J-NRLF 
 
 SB SD 
 

 LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 
 Class 
 
 

ON THE 
 
 REGULATION OF CURRENCIES, 
 
ON THE 
 
 REGULATION OF CURRENCIES; 
 
 BEING AN 
 
 EXAMINATION OF THE PRINCIPLES, 
 
 ON WHICH IT IS PROPOSED TO RESTRICT, WITHIN CERTAIN FIXED LIMITS, 
 
 THE FUTURE ISSUES ON CREDIT 
 
 BANK OF ENGLAND, 
 
 AND OF THE OTHEtt 
 
 BANKING ESTABLISHMENTS 
 
 THROUGHOUT THE COUNTRY. 
 
 BY JOHN FULLARTON, ESQ. 
 
 LONDON: 
 
 JOHN MURRAY, ALBEMARLE STREET. 
 
 1844. 
 
LONDON : 
 
 Printed by WILLIAM CLOWES and SONS, 
 Stamford Street. 
 
 GENERAL 
 
 
CONTENTS. 
 
 CHAPTER I. 
 
 Introductory Remarks (Note) Prevailing Misapprehension as to the 
 effect of the Bill of 1819 Of the Doctrine which holds Conver- 
 tibility to be no security against Over-issue Mr. Tooke's Opinions 
 Reasons for maintaining the Metallic Basis of our Circulation 
 A Circulation of Convertible Notes must always fluctuate on the 
 same Principles as if the Circulation were Metallic . . Page 1 
 
 CHAPTER II. 
 
 Controversy as to what is Money Of Credit as a substitute for Money, 
 and 'of Bank-Notes as a form of Credit The effect of all forms of 
 Credit, when employed as Money, is alike ; but it is only when so 
 employed that they partake at all of the Monetary Character Credit 
 considered as a vast and inexhaustible element of Monetary Power 
 Practicability of finding a Substitute for Bank-notes Base Cur- 
 rency of Ireland in 1 804 28 
 
 CHAPTER, III. 
 
 How Fluctuations in the Cost of producing the Precious Metals, or in 
 the Quantity of a Currency of Conventional Paper, act on Prices 
 Bank-notes do not so act, because their quantity is governed by the 
 demand How Speculation affects Prices Fluctuations of Price 
 from the Quantity of the Currency Nominal ; from Speculation Real 
 New Gold Coin and new Conventional Notes are issued in Pay- 
 ments^ Bank-notes only on Loan The regular Reflux of Notes 
 advanced on Loan a sure Preventive of Redundance Sir William 
 Clay and Mr. Tooke The Reflux is the great regulating principle 
 of the internal Currency Inexpediency of the State taking the 
 Management of the Currency into its own hands .... 56 
 
 104588 
 
CONTENTS. 
 
 CHAPTER IV. 
 
 The Value of a Convertible Currency fluctuates only with that of the 
 Coin Circumstances which render the precious Metals less liable to 
 Fluctuation of Value than other Commodities Hoards, their Origin, 
 Laws^ and Effects Slow action on Prices of the discovery of the 
 South American Mines, and of the French Assignats Effect of the 
 present constitution of the Bank of England, in preventing Fluctua- 
 tions of the value of Gold Possible effect of such an influx of Gold, 
 as would displace altogether the Notes issued on credit . Page 69 
 
 CHAPTER V. 
 
 Proofs of the Impossibility of Over-issue Bankers have neither the 
 power to Increase nor the will to Reduce their Issues Effect of the 
 establishment of Joint-Stock Banks on the Circulation Scotch Cir- 
 culation A demand for Capital on Loan and a demand for addi- 
 tional Circulation are quite distinct things, and not often found 
 associated 81 
 
 CHAPTER VI. 
 
 Principles on which Prices fluctuate How the Amount of the Bank- 
 note Circulation is affected by the Fluctuations of Price How, 
 where the Rise of Price is occasioned by Dearth ; and how, when it 
 originates in an Increased Demand Speculations in Produce do not 
 give occasion to increased Issues Effect of an increased Issue of 
 Notes in seasons of Commercial Revulsion Answer to the Objec- 
 tions urged by the Currency Party to the Increase of the Country 
 Issues, which takes place whenever the Prices of Corn are raised by 
 Dearth 98 
 
 CHAPTER VII. 
 
 Currency Theory of Drains of Bullion Of the distinction between 
 Nominal and Real Exchange, and the Rationale of the Extrusion 
 and Melting of the Coin of a Mixed Currency, where the Paper is 
 Inconvertible and issued in excess Limited Fluctuations of the 
 Price of Gold, when the Currency is Convertible Falls of the 
 Exchange coincident generally with a low state of the Currency, 
 and vice versa All Variations of the Exchange, one class excepted, 
 depend on the state of the Balance of Foreign Payments Of the 
 Employment of the Precious Metals for the Adjustment of such Ba- 
 lances Doctrine as to the Necessity of contracting the Circulation 
 in order to arrest a Drain of Bullion Its Fallacy Operation of 
 the Hoards in regulating the Fluctuations of a Metallic Circulation, 
 
CONTENTS. Vli 
 
 and analogous Action of the Banks in regulating those of a Mixed 
 Circulation The Existence of a Drain does not necessarily imply 
 any Diminution of the Internal Demand for Circulation Of Drains 
 through the Deposits Page 111 
 
 CHAPTER VIII. 
 
 Doctrines of Mr. Thornton and Mr. Loyd as to the interminable 
 nature of Drains of Bullion for Exportation Of the Means by 
 which the Bank of England can check Drains of Bullion Natural 
 Termination of Drains, and Reflux of exported Bullion Import- 
 ance of increasing and economizing the Stock of Bullion in the 
 Bank Of Drains for which there can be no remedy Of Drains 
 which it is not desirable to check Of Drains from extensive Pur- 
 chases of Foreign Securities or from Mercantile Speculation . 138 
 
 CHAPTER IX. 
 
 Plan for administering the Affairs of the Bank of England by separate 
 Departments for Issue and Banking Arguments adduced from 
 Analogy in favour of this Plan answered (Note) Feebleness of the 
 recent Attempts of the Press to grapple with Mr. Tooke's Argu- 
 ments; and Remarks on Mr. Jones Loyd's Statements as to the 
 course adopted by the Bank of England during the Drain of Gold 
 in 1832 Results of the Banking System of the United States of 
 America Insufficiency of the Circulation allotted by the Bill for 
 the wholesome working of the System Of the Issue of Bank-Post- 
 Bills under the New System 167 
 
 CHAPTER X. 
 
 Difficulty of restraining the Excesses of Banking Credit by Legislation 
 Objectionable position in which the Banking Department will be 
 placed by the effect of the New Bill, and its Dangers Interest and 
 Prices, how likely to be affected by the New System Necessary 
 Limits of the Supply of Gold Effects of the Rule which restrains 
 the Bank from advancing on Securities more than two-thirds of any 
 additional Circulation which it may be called upon to supply in 
 Substitution for Country Notes, and of the Limitation of the present 
 Country Issues Demand, the regulating principle of Issue Ab- 
 surdity of maintaining a Stock of Bullion which is never to be used 
 Unprepared state of this Country for the System about to be 
 imposed by the New Bill, owing to the want of Private Hoards 
 Undesirable that the Bill should have left a discretion to Govern- 
 
Vlll CONTENTS. 
 
 ment to Enlarge the Circulation on Credit Minor Enactments 
 relative to Private and Joint-Stock Banks Of the respective 
 Claims of Scotland and Ireland to retain the Privilege of Issuing 
 Notes under Five Pounds Proposal for improving the efficiency 
 of the Direction of the Bank of England Question as to the 
 yearly Allowance required to be paid by the Bank to Government 
 Expedients suggested for Economizing the use of Gold Con- 
 clusion Page 185 
 
ON THE 
 
 REGULATION OF CURRENCIES; 
 
 CHAPTER I. 
 
 Introductory Remarks (Note) Prevailing Misapprehension as to the 
 effect of the Bill of 1819 Of the Doctrine which holds Conver- 
 tibility to be no security against Over- issue Mr. Tooke's Opinions 
 Reasons for maintaining the Metallic Basis of our Circulation 
 A Circulation of Convertible Notes must always fluctuate on the 
 same Principles as if the Circulation were Metallic. 
 
 THE system on which the bank-note circulation of this 
 country has for a long series of years been admini- 
 stered, is just now about to be subjected to a momentous 
 experiment, recommended by all the talent and weight 
 of the government, after mature consideration, and in 
 consonance with opinions which, it cannot be denied, 
 are the predominant opinions of the day, and are obvi- 
 ously adopted with a sincerity which has every claim to 
 respect. Sir Robert Peel's bill has been received, indeed, 
 by nearly all parties whom the measure most immediately 
 affects, with a cordiality of which there has been no 
 example in any similar case. It has been hailed with 
 nearly equal unanimity by Parliament, by the mer- 
 cantile community, and by the press. Framed in its 
 details with consummate practical sagacity, and care- 
 fully avoiding any direct or rude collision with powerful 
 interests, it has disarmed the hostility even of those 
 bodies and individuals (the issuing bankers, private and 
 joint-stock, of the three kingdoms), whose apprehensions 
 of some impending blow had been previously worked up 
 to a high point of "excitement by the mystery in which 
 
 B 
 
the intentions of government were concealed, and who 
 had in consequence been summoning their forces for 
 a vigorous, though probably unavailing, resistance. 
 These parties are now surprised and delighted to find 
 the evil day postponed for a further period of ten years, 
 and easily reconciling themselves to the few and not 
 very stringent limitations to which it is proposed in the 
 meanwhile to subject the exercise of their privilege of 
 issue, they seem inclined to regard the measure as little 
 less than a deliverance. Accordingly, the Bill is now 
 proceeding through its stages in Parliament almost 
 with acclamation, and before these pages issue from 
 the press will very probably have passed into a law. 
 
 Amid all this marvellous harmony, it may pos- 
 sibly be considered an act of impertinence, especially 
 in one who is unpractised in such controversies, to inter- 
 pose a dissentient voice. Nothing certainly can be less 
 encouraging than the aspect of the field. Setting aside 
 the preponderance of opinion to be encountered, there is 
 a manifest exhaustion of the public attention, and an 
 indisposition to entertain any further discussion on the 
 subject, which it is almost hopeless to think of over- 
 coming by any argument promulgated through the very 
 imperfect and ephemeral medium of a controversial trea- 
 tise got up on the spur of the occasion. And if " the 
 be-all and the end-all " of this question turned wholly 
 on the passing of the Bill now before Parliament, 
 and there were no good to be accomplished but by the 
 instant arrest of its progress, the case would be simply 
 desperate, and it were questionless a wild and absurd 
 undertaking to attempt such an object with such in- 
 adequate means. But the question will by no means 
 have attained its solution, with the passing of the Bill. 
 The measure is necessarily and avowedly an experi- 
 mental measure only. There are some parts of its ma- 
 chinery, as it appears to me, so obviously inadequate, 
 upon any presumption in the least warranted by expe- 
 rience, to fulfil even what I believe to be the real inten- 
 
tions of its authors, that before any very long period shall 
 have elapsed, their deficiency may be forced into notice 
 in a way neither to be mistaken nor disregarded. And, 
 though it is not proposed at present, that the subject 
 should be again brought under revision for ten years to 
 come, the interposition of Parliament would probably 
 not be withheld, should there arise in the meanwhile 
 any circumstances of sufficient urgency to demand it. 
 But it is not merely to those imperfections of detail, 
 which it will be in the power of the Legislature to remedy, 
 so soon as they are fairly perceived and acknowledged, 
 that I am desirous of attracting attention. What is still 
 more calculated to awake our anxiety, is the spirit in 
 which the plan has been conceived, and the avowed pur- 
 pose which it aims to accomplish. It may perhaps be ex- 
 ceedingly proper to regulate and restrain the issue of 
 private notes ; it may even be eventually desirable to 
 suppress that description of circulation altogether, and 
 to limit the privilege of supplying the country with 
 notes to a single bank of issue. There are grave ob- 
 jections, indeed, to such a change. But it has at least 
 one intelligible, plain, and practical object. No man 
 entitled to hold any opinion at all on such subjects can 
 be insensible to the importance of providing the country 
 with a sound currency, and protecting the ignorant and 
 helpless masses of population in remote districts from 
 the worst class of calamities attending the occasional 
 insolvency of private banks of issue. But when it is pro- 
 claimed as a principle, that the entire aggregate credit 
 circulation of the realm, sound and unsound, metro- 
 politan and provincial, large and small, ought to be 
 limited to a certain fixed amount by law, when it is 
 assumed that such a limitation would be expedient or 
 possible, and when it is actually proposed to establish a 
 maximum, an arbitrary maximum, which the notes of 
 the Bank of England issued on credit shall not in future 
 be permitted to exceed, and which is to continue the 
 same, whether commerce be flourishing or depressed, in- 
 
 B 2 
 
dustry thriving or stagnant, wages high or low, whether 
 bullion be flowing in or flowing out, whether the popu- 
 lation making use of it consist of some twenty-seven 
 million of souls, as was nearly the state of things at the 
 date of the last census, or have increased to upwards of 
 thirty millions, which, if the rate of augmentation con- 
 tinue the same as in the last cycle of ten years, ought to 
 be its amount in 1851 ; when a proposition of so novel 
 and empirical a character is recommended as a fit sub- 
 ject for legislation, it must be apparent to every one, 
 that the object with which you are dealing is no longer 
 an intelligible, plain, or practical object, but that you 
 have got into the regions of fiction and conjecture. 
 
 What may be the practical working of such a scheme 
 no man can absolutely foretell, and past experience 
 gives us no clue to discover. It remains to be tried. 
 For this the times are certainly propitious; and, while 
 exchanges continue favourable, interest low, and the 
 stock of bullion overflowing, all will no doubt proceed 
 smoothly ; and the unruffled aspect of monetary affairs 
 will be cited and allowed as a proof of the beneficial 
 operation of the new system. But if it is to be some- 
 thing more than a mere fair-weather pageant, if its prin- 
 ciple is really and literally to be carried out, at all sea- 
 sons and in all circumstances, with stern and unflinching 
 pertinacity, it may happen that, at no very distant period, 
 (at all events, long before the ten years of the new 
 charter shall have expired,) contingencies may present 
 themselves, which will put the virtues of the panacea to 
 the test, may possibly even shake a little the general 
 confidence in their efficacy, and rouse a fresh spirit of 
 inquiry into the nature of those periodical hurricanes 
 which visit from time to time the great marts of industry 
 throughout the world, and the real extent of the means 
 (much more insignificant, it is to be feared, than seems 
 to be commonly imagined) by which we can hope to 
 divert or moderate them. In the meanwhile, it is only 
 by patient endeavours to divest the topic of those fallacies 
 
which still inveterately cling to it, that men's minds are 
 to be at all usefully prepared for the renewal of the dis- 
 cussion, when the time for it shall have arrived. What- 
 ever may be the prevailing apathy on the subject, what- 
 ever the difficulty of obtaining a hearing on it, it is a 
 matter of too vital and universal importance to be 
 dropped into oblivion. Strong convictions, deliberately 
 formed, on these abstruse and difficult questions, are not 
 to be at once put down by authority ; and when they 
 happen to be right, must expect, in general, their ulti- 
 mate vindication rather from minute and often-repeated 
 impressions on the reason, than from any of those brilliant 
 efforts which take the understanding by storm. To such 
 impressions, whoever has thought much on the subject 
 may hope to contribute his quota; and whatever may 
 be the worth of the opinions advocated in these pages, 
 they certainly have not been formed without considerable 
 reflection, and a laborious investigation of the main facts 
 and arguments bearing on the case an investigation 
 undertaken with no strong or decided prepossessions in 
 favour of one class of opinions more than another, nor 
 with any other object beyond that of discovering the 
 truth. The confidence of the author in his results has 
 not yet been shaken by any counter-arguments which 
 he has heard or read, but, on the contrary, has been 
 considerably strengthened by the coincidence of his con- 
 clusions, in most of their leading features, with those of 
 the eminent author of the ' History of Prices/ one of the 
 most valuable contributions to economical science which 
 the present century has produced. 
 
 The truth is, this is a subject on which there never 
 can be any efficient or immediate appeal to the public at 
 large. It is a subject on which the progress of opinion 
 always has been, and always must be, exceedingly slow. 
 During the last quarter of a century it has undergone 
 several long and searching investigations from both 
 branches of the legislature ; and our actual experiences 
 within the same period have been calculated to throw 
 
6 
 
 infinite light upon it. There is, therefore, no want of the 
 materials requisite for a sound judgment ; yet the state of 
 opinion would appear, from the recent discussions in Par- 
 liament, to be scarcely at all in advance of what it was in 
 1819.* It is no reproach to statesmen if they have taken 
 doctrines as they found them ; for the systematic prosecu- 
 tion of such studies is physically incompatible with the 
 life of a public man. On the part of those, again, whose 
 inclinations lead them to devote their time to these in- 
 tricate questions, it would seem as if the tenacity with 
 which they hold their opinions bore a certain ratio to 
 the painfulness of the process by which those opinions 
 have been acquired. The class is always a very small 
 one, while to all others the theme is so little attractive, 
 that, where personal interests are not directly assailed or 
 menaced, they are generally quite content to think as 
 they are instructed. Let them once, indeed, understand 
 that their interests are touched, and there are no bounds 
 to the vehemence with which they will embrace and 
 propagate opinions even the most monstrous. We all 
 remember the popular hostility which for many years 
 was directed against the measure of 1819, for the resto- 
 ration of cash payments ; a hostility by no means confined 
 to the unreasoning herd, but conscientiously entertained 
 by many well-meaning people of education, and even by 
 some men of considerable talent. Whatever went amiss, 
 whether prices fell, or trade became stagnant, or specu- 
 lations failed, the blame was invariably laid on the un- 
 happy Peel's Bill. To this origin were traced the great 
 commercial revulsions of 1825 ; and every man who 
 chanced to impair his fortune by absurd and hazardous 
 adventures, found a salve for his self-reproaches in attri- 
 
 * The above was written previous to the debate on the second read- 
 ing of the Bill ; and it is but justice to acknowledge, that to some 
 portion at least of the discussion on that occasion, the observation in 
 the text would be inapplicable. The speech of Mr. Charles Buller 
 in particular appears to have evinced a comprehensive knowledge of 
 the subject, highly creditable to his industry. 
 
buting to the Bill the consequences of his own folly and 
 improvidence. This hostility continued to be maintained 
 long after it had been demonstrated, by the most clear 
 and convincing evidence, that the utmost practical change 
 in the value of the currency which the Bill could have 
 effected, was infinitely short of that affirmed by its 
 opponents,* and after all their sinister predictions as to 
 
 * There is one most important circumstance, which seems to have been 
 very unaccountably overlooked by both parties in 1819, in forming 
 their respective estimates of the probable effect of the measure of re- 
 sumption on prices, though it was in fact the main circumstance on 
 which the whole question turned ; at least I do not find the point 
 adverted to in any of the discussions of the day which have come under 
 my notice. When Mr. Ricardo computed at about five per cent, the 
 fall in the prices of commodities, which was then anticipated as the 
 inevitable consequence of a return to cash payments, " that being the 
 extent, to which the circulating medium appeared, on a comparison 
 with the market-price of bullion, to be at that period depreciated," 
 he looked only to the difference then actually subsisting between the 
 market-price and the Mint-price of gold. But even the most uncom- 
 promising partisan of the currency principle may be disposed to admit, 
 that, as things stood previous to the law of 1819, there were other 
 causes in existence besides the variations in the amount and consequent 
 value of the bank-note circulation, which might have had a material 
 influence in determining the fluctuations of the price of bullion, and 
 therefore that those fluctuations could have afforded no accurate or 
 certain index of a fall or rise in the exchangeable value of bank notes. 
 There was, in the first place, the more or less perfect condition of the 
 coin. It is obvious that, even with a currency purely metallic, if the 
 coin were debased by wear to the extent, say, of three or four per cent, 
 below its standard weight, the slightest turn of the exchange causing 
 a demand for exportation, whether to adjust a mercantile balance 
 abroad, or to defray a military expenditure in some foreign country, 
 would have the instant effect of raising the price of uncoined bullion 
 in a ratio at least equal to the extent of the degradation of the coin, 
 even though all the while the quantity and aggregate value of the 
 circulating medium might be wholly without variation. Since the 
 reformation of the gold currency in 1773, indeed, this disturbing 
 influence had been comparatively but little felt in the money-market ; 
 and in 1819, when the entire coinage had but just been a second time 
 renovated, it must have been almost wholly inoperative. But there 
 was another disturbing cause of still greater potency, which at that 
 period existed in full force ; I allude to those penal laws which pro- 
 hibited the melting and exportation of the coin, while the traffic in 
 
8 
 
 consequences had been falsified by its triumphant and 
 easy success. Nor have the popular prejudices on the 
 
 the metal of which that coin was composed remained perfectly free. 
 The inevitable effect of this regulation was, on every new demand 
 for export, to raise the market-price of the exportable stock of the 
 metal above that of the coined or non-exportable stock, in a proportion 
 at least commensurate to the risk of violating the law by the exporta- 
 tion of the latter. The exact money-equivalent of this risk has been 
 variously estimated at different times. But this much is beyond ques- 
 tion, that it gave a latitude to the fluctuation of the price of bullion 
 when under the action of any intense foreign demand, even at periods 
 when the paper circulation was in a perfectly convertible state, of 
 which, in the present day, we have no example. Thus, in March, 
 1783, bar gold rose to 81s. 9d. per oz. ; and in May following, Portu- 
 gal gold coin was sold at 82s. 3d., exhibiting an excess of 4s. 4d. per 
 oz., or about 5^- percent, above the Mint-price. In May, 1792, again, 
 we find the quotations of foreign gold rising suddenly from par to 81s., 
 at which rate they were continued till September ; and it further 
 appears, that in 1795 and 1796 the Bank of England made repeated 
 purchases of foreign gold at 81s., 82s., and even 86s.; and that, on 
 one occasion, a small parcel, obtained through the Bank's agent in 
 Portugal, actually cost them 88s. per oz. ; thus furnishing an unde- 
 niable instance, under the operation of the restrictive law against the 
 .melting of the coin, of a difference very little short of 13 per cent, 
 between the market (or, to speak more properly, the import) price of 
 gold and the Mint-price, and all this co-existent with a perfectly 
 convertible state of the bank-note currency. In whatever light, then, 
 the oscillations of the circulating medium during the six years of 
 enormous foreign expenditure, from 1808 to 1814, may be regarded, 
 how after this can it be said that any fluctuations of the market-price 
 of the bullion, which occurred subsequent to the final termination of 
 the war in 1815, could have afforded any test of the difference between 
 the value of the whole circulating medium, as it then existed, and the 
 value which it might have been expected to acquire in consequence of 
 the resumption of cash-payments ? Almost immediately on the resto- 
 ration of peace, the foreign exchanges recovered their equilibrium, 
 and the fluctuations of the price of gold were restrained within the 
 same limits to which their range had been restricted previous to the 
 suspension of cash-payments in 1797. Between the 10th November, 
 1815, and the period of the resumption of cash-payments in 1821, 
 gold bullion never again, I believe, attained a higher price than 83s., 
 and that only on one or two occasions, and for a very brief interval. 
 On the first rise of the exchange above par in 1816, there can be no 
 doubt but that the market-price of gold would have subsided at the 
 same time to the Mint-price, had not the Directors of the Bank of 
 
 
subject entirely subsided even at this day. No one, in- 
 deed, except a small knot of deaf and incurable fanatics, 
 
 England, in their anxiety to prepare for the resumption of cash-pay- 
 ments, very injudiciously opened their coffers for the reception of all 
 the gold that might be brought to them, at a price considerably exceed- 
 ing the Mint-price. At that time, however, and on all subsequent 
 occasions within the six years, from 1816 to 1821, whenever the 
 balance of foreign payments turned in favour of this country, the 
 market-price of gold bullion uniformly fell to the Hank-price ; and 
 again, when the balance of payments became adverse, arid the ex- 
 change turned against this country, the price of the gold rose with 
 the same uniformity to such a rate as would indemnify the melters 
 of the coin for its degradation by wear and for the penal consequences 
 of melting it, but rose no higher ; in neither case, therefore, indi- 
 cating any variation of the value of the currency. At length came 
 the bill of 1819, making the resumption of cash-payments imperative 
 upon the Bank of England within a given period of time. As a 
 compulsory measure for this end, however, it was wholly inoperative : 
 the object was already accomplished ; and the resumption was even- 
 tually carried into effect two years in anticipation of the term pre- 
 scribed by law, by the spontaneous course of circumstances, without 
 the slightest effort, as Mr. Tooke has incontrovertibly shown, on the 
 part of the Bank, and in coincidence with an enlargement, instead of 
 a contraction, of the Bank issues. We have, in fact, no evidence 
 whatever, that, from 1815 downwards, there existed any depreciation 
 of the circulating medium, or that, when the Act of 1819 was passed, 
 there remained in that respect anything to be rectified. But, besides 
 the compulsory enactment relative to the resumption of cash-payments 
 by the Bank, it will be remembered, that the Bill of 1819 contained 
 likewise a clause, by which the penal statutes against the melting and 
 exportation of the coin of the realm were wholly repealed ; and in this 
 clause, as it turned out, lay in truth all the real pith and virtue of 
 the measure. By this wise alteration of the law, an element of 
 disorder was removed, which, by obstructing the free egress and in- 
 gress of gold at prices corresponding with the cost of its production, 
 had, down to this period, been the most inveterate and unremitting 
 cause of those violent and extreme oscillations in the supply of the 
 metal, which experience had shown to be utterly incompatible with 
 the sound regulation of the currency under any system. Accordingly, 
 from 1819 to the present time, amid all the vicissitudes which the 
 money-market has undergone during that eventful period, the market- 
 price of gold has on no occasion risen above 78s. per oz., nor fallen 
 below 77s. 6c?., an extreme range of only 6d. in the ounce Nor 
 would even that extent of fluctuation be now possible ; for it was solely 
 owing to the renewed deterioration of the coin, that even so trivial a 
 
10 
 
 raises any longer the cry for a return to inconvertible 
 paper; but there still seems to lurk an impression on 
 the minds of many worthy persons, that, however inex- 
 pedient it might be, at this distance of time, to attempt 
 to retrace our steps, the measure of 1819 did work a 
 great and pernicious revolution in the distribution of 
 
 rise occurred as l\d. in the ounce, or about one-sixth per cent, above 
 the Mint-price ; and the fall to 77s. 6d. is entirely accounted for by 
 the circumstance of the Bank having at one time thought proper to 
 establish that rate as the limit for its purchases. Those circumstances, 
 however, exist no longer. For many years the Bank has been in 
 the practice of allowing 11s. 9d. for all the gold brought to them for 
 coinage ; and as soon as the recoinage of sovereigns now in progress 
 shall be completed, there will be an effectual bar, until the coin shall 
 again become deteriorated, to any future fluctuation of the price of 
 gold bullion in our market beyond the small fractional difference be- 
 tween 77s. 9d. allowed by the Bank, and the Mint-price of 77s. I0d. 
 With respect, again, to the effect produced on the general value of 
 gold throughout the world, by the abstraction of so large a portion of 
 the metal as must have been required for the restoration of metallic 
 payments in England, a consideration which Mr. Ricardo had not 
 taken into account in framing his first estimate of the rise of prices 
 to be apprehended from a return to cash-payments, but which after- 
 wards induced him to raise that estimate from 5 to 10 per cent., it is a 
 question less immediately bearing on the subject now in hand, and 
 which it would be vain to think of discussing satisfactorily within the 
 compass of a note. That question stands, doubtless, on quite a dif- 
 ferent footing from the other. It cannot be disputed, that so extensive 
 an operation must, to some extent, have affected the value of the 
 general stock of gold. But a considerable share of this effect, whatever 
 might be its amount, must have been already anticipated by the 
 preparations for the resumption of cash-payments, which had been 
 going forward some time previous to the passing of the Act of 1819 ; 
 and there are no indications to be found, either in any change of the 
 relative values of gold and silver, or in any of the other phenomena 
 of the period, which at all countenance the suspicion that the action 
 on prices approached, in any degree, to the ratio assumed by Mr. 
 I Ricardo ; on the contrary, there are very reasonable grounds for 
 believing, that the entire effect may have been neutralized, that the de- 
 mand for gold for the purposes of circulation, which arose so generally 
 in this and other countries after the cessation of the war, was not, in 
 fact, more than the dispersion of the hoards, which, so long as the war 
 lasted, had been withdrawn from the market, was of itself sufficient to 
 
 i 
 
 
11 
 
 property at the period of its enactment, and has been 
 most injurious in its subsequent operation on the general 
 prosperity; and it may probably be more owing to that 
 strong and habitual sense of probity which happily still 
 pervades the public mind in this country, and which 
 naturally revolts at a proposition having no other assign- 
 able or intelligible purpose than a general infraction of 
 existing contracts, and a release of debtors from their 
 just obligations, than to any very general advancement 
 of intelligence on the question, that the doctrine has of 
 late fallen so much into discredit. 
 
 This fallacy, however, has been succeeded by another, 
 less popular in its origin, but sustained by more plausi- 
 bility of argument, and a more preponderant weight of 
 authority. It had been held out as one of the most be- 
 neficial consequences to be expected from a return to 
 metallic payments, all obstacles to the perfect converti- 
 bility of the bank-paper being finally removed, the gold 
 standard, in respect to weight and fineness, adjusted on 
 the most correct and satisfactory principles, and the 
 traffic both in bullion and coin emancipated from every 
 restriction, that the recurrence of those great and fre- 
 quent alternations of price, which, during the reign of 
 the Bank Restriction Act, had been productive of so 
 much inconvenience and suffering, and which, since the 
 investigations of the Bullion Committee, it had been 
 the fashion to ascribe almost exclusively to the expan- 
 sions and contractions of a currency devoid of intrinsic 
 value, and issued under no control but from the discre- 
 tion or caprice of its issuers, would for the future be in 
 a great degree prevented ; and that, once replaced on a 
 sound metallic basis, the bank-note circulation would no 
 longer be exposed to those sudden variations of value 
 from over-issue, which were regarded as the principal 
 causes of adverse exchanges and drains of the precious 
 metals, and that there would be an end to those violent 
 revulsions of commercial credit and prosperity, which 
 had repeatedly been known to spread bankruptcy and 
 
12 
 
 ruin. Such were the expectations entertained, but they 
 were doomed to disappointment. Before the Act of 1819 
 had been much more than four years in actual operation, 
 the world was astonished by the great commercial crisis 
 of 1825 a more tremendous catastrophe, and attended 
 with a more extensive destruction of capital, than any 
 event of the same kind that had ever before been read or 
 heard of. It was impossible, after this, to maintain, that 
 a convertible state of the bank-note circulation afforded 
 any sovereign specific against the vicissitudes of com- 
 mercial credit. However the innocence and practica- 
 bility of the measure of 1819 might have been proved, 
 considered merely as a measure of monetary reform, 
 however salutary and important its ministration in pro- 
 viding the community with a sound and valuable me- 
 dium of exchange, equally applicable to the purposes of 
 foreign commerce and of domestic circulation, as a curb 
 on human cupidity and credulity, as a cure for over- 
 trading and its consequences, it had no doubt signally 
 failed. It might have been hoped, that a result so dis- 
 appointing to many would have had the effect of rather 
 shaking men's faith in the truth of doctrines, which had 
 so ill stood the test of experiment, and have induced 
 them even to doubt, whether that indissoluble and inva- 
 riable connexion of cause and effect between the fluctua- 
 tions of currency and the fluctuations of credit, which 
 for a long time had been almost universally assumed, 
 were, after all, a reality. 
 
 But theorists, and more especially controversial theo- 
 rists, are not to be so easily scared from their positions. 
 While the admirers of an unlimited issue of inconver- 
 tible paper claimed the catastrophe as a sort of triumph, 
 and did not hesitate to ascribe all the mischief that had 
 been done, and the still greater mischiefs that had been 
 hazarded, to the disregard of their counsels and the 
 folly of requiring the Bank to pay its notes in gold, 
 the more philosophic partisans of the system of con- 
 vertibility discovered, ere long, a new principle, which 
 
13 
 
 entirely accounted for and explained all that had hap- 
 pened, without any violence to their preconceived and 
 cherished opinions, and was therefore the very thing 
 they wanted. They discovered, that even the most per- 
 fect convertibility, however essential as one of the ingre- 
 dients of a sound system of mixed currency, is not of 
 itself, after all, any effectual security against the over- 
 issue of paper ; that the amount of bank-notes in circu- 
 lation is not regulated by the wants of those who have 
 an equivalent to give for them, and who could equally 
 have commanded, under the same given circumstances, 
 the same amount of money for the performance of their 
 exchanges, had the circulation been metallic, but simply 
 by the discretion of the bankers who issue them ; that 
 the value of a currency depends on its quantity, and that 
 the bankers, by this power of over-issue, are enabled at 
 their pleasure to increase the quantity, and consequently 
 diminish the value of the whole circulation, both paper 
 and metallic ; that the bank-notes, though they can be 
 momentarily turned into gold at the trouble of merely 
 crossing the street, are thus liable to accumulate in the 
 hands of individuals under different laws from those 
 which govern a metallic circulation, and to an extent 
 which, with a metallic circulation, would have been im- 
 possible ; that parties having sufficient security to offer, 
 may desire to possess and be willing to pay interest 
 for the use of bank-notes, who under the same cir- 
 cumstances would not have desired to possess nor have 
 been willing to pay interest for the use of gold, or else 
 that the banker may be content with a different mea- 
 sure of security from the borrower of his notes from that 
 which he would have exacted from the borrower of his 
 coin, though the loss to him, in case of the borrower's 
 default, must be precisely the same in the one case as in 
 the other ; that, as there can be no agio, or difference of 
 value, between the paper and metallic portions of a 
 mixed circulation whose convertibility is perfect, every 
 rise or fall of the value of the paper must be accompa- 
 
14 
 
 nied by an equal and simultaneous rise or fall of the 
 value of the gold, and thus the exchangeable worth of 
 the precious metals will be made to vary, not, as in the 
 case of all other articles, with the variations in the cost 
 of their production, nor even with the rate of supply, for 
 the supply can never be liable to interruption so long as 
 the banks continue solvent, but in proportion to the 
 varying number of existing promises to pay them ; that, 
 as a depreciation of the circulating medium is merely an- 
 other expression for a general rise of the prices of all other 
 commodities, every increase of the quantity of bank-notes 
 by over-issue must be attended by a general rise of 
 prices, as, on the other hand, every contraction of the 
 Bank issues must be productive of a fall of prices ; that 
 the necessary tendency of a rise of prices in any given 
 country, while prices continue unvaried in the countries 
 surrounding, must be to increase the importation from 
 those neighbouring countries of goods seeking a market, 
 and to diminish the exports to those countries ; and that 
 the result of all this must be an adverse balance of pay- 
 ments, a fall of the exchange, a call on the Bank for gold 
 to discharge the foreign debt, and then, after the drain 
 has proceeded for a certain time, an effort on the part of 
 the Bank to arrest it and to recover for itself a more se- 
 cure position, by the contraction of its credits, followed 
 by all those disastrous consequences which usually attend 
 on similar revulsions. Such are pretty nearly in sub- 
 stance the doctrines by which those writers on the cur- 
 rency, who during the last twenty years have taken the 
 most prominent share in the direction of public opinion, 
 have endeavoured to reconcile the actual phenomena, 
 which the course of events since the resumption of cash 
 payments has been continually developing, with the 
 principles promulgated by the Bullion Committee. It 
 follows as a corollary from those doctrines, if they are 
 worth anything, that the oscillations of price and ex- 
 change, of which we have been speaking, with all their 
 accompaniments of drain, panic, and bankruptcy, may 
 
 
15 
 
 be effectually corrected, if you can only deprive banks 
 of the power of over-issue, and that they are accessible 
 to no other remedy. The great object to be aimed at, 
 we are told, is to restrain our bank-note circulation 
 within such limits, that its fluctuations shall at no time 
 exceed the fluctuations of a pure metallic currency. 
 Could that only be accomplished, all would be well. 
 And it is in furtherance of this object that the Govern- 
 ment now proposes to place on the credit-issues of all the 
 banks a limit which shall never in future be exceeded. 
 
 Extensively, however, as these views of the principles 
 of the currency have undoubtedly found acceptance, they 
 have not been permitted to pass altogether without ques- 
 tion. They have been assailed by Mr. Tooke with an 
 array of facts and a force of argument which, on a more 
 popular topic, and before a fuller and less biassed judi- 
 cature, must have proved, I think, irresistible. That 
 even as it is, they should not have excited a larger 
 share of attention and inquiry, and should still be so 
 little understood, is only another and more remarkable 
 proof of the slow progress of opinion on all questions of 
 this nature, and of the little disposition which exists on 
 the part of any but a few studious individuals to investi- 
 gate or consider them. It is clear that those reasonings 
 have not yet made their way to high places; and we 
 even find individuals setting themselves up for public 
 instructors, who would seem to have heard of them only 
 now for the first time. Mr. Tooke's propositions, as ex^] 
 pounded by him in his recent pamphlet on the ^C 
 jejic^^Xrinciple/ are described as " startling." They 
 startle some of the writers for the public press, they 
 startle even Sir William Clay;* though why they 
 should startle any one who had taken the trouble of 
 making himself acquainted with the supplementary 
 volume of the ' History of Prices,' published in 1840, I 
 am at a loss to conceive, for there is no principle or opi- 
 
 v * See Sir William Clay's l Remarks on the Expediency of restrict- 
 ing the Issue of Promissory Notes to a Single Issuing Body/ p. 30. 
 
16 
 
 nion, I believe, advanced in Mr. Tooke's late publication 
 which may not be found in his book of 1840, and I will 
 not suppose that to any writer on the currency that ac- 
 curate and profound treatise can be wholly unknown. 
 Truth, however, will in the end prevail, and there are 
 not wanting indications that, however slowly, Mr. Tooke's 
 reasonings are working their effect. On the question of 
 prices, some even of the more candid and intelligent 
 followers of the currency school begin to speak with 
 less confidence of the invariable connexion between the 
 fluctuations of price and the fluctuations of the quan- 
 tity of money in circulation. Mr. Jones Loyd has gone 
 the length of admitting, that it might be difficult " to 
 point out any period, characterized by a strong spirit of 
 excitement and rise of prices, in which circumstances 
 may not be shown to have existed, unconnected with the 
 circulation, sufficient to account for the origin of this 
 state of things."* And Mr. Hubbard discards altoge- 
 ther the idea, that prices can be influenced at all by local 
 variations in the quantity of the circulating medium, 
 whether that medium be convertible or metallic, unless 
 there be some permanent variation in the cost of pro- 
 ducing the metal,f and relies exclusively on the fluctua- 
 
 * See Mr. Loyd's < Second Letter to J. B. Smith, Esq.,' p. 24. 
 Mr. Loyd, in his pamphlet entitled ' Remarks on the Management of the 
 Circulation,' had previously expressed himself in terms of considerable 
 perplexity and indecision as to the nature and extent of the connexion 
 between " fluctuations in prices and variations in the amount of the 
 circulating medium," and, in a note annexed, had referred to Mr. 
 Tooke's views on the subject, which he merely contrasts with those of 
 Mr. M'Culloch, without adding a word either in the way of condem- 
 nation or approval. 
 
 \ While I entirely concur in Mr. Hubbard's conclusion, I am not 
 sure that I quite so clearly understand the process of reasoning by 
 which he arrives at that conclusion, nor, if I did, that I could give it 
 the same unqualified assent. While, in the early part of his ingenious 
 but somewhat desultory argument, an argument which he has more- 
 over confused, by classing with the fluctuations of real price those 
 purely nominal and apparent variations proceeding from changes in the 
 denomination of the coin, as if the two phenomena had any thing in 
 
 
17 
 
 tions of the market-rate of interest, which usually accom- 
 pany the expansions and contractions of credit, for the 
 
 common, while Mr. Hubbard, I say, in the early part of his argument, 
 lays it down as one of his principles, that, though " the primary and 
 ultimate criterion of price be the cost of production, the qualifying and 
 immediate regulator of price is the proportion of supply to demand," 
 he proceeds afterwards to reason, as if this principle applied only to the 
 fluctuations in the value of commodities whose prices are to be mea- 
 sured, and not in those of the value of the metal which serves as the 
 standard of admeasurement. " Gold," he contends, " is the currency 
 of the commercial world ;" and " the efficiency of gold, as an indicator 
 of value, is unaffected by its quantity being greater or smaller in any 
 particular country." Again, " The diminution of money under 
 consideration" (that is, the diminution occasioned by the transmission 
 of any given quantity of gold from one country to another,) " is merely 
 local ; the cost of procuring gold has not altered ; the sum of gold in 
 the market of the world remains unchanged ; and the amount of com- 
 modities remaining unchanged, the relative value of gold to commo- 
 dities must also remain unchanged." Now, if this proposition is to be 
 understood in the sense which Mr. Hubbard's expressions would seem 
 to warrant, though it probably may not be the sense intended by him, 
 it would go the length of negativing altogether the possibility of any 
 local variations in the exchangeable value of the precious metals, from 
 circumstances affecting the rate of their local supply. But though, 
 owing to their qualities of superior durability arid portability, the 
 regular supply of the precious metals is less liable to be disturbed by 
 temporary obstructions than that of most other commodities ; yet, to 
 the extent of such obstructions, there can be no ground for assuming 
 that, as articles of commerce, they are in any degree exempt from the 
 operation of the general law ; and we accordingly have daily proof, in 
 the considerable fluctuations of the market-price of silver, wherever 
 silver (as is the case in this country) does not constitute the standard 
 money of the realm, that, without supposing any permanent change in 
 the cost of production, the local value of the precious metals may be 
 affected to an important extent by the variations in the rate of supply. 
 It is only, as we shall presently see, when one or other of these metals 
 is adopted, either generally or in some given country, as the standard 
 or legal medium of exchange, that circumstances arise which neutralize 
 in a great degree the action of any accidental irregularities of supply 
 on the local value of the metal, and prevent prices from being in- 
 fluenced to any sensible extent, if at all, by its fluctuations. I should 
 infer, from what follows, that Mr. Hubbard perceives this distinction, 
 but he does not, I conceive, sufficiently explain it by the exposition 
 which he gives of the principles which regulate the distribution of the 
 precious metals throughout the world. 
 
 C 
 
18 
 
 means of restraining the issue of bank-notes within the 
 same limits, which confine the fluctuations of a purely 
 metallic currency, an object which, in common with 
 Mr. Loyd, he nevertheless holds to be of paramount im- 
 portance. Until within these few weeks, however, there 
 has been no attempt on the part of any of the uncon- 
 vinced to grapple fairly with Mr. Tooke's arguments ; 
 and if those arguments are to be successfully combated, 
 it must certainly be with other weapons than those 
 employed by Sir William Clay arid Colonel Torrens. 
 There are circumstances, too, independent of the dis- 
 tastefulness and intricacy of the subject, which may 
 be supposed to have contributed to delay the triumph 
 of those arguments. In the first place, they have never, 
 till very lately, been brought before the public in a con- 
 densed or popular shape, but have had to be searched 
 out among the dry details of a statistical work, in which 
 few general readers have the courage to look for them. 
 Secondly, Mr. Tooke himself has been exceedingly slow 
 in following out his original conclusions on the subject 
 of price to all their consequences. The germ of his pre- 
 sent opinions may be traced in the facts, which he col- 
 lected and laid before the public in the first edition of 
 his great work ; but at the time of that publication in 
 1823, Mr. Tooke's mind appears to have been still 
 strongly imbued with the prevailing notions, that prices 
 are liable to rise and fall with the increase or diminu- 
 tion of the amount of bank-notes in circulation, that 
 banks have it in their power to increase at pleasure the 
 quantity of paper-money, and that the efflux and influx 
 of gold are to be regulated by regulating the issues of 
 the banks. He adhered to these doctrines even after he 
 had refuted them by his discoveries, and seems to have 
 parted with them at last only by degrees and with re- 
 luctance, under the pressure of his growing convictions. 
 The progress of those convictions may be traced through 
 their successive stages in his various publications, and 
 in the evidence delivered by him before diverse Par- 
 
 
19 
 
 liamentary Committees. His pamphlet on the Currency, 
 published after the crisis of 1825, might, for aught to 
 the contrary that can be gathered from its doctrines, 
 have almost been the production of Mr. Loyd or Mr. 
 Norman. It is in his examination before the Commons' 
 Committee of 1832, that we perceive the first decided 
 indications of the revolution which was gradually taking 
 place in his mind, though even then he had not yet 
 brought himself to discard entirely the old theory of 
 prices, but professed himself still ready to admit that 
 prices are liable to be influenced by the amount of the 
 circulating medium. The second and altered edition of 
 his work on prices, published under a new title in 1838, 
 exhibits in a more elaborate shape the conclusions to 
 which his continued observations had led him ; though, 
 even in those volumes, passages of the original treatise 
 have been retained, which do not seem altogether in 
 harmony with the new doctrines which he had espoused. 
 Nor was it till the appearance in 1840 of his 'History 
 of Prices in 1838 and 1839/ that the system which he 
 had been so long maturing received its full development. 
 These slight appearances of wavering, which, rightly 
 viewed, ought rather to be considered as proofs of the 
 caution and deliberation with which he formed his judg- 
 ments, have been charged against him as inconsistencies, 
 and advantage has been taken of them to detract from 
 the weight of his authority. I may lastly venture to 
 state, that, important as Mr. Tooke's services have been 
 in the elucidation of this department of political eco- 
 nomy, it does not appear to me, that he has even yet 
 quite exhausted his subject. There are some considera- 
 tions, which seem to have been hitherto overlooked by him, 
 or have but slightly engaged his attention, which I am 
 nevertheless disposed to regard as of essential import- 
 ance to the completeness and consistence of his theory, 
 and not less so to the fulness and effect of his argument. 
 It is chiefly in the hope of contributing something, how- 
 ever imperfect, towards the supply of this deficiency, 
 
 c 2 
 
that I have been induced to hazard the present publica- 
 tion. In doing this, I shall endeavour to address my 
 argument as much as possible, and with as much com- 
 pression as the necessity of making myself intelligible 
 will permit, to the questions immediately in hand, and 
 which have a direct bearing on the impending measure 
 of Government. Any attempt to follow out and eluci- 
 date in all their details the innumerable topics which 
 present themselves in this wide field of discussion, 
 would be utterly incompatible with my limits, and 
 could only ensure the defeat of the object which I have 
 in view. I am sensible, moreover, that it must be 
 chiefly by acting on the convictions of those who have 
 made the subject their study, that the public judgment 
 on a question of this nature is ultimately to be won, 
 and that many explanations may probably, therefore, be 
 dispensed with, which could not with the same safety be 
 omitted in an elementary treatise. 
 
 LeTmy views, however, not be misunderstood. Let it 
 not be supposed, for a moment, that I am indifferent 
 to the expediency and importance of maintaining intact 
 the metallic basis of our circulation, and providing by 
 the most judicious means of security that can be devised, 
 for the perfect and uninterrupted convertibility of our 
 bank paper. I do not, indeed, profess to look back with 
 all the horror testified by some at the epoch of the Bank 
 Restriction. I look upon that measure as a measure 
 that was greatly to be deprecated, and productive of 
 many inconveniences. I believe that it might have 
 been exceedingly dangerous, but for the singularly per- 
 fect adaptation of the machinery through which it was 
 administered. I think it was continued quite long 
 enough, and never desire to see it revived. Yet I do 
 not hesitate, at the same time, to avow, that I consider 
 it to have been the wisest course which, under the 
 actual circumstances of the country, could have been 
 adopted, nor to express my full conviction, that the 
 suspension of cash payments had nothing like the share 
 
21 
 
 which has been commonly supposed, in producing those 
 violent alternations of price, which accompanied the 
 transitions from peace to war, and from war to peace, 
 but that nine-tenths of the mischief imputed to that 
 cause by one party, and of the good ascribed to it by 
 another, were equally imaginary. It may not, per- 
 haps, be very prudent to make these declarations, when, 
 from want of space, I am not in a condition to justify 
 them; but I must submit to any censure which they 
 may draw on me from extreme partisans on either side, 
 rather than fail to be explicit. 
 
 That, as far as concerns our domestic exchanges, all the 
 monetary functions which are usually performed by gold 
 and silver coins, may be performed as effectually by a cir- 
 culation of inconvertible notes, having no value but that 
 factitious and conventional value which they derive from 
 the law, is a fact, which admits, I conceive, of no denial. 
 Value of this description may be made to answer all the 
 purposes of intrinsic value, and supersede even the neces- 
 sity for a standard, provided only the quantity of the 
 issues be kept under due limitation. A plate of brass, a 
 piece of leather, a scrap of water-marked paper, are things 
 without any worth in themselves which can qualify them 
 to perform the office of equivalents in the transactions of 
 commerce; but stamp any of these articles with an 
 inimitable mark, issue them in defined numbers for a 
 valuable consideration, call them money, let them be 
 received in payment of all public taxes and dues, arid 
 make it imperative by law on every man to provide 
 himself with enough of this money for the discharge 
 of all obligations incident to the common dealings of 
 society, and you invest it at once with a value in ex- 
 change, wholly independent of its intrinsic properties, and 
 bearing an exact ratio to the demand which you create 
 for it. Of this description are the Government paper 
 currencies of the Continent, which in almost no instance 
 derive any portion of their credit from the expectation 
 that they will be ultimately discharged in coin. Of 
 
22 
 
 this description were the issues of the Bank of England 
 during the continuance of the Bank Restriction Act, for 
 that measure was equivalent to an absolute discarding 
 of the standard. It must be acknowledged, that a cur- 
 rency constituted on this principle has a great and not 
 unimportant advantage over a circulation of which the 
 precious metals form any considerable part, on the score 
 of economy. But, on the other hand, it is open to 
 objections which no mere pecuniary saving, I appre- 
 hend, could adequately counterbalance. 
 
 In the first place, the value of such a currency is en- 
 tirely governed by its quantity, and we have no regu- 
 lating principle by which that quantity can be kept in 
 exact proportion to the transactions which the currency 
 has to perform. It has been suggested, indeed, that 
 this value might always be kept on a level with the value 
 of either of the precious metals, by noting carefully the 
 fluctuations in the market-price of the metal, as mea- 
 sured by the currency, and by enlarging or contract- 
 ing the issues in a corresponding proportion. But this 
 would not be sufficient. Even if there were no other 
 obstacles to the practical working of the rule, and we 
 could depend on its being at all times honestly and 
 strictly administered, it is quite a mistake to suppose, 
 that the market-prices of the precious metals would 
 observe the same range of fluctuation, when those 
 metals should be reduced to a common footing with 
 other commodities, which they observe when consti- 
 tuting the circulating medium of a community. It is 
 only because gold and silver are money, that they are 
 ever accumulated in large quantities in any particular 
 locality. No stock is so little profitable to the merchant. 
 And the countries which produce them are situated at 
 such a distance from the more civilized quarters of the 
 globe, that no single community has the power of re- 
 plenishing its stores upon any sudden demand, except 
 by drawing on the stores of its neighbours. The neces- 
 sary consequence is, that, in a nation which has once 
 
23 
 
 parted with its circulation of metallic coin, the supply 
 of the precious metals becomes a matter of great un- 
 certainty, and those metals cease then altogether to be 
 fit indicators of value. Every person, who has given 
 the slightest attention to the history of our currency, 
 must recollect the memorable fluctuations of the hun- 
 dred days in 1815; that, on receipt of the news of 
 Bonaparte's landing from Elba, the price of gold in the 
 London market rose 10 per cent, in one morning, and 
 that without the slightest alteration whatever in the 
 amount of the inconvertible issues of the Bank ; that, 
 in the course of a few days more, the advance of price 
 amounted to 20 per cent., and that this advance was 
 maintained until after the battle of Waterloo, when 
 the price of gold fell nearly as rapidly as it had risen, 
 and in a manner equally unaccounted for by any cor- 
 responding movement of the Bank circulation. Than 
 the rationale of these phenomena nothing can be sim- 
 pler. A crisis had suddenly arisen which called for an 
 instant and vast supply of gold, at whatever cost, for 
 the equipment of armies, the remittance of subsidies, 
 and the repletion of military chests ; there was no time 
 to wait till this supply could be brought from countries 
 where there was gold in abundance ; it must be procured 
 on the spot, and that spot was one from which nearly 
 all hoards of the precious metals had long been swept 
 away. The price of gold, therefore, rose precisely on 
 the same principle on which the price of corn rises in a 
 famine; it rose to a famine rate, and again fell the 
 moment the famine demand had ceased. And this great 
 fact at once affords the most satisfactory demonstration 
 of the futility of any scheme for testing the value of con- 
 ventional notes by the price of gold, and furnishes the 
 most unanswerable refutation of the theory which would 
 ascribe all the variations of the price of gold during the 
 continuance of the Bank Restriction to the fluctuations of 
 the Bank issues. 
 
 In the second place, there is not, I believe, a single 
 
24 
 
 example on record, of the power of creating money out 
 of cheap materials having been exercised by a sovereign 
 state for any length of time, or through any season of 
 public difficulty, without having been abused. So long 
 as the whole supplies of the year are raised by means 
 of taxes and loans, no great mischief can befall ; for the 
 paper which the state issues in its payments will, in that 
 case, all flow back again regularly in the shape of loans 
 and taxes, and there will be no surplus left to accumu- 
 late in the hands of the public. But say, that the na- 
 tion is once embarked in a destructive and expensive 
 war, with little prospect of bringing it soon to a termi- 
 nation, that the revenues are failing, the government at 
 its wits' end to discover some new tax that will supply 
 the deficiency, and the impatience of such exactions on 
 the part of the people already at its height, the temp- 
 tation to substitute issues for taxation, to relieve the 
 wants of the treasury, by intercepting, through the de- 
 preciation of the currency, a portion of every payment 
 in its transit from the pocket of the debtor to that of 
 his creditor, becomes too strong to be resisted, and the 
 iniquity is, probably, perpetrated with the general ac- 
 quiescence of a community, who are scarcely aware of its 
 tendency. The career of debasement once entered upon, 
 it has no pause, till there is scarcely any value left to be 
 destroyed. And if, in this country, the portentous ex- 
 periment of the suspension of cash payments was not 
 followed by the same disastrous consequences which 
 attended the issues of the Mississippi notes and the 
 assignats in France, and of the several paper currencies 
 put forth by the principal states of northern Europe, it 
 was because the inconvertible notes were disbursed, not 
 in the payments of a government, but in the loans of a 
 bank, because the vast resources of the nation enabled 
 the Government, to the last, to raise all its supplies 
 either by taxes or by loan, and because, whether the 
 Bank of England advanced its funds to Government 
 or to individuals, no impediment ever arose to the 
 
25 
 
 punctual return of those funds into its coffers. Much 
 credit has been claimed for the moderation and self- 
 denial with which the Directors of the Bank exercised 
 the very extraordinary powers intrusted to them, and 
 to which are attributed the very different results of 
 their administration of a currency of inconvertible paper 
 from those which have attended all similar enterprises, 
 nor have I any wish to detract from that credit ; but 
 the truth is, that the Bank was fenced round and pro- 
 tected by the peculiarities of its own constitution, and 
 by the whole financial system of the state, a fortuitous 
 and fortunate combination of precautions, which nearly 
 precluded the possibility of its committing any great 
 error, however it might have been inclined, and without 
 which all the moderation and self-denial of its Directors 
 might have been exerted in vain. 
 
 In the third place, I hold it to be not the least of the 
 advantages accruing from the use of a metallic standard, 
 that it furnishes us with a medium of exchange not only 
 available for the purposes of our domestic circulation, 
 but calculated to facilitate our commercial intercourse 
 with all the other nations of the world. A conven- 
 tional currency is the creature of the law, and it is only 
 within the range, in which the law which creates it 
 prevails, that it can serve the purposes of money. For 
 our dealings with foreign nations a store of the precious 
 metals is indispensable. Without a free and ample com- 
 mand over those metals, we should neither possess the 
 same prompt means as heretofore of equipping an army 
 for foreign service, or of succouring an ally ; nor could 
 we depend on procuring, with the same facility as now, 
 or at an equally moderate expense, a supply of foreign 
 corn, in case of a deficient harvest. I look upon all 
 these to be great national objects, with which no consi- 
 derations of mere economy, in the working of one system 
 as contrasted with another, ought to stand for a moment 
 in comparison. To part with our gold coin would, in 
 effect, be equivalent to a surrender of power, both poli- 
 
26 
 
 tical and commercial. Nor are we entitled at all to 
 leave out of account the frightful aggravations of cala- 
 mity, to which such a measure of isolation might expose 
 the population, if, by any turn of human events, such as 
 foreign invasion or internal revolution, the laws should 
 for a time be rendered inoperative, and with them the 
 whole fabric of artificial value at once annihilated. 
 
 No reasonable person, I conceive, who will take the 
 trouble of weighing carefully all these considerations in 
 his mind, can hesitate, on the whole, to pronounce in 
 favour of a convertible as opposed to an inconvertible 
 system of currency, in whatever light he may regard 
 the temporary departure from the standard which was 
 permitted by the Bank Restriction Act, whether he 
 may view it as a measure in which the good prepon- 
 derated over the evil or the reverse, as a measure 
 justified by the peculiar and irresistible circumstances of 
 the times, or an infringement of principle unjustifiable 
 under any circumstances. But we are told now, that, in 
 order to preserve a mixed circulation of gold and bank- 
 notes from depreciation, it is not sufficient that the bank 
 notes should at all times be convertible into coin ; that, 
 notwithstanding such convertibility, the notes may still 
 be over-issued in such quantities, as to raise the prices 
 of all the commodities in the kingdom and to cause 
 the exportation of the gold, and that, to prevent such 
 derangements, it is indispensable that the bank-note 
 circulation should at all times be made to fluctuate 
 exactly as a purely metallic circulation would have 
 fluctuated. On these propositions I am content at once 
 to join issue. I deny, that we have any evidence of such 
 a redundance of circulating bank-notes having ever 
 existed in coincidence with a really convertible state of 
 the currency, as to raise prices or to cause an efflux of 
 the precious metals, or that such a redundance under 
 such circumstances is possible. And, as to making a 
 bank-note circulation fluctuate exactly as a pure metallic 
 circulation would have fluctuated, I do not see how that 
 
27 
 
 can be constituted into a duty, until it be first shown that 
 they ever fluctuate differently. As a general principle, 
 indeed, I am quite free to admit, that the increase or 
 decrease of a circulation of bank-notes, from whatever 
 cause it may proceed, ought to correspond with the 
 increase or decrease which a currency of metallic coin 
 would exhibit under the same circumstances. But I 
 go further than this : I contend, that there not only ought 
 to be such correspondence, but that there always is ; 
 that, wherever the convertibility of the paper is perfect 
 and secured from all delay or impediment, the coin of 
 full standard value in weight and fineness, and the traffic 
 in the metal, whether coined or uncoined, absolutely 
 free and unrestricted, there the Bank issues, if left to 
 themselves, must necessarily fluctuate in conformity with 
 the principles which govern the supply of the standard 
 metal, and it is only from the intervention of some such 
 arbitrary and empirical system of restraint as is now 
 projected, that this conformity runs any risk of being 
 disturbed. 
 
CHAPTER II. 
 
 Controversy as to what is Money Of Credit as a Substitute for Money, 
 and of Bank-Notes as a form of Credit The effect of all forms of 
 Credit, when employed as Money, is alike ; but it is only when so 
 employed that they partake at all of the Monetary character Credit 
 considered as a vast and inexhaustible element of Monetary Power 
 Practicability of finding a Substitute for Bank-Notes Base Cur- 
 rency of Ireland in 1804. 
 
 BEFORE, however, any profitable discussion can be en- 
 tertained on the question propounded in the preceding 
 chapter, we must endeavour to come to some common 
 understanding as to the meaning of the terms we employ, 
 and as to what are the real points in debate. Much 
 importance seems to be attached by some to the ap- 
 plication of the term " money." Gold and silver coin, 
 as the universal medium of exchange, have enjoyed that 
 designation from time immemorial ; and with respect to 
 these there is no dispute. The value of gold and silver 
 has varied largely in different ages of the world, accord- 
 ing as the mines from which those metals are drawn 
 have been more or less productive ; and it is not ques- 
 tioned, but that every important change in the cost at 
 which a given quantity of these metals can be brought 
 to market, and by consequence every corresponding 
 change in the actual aggregate quantity of them in exist- 
 ence, must, sooner or later, affect the universal prices of 
 commodities. Neither is it disputed, that those conven- 
 tional instruments of exchange which derive their value 
 from authority, the inconvertible notes and tokens 
 issued by or under the sanction of sovereign states, the 
 assignats of France, or the Wiener Wharung of Austria, 
 are entitled, with all their imperfections, to the appel- 
 lation of money, or that they belong to a common 
 category with gold and silver, their value, like that of 
 
 
29 
 
 gold or silver, fluctuating with their quantity, and those 
 fluctuations affecting in like proportion the prices of 
 commodities, as the same are estimated in each particu- 
 lar currency. The only difference between the two cases 
 is, that the variations in the value of gold and silver 
 depend upon circumstances over which the governments 
 and communities which make use of them as money 
 have no direct control ; whereas the fluctuations in the 
 value of a conventional and inconvertible circulation are 
 determined entirely by the discretion of the authority 
 which administers it. 
 
 But, as the relations of commerce extend themselves 
 and nations advance in industry and wealth, credit be- 
 comes gradually a more and more important engine in 
 the mechanism of the social system, and men begin ere 
 long to discover that, by the simple intervention of 
 credit alone, nine-tenths of their transactions of pur- 
 chase and sale may be conveniently and economically 
 adjusted, without any interchange whatever of actual 
 value, whether intrinsic or factitious. Hence the intro- 
 duction into use of the bank-note. But the bank-note 
 is only one, and scarcely even the most important, of 
 the various forms in which credit may be employed to 
 facilitate exchanges. And you cannot, therefore, include 
 the bank-note under the generic designation of money, 
 without finding yourself immediately embarrassed by 
 the claims of bills of exchange, bankers' checks, and a 
 variety of other typifications of the same principle of 
 credit, all of which being more or less competent to per- 
 form, and, in point of fact, performing the functions of 
 money, and some of them on a scale of vast extent, have 
 primd facie just the same pretensions to be rated as money 
 which bank-notes have. The war of pamphlets on this 
 head, and more particularly the controversy as to whether 
 or not bank deposits are money, which so unprofitably 
 occupied nearly half the time of the Committee of 1840, 
 are too recent to be forgotten. And even to this day, 
 so far are these discrepancies of opinion from being re- 
 
30 
 
 conciled, that you scarcely find two individuals who, 
 whatever may be their concurrence in other respects, are 
 exactly agreed as to what constitutes money and what 
 does not. Each seems to consider himself at liberty to 
 pursue his peculiar crotchet in regard to these verbal 
 distinctions, without any reference to the substantial 
 matter in debate ; and the whole subject has thus been 
 plunged into the most indescribable confusion. 
 
 Mr. Norman and the other more undoubting par- 
 tisans of the currency theory, who uniformly speak of 
 bank-notes as identical with sovereigns, who even 
 venture to compute the rise and fall of prices by a scale 
 proportioned to the increase or diminution of the issues 
 of the Bank of England, according to a stated ratio of 
 five per cent, for every million of notes,* and who fancy 
 that the Bank has at all times the power of determining 
 with certainty the influx or efflux of gold by the con- 
 traction or enlargement of its note circulation, these 
 gentlemen show a peculiar indisposition to admit the 
 pretensions of any form or denomination of credit other 
 than bank-notes to rank as money. They have settled 
 in their own minds, that the variations of price and 
 exchange in this country are wholly governed by the 
 numerical fluctuations of an aggregate currency of 
 bank-notes and gold, amounting for all England and 
 Wales to perhaps about sixty millions sterling ; and grant 
 them only an effectual control over the twenty millions 
 of notes of the Bank of England, which constitute about a 
 third part of that aggregate, they make no doubt but they 
 should be able to put a curb on those variations, and so 
 bring the whole system into some sort of conformity 
 with their theory, and hold the elements of speculation 
 for the future in their own hands. When, therefore, they 
 are told, that these sixty millions of notes and coin do 
 not constitute one-tenth, perhaps not one-twentieth, of 
 the effective money of the country ; that there are seventy 
 
 * See Mr. Norman's Evidence before the Commons' Committee of 
 1832, on the Bank of England ; Report, p. 177. 
 
31 
 
 millions of deposits * in the hands of bankers, which 
 deposits are continually performing the offices of a cir- 
 culating medium by transfer from one banking account 
 to another ; that bills of exchange applicable to similar 
 purposes are constantly circulating, to the estimated 
 amount (according to one statement) of about three hun- 
 dred millions f in the metropolis, exclusive of a large 
 amount of circulating paper of the same description in 
 the provinces ; that, to say nothing of the multitude of 
 notes of hand, India bonds, and other transferable 
 securities and debts which are floating in the market, 
 there are twenty-seven millions of Exchequer Bills in a 
 continual course of transit from hand to hand, and about 
 the same amount yearly issued from the Bank in divi- 
 dend warrants, both descriptions of document transfer- 
 able by delivery, and wanting only a more convenient 
 scale of subdivision into even sums to be either of them 
 competent to supply the place of the whole bank-note 
 currency ; that a large proportion of the wages of manu- 
 facturing industry in different parts of the country is 
 paid through the medium of truck or barter; and, what 
 is the most important circumstance of all, that probably 
 nine-tenths of the whole commercial transactions of the 
 realm are adjusted without the intervention either of 
 coin or notes, or of any one of the expedients above 
 enumerated, by a simple process of set-off, either trans- 
 acted through the London clearing-house, J or by means 
 
 * This is Mr. Norman's estimate of the average amount of deposits 
 in the banks of England and Wales. [See his Evidence before the 
 Commons' Committee of 1840 on Banks of Issue ; Report, p. 205.] 
 
 t This is Mr. Burgess's computation, as quoted by Mr. M'Culloch, 
 in one of the notes appended to his edition of ' The Wealth of Nations/ 
 p. 296. It cannot, of course, be entirely relied upon, for all such cal- 
 culations must be, more or less, conjectural ; and other inquirers have 
 not made the amount so much. But there can be no doubt of the im- 
 mense magnitude of the sum, and anything like an approximation is 
 quite sufficient for our present purpose. 
 
 J In 1810, the average amount of checks and bills passed daily 
 through the clearing-house was estimated by Mr. Richardson at five 
 millions. [See his Evidence before the Bullion Committee ; Report, 
 
32 
 
 of a widely extended system of mutual interchange ar- 
 ranged between the different banks throughout the 
 country ; when all these facts, and the inferences which 
 they suggest, are paraded before these controllers of 
 the currency, it is no wonder that they should be horror- 
 struck at the bare idea of admitting to a parity with gold 
 and silver this overwhelming and utterly unmanage- 
 able monetary power, before which the twenty millions 
 of Bank of England notes, about which they have been 
 giving themselves so much concern, sink into compara- 
 tive insignificance, and all their puny plans for correct- 
 ing the aberrations of price and exchange must forthwith 
 melt into air. The very life of their system is at stake 
 on the issue ; and we can no longer wonder at the spirit 
 of cavil and pertinacity, with which they scout the idea, 
 that any of these modifications of credit can possibly be 
 " money." Let this term " money " only be got rid of, 
 and all will be well. Wise men have pronounced, that 
 movements of price or exchange are determined solely 
 by the quantity of " money " in circulation. Unless, 
 therefore, it can be demonstrated, that these denomina- 
 tions of credit are " money," they cannot interfere with 
 our control over prices and exchange. So much is 
 there in a name ! Mr. Norman settles the question, as 
 he seems to conceive, still more effectually, by entitling 
 these several developments of credit " expedients for 
 economizing the use of money." He even allows, that 
 incidentally, for short periods, arid to an insignificant 
 extent, they may act on prices. A reduction of the de- 
 posits in the Bank of England through the operation of 
 a foreign drain for gold, he says, " has a very trifling 
 effect, if any, on prices, while the reduction of circulation 
 has of course a great one." * And, with respect to bills 
 of exchange, he admits, that "perhaps, occasionally, 
 
 rep. in 8vo. p. 230.] The total aggregate amount of payments passed 
 through the clearing-house in 1839 was 954,401, 600/. 
 
 * See Report of the Commons' Committee of 1840 on Banks of Issue, 
 p. 146. 
 
 
33 
 
 for a short time, they uphold a partial range of prices 
 not warranted by the amount of money " (that is, as ex- 
 plained in a preceding page, by the amount of " gold 
 and silver or their substitutes bank-notes/') " in circula- 
 tion ;" but that they possess " no power of maintaining 
 prices for any considerable period at a higher level than 
 that fixed by the precious metals." * Mr. Jones Loyd, 
 again, in his evidence before the Committee of 1840 
 does not dispute that the great majority of payments in 
 Lancashire were at that time performed by means of 
 bills of exchange, nor that at a preceding period the 
 amount of bills of exchange circulating in that quarter 
 of the kingdom " bore a proportion as ten to one or more 
 to the gold and Bank of England notes." He admits as 
 a truth that those bills did circulate, and that they did 
 perform all the offices which money usually performs. 
 But still he contends, that " bills of exchange do not cir- 
 culate as money!" and why? Not because there is any 
 doubt as to the fact, but because he considers, that " the 
 nature of bills of exchange, their character, their func- 
 tions, the circumstances in which they originate, and 
 the effects which they produce, are totally different from 
 those of money. "f 
 
 There are those, however, who, concurring generally 
 in the opinions of Mr. Norman and Mr. Loyd as to the 
 principles which govern prices and exchanges, venture 
 nevertheless to take a bolder view of the question as to 
 what constitutes money. Mr. Page and Mr. J. B. Smith, 
 as also Sir William Clay in his pamphlet recently pub- 
 lished, all contend for the extension of the appellation 
 to deposits in the hands of bankers, as well as to their 
 promissory notes ; and Sir William Clay, by adding the 
 computed sum of all the deposits in all the banks 
 throughout England, to the bank-notes and coin, makes 
 the aggregate quantity of money circulating in this 
 
 * See Mr. Norman's < Letter to Charles Wood, Esq., M.P.,' p. 46. 
 f See Mr. Loyd's Evidence before the Committee of 1840 on Banks 
 of Issue, p. 273. 
 
 D 
 
34 
 
 division of the United Kingdom amount to no less than 
 between 150 and 175 millions sterling; a sum of itself,* 
 one should think, rather formidable to cope with for the 
 controllers of prices and exchanges. In attempting to 
 trace the exact meaning of the parties who propound 
 these and similar calculations, it is not always easy to 
 make out, whether, in applying the designation of money 
 to any of the great classes of circulating credit, they 
 intend to include the whole class in question, or merely 
 that portion of it which from time to time is called to 
 perform monetary functions. Thus, we are led to infer 
 from the expressions used by Sir William Clay, that 
 when he speaks of the deposits in the Bank of England 
 as money, he applies the term to the entire mass of those 
 deposits, just as Mr. Leatham,f in his zeal to exalt bills 
 of exchange to the highest station in the lists of the 
 currency, astounds you with the whole aggregate array 
 of bills assumed to be in existence at the period given, 
 without thinking it necessary to draw any distinction 
 between the portion of those bills which really circulates 
 as money, and the far larger portion which is held by 
 capitalists as a productive investment. Others, again, 
 are disposed to rank as money only that share of the 
 bank deposits, estimated at about a third of the whole, 
 which corresponds with their average range of fluctua- 
 tion, and occupies the interval between their lowest and 
 their highest level. While Mr. Page and Mr. Smith, 
 in the true spirit of their school, trace the bank-note into 
 the deposit, and seriously affirm it as their reason for 
 treating a deposit in the Bank of England as money, 
 that the deposit consists usually of notes which had been 
 previously issued by the bank, and are only brought back 
 by the depositor for temporary custody ; thus reconciling 
 their argument with the fundamental doctrine of the 
 sect, that, of all the forms of credit, bank-notes alone are 
 
 * See Sir William Clay on the ' Expediency of restricting the 
 Issue of Promissory Notes,' &c. p. 24. 
 
 f See Mr. Leatham's ' Letters on the Currency/ p. 10. 
 
 
35 
 
 money, and identifying with money only that class of 
 deposits which by the process in question has been already 
 identified with notes. " Deposits," says Mr. Smith, 
 " are Bank of England notes in the Bank of England."* 
 " A credit," says Mr. Page, on the other hand, " in the 
 books of a bank of issue is not currency, because I may 
 not act upon it ; and if I act on it, it must be fulfilled 
 either out of money which exists or which is to be 
 created."! So that the question whether a transferable 
 claim on the Bank of England is money or not, is made 
 entirely to depend on whether the Bank retains a memo- 
 rial of that claim in the shape of a certain number of 
 water-marked documents called notes, or simply gives 
 credit for the sum in its books ; and if the notes paid in 
 by the depositor should be cancelled or re-issued to some 
 other party on the day following, the deposit would then, 
 I presume, on Mr. Page's principle, cease to be money, 
 for in that case, according to Mr. Page, the credit could 
 only be fulfilled out of other money " already existing, 
 or out of money to be created !" The whole virtue lies 
 in the note ! 
 
 But enough of this intolerable trifling. Let us try, 
 rather, for a moment to recal our attention to the im- 
 portant assemblage of facts before us, and see if it be not 
 possible to disentangle a little all this skein of fallacies, 
 and arrive at some really trustworthy and intelligible 
 conclusions. In this endeavour, a suspicion must natu- 
 rally, I think, cross every one's mind at the outset, that 
 a classification of phenomena which seems to have given 
 origin to so many perverse discrepancies of opinion, can 
 scarcely be in itself a very just or sound one. I am far 
 from being inclined to attach an undue importance to 
 any merely technical or verbal distinctions. But, I own, 
 it does appear to me, that some portion at least of the 
 errors and perplexities which, in this instance, have so 
 
 * See Report of the Commons' Committee of 1840 on Banks of 
 Issue, p. 4. 
 f Ibid. p. 62. 
 
 D2 
 
36 
 
 much impeded the satisfactory development of a great 
 practical question, might have been avoided, had the use 
 of the term " money" been always restricted, according to 
 its proper and original sense, to denote those instruments 
 of exchange only which derive their power from their 
 positive value. Gold and silver coin pass current in 
 exchange for all sorts of commodities, because gold and 
 silver are themselves commodities of value, and furnish 
 the buyer and seller with a convenient equivalent that is 
 universally in demand. Inconvertible government notes, 
 though valueless in themselves, acquire a value in ex- 
 change, as has been shown, from the conditions annexed 
 to their emission, and by reason of that value are received 
 in exchange for commodities precisely on the same prin- 
 ciple as coin. These two descriptions of circulation, 
 therefore, fall naturally under a common head ; and the 
 phrase " money " may by a fair analogy be applied 
 equally to the one as to the other. The operations per- 
 formed by both, but more especially those performed by 
 the coin, partake to a greater or less extent of the nature 
 of barter. But when, in the progress of society, credit 
 comes to perform an important part in all mutual deal- 
 ings, and in the great majority of transactions supersedes 
 the necessity for this interchange of equivalents, an en- 
 tirely new principle is brought into play, and one 
 governed by distinct laws. Credit becomes then the 
 legitimate substitute for money, but, in all its modifica- 
 tions and phases, it is distinguished by a broad and im- 
 passable line from money itself. The real question then 
 to be considered is, not whether this or that particular 
 form of credit be entitled to the designation of " money," 
 but whether, without a perversion of terms and an out- 
 rage of principle, that denomination can be applied to 
 credit in any shape. Now, what are bank-notes but a 
 form of credit ? What are they but credit parcelled out 
 into small and even sums, for greater convenience in cir- 
 culation? Each note is simply a transferable acknow- 
 ledgment of a debt due from the banker to the first reci- 
 
37 
 
 pient of the note, and which he (the banker) promises to 
 pay on demand ; the value which it purports to convey 
 is that which it enables the holder to command by send- 
 ing it to the bank from whence it issued, and no other ; 
 and it is a value, which rises and falls with the value of 
 the money which it represents, whether that money be 
 metallic or conventional, for a circulation of bank-notes 
 may have either indifferently for its basis. Every ad- 
 justment between debtor and creditor accomplished by 
 the intervention of credit, whether that credit be in the 
 shape of bank-notes or any other, must be considered, 
 I conceive, in the light of a deferred payment. When 
 the holder of a bill for a thousand pounds surrenders it 
 to the acceptor, on receiving the note of some joint- 
 stock bank for the same sum, the transaction may be 
 final between the parties, but it amounts in reality to 
 nothing more than the exchange of one transferable 
 security for another. The risk of realizing the value for 
 which the note is given may indeed be so insignificant, 
 that the holder of the bill may be content to incur it, 
 and may receive the note in full satisfaction of his de- 
 mand, and the same note may pass afterwards from hand 
 to hand in a succession of similar exchanges. But, until 
 it be either returned into the bank from which it issued, 
 in satisfaction of some counter claim, and so cancelled, 
 or be discharged in cash according to its tenor, there can 
 be no real payment. The day of payment, however, 
 will at length arrive ; and it is this necessity of ultimate 
 payment which constitutes the true limit of transactions 
 on credit, under whatever variety of phasis they may 
 show themselves. This is the main point of distinction, 
 which marks the boundary between a circulation of 
 credit and one of money. It is a distinction which 
 applies to bank-notes precisely in the same manner and 
 degree, in which it applies to every other form of credit, 
 and which identifies them as a portion merely, and, it 
 may be added, but a subordinate and inconsiderable 
 portion, of that great system of credit which, in the ad- 
 
38 
 
 vanced stages of civilization, becomes so powerful and 
 universal an agent in the adjustment of human dealings. 
 There is scarcely any shape into which credit can be 
 cast, in which it will not at times be called to perform 
 the functions of money; and whether that shape be a 
 bank-note, or a bill of exchange, or a banker's cheque, 
 the process is in every essential particular the same, and 
 the result is the same. 
 
 I am aware, indeed, that by those who can perceive 
 no difference between a bank-note and a sovereign, in 
 respect to their several capacities of ministering to the 
 offices of exchange, and yet are unwilling to allow the 
 bill of exchange or the banker's cheque to rank on a 
 parity with the bank-note as money, certain small and 
 irrelative points of distinction have been suggested and 
 insisted upon, as affording legitimate ground for the 
 peculiar estimation which they claim for the bank-note. 
 With regard to bills of exchange, for instance, we are 
 told, that they are not entitled, like bank-notes, to the 
 designation of money, for these among other reasons, 
 namely, that they are " payable at a fixed place (! !), are 
 drawn for amounts inconvenient for the general pur- 
 poses of pecuniary affairs, require a knowledge on the 
 part of those who receive them as to the solidity of the 
 names which appear on them, and, in most cases, can 
 only be transferred by an indorsement, which involves 
 the credit of the indorser."* 
 
 Now, in the first place, it is not in point of fact true, 
 that the circumstances here enumerated as peculiar to 
 bills of exchange, constitute any real distinction between 
 those bills and promissory notes. If bills of exchange 
 are payable at a fixed place, every bank-note, I appre- 
 hend, is the same ; though how its being so or otherwise 
 should be a matter of the slightest importance, I own I 
 am quite unable to conjecture. The sums for which 
 bills of exchange are usually drawn, may be more un- 
 
 * See Mr. Norman's { Letter to Charles Wood, Esq. M.P./ p. 43. 
 
39 
 
 equal and less convenient for pecuniary purposes, than 
 the sums imprinted on bank-notes ; but this is an incon- 
 venience easily obviated, wherever bills of exchange 
 come extensively enough into use as a substitute for 
 money to make it worth the trouble, and it proved no 
 obstacle to their being employed during a long series of 
 years, and to the almost total exclusion of notes, as the 
 currency of all Lancashire, of the West Riding of York- 
 shire, and a large portion of the other great manufac- 
 turing districts in the heart of England. In those dis- 
 tricts, we are told, that bills were then to be had for all 
 sums from five pounds to ten thousand, and at all dates 
 not exceeding three months.* It may no doubt be very 
 desirable, that the party receiving a bill of exchange in 
 payment should know something " of the solidity of the 
 names which appear on it ;" but it cannot be more so, 
 than that the taker of a bank-note should know some- 
 thing of the solidity of the banker who issues it. And, 
 with respect to the alleged peculiarity attaching to bills, 
 that " in most cases they can only be transferred by an 
 indorsement which involves the credit of the indorser," 
 it may be sufficient to answer, that, though an indorse- 
 ment may in the first instance be required to render a 
 bill of exchange negotiable, that negotiation need not 
 involve the responsibility even of the first indorser, unless 
 he pleases ; and a bill once indorsed in blank may after- 
 wards pass through an hundred hands by delivery, just 
 as a bank-note does. 
 
 But were these objections as well-founded as they are 
 in truth untenable and frivolous, what would that be to 
 our present purpose ? Let me only be permitted to recal 
 for a moment to the recollections of these gentlemen, the 
 real question that is now at issue. On their part it is 
 alleged, that bankers, by over-issuing their promissory 
 notes, and so unduly enlarging the quantity of the cur- 
 rency, are in the practice of unduly raising the prices of 
 
 * See Mr. Lewis Lloyd's Evidence before the Commons' Committee 
 of 1819, p. 164. 
 
40 
 
 commodities, and through the rise of prices turning the 
 foreign exchanges against us and causing the efflux of 
 bullion, and that it is expedient, therefore, that matters 
 should be so regulated as to prevent such over-issues 
 in future. This is their whole case. We, on our part, 
 deny that, in point of fact, such over-issues are possible. 
 But assuming, for the sake of argument, that they have 
 a real existence, we contend, that the same action on 
 prices which you attribute to the occasional excesses of 
 a circulation of notes, over which you profess to possess 
 effectual means of control, must be exercised in a far 
 greater degree by the excessive use of other forms of 
 credit, which perform precisely the same offices in ex- 
 change that are performed by the notes, but probably 
 to ten times the extent, and which are wholly beyond 
 the reach of control or limitation. By what process, do 
 you imagine, that the over-issues which you talk of in- 
 fluence prices ? It can only be, I presume, by the ex- 
 cess of notes passing into the hands of individuals, and 
 enabling them to compete on a larger scale with each 
 other in the market for commodities. It is not the 
 mere existence of the notes, which can cause a rise of 
 prices. They can only be supposed to produce that 
 effect, inasmuch as they supply a new means and mo- 
 tive to purchasers, and so increase the demand; and 
 the rise must be assumed, I apprehend, to bear an exact 
 proportion to the increased amount of payments, which 
 the excess of issues may enable the holders of the notes 
 to accomplish. But it cannot surely be pretended for 
 an instant, that this question as to the action of a credit 
 circulation on prices can, in one way or the other, or in 
 the slightest degree, be affected by any variation in the 
 form of credit through which the payments are made. 
 Nothing so preposterous can ever be maintained, as that 
 the same payment, which contributes to a rise of the 
 market, when made through the instrumentality of bank- 
 notes, will have no such consequence if effected by the 
 transfer of a bill of exchange, or by an adjustment of 
 
41 
 
 set-off in a banker's books ; or, to put the question in a 
 still more absurd point of view, that the action of any 
 given facility of credit on price depends not at all on the 
 essential nature and tendency of the transaction, but 
 simply on the particular piece of paper on which the 
 amount of the credit may happen to be inscribed. Why, 
 the whole bank-note circulation of this country might be 
 turned to-morrow into a system of book-credits transfer- 
 able by cheque, or all our banking accounts might be 
 commuted, on the contrary, for promissory notes, and in 
 neither case would the course of monetary transactions be 
 essentially disturbed or altered. On this simple and un- 
 deniable proposition, indeed, I should be content to rest 
 my whole argument. The two systems are mutually con- 
 vertible. There is not a single object at present attained 
 through the agency of Bank of England notes, which 
 might not be as effectually accomplished by each indivi- 
 dual keeping an account with the bank, and transacting 
 all his payments of five pounds and upwards by cheque. 
 I do not say, that such a plan would be necessarily free 
 from inconveniences or difficulties in practice. I only 
 affirm, that there would be no obstacle to it in principle, 
 and that in this manner a book-credit circulation might 
 be universally substituted for our circulation of bank 
 notes, and would perform all the offices of exchange quite 
 as certainly and efficiently. Are we to say, then, that 
 our bank-notes are money, but that these book-credits 
 Avould not be money ? that payments made in the one 
 medium affect prices, but that payments in the other me- 
 dium would not affect prices ? Unless you can carry your 
 argument to this extent, you do nothing to impeach the 
 identity in principle, which associates bank-notes with 
 the other ordinary forms of credit. It is not enough to 
 show, that bills of exchange, from certain peculiarities in 
 their constitution, are in some respects a less convenient 
 medium of circulation than bank-notes. The question 
 is not as to their greater or less convenience or fitness, 
 but whether they do or can, in point of fact, perform all 
 
42 
 
 the monetary offices of a bank currency. It is not dis- 
 puted, that bank-notes, from their peculiar qualities, and 
 more particularly from the facility with which they are 
 conveyed from place to place and either transferred or 
 realized, have an advantage, in point of convenience, 
 over most other forms of credit, for particular purposes 
 and in particular situations ; and the choice being open, 
 for those purposes and in those situations they will gene- 
 rally be preferred. But it does not follow, that, even for 
 the particular uses in question, and those are mostly in 
 the retail departments of commerce, other forms of credit 
 might not, in case of necessity, be substituted with per- 
 fect success ; while, in payments on the great scale, and 
 connected with the higher order of mercantile transac- 
 tions, as well as in many others, they perform only a 
 very small and subsidiary part. 
 
 But, while I take this view of the relation in which the 
 different forms of circulating credit stand with reference 
 to each other, I would not be understood as in the least 
 degree favouring those outrageous estimates of the cur- 
 rency, which count the whole aggregate credit of the 
 country as equivalent to so much coin. Bank-notes 
 having no other functions to perform than as substitutes 
 for money, and being in demand for that purpose alone, 
 they are created only in quantities little more than suf- 
 ficient to meet that demand ; and, with the exception only 
 of such as accumulate from time to time as a reserve in 
 the hands of the issuing banker, the great bulk of those 
 notes at any given period in existence is also in the ac- 
 tive performance of monetary offices. But, though every 
 bill of exchange is more or less competent to perform 
 the same functions as the bank-note, it is from other 
 motives, and for other purposes than those of providing 
 a circulating medium, that the bill of exchange is usu- 
 ally called into existence. The bill of exchange is not 
 ordinarily, like the note, payable on demand, but after a 
 certain interval of time ; and it passes current at a dis- 
 count equal to the market-rate of interest for the period 
 
43 
 
 it has to run. It is consequently largely sought after 
 by capitalists, as an investment, and in the great majo- 
 rity of cases never passes out of the hands of the first 
 holder till it falls in course of payment. It is the ten- 
 dency of all interest-bearing securities to remain quies- 
 cent. No man holding two instruments of exchange, 
 the one productive, and the other unproductive, will be 
 inclined to pay away the productive instrument, when 
 the other will answer the purpose of payment equally 
 well. If the supply of bank-notes, therefore, be suffi- 
 cient for the transactions of the market, the bills of ex- 
 change will accumulate for the most part in the hands 
 of the capitalist, while the bank-notes will be circulated ; 
 and the amount of bills of exchange at any given time 
 in existence can never, therefore, be anything like a cor- 
 rect measure of the power they are exerting in the cur- 
 rency. It is only when actually appropriated to the 
 purposes of payment, that they can be regarded as an 
 effective portion of the monetary currency at all. It 
 is the same with regard to that portion of credit, which 
 is embodied in the shape of bank deposits : while dor- 
 mant, it is nothing more than credit in the abstract ; it 
 only becomes currency when brought into action. Nor 
 are bank-notes themselves exempt from the application 
 of the same distinction. In as far as prices and ex- 
 changes are concerned, the notes accumulated as a re- 
 serve in a banker's drawer can exercise as little influ- 
 ence as the gold which is still in the ore.* 
 
 * I should have supposed, that this proposition was too self-evident 
 to be disputed by the theorists of any persuasion. But I find that 
 there are reasoners to be met with, who take a very different view of 
 the question, both as respects the paper and the gold, and seem to 
 think, that the bare existence of either in the hands of a banker is quite 
 sufficient to alter the exchangeable value of the general mass of the 
 currency, and to enhance prices. According to them, the effect is pro- 
 duced by the " greater command" which is obtained over the purchase 
 of commodities, even without any actual increase of purchases, or of 
 offers to purchase ! One of these reasoners, it would seem, is Sir Wil- 
 liam Clay. In the course of an argument on the supposed case of an 
 
44 
 
 The true light, therefore, in which, as it seems to me, 
 we ought to regard these various forms of circulating 
 credit, is rather as an element of monetary power than 
 as in itself money, as a vast and inexhaustible fund of 
 potential currency, at the free command of every man 
 whose exigencies require its aid, and who has an equi- 
 valent to render or security to pledge in return. What 
 may be the absolute extent to which this power is in 
 active operation at any given time, it is obvious, we can 
 have no feasible means of estimating. Indeed, it would 
 be no easy matter to define exactly, where this state of 
 activity may be said to commence and where to termi- 
 nate ; for it only manifests itself in the specific act of 
 payment ; and, unless we could ascertain the whole sum 
 of payments effected within a given time, through the 
 medium of each of these several forms of credit, we can 
 form no accurate appreciation of their respective per- 
 formances, either as compared with each other or with 
 the performances of the money circulation to which they 
 are auxiliary. It is the fashion of the day, to attach an 
 inordinate degree of importance to the periodical returns 
 of the bank-note circulation, and I am far from denying 
 the utility of the information which those returns fur- 
 
 extra issue of bank-notes on loan, which has been turned into a credit 
 on deposit, by the parties into whose hands the notes have fallen 
 paying them in to their respective accounts with the bank, he observes, 
 " And will it be said that these additions have no effect on prices ? 
 I can conceive no reason why they should not have the same effect on 
 prices as would be produced by the addition of 2000/. in sovereigns 
 brought into the country and paid into the respective banks by per- 
 sons arriving from abroad. In the latter case, as in the former, the 
 money would not at once enter into the circulation, it would only be 
 absorbed by the circulation, as prices rose under the influence of the 
 greater command over the purchase of 'commodities ', which the possession 
 of it conferred on one or more members of the community." [See Sir 
 William Clay's ' Remarks on the Expediency of restricting the Issue 
 of Promissory Notes/ &c. p. 36.] It certainly must be conceded to 
 Sir William, that the rise of prices to be apprehended from the addition 
 to the deposits in the case here supposed, would be quite as great as 
 any rise which would be produced by the addition of the sovereigns. 
 
45 
 
 nish to the community. It may serve, to some extent 
 at least, as an index of the state of commercial credit, and 
 of the greater or less activity of industry ; and it is of 
 undoubted and eminent advantage both to the customers 
 and proprietors of banks, by the publicity which it gives, 
 to one class at least of their liabilities, and the addi- 
 tional security thereby afforded against the indiscre- 
 tion or misconduct of their managers. But, beyond this, 
 it would be a palpable delusion to suppose that these 
 returns make us much wiser, that they supply anything 
 like a comprehensive view of the amount or value of 
 monetary dealings, or furnish data from which any 
 one can determine the scale of prices, or predict the re- 
 volutions of exchange. Of all the other elements of 
 monetary power, we know little more than that they 
 exist. We collect just enough from common observa- 
 tion and experience, to be perfectly assured of the fact, 
 that the total amount of transactions adjusted by the 
 various processes of set-off, through the agency of the 
 London clearing-house, and of other expedients of trans- 
 fer in use among bankers, without the intervention of 
 money, or the aid of any circulating instruments of 
 credit, save only the banker's cheque, surpasses to an 
 enormous extent, in magnitude if not in number, the 
 amount of transactions adjusted by payment in bank- 
 notes. We know too, that, in consequence of the in- 
 creased facilities afforded by banks, and the recent ex- 
 tension of the practice of keeping banking accounts, this 
 disproportion is much more considerable at the present 
 moment, in all parts of the kingdom, than it was only 
 ten years ago. To say nothing of the great commercial 
 dealings on the Exchange, let any resident in the me- 
 tropolis, living upon his fortune, and conducting his 
 expenditure in the customary manner, let him only 
 recal to his recollection how often, during the course of 
 a year, he has had occasion to make use of bank-notes. 
 If he has been going on a journey, out of reach of his 
 banker, or to parts of the country where he might not 
 
46 
 
 be personally known, he may have found it convenient 
 to take a few such with him. But otherwise, he will pro- 
 bably find, that everything has been done by cheques, 
 with the addition of a little gold and silver for small 
 change, and that for months together perhaps he has not 
 so much as seen a Bank of England note. There is 
 scarcely now a respectable tradesman, or indeed any 
 man who has cash to keep, that does not keep that cash 
 with a banker, and make all his payments of 5/. and 
 upwards by cheque ; and these cheques, in their turn, 
 are adjusted by mutual transfer at the clearing-house, 
 leaving a balance to be settled in notes or coin of not 
 more than about 6 per cent, on the whole sum. Mr. 
 Gladstone, in his examination before the Committee of 
 1819, has thrown out an opinion, that the circulation of 
 Bank of England notes does not constitute " one-tenth 
 part of the general circulation of the country."* And 
 we have an estimate to nearly the same effect from Mr. 
 M'Culloch, who does not hesitate to state, that, " but for 
 the expedients resorted to for the purpose of economising 
 the currency, a circulation of two hundred millions, at 
 the very least, would be required to perform the func- 
 tions now performed by fifty or sixty millions of bank- 
 notes and gold." f These estimates may be little more 
 than random conjectures, but they are the conjectures of 
 men of experience and accuracy; they are sufficiently 
 consistent with each other; and, when dispassionately 
 compared with the facts within our knowledge, will 
 scarcely, I think, be rejected as very unreasonable or 
 extravagant. 
 
 But the point, above all others, which claims our 
 attention is this, that, notwithstanding the prodigious 
 scale on which currency thus derives aid from credit, 
 the fund always far exceeds the demand upon it, and 
 there is unquestionably at all times afloat a superfluity 
 of forms of credit applicable to the purposes of circula- 
 
 * See the Report of the Commons' Committee of 1819, p. 109. 
 + See ' Dictionary of Commerce/ art. "Banking." 
 
47 
 
 tion, which are never called into use, simply because 
 they are not wanted, but which might at any time and 
 would be called into use, were the public to be deprived 
 for any considerable period of those resources on which 
 they more habitually depend. Thus, while the circula- 
 tion of bills of exchange as money has nowhere borne 
 more than an inconsiderable proportion to the whole 
 quantity of bills in the market, the note circulation and 
 bill circulation, where they have been used in common, 
 have been observed to maintain a mutual balance, the 
 one supplying any deficiency in the other ; and it has 
 been chiefly owing to the accommodations latterly 
 afforded by the Bank of England to the country banks, 
 and the free supply of its notes on easy terms, through 
 its branches, for the provincial circulation, that the use 
 of bills in Lancashire as money has for some time been 
 progressively on the decline. I know indeed that, in 
 opposition to this view of the question, it has been 
 alleged, that, " when the aggregate amount of coin and 
 bank-notes is undergoing a diminution, an increase in 
 the use of bills of exchange, to supply the place of the 
 coin and bank-notes, is, practically speaking, impos- 
 sible ;" that, " so far from increasing under such cir- 
 cumstances, they will necessarily, and without any 
 legislative interference for the purpose, decrease pro- 
 bably in a greater ratio than the coin and bank-notes." * 
 I believe this to be one of the many fallacies, which have 
 been invented to prop up the rotten fabric of the cur- 
 rency theory. If my space permitted, and the occasion 
 demanded, I am confident I have the means of proving, 
 that there exists no such invariable connexion as has 
 been generally assumed, between the contractions and 
 expansions of the bank-note circulation and the expan- 
 sions and contractions of the bill circulation. But really 
 the point is quite irrelevant to the matter in debate. To 
 suppose for a moment, that a reduction of the circulating 
 
 * See Mr. Norman's ' Letter to Charles Wood, Esq., M.P.' p. 42. 
 
48 
 
 amount of coin and bank-notes could not be compensated 
 by an increased use of bills of exchange for the purposes 
 of money, unless there was at the same time an enlarge- 
 ment of the aggregate bill circulation, betrays an utter 
 misapprehension of the bearings of the question. It 
 seems to be entirely forgot, that the amount of bills of 
 exchange performing the offices of currency at any 
 given time bears ordinarily perhaps no greater propor- 
 tion than as one in ten, or one in twenty, to the whole 
 amount of bills in existence. Had this fact been recol- 
 lected, it would have been obvious on the slightest re- 
 flection, that the proportion of bills thus employed might 
 be doubled at the very time that the aggregate bill cir- 
 culation might be in a rapid course of diminution ; and 
 such, in one degree or another, I believe to be not at all 
 an unusual coincidence in the fluctuations of the money- 
 market. 
 
 Upon the same principle by which bills of exchange 
 and other negotiable instruments are made to perform 
 the functions of money, there is no description of trans- 
 ferable debt or security which may not on some occa- 
 sion or other be applied to the same purpose ; and it is 
 impossible to doubt but that, out of the superabundance 
 of existing forms of credit of one description or another, 
 the bank-note circulation, even if wholly withdrawn, 
 would in a very short time be replaced, not perhaps in 
 all respects with exactly the same convenience, but 
 amply and completely, and with very little assistance 
 from gold. The innovation on established habits would 
 be the only serious difficulty. The London bankers at 
 present are accustomed to rely on a supply of notes on 
 discount from the Bank of England ; and when that re- 
 source at any time fails them, they are thrown into em- 
 barrassment and difficulty, though, so long as their 
 credit is entire, they have only to cast round them for a 
 remedy. If they could agree among themselves to pass 
 bills of exchange currently as money, the thing would 
 be done ; and, as far as concerns a medium of exchange, 
 
49 
 
 they would be independent of the Bank. But the appli- 
 cation of bills of exchange to such uses is not the custom 
 of London ; and a time of general distress and alarm is 
 not exactly the time for introducing new schemes. It is 
 not therefore attempted. It would be a different case, 
 however, if these emergencies were of long duration. 
 The bankers would in that case be compelled, in self- 
 defence, to resort to new expedients, and would have 
 more leisure for deliberation in the choice of them. 
 There is a remarkable passage on this head, in Mr. Henry 
 Thornton's evidence before the Committee of 1797 on 
 the Outstanding Demands of the Bank of England. 
 After detailing the disastrous consequences to be appre- 
 hended from any further considerable reduction at that 
 period of the issues of the Bank, he says, " I cannot 
 conceive, that the mercantile world would suffer such a 
 diminution to take place, without substituting a circu- 
 lating medium of their own; and I happen to know, as 
 I before hinted, that some projects of this sort were on 
 foot, and had been in the minds of several bankers, 
 whom I understood to have agreed in the general prin- 
 ciple, though not actually associated for this purpose, 
 in the recent difficulties."* These reasonings and anti- 
 cipations are fully sustained by our experience of the 
 fluctuations of the bill currency in the manufacturing 
 districts. The extension of the branches of the Bank of 
 England over the country, and the increased predomi- 
 nance which the operations of those branches have given 
 to the Bank of England notes in the country circulation, 
 have had the effect, as I have already observed, of nearly 
 extinguishing the circulation of bills of exchange as 
 money. The aggregate mass of bills probably remains 
 the same, or it may be greater ; the gross amount of 
 circulating credit remains the same ; the only difference 
 is, that certain functions which were lately performed 
 by means of bills of exchange, are now performed by 
 
 * See c Report of Committee of 1797,' reprinted in 8vo. in 1826, 
 p. 56. 
 
 E 
 
50 
 
 bank-notes or book transfers ; and not only is the nume- 
 rical amount of bills unaffected, or affected only in a 
 trivial degree, but their power as a circulating medium, 
 though for the present in abeyance, continues as it was 
 before, a ready succedaneum for the bank-note, when- 
 ever the necessities of the public may call them again 
 into use for that purpose. The manager for the Bank 
 of England at Liverpool, when asked by the Committee 
 of the House of Commons in 1838, whether, at a time 
 when the Bank of England is discounting generally at 
 44 per cent., those country banks, which at present have 
 what are called circulation accounts with that establish- 
 ment, and are entitled by agreement to a large accom- 
 modation at 3 per cent., would not, in case they had no 
 such advantage, find it necessary to procure the same 
 supply from the London market at the current interest 
 of the day, replies, that the banks would not, in such 
 case, be obliged to resort to the London market, " but 
 would have recourse again to their bill circulation."' 
 In this opinion there cannot, I think, be the least doubt 
 but that Mr. Turner was right ; and, reduced as the bill 
 circulation was in 1841, we find his view of the case 
 corroborated by the remark of another intelligent wit- 
 ness, who, in his examination before the Committee of 
 that year, states that " whenever money is scarce, there 
 is an increase of the circulation of small bills in the 
 
 country."! 
 
 And now, if this state of circumstances, which I have 
 been endeavouring to explain and illustrate, be not a 
 dream or a fiction, if it be true, that the redundance of 
 the circulating medium can only operate on prices, and 
 through prices on exchanges, by means of the additional 
 facilities which it is supposed to afford to transactions of 
 purchase and sale, and the consequent augmented de- 
 mand for commodities, if, further, it be an undeniable 
 
 * See ' Report of 1838 on Joint Stock Banks,' p. 19. 
 f See Mr. James's Evidence before the Commons' Committee of 
 1841 on Banks of Issue ; Report, p. 152. 
 
51 
 
 fact, that nine-tenths, or some other very large propor- 
 tion, of all the transactions of purchase and sale which 
 take place in the kingdom are adjusted without the in- 
 tervention of money properly so called at all, and by the 
 use of other expedients of credit than bank-notes, and 
 if, lastly, the supply of some of those expedients of credit 
 is increasing and inexhaustible, utterly beyond the reach 
 of legal restraint, and never denied to any one who has 
 occasion to use them and value to give for them, stronger 
 evidence surely cannot well be desired or imagined of the 
 utter hopelessness of any attempt to control those pur- 
 chases and sales, or the fluctuations of value which they 
 engender, by any officious tampering with the free 
 supply of so comparatively insignificant a portion of the 
 whole mass of circulating credit as the bank-notes, and 
 that portion the least of any in affinity with those great 
 operations of trade by which the course of prices and ex- 
 changes is really directed. I am not sensible of having 
 exaggerated any circumstance in this picture. But let 
 every possible exaggeration, alleged or suspected, be al- 
 lowed for, and the end which you propose will still be 
 found far out of the compass of your means. Bank-notes 
 are the small change of credit, the humblest of the me- 
 chanical organizations through which credit develops 
 itself. And to think of effectually shackling the ener- 
 gies or curbing the excesses of that gigantic power, by 
 merely crippling a little the movements of this its infe- 
 rior member, is much the same as if Parliament, in one 
 of those fits of legislative mania to which the times ap- 
 pear so encouraging, were, by way of laying a sumptuary 
 restraint on the too free indulgence in gin and tobacco, to 
 propose a curtailment of the small coinage of sixpences, 
 halfpence, and farthings, with which the consumers of 
 those luxuries are in the habit of defraying their pot-house 
 reckonings. The results in both cases would probably 
 be much the same ; nor would the legislature be likely 
 to find the gin-drinkers and tobacco-smokers more tract- 
 able subjects of experiment than the speculators on the 
 
 E2 
 
52 
 
 Royal Exchange. There would not in the long run be 
 consumed one gallon of gin nor one roll of tobacco less. 
 When men have commodities to exchange or credit to 
 exchange for commodities, you do not prevent such ex- 
 changes by denying them a safe and convenient medium 
 for the traffic, you only force them to invent for them- 
 selves some expedient less safe and less convenient. 
 
 To those who desire a more familiar acquaintance with 
 the shifts and devices by which a people, abandoned by 
 the improvidence of their rulers to devise a small cur- 
 rency for themselves, contrive to find substitutes for 
 money, I cannot recommend a more profitable study 
 than the Report of the Committee of 1804 on the state 
 of the circulation in Ireland. The history of the Irish 
 currency from 1798 down to that year furnishes a sin- 
 gular picture of the struggles of a people, whose metallic 
 circulation has been allowed to pass from them, without 
 any precaution on the part of their government to pro- 
 vide them with an efficient substitute. Ireland at that 
 period had no commercial intercourse with any other 
 country than Great Britain ; and various circumstances 
 concurred, soon after the passing of the Bank Restriction 
 Act, to turn the current of exchange between the two 
 kingdoms so strongly against Ireland, that in a very 
 short period the whole of the latter country, with the 
 exception of a limited circle in the north marked out as 
 the seat of the linen manufacture, appears to have been 
 effectually stripped of its coin of every description, small 
 as well as large, silver as well as gold. For the gold, 
 the one-pound notes issued by the Bank of Ireland 
 proved a useful, if not an unexceptionable succedaneum ; 
 but for all means of circulation below 21 s. the population 
 seem to have been left entirely to their own contrivances. 
 What was the consequence ? Why, the whole south of 
 Ireland was presently inundated with a deluge of silver 
 notes, as they were called, and I-O-U's, issued not only 
 by private bankers, but by half the petty shopkeepers, 
 publicans and traders, and of various denominations, 
 
53 
 
 from 9*. down to 9%d. From the district of Youghall 
 alone we have the names of no less than seventy issuers, 
 among whom there was only one regular banker ; while 
 in Dublin, where the issue of very small notes was not 
 permitted, the substitute was a very base description of 
 silver, privately fabricated in vast quantities, and some 
 of it not worth more than a fourth of its denomination. 
 It was a matter of necessity, that a currency so consti- 
 tuted should become depreciated. The responsibility of 
 the issuers of the silver notes and I-O-U's would not pro- 
 bably have availed much, had there existed any facility 
 of putting it to the trial. But the very distances must in 
 the great majority of cases have been an insuperable im- 
 pediment of themselves to the realization of sums of such 
 paltry amount ; and the issuers were moreover protected 
 by a clause of the statute of 1799, which actually re- 
 strained the holders of silver notes from demanding pay- 
 ment of them in any money but the notes of the Bank 
 of Ireland, so that they could only be realized at all in 
 even sums of 20s., which was the lowest denomination 
 of a Bank of Ireland note ; and if there was any fractional 
 difference, the applicant was required to tender it in 
 cash. It is obvious, therefore, that such a currency must 
 have been virtually inconvertible, not to say into cash, 
 but into any circulation of a description superior to itself, 
 and not merely inconvertible, but of a character more or 
 less compulsory. It was issued not on loan, like the 
 promissory notes of bankers, to be returned after a brief 
 interval in the same kind to the issuer, but was disbursed 
 for the payment of his personal debts, or the purchase of 
 commodities for his individual use. And with respect 
 to the surreptitious issues of base coin, the case was still 
 worse ; they poured into the market from no one knew 
 where, and there was absolutely no channel through 
 which they could ever be thrown back on their fabrica- 
 tors. To neither of these descriptions of issue could 
 there be any natural or prescribed limit : and we have 
 accordingly presented to us in the Irish circulation of that 
 
54 
 
 day, the singular spectacle of a degradation of value, not 
 (as I believe) deriving its origin from the overflow of any 
 of the principal or ordinary fountains of commercial cur- 
 rency, nor affecting in the first instance the great marts 
 of commerce, but engendered among the retail dealings 
 of a poor and straggling population, at cattle-markets 
 and fairs, and gradually working its way upwards by a 
 process not very difficult to be understood, till the whole 
 mass came to partake of the degradation. 
 
 Fortunately, the expedients likely to be resorted to for 
 supplying any void in the higher departments of the cir- 
 culation, which may be consequent on the rigid prosecu- 
 tion of the plan now announced by Government, are not 
 of a nature, to justify any reasonable apprehension of re- 
 sults at all resembling those, which attended the efforts 
 of the Irish to provide themselves with a substitute for 
 small money. In the manufacturing districts, indeed, 
 they may very possibly revert to a more extended circu- 
 lation of bills of exchange, which may occasionally be 
 found unsafe, and certainly can in no point of view be 
 regarded as an improvement on a circulation of Bank of 
 England notes ; and I am surprised, I own, that a dete- 
 rioration even to that extent should be risked by a mea- 
 sure, which professes to have for its main object the 
 placing the circulating paper of the country on a sound 
 and impregnable foundation. But, though a risk to be 
 avoided, it is not one calculated to excite any very se- 
 rious alarm. Nor is it from any idea that the degraded 
 condition of the Irish small notes and coin in 1804 fur- 
 nishes the smallest analogy applicable, to any probable 
 results of the projected limitation of the bank-note cir- 
 culation of this country, that I have been anxious to 
 direct attention to that remarkable epoch in the Irish 
 currency. My sole object, in referring to the phenomena 
 of that period, has been to illustrate the facility, with 
 which even a people labouring under every disadvan- 
 tage of circumstance and condition, a poor agricultural 
 people, comparatively without capital, credit, or com- 
 
55 
 
 merce, can always provide itself with some imperfect 
 medium or other for the transaction of its exchanges, 
 when denied a supply of sound currency commensurate 
 with its wants. And I rely on these phenomena as an 
 additional demonstration of the futility of any attempt, 
 in a country like Great Britain, full of wealth and re- 
 sources, and superabounding in every aid and appliance 
 which an unheard-of command of credit, directed by com- 
 mercial experience, enterprise, and skill, can bestow, to 
 place the quantity of the circulating medium under any 
 other restriction than what those wants, as expressed 
 through the organ of the public demand, must every- 
 where of themselves impose. 
 
56 
 
 CHAPTER III. 
 
 How Fluctuations in the Cost of producing the Precious Metals, or in 
 the Quantity of a Currency of Conventional Paper, act on Prices 
 Bank-notes do not so act, because their quantity is governed by the 
 demand How Speculation affects Prices Fluctuations of Price 
 from the Quantity of the Currency Nominal ; from Speculation Real 
 New Gold Coin and new Conventional Notes are issued in Pay- 
 ments, Bank-notes only on Loan The regular Reflux of Notes 
 advanced on Loan a sure Preventive of Redundance Sir William 
 Clay and Mr. Tooke The Reflux is the great regulating principle 
 of the internal Currency Inexpediency of the State taking the 
 Management of the Currency into its own hands. 
 
 THE reality or the magnitude of an evil can be no justi- 
 fication for the adoption of an impracticable remedy. 
 And, were the prepossessions on this subject less univer- 
 sally and deeply rooted, it might be sufficient, for the 
 purpose of my present argument, to have shown, as I 
 have endeavoured to do, that the plan now proposed to 
 Parliament for the future regulation of the currency 
 must be utterly and incurably inefficient for the objects 
 it professes to have in view, however desirable the at- 
 tainment of those objects may be. But the bearings of 
 this question are so complicated, and there prevails such 
 manifold misunderstanding on almost every point con- 
 nected with it, that it might seem little less than a vir- 
 tual abandonment of my cause, were I to stop here, leav- 
 ing the issue to be decided on the plea of impracticability 
 alone. I believe it to be not less demonstrable, that the 
 proposed object, if attainable, would be wholly undesir- 
 able, than that the means proposed for its attainment are 
 inadequate to that end. I look upon the whole doctrine 
 of depreciation from over-issue as a delusion, an hypo- 
 thesis in direct contradiction to facts, and to which no- 
 thing but a misconstruction of facts, somewhat per- 
 
57 
 
 plexed, perhaps, in their bearings, but clearly susceptible 
 of a more accurate and consistent interpretation, could 
 possibly have given currency. 
 
 The allegation is, that bank-notes, payable in gold on 
 demand, are nevertheless liable to be issued in excessive 
 quantity at the discretion of the issuer, and that every 
 such over-issue occasions a proportional rise in the prices 
 of commodities. At the entrance of this branch of the 
 discussion, it may be of advantage, that I should at once 
 distinctly explain the views which I entertain, with re- 
 gard to the connexion which subsists between currency 
 and prices, so that there may be no mistake with regard 
 to the nature of the propositions which it is my inten- 
 tion to maintain. To the want of a clear understanding 
 upon this head in limine I am inclined, in some part, to 
 attribute the very limited impression which arguments, 
 to my mind irresistible, appear to have produced hitherto 
 on the minds of the public. That, soon after the disco- 
 very of the South American mines in the sixteenth cen- 
 tury, a decline in the value of the precious metals was 
 manifested all over the world by an universal rise of the 
 money prices of commodities, is a fact which no one 
 presumes to question. It is equally undenied and un- 
 deniable, that the inconvertible paper money issued by 
 sovereign states may be, and has been, degraded by ex- 
 cess of quantity, until its value in exchange has been 
 nearly extinguished altogether. People look at these 
 facts, and observing, at the same time, that, with a sys- 
 tem of convertible notes, there occur also, from time to 
 time, extensive fluctuations in the markets, and, being 
 told that those fluctuations are caused by the alternate 
 expansions and contractions of the bank issues, the 
 whole class of phenomena the action of the coin, of 
 the government notes, and of the bank-notes become 
 naturally associated in their minds almost as one idea ; 
 they regard the whole as the results of a common prin- 
 ciple ; and when they are asked to entertain a proposi- 
 tion like that conveyed in Mr. Tooke's dictum, that 
 
58 
 
 " variations in the quantity of the circulating medium 
 do not affect prices at all,"* they turn away incredulous, 
 as from a paradox that outrages all their preconceived 
 notions, and seems even to be contradicted by facts 
 within their daily experience. If a redundance of me- 
 tallic coin, or of government notes, raises prices, they 
 are unable to perceive why the redundant paper of a 
 credit currency should not have the same effect. Their 
 difficulty, however, originates in an entire mistake of 
 the point at issue. It is not disputed that, if the issuers 
 of bank-notes had it in their power to add permanently 
 to the note circulation of the country, as the disco- 
 verers of the Cerro de Potosi added to the stock of the 
 precious metals throughout the world, or as the National 
 Convention of France added one flood of assignats to 
 another, the prices of all commodities, estimated in 
 bank-notes, would, after a time, infallibly rise, just as 
 in the case of the silver and of the assignats. What 
 Mr. Tooke, and those who hold similar opinions, con- 
 tend for is, that, by the very constitution of a convert- 
 ible currency, it can never be issued in larger quantities 
 than are required for use, and therefore can never be 
 redundant. 
 
 It is true, that the prices of an extensive class of com- 
 modities may occasionally be affected for a time by spe- 
 culation, and that such speculation may be more or less 
 supported by extraordinary facilities of credit. But, 
 albeit bank-notes are nothing more than credit embodied 
 in a particular shape, this indirect action of credit on 
 prices is quite a different thing from the action on prices 
 ascribed to bank-notes by the partisans of the currency 
 theory. According to these gentlemen, bank-notes in- 
 fluence prices simply by their quantity. In their view, 
 if a million of notes be added to an existing circulation 
 of twenty millions, the local effect will be the same, as if 
 the whole stock of gold existing in the world had been 
 
 * See Mr. Tooke's Evidence before the Commons' Committee of 
 1840 on Banks of Issue, p. 298, 299. 
 
59 
 
 suddenly augmented in the proportion of 5 per cent, by 
 an extra supply from the mines ; the circulation will be 
 depreciated to the extent of 5 per cent, by the addition, 
 and the general prices of commodities will be raised in 
 the same ratio. The rise, however, in this case, suppos- 
 ing such an incident to be possible, would, after all, be 
 merely nominal ; for as the quantity of goods which a 
 note for 5/. could command would only be reduced in 
 the same proportion that the note was depreciated, the 
 money value given in exchange would still be exactly 
 the same as before ; the only change would be in the 
 denomination. But where the prices of commodities 
 are raised by the influence of speculation, whether with 
 or without the aid of credit, both the process and the 
 result are as nearly as possible reversed. The object of 
 the speculative purchaser is to withdraw from consump- 
 tion a portion of the stock of the commodity in .which 
 he speculates, and to hold it back from the market until 
 he can sell it at a profit ; his action is on the value, not 
 of the money, but of the commodity ; and he causes a 
 rise of price by thus disturbing the natural course of 
 supply and demand. He first creates an artificial de- 
 mand, by entering into competition with the consumer 
 for the possession of the commodity, and then he con- 
 tracts the supply, by refusing for a time to sell it to 
 any one else. When he succeeds in his object, however, 
 the rise of price is not nominal but real ; when he at 
 last brings his commodity to market, he obtains for it 
 not merely a larger numerical amount of coin or notes 
 than he paid for it, but a larger money value. 
 
 Let us try now to elucidate these distinctions a little 
 further, by attending to the actual process by which an 
 increased influx of the precious metals, consequent on 
 the improved fertility of the mines, or any considerable 
 and uncalled-for addition to a circulation of inconver- 
 tible government paper, acts upon prices ; and let us see, 
 whether the same or any similar process would be 
 compatible with the circumstances and conditions which 
 
60 
 
 govern the fluctuations of a bank-note currency. It 
 may tend to simplify our argument, if we suppose the 
 case of a nation having no commercial intercourse with 
 its neighbours, maintaining no mint establishment for 
 the renewal of its coin, but transacting its interior ex- 
 changes by means of an old and debased metallic circu- 
 lation, which preserves a high rate of exchangeable value 
 merely by the limitation of its amount, of a nation 
 making use, nevertheless, of the precious metals on a 
 large scale for purposes of ornament and luxury, and 
 exporting yearly the products of its industry, to the 
 value, say, of half a million sterling, to some distant 
 mining country, for the purchase of an equivalent in 
 gold and silver, to replace the annual tear and wear of 
 its stock, and to meet an increasing demand for con- 
 sumption. Under these circumstances, let it be ima- 
 gined, that, by some extraordinary improvement in the 
 method of working the mines, or by the discovery of 
 some new and richer veins of ore, the cost of procuring 
 the gold and silver in the mining country were reduced 
 to one half of what it had been before ; that, in conse- 
 quence of this discovery, the annual production were 
 doubled, and the price of the metals on the spot lowered 
 in a corresponding proportion, and that, in consequence 
 of this change of circumstances, the merchants of the 
 country first-mentioned were, in return for the same 
 quantity of exported goods which had hitherto been 
 merely sufficient for the purchase of gold and silver to 
 the amount of the required half million, enabled to pro- 
 cure and bring home a million of those metals what 
 would be the effect ? I certainly am not aware, that any 
 effect would be produced, under such circumstances, dif- 
 fering materially from the effect of an over-supply of 
 any other equally durable commodity. The previous 
 annual consumption of gold and silver in the country, 
 for plate, gilding, and trinkets, having been fully sup- 
 plied by an importation to the value of half a million, 
 there would be no purchasers for more, until a new de- 
 
61 
 
 mand should be created by a reduction of price; the 
 prices, accordingly, of the newly imported stock of me- 
 tals, as estimated in the base currency, would decline 
 with more or less rapidity as the merchants might be 
 more or less eager to realize their returns ; a certain 
 proportion of the treasure would, no doubt, be held 
 back for a time from the market, so as to let down these 
 prices gradually, and, probably, to secure to the mer- 
 chant a pretty high rate of profit on the actual sales, 
 though greatly short of what the reduced cost at which 
 the article had been procured might have encouraged 
 him to expect ; the disposition to consume would gra- 
 dually increase with the fall of price : and thus matters 
 would go on, till another and another importation on 
 the same redundant scale, following in succession from 
 one year to another, would at length bring down the 
 scale of price to a level with the altered cost of importa- 
 tion, or perhaps, for a certain period, below it : this 
 again would react upon the industry of the mining 
 country, and thus insensibly the course of demand would 
 be brought again into harmony with the altered condi- 
 tions of the supply. But, all this time, the price of every 
 other commodity but the gold and silver, as measured 
 in the local currency of the country, would remain un- 
 moved; and, unless some of the surplus stock of the 
 metals thus acquired could be turned to account in com- 
 mercial exchange with some third country less favour- 
 ably circumstanced for procuring its supplies of gold 
 and silver direct from the mines, the importing country 
 would derive no advantage from these periodical acces- 
 sions of metallic wealth, beyond such gratification as 
 can be derived from the more generally diffused appli- 
 cation of gold and silver to domestic uses. But let us 
 next picture to ourselves the effect which a similar suc- 
 cession of incidents would produce in a country more 
 advanced in its commercial relations, and with its mone- 
 tary system on a more improved footing, possessing 
 already a full metallic circulation of standard weight 
 
62 
 
 and fineness, an unrestrained traffic in the metals, and a 
 mint open for the coinage of all the standard bullion 
 which might be brought to it. Under such circum- 
 stances, the effect of a sudden duplication of the annual 
 supply from the mines would be very different. There 
 could, in that case, be no rise of the market-price of the 
 bullion, for the price of gold, measured in coin of the 
 same metal, and of equal fineness, can never vary ; they 
 may both rise or both fall together, as compared with 
 commodities, but there can be no divergence. Neither 
 would there be any unusual pressure on the bullion 
 market in consequence of the increased importation, nor, 
 at least in the first instance, any inducement to a larger 
 consumption of the imported metals in the arts. The 
 market would take off at par merely such proportion of 
 the importation as had hitherto sufficed for the purposes 
 of consumption, and the rest would all be sent to the 
 mint for coinage, yielding an enormous accession of 
 wealth to the importers, who, to the extent of the means 
 thus placed in their hands, would immediately become 
 competitors for every description of productive invest- 
 ment in the market, as well as for all the material ob- 
 jects which contribute to human enjoyment. But as 
 the supply of such objects of desire is always limited, 
 and would in no way be augmented by this great inun- 
 dation of circulating coin, the inevitable results would 
 be, first, a decline of the market-rate of interest ; next, a 
 rise in the value of land, and of all interest-bearing se- 
 curities ; and, lastly, a progressive increase in the prices 
 of commodities generally, until such prices should have 
 attained a level corresponding with the reduced cost of 
 procuring the coin, when the action on interest would 
 cease, the new stock of coin would be absorbed in the 
 old, and the visions of sudden riches and prosperity 
 would pass away, leaving no trace behind them but 
 in the greater number and weight of the coins to be 
 counted over on every occasion of purchase and sale. 
 The process by which the redundant issues of an in- 
 
63 
 
 convertible government paper act upon prices, is exactly 
 analogous to that which is set in motion by an increase 
 of the productive power of the mines. It is in the dis- 
 cretion of the issuing authority, either to limit the 
 employment of the notes which it sends out to the pur- 
 poses of a temporary advance in anticipation of taxes, or 
 to issue them for all purposes of state expenditure with- 
 out making any provision to secure their return. In the 
 former case, there will be no permanent addition to the 
 circulation, nor any power of purchase obtained which 
 would not sooner or later have been obtained through 
 taxation alone. In the latter, the issuing authority will 
 be placed nearly in the same position with the merchant 
 returning with his double cargo of gold and silver from 
 El Dorado. It will have invested itself with a power, 
 only limited in the first instance by its own discretion, 
 of competing in the market for every article of which 
 the government or the host of individuals receiving pay 
 from government may chance to stand in need ; and 
 there is no channel, through which the notes which it 
 issues can ever return. There exists therefore every 
 condition necessary to a depreciation of the paper and a 
 rise of the nominal prices of commodities. 
 
 Try then the bank-notes by the same tests ; and see if 
 the principles which determine a rise of prices in the 
 case of a more abundant influx of the precious metals, 
 or of the redundant issues of a conventional currency, 
 can have the least application to them. There is this 
 broad and clear distinction between all currencies of 
 value and currencies of credit, that the quantity of the 
 former is in no degree regulated by the public demand, 
 whereas the quantity of the latter is regulated by nothing 
 else. The gold, which is once smelted and converted 
 into coin, can never be returned again into the mine ; 
 there it is, a permanent and irrevocable addition to the 
 stock of money in the world ; the people among whom 
 it is circulated have no voice in directing its destination ; 
 to the importer it is utterly unprofitable, so long as he 
 
64 
 
 holds it, and he must therefore exchange it for some- 
 thing productive, at whatever sacrifice. In order, there- 
 fore, to get rid of it, he submits to exchange a larger 
 quantity of it for the purchase of whatever objects he 
 covets, than would have been sufficient for the same pur- 
 chases before this new competition ; and by thus forcing 
 his coin on the market at a reduction of value, he proves 
 that at previous prices there was no demand for it. Still 
 more decidedly have the conventional issues of govern- 
 ments all the characteristics of a forced currency. Until 
 familiarised to the people by custom, they are always 
 received and circulated with reluctance, and would never 
 be circulated at all, if the people had any choice in the 
 matter. But, even after the notes have become depre- 
 ciated, the law compels the private creditor to accept 
 them in satisfaction of his claim ; and the government 
 having no better money to offer, the only alternative left 
 to its creditors and dependants is to take this or none. 
 Bank-notes, on the other hand, are never issued but on 
 the demand of the recipient parties. New gold coin 
 and new conventional notes are introduced into the 
 market by being made the medium of payments. Bank- 
 notes, on the contrary, are never issued but on loan, 
 and an equal amount of notes must be returned into 
 the bank whenever the loan becomes due. Bank-notes 
 never, therefore, can clog the market by their redundance, 
 nor afford a motive to any one to pay them away at 
 a reduced value in order to get rid of them. The banker 
 has only to take care that they are lent on sufficient 
 security, and the reflux and the issue will, in the long 
 run, always balance each other. However prone indi- 
 viduals may be to abuse at times the facility of borrow- 
 ing, no merchant can ever desire to keep by him a larger 
 sum in bank-notes than is indispensably necessary for 
 his payments ; and if any one were disposed to indulge 
 in so unprofitable a fancy, it would be a matter of not 
 the slightest importance to any other than himself, for, 
 in as far as the public are concerned, notes which are 
 
65 
 
 not in use are the same as if they were not in existence. 
 Those notes cannot be obtained from a banker, but by 
 paying interest for the use of them, nor can they be 
 obtained at all but for very short periods, at the expira- 
 tion of which they must be replaced. Their circulation 
 must always be strictly limited by the wants of those 
 who have value or security to offer for them. And so 
 limited, there can be no redundance ; no holder of them 
 can ever be placed in the same predicament with the 
 importers of a double supply of bullion, or the recipients 
 of a forced issue of government paper, who have no 
 means of turning their acquisitions to use but by sub- 
 mitting to part with them at a reduced value. 
 
 Sir William Clay, however, cannot, it seems, under- 
 stand this. " He is wholly unable to perceive" any of 
 that " essential difference of character, independently of 
 convertibility, between bank-notes and a Government 
 compulsory paper," which Mr. Tooke insists upon; he 
 can see no point of distinction but in the convertibility 
 of the notes ; and, when Mr. Tooke points out, that the 
 compulsory issues of Governments are usually in payment 
 for the personal expenditure of the sovereign, for public 
 works and buildings, or for the maintenance of civil, 
 naval, and military establishments, and that "paper 
 created and so paid away by the Government, not being 
 returnable to the issuer, will constitute a fresh source of 
 demand, and must be forced into and permeate all the 
 channels of circulation," Sir William Clay seems to 
 think the proposition satisfactorily answered by a pro- 
 fession of his inability to discover, " why paper money 
 issued to defray the expenditure of the Sovereign should 
 be different in its effect, when issued, from paper money 
 paid away for the expenditure of private individuals 
 why a 5/. note issued to the builder of a barrack should 
 take a different course from a 5L note paid to the builder 
 of a shop or warehouse why notes employed to defray 
 the salaries of Government clerks, or the pay of soldiers 
 and sailors, should be more disposed to permeate all the 
 
66 
 
 channels of circulation, than if used to pay clerks in 
 merchants' counting-houses or workmen in a factory." 4 
 
 It certainly is not surprising, that Sir William Clay 
 should be unable to perceive the truth of a string of dis- 
 tinctions, which neither Mr. Tooke nor any other sane 
 person has ever dreamt of maintaining, and which have 
 no other existence than in his own imagination. But 
 what does surprise one is, that Sir William Clay should 
 not only have read, but should quote and profess to 
 criticize Mr. Tooke's very plain proposition, and yet 
 should pass wholly unnoticed the single and only point 
 of distinction on which Mr. Tooke's argument turns, 
 namely, that the Government paper is "paid away" 
 and is " not returnable to the issuer" whereas the bank- 
 notes are only lent, and are returnable to the issuers. 
 If the truth of this distinction be not intelligible to Sir 
 William Clay, nor its important bearing on the question 
 under discussion obvious to him, I can have little hope 
 of making the matter more apparent to him by any 
 further illustrations. I shall nevertheless make one effort 
 more to bring the argument home to his conviction. I 
 shall take the liberty of supposing that, after the sus- 
 pension of cash payments in 1797, by which the bank- 
 note circulation of this country was transformed from a 
 convertible into a conventional currency, the Directors 
 of the Bank of England, instead of exercising the privi- 
 lege intrusted to them, in the discharge merely of their 
 ordinary functions as bankers, according to the same 
 system, and subject to the same rules by which in all 
 times previously they had been governed, that, instead 
 of making advances to individuals on the security of 
 approved bills of exchange at short dates, and to 
 Government on the security of the accruing produce of 
 loans and revenues, they had chosen and had been per- 
 mitted to deal with their issues of inconvertible notes as 
 a private gentleman deals with his income, to disburse 
 
 * See Sir William Clay's ' Remarks on the Expediency of Restricting 
 the Issue of Promissory Notes,' &c., p. 38, 39. 
 
67 
 
 them without stint or measure for objects of personal 
 gratification, in building palaces, in laying out planta- 
 tions and gardens, in the purchase of works of art, or in 
 the pleasures of the table or the chace. Is Sir William 
 Clay seriously of opinion that, in as far as respects the 
 amount and value of the currency, this system of expen- 
 diture would have had no effect beyond that which would 
 be produced by the same extent of issue in the ordinary 
 course of banking operations? Should Sir William 
 hesitate to reply in the affirmative, I may perhaps be 
 permitted to observe, that the case which I have sup- 
 posed is precisely that of every government which at- 
 tempts to defray the national expenditure by a compul- 
 sory issue of inconvertible paper. The paper so issued 
 is expended in the purchase of naval and military stores, 
 in building ships, in constructing public edifices, and in 
 the payment of services performed to the state, and no 
 precaution is usually taken to ensure its being ever re- 
 turned again into the Exchequer. In the case of the 
 Bank of England, on the other hand, the reflux of the 
 notes was at no period interrupted. Perfect converti- 
 bility is no doubt one essential condition of every sound 
 and efficient system of currency. It is the only effectual 
 protection against internal discredit, and the best pre- 
 ventive of any violent aberrations of the exchange with 
 foreign countries. But it is not so much by converti- 
 bility into gold, as by the regularity of the reflux, that 
 any redundance of the bank-note issues is rendered im- 
 possible. When a greater number of Bank of England 
 notes fall into the hands of an individual than he is 
 likely to have any immediate call for, he does not, unless 
 he wants specie to send abroad, present them to the 
 Bank for gold. He merely lodges them with his own 
 banker, who probably either places the sum to the credit 
 of his own deposit account with the Bank of England, 
 or throws them into the discount market, where they 
 help to supply the vacancy left by the tide of notes con- 
 tinually setting back to the Bank. It is the reflux^ that 
 
 F2 
 
68 
 
 is the great regulating principle of the internal currency ; 
 and it was by the preservation of the reflux, throughout 
 all the perils and temptations of the period of the restric- 
 tion, that the monetary system of these kingdoms was 
 saved from the utter wreck and degradation which over- 
 whelmed every paper-issuing state on the Continent, and 
 which in all human probability must have been likewise 
 our fate, had the currency been administered by a Go- 
 vernment Board instead of the Bank of England. I 
 have adverted in a former page to the deep debt which 
 the nation owes to the Bank, for its services through 
 that long and trying crisis. I believe they cannot be 
 too highly appreciated ; and I believe, further, that the 
 same services could not have been so beneficially per- 
 formed by any mere bank of the State, or by any body 
 whatever less intimately bound up in all its interests and 
 relations with the commercial affairs and prosperity of 
 the country. That will be an evil day for England, 
 when the supreme executive authority of this country 
 shall take the administration of a credit circulation into 
 its own hands. I trust never to see it ; and I hold the 
 sort of levity with which the possibility of such an 
 arrangement has sometimes of late been alluded to, and 
 even hinted in the way of menace to the Bank of Eng- 
 land, to be one of the worst indications of the existing 
 state of public opinion on these all-important concerns. 
 
69 
 
 CHAPTER IV. 
 
 The Value of a Convertible Currency fluctuates only with that of the 
 Coin Circumstances which render the precious Metals less liable to 
 Fluctuation of Value than other Commodities Hoards, their Origin, 
 Laws, and Effects Slow action on Prices of the discovery of the 
 South American Mines, and of the French Assignats Effect of the 
 present constitution of the Bank of England, in preventing Fluctua- 
 tions of the value of Gold Possible effect of such an influx of Gold, 
 as would displace altogether the Notes issued on credit. 
 
 I HAVE stated now, I believe, the chief characteristics 
 which distinguish a mixed currency of coin and conver- 
 tible notes from currencies either purely metallic or con- 
 ventional, and have endeavoured to explain the principles 
 on which they severally fluctuate. Those principles ex- 
 clude all idea of the possibility of such an over-issue on the 
 part of bankers, as can affect prices. The value of a really 
 convertible currency > must always be identical with the 
 value of the coin into which it is convertible, and can only 
 vary with variations in the value of the coin. This is too 
 self-evident a proposition, to require any demonstration. 
 But even those fluctuations in the exchangeable value of 
 metallic money, or of a credit circulation based on the me- 
 tals, which originate in variations of the productive power 
 of the mines, are of much less importance than has some- 
 times been supposed. In my argument hitherto, I have 
 allowed it to pass for granted, that the precious metals are 
 liable to the same continually-recurring vicissitudes of 
 value, from occasional variations in the cost of production, 
 or in the proportion of the supply to the demand, which 
 are incident to other commodities. But the fact is not so. 
 There are several circumstances, partly arising out of 
 the peculiar properties of the metals themselves, but 
 principally and specially connected with the functions 
 which they perform as money, and the almost universal 
 
70 
 
 acceptance which they find over the world in that capa- 
 city, which materially modify the operation of the gene- 
 ral laws of price in relation to those substances. Their 
 peculiar durability has been favourable to the accumu- 
 lation of a prodigious stock of these metals from the ear- 
 liest ages, a stock out of all proportion to the demand for 
 consumption, as that phrase is ordinarily understood ; and 
 the general avidity to possess them, on account of their 
 peculiar attributes as money, as the universal equivalent, 
 which commands in all parts of the civilized world what- 
 ever is necessary or desirable for the use of man, and 
 which, from the smallness of its bulk as compared with 
 its value, is more easily concealed or transported on any 
 emergency to a place of safety, in countries where pro- 
 perty is insecure, than almost any other description of 
 wealth, has led to the formation of vast hoards, which 
 perform a part in the economy of the currencies of all 
 countries, of which, so far as I am capable of judging, 
 the importance has never yet been sufficiently appre- 
 ciated. Mr. Jacob has computed the entire stock of gold 
 and silver existing in Europe, Asia, and America toge- 
 ther, at 1150 millions sterling, and there are probable 
 grounds for regarding his estimate as, in various parti- 
 culars, very much below the truth.* This immense trea- 
 sure offers an almost incalculable resource, for the correc- 
 tion of casual irregularities in the productiveness of the 
 mines, and for the equalization of the supply of the me- 
 tals from year to year. The yearly addition contributed 
 to this store from the mines, and which in ordinary times . 
 is probably little more than sufficient to supply the inter- 
 mediate deterioration from wear, is not supposed to bear 
 a larger proportion to the whole stock than a fraction of 
 less than three-quarters per cent. ; so that any possible 
 fluctuation in the amount of that yearly addition can be 
 but the fraction of a fraction, and, unless prolonged and 
 
 * Mr. Senior, in his l Lectures on the Cost of obtaining Money' 
 (p. 21), assumes 2000 millions sterling as the amount of gold and silver 
 bullion, coin and plate together, in use throughout the world. 
 
 
71 
 
 repeated through a succession of years, could be of no 
 significance, even if uncompensated, in its influence on 
 markets. But even that extent of derangement, to which 
 the general scale of prices might otherwise have been 
 liable, is in a great degree counteracted by the interven- 
 tion of the hoards. The hoards absorb the superfluous 
 produce of the mines when it is overflowing, and dis- 
 gorge it again when it is wanted for use ; so that the 
 fluctuations of supply do not affect at all that portion of 
 the coin which circulates, and which alone operates on 
 prices, but only that portion which is hoarded. Neither 
 is it necessary, that there should be any preliminary ac- 
 tion on prices, in order to call the hoarding principle into 
 activity. The amount of the hoards is not governed by 
 the state of prices, but by the market-rate of interest, 
 which, however it may be essentially identified with the 
 rate of profits on capital, it is well known rises and falls 
 in the first instance, with every contraction and expan- 
 sion of the medium through whose agency capital is dis- 
 tributed, whether that be money or credit. 
 
 No person who has ever resided in an Asiatic coun- 
 try, where hoarding is carried on to a far larger extent 
 in proportion to the existing stock of wealth, and where 
 the practice has become much more deeply engrafted in 
 the habits of the people, by traditionary' apprehensions of 
 insecurity and the difficulty of finding safe and remune- 
 rative investments, than in any European community, 
 no person who has had personal experience of this state of 
 society, can be at a loss to recollect innumerable instances 
 of large metallic treasures extracted in times of pecuniary 
 difficulty from the coffers of individuals, by the tempta- 
 tion of a high rate of interest, and brought in aid of the 
 public necessities, nor, on the other hand, of the facility 
 with which those treasures have been absorbed again, 
 when the inducements which had drawn them into light 
 were no longer in operation. In countries more advanced 
 in civilization and wealth than the Asiatic principalities, 
 and where no man is in fear of attracting the cupidity of 
 
72 
 
 power by an external display of riches, but where the in- 
 terchange of commodities is still almost universally con- 
 ducted through the medium of a metallic circulation, as 
 is the case with most of the commercial countries on the 
 continent of Europe, the motives for amassing the pre- 
 cious metals may be less powerful than in the majority 
 of Asiatic principalities ; but the ability to accumulate 
 being more widely extended, the absolute quantity 
 amassed will be found probably to bear a considerably 
 larger proportion to the population. In those states 
 which lie exposed to hostile invasion, or whose social con- 
 dition is unsettled and menacing, the motive indeed must 
 still be very strong ; and in a nation carrying on an ex- 
 tensive commerce, both foreign and internal, without 
 any considerable aid from any of the banking substitutes 
 for money, the reserves of gold and silver indispensably 
 required to secure the regularity of payments, must of 
 themselves engross a share of the circulating coin, which 
 it would not be easy to estimate. 
 
 In this country, where the banking system has been 
 carried to an extent and perfection unknown in any other 
 part of Europe, and may be said to have entirely super- 
 seded the use of coin except for retail dealings and the 
 purposes of foreign commerce, the incentives to private 
 hoarding exist no longer, and the hoards have all been 
 transferred to the banks, or rather, I should say, to the 
 Bank of England. But in France, where the bank-note 
 circulation is limited to a sum of about twelve or fifteen 
 millions sterling, the quantity of gold and silver coin in 
 existence I find now currently estimated, on what are de- 
 scribed as the latest authorities,* at the enormous sum of 
 120 millions sterling ; nor is the estimate at all at vari- 
 ance with the reasonable probabilities of the case. Of 
 this vast treasure, there is every reason to presume, that 
 a very large proportion, probably by much the greater 
 part, is absorbed in the hoards. If you present for pay- 
 
 * See Sir William Clay's < Remarks,' &c., p. 25. 
 
 
ment a bill for a thousand francs to a French banker, he 
 brings you the silver in a sealed bag from his strong 
 room : and not the banker only, but every merchant 
 and trader, according to his means, is under the neces- 
 sity of keeping by him a stock of cash sufficient not only 
 for his ordinary disbursements, but to meet any unex- 
 pected demands. The purpose of banks, according to 
 the excellent aphorism of Adam Smith, is not to supply 
 the trader " with the whole or even any considerable part 
 of the capital with which he trades, but that part of it 
 only which he would otherwise be obliged to keep by 
 him unemployed, and in ready money, for answering 
 occasional demands."* That the quantity of specie accu- 
 mulated in these innumerable depots, not in France only, 
 but all over the Continent, where banking institutions 
 are still either entirely wanting or very imperfectly or- 
 ganized, is not merely immense in itself, but admits of 
 being largely drawn upon, and transferred even in vast 
 masses from one country to another, with very little, if 
 any, effect on prices, or other material derangement, we 
 have had some remarkable proofs. Among the examples 
 most frequently referred to is the circumstance remarked 
 by Lord King, that the displacement and expulsion of the 
 entire metallic circulation of France by the assignats had 
 been accomplished without producing, as he affirms, any 
 sensible effect on the state of prices in the neighbouring 
 kingdoms. So much uncertainty, however, hangs over 
 the facts connected with this extraordinary operation, and 
 there are such strong grounds for supposing, that by far 
 the larger portion of the specie, which disappeared dur- 
 ing the reign of the assignats, was not exported, but 
 buried and concealed on the spot, that the case, perhaps, 
 is scarcely one on which we can build any very confident 
 argument. A much more conclusive inference may be 
 drawn from the signal success which attended the simul- 
 taneous efforts of some of the principal European powers 
 
 * See Mr. M'Culloch's edition of The Wealth of Nations,' vol. ii. 
 p. 49, 50. 
 
74 
 
 (Russia, Austria, Prussia, Sweden, and Denmark) to re- 
 plenish their treasuries, and to replace with coin a con- 
 siderable portion of the depreciated paper which the ne- 
 cessities of the war had forced upon them, and this at the 
 very time when the available stock of the precious me- 
 tals over the world had been reduced by the exertions of 
 England to recover her metallic currency. Lord Ash- 
 burton estimated, in 1819, that little less than a hundred 
 millions sterling would be required, for the completion 
 of the various projects of monetary reform at that period 
 in progress.* And though this, probably, was an exagge- 
 rated view of the case, there can be no doubt that these 
 combined operations were on a scale of very extraordi- 
 nary magnitude, that they were accomplished without 
 any sensible injury to commerce or public prosperity, or 
 any other effect than some temporary derangement of the 
 exchanges, and that the private hoards of treasure accu- 
 mulated throughout Europe during the war must have 
 been the principal source from which all this gold and 
 silver was collected. And no person, I think, can fairly 
 contemplate the vast superflux of metallic wealth, thus 
 proved to be at all times in existence, and, though in a 
 dormant and inert state, always ready to spring into 
 activity on the first indication of a sufficiently intense 
 demand, without feeling themselves compelled to admit 
 the possibility of the mines being even shut up for years 
 together, and the production of the metals altogether 
 suspended, while there might be scarcely a perceptible 
 alteration in the exchangeable value of the metal. 
 
 It is in these causes only we have to seek for an ex- 
 planation of that very striking phenomenon in the 
 history of prices, the exceedingly slow and gradual 
 process by which the great revolution of prices which 
 followed the discovery of the South American mines 
 was effected ; and, what might seem still more unaccount- 
 able, the tardy reluctance with which the first down- 
 
 * See < Report of the Lords' Committee of 1819, on the Bank of 
 England,' p. 102. 
 
75 
 
 ward impulse was given to prices in France, even under 
 the overwhelming pressure of the assignats. It was not 
 in fact till the year 1570, sixty-eight years after the 
 first considerable shipment of specie from South America 
 by Ovando, forty-nine years after the capture of Mexico, 
 and twenty-eight years after the mines of Potosi had 
 been at work, that any very sensible effect was produced 
 on the general prices of commodities in England ; nor 
 have we any evidence to show, that the advance com- 
 menced in France, in Spain itself, or in any other 
 country of Europe, at a much earlier period.* It is 
 likewise an authentic fact, attested by Mr. Arthur 
 Young,f tnat i n May, 1791, after the assignats had 
 been for eight months in circulation, and after many 
 hundred millions of them had been issued, the pro- 
 gnostics of enormous depreciation which had been pro- 
 nounced by M. Decretot and M. Condorcet, " were not 
 verified ;" that the expected rise of commodities had not 
 taken place ; that corn had rather fallen in value ; and 
 that the discount on the paper (from 7 to 10 per cent.) 
 was not higher than it had been at Bourdeaux'in Sep- 
 tember, 1790, the first month of its creation. Yet, by 
 1796, the value of the assignat was reduced to the three- 
 hundredth part of its nominal amount. 
 
 These are significant facts for those gentlemen theo- 
 rists to ruminate upon, who look to the daily rise and 
 fall of prices as indicating the daily expansions and con- 
 tractions of the currency, with the same certainty and 
 fidelity as the expansions and contractions of the mer- 
 cury in the thermometer indicate the variations of the 
 temperature. Admit that a currency cannot be over- 
 issued so long as it is convertible, and nothing can be 
 more obvious or simple than the explanation of the 
 length of interval which had to elapse before the issue 
 of assignats operated on prices. It is clear that, so long 
 
 * See Smith's Wealth of Nations,' ed. 1828, vol. i. p. 315. 
 t See Arthur Young's ' Travels in France,' in Pinkerton's Collec- 
 tion, vol. iv. p. 406. . 
 
76 
 
 as there was a piece of gold or silver circulating in 
 France, the inconvertibility of the new paper could not 
 be complete. There was still a portion of the currency, 
 which the people had it in their power to throw off or 
 withdraw, whenever the quantity in their hands became 
 oppressive. For every assignat issued, a piece of coin 
 was displaced ; and so long as this continued, there 
 could be no increase of aggregate quantity, nor any de- 
 preciation. The depreciation only commenced after the 
 coin was exhausted. I should be glad, if the gentlemen 
 in question would furnish us with an explanation of this 
 phenomenon, upon their hypothesis. 
 
 I shall presently have occasion to revert again to this 
 subject of the hoards, with reference to the part per- 
 formed by them in the regulation of the exchanges. 
 Meanwhile, I come to the object which I had more spe- 
 cifically in view, in introducing the topic at this stage of 
 my argument. I have said, that, in this country, as a 
 necessary effect of our system of banking institutions, all 
 our hoards have been transferred to the Bank of Eng- 
 land ; and I am desirous of pointing out the nature of 
 the influence which the existence of that grand central 
 depot of the precious metals, as at present constituted, is 
 calculated to exercise on metallic value, not in this 
 country only, but in all Europe. It is well known that, 
 ever since the restoration of cash payments, it has been 
 the practical rule of the Bank, to receive indiscriminately 
 all standard gold bullion tendered to it for sale, at a 
 price only a small fraction below that of the Mint, 
 and which has varied in amount from 31. 17 >. 6d. to 
 3L 17*. Qd. per ounce. For a good many years past the 
 rate has been 3L 17 's. 9d. ; and it is proposed by the new 
 Act, to render that which was before voluntary, in future 
 obligatory on the part of the Bank, and to require, that 
 the Bank shall at all times purchase whatever standard 
 gold may be offered to it, at the fixed price of 3L 17*. 9d., 
 which leaves a difference of only \%d. per ounce between 
 the amount demandable by the merchant and that which 
 
77 
 
 the Mint delivers in coin, a sum quite inadequate to 
 cover the loss of interest incurred by the Bank pending 
 the process of coinage. Now, as things stand at present, 
 it is not my intention to question the propriety or expe- 
 diency of this regulation ; but it does appear to me, that 
 so long as it shall be possible to adhere to it strictly, it 
 must inevitably operate as a bar to any rise of prices 
 whatever, as a consequence of the increased productive 
 power of the mines ; for what is the substantial effect of 
 this regulation? What is it, but to hold out to the world 
 a minimum price which all persons bringing gold to 
 the Bank of England shall be entitled to demand for it ? 
 How then, let me ask, with all the facilities of commu- 
 nication at present existing, is it possible that the price 
 of the metal can ever fall materially below that mini- 
 mum; or that, with this universal reservoir for ever open 
 to receive it at a fixed valuation, any considerable portion 
 of the yearly produce of the gold-mines should be thrown 
 on the market of the world, in such a manner as to occa- 
 sion its depreciation? Gold coin forms a part of the 
 circulation in almost every country of Europe ; but in 
 England* alone gold is the standard metal, and to Eng- 
 land accordingly all the surplus gold in the world must 
 naturally centre. However large that surplus may be, 
 after supplying the periodical wants of the other coun- 
 tries of the world for consumption and for coinage, it is 
 obvious, that the whole must find its way into the vaults 
 of the Bank of England, there to remain buried, and 
 wholly inoperative on prices, till called forth by some 
 new demand for additional circulation. This circum- 
 stance, I apprehend, so long as the system shall endure, 
 must continue a perpetual and insuperable obstacle to 
 any action on prices, as measured in gold coin, from the 
 increased productiveness of the mines. 
 
 It is true that, for every ounce of gold which it thus 
 purchases, the Bank may, if that mode of payment be 
 
 * I believe I ought also to except Portugal. 
 
78 
 
 preferred, issue a corresponding amount of notes ; and it 
 may appear to those who have not sufficiently considered 
 the regulating principles of a mixed currency, that those 
 notes will operate on prices precisely in the same 
 manner as the gold would have done had there been no 
 such thing in existence as a bank ; but there cannot be 
 a greater mistake. If there has been no pre-existing 
 demand for an addition to the circulating medium, if 
 there be no new capital to be distributed, no new channel 
 of commerce to be opened, nor any great discovery in 
 mechanics to be worked out into active and profitable 
 existence, the arrival of a million of new gold from 
 abroad will assuredly create none of these things. The 
 gold will be sold to the Bank for a million in notes, and 
 those notes will fare just as all the issues of the Bank 
 invariably fare, which are sent into a market having no 
 employment for them. The holders will immediately 
 become competitors for a share of the productive securi- 
 ties floating in the market, for a share of the Exchequer 
 bills, the Consols, and the discounts. In the discount- 
 market they will come into immediate competition with 
 the Bank of England ; and by offering the money at a 
 rate of interest below the Bank rate, they will be en- 
 abled to intercept a portion of the bills on their way for 
 discount to the Bank. The sellers of the Exchequer 
 bills and of the Consols, into whose hands another portion 
 of the notes may be supposed to have come, will in their 
 turns have to find new investments for their money, and 
 many of them may be expected also to resort to the dis- 
 count-market ; and thus the process will go on from 
 hand to hand till the discount-market shall have ab- 
 sorbed the whole million. The Bank meanwhile will 
 have its notes flowing in fast, in payment of the bills of 
 exchange previously in its hands, as they successively 
 become due, while there will be no vent for its notes 
 in fresh discounts ; and the result of the whole will be, 
 that, at the end perhaps of a week, the Bank will find 
 itself with a million more of coin in its coffers, and a 
 
79 
 
 million less of securities. So long as the Bank has a 
 sovereign out on credit, the channel of reflux must re- 
 main open, and the Bank is utterly impotent to add a 
 superfluous note to the currency. 
 
 But I am speaking of things as they have been. The 
 stock of bills held under discount by the Bank has some- 
 times been reduced to a very low ebb ; but it has never 
 been entirely exhausted. Such a contingency, however, 
 is not wholly without the range of possibility. There 
 have been indications abroad for some years past of a pro- 
 gressive increase in the annual supply of gold ; and cer- 
 tainly our stock of the precious metals has never before 
 been raised to so high a level by the refluent tide of the 
 exchanges. Were this to be carried a little further, and 
 the facilities of production to be so improved as mate- 
 rially and permanently to add to the existing stock, with 
 the exchange still running in favour of this country, it is 
 obvious, that the constant accession of treasure might 
 soon become intolerably oppressive to the Bank. Every 
 additional note issued on gold must necessarily displace 
 a note issued on credit. The notes issued on credit would 
 soon be displaced altogether, or (to speak more correctly) 
 would be reduced to the eleven millions issued on the 
 security of the permanent debt owing by Government to 
 the Bank. On the one hand, the Bank would be de- 
 prived of the ability of making any profit on its funds 
 beyond the amount of its dividends from Government. 
 In the second place, there would no longer be any chan- 
 nel open for the return of the redundant issues into the 
 Bank. Every fresh issue for the purchase of gold would 
 be a permanent addition to the circulation; the notes 
 would accumulate in the hands of private bankers 
 and other individuals, and there would be no relief till 
 an adverse foreign exchange should set in, and bring 
 notes again into the Bank for gold. Were such a state 
 of things to continue for a sufficient length of time, I 
 certainly do not take upon me to say, that there could be 
 no action on prices, though, barring any extraordinary 
 
80 
 
 contingency, my belief undoubtedly is, that, long ere this 
 action could be produced, the market would be partially 
 relieved, by the fall of the rate of interest inducing ca- 
 pitalists to send their capital abroad. Circumstances, 
 however, political or financial, might not be propitious 
 for this solution of the difficulty ; and it might become 
 an important question, how it could be most beneficially 
 dealt with. It would be of no use to suspend the pur- 
 chases of bullion by the Bank, unless the Mint were also 
 to be shut against the reception of any more gold for 
 coinage, and the importers of the metal thus driven at 
 once to submit to a reduction of price, or to send their 
 commodity abroad in quest of a better market. I own, I 
 am inclined to think it might be more expedient to adopt 
 this course, than to wait the tardy results of any remedial 
 action through prices on the exchanges. But, whatever 
 might be the determination in this respect, no enterprise, 
 as it seems to me, could be more Quixotic or absurd, 
 than for this country to engage in a struggle to sustain 
 the value of the precious metals at a higher level than 
 that warranted by the cost of their production. By 
 reducing the Government debt to the Bank below eleven 
 millions, and permitting a corresponding enlargement of 
 the issues on private securities, a channel for the reflux 
 of the Bank issues might, no doubt, be kept open for 
 some time longer, and, at a further and very useless 
 sacrifice of profits, the importations of bullion might still 
 be continued on a high scale for a season, without any 
 material disturbance of the circulation. The Bank of 
 England might be maintained for a term longer, as a 
 general sink for draining off the superfluous produce of 
 the mines, and sustaining the prices of commodities in 
 gold at a uniform level over the world. But, if the 
 augmented scale of production and the diminished cost 
 of the gold were anything more than an accident of the 
 day, the experiment would inevitably fail in the end ; 
 and the longer the re-adjustment of prices to a scale cor- 
 responding with the new value of the money was delayed, 
 the more severe would the ultimate revulsion prove. 
 
81 
 
 CHAPTER V. 
 
 Proofs of the Impossibility of Over-issue Bankers have neither th6 
 power to Increase nor the will to Reduce their Issues Effect of the 
 establishment of Joint-Stock Banks on the Circulation Scotch Cir- 
 culation A demand for Capital on Loan and a demand for addi- 
 tional Circulation are quite distinct things, and not often found 
 associated. 
 
 BUT, to return to the question of fluctuation of value* 
 as it applies to a circulation of convertible bank-notes. 
 I have endeavoured to point out the circumstances, 
 which in this respect peculiarly distinguish every such 
 circulation from currencies either purely metallic or 
 consisting of inconvertible conventional paper, and which 
 completely protect, as I conceive, the former from any 
 oscillations of value other than such as they partake 
 with the metals into which they are convertible, and 
 render over-issue and temporary depreciation impossible. 
 It remains only to be seen, how far this doctrine is borne 
 out by the evidence of facts. 
 
 I presume it will be admitted, that, in every civilized 
 community, the supply of the circulating medium, in 
 one form or another, ought to be sufficient for the con- 
 venient performance of all transactions of exchange or 
 payment requiring its intervention ; that to this extent 
 every individual, having value to give or security to 
 pledge, ought to be enabled to command such circulating 
 medium, and that there can be no excess of supply so 
 long as these limits are observed. It would seem, 
 indeed, sometimes, from the casual expressions of dispu- 
 tants, as if they were disposed to contest this proposition, 
 and to question the safety and propriety of indulging 
 every one with the free use of as much money as he 
 wants for his business, and has the means or credit to 
 
 G 
 
82 
 
 procure. But, as I certainly have never met with any- 
 thing like a broad or deliberate assertion of so prepos- 
 terous a doctrine, I shall not permit myself to suppose, 
 that it has ever been seriously entertained. With the 
 superabundance of disposable capital which Great Bri- 
 tain possesses, I cannot doubt for a moment that, if the 
 Bank of England were shut up to-morrow, and all credit 
 circulation extinguished, a sufficient stock of gold and 
 silver would, on the demand of the public, within a 
 shorter or longer period, be provided, to answer fully all 
 the necessities which I have stated ; and no circulation 
 of convertible bank-notes, issued in quantities corre- 
 sponding with the demand of the public, could do more. 
 To suppose that, if issued in larger quantities, they could 
 be kept in circulation, is to take it for granted, that the 
 amount of notes in circulation depends, not on the wants 
 of those who circulate them, but on the will of the issuer. 
 On the first establishment of a bank of issue, in a district 
 which had not been previously provided with banking 
 accommodation, the command of capital which the 
 banker acquires from the substitution of his notes for the 
 money previously in circulation, and which enables him 
 to diffuse credit and prosperity throughout the neigh- 
 bourhood, is very striking. And people easily fall into 
 the delusion, that there is no limit to this power, but that 
 the banker can still go on adding to his notes, and 
 giving a fresh impulse to the prosperity he has created, 
 even after the substitution has been completed, and his 
 paper already fills the channels of circulation. Were 
 this so, it is obvious, that what is called over-issue would 
 be perpetual ; for it never ceases to be the interest and 
 desire of the issuer to send out as many notes as the com- 
 munity will receive from him. It is quite idle to talk, 
 as some reasoners are in the habit of doing, of bankers 
 exercising the privilege of issue at one time with exem- 
 plary moderation, and at another with reckless impru- 
 dence. There is no such thing. Bankers will be more 
 or less prudent in the facilities of credit which they 
 
83 
 
 afford to their customers, according to the state of their 
 own circumstances and those of the times ; and their 
 advances must necessarily at all times be limited by the 
 means of the bankers. But, whether the banker's ad- 
 vances be large or small, whether the aspect of the times 
 be cheerful or disheartening, it must be equally his policy 
 to keep out as large a circulation as he can. What 
 advances he does make, he will always be anxious to make 
 in his own notes, because they yield him a profit such as 
 no other form of issue yields. 
 
 It may be stated, therefore, as a settled principle, that 
 the efforts of banks of issue to extend their circulation 
 know no remission ; that the whole system, in fact, is 
 continually on the stretch ; and that, but for the antago- 
 nist force which is always in action to correct and repress 
 it, the overflow of notes would be irresistible. Upon this 
 ground alone, then, there seems to me to be an effectual 
 negative to the supposition, that the fluctuations of the 
 bank-note circulation depend on the discretion of the 
 bankers. A man who has already put forth his whole 
 strength, has no further effort left to make. The state of 
 a banker, who has already issued every note which those 
 who deal with him will take from his hands, becomes 
 thenceforth entirely passive. He cannot issue another till 
 there is a fresh demand. And if there be each time a 
 fresh demand, I apprehend, there can be no over-issue, 
 no redundance which can possibly affect prices. It is 
 true, that, though a banker has no power to enlarge his 
 issues beyond their ordinary and natural limit, he has 
 full power to contract them. A banker may die or fail, 
 and his whole circulation may, in consequence, be with- 
 drawn from the market ; but the only effect will be, that 
 the nearest banker in the neighbourhood will fill up the 
 void. Or a banker may be compelled by law to reduce 
 his circulation ; but, except in so far as concerns the cur- 
 rency of notes under five pounds, he never has been so 
 compelled hitherto ; and therefore any contraction of his 
 circulation is just as effectually prevented by the want of 
 
84 
 
 will as any enlargement of it is prevented by the want of 
 power. The Bank of England is the only bank, which 
 has ever even professed a purpose of restraining its issues 
 from a principle of duty ; but it is absolved now, I 
 believe, by all parties, from the imputation of having 
 seriously carried that profession into effect on any occa- 
 sion since 1797, when, by the stringent contraction of its 
 discounts, it did certainly contribute largely to promote 
 the panic which then existed in the country, and only 
 hastened the catastrophe it intended to avert. 
 
 I would further refer, in support of the proposition 
 which I am now maintaining, to the case of those various 
 other forms of credit the bills of exchange, Exchequer 
 bills, &c., which are not in the disposition of bankers at 
 all, but which are frequently resorted to by individuals 
 as instruments of exchange, and are always to be had by 
 those who have value to give for them, in much greater 
 profusion than for such purposes is ever required. As 
 far as concerns those instruments, at all events, no ques- 
 tion of over-issue can possibly ever arise. They are 
 created for other purposes, and always exist in an abun- 
 dance which must set at nought every idea of their over- 
 issue as currency. The extent to which such instru- 
 ments are substituted for money can by no possibility be 
 regulated by anything else than the demand. 
 
 I arn riot more disposed than most men to place im- 
 plicit reliance on the testimony of parties, who have 
 personal interests depending on the question at issue ; 
 but it is impossible, I think, for any man, with the least 
 pretensions to candour, to peruse the great mass of evi- 
 dence furnished to the several Committees of the House 
 of Commons by the intelligent body of country bankers, 
 without attaching some faith to their unanimous and 
 consistent assurances, sustained, too, as those assurances 
 are, by all the collateral facts and probabilities of the case, 
 that the amount of their issues is exclusively regulated 
 by the extent of local dealings and expenditure in their 
 respective districts, fluctuating with the fluctuations of 
 
85 
 
 production and price, and that they neither can increase 
 those issues beyond the limits which the range of such 
 dealings and expenditure prescribe, without the certainty 
 of having their notes immediately returned to them, nor 
 diminish them, but at an almost equal certainty of the 
 vacancy being filled up from some other source.* 
 
 * See the Evidence of Mr. Hudson Gurney before the Commons* 
 Committee of 1819 Report, p. 249 ; Mr. Rickman's, before the Com- 
 mittee of 1826 Report, p. 119-121 ; Mr. Samuel Gurney's, before the 
 Committee of 1832 Report, p. 256; and Mr. Hobhouse's, Mr. Rod- 
 well's, and Mr. Anderson's, before the Committee of 1841, pp, 5, 61, 
 and 210, 211. In 1819, Mr. Hudson Gurney observes, " If a banker 
 improvidently issued upon loan, or in any other way, notes which are 
 not wanted for the transactions of immediate transfer in his neighbour- 
 hood, they come directly to him or to his banker in London to be paid." 
 And he then proceeds to express his doubt, whether, in the event of 
 his bank at Norwich issuing 100,000. in their own notes to-morrow, 
 to any one desiring to borrow them, the bank would have, by to-mor- 
 row week, an additional note in circulation. Mr. Kinnear says, " It 
 rarely happens, that a note for 100/. circulates beyond a few hands." 
 " It is a mistake," remarks Mr. Samuel Gurney, "to talk of the over- 
 issues of country bankers, as if they were under their own control, and 
 did not fluctuate wholly and solely with prices and the extent of trans- 
 actions, or could be increased by the amount thus called for. If they 
 did not issue their own paper, they must, when their district calls for 
 it, issue Bank of England notes." In the same strain, again, we are 
 told by Mr. Anderson of Glasgow, that " An extra issue of notes to 
 meet an extra local demand, may give a little extra interest for a day or 
 two ; but it becomes at the next exchange an advance of capital. The 
 proportion of notes which remains in the hands of the public, and which 
 may be reckoned circulation, is that required for small payments, as 
 wages and other daily expenditure. Everything above this is paid into f 
 other banks, or comes back immediately." The most striking illustra- 
 tion, however, of the facility and expedition with which any over-issue 
 of notes by a private bank, consequent on some temporary or local 
 demand, rectifies itself as soon as the demand ceases, is perhaps to be 
 found in an anecdote related by Mr. Gibson Craig to the Committee of 
 1826. (See Report, p. 268.) " At Whitsuntide, 1824," Mr. Craig 
 says, " there was such an immense demand for notes upon the banks of 
 Edinburgh, that by eleven o'clock they had not a note in their custody ; 
 they sent round to all the different banks to borrow, but could not get 
 them, and many of the transactions were adjusted by slips of paper 
 only ; yet by three o'clock the whole of the notes were returned into 
 the banks from which they had issued ! It was a mere transfer from 
 hand to hand." 
 
86 
 
 It may rest with the banker to issue, but it is the 
 public which circulates ; and without the concurrent 
 action of the public, neither the power nor the will to 
 issue can be of any avail. Both the metropolitan and 
 the country circulations are subject to certain periodical 
 floods and ebbs from regularly recurring causes, over 
 which the issuing bodies have no control, and which are 
 found to be of little if any effect beyond the immediate 
 range of the circumstances in which they originate. It 
 is well known, that at the quarterly periods, when the 
 public dividends fall in course of payment, the Bank of 
 England adds regularly from a fifth to two-fifths to the 
 amount of its issues. Has any one ever heard of an 
 instance, in which any of these great periodical expan- 
 sions of the Bank circulation have, in any sensible de- 
 gree, disturbed markets or caused a general rise of prices ? 
 Nothing of the kind. The self- regulating principle of a 
 convertible currency operates in every such case with 
 the precision of clock-work. The remedy is not even 
 postponed till the end of the quarter, when the balance 
 would be restored by the influx of the revenue. But 
 such is the elasticity with which the general circulation 
 throws off the superfluous load which encumbers it, that 
 the surplus notes are usually returned into the Bank, 
 and the currency restored to its average level, within a 
 few weeks after the recurrence of each quarterly period. 
 This effect is uniformly produced by a reduction of the 
 demand, on the part of the public, for accommodations 
 from the Bank by way of discount or loan, a reduction 
 which follows, with immediate and striking regularity, 
 every such extraordinary augmentation of the Bank 
 issues. 
 
 I have now before me a table compiled from the Ap- 
 pendices to the Parliamentary Reports of 1840 and 1841, 
 which presents a view of the quarterly fluctuations of the 
 Bank circulation during four years, selected at random 
 from the interval between 1833 and 1840, and contrasts 
 therewith the corresponding fluctuations of the Bank's 
 
87 
 
 discounts and floating advances on Exchequer bills and 
 private securities during the same periods. The result 
 shows a constant and periodical decline of the amount 
 of outstanding discounts and advances, from the day on 
 which the dividends are issued till the circulation is com- 
 pletely restored to its former level, which happens gene- 
 rally about the middle of the second month in every 
 quarter of the four years, with the exception of the 
 fourth quarter of 1835, in which the deviation from the 
 general rule is sufficiently accounted for by special cir- 
 cumstances. 
 
 The country issues have, in like manner, their periodi- 
 cal fluctuations. In the agricultural districts, there is a 
 difference to the estimated amount of half a million be- 
 tween the number of notes circulating in August, and 
 the number circulating in April. In August, the cur- 
 rency is found to be uniformly lowest ; it rises generally 
 towards Christmas, and obtains its greatest elevation 
 about Lady-day, when the farmer commonly lays in his 
 stock, and has to pay his rent and summer taxes.* These 
 variations recur with the same regularity as the season, 
 and with just as little disturbance of the markets as the 
 quarterly fluctuations of the notes of the Bank of Eng- 
 land. As soon as the extra payments which I have 
 mentioned have been completed, the superfluous half- 
 million as certainly and immediately is re-absorbed and 
 disappears, and that on the mere cessation of the de- 
 mand, without the slightest effort on the part of the 
 banks. 
 
 A still more remarkable and decided test, however, 
 than any of these, of the utter powerlessness of banks to 
 increase the issue of their notes ad libitum, has been 
 supplied by the recent history of our currency from the 
 period of the first introduction of the joint- stock banks 
 in 1833 to the present time. These gigantic establish- 
 ments began to spring up at a season when the industry 
 of the country, more particularly in its manufacturing 
 
 * See Report of the Commons' Committee of 1841 / pp. 5 and 59. 
 
88 
 
 and mining departments, had just received an impetus 
 which, in the course of the three following years, was 
 productive of results perhaps without a parallel in our 
 domestic history. The succession of productive harvests 
 from 1833 to 1835, and the abundance and cheapness of 
 the necessaries of life in general, seem to have given a 
 remarkable stimulus and extension at this period to our 
 internal consumption. The spirit of adventure was 
 abroad : besides the new banks, other great joint-stock 
 companies were formed, for the construction of railways 
 and a variety of projects, chiefly of internal improve- 
 ment; and a vast enlargement was given to our com- 
 mercial dealings with the United States of America and 
 with the East. According to the commonly received 
 opinions on the subject, every circumstance seemed to 
 favour the expectation that, among other developments 
 of credit, a considerable addition to the bank-note circu- 
 lation would be called for, to feed the activity and enter- 
 prise that were in progress. And the new establish^ 
 ments were scarcely set on foot, ere they entered on a 
 career of the most uncompromising competition with the 
 private banks and the recently established branches of 
 the Bank of England, and prosecuted that competition 
 by the most unscrupulous means. So systematic, deter- 
 mined, and powerful a series of efforts to enlarge more 
 particularly the circulation of bank-notes had probably 
 never been attempted since the invention of banking. 
 And what has been the result ? With all their zeal and 
 empressement to attract and create employment for their 
 paper, what were these hundred and seven great compa- 
 nies, with their fifteen millions of paid-up capital, their 
 subscribed capitals of ten times the amount, and all that 
 prodigious command which, through their interest ac- 
 counts and their re -discounts in the London market, 
 they obtained over the capital of others, with their four 
 hundred and seventy-one branches and agencies pene- 
 trating into every corner of the kingdom, and carrying 
 their paper circulation into quarters where the n^nie of 
 
89 
 
 a bank had never till that time been heard of, what, 
 with all this, did they accomplish ? By the facilities 
 of credit which they afforded to wild speculators, men 
 without capital of their own, they contributed largely, 
 it is true, to the calamitous reverses which soon fol- 
 lowed. They succeeded also, to a considerable extent, 
 in driving weaker or less venturous rivals from the field, 
 and in usurping more than a fair share of such addi- 
 tional issue of bank-notes as the stir of industry and the 
 extension of production between 1833 to 1839 had called 
 into existence. But, far from contributing to the even- 
 tual enlargement of the aggregate mass of the bank- 
 note circulation, the effect of this competition from the 
 first was obviously to keep it down. The utmost expan- 
 sion at any given period from 1833 to 1839 will not 
 bear a comparison with the fluctuations of any of those 
 seasons of extraordinary commercial activity which pre- 
 ceded the chief monetary crises of the last half-century, 
 in 1809 or 1814 for example, or above all in 1824-5. 
 What at any time they added to their own circulation, 
 was obtained for the most part at the expense of others. 
 They succeeded, in concurrence with the new branches 
 of the Bank of England, in supplanting nearly altoge- 
 ther the bill currency in Lancashire and other manufac- 
 turing counties ; the issues of the country banks, with 
 every other circumstance favourable to their augmenta- 
 tion, exhibited in every year but 1838 a progressive de- 
 cline ; and, notwithstanding the considerable share of 
 the country circulation, which the Bank of England had 
 recently appropriated to itself through its branches, the 
 total issues of that establishment diminished almost pari 
 passu with the growth of the joint-stock circulation, and 
 to such an extent, that, between October 1833 and De- 
 cember 1835, the very period when the spirit of com- 
 mercial enterprise reached its height, the reduction 
 amounted to three millions and upwards. There was a 
 rally, indeed, to some extent in 1836 ; but, upon the 
 unfavourable turn of commercial affairs in 1839, and 
 

 90 
 
 the depression of industry and credit which followed, the 
 reduction was carried still further. The return of the 
 24th December of that year gives the total circulation of 
 the Bank of England under that date at only 15,532,000/. ; 
 and as of that sum 3,818,000/. were issues made through 
 the branches, there remained for the circulation of the 
 metropolis and its environs only 11,714,000/., a sum 
 more nearly corresponding with the average issues of 
 the Bank of England previous to 1797, than with the 
 minimum metropolitan circulation of any more recent 
 period. Nor was this decline any longer compensated 
 by the increased issues of the joint-stock banks. Those 
 institutions had by this time fallen into discredit and 
 disrepute, from the failure of some, and the flagrant mis- 
 management of more; and their issues, as well as those 
 of the private banks, partook with the circulation of the 
 Bank of England, of that general declension which was 
 by this time in full progress, and which brought down 
 the whole circulation of England and Wales, metro- 
 politan, private and joint-stock, to 25,010,7067,, in the 
 first quarter of 1835, being upwards of three and a half 
 millions less than the average circulation of 1833 ; 
 though, during the interval, the population of the king- 
 dom had increased in the proportion of about one-tenth, 
 and the consumption of commodities had on the whole 
 kept pace with the growth of population. Nor even at the 
 present day, when the state of industry and commerce 
 might have been expected to furnish employment for as 
 full a currency of bank-notes as at any preceding period, 
 have the issues of the Bank of England by any means 
 recovered the level which they maintained for some years 
 previous to the organization of the joint-stock banks 
 in 1833. From the monthly average, amounting to 
 20,754,000 /. for the first quarter of the current year, 
 between six and seven millions, being composed of the 
 issues of the branches, must be set to the account of the 
 country circulation, leaving only about fourteen millions 
 for the circulation of the metropolis, or little more than 
 
91 
 
 two-thirds of the average issues of the Bank, from 1827 
 when the notes under five pounds were finally suppressed, 
 till 1833 when the branches were first instituted. 
 
 The tendency on the part of our bank-note circulation 
 to a progressive diminution of quantity, which these 
 facts appear so conclusively to establish, and which for 
 some years past has been giving much uneasiness to 
 many worthy persons, who regard it as nothing less than 
 a sign of national impoverishment and decay, admits of 
 a very easy explanation. It is clearly traceable to the 
 substitution of another medium of credit in a large pro- 
 portion of the transactions, which, previous to 1833, used 
 to be performed by means of bank-notes. The truth is, 
 that the joint-stock banks have been far more successful 
 in their efforts to promote and extend the use of banking 
 accounts among all ranks throughout the kingdom, than 
 in their attempts to engross or enlarge the circulation. 
 This they have partly accomplished, by the facilities for 
 that purpose which their numerous offices, dispersed over 
 the country, afford to every man, but chiefly by the 
 practice which they have borrowed from the Scotch 
 bankers, of allowing interest to their depositors, and 
 which, by the force of their example and competition, has 
 become also, I believe, a very general practice among the 
 private bankers everywhere but in London. The in- 
 ducement which such a system holds out to individuals 
 to become depositors in banks, and to those who are 
 already depositors to increase their deposits, are suffi- 
 ciently obvious ; and it is equally apparent that such 
 circumstances must have a decided influence in reducing 
 the circulation of bank-notes. The tradesman, instead 
 of keeping by him an unproductive hoard of such notes 
 for his daily disbursements, will prefer paying them into 
 a bank which allows him interest for the amount, with- 
 out any prejudice to his perfect command over the prin- 
 cipal. He will make his payments thenceforth by cheque ; 
 and those cheques will, in the vast majority of cases, be 
 
92 
 
 adjusted by transfer or exchange, without any resort to 
 money. 
 
 The Scotch banks, among whom this practice of 
 allowing interest to depositors has been coeval with 
 their existence, are in themselves a standing refutation 
 of the notion that bank-notes can be over-issued at the 
 pleasure of the issuers. In Scotland, the amount of ca- 
 pital employed in banking was nearly doubled between 
 1826 and 1840; and such has been the multiplication 
 of branches, that it is computed, there is now in that 
 division of the kingdom either a bank or the branch of 
 a bank for every 6000 souls. Almost every person in 
 Scotland above the lowest grade in society employs a 
 banker, and the deposits bearing interest in the hands of 
 the bankers were estimated by Mr. Blair in 1841,* at 
 the astonishing sum of between twenty-six and twenty- 
 seven millions sterling, or about ten times the amount 
 of the circulation. Scotland uses no gold. All her ex- 
 changes of purchase and sale, to the value of one pound 
 or upwards, are performed by book- transfer or bank- 
 notes, two-thirds of the whole bank-note issue being 
 taken up in performing the offices of gold. But what 
 has been the effect of all this keen competition of 
 bankers, and multiplication of banking transactions, on 
 the amount of the circulation of Scotland ? Why, the 
 result has been, that the gross bank-note currency of 
 Scotland, as compared with the population, gives a ratio 
 of only IL sterling per man, instead of 2/. which is the 
 proportion in England ; and that, if you deduct the 
 Scotch \L notes, which correspond with the English 
 metallic currency, the ratio will be nearly as one to six. 
 It is held for an undisputed dogma by many, that an 
 unrestricted currency of paper, from which the use of 
 the precious metals is practically excluded, must, of all 
 currencies, have the most decided tendency to keep up 
 
 * See Mr. Blair's Evidence before the Commons' Committee of 1841 
 on Banks of Issue; Report, p. 171. 
 
93 
 
 prices ; and it is also a maxim at least equally ortho- 
 dox, that the smaller the amount of a currency in pro- 
 portion to the stock of commodities to be distributed, the 
 lower must the scale of prices inevitably be. Grant 
 only these two postulates, and it will be equally easy to 
 prove, as you may have a mind, that Scotland must be 
 the dearest or the cheapest country in the world ; for 
 there certainly exists no country whose exchanges are 
 performed so exclusively through the instrumentality of 
 paper, nor any in which the same extent of business, or 
 anything like it, is transacted with so exceedingly small 
 a proportion of circulating medium, though that me- 
 dium is composed exclusively of bank-notes. I have 
 never heard, however, that the range of prices in Scot- 
 land is, on the whole, materially higher or lower than 
 in other parts of the United Kingdom. Indeed, the 
 dearest country, perhaps, in Europe is Holland, where 
 the circulation is entirely metallic. It is not that, in 
 Scotland, the power of credit brought into action for the 
 purpose of facilitating exchange dealings, is absolutely 
 or at all less, in relation to other circumstances, than it 
 is in England. Quite the contrary. The only differ- 
 ence is, that it does not display itself in the same multi- 
 tude of little slips of paper, which a fantastical conceit 
 has invested with the title of money, and with the pri- 
 vilege of governing prices by their number. Neither is 
 the amount of notes circulated in Scotland proportion- 
 ally smaller than in England, from any want of will to 
 circulate them on the part of the Scotch bankers, but 
 simply because the functions of a note currency are 
 better performed by other means, and more notes are 
 not wanted, while, at the same time, all unreal sem- 
 blances of excess are kept down by the regularity with 
 which the several bankers twice a-week mutually ex- 
 change whatever notes of each other's issue they respec- 
 tively hold, through their agents at Edinburgh.* 
 
 * Nothing- can more strongly exemplify the confused and crude 
 
94 
 
 It has been alleged, however, that, whatever may be 
 the obstacles to any excess of issue on the part of coun- 
 try bankers, or even on that of the Bank of England, so 
 long as its notes are advanced on bills of exchange or 
 other securities at short dates, the Bank of England has 
 the power at any time of giving permanency to its 
 issues by sending its notes into the market, for the pur- 
 chase of Exchequer bills, stock, or other securities re- 
 deemable only at very distant dates ; that in such cases 
 there is no channel open, through which the notes can 
 find their way back to the Bank, and that they must 
 continue, therefore, to surcharge the general circulation, 
 till it is so depreciated as to force a remedy through the 
 exchanges. So extravagant, indeed, are the notions on 
 this point which have got abroad, that one tells you, 
 " the Bank of England can issue in the London market 
 to whatever extent the Directors may think proper, and 
 the public will not be sensible of the excess until a de- 
 mand arises for gold ;"* \vhile another asserts, that 
 " the Bank of England creates capital for itself, when 
 
 notions which prevail on the whole of this subject, than the extravagant 
 importance which has been attached to these very simple and natural 
 arrangements of the Scotch bankers, which have been extolled as 
 affording a complete guarantee for the moderate and prudent manage- 
 ment of their establishments, and have even been strongly urged as a 
 reason for their being permitted to retain the privilege of issuing notes 
 under five pounds, after the English country banks had been deprived 
 of it. The practice of a frequent interchange of notes between banks 
 of issue is, no doubt, a very laudable and proper one, and tends to pre- 
 serve regularity and order in their mutual dealings. But I really can- 
 not conceive, how the public should have much concern in the matter. 
 It is not customary, I believe, for issuing bankers in any part of the 
 world, (though, from local circumstances, there may perhaps be some 
 exception with respect to those in the United States of America,) to 
 re-issue the promissory notes of their neighbours ; and, so long as a 
 note is not issued, it can signify, I should suppose, very little to any 
 but the parties, whether it is returned to the issuer or locked up in the 
 drawer of an accidental holder. 
 
 * See Mr. Gilbert's Evidence before the Commons' Committee of 
 1837 on Joint-Stock Banks; Report, p. 115. 
 
 
95 
 
 it buys securities and pays for them in its own notes ;"* 
 and every fresh note issued for such a purpose is treated 
 by a third, as an express and lasting addition to the ex- 
 isting circulation.! There might, certainly, be some 
 force in these allegations, if it were indispensable, to se- 
 cure the reflux of any excess of notes which the Bank 
 might think fit to issue, that the particular securities on 
 which those notes were advanced should also furnish the 
 channel for their return ; though, even in that case, the 
 reduction of the market-rate of interest, which would 
 necessarily follow such an operation on the part of the 
 Bank of England, could not fail to cause such an expor- 
 tation of bullion as would infallibly relieve the market 
 long before there could be any action on value. But 
 there would be no such necessity. I have already en- 
 deavoured to show, how, in the case of a purchase of 
 bullion, whatever notes the Bank may have occasion to 
 issue in excess of the wants of the public, will be im- 
 mediately thrown back on the Bank through the me- 
 dium of the discount market ; and precisely the same 
 observations will apply to the case in supposition. 
 While the glut lasted, every bill of exchange, on its pass- 
 age to the Bank for discount, would be eagerly inter- 
 cepted. The Bank would find the notes which it had 
 advanced on former discounts flowing back upon it as 
 fast as the bills fell due, while there would be no de- 
 mand for any fresh accommodations. Were it possible 
 that such a state of things could continue long, the faci- 
 lities of the market would be such, that even the bor- 
 rowers on mortgage would be found bringing in further 
 parcels of superfluous notes in redemption of their se- 
 curities ; and so long, in short, as there remained a re- 
 deemable security in the Bank, a vent would not be 
 
 * See Mr. Hobhouse's Evidence before the Commons' Committee of 
 1841 on Banks of Issue; Report, p. 17. 
 
 j- See Mr. Lewis Loyd's Evidence before the Commons' Committee 
 of 1819 on the Bank of England ; Report, p. 166. 
 
96 
 
 wanting for this unprofitable and undesired accumula- 
 tion of circulating credit. 
 
 It is a great error, indeed, to imagine, that the de- 
 mand for pecuniary accommodation (that is, for the 
 loan of capital) is identical with a demand for additional 
 means of circulation, or even that the two are frequently 
 associated. Each demand originates in circumstances 
 peculiarly affecting itself, and very distinct from each 
 other. It is when everything looks prosperous, when 
 wages are high, prices on the rise, and factories busy, 
 that an additional supply of currency is usually re- 
 quired to perform the additional functions inseparable 
 from the necessity of making larger and more numerous 
 payments; whereas, it is chiefly in a more advanced 
 Stage of the commercial cycle, when difficulties begin to 
 present themselves, when markets are overstocked, and 
 returns delayed, that interest rises, and a pressure comes 
 on the Bank for advances of capital. It is true, that 
 there is no medium, through which the Bank is accus- 
 tomed to advance capital, except that of its promissory 
 notes ; and that to refuse the notes, therefore, is to re- 
 fuse the accommodation. But, the accommodation once 
 granted, everything adjusts itself in conformity with the 
 necessities of the market; the loan remains, and the 
 currency, if not wanted, finds its ^yay back to the issuer. 
 Accordingly, a very slight examination of the Parlia- 
 mentary Returns may convince any one, that the securi- 
 ties in the hands of the Bank of England fluctuate more 
 frequently in an opposite direction to its circulation 
 than in concert with it, and that the example, therefore, 
 of that great establishment furnishes no exception to the 
 doctrine so strongly pressed by the country bankers, to 
 the effect that no bank can enlarge its circulation, if 
 that circulation be already adequate to the purposes to 
 which a bank-note currency is commonly applied ; but 
 that every addition to its advances, after that limit is 
 passed, must be made from its capital, and supplied by 
 
97 
 
 the sale of some of its securities in reserve, or by absti- 
 nence from further investment in such securities. The 
 table compiled from the Parliamentary Returns for the 
 interval between 1833 and 1840, to which I have re- 
 ferred in a preceding page, furnishes continual examples 
 of this truth ; but two of these are so remarkable, that it 
 will be quite unnecessary for me to go beyond them. 
 On the 3rd January, 1837, when the resources of the 
 Bank were strained to the uttermost to sustain credit 
 and meet the difficulties of the money-market, we find 
 its advances on loan and discount carried to the enor- 
 mous sum of 17,022,000/., an amount scarcely known 
 since the war, and almost equal to the entire aggregate 
 issues, which, in the meanwhile, remain unmoved at so 
 low a point as 17,076,000/. ! On the other hand, we have; 
 on the 4th of June 1833 a circulation of 18,892,000/., 
 with a return of private securities in hand, nearly if not 
 the very lowest on record for the last half-century, 
 amounting to no more than 972,000/. ! 
 
98 
 
 CHAPTER VI. 
 
 Principles on which Prices fluctuate How the Amount of the Bank- 
 note Circulation is affected by the Fluctuations of Price How, 
 where the Rise of Price is occasioned by Dearth ; and how, when it 
 originates in an Increased Demand Speculations in Produce do not 
 give occasion to increased Issues Effect of an increased Issue of 
 Notes in seasons of Commercial Revulsion Answer to the Objec- 
 tions urged by the Currency Party to the Increase of the Country 
 Issues, which takes place whenever the Prices of Corn are raised by 
 Dearth. 
 
 IF we turn next to the history of prices, and endeavour 
 to trace that invariable connexion which has been alleged 
 to subsist between the rise and fall of prices, and the ex- 
 pansions and contractions of the note currency, we are 
 confronted at every step by fresh contradictions to the 
 hypothesis that the first-mentioned class of phenomena 
 are in any way governed by the latter. It is a self- 
 evident maxim, that every rise or fall in the money price 
 of goods which proceeds altogether from an alteration in 
 the value of the money, " must affect all goods equally, 
 and raise or lower their prices universally"* But we 
 observe no such consentaneous movements of price coin- 
 ciding with the fluctuations of the bank-note circulation. 
 Between the variations of the corn-market, for instance, 
 and the variations of the markets for colonial produce 
 and other foreign commodities, there is no sympathy 
 whatever. In the end of 1824, at the very time that a 
 vast speculative advance was taking place in the prices 
 of most articles of merchandise, the price of wheat, 
 which had risen on some unfounded alarm of scarcity in 
 the preceding year, subsided to 54s. 6d. ; and through- 
 
 * See Wealth of Nations/ 1828, vol. i. p. 393. 
 
 
99 
 
 out all the tremendous vicissitudes of 1825, the price of 
 wheat did not vary more than 4s. in the quarter between 
 April and December. On the other hand, when the 
 prices of cotton and silk fell fifty per cent, in 1 837, those 
 of agricultural produce were all the time steadily ad- 
 vancing. Even the several descriptions of grain are not 
 found to rise and fall together. Each article rests on a 
 basis of its own, the price rising or falling according to 
 the state of the supply. And so little have these varia- 
 tions been influenced by the amount of the issues of the 
 Bank of England, that there appears from the investi- 
 gations of Mr. Tooke to have occurred only one instance 
 within the last half-century, in which an increased cir- 
 culation of notes has coincided with a rise of the price of 
 wheat (and that only a temporary and trifling rise), and 
 one other case, in which a reduction of the Bank's issues 
 has been simultaneous with a decline in the price of 
 wheat, namely, in 1824 and 1831. 
 
 So long as the value of the precious metals is pre- 
 served unvaried, prices can only fluctuate from circum- 
 stances affecting the supply of the particular commodity 
 which is the subject of variation. But when such cir- 
 cumstances do occur, the effect is irresistible. The irre- 
 gularities of seasons and harvests are seldom limited to 
 a narrow region of the earth ; and when this country 
 has been visited by dearth, it has rarely happened that 
 France and other neighbouring kingdoms have escaped 
 a similar calamit}^. On such occasions, neither their 
 metallic circulation, nor even (as in 1817*) a favourable 
 exchange and a brisk influx of bullion, has saved those 
 countries from vicissitudes in the price of grain still 
 more severe than even those experienced with us. It 
 may be observed too, that the range of fluctuation from 
 such causes will always be most considerable, in the case 
 of those commodities which are most perishable in their 
 nature, which are kept at the greatest cost, and are not 
 
 * See Tooke's History of Prices,' vol. ii. pp. 17, 18. 
 
 H2 
 
100 
 
 likely therefore to be accumulated, whose abundance or 
 scarcity depends on the fortune of seasons, or other cir- 
 cumstances equally uncertain and uncontrollable, and 
 which are of such indispensable necessity to human ex- 
 istence as to preclude any suspension, or almost any 
 modification of the demand. Hence the fluctuations of 
 corn have been known to take a range of even 200 per 
 cent. ; while in the case of many manufactured articles, 
 of which the supply can- be increased at a short notice to 
 an indefinite extent, the variations of price are compa- 
 ratively inconsiderable. The expansions and contrac- 
 tions of the bank-note currency, which, under certain 
 circumstances, are observed to accompany these fluctua- 
 tions of price, are not the causes, but the consequences, of 
 such fluctuations; they do not precede, but follow them. 
 Of this truth Mr. Tooke has furnished the most elaborate 
 and satisfactory proofs, which I am precluded by my 
 limited space from discussing in detail, but which are 
 open to the examination of any one who will take the 
 trouble of consulting his work on prices. Speaking at 
 so early a period as 1832, Mr. Tooke thus states the 
 general conclusion at which he had then arrived : " In 
 point of fact, and historically, as far as my researches 
 have gone, in every signal instance of a rise or fall of 
 prices, the rise or fall has preceded, and therefore could 
 not be the effect of, an enlargement or contraction of the 
 bank circulation."* 
 
 I am led at the same time to believe, that the limita- 
 tions under which variations of price thus operate on the 
 amount of the currency may, by simply applying the 
 test of principle, with a very little aid from observation, 
 be detected with tolerable accuracy. It will be admitted, 
 I presume, that the supply of the circulating medium in 
 every country ought to be commensurate in quantity to 
 the number and value of the exchanges which it has to 
 perform. And as the number and value of such ex- 
 
 * See Mr. Tooke's Evidence before the Commons' Committee of 
 1832 on the Bank of England ; Report, p. 441. 
 
101 
 
 changes are liable to vary with every variation in the 
 state of industry, as well as with the progress of popula- 
 tion, it is obvious that the monetary system would be a 
 very defective one, if the supply of the circulating 
 medium did not vary in corresponding proportions,* 
 If every workman is in full employment, and the de- 
 mand for labour has caused the market-rate of wages to 
 rise from 10s. to 15*. per week, while the cost of pro- 
 ducing many of those articles which give employment 
 to the industry of the country has been proportionally 
 enhanced, prices cannot remain stationary, nor will the 
 same quantity of money suffice for the ordinary pay- 
 ments of society as when industry is stagnant, and the 
 money value of commodities low. To create a demand, 
 however, for additional currency, a mere rise of prices, 
 however important the class of articles to which it may 
 extend, does not seem to be of itself sufficient. To pro- 
 duce that effect, the rise must also be accompanied by an 
 increase of production and consumption. A rise in the 
 price of any given article, or class of articles, occasioned 
 by a deficiency of the supply, whether arising from ad- 
 verse seasons or any other usual cause of scarcity, must 
 in general be compensated by the diminution of the 
 quantity of the article to be distributed, so that the 
 distribution may still be accomplished with the same 
 amount of money. In the case, however, of an article 
 of the first necessity, like wheat an article constituting 
 the general food of the people, the effect of a short har- 
 vest on prices is not merely to raise them in a ratio cor- 
 responding with the amount of the deficiency. The in- 
 tensity of the demand in such cases increases, instead of 
 diminishing, with the failure of the supply ; there arises a 
 
 * " It is not," says Mr. M'Culloch, " by the absolute amount of the 
 currency in circulation in a country, that any correct judgment can be 
 formed as to whether it is in excess or not. At one time an issue of 
 fifteen millions of Bank of England paper might probably be too great, 
 while at another time an issue of twenty or twenty -five millions might 
 not be enough." See Notes to < The Wealth of Nations/ p. 256. 
 
102 
 
 sort of general scramble for the scanty and waning stock, 
 each individual eager to secure his share of it ; and, on 
 occasions when the crop has not been more than a third 
 or even a sixth below an ordinary average, prices, we 
 are assured, have been known to be doubled or trebled.* 
 Hence it happens that, in unproductive seasons, the 
 farmers are always in their greatest affluence, that new 
 capital then flows into the agricultural districts, that a 
 spirit of improvement is excited there, and a demand 
 arises for additional accommodation from the country 
 bankers, and for an extra supply of bank-notes. But 
 the means of expenditure possessed by the population at 
 large are not increased by a failure of the harvest. The 
 incomes of all but those engaged in agricultural pursuits 
 continue the same. And those who live on wages, after 
 providing themselves and their families, at the advanced 
 rates of price, with enough of bread to preserve existence, 
 will have little left for the purchase of other necessaries 
 and comforts, so that the consumption of such articles 
 will be diminished, and their prices must fall. The rise 
 of agricultural produce will thus be counterbalanced, 
 and the increased demand for circulation in the agricul- 
 tural districts will be compensated by a reduced demand 
 everywhere else. And these results, while they entirely 
 account for the local sympathy observed to subsist be- 
 tween the expansions and contractions of the country 
 note circulation and the prices of corn, serve at the same 
 time to explain and corroborate the fact alluded to in a 
 preceding page, namely, that, with a single and unim- 
 portant exception, there has been no example within the 
 last half-century of a coincidence between an increased 
 circulation of the notes of the Bank of England and a 
 rise of the price of wheat. 
 
 Where, on the other hand, a rise of prices is not the 
 effect of natural dearth, but of an augmented demand 
 
 * See Tooke's ' History of Prices,' vol. i. pp. 12, 13. The world, I 
 believe, is indebted to Mr. Tooke for having first directed attention to 
 this important law. 
 
103 
 
 for commodities, where a fresh stimulus has been given 
 to industry by the opening of new foreign markets or 
 the extension of old markets, by some incidental burst 
 of the spirit of domestic improvement, or the discovery 
 of some new channel for the productive investment of 
 capital, inducing the labourer to devote a greater num- 
 ber of hours in each day to his task, or to acquire and 
 apply a higher degree of skill in his vocation, in such 
 cases, an increased scale of production and consumption 
 is frequently found for a time to be compatible with an 
 advance in the price of many articles of commerce, and 
 the general sum of transactions requiring the interven- 
 tion of money may thus be multiplied in number and 
 enlarged in magnitude. Where the currency is purely 
 metallic, the additional circulation required for these 
 occasions would be drawn from the private hoards; 
 while, wherever the credit system prevails, the circula- 
 tion is supplied by the banks. The only material dif- 
 ference would be, that, to call for the requisite supply of 
 money in the first case, a more stringent preliminary 
 action on the market-rate of interest might probably be 
 necessary. The state of circumstances in this country 
 between the years 1833 and 1836 afforded a striking 
 example, as it appears to me, of such a coincidence as I 
 am supposing, between an enlarged scale of production 
 and a range of general prices demanding increased faci- 
 lities of internal circulation. The vast enterprises of 
 domestic improvement in the construction of railways 
 and other great public works, the extensive creations of 
 additional mill-power to meet an active foreign demand, 
 and the prodigious impulse communicated at the same 
 time and from similar causes to the industry of the 
 mining districts, furnish an ample solution of the anomaly, 
 which was placed in so strong a light in the course of 
 the examination of Mr. Hobhouse before the Committee 
 of 1841, and which appeared to puzzle both the witness 
 and the Committee, I mean, the addition of some four 
 millions to the provincial bank-note circulation, at the 
 
104 
 
 very time when a remarkable decline in the price of 
 corn ought, according to all former experience, to have 
 produced a fluctuation in the opposite direction, and 
 when the extension of banking facilities, to which I have 
 already adverted, was contributing to displace the issues 
 of the Bank of England, and of all banking establish- 
 ments without the range of the influences immediately 
 in the ascendant. 
 
 But there is a prevailing error connected with this 
 branch of the subject, to which I would more particularly 
 wish to direct attention, and that is, the error of supposing 
 that a wild and reckless spirit of speculation, when it en- 
 ters the produce-markets, and, without any sufficient re- 
 gard to the state of consumption or supply, launches out 
 in the purchase and accumulation of commodities, with 
 a view to raise their prices and make a profit by the re- 
 sale, can in any way promote its objects by an increased 
 use of the bank-note circulation. Such speculations may 
 be conducted either with or without the use of credit, 
 either by means of the capital of the speculator himself, 
 or on long credits from the sellers of the goods, or by the 
 aid of loans from bankers or other dispensers of capital. 
 But the very nature of the transaction precludes the pos- 
 sibility of its deriving any assistance from an extension 
 of the note circulation, or of its tending at all to favour 
 such extension. In the first instance, all the great deal- 
 ings of purchase and sale between the speculator and 
 the producer or importer, the dealings between one 
 speculator and another, even the final sale to the retail 
 tradesman, are adjusted by bill, cheque, or .set-off. 
 There is no intervention of the bank-note currency, but 
 for the occasional payment of some trivial fractional 
 balance. Then, when the purchases are completed, the 
 very primary object of the speculator is to obstruct sup- 
 ply, and to limit consumption, by withdrawing a portion 
 of the existing stock of the commodity from the market. 
 It is not commodities piled up in warehouses, with high 
 prices set upon them, which call money into activity. 
 
105 
 
 The commodities must themselves be set at liberty to 
 circulate, and must be actually circulated with a view to 
 consumption, before they require any additional medium 
 to facilitate that circulation. And when again the period 
 arrives for the dispersion of the store, if by chance the 
 speculation has been conceived with foresight, and the 
 market has not been overwhelmed by fresh importations 
 from abroad, the sustained elevation of price will, in all 
 cases but that of the grain which supports life, be com- 
 pensated by the limitation of the supply ; while, in the 
 much more frequent contingency of the speculation fail- 
 ing, and the hoard of commodities being violently broken 
 up, the money-prices obtained for them will, in general, 
 fall far short of the original cost. What has chiefly, I 
 suspect, given currency to the notion, that the issues of 
 the Bank of England are in a high degree accessory to 
 the extravagances of the speculative mania, has been the 
 pressure on the Bank of England for discounts, after the 
 malady has reached its concluding stage, when the ex- 
 citement has come to a pause, when the market is irre- 
 coverably sinking, discredit spreading rapidly, and pay- 
 ments can no longer be deferred. Then certainly, if the 
 Bank complies with those applications, it must comply 
 with them by an issue of notes, for notes constitute the 
 only instrumentality through which the Bank is in the 
 practice of lending its credit. But those notes are riot 
 intended to circulate, nor do they circulate. There is no 
 more demand for circulation than there was before. On 
 the contrary, the rapid decline of prices which the case 
 in supposition presumes, would necessarily contract the 
 demand for circulation. The notes would either be re- 
 turned to the Bank of England, as fast as they were 
 issued, in the shape of deposits, or would be locked up 
 in the drawers of the private London bankers, or distri- 
 buted by them to their correspondents in the country, or 
 intercepted by other capitalists, who, during the fervour 
 of the previous excitement, had contracted liabilities 
 which they might be imperfectly prepared on the sudden 
 
106 
 
 to encounter. In such emergencies, every man connected 
 with business, who has been trading on other means than 
 his own, is placed on the defensive, and his whole object 
 is to make himself as strong as possible, an object which 
 cannot be more effectually answered than by keeping by 
 him as large a reserve as possible in paper which the 
 law has made a legal tender. The notes themselves 
 never find their way into the produce-markets ; and if 
 they at all contribute to retard the fall of prices, it is not 
 by promoting in the slightest degree the effective demand 
 for commodities, not by enabling consumers to buy more 
 largely for consumption, and so giving briskness to com- 
 merce, but by a process precisely the reverse, by enabling 
 the holders of commodities to hold on, by obstructing 
 traffic and repressing consumption. 
 
 It is a matter of great scandal with the currency party, 
 that, when the prices of agricultural produce are raised 
 by a failure of the harvest, the country bankers should 
 presume to enlarge their issues at the very time that the 
 Bank of England may be contracting hers. They are 
 not content, that notes should be issued in those places 
 where they are wanted, and withheld in those places 
 where they are not wanted. That, it seems, is not their 
 rule. Mr. Norman makes it a subject of charge, that the 
 circulation of the country banks " increases and decreases 
 with the rise or fall of interest and prices;"* and 
 Mr. Jones Loyd declares it to be " the vital objection to 
 our country issues, that they expand and contract with 
 prices, contrary to what ought to be the result upon 
 sound principles, and would be the result with a metallic 
 circulation. "f Sir Robert Peel, too, quotes the evidence 
 of Mr. Hobhouse and Mr. Stuckey, and re-echoes the 
 complaint, that the amount of the country issues " is 
 governed by prices, rather than by a reference to the 
 
 * See Mr. Norman's Evidence before the Commons' Committee of 
 1840 on Banks of Issue; Eeport, p. 163. 
 
 t See Mr. S. J. Loyd's < Letter to J. S. Smith, Esq.,' 1840, 
 p. 42. 
 
107 
 
 exchanges."* Upon this point of the exchanges I shall 
 have more to say presently. But, in the meanwhile, I 
 may, perhaps, be permitted to ask, what it is that these 
 gentlemen find so very objectionable in the practice of 
 regulating the country issues by prices, or what better 
 principle of regulation they would propose to substitute ? 
 It is clear that the exchanges alone can furnish the bank- 
 ers with no such rule ; for, without a rise of prices, there 
 is no condition of the exchange which could ever enable 
 or even assist them to add a single note to the cur- 
 rency. The country banker is wholly unaffected by the 
 exchanges. How then can he be expected to regulate 
 his issues by them ? When the exchange is low, and 
 bullion is wanted for exportation, it is not to the country 
 banker that the bullion-merchant resorts for a supply. 
 Such a thing as a run on a country bank for gold to send 
 abroad, has not been heard of since country banks were 
 first instituted. The only purposes, indeed, for which a 
 country banker need keep gold by him at all, are to sup- 
 ply his customers with small change, and to be prepared 
 against any calls on him, that may possibly arise from in- 
 ternal panic or discredit. It is possible, certainly, for every 
 country banker to consult regularly the exchange lists, 
 and whenever he observes the quotations low, to contract 
 the scale of his accommodations. Bankers, though they 
 cannot increase their issues above the level prescribed by 
 prices, have it always in their power to lower them to 
 any given point, or to withdraw them, if they think fit, 
 altogether. And I do not say, that such a thing may not 
 be met with, as a public-spirited country banker who 
 reads currency pamphlets, and may think it a point of 
 duty to call in a portion of his notes, whenever the ex- 
 change falls. But the interests of the banker, indivi- 
 dually, are in no way concerned in the matter ; the fall 
 of the exchange is nothing to him. It is the necessary, 
 as it is by far the most beneficial effect of our banking 
 
 * See Sir Robert Peel's Speeches on the Renewal of the Bank 
 Charter, p. 29-31. 
 
108 
 
 system, that the whole duty of providing a sufficient 
 stock of gold for the correction of the exchanges devolves 
 upon one single great establishment, which is or ought 
 to be enabled to perform that office effectually, by the 
 magnitude of its capital and the privileges which the 
 legislature has conferred on it. The example of the 
 United States proves conclusively, that this office can 
 never be safely intrusted to a number of independent 
 banking establishments, however judiciously constituted, 
 where each is intent only on the prosecution of its own 
 interests, and acknowledges no obligation to consult any- 
 thing but its interests. You point to the system of 
 the United States as a warning. And yet one of the 
 very objects which you propose to effect by your bill, in 
 so far as its objects are intelligible, is to assimilate the sys- 
 tem of England to that of the United States, by dividing 
 among the smaller banks the duty of providing a stock 
 of gold to meet the turns of the exchange. 
 
 But even if it could be made compulsory on the coun- 
 try bankers to correct the amount of their issues from 
 time to time by the fluctuations of the exchange, they 
 would not thereby be relieved from the necessity of pre- 
 serving the same conformity as at present between their 
 issues and prices. It is on the state of prices that the de- 
 mand for currency, whether larger or smaller, depends. 
 And you may as well tell the bankers to issue without 
 any regard to the demand for their notes, or to issue 
 without regard to prices. It is not, indeed, strictly cor- 
 rect to say, that country bankers govern their issues by 
 prices ; the bankers are, in point of fact,, nearly passive 
 in the matter ; it is the prices which govern the amount 
 of issues. 
 
 And why should it not be so ? Why should the public 
 be deprived of the use of a safe and economical currency, 
 of a currency founded on solid banking credit, in suffi- 
 cient quantity for the transaction of its exchanges, and 
 should be driven to the substitution of personal and se- 
 condary credit, and of all manner of insecure and clumsy 
 
109 
 
 expedients, when prices are high, (even supposing them 
 to have been raised by speculation, though that is by 
 much the rarest case of any,) more than when they are 
 low ? A failure of the harvest threatens the country with 
 famine, and the price of wheat is doubled. It becomes 
 most desirable, that the intensity of the calamity should 
 be as much as possible mitigated and its duration limited. 
 For this purpose, no more effectual measure presents it- 
 self, than that of sowing an additional breadth of land 
 with wheat for the season ensuing, in order that the en- 
 tire exhaustion of the surplus stock, which is usually car- 
 ried over from one season to another, may not have the 
 effect of prolonging the famine into a second year. The 
 farmer, meanwhile, who has lost a third of his crop, finds 
 that the remaining two-thirds have acquired a value not 
 only sufficient to make up for the deficiency, but to yield 
 him a profit of 33j per cent, over and above what his 
 corn would have sold for, had the produce been that of 
 an average year. He feels himself, therefore, in a posi- 
 tion, to forward the public object of extending the culti- 
 vation of wheat for the season ensuing ; the expectation 
 of further profit furnishes him with the motive, and his 
 profits already secured with the means ; but the whole 
 of his corn may not yet have been brought to market, or 
 a/ portion of it may have been sold on credit ; and, to en- 
 able him to commence his operations for bringing new 
 land into tillage, he requires an advance from his banker. 
 The banker supplies the desired advance by an issue of 
 his own notes in excess of his ordinary issue ; and the 
 circumstances of the time having imparted an extraordi- 
 nary degree of activity to agricultural industry, these 
 notes find local employment, and remain for a certain 
 period in circulation. Is it meant, then, to be asserted, 
 that there is anything wrong in all this ? that, in respond- 
 ing to this most " legitimate demand," for a temporary 
 accommodation to the farmer, and for a supply of addi- 
 tional circulation to the district, merely commensurate 
 with the increased activity about to be given to produc- 
 
110 
 
 tion, the banker is depreciating the currency, and in- 
 flicting a positive injury on the community at large? 
 Or is there any man living who seriously believes, that, 
 by dint of any impediments to the free circulation of 
 produce, which he can devise, he can compel the farmers 
 to dispose of the produce of a scanty harvest at the same 
 prices as the produce of a redundant harvest ; or that, if 
 he could, he would be conferring a benefit on the public ? 
 Why, I thought it had long ago been settled by common 
 agreement among all sects of political economists, that 
 high prices constitute the natural and only legitimate 
 remedy by which the evils of famine are to be mitigated ; 
 that there exist no other means, by which we can ensure 
 either economy in the consumption of the crop realised, 
 or an enlargement of the cultivation for the ensuing 
 season, or an abundant supply from abroad ; and I own, 
 I am rather surprised to hear a proposition started at 
 this time of day, which seems to imply, that a rise of 
 prices, under such circumstances, is an evil to be cor- 
 rected. If such doctrines are to prevail, we may expect 
 soon to hear of a measure for reviving the laws against 
 forestalling and regrating : it would be but a trifling ex- 
 tension of the same principle. But I think, I may ven- 
 ture to assure these vigilant guardians of the integrity 
 of the currency, that, do what they may, prices will still 
 continue to govern the issues of the country bankers ; 
 that, even if the privilege of issue were to be entirely 
 withdrawn from them, and they were restricted to the 
 circulation of notes of the Bank of England, the case 
 would not be in the slightest degree bettered ; nay that, 
 even if our note circulation were to be discarded alto- 
 gether, and a pure metallic currency established in its 
 place, the gold would still be found appearing and dis- 
 appearing as prices might rise or fall, and the private 
 hoards succeeding once more to the functions of the 
 banks. 
 
Ill 
 
 CHAPTER VII. 
 
 Currency Theory of Drains of Bullion Of the distinction between 
 Nominal and Real Exchange, and the Rationale of the Extrusion 
 and Melting of the Coin of a Mixed Currency, where the Paper is 
 Inconvertible and issued in excess Limited Fluctuations, of the 
 Price of Gold, when the Currency is Convertible Falls of the 
 Exchange coincident generally with a low state of the Currency, 
 and vice versa All Variations of the Exchange, one class excepted, 
 depend on the state of the Balance of Foreign Payments >Of the 
 Employment of the Precious Metals for the Adjustment of such Ba- 
 lances Doctrine as to the Necessity of contracting the Circulation 
 in order to arrest a Drain of Bullion Its Fallacy Operation of 
 the Hoards in regulating the Fluctuations of, a Metallic Circulation, 
 and analogous Action of the Banks in regulating those of a Mixed 
 Circulation The Existence of a Drain does not necessarily imply 
 a"nY Diminution of the Internal Demand for Circulation Of Drains 
 through the Deposits. 
 
 BUT besides the social and commercial evils which are 
 imputed to the fluctuations of a bank-note currency, 
 the 'convertibility of the notes themselves, we are told, is 
 continually endangered by those fluctuations ; and it is 
 held out as the paramount recommendation of the mea- 
 sure before Parliament, that it will obviate that danger 
 in future. Indeed, there are symptoms in some of the 
 latter debates of a disposition to recede a little from the 
 lofty pretensions with which the bill was ushered in, 
 and to rest its claims to approbation rather on its efficacy 
 as a guarantee of the permanence of the monetary system 
 established in 1819, and a security for the uninterrupted 
 solvency of the Bank, than as a protection against the 
 great vicissitudes of commerce, a restraint on reckless 
 and improvident speculation, and a panacea for the re- 
 vulsions, the panics, and the endless catalogue of calami- 
 ties which follow in their train. Those drains of bullion 
 
112 
 
 for exportation, which we have been accustomed to 
 experience from time to time, and which, on two 
 different occasions since the resumption of cash pay- 
 ments, namely in 1825 and 1839, reduced the stock of 
 gold in the hands of the Bank to so low an ebb, as to 
 give rise to serious alarm, lest it should be entirely ex- 
 hausted, those drains are regarded by the partisans of 
 the currency doctrine, as merely so many manifestations 
 of the redundant issue, and consequent depreciation of 
 the bank paper. According to their notion, the aggre- 
 gate value of the currency of the realm has been re- 
 duced, by the excessive quantity of notes thrown into 
 the market, to a level below that of the currencies of 
 surrounding nations; the effect has been to raise the 
 local prices of all commodities, while the prices of the 
 same commodities in foreign countries remain unaltered ; 
 as the natural remedy for this irregular state of things, 
 the notes are returned to the Bank for gold, and the gold 
 is sent abroad to purchase the commodities where they 
 are cheaper; and by this process, they say, the equi- 
 librium of value would soon be restored, but that the 
 Bank continually replaces the notes sent in for payment 
 by fresh issues. 
 
 I am perfectly sensible of the importance of main- 
 taining, under all ordinary circumstances, the converti- 
 bility of the bank-note currency inviolable; and am 
 quite free to admit that, to ensure that object, few sacri- 
 fices would be too great. Necessities inseparably con- 
 nected with our social condition, and with our whole 
 system of commercial economy, render the occasional 
 exportation of the precious metals, for the purpose of ad- 
 justing foreign payments, inevitable. Those metals are 
 not held, but in very small parcels and for very short 
 periods, by individuals in this country as merchandise, 
 neither are they hoarded by them as money. The only 
 considerable stock existing here is that in the vaults of 
 the Bank of England; and to the Bank of England 
 accordingly every man resorts, who has occasion for 
 
113 
 
 specie to send abroad. Hitherto, the store of gold kept 
 by the Bank of England has been sufficient to answer 
 every demand on it, but it has been barely sufficient. 
 In several instances, and particularly in the two years 
 above mentioned, it has been so nearly drained out, as 
 at least to suggest the possibility that it might have been 
 entirely drained out. The recurrence of such emer- 
 gencies, even though we could be sure that they would 
 always stop short of total exhaustion, is exceedingly to 
 be deprecated. They rarely fail to create a degree of 
 uneasiness and apprehension while they last, very in- 
 jurious to public and private credit, and they have a 
 tendency, in their concluding stages, to induce panics, 
 which, if they were once to gain ground, could not 
 always be arrested, and might very probably ensure the 
 catastrophe which the drain for exportation would not of 
 itself have brought about. It is very desirable certainly, 
 that, if possible, this should be remedied; and as the 
 resources at the disposal of the Bank have hitherto been 
 somewhat scanty for the purpose contemplated, the most 
 obvious course which suggests itself is to endeavour by 
 some expedient to enlarge them. This, however, is the 
 very reverse of what is proposed to be done by the pre- 
 sent measure. Instead of enlarging, it proposes greatly 
 to contract the means by which the Bank hitherto has 
 been enabled to resist the operation of drains, or, what 
 is the same thing, greatly to restrain their exercise, and 
 that without providing the slightest security against 
 their frequency or intensity. The whole scheme, in 
 truth, is built upon assumptions which will not bear the 
 test of examination. 
 
 The term " exchange" is used, in the language of 
 merchants, to express the equivalent in local currency, 
 for which a person having money due to him at some 
 distant place, transfers his claim to another person who 
 may have occasion to pay money at that place; and 
 what is called the par of exchange between two countries 
 is determined by the proportion which the purchasing 
 
114 
 
 power of the money of the one country bears to that of 
 the money of the other, such purchasing power being 
 measured, in countries using a metallic standard, by 
 the comparative weight and fineness of their respective 
 coins, gold being weighed against gold, and silver 
 against silver, and equal weights of the fine metal con- 
 stituting the par. The rate of exchange rises above par, 
 or falls below it, according as the supply of bills in the 
 market happens to be greater or less than the demand, 
 the fall, however, being always limited by the cost of 
 exporting the metal, and of thus substituting a remit- 
 tance in coin for a remittance by bill. This is the real 
 exchange ; and it follows, that, whenever this exchange 
 falls below a certain point, the fall occasions an exporta- 
 tion of coin. But there may be likewise variations of the 
 exchange, which are merely nominal. Were the gold 
 sovereign of this country to be debased by an admixture 
 of inferior metal in a proportion equal to half the weight 
 of the coin, the effect would be, that the par of the pound 
 sterling in exchange with France would decline from its 
 present rate of 25f. 20c. to 12f. lOc. ; and a similar re- 
 sult would follow, if the currency were composed of in- 
 convertible paper, and the value of that paper were 
 degraded by doubling its quantity. But it is evident 
 that, in these cases, as far as the exchange is concerned, 
 there would be no variation in essentials. The same 
 weight of gold in this country would still command the 
 same weight of gold or of silver in France, as it did 
 before. There would be no actual fall of the exchange, 
 no tendency to an efflux either of bullion or commodi- 
 ties, no derangement of commercial relations requiring 
 to be rectified. The change might even be perfectly 
 consistent with a highly favourable condition of the real 
 exchange, and with an influx of gold from the Continent, 
 The only result would be, that the term "sovereign" 
 would signify a different coin from that which it had ex- 
 pressed heretofore. Things would remain the same : the 
 only variance would be in the new application of a name. 
 
115 
 
 This distinction between real and nominal exchange 
 was first, I believe, brought prominently into public 
 notice in an able pamphlet published by Mr. Blake 
 about 1811 ; and has since been adopted and illustrated 
 in detail by other writers of eminence, and in particular 
 by Mr. M'Culloch, in his article on ' Exchange* in the 
 Supplement to the ' Encyclopedia Britannica.' The 
 principle appears to have escaped the attention of the 
 Bullion Committee, notwithstanding its important bear- 
 ing on the subject of their investigation ; and seems, 
 when promulgated, to have perplexed not a little some 
 of their more ardent disciples, and to have produced one 
 or two rather singular attempts to reconcile its obvious 
 effect with the truth of their faith : but it is a prin- 
 ciple, which requires only to be stated to command uni- 
 versal acquiescence. Yet this distinction has been very 
 commonly lost sight of in the latter discussions upon 
 these subjects ; and we find writers daily referring the 
 phenomena of the efflux and influx of bullion to the 
 "depreciation" and "appreciation" of the currency, as 
 if the inducements to export and import specie had any 
 reference to the value of the circulation, instead of being 
 govenTed, as they exclusively are, by the state of the 
 balance of foreign payments. The truth is, that, far 
 from having any tendency to produce an adverse ex- 
 change, or to cause an efflux of the precious metals, 
 there are no means by which the adjustment of a balance 
 due to foreigners can be so effectually facilitated as by a 
 legal debasement of the circulating medium, inasmuch 
 as the change affects equally the value of all contracts 
 made in that currency with foreigners as well as natives, 
 and enables the debtor to discharge his obligation with 
 a smaller amount of specie. 
 
 It is very true, indeed, that where coin and incon- 
 vertible notes are circulating together, the least over- 
 supply of the conventional portion of the currency, or 
 the coincidence of any legal obstacles to the free ex- 
 
 i 2 
 
116 
 
 portation of the metals with an adverse turn of the 
 foreign exchange, will have the certain effect of either 
 forcing up the coin to a premium, or, if that be for- 
 bidden by law, of causing the market-price to rise above 
 the Mint price, and the coin to be melted for sale. No 
 person who possesses a sovereign, will pay it away in 
 discharge of a debt of twenty shillings, when he can get 
 twenty-five shillings in money of the same legal value 
 by melting and selling it. The coin, under these cir- 
 cumstances, ceases altogether to be the standard money 
 of the realm ; it is rapidly extruded from the circulation ; 
 all prices and quotations of exchange are from thence- 
 forth expressed in the conventional paper ; and, as soon 
 as the home market is saturated with the melted bullion, 
 the remaining stock overflows into foreign countries, and 
 becomes an object of traffic there, like any other com- 
 modity. But this process of exportation has clearly no 
 connexion with or dependence on the foreign exchanges. 
 It is not necessarily preceded by any deficiency in the 
 supply of bills, nor by any fall of the real exchange ; 
 nor is the bullion which is sent abroad required for the 
 liquidation of any foreign debt. The exportation may 
 even go on in the face of a favourable exchange (though 
 I know it has been argued to the contrary), just as the 
 transit trade in silver, on its passage from the mining 
 countries to the silver-consuming countries of the Conti- 
 nent, is continued through the medium of this country 
 without interruption, notwithstanding the exchange may 
 at the very time be bringing in gold from those countries. 
 The case is simply that of a great staple in universal use, 
 of which the consumption has been suddenly curtailed 
 in a particular locality : the market is flooded with the 
 redundant stock ; the price falls ; the article, like any 
 other merchantable commodity similarly circumstanced, 
 becomes then an eligible object for exportation, and the 
 superfluity is gradually taken off by the foreign de- 
 mand. 
 
 I need scarcely say, however, that none of those cir- 
 
117 
 
 cumstances, which, in the case of a mixed currency of 
 coin and inconvertible paper, contribute thus to detach 
 the coin from the paper, and cause it to be melted and 
 sent abroad, can have the slightest operation in the case 
 of a circulation of coin and convertible notes. It is self- 
 evident, that bank-notes, payable at all times in coin of a 
 definite weight and quality, can never sensibly fall in 
 value below the coin into which they are convertible ; 
 and it is at least equally apparent, that the market-price 
 of any metal which constitutes the material of a metallic 
 currency, whether circulating alone or in conjunction 
 with a currency of convertible notes, can never rise in 
 any sensible proportion above its Mint value, so as to 
 create an inducement for melting it again into bullion, 
 provided the entire coinage be of one uniform quality, 
 and that the Mint is open for the reception of all standard 
 bullion tendered to it for coinage, and delivers in return 
 an equal weight of coin of the like purity. So circum- 
 scribed, indeed, is the range of fluctuation assigned to 
 the prices of gold and silver by the operation of the 
 various systems on which the coinages of different 
 nations, in the present state of the world, are adminis- 
 tered, that, except in mining countries, and, to a more 
 limited extent, in countries where one only of the preci- 
 ous metals is used as money, it is difficult to imagine the 
 existence of any motive, apart from the variations of the 
 real exchange, sufficient to occasion their transmission 
 from country to country at all ; and in the particular 
 instance of this country, where the fluctuations of the 
 price of gold, as I have said, are limited to an upward 
 range of one-sixth per cent., and a downward range of 
 one half per cent., it is clear, that these fluctuations can 
 never afford any measure or criterion of the extent or 
 intensity of the variations of the exchange. If there be 
 any standard gold bullion for sale in our market when 
 an effective demand arises for gold to send abroad, an 
 advance of the price of that bullion to the extreme ele- 
 vation of 31. 18*. per ounce must be the inevitable result 
 
118 
 
 of such demand ; and this will be a sign or indication, 
 and nothing more, that the exchange is below par, and 
 bullion going out ; while, on the other hand, when the 
 price falls to 31. 17*. 9d. (the purchasing rate of the 
 Bank), it shows that the exchange is above par, and 
 bullion coming in. The variation of the exchange, 
 again, limited though it be by the facility of exporting 
 gold, has, since the resumption of cash payments, as- 
 sumed a range equal to nearly three per cent, in our 
 bill transactions with Paris, while in those with Ham- 
 burgh (where a greater latitude is given to fluctuation, 
 in consequence of there being no local coinage there of 
 gold), the range is little short of six per cent. The 
 trivial oscillations of the market-price of the standard 
 metal, thus limited to a scale of one-third per cent, in 
 the whole, are continually presenting themselves as an 
 effect, and never as a cause, of these larger variations of 
 the exchange. And it is a singular anomaly in the eco- 
 nomy of the exchanges, and one particularly deserving 
 of remark, that not only is there never any direct profit 
 to be realised on the transit of gold between two 
 countries equally employing gold as a circulating me- 
 dium, but that the course of transit is always from the 
 country, where for the moment the metal is dearest, to 
 the country where it is cheapest, a rise of the market- 
 price of the metal to its highest limit in the home 
 market, and a fall of the premium in the foreign market, 
 being the certain results of that tendency to an efflux of 
 gold which follows a depression of the exchanges, and 
 both effects immediately ceasing on the cessation of the 
 demand for exportation. From all this it is obvious, 
 that the bullion-merchant, under present circumstances, 
 would never have any inducement to export gold at all, 
 but for the profit he realises by the high exchange at 
 which he is enabled to purchase bills for the return of 
 his funds, that the rise of price is in detraction from 
 that profit, and that gold therefore cannot be sent abroad 
 for the correction of an adverse exchange, until the rate 
 
119 
 
 of exchange shall have fallen to such a point as shall in- 
 demnify the exporter as well for the difference of price 
 as for the cost of transmission. 
 
 I know, it will be answered by the advocates of the 
 currency doctrines, that these observations as to nominal 
 and real exchange have no application to their argument, 
 and that the depreciation of which they speak, is not a 
 depreciation of the metallic par of the currency as com- 
 pared with the pars of the currencies of surrounding 
 countries, but merely a diminution of the comparative 
 purchasing power of the local circulation, consequent on 
 the undue augmentation of its quantity, a diminution, 
 which can occasion no variation in the nominal ex- 
 change, so long as the weight and purity of the respec- 
 tive coinages are preserved unimpaired, and the coin of 
 either country is permitted to pass freely into the other. 
 And I am quite aware, that this is the correct represen- 
 tation of their meaning ; though, from the loose and in- 
 discriminate manner in which they permit themselves to 
 apply the terms " depreciation " and " appreciation " to 
 every description of mixed currency at one time with 
 reference to the mutual relations of value between the 
 currencies themselves, and at another with reference to 
 their relations of value as compared with commodities 
 one might sometimes be tempted to suppose, that they 
 have either not adverted to the distinction at all, or are 
 unwilling that others should advert to it. But, however 
 this may be, there can be no doubt, that the imaginary 
 fluctuations of value to which these reasoners are in the 
 habit of attributing the drains of gold incident to our 
 existing system of note currency, have become intimately 
 associated in the minds of many with the nominal varia- 
 tions of inconvertible paper, and the extrusion of the 
 circulating coin by which those variations are accompa- 
 nied, nor that the doctrines in question have derived 
 some countenance in the eyes of the world from this 
 supposed analogy. I have thought it of importance, 
 therefore, to place each respective case on its true foot- 
 
120 
 
 ing, and to show that there is nothing in common 
 between the two classes of phenomena. 
 
 Were such a thing as a redundant issue of convertible 
 notes possible, the over-issue could only be supposed to 
 affect the course of bullion through its action on prices, 
 and through prices on the balance of foreign payments ; 
 precisely as in the case of a disturbance of the commer- 
 cial equilibrium, originating solely in commercial causes, 
 and wholly independent of the state of the currency. 
 But I rely with confidence on the sufficiency of the rea- 
 sons which I have stated, for rejecting altogether the 
 supposition, that a circulation of convertible notes can 
 exist for any continuance in such a state of redundance 
 as to raise prices. And those reasons are made irresist- 
 ible by the discovery, for which we are again indebted 
 chiefly to the researches of Mr. Tooke, that, with only 
 one or two exceptions, and those admitting of satisfactory 
 explanation, every remarkable fall of the exchange, fol- 
 lowed by a drain of gold, that has occurred during the 
 last half-century, has been coincident throughout with a 
 comparatively low state of the circulating medium, and 
 vice versa. On no occasion was this proposition more 
 strikingly exemplified, than during the period imme- 
 diately preceding the suspension of cash payments in 
 1797, when for two years together a system of the most 
 determined contraction was carried on by the Directors 
 of the Bank of England with unrelenting perseverance, 
 reducing the circulation from 16,017,510/. on the 28th 
 of February, 1795, to S,640,250/. on the 25th of February, 
 1797, without arresting in the least apparent degree the 
 drain of gold which was then in progress for restoring 
 the exchange. Similar instances may be quoted in con- 
 nexion with almost every remarkable change in the 
 course of bullion during the continuance of the Bank 
 Restriction Act : and the restoration of the exchange to 
 its bullion par from a depression of full thirty per cent, 
 was accomplished in 1816, after various remarkable 
 vicissitudes, in the face of an enlargement of the issues 
 
121 
 
 of the Bank of England to an extent varying from three 
 to six millions.* And since the repeal of the Suspension 
 Act in 1819, we have had a succession of the same 
 phenomena, namely, a high exchange and an influx of 
 bullion in concurrence with a full circulation, and a 
 depressed state of the exchange and drain of bullion 
 coinciding with a contracted circulation, in a variety of 
 instances, in 1825, 1828-9, 1830-32, throughout the 
 eventful interval from 1833 to 1839, and more lately 
 in 1842-3; in nearly every remarkable contingency in 
 fact that arose, with the exception of the crisis of 1839, 
 when, owing probably to the peculiar coincidence of a 
 thriving trade, an active condition of industry and a high 
 range of prices with a failure of the corn harvest, the 
 Bank of England certainly lost upwards of three millions 
 of its bullion, at the same time that there was an advance 
 to the extent of 600,000/. in the amount of its circula- 
 tion. 
 
 It is not, in truth, to any positive or invariable con- 
 nexion which can be affirmed to subsist between a full 
 currency and a favourable state of the exchange, or to 
 any reciprocal action of one or the other in the way of 
 cause and effect, that we are to ascribe a concurrence of 
 
 * I am aware, that an attempt has been made by the eminent author 
 of the article on Exchange in the Supplement to the ' Encyclopedia 
 Britannica,' to account for the whole of this extraordinary revolution 
 in the exchanges, which occurred between 1814 and 1816, from the 
 contraction of the country circulation consequent on the extensive 
 failures of the country banks ; but the attempt is by no means a suc- 
 cessful one. My space will not permit me to engage in the detailed 
 discussion of so complicated a case. But it may be remarked, among 
 other circumstances scarcely reconcilable with Mr. M'Culloch's argu- 
 ment, that the first great rally of the exchanges occurred in the 
 months of June, July, and August, 1814, before the failures of the 
 country banks had even commenced. It should be remembered too, 
 that only the nominal exchange could have been affected by such a re- 
 storation of the value of the paper as Mr. M'Culloch supposes, and it 
 seems strange, therefore, that he should have assigned such a circum- 
 stance as the cause of a movement which brought in bullion to a vast 
 amount. 
 
122 
 
 phenomena so utterly irreconcilable as this is, with the 
 theory which regards the several variations of the ex- 
 change as merely so many manifestations of an altera- 
 tion in the quantity and value of the currency. The 
 case is nothing more than this, that the same circum- 
 stances which conduce to a rise of the exchanges and an 
 influx of gold, denote also the existence of an active 
 state of internal industry, a high scale of production and 
 consumption, and every condition requisite to an en- 
 hanced employment and demand for money. On the 
 other hand, when a fall of the foreign exchange and a 
 drain of gold come in the train of a period of commercial 
 excitement and speculation, their advent is commonly 
 the signal of a collapse already commenced, an indica- 
 tion of overstocked markets, of a cessation of the foreign 
 demand for our productions, of delayed returns, and, as 
 the necessary sequel of all these, of commercial discredit, 
 manufactories shut up, artisans starving, and a general 
 stagnation of industry and enterprise. And under such 
 circumstances, how should it be matter of surprise to 
 any one, that a smaller amount of notes should suffice 
 for the transaction of the little business which is going 
 on ? I look upon a low state of the currency, in fine, 
 and an adverse exchange, as co-ordinate phenomena, 
 and nothing further, phenomena resulting from the 
 operation of certain common causes, and those causes 
 liable to be modified by circumstances, but, as I believe 
 and have already intimated, altogether independent of 
 the action of drains in bringing notes into the Bank for 
 gold. Such action is the immediate consequence of a 
 demand for gold as an exportable commodity, and not 
 of any abatement of the demand for circulation. And 
 so long as the issues of the Bank of England shall be 
 administered upon any system that will be long tolerated 
 or tolerable, I hold that the demand constitutes the self- 
 regulating principle, by which alone the amount of the 
 bank-note circulation must be governed. With respect, 
 again, to those examples of eager competition for the 
 
123 
 
 possession of bank-notes, which characterize seasons of 
 panic, and which may sometimes, as at the close of 
 1825, lead to a sudden, though only temporary, enlarge- 
 ment of the issues, even while the efflux of bullion is 
 still going on ; these, I apprehend, are riot to be regarded 
 as among the natural or necessary concomitants of a low 
 exchange ; the demand in such cases is not for circula- 
 tion, but for hoarding, a demand on the part of alarmed 
 bankers and capitalists, which arises generally in the last 
 act of the crisis, after a long continuation of the drain, 
 and is the precursor of its termination. 
 
 If, then, these bugbears of over-issue and depreciation 
 have no real existence if it has been demonstrated, as I 
 trust it has, that the banker's power of issue is strictly 
 limited by the public demand for notes that the indivi- 
 duals composing the public, who have an equivalent in 
 stock or credit to offer in return, can have no imaginable 
 motive for desiring to possess themselves of a larger pro- 
 portion of those notes than they absolutely require for 
 use that a currency not forced into circulation by 
 authority, but limited by the demand for use, can never 
 operate iipon prices by any excess of quantity and that 
 it never, therefore, can become depreciated or suffer a 
 diminution of its purchasing power, as compared with 
 the currencies of neighbouring countries and that, 
 without such depreciation, there will be no equilibrium 
 of value disturbed, nor any necessity for exporting the 
 metallic portion of the circulation for the purpose of re- 
 storing it : if all this be so, it is clear, that the entire 
 scheme of the currency party for correcting the eccentric 
 movements of the bullion by the regulation of the issues, 
 is at an end. The ground is cut from under it. 
 
 This, in fact, is not a question of currency, but of 
 capital. Setting out of account for the present that 
 peculiar class of cases in which the natural current of 
 bullion may be diverted by a special demand arising in 
 some particular country for a large supply of the pre- 
 cious metals in kind, all those various causes which, in 
 
124 
 
 the existing condition of monetary affairs, are capable of 
 influencing the exchange and directing the stream of 
 bullion from one country to another, resolve themselves 
 under a single head, namely, the state of the balance of 
 foreign payments, and the continually-recurring neces- 
 sity of transferring capital from one country to another 
 to discharge it. If there has been a failure of the crops, 
 and, to relieve the necessities of the population, three 
 millions of quarters of wheat are to be imported from 
 abroad, so much of the capital of the nation will have to 
 be sacrificed for that object. Whether that capital is 
 transmitted in merchandise or in specie, is a point which 
 in no way affects the nature of the transaction ; the corn 
 can only be obtained in exchange for an equivalent, and 
 that equivalent must in one shape or other come out of 
 the wealth of the country. The loss is irretrievable ; it 
 is the penalty inseparable from a great physical cala- 
 mity, which must be submitted to; and if any portion 
 of the penalty shall have been paid in gold, that gold 
 can only be got back again by a second exportation of 
 capital, to be created by fresh exertions of industry and 
 given in exchange for it. The case is precisely the same, 
 where the adverse state of the exchange is occasioned by 
 a heavy war expenditure in a foreign country. In that 
 case, as in the former, there must always be a positive 
 abstraction of capital ; arid, in order to redeem the gold, 
 a new equivalent in capital must be provided, either by 
 abstinence from consumption or by increased energy of 
 production. Where, on the other hand, the adverse 
 balance is created in the ordinary course of mercantile 
 exchange, where the object to be accomplished by the 
 transmission of capital in the shape of merchandise or 
 bullion is to place it out to greater advantage at interest, 
 as in the case of remittances for the purchase of foreign 
 state securities, or where it is merely sent in return for a 
 surplus quantity of foreign goods imported, the trans- 
 action eventually may turn out profitable or unprofit- 
 able, but it implies no positive sacrifice of capital in its 
 
125 
 
 origin, like remittances for repairing the deficiency of a 
 harvest, or for prosecuting the operations of a foreign 
 war. There is no void to be filled. The gold is sent 
 abroad in commutation for an available equivalent, and 
 the same equivalent, or some other obtained in exchange 
 for it, will bring back the gold again, without the neces- 
 sity of creating any new capital for its redemption. But 
 in either case the operation is essentially an operation 
 in capital, and only affects the currency incidentally. 
 
 The balance of foreign payments is liable to vary in 
 all states of the currency alike, whether it be a metallic, 
 a conventional, or a mixed currency ; and those varia- 
 tions are wholly unconnected with any fluctuation in the 
 amount of circulating money, and do not necessarily 
 demand any transmission of bullion for their correction. 
 Gold is preferred for that purpose only in those cases 
 where it is likely to effect the payment more conve- 
 niently, promptly, or profitably, than any other descrip- 
 tion of stock or capital. In poor countries, and most of 
 the territories to which we are accustomed to look for 
 supplies of grain in time of dearth come very literally 
 under that denomination, in poor countries, the capacity 
 for consuming foreign articles is exceedingly limited; 
 new wants and new tastes are not to be created in a 
 day ; and it is idle to suppose that, in such countries, 
 even cheapness will, on every sudden emergency, ensure 
 a market for such commodities as you can spare to send. 
 The debt must be paid perhaps on a certain day ; and, 
 if a bill for the amount cannot be procured but at a 
 premium which is held to be extravagant, it is natural 
 to suppose, that, other circumstances being equal, the 
 indebted party will choose to make his remittance in an 
 article like gold or silver, which can always be conveyed 
 to the spot where it is wanted with precision and celerity, 
 and may be counted upon to realise on its arrival nearly the 
 exact sum required to be provided, rather than incur the 
 hazard of sending it in tea, coffee, sugar, or indigo. Gold 
 and silver possess an infinite advantage over all other de- 
 
126 
 
 scriptions of merchandise for such occasions, from the 
 circumstance of their being universally in use as money. 
 It is not in tea, coffee, sugar, or indigo, that debts, 
 whether foreign or domestic, are usually contracted to 
 be paid, but in coin ; and a remittance, therefore, either 
 in the identical coin designated, or in bullion which can 
 be promptly turned into it through the Mint or market 
 of the country to which it is sent, must always afford to 
 the remitter the most certain, immediate, and accurate 
 means of effecting his object, without risk of disap- 
 pointment from the failure of demand or fluctuation of 
 price. 
 
 The late Mr. Ricardo appears to have entertained very 
 peculiar and extreme opinions, as to the limited extent 
 of the offices performed by gold and silver in the adjust- 
 ment of foreign balances. Mr. Ricardo had passed his 
 life amid the controversies which grew out of the Re- 
 striction Act, and had accustomed himself so long to 
 consider all the great fluctuations of exchange and of 
 the price of gold as results of the excessive issues of the 
 Bank of England, that at one time he seemed scarcely 
 willing to allow, that such a thing could exist as an ad- 
 verse balance of commercial payments. It was the doc- 
 trine of the day, that, whenever a debt is contracted to a 
 foreign country, in consequence of the goods imported 
 from it exceeding the value of the exports sent in return, 
 the demand for remittances to pay the balance must 
 always create such a competition for bills that the pre- 
 mium of exchange would indemnify the exporting mer- 
 chant for deficiency of price, and enable him to renew 
 and continue his exports with advantage to what would 
 otherwise have been a losing market, until the balance 
 should be eventually adjusted by the transmission of 
 commodities. It was not universally perceived, that this 
 doctrine could have relevance only to those larger fluc- 
 tuations of exchange which are incident to currencies of 
 inconvertible paper, where there may be no bullion pro- 
 curable to substitute for the bills and arrest the decline 
 
 
127 
 
 of the exchange. And so slight an account did Mr. 
 Ricardo set on the functions performed by gold in such 
 adjustments, as to have even anticipated, that drains for 
 exportation would cease altogether so soon as cash pay- 
 ments should be resumed and the currency restored to 
 its metallic level; and that, if due precautions were only 
 taken to guard against the effect of runs on the Bank 
 from internal panic, a reserve of about three millions 
 " would be an ample provision for a circulation of 
 twenty-four millions of paper." * Nor does it seem very 
 surprising, when one looks at all the circumstances 
 under which these opinions were formed, that even Mr. 
 Ricardo's masterly and vigorous understanding should 
 have been to some extent misled by the false aspect 
 under which they presented themselves. The truth is, 
 that, after the suspension of cash payments and the gene- 
 ral substitution of paper for gold, which was accom- 
 plished about 1800, the employment of specie for the ad- 
 justment of balances merely commercial fell of necessity 
 very much into desuetude, and so continued till after the 
 termination of the war. From the moment that gold 
 ceased to be our standard, it lost its peculiar fitness for 
 the office of a regulator of the exchanges. There no 
 longer existed any great depot of the metal, where it 
 could be procured at all times in large quantities, nor 
 did it retain any certain monetary value either in this 
 country or at the few accessible ports of the Conti- 
 nent. Besides, the merchants really did not want it ; 
 for, owing to the unsettled state of continental Europe, 
 and the increased consumption there of imported manu- 
 factures, in consequence of the interruption given to in- 
 dustry and to all domestic improvement by the incessant 
 movements of invading armies, together with the com- 
 plete monopoly of the colonial trade which England had 
 obtained through her naval superiority, the export of 
 commodities from Great Britain to the Continent conti- 
 
 * See Mr. Ricardo's Evidence before the Lords' Committee of 1819 
 on the Bank of England ; Report, p. 186. 
 
128 
 
 nued greatly to exceed her imports from thence, so long 
 as the intercourse remained open ; and, after that inter- 
 course was interrupted by the Berlin and Milan decrees, 
 the transactions of trade became much too insignificant 
 to affect exchanges in one way or the other. It was the 
 foreign military expenditure and the subsidies, and not 
 the necessities of commerce, that contributed in so extra- 
 ordinary a manner to derange the exchanges and en- 
 hance the price of bullion in the latter years of the war. 
 The distinguished economists of that period, therefore, 
 had few or no real opportunities of practically estimating 
 the range of which foreign commercial balances are sus- 
 ceptible ; and looking, as they had been accustomed to 
 do, at all the phenomena of the time connected with the 
 fluctuations of exchange and bullion through a single 
 and not very transparent medium, they may be excused 
 for having somewhat undervalued the agency of the pre- 
 cious metals in these international adjustments, and for 
 having failed to foresee, that the restoration of a free 
 system of commercial intercourse all over the world, the 
 re-establishment of the gold standard in this country, 
 and the extension of the benefits of a metallic currency 
 to almost every civilised people, instead of extinguishing 
 or diminishing the inducements which lead to the trans- 
 mission of specie from one country to another, would 
 only have the effect of removing the impediments which, 
 during the operation of the Restriction Act, had so tram- 
 melled and repressed the employment of bullion as a 
 medium of exchange with foreign nations, and that the 
 use of bullion for the adjustment of foreign balances 
 would in consequence be very much extended. Had 
 Mr. Ricardo lived to witness the drains of 1825 and 
 1839, he would no doubt have seen reason to alter his 
 views. At neither of these epochs, were there any great 
 coinages in progress on the Continent, any armies in the 
 field, or any one circumstance in existence which could 
 be supposed to cause or indicate an increase of the de- 
 mand for gold as an article of consumption in foreign 
 
129 
 
 countries ; the exportation on each occasion was purely 
 for the discharge of a foreign debt, a debt contracted in 
 the one case in prosecution of vast mercantile specula- 
 tions, and in the other from the necessity of importing a 
 very large supply of foreign corn. Our experience of 
 these two periods has now, as I conceive, established 
 beyond all question the conclusion, that a sum in specie, 
 of which it would be very difficult to predicate the pos- 
 sible amount, but undoubtedly exceeding seven millions 
 sterling, may on certain occasions be required to make 
 good the difference between the value of the imports and 
 that of the exports of this country. And it may be con- 
 sidered equally established by the sequel in each case, 
 that the specie, after having performed its office, will, on 
 the next favourable turn of the balance of payments, 
 flow back again to the spot from whence it came, with 
 equal rapidity and in not inferior quantity. 
 
 So long as the convertibility of the paper is complete, 
 there can be no fall of the exchange which will compen- 
 sate the merchant for sending his goods to a market 
 where there is no demand for them, or which should in- 
 duce him to attempt the substitution of a payment in 
 goods for a payment in specie ; for the fall of the ex- 
 change is limited under such circumstances by the cost 
 of exporting bullion, so that at the very point where the 
 inducement to transmit the specie commences, the fall is 
 ipso facto stopped. It is the doctrine of the currency 
 party, again, that a drain of specie, if not interfered 
 with, will always cure itself, that the Bank has only to 
 refrain from re-issuing the notes which are sent to it 
 for gold, and that the gradual contraction of the circu- 
 lation thus produced will so lower the prices of commo- 
 dities as to give a certain stimulus to their exportation, 
 and so supersede the necessity of continuing the exporta- 
 tion of coin. And they insist upon it, that, by adopting 
 this course of action from the first commencement of 
 the drain, the value of the currency will be restored, and 
 the progress of the drain effectually arrested, without ex- 
 
132 
 
 govern the fluctuations of a purely metallic currency. 
 Mr. Jones Loyd and his school require, that, under such 
 circumstances, the note circulation should be made to 
 fluctuate as a metallic circulation would have fluctuated ; 
 but do not seem to have taken the trouble of asking 
 themselves, or at all events do not inform us, how a 
 metallic circulation would have fluctuated. It will not, 
 I presume, be denied, that, if this country were to discard 
 altogether her paper circulation and resort to a currency 
 of the metals, she would still continue just as liable as 
 before to occasional deficiencies of her harvests, that her 
 possible scale of expenditure in distant wars would be 
 nothing diminished, and that the same difficulty of pro- 
 curing productive investments for capital, under which 
 we are suffering at the present time, might still occa- 
 sionally chance to recur, and tempt men to embark their 
 money in foreign loans or to waste it in idle speculative 
 purchases ; that the same causes, in fine, which at pre- 
 sent give rise from time to time to an adverse balance of 
 payments, and an efflux of the precious metals, would 
 still remain in the same force and activity. As little, I 
 apprehend, can it be doubted, that the vast wealth of this 
 country would enable her with more facility than any 
 other to prepare herself for such contingencies, nor that 
 the necessity of providing to meet them would in time call 
 forth the means. But what would be the requisite pre- 
 paration ? One might imagine, from the manner in which 
 these gentlemen treat the question, that they supposed 
 the gold which is drained off for exportation from a 
 country using a currency exclusively metallic, to be col- 
 lected by driblets at the fairs and markets, or from the 
 tills of the grocers and mercers. They never even allude 
 to the existence of such a thing as a great hoard of the 
 metals, though upon the action of the hoards depends 
 the whole economy of international payments between 
 specie-circulating communities, while any operation of 
 the money collected in hoards upon prices must, even 
 according to the currency hypothesis, be wholly impos- 
 
133 
 
 sible. We know from experience, as I have already 
 observed, what enormous payments in gold and silver 
 specie-circulating countries are capable at times of 
 making, without the least disturbance of their internal 
 prosperity ; and whence is it supposed that these pay- 
 ments come, but from their hoards ? I have stated that 
 the kingdom of France is supposed to employ a metallic 
 circulation equal to one hundred and twenty millions 
 sterling, being twice the estimated amount of our cur- 
 rency in England, coin and paper taken together ; and, 
 if one may venture to form an opinion as to the average 
 proportion of this mass which lies inoperative in hoards 
 of larger or smaller dimensions, from a comparison with 
 the relative quantity of coin and notes which in this 
 country are withdrawn in the reserves of banks and 
 capitalists from active circulation, making due allowance 
 at the same time for the different circumstances affecting 
 the two circulations, I should be disposed to say, as I 
 have indeed already said, that this portion of the me- 
 tallic treasures of France considerably exceeds the circu- 
 lating and effective portion. Nor, if England were to 
 renounce her banking system, is it probable that a much 
 smaller store of specie would be sufficient to ensure the 
 regularity of her mercantile payments. Let us think, 
 then, how the money market of a country transacting all 
 its exchanges through the medium of the precious metals 
 only, would be likely to be affected by the necessity of 
 making a foreign payment of several millions. Of 
 course the necessity could only be satisfied by a trans- 
 mission of capital ; and would not the competition for 
 the possession of capital for transmission which the occa- 
 sion would call forth, necessarily raise the market-rate of 
 interest ? If the payment was to be made by the Go- 
 vernment, would not the Government in all probability 
 have to open a new loan on terms more than usually 
 favourable to the lender ? And would not all this in- 
 evitably act upon the hoards, and draw forth into activity 
 a portion of the gold and silver which the money-dealers 
 
134 
 
 had been accumulating, and some of them with the 
 express view of watching such opportunities for turning 
 their treasures to advantage ? I would desire, indeed, no 
 more convincing evidence of the competency of the ma- 
 chinery of the hoards in specie-paying countries to per- 
 form every necessary office of international adjustment, 
 without any sensible aid from the general circulation, 
 than the facility with which France, when but just reco- 
 vering from the shock of a destructive foreign invasion, 
 completed within the space of twenty-seven months the 
 payment of her forced contribution of nearly twenty 
 millions to the allied powers, and a considerable propor- 
 tion of that sum in specie, without any perceptible con- 
 traction or derangement of her domestic currency, or 
 even any alarming fluctuation of her exchanges. Or, to 
 come to the present time, the balance of payments with 
 nearly all Europe has for about four years past been in 
 favour of this country, and gold has been pouring in till 
 the influx amounts to the unheard-of sum of about 
 fourteen millions sterling. Yet in all this time, has any 
 one heard a complaint of any serious suffering inflicted 
 on the people of the Continent? have prices there been 
 greatly depressed below their range in this country ? have 
 wages fallen, or have merchants been extensively ruined 
 by the universal depreciation of their stock ? There has 
 occurred nothing of the kind. The tenor of commercial 
 and monetary affairs has been everywhere even and 
 tranquil ; and in France more particularly an improving 
 revenue and extended commerce bear testimony to the 
 continued progress of internal prosperity. It may be 
 doubted, indeed, if this great efflux of gold has with- 
 drawn from that portion of the metallic wealth of the 
 nation, which really circulates, a single napoleon. And 
 it has been equally obvious, from the undisturbed state 
 of credit, that not only has the supply of specie indis- 
 pensable for the conduct of business in the retail market 
 been all the while uninterrupted, but that the hoards 
 have continued to furnish every facility requisite for the 
 
135 
 
 regularity of mercantile payments. It is of the very 
 essence of the metallic system, that the hoards, in all 
 cases of probable occurrence, should be equal to both 
 objects ; that they should, in the first place, supply the 
 bullion demanded for exportation, and in the next place 
 should keep up the home circulation to its legitimate 
 complement. Every man who, in the course of his busi- 
 ness, may have frequent occasion to remit large sums in 
 specie to foreign countries, must either keep by him a 
 sufficient treasure of his own, or must have the means 
 of borrowing enough from his neighbours, not only to 
 make up when wanted the amount of his remittances, 
 but to enable him moreover to carry on his ordinary 
 transactions at home without interruption. 
 
 And what more does the Bank of England do, when it 
 complies with fresh applications for discount in the face 
 of a drain, and replaces with new issues the notes 
 brought to it for gold ? The hoards of this country, as 
 I have said, are all concentrated in the Bank ; and upon 
 the Bank alone devolves the duty of keeping up a stock 
 of bullion, sufficient not only for the adjustment of 
 foreign balances, but to maintain the internal circulation 
 on a scale corresponding with the offices which it has to 
 perform. The Bank therefore, by its efforts to meet any 
 call that may arise for discounts, at a time when its 
 treasure is failing under the pressure of a demand for 
 exportation, is merely, I conceive, endeavouring to effect 
 that which, under a metallic system, would be the spon- 
 taneous result of circumstances. It contributes nothing 
 by those efforts to enlarge improperly the circulation of 
 notes ; for every note which it issues in prosecution of 
 them, unless really and immediately wanted for use, will 
 assuredly be brought back to it in the course of a very 
 few days. But, in following the analogy of the metallic 
 system, the Bank has to contend with a cause of embar- 
 rassment from which the metallic system is exempt, in 
 consequence of the obligation imposed on the Bank of 
 preserving its own solvency. And one cannot contem- 
 
134 
 
 had been accumulating, and some of them with the 
 express view of watching such opportunities for turning 
 their treasures to advantage ? I would desire, indeed, no 
 more convincing evidence of the competency of the ma- 
 chinery of the hoards in specie-paying countries to per- 
 form every necessary office of international adjustment, 
 without any sensible aid from the general circulation, 
 than the facility with which France, when but just reco- 
 vering from the shock of a destructive foreign invasion, 
 completed within the space of twenty-seven months the 
 payment of her forced contribution of nearly twenty 
 millions to the allied powers, and a considerable propor- 
 tion of that sum in specie, without any perceptible con- 
 traction or derangement of her domestic currency, or 
 even any alarming fluctuation of her exchanges. Or, to 
 come to the present time, the balance of payments with 
 nearly all Europe has for about four years past been in 
 favour of this country, and gold has been pouring in till 
 the influx amounts to the unheard-of sum of about 
 fourteen millions sterling. Yet in all this time, has any 
 one heard a complaint of any serious suffering inflicted 
 on the people of the Continent ? have prices there been 
 greatly depressed below their range in this country ? have 
 wages fallen, or have merchants been extensively ruined 
 by the universal depreciation of their stock ? There has 
 occurred nothing of the kind. The tenor of commercial 
 and monetary affairs has been everywhere even and 
 tranquil ; and in France more particularly an improving 
 revenue and extended commerce bear testimony to the 
 continued progress of internal prosperity. It may be 
 doubted, indeed, if this great efflux of gold has with- 
 drawn from that portion of the metallic wealth of the 
 nation, which really circulates, a single napoleon. And 
 it has been equally obvious, from the undisturbed state 
 of credit, that not only has the supply of specie indis- 
 pensable for the conduct of business in the retail market 
 been all the while uninterrupted, but that the hoards 
 have continued to furnish every facility requisite for the 
 
135 
 
 regularity of mercantile payments. It is of the very 
 essence of the metallic system, that the hoards, in all 
 cases of probable occurrence, should be equal to both 
 objects ; that they should, in the first place, supply the 
 bullion demanded for exportation, and in the next place 
 should keep up the home circulation to its legitimate 
 complement. Every man who, in the course of his busi- 
 ness, may have frequent occasion to remit large sums in 
 specie to foreign countries, must either keep by him a 
 sufficient treasure of his own, or must have the means 
 of borrowing enough from his neighbours, not only to 
 make up when wanted the amount of his remittances, 
 but to enable him moreover to carry on his ordinary 
 transactions at home without interruption. 
 
 And what more does the Bank of England do, when it 
 complies with fresh applications for discount in the face 
 of a drain, and replaces with new issues the notes 
 brought to it for gold ? The hoards of this country, as 
 I have said, are all concentrated in the Bank ; and upon 
 the Bank alone devolves the duty of keeping up a stock 
 of bullion, sufficient not only for the adjustment of 
 foreign balances, but to maintain the internal circulation 
 on a scale corresponding with the offices which it has to 
 perform. The Bank therefore, by its efforts to meet any 
 call that may arise for discounts, at a time when its 
 treasure is failing under the pressure of a demand for 
 exportation, is merely, I conceive, endeavouring to effect 
 that which, under a metallic system, would be the spon- 
 taneous result of circumstances. It contributes nothing 
 by those efforts to enlarge improperly the circulation of 
 notes ; for every note which it issues in prosecution of 
 them, unless really and immediately wanted for use, will 
 assuredly be brought back to it in the course of a very 
 few days. But, in following the analogy of the metallic 
 system, the Bank has to contend with a cause of embar- 
 rassment from which the metallic system is exempt, in 
 consequence of the obligation imposed on the Bank of 
 preserving its own solvency. And one cannot contem- 
 
136 
 
 plate the perfect silence and facility with which varia- 
 tions of the exchange usually pass off in continental 
 countries, compared with the state of feverish disquiet 
 and alarm always produced in England whenever the 
 treasure at the Bank seems to be at all approaching to 
 exhaustion, without being struck with the great advan- 
 tage in this respect which a metallic currency possesses 
 over a mixed currency, an advantage which it requires 
 no light weight in the opposite scale to counterbalance. 
 The Bank, however, has on no occasion since 1797 found 
 it necessary, to withhold altogether any considerable 
 portion of the accommodations to which the merchants 
 had been previously accustomed ; and it is well that it 
 has not. There is no necessary relation of cause and 
 effect, between the amount of gold drawn from the coffers 
 of the Bank for exportation, and the amount of internal 
 dealings of purchase and sale requiring the intervention of 
 money. The number and value of those dealings remain 
 wholly unaffected by the drain. And, setting aside the 
 theory about over-issue and depreciation, no satisfactory 
 reason can be alleged, why the parties concerned in those 
 dealings should be denied the customary facilities for 
 carrying them into effect. Upon the efficient portion of 
 the currency the action of those drains is quite as insigni- 
 ficant under our system, as in countries where nothing 
 circulates but the metals. In those cases where bank- 
 notes are the medium through which the bullion is ab- 
 stracted, those notes come not from the circulation, but 
 from the reserves of the bankers and other capitalists. 
 But, in the last great drain of 1839, it was found that 
 very few notes were brought in at all. Since the crisis 
 of 1825, it had become a general practice with the great 
 money-dealers who conduct these exchange operations, 
 instead of holding large reserves in Bank of England 
 notes, to keep their funds with the Bank in deposit. 
 And the consequence was, that the gold was drawn out 
 by cheque, and the burden of the drain fell almost ex- 
 clusively on the deposits. This very irregular proceed- 
 
137 
 
 ing appears to have been particularly disconcerting to 
 the currency theorists, and is the more memorable from 
 its having given birth to another notable discovery, and 
 that the very discovery, as it would seem, to which we 
 are indebted for the project in the new bill for separating 
 the departments of the Bank, namely, that the business 
 of issue and of deposit cannot be safely carried on by the 
 same establishment. A simple person might have ima- 
 gined, that, so long as the gold was abstracted from the 
 Bank, it could not signify much, whether it was drawn 
 out through the medium of a note payable on demand, 
 or of a deposit withdrawable on demand. But not so 
 thinks Mr. Norman. Notes only are money, notes only 
 act upon prices ; and, unless for every ten sovereigns 
 withdrawn there were a ten-pound note cancelled, there 
 would be no contraction of the money, no reduction of 
 the prices, and the drain might go on for ever. There 
 was the bane here, without the antidote. It was pro- 
 nounced accordingly, that " to check a drain, the re- 
 duction must be in the circulation." * And the result 
 now stands thus : that, whenever the Bank has the mis- 
 fortune to be called upon for gold by any of its depo- 
 sitors, it must inevitably submit to twice the purgation, 
 which would have been sufficient had the gold been 
 drawn out in exchange for note? ; and, having first 
 parted with the amount of bullion demanded, it is 
 next required to part with a further proportion of its 
 assets, by a contraction to the like amount of its cir- 
 culation ! ! 
 
 * See Mr. Norman's Evidence before the Commons' Committee 
 of 1840 on Banks of Issue ; Keport, p. 146. 
 
138 
 
 CHAPTER VIII. 
 
 Doctrines of Mr. Thornton and Mr. Loyd as to the interminable 
 nature of Drains of Bullion for Exportation Of the Means by 
 which the Bank of England can check Drains of Bullion Natural 
 Termination of Drains, and Reflux of exported Bullion Import- 
 ance of increasing and economizing the Stock of Bullion in the 
 Bank Of Drains for which there can be no remedy Of Drains 
 which it is not desirable to check Of Drains from extensive Pur- 
 chases of Foreign Securities or from Mercantile Speculation. 
 
 ARE there no means, then, by which a drain of gold can 
 be arrested, or are we never to permit ourselves to make 
 use of them, but to sit in such cases with our arms 
 folded, and commit the Bank to Providence ? Mr. Jones 
 Loyd assures us, that, whatever may be the amount of 
 your reserve in gold, a drain of bullion once commenced 
 will go on till the whole be exhausted, unless you stop it 
 by contracting the paper; and that, whatever be the 
 cause of the drain, " you have no means of recovering 
 the bullion once drained out, but by contraction."* 
 This, certainly, is rather an alarming intimation. But 
 it is consolatory to think, that, although Mr. Loyd states 
 it as a fact, that " in three out of the four occasions on 
 which the bullion has sustained a very heavy drain 
 since 1819, the paper circulation was increased rather 
 than diminished,"t the bullion did, nevertheless, in all 
 the several crises mentioned by Mr. Loyd, somehow or 
 other escape exhaustion ; and that, in each case, the 
 
 * See Report of Committee of 1840, p. 228. 
 
 t See ' Thoughts on the Separation of the Departments in the Bank 
 of England/ p. 35. 
 
 J In one of these cases, that of 1839, Mr. Loyd himself seems to 
 admit, that the drain was brought to a termination without any con- 
 traction. And by what imaginable effort of ingenuity is it supposed, 
 that Mr. Loyd reconciles so marvellous an anomaly with his favourite 
 hypothesis ? Why, he attempts nothing of the kind ; but, forgetting 
 
OF THE 
 
 UNIVERSITY 
 
 139 OF 
 
 bullion was eventually recovered, after the cessation of 
 the drain, without any contraction. This ignis fatuus 
 of the interminable nature of drains was first started, I 
 believe, by Mr. Henry Thornton, who pursues his game, 
 however, after quite a different fashion from Mr. Loyd, 
 and seems to arrive at the conclusion, that any partial 
 contraction of the paper issues can, after all, be of little 
 avail to stop a drain for exportation, inasmuch as the 
 
 for the moment his hypothesis altogether, discovers, that a drain of 
 bullion may sometimes be effectually stopped, even in the absence 
 of contraction, by the most innocent process conceivable, namely, 
 by exciting in the public mind a sufficiently strong apprehension 
 of the likelihood and consequences of an early exhaustion of the 
 stock. He maintains [See ' Thoughts on the Separation of the De- 
 partments of the Bank of England/ &c. p. 21, &c.] that " the drain of 
 1839 was stopped by the prevalence of general apprehension and alarm, 
 which checked confidence and credit, and rendered a given amount 
 of circulation less efficient." A given amount of circulation less effi- 
 cient! What may this be intended to imply? Is it possible, after 
 all, that, in Mr. Jones Loyd's opinion, paper may be issued in excess 
 without a diminution of its value ? that the same amount of bank-notes, 
 which to-day sustains a high range of prices, may, under a change of 
 circumstances, coexist to-morrow with a general depression of prices ? 
 If so, what becomes of Mr. Loyd's great principle ? I had always 
 understood, however, that the effect to be apprehended from any alarm 
 of a scarcity approaching to exhaustion of an article of universal and 
 indispensable necessity, was the making every one eager to possess him- 
 self of as large a share as possible of the remainder, before it should 
 altogether elude his grasp. It is of the very essence of panic, to give 
 intensity to this sort of competition ; and, according to all experience, 
 nothing is so likely to excite or exacerbate a run on a bank, as the pre- 
 valence of an idea that its stock of treasure is nearly done. How, then, 
 the very same circumstances can be made to operate as a restraint on 
 the export of bullion, how the panic which impels every man to send 
 his notes to the Bank for payment, should at the same time deter him 
 from such a course from a sense of its inexpediency and mischief, is 
 more, I own, than I can quite comprehend. 1839 was not a year of 
 extravagant speculation. The efflux of gold was almost entirely to pay 
 for corn. And it does seem strange, that Mr. Loyd should have 
 puzzled himself so much to account for the sudden cessation of the drain, 
 with this obvious explanation before him, that the importation of corn 
 being completed, and the foreign balance being adjusted, the drain 
 necessarily ceased of itself, and the exchange reverted as a matter of 
 course to the same condition in which it stood before. 
 
140 
 
 whole bullion may be just as effectually drained out by 
 the daily-repeated action of an issue of a hundred thou- 
 sand pounds, resolutely kept in circulation, as by one of 
 ten millions. Mr. Loyd's argument does not go quite 
 this length ; but it affirms the proposition, that, if there 
 be ten millions of gold in the Bank when the drain com- 
 mences, the drain must go on, so long as the circulation 
 of notes remains the same, till the gold be exhausted ; 
 and that if, instead of ten, the reserve were twenty mil- 
 lions, the result would be just the same. And if there 
 were any truth in Mr. Loyd's principle, which regards 
 every drain as a manifestation of the diminished value 
 of the currency and of nothing else, I do not know that 
 the proposition could be effectually contested ; though, 
 followed out to its extreme consequences, it might lead 
 to conclusions that would be rather startling. If, for 
 instance, a reserve of twenty millions of gold coin would 
 be exhausted by the operation of a drain uncorrected by 
 contraction, with the same certainty as a reserve of ten 
 millions, why not extend your supposition a little fur- 
 ther? The same stringent necessity which forces out 
 twenty millions, would equally force out a hundred 
 millions, if there were so much to be had. Nay, if you 
 could suppose the entire stock of gold existing in the 
 world to be collected in the coffers of the Bank of Eng- 
 land, the drain, according to Mr. Loyd's hypothesis, 
 would never cease till the whole had been transferred to 
 Hamburgh, Amsterdam, Paris, and some two or three 
 other great foreign marts, though their united capacities 
 for receiving and employing the metal might not in 
 reality be equal to the absorption of a hundredth part 
 of it. There is no better way of putting the soundness 
 of a principle to the test, than by following it out to these 
 extreme consequences. 
 
 But to return to the question, as to the practicability 
 and expediency of endeavouring to place a limit on 
 drains of bullion ; that is a subject of some complexity, 
 and not to be so summarily disposed of. There can be 
 
141 
 
 no doubt, that the Bank of England possesses the power, 
 under certain circumstances, of strongly influencing 
 prices, and even turning a drain of gold ; not, however, 
 by the limitation of its issues, but by operating forcibly 
 on credit. It is true that, when the Bank refuses to dis- 
 count a bill, it refrains also from making an issue ; but 
 as the issue, if made in excess, would have been imme- 
 diately returned, while the loan would have remained, 
 the holding back of the issue is a matter quite of subor- 
 dinate consideration ; the real rub is in the denial of the 
 loan. There is an important class of drains, however, 
 which are not to be restrained at all by this action on 
 credit. Neither is it at all times, nor under all circum- 
 stances, that the Bank, by refusing its accommodations, 
 can operate forcibly on credit. It is only after private 
 credit has been already so severely shaken, that the public 
 are more or less reduced to a state of dependence on the 
 Bank of England. The contraction of credit is far, 
 therefore, from being an universal or perfect remedy, 
 even when it can be safely or usefully administered. 
 But it is a remedy which, to be effective, must always 
 be violent. The whole framework of commercial confi- 
 dence must be broken up, every holder of goods on credit 
 compelled to sell, and the prices of commodities forced 
 down to so low a point as to stop at once all further im- 
 portations, at the same time that it holds out substantial 
 and extraordinary attractions to foreign purchasers. By 
 a severe course of measures like this, taken at the proper 
 time, the Bank of England will generally succeed in 
 bringing back the stream of bullion ; and I do not say, 
 that there may not be cases in which it may become the 
 duty of the Bank, for its own protection, and even for 
 the ultimate behoof of the community, to adopt, in the 
 choice of evils, even this alternative. But it is an alter- 
 native always to be deprecated, an alternative which, I 
 believe, in the great majority of instances, may be safely 
 avoided, and which, when it can be avoided, ought never 
 to be tampered with. 
 
142 
 
 Since the practice, however, of investing capital in 
 foreign securities has become general in this country, a 
 new element has been introduced into the economy of 
 our exchanges. The capital required for the liquidation 
 of a foreign debt may be transmitted as well in the form 
 of a marketable security for money, as in gold or mer- 
 chandise. And, as the price of such securities rises and 
 falls with the fall and rise of the market-rate of interest, 
 and the securities themselves accordingly are in a con- 
 tinual course of transition from places where the rate of 
 interest is high to places where it is low, the fluctuations 
 of interest have become an engine of some importance in 
 the regulation of the exchanges, and, to the extent of 
 their action, are found certainly a more manageable and 
 safe instrument for facilitating foreign payments and 
 correcting irregularities in the distribution of the pre- 
 cious metals, than the fluctuations of price. Of this 
 engine, since the repeal of the usury laws, the Bank has 
 been free to avail itself, for the counteraction of any 
 drain on its coffers, to such extent as the Bank can con- 
 trol the market-rate of interest. But the means of the 
 Bank for this purpose are more limited, I suspect, than 
 is generally imagined. And, while I am entirely agreed 
 with Mr. Tooke, as to the line of conduct which it is 
 incumbent on the Bank to adopt during an influx of 
 gold, with the view of preparing itself more effectually 
 for any adverse turn of the exchanges, and think his 
 plan of treatment for the drain, when it has set in, the 
 most judicious that has yet been suggested, wherever it 
 is at all applicable or practicable, I own I cannot help 
 fearing, that Mr. Tooke is somewhat over-sanguine, when 
 he anticipates that the Bank, by merely varying its rate 
 of discount, and that to an extent scarcely exceeding one 
 per cent., would in general be enabled in such cases to 
 limit sufficiently the efflux of bullion, and save the 
 money-market from any violent derangement. As with 
 respect to credit and prices, so with respect to the market- 
 
 * See Tooke's Inquiry into the Currency Principle, p. 115-17. 
 
143 
 
 rate of interest, the influence of the Bank is only predo- 
 minant at those periods when the public is in a state of 
 dependence on the Bank. During the early stages of a 
 drain, and more especially while those causes are still in 
 progress which determine an adverse balance of foreign 
 payments, and render a drain of bullion inevitable, there 
 is no particular reason, in the great majority of cases, 
 why credit should be in a depressed state. On the con- 
 trary, it will rather, I believe, be found, that a low range 
 of interest and a great facility of banking accommoda- 
 tion are generally coincident with the commencement of 
 drains. And I need scarcely add, that so far is the Bank 
 of England at such seasons from being in a condition to 
 prescribe or control the market-rate of interest by any 
 regulation of its discounts, that, without going into the 
 market as a purchaser of securities, it would be unable 
 to employ its funds. But, exclusive of this difficulty, 
 there are peculiar impediments, which in such cases 
 powerfully oppose all attempts to produce a reflux of the 
 bullion by any alteration of the market-rate of interest, 
 until the foreign balance is nearly or completely adjusted. 
 This will be easily understood, when it is considered, 
 first, that, cceteris paribus, the interest of money in a 
 commercial country must always have a tendency to 
 range high, whenever the returns of the merchants from 
 abroad are delayed beyond the usual period, and it is 
 not probable, therefore, that any difficulty in employing 
 funds to advantage would be experienced in the creditor 
 country, so long as considerable returns should be still 
 in expectance ; and, secondly, that, so long as there was 
 a high exchange in favour of the creditor country, and a 
 profusion of bills in the market, the holder of bullion in 
 that country, who might desire to invest his funds at 
 interest in the debtor country, would find it more for his 
 advantage to lay out his bullion in the purchase of those 
 bills, than to re-export the bullion. The foreign debt 
 once discharged, indeed, the difference between the mar- 
 ket rates of interest in the two countries would no doubt 
 
144 
 
 operate powerfully in accelerating the reflux of the specie. 
 But, when all the circumstances which I have pointed 
 out are duly considered, it can surprise no one, that our 
 endeavours hitherto to govern the efflux and influx of 
 bullion by variations of the rate of interest, and more 
 particularly in 1839, when the drain was carried to the 
 extent of considerably more than seven millions, notwith- 
 standing a more decisive action on the rate of interest 
 than had ever before been attempted, should have had so 
 doubtful a result. 
 
 On the whole, then, it is abundantly manifest that no 
 safe means have yet been discovered on which we can 
 place entire reliance, at all times, for the suppression or 
 correction of a drain of the precious metals. And, if such 
 drains were of that interminable nature in practice, which 
 Mr. Jones Loyd maintains they ought to be on principle, 
 we should certainly be in a deplorable way. Fortunately, 
 however, it is not so. Different drains are of different 
 intensity, and are more or less difficult to be dealt with, 
 according to the difference of circumstances in which 
 they may have originated, or by which they are attended. 
 But each has its natural termination, in the spontaneous 
 cessation of the causes which gave rise to it. Besides, it 
 were monstrous to suppose, that commercial nations have 
 any indefinite capacity for the admission of bullion. The 
 gold which is exported for the discharge of a foreign debt 
 is not wanted either for consumption or circulation at the 
 spot to which it is sent, nor is it consumed or circulated 
 there ; and anything like a perpetual drain would soon 
 become nearly as intolerable to the recipient as to the 
 disbursing party. It would be contrary to all analogy 
 and reason to suppose that the millions of sovereigns, 
 which at such times pass from this country to the con- 
 tinent, are absorbed there in the general circulation, and 
 go to enhance prices and raise wages. No. They merely 
 return into the hands of the money-dealers, the Jews and 
 other great monied capitalists of Hamburgh, Amsterdam, 
 and the other chief commercial cities of the Continent, 
 
145 
 
 who make a trade of exchanges, and by whom the same 
 gold had probably been transmitted to this country in 
 some preceding year. A portion probably is received 
 back into their hoards. The rest they endeavour to turn 
 to some profit on the spot. But the local employment for 
 capital is limited ; the market-rate of interest falls ; the 
 gold becomes a drug on their hands ; and they are glad 
 ere long to re-export it to this or some other country 
 where a secure and productive investment can be obtained 
 for it. Thus, on both sides, the inevitable revolution of 
 circumstances contributes to ensure sooner or later the 
 reflux of the metal. And if the Bank can only hold out, 
 with a tolerably full treasury, till the turn arrives, we are 
 warranted, I think, by experience in saying, that the 
 crisis may in most cases be got over, without anything 
 more of disturbance or disaster than may be inseparable 
 from the imprudences of which every crisis is fruitful. 
 The best security against the mischievous consequences 
 of drains is in the ability of the Bank to endure them. 
 The public is always so much alive to the danger of total 
 exhaustion, that even an approach to this point on the 
 part of the bullion is apt to create a panic which doubles 
 the intensity of the drain.* Unless, therefore, we are to 
 renounce our system altogether, and return to a pure 
 metallic currency, which no sane person would propose, 
 it appears to me, that it would be more for the stability 
 of the currency, for the safety of the standard, and for 
 the repose and prosperity of the community, were we to 
 turn our thoughts to the discovery of expedients for in- 
 creasing and economizing the stock of bullion in the 
 
 * The catastrophe of 1797 was finally brought on by a run on the 
 Bank of England from panic, excited by the alarm of foreign invasion, 
 after the drain of gold for exportation had entirely subsided. And the 
 Bullion Committee,' notwithstanding their prepossessions as to the ne- 
 cessity of contraction in cases of over-issue, pronounce an unqualified 
 condemnation on the course pursued by the Directors of the Bank on 
 that occasion, and intimate an opinion, that the suspension of cash 
 payments might have been avoided, had the Bank, instead of restricting 
 its accommodations and issues, had the courage to extend them. 
 
 L 
 
146 
 
 Bank, and so establishing the circulation on a broader 
 basis, instead of wasting our invention on devices for 
 cramping and impeding the use of it. That no precau- 
 tions calculated to ensure this end, could safely or wisely 
 be neglected, even if our means of controlling the ex- 
 change were infinitely more perfect than they are, will 
 be more apparent, if we consider for a moment the several 
 distinct classes of causes, in which drains commonly ori- 
 ginate, and their respective bearings. 
 
 In the first place, there is a certain class of drains, 
 and a class which at times has been not a little formid- 
 able, which has no connexion at all with the exchanges, 
 nor is in the least to be controlled by any measures for 
 their correction : I allude to drains originating in a de- 
 mand for the precious metals with a direct view to use 
 and consumption. I do not limit this observation to 
 that portion merely of the metals, which is worked up 
 into ornaments and utensils, and which can scarcely be 
 liable to much variation in point of demand from one 
 period of time to another. I include, equally, the large 
 and frequently sudden demands, for coinage and for 
 hoarding, for replenishing the treasuries of kings, the 
 reserves of banks, and the military chests of armies. 
 These demands, unlike the demands for specie originat- 
 ing in the exchanges, are not to be answered by the 
 substitution of any other form of remittance convertible 
 into capital : they can be satisfied only by the transmis- 
 sion of the metallic material itself. Where the object in 
 contemplation is the discharge of a foreign debt, you 
 may, by forcing down the prices of produce, or raising 
 the market-rate of interest, induce the debtor to spare 
 your gold and silver, and make his remittance in some 
 other shape. But, if it is the Emperor of Russia that is 
 equipping an army for the field, or the United States of 
 America that are striving to provide themselves with a 
 gold coinage, or the King of Prussia that has resolved 
 on amassing a treasure of four or five millions at Berlin, 
 you may reduce the prices of general merchandize ever 
 
147 
 
 so low, without making it a competent substitute for the 
 bullion, or procuring the least relief to your money- 
 market from the demand that is pressing on it. A 
 favourable balance of payments must always, no doubt, 
 tend greatly to facilitate such a remittance ; and, by con- 
 tracting credit, or raising the rate of interest, you may 
 enhance the cost of the gold to the purchaser, and pro- 
 long or impede the operation. But sovereign states are 
 not to be diverted from objects which concern their power 
 or independence, by considerations of a little more or less 
 expense. When Russia, in 1828, contracted with Mr. 
 Rothschild to procure a million of gold for the supply of 
 her army invading Turkey, there was no question about 
 the state of the exchange ; the gold was, under any cir- 
 cumstances, to be transmitted ; and it was, in point of 
 fact, taken by Mr. Rothschild out of the Bank of Eng- 
 land, at a time when the course of the exchange was in 
 favour of this country, and when, as a mercantile trans- 
 action, the operation ought to have been impossible. 
 Nearly a like observation might be applied to the re- 
 mittance of the funds shipped in gold to America in 
 1834. In each of these cases there was a specific de- 
 mand for the metal, which could not be satisfied by 
 sending a like value in cottons or woollens, nor could be 
 in the least advanced towards adjustment by a reduction 
 of the prices of those commodities in the exporting 
 country. 
 
 The case is much the same where the drain has ori- 
 ginated in distrust or alarm, and the object for which 
 the gold is sought is to hoard it in secret. In this in- 
 stance, as in the other, nothing will satisfy the demand 
 but the metal ; and the less promptly and boldly that 
 demand is met, the more intense, under such circum- 
 stances, is it sure to become. In 1830 a portion of our 
 bullion was called away from us, in consequence of the 
 distracted state of the Continent. In 1832 the Bank of 
 England lost nearly two millions, from a panic con- 
 nected with the agitation which attended the progress 
 
 L2 
 
148 
 
 of the Reform Bill. Runs on the different provincial 
 banks, such as that which occurred in Ireland in 1828-9 
 and required a remittance of about a million of gold 
 to arrest it runs on the savings' banks have been 
 still more frequent, both requiring prompt aid from 
 the metropolis, and imposing on all moneyed establish- 
 ments the necessity of strengthening themselves with 
 additional supplies of coin. It is seldom indeed that a 
 commercial crisis has travelled through its regular stages, 
 without producing somewhat of a panic towards the con- 
 clusion, and that panic giving rise to a drain, a drain 
 too wholly internal, and uninfluenced by the balance of 
 foreign payments or the course of the exchange. And in 
 1825, it was not till after the exchange had been turned, 
 and the drain of bullion for exportation arrested, that 
 the real difficulties of the crisis presented themselves, 
 in the runs on the London, country and Scotch banks, 
 demanding supplies to the extent of some eight or ten 
 millions, according to Lord Ashburton's estimate,* for 
 the support of the country circulation. Nor is it only 
 the circulating credit of a country, that is liable to be 
 influenced by these panics. When mercantile confidence 
 has been subjected to any violent interruption, every 
 description of banking and other credit payable on de- 
 mand is equally affected by it equally liable to be made 
 the medium of a drain of specie; and there is no assign- 
 able limit to such a drain, but in the duration of the 
 panic which occasions it. During a revolution, the whole 
 circulating specie of a country has been known, in an 
 incredibly short space of time, entirely to disappear. 
 And wherever the ministration of credit, in any shape, is 
 employed largely in aid of money, the risk of the stock 
 of bullion being at some time or other completely ex- 
 hausted from this cause, is one which no imaginary pre- 
 cautions can entirely obviate ; though, by prudence in 
 the use of credit, and by adopting a high minimum for 
 
 * See Minutes of Evidence taken before the Committee for Coin at 
 the Board of Trade in 1828, p. 533. 
 
149 
 
 the scale of our reserves in bullion, the danger may no 
 doubt be deprived, in ordinary times, of its more serious 
 terrors. 
 
 As it is evident, then, that no line of policy which it 
 is in our power to adopt, with a view to the government 
 or correction of drains of bullion for the adjustment of 
 foreign debts, will relieve us from the necessity of keep- 
 ing ourselves armed with a competent stock of specie to 
 meet every sudden demand arising from internal dis- 
 credit or alarm, as well as every extraordinary call on 
 the bullion-market from abroad, our choice of systems 
 for the regulation of the exchanges need not be embar- 
 rassed with any difficulties, as to the greater or less ex- 
 pense of providing specie for the furtherance of one plan 
 rather than another. The specie is alike indispensable 
 in either case ; and, if the provision be as ample as it 
 ought to be, to afford to the public anything like full 
 security against the dangers of panic, it must be suffi- 
 ciently ample for all other reasonable purposes ; and, so 
 armed, we shall be free always to shape our course ac- 
 cording to the expediency of each individual case, with- 
 out the constant apprehension of being hampered by the 
 penury of our means. 
 
 But, besides those demands for specie, over which we 
 have no control whatever, and which are only to be dealt 
 with by satisfying them, there is a very large and im- 
 portant section even of the drains occasioned by an ad- 
 verse balance of payments, which are so intimately con- 
 nected in their origin with objects of the last interest to 
 the public welfare, that nothing short of the most ex- 
 treme necessity would seem to justify any interference 
 with them. Of this class the first which present them- 
 selves are drains for the purchase of an extraordinary 
 supply of foreign corn. To repair the calamity of a de- 
 ficient crop of grain must always be a point of such vital 
 concern to the whole community that, one should think, 
 considerable inconvenience and even risk might fairly 
 be incurred for its attainment. For my own part, if I 
 
150 
 
 attach a high value to the maintenance of the metallic 
 basis of our circulation, it is on no account so much as 
 for the services which the metals are capable of ren- 
 dering, and which paper cannot render, in emergencies 
 such as this ; and I really know not, why such enormous 
 stores of coin are to be hoarded up at so vast an expense, 
 if they are to be at all times inexorably withheld from 
 the public, whatever be the urgency of the need. I can 
 perceive nothing chimerical, nothing at variance with 
 sound economical principles, in the expectation, that a 
 great public body like the Bank of England should, in 
 all such seasons of distress, be in a condition to advance, 
 without inconvenience to itself, the funds indispensable 
 for the public relief, postponing their reimbursement 
 till the ordinary course of industry shall have had time 
 to repair the deficiency. The Bank of England stands, 
 as it were, in the place of a vast national granary, to 
 which, in seasons of famine, the community is entitled 
 to resort for succour. By the necessary effect of the 
 system of which the Bank is the key-stone, nearly the 
 entire metallic wealth of England has been transferred 
 to its custody from the hands of individuals ; and on the 
 Bank accordingly devolves the duty of holding that 
 wealth available for the various public exigencies, to which 
 it would assuredly have been applied, had its distribution 
 never been interfered with. And when the country 
 bankers, by putting out, after a deficient harvest, an 
 additional circulation of notes at those spots where they 
 are most urgently wanted, contribute to fill up some 
 part of the vacancy left by the action of the exchanges 
 on the circulation of the Bank of England, I consider, 
 that they are merely fulfilling their part in the general 
 plan, and following with the most perfect exactness the 
 analogies of a metallic currency. Yet the chief grava- 
 men of the charge, which the currency party prefer 
 against the country banks, is that, during the great drain 
 of 1839 for the purchase of corn, while the circulation of 
 the Bank of England continued nearly stationary, those 
 
151 
 
 banks increased their accommodations to the farmers, 
 and gave an enlargement to their issues very moderately 
 proportioned to the advance in the prices of agricultural 
 produce. 
 
 A failure of the harvest is doubtless an infliction, from 
 which no people can expect to escape without some share 
 of suffering and privation. But, " when we are in want 
 of necessaries, we part with superfluities ;" and a poor 
 and half-civilized community, which accumulates its 
 hard-earned savings in unproductive heaps of gold and 
 silver, has at least this advantage when overtaken by 
 dearth, that it can resort freely to its more fortunate 
 neighbours, and, in exchange for some portion of its 
 treasure, obtain the relief which it requires, without the 
 apprehension of any consequence beyond the immediate 
 pain and inconvenience of the sacrifice. But under our 
 artificial system, nothing of this kind, it seems, is to be 
 permitted. To the single object of preserving a certain 
 arbitrary proportion between the treasure in the coffers 
 of the Bank of England and that portion of the circu- 
 lating credit of the country which has been dignified 
 with the name of money, all other considerations are to 
 give way. And, lest that proportion should be in any 
 way disturbed, it is proclaimed to be the imperative 
 duty of every banker, whenever the supply of corn is 
 insufficient for the subsistence of the population, to re- 
 frain from aiding or abetting in any manner the efforts 
 of the people to remedy that deficiency, either by the 
 exertions of home industry or by drawing on the surplus 
 produce of foreign nations. The people are told, indeed, 
 in nearly so many words, that, under such circumstances, 
 they have nothing to do but to starve. And this, then, 
 is to be the brilliant result of all our refined devices 
 the utmost that science can do for the perfect regulation 
 of our monetary system that this great nation, with all 
 her accumulated wealth, the envy of the world, with her 
 unlimited powers of production, and credit which never 
 failed her through a war with almost all Europe of 
 
152 
 
 nearly a quarter of a century's duration, is to be con- 
 demned to a state of helpless inertion under the heaviest 
 calamity which Providence can inflict, and, with ample 
 means of relief at her command, is voluntarily to refrain 
 from making use of them ! 
 
 o 
 
 Nor let it be said, that these are hypothetical or extra- 
 ordinary cases, which the legislature is not called upon 
 to foresee or care for. The vicissitudes of harvests not 
 only form an important element in the economy of the 
 exchanges, but in times of peace exercise probably a 
 more powerful and more frequent influence over the 
 course of bullion than all other causes put together. 
 Mr. Lowe, in his work on the ' Present State of Eng- 
 land,' has given us an instructive table, in which all the 
 great falls of the exchange from 1792 to the time at 
 which he wrote (1823) are traced by him with consider- 
 able precision to two principal and predominant causes, 
 viz. the vast expenditure of government in foreign sub- 
 sidies, and the large importations of foreign corn.* In 
 our own times, we have had no well-ascertained instance 
 of any drain of bullion originating simply in a specula- 
 tive demand for commodities, and unconnected either 
 with internal discredit or foreign expenditure or invest- 
 ment, to be compared for extent or intensity with the 
 drains for the purchase of corn, which have followed 
 every failure of the crops ; and I believe, indeed, it may 
 be safely affirmed, that, except in the single instance of 
 1825, there has not occurred within the last half-century 
 a drain of any importance, at all commercial in its origin, 
 to which the importations of corn have not more or less 
 contributed. Nor must we deceive ourselves by sup- 
 posing that it will ever be otherwise. There are those, 
 indeed, who would have us believe, that all this is to be 
 finally set right by the repeal of the Corn Laws. But I 
 
 * See Lowe on the ' Present State of England/ p. 83. Had Mr. 
 Lowe included the foreign military expenditure of the country under 
 the same head with the subsidies, his proposition might have been in 
 more literal accordance with the truth. 
 
153 
 
 have heard nothing yet to convince me, that even that 
 blessed consummation, which is to add to the contented 
 and tractable population of Lancashire another million 
 or more, alternately subsisting and starving on the pro- 
 duce of foreign soils, is capable of reversing the laws of 
 nature and society. I cannot perceive, how a large and 
 permanent addition to our regular imports, whatever 
 may be the commercial advantages attending it in other 
 respects, can facilitate the influx or recovery of bullion. 
 Nor am I aware of any principle on which it can be held, 
 that a corn-growing nation, like Poland for instance, 
 which sells to a regular customer a given share of its 
 produce in every ordinary year, should be more likely, 
 in years of famine, to grow a surplus in excess of the 
 stock of grain required for its consumption and export 
 together, than a country which consigns the superflux of 
 every productive season to rot in its warehouses. 
 
 But, as a regular supply of food is indispensable in 
 every country to the comfort and contentment of its 
 inhabitants, so the vigorous prosecution of its foreign 
 wars is frequently of the last consequence to its safety 
 and independence as a nation. To these objects also, it 
 is perfectly fit and expedient, that the monetary polity of 
 each country should to a certain extent be subservient ; 
 and no scheme of currency would deserve to be upheld 
 for a day, which left such emergencies wholly unprovided 
 for. Happily, we have not for many years had any 
 practical experience of the action of a foreign war expen- 
 diture on our exchanges. But we know enough of the 
 magnitude which such disbursements are capable of 
 attaining, from examples still in the memory of many 
 of us. 
 
 We have thus before us a rather formidable catalogue 
 of drains, which are either entirely beyond the reach of 
 remedy, or to which no remedy can be applied without 
 entailing consequences only less deplorable than the ex- 
 haustion of the bullion. There remain only two classes 
 of any importance to be noticed namely, those cases in 
 
154 
 
 which a foreign debt has been created by very extensive 
 investments of capital in foreign securities, the other 
 where the mischief has originated in speculation and 
 over-trading. These two classes of drain differ altogether, 
 in respect to the merits of their origin, from drains for the 
 purchase of corn or for purposes of warlike expenditure, 
 and have no claim to be treated with the same tender- 
 ness. Besides, a drain for the purchase of corn has a 
 natural and certain limit, as well in the quantity of corn 
 required as in the quantity procurable ; and the expenses 
 of a foreign war, however liable to run into extravagance, 
 must always be necessarily subordinate to the discretion 
 and the ability of the government. But there are scarcely 
 any assignable limits to the scale, on which capital may 
 sometimes be squandered in foreign investments. I have 
 seen an estimate, which carries the amount of remittances 
 for this purpose in the fifteen years antecedent to 1832, 
 to 150 millions!* And, incredible as this may appear, 
 the destruction of capital since that period, consequent 
 on such investments, has been so tremendous, that I do 
 not know that we have any right to reject it, on the 
 mere score of the comparative inadequacy of the income 
 at present derived from such property. And, as to those 
 drains again which take their rise in mercantile specu- 
 lation, in the attempts of individuals to govern markets 
 by an undue interference with the natural course of sup- 
 ply and demand, and to sustain a higher range of prices 
 in one country than obtains in the neighbouring coun- 
 tries, or than the cost of production warrants, the limits 
 of such drains, in point of intensity at least, are almost 
 equally indefinite, though they generally find a suffi- 
 ciently early termination in the failure of the enterprises 
 which have led to them, and in the discredit which in 
 times of excitement such failures inevitably bring along 
 with them. 
 
 It is not that we have any just ground for condemning 
 
 * See Mr. Burgess's evidence before the Committee of 1832; Re- 
 port, p. 448. 
 
155 
 
 in the abstract, either investments in foreign securities or 
 speculations in produce. So long as they are conducted 
 with ordinary caution, and neither sustained nor ex- 
 tended by any dangerous or unwarranted facilities of 
 credit, the influence of both may be exceedingly bene- 
 ficial. Investments in foreign securities constitute at 
 times a very convenient and useful outlet, for those over- 
 flowings of domestic capital, which exceed the immediate 
 capacity of advantageous employment offered by the 
 home-market ; and it seems impossible to doubt, that the 
 wealth and prosperity of a community must be promoted, 
 by every prudent and judicious accession to its income 
 from the tributary industry of foreign states. And so 
 again, with respect to speculation, the legitimate induce- 
 ment to invest capital in a speculative purchase of pro- 
 duce is the anticipation of a diminished supply ; and, so 
 long as this anticipation is well grounded, and the specu- 
 lative action is only meted out in a due proportion to 
 the real extent of the scarcity, the effect of the specula- 
 tion is, by raising the price of the commodity, to ensure 
 economy in its use, to equalize the distribution of supply, 
 and to moderate the abruptness of the transitions from 
 abundance to scarcity, and from scarcity to abundance. 
 In this point of view, the speculator may be considered 
 as a public benefactor, and " speculation," to use the 
 language of Mr. M'Culloch, " is but another name for 
 foresight." It is only by their excesses, that those modes 
 of employing capital are turned into public nuisances, 
 and that it becomes consistent with public policy to dis- 
 courage or abate them. It is true, indeed, that such 
 excesses seem to be scarcely separable from the existence 
 of the things themselves. In an age like the present, 
 when the commercial spirit has acquired so irresistible 
 a predominance, moderation in the pursuit of any object 
 of cupidity is scarcely to be calculated on. With a few 
 examples of partial success to encourage confidence, the 
 passion becomes so reckless as to discard nearly all con- 
 sideration for realities. And when, with circumstances 
 
156 
 
 inviting to speculation, there concur any extraordinary 
 facilities of credit, and those facilities are freely turned 
 to use, the effect in general is anything but that of equal- 
 izing prices and supply, or moderating sudden transi- 
 tions from plenty to scarcity and from scarcity to plenty. 
 With respect to foreign investments, again, they have 
 been found quite as liable to fall under the influence of 
 the speculative mania as any adventures in commerce, 
 and seem, I may say, beyond everything else, calculated 
 to familiarize men's minds to habits of reckless and incon- 
 siderate credit, and to become the ready instrument of 
 fraud and spoliation. Among all the various devices, 
 indeed, for the chastisement and repression of wealth, 
 which have signalized this latter age, there are none 
 which have at all rivalled in their effects, the wide-spread 
 destruction of property produced by the multiplication of 
 foreign loans and foreign mining and banking schemes. 
 
 Upon the whole, the risks and miseries which follow 
 in the train of all these enterprises appear so far to pre- 
 ponderate over any advantages which the public is likely 
 to derive from them, that I cannot regard them as en- 
 titled, under any circumstances, to any special favour or 
 consideration from the Bank of England. On the con- 
 trary, the part which seems to me the most befitting the 
 Bank, and the most consistent with the duties of circum- 
 spection and forbearance prescribed by its position, is to 
 hold itself aloof from all transactions of a speculative 
 character, and refuse the aid of its credit in any shape to 
 those who are avowedly or notoriously engaged in them. 
 And, when it finds the balance of foreign payments be- 
 coming unsettled, from the multitude and magnitude of 
 such projects, the exchange depressed, and its treasure 
 menaced with exhaustion, if it does not immediately exert 
 itself, to the full extent of its power, to break up the 
 speculation, and compel as many of the parties as it can 
 control to bring their securities or their commodities (as 
 the case may be) to market, it ought not to be from any 
 particular tenderness to the individuals, but from a desire 
 
157 
 
 to spare, if possible, the number of innocent sufferers 
 who would be involved in the catastrophe, and I may 
 say indeed the public at large. At what particular 
 time, in such cases, it may be incumbent on the Bank to 
 act, and in what manner and to what extent it should 
 act, are points on which it is obviously impossible to lay 
 down any general rule, but which must be determined 
 by the circumstances of each particular case, by the 
 nature and subjects of the speculation, by the length of 
 time which it has lasted, by the existing prospect as to 
 its continuance or abatement, by the extent of mischief 
 which it threatens, and by the state of the resources of 
 the Bank itself. To watch all these indications with 
 care and sagacity, and to follow out the decisions which 
 they suggest, is by far the most delicate and arduous of 
 the duties which the Directors have to perform ; and, 
 what is more, it is a duty which a body of Directors, 
 who have their own private affairs to attend to, and do 
 not give their whole time, thoughts and energies to the 
 concerns of the Bank, can never very satisfactorily fulfil. 
 But in these cases, where an effectual curb to the pre- 
 vailing mania would often be so desirable, the real power 
 of the Bank of England is quite as much circumscribed 
 as in every other. The state of the circulation has about 
 as little to do with the aberrations of speculators, as with 
 a failure of the crops or the waste of a foreign campaign. 
 Speculation is not supported solely by banks of issue, 
 nor is it confined to countries using a bank-note currency. 
 In the recent lists of bankruptcies, from over-facility of 
 credit, the non-issuing banks bear their fair proportion ; 
 and such cases as that of Wright exemplify the extent to 
 which even the wildest and most hopeless speculations 
 may be upheld by banks of deposit. Nor does a metallic 
 currency afford any particular safeguard against such 
 transgressions. On the contrary, we have abundant evi- 
 dence to show, that prices may be inordinately raised, 
 and a vast speculative extension given to transactions, 
 compatibly with the co-existence of any and every sys- 
 
158 
 
 tern of circulation, be it metallic, conventional, or con- 
 vertible. Witness the immense speculations in colonial 
 produce carried on at Hamburgh in the years 1797 and 
 1798, and extending to other towns of Germany and 
 Holland, with their fearful termination in 1799, when 
 eighty-two Hamburgh houses became bankrupt, with 
 engagements to the extent of two and a half millions 
 sterling.* Witness the several alternations of commercial 
 excitement and revulsion experienced at other previous 
 periods on the Continent, during the course of the last 
 century, in 1763, in 1771-2, and in 1778-9.f Witness 
 the extraordinary fluctuations in the value of colonial 
 and other imported articles in France and other parts of 
 the Continent during the period from 1808 to 1822, 
 fluctuations far exceeding those in this country, arid the 
 extreme variations there of the price of corn in 1817 and 
 1818, terminating in a revulsion which greatly aggra- 
 vated the difficulties of the important money-crisis of 
 the latter year. Witness the insanities of the period of 
 the South Sea bubble in this country, originating at a 
 period (1721,) when, for practical purposes, as remarked 
 by Mr. Tooke, the circulation might be considered metal- 
 lic, the Bank issues at the commencement being under 
 two millions.^ 
 
 It is in vain to tell us, that, on such occasions, the mea- 
 
 * See Tooke on High and Low Prices, ed. 1823, Part I., p. 176. 
 
 t These commercial crises on the Continent are mentioned in Sir 
 Henry Parnell's ( Observations on Paper-Money/ &c. (p. 75), on the 
 authority of statements recorded in the i Gentleman's Magazine ' and 
 Annual Register for those years. The money-crisis of 1763 com- 
 menced at Amsterdam, and appears, from the account in Dodsley's 
 Annual Register (vol. vi., p. 102), to have been of great severity. 
 Eighteen houses of business stopped payment at Amsterdam ; and these 
 failures were followed by others, much more extensive, at Hamburgh 
 and other places. For a time all private credit was suspended, and no 
 business could be transacted but for ready money. And, but for the 
 large supplies of cash furnished by the Lombard houses at Amsterdam 
 and Hamburgh to such establishments as could give security, the havoc 
 would have been still more fatal. 
 
 % See Tooke's ' History of Prices/ vol. ii., p. 164-5. 
 
 
159 
 
 sures of the Bank of England for arresting a drain gene- 
 rally come too late, and " after the mischief has been 
 done ; " * that the first tendency to a depression of the 
 exchange, which generally shows itself in anticipation 
 of the demand for gold, ought to be carefully watched, 
 and immediately met and counteracted by a correspond- 
 ing restraint on the issue of notes.f The measures of 
 the Bank never can come otherwise than late, nor ever 
 will. All that the Bank can do, at the commencement 
 of a drain, is to remain passive, and abstain from all 
 abetment of the peccant parties. As the money-market 
 is usually circumstanced at such periods, the Bank might 
 contract its issue of notes, but it could not contract the 
 amount of accommodation actually at the command of 
 the speculators. So long as credit was rampant, accom- 
 modations would continue to be obtained, without the 
 aid and in defiance of the will of the Bank. They 
 would be obtained, probably, without the intervention of 
 bank-notes at all; or, if notes were wanted, a supply 
 would be extracted from the Bank through the deposits. 
 The contraction of the issues either would not be felt, or 
 it would be felt merely as an inconvenience, confined to 
 that particular class of transactions for which bank-notes 
 are the customary medium. As to speculators acting 
 with their own funds, and paying out of those funds for 
 the foreign securities or the merchandise which they 
 purchase, they must always be quite independent of the 
 Bank, and cannot be affected by any measure of con- 
 traction, however severe, or in whatever stage of the 
 crisis. Neither is their failure or success a matter of 
 much serious importance to any one but themselves. It 
 is only the speculators acting on credit whom the Bank 
 can touch, and those in general only when the specula- 
 tions are nearly on the point of failing, and the specula- 
 
 * See Mr. Dyer's Evidence before the Committee of 1832 on the 
 Bank of England; Report, p. 316. 
 
 t See Mr. S. J. Loyd's Evidence before the Committee of 1840 on 
 Banks of Issue ; Report, p. 288-9. 
 
160 
 
 tors have lost their credit. It is then that the power of 
 the Bank displays itself; and then, as has been truly 
 observed, " the mischief has been already done." It 
 may be added too, that then the remedy is already at 
 hand ; the speculation is on the point of breaking up of 
 itself, and the tide of bullion returning ; and nothing is 
 likely to remain for the Bank but, after consigning the 
 speculators to their fate, to re-open its stores, and rally to 
 the succour of those, who may have saved enough of pro- 
 perty from the general wreck, to have still some security 
 to offer for a share of the Bank's advances. 
 
 As the sole inducement which leads to speculations in 
 foreign loans is the desire of the possessor of capital to 
 make a larger interest on his money, it may not unrea- 
 sonably be thought, that the appropriate remedy for any 
 drain of gold originating in such speculations should be 
 an advance of the market-rate of interest, and that the 
 Bank, in cases of this description, by simply operating 
 on the interest-market, might succeed in arresting the 
 efflux of the metal, without any material shock to credit 
 or disturbance of mercantile affairs. And such would 
 no doubt be the case, if the Bank held at all times the 
 control of the market-rate of interest in its own hands. 
 But, as I have already explained, that power only ac- 
 crues to the Bank, when the public has already to some 
 extent become dependent on the Bank for its discount 
 accommodations. And the very nature of the circum- 
 stances assumed precludes the possibility of such a state 
 of things co-existing with the origin or early stages of 
 the drain. It is the low range of the market-rate of in- 
 terest at home which constitutes the chief incentive to 
 these investments abroad ; and such a range is obviously 
 incompatible with the supposition, that there can be any 
 pressure on the Bank for discounts. Nor will it be until 
 the remedial process shall have already attained a certain 
 degree of maturity through the necessary working of 
 events, until an advance of the current rate of interest 
 shall have already been effected by the competition of 
 
161 
 
 sellers of foreign securities in the money-market, that 
 the Bank will have arrived at a position, in which it can 
 successfully co-operate to stop at all events the further 
 progress of the evil, by extinguishing for a time the 
 motive, which had given the extraordinary impulse and 
 extension to foreign transactions. 
 
 It may indeed be conceived without difficulty, that, in 
 a considerable majority of cases, the Bank of England 
 should obtain the requisite command over the market-rate 
 of interest, before its stock of bullion has absolutely ap- 
 proached the point of exhaustion, and before it would be 
 either advisable or practicable to attempt a forcible ope- 
 ration on credit. In such case, a judicious exercise of 
 the temporary power thus acquired by the Bank may be 
 turned possibly to very beneficial account for the restora- 
 tion of the exchanges, whatever be the nature of the spe- 
 culation which has led to their derangement. But k 
 would be a great mistake indeed to suppose, that it is in 
 the will of the Bank of England, or of any similar body 
 or combination of bodies, to regulate on the large scale, 
 or for a length of time together, a thing so uncontrol- 
 lable. 
 
 That a wild spirit of speculation and adventure is not 
 only essentially promoted by any long-continued de- 
 pression of the market-rate of interest, but that the diffi- 
 culty of procuring secure and productive investments for 
 capital is at the root of all those violent paroxysms of 
 speculative excitement which occasionally convulse the 
 money-market, is a truth which, if it had not been ques- 
 tioned by very high authority, I should have thought 
 indisputable. It is not merely that, in every speculative 
 undertaking, the amount of interest which the speculator 
 has to pay if he acts with borrowed capital, or which he 
 must forego if he acts with his own, constitutes an im- 
 portant item in his calculation of profit for interest 
 being one of the elements of cost, it is only by very tem- 
 porary or incidental variations that the rate of profit can 
 be affected ; in all other cases, the gain or loss falls to the 
 
162 
 
 consumer. The real incentive to speculation, whether 
 in the more hazardous class of securities or in merchan- 
 dise, lies deeper than this. It is an incentive, which 
 operates like a contagion on the minds of capitalists 
 themselves. Without entering into the abstract question 
 so much debated among economists, as to whether such 
 a thing as an over-supply of capital be possible, I may 
 venture, I think, to state, without much fear of contra- 
 diction, that, under the present constitution of society in 
 this country, what with the annual savings from income 
 and the large fortunes in constant course of remittance 
 from the colonies, the amount of capital seeking produc- 
 tive investment accumulates in ordinary times with a 
 rapidity greatly out of proportion to the increase of the 
 means of advantageously employing it. The subjects of 
 investment which are chiefly in favour for their safety 
 and convenience, such as the public stocks, are either 
 stationary in amount or in a gradual progress of dimi- 
 nution. There is only a certain fund to be divided ; and 
 the effect of any new capital being invested in it, is 
 merely to alter its distribution, without in the least 
 adding to its quantity. The competition inevitably 
 raises the price. And a rise of the price of securities is 
 identical with a fall of the market-rate of interest. The 
 Government is enabled to reduce the interest on its 
 funded debts, and landed proprietors to renew their 
 mortgages on easier terms. The capitalist finds his in- 
 come reduced perhaps by a third ; and, after waiting for 
 several years in expectation that matters may take a 
 favourable turn, he loses his patience, and, in his eager- 
 ness to regain his former position, he becomes disposed 
 to listen with avidity to any project which holds out the 
 expectation of a better return for his money. His 
 scruples on the score of security insensibly give way 
 before the splendid visions of gain which are spread 
 before him. A few examples of successful enterprise are 
 sufficient to raise the most absurd hopes. From the 
 market for securities, the delusion spreads to the produce- 
 
163 
 
 market. Every article becomes in its turn the object of 
 speculative purchase, without the least regard to the 
 state of consumption or supply.* The faith of each man 
 in the continuance not only of his own prosperity, but 
 of that of his neighbour, becomes so strong, that the 
 most boundless credit is frequently lavished in the sup- 
 port of the most worthless schemes. Everything in the 
 nature of value puts on an aspect of bloated magnitude ; 
 till at last the exchange becomes affected by the unna- 
 tural rise of prices, the bullion is sent abroad, a panic 
 ensues, and the bubble bursts, with a destruction of 
 capital which relieves the money-market for a season of the 
 
 * On this part of the question I regret to find myself at variance 
 with Mr. Tooke, who denies that a fall of interest furnishes any suffi- 
 cient motive for speculation, or has a tendency to raise prices. Mr. 
 Tooke's judgment is in general so accurate, that I should be inclined 
 very much to distrust any conclusions of my own that stood in express 
 contradiction to his opinions. But he views this question under so 
 different an aspect from that in which I have presented it, and most of 
 his propositions are really so far from being irreconcilable with any- 
 thing which I have advanced, that I am disposed to think the grounds 
 of difference may not, after all, be very substantial. I entirely admit, 
 that a depression of the market-rate of interest has no necessary or 
 direct tendency to raise prices ; that it may frequently subsist for a 
 considerable period of time without raising them ; that, inasmuch as it 
 contributes to lower the cost of production, it ought rather to have a 
 contrary effect ; and that it only acts on prices indirectly by the im- 
 pulse which it occasionally gives to speculation. I am further free to 
 allow, that the legitimate inducement to speculation in commodities is 
 the prospect of a deficiency of the supply, and of a consequent advance 
 of price, and not the mere facility of borrowing. And, were all specula- 
 tions based on sound principles, doubtless the fluctuations of interest 
 would have very little share in producing them. But what I am 
 speaking of is not sound or rational speculations, but speculations ex- 
 travagant and monstrous. And such speculations, I cannot but believe, 
 that a low condition of the market-rate of interest sometimes predis- 
 poses the minds of capitalists to entertain with a complacency, which, 
 in more sober moments, would be quite foreign to their natures. Of 
 the extent to which speculations in merchandise may be carried, under 
 the influence of such delusions as I have described, without the slightest 
 regard to the state or prospects of supply, I need seek no better evidence 
 than is furnished by Mr. Tooke himself, in his account of the specula- 
 tions of 1825. (See < History of Prices,' vol. ii., chap. 8, sec. 3.) 
 
 M 2 
 
164 
 
 load which had oppressed it, abates competition, and re- 
 stores the market-rate of interest to the level from which 
 it had declined. The results in such cases may be more 
 or less frightful or disastrous, according to the direction 
 which capital takes ; and that is a matter very much in 
 the hands of fortune. But the malady can generally be 
 traced to the same common source. Sir Robert Wai- 
 pole's measures for reducing the interest on the national 
 debt from 6 and 8 per cent, to 4 and 5 per cent., and 
 establishing a sinking fund for its redemption, preceded 
 not very long the insanities of the Bubble year ; and in 
 the debates in Parliament about the same period, we 
 meet with complaints of the " glut of money" in England. 
 And so in 1825 T look upon all the vicissitudes of that 
 year as nothing more than the legitimate consequences 
 of the previous rise of consols from 73 1 in 1823 to 95, 
 the conversion of the five per cents, in 1822 and of the 
 old four per cents, in 1824 into stocks bearing interest 
 respectively at the rates of 4 and 3J per cent., and the 
 reduction of the Bank rate of discount to 4 per cent* 
 During the continuance of the war, and so long as the 
 market-rate of interest was maintained at a high level 
 by the constant pressure of government loans on the 
 market, the public tranquillity was never disturbed by 
 phenomena at all resembling those of 1825. There 
 were several commercial revulsions, indeed, and one or 
 two of great violence, but all more or less connected with 
 the incidents of foreign trade. The capitalist living on 
 
 * Mr. Gibson Craig, in his evidence before the Committee of 1826, 
 (See Report, p. 267), gives rather a striking picture of the consequences 
 which followed the decline of the market-rate of interest in Scotland, 
 in and previous to 1824. In that year, the Scotch bankers were under 
 the necessity of reducing the rate allowed by them on deposits to 2J 
 per cent. With this their customers became generally dissatisfied. 
 They proceeded, Mr. Craig says, to look about in all directions for 
 investments offering them a better return, they embarked greedily in 
 joint-stock companies, they lent out large sums to builders and on 
 what is universally regarded as an inferior security, and many of them 
 became builders themselves. 
 
165 
 
 the interest of his capital took no part in them ; and so 
 long as he could earn 5 per cent, or upwards per annum 
 on Government security, it is obvious, he could have 
 little inducement or excuse for risking his principal in 
 untried experiments. It is not in times like those, but 
 in seasons of stagnation and redundance, that the 
 schemer rises into notice ; and from the Bubble year 
 downwards, I question much if an instance could be 
 shown of any great or concurrent speculative movement 
 on the part of capitalists, which had not been preceded 
 by a marked decline of the current rate of interest. 
 From more recent events, indeed, one would almost be 
 tempted to suspect, that a periodical destruction of ca- 
 pital has become a necessary condition of the existence 
 of any market-rate of interest at all. And, considered in 
 that point of view, these awful visitations, to which we 
 are accustomed to look forward with so much disquiet 
 and apprehension, and which we are so anxious to avert, 
 may be nothing more than the natural and necessary 
 corrective of an overgrown and bloated opulence, the vis 
 tnedicatriw by which our social system, as at present con- 
 stituted, is enabled to relieve itself from time to time of 
 an ever-recurring plethora which menaces its existence, 
 and to regain a sound and wholesome state. But, how- 
 ever this may be, it is at all events evident, that they 
 proceed from too deep and too powerful causes to be 
 effectually counteracted by any appliances within the 
 reach of the law, and, above all, by any appliances so 
 mistaken and so entirely alien to their nature and origin 
 as an artificial limitation of the currency. Their terrors, 
 after all, are chiefly for the imprudent and the negligent. 
 And having made such provision as is in our power for 
 tempering their severity and limiting their duration, all 
 that remains for us is to endure them. The present 
 aspect of the money-market differs in some of its most 
 important features from everything which has gone be- 
 fore. After four years of uninterrupted influx, raising 
 the Bank treasure to a higher level than was almost 
 
166 
 
 supposed possible, the current of gold begins just to 
 show signs of wavering ; and the accumulation seems to 
 have reached its limit or very nearly so. Consols are 
 at par, and the interest of money for short periods and 
 on the best security does not exceed 1^ or 2 per cent. : 
 yet commercial affairs are still in a perfectly satisfactory 
 state ; industry is fully employed, and trade thriving ; 
 while the range of prices continues low, and the spirit 
 of enterprise, though sufficiently strong for every useful 
 purpose, shows hitherto no disposition to embark in any 
 very wild or hazardous projects. Our American losses 
 are still fresh in every man's recollection ; and circum- 
 spection aiad moderation are the order of the day. But 
 let us not deceive ourselves by supposing, that this is 
 to last for ever. The flame is only suppressed. It is 
 wonderful, how soon even the severest lessons of experi- 
 ence are forgotten, where there are strong temptations 
 to mislead. Men will not always be content with a 
 return of Ij per cent, from their capital. And there 
 wants only some small addition to the existing dispro- 
 portion between the growth of capital and the opportu- 
 nities of profitable investment, a disproportion to which 
 carefulness is always adding, and a few examples of new 
 and eccentric adventure rewarded with fortune, to set 
 the wisest heads once more agog. The hour may for 
 some time yet be deferred, but it will come at last, with 
 all the certainty if not with the regularity of the 
 seasons; and not probably the later for this bank-note 
 restriction bill. 
 
167 
 
 CHAPTER IX. 
 
 Plan for administering the Affairs of the Bank of England by separate 
 Departments for Issue and Banking Arguments adduced from 
 Analogy in favour of this Plan answered (Note) Feebleness of the 
 recent Attempts of the Press to grapple with Mr. Tooke's Argu- 
 ments ; and Remarks on Mr. Jones Loyd's Statements as to the 
 course adopted by the Bank of England during the Drain of Gold 
 in 1832 Results of the Banking System of the United States of 
 America Insufficiency of the Circulation allotted by the Bill for 
 the wholesome working of the System Of the Issue of Bank Post- 
 Bills under the New System. 
 
 I HAVE extended to so unreasonable and unforeseen a 
 length my argument on the principles by which it is 
 proposed to administer for the future the bank-note cir- 
 culation of this country, that I have but little space or 
 leisure left for the discussion either of the details of the 
 government bill, or the specific reasoning by which the 
 measure has been supported. In fact, the entire case is 
 one of principle, and on that ground must stand or 
 fall ; and it is on that account I have thought it neces- 
 sary to treat the several questions of principle so fully. 
 The small number of extraneous arguments adduced 
 in debate have not been remarkably felicitous ; but some 
 of the special provisions and bearings of the bill demand 
 particular observation ; and a few remarks on both topics 
 may not perhaps be thrown away. 
 
 By the new plan, the Bank of England is to be di- 
 vided into two departments, a department of issue, and 
 a banking department, which departments are to keep 
 separate books of account, and to carry on their re- 
 spective functions entirely independent of each other. 
 The issuing department alone is to have the privilege of 
 creating notes ; and its power of issuing on credit is 
 to be strictly limited to the sum of fourteen millions 
 sterling, for which the debt of eleven millions due to 
 
168 
 
 the Bank by Government, and the further sum of 
 three millions in negotiable public securities, are to 
 be pledged to it as security. All issues in excess of 
 the fourteen millions must be in exchange for gold or 
 silver coin or bullion, all persons being entitled to de- 
 mand from the department of issue Bank of England 
 notes for standard gold at the rate of 31. 17 's. 9d. per 
 ounce, and the proportion of silver to be held by the 
 said department at any given time is not to exceed one- 
 fourth of the gold. The functions of the banking de- 
 partment, on the other hand, are to be confined to the 
 ordinary business of a bank of deposit. It is to retain 
 in its hands all securities at present possessed by the 
 Bank in excess of the fourteen millions pledged to the 
 department of issue, and all the coin and bullion 
 possessed by the Bank in excess of what may be re- 
 quired to make up, with the fourteen millions of securi- 
 ties to be transferred to the issue department, a sum 
 equal to the total amount of notes at the time in circu- 
 lation. Of the coin and bullion remaining with the 
 banking department, any portion may be exchanged at 
 pleasure for bank-notes ; but the department of issue is 
 strictly prohibited from issuing any notes either into the 
 banking department or to any person or persons whatso- 
 ever, save in exchange for other Bank of England notes, 
 or for gold coin or gold or silver bullion, to be received 
 or purchased in conformity with the provisions of the 
 Act, or in exchange for the securities to the amount of 
 fourteen millions above-mentioned. And, upon any 
 diminution of the aggregate amount of coin, bullion, and 
 securities in the issue department, the Bank is required 
 to call in and reduce the amount of notes in circulation 
 to the same extent. In the event of any joint-stock or 
 private bank of issue discontinuing hereafter the issue 
 of notes, the Bank of England is empowered, with the 
 sanction of Her Majesty in Council, to increase its issue 
 on securities to an extent not exceeding two-thirds of 
 the amount of notes suppressed ; but the profit on such 
 
169 
 
 increased issues is to go to the State. The issues of joint- 
 stock and private banks are not to exceed, in future, the 
 average circulation of each bank respectively during the 
 twelve weeks antecedent to the 27th April last ; and no 
 new banks of issue are to be permitted. 
 
 Sir Robert Peel rests his justification of these mea- 
 sures of restriction on the assumed soundness of the 
 currency doctrines of over-issue and depreciation, and on 
 the obligation resulting from those doctrines, to restrain 
 our bank-note circulation within the limits prescribed by 
 the fluctuations of the metallic money with which it is 
 associated. And he enforces his argument, by historical 
 reference to certain remarkable instances, in which cur- 
 rencies have been depreciated by an excessive issue of 
 notes, and have afterwards been restored to the metallic 
 par by contraction. And, what are those instances ? 
 The first alluded to is the case of the Bank of England 
 shortly after its establishment, when, in consequence of 
 its excessive issue, it is stated, that " the notes of the 
 Bank were at a discount of 17 per cent." " After trying 
 various expedients," we are told, " it was at length de- 
 termined to reduce the amount of bank-notes outstand- 
 ing, and the consequence was an immediate increase in 
 the value of those which remained in circulation, the 
 restoration of them to par, and a corresponding im- 
 provement in the foreign exchanges." Sir Robert Peel, 
 however, forgets to mention that, at the period of which 
 he speaks, the note circulation was not in a convertible 
 state. How, indeed, could it be so ? Was such a thing 
 ever heard of as a really convertible paper at a discount 
 of 1 7 per cent. ? It is a contradiction in terms. The 
 circumstance in question happened in 1696, two years 
 after the institution of the Bank, and during the great 
 re-coinage of silver. Silver was at that time a legal 
 tender in this country for all sums, and the principal 
 money of exchange. But the old circulating coin had 
 for some time been in so degraded a state, that the 
 market-price of the metal had become permanently in 
 
170 
 
 excess of the mint price ; and under these circumstances 
 it was the necessary effect of a re-coinage, that the new 
 and heavy coin, as fast as it was issued from the Mint, 
 was melted and sold.* The notes of the Bank of Eng- 
 land were brought in, and the coin taken out for melt- 
 ing. The Bank's treasure was exhausted ; the Bank 
 suspended its payments; and its notes then, but not 
 before, very naturally fell to a discount equal to or ex- 
 ceeding the difference of value between the old silver and 
 the new. This, I believe, is the plain history of this 
 specimen of depreciation from over-issue ; and what 
 imaginable analogy or resemblance such a case can be 
 supposed to bear to the present circumstances of the 
 Bank of England, is, I own, beyond my comprehension. 
 Even if the circumstances had not been so distinctly 
 traceable to the coincidence of the re-coinage, the fact of 
 the depreciation at that period could have furnished no 
 argument applicable to the case in hand. No one has 
 ever disputed, nor can dispute, that nonconvertible 
 paper may lose its value from excess of quantity. But 
 to infer, therefore, that an issue of convertible notes 
 ought to be subjected to limitation, is to beg the whole 
 question. 
 
 The next case is that of the Irish currency in 1 804, 
 when " the exchange of Ireland with England was so 
 unfavourable, that it required HSl. 10s. of the notes of 
 the Bank of Ireland to purchase 100/. of the notes of the 
 Bank of England." That was again the case of an in- 
 convertible currency. It occurred during the full opera- 
 tion of the Bank Restriction Act, when not a single 
 sovereign had passed out of either the Bank of Ireland 
 or the Bank of England for seven years. There is cer- 
 
 * Previous to the new coinage in 1695-6, the market-price of silver 
 was 6s. 4d. per ounce, against 5*. 2d. the Mint price. It would ap- 
 pear, that, in this instance, the melting of the silver was still kept up, 
 even after the completion of the coinage, in consequence of the gold 
 becoming from this time the over-rated metal, and therefore the prac- 
 tical standard. Before 1717, it is said, that the silver of this coinage 
 had entirely disappeared from circulation. 
 
171 
 
 tainly strong reason to presume, that the unfavourable 
 state of the exchange with England was accompanied at 
 that period by a considerable depression of the value of 
 the Irish currency. But it will be found, I believe, a 
 more debatable point than Sir Robert Peel seems will- 
 ing to allow, whether either the adverse exchange or 
 the diminished value of the currency originated at all 
 in any excess of issue on the part of the Bank of Ireland, 
 or was eventually cured by the contraction of that issue. 
 The positive variation of the exchange was not in fact 
 18^ per cent., but only about 10 per cent, the circula- 
 tions of the two countries being of different intrinsic 
 value, and the par of exchange between them giving a 
 difference of 83 per cent, in favour of England. This 
 variation, indeed, the Committee of 1804 did not hesitate 
 to ascribe to the inordinate quantity of inconvertible 
 notes sent into circulation by the Bank of Ireland ; but 
 I venture to think that, if my space permitted, I could 
 show satisfactory grounds for questioning the soundness 
 of that conclusion, which was moreover in contradiction 
 to the nearly concurrent opinions of all the principal 
 mercantile authorities of the period. It is by no means 
 even clearly made out, that the difference of exchange 
 was not a real difference, originating in a balance of 
 payments due to England. But whether the difference 
 was real or nominal, I consider that the abstraction of 
 the whole mass of circulating coin from Ireland was an 
 occurrence altogether independent of the exchanges, an 
 inevitable consequence of the particular state of the law 
 in England relative to the traffic in the precious metals,, 
 which, soon after the passing of the Restriction Act, had 
 the effect of raising the local price of bullion there, even 
 before the exchange between England and the Conti- 
 nent had given signs of a fall, while the transit of bullion 
 from Ireland to Great Britain continued as completely 
 unimpeded as from one part of England to another. 
 The expulsion of the gold and silver coin prepared the 
 way for the invasion of the silver notes, the I O U's, and 
 
172 
 
 the base coins, of which I have given some account in a 
 preceding chapter. And it is to the influence of this 
 deluge of small money, and not to the augmented issues 
 of the Bank of Ireland, that, after a pretty diligent 
 review of the evidence, I am inclined to attribute the 
 temporary elevation of prices. The value of a currency 
 of inconvertible notes, however judiciously administered, 
 cannot be long maintained, in concurrence with the 
 rapid deterioration of the subsidiary currency of small 
 money, representing the aliquot parts of the sums ex- 
 pressed by the notes. The Bank of Ireland, no doubt, 
 like the Bank of England, greatly enlarged its issue of 
 notes after the suspension of cash payments. But I 
 nowhere find it alleged, that the additional issue \vas out 
 of proportion to the stock of coin which it had to re- 
 place. The principles on which the Bank of Ireland 
 administered its issues, appear in no respect to have dif- 
 fered from those acted upon by the Bank of England ; 
 the regularity of the reflux seems to have been equally 
 provided for ; nor, except in so far as the state of the 
 small currency in Ireland or other extraneous influ- 
 ences may have tended to disturb the results, is there 
 any apparent reason, why the movements of the one 
 scheme of circulation should have been more eccentric 
 than those of the other. And the denouement was en- 
 tirely confirmatory of this view of the case. By an act 
 which took effect from the 1st of January 1805, the 
 future circulation in Ireland of any notes or other 
 transferable engagements for the payment of sums under 
 the value of 20*., was strictly prohibited, and the Bank 
 of Ireland was required to take measures for replacing 
 the currency thus proscribed with a provisional coinage 
 of silver tokens ; the system on which the Irish treasury 
 had hitherto drawn for the amount of the loans raised 
 annually in England for the Irish service, and which 
 had been found to operate disadvantageously on the 
 exchanges, was placed on a better footing ; and, by the 
 gradual extension of private banking in the north, the 
 
 
173 
 
 separate system of metallic circulation which had been 
 so long maintained in the linen districts of Ulster, and 
 which had contributed, with the state of the exchange 
 between Dublin and London, to keep up a perpetual 
 drain for gold on all the rest of Ireland, was, in a short 
 time after, superseded by bank-notes. These measures 
 brought all into harmony immediately. The exchange 
 with London fell nearly to par in the early part of 1805, 
 and rarely afterwards deviated more than 1 or 2 per 
 cent., never, I believe, more than 4 per cent., from that 
 level during the continuance of the restriction. From 
 this time, we hear no more charges against the Bank of 
 Ireland for special acts of over-issue. There was, in- 
 deed, as pointed out by Sir Robert Peel, a temporary 
 reduction of its issues from about 3,000,000/. to 
 2,410,000/., between June 1804 and January 1806; 
 which afforded the Committee of 1810 an opportunity 
 of assuming, that the Directors had profited by the lec- 
 ture administered to them by the Committee of 1804, 
 and that the restoration of the exchanges had been the 
 direct consequence of their (the Directors') efforts to 
 contract the note circulation, as if such a thing had 
 ever been heard of as that the Directors of a Bank 
 should, for a series of years together, permit themselves 
 to be guided by such precepts, unless imperatively se- 
 conded by the course of the public demand. The Com- 
 mittee, however, do not take upon them to affirm 
 though they are not slow to insinuate that this tempo- 
 rary defalcation of 590, OOO/. in the issues of the Bank of 
 Ireland may not, to some extent, have been compensated 
 by the increasing circulation of the new country banks ; 
 and they find themselves under the necessity of admit- 
 ting, that, before 1810, the Bank of Ireland issues had 
 rallied again to three millions and upwards, without 
 producing the least reaction in the exchange between 
 Dublin and London, which in the three first months of 
 that year was at par. 
 
 All this, however, is wide from the point. As the 
 
174 
 
 case of the Irish over-issues has been so particularly 
 insisted upon, I have been anxious to show how much it 
 has been misunderstood. But it is quite sufficient for 
 my present argument, that in 1804 the Irish currency 
 was inconvertible, and can furnish therefore no illustra- 
 tion in the least applicable to the question under discus- 
 sion. 
 
 But Sir Robert Peel refers, in further vindication of 
 his measure, to some supposed cases of excessive issue in 
 Scotland. " An unfavourable state of the exchange," 
 he says, " between Scotland and England has been 
 more than once corrected by a contraction of the paper 
 circulation of Scotland." It may be so. But, in the 
 course of my inquiries, I certainly have not lighted 
 upon any instance to which this observation would cor- 
 rectly apply, except the famous case of the optional 
 notes, which happened during the period immediately 
 following the Seven Years' War, and which I have little 
 doubt is one of the cases, and probably the only case, to 
 which Sir Robert Peel alludes. At the time in ques- 
 tion, the bankers in Scotland adopted the practice of 
 inserting in their promissory notes which then, as now, 
 constituted almost the sole currency of that division of 
 the island a clause reserving to the issuer the option of 
 either paying the note on demand, or at the end of six 
 months from that date with interest at the legal rate. 
 This practice was continued for some years ; and its 
 necessary consequence was, not perhaps absolute depre- 
 ciation, (for that was likely to have been prevented by 
 the surplus notes being taken off by capitalists for in- 
 vestment) but such a complete exclusion of the commu- 
 nity from all access to the precious metals, as must have 
 deprived them of all means of correcting their ex- 
 changes. The exchange between London and Dumfries 
 fell to 4 per cent, against Dumfries, at the same time 
 that it was at par between London and Carlisle ; and 
 the results altogether proved so inconvenient, that it was 
 thought necessary to prohibit the practice by the act of 
 
175 
 
 1765.* And this is another of the analogies, is it, 
 which is to instruct us in the necessity of placing a re- 
 
 * If a cause can acquire any new strength from the weakness of the 
 efforts of its adversaries, that espoused by Mr. Tooke ought at present 
 to be rather in a thriving way ; for I do not think the exceeding im- 
 becility of some of the recent attempts to grapple with his argument 
 has often been surpassed. It was once my purpose to have undertaken 
 a detailed analysis of Sir William Clay's and Colonel Torrens's 
 publications. But the limits which I originally prescribed to myself 
 have already been far exceeded. To follow these authors through all 
 their doublings, would require an additional space equal probably to 
 half the present volume ; and I gladly therefore absolve myself from 
 a task, which I could scarcely have hoped to perform with candour, 
 and at the same time without offence. Besides, I believe it to be 
 quite unnecessary. As far as I have been able to discover, there really 
 is scarcely a point of any importance in either work which, in some 
 shape or other, my argument has not already anticipated. Of Sir 
 William Clay's style of reasoning I have introduced some specimens to 
 my reader, which are not, I fear, likely to excite in him much desire 
 for more. Colonel Torrens's work came later into my hands, and I 
 have not had the same occasion to refer to it. It is the more ingenious 
 production of the two, but I cannot say I have found it more conclusive. 
 Perhaps, however, I may not be a very competent judge of Colonel Tor- 
 rens's argument ; for I must candidly acknowledge, I have not had the 
 courage to follow him through all that maze of hypothetical cases, with 
 which he rejoices to illustrate his favorite notions, as to the multipli- 
 cation of the purchasing power by the intervention of certain banking 
 forms, and through which he is wont to drag his readers with so little 
 mercy or compunction. I have once or twice before endeavoured to 
 make my way through one of these labyrinths, but got so little for my 
 pains, that I am rather disinclined to repeat the experiment. Besides, 
 I must confess, the relevancy of these illustrations to the argument in 
 hand is not always very apparent to me. Upon the whole, therefore, 
 I believe I may very safely leave Colonel Torrens to the tender mer- 
 cies of the ' Westminster ' Reviewers, who have favoured the world 
 with a very able dissection of his pamphlet, in an article which gives 
 favourable indication of the progress, which a better order of opinions 
 on these subjects is at length making among men of information and 
 intelligence. Colonel Torrens has since published a rejoinder, much 
 in the style of his original pamphlet. And we have likewise, within 
 these few days, been favoured with a second edition of Mr. Jones 
 Loyd's ' Thoughts on the Separation of the Departments of the 
 Bank of England,' with a new preface. 
 
 I do not find in the last-mentioned publication any addition of im- 
 portance to Mr. Loyd's former arguments. I am glad, however, to 
 
176 
 
 straint on the convertible issues of the Bank of Eng- 
 land ? Really, to anticipate any effect from illustrations 
 
 take the opportunity of adverting to one of Mr. Loyd's statements, 
 which, from the manifest contradiction between its premises and its 
 conclusions, I had always looked upon as carrying with it its own 
 refutation, but which, from the favourable manner in which it has 
 been noticed within these few days by an eminent and influential jour- 
 nal, would seem to be, nevertheless, calculated to produce some im- 
 pression on the public mind. Mr. Loyd has thought fit, both in this 
 pamphlet and in his evidence before the Committee of 1840, to con- 
 trast the history of the drain of bullion which the Bank sustained 
 between May 1830 and May 1832, and the drains of 1825, 1833-7, 
 and 1838-9, and to ascribe the facility with which the first-men- 
 tioned drain was brought to a termination, without any commercial 
 distress or discredit, to its having been "met" on that occasion by a 
 contraction of the Bank's circulation ; whereas, in the other three cases, 
 he says, " the paper circulation was rather increased than diminished." 
 Now it cannot, I presume, be unknown to Mr. Loyd, that the drains 
 of 1825, 1833-7, and 1838-9, were drains originating in commercial 
 causes, whereas the demand for gold in 1830-2 was a demand from 
 panic. It commenced in 1830 from abroad, in consequence of the 
 political convulsions and worse forebodings on the Continent inducing 
 merchants to countermand their orders and .give money a preference to 
 goods ; and this was followed by an internal demand, originating in a 
 like political discredit in this country, the result of the agitation pro- 
 duced by the Reform Bill, and which did not reach its acme till the 
 .spring of 1832, after the foreign exchange had not only been com- 
 pletely restored, but gold was flowing back again in large quantities. 
 This drain was unpreceded and unaccompanied by any commercial 
 excitement, by any speculation or rise of prices. On the contrary, 
 the unexampled dulness of trade and stagnation of industry were the 
 -universal theme of complaint among merchants. The gold was with- 
 drawn from the Bank, not to be launched out in foreign purchases, but 
 to be locked up or buried in the earth. If no over-trading, then, nor 
 undue augmentation of prices existed, how was it to be expected, that 
 there should have been any general embarrassment or distress from 
 their recoil ? If, by saying, that this drain " was met by a contraction 
 of the currency," it be meant to imply, that the Bank, on the occasion 
 in question, adopted any positive measure of resistance at variance 
 with its practice in the other three cases on which Mr. Loyd animad- 
 verts, the assertion is wholly unwarranted. The Bank was entirely 
 passive on the occasion ; and, if it did not re-issue all the notes 
 which were sent in for gold, it was simply because the public did 
 not call for them, because the very same circumstances, which at 
 this time had been spreading distrust of all existing institutions, and 
 
177 
 
 like these, is presuming somewhat far on the ignorance 
 of those to whom they are addressed. 
 
 Another topic, which has also been much alluded to 
 in the course of these discussions, has been the disas- 
 trous results of the banking system in the United States 
 of America ; and no topic certainly could well be more 
 unfortunate for the argument of those, who desire to sub- 
 stitute a more diffused use of the precious metals in the 
 circulation of this country, in the place of the now ex- 
 isting system, which tends to the concentration of the 
 reserves of gold in the hands of a single presiding body. 
 I take it, in the first place, to be altogether a gratuitous 
 
 inclined men to convert their property into specie, had also been para- 
 lysing trade, and restricting- the frequency of transactions requiring 
 the aid of specie. The Bank continued, throughout the whole crisis, 
 to discount as freely as usual all the good bills which were brought to 
 it for discount ; and we have the express assurance of the Governor, 
 Mr. Horsley Palmer, that, " for eighteen months or two years pre- 
 vious to 1832, the Court had taken no measures for contracting the cir- 
 culation." [See Report of the Committee of 1832 on the Bank of 
 England, p. 22.] Whatever difference of opinion there may exist as 
 to the proper method of treating a drain of specie, so long as there 
 may be the least colour for attributing it to a depreciation of the cir- 
 culating medium from excessive issue, I am not aware that any one 
 has ever presumed to contend, that a run for gold, caused by internal 
 panic or distrust, would be likely to be stopped by the Bank suspending 
 its discounts. And, while I quite agree with Mr. Loyd that the cir- 
 cumstances connected with the crisis of 1832 furnish a most instructive 
 lesson as to the right method of treating drains of the precious metals, 
 I am bound to say, that the lesson which I draw from them is nearly 
 the reverse of that inculcated by Mr. Loyd. I value it not, certainly, 
 for any testimony which it affords of the advantage of meeting every 
 drain of gold indiscriminately with a contraction of the Bank's issues, 
 for it presents us with nothing to which I can consider the term " con- 
 traction " applicable at all ; but I value it as demonstrating, with how 
 little shock to the even tenor of affairs a great crisis of this kind may, 
 under certain circumstances, be surmounted, by the simple abstinence 
 of the Bank from any officious or violent interference, or any attempt 
 to withdraw its issues from the control of the public demand, and for 
 the striking contrast which it suggests to our apprehensions, of the very 
 different results which might have followed, had the Bank on this occa- 
 sion administered its issues according to the principles advocated by 
 Mr. Loyd. 
 
 N 
 
178 
 
 assumption, that the banks of the United States contri- 
 buted to the commercial disasters of that country chiefly 
 by the excesses of their circulation, instead of the more 
 obvious and undeniable agency of their unlimited faci- 
 lities of credit. But no person, who has given any atten- 
 tion to the evidence respecting the state of the American 
 paper circulation, will venture to affirm, that, even pre- 
 vious to the universal and spontaneous suspension of 
 cash payments in May 1837, that circulation was really 
 and practically convertible. The system wanted, in the 
 first place, two of the indispensable conditions of perfect 
 convertibility, namely, a single and properly regulated 
 national metallic standard, and, secondly, a limited 
 subsidiary currency of small money issued by authority. 
 In the United States, they possess in fact no metallic 
 standard whatever, or at least they possessed none pre- 
 vious to their large recent coinages of gold. Almost 
 every coin under heaven is a legal tender there, at a 
 certain rate fixed by tariff; and, not very long ago, the 
 quantity of foreign gold in circulation there, was sup- 
 posed to be as nine to one in proportion to the circula- 
 tion of their own eagles. The effect was, that the 
 bankers, when required to cash their notes, paid them 
 in the coin which, for the time, was cheapest ; and par- 
 ties requiring a supply of Spanish dollars, the very 
 money in which they keep their accounts, for transmis- 
 sion to India or China, could not procure them from the 
 banks, but had to buy them in the market at a premium 
 seldom under 1 or 2 per cent., and which has been 
 known to rise even to 7J per cent. But, in fact, the 
 banks of that country were, in a manner, virtually pro- 
 tected from demands for coin by the peculiar habits and 
 ideas of the people. It was a point, we are told, so uni- 
 versally understood, that bankers ought not to be called 
 upon for any payments in cash, which might have a ten- 
 dency to cramp or limit their usual accommodations to 
 the public, or might have any object beyond the mere 
 convenience of fractional payments, that, however much 
 
179 
 
 a man might be in want of a sum in specie for exporta- 
 tion, he would be deterred from applying to a bank for 
 the supply, from the fear of becoming a marked man in 
 society. Then the wide-spread practice of issuing dollar 
 notes, half-dollar notes, and even quarter-dollar notes, 
 introduced another element of depreciation, somewhat 
 similar to that which existed in Ireland in 1804, and 
 which must have been still more pernicious in a thinly- 
 peopled country like America, where those small notes 
 would so frequently be liable to be cut off altogether by 
 distance from the places of their origin. To crown the 
 whole, for some time previous to the last suspension of 
 cash payments in America, the banks there had fallen 
 into the habit of advancing to the merchants in post- 
 notes at four, six, and eight months' date ; thus adding 
 to the small-note abuses of the Irish, the evils of the 
 optional-note system of the old Scotch bankers. 
 
 Mischievous, however, as all this was, it is not to any 
 of these circumstances, either singly or taken together, 
 that, in my judgment, we are entitled to attribute the 
 catastrophe of the general suspension of cash payments 
 in America. That event, and all the derangements 
 which flowed from it, might have been prevented, and 
 in all reasonable probability would have been prevented, 
 had the bullion, which, by a most absurd law, was scat- 
 tered in detached hoards over the whole country, and of 
 which all banks were compelled to provide themselves 
 with a share, without any consideration as to whether 
 their situation was inland or maritime, whether they 
 had only to supply with coin the trivial demands of an 
 agricultural district, or were likely to be called on for 
 large sums in specie for remittance to foreign countries, 
 had this stock of bullion been all collected into the cof- 
 fers of one great establishment, charged with the respon- 
 sibility of maintaining the general solvency. The com- 
 mercial crisis would not have been averted in that case 
 more than in the other. After such a course of flagrant 
 over-trading, there was nothing in the chapter of events 
 which could have saved the nation from extensive bank- 
 
 N2 
 
180 
 
 ruptey and ruin. But there would, probably, have been 
 no necessity for the addition of a monetary convulsion 
 to the other calamities of the period. 
 
 When the separation of the Bank of England into 
 two departments, one for the purpose of issue, and the 
 other for general banking, was first suggested several 
 years ago in some of the controversial pamphlets of the 
 day, my impressions of the scheme were, I own, any- 
 thing but serious, or anticipatory of the high destiny to 
 which it has now been elected. It struck me at the 
 time, as nothing more than one of those harmless contriv- 
 ances, by which certain people take pleasure in deceiv- 
 ing the world and themselves into a belief, that they are 
 accomplishing feats of vast importance, when in reality 
 they are doing nothing, and which are familiar to us all 
 by the name of charlataneries. The plan obviously 
 effects nothing which, if the object were desirable, might 
 not be equally well effected by simply restraining the 
 Bank from making any issue of notes in excess of the 
 sum of fourteen millions, except upon the deposit of an 
 equivalent amount in the precious metals, without all 
 the parade, complication, and costliness of this two- 
 sided establishment, one side all compliance and cour- 
 tesy, the other stern and inexorable as destiny. I fear, 
 however, I was unjust in affixing to this scheme the 
 imputation of innocence. Formalities of this sort may 
 sometimes be so contrived as to render what was plain 
 intricate ; and, like the deed of covenant which gives 
 legal validity to an improvident agreement, they are apt 
 to impart greater precision to whatever is mischievous, 
 and to render redress less accessible by the formal ob- 
 structions which they oppose to every measure of correc- 
 tion. 
 
 Such, I fear, are the results to be apprehended from 
 the present project. So long as the stock of bullion in 
 the Bank continues to bear so large a proportion to the 
 securities as it does at present, so long as the sea re- 
 mains calm, and the Bank is exposed to no extraordi- 
 nary or sudden demands, all may go on tolerably well. 
 
l&l 
 
 Eight millions ought to go a good way as an available 
 reserve. But we have no reason from past experience 
 to expect, that the present state of things is to last for 
 ever. A decline of the bullion to seven millions and 
 there is nothing in the scheme of the two departments 
 to prevent it would be no very excessive fall ; and it is 
 quite consistent with experience and probability, that the 
 demand for circulation might all the time remain un- 
 altered. Now, with a circulation of twenty-one millions, 
 and a reserve of seven millions, the entire stock of bul- 
 lion would be absorbed in the issue department, and 
 there would not be a shilling left for the banking de- 
 partment. Whatever notes were brought in by deposi- 
 tors would be so much deducted from the circulation, 
 and would leave a void to be supplied by some less con- 
 venient expedient. 
 
 The framers of the bill, indeed, would appear from 
 their arrangements, to have confined their view exclu- 
 sively to that portion of the bank-note currency which is 
 in the hands of the public, and which alone is included 
 under the head of circulation in the periodical returns, 
 and to have supposed, that by taking the present actual 
 circulation of twenty-one millions as their average, and 
 making a reasonable provision for the continuance of a 
 circulation on that scale, they were doing all that was 
 incumbent on them, without considering that, under the 
 new system, there will be required, in addition to the 
 amount of notes in the hands of the public, a separate 
 and large supply for the reserve of the banking depart- 
 ment, either in notes which will form part of the amount 
 of the general issue to which the issue department is re- 
 stricted by law, or, what is the same thing, in coin, which 
 would otherwise have gone to the issue department, and 
 have constituted the basis of an additional issue of notes. 
 To maintain at the same time a circulation of twenty-one 
 millions for the public, and what is ordinarily considered 
 a safe reserve in the banking department for deposits to the 
 amount of nearly fourteen millions, as at present, would 
 require an issue of about twenty-six millions of notes. Un- 
 
182 
 
 less, therefore, the framers of the bill contemplate a forced 
 reduction of the circulation below the present level, they 
 must calculate on their ability to keep up a permanent 
 stock of at least twelve millions of bullion, an assumption 
 for which I need scarcely say experience furnishes no 
 warrant. 
 
 Any one, indeed, who will take the trouble of look- 
 ing back to the periodical statements of the Bank's 
 liabilities and assets for ten or fifteen years past, will 
 discover that, in most instances, the balance of gold, 
 which would have remained in the hands of the banking 
 department had the assets been distributed according to 
 the principles of the new system, would not generally 
 have exceeded one, two, or three millions. Taking the 
 cases at random, I find that, on the 8th of November 
 1836, the stock of specie in the banking department 
 would have been 1,269,000/., covering deposits to an 
 amount exceeding twelve millions ; and on the 30th of 
 July 1839, the department would have been actually 
 bankrupt to the extent of 1,759,000/., with deposits 
 standing against it of eight millions and upwards. In 
 such emergencies the banking department could only 
 have maintained its solvency by extensive sales of its 
 securities, a large abstraction of paper from circulation, 
 and a violent action on credit. And, surely, it is but 
 a preposterous and hopeless enterprise, to think of com- 
 mitting to an establishment, with resources so cramped 
 and limited, the management of our enormous public 
 debt and revenues, requiring occasionally extensive ad- 
 vances on deficiency bills, with dividends to the ave- 
 rage amount of some seven millions to be paid quar- 
 terly, and continually exposed to the risk of an adverse 
 exchange and a drain of bullion, in coincidence possibly 
 with one of those periods. To organize anything like 
 an effective, safe, or profitable bank of deposit, fairly 
 equal to such an undertaking, the command of a circu- 
 lating medium on a much more extensive basis of credit, 
 and much less dependent on the variations of the ex- 
 change than that allowed by the bill, appears to me to 
 
183 
 
 be an indispensable condition, however irreconcilable it 
 may be with the principles (the false principles, as I 
 conceive them to be) by which the framers of the bill 
 profess to have been guided. 
 
 Some of the above observations are strongly confirmed 
 by the ingenious calculations of Mr. Pennington, pub- 
 lished in Mr. Tooke' s Appendix, which show that, under 
 the proposed new constitution of the Bank, even a very 
 moderate demand for gold might occasionally have the 
 somewhat absurd effect of reducing the banking depart- 
 ment to a suspension of payments, at the very time that 
 there might be six millions of specie or more in the 
 coffers of the department of issue. Mr. Pennington's 
 statements have now been so long before the public, that 
 I do not think it necessary to recapitulate them. I am 
 not aware that they have ever been refuted ; though, as 
 forming part of a controversial correspondence on the 
 subject between Colonel Torrens and Mr. Tooke, it may 
 be inferred that, if they had admitted of refutation, it 
 would not have been withheld.* 
 
 I cannot quit this branch of the subject, without ad- 
 verting to one feature in Sir Robert Peel's measure 
 which seems so much at variance with its general spirit, 
 that, when first brought to my notice, I own it struck 
 me with some surprise. Sir Robert Peel leaves to the 
 banking department an uncontrolled and unlimited 
 power of issuing bank-post-bills at its discretion. Now 
 bank-post-bills constitute, I believe, about one-twentieth 
 part of the general Bank of England circulation, and 
 are included as such in the present returns. Though 
 seldom seen in London, they circulate to a very con- 
 siderable extent in the provinces, and I have seldom 
 received a payment in Bank of England currency any- 
 
 * Colonel Torrens refers, in his late publication, to these statements 
 of Mr. Pennington, for the purpose of taunting Mr. Tooke with a dif- 
 ference which he assumes to subsist between Mr. Pennington's opinions 
 and those of Mr. Tooke, on the general principle which ought to regu- 
 late the currency, notwithstanding their agreement as to the inexpe- 
 diency of separating the functions of the Bank of England ; but he 
 says not a word in reply to Mr. Pennington's argument. 
 
184 
 
 where at a distance from London, in which some bank- 
 post-bills have not been included. I own, I cannot ex- 
 actly perceive the grounds, on which this peculiar branch 
 of the currency should have been so peculiarly favoured, 
 unless it be because bank-post-bills are not " money," 
 a consideration certainly which must have weight with 
 every disciple of the currency school. Sir Robert Peel, 
 however, shows no disposition to be equally indulgent, 
 with respect to the bill-issues of other banks; for he 
 threatens the joint-stock banks in the metropolis and 
 within sixty-five miles thereof, with the instant inter- 
 vention of Parliament, if they shall abuse the privilege 
 very properly conceded to them for the first time by 
 this act, of drawing and accepting bills of exchange not 
 payable to bearer on demand, by issuing small bills of 
 that description for circulation. I own for myself, that 
 I have never been able to perceive the evil effects of this 
 bill circulation, where a circulation of higher quality is 
 not to be had, and am inclined rather to believe that 
 Lancashire had a safer and a better currency, for a great 
 commercial district, in her bills, than she enjoyed during 
 the first period of the reign of the joint-stock banks. It 
 may be possible, certainly, to deter, by fear of the con- 
 sequences, the joint-stock banks in London and its neigh- 
 bourhood from making payments over the counter in 
 their own bills ; but it will not be found so easy to pre- 
 vent the holders of their bills or acceptances, when issued, 
 from employing them as substitutes for money, if driven 
 by the measures of Government to that course. That the 
 power of issuing bank-post-bills committed to the bank- 
 ing department of the Bank of England might also, by 
 a little of concerted action between the Directors of the 
 Bank and the bankers of the metropolis, be turned into 
 an instrument for frustrating to a great degree some of 
 the principal objects of the measure, seems to me suffi- 
 ciently apparent. But the Directors act under the im- 
 mediate eye of Government, and will be naturally cautious 
 of engaging in any line of conduct which will be likely 
 to incur its displeasure. 
 
185 
 
 CHAPTER X. 
 
 Difficulty of restraining the Excesses of Banking Credit by Legislation 
 Objectionable position in which the Banking Department will be 
 placed by the effect of the New Bill, and its Dangers Interest and 
 Prices, how likely to be affected by the New System Necessary 
 Limits of the Supply of Gold Effects of the Rule which restrains 
 the Bank from advancing on Securities more than two-thirds of any 
 additional Circulation which it may be called upon to supply in 
 substitution for Country Notes, and of the limitation of the present 
 Country Issues Demand the regulating principle of Issue Ab- 
 surdity of maintaining a Stock of Bullion which is never to be 
 used Unprepared state of this Country for the System about to 
 be imposed by the New Bill, owing to the want of Private Hoards 
 Undesirable that the Bill should have left a discretion to Govern- 
 ment to Enlarge the Circulation on Credit Minor Enactments 
 relative to Private and Joint-Stock Banks Of the respective 
 Claims of Scotland and Ireland to retain the Privilege of Issuing 
 Notes under Five Ponnds Proposal for improving the efficiency 
 of the Direction of the Bank of England Question as to the 
 yearly Allowance required to be paid by the Bank to Government 
 Expedients suggested for Economizing the use of Gold Con- 
 clusion. 
 
 IT has been among the most unfortunate consequences 
 of the false importance which has for some time been 
 very generally attached to the fluctuations of the bank- 
 note circulation, that men's minds have been distracted 
 from a subject, which much more intimately concerns 
 them, and is capable of entailing far more extensive 
 evils, I allude to the imprudent and reckless facility, 
 with which banks are occasionally found, especially 
 when brought into sharp competition with each other, 
 to launch out both the capital intrusted to them by 
 others and their own, for very injudicious purposes and 
 on very insufficient security. Men's eyes are kept con- 
 stantly fixed on the issues of banks ; as a check on those 
 
186 
 
 issues, their amount is required to be regularly laid 
 before the public ; and the prudence and solvency of an 
 establishment is judged frequently from the moderate 
 extent of its issues ; whereas, if the truth were known, a 
 moderate scale of issue indicates nothing more, than that 
 the bank has only a moderate share of the general bank- 
 ing business of the country. The nature of the enter- 
 prises, in furtherance of which those issues are put forth, 
 and the security which the banker holds for their punc- 
 tual return, are really objects of far deeper concern, not 
 only to the parties immediately interested, but to the 
 public in general, than the specific amount of the share 
 which each banker enjoys of the note circulation. " Look 
 carefully to your securities ; and beware that you never 
 incur responsibilities out of proportion to your available 
 capital." These are the golden rules for the banker. 
 While he observes these rules he may, with perfect safety 
 both to the public and himself, leave his issues to take 
 care of themselves. And had these rules never been de- 
 parted from, I am persuaded that, whatever might be the 
 vicissitudes of credit or the derangements of the money- 
 market, it would not be to the issues of bankers that we 
 should have any right to attribute them. 
 
 Were it possible, by any legislative proceeding, to re- 
 strain effectually the errors and extravagances of credit, 
 that would be the true course to a really beneficial re- 
 form of our banking system. But these errors and 
 extravagances are unfortunately rather beyond the pale 
 of legislation, and can only be touched by it incidentally, 
 or by a sort of interference, which would be more vexa- 
 tious and intolerable than even the evil which it sought 
 to correct. You only make the law hateful and power- 
 less, by attempting to regulate by law everything that is 
 wrong. Though little, however, can be done by law to 
 correct the abuses of banking accommodation, opinion 
 might effect much, if opinion were brought more effec- 
 tually to bear on the iniquities and mischiefs of a loose 
 system of banking credit, and the public were made to 
 
 
 
187 
 
 understand, that there are other departments of the bank- 
 ing business, besides that of issues, in which they hold a 
 deep and unavoidable interest. And the less the legis- 
 lature may have it in its power to accomplish for the 
 repression of this class of delinquencies, the more should 
 it consider itself bound to refrain at least from any 
 measure tending to abet or encourage them. 
 
 The more immediate object, however, which I have 
 in view in offering these observations, is to direct atten- 
 tion to the very objectionable and injurious position in 
 which the banking department of the Bank of England 
 will be placed by the operation of the new system. It 
 is the avowed result of the scheme, that the banking 
 department, from the moment of separation, is to be 
 relieved from all charge of the public interests, and to 
 be at perfect liberty to employ the funds intrusted to it 
 to its own best advantage, just as any private banker 
 would do. This is the universal understanding in the 
 City. The scale of the Bank's future profits has been 
 very much restricted by the plans of Government ; and 
 the Directors owe it as a duty to their constituents, to 
 compensate as far as possible the sacrifices to which they 
 have been obliged to submit, by turning to the best pos- 
 sible account the advantages which remain to them. 
 Sir William Clay is of opinion, that " the Bank, in its 
 banking department, would be precisely in the same 
 position as all other bankers, bound to take the same 
 precautions and to make the same preparations for de- 
 mands on the part of its depositors;" that, "in some 
 respects, it would be less exposed to such demands, in- 
 asmuch as, being the banker of the state, the Court of 
 Chancery, and other great public establishments, and 
 having, in proportion to the extent of its business, fewer 
 mercantile accounts, it would be less called on probably 
 for notes for the purpose of being exchanged for specie." 
 And he is not aware of any reason why, in the supposed 
 case of a drain, the demand for notes to be exchanged 
 for gold should not be equally divided among all the 
 
188 
 
 bankers of London and the great commercial towns !" * 
 Sir William quite forgets, that all the great bullion- 
 dealers, bankers, and other capitalists, who usually have 
 occasion to exchange notes for bullion with a view to 
 sending it abroad, are in the practice of keeping their 
 funds with the Bank of England, and of drawing out 
 the gold they want through the deposits ; nor is there 
 the slightest reason for supposing, that this practice 
 would be changed in consequence of the division of the 
 departments. Merciful powers ! The idea of a drain of 
 gold being equally divided among all the bankers of 
 London and the great commercial towns ! ! But let 
 that pass. The Bank parlour is understood to parti- 
 cipate, and it is natural that it should, in the same views. 
 For some time past, as we have seen, the Bank of Eng- 
 land may be said to have been making no interest at all 
 on its deposits ; for the whole amount of securities held 
 by it falls short of the aggregate sum of the circulation 
 and rest taken together. It has hitherto had a great 
 duty to perform ; and in the recent low condition of the 
 money-market, with the rate of interest reduced to 1J 
 per cent, for advances on stock, and consols at 100, it 
 could not have gone into the market as a purchaser of 
 securities, without bringing on itself a torrent of re- 
 proaches, and being told that it was inundating the 
 country with its notes, lowering prices, and menacing 
 half the community with ruin. The banking depart- 
 ment, however, will have no such scruples. The cur- 
 rency being safe under the administration of the depart- 
 ment of issue, the banking department will have nothing 
 to care for or to do but to follow its own devices. What 
 the right hand is prohibited from doing, what both 
 hands together durst not do, the left hand is to do freely, 
 and without the least apprehension of consequences ! 
 So that, in all time to come, by the effect of this ad- 
 mirable invention, which is to preserve the equilibrium 
 
 * See Sir William Clay's Remarks, &c., p. 69, 70. 
 
189 
 
 of the currency under all circumstances, and to maintain 
 prices and interest always at their just level, whenever 
 the market is overloaded with unemployed capital, when- 
 ever the market-rate of interest is at its extreme ebb, and 
 things are rapidly verging to that condition, in which all 
 sorts of insane projects and speculations find their proper 
 soil, and spring up in luxuriance, this giant monopoly, 
 to which the public has heretofore been accustomed to 
 look up in such difficulties for forbearance and support, 
 is to throw its * weight into the downward scale, to join 
 in a competition for securities which is already over- 
 whelming, and to aggravate to the utmost limits of its 
 power all the influences which usually precede and pro- 
 duce commercial convulsions ! Nor would this be all ; 
 for you would now have run into the very danger 
 which has been haunting your dreams, and which all 
 this apparatus of departments has been conjured up to 
 avert, bat which, up to this moment, has never been 
 practically realized I mean the danger of over-issue. I 
 know not what proportion of the securities at present 
 held by the Bank may consist of bills of exchange or 
 other engagement payable at short dates. But under 
 existing circumstances, I apprehend it must be very 
 small indeed ; and there can be no doubt that it would 
 very soon disappear altogether, and that application to 
 the Bank for accommodations of any description would 
 entirely cease, were the banking department to proceed 
 in the career which has been sketched out for it. Thus 
 the channel of reflux for any excess of notes delivered to 
 the public would be effectually cut off; the whole cur- 
 rency would be turned into a permanent advance on 
 permanent securities; even prices might be endan- 
 gered, were it possible that such a state of things could 
 continue for the necessary length of time ; and there 
 could be no relief, at all events, till the almost total 
 impracticability of making interest on capital in this 
 country should operate on the exchange, and a demand 
 
190 
 
 for bullion should compel the Bank to sell its securities 
 and draw back its notes. Thus the only result of your 
 separation of departments would be, that, in the single 
 case in which the Bank's power of issue was ever sus- 
 ceptible of abuse, the new banking department would 
 retain the power in its full extent, without that moral 
 restraint which has hitherto prevented its improper ex- 
 ercise. Such are the inextricable crosses which beset 
 every attempt to legislate on false principles. 
 
 It is to be further remarked, that the necessity thus 
 imposed on the banking department of keeping its funds 
 at all times more or less fully invested, without any 
 reference to the state of interest or to the existing de- 
 mand for capital, must have the effect of very much 
 disabling it for the performance of what has hitherto 
 been considered the duty of the Bank to the public in 
 times of difficulty and pressure. Instead of having its 
 resources at liberty for such occasions, when those re- 
 sources might be turned to account for the general ad- 
 vantage, the banking department is more likely to be 
 found cramped and powerless, participating in the pre- 
 vailing distress, and obliged to force its securities on the 
 market in order to provide for its own engagements to 
 its depositors ; and this we shall discover, whenever the 
 present stock of bullion shall be materially reduced. 
 Violent and sudden fluctuations of the market-rate of 
 interest are among the most obvious results to be appre- 
 hended from this system, a system which deprives the 
 Bank of the free use of its own reserves, and leaves to 
 it no other alternative but either to renounce at once all 
 expectation of making a reasonable profit on its capital, 
 or to live thus, as it were, from hand to mouth, trusting 
 to the sale of its securities for the means of meeting every 
 unexpected demand. I can conceive few things more 
 harassing or intolerable than such a continually re- 
 curring action and reaction on interest by a powerful 
 body like the Bank of England an action and reaction 
 
 
191 
 
 too, operating most inconveniently at the least opportune 
 seasons, and exacerbating alike the severity of the rise 
 and of the fall. 
 
 The growing uneasiness, however, which, since I 
 commenced this treatise, has been perceptible in the 
 commercial circles, as to the probable operation of the 
 Government measure, has been with regard to its action 
 on prices rather than on interest. It is apprehended, 
 that the diminished supply of notes to the public, which 
 must be inevitable, if the banking department shall be 
 condemned to work its deposit transactions, and to make 
 large advances besides for the public service whenever 
 occasion requires, with an average reserve of scarcely 
 two millions of currency, will effect a permanent re- 
 duction of the scale of prices. If I have been fortunate 
 enough, however, to make my views intelligible as to 
 the principles on which fluctuations of price depend, it 
 will be obvious, that in this apprehension I cannot join. 
 I regard it as an apprehension springing out of the 
 errors of the currency doctrine ; and find it impossible 
 to imagine any derangement of the credit circulation of 
 the country, which could have the effect of altering 
 permanently, if at all, the relative proportions of value 
 between gold and commodities, as determined by the 
 cost of production of each respectively. A diminution 
 of the note circulation to one-half of its present amount 
 could only so far operate on prices, as the manner and 
 time of the reduction might more or less act upon credit. 
 Its effect would be, to set every person connected with 
 the higher transactions of commerce on the alert for the 
 discovery of the most convenient substitutes ; and until 
 that should be settled, the embarrassment and confusion 
 that might ensue can scarcely be appreciated. It may 
 be fancied, that the void would be filled up by gold. 
 Ministers appear to entertain the idea, that, by limiting 
 the issue of notes beyond a certain sum to advances on 
 bullion, they will succeed in enlarging the metallic basis 
 of the currency. But whence, is it supposed, that this 
 
192 
 
 additional supply of gold is to be procured ? There is 
 no quantity worth naming to be had at any time in the 
 home-market. We know, from the best authorities, that 
 the bullion-dealers in this country are never in the prac- 
 tice of keeping any stock on hand. They are content 
 with their small fractional profit, and desire only to get 
 rid of the metal as fast as it arrives. Such a thing as 
 buying gold on speculation, and retaining it with a view 
 to a future sale at an advanced price, has never been 
 heard of since the Bank resumed its payments in gold. 
 And indeed the very idea of such a speculation must 
 appear an absurdity, when it is considered, that all but 
 the most trivial fluctuations of price are prevented by 
 our Mint regulations. Is the new supply, then, to be 
 drawn from the currencies of surrounding nations, whose 
 currencies are almost exclusively of silver, or from the 
 sealed treasuries of monarchs, or from the plate pre- 
 served in churches and ancient mansions, or from the 
 buried riches of Asia ? From such recesses, I suspect, it 
 will be rather hard to extract it. There is, indeed, a 
 large stock of the metal which is in a course of continual 
 transit from one country of Europe to another, and of 
 which the movements obey readily every impulse which 
 it receives from the exchanges. That stock, as I have 
 said, is in the hoards of the great bullion-merchants and 
 other capitalists, and in the banks. But there must be 
 some limit to its amount. The recent influx has already 
 greatly exceeded the proportions of any previous influx ; 
 owing, probably, to the accession which the general stock 
 of gold in the world has recently been receiving from 
 the improved fertility of the Siberian mines.* And, 
 were we to attempt to carry our demand for the metal 
 much beyond this, we should only be able to procure it 
 in very small quantities, and at a premium which would 
 
 * I just learn from the newspapers that a fresh importation of 
 600,000/. in gold has within these few days arrived from Russia, and 
 that the mines of the Ural Mountains have yielded altogether in the 
 past year a produce of no less than four millions. 
 
193 
 
 materially enhance its cost and render its further impor- 
 tation impossible. 
 
 Yet the Government appears to act on the assumption 
 that gold can be procured ad libitum, and seems intent 
 only on creating wherever it can a void in the paper 
 circulation, in order that it may be filled up with coin. 
 In the event of any country banker discontinuing the 
 issue of his own notes, and of the Bank of England being 
 called upon to supply the consequent deficiency in the 
 circulation, it is provided by the bill, that, with the 
 sanction of Her Majesty in Council, the Bank in its issue 
 department shall be at liberty to enlarge its issues upon 
 securities, in a proportion equal to two-thirds of the 
 country notes withdrawn. The remainder of the de- 
 ficiency, if made up at all, must be made up by an ad- 
 vance on bullion. Now, there is no reason which can 
 be alleged for insisting, in this case, on the substitution 
 of gold or of Bank of England notes secured on a 
 deposit of gold for one-third of the country circulation 
 displaced, which might not with equal force be urged 
 for discarding the entire credit currency of the country 
 and replacing it with a circulation of the metals. It is 
 computed, that the average issues of the country banks, 
 joint-stock and private taken together, may amount in 
 round numbers to about nine millions sterling. Sup- 
 posing the whole of these banks (as may very possibly 
 happen) to become desirous of availing themselves of the 
 inducements offered to them by the Bank of England to 
 discontinue their own issues, and circulate for the future 
 only Bank of England notes, the Bank of England 
 would, upon that desire being made known to it, under- 
 take to supply the banks in question with six millions of 
 notes on the credit of certain securities, and three mil- 
 lions on the deposit of bullion. But no such thing has 
 ever been known, as that a country bank should keep a 
 reserve of gold equal to one-third of its circulation. 
 Why should it ? A country bank is never called upon 
 to pay gold, except during a panic ; that does not hap- 
 
194 
 
 pen once perhaps in a quarter of a century ; and, by 
 keeping itself provided with a sufficient stock of securi- 
 ties, it relies on being always able, on any emergency, 
 to procure at a short notice a sufficient supply of gold 
 from London. Probably all the banks in question may 
 not possess half a million of coin among them ; and, by 
 parting with that, they would leave themselves wholly 
 unprepared to meet even the commencement of a run. 
 It is clear, therefore, that the three millions of bullion 
 could not come from the country banks. Whence 
 then is it to come ? A proportion of the gold brought 
 in by the tide of the exchange, if that happened to be 
 favourable, might be apportioned indeed to this parti- 
 cular head ; but it would be merely so much deducted 
 from the supply on the general account. All the gold 
 brought in by the exchanges goes already to the Bank 
 of England ; the Bank of England is compelled to pur- 
 chase all that is offered to it, so that there is never any 
 relaxation of the demand ; and not an ounce more would 
 be imported, because of this extra call for three millions. 
 The Bank holds already in reserve the unprecedented 
 stock of nearly sixteen millions of gold. And are we to 
 assume therefore, as a matter of course, that the Bank 
 has only to will the continued enlargement of this 
 treasure, to ensure its increase to nineteen millions? 
 The only probable effect, as far as I can perceive, 
 of requiring under these circumstances a deposit of gold 
 for this issue of three millions, will be to throw the 
 whole burden of the supply on the metropolitan circu- 
 lation. The three millions of notes for the provinces 
 will be taken, most unjustly and unreasonably, from the 
 twenty-one millions allotted to the metropolis and to the 
 private and joint-stock banks previously dealing with 
 the Bank of England. Then for what purpose, let me 
 ask, are these three millions, if they can be procured, to 
 be appropriated specifically to the country circulation ? 
 Is it intended that the money should be distributed 
 among the treasuries of the branch banks ? that it 
 
195 
 
 should be withdrawn from Threadneedle-street, where 
 the treasury cannot be too full, and transferred to spots 
 where it is totally useless ? For any extraordinary sup- 
 plies of coin originating in extraordinary occasions, 
 these country banks will not be a whit less dependent 
 on London after they shall have relinquished their issues 
 of notes, than they have always been. It is the policy 
 of the greater part of the English country bankers, as it 
 is of the Scotch bankers, to keep their reserves in the 
 metropolis ; for, whenever any local variation in the rate 
 of interest induces their customers to withdraw their 
 deposits, it is not gold but bills on London that are 
 called for. And it is the policy of the nation, that 
 whatever gold is imported into this country should be 
 placed under the custody of a single great public body 
 in the metropolis, which knows or ought to know from 
 experience what it has to provide against, and would 
 have to stand the censure of the country if that provision 
 were neglected. The experiment of dividing that re- 
 sponsibility, as I have observed, has signally failed in 
 America. And the results there were aggravated and 
 accelerated by the absurdity of compelling by law a false 
 distribution of such share of the precious metals as the 
 commerce of the country brought in, imposing upon 
 every bank the necessity of providing itself with a stock 
 of specie proportioned to its banking capital and busi- 
 ness, without the least regard to the probable demands 
 of the several localities for coin. Let us beware of falling 
 into the same error. 
 
 In a similar spirit, though of comparatively inferior 
 importance in its practical operation, is that clause of the 
 bill which restricts the future issues of the country banks 
 to a sum corresponding with their respective average 
 issues during a certain period antecedent to the 6th of 
 May last. That period is now fixed, I believe, in a 
 manner more satisfactory to the bankers, and permitting 
 to them a greater latitude of discretion and action than 
 the term originally proposed. But why should there be 
 
 o2 
 
196 
 
 any limitation at all ? It may be a very fit subject of 
 consideration, whether the privilege of issue is to be con- 
 tinued to private banks at all. Not that I am in the least 
 disposed to acquiesce in the doctrine, which holds the 
 issue of a convertible paper currency to be, like coinage, 
 the proper business and prerogative of the state. Nothing 
 can be more marked than the distinction between the 
 two cases. The rule which limits the power of coining 
 to the sovereign is founded on such obvious expediency, 
 it is so clear, that, without the attestation of the royal 
 stamp, and that protected from imitation by the severest 
 penalties of the law, no metallic currency can ever be 
 kept of an uniform standard, that the propriety of the 
 restriction stands quite above question. But there are 
 no such conclusive objections to the issue by individuals 
 of bank-notes payable on demand. The bank-note is 
 merely a form of credit : and I hold it to be indisput- 
 able, in point of principle, that every man primd facie 
 has a right to make use of his credit in the way that 
 may be most convenient and advantageous to himself. 
 I admit that, like other individual rights, this right must 
 give way, when its exercise is operating prejudicially on 
 the public interest. But the onus of showing that it is 
 so operating, rests on those, who propose to disturb the 
 exercise of the right, and must be clearly made out to 
 justify their interference. That, however, is nothing to 
 the present question. What I would venture to submit 
 is, that so long as these societies and individuals shall be 
 permitted to dispense the means of circulation to exten- 
 sive tracts of country, there is no wisdom in cramping 
 the exercise of their privilege by any uncalled-for inter- 
 ference of legislation. We have seen, that, both in the 
 agricultural and in the manufacturing districts, the 
 quantity of money required for performing the different 
 offices of exchange varies very much at different seasons 
 and under different circumstances, and that on perfectly 
 sound and just principles, and unconnected with any 
 tendency to speculative excitement. I have never heard 
 
197 
 
 yet any tenable reason, why the necessities of the people 
 in this respect should not be satisfied, nor why they 
 should be driven to truck, and all sorts of pernicious 
 expedients, when a good currency of local notes would 
 answer their purposes with so much more of safety and 
 convenience. It is complained, that the country bankers 
 do not regulate their issues by the exchanges ; and, when 
 it is shown to me, how the notes distributed by a country 
 banker to the farmer, after the failure of a harvest, can 
 affect the foreign exchange otherwise than by obviating 
 the cause of all others most likely to disturb it, I may 
 possibly think the complaint worth considering. But I 
 have already said more than enough on this part of the 
 subject. My own conviction is, that the amount of all 
 convertible currencies finds a much more wholesome, 
 accurate, and certain corrective in the public demand, 
 than can be supplied by any Act of Parliament. The 
 doctrine, I know, is obsolete. The words " demand," 
 " legitimate demand," cannot be even mentioned in 
 Parliament, in connexion with this subject, without a 
 sneer, and when lately employed in debate by the 
 member for Renfrewshire were received with " ironical 
 cheering." Even so intelligent a gentleman as Mr. 
 Hubbard does not disdain to cut a bad joke on the 
 maxim, that " money should be provided at all times in 
 proportion to the demands of the community," by ob- 
 serving, " that a prodigal, who exceeds his yearly income, 
 would gladly find the means of realizing the theory."* 
 And Colonel Torrens too, in his rejoinder to the ' West- 
 minster Review,' f strains his ingenuity to the discovery, 
 that the facts on this point adduced by the reviewer 
 " amount to nothing more than this, that there must 
 be two parties to a loan a party willing to lend, and a 
 party willing to borrow " ! Mr. Hubbard must surely 
 know that the sort of demand which he speaks of, the de- 
 mand of want, has no place in the vocabulary of political 
 
 * See ' The Currency and the Country,' p. 25. 
 t See ' Reply to the Objections of the Westminster Review,' &c., 
 p. 4. 
 
198 
 
 economy, the only demand to which that science has 
 ever been known to apply the name being a demand for 
 a good consideration. And, much as I fear I am dis- 
 gracing myself by the avowal, I have no hesitation in 
 professing my own adhesion to the decried doctrine of 
 the old Bank Directors of 1810, " that so long as a 
 bank issues its notes in the discount of good bills, at not 
 more than sixty days* date, it can never go far wrong." 
 In that maxim, simple as it is, I verily believe, there is a 
 nearer approach to truth, and a more profound view of 
 the principles which govern circulation, than in any rule 
 on the subject which since that time has been promulgated. 
 If I estimate highly the importance of keeping up a 
 large stock of specie in the Bank of England, it is for 
 the sake of the services which specie is capable of ren- 
 dering. You choose to fix upon a sum of ten millions 
 as the minimum of your reserve ; and no doubt it is a 
 satisfactory and desirable state of things when you have 
 a treasure of ten millions or more between you and want. 
 But it is exactly because your engagements expose you 
 to the continual liability of being called upon for trea- 
 sure to that extent, that you look with complacency on 
 the fulness of the store. Could it be so ordered, that the 
 causes, which at present subject you to demands of this 
 description, could be made to cease ; could an interdict 
 be laid for the future on short harvests and costly wars, 
 could men who are deriving an income of only 2 per 
 cent, from their capital in this country be denied the 
 liberty of transferring it to France, where it may be in- 
 vested at an interest of 5 per cent., could it in fine be 
 made a moral certainty, that no part of these ten millions 
 shall ever be demanded of you, of what use would it be, 
 I should be glad to know, to hoard up this money any 
 longer ? Why is it then, that, the moment your store falls 
 below that level of ten millions, you are, without any in- 
 quiry as to the causes of the efflux, their intensity or pro- 
 bable duration, to suspend at once your customary accom- 
 modations to the community, except on the impossible 
 condition (as in such cases it will generally be found to 
 
199 
 
 be) of the level being first restored ? You abandon all 
 rational motive for maintaining a stock of fifteen millions 
 of bullion, when you resolve at the same time that 
 more than five millions of the amount shall in no emer- 
 gency ever be disbursed. As well might the governor 
 of a fortress, who desired to keep his garrison at all 
 times well provisioned, make it a law that, in no ex- 
 tremity of famine, should more than a third of the corn 
 in his granaries ever be consumed. Yet this is the very 
 principle, on which the American banks are required at 
 all times to hold a given amount of specie in their coffers, 
 and this is the wise example which we are now called 
 upon to follow. 
 
 We are assured, that it is no part of the intention of 
 the framers of the Government bill to diminish in any 
 way the customary, supply of the circulating medium ; 
 that their object is only to provide for its more certain 
 convertibility into specie; and that, whenever more 
 bank-notes are wanted for the use of the public, they 
 may at all times be had, on depositing gold in their stead. 
 That is certainly very considerate ! When the metals 
 are flowing steadily into the country, we require no such 
 indulgence ; or we know that the metals themselves will 
 answer our purpose, if the indulgence be denied. It is 
 when the current of the metals is setting strong in the 
 contrary direction, when credit is tottering, when your 
 banking department, instead of trying to mitigate or 
 avert the crisis (if it be a crisis which fairly admits of 
 being mitigated or averted), is itself struggling to pre- 
 serve its own solvency, and is our keenest and most 
 powerful competitor for a share of whatever circulating 
 paper or coin is to be procured by the sale of its se- 
 curities in the market, it is then that your succours 
 would be really valuable. Times have been known, 
 when private credit has been for the moment so entirely 
 paralysed, that I may say the solvency of the whole 
 nation has seemed almost to depend on the Bank of 
 England ; and had the Bank held back in such emer- 
 
200 
 
 gencies from interposing, her own destruction would 
 have been among the most probable consequences. Such 
 was the state of things in the catastrophe of 1825 ; and 
 we all remember, by what means the spread of ruin on 
 that occasion was arrested. At such periods, it is a 
 mockery to tell me, that I may get bank-notes if I will 
 bring gold. When I am assured, that the pressure on 
 the market at times like these will ensure a favourable 
 turn of the exchange, I never can forget the signal failure 
 of the most memorable effort of sustained monetary 
 pressure on record, I mean that made by the Directors of 
 the Bank of England, and continued by them for two 
 years, in 1795-7, with most severe effects on the welfare 
 of the mercantile community, but none whatever on the 
 drain of bullion. Remembering this, I cannot place 
 very implicit trust in such assurances. You cannot 
 bring gold from the spot to which the tide of gold is 
 flowing, but by adding to the foreign debt which the 
 gold goes out to discharge; and I believe, as I have 
 said, that, in all such cases, until the exchange turns, 
 the recovery of any portion of the metal is, commercially, 
 if not physically, impossible. 
 
 It must always, no doubt, in these crises be a fit and 
 anxious subject for the Bank's consideration, to what 
 extent and in what cases it may be safe or expedient to 
 risk its capital in the support of individuals, who may 
 have been trading beyond their means. The too lavish 
 or indiscriminate distribution of its favours might be 
 fatal to itself and exceedingly pernicious in its influence 
 on society. But if there be any truth in the principles, 
 which I have been humbly endeavouring to vindicate, 
 the collateral mischief commonly attributed in such 
 cases to the presumed increase of the bank-note currency, 
 is a matter altogether visionary. The use of the smaller 
 class of notes is confined to the retail market, and even 
 there is exceedingly limited. And Mr. Tooke has enu- 
 merated with much precision the several purposes, for 
 which notes of a larger denomination are commonly 
 
201 
 
 called into activity. It is chiefly in Bank of England 
 notes that the public revenue is collected, and to some 
 extent paid into the Exchequer; and Government, I 
 presume, could have no particular object of policy in 
 obstructing such payments. Payments of money into 
 courts of justice are also customarily made in Bank of 
 England notes, transactions surely as innocent as can be 
 of any injurious effect on prices or exchanges. On the 
 execution of deeds of conveyance or mortgage, it has 
 been usual to have bank-notes in readiness for the stipu- 
 lated payment, in order that the transaction may be 
 completed at once, and the parties saved the necessity of 
 waiting till the cheque of the purchaser or mortgagor 
 be presented to and accepted by his banker. There are 
 also some trivial payments in bank-notes continually 
 passing between parties who do not keep accounts with 
 bankers ; and there is likewise a certain limited sum in 
 constant use for the adjustment of differences at the 
 clearing-house. Lastly, private bankers are accustomed 
 to keep their reserves either in deposit at the Bank of 
 England or in Bank of England notes indifferently, their 
 preference being very generally determined by the rela- 
 tive distances from the Bank at which their offices are 
 situated. These are nearly all the functions, which the 
 bank-note circulation is peculiarly required to perform 
 in the monetary transactions of this country. There is 
 scarcely one of them, which would not admit of an ex- 
 tensive substitution of other forms of credit, in the event 
 of an adequate supply of bank-notes being denied. But, 
 always assuming that the notes are issued by the Bank 
 on solid and satisfactory security in the first instance, it 
 would be difficult, I think, to show that any imaginable 
 harm can arise, in any times or under any circumstances, 
 from the indulgence of the parties concerned in such 
 transactions, with the free use of the medium most con- 
 veniently adapted to their respective occasions. The 
 question as to the expediency of rendering liberal aid, 
 under circumstances of difficulty, to private bankers and 
 
202 
 
 other dispensers of capital, has been already disposed of, 
 either directly or by implication, in my preceding argu- 
 ments. It stands on entirely different ground, and 
 must be determined, I conceive, generally by considera- 
 tions of policy, varying in each particular case. 
 
 In conclusion, I desire most earnestly and empha- 
 tically to impress on the minds of those who have un- 
 dertaken to conduct this perilous and uncalled-for expe- 
 riment, that it is one for which this country at the pre- 
 sent moment is wholly unprepared. We have here no 
 private hoards to supply vacancies in the circulation, or 
 to enable us to carry on our ordinary payments, when the 
 Bank has its specie reduced in consequence of a failure of 
 the wheat crops, and withholds the usual supply of bank- 
 notes. The practice of accumulating the precious metals 
 has with us fallen utterly into disuse, and it would re- 
 quire a severe lesson indeed to revive it. It does not 
 seem to me desirable that it should be revived. We 
 cannot afford the cost of both the metallic and the bank- 
 ing systems at the same time. Neither can we, after 
 having adopted one of them, expect still to participate as 
 before in the benefits of the other. We have chosen to 
 make the Bank of England our sole depository of bul- 
 lion ; we must abide by our election ; and have no 
 reasonable line of policy left us but to endeavour to 
 strengthen her hands. 
 
 Owing to a misconception of one passage of Sir Robert 
 Peel's opening speech, a very general impression pre- 
 vailed, at the time of the first introduction of this mea- 
 sure, that it was intended to reserve to the Government 
 a discretionary power, of relaxing the rule which restricts 
 the issues of the Bank on credit to fourteen millions, 
 whenever circumstances might render it expedient, and 
 the Governor and Directors of the Bank should make ap- 
 plication to that effect. It turned out, that the proposed 
 reservation had reference exclusively to cases in which 
 it might become necessary to supply a void in the cir- 
 culation, occasioned by the discontinuance of the issues 
 
203 
 
 of any of the private banks. A subsequent application 
 from the London bankers, praying that a like discretion- 
 ary power of enlarging the issues on credit might be ex- 
 tended to all cases, in which the necessity for such a pro- 
 ceeding might become apparent, was, I think, very pro- 
 perly rejected by Government, who could in no reason 
 be expected to stultify themselves, by encouraging in one 
 clause the very expectations which it is the prime object 
 of the rest of the bill to extinguish, and thus relieve men 
 from that obligation of self-reliance, which, to be effectual 
 at all, must be absolute. Having satisfied themselves of 
 the soundness of their principle, I certainly do not blame 
 ministers for having manfully adhered to it. Nor do I 
 consider it at all a desirable thing, that the Government 
 of this kingdom should constitute itself into the regular 
 referee upon every question as to bank issues and bank- 
 ing accommodation, that may arise in the ordinary course 
 of commercial vicissitudes. Governments are not always 
 the most competent judges on such subjects; and in this 
 country they have quite enough to contend against, with- 
 out involving themselves in the odium of such invidious 
 and thankless duties. All the confidence which the law 
 accords is best given to the Directors of the Bank, in 
 whom the trust of reconciling the due regulation of the 
 currency with the general welfare is more especially re- 
 posed, and on whom it will rest, whenever any strong 
 necessity for extraordinary interference may arise, to 
 make their appeal to the Government and to Parliament. 
 I only regret, that any portion of this confidence should 
 be now about to be withdrawn, for the necessity of insti- 
 tuting a formal and solemn proceeding in seasons of dif- 
 ficulty, before what is wrong can be redressed, at once 
 puts a clog on the timely exercise of a judicious discre- 
 tion, and may have the effect of doubling the danger, 
 from the unnecessary alarm and sensation which such 
 unusual interpositions are always calculated to produce. 
 
 With respect to the minor enactments proposed by the 
 bill, for the regulation of the joint-stock and private banks, 
 
204 
 
 I have little further to observe, and nothing in the way 
 of stricture. Too rigid precautions can scarcely be en- 
 forced, for securing the public against fraudulent banking 
 schemes, and the innocent proprietors of joint-stock banks 
 against the profligacy and malversation of their ma- 
 nagers. It is impossible therefore, not to approve of the 
 new rules proposed, relative to the periodical registration 
 and publication of the names and residences of all bankers 
 and partners of banking companies, as well as that which 
 requires banks of issue to render weekly accounts of their 
 circulation for publication in the Gazette. In the case 
 of the joint-stock banks, indeed, a mere publication of 
 their issues would be a very inadequate substitute indeed 
 for that full disclosure of their affairs which their pecu- 
 liar constitution and position so imperatively demand. 
 But I am glad to perceive, that, by a separate bill for the 
 regulation of that class of banks which has been since 
 brought before Parliament, the deficiency has been sup- 
 plied, and that, as soon as that bill shall have passed, the 
 directors of all joint-stock banks will be required to 
 publish monthly statements of their liabilities and assets, 
 and likewise to submit their yearly accounts in detail to 
 audit, and to print the same and furnish each proprietor 
 with a copy. There has seldom been a more baleful 
 gift to a nation, than the free license accorded by the 
 bill of 1826 to the establishment of these joint-stock 
 banks all over the kingdom, unaccompanied by any suf- 
 ficient precautions for the prevention of those numerous 
 abuses, which might have been foreseen as the natural 
 and inevitable attendants on institutions so constructed. 
 Against these abuses, the fullest publicity which with 
 propriety can be given to banking accounts is the only 
 security, and that certainly not a perfect security, inas- 
 much as it must always continue more or less open to 
 fraudulent perversion. Still, however, it is a security of 
 very considerable importance, and that not so much from 
 the information which it conveys to the public, as from 
 that which it affords to the proprietors of the banks them- 
 
205 
 
 selves. I am satisfied, it is only by the vigilance and ac- 
 tive co-operation of those proprietors, that you can ever 
 hope to place these great but often ill-governed establish- 
 ments under any sound system of regulation. Those 
 proprietors are apt to forget, that though their interest 
 in the concern may be small, their responsibilities may 
 chance to prove very serious ; and their attention to its 
 affairs cannot be too frequently or pointedly awakened. 
 
 I am inclined to regard the clauses forbidding the es- 
 tablishment of any new banks of issue, or the renewal of 
 issue by any bank which has discontinued its issues, as 
 on the whole judicious measures. I am satisfied also, 
 that the Government has done wisely in sanctioning and 
 encouraging the Bank of England's compositions with 
 country banks, and in regulating the amount of compen- 
 sation to which such banks shall in future be entitled, 
 on consenting to relinquish their respective privileges of 
 issue, and to circulate only notes of the Bank of England. 
 And, as I believe that the excessive multiplication of 
 branches by the joint-stock banks is a system unsound in 
 principle, has been attended in many instances with very 
 injurious results to the banks themselves, and conducted 
 in many places in a spirit of competition by no means 
 likely in the long run to conduce to the public benefit, 
 I am well pleased to see some check imposed on such 
 extension, by requiring every banker, who had not four 
 licences at least for the issue of notes and bills already in 
 force on the 6th of May last, to take out a separate licence 
 for every town or place at which he shall issue notes or 
 bills by himself or by his agent. The policy, which dic- 
 tated the clauses first-mentioned, is obviously directed to 
 the gradual extinction of the country issues throughout 
 England, and the substitution of a circulation of Bank of 
 England notes as the sole currency of the country. And, 
 so long as this object shall be carried into effect, as it has 
 been hitherto, with the full consent and co-operation of 
 the country bankers themselves, it appears to me a fair 
 and honest object. I am far from undervaluing the ser- 
 
206 
 
 vices performed by the country bankers in their respect- 
 ive districts ; I do not think, that those services could in 
 many instances be so well or acceptably performed by the 
 branches of any overgrown establishment like the Bank 
 of England ; and I should deprecate exceedingly any pro- 
 ceeding, either now or hereafter, by which the efficiency 
 of the banks for the performance of those services could 
 be materially or prematurely weakened. It is not enough 
 to tell me, that the extensive agricultural counties, which 
 occupy the circle of sixty-five miles round London, expe- 
 rience no inconvenience nor any want of banking accom- 
 modation, in consequence of banks with more than six 
 partners having been hitherto prohibited from issuing 
 notes within that circle. The actual issue of notes to the 
 amount of 1,329,000/. by banks with six partners or less, 
 residing within the sixty-five miles, is not after all so very 
 insignificant a proportion of the whole private-bank cur- 
 rency of the kingdom, as compared with the population 
 and wealth of the district in question. But, even if it 
 could be made out, that the circle of sixty-five miles round 
 London had absolutely no other circulation than Bank 
 of England notes, and that it felt the want of no other, it 
 would not in the least follow, that the same experiment 
 might be tried with perfect safety in any other part of 
 England, where the people had long been accustomed to 
 circulate nothing else than the notes of their local bankers, 
 and where the capitals of those bankers and their system 
 of business might be perfectly adapted to the sphere which 
 affords them the benefit of this circulation, and yet might 
 not be equal to anything beyond it. In a country like 
 England, where capital circulates so freely and so readily 
 finds its proper place, the scale of establishments for bank- 
 ing and commerce bears in general a pretty exact and not 
 an exaggerated proportion to che wants and capacities of 
 their respective vicinities. And we have no right there- 
 fore to assume, that the country banks of issue generally, 
 however competent to their present business, would be in 
 a condition to perform the same functions with the same 
 
207 
 
 efficiency, if deprived of that share of their means which 
 they derive from their circulation. A desire spontane- 
 ously expressed by any country banker to avail himself 
 of the terms of composition offered by the new bill, and 
 to substitute a circulation of Bank of England notes in 
 future for his own, may be a safe test of that individual's 
 ability to conduct his banking business efficiently and 
 securely, without the help of his circulation, and it may 
 be a sufficient test to be acted upon with respect to him ; 
 but it is no test of the same ability in any other banker. 
 It is on this account that I should be strongly opposed 
 to any legislative measure, either present or prospective, 
 for the general and compulsory suppression of the coun- 
 try-note circulation. And it appears to me, that the same 
 objection to that course, which prevails at present, will 
 equally hold good at the end of the ten years, when our 
 system of banking is again to come under revision. One 
 of the greatest efforts perhaps which a commercial coun- 
 try ever made, was that made by this country in the years 
 immediately following 1825, when, under circumstances 
 of great general depression and difficulty, nearly eight 
 millions of notes under 5/. were withdrawn from circula- 
 tion, and their place supplied by an equal amount of gold 
 coin. I do not believe, that even the change from war to 
 peace was felt more severely, and the resumption of cash 
 payments was as nothing to it. There were strong rea- 
 sons for that measure ; yet I have my doubts, if the bene- 
 fits derived from it were an adequate compensation for 
 the long years of stagnation and suffering, accompanied 
 by political and social disquiet, which intervened between 
 1825 and 1833, and which I believe to have been inti- 
 mately connected with the paralysed condition of the 
 country banks. The trial however is well over; and 
 no one can desire to see it repeated. It has procured the 
 country the advantage of a small currency of metallic 
 coin, and a great advantage it undoubtedly is. For the 
 substitution of Bank of England notes in place of the 
 country circulation which still remains, there is by no 
 
208 
 
 means the same urgency. The risk of insolvency is in 
 truth the only well-grounded objection to the issues of 
 the private banks ; even that has been greatly mitigated 
 in its most mischievous results, since the suppression of 
 the small notes; and it is an objection which scarcely 
 applies to the case of the joint-stock banks at all, inas- 
 much as the circulation of those banks, especially under 
 the improved system of regulation about to be applied to 
 them, will always be tolerably safe for the public, what- 
 ever they may be for their proprietors. It seems to me, 
 therefore, that we may be fairly satisfied with the gradual, 
 easy, and silent process of reduction in the country circu- 
 lation, which is at present going on. And, even should 
 that by any accident be arrested, we have still left the 
 untried resource of demanding special security from the 
 country bankers for their issues, a measure which has 
 often been suggested and debated, and to which I have 
 never been able to discover any insuperable objection. 
 
 To the allegation that the country bankers do not 
 regulate their issues by the exchanges, I attach not, as 
 may have been seen, the slightest importance. I do not 
 think it at all desirable, that country bankers should 
 regulate their issues by the exchanges; and if they did, 
 I am entirely confident, that the exchanges would not be 
 in any sensible degree influenced by their movements. 
 An objection somewhat more feasible to the exercise of 
 the privilege of issue by private or joint-stock banks, has 
 been urged on the ground, that the eagerness of banks of 
 issue to increase their circulation leads them frequently 
 to embark in hazardous advances ; but this does not go 
 for much. There can be no doubt that, in all depart- 
 ments of banking business, the reckless competition of 
 rival establishments may induce them, for the sake of 
 alluring customers, to grant occasionally very impro- 
 vident and mischievous facilities of credit. This was 
 strikingly exemplified, as it was signally punished, in 
 the case of the joint-stock banks, soon after their first 
 establishment, when struggling for a footing in the 
 
 
209 
 
 market with the old country banks and the provincial 
 branches of the Bank of England. But the competition 
 was quite as much for deposits as for circulation, and for 
 deposits it was infinitely more successful ; there being 
 this important difference, as I have shown, between the 
 two cases, that the aggregate amount of banking deposits 
 may be increased indefinitely, whereas there can be no 
 augmentation of the circulation of any one banker with- 
 out a proportionate reduction of the circulation of others. 
 This secret could scarcely remain long unknown to the 
 parties in such a conflict. And, whatever may be the in- 
 discretions or absurdities to which men in the blindness 
 of rivalry may occasionally commit themselves, it seems 
 reasonable to presume, that, after the first ardour of the 
 competitors had been sobered down by a few of those 
 lessons which imprudent bankers are apt to receive, and 
 after the share of the general business which each might 
 have the power of seizing and keeping had been in some 
 measure ascertained, they would become sensible at 
 length of the folly of wasting their means, in contending 
 for an object which always eluded their grasp, and learn 
 to limit their desires to that which is attainable. Over- 
 trading and speculation may equally be supported with 
 capital borrowed on the book-credit of banks as with 
 capital borrowed on notes, and, save to such extent as 
 interest may be allowed to the depositor, with the same 
 profit. Recent experience proves indeed, that, with a 
 system of management intrinsically vicious, the capital 
 even of the proprietors of the bank has as little chance 
 of being spared, as the capital of the depositors and the 
 note-holders. And if this argument on the ground of 
 the mischievous consequences of banking competition 
 is to be attended to, it may be urged with far greater 
 force against the toleration of any competing banks at 
 all, than against the allowance of competing issues. 
 
 I am relieved from the necessity of entering at any 
 length into the cases of the bank-note currencies of Scot- 
 land and Ireland, those currencies not being affected by 
 
 p 
 
210 
 
 the present bill, and there being no intention of intro- 
 ducing any measure with regard to them in the present 
 session of parliament. Those cases stand each on merits 
 of its own, strongly distinguished from each other, and 
 both of them separated by a still more strongly marked 
 line from the case of the English banks. The main 
 points in which the monetary systems of Scotland and 
 Ireland differ from that of England, is in the continued 
 use of notes under the value of five pounds in both the 
 former countries. Though the convertibility therefore 
 of the Scotch and Irish paper is, to every practical intent, 
 just as perfect as the convertibility of the bank-note cir- 
 culation of England, that is, though equally (probably 
 more) effectual means are provided for meeting every 
 demand for coin which in the ordinary course of things 
 can arise in either country, that object is accomplished 
 in Scotland and Ireland at a much smaller expense of 
 the precious metals than in this country. In Scotland 
 there is absolutely no gold in circulation, and not much 
 in Ireland ; and, as the banks in neither country are liable 
 to any drains from the exchanges, it is only in fact 
 against the danger of internal panics that they require to 
 be provided with gold at all. That danger is not to be 
 disregarded in Ireland, nor is it disregarded by the well- 
 regulated joint-stock banks, which now chiefly divide 
 among them the circulation of that country. In Scot- 
 land, it is a danger wholly unknown. The people of 
 Scotland have been so long familiarized to the use of 
 bank-notes, and, under the fortunate system of banking 
 which has found its seat there, have had such long ex- 
 perience of their safety, that they greatly prefer them to 
 gold, of the genuineness of which they are no judges, 
 and which they never take when they can avoid it. 
 Such a thing as a run on the Scotch banks for gold has 
 not occurred indeed within the memory of man. And, if 
 they are to be reproached for not keeping themselves con- 
 tinually armed against so remote a contingency, the same 
 reproach will apply with still greater force against your 
 
211 
 
 new department of issue in the Bank of England, which 
 must always continue really (and not merely hypotheti- 
 cally) liable to have its gold called for in times of dis- 
 trust, and which, under circumstances that may without 
 difficulty be conceived, all your precautions and all your 
 outlay would not save from being stripped of its gold to 
 the last sovereign. It remains to be added, that, in 
 Scotland and Ireland, the administration of the bank- 
 note circulation is now, I believe, entirely in the hands 
 of joint-stock banks of large capital. The imputation 
 of insecurity therefore, which after all was the only 
 very cogent ground of objection against the English 
 small notes, and was the cause of their condemnation, has 
 no application at all to either of those currencies. 
 
 Notwithstanding these important considerations, how- 
 ever, the rage for enlarging everywhere the metallic 
 basis of the circulation, and for planting every spot with 
 gold, even where it is least wanted, which betrays 
 itself in this scheme for restricting the amount of our 
 credit circulation in England, is certainly rather cal- 
 culated to excite some uneasiness in the minds of all 
 who take an interest in the welfare of the sister kingdoms, 
 as to the fate that may be intended for their monetary 
 institutions, whenever the time shall arrive for dealing 
 with them. It is to be hoped, however, that, before that 
 period, somewhat juster notions of the nature and prin- 
 ciples of credit currencies may have gained the ascend- 
 ant. It would take at least six millions of gold to re- 
 place the small-note issues of Scotland and Ireland, and 
 to place their banks at the same time in an adequate 
 state of preparation to meet incidental demands for 
 specie. And with a stock of some fifteen millions to be 
 kept up at the same time in the Bank of England, and 
 the prospect perhaps of three millions more being soon 
 required in that quarter, he would be a bold man who 
 would undertake to provide the sum. This difficulty 
 alone should be a sufficient security against any such 
 interference as is apprehended. But even this would be 
 
 p 2 
 
212 
 
 comparatively but a secondary point for consideration. 
 That, without any necessity alleged, without even a 
 single plea of expediency beyond the assumed desirable- 
 ness of bringing the Scotch scheme of circulation into 
 closer conformity with the fancies of a few self-confident 
 theorists, at a time when all commercial affairs are pro- 
 ceeding smoothly, moderately, and satisfactorily, the 
 kingdom of Scotland should be subjected to the torture 
 of an experiment, which is enough to dislocate her 
 whole social system, would be a proceeding so wanton 
 and incredible, that I will not believe it can enter the 
 mind of any sober or considerate statesman. The Scotch 
 scheme of banking has stood the test now of nearly a 
 century and a half, during which period it is acknow- 
 ledged to have contributed in the most essential manner 
 to the internal prosperity of the country, has given per- 
 fect contentment to the people, and has exhibited an 
 endurance and solidity, which you may in vain seek for 
 among the same class of institutions elsewhere. Its 
 notes under 5 constitute two-thirds of its circulation ; 
 yet the most unconscionable stickler for limitation would 
 scarcely find fault with their quantity. This circulation 
 of small notes is intimately linked and bound up with 
 all the other parts of their system, with the cash credits, 
 the interest deposits, and every other circumstance 
 which has helped to make Scotland what she is. The 
 Scotch know its value, as they showed in 1825, and will 
 not surrender it tamely. Their small notes are their 
 fueros. The Irish certainly have not the same claims 
 with the Scotch, on the score of the antiquity or tried 
 merits of their banking system. But there are still 
 too good grounds for treating the Irish circulation 
 of small notes with similar forbearance. The present 
 social condition of Ireland is not such, that any wise 
 minister would choose to tamper unadvisedly with mat- 
 ters affecting its internal peace, or which might be likely 
 to afford the people a new grievance. No country per- 
 haps in the world, scarcely even excepting the United 
 
 
213 
 
 States of America, has suffered so much as Ireland from 
 bad banking ; and now that we have at length, after 
 various unprofitable attempts, succeeded in establishing 
 there a banking system which holds out a fair prospect 
 of usefulness, it does not seem to be exactly the time for 
 disturbing it. Owing to the poverty of the country, in- 
 deed, the issue of small notes constitutes so important a 
 branch of the whole business of banking,* that it is very 
 doubtful whether, without it, the present establishments 
 would find it worth their while to continue their dealings. 
 After having presumed to impugn so freely the Go- 
 vernment measures for the reform of our paper circula- 
 tion, it may be expected possibly that, before I conclude, 
 I should offer some explanation of my own views as to 
 the most proper and safe method of conducting a system 
 of issue like that of the Bank of England. On this 
 head, however, I really have very little that is new to 
 suggest. I have all along professed my conviction that 
 our means of correcting the aberrations of the bullion, 
 and preserving the equilibrium of the exchanges, con- 
 sistently with the least possible violence to other interests 
 which have scarcely less claim on our regards, are ex- 
 ceedingly limited ; that there is perhaps more of evil, on 
 the whole, to be apprehended from over-officious and in- 
 considerate interference than from absolutely letting them 
 alone ; and that, even by the most judicious precautions, 
 perfect security must always be unattainable. I have no 
 secret to divulge, no grand remedy which is to renovate 
 at once the whole fabric of society, to keep prices and 
 profits for ever at the same perennial level, and make 
 every man fortunate and wise. My utmost hope is, by 
 a more careful husbanding of our means, and a more 
 
 * It appears from the Report of the Committee of 1826 on Pro- 
 missory Notes in Ireland and Scotland, that the average amount of 
 small notes issued by the Irish country banks in that and the five pre- 
 ceding years, bore to the rest of the Irish country circulation a propor- 
 tion of about eleven to one, the circulation of notes of five pounds and 
 upwards being confined almost exclusively to the metropolitan district. 
 (See Report, p. 14, 15.) 
 
214 
 
 diligent and vigilant turning to account of every col- 
 lateral help by which those means can be strengthened, 
 to place ourselves at all times in a better state of prepara- 
 tion for encountering those vicissitudes of the times 
 which we cannot escape, and thus weathering their vio- 
 lence. The treatment of each case of drain must vary 
 according to its merits; and the extent to which the 
 bullion may be allowed to run off, without any effort to 
 arrest it, the regulation of the advances, and the manage- 
 ment of the market for securities, must be governed, I 
 conceive, riot by any fixed or immutable rule, but by a 
 large discretion, to be exercised with a full reference, in 
 every case, to causes, circumstances, and prospects. 
 Such a system of treatment will necessarily demand a 
 more than ordinary exercise of discrimination and judg- 
 ment, on the part of those who are to superintend it. 
 The first question therefore which naturally suggests 
 itself is, whether the Court of Directors of the Bank of 
 England might not, by some arrangement, be rendered 
 a more efficient body for the discharge of those duties 
 than they are at present; and I certainly am one of 
 those who believe, that the constitution of the Court 
 might be essentially improved by giving them a master. 
 I do not say, that the Directors of the Bank have not 
 hitherto exercised their functions, on the whole, with 
 much honesty of purpose, and in general with a 
 clearer perception of their proper course than perhaps 
 they have always had credit for; but they have been 
 deficient in system have fallen into occasional mis- 
 takes and, as mercantile men themselves, they are 
 placed in a false position when called upon, as they 
 frequently are, to decide questions affecting their indi- 
 vidual interests, and in relation to which their acts are 
 continually open to misconstruction. I should be glad, 
 therefore, to see the office of Governor filled by some 
 person of experience and intelligence, well trained to 
 business but wholly unconnected with it, who should 
 receive a liberal salary, and should in all respects be in 
 
215 
 
 a position to give his whole thoughts and time to the 
 affairs of the Bank of England, and to take on himself 
 the responsibility of their careful administration. I do 
 not desire, that the Governor should be the nominee of 
 the Crown, as in France. His appointment might with 
 perfect propriety be intrusted to the Directors, requiring 
 only the confirmation of the Crown to make it valid ; 
 and perhaps the selection had better be from their own 
 body. But, once nominated, the appointment should be 
 permanent, and the Governor ought not to be liable to 
 go out by rotation like the other Directors, nor be re- 
 movable on any charge from his office, but after a formal 
 proceeding and inquiry. The business of the Bank 
 would continue to be conducted by the Court as before, 
 under the presidency of the Governor, who ought how- 
 ever, whenever he may think it necessary to assume 
 the responsibility of a question on himself, to have a veto 
 on all their resolutions. 
 
 These precautions having been taken for ensuring, as 
 far as possible, the benefit of a sound judgment on what- 
 ever questions may arise, I do not perceive any advan- 
 tage likely to be attained by any further innovation in 
 the constitution of the managing body, and still less by 
 any specific limitation of its powers. The principles 
 on which it might be deemed desirable that the affairs of 
 the Bank should be administered, under certain given 
 contingencies, might perhaps be embodied in resolutions, 
 or by some other means might be made the subject of a 
 general understanding between the State and the Bank, 
 but not in a shape that would be of any legal effect in 
 fettering the discretion of the administrative body. The 
 most important part of this understanding would neces- 
 sarily be, that the Bank should, under all circumstances, 
 steadily aim at the possession of as large a reserve in 
 bullion as the vicissitudes of trade might permit, without 
 considering how the interests of its proprietors might be 
 affected by the accumulation. And whatever might be 
 the scrifice, which the honest fulfilment of this under- 
 
216 
 
 standing might be likely to require of the Bank, I con- 
 ceive that they should be fully indemnified for it. It is 
 so vital an object of public policy to preserve a large 
 command over the precious metals, that any expendi- 
 ture by which the convertibility of the circulation can 
 be more effectually secured, ought to be a very minor 
 consideration ; and, where the expenditure is for pre- 
 cautions altogether beyond the measure which a bank, 
 having only its own interests to consult, would think it 
 necessary to observe, it ought not, I conceive, to be 
 thrown entirely on the Bank. It seems to me, that it 
 would have been a policy more worthy of the Govern- 
 ment, and more consistent even with the ultimate inter- 
 ests of the public service, to have relinquished on the 
 present occasion without reserve the annual allowance 
 which, by the act of 1833, the Bank was required to 
 pay for its charter, instead of adding to that sum the 
 amount of the Bank's composition for stamp duties, 
 making the State a partner of the Bank in respect to 
 any profits which it may realize from its issues on securi- 
 ties in excess of the limited sum of fourteen millions, 
 and leaving the Bank to indemnify itself by the unre- 
 strained employment of its deposits. 
 
 It is more by its abstinence from any measures where- 
 by an inopportune fall of the market-rate of interest 
 might be accelerated, and parties induced to remit their 
 funds to foreign countries for investment, with the effect 
 of correcting the influx of gold, than by its active exer- 
 tions, that the Bank, under any system of regulation, 
 can hope to conduce materially to the repletion of its 
 treasury ; and even in this respect, as I have intimated, 
 its means of operating appear to me to be sufficiently 
 uncertain and precarious. Mr. Tooke seems to think, 
 that the Bank might always be able to maintain an 
 average stock of at least ten millions of bullion, by 
 simply keeping its discounts steadily above the market- 
 rate whenever the tide of the metals might be setting in, 
 and thereby allowing its securities to run off, without re- 
 
217 
 
 placing them by other investments. And such no doubt 
 is the rule of action by which, under these circumstances, 
 it would become the Bank to be guided. It would often 
 happen, however, if not indeed in all cases, that, after a 
 certain time, the competition of the public would suffice 
 of itself, without any co-operation on the part of the 
 Bank, to bring down the rate of interest to a level which 
 would be inconsistent with the continued influx of gold. 
 It is evident that, for some time past, the market-rate of 
 interest here has been so low, that the influx of bullion 
 could not have been continued, nor an extensive transfer 
 of capital to foreign countries for investment prevented, 
 had not the price of foreign securities, in consequence of 
 the quiet state of the Continent, been rising in nearly 
 a similar proportion, though no one blames the Bank of 
 England for having contributed to the fall of interest 
 either by its acts or its omissions. We can place no re- 
 liance, however, on the permanence of this state of 
 things, though doubtless the recent extraordinary influx 
 of the metals places us in a far more advantageous posi- 
 tion for encountering any new drain than we have ever 
 occupied on any similar occasion. The railway projects 
 which are now on foot in almost every part of Europe 
 are very likely, ere long, to offer tempting openings for 
 employment to a large portion of the redundant capital 
 now in this country, and will produce in that event a 
 movement which, unless counteracted by other causes, 
 cannot fail to make itself almost immediately felt in the 
 exchanges. On the whole, therefore, I am inclined to 
 place more reliance on the expedients which are at our 
 command for economizing our home stock of gold, than 
 on our ability to preserve or increase that stock through 
 any specific action on the exchanges; unless indeed 
 (which is also in the chapter of contingencies), we should 
 in the meanwhile be overwhelmed by the yearly increas- 
 ing flood of new metallic wealth which has been setting 
 in from Siberia. The expedients to which I allude, if taken 
 together, will be found by no means insignificant. 
 
218 
 
 In the first place ; it appears to me, that our command 
 of gold coin might be materially increased, and other 
 very desirable objects at the same time promoted, by an 
 alteration in our system of gold coinage, an alteration 
 that would be perfectly consistent with the maintenance 
 of the standard, and to which I am unable to discover 
 any solid objection. I believe the Mint of England 
 is the only Mint in the world, which undertakes to coin 
 all the gold that is brought to it without requiring any 
 remuneration. A rather overstrained delicacy as to the 
 slightest derogation from the standard, with which I am 
 not disposed to quarrel, has given origin no doubt to this 
 anomaly ; though it is universally acknowledged, I be- 
 lieve, that the metal acquires an accession of value by 
 being coined, quite equal to the cost of the coinage, and 
 there is no very obvious reason therefore, why this cost 
 should not be borne by the owner of the gold. If, how- 
 ever, the gold coin were at all times exchangeable at the 
 Mint or at the Bank for an equal weight in gold bars 
 or ingots of full standard fineness, it does not appear to 
 me, that the integrity of the standard would be at all 
 brought into question by the imposition of any seignor- 
 age which, consistently with other prudential considera- 
 tions, it might be thought desirable to levy. The ex- 
 changeable value of the coin could never fall below that 
 of the bars, into which it might at any instant be con- 
 verted. Nor, with this precaution for the preservation 
 of the standard, does it seem to me, that there would be 
 any necessity for limiting the deduction from the coin to 
 a mere brassage, sufficient to defray the expense of the 
 coinage. The only point that would require to be 
 guarded against, would be such a reduction of the in- 
 trinsic value of the coin as should hold out encourage- 
 ment to coiners; and, as this danger is not supposed to 
 accrue until the coiner can make at least between 5 and 
 7 per cent, by the process of fabrication, that per-centage 
 would constitute the proper limit of the seignorage. 
 Under a monetary system constituted on these prin- 
 
219 
 
 ciples, the use of the gold coin would be exclusively con- 
 fined to the purposes of internal commerce. The bullion- 
 merchant who might have occasion for gold to send 
 abroad, would exchange his sovereigns for bars. The 
 goldsmith and goldbeater who might require the metal 
 for consumption, would do the same. And there would 
 be an end to all further melting and waste of the coin. 
 I have frequently regretted, that some plan of this de- 
 scription was not thought of, when the new coinage at 
 present in progress was first undertaken. A very heavy 
 and useless expense might by that means have been 
 saved. But the new coinage is still very far from being 
 completed ; and, even if it were, the cost of recoining 
 the new sovereigns would be infinitely overbalanced by 
 the profit of the seignorage. I should propose to fix the 
 seignorage at 5 per cent., preserving the weight of the 
 coin exactly as it is at present, and replacing the defi- 
 cient gold with alloy. In exchange for this coin, the 
 holder would be entitled to receive, on demand, an equal 
 weight of pure standard gold in bars, assayed, prepared, 
 and stamped at the Mint ; and the holder of Bank of 
 England notes, applying for payment, would have the 
 option of taking it either in coin or bars, as might best 
 suit his purpose. By this plan the public would not, as 
 by that proposed by Mr. Ricardo, be left, in the event of 
 civil war and invasion, without any valuable currency 
 whatever. The coin, even though its convertibility into 
 standard gold should for a time be suspended, would at 
 all events pass at a rate corresponding with its intrinsic 
 value. The Americans, in their recent endeavours to 
 establish for themselves a national metallic standard, 
 have shown their sagacity at the outset by laying a high 
 seignorage on their eagles, without which they might 
 have gone on coining for any given length of time, 
 without being able to retain a single piece in the country. 
 There is much discrepancy in the estimates which have 
 been formed, as to the quantity of gold coin at present 
 existing in the United Kingdom. On a review of the 
 
220 
 
 whole, however, I arrive at the conclusion, that, including 
 the 16,000,000/. in the Bank of England, and such sums 
 as may be distributed over Ireland and Scotland, the 
 aggregate amount cannot be materially short of, if it 
 does not even exceed, 40,000,000/. Of this sum, say, 
 that so much as even 8,000,000/. should be melted into 
 bars for the purpose of being used in foreign payments, 
 there would remain a sum of 32,000,0007. sterling to be 
 recoined into 33,600,000 sovereigns, giving a clear sur- 
 plus to the State of 1,600,000/., and adding the same sum 
 to the stock of gold in the Bank of England. Besides 
 which, all that incessant cost of coining and recoining 
 would be saved, which, under our present system, is 
 occasioned by the frequent transit of the bullion to be 
 fused and recoined in foreign countries, from whence it 
 again passes back with the turn of the exchange, to be 
 again fused and recoined here. 
 
 In the second place; the object of economizing our 
 stock of gold may be still more effectually served, and 
 to an extent which it might be difficult to calculate, by 
 the judicious employment of silver in the rectification of 
 the exchanges, and that without the slightest disturb- 
 ance of the value or of the general system of our cur- 
 rency. It does not seem to me, that the practicability 
 of making silver effectual for all purposes of foreign 
 payment, without bringing it at all in collision with our 
 existing scheme of domestic circulation, is generally 
 understood or has ever been fairly considered. The ob- 
 jections to a double standard are to my mind unanswer- 
 able. I should be equally, or even more averse, to the 
 entertainment of any project for discarding at this time 
 of day our gold standard and reverting to a standard of 
 silver. And, above all, I hold in utter abhorrence the 
 idea of combining either scheme with such a valuation of 
 the metals, as should have the effect of making silver a 
 legal tender in all payments, at a rate materially exceed- 
 ing its present worth as compared with gold, and thus 
 surreptitiously lowering the standard. Nothing of this 
 
221 
 
 kind is in the least necessary to my object. What I 
 propose is, that, whenever the Directors of the Bank per- 
 ceive that their stock of gold is becoming stationary (or 
 perhaps sooner), they should open their coffers for the 
 reception of all silver which may be tendered to them, 
 at the full market-price of the day. I would have this 
 price ascertained by authenticated weekly reports, 
 founded on actual sales, and published in the London 
 Gazette. I would have the silver cast into standard 
 bars and stamped by the Mint, in the same manner as 
 the gold. And I would make these bars a legal tender, 
 not at any fixed rate as measured by gold, but at the 
 market-price of the day. By this means, I think it ex- 
 ceedingly probable, that nearly all the silver bullion 
 which arrives annually in this country from South 
 America, might, whenever it should become expedient 
 for the Bank to replenish its store, be arrested in its pas- 
 sage to the Continent and lodged in the Bank. If the 
 importer could get his full price at the Bank, he would 
 not think it necessary to go farther. And the influx of 
 silver, so long as it might be convenient for the Bank to 
 receive it, would become as regular and steady (always 
 presuming that there should be no strong adverse cur- 
 rent of exchange setting in at the time) as that of the 
 gold. On the other hand, it would be in the option of 
 the Bank, whenever its stock of gold should have fallen 
 low, to tender this silver at the certified market-price in 
 place of gold, to parties bringing in their notes for pay- 
 ment, or it might be left generally in courtesy to the 
 choice of the parties, who would in most cases probably 
 prefer the silver as the better remittance. Sir Robert 
 Peel has made one step in advance towards these objects, 
 by permitting, as he does by his bill, the Bank of Eng- 
 land, in its issue department, to issue notes upon silver. 
 But his plan goes no further than to establish a depot 
 of silver bullion at the Bank, for the convenience of the 
 merchants who may desire to purchase or sell it. He 
 hampers his permission, too, with a limitation which 
 
222 
 
 would be very ill adapted to the object which I have in 
 view, by restricting the Bank from holding a larger 
 quantity of silver at any given time than in the propor- 
 tion of one-fourth to its stock of gold. Now, this pro- 
 portion might, at times when the Bank treasury should 
 be more than ordinarily full, be a great deal too large, 
 while at other seasons it might be much too small. In 
 the case of the bullion falling at any time to a very low 
 ebb, it would be the object of the Bank to lay its hands 
 on whatever specie might come within its reach, without 
 caring whether it might be gold or silver. 
 
 I can conceive circumstances in which it might be- 
 come expedient to issue even a subsidiary coinage of fine 
 silver in aid of our gold ; in which case, the silver might 
 be coined into dollar pieces, and allowed to pass at an 
 agio varying with the market-price of the day, as gold 
 varies abroad. Such a coinage would have to be kept 
 altogether distinct from our present circulation of small 
 silver money, than which, for its actual purpose (that of 
 payments under forty shillings), nothing can be more 
 happily contrived and adapted. There is no occasion, 
 however, to consider the feasibility of any project of this 
 kind at present, as it has no relevance to the immediate 
 object before us, which is to find a substitute for gold in 
 the adjustment of the exchanges. 
 
 In the third place ; another expedient by which foreign 
 payments might be effected without the intervention of 
 gold, is by the purchase and transmission of foreign 
 securities. It must be admitted, that such securities 
 are not the most eligible investment for the funds of an 
 institution like the Bank of England. They are at all 
 times more or less hazardous, and in the event of a 
 general war might become for a time, to say the least, 
 wholly unavailable. Were it notorious, indeed, that the 
 Bank of England was a principal holder of the stock of 
 any hostile government abroad, the object of embarrass- 
 ing the Bank, and through the Bank the public finances 
 of this country, would afford so plausible a pretext for 
 
223 
 
 a breach of faith, in itself peculiarly convenient and 
 opportune, that the interests not only of the Bank itself, 
 but of all British holders of the security, would be en- 
 dangered in an aggravated degree by the Bank's posi- 
 tion. It could not, therefore, be prudently recommended 
 to the Bank to resort to this method of protecting her 
 gold, on such a scale as might possibly involve her in 
 losses, which would impair her credit or trench deeply 
 into her capital. A certain limited extent of risk, however, 
 might justifiably be incurred. The Bank might without 
 impropriety, I think, exchange a million of her present 
 securities for a corresponding sum in foreign stocks, 
 dividing perhaps her risk, by apportioning the invest- 
 ment among the securities of the four great Continental 
 powers. This would give the Bank an additional million 
 to meet an adverse exchange, and pro tanto would 
 strengthen her hands. On the necessity arising, the 
 stock might be sent abroad to any of the great Con- 
 tinental marts for sale, and bills negotiated against it. 
 And temporary investments even to a considerably larger 
 extent and of a similar character might be ventured 
 upon, with a clear political horizon, and an imminent 
 apprehension of a demand for gold. 
 
 The measure which I advocate lastly, is one which, 
 I fear, may have to encounter a larger share of prejudice 
 than either of the above ; though I cannot persuade my- 
 self, that, as a temporary expedient, it is more objection- 
 able in principle, or beset with more of real danger. I 
 allude to an issue of Bank of England one-pound notes. 
 It has been held out, and I think justly, as one of the 
 advantages which ought to console us in England for the 
 costliness of our gold circulation, when we compare it 
 with the cheap and homely substitute, which performs 
 the same offices in Scotland with quite as much facility 
 and efficiency, that the specie dispersed in circulation 
 constitutes a source of supply and reinforcement to the 
 gold in the reserves of the bankers, and affords to the 
 whole system so indispensable an appui, that without it 
 
224 
 
 there would be scarcely any possibility of preserving, in 
 any case of panic or other extraordinary emergency, the 
 convertibility of the credit portion of the circulation. It 
 does not appear to me, however, to be very consistent 
 with this doctrine, that the resource, which the possession 
 of a full circulation of gold has thus placed in our hands, 
 should be a resource expressly forbidden to us for all 
 practical uses, in the very contingency in which it is 
 most required. Such a rule may be sufficiently in ana- 
 logy with the principle of the separation of the depart- 
 ments. But it seems sufficiently absurd to think, that the 
 Bank of England is to be permitted to approach the 
 brink of insolvency, and even to plunge into it, rather 
 than use the smallest portion of the twenty or thirty mil- 
 lions of gold with which the general circulation of the 
 country is saturated, and for which the people are at all 
 times willing to accept the Bank's credit as a substitute. 
 What are the substantial objections to a small-note cir- 
 culation ? That it spreads and exacerbates the mischiefs 
 occasioned by insolvency ? The objection has no appli- 
 cation to this proposal, for the only issuer is to be the 
 Bank of England. That it increases the temptations and 
 facilities to forgery? We hear no complaints of the 
 forgery of the one-pound notes of the Scotch banks. If, 
 therefore, the former one-pound issues of the Bank of 
 England gave occasion to an unusual proportion of 
 forgeries, it can only be inferred, that the means of pre- 
 vention adopted by the Bank were not so efficient as 
 they are in Scotland. Besides, where the issue is to 
 be merely of temporary duration, the temptation to 
 forgery will neither have time to operate, nor the 
 forger the same inducement to make his preparations. 
 That small notes displace the circulating coin ? Un- 
 doubtedly they do ; and they also replace it. And it is 
 their very aptitude for those offices, which make them the 
 most convenient of all possible substitutes for the gold, 
 when the services of the latter may be imperatively de- 
 manded for purposes of international exchange, in which 
 
225 
 
 the paper currency can be of no use. I certainly should 
 not think it advisable, that the metallic circulation of the 
 country should be disturbed on every adverse turn of 
 the exchanges. But I conceive, that the substitution of 
 a small-note currency may at all times be confidently 
 looked to as a safe and sure resource in the last resort, 
 and that for such extremities the Bank ought never to 
 be unprepared. By merely discontinuing for a time its 
 issue of sovereigns in fractional payments and for pur- 
 poses of domestic circulation, and sending out its one- 
 pound notes in their stead, the Bank has it always in its 
 power, whenever it pleases, to absorb a portion of the 
 circulating gold into its reserves. And, by merely revers- 
 ing the process, by resuming the issues of gold and re- 
 fraining from re-issuing the notes which come back to it 
 in the ordinary course of its receipts, the notes may with 
 equal facility be recalled. When, in 1825, the run on the 
 banks was arrested, and the Bank of England itself pro- 
 bably saved, by the fortunate discovery of a box of eight or 
 nine hundred thousand one-pound notes, which had been 
 laid aside in some corner of the Bank and forgotten, it 
 has never, as far as I know, been alleged or pretended, that 
 anything but benefit ensued from the issue which took 
 place on that occasion. When the gold came back from 
 abroad, and it was actually coming back rapidly even at 
 the moment of the crisis, the one-pound notes, after per- 
 forming the special mission assigned to them, were with- 
 drawn again from the circulation, with very little delay and 
 without the slightest trouble. Had the experiment been 
 thought of earlier, some portion of the severity of the 
 crisis might very possibly have been spared: and, if it so 
 eminently succeeded on that occasion, I do not see why, 
 with more knowledge and better preparation, measures 
 of the same character may not be tried with success 
 again. Far indeed from considering the course adopted 
 by the Bank Directors throughout the latter part of the 
 catastrophe of 1825 as, either in this or any other of its 
 
 Q 
 
226 
 
 features, a course to be distrusted or shunned, I have 
 always been inclined to regard it rather as an illustra- 
 tion of a great principle, and an important lesson and 
 example for after-times. 
 
 And this brings me at length to my conclusion. I 
 have for some time been looking almost with despair, at 
 the increasing bulk to which my materials have been 
 gathering on my hand, and which, I fear, will not im- 
 prove their chance of usefulness, while it gives to my 
 publication an air of pretension which, I am sensible, 
 does not become a treatise so hastily got up, and which I 
 should willingly have avoided. I sat down to write a 
 pamphlet, and it has grown into a book. However, it is 
 now too late to think of re-arrangement or condensation ; 
 and such as it is, I cast it on the waters. In the course of 
 an inquiry so intricate in its bearings, I can scarcely hope 
 to have escaped blunders, especially when I see what 
 daily befalls men whose experience and acquirements 
 upon these subjects are so much superior to mine. I feel 
 too, that I stand at peculiar disadvantage in this respect, 
 from having had no personal familiarity with the details 
 of business in this country. But I shall have gained 
 my object, if I shall be fortunate enough to have thrown 
 out any suggestions which may set others a-thinking. 
 
 If, in the course of my argument, I have had occasion 
 more than once to speak my mind somewhat freely, both 
 as to measures and doctrines, I trust that nothing which I 
 have uttered will be interpreted into any intentional 
 disrespect towards their authors. And I am sure no one 
 who knows me, will suspect me of the smallest disposition 
 to further the ends of a cabal, or to lower ministers in the 
 public estimation. Sir Robert Peel's general adminis- 
 tration has probably few more unqualified or consistent 
 admirers than myself, or who more ardently desire its 
 continuance. And I can only lament, that on this par- 
 ticular subject he should have allowed himself to act on 
 opinions, which, with every deference, I must believe to 
 be fundamentally and mischievously erroneous. I re- 
 
227 
 
 gret the course which has been adopted the more, from 
 the high value which I set on the principle of converti- 
 bility, and my anxiety to see the standard of our cur- 
 rency maintained through all vicissitudes in its full purity. 
 Men are never so prone to rush into opposite and wild 
 extremes of acting and thinking, as when shocked by 
 some practical and stringent refutation of principles, 
 which had always passed with them for the most un- 
 doubted truths, because never before exposed to any 
 practical ordeal. 
 
 THE END. 
 
 London: Printed by WILLIAM CLOWES and SONS, Stamford Street. 
 
USE 
 
YC 392C6 
 
 
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