j aji i iHr THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES THE THEORY OF MONEY; BEING AN ATTEMPT TO GIVE A POPULAR EXPLANATION OF IT. AN EPITOME HISTORY OF THE BANK OF ENGLAND, THAT CORPORATION, WITH ITS CHARTER AND EXCLUSIVE PRIVILEGES, TO BE AN UNJUST, IMPOLITIC, AND PERILOUS MONOPOLY. HontJtw : PELHAM RICHARDSON, 23, CORNHILL ; AND JOHN OLLIVIER, 59, PALL MALL. 1844. LONDON : RICHARDS, PRIN ll:K, ST. MARTIN'S LANK. \ CONTENTS. PART I. CHAP. PAGE I. Of the precious metals — of their diffusion throughout the world — and of certain peculiar properties apper- taining to them, which have led to their universal use for making money 1 II. Of the fallacy or delusion of the mercantile system called the balance of trade — under which it is assumed, that gold is drawn from foreign nations by what is called a favourable balance . . . . . .13 III. Of Exchange .... 32 Digression concerning the coins and money of England .... 43 IV. Of the power of money — and of the value of the ivhole money of the United Kingdom — as an item or component part of the national property or wealth 51 CONTENTS. CHAP. PACE V. Of inventions j br abridging or dis- pensing with the use of money — and for giving velocity to its circulation — in order to lessen the quantity of coin necessary to be retained in the circu- lating medium or currency . . 67 VI. Of paper-money. — Of the benefits of the proper use of it — and of the evils of the abuse of it, by arbitrary or despotic interference in its creation or issue ..... 82 Digression concerning the deprecia- tion of the paper-money issued by the bank of England during its stoppage of payment from 1797 to 1822 . 94 VII. Of the regulation and restraint by law of the issue of paper -money . 112 VIII. Of seignorage on coin and its effects — particularly of pr eventing the melt- ing or exportation of the coin of the realm . . . . . .129 I X . Of issues of paper-money — and of th e different qualities or properties of accumulated capital and of circulating medium . . . . .145 CONTENTS. PART II. chap. Preliminary observations . . 157 I. Of the origin and constitution of the bank of England . . . .101 II. Of the bank of England as a national institution . . . . .167 ITT. Of the renewal of the charter of the bank in the year 1800 . . .177 I V. Of the last renewal of the charter of the bank in the year 1833 . . .188 V. Of the capital of the bank . .195 VI. Of the issue of papers-money by the bank of England . . . .202 VIT. Of the profits of the bank . . 217 PART I. THE THEORY OF MONEY : BEING AN ATTEMPT To GIVE A POPULAR EXPLANATION OF IT. CHAPTER I. Of the precious metals, — of their diffusion through- out the world, — and of certain peculiar proper- ties appertaining to them, which have led to their universal use for making coin or money. That mixture of coins of various metals, and of paper (issued by banks or bankers, promising to pay to the bearer on demand various quantities of such coins), which constitutes the money of the United Kingdom, and of almost all civilized nations, has in this country acquired the name of " the circulating medium," or of " the currency"; upon which much has been ably written and eloquently delivered, and very much written and delivered to no practical or useful purpose. The value of coin depends entirely upon the quantity and purity of the metal contained in it :* * Seignorage, fairly and properly imposed at the mint, forms an ingredient in the value of coin in though not out of the kingdom or nation where it is current by law. But any con- B and paper money has no value, but in as far as it is a true representative of the quantity of coin promised by it to be paid ; of which value, if there be indeed any other unquestionable test, there is none so conclusive or so satisfactory, as that of the paper being convertible at the pleasure of the holder into the quantity of coin promised by it to be paid. The metals now in use for making coins, in this and most other civilized countries, are gold and silver variously alloyed, and copper; the two former being known or distinguished by the name of the precious metals. Those metals have great intrinsic value ; but it is not necessary to the present inquiry to investigate that value. They derive great value from being the substances in universal use throughout the world, as a standard for measuring the value of all other things; that is for making coin or money. There are two very peculiar circumstances to be always kept in mind in considering the value of those metals. sideration of the value of coin derived from seignorage imposed on it, is purposely omitted in the text here, for the sake of sim- plicity of statement. Seignorage is charged on the coinage of silver and copper, but not on the coinage of gold, at the royal mint of the United Kingdom. First, gold and silver,* being so precious, are so carefully preserved ; that the gold which formed part of the riches of Abraham ; the gold of which the Israelites, at the termination of their bondage, spoiled the Egyptians ; and the gold which was used in the building of Solomon's Temple, is much of it probably in the world, in some shape or other, at this day. — The quantity of gold accumulated during so many past ages has secured a supply of that metal for countless ages to come, even if mankind should cease to ransack the bowels of the earth in search of it. This vast accumulated quantity of gold is distributed among the nations of the world, according to their wealth and to their effectual demands severally and respectively; — parts of it flowing from nation to nation continually, in con- sequence of changes of their fortunes or circum- stances; but, under all changes of place of its component parts, the accumulated mass endures, from the unconquerable propensity of man to ac- quire and to preserve it. Secondly, the value of gold does not depend upon its quantity and the effectual demand for it in any particular nation or country ; but upon its * Gold will be mentioned singly, to avoid the eonstant repetition of the word silver. quantity and the effectual demand for it throughout the whole world. The superabundance of many commodities in any given country has, in many cases, no effect on the actual or comparative scarcity of similar com- modities in another given country; but the super- abundance of gold in any one country, will have effect upon the comparative scarcity of it in every country of the known world. This peculiarity is owing to the very great value which gold comprises in exceedingly small compass. For example, sixty or eighty head of cattle may be purchased in South America for a single pound weight of gold ; which cattle, in England, would probably sell for twenty pounds weight of gold, — yet this very great difference in the value of cattle in South America and in England, does not occasion their being sent from the one country to the other. A ship would be necessary to transport sixty or eighty head of cattle from South America to England, the hire of which, and the risk of the voyage, would be equal to, or might exceed, the value of the twenty pounds iveight of gold, which the cattle might sell for, if they arrived in England, — but the pound of gold (the value in South America of these sixty or eighty head of cattle), being in bulk little more than one cubical inch, might be conveyed from that country to England, free of any expense and at very little risk, in the pocket of a merchant performing the voyage. A difference of five per cent., in the value of gold, will cause it to flow from one end of the world to the other. This very near approach to universal equality, in the value of gold, has established it as a standard for measure of the value of all other commodities throughout the world. By reference to that stand- ard, the value or price of any given commodity, against a given weight of gold, in every market of the world, can at all times be ascertained ; and ivhen that, or any commodity, can be bought in the market of one country, and sold in the market of another country, with a profit. Without such a standard, it is not easy to conceive how commerce between distant countries could be conducted; such a standard has, therefore, in the precious metals, been beneficently provided, in the nature and order of things established by divine Providence. Gold is an article of merchandize, as iron or tin, or any other metal or commodity is ; but the trade in gold, unlike the trade in other metals, or in commodities which are being continually produced and consumed in irregular and fluctuating quantities, is confined to the transmission, according to ever varying circumstances, from country to country of parts of an existing mass, (which, though kept up to its accumulated quantity, has most probably, for ages, neither increased nor decreased, either in quantity or in value), — and to the diffusion among the nations of the world of the new sup- plies which make good the waste or consumption of that mass. What the absolute value of gold is, is a very abstruse inquiry, which it is needless here to pursue; the subject in hand not being affected by variations in that absolute value. The abrasion or wear of coin, of plate, of utensils and ornaments of gold ; what is consumed in the art of gilding ; what is lost in the ocean or other waters ; and what, in times of war or civil commo- tion or from avarice or other cause, is again commit- ted to and continues hid in the bosom of the earth, constitute nearly the w 7 hole of the actual consump- tion or waste of gold throughout the world. If the supply of that metal from all the mines in the world, be just m tHiy-rrp arJy equal to the whole consumption or waste of it throughout the world, the mass accumulated must continue the same in quantity. If that supply be greater than the whole con- sumption or waste, the mass accumulated must, in quantity, be increasing ; and, if that supply be less than the whole consumption or waste, that mass must, in quantity, be decreasing. There would seem to be valid reasons for believing that the absolute value of gold has not, in point of fact, sensibly varied for more than two centuries last past.* The belief, that gold has not varied in value for more than two centuries, seems to be much at variance with the received opinion, that there has been a great decrease in the value of money in the United Kingdom. In the three centuries between the 28th of Ed- ward I, and the 43rd of Elizabeth, money was so debased or degraded at the Royal Mint, — that coins of the same denomination, current in England after the 43rd of Elizabeth, contained less than one third of the silver (the only precious metal then coined) which they contained before the 28th of Edward I. That circumstance alone would cause all com- modities (cseteris paribus) to be treble the price , though of exactly the same value, that is to say, would cause them to cost three times the quantity * See note A, Appendix. 8 of money by talc, though only the same quantity of silver by weight, after the 43rd of Elizabeth, which they cost before the 28th of Edward I. But a much greater error in that opinion prevails ; from ascribing the universal rise in the price of commodities, to variation in the value of gold, and not to variation in the value of other commodities. Let it be for a moment supposed that fifty millions of taxes, now annually levied in the United Kingdom, could be, and were by statute, all at once abolished ; and let any one consider the effect which such an abolition of taxes would have in immediately reducing the price of all commodities — (the duties on some articles being equal to, and on some exceeding the whole cost of their production and freight ; the tax on tobacco amounts to £600 per cent, on its prime cost), — while such abolition of taxes (as the value of gold cannot be varied by act of parliament) could manifestly have no effect on the value of gold, — and on reflection, upon the proposed supposition, error in such received opinion will be palpable. After such an abolition of taxes, the value of all other commodities in the United Kingdom would be measured by a much smaller quantity of gold than before : not because gold had become dearer, but because those other commodities had become cheaper. The mass of gold, accumulated in the world, is distributed, and exists therein, in three very notable and distinguishable portions or component parts. First. — Plate, ornaments, and utensils of that metal, — which, once separated and set apart from the mass, seldom revert thereto ; on the contrary, from the increase of population and wealth, in almost every nation of the old world, and the birth and rapid growth of nations in the new world, there is probably a very considerable continual ab- sorption of new supplies of gold arising from a con- tinual effectual demand for new supplies of plate. This portion or component part of the mass, being fixed property, passing, in its various artifi- cial forms, from party to party or handed down from generation to generation, unaltered, is a dead stock of gold in the hands of individuals. The quantity of plate, ornaments, and utensils of gold in the United Kingdom, possessed by the Crown, nobility, gentry, and other ranks, probably exceeds, collectively, the quantity of that metal in such forms in all the other countries of the world. Secondly. — Coin, which when it has once, at the c 10 Mint, become separated from the accumulated mass of gold, does not revert to that mass, (being, in its new shape of coin, necessary in every civilized nation to be retained unceasingly in use, for the circulation of all other commodities in each nation respectively), except when by contrivances for the circulation of other commodities without the in- tervention of coin, — or by discovery of substitutes for it, — or by devices for increasing the velocity of its circulation, whereby a less is made to have the power or effect of a larger quantity ; — a surplus of coin, ceasing to be longer requisite in any country, is ejected from its circulating medium or currency. The coin ultimately necessary to be retained in every country for the circulation of other commo- dities within it, must itself be continually circu- lating or changing hands. In that respect coin differs from plate, which changes hands but seldom, and does not circulate ; but coin, like plate, is dead stock, with this dis- tinction, — that coin is dead stock in the hands of the nation, while plate is dead stock in the hands of individuals. Coin also differs from plate, in that plate is subject to little waste ; while coin is subject to very considerable waste, by abrasion or wear, 11 which must be made good, from time to time, out of the mass of gold accumulated in the world, or out of the new supplies of that metal from its mines ; in order that the coin, indispensable for use in every country, may be kept perfect as the measure of value of other commodities in that country; just as scales and weights aie kept in it \$dUfc> for measures of weight ; yards or ells for measures of length ; and bushels, gallons, quarts, &c. for measures of capacity of those other commodities. Thirdly. — The gold of commerce,* which is the surplus of the mass of gold accumulated in the world, ultra those two other portions or compo- nent parts thereof. Of the quantity of this third portion or component part of the accumulated mass of gold, it is impracticable to form any accu- rate notion, — but it is probably very much less than the vague idea of its magnitude in the minds of sensible persons, who have never seriously or philosophically considered the subject. The fertility of the gold-mines of South America having made it unprofitable to work the gold mines of the old world, — all new supplies of gold come, therefore, from the mines of South America. * By the word commerce, throughout the text, is meant trade between or among foreign countries. 12 These new supplies of gold derived from South America (which, as before mentioned, are consi- dered to be just or very nearly equal to the waste of the mass accumulated in the world) all, in the first instance, fall into and pass from the gold of commerce, to their destination in the other two component parts of that mass throughout the world, — and those new supplies of gold continually in transitu, from the torrid zone all over and throughout the world, no doubt heighten the idea of the magnitude of the quantity of the gold of commerce, of which, at first sight, those new supplies seem to compose a permanent or integral part. But being mixed with the gold of commerce, merely in transitu, — if we leave those new supplies out of account, — -and suppose the dead stock of plate and of coin (made good to the extent of their waste) to be stationary quantities, — then it follows, that the gold of commerce, as the third component part of an unvarying mass, is itself an unvarying or stationary quantity, — which being composed mostly of ingots, or of coin out of circulation, may be said to perform its office sub- ject to no abrasion or waste whatsoever. 13 CHAPTER II. Of the fallacy or delusion in the mercantile system called the Balance of trade, — under which it is assumed, that gold is drawn from foreign na- tions, by what is called a favourable balance. From indefinable associations of vague ideas, it has been a received opinion in almost every civi- lised nation, that it is most beneficial and advanta- geous to have and retain within it a great quantity of gold. But after the demand in any nation, of indi- viduals, for their dead stock of gold in plate* and of the public for its dead stock of gold in coin, is fully supplied,— the desire to possess more of that metal cannot arise from demand for it, for any use within that nation or realm. To hoard it, as property either of individuals or of the public in chests or in vaults, would be dead loss. * The word plate is here and throughout the text hereinafter used singly, for the sake of brevity, to signify plate and orna- ments and utensils of gold. 14 As an article of commerce, a given value of gold is much less desirable to be possessed by any nation, than an equal value of inferior metal, e. g. of iron. A piece of gold, of the size of a common brick, such as is used in London for building, is worth nearly £3900 (£3897- 12s. \0d.) ; it would weigh very nearly 84^ pounds troy ; and would pur- chase, at £5 a ton, 780 tons of bar-iron. Such a piece of gold might be transported to a foreign country in a post-office mail-bag, — while to transport beyond sea its value in iron, two or three ordinary-sized merchant-ships, fully freighted, victualled, and manned, would be requisite. To extract from an iron-mine ore sufficient to yield 780 tons (two or three ship loads) of that metal, — from a coal-mine, coal (converted into coke) sufficient to smelt the ore, — and afterwards to manufacture the iron into bars, would give em- ployment to very many times the number of miners and workers in metal (giving subsistence to others supplying all their necessities and effectual de- mands) that would be required to extract from a gold-mine, and form into an ingot, a piece of that metal of the size of a common brick, — which is manifest on the slightest reflection. 15 To possess mines, and a continual and enduring trade in exportation of iron, must, therefore, be much more beneficial to a country, than to possess mines and such trade in exportation of gold. It is, indeed, much to be feared, that the passion of nations to possess a great quantity of gold for indefinite purposes, ultra their effectual demands for that metal respectively, is only the auri sacra fames. But however that may be, it was for many ages attempted to secure the retention of gold within any realm or country into wiiich it had once found its way, by laws highly penal, and even barbarous and sanguinary, prohibiting the exportation of gold in any and every form, and the melting of coin. Such laws were always abortive, except of now and then effecting the levy of a penalty, or the in- fliction of personal punishment on some human victim : but were nevertheless not finally abolished in the United Kingdom, until the year 1819, by the act of 59 Geo. III. cap. 49 ; whereby it was "made "lawful for any person to export the gold and silver "coin of the realm, and also to melt the same, and " to manufacture, export, or otherwise dispose of the "bullion produced thereby;" and by the same act 16 all former statutes prohibiting such exportation and melting were repealed.* Gold comprises so much value in such small compass, that it can always be, and has always continually been, exported, or sent overland, from country to country at pleasure, without the knowledge or consent of any sovereign or ruling power whatsoever. The insatiable thirst for gold having excited in realms or states the desire to know how much of the metal was from time to time possessed by them respectively, — and it being, by reason of the fact above mentioned, impracticable to get, in any country where such penal laws as before mentioned were in force, a direct account of its imports or exports of gold, — recourse was had, with the view of obtaining the result of such an account indi- rectly or inferentially, to computations whereby it was held, that that result was obtained or arrived at, by showing what was called the balance of trade, which was assumed to be paid by foreign nations, and to be so paid always in gold. In order to come at that balance, an account was directed to be taken by the officers of cus- toms of the value of all goods or commodities ex- ported and imported, except gold. * Note B Appendix. 17 If upon such account, it appeared that the value of the exports exceeded the value of the imports of any country in any year; the difference was called the balance of trade in its favour : which was assumed to have been received in gold, it being held and considered to be irrefragably ascertained by that account — that, if the merchants of that country did not receive back the value of their merchandize exported, in merchandize imported, (of both and all of which account was taken at the custom-house) the difference must have come in and have been received by them, in imports of gold of which alone no account was taken! and, vice versa, if the value of the merchandize imported was greater than the value of the merchandize exported, that the difference must have gone out in exports of gold. It was considered, therefore, much for the inte- rest of every country, that such account should always show a much greater value of merchandize to have been exported than imported. According to the public accounts, compiled by the officers of customs, the value of the exports exceeded the value of the imports of Great Britain, in the century ending with the year 1800, by 224 millions. By the " balance of trade account," there was, D 18 therefore, in the year 1800, accumulated and then existent in Great Britain, gold of the value or amount of 224 millions, ultra the gold possessed in plate, in coin, or in other form, by the people of that country in the year 1 700 ; whereas, in the month of February 1797, the Bank of England, for lack of gold, stopped payment ; the bullion in its coffers being then reduced very nearly to a single million (£1,086,170). That million (the issue of any and every part thereof being prohibited by law) remained locked up in those coffers during all the war which ended in the year 1815, and thereafter, for nearly a quarter of a century in the whole.Va^Trvvv.> , \C|vUjiL \si2_. During all that time, instead of there being an annual influx of gold into the United Kingdom, gold disappeared from the circulating medium of the realm, it having all (except the single million in the Bank, and what was added to that small hoard, and what was hoarded by individuals) — in consequence of the issue of notes for one pound by the Bank, and of the law making the depreciated paper op that corporation legal tender for the pay- ment of all taxes and of all debts throughout the realm — been added, melted or unmelted, to the gold of commerce, of which, consequently, there must have been a great efflux from the United Kingdom, notwithstanding the penal laws then 19 contained in the statute-book, prohibiting the melting or exportation of the coin. It would be idle to argue in proof of a fallacy detected by figures and by facts which are incon- testible and notorious. The fallacy or delusion of the balance of trade is founded on the assumption, that the profits of foreign trade are paid by foreign nations. But the inhabitants of any given foreign country contribute no more or otherwise to the profit, e.g. of British merchants — than the inhabitants of Great Britain contribute to the profit of the mer- chants of that foreign country. In that respect both countries are on a footing, and very little reflection will show, that the merchants of all countries derive their profits exclusively from the inhabitants of their own country.* A merchant having exported goods or com- modities, imports goods or commodities in return — and his profit is realized, only when and after he has sold his imports to the inhabitants of his own country, for a greater price than he paid to them for his exports. * Any consideration of what is called the " carrying trade" is purposely omitted in the text, being so fettered and confined by the navigation-laws of Great Britain and other countries, as to be entirely unworthy of notice on the present occasion. 20 The merchants of any foreign country lose nothing by the exchange of the productions of the soil and industry of their country with British mer- chants, for the production of the soil and industry of Britain ; on the contrary, they gain thereby, otherwise such exchange would not be made — and the custom-house-accounts, both of the foreign country and of Great Britain, may be, and most probably are, so made up, as to show, as the result of the exchange of the same identical commodities, a balance of trade, such as is called a balance in favour of both countries, or on both sides. In any country carrying on a gaining foreign trade — upon a true account of the value of its exports, entered or set down at the price paid for them to the producers, the inhabitants of that country — and a true account of the value of its imports, entered or set down at the price received for them from the consumers, the inhabitants of the same country— the value of the imports must always very much exceed the value of the exports, and that not merely by the profit of the merchants of that country, but also by all the costs of the exportation of the exports ultra the price paid for them to the producer, and of the importation of the imports ultra the price paid for them to the foreign merchant — that is to say, by the amount of the expenses of lading, freight, insurance, and all 21 other charges on the exports out — and the amount of freight, insurance, expenses of unlading, and all other charges on the imports home, together with the charges thereon in transitu from the ship, over the wharf, and through the warehouse to the market. It is not easy to imagine, why an excess of the value of imports over the value of exports, caused by charges paid to British ship-owners, insurers, wharfingers, warehousemen, and to British la- bourers employed about the merchandize, in tran- situ from the producer out, and from the foreign port of shipping home (all which are paid by the consumers of the imports, together with the profit of British merchants ultra), should be called or considered a balance of trade against Great Britain ; or why it should be alleged or held, that excess, so caused, of the value of imports over the value of exports, must have gone in gold to some foreign country ! Even if the merchants of any foreign country were so kind as to permit British merchants to import a greater value of commodities, than British merchants exported to them, for some consecutive years; that is to say, in other words, if the merchants of any foreign country were to give British mer- chants a great credit for foreign commodities, there is no reason for believing, that the debt of the 22 British to such foreign merchants would ever be paid in gold. If there were no hoard of the gold of commerce in Great Britain, such debt of British to foreign merchants could be paid in gold, only by the inhabitants of Great Britain consenting, either to part with their coin (which, under proper regulation, would be all continually and indis- pensably necessary for their own use), or to the melting of their plate for exportation. Such liberal foreign merchants would, in the case supposed, be under the necessity of waiting for payment, until such debt to them could be liquidated by degrees, by means of surplus pro- ductions of the soil and industry of Great Britain in future years ; just as foreign merchants actually cause British merchants to wait for payment of the debts of the nature of that now imagined, which foreign merchants are continnally incurring and lie under to them. Even on the supposition that British merchants paid for an excess of the value of imports over the value of exports by them, by export of an annual stream of gold — as gold is not indigenous in Great Britain, the flow of such a stream could be kept up only by the gold composing it being first imported from South America or some foreign country, which gold could be imported and paid for only by export of other commodities, productions of the 23 soil and industry of Great Britain. Such an annual stream of exports of gold, so continually fed and supplied, would therefore be a beneficial and not a prejudicial trade of the merchants of Great Britain. To keep up in this realm " the fond delusion" of the balance of trade, the Custom house accounts were framed or compiled, without regard to truth or reality, and continue to be so kept down to the time now present, although the delusion be now nearly, if not entirely, dispelled. In the Custom house accounts, the exports were often and still continue to be entered or set down at much more, and the imports at much less than their real values respectively. Those accounts for the nine years ending with 5th January 1843 condensed, for the sake of brevity, into annual averages for periods of three years, show for example, as follows : PERIODS OF THREE YEARS EACH. OFFICIAL ANNUAL VALUES OF ALL EXPORTS. OFFICIAL ANN. VALUE OF ALL IMPORTS. Produce and Ma- nufactures of the United Kingdom. Foreign and Colonial Merchandize. Total. 1st, ending 5 Jan. 1837 2nd, ending 5 Jan. 1840 3rd, ending 5 Jan. 1843 £ 79,146,040 87,470,001 101,715,330 £ 12,250,491 12,913,643 14,027,205 £ 91,396,531 100,383,644 115,742,535 £ 49,835,107 59,336,540 65,671,885 268,331,371 39,191,339 307,522,710 174,843,532 174,843,532 Deduct Imports . . Surplus official value exported more than ) imported in three years ) 132,679,178 more than 1 32 millions in three, or more than 396 millions in 24 those nine years, which, according to the custom- house accounts, flowed in streams of gold, as balances of trade, into the United Kingdom in the nine years ending with 5th January, 1843 ! ! But, however safely it may be inferred, that those Custom-house accounts must be full of error and deception ; that is not a matter of inference merely, as proof thereof is furnished by other accounts of the officers of customs themselves. For fiscal purposes, it was required by law, that a declaration of the actual value of all exports of the produce and manufactures of the United Kingdom should be made at the custom-house on exportation thereof; and by the accounts there kept (laid annually before parliament), of the real or declared value of such exports, that value differs from the value set upon the same commodities in the " balance of trade account " kept at the custom-house, during, e. g., the three last of the above-mentioned period of nine years, as follows, viz. : EXPORTS OF THE PRODUCE AND MANUFACTURES OF THE UNITED KINGDOM. Declared, or real Years ending Official value. value. £. f. 5th January, 1841 102,705,372 51,406,430 5th January, 1842 102,180,517 51,634,623 5th January, 1843 100,260,101 47,381,023 £305,145,990 £150,422,076 whereby it appears that the official value of the 25 exports from the United Kingdom is set down in the custom-house accounts, (compiled to show the " balance of trade" for those three years), at more than double the real value of the commodities exported. It would, moreover, be a mistake to suppose, that in such official value of exports, all commo- dities are treated with equal favour, and are over- valued in the same proportion. Cotton was always a favourite commodity with the balance of trade reasoners ; and is still a favourite commodity in the eyes of those who thrive or have thriven by the spinning and manufacture of, and trade in, that wool and its fabrics. Cotton is accordingly favoured in the custom- house accounts to such an extent, that in the three years ending with 5th January 1843, the official values and real values of cotton manufactures and yarns are set down as follows : Years ending Official value. Real value. £ £ 5th January, 1841 73,124,730 24,658,470 5th January, 1842 69,777,021 23,492,489 5th January, 1843 68,667,909 21,670,127 £211,569,660 £69,821,086 whereby it appears that the official value of cotton wares is set down at more than treble their real E 26 value ; although the official value of all exports collectively be set down at only about double their real value — and on comparison of this last with the next foregoing table,, it appears that the official value of cotton-wares exported, is set down in the custom-house accounts at very nearly once and a-half the amount of the real value of all the ex- ports from the United Kingdom ! The delusion of the balance of trade has been here so much dwelt upon, because that delusion has been drawn or introduced into theories of the Government, and of the Legislature of this country, touching the " circulating medium." The Government, acting under delusion in its transactions with the Bank of England ; the Legis- lature enacting, under delusion, laws giving exclu- sive privileges and powers to that corporation ; and the Directors of the Bank, acting under delu- sion, or abusing such exclusive powers, by ex- pansion and contraction of the issues of its paper-money, have caused great and often irre- parable injury to the general, and often extensive ruin of the commercial and trading interests of the country. To a question put to three Directors of the Bank under examination before a committee of the House of Lords, in the year 1 797, after the bank stopped 27 payment ; viz., whether they received any answer from the Chancellor of the Exchequer (Mr. Pitt), when from time to time they stated to him their apprehensions from the diminution of specie in the Bank ? the reply given was, " We had no precise " answer, but the Chancellor of the Exchequer " sometimes expressed hopes that the balance of " trade in favour of this country would restore " our affairs, and thereby bring back specie ! !"* It will be attempted hereinafter to be shown, that neither the real influx or efflux of the gold of commerce nor the imaginary influx or efflux of gold the balance of trade, has any influence in adding to or diminishing the quantity of coin necessary and existing in a well regulated cir- culating medium, in this or in any other country — and that new supplies of gold to such a circulating medium are necessary only to supply the waste of the coin therein by abrasion. Before taking leave of the subject of the balance of trade, it may interest and give food for specula- tion to the reader, to lay before him the figures following (which, for the sake of brevity, are condensed into average annual values, upon periods * Report from the Committee of Secrecy of the House of Lords on the affairs of the Bank, ordered by the House of Commons to be printed, 6th February, 1810. Appendix, p. 14. 28 of three years each), from accounts printed by order of the House of Commons. Declared or real annual value of all Periods of 3 years each. exports of the pro- Annual Revenue and Expenditure of the duce and manufac- United Kingdom, tures of Great Britain.* War. Expenditure. Revenue. £ £ £ 1st, ending with 1812 42,850,260 82,191,070 65,785,312 2nd, ending with 1815 48,316,^33 101,283,881 70,697,793 The like of the Peace. United Kingdom.* 3rd, ending with 1818 43,343,451 56,674,940 56,022,752 4th, ending with 1821 36,096,283 52,541,252 54,255,329 A glance at the foregoing figures shows, that the real value of all the annual exports of the pro- duce and manufactures of the United Kingdom in the six last years of the last war. was not equal to half the amount of the annual expenditure, and was equal to just about two-thirds of the amount of the annual revenue of the United Kingdom ; — and it may be seen, by reference to the accounts annually laid before Parliament, that the real annual value of such exports has never, in any year, down to the time present, been equal in amount even to the diminished peace revenues of the United Kingdom. * The exports of the four years ending with the year 1813 include the exports from Great Britain to Ireland, the exports from the United Kingdom not having heen kept in a consolidated account until from and after the year 1814 inclusive. 29 And yet it is a received opinion among many sensible persons, who have never sufficiently con- sidered the subject — that the wealth, power, and prosperity, of this mighty realm are derived from, and depend for their existence and continuance, entirely on a foreign trade in commodities ex- ported, the gross annual value of which — not the profits of the trade therein, far less the taxes upon those profits — but the gross annual value of all which commodities themselves, w r as, in many years of the last war, not equal to half of the amount of the public expenditure — and which has never, in any year, been equal to the whole amount of the public revenue ! When it is further considered, that a vast pro- portion of those exports go to colonies and posses- sions which are strictly our own — the trade in the remainder, which are exports to parts strictly foreign, sinks into still greater comparative insig- nificance. England, single-handed, and often at war with the kingdom of Scotland, with Wales, and with Ireland, and when she had scarcely any foreign trade at all, carried her victorious arms into the continent of Europe, and subdued, and long held in subjection, powerful states upon that con- tinent. 30 If, instead of the ocean for a barrier between her and the other European powers, her territory w T ere conterminous with theirs ; having, like them, only lines of forts on her frontier for her defence ; she has brave hearts and strong hands enough, (although resort to cotton and riband factories would be in vain for muster of the latter) by whose courage and power she could keep her ground, as the people of those states do each against other. But when it is considered that the three king- doms are now united into one mighty realm, around which, " Safe in the love of heaven an ocean flows," it is, indeed, a singular creed to hold or to propound, that the power, grandeur, and dominion, of that realm, have been attained and are upheld by trade in the exports of such surplus production$of the soil and industry of the country as are not wanted by the people for their own use — the gross value of w T hich exports, including all exports to the colonies and foreign possessions of the Crow r n, was never, in any year, equal in amount to the public revenue ! Those facts and brief reflections are offered, because the delusion of the balance of trade (the subject which has given rise to them) has been introduced into considerations on the circulating 31 medium ; but are offered without intended dispa- ragement of the true, real, and great importance of the traffic in the exportation of British produce and manufactures— a subject on which clamour for " free trade," and on the " corn laws," is now rife, and on which so much contention is going on, both in and out of parliament. Into the merits of the questions agitated in that contention, the present is an unfit occasion to enter ; but it is consolatory to believe, in whatever way that contention may end or settle down, that although in the result, the peace and well-being of the industrious classes of the community may undoubtedly be, the mighty power and the safety of the Crown and Empire cannot be affected. CHAPTER III. Of Exchange. Inquiries on the subject of " the circulating medium " have been much embarrassed, not only by introduction into them of the delusion of the balance of trade, — but also of what has been dig- nified with the title of the doctrine of exchange ; which has very generally - been drawn into such enquiries, although it serves only to confound them with a subject with which they have no necessary or proper connexion ; the establishment and regulation of the circulating medium, by the sovereign or by law, within any given country, having nothing to do with the circulating me- dium of any other country ; and the learning of doctors of exchange consisting of making com- parisons of the different circulating mediums existent in all the countries of the world. Exchange, in the language of commerce, means the quantity of money of one country which must be paid at a given time and place in that country, for a given quantity of money of some other country, to be paid at a given time and place in that other country. 33 In the doctrine of exchange, gold is used as the touch-stone. Let it be ascertained how much of the circulating medium, existing at any given time in different nations, must be paid at a given time and place in each nation, for an ounce, a pound, or any given quantity of pure gold, and the real and the comparative values of such circulating mediums, at the given times and places, are dis- covered. If all the sovereigns and states of Europe, or throughout the world, had agreed to coin gold only into pieces all of the same weight and purity, — such coins, whether impressed with the insignia of imperial or royal dignity, or with the less illustri- ous heraldry of a Hanse-Town, would, necessarily, be all of the same intrinsic value — and (if in equal good condition as to abrasion or wear, or if made legal tender only by weight in every country,) it is manifest that the only difference which could sub- sist, in the value of any given quantity or number of such coins in one country, and of the same quantity or number in another country, would be the expense of the transportation of them from the one country to the other. In such a state of things, if a person in London desired to have the command of 1000 pieces of such coin in St. Petersburgh, if he could find a F 34 merchant in London, who, for 1030 pieces in London, would give him an order or bill for 1000 on his house of trade, or on a Russian mer- chant in St. Petersburgh, he would give those 1030 pieces ; unless he found that he could trans- port the 1000 pieces to St. Petersburgh, say for 1020 pieces, in which case he would send the 1000 pieces of coin himself. The exchange between London and St. Peters- burgh would, in the case supposed, be two per cent, which the merchant had made an essay to raise to two-and-a-half per cent. But the sovereigns and states of Europe, and of the world, having all coined gold into pieces capriciously differing in size and in purity, and which are often in different condition, compara- tively, as to abrasion or wear, — intricate calculations are requisite, in order to ascertain the price to be paid in one nation in the coin of that nation, for a given quantity of the coin of another nation, to be paid in that other nation. Sovereigns have often committed great frauds by altering the value of their coins, when indebted to their subjects, in a great quantity of them — some- times by changing at their mints the size and weight of the pieces ; and, at other times, by mixing a greater quantity of alloy with the gold 35 contained in them, continuing to call the coins so diminished or debased by the same name — and paying their debts to their subjects in the same number of pieces of the diminished or debased coins by tale, as were due of the heavier or purer coins — insisting that the debts were so many coins of the given name by tale — and in later days, by issuing pieces of paper impressed with promises to pay a certain number of their coins at some future day ; and then proclaiming, or enacting, such pieces of paper to be, in discharge of their debts, lawful tender for the number of coins promised thereby to be paid — whereby any given number of their coins are rendered of no more value within their own dominions, for the payment of debts, than those paper promises to pay the same number of those coins at some future day. Such despotic and fraudulent interferences with their coins by sovereigns and states — and the fear or apprehension thereof — give rise to further and speculative calculations, in the doctrine of ex- change, touching the comparative value of the coin and paper money which may happen at any given time to compose the circulating medium of different nations or states, respectively. In the balance of trade delusion, — it seemed to be assumed, that nations were in the practice of 36 casting up their accounts once a year, and of paying or receiving in gold, the balance due from nation to nation, respectively. But the real practice was and is always quite different. Consider, e. g. the trade between or among three of the nations of Europe. If Russia export in any year more value to, than she import from, England — for the balance, England becomes debtor to Russia. If Russia import in the same year more value from, than she export to, Germany — for the balance, Russia becomes debtor to Germany. If Germany import in the same year more value from, than she export to, the England — for the balance, Germany becomes debtor to England. Suppose the balances so due by England to Russia, by Russia to Germany, and by Germany to England, to be equal. In such supposed state of trade between those three countries, there are six different ways, by which the balances due to and by them respectively may be paid or liquidated, without the intervention of gold or money whatsoever. First. — If Russia draw bills of exchange upon England for the balance, and remit them in pay- ment to Germany, and Germany remit such bills in payment to England. 37 Secondly. If England draw bills of exchange upon Germany for the balance, and remit them in payment to Russia, and Russian remit such bills in payment to Germany. Thirdly. If Germany draw bills of exchange upon Russia for the balance, and remit them in payment to England, and England remit such bills in pay- ment to Russia. Fourthly. If Russia direct Germany to draw bills of exchange upon England for the balance due to Russia by England — and Germany draw such bills, and then remit them in payment to England. Fifthly. If England direct Russia to draw bills of exchange upon Germany for the balance due to England by Germany, — and Russia draw such bills and then remit them in payment to Germany. Sixthly. If Germany direct England to draw bills of exchange upon Russia for the balance due by Russia to Germany — and England draw such bills, and then remit them in payment to Russia. It is manifest, that in any of those six ways, those sup- posed balances of trade might be paid or liquidated without the intervention of gold or money what- soever. In some or other, or partly in some and partly in other, or partly in all of these ways — are the real balances of trade of all the nations of the world actually paid or liquidated ; but not cle 38 anno in annum, yearly — as in the case supposed for the sake of illustration — but from month to month, or from time to time, — and not for balances all equal, but for balances continually fluctuating and varying. If the consideration of those various modes of settling or adjusting balances of trade, between or among only three of the nations of Europe, be extended to a consideration of the settlement or adjustment of the balances of trade among all the nations of the world, — it must be evident, that the variety and complication of bills of exchange drawn by merchants upon merchants of all nations, and the calculations of the exchanges of sums of circu- lating medium, to be paid in one country for sums of the circulating medium of other countries to be paid in those other countries, must be infinite. There is another cause which operates on ex- change, — namely, when any given country is in- debted to another upon the real balance of trade, and it is desired, nevertheless, to remit monies to the debtor from the creditor country, e. g. for loans, or, in time of war, for subsidies. In every such case, an extraordinary rate of exchange, higher than that which may be called the natural rate, is required and paid. And again, most of the planters and traders in 39 our colonies, being indebted to merchants of the parent country — when bills of exchange are nevertheless drawn by the colonists on the mer- chants, increasing that debt, — the exchange on such bills is often very high, and is sometimes called premium upon bills, which is only another name for a high rate of exchange. During the stoppage of payment of the Bank of England — that corporation was permitted (by a sort of transfer of the royal prerogative of coining from the mint at the Tower to their workshop in Threadneedle-street) to issue pieces of silver called tokens, which were by law (madness of the legisla- ture and of the government on the subject of the circulating medium then " ruling the hour") made current with, or in place of, the royal silver coin of the realm. Those tokens were bank-notes, stamped upon silver instead of upon copper, or the still cheaper commodity, paper — and were principally Spanish dollars, worth at the mint, or in exchange for gold, about four shillings and four pence each. They were first issued by the bank to signify five shillings ; and four of them were given for a bank-note promising payment of one pound in the coin of the realm, nominally on demand, but 40 of which payment was prohibited by law for an indefinite term, namely, until the end of the then war. On the 19th of March, 1811, the directors of the Bank determined, on a sudden, that they had set too high a value on their notes— and that the same dollars, issued from their workshop in Threadneedle-street, which had theretofore passed at the rate of five shillings, should, thereafter, pass at the rate of five shillings and sixpence in exchange for their notes, payable in coin of the realm at the end of the war — and that the corpo- ration would, thereafter, give no more than 3n of such tokens for each of their notes, so promising to pay one pound, for which they had theretofore given four of such tokens. A bill of exchange, drawn by a foreign upon a British merchant, falling due in Great Britain previous to the 19th of March 1811, was payable, and was paid, in Bank of England notes, worth four Spanish dollars for every pound of the bill — but such a bill of exchange falling due in Great Britain after the 19th of March 1811, became pay- able, and was paid in such notes, worth only 3n of such Spanish dollars for every pound of the bill. All foreign merchants who had drawn bills on 41 Great Britain, or the holders of such bills, which were accepted and running before, but not due, until after the 19th of March 1811, when the directors of the bank proclaimed that the tokens from their workshop in Threadneedle-street should be raised in value in exchange for the notes of the corporation, from jive shillings to five shillings and sixpence, were by that manoeuvre cheated of sixpence in every five shillings, or of ten per cent of the money expressed to be payable by such bills, which had some time before the 19th of March 181 1, been drawn, remitted, and received, on the faith of being paid in bank notes, worth four dollars, and not 3^ dollars only, for every pound thereof. The directors of the Bank of England, who themselves, by that act (which was afterwards recognized and sanctioned by law !), suddenly and fraudulently so debased the circulating medium of the United Kingdom, affect (as appears by the evidence given by them, repeatedly ad nauseam, before committees of both houses of parliament, in which evidence they assert that they possess much knowledge and skill in the doctrine of exchange) to be at all times guided in the issues of their notes, or paper-money, by the state of the foreign ex- changes — on which such effects as that produced G 42 by the last mentioned very dishonest proceeding of the directors of the Bank themselves, are often produced by the like, or other tricks and frauds of sovereigns and states as hereinbefore mentioned. The directors of the bank (as appears by the same evidence) intimate that they have power, by the expansion or contraction of their issues of notes, or paper-money ; and that they often exert such power ; to govern or control the exchanges between the United Kingdom and foreign countries — as to which, their power is about as effectual as that of a child to stop the current of the Thames with its doll's teaspoon. * The learning of doctors of exchange is acquired by study of the state of the actual balances of trade between country and country throughout the world, of loans, subsidies, and tariffs ; and of the tricks and frauds practised by sovereigns or states upon their coins, or upon the circulating medium of their respective dominions — the study of such doctors being, how to turn their learning to profit in pounds, shillings, and pence. But in an enquiry whether the circulating me- dium, in any country, be in a sound and healthy state, or otherwise — no reference is necessary to * Note C, Appendix. 43 the actual or comparative state of the circulating medium in any other country — with which such inquiry has no necessary or natural connexion. It ought, therefore, to be made without any such reference or comparison, which serves only to con- found and perplex the subject. It would be unprofitable here to inquire into what number of pieces, and of what weight or purity, other nations have coined any given quan- tity of gold or other metal, or what have been the interferences of sovereigns or states with their coins respectively. But the subject in hand may, perhaps, be elucidated by a summary history of our own coins, which is here subjoined. Digression concerning the coins and money of England. A pound sterling is a denomination of money which (until the latter end of the reign of King George III, when sovereigns were first coined) never existed in a single coin in England. It is the highest denomination of our money of account, and originally was a pound troy weight, of which 1 lj ounces were silver, and I of an ounce copper. A pound sterling, meant a pound in weight of that composition — genuine, or that had passed the test — at the English mint ; such pound was origi- 44 nally coined into twenty pieces, called shillings ; and into two hundred and forty pieces, called pennies; each penny weighing, therefore, that division of the goldsmith's pound-troy, still called a penny-weight. Those coins passed by tale, at the rate of twenty shillings to the pound sterling; and the pennies by tale in proportion — twelve to the shilling. The pound of sterling silver came afterwards to be coined into sixty-two pieces, called shillings ; twenty of these degraded shillings, by tale, con- tinuing to be, and being now called a pound sterling* Such alteration in the division at the mint of the pound of sterling silver, is very minutely described by Lord Liverpool,-)" as having been effected by the monarchs ; from Edward I, who, in the twenty- * The pound of silver has, in point of fact, since the year 1816, been coined into 66 shillings, of which 20 by tale pass by law for a -pound sterling. But four of those 66 shillings being taken at the mint for seignorage on the coin, the 62 lighter shillings which have paid such seignorage become, and are of the same value within the United Kingdom as the 62 heavier shillings, for coinage of which no seignorage was exacted ; that, therefore, was no debasement of the coin, but, on the contrary, a most salutary, just, and wise provision and arrangement, as will be shown and will appear hereinafter. f In his " Letter to the King" (George the Third) " on the Coins of the Realm." 45 eighth year of his reign, first debased the coin — to Elizabeth, who, in the forty-third year of her reign, last debased it. — That debasement therefore was, it appears, effected in the three centuries, from 1301 to 1601. During the two centuries, and nearly a half, which have elapsed since the 43rd of Elizabeth, the division at the mint of the pound of sterling silver has, by law, remained unaltered.* A promissory-note of the corporation of the Bank of England, payable at end of the war, was, in- deed, for about a quarter of a century, commencing from the year 1797, made legal tender for pay- ment of a debt of one pound sterling in money — and that corporation, for some considerable time, refused to give more for each of its promissory-notes for one pound than 3/j pieces of silver, which, if taken to the mint to be coined, would and by law must have been coined into silver money of the realm, of the value of fifteen shillings and ninepence — which would have been equivalent to coining at the mint the pound of sterling silver into 78i 9 3 shillings. That, as it was the last, so it was also the most degrading debasement of the pound sterling. That the series or succession of frauds at the English mint, whereby the weight and value of the pound sterling were reduced, in the proportion * See Note * page 44. 46 of 62 to 20, or more than two-thirds (20 of the 62 shillings not being one-third of a pound Troy weight) — could not have been perpetrated at one stroke, without risk of rebellion or revolution, will be evident to any one, who will consider how a law would at this day be received, which should now, all at once, degrade a sovereign to the size and consequently to the value of a six-and-eightpenny piece, — still calling the degraded coin a sovereign ; and enacting that it should be lawful tender, as and for a sovereign, in fulfilment of all contracts and in payment of all debts. Such a degradation of the sovereign or present pound sterling, would not be quite so great a degradation, as the pound sterling underwent in the three centuries between the 28th of Edward I and the 43rd of Elizabeth. After the enactment of such a law, all debtors would pay their creditors in money of one third of the value of the money in which their debts were contracted. All creditors would therefore, by such a law, be defrauded of two thirds of the debts due to them. A six-and-eightpenny piece being not only called by the name of, but being moreover made legal tender for payment of every debt of a sovereign — the money-rents of lands and of houses let upon 47 leases — fixed rents, and all fixed incomes and annuities, including the dividends on the public stocks or funds — would, by such a law, be reduced by two thirds in value. Every sovereign's-worth of them wonld continue dischargeable only on payment of a sovereign — but the sovereign would be reduced to the size and value of a six-and- eightpenny piece. On the other hand, the price of provisions, of the necessaries, comforts, and conveniences of life, and of all commodities would (ceteris paribus) be trebled — they would not cost more gold— but would cost thrice as many sovereigns as they cost before the supposed degradation of that coin. It is not easy to conceive how far public indig- nation might be carried, or how be expressed, against a law r so flagrantly iniquitous — or how much distress and misery it would occasion : but after it had produced its full effect, no more evil would result from it. The next generation and their successors would {cceteris paribus) only reckon the value of their commodities at thrice the sum which the last generation and their pre- decessors did — the money rents of lands and of houses and new annuities of the same value as old annuities before the supposed degradation of the coin — the price of provisions and of all commodities 48 would be reckoned in thrice the number of sove- reigns or pounds, but in the same quantity of gold, as they were reckoned by the last generation. The interest or dividends on the public stocks, would become payable in those degraded sovereigns, but new purchasers of such stocks would not suffer by the change. The annuity carried by the public stocks being the thing bought, new purchasers would pay for such annuity with similar money to that in which the annuity to them would be paid. 3 per cent, stock would continue to yield three sovereigns for every £ 1 00 stock, but the sovereign would be only one third of the size and value which it formerly was. But the holders of the stocks at the time of such degradation, would be defrauded of two thirds of their property therein, both principal and interest. The public debt of eight hundred millions of old sovereigns, of the value of twenty shillings each, would become payable with eight hundred millions of new sovereigns, of the value of six shillings and eight pence each. The degradation of the pound sterling to less than one third of its value, in the three centuries afore- said, by the various sovereigns, whose reigns were tarnished by such acts, for the purpose of defrauding their creditors, was therefore effected, not at one led s. d. * into 20 3 . into 22 2 . into 22 6 . into 25 . into 30 . into 37 6 . into 45 into 60 into 62 49 stroke, but step by step, or by little and little. The following is a brief summary, taken from Lord Liverpool's "Letter to the King" (George III), "on the coins of the realm," showing in particular the perfidy of different monarchs in their dealings at their mints with the pound sterling : * J . Edward I, in the 28th year of his reign, coined a pound in weight of sterling silver into 2. Edward III, in the 18th year of his reign 3. 20th 4. 27th 5. Henry IV 13th 6. Edward IV 4th 7. Henry VIII 18th 8. Elizabeth, in the 23rd year of her reign 9. 43rd Whence it appears, that the total debasement of the coin, from the reign of William I, (when a pound sterling by tale was, and continued through the reigns of several of his immediate successors, a pound sterling of silver in weight), was more than two- thirds — 20 of the 62 shillings, not being one-third of a pound Troy weight. Lord Liverpool gives an account of several propositions made in subsequent * Distinction of the Tower pound and the Troy pound, and distinction of debasements of the coin effected by diminution of weight, or by increase of alloy, are purposely omitted in the text ; and also any description of the real coins, there all calcu- lated as shillings. The present intention being only to gratify curiosity, such minute details would be at once uninteresting and useless. H 50 reigns for further debasing the silver coins, which were all rejected. The greatest debasement of the coin by any single monarch before Elizabeth, appears, by the foregoing table, not to have exceeded seven shillings and sixpence, while that queen appears to have debased the coin no less than seventeen shillings in the pound sterling. It is not easy therefore to discern her title to the merit which is said to have been ascribed to her, for her interference and dealings at her mint, as thus described by Lord Liverpool, in his letter last mentioned. " The parliament and people, in their addresses to Queen Elizabeth, always mentioned the reform- ation of the coin, after that of religion, as one of the principal merits of her reign, and it is recorded as such in the epitaph on her tomb." Lord Liver- pool adds, that her historian Camden, speaking of that measure, distinguishes it as "Magnum sane et memorandum quod neque Edwardus potuit, nee Maria ausa." Silver coin was for many ages the money of highest donomination, in use in England ; but as the population and wealth of the country increased, gold coins, being more portable and more convenient, came into circulation, and are now for all payments above forty shillings the only lawful coin of the realm. CHAPTER IV. Of the Power of Money — and of the Value of the ivhole Money of the United Kingdom as an item or component part of the National Property or Wealth. In every enquiry it is very important to come to the consideration of the subject of it, free from associations of ideas with words having, in the mind of the reader, a meaning different from that which they are intended to express or convey. It has been said, that "there is great virtue in a definition" — of which, perhaps, few words stand more in need than the word money, which is the subject of the present inquiry. In the dictionary of Dr. Johnson, the only defini- tion of money is, "metal coined for the purposes of commerce" — which excludes paper-money. If commerce, in that definition, be understood to mean not what that word has, hereinbefore, for the purpose of this inquiry, been limited to mean, namely, foreign trade (in which money is very little, though gold be, much used), but to mean the dealings and traffic carried on in any nation, 52 by the intervention of money, by or among the inhabitants of that nation — the definition of Dr. Johnson, for the purpose of this inquiry, would be good. Money, in its strictest sense, means coin only ; but the word money is continually used to signify the " circulating medium," or " currency," com- posed of a mixture of coin and paper-money. Money is also used, in common parlance, for riches or wealth ; a rich or wealthy man is said to be " worth a great deal of money" in whatsoever his riches or wealth may consist. In that use or abuse of the term, the word money is used as synonimous with " property" or " possessions." The great land-owner, the great merchant, and the owner of great accumulated capital, (e. g. in the public stocks or funds) are commonly said to be " worth a great deal of money," although they may none of them possess or perhaps see any money, from year's end to year's end, except what may be called the spending or pocket money of themselves and their families. The riches of the great land-owner lie in his acres ; of the merchant in his wares and merchan- dize; and of the owner of accumulated capital in his public stocks or funds, his mortgages, bonds, or other real or personal securities, or in his shares 53 of mines, canals, docks, railways, joint-stock companies, banks, or some other the various investments, in which accumulated capital is employed — of all which, (except when capital in any of them is sold), the annual or other income only comes into circulation in money, even that income itself, being but seldom paid in coin, and very often not even in the circulating medium or currency, but in drafts or checks upon banks or bankers. According to the return required by law to be made and published in the London Gazette, the average aggregate amount of promissory notes, payable to bearer on demand, which were in circulation in the United Kingdom during the four weeks, ending on the 6th January 1844, was less than thirty-six millions. * Assuming the quantity of coin to be of value equal in amount to the sum total of all the paper money in circulation within the United Kingdom, which is probably very near the truth, but certainly near enough to the truth for the present purpose, The Bank . . . .£18,904,000 * England- Private Banks £4,822,675 > „ „.- „„ . Joint Stock Banks 3,234,999 \ ' B > u&7 > b74 t lon j S Tlle Bank • 3,489,650) .„.„„„„ Mand} other Banks . %&&&) ' °' 850 ' 839 Scotland ..... 2,901,746 £35,774,259 54 the coin would be of the value of another sum of thirty-six millions, and the circulating medium of coin and paper money together, would be of the value of seventy-two millions. There are very probably thirty-six individuals in the United Kingdom, whose property collectively exceeds in amount thirty-six millions, the value of all the coin in circulation — and there are probably seventy-two individuals whose wealth or property collectively exceeds in amount seventy-two millions, the amount of all the circulating medium within the realm. If an inventory and valuation were made of all the property of the people of the United Kingdom, the amount would be so enormous as to be incon- ceivable by inspection of the row of figures, which the sum total of such inventory and valuation would exhibit. Let some of the items be considered (that is to say) The value of all the land and of the timber growing thereon in the United Kingdom. The value of the produce of the land growing therein or thereon (exclusive of timber), of the flocks, herds, and other animals fed thereon, and of the farming stock and utensils, and stock of produce in store or on hand for use, and sale to the people for daily consumption, till the next harvest. ........ 55 The value of all palaces and houses, and of all plate, statues, pictures, china, linen, books, fur- niture, and utensils therein. .... The value of the raiment in wear and in store of 26 millions of people, including jewels, watches, rings, and all personal decorations and ornaments. The value of the ships and vessels of war and in the merchant service, with their munitions of war, tackle, apparel, boats, and other furniture. The value of all the wares and merchandize in such ships or vessels, and of the stock of wares, merchandize, and commodities of all sorts, in store or on hand, for use or consumption of the said 26 millions of people, or for exportation or re-expor- tation. ........ The value of all mines of copper, tin, lead, iron, coal, and other mines, and the stock of minerals wrought thereout, on hand of the proprietors or tenants of the mines, and all the buildings, engines, and machinery appurtenant to or used in or about the working of such mines. .... The value of the capital embarked in all the docks, canals, railways,* gas-light companies, and the buildings, works, materiel and machinery, be- longing to such companies. .... The value of all the accumulated capital em- * By the return to Parliament, No. 159, of the present session, the capital embarked in railways in the United King- dom, between the 1st day of January 1826, and the 1st day of Jan. 1844, is shewn to be more than 79 millions (£79,626,317) exclusive of the capital embarked in railroads before the year 1826 ; and there are now in the present year, 1844, bills in Par- liament for very numerous new, and for extension of existing railways. 56 barked in banking, assurance,* and other joint- stock companies, in private banks, and in all other the various miscellaneous investments of capital in the United Kingdom, not included in any of the foregoing items. ...... The value of the public debt, the property of individuals, which alone amounts to 800 millions . The value of by far the most, if not of each of those several items in such supposed inventory, would exceed in amount several hundred millions ; and the value of the whole would amount to many thousands or tens of thousands of millions. In such inventory would have to be set down as an item the value of the coin in the United King- dom, viz. . . . . . . .36 millions The paper-money, if set down in such an inven- tory, being of no more value than the paper com- posing it, could be set down only at its worth as waste paper. Thus it appears, that the value of the stock of coin, as an item of the whole stock or property of the people of the United Kingdom, is so com- paratively insignificant, as to be indeed won- derful. Small as that comparative value is, — in as much as coin is not only a dead stock, but moreover is a * The single company, called the Equitable Assurance Society of London, has an accumulated capital of more than ten millions. 57 dead stock in continual decay by abrasion or wear, and by parts of it being sometimes lost ; it is manifestly the interest of the public, to abridge and confine that item of dead and unproductive, and to convert it into active and productive capital, by all ways and means consistent with the full and perfect service and convenience of the public. But if the absolute value of the whole quantity of coin seem comparatively so very wonderfully small and minute an item of the amount of the absolute value of all the property of the people of the United Kingdom, considered and valued as capital on hand at any given time, — the power of that comparatively small value or quantity of coin, in giving circulation to all the property and com- modities which are continually changing hands among the same people, will seem infinitely more astonishing. If one single item of the foregoing supposed inventory, e. g. the 800 millions of the public stocks or funds, be supposed the property of one individual, and to be brought to sale on a given day, — all the coin in the United Kingdom would not purchase or pay for the twentieth part (800 -r 36) of that one item! In point of fact, pro- bably not less than 200 or 300 millions of such stocks are actually bought and sold in every year. i 58 The whole 36 millions of coin would pay very little more than two-thirds of the annual public taxes, (52 millions) which must be paid five or six times over in every year, before they find their way from the subject through the collectors, receivers- general, and others into the Queen's Exchequer, and from thence to defray the expenses for which they are imposed and levied. Little reliance can be placed on political arith- metic ; but, for the present purpose, the state- ment may safely be admitted that 5'2 millions of quarters of grain* (although many millions of the people subsist chiefly or entirely on potatoes) are annually consumed in the United Kingdom, — the value of which grain cannot be less, on an average of years, than 80 millions of money .f All the wheat, and much of the other grain, after it is grown, reaped and stored in the granary of the farmer or grower, must pass, from the grower to the corn dealer, — from the corn dealer to the miller, — from the miller to the baker, — and * Wheat 12 millions, other grain 40 millions of quarters. — M'Culloch's " Dictionary of Commerce," art. Corn and Corn Laws. f Wheat calculated at 50s., other grain at 25s. a quarter, give 80 millions as the value of the above-mentioned quantities of 59 from the baker to the consumer, — that is to say, must change hands for money four times before it reach the consumer, when it vanishes from the cir- culation of money and commodities ; leaving the money behind to repeat its office or service for generations to come. If the whole grain went, as by far the greatest part of it does go, through as many various hands, the 80 millions, the value of it at prime cost, increasing at every change of hands by the profit of the several dealers, would have to be paid four times over (and as to such part thereof as finds its way from the baker to the consumer, via the chandler's shop, the club, the tavern, the boarding house, or the eating house, jive times over) in the time which every year's crop of grain takes to find its way from the producer to the consumer, and, therefore, instead of 80 millions 320 millions of money (80X4) would be requisite upon those data, annually, to circulate the single item of grain from the producer to the consumer within the United Kingdom. The value of the meat consumed in the United Kingdom, is probably not less than the value of the grain ; the ox or the sheep passes from the farmer to the cattle-dealer or drover, — from the drover to the wholesale butcher, — from the wholesale 60 to the retail butcher, — and from the retail butcher to the consumer, — and, like grain, therefore changes hands for money at least four times (and much of it Jive times, through the chandler's shop, the club the tavern, the boarding house, or the eating house), before it finds its way from the producer to the consumer, and, therefore, another sum of 320 millions (80x4) would thus be required annually, to circulate the single item of meat from the producer to the consumer within the United Kingdom. For those two items only, of which the demand and supply are incessant, the 36 millions of coin would have to perform the office of 640 millions (320X2) within the year. It would be easy to multiply instances, by taking other items of demand and supply in the same way ; till the work to be performed by the 36 millions of coin within the year would seem to be utterly impracticable, or rather impossible. But instances will occur, on reflection, so fast and thick, that it would be idle to multiply them — and, therefore, only one more shall be adduced, viz. : — In the year 1810 there were 79 bankers carrying on business in London. In evidence given before a committee of the House of Commons in that year, it was stated that 46 (of those 79) bankers then used what is 61 called the " clearing-house," hereinafter mentioned — and that, on what is called a " settling-day " of the dealers on the Stock Exchange, the drafts, for payment and receipt of money, taken to the clear- ing-house, amounted usually to about 14 millions* In the year 1810 (the bank being then under stoppage of payment, and the notes of the corpora- tion depreciated) gold in coin had disappeared — and the legal circulating medium of Great Britain then consisted of about 22j millions of notes of the bankf and of the then deteriorated Royal silver coins and the " tokens " of the bank herein- before mentioned — all which, collectively, did not probably amount to so much as 35 millions. Those 14 millions paid and received in one day, " at the clearing-house " — all other the receipts and payments over the counters of those forty-six bankers — all the receipts and payments over the counters of the Bank of England and of the other 33 (of the 79) London bankers who did not use or avail themselves of the clearing-house — all the receipts and payments of all other bankers in Great * Report of the Select Committee of the House of Commons on the high price of gold bullion, ordered to be printed 8th June 1810. — Minutes of evidence. Examination of William Thomas. f £22,541,523 on an average of the year 1810, 2d Report of the Committee of Secrecy of the House of Lords on the affairs of the Bank, printed 12th May 1819, App. B 2, p. 323. 62 Britain — and of the nobility, gentry, merchants, tradesmen, shopkeepers, and all other the inhabi- tants of London — and of every city, town, village, and place in Great Britain, were performed on that day, by means of that amount, comparatively so minute and insignificant, of 35 millions of "circu- lating medium." It is manifest, therefore, that the power of money, or of the circulating medium or cur- rency, does not depend merely on its quantity — but upon its quantity operated upon by some im- pulsive force, seemingly marvellous, and that force is the velocity given or imparted to its circulation. The power of the circulating medium is then the result of the co-operation of two forces — the quantity multiplied by the velocity of its circu- lation. If to circulate all other commodities in the United Kingdom a power of currency were requi- site, represented by the figures 10,000 — a quantity of currency represented by the figure 4, circu- lating at a velocity represented by the figures 2500 (2500x4), would give that power of 10,000. If the velocity were diminished by one-fifth (2500—500), or to 2000— it is evident that the quantity must be increased by one-fourth (4+1) or to 5, to have the same power (2000><5) of 10,000. 63 If the quantity were diminished by one half (4 — 2) or to 2, — the velocity must be doubled (2500x2), or become 5000, to give the same power (5000x2) of 10.000. Any and every measure, therefore, which pro- motes or causes an increase of the velocity of the circulation of coin — by causing a lesser to perform the office of a greater quantity of a dead-stock of gold — must be beneficial to the interests of a nation — and e converso — any and every measure which impedes or causes a decrease of velocity of the circulation of coin, by causing a greater to be necessary to perform what was previously performed by a lesser quantity of a dead-stock of gold — must be injurious to the interests of a nation. The wealth of a nation cannot be estimated or conjectured merely by the quantity of money pos- sessed by, or in use amongst its people. That nation, which, by inventions and institu- tions for giving greater velocity to the circu- lation of its coin, required less coin than another nation which lacked such inventions or institutions, would (cseteris paribus) become the richer of the two. Just as if two tradesmen, each with a capital of £1000 were to set up shops, one laying out £500 in his stock in trade and £500 in the fittings up 64 and utensils of his shop — the other laying out £750 in his stock in trade, and £250 in the fittings up and utensils of his shop. At the time of their setting up, each of them would be worth £1000 — but as the fittings up and utensils of their shops would be dead-stock — if their dealings were equally brisk and successful, the one, who had £750 active-stock in trade and £250 dead-stock in his shop, would soon be richer than the other who had only £500 active- stock in trade and £500 dead-stock in his shop — which dead stock, moreover, would have to be maintained and kept in repair in the proportion of £500 to £250 — or of two to one. Coin is part of the dead-stock of a nation. If all the property of a nation were brought to sale, its coin would, like every other item of its stock or property, sell for its value — but in as much as coin is retained in a nation merely as a measure of value, that is to say, merely as an instrument to buy and sell with — the first cost and maintenance of it are as much an expense to a nation, as the first cost and maintenance of instru- ments for measures of weight, of length, or of capacity, are expenses to a tradesman keeping a warehouse or shop. It would be as irrational to estimate the wealth 65 of a nation merely by the quantity of money (the measure of value) at any time existing in it, as it would be to estimate the wealth of that nation by the number of measures of weight, of length, or of capacity, at that time existing in it. It may here fitly be remarked, how impolitic, perilous, and insane would be measures of the legislature or government of any nation — in which the velocity imparted to the circulating medium has given to the quantity an enormous, incon- ceivable, and uncontrolable force or power— per- mitting or suffering a quantity so endued, to be meddled or tampered with by any person or persons, body politic or corporate whatsoever — more especially if that person or body, by tamper- ing with that quantity, reckless of consequences, could make enormous gains or profits. Such power has hitherto been given to the cor- poration of the Bank — and its directors, actuated by cupidity of gain to themselves and their cor- poration, so tampered with that power, that in the year 1797 they caused the corporation to stoj) payment, which stoppage of payment was con- tinued during a quarter of a century from and after that year ; and by their reckless and unscrupulous dealings and proceedings with the quantity of the circulating medium deranged and disorganized K 66 during all that time — caused mischief and misery incalculable and irreparable throughout the land, and almost to every individual member of the com- monwealth, except themselves and their partners in the bank, whose profits, in consequence of that stoppage of payment, were swollen at the expense and loss of the public, to the enormous, unnatural, and incredible amount hereinafter to be mentioned. CHAPTER V. Of Inventions for abridging or dispensing with the use of money — and for giving velocity to its circulation — in order to lessen the quantity of coin necessary to be retained in the circulating medium or currency. A circulating medium of coins necessarily causes two very considerable expenses to a nation, viz. first, the capital employed in the purchase of the dead- stock of metals of which such coins are made or composed, — and secondly, the cost of such quan- tity of the same metals as may be requisite to make good the continual wear or abrasion of the coins. In the United Kingdom there is a third ex- pense — namely, the coinage of gold — which is performed at great expense and loss to the public — seignorage being charged at the Royal mint only on the coinage of silver and of copper. All convenient arrangements or contrivances for abridging or dispensing with the use of coin must therefore be beneficial to the people of every nation or state. 68 Two important and very effective arrangements or contrivances for such purposes are the follow- ing, viz. First. The credit in open account — by means of which, tradesmen and others, instead of receiving payment in money upon the supply of every demand of their customers, set down in a bill or account, the cost of the various items of their commodities supplied — and receive payment of the same, yearly, quarterly, monthly, or otherwise, as the case may be — whereby their customers are saved the necessity of keeping stocks of money always in their possession, ready to pay for every item of supply on delivery ; and are moreover enabled, in very many cases, to pay such account or bill, without the intervention of money of the debtor, by a check or order on a bank or banker. If the effect of the credit in open account, e. g. with the baker, the butcher, the grocer, the mercer, the tailor, &c, in economising the use of money, be considered — and how vast a stock of money would be indispensably kept in circulation, if every item supplied by such and all other trades- men were paid for in money on delivery — the powerful effect of this arrangement in abridging or dispensing with the use of money, will be evident. 69 It is carried a step farther between or among those and other tradesmen themselves — by debiting and crediting each other in open account for the items of their commodities supplied to one an- other, and receiving in money only the difference at stated times of settlement. To sanction and encourage the credit in open account, the law allows the right of " set off" in a multitude of cases. Secondly. The credit upon security — by means of which transactions on a larger scale are effected without the use of money, by the substitution of bills of exchange or promissory notes to supply its place. Such bills or notes, payable at a given time after date or after sight and accepted, pass from party to party in place of money — each party, through whom any such bill or note passes to another party, adding to the security of it, by indorsing his name thereon — whereby he renders himself res- ponsible to the holder of such bill or note, for the sum of money expressed to be payable by it. For instance, A, a merchant in London, buys of B, a cloth-factor of that city, £1000 worth of cloth, A granting to B in payment for the same his promissory note for £1000 payable six months after date thereof. — B, the cloth-factor, sends that 70 note (indorsed by him, B) to C, the manufacturer in Yorkshire, in payment of cloth consigned for sale to B by C. — C the manufacturer, sends the same note (indorsed by him, C) to D, the wool- stapler, in payment of wool purchased by C from D. — D, the woolstapler, sends the same note (in- dorsed by him, D) to F, the farmer, in payment of wool supplied to him by F. — That note for £1000, acquiring as it passes from party to party additional security by successive indorsements, is thus made to perform four payments of £1000 each, without the intervention of any money whatsoever ; and by F, the farmer, putting it (indorsed by him, F) into further circulation, such note for £1000, gaining additional security every time it passes, may, in the six months which it has to run, perform ten, twenty, or more payments of £ 1 000 each, without the intervention of any money whatsoever. It is well known that the use of bills of exchange and promissory notes by or among the merchants and traders of the United Kingdom is very great and extensive — but it may assist the mind, in forming some idea of the power of such bills and notes as substitutes for money, when it is con- sidered — that the small stamp duty imposed on the paper on which such bills are originally written, amounted in the United Kingdom in the year 7i ending with 5th January 1843, to the sum of more than 579 thousand pounds.* To sanction and encourage the credit upon security by means of bills of exchange and pro- missory notes, the law has made several provisions — such as that the drawer and every indorser of such bill or note, and the estate and effects of each of them dying or becoming bankrupt, shall be liable for the whole sum expressed to be payable by it — until the holder receive twenty shillings in the pound for the same — and that the bill itself shall in many or in most cases be held as proof of the debt for which it was given — that the drawer or indorsers shall not be liable for the payment of the money expressed to be payable by any such bill or note if dishonored, unless due notice of its dishonor be given to them severally and respectively, &c. &c. The circulating medium, or currency, is to be understood, in this inquiry, to mean money, which is either coin itself, or paper, by law, convertible into coin, at the pleasure of the holder. * Great Britain . £491,500 4 Ireland . . 87,775 8 £579,275 12 Finance accounts ordered by the House of Commons to be printed 23rd March, 1843. 72 The use of bills of exchange and promissory notes economises the use of the circulating medium of the realm, of whatever sort of money it may consist — but such bills and notes cannot properly be considered as an addition to the circulating medium, as some theorists consider them to be. They are contrivances of individuals to save them- selves the use and expense of money ; and are representatives of other commodities (namely, the commodities bought and sold with them), rather than representatives of money ; into which such bills and notes are not convertible at the pleasure of the holder, until the day on which they become due. The use of bills of exchange and promissory notes gives velocity to the circulation of other commodities without the use of money; but it would seem to be a contradiction in terms to say, that they form an addition to that of which they occasion the disuse. The effect of those two inventions or arrange- ments for abridging or dispensing with the use of money or the circulating medium will be strongly felt, on reflection on the extent to which the credit in open account, and the credit upon security of bills of exchange and promissory notes, are carried in the United Kingdom. 73 But the power imparted by velocity of circula- tion to the quantity of money necessary (after the abridgment of its quantity by the inventions and arrangements before mentioned) for the circulation of all other commodities within the United King- dom, is so astonishing in its effects, that it may be said to be indeed marvellous. The increase of jwwer imparted to quantity of money, by giving velocity to its circulation, and the effect of bills of exchange and promissory notes in dispensing with the use of money, have been illustrated to the effect following,* viz. : Let the 24 letters of the alphabet represent 24 persons. A owing ten sovereigns to B — B the same sum to C — C to D — and so on — and Z owing the same sum to A. First. If A pay 10 sovereigns to B — B pay the same sovereigns to C — C to D, and so on — and Z pay them back to A himself. Secondly. If A draw a bill of exchange, pay- able some time after date, for ten pounds upon Z, and indorse and pay it to B — B to C — C to D, and so on to Y — and Y deliver it up to Z for the ten pounds due by him to Z. Thirdly. If A grant his promissory note, pay- able some time after date, for ten pounds to B, and * In Mr. Gale's Essays on Public Credit. 74 B indorse and pay it to C — C to D, and so on, and Z deliver it up to A for the ten pounds due by him to A. Fourthly. If the 24 persons agree to cancel their debts to one another by common consent — it is evident, that the same effect is produced in all the four cases. In the first case it is produced by velocity given to the circulation of coin — the same ten sovereigns being made to pay debts amounting, collectively, to 240. In the second and third cases, by the substitution of a bill of exchange, or promissory note {the credit upon security), for coin or money — and in the fourth case the use of money is sup- plied without its presence, or the presence of any substitute for it, by " set off," i. e. the credit in open account. The most powerful contrivance for giving velo- city to the circulation of money is the trade or business of bankers — with whom the nobility, gentry, merchants, tradesmen, and others, deposit their money, as it comes in — being repaid by the banker, upon orders to bearer upon demand (called checks) in sums of any amount, great or small, as the depositor chooses or has occasion. By the employment of a banker, the depositor saves the trouble of weighing, of counting, and the 7b wear of money ; and also the risk of loss by coun- terfeit-money, by fire, robbery, or other misadven- ture — all which, when a banker is employed, be- come the business, and are at the peril of the banker. If 1000 parties, having dealings with one another, were to employ the same banker, the banker is also, quoad them, saved all trouble and risk ; having only to debit and credit in his books the accounts of those 1000 parties with the vari- ous sums of money for which orders or checks on him are given by them to one another ; the money of those 1000 parties being appropriated among them by the book of the banker, which shows daily and hourly the sum remaining or standing at the credit of each of them. If the deposits of such 1000 parties be supposed to amount to only £500 each, on the average of the whole — the sum of them would be 500 thou- sand pounds — and as the banker would not have to part with any of that money to pay the checks of the 1000 parties upon him, but only to write their checks backwards and forwards in his books, a new velocity is given to the circulation of the deposited money, by its being put out to interest by the banker, whereby he gains the profit of his trade of banker. 76 By the trade of bankers a nation is therefore benefited, not only by the velocity imparted to the circulation of money (whereby a lesser is made to serve the purpose of a greater quantity circu- lating with less force, saving thereby first cost and wear of money) but also by birth being given to a new and important class of labourers in the general division of labour, who, by their industry and accumulation of capital, materially increase the national wealth and prosperity. That the trade of bankers operates on the power of money, — by giving velocity to its circulation, and not by substituting any thing in the place of it,— becomes evident, when it is considered, that the customer of a banker merely deposits money with him, reserving the power of drawing out the whole of it, at his pleasure or caprice, at any moment, without notice to the banker — so that a banker is liable to pay, at a moment's notice, the whole monies deposited with him. Yet so admirable is the system upon which bankers conduct their trade, that notwithstanding the immense increase of velocity which they impart to the circulation of money — their banks throw out, and draw in, in infinite variety, sums of all amounts, at the moment they are demanded, or paid in by their customers, whether in coins, or in whatsoever other form, with the utmost celerity and exactitude. 77 There is in the London Post-office Directory for the present year, 1844, exclusive of the Bank of England and the Bank of Ireland, a list of 70 banks or bankers in London, and of 1638 other banks (reckoning their branches) or bankers in the United Kingdom, whose vast power collectively is incessantly exerted in giving velocity to the circula- tion of money — and the effects of that power, in con- tributing to cause the comparatively minute and insignificant sum of 36 millions of coin to circulate all other commodities in the United Kingdom, to the enormous and inconceivable extent, of which it was attempted to convey a faint idea in the preceding chapter, is indeed astonishing. An ingenious contrivance for giving velocity to the circulation of money has long existed among certain of the bankers of London — which is, in effect, the establishment of a bank of and for those bankers themselves only. Of that contrivance, called the " clearing house," the following is a brief account taken from evidence given in the year 1810,* when there were in * Before the Select Committee of the House of Commons on the high price of Gold Bullion, ordered to be printed 8th June, 1810. Minutes of evidence of William Thomas, inspector of the clearing-house in Lombard Street. 78 London 79 bankers, of whom only 46 used the " clearing-house." The bankers and most of their customers agree, that the drafts or checks drawn by such customers upon them, and the drafts or checks which such customers receive on other bankers and. pay in to their own bankers — shall not be demanded in money to be paid over the counters of the bankers — but only at a certain hour (4 o'clock, p.m.) every day — when all drafts and checks, drawn that day upon or held by these 46 bankers upon one an- other, are taken to the " clearing-house" and ex- changed backwards and forwards, — each of the 46 bankers receiving or paying only the difference between all the drafts or checks held by the other 45 bankers upon him, and all the drafts or checks held by him upon them. In the same evidence, it was stated, that the average amount of drafts so brought into the clearing-house daily was £4,700,000 — and that the average amount of money by which that sum was settled daily was 220 thousand pounds. It has been already noticed that by the same evidence it was stated, that on " settling days" at the Stock Exchange the whole amount of drafts paid at the clearing-house on those days was about 14 millions. 79 If the sum of £4,700,000 were paid in coin from party to party on any one day in London, the streets would be crowded with clerks and porters to make the payments. That sum. if all in gold, would weigh very nearly 37 tons, and even with artificial helps, the mind can hardly conceive the magnitude of it* It is to be noticed, moreover, that with respect to this average amount of £4,700,000 daily, settled by the average sum of £220,000 daily — that if payment of the drafts composing it were required to be made daily over the counters of the 46 bankers — such payment could not be made with £4,700,000 in money, nor by means of less than per- haps three or four times that amount — for bankers in the City who had drafts to receive upon bankers in Westminster, could not wait till their clerks went to Westminster every or any day and returned with money for such drafts to pay in the City the drafts on themselves — for payment of which they would needs have to be provided with other money — and vice versa, the Westminster bankers could not wait till their clerks went to the City and * It is curious to observe, that to count 4,700,000 sovereigns at the rate of 100 a minute, would employ one person, working 1 2 hours every day, for eleven weeks all but part of a day. 80 brought from thence money for drafts held by them on City bankers to pay in Westminster the drafts on themselves, for payment of which they also would needs have to be provided with other money. There is in the British Almanac for the year 1840, a list of 75 banks or bankers then in London — the total amount of drafts passed by 28 of which establishments at the clearing-house in that year, amounted to the sum of nearly a thousand millions* which is stated to have been cleared by the average sum of 200 thousand pounds daily ! Those thousand millions being only a part of the payments of 28 of the 75 banks or bankers in London, among which 28, the names of none of the bankers in Westminster appear, the transactions of * Barclay & Co. - - - £107,000,000 Glyn & Co. - - - 105,000,000 Jones, Loyd & Co. - - 104,000,000 Masterman & Co. - - - 90,000,000 Kobarts & Co. - - - 80,580,000 Smith, Payne & Co. - - 64,000,000 Williams & Co. - - 56,000,000 Barnett & Co. - - - 50,000,000 Lubbock & Co. - - - 33,760,000 Stone, Martin & Co. - - 33,700,000 1 1 Prescott & Co. - - - 30,000,000 17 Firms under 30 millions each - 224,456,800 28 Total £978,496,800 81 some of whom are most extensive and vast — what then, it may be asked, can be imagined to have been the sum of the receipts and payments of all the 75 banks or bankers in London, including the Bank of England, in the year 1 840 ? If part only of the payments of 28 bankers amount in a single year to nearly 1000 millions — what row of figures ? how many tens of thousands of millions ? would display the sum of all the payments and receipts — of all the banks and bankers (70 in London, and 1638 in the country, in the year 1844), of all the merchants and traders, and of all the people of London and of the United Kingdom on the 301 working days of any and every year ?— all accomplished or effected by the comparative driblet of 36 millions of coin ! for it is to be remembered, — although most of that amount was paid and received in paper-money, — that paper-money is itself all circulated by the same 36 millions of coin. But it is useless to multiply instances ; those adduced so forcibly show the effect of velocity of circulation in giving power to quantity of money — and thereby saving the first cost and the cost of the wear of coin, by economising the use of it, that nothing further need be added upon that head. M CHAPTER VI. Of Paper money. Of the benefits of the proper use of it — and of the evils of the abuse of it, by arbitrary or despotic interference in its creation or issue. The manner in which coin was supplied to meet the demand for it in England, and in which gold coin is now supplied to meet any demand for it in the United Kingdom — was (with a few exceptions in modern instances, and until of late years, when seignorage began to be charged on the coinage of silver and copper) by private individuals or parties taking bullion to the mint ; where it was coined without charge ; the importer into the mint re- ceiving out, in coin, the same weight of pure metal sent in by him, increased by the weight of the alloy for which no charge was made. Before the use of paper -money, which is com- paratively a modern invention (the Bank of Eng- land was first established in the year 1694) coin was diffused and flowed, as the circulating medium or currency now flows, in the several districts of a nation, in quantities varying in proportion to the 83 quantity of other commodities circulating in those districts respectively. There would be, for example, as there now is, always more coin in Middlesex or Lancashire than in Amdesea or Merionethshire — more in London or Manchester than in Beaumaris or Harlech. The channels of circulation throughout the country would always require, and necessarily have in them, the requisite quantity of coin, which would flow and circulate steadily, or in even tenour, unless impeded or agitated by some dis- turbing force. The supply of coin would regulate itself in the districts or divisions of a nation, just as water in a number of cisterns of various dimensions, all on the same level, and all connected with each other, by tubes differing in length and diameter, would regulate itself throughout the whole of such a com- bination of cisterns. If the contained water were acted upon by some disturbing force — if a quantity of it were suddenly withdrawn from one or more of such cisterns, and poured into any particular one or others of them — the disturbance could only last during the time required for the water to flow through the con- necting tubes by which it would restore itself to a level in all the cisterns, leaving the contained water 84 in each cistern when restored to rest, in quantity in proportion to its size and capacity below the line of level.* The collection of heavy taxes, e. g. might disturb the distribution of coins in a manner similar to the disturbance of water in such a supposed combina- tion of cisterns. Coin withdrawn from the chan- nels of circulation throughout a country and sent to the public treasury, w r ould, as soon as let loose from thence, immediately flow back to its former channels, or force other coin into them, to supply the place of the quantity withdrawn. That such a reflux of coin would necessarily take place — will appear evident, if it be supposed, e. g. that half the amount of the annual taxes of the United Kingdom were to be paid into the Ex- chequer in London in a single week. Taking the taxes at 52 millions, and the coin at 36 millions — more than two-thirds of all the coin in the United Kingdom would be requisite to pay half-a-y ear's taxes — and if two- thirds of all the coin in the United Kingdom were poured into the Exchequer in London in a single week — it is ma- nifest, that it would, as soon as let loose from the Exchequer, flow rapidly back in all directions to * This idea is taken from Mr. Gale's Essays on Public Credit. 85 the districts from which it was sent, to quiet the disturbance of the circulation of other commodities caused by two-thirds of the coin necessary for that circulation having been suddenly withdrawn from its accustomed channels. If, in the United Kingdom, paper-money had not yet been invented — and coins to the value of 100 millions, circulating with the velocity which they had acquired, were necessary to be maintained for the circulation of other commodities within the realm — that value of coins would be continually in the channels of circulation, performing their daily and hourly office — but at a vast expense of capital for prime cost of such a deadstock of coins, and at no small continual expense of keeping such a deadstock of coins in repair. If, then, any mode could be invented, by which 70 millions of paper-money could be substituted for 70 of those 100 millions of coins, there would thereby be a saving not only of the first cost and the cost of the waste or abrasion of a deadstock of 70 millions of coins — but there would be a gain moreover by 70 millions of dead being converted into 70 millions of active-stock. If 70 millions o>{ paper -money could be and were substituted for 70 of the 100 millions of coin, the 86 30 millions of coin (upon the supposition of 100 millions of circulating medium being necessary to be always in the channels of circulation) would suffice to enable the issuers of the 70 millions of paper-money to convert, on demand at the pleasure of the holder, such quantities of those 70 millions of paper '-money, as could be diverted from their accustomed channels of circulation, and be brought to be exchanged for coin (excepting in the cases of a panic or run) — because if 100 millions of coins, circulating with a given velocity, were necessary to be always in the channels of circulation — the 70 millions of paper-money and 30 millions of coins (composing the new circulating medium) circulat- ing with the same velocity as the 100 millions of coins previously circulated, must always indis- pensably be out performing their office, excepting in times of panic or run, which are in their nature momentary. But after the invention of paper-money ', it would soon be discovered — though 100 millions of coins were necessary for the circulation of all other commodities before — that much less than 100 millions of circulating medium composed of a mix- ture of paper-money and coins would be necessary after that invention. It would soon be discovered that paper-?noney is 87 susceptible of such immense velocity of circulation compared with coin — that less perhaps than 20 millions of the newly-discovered paper-money, multiplied by the velocity of circulation of which it would be found susceptible, and which could be imparted to it, would suffice to do the work of the 70 millions of displaced coin, multiplied by the velocity of circulation which those 70 Millions of coin had acquired or could have acquired. Little more than a century ago, it took ten days to perform the journey from Edinburgh to London. If a sum of £1000 a-day were then required to pass to and fro between traders and people of those two cities, viz. £1000 from London to Edinburgh, and £1000 from Edinburgh to London, each way, daily, — twenty sums of £1000 each must have been always on the road at one and the same time, to effect such remittances. As that journey can now be performed in one day, such remittances, formerly requiring to effect them twenty sums of £1000 each, can now be effected by two sums of £1000 each, by increased velocity of circulation of money derived merely from increased celerity of locomotion — and it may be observed, by the way, that the invention and adoption of railways, and of steam navigation, must have very considerably increased the power, 88 and, therefore, diminished the quantity of circu- lating medium in the United Kingdom, by the increased velocity imparted to it merely by celerity of locomotion. But £1000 in coin, however rapidly it may be transmitted, must be counted and weighed, packed and unpacked, taken to and brought from the terminus at each end of its journey — the cost and risk of all which, and of carriage or freight, are very considerable — while a bank-note for £1000, or ten such notes for £1000 each, can be folded up in a letter, dropped into a post-office, and wafted, at the cost of one penny, all over and throughout the United Kingdom, from the Land's End to John O'Groat's House, without the trouble of weighing or counting, packing or unpacking, and at risk so small that it may be said to be quite insignificant. Paper-money, by its capacity of representing large sums in a single piece— the value of which is ascertained merely by inspection — by the facility of counting and transmitting it from place to place at great distances — and by the great ease with which it can be kept and preserved, possesses great advantages in comparison with coin. The invention and use of good paper money is, there- fore, of great benefit and advantage to indivi- 89 duals — as the saving of the first cost and of the maintenance of a dead- stock of coin displaced by it, and the conversion of that dead into active stock, are of great benefit and advantage to a nation. But so great benefits are liable to be, and often have been, perverted, with the most deplorable and calamitous results, both to the commonwealth and to the subjects individually, of states or nations. Coin has value only in proportion as it is a true representative of a given or certain quantity of gold, and paper-money has value only in propor- tion as it is a true representative of the quantity of coin, i. e. of gold promised by it to be paid. The safest and best way in which paper-money can be maintained, so as to be always a true representative of the quantity of gold promised by it to be paid — is to make it, by law, always con- vertible into that quantity on demand, at the plea- sure of the holder ; and paper-money purports, for the most part, to be so payable. But sovereigns and states have often made sad confusion and wreck, by edicts or laws suspending the payment in coin of the paper-money of their realms or countries — or by issuing paper-money, payable at some future indefinite time — and by other edicts or laws, enacting that such paper-money shall be of equal value as the quantity of coin N 90 promised thereby to be paid in payment of the debts of the sovereign or state, and of the debts due from their subjects or people to one another, — and then, by issuing such paper-money, with pay- ment thereof so suspended or deferred, in quantity ad libitum for their own profit. When great quantities of such paper-money are issued by a sovereign or state, in payment of the debts of the Crown or of the community — their subjects or people, who are constrained by edict or by law to accept and take such paper-money in payment to them, as creditors of the crown or of the public, — immediately and of course avail themselves of those other edicts or laws, making such paper money lawful tender in payment of the debts due by the subjects or people to one another, — and constrain their creditors to accept payment in such paper-money, — who again con- strain their creditors to take the same, and so on. The effect of forced issues ad libitum, of such paper-money, must evidently of course be, as it always in point of fact is., to drive coin out of the channels of circulation. As fast as such paper- money is forcibly poured into channels of circula- tion already full, it displaces the coin in them, no longer wanted, which is melted, and added to the gold of commerce. 91 By such edicts or laws, and by forced issues of such paper-money, any given quantity of coin is made of no more value, for the payment of debts, than a piece of such paper-money, pro- mising to pay that quantity of coin at some future indefinite time. The coin, while it re- mains coin, unmelted, is brought down to the value of such paper-money, which soon becomes depreciated ; and coin, consequently, all disappears, and is melted, and such paper -money becomes the only or the principal circulating medium of the realm or state — its depreciation in value being in proportion as the forced issues of it have been more or less excessive. That such paper-money must become depre- ciated by forced over-issues of it, is evident, be- cause, although sovereigns or states may, by edicts or laws, declare and enact, that such paper-money shall be of equal value with their coins in payment Gv (?V*W CVf cty ttv* of debts of the public, and of the debts of their subjects to one another, — they must be omnipotent, to make paper-money, issued in any quantity at their pleasure or caprice, equal in value to the quantity of gold itself, ready weight, promised by such paper money to be paid some day or other. That would be the easiest alchymy ever dreamt of. 92 The value of such paper-money would be, not the quantity of gold promised by it to be paid some day or other, — but the quantity of gold actu- ally obtainable in the market for any given quantity promised by such paper to be paid, — the difference between the quantity promised to be paid — and the quantity, ready weight, obtainable in the market for that promise, being the measure of the depreciation of such paper-money. Such paper-money in any realm or state cursed with it, would pass among its subjects or people, in exchange for commodities, at its depreciated value only. It would be a painful and unprofitable task, to inquire into the frauds, cheats, and villanies, which have been perpetrated by sovereigns and states by forced issues of paper-motiey, by edicts or laws, made lawful tender in payment of the debts of the Crown or of the community — and, as an inevitable consequence, by other edicts and laws made lawful tender in payment of the debts of their subjects or people to one another. — Every body has heard of the assignats with which France was deluged during the revolution. But as many sensible persons, who have not given a proper attention to the subject, are impressed with an opinion, that paper-money never was 93 depreciated in the United Kingdom — and as the House of Commons attempted to establish that opinion, by its memorable resolution of May 1811 — viz. " that the promissory notes of the Bank of England had theretofore been, and then were, equi- valent to the coin of the realm'' — it may not be unprofitable shortly to recapitulate the facts and arguments, which prove to demonstration the error of that opinion ; — facts and arguments, which would seem to be so palpable and so conclusive, that it is impossible not to admire the sophistry by which men argued and deceived themselves into such an opinion ; for as to the House of Commons, it must be considered doubtful at least, whether the resolution was an honest expression of the mind of that assembly, or only a probatum est by his majority, of the opinion which it was the plea- sure of the minister of the day to put forth. If ridicule might be permitted on such a subject, that resolution might be likened to Lord Peter's argument to prove to Martin and Jack, that a crust of bread was a slice of mutton, — " It is true natural mutton as any in Leadenhall market, and confound you both eternally if you offer to believe otherwise" 94 Digression concerning the depreciation of the paper-money issued by the Bank of England during its stoppage of payment, from 1/97 to 1822. It has been before observed that as coin or money has no value, but what it derives from the quantity of precious metal contained in it* — so, paper-money has, and can have, no value but what it derives from being a true representative of the quantity of such coin, — i. e. of such metal, — promissory by it to be paid. A pound of standard gold used formerly to be coined at the English mint into 44i guineas, or £46. 14s. 6d., and is now coined into sovereigns of that value. Whoever possesses, therefore, £46. 14s. 6d. of the gold-coin of England, is the possessor of a pound Troy-weight of gold. £46. 14s. 6d. is another name for a pound weight of gold. There is, perhaps, no mode in which paper- money can be secured from depreciation, except by the holder being able always, at his pleasure, to obtain on demand from the grantor of the paper, the quantity of coin promissory by it to be paid ; * See note, p. 1, ante. 95 or if there be indeed, any other mode, there is at least none so satisfactory and so conclusive. That was always the case with the paper-money of England, before the stoppage of payment of the Bank in 1797 : and such is now, and has been, the case since the Bank resumed payment in 1822. But during that stoppage of payment, if the pos- sessor of notes of the Bank promissory to pay £46. 14s. 6d., or a pound-weight of gold, offered such notes for payment on demand, according to their tenor — he was presented at the Bank with an act of parliament excusing and prohibiting such payment until the end of the war, — that is to say, for an indefinite time. If he wanted the pound of gold, he was, there- fore, under the necessity of taking to market this promise of the Bank to pay him that weight on demand, but with payment deferred until the end of the war, — where he found, that all that could there be obtained for this promise to pay a pound of gold some day or other, was three-quarters or two-thirds of a pound, ready weight; more or less, according to the estimation of the value, i. e. according to the depreciation of the notes, in the market. That difference of value the Bank-directors and supporters of the non-depreciation doctrine attri- buted to a rise in the price of gold. Gold (said 96 they) has risen in price, for the notes of the Bank promissory to pay gold at the end of the war, are no longer worth, ready weight, the quantity of gold promised to be then paid by them ! ! ! In the year 1813, when the price of gold had advanced from the mint-price of £3. 17s. 10J>d. to the market-price in bank-notes of £5. 6s. l^d. — and the Bank-paper had reached its greatest de- preciation, the possessor of notes of the Bank promissory to pay £46. 14s. 6d., or a pound of gold, at the end of the war,— so far from being able to obtain that pound, ready weight, for such promise then to pay it, was obliged to give — for the pound of gold, ready weight — £63. 13s. 6d. of such notes, promissory to pay at the end of the war a pound and more than a third. Statutes were, indeed, passed by the legislature, by which it was made a misdemeanor to give or receive less of the Royal coin, for the notes of the Bank, than the quantity of such coin pro- missory by them, to be paid at the end of the war ! ! It is needless to observe that such statutes were futile, not to say absurd and ridiculous, as all statutes which affect to overrule or control the laws and order of nature ever were, and ever must be. But in as far as they affected to fix the value of 97 the gold coin, they soon had reference only to a nonentity ; for all gold coin necessarily disappeared from the circulating medium of Great Britain, when by melting it, every pound, and every greater and less quantity in proportion, was raised in value from £46. 1 4s. 6d. to £63. 13s. 6d., in payment of existing debts. Any quantity of gold, as long as it remained coin, was, under penalty of misdemeanor, by law exchangeable or payable for no more than notes of the bank promissory to pay a like quantity of coin at the end of the war, — it being absurdly supposed that, by such a law, the bank-note would be maintained of the same value as the coin promised by it to be paid — and not that the coin would thereby be brought down, as in fact it was, to the value of the bank-note. A pound of gold, when it cost £63. 13s. 6d. in the market, was legally of the same price, whether it were paid for in guineas or in bank-notes — the guinea, so long as it remained a gui?iea, bemg legally exchangeable for no more than a bank-note for a guinea. It requires, however, no great stretch of credulity to believe, that nobody ever, in fact, paid £63. 13s. 6d. in guineas for a pound of gold; or, in other words, that nobody ever gave a pound and more than a third of gold, for a pound o 98 only, of metal similar in all respects except the coinage. Here, then, is in one scale of a balance, a pound of guineas, and in the other scale a pound of un- coined gold or bullion, of equal fineness — two things exactly similar (the coinage having cost nothing) in all the qualities constituting their value. One of those pounds legally exchangeable for £63. 13s. 6d. in notes of the bank of England, and the other for £46. 14s. 6d. only of the same notes — the pound weight of guineas being by law of no more value than the bank-notes for £46. 14s. 6d. Break the fetters of the law — melt the pound weight of guineas, and it immediately becomes legally of the value of £63. 13s. 6d. in bank-notes — of the value of uncoined gold or bullion. Has a miracle been performed in the melting pot ? Melt the bullion — will it come out of the crucible changed in value in any respect ? Again, coin the pound of bullion, and it sinks in legal value from £63. 13s. 6d. in bank-notes to £46. 14s. 6d. of the same notes. Who, it may be asked, would ever subject his gold to such a trans- mutation ? Once more — a pound weight of uncoined sterling gold, legally in the morning worth £63. 13s. 6d. 99 in bank-notes, is taken to the King's mint, and being there coined, comes out in the afternoon legally worth only £46. 14s. 6d. in such notes — and yet the gold is the same identical gold, and the notes the same identical notes ! ! Did the directors of the bank and the minister of the day not know the cause of this effect on the value of gold, by its being made to pass the test in the Royal mint ? The cause which was assigned by them for this effect was a rise in the price of gold. To the owner of that metal, however, who should take to the mint gold, worth £63. 13s. 6d. in the morning, to be converted into coin, worth £46. 14*. 6d. in the afternoon, it would, surely, be a fall in the value of his gold — viz. a fall of more than 26^ per cent, in a few hours ! ! — a fall occasioned by having his gold, ready weight, brought down by law, by under- going coinage, to the value of the same quantity of gold, promissory by the Bank to be paid at the end of the war* * Much confusion has been introduced into disquisitions on this subject, for want of a more accurate distinction being made between the terms, value and price. Even the reference by the House of Commons to its memora- ble select committee, was " to inquire into the cause of the high, price of gold bullion," thereby assuming, that gold bullion then bore a high price, while, in fact, gold bullion, at that time, bore 100 Surely it were needless to accumulate other facts and arguments to show that bank-notes were, in such a state of things, depreciated. If notes of the Bank of England, not payable for an indefinite time, were capable of being made by statute equal in value to the quantity of gold pro- missory to be paid by them some day or other, and the corporation of the Bank might issue such notes ad libitum, without any depreciation of their value, the Bank directors would be indeed al- chymists. Gold being coined at the Mint into sovereigns, half-sovereigns, and other pieces, at the rate of £46. 14s. 6d. for every troy-pound weight, the twelfth part of that sum, £3. 1/s. 10jd., is there- fore called the Mint-price of gold per ounce-troy. During the stoppage of payment of the Bank, — bank-notes, with the debased tokens and silver- coin, and the copper-coin, being (after the disap- pearance of the gold-coin) the only existing legal no higher price than it had borne for two centuries theretofore, in exchange for any commodity whatsoever, excepting only in exchange for the notes of the bank. The reference should have been " to inquire into the cause of the difference between the value of gold in bullion and gold in coin in this kingdom." Considering the statements in the text, surely there could have been no doubt of the fact of the existence of such a difference. 101 circulating medium in the United Kingdom, the following table shows — the price of gold in that circulating medium — the lowest amount (in the nearest half-million) of bank-notes out — the price which hank-stock attained — and the average an- nual amount of the public expenditure — during that period, viz., from 1797 to 1822, both years inclusive ; the price of gold per ounce having been invariably £3. 17s. 6d. from January 1792 to August 1797 — the highest amount of bank-rtotes out, in the same interval of time, never having reached 12^ millions— and the price of £100 bank-stock in 1797 (the first year of the stoppage of payment) having sunk to £115. 10s. Average Lowest. Price of £100 Average amt. price of gold amount of bank-stock. of the public per ounce- bank-notes annual ex- troy, out. penditure. War. £. s. d. Lowest. Highest. In /oar years ending with 1800 3 17 9 10 millioyis 115§ 176 53§ millions In three years 1803 No price 15 millions 148 207 55§ 7iiillions In too years 1804 and 1805 4 16% millions 146 197 54 millions In four years 1809 No price 16% millions 168 288 69 millions In three years 1812 4 13 8 20% millions 173 276 79 millions Intheyear 1813, thehiyhest price 5 6 1§ 24 millions 211 242 86 millions In tftree years, ending with 1816 4 9 8 25 millions 215 266 101 millions Peace. Inthe/ouryrs.endingwithl820 3 19 4 23 millions 210 294 55% millions In the year 1821, the mint price 3 17 10§ 18% millions 221 240 52% millions In the year 1822 3 17 3 17 millions 235 252 53 millions From the above table* may be seen at a glance, * The table is made, as to the price of gold, from a return 102 the varying quantum of depreciation of the paper- money of the Bank during the time of its stoppage of payment — in consequence of the unrestrained over-issue of its notes for the profit of the corpo- ration — that quantum being the difference between the price in the table and £3. 17s. 10|d., the mint- price of an ounce of gold. That depreciation in the year 1813, when it was at the greatest, exceeded 26J> per cent., it being necessary to deduct more than 26j per cent, from £5. 6s. l^d. to reduce that sum to £3. 1 7s. lOjd. The great fluctuation, appearing by the table, in the price of bank-stock during the time of the stoppage of payment, shows how extremely un- settled the opinion of the public was, touching the value of that stock — depending, as it did, on the capricious issue of paper-money by the Directors made to the House of Commons by the Bank, ordered to be printed 12th August 1842; as to lowest amount of bank-notes out, from the Appendix, No. 82, to the report of the Committee of Secrecy of that House on the Bank of England Charter, ordered to be printed 11th August 1832; as to the price of bank-stock, down to the year 1809 inclusive, from the report of the Committee of that House on the high price of gold bullion, ordered to be printed 8th June 1810; and from 1810 to 1822, from the Annual Register ; and as to the public annual expendi- ture, from the report of the Select Committee of that House on the Public Income and Expenditure, ordered to be printed 26th June 1828. 103 of the Bank, under the influence of the Govern- ment for the time being — the opinion of parlia- ment being then merely (as was shewn by its memorable before-mentioned resolution of May 1811) the opinion which it was the pleasure of the prime-minister of the day to put forth. The continual fluctuation in the prices of the necessaries of life, and of all commodities, caused by the continual fluctuation (always under par) of the value of the paper-money of the Bank during its stoppage of payment, was certainly very inconvenient, but that inconvenience was com- paratively ephemeral and insignificant. All creditors being constrained by law to take, in payment of debts contracted a year or two before, money depreciated in value 10, 15, 20, or more per cent, below the value of the money ad- vanced or lent, was an inconvenience of a graver and more serious kind. It was an injustice, more- over, that all debtors should be exonerated by law, as they evidently in effect were, from pay- ment of 10, 15, 20, or more per cent, of their debts, to the injury and wrong of all creditors. But grants or bequests of annuities, jointures, &c, provisions made for younger children, &c, the rent of land (and of houses) upon leases, or other fixed annual payments, made or contracted 104 for in paper -money so depreciated — all afterwards made by law payable in money restored to the true and fidl value of the coin of the realm — spread ruin and destruction far and wide ; it being in many if not in most cases impracticable to meet a liability to pay money of 10, 15, 20, or more per cent, greater value, than the money in which the liability was incurred; and as grantees of such annu- ities &c, and landlords or lessors, did not, in most cases perhaps, understand the cause of the impracti- cability of payment to them in money so by law altered in value — payment was insisted on in many, if not in most cases, till the grantors of such annuities and such lessees were ruined. Parties entitled to residues under wills were reduced to poverty or want : and mortgagors had to pay, in redemp- tion of their mortgages, money of 10, 15, 20, or more per cent, value than the money received from the mortgagee — which caused the impoverishment of many families. The distress and misery so caused was extreme ; and in cases so numerous, that it is sickening to recur to or remember them — nor is it less so to think of the enormous national losses caused, and now being endured, by aggravation of the debts incurred for money raised by public loans in the 20 years from 1801 to 1820 both inclusive, by being incurred in depreciated paper-money — 105 afterwards and now to be paid — the principal (if ever such debt shall be redeemed) but the interest now and for ever (unless such debt be redeemed), by levies of taxes in money of 10, 1 5, 20, 25, or more per cent, value, than the money received for such loans, and in which the interest thereon was con- tracted to be paid. The irremediable public loss, upon that score, is most enormous, — the amount of stock created, by the loans contracted in the said twenty years from 1801 to 1820, being no less than nearly 400 mil- lions,* after deducting what was repurchased Millions. * Capital-stock created for loans - - 740,106,891 Redeemed by sinking-fund - 345,713,282 Debt contracted between 1801 and 1820 £394,393,609 stated in the text at 400 millions. Acting under the delusion of the sinking fund (a delusion as strong as the delusion of the balance of trade), millions of money were borrowed, de anno in annum, every year of the last long war, more than were wanted for the public service, and paid off again in the same year in which they were borrowed at great annual loss. The amount of stock created by such borrowings, and again extinguished by such payings off in the same year, during the interval from 1801 to 1820 only, amounted, as stated above, to no less than 346 millions (£345,713,282). The fancy of borroiving within the year merely for the plea- sure of paying off within the year, money wanted for no other 106 under the delusion called the sinking fund, and the interest (calculated at 3 per cent, only) now carried by that amount of 400 millions being 12 millions per annum. In the single year 1814, the sum of 106 millions (£106,146,907.) of stock was created, reduced by 2/ millions (£26,925,0/2.), of sinking-fund to 79 millions (£79,221,835), for loans in paper-money of the Bank, at £54. 4s. 4d. per cent, on the average.* But the price of gold in 1814 being £4. 17s. 9fd. purpose whatsoever than the indulgence of that fancy of a minister said to have been heaven-born, and of his earth-horn pupils and successors, cost the nation in the last mentioned interval an enormous sum — the stock having been always re- purchased at a price higher than was received for it when created. The loss of a million and a quarter on only 27 (of the 346) millions of stock, borrowed for the purpose of being repaid, in the single year 1814, is stated in the text. The loss upon the whole 346 millions, the amount of the sinking fund in the twenty years from 1801 to 1820, was most enormous. The operation by which such loss was incurred was, certainly very appropriately, called the operation of " the sinking fund." * The figures in the text, and in the foregoing note, are taken from a return from the National-debt-office to the House of Commons, ordered to be printed 4th March, 1829. 10/ or 19s. 1 l|d. per ounce above the mint-price, and that paper-money being therefore depreciated 20 1 3 8 per cent., — the real worth of £54.4s.4d. of paper- money was less by 20 per cent, than its nominal worth — that is to say, was worth £43. 7s. 6d. only. For every sum of £43. 7s. 6d. therefore of the said sum of /9 millions of stock , £100 in present-money is now due and owing, and must be paid by levies of taxes if ever that stock be redeemed. The loss of capital, in that single year, was there- fore £56. 12s. 6d. (£100— £43. 7s. 6d.) on every £ 1 00 of the 79 millions of stock created, amounting to 45 millions in the whole (£44,733,750) by the combined effect, of borrowing upon a 3 per cent, stock when the rate of interest in the market was more than b\ per cent. (£3 for £54. 2s. 2d.) and in paper-money depreciated by more than 20 per cent — afterwards and now to be repaid in money of the value of the lawful coin of the realm ! To that loss of 45 millions, is to be added a million and a quarter (£ 1 ,263,3/5) further loss, in the single year 1814, incurred by the delusion of the sinking- fund — the 27 millions of stock (of the 106 millions created for loans in that year) repurchased by the operation of that fund — having cost above 4 J per cent. (£4. 13s. 5d.) more on the repurchase of it 108 than was obtained for it from the contractors for the loans !* Those enormous public losses, and that wide- spread ruin of private individuals and families, were caused by the lucri sacra fames of the Di- rectors of the bank. Regard being had to the vast unconscionable profits hereinafter shewn to have been foraged by them from the public, during the stoppage of payment of the corporation for a quarter of a century from 1797 to 1822, — it is surely fair to say, that they, being sworn to exercise their power for the support, i. e. the profit of the corporation (without, as concerning the interest of the public, any restraint upon that oath except the moral sentiment of patriotism) were of all men the most unfit and unsafe to be intrusted with a power of issuing, during that stoppage of payment, ad libitum, for the profit of themselves and their partners, paper-money guaranteed by the state — and which the corporation was by law not only excused but prohibited from paying. * f. s. d. Cost of the 27 millions of stock redeemed 58 17 9 p. cent. Eeceived for the 106 millions of stock created 54 4 4 — Difference per return referred to p. 106 Loss A 13 5 p. cent. 109 The Bank, which stopped payment for a quarter of a century at one stretch, may stop pay?nent again — which, considering the enormous profits — the sweets — of the last stoppage of payment, the Directors would naturally not be unreluctant again to do. Such a measure they have seriously contem- plated — for in the year 1825 (only about three years after the resumption of payment by the cor- poration in 1822) a proposal was actually made by them to the Government of the day, for another stoppage of payment. The Directors have asseverated, that in making that proposal, they were influenced only by concern for the interest of the public, and by no view r of profit to the bank. — But when the public good is proposed to be advanced only inseparably from the private advantage of its promoters— it is not uncharitable to doubt (particularly in the case of men under such an oath as that taken by the directors of the bank) whether the ostensible be indeed the real motive — especially when a pro- found remark of the late eminent judge, Lord Eldon, is considered, namely, that " men are often actuated by motives of which they themselves are not aware" — and that the danger of men being so actuated must be greater when their motives are various, mixed, and conflicting. 110 The Government of the day, however, had the honesty and the fortitude to refuse compliance with that proposal of the Directors — and the nation was saved from a second infliction of a stoppage of payment by the bank ; which, if it had again been made by authority of law — who, it may be asked, could foresee or foretell, considering the undue profits, without risk or responsibility, which would have begun to accrue to the corporation from the hour that measure was adopted — when payment would have been resumed ?* The sum of public loss, and the distress and ruin of private individuals and of families, inflicted by the directors of the bank during its stoppage of * The following is extracted from the minutes of evidence annexed to the report of the committee of secrecy of the House of Commons, on the Bank of England Charter, ordered to be printed 11th August, 1832. — Evidence of Jeremiah Harman, a Director of the Bank. Question 2214. Were the Bank placed in great danger in the month of Dec. 1825, in consequence of a short supply of bullion? Answer. No question about it. Q. 2224. Did any communication take place between the Bank and the Government respecting an order in council to restrain payment in gold at that period? A. Yes. It was suggested by the Bank. Q. 2225. What answer did His Majesty's government give to that? A. They resisted it from first to last. Ill payment for a quarter of a century, from 1797 to 1822, may too truly be said to be incalculable and most deplorable. It would, however, answer no good purpose now here further to expatiate on such miseries — but it was a bitter aggravation of them to be told — as w r as frequently alleged both in and out of parlia- ment — that the corporation of the bank, — which under stoppage of payment for a quarter of a century, caused ills, so grievous, so extensive, and alas ! irreparable — was the prop and support of the nation of which it was the curse and bane. CHAPTER VII. Of the regulation and restraint by law of the issue of paper-money. Suggestions, endless in number, and many of them visionary, have issued from the press, on the subject of the supply of paper-money in the United Kingdom. By some theorists, state-paper-money has been strongly recommended : but the objections to state-paper-money are great and, seemingly, insu- perable. First. Because there would be a want of effectual restraint and control of the issue of such paper- money ; of which over issues would cause depre- ciation. Secondly. Because there would be no tangible property subject to the payment, nor individual, nor party personally liable to the payment of such paper-money — and, therefore, there would be no means of enforcing the payment of it by law. Thirdly. Because, although some security for state-paper-money might be given, by making it legal tender, in payment of all the public revenue 113 — yet that would be no effectual security against over-issues of such paper. If it were issued in small notes, there would be great danger of forgery — and if issued in large notes only, it would not be available for payment of any material part of the public revenue, except portions of the duties of customs and of excise ; and, Lastly. Because, in as far as profit is proposed to be gained by the public by the issue of state- paper -money — such profit can be secured by im- post of stamps on paper-money issued by banks or bankers, or in various other ways, from or upon the issue of paper-money. There now, indeed, exists a state-paper-money in the United Kingdom, which seems to have escaped the observation of many speculators on the circulating medium — and to have been care- fully kept out of sight by others, who cannot be unaware of its existence. That state-paper-money, constituted by statute, is singular or unexampled — being issued by the directors of the bank of England ad libitum— for the profit, not of the state, but for the sole profit of the corporation. The statute 3 and 4 Wm. IV. cap. 98, in as far as it makes the notes of the bank of England legal tender for the debts due from individuals to Q 114 one another, is only a stretch of power to extend the monopoly granted to the corporation — but in as far as it makes such notes, amounting, say only to 20 millions (with increment ad libitum), legal tender in payment of all the public revenue of 52 millions a year — which, in not many weeks, w r ould absorb all the paper-money of the bank — that statute makes the notes of the corporation a state- paper-money to all intents and purposes ; — but, as has just been observed, unexampled in its nature; the bank having the w T hole sole and unlimited power of the issue thereof, ad libitum, for the sole profit of the corporation. The security which the public holds from the bank for that singular guarantee of all its paper- money or notes, is a deposit of capital, at present amounting to 11 millions (£11,015,100) while the amount of notes out and guaranteed as aforesaid, since the said statute was passed in the year 1833, has been more than 22 millions. The theorists, who advocate the issue of state- paper -money seem, as has just before been ob- served, all to have either overlooked or kept out of sight that there is a state-paper-money already in existence in the United Kingdom, by such guarantee by statute of the notes of the corpora- tion of the bank. 115 By other theorists it has been propounded, that the issue of paper-money should be confined to a single bank or institution, and be prohibited to be made by any other body politic, or corporate, or person whatsoever, within the realm. But if only a faint idea of the effect of the velocity of circulation on the power of the quantity of "the currency" has been conveyed in the fore- going 5th chapter — the idea of granting or com- mitting by law, the sole power and control over, or even the power of meddling or tampering with, Vke wwe&i i— - that quantity — alw r ays whirling with so incon- ceivable velocity — to any one body politic or cor- porate, or any one institution, would seem to be legislative insanity — and it would be stark mad- ness again to give or commit such power to a single joint-stock company or corporation, to be exercised by its directors or managers ad libitum, for the profit of themselves and their partners — as was given to the corporation of the bank of England, and that, moreover, during its stoppage of payment for a quarter of a century, from 1 797 to 1822. The proposed constitution of such one hank of issue of all the paper-money of the realm, has not been defined by any of those theorists — that is to say, by what rules, or upon what principle, upon what securities, or for whose profit, issues of such 116 paper-?nq?iey should be made by the directors or managers of such an institution ! The banks or bankers, mentioned in the 5th preceding chapter (70 in London, and, including their branches, 1638 in the country), as carrying on a trade which immensely increases the power, by increasing the velocity of the circulation of the quantity of money, are there considered as banks or bankers of deposit only. But very many, if not most of such banks or bankers (except those in London), issue paper-money, in notes, payable in coin to bearer on demand (but for payment whereof notes of the Bank of England are made lawful tender by the statute aforesaid), which are by law limited to be for not less than — or to a minimum sum — in England of Jive pounds, and in Scotland and Ireland of one pound. Banks or bankers issuing paper-money, have obtained the distinctive name of banks of issue. The issue of state-paper-money would very much curtail, and the establishment of one hank of issue would annihilate, the business and profits of every bank of issue in the United Kingdom — and so lessen the number of the industrious population, and the accumulation of capital engaged in the trade of banking, whereby the sum of the national industry, prosperity, and wealth, would be di- minished. 117 Even if the issue of state-paper-money , or the establishment, to the exclusion of all other such banks, of a single bank of issue of paper-money •, abstractedly considered, were wise or expedient — (instead of being, as to a state-paper money, dangerous and impolitic ; and as to a single bank of issue without control — political insanity), if no bank of issue had heretofore existed in the United Kingdom — the injustice of curtailing or annihi- lating the profits of all such banks now and many of them long established in the United Kingdom — especially for the sake of making a speculative experiment in banking — surely deserves, at least, most grave and serious consideration. As the trade of banking is adapted to the enter- prise of and has long been extensively exercised by jjrivate individuals and ordinary copartneries — to give a monopoly of that trade to one body politic, or corporate, or joint-stock company — would be as impolitic and unjust, as to restore the monopoly of the sale of tea to the East India Company ; or to grant a monopoly of the sale of sugar, of cotton, or of any other commodity to one joint-stock or other company. After the invention of paper-money — that a mini- mum sum of coin, for which it should be permitted to be issued, should be prescribed by law, seems to 118 be not only wise and politic, but indispensable ; as it would, manifestly, be very inexpedient to permit paper-money to be issued in notes promissory to pay sixpence or a shilling* The minimum sum for which paper-money is now by law issuable is, as has just been noticed, for England five pounds, and for Scotland and Ireland, one pound. The effect of a law prescribing five pounds as the minimum sum of paper-money (as in England), is to secure that all payments wider two pounds ten shillings shall and must be made in coin. — Payments of £2. 10s. can of course be made by giving a £5 note, and receiving change of £2. 10s. in coin — and all payments above £2. 10s. can be made, by giving a £5 note and receiving change of less than £2. 10s. in coin — but all payments under £2. 10s. must, evidently of necessity, be made in com, while the minimum sum of paper-money is £5. By the same rule, the effect of fixing the mini- mum sum. of paper-money (as in Scotland and * The bank of England, during part of the time of its stop- page of payment from 1797 to 1822, issued notes upon pieces of silver (which might just as properly and honestly have been issued upon pieces of copper or paper) for 5s. 6d. — 5s. — 3s. — and 1 s. 6d. ! ! which were sanctioned by law, particularly by 44 of Geo. III. cap. 71, and 51 Geo. III. cap. 110. 119 Ireland) at one pound, is to secure that all pay- ments under ten shillings must, of necessity, be made in coin. Any opinion on the policy, expediency, or con- sistency, of fixing the minimum sum of paper-money in England at jive pounds, and in Scotland and Ireland at one pound — making no distinction, in England, between that minimum sum — in the me- tropolitan district, or in the districts of great cities and towns — and in Wales, Cumberland, or West- moreland, or distant rural districts — is here with- held. All payments of two pounds and upwards may be had in gold, if it be the pleasure of the payee in the United Kingdom to have payment in coin — silver money being lawful tender only for sums less than forty shillings — the monstrous and absurd law of making by statute the notes of the bank of England " legal tender on all occasions on which any tender of money may be lawfully made" only constraining the holder of them — if tender of pay- ment to him be made in such notes — to send them to London, (or, in some cases, to a neighbouring branch-bank of England) for coin ; where the holder is entitled to demand, and may expect to receive it, unless the bank of England should again come to a stoppage of payment, as has been con- 120 templated since the last stoppage of payment, as before mentioned.* All over and throughout the United Kingdom it is free for any individual or co-partnery to issue paper-money payable to bearer on demand, for the legal minimum sum or any greater sum except in London and within 65 miles of London, within which district the issue of such paper-money is prohibited to be made by any body politic or cor- porate, company, or copartnery, exceeding six in number, in order to secure an exclusive privilege and monopoly of the issue of paper-money within that district to the bank of England. The bank of England is an incorporated joint- stock company, the members or partners of which, with great exclusive privileges, are excused by law from all liability for the transactions or for the paper-money of the company, beyond each his share of the joint-stock. — The legal capital of the corporation is now eleven millions (£11,015,100), and its paper-money, in notes out, 22 millions (£22,066,000 in February 1844). When exclusive privileges are demanded from the legislature by the members of any joint-stock company, however speciously they may be urged — See note, page 1 10, ante. 121 they are almost universally, in truth, mere pretexts for securing to themselves some exorbitant power or profit. There are various trades, such as — the trade of insurance of lives — and of houses and other pro- perty, from fire — the trade in the purchase and sale of annuities — the trade of conducting certain public works, such as — canals ; railways ; the supply of towns with water ; and now, in modern times, with light, — which are not adapted to the enter- prise of private individuals or ordinary co-part- neries, and in which, accordingly, no private individual nor ordinary co-partnery has ever em- barked. In all such trades, well-regulated joint-stock companies, excused from any liability of the part- ners beyond each his share of the joint-stocky ought not only to be permitted, but, under proper regulations and control, to be sanctioned and en- couraged by the legislature of every well-governed state. But to establish such a joint stock company in any trade which is adapted to the enterprise of individuals or of ordinary co-partneries, is contrary to every principle of sound policy. The attempt would, indeed, from the nature of things, prove always abortive, unless accompanied with some R 122 exclusive privilege ; the grant of which would be contrary not merely to sound policy, but to reason, justice, equity, and fair play to the other members of the commonwealth. The trade of banking stands, perhaps, on neu- tral ground between those two classes of trade in general. The trade of banking has flourished in this kingdom without the aid of such joint-stock com- panies ; and, though fettered and restrained by law, in order to secure a great monopoly and exclusive privilege to the bank of England, has reached a high degree of perfection throughout the country. The trade of banking is sometimes carried on by a single individual ; but as it can be, no doubt, successfully managed by joint-stock companies, the establishment of them for the purpose of car- rying on that trade, seems to be, not only unob- jectionable — but, from the greater security which a numerous partnership gives to its customers than can be given by an individual or ordinary co-part- nery, to be judicious and desirable. It is foreign to the present purpose, to enquire into the policy and expediency of exercising legis- lative supervision of joint-stock companies excused from liability of their members beyond each his 123 share of the joint-stock, — established or sanctioned by law, for carrying on the trades of insurance of lives and of the purchase and sale of annuities — in order to guard the public against the danger of such companies being ruined, by carrying on their trades on false principles ; either from ignorance, or from excessive and undue competition for the preference of the public — the ruin of any such company (having extensively granted assurance of lives or annuities) being most destructive — by the reduction of widows, orphans, and other unfor- tunate or helpless persons, to want and misery. If all the members of joint- stock companies, for the purpose of carrying on such trades, were held liable each with the whole of his property or for- tune, for the dealings of the company, — such su- pervision might be unnecessary, or less necessary: but no sensible person would risk his property in such a company, without exemption beyond his share of the joint-stock — the result of the transac- tions, perhaps of most of the transactions, of such companies, being in suspense during many lives which must endure beyond the life of any and of all the partners in such companies. The exemption from liability, beyond each his share of the joint -stock, of the members or partners of joint-stock companies, established or sanctioned 124 by law, for carrying on public works, is unexception- able — because the work — the canal, dock, railway, or other work itself, is security or warrant for such exemption. But in the establishment or sanction by law of joint-stock companies, for carrying on the trade of a bank or banker, the rule that every member or partner shall be liable with the whole of his fortune or property for the transactions and dealings of such company, should be invariable. The trade of banking being adapted to the enter- prise of 'private individuals or ordinary co-part- neries, — to give the members of any co-partnery in that trade exemption from any liability as traders, — would manifestly be a preference as undue — as it would be to give exemption from any liability as traders to the members of a company of book- sellers, of wine merchants, of mercers, or of a com- pany engaged in any other trade adapted to the enterprise of individuals or ordinary copartneries. The only joint-stock companies in the United Kingdom, for carrying on the trade of banking, the members or partners of which are exempted from liability beyond each his share of the joint-stock, — are the bank of England, the bank of Ireland, and three banks in Scotland. The partners of all other joint-stock banks in the United Kingdom are 125 liable, each with the whole of his property or fortune, for the transactions and dealings of the company. The bank of England, with a deposited capital of eleven millions (£11,015,100) had on the 6th January 1844, 19 millions (£18,964,000) of pro- missory-notes out payable in coin to bearer on demand — for the excess of which 19 millions of notes beyond the 1 1 millions of deposited capital— the holders had and have no security whatsoever (except the guarantee of the state of such notes as a state-paper' 7 /) but the prudence and discretion of the directors of the bank, who had and have power to issue notes ultra 19 millions out, to any amount ad libitum. The bank of Ireland, with a deposited capital of 2 \ millions (£2,630,769), had, on the same 6th January 1844, 3^ millions (3,489,650) of promis- sory-notes, payable to bearer on demand, out — for which the public had and has no security whatsoever beyond the amount of the deposited capital — the notes of the bank of Ireland not being legal tender for debts and taxes, as the notes of the bank of England, by the. statute aforesaid, are. The three chartered banks in Scotland, the partners of which are not liable for the transac- tions and dealings of those banks beyond each his 126 share of the joint-stock, have made no deposit of capital with the public. By the appendix, No. 2, to the report of the select committee of the House of Commons on joint-stock-banks, it appears, that there are 148 joint-stock-banks in the United Kingdom, having in all 1001 branches* — and by the appendix No. 1 to the same report, it appears that 107 banks and banking companies (having 482 branches) made returns to that House — from which it appears, that the subscribed capital of those 107 banks or banking companies, amounts to more than 65 millions — the paid up capital to nearly 13 millions — and the number of partners to nearly thirty thousand persons, who are liable, not only for the subscribed capital of 65 millions, but for all the transactions and dealings of the several banks of which they are members or partners, each with the whole of his fortune or property — these 107 banks, having 482 branches, being only so many of the 1638 banks, including in that number their branches, mentioned at page 77 • Banks. Branches. * England and Wales - 106 569 Scotland - 26 314 Ireland - 16 118 148 1001 127 The members or proprietors of the bank of England, probably between 2 and 3000 individuals, are excused from any liability for payment of the notes of that corporation beyond each his share of the deposited capital of 1 1 millions. Paper-money issued by 1638 banks or banking companies, including in that number their branches, the partners in 107 of which having 4 82 branches, are thirty thousand in number — liable with the whole of their fortunes and property for the payment of their notes — and from among which 30,000, eleven persons could probably be selected, who are, col- lectively, worth more than all the deposited capital of the bank of England — which is the whole pro- perty of that corporation — must, surely, be a more secure and safer paper-money than the paper- money of the bank of England— leaving out of consideration the guarantee of that paper-money by the state. The bank of England, having given security by a deposit of capital for about half the amount of the paper-money issued by it — in consideration of which, among other exclusive privileges, the legis- lature has granted (*. e. sold) to the bank the exclusive privilege, that the notes of the corpora- tion " shall be legal tender on all occasions on which any tender of money may be lawfully made," 128 — suppose that any joint-stock or other banking company were to propose to the legislature that the same privilege should be granted to them in respect of their notes, upon depositing with the public (at the same rate of interest as the interest paid on its deposited capital to the bank of England) a capital equal to the whole amount of notes issued by such company, without power of increase, except by authority of Parliament, — with what show of justice, of equity, or of fair play, could the legislature refuse such deposit of such company, for the sale of such privilege to them — and accept for a sale of such privilege to the bank of England exclusively, — a deposit equal in amount to half the amount of its notes issued, with 'power of increase ad libitum — the partners of the bank not being liable for the pay- ment of the other half of them beyond the assets of the bank $ The object of the present inquiry being — not to offer opinions, but to state facts, and place them in light as strong as the author is capable of throwing upon them : the reader is left, from the statements in this chapter on the regulation and restraint by law of the issue of paper -money, to draw such inferences and conclusions as may arise in his own mind from the "premises." CHAPTER VIII. Of Seignorage on Coin, and its effects — particu- larly of 'preventing the melting or exportation of the coin of the realm. On the copper coined at the Royal mint seignor- age is charged, varying in amount according to the price of copper in the market ; but exceeding on the average for about 30 years last past 100 per cent. — that is to say, the copper coin of the United Kingdom contains less than half the quantity of copper for which it passes current as money. A pound of uncoined copper of the same fineness may be purchased in the market for less than half a pound of copper -coin. But as copper-coin is lawful tender only for sums not exceeding one shilling ; it is, under that limi- tation of tender, made to serve only as an instru- ment for subdividing shillings into pence, half- pence, and far things. Twelve good copper pennies are, however, really and truly worth a shilling in s 130 silver coin — because they cannot be had or ob- tained from the mint or otherwise for less* On silver coined at the Royal mint no seigno- rage was charged, before or until the year 1816 — from and after which time, in pursuance of the 57 Geo. Ill, cap. 68, a seignorage of four shillings on every pound troy-weight has been charged for the coinage of silver at the mint. The silver-coin of the United Kingdom, therefore, contains a quantity of silver less by 6 (6.06) per cent, than it passes current for as money. By the same statute, it is provided, that "no tender of silver-coin shall be lawful for any sum exceedingybr^/ shillings'' 1 — silver-coin, under that limitation of lawful tender, is made to serve, there- fore, principally as an instrument for subdividing gold-coin into shillings, sixpences, groats, &c. Sixty-six shillings weigh a pound-troy — but for sixty-two of them, a pound-troy of uncoined * Copper-coin is issued from the mint at £224 per ton. By a return from the Mint-office to the House of Commons, ordered to be printed 26th Feb. 1826, it appears, that the quantity of copper purchased and coined from the year 1815 to the year 1835 was about 528 tons, which cost on the average about £95 per ton. The seignorage on that quantity amounted to £61,852, which was carried (after deduction therefrom of the expenses of the coinage of the copper) to account of the extraordinary and contingent expenses of the mint. 131 silver, of the same fineness, may be purchased in the market— and the 62 shillings in coin are really and truly worth uncoined silver of the weight of 66 shillings — because the coin cannot be had or obtained from the mint nor otherwise for less than that weight of silver-bullion. It has been already mentioned that many bar- barous and sanguinary penal statutes formerly existed, prohibiting the exportation or the carrying out of the realm and the melting of coin — and that such statutes were not finally all abolished, until the 59 Geo. Ill, cap. 49, passed in the year 1819 — whereby "it was made lawful for any person to " export the gold and silver-coin of the realm — " and also to melt the same and to manufucture, " export, or otherwise dispose of the bullion pro- " duced thereby." That statute makes no mention of the melting or exportation of the copper-coin. If any one were to melt the copper-coin, or to export it as metal, he would lose by either operation more than 100 per cent. He would be able to dispose of the melted copper, or exported copper-coin, only for half what it was worth in coin ivithin the United Kingdom — copper in coin being worth within the United Kingdom, 100 per cent, more than uncoined copper. 132 The same statute might, very safely, have been equally silent on the subject of melting or export- ing the silver-coin — because if any one were to melt the silver- coin, or to export it as bullio?i—he would by either operation lose six per cent, on the quantity melted or exported — silver in coin within the United Kingdom being worth 6 per cent, more than silver in bullion. That provision of the statute, therefore, which gives leave to melt or to export the silver-coin at a loss of 6 per cent., seems to be a provision not a little superfluous. It might as well have gone on to give leave to melt the copper-coin (about which it is silent) at a loss of 100 per cent. There is no fear — if that statute had never been enacted, of either the copper-coin of the realm on which it is silent, or the silver-coin of the realm of which it speaks, being melted or exported — while such coins can be melted or exported only at certain and heavy loss. The provision of the same statute which makes it lawful to melt and export the gold- coin, — only repealed in set terms all the absurd and nugatory statutes, prohibiting under grievous penalties, the melting and exportation of that coin. The Doctors of Exchange, and melters and exporters of gold- coin, only laughed at such futile and abortive sta- tutes. 133 There is, as there always was, however, an easy and sure way to secure the gold- coin of the realm from being ever melted or exported by Doctors of Exchange or others — simply by making the melting or exportation of it practicable only at a loss, at which it never would have been, nor ever will, be melted — nor ever have left, nor ever leave, the realm. If seignorage were imposed on the gold-coin, as has been imposed on the silver and copper-coin, it is manifest, if such gold-coin were melted and rendered again into hullion — that such bullion would be minus the quantity of gold taken from it for seignorage at the mint — and therefore that such coin could not again be rendered into bidlion (i. e. be melted) except at the loss of that quantity of it. And as that part of the value of coin which con- sists of seignorage goes for nothing oid of the realm — coin which had paid seignorage could be exported as bullion (i. e. the gold of commerce) only at the loss of the amount of that quantity or weight of it which was taken or paid for seigtwrage at the mint. It has been a received opinion, or rather notion, of certain theorists, that to impose a seignorage on gold-coin, would be equivalent to debasing it, as coin was debased by the monarchs of England in the manner related in digression at the end of the 134 3rd preceding chapter ; but it is easy to show the error of that opinion or notion. Gold is coined at the Royal mint of the United Kingdoniybr nothing to all comers or customers — whoever carries gold to the mint, has delivered out to him the same weight of pure gold in coin as he took in in bullion, and a present is made to him of the alloy. By the coinage, the weight and the fineness of each piece of gold-coin is ascertained and certified by Royal and legislative authority — and gold, after being coined, passes by tale as money, with- out the trouble of weighing or assaying each piece at every transfer of it. But why the weight and the fineness of gold-coin should be ascertained and certified by Royal and legislative authority ; by the metal undergoing laborious, delicate, and expensive processes at the vamt for nothing,— seems as incomprehensible, as it would be to hear of a goldsmith who, being found the metal, would form it into a teapot or a candle- stick of gold for nothing ! The coinage of gold- money at the Royal mint is attended with an im- mense annual expense, after giving credit for the profit of the seignorage taken on the coinage of silver and of copper, for the indulgence of the fancy of coining gold for nothing. 135 The consequence is, that any given weight of gold in coin, and the same weight of gold bullion {the gold of commerce), of equal fineness, are of equal value in the United Kingdom, for the purpose of the goldsmith, or other worker in gold, or for exportation, — and gold in coin, (as it can always be commanded by constraining banks and bankers to give it forth for their notes payable to bearer on demand) is sure therefore to go first for exportation — when there is any sudden demand of gold for exportation, or when there is any scarcity of gold- bullion — and the goldsmith, or other worker in gold, throws the coin into his crucible, and so provides himself with what gold-bullion he is in want of, without the trouble of going to market for it, or of weighing or assaying it * If a seignorage e. g. of five per cent, were im- posed on gold-coin at the mint, (including in that seignorage the expense of the coinage), the gold- * Gold in coin— though, as stated in the text, to be of only equal value for melting or for exportation, with the same weight of gold-bullion — is, in fact, really of greater value, possessing, as it does, the extrinsic value of the coinage, by which the weight and fineness of each piece of coin is ascertained and certified by Royal and legislative authority. The Royal mint is, therefore, by the fancy of coining therefor nothing, kept at work to pro- vide, at an immense expense to the public, gold for melters and ^wtajfivUi MMxttt exporters of that metal. 136 com would never be melted nor exported — because that seignorage — though it would be a com- ponent part of the contained value of the coin — while it remained coin within the realm — would be of no value whatsoever at home, if the coin were melted — or in any foreign country if it were exported — just in the same manner as £20 paid for duty on a pipe of wine, is, within the United Kingdom, a component part of the value of that pipe of wine — Such pipe would be worth more by £20 in the United Kingdom, than another pipe of similar wine lying by its side, on which no duty had been paid — and yet it is manifest that both pipes, if exported to a foreign country — would be of equal value in that foreign country, that the pipe which had paid the £20 duty in the United Kingdom, would not, in the foreign country, be worth a single penny more than the pipe on which no such duty had been paid. But the wine on which £20 of duty had been paid, would be worth, within the United Kingdom, £20 more than the prime cost of it — because not obtainable — not to be had — within the United Kingdom, without pay- ment of that duty. Seignorage paid on coin is as true and effectual a component part of the contained value of coin within the United Kingdom, as the metal itself 137 in the same coin is — just as duty paid on wine is as true and effectual a component part of the value of wine within the United Kingdom, as the first cost of the wine is. If coin can be obtained only at the Royal mint, and be not obtainable there ivithout payment of seignorage, — the seignorage is effectually incorpo- rated with the metal of the coin — and the value of the coin is the cost of it ; which is the sum of the value of the metal contained in it, and of the amount paid for seignorage thereon at the mint. If seignorage be exacted for the coinage — coin cannot be had without payment of the seignorage — and, therefore, must be worth the value of the metal contained in it, plus the seignorage. There is no limit to the quantum of seignorage which might be imposed, and become incorporated in the value of the coin within the United Kingdom, — except that it woidd not do to charge seignor- age so high, as to make it the interest of illegal coiners to utter what would be good money. If a seignorage of 20 or of 10 per cent, were taken on gold coin (100 per cent, is taken upon copper- coin), artificers of Birmingham, for a gain of 20 or of 10 per cent., would soon inundate the country with good money, — regardless of prohibitory penal statutes against illegal coiners. T 138 Good copper-coins are not now imitated and ut- tered to any material extent, if at all, for the sake of the 1 00 per cent, increase of value, which copper acquires by being coined — the bulk andunwieldiness of the metal making it impracticable to carry on illegal coinage of it extensively, in any very private manner. A seignorage of five per cent., (including the expenses of the coinage), imposed upon gold-coins, would not tempt, nor would such a seignorage, in- cluding such expenses, yield profit or gain that would compensate imitators and utterers of good gold-coins. It has been objected — that if seignorage were charged on the coinage of gold — such seignorage would hold out temptation to a dishonest Govern- ment to force out an excessive quantity of gold- coin — displacing paper-money, which is so much cheaper and more commodious, merely for the sake of the profit of the seignorage. But that, if the seignorage were a fair seignorage, would not be worth while ; and could moreover easily be guarded against; by a law — that gold-coin should be provided and issued in all time to come, no otherwise than as it has been provided and issued in time past — namely, by individuals taking gold bullion to the mint and having it coined, on pay- 139 merit of a fair and reasonable seignorage, instead of having it coined, as now, for nothing. A seignorage of 5 per cent, on gold-coin would save the very great charge to the public for annual expenses of the mint — and, which is of infinitely more importance — would prevent the melting or exportation of the gold-coin, — because such melt- ing or exportation would be then attended with a loss of 5 per cent. — or a twentieth part — of the value ivithin the United Kingdom of the gold-coin melted or exported. There is now no scarcity of silver or copper- coin in the United Kingdom — because neither of those coins, by reason of having paid seignorage, can be melted, or be sent forth of the realm for sale in a foreign country, except at a very great loss ; — but gold coin is melted or exported as bullion (i. e. the gold of commerce), is, and in preference. A goldsmith or worker in gold, by throwing into his crucible the quantity or weight of the existing gold-coin necessary to compose the fabric which he desires to produce— is saved the trouble of going to market for, and of weighing and assay- ing bullion. But a loss of five per cent, in the melting-pot would save the coin from the process of reduction to bullion — and would cause the artizan to go to market for his metal ; where his coin, which had paid seignorage of 5 per cent. 140 would exchange for its weight in uncoined metal, plus the 5 per cent, of seignorage which was paid for the ascertainment of its weight and fineness. In like manner gold- coins, which have paid no seignorage, are exported, when there is a demand, (especially when there is a sudden demand) for gold for exportation, in preference to gold bullion — because the coins can be commanded instanter from a bank or banker in payment of his promis- sory notes, payable to bearer in coin on demand — and the exporter, by exporting coins, is saved the trouble and expense of going to market for gold bullion, and also of the weighing and assaying thereof. As a seignorage, e. g. of five per cent, upon gold coin (or such a seignorage as would only defray the sum of all the great annual charges on the public for the expenses of the mint), would prevent the melting or exportation of gold-coin — in the same manner as the seignorage charged on the silver and copper-coins of the realm now prevents the melting or exportation of those coins — The effect would be — that all coins of gold, after they had once been issued from the mint would remain and be confined within the realm — as the existing silver and copper coins now are — doing their office, till, in consequence of wear or abrasion, they required to be recoined. 141 Any demand for increase of the quantity of coin circulating with the velocity which it had ac- quired, arising from an increase of commodities and paper -money, to be circulated by it — or any demand for increase of quantity of coin caused by diminished velocity of its circulation within the realm — would be immediately supplied by bullion being taken to the mint, and there coined to supply such demand. And, e converso, if the quan- tity of coin should acquire an increased velocity of circulation cccteris paribus — or if there should be a decrease of commodities and paper-money to be circulated by the quantity in existence circu- lating with the velocity which it had acquired at any given time— the surplus quantity of coin would be ejected from the circulating medium, and be rendered again into bullion (the gold of commerce) at the loss of the seignorage.* It is manifest under such circumstances, or in * Silver-coin, which had been actually ejected as a redun- dant quantity from the circulating medium, to the amount of 600 thousand pounds, had accumulated in the bank of England in the year 1831 — which quantity Was in that year melted into ingots — and the loss by that operation amounting to £38,289, was afterwards made good by the public to the bank — as appears by copies of Treasury minutes of 31st March and 22nd April 1831, and 21st October 1834, and the estimates of miscellaneous services for the year 1837, ordered by the House of Commons to be printed 3rd and 12th August 1836. 142 such a state of the circulating medium, as far as composed of coins — that whatever might be the state of the balances of trade among the nations of the world — or the state of foreign exchanges — no exportation from the United Kingdom, of the coins of the realm, would ever take place — whatever might be the exports, (or imports), of the gold of commerce — by which alone, under such a state of the circulating medium, foreign exchanges could be regulated, or actual balances of trade be paid or received, if paid or received in gold. That proposition, upon the data assumed, is incontrovertible ; from which it follows, that — if a seignorage were imposed on gold-coin, as well as upon silver and copper coins — all discussions about the state of foreign exchanges causing coin to become scarce — introduced into inquiries touching a circulating medium, which could never leave the realm — and which, therefore, could never be in any manner or way affected by such exchanges,* * The directors of the bank, in their evidence before com- mittees of the Lords and Commons, labour very much to prove that, in the existing state of the circulating medium, they regulate, i. e. expand or contract, the issues of their paper-money by reference to the state of foreign exchanges, over which they affect to have control. Among that evidence, the following may nevertheless be found, in the minutes of evidence annexed to the Report of the Committee of Secrecy of the House of Commons on the Bank of England Charter, ordered to be printed 143 would be as superfluous and irrelevant as the many inquiries de omnibus rebus, made by committees of both Houses of Parliament, on the subject of the paper -money of the bank of England ; and of the coin of the realm ; such as — loans and subsidies to foreign powers — the prices of grain ; of coffee ; of wine; of whale oil; of iron; of leather; — the num- ber of Inclosure-bills passed in Parliament — the price of provisions for a century back — foreign property in the British funds, — the number of com- missions of bankruptcy issued, &c. — which have been drawn into such inquiries, with no other effect than to confound them ; and to hide or bury the material facts and the truth, under a heap of statistical and other rubbish. By the law fixing the minimum sum of paper- money in England and Wales at £5 — it is secured, as has been already observed, that all payments in those countries of and under £2. 10s. shall and must be made in coin. 11th Aug. 1832. — Evidence of J. Horsley Palmer, Governor of the Bank. " Question 226. Is it your opinion that by the operations of any individual, or any combination of individuals, the foreign ex- changes can be controled for any length of time? " Answer. I should say cei'tainly not." To Question 4812, Mr. J. N. Rothschild answers, that the foreign exchanges cannot be controled by any body. 144 Coin is now in abundance to make all such pay- ments, and to circulate all commodities and all the paper-money within the realm, and will so con- tinue, unless the absurdity of coining gold, i. e. of ascertaining and certifying, by Royal and legisla- tive authority, the weight and fineness of gold coins for nothing, — and thereby giving a bounty on the melting and exportation of gold in coin, be con- tinued. CHAPTER IX. Of Issues of paper-money ; and Of the different qualities or properties of accumulated capital and of circulating medium or currency. Paper-money convertible into coin at the pleasure of the holder can never become depreciated — or, in other words, can never, as a substitute for coin, be in excess. Any quantity of circulating medium, whether of coin or of paper-money, beyond the quantity requisite at any time, for the circulation of all other commodities within the realm — would necessa- rily be lying idle in some hand or other. Nobody but the miser hoards money, merely for the pleasure of eyeing it — and a hoard of money, kept out of circulation merely for the indulgence of the fancy of looking at it — would be as effectu- ally withdrawn from the circulating medium, as if it did not exist. As money possessed by any individual lies idle in his hands, at the loss of the interest which might be made of it — every body is continually u 146 pressing into circulation all the money in his pos- session not wanted for immediate use — and every body is so continually giving impulse to the velo- city of the circulation of money. Banks of issue, and all issuers of paper-money payable in coin to bearer on demand, must have always in reserve a stock of coin sufficient to meet any demand which may be made upon such bank or issuer of such paper-money for payment thereof. The profit arising from the issue of paper-money is, therefore — the difference between the interest made on the quantity of paper-money issued — minus the interest on the dead-stock of coin kept to answer all demands for payment of such paper-money — the cost of the paper with the stamp duty thereon paid to the public revenue* — and the expenses of the bank or establishment for the management of the issue and circulation of such paper-money. It is the interest of banks or bankers of issue, to have out and keep out as much paper -money as they safely can — regard being had to their liability * The duty on the bills or notes of the bank of England and of country bankers in the year ending oth Jan. 1843, was — For Great Britain .... 97,894 13 6 Ireland ..... 8,028 3 £105,922 16 6 147 to pay it in coin instanter on demand. But it is the interest of the customers of such banks or bankers to return such paper-money into the bank — because their customers pay interest for the use of it — and it is needless to observe, if a note for £5 would pass only for £4. 19s. llfd. in coin — that it would be immediately sent into the bank for pay- ment of the £5 in coin — and, therefore, that it could never, while payable to bearer in coin on demand, become depreciated. The paper-money of banks or bankers of issue circulates only within a certain limited district or sphere — out of which, though it may occasionally be used, it is not current. A note of a banker of Exeter is not current at York ; nor of a banker of York at Exeter. The circulation of the paper-money of banks of issue is local — and such paper-money is kept out, only by the dissemination of it by the customers of the bank, whose connexion with the bank is personal. If any bank or banker of issue were to attempt to force out paper -money beyond the demand for it within the sphere or district of the bank, it would be immediately returned or sent in for pay- ment. An erroneous notion or delusion prevails — that 148 banks and bankers of issue not only possess, but also that they exercise, the power of forcing out paper-money in excess — but by what means that can be effected is not, because it cannot be, stated. That erroneous notion or delusion is founded on the mistake of assuming that the loans or advances made by bankers or banks to their customers are merely sums of circulating medium — instead of being, as they really are, sums of accumulated capital — either the actual personal property of the banker, or of the partners in banks — or sums of accumulated capital — deposited in banks, by one set of customers who have a surplus of capital — which it is part of the profit of the trade of a bank or banker to lend upon security to another set of customers who are in want of capital. The circulating medium of coins and paper- money never rests with any body — but is always out performing, in incessant whirl, its office in the service of the public. The accumulated capital of the 70 bankers in London, and 1638 other bankers or banks (includ- ing in that number their branches), mentioned in the fifth preceding chapter (page 77) and seventh preceding chapter (page 126-7), which is out on continual loan or advance to their customers, pro- bably amounts to many hundred millions — and for 149 the paper-monetj issued by such banks or bankers every individual member of each several bank is liable with the whole of his fortune . Any addition to that mass of accumulated capi- tal out and advanced on loan to customers — which could be made by forced issues of paper-money — would, if such forced issues were practicable, be utterly insignificant— the whole issue of paper - money by all those banks collectively being only seven or eight millions in the whole (£8,057,674 in January 1844, see note, page 53 ante), which is a mere trifle comparatively with the mass of accumulated capital of such banks. The loans, or advances to their customers ; and the issues of paper-money convertible into coin at the pleasure of the holder — made by banks or bankers with such a mass of active actual capital at work — and liable, each partner, with the whole of his fortune, for the dealings and paper-money of the several banks, have substance in them — and form collectively a strong contrast with the single corporation of the bank of England, which, having deposited the whole of its capital with the public, has literally no actual disposable capital to lend to any customer, or to any body. Advances of its paper-money, issued by the bank of England, are the only advances which that corpo- 150 ration can make to its customers — for which paper- money (out to double the amount of the deposited capital of the bank) there is no security but the prudence and the discretion of the directors of the bank — the proprietors of the bank not being liable with all or any part of their fortunes, as other bankers are, for payment of their paper-money ■, or for any of the dealings and transactions of the bank, beyond each his share of the joint-stock. Paper-money being limited in England and Wales to a minimum sum of five pounds — that is, a sum which nobody takes from another without being satisfied of the goodness of the note promis- sory to pay it — and five pounds is a sum which passes seldom, or very transitorily, among the labouring classes of the community. The paper-money of the banks or bankers of issue in the United Kingdom, circulates only, as has just been noticed, in particular limited dis- tricts or spheres. Issues of such paper-money, cir- culating in many districts or spheres, isolated from and independent of one another, w T ould surely be safer sources or fountains of the issue of paper - money than one bank of issue for the whole realm — the directors or managers of which, upon false principles — upon false theories — from political bias, especially if placed under the influence or control of 151 the government* — for lucre — or from baser motive, if there be a baser motive — might, without stopping payment — by suddenly contracting the circulating medium of the whole realm, cause and spread con- fusion and ruin, — worse even than that which the corporation of the bank of England caused and spread during its stoppage of payment for a quarter of a century from 1797 to 1822. All banks are creatures of credit. Any and every bank — even a mere bank of deposit — must stop payment if a run were suddenly made upon it by the greater part of its customers — but no bank cam fail which has invested the deposits made with it, and issued its paper-money upon good se- curities — nor need stop payment for longer time, than till such securities can be realized. That some or that many banks of issue of paper- money have failed, is no better reason for esta- * To the question No. 2073, in the minutes of evidence annexed to the report of the Secret Committee of the House of Commons, on the expediency of the bank of England resuming cash payments, ordered to be printed 5th April and 6th May 1819, — Mr. Ward, a director of the bank, said in his answer: — " When His Majesty thought fit to send for the Duke of " Wellington, portions of the public chose to come to the bank " and to take coin for their notes — there has been a demand of " nearly two millions in consequence of that — and I do not " hesitate to say the public is suffering very considerable incon- " vcnience from the circumstance." 152 blishing a monopoly of the issue of paper-money in one bank for the whole realm — than it would be — because some or many tea-dealers have"failed, to restore again to the East India company the mo- nopoly of the sale of tea, — or because some iron- miners have failed, to establish a monopoly of iron -miners for the whole realm. The directors or managers of a single bank of issue for the whole realm, composed of a small number of merchants, such as the directors of the bank of England — would form a little oligarchy of metropolitan traders, with the power of prying into the affairs of all other metropolitan traders — and of turning their knowledge to their own profit, and to the prejudice of their competitors in the same branch of trade, or of their rivals engaged in similar speculations as themselves — by withholding from them the accommodation of a single bank of issue under such management and control.* * In the minutes of evidence annexed to report of the Com- mittee of the House of Lords on the resumption of cash-payments by the bank, ordered by the House of Commons to be printed 12th May 1819, the following evidence is given by Mr. Dorrien, the governor of the bank. " Question 27. Do you mean to say that the bank do not now " regulate their discounts by reference to the goodness of mer- " can tile bills presented to them? " Answer. Not entirely by reference to the goodness of the " bills, but frequently with reference to their origin. 153 By imposing a seignorage on the gold-coins of the realm (which, to the extent of the cost of the coinage, is a measure only of justice and common- sense) as suggested in the last preceding chapter, — the abundance of coin now actually existing in the realm may be secured in continuance, i. e. be domiciled (by the melting or exportation of it being made practicable only at a loss) for all payments in England and Wales, of and under £2. 10s. — and the issue of paper-money of £5 and upwards very safely be left free, as it ought to be left free — to the enterprise of such individuals or ordinary co-part neries as shall choose to embark in the trade of banking ; and to deprive them, in such a state of things, of such liberty, would be as unjust and impolitic as to deprive them of the liberty of fol- " Q. 29. Of what nature are objections to the origin of bills, " which makes the bank refuse to discount them although they " are good? " A. The monopoly of any particular article — speculations in " corn — foreign loans — and bills of that description — that is, " bills drawn or accepted by persons who the bank suspects are " engaged in such speculations." It is to be regretted that the Committee did not ask the witness what article of commerce the bank thinks it is in the power of drawers or acceptors of bills to monopolize ? Also whether any of the directors of the bank, being all or most of them merchants, ever engage in speculations in corn, or foreign loans, or affairs of that description ? X 154 lowing any other trade, adapted to the enterprise of individuals or ordinary co-partneries. On the policy of depriving the people of such liberty, in order to give a monopoly or exclusive privileges in the trade of banking, to any body politic, or corporate, or person whatsoever — remark has been already hereinbefore made — which may be enforced by the following short account of the bank of England, and of the use which has been made of the monopoly and exclusive privileges which have been granted to that corporation. PART II. AN EPITOME OF THE HISTORY OF THE BANK OF ENGLAND. Preliminary Observations . Whoever shall read the following pages, can hardly fail of being convinced ; that with its charter and in possession of the exclusive privileges which have been granted to that corporation, — the Bank of England has long been a great and pernicious imposition upon the public. That power so extensive and uncontroled as that, by law in 1 797, committed to the directors of the bank ; who are sworn to exercise that power for the support, i. e., the profit, of themselves and their co-partners, — should not be much abused, is more than can be expected from the frailty of human nature. That from thirst of undue gain, the directors of the Bank so conducted the trade of the cor- poration, as to produce, by the working of its exclusive privileges, effects ruinous to the commu- nity, — must be manifest to every one, who has attentively considered the consequences of the extension and contraction of the issues of the paper-money of the Bank, from the commencement 158 to the close of that quarter of a century from 1/97 to 1822, during which it was under stoppage of payment. At the time of the stoppage of payment in February, 1797, the notes of the bank out, payable in coin on demand at the pleasure of the holder, amounted to 8 J millions (£8,640,250). But after the stoppage of payment in February 1797 — from which time the bank was excused by law from the payment of all its notes until the end of the war, or for an indefinite period — and its notes were converted into a state-paper money, with power to the corporation of issuing that paper-money, ad libitum, during the war, for its own profit, — the issue was forced — with a de- preciation of the paper amounting to more than 26^ per cent.* — to the extent of 29? millions. \ On the resumption of payment of the notes in coin on demand at the pleasure of the holder, in the year 1822, the issue was reduced to 17 millions. % In a well-governed state, to commit the whole power over a state-paper money to any body of men, * See page 102, ante. I £29,504,080 out, on the average of the quarter ending 30th September 1817. \ £17,165,940 out, on the average of the quarter ending 31st December 1822. 159 how disinterested soever personally in its issue, would surely be very unwise and impolitic. But to commit such power to a joint- stock company of traders, interested in working it only for their own profit, would seem to be little short of legislative insanity. It will be very becoming of the members of par- liament, who are partners in the bank — and who have, therefore, a direct interest in pounds, shillings and pence, in any proposed contract between the Government and the corporation — if they withdraw from the House upon any divisions which may take place upon questions touching such contract. It appears, by a Return of the bank to the House of Commons, No. 95 of the present session — that the whole assets of the corporation, exclusive of its undivided capital, amounted on 24th February 1844, to £37,349,000 and their notes out, and debts due, to 34,109,000 Surplus, called the Rest. . £3,240,000 and the undivided capital of the Bank is £14,553,000. If parliament were to determine to decline to renew the charter ; and the public were conse- quently to pay back the deposited capital of £11,015,100, and the corporation were dissolved — and supposing all assets of the bank to be realized 160 without any loss — the proprietors of the bank would have to divide among themselves — their undivided capital of £14,553,000, and the surplus or rest of £3,240,000, making together the sum of £17,793,000 — which would give each proprietor, for every £100 of his bank-stock, £122. 5s. 3d. in money, and no more. And yet, every £100 of that stock is now saleable in the market at about 200 per cent. — upon the credit, of course, of the talent of the directors of the corporation, for out- witting and over-reaching the government in the treaty on foot for a new bargain. The value of that speculation appears, therefore, to be estimated on the Stock Exchange at the difference between £122. 5s. 3d. and £200, or at about 78 per cent. It remains to be seen ; if the charter be renewed on the terms now proposed to the House of Com- mons, whether bank-stock will rise or fall. But whatever may be the future price of bank- stock in the market — it is evident, that the directors and partners in the bank speculate on obtaining an enormous profit and advantage beyond the £122 5s. 3d. per cent., (which is the utmost present intrinsic value of their stock), as the fruit of the measures for the renewal of their charter now under consideration of the House of Commons. CHAPTER I. Of the Origin and Constitution of the Bank of England. The following succinct account of the rise and progress, and of the laws for the government and control of the Bank of England, is extracted from the addresses to the proprietors published in 1798 and 1801, by Mr. Allardyce, with the view of enforcing a division of a mass of surplus profits amounting to nearly four millions (3,826,890), which were discovered in 1797 to have been ille- gally accumulated by the directors ; in violation of the statutes, for the regulation and control of the corporation, which commanded that the wholeofthe profits should be divided half-yearly among the proprietors of the bank for the time being : — " The Bank of England was established in the " year 1694. The Charter is dated 27th day of "July 1694. "William Patterson was the projector of the " Bank of England. He imparted his scheme to " Michael Godfrey, a gentleman of great consider- 162 " ation in the city, and it was often the subject of " discussion at a club which they frequented in " Friday-street. It met with much opposition. " Some thought it might be converted into a job " or bubble, as many other projects had been in " those days ; others, that it might be made an " instrument in the hands of designing men to " overturn the Government, then but recently " established ; and some thought, that, by the influ- " ence which Government might acquire over the " Bank, it might be made an engine for subverting " the liberties of the people. " Many obstacles presented themselves against " the scheme, to some of which the projectors " were obliged to yield, and others they sur- " mounted. " That the public might not suffer by its being " made a job, it was agreed, that the capital sub- scribed of £1,200,000 should be paid into the " Exchequer, and that the bank should be re- " stricted from contracting debts to a larger " amount than that sum. On this capital govern- " ment agreed to allow an interest at the rate of " eight per cent, per annum, with the sum of " £4,000, in name of house-expenses, making " together an annual sum of £100,000. " The charter recites, that, for securing certain 163 " advantages and recompenses mentioned in the " act of 5th William and Mary, chap. 20, to such " persons as should voluntarily advance a certain " sum for carrying on the war against France, — " the Royal power (William and Mary) would, as " soon as the sum of £1,200,000 should be sub- " scribed, as aforesaid, grant and make forth their " Royal charter, under the great seal of England, " and thereby incorporate all and every such sub- " scribers to be one body corporate and politic, by " the name of the Governor and Company of the " Bank of England, with such powers, capacities, " &c. and subject to such rules, restrictions, &c. as " therein mentioned. u And, in order that the bank should be as little " connected with, and under the influence of, " government as possible, it is enacted by the 5th " of William and Mary, chap. 20, that they shall " not purchase any land or revenue belonging to " the crown, or advance or lend to their Majesties, " their heirs or successors, any sum or sums of " money, by way of loan or subscription, on any " part of the revenue, other than any part on which " a credit of loan is or shall be granted by Par- " liament. " And, in order that the company might not " accumulate funds which might be employed to 164 " bad purposes, the Act of the 7th year of Queen " Anne, chap. 7, section 63, directs, that all the " profits, benefits, and advantages, arising out of " the management of the bank of England, shall " (the charges of management only deducted) be " divided from time to time among the pro- " prietors for the time being, according to their " respective shares of stock. And this was a wise " provision ; for, if the sum of £50,000 (a sum " comparatively small to the profits of the com- " pany) had been set aside, each year, for the first " fifty-three years, from the first establishment of " the bank, and the sum of £100.000 a-year, for " the next fifty years, to the present time, and had " been allowed to accumulate at legal compound " interest, they would have amounted at this time " to a sum much beyond one hundred millions. " The Legislature has prohibited the bank from " making any accumulations in that way ; but, " when an increase of capital at any time seemed " necessary, it never prevented them from in- " creasing their capital by subscription ; taking " care, however, that such additional capital " should be pledged in the hands of Goverrwient : " and this capital has from time to time been "increased, till it now, in 1798, amounts to " £11,642,400 on which a dividend is now paid 165 u half-yearly, to the proprietors, at the rate of " seven per cent, per annum, which amounts to " 814,968 per annum, and the Government's per- " manent debt is now increased to £11,686,800, " being £44,400 more than the capital on which " the bank divides ; and the interest from Govern- " ment, having been reduced from eight per cent. " which it was originally, to three per cent, per " annum, is now £350,604. ■' The bank of England has, in former times, " been in danger ; but the directors had always " been successful in their precautions to avert it. " In the rebellion, in the year 1745, the sudden " irruption of a small corps of half-clothed, half- " armed, and undisciplined highlanders, had struck " a panic into the country. They had penetrated " as far as Derby, within 126 miles of the capital. " This produced a run upon the bank for specie ; " and it was reduced to the expedient of making " its payments in silver, chiefly in shillings and " sixpences, with which the directors were pro- " vided, in order to gain time, till they were pre- " pared to set on foot an association, for the " support of the bank, which was entered into, "at a meeting held at Garraway's coffee-house, " by the most eminent merchants, considerable " traders, and proprietors of the public funds, on 166 " Thursday, 26 September 1745, to the following " tenor : c We, the undersigned, merchants, and " others, being sensible how necessary the preserva- " tion of public credit is at this time, do hereby " declare, that we will not refuse to receive bank- " notes in payment of any sum of money to be " paid to us ; and we will use our utmost endea- " vours to make all our payments in the same rt manner.' " By four o'clock in the afternoon, 1,140 had " signed it. " This measure gave immediate relief to the " bank. At that time, the dividend was 51 per " cent.; bank-stock sold at 141 per cent.; 3 per " cents, at 85. " A resolution of the same kind, and expressed " exactly in the same words, was entered into, by " the merchants and bankers of London, on 27 " February 1797 3 after the bank had suspended " its payments in cash. It was signed by above " 2000 respectable names. " On the 27th day of February 1797, a new era " commenced in the history of the bank of Eng- " land, and an act of parliament was passed in " that year, restricting the bank from making pay- " ments in specie till one month after the signing " of a definitive treaty of peace." CHAPTER II. Of the bank of England as a national institution. There is, perhaps, no subject on which so much delusion has pervaded the public mind, as on the fancied importance of the corporation of the Bank. "As good as the Bank" has long been a proverbial expression ; and yet the Bank stopped payment in the year 1797, and did not resume its payments for twenty-five years, viz., until the year 1822. In that interval the bank, among other ma- noeuvres for the undue increase of its profits, resorted to the issue of notes for small sums — from Jive shillings and sixpence, down to eighteen pence, stamped, upon pieces of silver of inferior value, but which, as far as the public was concerned, might as well have been stamped upon copper, or upon the still cheaper commodity, paper.* * Those silver-notes, called by the bank " tokens," — im- pressed by the corporation with the Royal image and super- scription, were issued from the mint in Threadneedle-street, in exchange for the promissory notes of the bank payable at the end of the war. By the quantity of silver contained in those tokens, a bank of England note for one pound was declared by the cor- poration itself to be debased to fifteen shillings and ninepence. See p. 39 et seq. — p. 45, — and note, p. 118, ante. 168 The corporation of the bank, during that long period, had recourse to various other gainful ex- pedients, which the nation, in the intense and breathless anxiety of the last war, heedlessly and ignorantly disregarded. The minister of the day would even sometimes declare in his place in parliament, that the bank had been the prop and support of the nation! Now, what was that prop ? — a corporation of some 2500 or 3000 individuals, who, in the year 1797, were collectively worth the sum of llJ, millions (£11,686,800), and no more; for, had each indivi- dual proprietor been worth that sum, the corpora- tion collectively was worth no more — inasmuch as no proprietor was liable for the dealings of the bank beyond each his share of the joint-stock. When the bank stopped payment in 1797, its promissory notes out amounted to 8^ millions (£8,640,250), and the cash and bullion in its coffers to the sum of one million (£1,086,170), and no more. The order in council, prohibiting the bank from making further payments in coin, was published on the 27th of February 1797; and the reason assigned in the order for that measure was, " the apprehension of a want of a sufficient supply of cash to answer the exigencies of the public service." 169 But during the 25 years which elapsed between the years 1797 and 1822, while the stoppage of payment by the bank continued — the public ex- pended, upon the average, very nearly seventy millions a-year;* and in the years 1813 and 1814, of the late war, more than one hundred and jive millions in each of those single years;* amount- ing, in the whole, to more than seventeen hundred millions!* and all without the aid of that one million of cash, which, during all that time, re- mained locked up in the coffers of the bank, and which, had it been resorted to, would not have defrayed the public expenditure in the tivo last mentioned years of the war for four days! ! ! The whole capital of the bank would not indeed have defrayed that expenditure in those two years of that war for six weeks — and yet it was asserted, and by ministers of finance, risum teneatis, that without the aid of the corporation, the state (of which it was the creature) could not have been supported ! ! The reason assigned by the order in council, was, then — either a mere pretext for stopping the payments of the bank — or was founded upon the grossest ignorance of the principles of the "bank- * See Appendix No 13 to the report of the Select Committee on the public Income and Expenditure, ordered by the House of Commons to be printed 26th June 1828. 170 ing system," and of the properties and powers of the " circulating medium or currency." The profits which the bank accumulated, in consequence of stopping payment, are almost in- credible ; for the public continued to deal with the corporation, after it had stopped payment, just as if its promissory notes, payable at the end of the war, had been equivalent in value to the quantity of coin, i. e. of gold, falsely, thereby purported to be payable to bearer on demand: and to deal with it, moreover, in a manner so reckless and so improvident, as to rival, in ex- travagance and waste, the transactions between the spendthrift and the usurer. If proof of the truth of so unqualified an asser- tion be demanded, the following is selected from a mass of other evidence which might be offered. To control the practice, which had obtained in some of the public offices, of applying, and some- times fraudulently, the public money to the use or profit of the accountants — an act of parliament was passed, that they should all pay their balances into the bank. In consequence of that statute, and from other sources, the bank had, on an average of ten years ending in 1816, balances of public money always in hand, exceeding, in the aggregate, upon the 1/1 average, the sum of eleven millions* (£11,313,1 40) ; but as the statute, which was made for control of the public accountants (by withdrawing from them the balances of public money, and ordering them to be paid into the bank), omitted to provide that the Treasury might avail itself of the aggregate of those balances for the public service — that statute had only the effect of transferring the profits, theretofore made by the public accountants — whether duly or unduly made by them — to the corporation of the bank; because, when one de- partment was out of cash, and another department had a full account at the bank — official forms, not guarded against by the statute, prevented any one department from relieving the wants of any other. In the year 1808 it was, indeed, proposed to the bank by the then minister of the day, in con- sideration of the advantages derived by the bank from the deposit of those balances — that the cor- poration should advance to the public three mil- lions of promissory notes — not payable until the end of the war, without interest, during the war — to be repaid by the public to the bank twelve months after the ratification of a definitive treaty of peace. * See Appendix No. 24 to the report of the Committee of Secrecy on the Bank of England Charter, ordered by the House of Commons to be printed 11th August 1832. 172 The answer given by the directors of the bank to that proposal, is so illustrative of the truth of the assertion which has just been made respecting the character of the dealings between the public and that corporation, that it is here given ver- batim. It was in the following words : — " Re- " solved, that the court of directors do accede to " the proposal of the Chancellor of the Exchequer, " to lend for the use of Government £3,000,000 on " Exchequer-bills, without interest, during the " war ; provided it is stipulated to be returned " within six months after the ratification of a " treaty of peace ; and under the complete under- " standing that all transactions between the public " and the bank shall be continued in the ac- " customed manner, though the amount of the "public balances should exceed ten millions! ! ! That is to say — The bank would consent to lend to the public three millions of its promissory-notes, without charge for interest — provided the public would engage to leave always in the hands of the bank ten millions of such notes ivithout charge for interest! !! The corporation afterwards — in pursuance of 48 Geo. III. cap. 3, which became law on the 27th of Feburary 1808 — did, in pursuance of that pro- posal, resolution, and statute — advance and lend 173 to the public three millions of its promissory-notes, not payable until the end of the war, without interest during the war. But the directors of the bank, in order to make that advance or loan, without diminishing the number of the promissory-notes of the bank which were then out for the profit of the corporation — just added that number of notes, with about four and a-half millions in addition, for its own further profit, to the amount then out — for, The promissory notes of the bank out in the quarter ending on 30th September 1810, were £24,170,270 And in the quarter ending on 31st March 1808, were 16,645,860 Increase in two years and a half . . . £7,524,410* The average aggregate amount of public balances by that advance of three millions of notes belonging to the public, and deposited in the bank for safe custody, was reduced from eleven to eight millions. But during all those years, while the public had always more than eleven millions (reduced in the * See Appendix No. 82 to the report of the Committee of Secrecy on the Bank of England Charter, ordered by the House of Commons to be printed 1 1th August 1832. 174 year 1 808 to eight millions) lying idle in the bank — advances of promissory notes were made by the bank to the public {which had guaranteed all those very notes) on the credit of the land and malt taxes and other revenues — amounting, often, to very large sums — for which advances the public paid interest to the bank. It was suggested to a certain minister of the day — that an officer or clerk should be appointed, whose duty it should be to take a daily account of the aggregate of all the public balances in the bank, — and that the public accountants of the different departments should be permitted to draw on the bank, notwithstanding their particular accounts might not be in cash — as long as the bank held monies of the public, upon the aggregate of all its balances in the bank — with this proviso, that when it became necessary for any accountant to overdraw, his cheque should be countersigned at the Treasury. And it was further suggested, upon that occasion — that when the aggregate amount of the public balances in the bank should exceed the sum of £ , the surplus should be invested in Exchequer-bills — which at the time in question, carried interest at Jive, and sometimes higher interest than Jive per cent, per annum. 175 The suggestion was not adopted, although it was and is clear to demonstration—however in- credible it may seem at first sight — that the ap- pointment of a single clerk, for the purpose above- mentioned, would have saved the nation more than £400,000 a-year, that is to say — interest on more than eight millions, which, at five per cent, (the then rate of interest in the market) amounts to more than £400,000,— which was thus annually lost to the public, and made by the corporation of the bank after it had stopped payment, — upon its promissory notes, payable at the end of the tlien war, — deposited by the public in the coffers of the bank for safe custody,— but re-issued by the cor- poration, upon interest, for its own profit — the greater part of those notes (which cost the bank nothing but the expense of the paper and printing) being in fact re-issued* upon interest to the Trea- sury itself, which was the depositor of them ! ! ! * The directors of the bank affect that they never ?'e-issne a note of the corporation — which only means — that they do not re-issue any such note on the same piece of paper. If there lay in the coffers of the bank eight millions of notes deposited by the public locked up for safe custody, — it surely makes no differ- ence in substance, whether the directors of the bank took and re-issued those identical notes, — or took and destroyed them, and issued the same amount of notes on new pieces of paper in their stead. 176 The same system of leaving a mass of deposits of public money in the bank, forming a large aggregate sum, while interest is continually paid to the bank for loans of money to the Treasury, it is understood, still prevails. CHAPTER III. On the Renewal of the Charter of the Bank in the year 1800. The charter of the bank was first granted in the reign of William and Mary, in the year 1 694 ; since which time it has been eight times extended or renewed. The only consideration which the corporation ever gave to the public in return for, or as the price of, the monopoly and exclusive privileges granted to it — which may but too truly be said to have been, as they now are, most enormous — was an undertaking to be, during the continuance of those exclusive privileges, the holders of a certain quantity or amount of the public debt at a certain fixed rate of interest, which debt so held by the bank should constitute its capital. At first that capital amounted to no more than £1,200,000, which was gradually increased upon successive renewals of the charter ; and in the year 1797, when the bank stopped payment, amounted to the sum of £11,686,800, carrying interest at A A 178 three per cent., at which amount the capital was fixed in 1781, when, by the 21st Geo. III. cap. 60, the charter was renewed for 31 years, ending in 1812. In 1816, by the 56th Geo. III. cap. 96, three millions of profit which had been foraged from the public by the bank during its stoppage of 'pay- ment, were allowed to be added to the capital, which was thereby increased to the sum of £14,686,800, carrying interest at three per cent. The public debt amounts to 800 millions, 500 millions of which consist of 3 per cent, stock. What merit, it may be asked, had the little knot of individuals, composing the corporation of the bank, in agreeing to be always the holder of 1 1 J millions of 3 per cent, stock, more than any and every other knot of individuals, of greater or less number, which happened to hold at any time 1 ] k millions of the same stock, — that such enormous exclusive privileges should have been granted to the corpo- ration for such a consideration ? It is true, indeed, that during the last long war, the rate of interest in the market was very seldom lower, but for the greater part of that time was higher than the legal maximum rate of Jive per cent. Taking the average rate of interest at five per cent., the public, during the war, had an 179 advantage of two per cent, per annum on the capital of the bank, which, on £11,686,800, amounted to £233,736 per annum. But the monopoly and exclusive privileges granted to the corporation were of a value so pre- posterously disproportioned to that advantage (which was, indeed, not foreseen when the charter was renewed in 1781), that while the 488i millions of 3 per cent, stock (taking the whole at 500 millions) belonging to other individuals fell in value during the late war, so as to be worth in the market only 47 per cent., and never rose during that period on the average of any year to 72i per cent., — the 1 1^ millions of such stock belonging to the individuals composing the corporation of the bank, never fell lower than 115^ per cent., and rose (in the year 1809) to no less than 288 per cent.* The difference of the values of £100 of the 1 1^ millions of the 3 per cent, stock belonging to the corporation of the bank, — and of £100 of the 488£ millions of 3 per cent, stock, belonging to other individuals of the public, shews, to a certain extent, the value of the monopoly and exclusive privileges sold to the corporation by the state. * See page 101 ante. 180 But there is this essential difference between the 3 per cent, stock held by the corporation of the bank, and the 3 per cent, stock held by other indi- viduals, — viz. that the latter have no demand for their principal monies lent — while the principal of the 3 per cent, stock due by the public to the corpora- tion, is payable at a day certain ; whereby their Hi millions (afterwards Hi millions) of stock, were and are secured from depreciation below cent, per cent, at that day — whatever may then be the price or value of the 4 88 J> millions of stock due to the individuals w 7 ho may happen to be the holders of the latter sum or mass of the public debt. If the rate of interest in the market had fallen below three per cent. — the bank during the con- tinuance of such rate of interest and of the charter, would have been receiving the difference from the public Jt /br having accepted the charter, instead of paying any thing for it ; and, in point of fact, the public paid for many years to the bank of Ireland, on its capital of 2J> millions, interest on one million at Jive per cent., and on a million and a half' at four per cent. ; which the public could have raised by creation of stock at three and a half, or on exchequer bills at less than three per cent. ! ! That was a practical illustration of the improvi- dence of the bargain made with the bank of 181 England ; for it is clear to demonstration — if the rate of interest in the market had fallen under three per cent. — that the corporation would have been receiving a bonus for the acceptance of its charter, (as the bank of Ireland, in point of fact, did); and even if the rate of interest in the market had been three per cent., it is equally clear, that while that rate continued at three per cent., the bank would not be paying nor the public receiving, any con- sideration whatsoever for the monopoly and enor- mous exclusive privileges affected to be sold to the corporation. It may, perhaps, be truly said, that on each suc- cessive renewal of the charter of the bank, the minister of the day made a worse bargain for the public ; and the corporation a better bargain for itself ; from the time of its first institution in the year 1694. But the bargain made with the corporation on the renewal of its charter in the year 1800, was of a character so incredibly singular, that it but too well deserves to be particularly noticed. The bank having stopped payment in the year 1/97, with 8i millions of promissory notes out, and about a million of treasure in its coffers, — the public, the holder of all the notes of the bank, not only excused the corporation from the payment of 182 all those notes then out, until the end of the then war, but permitted the further issue of similar notes during the war, by the same corporation, ad libitum, for its own profit, after it had stopped payment; making all such notes, moreover, lawful tender, in payment of all debts due from indivi- duals to one another — in payment of rents — and in payment of all the public revenue; which last provi- sion by law converted such notes into state-paper money to all intents and purposes. The issue was, consequently, increased from 8^ millions of such notes out, at the time of the stop- page of payment in 1797, to more than 29\ millions out* in 1817 H the value of the notes, by such over issue, being depreciated by more than 26i per cent.: viz., in the year 1813, when the price of standard gold, in exchange against the notes of the bank, had risen to £5. 6s. \\d. per ounce, or to £1. 8*. 3d. per ounce above the mint price. In other words, when, for notes of the bank, promis- sory to pay an ounce, a pound, or any other quan- tity of standard gold at the end of the war, not three-fourths (but only .736) of the promised quantity of such gold, ready iveight, could be purchased in the market ! ! * See Appendix to report referred to in note, p. 31. 183 The public even paid interest to the bank, during the ivar, for the loan of vast sums of its promissory-notes, after the same public had con- verted all the notes of the bank into state-paper money, and had excused the bank from the pay- ment of them until the end of the ivar, and one month thereafter. The renewal of the charter of the bank was con- firmed by law on the 28th March 1800, by the 39 and 40 Geo. III. cap. 28. The consideration giv en and accepted for that renewal for 33 years, ending in the year 1833, was an advance from the bank to the public of three millions of its promissory- notes, for six years, without interest. The amount of bank notes out, In the quarter ending with December 1802, was £17,379,760 In the quarter ending with December 1799, was 13,776,160 Increase . . £3,603,600 Whence it appears that in three years from the end of the quarter preceding the completion of the bargain — the bank increased the number of its notes out, and not payable until the end of the war, by more than 3? millions (£3,603,600), and, there- fore, as the three millions of those promissory- notes, which were advanced by the bank, as the price of the renewal of the charter, were a mere 184 addition to the notes of the bank, issued and out, and not payable until the end of the war — it is quite clear — that they cost the bank nothing but the expense of the paper and printing! ! ! What beggar, it may be asked, could not have purchased such a charter, if the price to be paid for it were nothing but a loan of three millions (or any other sum) of his promissory-notes for six years, he being excused by the borrower, and pro- hibited by law, from paying them during the whole of that time ? But the most truly astonishing part of this singular transaction between the minister of the day and the bank remains to be told, and would be incredible were it not a matter of incontro- vertible evidence upon record. The six years, — during which the advance of those three millions of promissory-notes carried no interest — having expired in the year 1806 — it was proposed to the bank by the minister of the day, that, instead of the notes being then repaid or returned to the bank — the advance of them should be continued by the bank to the public until the end of the war ; the public — which had con- verted all the notes of the bank into state-paper money, and had excused and prohibited the bank 185 from the payment of them, until the end of the war — paying interest to the bank for the same, during the war, at three per cent, or at the rate of £90,000 per annum. It is needless, of course, to say that the bank agreed to the proposal (although the directors had the modesty to qualify their consent to it with conditions); — for it is manifest that the effect of the arrangement was — that from the year 1806, until the end of the late war, and thereafter, until the resumption of its payments by the bank in the year 1822, a period of sixteen years, — the corporation received back annually, under the name of interest, £90,000 a-year of those three millions of notes — from the payment of which they were excused by the public, — to be cancelled. And thus, instead of paying any thing for the renewal of the charter in 1800 for 33 years — the bank actually received, at the public expense, no less than £90,000 a-year, from 1806 to 1822, for having accepted it! 7 7 If any beggar could have purchased a charter for the loan of three millions of his promissory notes, which he was excused, and even prohibited from paying, by the borrower, — how would that beggar be enriched ; if for the continuance of such B B 186 a loan he were, for sixteen years, to receive back annually, under the name of interest, £90,000 of his notes to be cancelled — and payment in full of the three millions, over and above, in coin or money of the realm, at the end of that period ? Yet such, and no other, was the bargain which the corporation of the bank had the dexterity to drive — the minister of the day the folly to consent to — and Parliament the want of sagacity to con- firm — on the renewal of the charter of the bank in the year 1800.* £90,000 a-year accumulated, at compound in- terest of 5 per cent., — which rate of interest could be obtained during all the period from 1806 to 1822, — amounts to more than two millions ; that is * Nothing can be further from the intention of the writer than to speak disrespectfully of Parliament, or of the Govern- ment of the country. But when it is recollected that, in the month of May 1811, the House of Commons passed a resolution " that the promissory notes of the bank of England had there- " tofore been, and were at that time, equivalent to the legal coin " of the realm," — its notes being, at that very time, proclaimed and fixed by the bank itself to be of the value of fifteen shillings and ninepence in the pound— (see page 45 ante), — it is difficult in a free — though, as it is hoped, and certainly as it is intended, a candid and temperate inquiry into the subject, — to find terms, in which to speak becomingly of proceedings, such as those re- ferred to in this note and in the text. 187 the sum, therefore, which the bank took by the bargain of the year 1800 for the renewal of its charter, in addition to all the other enormous advantages and exclusive privileges thereby se- cured to it. CHAPTER IV. Of the last renewal of the charter of the bank in the year 1833. The only material further, or new advantages which the directors of the bank contrived to extract from the Government of the day and the legislature upon the last renewal of the charter of the corporation, which became law on 29th August 1833, by the 3rd and 4th Wm. IV, cap. 98 — were two, namely, First, a provision by that statute for the repayment by the public to the bank of the sum of £3,638,250, as and for one fourth of the sum of £14,686,800, stated to be the capital of the bank — and, Secondly, a provision by the same statute, that, after 1st August 1834, " a tender of the " notes of the bank of England, payable to " bearer on demand, shall be taken to be valid as " a tender for all sums above five pounds, on all " occasions in which any tender of money may " be legally made, so long as the bank of England " shall continue to pay on demand their said notes " in legal coin." — Such last mentioned provision extending, as it does, to make the notes of the 189 bank of England legal tender in payment of all the public revenue, had the manifest and palpable effect of converting such notes into state-paper money, to all intents and purposes. Such last mentioned provision would seem to have been a reasonable ground for demanding from the bank the deposit of an increased capital — of a capital at least not less than the amount of notes guaranteed by the public to be at any time issued by the bank — the deposited capital of the bank being much less than its notes out at the time of the passing of the act. The provision for the reduction of the capital of the bank in the same breath by which the public guaranteed all the paper-money of the corporation — with power to the directors of the bank to issue it ad libitum for the profit of themselves and their partners — (by which a partnership in responsibility, without participation of profits was established between the public and the bank in respect of all paper-money issued and to be issued by the bank) — seems, on the contrary, to be at least a very absurd, not to say foolish, provision. It may be at least doubted — on consideration of the 10th sect, of the act — whether the quarter of the capital (stated to be the sum of £3,638,250) were to be repaid to the bank — if the proprietors did not, — at a general court to be held at some time 190 between the passing of the act and the 5th day of October 1834, — determine to divide mid appro- priate the said sum of £3,638,250 among the parties or persons who should be proprietors of the capital stock of the hank on 5th October 1834. It does not appear whether, in point of fact, any general court — for the purpose of determining whether such division and appropriation should be made — was held or not. But it does appear by the 4 and 5 Wm. IV, cap. 80, which became law on 14th August 1834 — that the bank agreed to accept, and the government to give, £4,080,000, 3 per cents, reduced — in lieu or by way of payment of the sum of £3,671,700, stated to be the quarter of the capital due from the public to the bank — and the said sum of £4,080,000 3 per cents, reduced, was accordingly written into the books of the bank, to the credit of the governor and company of the corporation. By the said last-mentioned act it is provided that interest on the sum of £3,671,700 should be paid by the Treasury to the bank up to the day upon which the said sum of £4,080,000 3 per cents, red. should be written into the books of the said go- vernor and company, — and that the first half-yearly dividend on the said sum of £4,080,000 3 per cents, red. should be made to the bank on the 10th Oc- tober 1834. 191 It does not appear on what day the said sum of £4,080,000 3 per cents, red. was written into the said books — but that must have been on some day subsequent to the 14th August 1834, until which day the act did not become law. If the writing into the said books were deferred till 10th October 1834, — it is manifest, that in that case, the bank got two interests, or double interest on that quarter of its capital for that half-year — viz. a half-year's interest at 3 per cent, per annum on £3,6/1,700 from the Treasury — and a half- year's dividend on £4,080,000 3 per cents, red. from themselves as managers of the public debt — with £612 more (the half of £300 million per ann.) for the trouble of paying themselves that half-year's interest. This repaid quarter of their capital stock having never been divided among themselves by the pro- prietors of the bank — it may therefore reasonably be asked (whether the repayment were in strict conformity with law or not) — why a debt from the public to the bank of £3,671,700, carrying interest at three per cent, was converted into a debt of £4,080,000, carrying interest at three per cent.? The consequences of that transaction have been and are — that the public loses and the bank gains (3 per cents, red. being at 100) — a capital sum of £408,300 (£4,080,000— £3,671,700) with interest 192 thereon at 3 per cent., amounting to £12,249 per ami. — to which is to be added the sum of £1,224 per ann. allowed to the bank (at £300 per million) for management of the said sum of £4,080,000 3 per cents, red. — (that is to say — for retaining to them- selves out of the 'public money in their hands the dividends on that sum of stock) — making with the said sum of £12,249, the sum of £13,473 per ann. For this loss of £408,300 of capital, attended with an annual charge of £13,473 per ann. thereon for interest and management, until paid in money — no reason upon earth is discernible — that is to say discernible by any common understanding — what- ever reason may have existed in the minds of the transcendental speculatists, who arranged the transaction with the practical directors of the bank. The effect of the manoeuvre has been to secure to the bank not only a clear gain of the said capital sum of £408,300, at the loss of the public, — but also interest at rather more than £3. 6s. 8d. per cent, per ann. on one-fourth of its undivided ca- pital — in lieu of the interest at three per cent., which was formerly paid thereon by the public — the said sum of £13,473 per ann. now paid to the bank for interest on the £3,671,700,— the quarter of the capital paid off as aforesaid — being rather more than £3. 6s. 8d. per cent, per annum. 193 To keep out of sight, as far as practicable, the result of this manoeuvre — in which the directors of the bank outwitted the government — the dividends to the proprietors of the bank have all along been, and are now continued to be, declared and made — on an undivided capital of £14,553,000, just as if the quarter- of that capital had not been repaid — instead of being made on the deposited capital which is £11,015,100— by which means the extra- interest of £3. 6s. 8d. — obtained from the public by the manoeuvre aforesaid on a quarter of the undivided capital — merges in the general profits of the bank. That the bargain which the directors of the bank made with the government of the day in 1833, for the purchase of their monopoly and exclu- sive privileges, was very gainful to the bank, and to the disadvantage of its sleeping partner, the public, — is very plainly to be seen — because the Rest, or surplus profits of the bank, ultra the dividends of profits which they have made half-yearly among themselves, appears, by the return to parliament of 24th February 184-1, to have been £3,240,000 While on the 3rd September 1833 (the date of the first return after the passing of the act for the renewal of the charter), the Rest was . . 2, 1 48,000 The difference . . £1,092,000 being gain ultra the said half-yearly dividends of c c 194 profits in less than 10^ years — to which sum of £ 1 ,092,000— the gain of £408,300 (by themanceuvre, about the fourth of the capital), being added — the gains of the proprietors of the bank, ultra the divi- dends of profit made half-yearly among them- selves, in less than 10| years, appear to be a million and a half (£ 1 ,500,300) — which would have enabled them to increase their dividends by one per cent, per annum during those 10^ years more than they have thought fit to divide among themselves. As upon the security of a deposited capital of 11 millions (£11,015,100), the bank have had out since 1831 state-paper money which has in that interval exceeded 22 millions, with power always in the directors of the bank to extend that issue ad libitum, for the profit of themselves and their partners in the corporation — it maybe asked, whether it would be very unreasonable on the part of the public — the sleeping partner of the bank, whose security or guarantee was given to the holders of all the paper-money of the bank, by the issue whereof, that mass of accumulated undivided profit was made — to lay claim, in justice and equity, to a share of, if not to the whole of those accumidated undivided profits made in the last 10^ years — con- sidering the large half-yearly dividends of profits — made by the issue of the same paper-money — which the proprietors of the bank have pocketed ? CHAPTER V. Of the capital of the bank. The present deposited capital of the bank is eleven millions (£11,015,100) which is, as has been observed, about half the amount of its paper - money out — the whole of which paper-money (by being made lawful tender in payment of all the public revenue of 52 millions a-year) is converted into a state-paper -money — with power to the directors of the bank to issue it, ad libitum, for the profit of themselves and their partners in the corporation. If the deposited capital be intended as a security to the public — it seems somewhat fanciful to take it, for only ten shillings in the pound on that por- tion of the debts of the bank which consists of its paper-money guaranteed by the public. The debts of the bank on the 24th February last (1844), were 34 millions (£34,109,000), in two grand divisions — viz. 25| millions of notes and deposits due to the public — and 8j millions of deposits due to private individuals or parties. 196 The deposited capital is not by law appropriated as security for either of those two grand divisions of the debts of the bank, specially — but in the event of the failure of the bank (against the risk of which the security is of course taken), inasmuch as the public holds the security — it would probably go all to the relief of the public — leaving the pri- vate individuals, or parties who might be creditors of the bank, without any benefit whatever from it. In the early statutes, (stated in the preceding first chapter) confirming the charter, the bank was prohibited from contracting debts beyond the amount of its deposited capital — which, under that limitation, was a security to all the creditors of the corporation. It is at least a singularity — that it should be thought an essential requisite in the constitution of what has been called the National-bank — that it should have no disposable capital. The whole capital of the bank of England being deposited with the public at interest of 3 per cent, per ann., and the members of the corporation being excused from any liability beyond each his share of the joint-stock — and having made no con- tribution of any other capital than the deposited capital— it is manifest that the National-bank has literally nothing to lend or advance to any body — 197 except the half yearly interest of the deposited capital, and that they have always divided among themselves. The private and joint-stock banks have, col- lectively, an immense actual paid up capital to lend to their customers, and to aid in meeting the payment of the paper-money issued by them — ■ultra the securities taken for that paper-money upon the issue of it ; and the partners are liable for all the dealings of the several banks of which they are partners, with the whole of their fortunes. — The actual paid up capital and the whole fortunes of the partners of such banks are, therefore, secu- rity to their customers — and for their paper- money. But the bank of England has literally no dis- posable capital to lend to its customers ; or to aid in meeting the payment of the paper-money issued by the directors ; beyond the bare securities taken for that paper-money upon the issue of it. In the event of any such securities proving bad, the bank becomes, therefore, immediately insolvent to the amount of such bad securities — leaving out of con- sideration its inaccessible deposited capital — to which resort cannot be had,— to fill up the gap in its assets, caused by any securities taken by the directors having become bad. 198 If it be politic and expedient, on the sale of its monopoly and exclusive privileges to the bank of England, to take effectual security by a deposit of capital, against the abuse of such monopoly and exclusive privileges — it would seem proper, that the provision of the early statutes (which, by the way, are understood to be unrepealed), viz., that the bank should not contract debts beyond the amount of its deposited capital — should be enforced — or otherwise, that the proprietors should by law be required to have — ultra their deposited capital — a certain amount of paid-up capital, wherewith to carry on their trade of bankers ; and that they should not be left to carry on such trade merely by means of 'issues of paper-money, for which there is no security beyond what is taken in exchange for it when issued — the goodness of which depends entirely upon the judgment, prudence, and discre- tion of the directors of the bank. The bank now, indeed, possesses two disposable funds, in aid of its deposited capital. But those two funds form little, or no security to the public ; because they are divisible among the proprietors of the bank at their pleasure ; and are in no manner of the nature of paid-up capital, conditioned to be Itept and continued paid-up as trading capital of the bank. On the contrary, it is believed that one of 199 those funds was illegally accumulated, and now re- mains illegally undivided among the proprietors of the bank — and that it is doubtful whether the other of those funds is not also illegally undivided. The first of those two sums being, what is called the Rest, amounted on the 24th February last (1844), to more than 3 millions (£3,240,000), and is composed of an accumulation of profits, ultra the half-yearly dividends of profits, which the pro- prietors of the bank have thought to make among themselves. As it is peremptorily enjoined by the early statutes constituting the bank (which are under- stood to be unrepealed) that the whole of the profits be divided every year among the proprietors of the corporation for the time being (see page 164 ante), it is manifest that that accumulation was and is illegal. Accounts shewing the state of affairs of the bank — were never, as enjoined by the same sta- tutes, laid before the proprietors, or made public — till the year 1797 — when, in consequence of its stoppage of payment, the state of the affairs of the corporation (which by the directors and the propri- etors had always theretofore been studiously kept secret and concealed) was exposed, by the mandate of Parliament — and on that occasion the Rest or 200 mass of illegally accumulated profits came to light — and in February 1797 amounted to nearly 4 millions (£3,826,896) — the non-division of which during the period of the accumulation of it, from year to year, prior to 1797, among the proprietors of the bankybr the time being, (if they were ignorant of the existence of such accumulated profits) was a manifest fraud upon them, for the benefit of future proprietors their successors. As the accounts of the bank have from time to time since 1797, been regularly published, pursuant to statutes in that behalf, — the non-division of that accumulation of profits — though illegally un- divided — cannot be said to be a fraud upon the proprietors, because they know of and acquiesce in that non-division, — and sell and buy their shares in the joint-stock with full knowledge of the Rest as part of the assets of the bank. The other of those two funds consists of the 4 millions (£4,080,000) of 3 per cent, reduced stock, which was written into the name of the governor and company of the bank— in lieu of repayment of the sum of £3,671,700, (the fourth part of the deposited capital of the corporation) upon the last renewal of the charter — by which repayment the deposited capital of the bank became reduced to its present amount of 1 1 millions 201 (£1 1,015,100). On this other of those two funds, it is needless to add to what was said in the last preceding chapter on the last renewed of the charter of the bank. Upon this statement of facts — touching the de- posited capital of the bank, considered as a secu- rity to the public — the working of the trade of the bank without any disposable capital — the undi- vided 3 millions of accumulated profits, called the Rest, — and the undivided 4 millions of 3 per cent, red. stock given to the bank in 1834, in lieu of re- payment of the fourth part of the then deposited capital — and touching the comparative security to the public — of paper-money issued by private and joint-stock banks — and paper money issued by the bank of England (leaving out of consideration the fact of the latter being for the present a state paper money) reflections will occur to every reader, so numerous and so obvious, that it would be idle here to offer any upon those subjects. D D CHAPTER VI. Of the issue of paper-money by the hank of England. The theorists, who advocate the establishment of a single bank of issue of paper-money for the whole realm, allege — that private and joint-stock banks force out paper-money in excess, and with great insecurity to the public — but no proof is, because no proof can be, given of such issues in excess. Paper-money payable to bearer in coin on de- mand — although it cannot be issued and kept out in excess, may be issued with indiscretion — namely, upon doubtful or bad securities— or upon securities, which, (though they may ultimately be good) are payable at some indefinite remote period, and not convertible into money in the market to meet a run (arising from panic or other cause) upon a bank, for coin for its paper-money payable to bearer on demand. Private and joint -stock banks — with paid-up dis- posable capital, in aid of the securities taken for 203 their paper-money when issued — and the whole fortune of every partner in the bank being liable for the payment of it — must be better able to meet a run — than the bank of England, which has no paid-up disposable capital to resort to, in aid of the securities taken for the paper-money of the cor- poration when issued — to meet a run upon it; and the partners in the bank not being liable for the payment of its paper-money beyond each his share of the joint-stock. The stoppage of payment of the bank, in the year 1/97, was caused solely and entirely by indis- creet issues of its paper-money by the directors of the corporation. By the state of affairs of the bank, laid before Parliament at that time, it appeared — that the notes of the bank then out amounted to 8\ millions (£8,640,250) — and that the whole of such notes had been issued to the government — on security of the land and malt taxes ; exchequer-bills and trea- sury-bills — which the government being unable instanter to repay, — the bank, when the run was then made upon it, necessarily stopped payment. The debt then due from the government to the bank, upon indiscreet issues or loans of the paper-money of the corporation, was lOi millions (£10,672,490) — exceeding by two millions the whole 204 amount of its notes out — the advance of two millions, ultra the whole amount of its notes out, having been made out of the illegally accumulated profits called the Rest — which then amounted to nearly 4 millions (£3,826,890*). The following table shows — the amount of the issues of its notes by the bank — the amount of the same notes deposited by the public with the bank for safe custody — the amount of the public secu- rities held by the bank — and the amount of the commercial-paper discounted by the bank— during the stoppage of payment of the corporation for the quarter of a century from 1797 to 1822.f * In the minutes of evidence annexed to the report of the select committee of the House of Commons on the expediency of the Bank resuming cash payments, ordered to be printed 5th April and 6th May, 1819, may be seen at page 262, the copy of a resolution of a court of directors of the Bank, held 25th March 1819, which begins with the words following: " Resolved, That the restriction on cash payments was altogether " a measure of State necessity.'''' Query : Are the directors of the bank the creatures of the State, i. e. of the Government of the day, — to do its bidding at the peril of the bank, and of the public? Can the Government of the day command the directors of the bank as to the issues of the paper-money of the corporation ? Should the Government of the day be head part- ners of the firm ? or have any voice as to such issues P But see note p. 110. f The figures in the table are taken — as to the bank notes out — from the Appendix No. 82 to the report of the £. £. £. 10,238,000 5,350,000 11,783,000 5,432,000 13,061,000 8,725,000 14,494,000 11,243,000 11,834,215 14,333,000 13,970,000 10,844,000 18,983,000 16,239,000 11,430,000 26,825,000 13,521,000 10,808,000 22,762,000 11,416,400 7,883,000 26,702,000 4,143,000 4,538,000 23,887,000 6,515,000 3,713,000 20,445,000 3,883,000 3,920,000 15,882,000 2,676,700 4,108,000 13,073,000 3,366,700 205 Public Public secu- Commercial pa- deposits held ri ties held by per discounted Bank notes out. by the bauk. the bank. by the bank. War. £. In the year . . 1797 10,990,000 In 3 years ending with 1800 13,731,000 In 3 years ending with 1803 16,325,000 In 3 years ending with 1806 17,029,000 In 3 years ending with 1809 17,576,000 In 3 years ending with 1812 23,027,000 In 3 years ending with 1815 25,940,000 Peace. In the year . 1816 26,575,000 In 2 years ending with 1818 27,738,000 In the year . 1819 25,145,000 In the year . 1820 23,910,000 In the year . 182121,576,000 In the year . 1822 17,863,000 The 1st column of the foregoing table shows at a glance — the extension of the issues of the paper-money of the bank during the time while the directors had power to issue it, ad libitum— for the profit of themselves and their partners in the corporation^ exempt from the liability of paying any of such paper-money — viz. from 1/97 to 1819 — and the contraction of the Committee of Secrecy of the House of Commons, ordered to be printed 11th August 1832 — as to the public deposits held by the bank — from the Appendix No. 24 to the same report — in a note, at the foot of which appendix, it is stated, " that the bank is " unable to furnish correctly the aggregate amount of public de- " posits previous to the year 1807" — as to the public securities held by the bank — from the Appendix No. 5 to the same report — and as to the commercial paper under discount by the bank — from the Appendix No. 59 to the same report. 206 issues of that paper-money after the year 1819, when the law for the resumption of cash pay- ments was passed^ down to the year 1822, when cash payments were actually resumed. The 2nd column shows the average aggregate amount of the deposits of the notes of the bank made by the public for safe custody in the coffers of the bank — but which were all re-issued by the directors of the bank for the profit of themselves and their partners in the corporation — which re-issue becomes manifest on comparison of the sums (added horizontally) of the items of the 3d and 4th columns (which disclose the amount of its notes issued by the hank) with the corres- ponding items of the 1st column — which shows the amount of the notes stated to be actually out ; wherefrom it appears clear to demonstration — that the issue of notes of the bank, for the sums or amounts in the 3d and 4th columns (added hori- zontally), could not, by possibility, have been made with the amount of the notes stated in the 1st column to be out, nor without the aid and addition (i. e. the re-issue) of the sums of notes mentioned in the 2nd column — being the notes deposited in the bank for safe custody by the public* The sums of the items of the 2nd and 3d * See note, page 175. 207 columns (added horizontally) show the amount of public securities and public deposits, of which the bank was making interest by the issue of its notes — deducting the three millions (see page 172 ante), which the bank advanced to the public in the year 1808 (out of the notes belonging to the public itself, deposited for safe custody in the bank) without charge by the bank to the public for interest ! The 3rd column shows the amount of the secu- rities of the public held by the bank, consisting almost entirely of Exchequer-bills — of which the di- rectors possessed themselves — during the stoppage of payment of the bank, — by the very simple process of issuing paper-money of the bank, not payable until the end of the war, and purchasing therewith Exchequer-bills, ad libitum. — By which simple legerdemain the directors of the bank converted, ad libitum, the paper-money of the corporation guaranteed by the public, but carrying no in- terest to the public, and which the bank ivas by the public excused from paying until the end of the ivar — into paper-money (i. e. Exchequer- bills) of the public, carrying interest to the bank during the war! The great and long-continued depreciation, during the war, of the paper-money of the bank 208 not payable until the end of the war, arose entirely from the excessive issues of that paper-money, in consequence of the unrestrained rapacity of the directors, in foraging for themselves and their partners in the corporation, by the practice of that legerdemain, the enormous and before-unheard-of profits which will appear in the next chapter. The 4th column shows the amount of commer- cial paper discounted by the bank — and a com- parison of the items of that column with the sum of the items of the 2nd and 3rd columns, (added horizontally) shows — how small the issues of the paper-money of the bank devoted to commerce — and how large the issues of that paper-money denoted to the purchase of public securities, — were during the stoppage of payment of the bank. On casting the eye over the figures in the 4th column, perpendicularly downwards and upwards — from the year 1816— when, by the establish- ment of peace, the directors of the bank began to foresee, that cash payments must be resumed — and that the issues in excess of their notes must needs be withdrawn, in order to retrieve them from depreciation— it is very striking to observe the sudden contraction of the issues of the paper- money of the bank devoted to commerce — from the amount at which it had ranged for the 13 years 209 ending with the year 1816 (which was from 1 1 to 16 millions), down at once to 4 millions on the average of the years 1817 and 1818 — while the public sectirities held by the bank in the two last-men- tioned years, instead of being contracted, were kept (being then nearly 27 millions) within a trifle of the highest amount of such securities, ever held by the bank — which shows how unscru- pulously the directors sacrificed the commercial interest for the convenience of the corporation, — and shows, moreover, very forcibly, that the monopoly and exclusive privileges sold to the bank- are worked, — not with a view to the benefit of the commercial world — but merely for the profit of the corporation, with some imagined convenience to the first Lord of the Treasury, and Chancellor of the Exchequer for the time being, — who, if they are to be made leading partners in the firm, will always be ready armed with an order in council for the bank to stop payment — ostensibly — because of some alleged or pretended deficiency of cash for the exigencies of the public service (see page 168 ante), — but really to cover their own indiscretion in the issues of the paper-money of the corporation. By the return from the bank to the House of Commons, No. 95 of the present session, it ap- E E 210 pears — that on the 29th February last (1844) the notes of the corporation out, were 21 millions (£21,307,000), and that to meet the payment of them — the bank then held public securities, stated to be of the value of 15 millions (£15,307,000), — discounted bills to the amount of 2 millions (£2,194,000), — and other private securities, stated to be of the value of 4 millions (£3,741,000), — but no account is given of the particulars which com- pose the 1 5 millions, or the 4 millions of securi- ties — and, therefore, no judgment can be formed by parliament or by the public, either of the fair- ness of the estimate of the value of those securities ; or of the discretion of the directors, in issuing for the purchase of them, notes of the bank payable to bearer in coin on demand. But it is known, that a very large part of the 15 millions — the alleged value of the public secu- rities — is made up of the estimated value in pre- sent money of an annuity of £585,740 for the remainder of a term of 45 years, of which 23, from 5th April 1844, are unexpired. That annuity was part of a delusive speculation or scheme on a much larger scale, devised by the minister of the day in the year 1822, called the dead- weight annuity (which as nobody but the directors of the bank would enter into it, was, as to all the 211 rest of it, abandoned as impracticable), and was pur- chased from the public in the year 1823 for a term of 44 years, then unexpired, by the directors of the bank — who paid into the Exchequer for the purchase (pursuant to 4 Geo. IV, cap. 22) notes of the corporation, payable to bearer in coin on de- mand, amounting in the whole to 13 millions (£13,089,419). The 1 3 millions of notes for that purchase were paid by instalments, in five years, ending in the year 1828 — and the account between the Ex- chequer and the bank, up to the time of payment of the last of those instalments, is intricate and very obscure. But in the fourth year after the payment of the last instalment, it appears by a return of the bank* — that the advance of the corporation in respect of the purchase of that annuity stood in February 1832, at eleven millions (£10,897,880). Every shilling of the capital of the bank being deposited and locked up at interest at three per cent, for the purchase of the charter — the issue by the directors — not possessed of one shilling of dis- posable capital — of 1 1 millions of paper-money * Appendix No. 13, annexed to the report of the committee on the bank of England Charter, ordered by the House of Commons to be printed 11th August 1832. 212 payable to bearer in coin on demand — for mi annuity of £585,740 for a term of 44 years — would seem to be an act of insanity — being a means — as certain as could well be devised — of insuring the stoppage of payment of the bank, if a run should be made upon it for payment of the 1 1 millions of paper- money payable to bearer in coin on demand, issued for such a purchase — there being literally nothing to meet such a run, except the payments of the annuity from half year to half year — and, accord- ingly, in about three years after the purchase of that annuity, viz. in December 1825, a stoppage of payment of the bank was actually contemplated and suggested by the directors, (see note page 1 10 ante) . The Government of the day, in 1823, encouraged, if it did not solicit, the directors of the bank to go as a decoy — into the scheme of the dead-weight — and to risk the issue of 13 millions of the "paper- money of the corporation, payable to bearer in coin on demand, for an annuity of £585,740 for 44 years ! Reasoning from the past to the future — if suc- cessive Governments of the day are to be joined with the directors of the bank as leading partners in the firm— such a conjunction (which is said to be contemplated) is very ominous of stoppages of payment of the concern — as orders in council upon 213 the pretence of u the apprehension of a want of a " sufficient supply of cash to answer the exigencies "of the public service" — as in the year 1/97 — or on some other pretence — will then be obtainable at a moment's notice, at the will and pleasure of the head of the firm. The directors of the bank, on the 17th July, 1 839, took biddings for a proposed sale by them of parts or portions of the dead iveight annuity, but effected no sale of any part thereof ; and, in their distress, afterwards pawned it in foreign countries for loans of money to enable them to meet the payment of the paper-money of the corpo- ration, payable to bearer in coin on demand, which was insanely issued for the purchase of that annuity.* * la the minutes of evidence annexed to the report of the select committee on Banks of Issue, ordered by the House of Commons to be printed 7th August 1840, in the examination of Mr. G-. W. Norman, a director of the bank, the following occurs, viz. " Question 1 897. Will you state generally the further measures " adopted by the bank in the course of the summer? (of 1839) " Answer. The bank subsequently raised the rate of discount " to o|, and on the 1st August to 6 per cent. — and having sold " those securities, which the market would readily take, they " attempted to make a sale of portion of the dead-weight — but " for that dead-weight the offers did not reach the price which " the bank thought it fairly worth; and they then fledged a " portion, and obtained credit, in foreign countries upon it, which 214 The purchase, even if it could have been made with evitable risk of stoppage of payment, would have been a most indiscreet purchase to be made by any hank, even a bank with paid-up disposable capital, — and was a foolish purchase by the direct- ors of the bank, without one shilling of disposable capital to fall bach upon in the event of a loss by the specidation, — regarded merely as to profit to be expected from it. The purchase of the annuity, as stated by the last mentioned return to the House of Commons, stood the bank, in February 1832, in the sum of 11 millions (£10,897,880), — from which year, down to the present year (1844), the bank has received the annuity of £585,740, in reduction of the prin- cipal and interest of those 1 1 millions. To what the capital sum, the sum of 1 1 millions in February 1832, is ?iow in the year 1844 reduced, by the receipt of the annuity, — depends upon the rate of interest cast by the bank on the 11 milliotis, credited with the annuity since 1832. The unexpired term of the annuity is 23 years from 5th April, 1844, — and the value in present money of an annuity of £585,740 for 23 years " they made use of to the extent of about two millions and a " half: they also borrowed £750,000 on Exchequer-bills from " the East India Company on the security of the dead- weight, a " portion of which they made use of. 215 unexpired, calculating interest at three per cent., is more than 9£ millions (£9,63 1,074); — but calculat- ing interest at jive per cent, that value is not quite 8 millions (£7,900,812). Calculating interest at three per cent, (which is the rate paid to the bank on its deposited capital), on the 11 millions (£10,897,880) credited with the annuity since 1832, — the bank (9i millions being taken as the value of the annuity in present money), is now gainer of nearly two millions and a half by the speculation. But calculating, in like manner, interest at Jive per cent, (which might have been the rate of interest in the market now and since 1832), the bank (8 millions being the value of the annuity in present money) would now have been loser of about two millions and a quarter by the same speculation. As the rate of interest in the market is a con- tinually fluctuating quantity ; and in the event of war, would probably rise to five, or a higher rate per cent, instanter ; the purchase of such annuity (apart from any consideration of the risk of stop- ping payment in consequence), regarded merely as a speculative investment of funds of the bank, — was most indiscreet on the part of the directors of the corporation ; and it was w r orse than folly of the government of the day to encourage such an 216 investment of the paper- money of the bank, pay- able to bearer in coin on demand : the sanction of which by the government implies moreover, that the corporation of the bank, without one shil- ling of disposable capital, — was, in the opinion of that government, better able to bear a deadweight of 13 millions than the nation itself 1 It is understood also, that part of the sum of four millions of private securities, which the bank held on 24th February last, 1844, is made up of mortgages on lands, &c. which cannot be promptly realized in case of a run upon the bank. However a private, or joint-stock bank, though it would be judicious in very few cases, might be excusable in particular instances, in lending paid- up capital on such securities, — the directors of the bank of England are guilty of great indiscretion when (having no disposable or paid-up capital to lend) they force out issues of paper-money of the corporation, payable to bearer in coin on demand, upon such securities, — the paper-money forced out upon which would immediately be brought back for payment in coin ; but for the circumstance of its being kept out as a state-paper money for the payment of the public revenue ; and generally as circulating medium, made, by statute, legal tender for all payments above £5, in common with the coin of the realm. CHAPTER VII. Of the profits of the bank. By the statutes confirming the charter (3d William III., cap. 20, and 7 Anne, cap. 7) the bank is enjoined to divide the whole of its profits twice at least in every year among the members of the corporationybr the time being. By the 12th bye-law of the bank, in conformity with those statutes, it is ordained, " that twice in every year," viz., in the months of the September and March, "a general court shall be held for " considering the general state and condition of " this corporation, and for the making of dividends "among the proprietors, according to their several " shares and proportions." But the directors and proprietors of the bank have always wholly disregarded both the statutes, and their own bye-law, in that behalf made and provided. They did not, and do not divide the whole of the profits among the members for the time being ; but made, and continue to make, re- serves of profits for the benefit of future specu- lators in the joint stock — nor have the directors F F 218 ever laid before the proprietors " the general state " and condition of the corporation," to enable them to judge of the state of their affairs. In these commissions and omissions of the di- rectors, the proprietors of the bank, like other illicit traders, have always thought fit to acquiesce ; and to uphold a system of concealment and secrecy, which is essential to the success of illicit trading of every description. * From the year 1765 (when the charter was prolonged) until 1781 (when it was again ex- tended), the dividends of profits made by the pro- prietors of the bank among themselves did not exceed 5j per cent, per ann. * In the minutes of evidence annexed to the report of the Committee of secrecy on the Bank of England Charter, ordered by the House of Commons to be printed 11th August 1832 — the following appears in the examination of Mr. J. H. Palmer, the governor of the bank. " Question 228. Are not all your (the directors') proceedings " subject to the approval of the proprietors? " Answer. The accounts never have been laid before the " proprietors: the question has been frequently submitted to the " them, and always left to the proprietors to decide; and they " have conceived it to be their interest not to demand the " accounts. " Q. 232. Have not demands occasionally been made? " A. Demands have occasionally been made; but they have " been rejected by such immense majorities, that there has been " no possibility of entertaining the question." 219 In the year 1/81, the dividends were raised to 6 per cent, per aim., at which rate they continued to be made till 1788, when they were raised to 7 per cent, per ann., and at that rate were continued to be made down to the time of the stoppage of payment in February 1797. Estimating the profits of the bank, down to the time of its stoppage of payment, by the rate per per cent, of the dividends made on the joint- stock, — such profits, at their highest rate, would appear not to have exceeded about double the rate of interest in the market. But by the " state of affairs of the bank" laid before parliament at the time of the stoppage of payment, in February 1797 ; it came to light, that the corporation had accumulated £3,826,890 of profits, which remained, in violation of justice, and contrary to law, undivided among the proprietors for the time being during the accumulation. That sum of nearly four millions —which had acquired the distinctive name or title of The Rest — amounting to more than 32 per cent, on the then capital of the bank (£1 1,680,800)— constituted profits ultra the dividends, which had been distributed half-yearly among the proprietors for the time being. From what time the bank first beiran to ac- 220 cumulate illicit undivided profits does not appear — no state of the affairs of the corporation having ever been made public ; from the time of its first institution in the year 1694, down to the time of its stoppage of payment in 1 797 ; upon which event the state of its affairs could no longer be concealed, being called for by the imperative and irresistible mandate of parliament. But the profits of the bank, including the Rest, however excessive before the stoppage of payment in 1797, became so enormous after that event, — in consequence of the insane course of proceeding, by which the paper-money of the bank not payable until the end of the war, was made by law a state- paper-money during the war, with power to the directors to issue it, ad libitum, for the profit of themselves and their partners in the corporation — in consequence of the matchless improvidence with which the Treasury dealt tvith the corporation as the bankers of the state — in consequence of such state-paper money being made by law legal tender inpayment of all debts in the United Kingdom — in consequence of the issue by the bank of small notes, from two pounds, down to eighteen-pence* — and in consequence of other undue advantages of * See page 39 et seq. — page 45 — and page 118 ante. 221 the corporation in its dealings with the public — that the bare statement of them beggars comment. The following account — of all the distributions made during the time of the stoppage of payment of the bank from 1/97 to 1822, among the pro- prietors of the joint-stock of the corporation — is extracted from the account No. 29 of the appendix to the report of the committee of secrecy on the bank of England charter, ordered by the House of Commons to be printed 11th August 1832. In June 1799, 10 per cent, bonus in 5 per cents. 1797, on May, 1831, 5 per cent, ditto, Navy 5 per cents. on Nov. 1802, 2§ per cent, ditto, ditto on Oct. 1804, 5 per cent, ditto, cash on Oct. 1805, 5 per cent, ditto, ditto on Oct. 1806, 5 per cent, ditto, ditto on From April, 1807, \ -,.;,, , ) /-. . ^ ,o~ Increase ot dividend, at the rate to October, 1822 )■ „ . t- , ,, . , . of 3 per cent, per ann. is 16 years both inclusive.; r r j ) In June, 1816, Increase of capital, 25 per cent. on From Oct. 1816, ^ n iaoo 1 Dividend, at the rate of 10 per cent, per ann. to Oct. 1822, both inclusive on £2,910,600 increased capital— is 6j years £. £. 1,642,400 is 1,164,240 ditto 582,120 ditto 291,060 ditto 582,120 ditto 582,120 ditto 582,120 5,588,352 ditto 2,910,600 ann. 1,891,890 Aggregate amount of the whole . . £14,174,622 Annual Dividend payable on Bank Stock, in 1797, on a capital of £11,642,400, at 7 per cent, per annum £814,968 Annual Dividend payable after June 1816, on a capital of £14,553,000, at 10 per cent, per annum £1,455,300 The foregoing document shews, that, over and above the regular dividends, of 7 per cent per annum — there were shared and divided among the proprietors of the bank, in the 25 years next after 222 the stoppage of payment of the corporation ending in the year 1822, extra profits, amounting to no less than fourteen millions (£14,174,622), or to 12 If per cent on the whole capital or joint stock of the corporation (£ 1 1 ,686,400), in that short period ! ! If a company of trading adventurers, risking the whole of their fortunes, their health and their lives, in some bold and hazardous undertaking, had acquired such profits on capital embarked by them ; it might, probably, be thought that they had not been ill recompensed for the risk, toil, and peril of their enterprise. But when it is considered that profits so enormous and before unheard of, were made by a joint-stock company, exempted from all trouble (except the labour so much coveted of their directors) and from all risk beyond each his share of the joint-stock, and after the corporation had stoj>ped payment, — the fact appears incredible — and the question na- turally suggests itself — in what manner or by what means, have such before unheard of profits been so unaccountably acquired, and gotten ? If any private or joint-stock-bank, had in 25 years accumulated profit of 12 If per cent, on the capital of such bank, ultra profits of 7 per cent, per annum divided by the partners half-yearly among themselves — would any body believe that such 223 profit had been honestly come by, from the cus- tomers of such bank ? Soon after the stoppage of payment of the bank of England, in pursuance of the order in council of the 26th February 1 797 — an act of parliament was passed, continuing the suspension of payment till the 24th June then next ; and another act was afterwards passed, continuing that suspension till one month after the then next session of parlia- ment — in which was passed the memorable and fatal act, suspending the payments of the bank until one month after the conclusion of the then war. If the minister of the day, and his majority in parliament, had stopped at that point; and pro- hibited the further issue of notes by the bank, while those then out, continued unpaid in coin on demand — the payment of them in coin on demand would soon have been resumed : for such a re- straint of the issue of the paper-money of the corporation would have so limited their profits, that measures to extricate their affairs from the entanglement in which they were involved — by imprudent advances made by the directors to the Government of the day (which were the sole cause of the stoppage of payment) — would soon have been adopted. But instead of that course of proceeding, which common sense seemed to dictate — a course was 224 pursued so insane, that the best that can be said of it is — that it was the ministerial and legislative madness of the day. The bank is a trading corporation. When a trader stops payment, the natural and necessary consequence is, the stoppage of his trade and the profits thereof, till his payments be resumed. But when the Bank of England stopped pay- ment, and was no longer able to carry on its trade, — Parliament, upon the suggestion of the minister of the day, — " heaven-born" as he was said to be by the party of which he was the head, — instead of prohibiting the further issue of notes, which the bank coiddnot pay — passed acts not only excusing the corporation from the payment of all such notes then out — until the end of the war, — but autho- rizing the issue, during the war, oft further similar notes not payable until the end of the war, and the issue moreover of such notes under £5 in value, theretofore prohibited by law — which the bank, in a few years, poured out to the amount of more than nine and a half millions* by way of addition to the issue, ad libitum, of its notes of higher denomina- tion, all not payable until the end of the war — and all for the sole profit of the corporation ; and * £9, 571,850 on the average of the year ending 30 Sept. 1814. 225 then, by a succession of other statutes, — all the notes of the Bank, not payable until the end of the war, were made legal tender for the payment of all debts — in discharge of rents — and in payment of all the public revenue during the war. By the last of which legislative provisions, the notes of the bank were converted into a state-paper-money, to all in- tents and purposes. The corporation of the bank, not being responsible beyond each member his share of the joint- stock — finding itself in possession of the unrestrained and unlimited power of issuing, for its own profit during the war, state-paper-money , not payable until the end of the war — and which, therefore, cost, during the war, nothing but the expense of the paper and printing — exercised that power so unconscionably, that their promissory-notes be- came depreciated in value more than 26J per cent.* The irreparable evils entailed on the nation by the ruinous system pursued by the bank, merely for the profit of the corporation — are so great and so deadly, that it is sickening to reflect on them. Instead of the bank having been the prop and support of the nation — it would have been a blessing to the nation, if it could thereby have * See page 102 ante. G G 226 been saved from the curse of the system pursued by its directors, in conjunction with successive governments of the day, and with the sanction of the legislature — under which system the country was inundated with a depreciated paper-currency — if, in February 1/97, the earth had opened her mouth and swallowed up the fabric in Thread- needle-street, with all its contents. What would have been the consequence ? The public was then indebted to the bank the joint-stock capital ..... £11,686,800 And for advances on the land and malt taxes, Exchequer-bills, &c. 10,672,490 £22,359,290 And the bank was indebted to the public for promissory notes out . £8,640,250 And to individuals on drawing ac- counts and otherwise . . 5,130,140 13,770,390 Surplus in the hands of the public after payment of all the debts of the bank . . . .£8,588,900 which would have effected a dividend of fourteen shillings and ninepence in the pound among the proprietors of the bank, after their stoppage of payment, and after the total disappearance of their establishment in Threadneedle-street. With respect to the enormous profits, amounting to more than fourteen millions, made by the bank 227 (luring its stoppage of payment from 1 797 to 1822, over and above the accustomed half yearly dividends of seven per cent, per annum — it may be asked — was not that profit unduly derived from the public itself? — made by the use of a state-paper-money, issued by the bank to the amount of nearly thirty millions * for which the partners of the bank were not responsible, beyond each his or her share of the joint-stock, amounting only to eleven millions and a half (11,686,800)? And, surely, it may be further asked — which of the two, in justice and equity, was best entitled to that enormous accumulation of profits made by the bank during its stoppage of payment ? Was it the public, with whose state-paper -money those profits were made ? or was it the bank which so made and accumulated them — by the use of that state-paper- money, from the payment of which it was excused by the public} The profits of the bank, since the resumption of its payments in the year 1822, have been of course much curtailed, though they have ever since been excessive. In the sixteen years next following that time, * £29,504,080 on the average of the quarter ending 30th Sept. 1817. 228 and ending with the year 1838, the proprietors distributed among themselves half-yearly dividends of profits, on the undivided capital of £ 14,583,000, amounting to eight per cent, per annum. And in the five years after 1838, ending with last year (1843), such dividends have been distri- buted at the rate of seven per cent, per annum. Such dividends of profits have all along greatly exceeded double the rate of interest in the market. But ultra such profits — there have been made and accumulated — since the last renewal of the charter in the year 1833— undivided profits amounting to one million (£1,092,000), being the increase of the Rest within that period of time (see page 193 ante)— to which is to be added the £408,300 profit on the repayment of the fourth of the de- posited capital in the year 1834 (see page 190 et seq.)— making together the sum of a million and a half (£1,500,300) —to which is to be further added the value in present money of the annuity of £585,740 for 23 years from April ISAA—idtrd the cost or price at which that annuity now stands the bank. (See page 215 ante). But such excessive profits — made since the re- sumption of cash-payments in the year 1822 — and even the before unheard of profits — made during the stoppage of payment for the 25 years preceding 229 that epocha in the history of the bank — however un- due — are a small evil in comparison with the power exercised, under the existing laws, by the directors of the bank, over the quantity of the currency — a very small sudden contraction of which quantity — endued with the inconceivable velocity of its cir- culation in the United Kingdom — must always pro- duce, as by the indiscretion of the directors of the bank, it often has produced, the most disastrous and fatal effects. In the exercise of that dangerous power which has been so unwisely entrusted to them, the trading directors of the bank have sometimes assumed importance, which is indeed truly ridiculous- affecting the part of politicians and statesmen — and to have influence — over the resources — and in the exercise of the power — of this mighty nation ; in relation to which, they and their corporation, and a succession of ministers of the day, may not inaptly be compared to a soap-bubble blown by a wondering boy, and wafted into air, where it swells and expands till it bursts. For example, — among the copies of papers given in the report of the Lords' committee of secrecy on the order in council of the 26th of February 1/97, relating to the bank, the paper No. 8 con- tains the following, viz : 230 " At an interview with the Chancellor of the -'Exchequer, on the 23d of October 1795, the " governor of the bank mentioned his having " heard that there might be annexed to the ensuing "loan one of £1,400,000 for the emperor of " Germany. The Chancellor of the Exchequer " replied, that he had not, at present, the most " distant idea of it ; though he did not pledge " himself that, on no occasion, such a thing might " happen. The governor thanked him for his " answer, which he told Mr. Pitt, he received " with pleasure, thinking, as he did, that another " loan of that sort would go nigh to ruin the " country" The paper No. 21, given in the same report, contains a copy of a memorial of the court of directors of the 28th of July, 1796, in which it is declared, " that the court of directors of the bank " are very willing and desirous to do every thing " in their power to support the national credit " and to enable his Majesty's ministers to carry " on the public service" The gross property of the corporation was, at the times in question, eleven and a half millions (£11,686,800), and in less than a year after the last mentioned flourish of its toy-trumpet, the bank stopped payment. 231 Absurd and ridiculous as such pretensions really were — they were founded upon a power over the quantity of the circulating medium of the king- dom, which ought never to have been committed to a joint stock trading company, to be used merely for its own profit ; nor upon any terms to any person ; body politic or corporate ; power ; or authority whatsoever ; in a well governed state. 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