 all through the United Kingdom. The stamp indicates 
 the tax Ave pay to the Post Office, and the national 
 paper money indicates the general aggregate tax we pay 
 annually to the government. We get possession of 
 both by giving a portion of our time or labour for 
 them. It is idle to say that we give a copper penny 
 for a postage stamp ; for the question returns how do 
 Ave get the penny? and the only answer is, by our 
 labour. 
 
 National paper money is an economical instrument. 
 Skilfully used, it works Avonders. As an illustration, 
 the case of a market, constructed in the island of 
 Guernsey, may be cited. The material Avealth of that 
 small island is computed at four millions sterling. In- 
 stead of borroAving money at interest to build the 
 edifice, the inhabitants issued notes of their own, 
 founded on their own credit. This was done by the 
 authority of their local parliament or States. The 
 estimated cost of the market Avas £4,000, and four 
 thousand one pound notes were issued. These were 
 paid to the contractor as the Avorks proceeded; with 
 these he paid the Avages of those he employed ; they in 
 turn gave them to the shopkeepers for goods, the shop- 
 keepers gave them to their landlords for rent, and they 
 again re-distributed them among society. In this man- 
 ner they Avere kept floating about, fulfilling the func- 
 tions for which they were created. In due season the 
 market Avas completed. It contained eighty shops, 
 Avliich Avere let to butchers at five pounds a year; so 
 that the annual rental Avas £400. At the end of the 
 first year of tenancy four hundred of the one pound 
 notes Avliich had built the market, having been received 
 as rent bv the States, Avho Avere the OAvners of the 
 national building reared up witli the national money, 
 Avere burnt in presence of the official authorities. The 
 same operation Avas repeated from year to year for ten
 
 American Independence. 1G7 
 
 years; Jit the expiration of which period all the notes 
 were redeemed, and, being cancelled, of course passed 
 out of circulation. But the annual rent did not cease; 
 it exists to this day, and is applied to local improve- 
 ments. Thus a substantial reality was created out of 
 a symbol ; fur it is plain that the market did not cost 
 a farthing to any one of the Guernsey people. In the 
 same manner bridges, railways, and canals may be con- 
 structed, without paying a farthing of interest to 
 bullionists. 
 
 Paper money established the independence of the 
 United States. At the commencement of the war, 
 Congress had no money. The internal commerce of 
 the States being suppressed, the farmer could not sell 
 his produce, and, of course, could not pay a tax. Con- 
 gress had no resource but paper money. Not being 
 able to lay a tax for its redemption, they could only 
 promise that taxes should be laid for that purpose, so 
 as to redeem the bills by a certain day. They did not 
 foresee the long continuance of the war, the almost 
 total suppression of their imports and exports, and 
 other events which rendered the performance of their 
 engagements impossible. The paper money continued 
 for a twelvemonth equal to gold and silver, but the 
 quantities which the Congress were obliged to emit for 
 the purposes of the war, exceeded what had been the 
 usual quantity of the circulating medium. In fact, no 
 provision being made for its periodical redemption, 
 this paper money became cumulative, since there was 
 no tax by which it could from time to time be absorbed 
 and cancelled. It began, therefore to become cheaper 
 or depreciated, falling in its purchasing power, just as 
 gold would be depreciated if it were doubled or trebled 
 in quantity, or as silver became depreciated in Europe 
 after the discovery of the South American mines. In 
 two years it had fallen to two dollars of paper money 
 for one of silver; in three years to four for one; in
 
 168 American Independence. 
 
 nine months more it fell to ten for one; and in the six 
 months following, that is to say, by September, 1779, 
 it had fallen to twenty for one. It continued to circu- 
 late and to depreciate till the end of 1780, when it had 
 fallen to seventy -five for one. About that time the 
 money circulated by the French army began to be 
 sensibly felt in all the States north of the Potomac, and 
 in those districts the paper disappeared from circu- 
 lation. In Virginia and in North Carolina, it con- 
 tinued a year longer, within which it fell a thousand 
 to one, and then expired, as it had done in the other 
 States. These facts are taken from the personal memoir 
 of President Jefferson, who makes this comment. 
 " Foreigners, who do not, like the natives, feel indul- 
 gence for its memory, as of a being which had vin- 
 dicated their liberties and fallen in the moment of 
 victory, have been loud and still are loud in their 
 complaints. A few of these have reason, but the 
 noisiest of them are not the best of them." The de- 
 preciation of the paper was the price Avhich the Ameri- 
 cans paid for their independence, and it was cheaply 
 purchased at the cost of sixty-six millions of dollars, 
 the amount of depreciation estimated by Jefferson. 
 
 Paper money broke the power of the first Napoleon 
 at Leipsic. According to the historian Alison, " by a 
 decree on the 30th September, 1813, from Peters- 
 waldau in Germany, the allied sovereigns issued paper 
 notes, guaranteed by Eussia, Prussia, and England, 
 which soon passed as cash from Kamskatka to the 
 Rhine, and produced the currency, which brought the 
 war to a successful issue. There was an evidence of 
 the manner in which a paper circulation, based on a 
 proper security, supports credit and supplies the want 
 of specie at the decisive moment. Whereas, according 
 to the present system, the paper would of necessity 
 have been contracted, wlien the specie became scarce ; 
 credit would have been ruined at the critical period ;
 
 Paper Money in Scotland. 1(5'.> 
 
 and tlie vast armaments of the allies would have been 
 dissolved for the want of funds for their support." 
 
 Paper money enabled Frederick the Great to raise 
 Prussia, exhausted by wars, from a state of prostra- 
 tion to wealth and power. That monarch issued land 
 mortgage notes, called Pfenhriefe^ bearing interest, but 
 inconvertible so long as the interest was paid. With 
 these monetary instruments he forced or fostered Prus- 
 sian agriculture, and caused it to grow in strength and 
 riches beyond any country in the world, except the 
 United States. The Pfenbriefe were so good a security 
 that they Avere readily negotiable even during all the 
 wars of Napoleon. 
 
 Paper money built every town and village in Scot- 
 land, constructed all its docks, harbours, roads, factories, 
 opened out all its mines, and reclaimed the whole of 
 its soil from primitive barrenness. The Scotch note is 
 not only current in all the Scotch marts of trade, but 
 penetrates into the remotest glens of the Highlands. 
 It is received where the sovereign is rejected. Peel's 
 Act of 1845 now compels the banks of Scotland to hold 
 gold when the note circulation exceeds £3,000,000; 
 this gold is deposited in the cellars, and rarely unpacked 
 from the barrels in which it is transmitted from the 
 London mint. There is no demand for it, and the 
 shopkeepers shun it, lest it be short of weight or 
 counterfeit. They have faith in their own paper — a 
 faith based on one hundred and fifty years experience. 
 The monetary panics that have so often shaken the 
 commercial establishments of England to their centres, 
 have passed innocuously over North Britain. 
 
 These historical facts are sufficient to show the 
 utility of paper money, and that it possesses a power 
 far superior to gold or silver. " A prince," says Adam 
 Smith, "who should enact that a certain proportion of the 
 taxes should be paid in a j^aper currency of a certain 
 kind, might thereby give a certain value to this paper
 
 170 Commercial Money and Security Banks. 
 
 money, even though the term of its final discharge and 
 redemption should depend altogether on the will of the 
 prince. If the Bank which issued this paper was 
 careful to keep the quantity of it always somewhat 
 below what could be easily employed in this manner, 
 the demand for it might be such as to make it even 
 bear a premium, or sell for somewhat more in the 
 market than the quantity of gold or silver currency 
 for which it was issued." Here the principle of im- 
 perial or taxation money is not only conceded, but 
 applauded; but the plan contended for here is very 
 superior to that suggested by Adam Smith. The 
 redemption of the notes would not depend on the will of 
 the prince, but would be strictly provided for in the 
 receipt of taxation, which would ejBfectually prevent 
 any depreciation through excess. 
 
 There is one remaining point which it is very im- 
 portant to notice. Bullionists ask of their opponents, 
 "How will your note be worded? What are we to 
 understand by your I promise to pay ? " The answer 
 is, that the taxation note would bear no such inscription, 
 but the words — " I promise to receive this note in 
 discharge of as many pounds of taxation as the note 
 represents." By this simple change of the formula the 
 whole difficulty is surmounted, and the sting is extracted 
 from the satire of the bullionists. 
 
 From national money, limited from year to year to 
 the annual amount of taxation, we now pass to the 
 consideration of commercial money. 
 
 It being the prerogative of the crown to create and 
 issue imperial legal tender for imperial purposes, it is 
 the right of the people to create and issue commercial 
 currency for the purposes of trade. As the former is 
 the representative of taxes, so is the latter the repre- 
 sentative of barter ; and as all are privileged to barter 
 as they please, so all are entitled to use such aids to 
 barter as they deem most efficient. But though govern-
 
 Com'fwrcial Moneij and Security B(tnks. 1 7 1 
 
 meut is never justified in interfering, under the pretence 
 of regulating the currency, Avhich will always regulate 
 itself if left tdone; yet, to protect the simple against the 
 Aviles of the cunning, and give stability to credit, it is 
 desirable that government should receive tangible secu- 
 rities from those capitalists who solicit an act of banking 
 incorporation, in order that the solidity of their notes 
 may be certified to the public. It is, therefore, pro- 
 posed that all banks of issue should deposit, in the hands 
 of the government, approved guarantees in land, con- 
 sols, or in other indisputable securities, the legal title 
 to ownership being attested by the law officers of the 
 crown, and the value of the property by the actuaries 
 of the crown. These preliminaries settled, the banks 
 would then be permitted to issue commercial currency 
 to the extent of one-half, two-thirds, or three-fourths 
 of the securities deposited, the exact proportion being 
 determinable by parliament. The notes of these banks 
 would be made by government and numbered, and ought 
 to be impressed with a distinctive die, similar to that 
 used by newspapers ; and both the amount of permitted 
 issues, and the amount of securities should be printed 
 on the face of the notes. No man of common sense 
 would run on such a bank ; there could be no excessive 
 issues, and, therefore, no depreciation. If such a bank 
 failed, it would be entirely owing to the imprudence of 
 its directors ; but, in such an event, every holder of the 
 notes would be safe, as the government would have a 
 power to sell the securities, and thus be enabled to pay 
 to all such holders twenty shillings in the pound. 
 
 In a letter addressed to both Houses of Parliament, 
 dated 3rd April, 1826, after the dreadful panic, the 
 first Sir Robert Peel expressed himself in favour of this 
 system of sfx'URITY banks in the following terms : — 
 
 " Having l)een long and extensively engaged in com- 
 mercial dealings, I often witnessed a national embar- 
 rassment arising from a defective or impure currency,
 
 172 Opinions of the first Si?' Robert Peel. 
 
 which resembled the present stagnation of trade ; and I 
 lament to observe that suffering and experience have 
 failed in this instance of producing their usual good 
 effects- In the enlarged scale of business carried on by 
 this country, eml)racing a great variety of pursuits, a 
 reliance on a metallic circulation ever did, and ever will, 
 fail us. Gold, thougli in itself massy, often disappears 
 in consequence of war or speculation ; nay, the breath 
 of rumour itself is sufficient to disperse it. Our 
 domestic concerns are interrupted, and confidence lost, 
 for want of an ample and approved medium of traffic. 
 I am no friend to an unrestrained issue of paper money, 
 and saw with concern, in the absence of a due quantity 
 of specie, notes admitted into circulation, issued by per- 
 sons of respectability possessing property, but evidently 
 unable to meet a sudden and large demand upon them. 
 More than two years ago I mentioned to a friend high 
 in His Majesty's councils, my fears of the mischiefs 
 likely to ensue if this practice were not discontinued, 
 accompanied with a suggestion to confine future issues 
 of paper money, or tokens, to the Bank of England, and 
 other competent bodies of men^ who would give security 
 in land, the public funds, canals, buildings, or other 
 tangible property, amounting to at least one-half the 
 value of their bills or notes in circulation. My propo- 
 sition was not favoured with any notice; yet, had it 
 been adopted, I am of opinion that most of the panic 
 and distress now so severely felt in the nation Avould 
 have been avoided. If such an arrangement in the 
 banking system could be made available, gold would 
 become less requisite, and the country Avould be supplied 
 with a stationary medium of exchange originating with 
 ourselves.^'' 
 
 This is the advice of a man of experience, who carried 
 on business during the Restriction Act, accumulated an 
 immense fortune, and founded a family. It was he 
 who said in the House of Commons, " had there been
 
 Gold at its Market Price. 173 
 
 no paper money tliere would liave been no Sir Robert 
 Peel." 
 
 The system here propounded would give to every 
 nation adopting it that "medium of exchange originating 
 with themselves," which Sir Robert Peel recommended. 
 Imperial money for taxes and commercial money for 
 trade, would render a nation independent of gold for 
 all its internal transactions. Gold would then be 
 restored to its natural character of a merchantable 
 metal, a mere commodity, and, in common with all 
 other connnodities, it would find its proper price in the 
 legal tender of every country under the law of supply 
 and demand. To obtain clear ideas on the subject we 
 must radically distinguish between the home and 
 foreign trade, Avhich require to be carried on with 
 different monetary instruments, for the taxation price 
 of goods is designed to take effect at home, and only at 
 home ; while the barter price must ever be the rule of 
 foreign trade. Mr. John Taylor truly observes : — 
 
 " The trade of England is now paralysed by our 
 having only one kind of currency to represent both 
 kinds of prices ; whence it happens that while, on the 
 one hand, our producers cannot obtain the necessary 
 taxation prices for their commodities at home, so, on 
 the other, they cannot afford to sell their commodities 
 for so little as the natural price abroad. Having only 
 one kind of currency to represent both prices, they 
 cannot sell their goods for so much at home, and so 
 little abroad, as they ought to do, and hence proceeds 
 the distress." 
 
 To put gold at its market price in England is to do 
 no more than what is universally done in foreign com- 
 merce, where gold always finds its market price in the 
 higgling of the exchanges. The intrinsic value of the 
 metal out of which coins are struck is undisturbed, but 
 the price of the coins or weight of metal varies at Paris, 
 at Hamburg, at Amsterdam, &c., under the law of
 
 174 Gold at its Market Price. 
 
 supply and demand. The authority of rulers cannot 
 extend to regulate payments made in foreign countries, 
 where they have no power or jurisdiction. Foreign 
 merchants never consider the coins of any nation as 
 money^ but as commodities; tliey deal with other 
 nations than their own on the pure principle of barter, 
 taking no heed of their taxation, and merely calculate 
 what weight of bullion of a certain fineness they shall 
 receive for the goods they import and sell. What the 
 legal tender may be among other countries is to them a 
 matter of perfect indifference. They care not whether 
 it be paper or oyster shells. During the war against 
 the first Napoleon, Avhen our paper pound would only 
 buy or exchange for 16 or 17 franf^s, and even when 
 the Berlin and Milan decrees were in force, Ens-land 
 bought corn of France, and France clothed its soldiers 
 with the woollen fabrics of Yorkshire. 
 
 Where is the authority, unless a most arbitrary and 
 unjust one, that can fix the price of anything on earth? 
 We ridicule the vain attempts of the French govern- 
 ment, in the early part of the great revolution, to fix 
 a maximum and minimum on corn and on other 
 provisions, but avc commit the folly of fixing the price 
 of a merchantable metal, so soon as it is reduced into 
 the state of coin. The only difierence in the two cases 
 is, that in the one it only required the space of a 
 market day to prove the stupidity of the attempt, and 
 in the other a series of years. The folly of those who 
 submit to the system, and the criminality of those who 
 perpetrate it, will strike a future age witli amazement. 
 
 The Act of 1844 favours the most flagitious usury. 
 It appears from the Lords' Eeport on commercial 
 distress (1848), that from the year 1704 to the 16th 
 May, 1839, the rate of interest never exceeded five nor 
 was below four per cent. In the pressure of 1839 the 
 rate was raised to six per cent, for some months ; but 
 was reduced to five per cent, in January, 1840, and
 
 Evidence of Mr. fVililam Browne, M.P. 175 
 
 remained ut four iind five per cent, as before, until after 
 the passing of the Act of 1844. Tlie ohl system was 
 abandoned in September, 1844, and the results are 
 thus described by Mr. William Browne, one of the 
 members for Lancashire, and head of the great Liver- 
 pool firm of Browne, Shipley, and Co. The following 
 table exhibits the contrast between the years prior to 
 1847, and during that year of panic: — 
 
 Lowest Rate. Highest Rate. Difference. 
 
 1837 3J r)l 2+ 
 
 1839 3£- 0^" 2i 
 
 1847 34 10 6i 
 
 But Mr. Browne adds (and important indeed is the 
 addition to those who were compelled to borrow money 
 at usurious interest), " this does not give an accurate 
 view of what the interest of money was in 1847, because 
 persons frequently paid a commission which made it 
 amount to ten, twenty, and thirty per cent., depending 
 on the time the bill had to run, and the pressure of 
 money at the moment." 
 
 Sir Robert Peel was a defender, nay, an admirer of 
 usury. The following passages are extracted from the 
 speech he delivered in the debate on Commercial Dis- 
 tress, 30th November, 1847 : — 
 
 " Some hon. gentlemen, from whom I could have 
 hoped better things, say that commerce cannot be con- 
 ducted if we are to pay 1 per cent, for interest ; and 
 Government is blamed because people are compelled to 
 pay 10 per cent. AVhy, what right has any man to 
 pay for money more than money is worth ? If money 
 is worth 10 per cent., it will be asked, what law can 
 prohibit such a rate of interest?" 
 
 The fallacy on which this justification of usury rests 
 consists in money being compared to commodities, to 
 which it bears no reseml^lance whatever. That coals or 
 iron, cotton or indigo, ought to sell for what they 
 would fetch in an open market, is quite reasonable,
 
 176 Sir Robert Peel's Defence of Usury. 
 
 because the legislature imposes no arbitrary limit to 
 their production; their quantity is permitted to increase 
 or diminish under the law of supply and demand, 
 being wholly and exclusively ruled by the markets of 
 consumption. Totally different is the case Avith me- 
 tallic money. A law of nature, over which Parliament 
 lias no control, restricts the quantity of the raw material, 
 gold, the yield of the mines never keeping pace with 
 the increase of population or the expansion of trade. 
 Moreover, whenever gold is exported as a profitable 
 mercantile speculation, or is hoarded at home through 
 panic, the Act of 1844 compels the Bank of England 
 to contract its issues of notes. The rule is, no gold, no 
 paper; no paper, no money; no money, no discounts, 
 except on terms of extortion. This is the reason why 
 interest rises; this is why the trading world are 
 compelled to pay 10 per cent., and a commission of 20 
 to 30 per cent. ; and it is clear that they are forced 
 to pay it, under the penalty of bankruptcy, not for the 
 fair and legitimate use of money, but on account of its 
 artificial scarcity — a scarcity created by Act of Par- 
 liament for the benefit of usurers. If money were like 
 everything else in the market, as Sir Ilobert Peel 
 most falsely assumed, money would increase with the 
 demand for it ; but in violation of all sound principles, 
 and of all honour and honesty, the Bank of England is 
 commanded by the legislature to withhold money when 
 it is most needed, and thus made the reluctant instru- 
 ment of strangling trade. If the real working of this 
 most iniquitous system were understood, tliese fraudu- 
 lent and suicidal statutes would be instantly repealed 
 by the indignant voice of plundered industry. 
 
 When bullion is coined into money, it ceases to be 
 simply a commodity, but has superinduced upon it a 
 monetary character. It no longer resembles other 
 articles of commerce. This is liappily illustrated by 
 Mr. James Taylor: —
 
 Answered by Mr. James Taylor. Ill 
 
 " Under Peel's law, gold does not resemble other 
 articles of commerce in the principle which determines 
 its exchangeable value, any more than the trump suit 
 in the game of whist resembles the other three suits. 
 It is well known that while the latter excliange on 
 equal terms one with the other, the trump suit is 
 endowed with supreme power, which makes its lowest 
 number often possess a controlling power greater than 
 the highest number of the other three suits. So, under 
 Peel's Bill, gold is endowed with a like controlling 
 power over the value of all other commodities in this 
 country." 
 
 We must dwell a moment longer on this important 
 branch of the subject. Suppose that in 1819 when the 
 bill for returning to cash payments was enacted, parlia- 
 ment had decreed that a single gasometer should supply 
 all London with gas ; and at that time fixed the num- 
 ber of cubic feet of gas to be manufactured, ordering 
 that that quantity should never be increased in any 
 future time; what would be the consequence in 1856? 
 Clearly that all the streets built since 1819 would be 
 left without gas ; or, if tliey received a supply, then the 
 necessary consequence would be that many of the streets 
 constructed prior to 1819 would be doomed to darkness. 
 According to Sir Robert Peel, the directors of the gas- 
 ometer would be justified in saying " gas ought to sell 
 for what it is worth," for if usury on money, limited by 
 Act of Parliament is defensible, so also would be the 
 usury on gas, limited by Act of Parliament. The same 
 reasoning applies to every monopoly. 
 
 In 1846, Sir Robert Peel told the landowners that 
 the area of the British soil could no longer feed the 
 increased and increasing population, and that foreign 
 corn must be introduced that the supply might equal 
 the demand. In this respect he must be considered as 
 an opponent to usury on corn. But with strange incon- 
 sistency he asserted, that thougli the gold mines had 
 
 N
 
 178 Arbitrary Limitation of Legal Tejider. 
 
 largely fallen off in their yield, (for at that date neither 
 California nor Australia had displayed their auriferous 
 wealth) while population and trade had increased, yet 
 the radius of the supply of money ought not to be 
 enlarged, but actually contracted. He shuddered at a 
 famine of food, and exulted at a famine of money. 
 
 Why is interest paid for the use of money ? Because 
 money is always scarcer than the commodities which 
 money circulates. If the volume of money was always 
 equal to the volume of commodities, interest would dis- 
 appear. Bills of exchange and promissory notes are 
 really protests against the inadequateness of legal ten- 
 der. Interest is a deduction from the profits of trade, 
 and, in that sense, always tends to lower wages. Under 
 this aspect usury, or excessive interest, becomes the 
 assassin of industry and enterprise. 
 
 The canons of the Roman Catholic Church prohibited 
 all usance or interest. The great French jurisconsult, 
 Pothier, decides that the minutest coin beyond the sum 
 lent, if added to the loan when repaid, constituted usury, 
 and stamped the contract with crime. A legal rate of 
 interest was first fixed in England in 1545, by the 
 statute 37 Henry VIII. It was repealed by 5 and 6 
 Edward VI., but restored by Elizabeth. The rate was 
 ten per cent, for a year. It was reduced by the 21 
 James I., c. 27, to eight per cent. The effects of the 
 reduction are thus described by Sir Josiah Child : — 
 
 " In 1635, within ten years after interest was brought 
 down to eight per cent., there were more merchants to 
 be found on 'change with each a thousand pounds and 
 upwards, than, there were formerly, that is before 1600, 
 to l)e found worth one hundred pounds eacli." 
 
 Cromwell reduced the rate of interest to six per cent., 
 and though, after the restoration, the money mongers 
 pretended this was the act of an usurper, and therefore 
 illegal, the parliament of Charles the Second sanctioned 
 the law of the Protector. Here, again, Ave may quote
 
 Sir Josiah Child on Interest of Money. 179 
 
 from that eminent mercantile authority, Sir Josiah 
 Child, who thus comments on the statute of CromAvell 
 or of Charles the Second : — 
 
 " Now, since interest has been for twenty years at six 
 per cent., notwithstanding our long civil wars, and the 
 great complaints of the dullness of trade, there are more 
 men to be found on 'change now worth ten thousand 
 pounds, than were then of one thousand pounds. Which - 
 ever way we take our measures, to me it seems evident 
 that since our first abatement of interest, the riches and 
 splendour of this kingdom are increased about four 
 (I may say about six) times as much as they were. 
 Our customs are much improved, and I believe above 
 the proportion of six to one, which is not so much an 
 advance in the rate of goods, as an increase of the bulk 
 of trade. If we look into the country we shall find 
 lands as much improved since the abatement of interest 
 as trade in cities. I, and those I converse with, do per- 
 fectly remember that rents did not generally rise after 
 the late abatement of interest, viz., in the years 1651 
 and 1652." 
 
 This rate of six per cent, interest continued till the 
 year 1714, when it was reduced to five per cent, by the 
 12th Anne, at which rate it continued till the repeal of 
 the usury laws, which, with a restricted currency, has 
 perpetrated the most flagitious plunder on all the indus- 
 trious classes. The great principle of a metallic cur- 
 rency," says Mr. John Taylor, " slowness of increase^ 
 to which it owes its value, when viewed in contrast with 
 the rapid increase of the numbers of mankind, to whom 
 individually it will tend to exist in a constantly di- 
 minisliing ratio, ought to be a reason, with a wise and 
 paternal government, why payments should be made as 
 much as possible in real money ; and why the taking of 
 usury, that is, any kind of increase in coin on a loan of 
 the precious metals., should be prohibited." 
 
 Under the svstem here advocated of national and 
 
 N 2
 
 1 80 The inverted Pyrainid of Gold. 
 
 commercial money — the former limited to the amount 
 of annual taxation — the latter permitted to expand or 
 contract according to the exigencies of trade — none of 
 the evils described could occur. While the rate of in- 
 terest is always liable to be excessive with metallic 
 money, constantly liable to export and hoarding, it 
 never could rise above a moderate scale with paper 
 money, since there would be no arbitrary limitation to 
 the supply, and the competition of rival issuers would 
 keep interest steady at a fair level between the borrower 
 and the lender. 
 
 Metallic money reduces the form of all monetary 
 transactions into the shape of an inverted pyramid. 
 At its pointed and narrow base lies gold ; above that 
 base, as the matliematical figure widens, are ranged 
 promissory notes and bills of exchange, which constitute 
 its superstructure. For the sake of illustration, let it 
 be assumed that the golden basis is 30 millions of 
 sovereigns, and that the credit transactions, represented 
 by promissory notes and bills of exchange, amount to 
 300 millions; then the foundation is to tlie superstruc- 
 ture in the ratio of one to ten, since each million of 
 gold sustains ten millions of paper. Take away one 
 third of the basis, you remove 100 millions of credit 
 securities, and produce what Mr. Loyd calls " con- 
 vulsion and pressure;" take away another third, and 
 you witness what that writer calls " stagnation and 
 distress;" take away the remaining third, and you 
 reach the state of national bankruptcy, barter. This 
 figure of an inverted pyramid explains the rationale of 
 panics. 
 
 We must now direct attention to the nature of 
 markets, of which money is the distributive agent. On 
 this most important, but little understood subject, we 
 shall first cite the authority of the late Mr. James 
 Mill :— 
 
 " The production of commodities creates, and is the
 
 Views of Mr. Jafnes Mill. 181 
 
 one and universal cause which creates, a market for 
 tlie commodities produced. Let us but consider what 
 is meant by a market. Is anything else understood by 
 it than that sometliing is ready to be exchanged for 
 the commodity wliich we wish to dispose of? When 
 goods are carried to market, what is wanted is some- 
 body to buy. But, to buy, one nuist have wherewithal 
 to pay. It is obviously, therefore, the collective means 
 of payment which exist in the whole nation, that con- 
 stitute the entire market of the nation. But wherein 
 consist the collective means of payment of the whole 
 nation? Do they not consist in its annual produce- 
 in the annual revenue of the general mass of the in- 
 habitants? But if a nation's power of purchasing is 
 exactly measured by its annual produce, as it un- 
 doubtedly is, the more you increase the annual pro- 
 duce, the more, by that very act, you extend the 
 national market, the power of purchasing and the pur- 
 chases of the nation. Whatever be the additional 
 quantity of goods, therefore, whicli is at any time 
 created in a country an additional power of purchasing, 
 exactly ecpiivalent, is at the same time instantly 
 created ; so that a nation can never be naturally over- 
 stocked either Avitli capital or commodities,^ as the 
 very operation of capital makes a vent for its own 
 produce." 
 
 Whoever alloAvs his mind to dwell long enough on 
 the proposition, Avill ])erceive that one half of the goods 
 of a country universally form the market for the^ other 
 half; for speaking always of aggregates, proportionate 
 production is the natural consequence of effectual 
 demand. It is, however, quite possible, and, indeed, 
 it often happens, that the balance between supply and 
 demand, in reference to a simjle commoditij ^ may be 
 disturbed ; but such disturbance can never happen in 
 reference to commodities in general. 
 
 " The quantity of one commodity," says Mr. Mill,
 
 182 Views of Mr. James Mill. 
 
 " may easily be carried beyond its due proportion ; buc, 
 by that very circumstance, it is implied that some other 
 commodity is not provided in sufficient proportion. — 
 What, indeed, is meant by a commodity's exceeding the 
 market? Is it not that there is a portion of it for 
 which there is nothing that can be had in exchange ? — • 
 But of those other things, then, the proportion is too 
 small. A part of the means of production, which had 
 been applied to the preparation of this superabundant 
 commodity, should have been applied to the preparation 
 of those other commodities, till the balance between 
 them had been established. Whenever this balance 
 is properly preserved, there can be no superfluity of com- 
 modities — none for which a market will not be ready." 
 
 This reasoning is perfectly sound in the abstract, and 
 the conclusions to which it leads would be realized in 
 practice if all commodities were exchanged by barter ; 
 and all taxes, rents, tithes, rates, and other public and 
 private obligations, were paid in kind, or in that descrip- 
 tion of representative money which we have described ; 
 but both the reasoning and practice are falsified when 
 the legal tender of a country consists of metallic money 
 fixed in price. It is remarkable that the keen pene- 
 tration of Mr. Mill overlooked this intrusive element, 
 which completely vitiates the whole of his argument; 
 and this will appear the more extraordinary to the 
 reader after he has perused the next extract. 
 
 " When money," continues Mr. Mill, " is laid out of 
 the question.^ is it not in reality the different com- 
 modities of the country, that is to say, the different 
 articles of the annual produce, which are annually 
 exchanged against one another? Whether those com- 
 modities are in great quantities or in small — that is to 
 say, whether the country is rich or poor, will not one 
 half of them always balance the other half? And is it 
 not the barter of one half of them with tlie other 
 which actually constitutes the annual purchases and 
 sales of the country."
 
 David IJume. 183 
 
 It is perfectly true that when " money is laid out of 
 the question," all the consequences stated by Mr. Mill 
 must occur ; the market can never be overstocked ; no 
 case can arise of over production, or of over trading; 
 there can be neither scarcities nor gluts; supply and 
 demand will always be proportionate to each other. 
 Hence the importance to every community of pro- 
 foundly studying the nature and action of money. All 
 experience tells us that the advantages of tlie industrial 
 system described by Mr. Mill have never been realized ; 
 yet he demonstrates that they could never fail to be 
 realized if all exchanges were effected by barter ; but 
 currency is the substitute of barter, an instrument de- 
 signed to facilitate, not to obstruct exchanges. It is 
 the mean to the end. Hence it follows that if the end 
 is not attained, the failure must be ascribed to soma 
 defect in the mean, that is, the monetary system. 
 
 In a state of pure barter there can be no exchange 
 of commodities, till at least two different kinds of 
 commodities come into contact. As in a state of 
 barter one-half of the goods form the market for the 
 other half of the goods, so when legal tender is intro- 
 duced, it becomes one half of every bargain. On 
 this point we take the following extract from David 
 Hume : — 
 
 " It seems a maxim almost self-evident that the 
 prices of everything depend on the proportion between 
 commodities and money, and that any considerable al- 
 teration in either has the same effect, either of height- 
 ening or loAvering the price. Increase the commodi- 
 ties, they become clieaper; increase the money, they 
 rise in value; as, on the other hand, a diminution of 
 the former and that of the latter have contrary ten- 
 dencies. It is also evident that prices do not so much 
 depend on the absolute quantities of commodities and 
 that of money which are in a nation, as on that of the 
 commodities which come or may come to market and
 
 184 How Markets are created and sustained. 
 
 of the money which circulates. If the coin be locked 
 up in a chest it is the same thing with regard to prices 
 as if it were annihilated; if the commodities be 
 hoarded in magazines and granaries, a like effect 
 follows. As the money and commodities in these 
 cases never meet, they cannot aifect each other. It 
 is the proportion between the circulating money 
 and the commodities in the market which determines 
 prices." 
 
 The Supreme Being has furnished for the use of 
 man ample raw materials in the animal, vegetable, and 
 mineral kingdoms, and endowed him with faculties to 
 adapt them to his wants. He has implanted in man 
 certain desires and appetites which prompt him to 
 consume whatever is produced. These wants and 
 desires create markets. To use the language of Mr. 
 Thomas Attwood, " every man's mouth is a market, and 
 every man's hand is a producer." With a proper 
 system of money, markets would always be emptied as 
 soon as supplied; contract money, and the power of 
 purchase is contracted. Now money is naturally active 
 in a civilised country, if the pernicious hand of govern- 
 ment does not interfere. Eepose is foreign to its nature, 
 and as it acts on property it creates markets, since it 
 creates both supply and demand ; for if money buys 
 goods it is equally true that goods buy money. It is 
 not for its own sake that men desire money, but for the 
 sake of what they can purchase with money. 
 
 Money acts in a market simply as the instrument of 
 distribution. It forms no part of the revenue of a 
 market. As Adam Smith observes, " The great wheel 
 of circulation is altogether different from the goods 
 which are circulated by it. The revenue of the society 
 consists altogether in those goods, and not in the wheel 
 which circulates them." If a road which usually 
 conveys goods to a market becomes impassable, or a 
 canal which in ordinary times renders the same service.
 
 Mr. Cayley and the Governor of the Bank. 185 
 
 is frozen, the market remains empty, because the 
 instruments of supply fail ; so also if the markets are 
 full, and no money enters it, the market remains full, 
 that is, stagnant, because the instrument of distri- 
 bution fails. A fussy legislation attempts to create 
 markets; it might spare its pains, since nothing but 
 the natural wants and desires of mankind can create 
 them ; but a senseless legislation can destroy markets, 
 and ever does so when it insists on metallic money. It 
 might as reasonably insist that the bars of every 
 railway should be constructed of gold, instead of 
 iron. 
 
 It is desirable that the destructive action of 
 bullionism on markets should be clearly understood, 
 and the practical mode in which it operates. The 
 mere description of an opponent of the system might be 
 regarded with suspicion, and set down to special 
 pleading, or to a desire of presenting a one-sided view 
 of this controversy. We shall therefore transfer to these 
 pages the searching questions put by Mr. Cay ley to the 
 Governor and Deputy-Governor of the Bank of England, 
 in the Committee of Inquiry instituted in 1848 on the 
 " Causes of Commercial Distress," and the answers of 
 those functionaries. 
 
 "3278. When the bank reserve is very low under 
 the export of gold is it impossible to afibrd an induce- 
 ment for a speedy return of gold without creating great 
 pressure? The means of getting back gold is by 
 making money dear, and causing a fall generally in the 
 price of commodities, which will bring back gold. 
 
 " 3279. Then the means of attracting gold back to 
 this country, after it has gone out, is to lower prices? 
 Prices will fall in consequence of the increased value of 
 money. 
 
 " 3280. Under a great fall of prices the Bank is 
 comparatively safe? A great fall of prices has a ten- 
 dency to bring capital into the country, and as bullion
 
 186 Mr. Cayley and the Governor oj the Bank. 
 
 flows into the country it acts upon the reserve of the 
 Bank and of all private bankers.* 
 
 '' 3281. But in order to attract gold into the 
 country, the more forced sales there are, and the lower 
 the prices, the safer the position of the Bank is ? The 
 lower the price of commodities, the greater will be the 
 tendency to the increase of the importation of the 
 precious metals, and of the reserve of the Bank, and 
 of the bankers generally. 
 
 " 3282. Under that state of tilings, that is, a pres- 
 sure arising from a fall of prices, in order to secure 
 the return of gold, does not any accommodation 
 afforded to the public rather tend to obstruct the fall 
 of prices? Yes. 
 
 " 3283. The less accommodation under that state of 
 things that is afforded to the public, the safer to the 
 system ? That accommodation must of necessity, under 
 that state of things, be reduced. 
 
 Here then it is confessed that buUionism destroys 
 markets, and by those best conversant with the system 
 ■ — by the very men who ruled the Bank when the panic 
 of 1847 arose; and their argument amounted to this, 
 that it was expedient to destroy markets to ensure the 
 convertibility of the note at a fixed price. It was under 
 these circumstances that Mr. Cayley proposed the 
 following amendment to one of the clauses in the report 
 framed by Sir Charles Wood, then Chancellor of the 
 Exchequer : — 
 
 " It would greatly tend, in the opinion of your com- 
 mittee, and to the safety of the public, if there should 
 prevail among the mercantile and working classes of 
 the community, a clear perception of the position in 
 which they stand under the Act of 1844. That they 
 should distinctly understand tliat when the gold is 
 
 * Here the common error is made of confining " cajntal " to 
 gold and silver, as if coals and iron were not capital in as positive 
 a sense as those two metals.
 
 Mr. Cayley and the Governor of the Bank. 187 
 
 exhausted in the coifers of the Bank every merchant 
 and manufacturer is to suspend his operations, and 
 every artisan and labourer is to remain idle, without 
 work and v/itliout wages, until the gold be restored to 
 the coffers of the Bank." 
 
 This amendment was of course rejected as bullionism 
 does not desire the truth to be published from the house 
 tops. 
 
 In the inquiry instituted before the Lords' Commit- 
 tee, in 1848, it was distinctly admitted that in raising 
 or lowering the rate of discount the Bank of England 
 tlu'ew overboard all national considerations, and looked 
 solely to the interests of the shareholders in the corpo- 
 ration. 
 
 " In regulating the rate of interest we look, of course, 
 to the state of the reserve. We are either to increase 
 or to diminish the amount of the reserve, as may be re- 
 quired, by raising or lowering the rate of interest, or by 
 the sale or purchase of securities. Supposing the de- 
 mand upon the bank, for instance, were considerable and 
 more than the bank were a1)le to afford, it would be 
 necessary to put up the rate of discount. On the other 
 hand, if the reserve of the bank was increasing, and it 
 was not thought advisable to purchase securities, natu- 
 rally the rate would be put down. The putting up or 
 lowering the rate would be guided by the state of the 
 reserve, reference being also had to the rate of interest 
 in the market." 
 
 We have draAvn a distinction between the Science 
 or Society and the Science of Political Economy, 
 and contended that the latter should always be deemed 
 subordinate to the former. The one deals with the 
 interests of man, as a moral and intellectual being; the 
 other confines its speculations to insentient matter. 
 Political economy does indeed profess to teacli the 
 art both of the production and distribution of Avealth, 
 but on the latter head it has done little or nothing for
 
 188 The Fall of Rome. 
 
 the sons and daughters of toil. Indeed, as nations ad- 
 vance in what is popularly called civilization, there has 
 ever been a tendency to concentrate riches in the hands 
 of a few ; and as the idle classes increase, they who pro- 
 duce most, consume least. It is this injustice that led 
 to the downfall of all the great nations of antiquity, for 
 if labour builds up a state, labour alone can sustain a 
 state ; degrade labour and you sap the foundations on 
 which the superstructure rests. So it happened in an- 
 cient Rome in what are deemed its palmiest days of 
 civilization. 
 
 " During the entire ages of Trajan and the Anto- 
 nines," says Sismondi, " a succession of virtuous and 
 philosophic emperors followed each other; the world 
 was at peace; the laws were Avise and well adminis- 
 tered; riches seemed to increase; each succeeding 
 generation raised palaces more splendid, monuments 
 and public edifices more sumptuous, than the preceding; 
 the senatorial families found their revenues increase ; 
 the treasury levied greater imposts. But it is not on 
 the mass of wealth., it is on its distribution., that the 
 prosperity of states depends; increasing opulence con- 
 tinued to meet the eye, but man became more miserable ; 
 the rural population, formerly active, robust, and ener- 
 getic, were succeeded by a foreign race; while the 
 inhabitants of towns, sank in vice and idleness, or 
 perished in want amidst the riches they had themselves 
 created.'^ 
 
 Sismondi then shows the pernicious results of colossal 
 accumulations : — 
 
 " During the long peace which followed the victories 
 of Trajan and Marcus Aurelius, those colossal fortunes 
 were accumulated, which, according to Pliny, ruined 
 Italy and the Empire. A single proprietor, by degrees 
 came to buy up Avliole provinces, the conquest of which 
 had in former times furnished the occasion of many 
 triumphs to the generals of the republic. While this
 
 Sismondi. 189 
 
 huge capitalist was amassing riches, wholly dispropor- 
 tioned to the capacity of man, the once numerous and 
 resi)ectal)le, but now beggared middle class, disappeared 
 from the face of the earth. In districts where so many 
 brave and industrious citizens were to be seen in former 
 times, alike ready to defend or cultivate their fields, were 
 found to be nothing but slaves, who rapidly declined in 
 number as the fields came to be exclusively devoted to 
 pasturage. The fertile plains of Italy ceased to nourish 
 its inhabitants; Rome depended entirely for its subsist- 
 ence on the harvests which its fleets brought from 
 Sicily, Africa, and Egypt. From the capital to the 
 furtliest extremity of the provinces, depopulation and 
 misery in the country co-existed with enormous wealth 
 in the towns. From this cause the impossibility of 
 recruiting the legions with native Romans was ex- 
 perienced even in the time of Marcus Aurelius. In his 
 war against the Quadi and Marcoramani, which had 
 been preceded by a long peace, he was obliged to recruit 
 the legions with the slaves and robbers of Rome. It is 
 impossible to give a stronger proof of the extent to 
 which the enormous evil of the vast fortunes accumu- 
 lated in the towns, and the entire ruin of industry in 
 the country, had gone in the last days of tlie empire, 
 than is to be found in the fact, tliat when Rome was 
 taken by Alaric, in the year 404 after Christ, while 
 Italy could furnish no force to resist the invaders, the 
 capital itself contained seventeen hundred and sixty 
 great families, many of them with incomes of £160,000 
 a year, equal to £300,000 of our money, whose expen- 
 diture maintained an urban population of one million 
 two hundi'ed thousand souls." 
 
 One (piotation more from the French historian Miche- 
 let, may serve to complete this picture of contrasted 
 wealth and destitution, of Dives and Lazarus. 
 
 "The Christian emperors could not remedy the grow- 
 ing depopulation of the country any more than their
 
 190 Michelet 
 
 heathen predecessors. All their efforts only showed 
 the impotence of government to arrest that dreadful 
 evil. Sometimes alarmed at the depopulation, they 
 tried to mitigate the lot of the farmer, and shield him 
 against the landlord; upon this the proprietor ex- 
 claimed he could no longer pay the taxes. At other 
 times they abandoned the farmer, surrendered him 
 to the landlord, and strove to chain him to the 
 soil; but the unhappy cultivator perished or fled, 
 and the land became deserted. Even in the time 
 of Augustus, efibrts were made to arrest the de- 
 population at the expense of morals, by encouraging 
 concubinage. Pertinax granted an immunity from 
 taxes to those who would occupy the desert lands of 
 Italy, to the cultivators of the distant provinces, and 
 to the allied kings. Aurelian did the same. Probus 
 was obliged to transport from Germany men and oxen 
 to cultivate Gaul. Maximin and Constantius trans- 
 ported the Franks and Germans from Picardy and 
 Hainault into Italy ; but the depopulation in the towns 
 and country continued. The people gave themselves 
 up to despair in the fields, as a beast of burden lies 
 down beneath his load and refuses to rise. In vain the 
 emperors strove, by offers of immunities and exemp- 
 itons, to recall the cultivators to their deserted fields. 
 Nothing could induce them to do so. The desert 
 extended daily. At the commencement of the fifth 
 century, there were in the Happy Compania, the most 
 fertile province of the empire, 520,000 jugera (320,000 
 acres) in a state of nature." 
 
 Alluding to this desolated state, amounting to one 
 eighth of the whole surface of the province, Gibbon 
 expressly says — " As the footsteps of the barbarians 
 had not yet been seen in Italy, the cause of this 
 amazing desolation, which is recorded in the laws 
 (Cod. Theod., 1. xi. b. 38, c. 2) can be ascribed only 
 to the administration of the Roman emperors."
 
 Gibbon. 191 
 
 In these passages the evils of concentrated wealth 
 arc vividly illustrated. As wealth accunuihitcd men 
 decayed, not because wealth was accumulated, but 
 because it was inequitably distril)uted. Not only had 
 whole provinces become the pi'Operty of an individual, 
 but usury existed in so frightful a form that even the 
 virtuous Brutus, when Proconsul of Sicily, received 
 sixty per cent, for the loan of money ; whence we may 
 form a faint idea of tlie extortions of those who were 
 more unscrupulous. What must have been the income 
 of Agrippa, who, at his own expense, built the Pantheon, 
 and supplied Rome with one hundred fountains, all 
 ornamented with marble columns and statues? The 
 colleague of Cicero Avas proprietor of the whole island of 
 Cephalonia, on which he built an entire city. In the 
 time of Nero it was ascertained that six Romans were 
 in possession of one-half of Africa; and it would be 
 easy to mention the names of many others enjoying 
 colossal fortunes. Now Pliny distinctly says that these 
 immense air2;lomerations of wealth, which he also de- 
 clares ruined Italy and the provinces, were due to the 
 concentration of estates, which he terms " Latifundia," 
 and to usury. His word are — ^'' Foenus hoc fecit ei 
 nummus percussusy — " Usury did this and coined 
 money." 
 
 The legislation of Sir Robert Peel and Mr. Loyd 
 tend to realise in England the same injustice and ruin 
 which occasioned the downfall of Rome. In a recent 
 memorable trial, it a})peared that usury is now so ex- 
 tortionate, that attorneys (certainly not of a reputable 
 class) take 60 per cent, on loans, and require the 
 interest to be paid monthly, so that in eighteen months 
 the accumulated interest equals the principal, while the 
 debt remains undiminished. 
 
 The science of society affirms that since it is the 
 privilege of industry to heap up wcaltli as its reward.
 
 192 Summary of Monetary Principles. 
 
 so it ought to be the punishment of idleness to break 
 doAvn riches till they wholly disappear. 
 
 Such would inevitably be the case if the perception 
 of interest were abolished. If we except some of the 
 harder metals, perishableness is an inherent quality in 
 commodities, and it is universally true in the vegetable 
 kingdom ; but when a government makes a contract for 
 perishable commodities, and gives for them a monied 
 equivalent, that monied equivalent, when it takes the 
 form of a funded debt, becomes, or may become, im- 
 perishable. Thus the English are still paying interest on 
 the gunpowder exploded in the wars of Marlborough, 
 though the principal sum, representing its original cost, 
 has been discharged over and over again. Thus usury 
 confers immortality on debt, and every child born after 
 the contraction of the debt is reared in the cradle of 
 fiscal bondage. Thus monied classes are perpetuated 
 by usury, as landed classes are perpetuated by 
 primogeniture. These two laws are the parents of 
 political privileges, and privilege necessarily demands 
 exclusion as the condition of its own existence. The 
 two forms of wealth, landed and monied, unite on 
 behalf of privilege, and their alliance puts down and 
 keeps down all the rest of the community who 
 have neither acres nor gold. The legislation of 
 Peel and Loyd has riveted the fetters of this form 
 of servitude. 
 
 A brief summary of the leading principles attempted 
 to be enforced in this work may not form an inappro- 
 priate termination. 
 
 1. Legal tender money is a mere token or symbol of 
 value, which need not and ought not to possess intrinsic 
 value. 
 
 2. It is the double instrument of fiscality and com- 
 merce; in the first character representing national 
 taxation, in the second distributing commodities.
 
 Summary of Monetary Principles, 193 
 
 3. As the instrument of fiscality, its ci'eJltiDn falls 
 witliin the prerogative of the crown, but it ought to be 
 limited from year to year to the annual amount of 
 taxation, by observing which precaution it could 
 never be excessive ; and provision being made for its 
 periodical redemption and extinction, it could never 
 depreciate. 
 
 4. As an instrument of commerce, legal tender 
 ought to expand or contract with the exigencies of 
 trade; and though Government has no right to in- 
 terfere with this kind of money under the pretext of 
 "regulating its quantity," yet, for the protection of 
 the public, it ought to take landed, funded, or other 
 unexceptional security from those banks to whom it 
 gave a charter of incorporation. Those banks would 
 not be allowed to manufacture their own notes, but 
 would receive them from the Government. 
 
 5. Bread corn is the true standard of value; gold 
 and silver are the measures of value. 
 
 6. Capital is accumulated labour; it does not consist 
 exclusively in gold and silver, Avhich are themselves 
 mere commodities in the same sense as iron or coal, but 
 in the aggregate of all commodities, 
 
 7. When gold or silver is coined, no additional value 
 is conferred on the coin. Equal weights of coin or 
 bullion, if of equal purity, are equivalent in value. But 
 when a monied denomination is put on coin, its price 
 is necessarily fixed, for that is the effect of a monied 
 denomination. 
 
 8. Value expresses labour condensed or embodied 
 in commodities; price denotes taxation and value 
 combined. 
 
 9. Indirect taxation, by adding to the cost of pro- 
 duction, without adding to the value of the product, 
 ought to depreciate the pound of account, — that is to 
 say, it ought to enfeeble its purchasing power in pro- 
 portion to the rate of indirect taxation. This is the
 
 194 Summary of Monetary Principles. 
 
 act of the Government, and shows no defect whatever 
 in the monetary instrument. 
 
 10. As nations deal among themselves according to 
 price, and with foreigners according to value, two 
 distinct modes of exchange are required for the home 
 and foreign trade, as pointed out by Plato. 
 
 11. Usury is not paid for the legitimate use of 
 money, but is an extortion levied on account of its 
 artificial scarcity. 
 
 12. There are no markets but what are created by 
 our hands, in obedience to our necessities and desires. 
 In all markets, legal tender money forms one half of 
 every bargain. 
 
 THE END. 
 
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