SCAKC'E AND VALUABLE TKACTS, &c., 
 
 ON 
 
 PAPEE CUEEENCY 
 
 AND 
 
 BANKING. 
 
* # * This volume has been printed by Lord Overstone for 
 distribution among his friends : the duty of editing it was under- 
 taken by J. E. M'Culloch,Esq. 
 
SELECT COLLECTION 
 
 SCARCE AND VALUABLE TRACTS AND OTHER 
 PUBLICATIONS, 
 
 PAPER CURRENCY 
 
 AND 
 
 BANKING, 
 
 FROM THE ORIGINALS OF 
 
 HUME, WALLACE, THORNTON, RICARDO, BLAKE, 
 HUSKISSON, AND OTHERS. 
 
 WITH A PREFACE, NOTES, AND INDEX. 
 
 LONDON : 
 
 M D C C C L V 1 1. 
 
[ONE HUNDRED AND FIFTY COPIES PRINTED.] 
 
PREFACE. 
 
 THIS collection, of the most valuable of the English tracts 
 and publications on paper currency and banks, may 
 be regarded as supplementary to the volume of tracts on 
 metallic currency, printed for the Political Economy Club. 
 It does not, however, contain any tract having especial refe- 
 rence to paper money, properly so-called, that is, to notes 
 which are legal tender without being convertible at the plea- 
 sure of the holder into certain amounts of coin. The value 
 of this variety of paper currency depends on the extent to 
 which it may be issued compared with the demand, or rather 
 with the business it has to perform. Whether those by whom 
 it is issued are in good or bad credit is immaterial. It obtains 
 currency by its issuers having power to make it legal tender ; 
 and nothing more is required to sustain its value than that it 
 should be issued in moderate quantities. The value of the 
 assignats issued during the French Revolution was at first 
 nearly equal to that of metallic money ; but the quantities of 
 them thrown into circulation being rapidly and enormously 
 increased, their value proportionally declined, till in the end 
 they became all but worthless. And such has invariably 
 been the case wherever inconvertible paper notes have 
 been made legal tender. In Russia, Austria, and other 
 states, which have resorted to this description of paper, its 
 value has always been proportioned to the magnitude of the 
 
 360678 
 
Vi PREFACE. 
 
 issues; progressively declining with every addition to its 
 amount, and increasing according as it is diminished. And 
 it is obvious, though we had no experience to which to 
 appeal, that such must be the case. A country has a cer- 
 tain number of payments to make in a given time ; and, 
 cceteris paribus, it follows, if the coins or notes employed in 
 making these payments be doubled or trebled, that they will 
 only pass at a half or a third part of their former value. 
 
 With the exception of the period from 1797 down to 1819, 
 the paper currency of Great Britain has always been con- 
 vertible at pleasure into an equivalent amount of coin of the 
 standard weight and purity. Our bank-notes are not, strictly 
 speaking, money, but only substitutes for money. Inasmuch, 
 however, as no doubt is entertained of their immediate con- 
 vertibility into coins, and as they perform some of the 
 principal functions of the latter, and are in many respects 
 more commodious, they are practically held to be money. 
 To use the words of Lord Mansfield " these notes are not, 
 like bills of exchange, mere securities or documents for 
 debts, nor are so esteemed ; but are treated as money in the 
 ordinary course and transactions of business, by the general 
 consent of mankind ; and on payment of them whenever a 
 receipt is required, the receipts are always given as for 
 money not as for securities or notes."* 
 
 The promissory notes issued in the reign of Charles II, 
 by the Goldsmiths of London, who then acted as pri- 
 vate bankers, paved the way for those issued by the Bank 
 of England established in 1694. But it is a curious fact 
 that the notes, both of the former and the latter, however 
 convenient and well secured, were objects of great jealousy 
 on their first appearance. The courts of law would not con- 
 
 * Cbitty on Bills, &c., 8th ed. p. 555. 
 
PREFACE. Vll 
 
 aider them in the light of inland bills of exchange ; and 
 ruled that no action could be maintained on a promissory 
 note, which they held was merely an evidence of debt. So 
 long as this doctrine prevailed the circulation of notes was 
 much obstructed. And the obstruction continued till Parlia- 
 ment, impressed with a sense of the inconveniences thence 
 arising, passed the Act 3 and 4 Anne, c. 92, which conferred 
 on promissory notes the same privileges that had been 
 conferred on bills of exchange, and made them recoverable 
 by action in like manner. 
 
 When first established, the Bank of England, owing in 
 part to the circumstances now alluded to, but more to the 
 disordered state of the coin and the novelty of the institu- 
 tion, was involved in considerable difficulties. These, how- 
 ever, were speedily overcome, and for about a century the 
 notes of the Bank, which were immediately convertible into 
 coin, continued to circulate on a par with gold with- 
 out any interference of any kind on the part of Govern- 
 ment. The continuance of this equable system, and the 
 unlimited confidence that was always placed in the ability 
 of the Bank to fulfil her engagements, seem to be the prin- 
 cipal reasons why, for a lengthened period, very few tracts or 
 other publications appeared on the subject of paper currency 
 and banking. But the previous scarcity was changed into 
 abundance after the suspension of cash payments in 1797 
 had awakened the attention of the public to the subject ; 
 and still more after the publication of the Bullion Report 
 in 1810. Few if any parliamentary papers ever occasioned 
 so much controversy as the latter. It gave birth to 
 myriads of pamphlets. But of these by far the greater 
 number evinced the zeal rather than the knowledge of their 
 authors. And with the exception of those of Messrs. Ricardo, 
 Blake, and Huskisson, most part of the others have fallen 
 
Viii PREFACE. 
 
 into an oblivion from which they do not deserve to be 
 rescued. 
 
 The circumstances now stated suffice to explain why 
 we have reprinted so few tracts published previously 
 to 1797. Others either do not exist, or are not entitled 
 to any special notice. The first tract in this volume, or that 
 on the " Currencies of the Plantations in America/' published 
 at Boston, in New England, in 1740, is however of the 
 highest excellence. There was hardly a colony but what had 
 issued large amounts of bills receivable as cash ; and as no 
 effectual provision was made for the payment of these bills, 
 while frequent additions were made to their amount, their 
 value continued to decline, and the exchange with England 
 to become more and more unfavourable to the colonies. 
 The history of these proceedings, and their pernicious 
 influence are fully set forth in the tract now referred to. 
 We have not learned the name of the author ; but whoever 
 he may be, he has the merit of having very clearly exhi- 
 bited, the principles that should be kept in view in the 
 issue of paper money, and the abuses which follow from 
 their being neglected. 
 
 Following this tract the reader will find extracts from 
 Hume's Essays on Money and the Balance of Trade. 
 They discover all his ingenuity and unrivalled felicity of 
 illustration. But he had no clear idea of the funda- 
 mental distinction between paper money and bank-notes 
 payable on demand at the pleasure of the holders. The 
 former may sink far below the value of the sums they pro- 
 fess to represent ; and being legal tender, will most likely 
 expel coin from circulation. But no such consequences 
 can follow from the issue of bank-notes, such as were then 
 
PREFACE. IX 
 
 circulated in all parts of Great Britain. They were 
 fully equivalent to the gold which might be obtained 
 in exchange for them the moment it was* required. The 
 latter was not forced abroad ; but a portion of it being 
 rendered unnecessary by the employment of notes, which 
 were found to be more commodious, was exported in 
 exchange for commodities, which made a corresponding 
 addition to the wealth and capital of the country. Hume, 
 who survived the publication of the Political Essays for 
 about five and twenty years must have seen, in the extension 
 of banking, and in the rapid progress of all sorts of improve- 
 ments in Scotland after the peace of Paris in 1763, a 
 practical refutation of his statements in regard to the 
 mischievous influence of bank-notes. 
 
 The same confusion of paper money with notes payable 
 on demand which suggested Hume's remarks, pervades the 
 third tract in this volume, the " Essay on Paper Money and 
 Banking," written by Patrick, the fifth Lord Elibank, and 
 published with some other tracts in 1755. Its brevity is its 
 principal recommendation. It is a poor performance, in 
 which the errors of Hume are repeated without any portion of 
 his philosophy, and is chiefly worth notice as showing the crude 
 opinions that were then not unfrequently entertained by 
 well-informed persons with regard to bank-notes. His Lord- 
 ship supposes that the notes of the Scotch Banks, to which 
 his tract specially refers, by adding to the currency and 
 depreciating its value, had raised the price of labour and 
 all sorts of produce " to the destruction of trade and manu- 
 factures." But it is obvious, for the reasons already stated, 
 that their issue could have no such effect ; and instead of 
 manufactures being destroyed or injured, they were 
 then beginning to be carried on with an energy and success 
 unknown at any previous period ! 
 
X PREFACE. 
 
 The fallacy of the theories in regard to bank-notes, put 
 forth by Hume and Lord Elibank has been clearly shown in 
 the next tract in this volume, an " Essay on Banks and 
 Paper Credit." It is extracted from a volume entitled 
 " Characteristics of the Present State of Great Britain," 
 which appeared in 1758. Though anonymous, it is believed, 
 apparently on good grounds, to be the work of the Rev. Dr. 
 Robert Wallace, one of the ministers of Edinburgh, and well 
 known from his controversy with Hume in regard to the 
 populousness of ancient nations. But though totally wrong 
 in his theory and conclusions upon this latter subject, Wallace 
 entertained more correct opinions than his illustrious anta- 
 gonist with respect to banks and public credit. The essay 
 we have printed, is both liberal and ingenious; and the 
 other essays in the volume from which it is taken are not 
 unworthy of the reader's attention. 
 
 We have given in the Note on the Suspension of Cash 
 Payments at the Bank of England, in 1797, a brief account 
 of the circumstances which led to that measure. The 
 novelty of the position in which the Bank and, with her, 
 the paper currency of the country was then placed, power- 
 fully excited the public attention, and led to much discussion 
 both in and out of Parliament. 
 
 Of the tracts that appeared subsequently to this crisis, 
 we have reprinted one on the " Utility of Country Banks," 
 published in 1802. It gives what may be considered as 
 being on the whole a just, though rather too favourable a 
 view of these establishments. Of their importance, indeed, 
 as reservoirs into which the unemployed capital of the sur- 
 rounding districts may be collected, and from which it 
 may be readily distributed to those by whom it is 
 
PREFACE. XI 
 
 wanted, it is impossible to speak too highly ; while, by 
 affording convenient places of deposit for the smallest savings, 
 and conducting all sorts of pecuniary transactions, they 
 promote a spirit of economy, and enable the business of the 
 country to be transacted with infinitely greater facility and, 
 at the same time, with a much smaller amount of money than 
 would otherwise be necessary. 
 
 But these advantages may all be obtained without giving 
 provincial banks the power to issue notes. This, in truth, 
 is a privilege which has nothing whatever to do with the 
 business of banking, and which they are all but certain to 
 abuse. In saying this we do not wholly refer to the heavy 
 losses which the public have often sustained from the dis- 
 credit brought upon the currency by the mismanagement 
 and failure of banks of issue ; for though that cause of loss 
 might be to a considerable extent removed by taking sufficient 
 security for the notes issued, it is impossible, unless their issue 
 be confined to a single source, that their amount in circula- 
 tion should be uniformily determined, as it ought to be, by 
 the state of the exchange, or by the influx and efflux of bullion. 
 But, though it overlooks the important principle now 
 referred to, the tract on the Utility of Country Banks is a 
 valuable publication. It helped to correct some of the 
 erroneous notions that were previously current in relation to 
 these establishments. 
 
 The essay on the " Utility of Country Banks" is followed 
 by the " Enquiry into the Nature and Effects of the Paper 
 Credit of Great Britain," by Henry Thornton, Esq., M.P., 
 published in 1802. This important work contains a much 
 greater amount of useful information with respect to the 
 pecuniary transactions carried on in the country than had 
 
Xll PREFACE. 
 
 previously been communicated to the public. Being an 
 extensive merchant and a director of the Bank of England, 
 Mr. Thornton, was placed in the most favourable position for 
 becoming well acquainted with the various subjects of which 
 he treats. His connexion with the Bank appears, however, to 
 have biassed, though perhaps unconsciously, his judgment. 
 His theoretical principles are, for the most part, sound, and 
 are sometimes laid down with much precision. But when he 
 comes to consider their application he interprets them so that 
 his statements and reasonings have all an evident leaning in 
 favour of the Bank ; and are intended to vindicate the suspen- 
 sion of cash payments and her subsequent proceedings. 
 Although, however, we agree with Mr. Thornton in thinking 
 that the suspension was necessary at the time when it was 
 passed, he has not shewn that it should have been continued 
 after the alarms of invasion, in which the drain for gold 
 originated, had subsided ; and it is needless to add that he has 
 wholly failed in shewing that there is or can be any real 
 security other than their conversion into coin at the pleasure 
 of the holder, for that limitation of the issue of bank-notes 
 which he admits is indispensable to sustain their value. 
 Mr. Thornton ascribes the fall of the exchange in 1800 and 
 1801 to payments abroad on account of the war and the 
 heavy importations of corn caused by the scarcity. But 
 these circumstances, though they might, and probably did, 
 affect the real exchange, will in no degree account for the 
 excess of the market over the mint price of bullion in those 
 years. That excess, which sometimes exceeded 10 per cent., 
 showed conclusively that the currency was depreciated to 
 that extent. And it is plain, had the Bank been paying 
 her notes in coin, that no such depreciation would have been 
 possible. Their value and that of gold would then have 
 
PREFACE. xiii 
 
 been identical, and there could not have been the smallest 
 discrepancy between the mint and market price of the 
 latter. 
 
 But, despite these and other grave errors, the practical 
 character of Mr. Thornton's work, and the many interesting 
 discussions which it embraces, render it a most valuable 
 contribution to our commercial literature. 
 
 The suspension of cash payments in 1797, extended to 
 Ireland as well as Great Britain. The directors of the Bank 
 of Ireland did not, however, exercise the privilege of issuing 
 notes with which they were thus intrusted with the same 
 moderation as the directors of the Bank of England. On 
 the contrary, during the same period (from the suspension 
 till February, 1804) in which the issues of the Bank of 
 England had increased in the ratio of 1 to 1*766, the issues 
 of the Bank of Ireland had increased in the ratio of 
 1 to 4*802. In consequence, the exchange between 
 Dublin and London, which, previously to the suspension, 
 diverged but slightly from par, became from 12 to 16 per 
 cent, against the former. But at the very moment when 
 the exchange between Dublin and London w r as so unfa- 
 vourable to the former, the exchange between London and 
 Belfast which, owing to peculiar circumstances, had a gold 
 currency, was about 3 per cent, in favour of the latter ! 
 We have explained this case more at large in a Note on the * 
 exchange between London and Dublin in 1804. It affords 
 one of the most striking examples to be found of the 
 influence of over-issues of paper in depressing the exchange. 
 
 The Treatise of the first Earl of Liverpool on the Coins 
 of the Realm, which appeared in 1805, is one of the most 
 valuable of that class of publications. But its bulk, and the 
 
xiv PREFACE. 
 
 fact of its having been reprinted within these few years, have 
 prevented our giving it a place in these collections. We 
 have, however, inserted in this volume that part of Lord 
 Liverpool's work which refers to the paper currency of the 
 kingdom. And it is eminently deserving of attention from the 
 historical information which it embodies, as well as from its 
 proper appreciation of the mischief which the suspension of 
 cash payments could not fail to produce. 
 
 The next, and one of the ablest tracts in this volume, 
 " The High Price of Bullion a Proof of the Depreciation of 
 Bank Notes," appeared in 1810. It was written by Mr. 
 Ricardo, and led the way in the memorable bullion contro- 
 versy. From 1804 to 1808 inclusive, the market price 
 of gold was nearly uniform at 4/. an ounce, being 21. 145. 6d. 
 per cent, above the mint of 3/. 1 7s. lOje? an ounce, and shewing 
 that the currency was depreciated to that extent. But in 
 1809 and 1810, the issues of the Bank of England and of the 
 country banks were greatly increased; and in consequence the 
 market price of gold rose in March 1809 to 4/. 10s. an ounce, 
 shewing a depreciation of the currency of no less than 
 151. Us. 4d. per cent. But the real cause of the rise of the 
 market price of gold was then comparatively unknown ; 
 and the adverse exchange with which it was accompanied 
 was ascribed to payments on account of the war, the inter- 
 * ruption of trade, and so forth. In these circumstances 
 Mr. Ricardo applied himself to the consideration of the 
 subject; and the result of his inquiries appeared in a series 
 of letters in the Morning Chronicle, the first being published 
 on the 6th September, 1809. They made a considerable 
 impression and elicited various answers. This success and 
 the increasing interest of the subject led Ricardo to 
 embody them in a more enlarged and systematic form in the 
 
PREFACE. XV 
 
 tract now reprinted. It issued from the press some con- 
 siderable time previously to the appointment of the Bullion 
 Committee, and is believed to have materially assisted in 
 forwarding that important measure. 
 
 In this tract Bicardo showed that redundancy and defi- 
 ciency of currency are only relative terms ; and that so 
 long as the currency of a country consists partly of gold 
 and silver coins, and partly of paper immediately con- 
 vertible into such coins, its value can neither rise above nor 
 fall below the value of the metallic currencies of other 
 countries, by a greater sum than will suffice to defray the 
 expence of importing foreign coin or bullion if the cur- 
 rency be deficient, or of exporting a portion of the existing 
 supply if it be redundant. But when a country issues 
 inconvertible paper notes (as was then the case in England), 
 they cannot be exported to other countries in the event of 
 their becoming redundant at home ; and whenever, under 
 such circumstances, the exchange with foreign countries is 
 depressed below par. or the market price of bullion rises 
 above its mint price, more than the cost of sending coin or 
 bullion abroad, it proves that too much paper has been 
 issued, and that its value is depreciated from excess.* 
 
 In stripping these important conclusions of the irre- 
 levant matter with which they had previously been 
 encumbered, and making them readily appreciable, Ricardo 
 contributed in no ordinary degree to perfect the theory 
 olmoney. 
 
 Owing to the heavy and continued fall of the exchange, 
 the question in regard to the depreciation of the currency, 
 became of the greatest importance, and was taken up in the 
 House of Commons. It was brought before that assembly by 
 
 * Sketch of the Life of Ricardo prefixed to his works. 
 
xv i PREFACE. 
 
 Mr. Francis Horner, who moved on the 19th February, 1810, 
 that a Select Committee be appointed to " Inquire into the 
 Cause of the High Price of Gold Bullion, and to take into 
 Consideration the State of the Circulating Medium and of 
 the Exchanges between Great Britain and Foreign Parts. " 
 The motion was agreed to ; and the Committee, which com- 
 prised some of the ablest men in the House, after due 
 inquiry, presented their Report on the 8th of June. 
 
 The Bullion Report, which is reprinted in this volume, 
 though not wholly exempt from theoretical errors, without 
 any claim to originality, and not very skilfully com- 
 posed, is nevertheless one of the most valuable papers that 
 has ever proceeded from a Committee of the Legislature. 
 It was principally written by Mr. Horner, who was Chair- 
 man of the Committee, portions of it being, however, con- 
 tributed by Messrs. Thornton and Huskisson ; and to this 
 divided paternity may be ascribed that want of sequence 
 in its reasonings, and of uniformity in its style, that are 
 so very observable. Having taken much evidence,* and 
 entered at great length into an examination of the subject, 
 the Committee came to the conclusion that the paper 
 currency was depreciated from excess ; and they recom- 
 mended as the only means by which the evil could be 
 checked, and the value of paper maintained on a par with 
 gold, that cash payments should be resumed within the 
 space of two years. 
 
 Such being the character and recommendation of this 
 famous Report, we need not wonder that its publication 
 should have been the signal for a violent and long-continued 
 
 * The evidence of the Governor, Deputy-Governor, and such of the 
 Bank Directors as came before the Committee, was anything but credit- 
 able to them. It was, in truth, a mere apology for the existing 
 state of things, founded, for the most part, on erroneous assumptions, 
 and false or perverted theories. 
 
PREFACE. XV11 
 
 controversy. The principles laid down in it were said 
 to be contradicted' by the evidence. And besides being 
 strenuously opposed by Government, and by the greater 
 number of bankers, merchants, and practical men, they were 
 assailed by a host of writers. But all the great authorities 
 were on the side of the Bullionists. And in 1819 the 
 triumph of sound principles was completed by the legislature 
 reverting to cash payments at the old standard. 
 
 Among the pamphlets to which the state of the currency 
 in 1810 gave birth, a very high place must be assigned to 
 the " Observations on the Principles which regulate the 
 course of Exchange, and on the present depreciated state of 
 the Currency," by William Blake, Esq., F.R.S. We have 
 reprinted this tract, which gives within a moderate compass 
 an extremely clear and satisfactory exposition of an important 
 and at the same time complex and difficult subject. 
 Mr.Blake has enumerated the various circumstances, whether 
 arising out of the state of trade or of the currency, that 
 determine the real, the nominal, and the computed or actual 
 course of exchange. He has farther traced with equal skill 
 and sagacity, the mode in which they respectively operate ; 
 and set their separate and combined influence in a very 
 striking light. 
 
 The last tract in this volume, (( The Question respecting 
 the Depreciation of the Currency Stated and Examined," 
 by William Huskisson, Esq., M.P., appeared in 1810. The 
 author intended it should be at once an explanation and a 
 defence of the doctrines laid down in the Bullion Report. 
 And these objects are most successfully accomplished. The 
 doctrines referred to have nowhere been stated with greater, 
 
 b 
 
XV111 PREFACE. 
 
 or, perhaps, equal clearness, or in a way more likely to 
 recommend them to the public. 
 
 It would have been useless, even had our space per- 
 mitted, to have made any additions to the tracts now 
 brought together. They comprise a full exposition of the 
 principles that determine the value of paper currency ; with 
 an examination and refutation of the various objections, 
 entitled to any consideration, that have been or may be 
 made to these principles. But they do not inquire, or 
 only briefly and perfunctorily, into the nature of the mea- 
 sures that should be adopted to give a practical and real 
 effect to these principles. This is the grand monetary 
 problem which is now (1857) before the country. Its 
 satisfactory solution must, however, in great measure, depend 
 on the principles established in this volume being properly 
 understood and appreciated. 
 
CONTENTS. 
 
 PAGE 
 
 1. A Discourse Concerning the Currencies of the British 
 Plantations in America. Especially with regard to 
 their Paper Money. With a Postscript thereto . 1 
 
 II. Banks and Paper-Money, from Essays, Moral, 
 Political, &c., by David Hume, Esq. Published in 
 1752 57 
 
 III. Essay on Paper-Money and Banking, from Essays on 
 
 the Public Debt, Frugality, &c. Published in 1755 65 
 
 IV. Essay of Banks and Paper Credit ; from Charac- 
 teristics of the present state of Great Britain. 
 Published in 1758 75 
 
 V. Note on the Suspension of Cash Payments, at the 
 
 Bank of England, in 1797 93 
 
 VI. The Utility of Country Banks considered, &c. . . 99 
 
 VII. A.n Enquiry into the Nature and Effects of the 
 Paper Credit of Great Britain. By Henry Thornton, 
 Esq., M.P 137 
 
 VIII. Note on the State of the Exchange between London 
 
 and Dublin, from 1797 to 1804 . . . .341 
 
 IX. Remarks on Paper Currency ; from a Treatise on the 
 Coins of the Realm, by the Earl of Liverpool, pub- 
 lished in 1805 . 349 
 
XX CONTENTS. 
 
 PA.GE 
 
 X. The High Price of Bullion a Proof of the Depre- 
 ciation of Bank Notes. By David Eicardo. The 
 Fourth Edition, Corrected . ^ . . . . 361 
 
 XI. Eeport, from the Select Committee of the House of 
 Commons, on the High Price of Gold Bullion. 
 Ordered to be printed, 8 June, 1810 . . 403 
 
 XII. Observations on the Principles which regulate the 
 Course of Exchange ; and on the Present Depre- 
 ciated State of the Currency. By William Blake, 
 Esq., F.R.S. 475 
 
 XIII. The Question concerning the Depreciation of our 
 Currency stated and examined. By W. Huskisson, 
 Esq., M.P. Third Edition, Corrected . . . 565 
 
 INDEX . . 669 
 
DISCOURSE 
 
 Concerning the 
 
 CURRENCIES 
 
 O F T H E 
 
 BRITISH PLANTATIONS 
 
 IN 
 
 AMERICA. 
 
 Efpecially with regard to their 
 
 PAPER MONEY. 
 
 WITH A 
 
 POSTSCRIPT thereto. 
 
 BOSTON: Printed, MDCCXL. 
 
 AND 
 
 LONDON: Reprinted, MDCCLI. 
 
 t 
 
CURRENCIES 
 
 OF THE 
 
 BRITISH PLANTATIONS IN AMERICA, &c. 
 
 THE many Schemes at present upon the Anvil in Boston, 
 for emitting enormous Quantities of Paper Currencies ; 
 are the Occasion of this Discourse. The Writer does not 
 vainly pretend to dictate to Government, or prescribe to 
 Trade ; but with a sincere Regard to the Publick Good, has 
 taken some Pains to collect, digest, and set in a proper Light, 
 several Facts and Political Experiences, especially relating 
 to Paper Currencies ; which, tho' plain in themselves, are 
 not obvious to every Body. If any expressions should sound 
 harsh, they are not to be understood as a Reflection upon this 
 Province in general : It was always my Opinion, That the 
 Province of the Massachusetts- Bay is, by far, the most vigorous 
 and promising Plant (with proper Cultivation) of all the British 
 Plantations : In the best of Countries at Times, bad Admin- 
 istrations, and private evil Men of Influence have prevailed. 
 The Author is not a transient Person, who, from Humour, or 
 Caprice, or other malevolent Views, may expose the Pro- 
 vince : but is by Inclination induced, and by Interest obliged 
 to study the Good of the Country. 
 
 All Commerce naturally is a Truck* Trade, exchanging 
 Commodities which we can spare (or their Value) for Goods 
 we are in want of. Silver itself is a Merchandize, and being 
 the least variable of all others, is by general Consent made 
 the Medium of Trade. If a Country can be supposed to 
 have no Dealings but within itself, the Legislature, or tacit 
 Consent of the People, may appoint or receive any Currency 
 
 3 
 
4 - Discourse Concerning the Currencies 
 
 at Pleasure : But a trading Country must have Regard to 
 the universal commercial Medium, which is Silver ; or cheat, 
 and trade to a Disadvantage : It is true, that in some Coun- 
 tries of Europe Billon (a base Mixture of Metals) is used 
 for small Change, but not as a Medium of Trade. 
 
 Every Country or Society have their own peculiar 
 Regulations, which may be called their Municipal, or By- 
 Laws in Trade ; but the universal trading Part of the World, 
 as one tacit Confederacy, have fallen into some general Rules, 
 which, by Custom of Merchants, are become as fundamental : 
 One of these is a Silver Medium of Trade, that all Contracts 
 (Specialties excepted) are understood to be payable in this 
 Medium, being always of the same fixed Value, or easily 
 adjusted by the Par, and accidental small Differences of 
 Exchange from one Country to another. 
 
 There can therefore be no other proper Medium of Trade, 
 but Silver, or Bills of Exchange and Notes of Hand, pay- 
 able in Silver at certain Uso's or Periods, which, by a cur- 
 rent Discount, are reducible to Silver ready Money, at any 
 Time. The Debitor Party (I am ashamed to mention it) 
 being the prevailing Party in all our depreciating Paper- 
 money Colonies, do wickedly endeavour to delude the 
 unthinking Multitude, by persuading them, that all Endea- 
 vours of the Governor, or Proposals and Schemes of private 
 Societies, to introduce a Silver Medium, or a Credit upon a 
 Silver Bottom, to prevent the honest and industrious Cre- 
 ditor from being defrauded ; are Impositions upon the Liberty 
 and Property of the People. 
 
 Depreciating of the Value of nummary Denominations, to 
 defraud the Creditors of the Publick and of private Persons ; 
 by Proclamations of Sovereigns, by Recoinages, and by a 
 late Contrivance of a depreciating Paper-credit Currency ; 
 were never practised, but in notoriously bad Administrations. 
 
 All over Europe, for many Ages preceding the 14th 
 Century, the nummary Pound, and the Ponder al or Pound 
 Weight of Silver, were the same : But in some following 
 Ages, in bad Administrations, the Values of nummary 
 Denominations were gradually reduced ; as in England to 
 
 4 
 
of the British Plantations in America, &c. 5 
 
 4oz. Silver value (upon all Occasions I use the nearest round 
 Numbers) one Third of its original Value ; in Holland the 
 Pound Ulams (6 Guilders) to 2^07. Silver, being only one 
 Sixth of its original Value. A general Stop has been put 
 to those notorious publick Frauds ever since Trade began to 
 flourish: The Civil Governments becoming more polite, 
 found it their Interest, in Affairs of a Medium of Trade, to 
 be advised by the more knowing and experienced Traders : 
 Thus, since the Reign of Edward VI. in England, the Shil- 
 ling Denomination hath lost only 2 gr. Silver. We have two 
 or three Instances of late in Europe, that have deviated from 
 that Maxim of a fixed Value of Silver in Trade : These 
 were in arbitrary Governments, under most arbitrary Admin- 
 istrations. 1. France by Recoinages from A. 1689, to the 
 wise Administration of Cardinal Fleury, was obliged to 
 defraud the Subject, to maintain unjust Wars and Rapines 
 upon its Neighbours, and lessened the Value of nummary 
 Denominations from a Mark of Silver at 27 Livres to 80 
 Livres. 2. The King of Spain, A. 1688, lowered his Deno- 
 minations 25 per Cent. A heavy Piece of Eight, formerly 
 8 Ryals Plate, passed for 10 Ryals current. 3. Sweden, 
 under the Administration of Baron Gortz. 
 
 'In all Sovereignties in Europe^ where Paper-Money was 
 introduced, great Inconveniencies happened ; upon cancel- 
 ling this Paper Medium all those Inconveniencies did vanish. 
 1. In Sweden, Baron Gortz by imposing Government Notes (and 
 Munt Tokyns) reduced the People to extreme Misery (this 
 was one of the principal Crimes alledged against him, when 
 he suffered capital Punishment) ; but these being called in, 
 and the Coin settled upon the same Foundation as it was 
 before Charles Xllth's Accession, Sweden flourished as 
 formerly. 2. The late Regent of France, by the Advice of 
 Mr. Law, did form a Project A. 1720, and by his arbitrary 
 Power, endeavoured to put it in Execution ; to defraud 
 State Creditors and others, by banishing of Silver Currency, 
 and by substituting a Paper Credit: The Effect was, the 
 greatest Confusion, and almost utter Subversion of their 
 Trade and Business. The Remedy was, (Mr. Law having 
 
 5 
 
6 Discourse Concerning the Currencies 
 
 sneaked off, became a Profugus, and at last died obscurely) 
 after a few Months, the Court of France were obliged to 
 ordain, That there should be no other legal Tender but 
 Silver Coin ; and Commerce has since flourished in France 
 more than ever. At present, under the wise Administra- 
 tion of Cardinal Fleury, (who allows of no Paper Currencies, 
 nor Recoinages, which had the same Effect in depreciating 
 nummary Denominations in France, that frequent and large 
 Emissions of Paper-Money have in our Colonies) their 
 Trade bids fair to outdo the Maritime Powers, (as Great 
 Britain and Holland are called) and has a much better Effect 
 in advancing the Wealth and Glory of France, than the 
 romantick butcherly Schemes of Conquest over their Neigh- 
 bours, under the Administrations of Richlieu, Mazarine, 
 and others, in the Reigns of Lewis XIII. and XIV. 3. In 
 Great Britain, A. 1716, were current four and a half Mil- 
 lions of Pounds Sterling in Exchequer Notes, being the 
 largest Quantity current at one Time : Although they bore 
 about half of legal Interest, and not equal to one Third of 
 the concomitant national Silver Currency, they laboured 
 much in Circulation ; and the Government, to prevent their 
 being depreciated, was obliged to give considerable Premiums 
 to the Bank for cancelling some of them, and circulating 
 the Remainder. 
 
 It is not easily to be accounted for, how England, France, 
 and Holland, have tacitly allowed their several American 
 Colonies, by Laws of their several Provinces, by Chancerings 
 in their Courts of Judicature, and by Custom ; to depre- 
 ciate, from Time to Time, the Value of their original 
 Denominations, to defraud their Principals and Creditors in 
 Europe. The British Plantations have not only varied from 
 Sterling, but have also very much varied from one another ; 
 to the great Confusion of Business, and Damage of the 
 Merchant. This will appear plain, by inserting at one View 
 the State of the Currencies in the several British Planta- 
 tions; whereof some are per Exchange, some in Spanish 
 Silver Coin, and some in Paper- Money, called Colony or 
 Province Bills of Publick Credit. 
 
of the British Plantations in America, <&c. 7 
 
 Originally, and for some Years following, in all the 
 English American Colonies, 5s. Denomination was equal to 
 an English Crown Sterling. After some time, Pieces of 
 Eight, being the general Currency of all foreign American 
 Colonies, became also their Currency ; and they remitted or 
 gave Credit to the Merchants at home (by home is meant 
 Great Britain) a Piece of Eight (Value 4s. Qd. Sterl.) for a 
 Crown or 5s. Sterl. This was a Fraud of II per Cent. In 
 sundry of our Colonies were enacted Laws against passing of 
 light Pieces of Eight : These Laws not being put in Exe- 
 cution, heavy and light Pieces of Eight passed promiscuously ; 
 and, as it always happens, a bad Currency drove away 
 the good Currency ; heavy Pieces of Eight were shipped 
 off. This current Money growing daily lighter, a Difference 
 was made between heavy Money which became Merchandize, 
 and light Money, in which they paid their Debts, gradually 
 from 10, 15, 20, to 25 per Cent, as at present in Jamaica : 
 This was another and continued Course of cheating their Credi- 
 tors and Employers at home. From a Complaint of Mer- 
 chants and others dealing to the Plantations, Queen Anne 
 by Proclamation, and the Parliament of Great Britain after- 
 wards by the Proclamation Act, ordered, That after Anno 
 1 709, A heavy Piece of Eight and other Pieces in Proportion 
 to their Weighty in all our Colonies, should not pass exceeding 
 6s. Denomination. This Act continues to be observed in 
 none of our Colonies, excepting in Barbadoes and Bermudas. 
 Virginia Currency was formerly, and continues still, better 
 than what the Act directs. 
 
 In NEWFOUNDLAND, all large Sums are trans- 
 acted in Sterling Bills of Exchange : Small Dealings are in 
 English Coin Sterling Value, and in Pieces of Eight at 4s. 6d. 
 being the Sterling Value. 
 
 In NOVA SCOTIA, the Sterling Bills of Exchange, 
 on the Pay of the Troops, Garrison, and Train, supply 
 them with what they may have occasion for from New Eng- 
 land: Small Dealings are in New England publick Bills, and 
 in French Coin from Cape Breton ; one Livre equal to 4s. 
 New England Currency. At Canso Fish and Oil are pur- 
 
 7 
 
8 Discourse Concerning the Currencies 
 
 chased by Bills of Exchange, New England Money, upon 
 Boston. 
 
 In the Four Colonies of New England, viz. New Hamp- 
 shire, Massachusetts Bay, Rhode Island, and Connecticut, 
 their Currency being Paper, is promiscuously the same. 
 
 NEW HAMPSHIRE (too diminutive for a separate 
 Province, of small Trade and Credit) their Publick Bills are 
 so much counterfeited, they scarce obtain a Currency; hence 
 it is (the Governor's Instruction limiting Sum and Period 
 is also a Bar) that at present, their outstanding Bills of 
 public Credit, some on Funds of Taxes, some on Loan, do 
 not exceed 12,0007., gradually to be cancelled by December 
 1742. Their ordinary Charge of Government is about 
 15007. New England Currency per Annum. 
 
 MASSACHUSETTS-BAY: This being more espe- 
 cially the Scene of our Discourse, we shall be more parti- 
 cular. At the first settling of the New England Colonies, 
 their Medium was Sterling Coin at Sterling Value, and 
 Barter; some Part of their Taxes was paid in Provisions 
 and other Produce, called Stock in the Treasury. When 
 they got into Trade a heavy Piece of Eight passed at 5s. 
 A. 1652, They proceeded to coin Silver Shillings, six Fences, 
 and three Fences, at the Rate of 6s. to a heavy Piece of Eight ; 
 Silver continued current at this Rate by sundry subsequent 
 Acts of Assembly till A. 1705, by a Resolve of the General 
 Court Silver was to pass at 7s. per Oz. A. 1706 the Courts 
 of Judicature chancered Silver to 8s. per Oz. in satisfying 
 of Debts, being nearly after the Rate of 6s. a light Piece 
 of Eight as then current. At this Rate Silver and Province 
 Bills continued upon Par until A. 1714, the Assembly or 
 Legislature fell into the Error of making, from Time to 
 Time, large superfluous Sums of Paper Money upon Loans, 
 and the Emissions for Charges of Government not cancel- 
 lable for many Years ; so that these Publick Bills have been 
 continually depreciating for these last 26 Years, and are now 
 arrived to 29s. per Oz. Silver. 
 
 Massachusetts- Say was the Leader of Paper Currencies in 
 our Colonies. Their first Emission was of 40,0007. A. 1690 
 
 8 
 
of the British Plantations in America, &c. 9 
 
 & 1691, to pay off the publick Debts incurr'd by that 
 expensive, unsuccessful Expedition against Canada; of this 
 Sum 10,0007. was cancelled and burnt in October A. 1691 : 
 In the following Years no more new Emissions, but some 
 Re-emissions of the Remainder, and that only for the neces- 
 sary Charges of Government, called in by Rates or Taxes 
 within the Year ; the last Re-emission of these Bills was 
 A. 1701, of 9,0007. Bills all this Period continued at the 
 Rate of 6s. a heavy Piece of Eight, and were called Old 
 Charter Bills. A. 1702 began new Emissions of Province 
 Bills ; but, as it ought to be in all wise Administrations, 
 cancelled by Taxes of the same and next following Year, 
 until A. 1704, the Rates for calling them in, were in Part 
 postponed two Years; they began A. 1707 to postpone them 
 in Part for three Years; A. 1709 for 4 Years; A. 1710 for 
 5 Years; A. 1711 for 6 Years; A. 1715 for 7 Years; ^4.1721 
 for 12 Years; A. 1722 for 13 Years: Thus, unnaturally, 
 instead of providing for Posterity, they proceeded to involve 
 them in Debt. This long publick Credit and the enormous 
 publick Loans, have depreciated our Province Bills to the 
 small Value they bear at present ; the Issues and Cancellings 
 of their Bills being for a long Series of Years, is too tedious 
 to be particularly and minutely inserted. 
 
 The Province of the Massachusetts- Bay, besides the Emis- 
 sion and Re-emissions of the 40,0007. old Charter Bills, 
 have since A. 1702 emitted and re-emitted Bills of publick 
 Credit, 1,132,5007. upon Funds of Taxes, and 310,0007. 
 upon Loans, being in all near one and a half Million ; 
 whereof about 230,0007. still outstanding, and if publick 
 Faith be better kept will be gradually cancelled by A. 1742. 
 The ordinary Charges of Government may be about 40,0007. 
 New England Currency per Ann. Exchange with Great Bri- 
 tain 450 per Cent. Advance, or five and an half New England 
 for one Sterl. 
 
 RHODE-ISLAND, their first Emissions were A. 1710, 
 towards paying more readily their Quota of Charges on the 
 Expedition against Port Royal (now Annapolis Royal) in 
 Nova Scotia, and have emitted from Time to Time, in all 
 
 9 
 
10 Discourse Concerning the Currencies 
 
 399,3007. whereof only 19,3007. upon Funds of Taxes for 
 Government Charges, and 360,0007. upon Loans, whereof 
 there is at present outstanding (all upon Loans) 330,0007. 
 circiter ; which, if their publick Faith should chance to be 
 kept in Time coming, will not be finished cancelling until 
 A. 1759. The Interest of those publick Loans defrays the 
 Charges of Government, and of their Towns. 
 
 I shall embrace this Opportunity of exemplifying the 
 Iniquity of Colony publick Bills of Credit by the Instance 
 of Rhode-Island, a small Colony containing about 18,000 
 Souls, under an old Charter very lax and general; they 
 admit of no Instructions from the King, Council, or Board 
 of Trade and Plantations ; the King having no Representa- 
 tive or Commissioned Governor in their Legislature. This 
 handful of People have lately made a very profitable Branch 
 of Trade and Commerce by negociating their own Paper Money 
 in various Shapes : their Money being Loans of Paper 
 Credit called Bills, from their Government to private Per- 
 sons upon Land Security ; to be repaid not in the same 
 real Value, but in the same depreciating fallacious Deno- 
 minations. 
 
 1. Their first Loan was A. 1715 for 10 Years, but have 
 by subsequent Acts postponed and prolonged the Payments, 
 so that the last Payment was A. 1738. Thus A. 1715 
 Exchange was at 65 per Cent, with England; A. 1738 
 Exchange was at 4007. per Cent. Advance; that is, for 1007. 
 Sterl. Value received, they pay only after the Kate of 337. 
 Sterl. Suppose further, that the same Person upon the same 
 Land Security, borrows again of the new Emission A. 1738, 
 this 337. Sterl. value ; and, as formerly, by repeated large 
 Emissions, Exchange becomes as at present in North- Carolina 
 10 for 1 Sterl. by A. 1758 the Period of this Loan, the 
 original 1007. Sterling Value will be redeemed with 167. Sterl. 
 Value. And if this Paper Money Loan Trade, could be 
 supposed to continue, the Land Security would gradually 
 vanish, the Land redeemed, and the Debt paid with nothing. 
 
 2. They who take up this Loan Money are called Sharers; 
 and for the first ten Years pay into the Treasury 5 per Cer>* 
 
 10 
 
of the British Plantations in America, <&c. 11 
 
 per Annum Interest ; and for the other ten Years pay 10 per 
 Cent per Annum of the Principal, without Interest. The 
 Sharers let out this Money, in their own and neighbouring 
 Colonies at 10 per Cent, for the said twenty Years (some let it 
 at a higher Interest) is at the Expiration of the twenty Years 
 3007. for every 1007. Loan, Principal and simple Interest ; 
 for which only 1507. is paid into the Colony Treasury, and 
 1507. is clear Gain: So that in this Shape for evert/ 100,0007. 
 Emission, their People in the space of twenty Years, have after 
 the Rate of 150,0007. dear Profits. 
 
 3. In another Shape ; upon a new Emission, Interest is 
 made with the Managers, to obtain Shares in the Loan : the 
 Sharers immediately sell (or may sell) their Privilege, as it 
 is called, for ready Money Prcemium ; at the Emission A. 1738 
 the Premium was 35 per Cent: that is, the Emission of 
 100,0007. does immediately produce after the Rate of 35,0007. 
 ready Money profit. 
 
 4. Rhode- Island purchases from their neighbouring large 
 Province of the Massachusetts-Bay, all Sorts of British and 
 Foreign Goods with this Paper Manufacture which cost 
 nothing ; which enables them to rival us in Trade, (particu- 
 larly in that valuable Branch of it to the West-India Islands) 
 and to which by some unaccountable Infatuation we give a 
 Currency ; while at the same Time our Merchants cannot 
 make .Returns by any Colony Paper Money, for these Goods; 
 it is true, sometimes they bring us Molasses from our Sugar 
 Islands, but mostly from Foreign Colonies, uncustomed, but 
 naturalized upon Oath in Rhode-Island. We have a late 
 good Law against the Currency of such Bills, but not being 
 put in Execution, is of no Effect. The only Reason that can 
 be assigned for giving the Rhode-Island Bills a Currency, is that 
 they are received in all Payments by Consent: The same 
 Reason may hold good for passing of any Bills, even the 
 500,0007. lately proposed without Fund or Period ; and of 
 counterfeit Bills, as in Fact some Bills of Connecticut of small 
 Denominations, tho' known to be Counterfeit, have a Cur- 
 rency. 
 
 CONNECTICUT, a Charter Colony of industrious 
 
 11 
 
12 Discourse Concerning the Currencies 
 
 Husbandmen, having, with much Prudence, emitted only 
 small Quantities of Bills ; Silver would have continued with 
 them at 8s. per Oz. as it did in New York their neighbouring 
 Government westward, if their People had not given a 
 Currency to the publick Bills of their Brethren, in the 
 neighbouring Colonies of New England. Connecticut emitted 
 Bills only for the present necessary Charges of Government 
 upon Funds of Taxes, until A. 1733, having granted a Charter 
 for Trade and Commerce to a Society in New-London, this 
 Society manufactured some Bills of their own ; but their 
 Currency being soon at a stand, the Government were obliged 
 in Justice to the Possessors, to emit 50,OOOZ. upon Loan to 
 enable those concerned in the Society to pay off their Society 
 Bills in Colony Bills; their Charter was vacated, and a 
 wholesome Law enacted. That for any single person, or Society 
 of Persons, to emit and pass Bills for Commerce or in imita- 
 tion of Colony Bills, Penalty should be as in Case of Forgery, 
 or of counterfeiting Colony Bills. Their first Emission of 
 Colony Bills was in A. 1709, and may have emitted in all 
 155,000/. whereof only the above 50,000/. upon Loan. There 
 are at present outstanding about 60,0007. which will be gra- 
 dually cancelled by A. 1742, if the present good Assistants 
 (Council) continue to be annually elected. They have at 
 Times been guilty of emitting small Sums for the present 
 Supply of Government (by oversight and not with anj 
 sinister Design) without annexing a Fund or Period; bui 
 have soon after been cancelled by Taxes. Their ordinary 
 Charge of Government does not exceed 3,0007. New Englant* 
 Currency per Annum. 
 
 N.B. This promiscuous Currency in the four Govern- 
 ments of New England, that is, one Colony giving a Cur- 
 rency to the enormous Paper Credit Emission of one of the 
 other Colonies, has the same Effect as if that Colony did 
 emit Bills of its own : thus the King's instructions to the com- 
 missioned Governments are evaded, by the popular Charter 
 Governments, rendering them of no Effect, having as it were 
 no Dependance on the Crown. A Parliamentary Regulation 
 is the only adequate Remedy. 
 
 12 
 
of the British Plantations in America, &c. 13 
 
 NEW- YORK chancered Proclamation Money to 85. per 
 Oz. of Silver, at the same Time and for the same Reasons, 
 as has been said of Massachusetts- Bay- Government : A. 1709, 
 towards the Charge of an intended Expedition against Canada 
 (upon this same Occasion, began the first Paper Money 
 Emissions of New Jerseys and Connecticut) they issued 13,0007. 
 publick Bills of Credit bearing interest: A. 1710 the Interest 
 was taken off upon pretence, that it occasion'd them to be 
 hoarded up as Bonds, and did frustrate their Currency ; and 
 10,OOOZ. more Bills without Interest were issued. All these 
 Bills being small Sums and faithfully paid off and sunk in 
 Taxes, did not affect Exchange with England. 
 
 A. 1714. By collusion of the Governor, Council and 
 Representatives, a large sum of 27,680 1. in Bills, was issued, 
 to pay off Government Debts, whereof some Part consisted 
 of their oiun ill founded Claims ; gradually to be cancelled by 
 Excise on Liquors to A. 1734: these were issued with the 
 
 Royal Assent. A. 1717 for paying of Government Charges 
 
 and Debts were issued 16,6077. without waiting for the Royal 
 Approbation, gradually to be cancelled by a Duty upon 
 Wines and Rum for 17 Years and Excise continued from 
 A. 1734 to A. 1739: this Emission was connived at by the 
 Boards of Council, Trade and Plantations at home; lest 
 many Persons who had bonafide received them for valuable 
 Considerations, might suffer by their being suppressed. 
 Which Indulgence this Government have abused, by never 
 waiting for the Royal Assent in their future Emissions. 
 
 In the intermediate Years were some small Emissions for 
 
 Charges of Government, and regularly cancelled. A. 1734? 
 
 issued 12,0007. in Bills for Fortifications to be gradually sunk 
 
 before A. 1746 by Imposts. A. 1738 issued 48,3007. Bills, 
 
 whereof 40,0007. upon Loan ; all to be sunk and paid in by 
 A. 1750: this rais'd Exchange to 70 per Cent, and Silver 
 to 95. 3d. per Oz. The Lieut. Governor to obtain of the People 
 a Governor's Allowance, consented to humour them in this 
 Emission. 
 
 A. 1739, the Funds being otherways applied, it was 
 found that, contrary to publick Faith, 15,0007. of the Emis- 
 
 13 
 
14 Discourse Concerning the Currencies 
 
 sions A. 1714 and 1717 were still current, and fifteen Years 
 more upon Excise were enacted to cancel them. So that 
 now there is about 70,0007. in Bills of New York current. 
 
 NEW JERSIES, A. 1709 issued 3,0007. publick Bills 
 of Credit upon the intended Expedition against Canada ; and 
 A. 1711 upon another intended Canada Expedition 5,0007. 
 more Bills were emitted, to be cancelled gradually before 
 A. 1713; but were by Acts of Assembly postponed, and 
 many Bills of both Emissions were current A. 1 723. 
 
 A. 1724 emitted 40,0007. in Bills, whereof some small 
 Part was to cancel the old outstanding Bills, and the rest 
 upon Loan, to be paid in gradually in twelve Years. This 
 being too large an Emission for a small Colony, their Bills 
 became of less Value than those of New- York ; but being 
 yearly in good Faith, sunk, they became equal, and after 
 some Years 2s. in the Pound better than New- York Bills. 
 This is a Demonstration, that the Quantity of Paper Money 
 increasing or faithfully decreasing, sinks or raises the Value 
 of it. A. 1733, was issued 20,0007. more upon Loan to be 
 gradually paid in sixteen Years : this Emission fell their 
 
 Bills to near Par with New-York. A. 1734, the first Loan 
 
 of A. 1724, being near sunk, the Assembly enacted a 40,0007 
 -Loan, but was not issued till A. 1736, having then obtain 'd 
 the Royal Approbation, and passed scarce at Par with New- 
 York', but upon the New-York Emission of 48,3007. A. 1738, 
 the Jersey Bills are 6d. in the Pound better than New- York 
 Bills, and Is. in the Pound better than those of Pensylvania. 
 
 The Jersey Bills keep their Credit better than those of 
 Pensylvania and New- York for these two Keasons, 1. New- 
 York Bills not being current in Pensylvania, and Pensylvania 
 Bills not current in New- York ; but Jersey Bills current in 
 both, all Payments between New- York and Pensylvania are 
 made in Jersey Bills. 2. In the Jerseys failure of the Loan 
 Payments, at the Days appointed, is confessing Judgment, and 
 thereafter only 30 Days Redemption of Mortgages is allowed. 
 
 The 5 per Cent. Interest of publick Loans defrays all 
 Charges of Government. In the Jerseys at present about 
 60,0007. in publick Bills current all upon Loan. 
 
 14 
 
of the British Plantations in America, do. 15 
 
 In the two Governments of PENSYLVANIA their 
 Currency continued Silver Proclamation Value, until A. 1723: 
 The three Upper Counties (strictly called Pennsylvania) 
 emitted upon Loan 15,0007. in Bills, and A. 1724 emitted 
 30,0007. more; but A. 1726 finding that in strictness of the 
 two preceding Acts 6,1007. part of the Capital of 45,0007. 
 was sunk, the Encouragers of Paper Money procured an 
 Act for re-emitting what should be annually paid in of the 
 remainder by the Borrowers ; and A. 1729 emitted 30,0007. 
 which have generally been continued out by re-emitting Acts 
 from Time to Time. A. 1739 they made an Addition of 
 about 11,1007. upon Loan on the same Terms: so that at 
 present they have 80,0007. all upon Loan. Exchange with 
 London 75 per Cent, before Emissions of Paper Money, it was 
 only 33 per Cent. 
 
 The three Lower Counties have also Paper Currency in 
 small Quantities, and upon the same footing. 
 
 In MARYLAND, Silver continued at Proclamation Value 
 until A. 1734, with a considerable Concomitant Truck Trade 
 as a Medium, viz. Tobacco ; they then emitted 90,0007. in 
 Bills, which tho' payable to the Possessors in Sterling well 
 secured, the Sum being too large, and the Periods too long, 
 viz. three partial payments of 15 Years Periods each;- 
 Exchange immediately rose from 33 to 100 and 150 per Cent. 
 
 VIRGINIA has the same considerable Truck Trade 
 Medium^ viz. Tobacco ; and with regard to Silver Currency, 
 have kept their Integrity better than the other Colonies. It 
 is true, Lord Culpeper their Governor, about A. 1680, by 
 an arbitrary Proceeding in the quality of the King's Repre- 
 sentative, did, by virtue of his own Proclamation, alter the 
 Value of their Silver Coin for his own Profit, to defraud an 
 English Regiment then paid off and disbanded, (this Regi- 
 ment was sent from England to quell an Insurrection or 
 Mutiny in Virginia under Bacon) but soon finding that it 
 occasioned much Confusion in Business, and did particularly 
 affect his own Perquisites ; he reduced it again to the former 
 Standard. Silver a few Years ago was 6s. a Crown British,, 
 or 6s. 3d. per Oz. Silver, at present it is 6s. 8d. per Oz, 
 
 15 
 
16 Discourse Concerning the Currencies 
 
 of Silver, and 51. per Oz. Gold ; is 25 per Cent, worse than 
 Sterling. 
 
 NORTH CAROLINA, an inconsiderable Colony scarce 
 capable of any Fund for Paper Emissions ; have notwith- 
 standing 40,0007. upon Loan, and 12.5007. upon Funds of 
 Taxes. At present Exchange is settled by their Legislature 
 at 10 North Carolina for 1 Sterling, but in drawing upon 
 London 12 to 14 for 1 Sterling. 
 
 In SOUTH CAROLINA,their first Emission of publick 
 Paper Credit was A. 1702, towards the Charges of an Ex- 
 pedition against St. Augustine. Their Legislature have been 
 most notoriously guilty of breach of publick Faith, in not can- 
 celling their Bills. Besides the Emissions for ordinary 
 Charges of Government, and their Expeditions against the 
 North Carolina Indians, A. 1711, and against the Southern 
 Indians, A. 1715, they have large Sums upon Loans. They 
 may have at present outstanding about 250,0007. in Province 
 Bills, (whereof above 100,0007. without Fund or Period) 
 besides private Notes of substantial Merchants negotiated, 
 payable upon Demand in Province Bills ; they have also a 
 valuable Truck, viz. Rice. Their present Exchange with 
 London, as settled by their Legislature, to ascertain the Value 
 of Debts contracted, is 8 South Carolina for 1 Sterling. 
 
 In the new Colony of GEORGIA, their Currency are 
 the Trustees sola Bills Sterling : the Funds are the Allow- 
 ances by Parliament, and private Subscriptions to carry on 
 the Settlement. 
 
 PROVIDENCE, including the rest of the Bahama 
 Islands, is scarce reckoned a Colony. 
 
 In BERMUDAS, a Colony of Sea Carriers; their 
 Currency continues Proclamation Value. 
 
 BARBADOES: Their Currency is Proclamation Value 
 by weight 6s. Wd. farthing per Oz. Silver. By the Advice 
 of Mr. W. from New England, they made the Experiment of 
 a Paper Currency, and emitted 16,0007. upon the Negro Tax 
 Fund, and soon after 80,0007. more upon Loan ; these Bills 
 immediately fell 40 per Cent, below Silver, and upon Com- 
 plaint were directly suppressed by an Order from England; 
 
 16 
 
of the British Plantations in America, &c. 17 
 
 and some of the Possessors icho gave thewjjk Currency, have 
 Quantities of them to show, as a Monumen of this Folly, and 
 of Paper Money becoming waste Paper. 
 
 Here, as in all our Sugar Islands, Sugar according to its 
 Quality at the Market Price, serves as a Truck Medium to 
 pay Debts. The Par of Exchange is 33 per Cent, but generally 
 lower and in favour of Barbadoes. 
 
 The CARRIBEE LEEWARD ISLANDS of Antegoe 
 Newis, St. Christophers, Montserrat, and the Virgins, have 
 depreciated from Silver Proclamation Value, to 85. per Oz. 
 in the same Manner as has been said of Massachusetts-Bay ; 
 but never proceeded to that Fraud, Paper-Money: light 
 Pieces of Eight are current by Tale. Exchange 50 per Cent 
 Advance. 
 
 In JAMAICA, formerly a heavy Piece of Eight current 
 at 5s. but light Money taking Place as a Currency ; the 
 heavy Money was shipped off in course of Time, at 10, 15, 
 20, and 25 per Cent, as at present Difference. At this Time 
 a light Piece of Eight passes at 55. a heavy Piece of Eight 
 at 6s. 3d. and Silver at 7s. 2d. per Oz. The Par of Exchange 
 with London is about 36 per Cent, difference, but generally 
 higher and in favour of London. 
 
 Thus we see, that particularly in our Paper Money Colonies, 
 the Currencies have incredibly depreciated from Sterling, and 
 from one another. Exchange with Great Britain being at this 
 Time (Feb. 1739) in New England 450 per Cent, in New York, 
 Jerseys and Pensylvania 70 to 75 per Cent, in Maryland, 150 
 per Cent, in North Carolina, 1100 to 1300 per Cent, in South 
 Carolina 700 per Cent, worse than Sterling. 
 
 To make a Bill or Note bearing no Interest, and not pay- 
 able till after a dozen or score of Years, a legal ready Money 
 Tender in Payment of Debts, is the highest of despotick and 
 arbitrary Government : France never made their State Bills 
 a common Tender. Our Paper Money Colonies have carried 
 the Iniquity still further ; the popular or Democratic^ Part 
 of the Constitution are generally in Debt, and by their too 
 great Weight or Influence in Elections, have made a depre- 
 ciating Currency, a Tender for Contracts done many Years 
 
 17 
 
18 Discourse Concerning the Currencies 
 
 before ; that is, they impose upon the Creditor side in private 
 Contracts, which trie most despotick Powers never assumed. 
 An Instance of a still further arbitrary Proceeding in relation 
 to Paper Money, was an Act of Assembly in New Jerseys, 
 A. 1723, whereby Executions for Debt were stayed until Paper 
 Money should be issued. 
 
 The Mystery of the Infatuation of our Colonies running 
 headlong into a depreciating Paper Currency may be this : In 
 many of our Plantations of late Years, by bad Management, 
 and Extravagancies, the Majority of the People are become 
 Debtors , hence their elected Representation in the Legislature, 
 have a great Chance to be generally of the Debtors Side : 
 or, in other Words, the Representatives being generally Free- 
 holders, and many of them much in Debt, by large Emissions 
 their Lands rise in Denomination Value, while their Debts 
 become really less, and the Creditor is defrauded in Part of 
 his Debt. Thus our Colonies have defrauded more in a few 
 Years, than bad Administrations in Europe have formerly 
 done in some Centuries, The great Damage done to the 
 generous Merchants at Home, and to the industrious fair 
 Dealers amongst our selves, call aloud for some speedy and 
 effectual Relief from the supreme Legislature, the Parliament 
 of Great Britain. 
 
 There is an Argument, which tho' not much attended to 
 here, may be of some Weight at Home, viz. That the Govern- 
 ment at Home ought to connive at Paper Money in the Colonies, 
 because by indulging them in this Error, all the Silver which 
 they acquire from Time to Time, is sent to Great Britain ; 
 and by the chimcera of a fallacious Cash, Extravagancies are 
 encouraged in favour of a great Consumption of British 
 Goods : This ought to be an Argument with us against that 
 Paper Currency, which tends to turn the Ballance of Trade 
 so much against us. It is true, That Great Britain naturally 
 ought to reap some Profit by its Plantation Improvements : 
 but a good Husbandman improves his Lands not by working 
 them out of Heart (as the Term is) but by manuring them, 
 that they may yield the better Crops : besides, what the 
 British Merchants lose in their Returns, by the Colony Bills 
 
 18 
 
of the British Plantations in America, &c. 19 
 
 depreciating, and by the Bankruptcy of their Factors, and 
 Dealers here ; is much more than what Great Britain gets, 
 on the abovesaid Accounts. 
 
 In the Sequel of this Discourse, I shall 1. Enumerate 
 the Inconveniencies and bad Effects of our large Emissions 
 of Paper Money. 2. Endeavour to remove the Prejudices 
 which some designing Men have infused into the Minds of 
 the Populace, in favour of Bills of Credit. 3. Consider 
 several Projections or Schemes to rectify our Currency 
 and present Circumstances, or to prevent their growing 
 worse. 
 
 The Mischiefs arising from a large Paper Currency 
 are, 
 
 I. With regard to the particular and immediate Sufferers 
 thereby. 
 
 1. The Labourers and Trades-men, who in all Countries, 
 are the Hands which feed the Belly of the Common Wealth, 
 and therefore deserve our chief Regard. How much they 
 have suffered, and continue to suffer is obvious : For Instance, 
 a Carpenter, when Silver was Ss. per Oz. his wages were 5s. 
 a Day all Cash. The Town House, A. 1712, was built at 
 this Rate; whereas at present, A. 1739, from the bad Influ- 
 ence of Paper Money, Silver being 29s. per Oz. he has only 
 12s. a Day, equal only to 3s. 4d. of former Times ; and even 
 this is further reduced, by obliging him to take one-half in 
 Shop Goods, at 25 per Cent, or more Advance above the 
 Money Price; this Iniquity still grows, by reducing the 
 Goods Part to the least vendable ; the Shopkeeper refusing 
 to let them have Provisions, West India Goods, or Goods of 
 Great Britain, that are in Demand. 
 
 To make the Case more familiar, Suppose a Tradesman 
 laying in his Winter Store, when Wages were at 5s. with 
 one Days Labour he purchases 15 Pound of Butter, being 
 4d. per Pound (I use Butter because it rises the most 
 uniformly of all Provisions) at present, his 12s. a Day pur- 
 chases only 7 Pound of Butter, at 20d. a Pound. The Clergy, 
 or settled Preachers to Congregations in Boston, when Silver 
 was at 5s. had 37. per Week, at present Silver at 29s. per 
 
 19 
 
20 Discourse Concerning the Currencies 
 
 Oz. they have only 6/. to 8/. equal to 40s. of former 
 Times. 
 
 The Shopkeepers are become as it were Bankers between 
 the Merchants and Tradesmen, and do impose upon both 
 egregiously. Shop Notes, that great and insufferable 
 Grievance of Tradesmen, were not in Use until much Paper 
 Money took Place : This Pay in Goods which generally are 
 of no necessary Use (Provisions and West India Goods at 
 this Time are removed from That Denomination) encourage 
 Extravagance in Apparel and Furniture much above our 
 Condition. 
 
 2. The Merchants of Great Britain, Adventurers to New 
 England, because of their largest Dealings,, have suffered most. 
 Their Goods are here generally sold at a long Credit, while 
 the Denominations of the Money in which they are to be 
 paid, continues depreciating ; so that they are paid in a less 
 Value than was contracted for : thus our Bills have succes- 
 sively depreciated from 85. per Oz. Silver A. 1713, to 29s. 
 in this Year 1739; that is, if we could suppose the same 
 Person to have constantly followed this Trade (without 
 extraordinary Hits) for that space of Time, he must have 
 reduced his Estate after the rate ofSs. only for 29s. For every 
 Shilling in the Pound that Silver rises in Price, or, which is 
 the same, for every Shilling in the Pound that the Denomi- 
 nation of our Paper Money depreciates, the Creditor actually 
 loses 5 per Cent, of his Debt. 
 
 There have been from Time to Time seeking Factors, who 
 to procure Business from Home have entered into Engage- 
 ments which could not possibly be complied with : these 
 having little or nothing of their own to lose, soon make 
 desperate Work of it ; become Bankrupts, and from a general 
 Insensibility of Discredit, do notwithstanding, keep their 
 Countenance as before. 
 
 Many Factors, to dazle their Employers for a Time, and 
 in the mean while to procure more Consignments ; send home 
 a high Account of Sales, by the Shopkeepers giving a great 
 Advance, in Consideration of a very long Credit, and to be 
 drawn out in Shop Notes. This practice has so much pre- 
 20 
 
of the British Plantations in America, &c. 21 
 
 vailed, that it is now become a fixed, tho' pernicious and 
 ruinous Custom. 
 
 As Paper Money pays no Debts abroad, the Factor is 
 obliged to give an extra Quantity of it, to purchase Silver, 
 and other Returns ; which can be exported, to satisfy Debts, 
 in this Shape also the Merchant becomes a Sufferer. 
 
 3. Widows, Orphans, Funds for Charity, at Interest, and 
 all other Creditors; by Bonds, Notes, and Book Debts, 
 acquired by Industry, good Management, and Frugality ; are 
 great Sufferers from Time to Time: For instance, from 
 Autumn A. 1733, to Autumn A. 1734, Silver rose from 22s. 
 to 275. per Oz. this was a Loss of 23 per Cent, of the Principal. 
 
 II. The repeated large Emissions of Paper Money are the 
 Cause of the frequent rise of the Price of Silver and Exchange ; 
 that is, of the publick Bills of Currency depreciating in all the 
 Paper Money Colonies; which do as regularly follow the same, 
 as the Tides do the Phases or course of the Moon. When no 
 larger Sums are emitted for some Time, than what are can- 
 celled of former Emissions ; Silver and Exchange are at a 
 Stand ; when less is emitted than cancelled (which seldom 
 happens) Silver and Exchange do fall. This is plain to a 
 kind of Demonstration, from the Instance in the History of 
 our Paper Money Emissions in New England. 
 
 After Silver had rose A. 1706 to 8s. per Oz, by light 
 Pieces of Eight superseding the heavy Pieces ; it continued 
 at that Rate, while Paper Emissions did not exceed a due 
 Proportion to the current Silver. A. 1714 we emitted 50,0007. 
 upon Loan, and A. 1715 in Rhode-Island 40,0007. besides 
 Emissions on distant Funds for Charges of Government ; in 
 the Autumn A. 1715 Silver became 15 per Cent. Advance, 
 above 8s. that is about 9s. 2d. per Oz. Massachusetts-Bay 
 A. 1717 emitted 100,0007. upon Loan, and a very long 
 Period; Silver rose to 12s. per Oz. A 1721 Massachusetts- 
 Bay emitted 50,0007. and Rhode-Island 40,0007. upon Loan. 
 Silver A. 1722, became 14s. per Oz. From that Time a 
 chargeable Indian War, required large Emissions, and Silver 
 rose to 16s. per Oz. it continued at this Rate till A. 1728, 
 Emissions not being larger than Cancellings. A. 1727, 
 
 21 
 
22 Discourse Concerning the Currencies 
 
 Massachusetts - Bay emitted 60,0007. and A. 1728 Rhode - 
 Island emitted 40,0007. upon Loans ; Silver became 18s. per 
 Oz. A. 1731, Rhode-Island emitted 60,0007. upon Loan. 
 (N.B. Besides the several Loans in the course of this History 
 all the Charges of the four Governments were defrayed by 
 Paper Emissions) and Silver became A. 1732, 21s. per Oz. 
 A. 1733, Massachusetts-Bay emitted 76,0007. upon Funds of 
 Taxes, Rhode-Island 104,0007. upon Loan and Taxes, Con- 
 necticut 50,0007. upon Loan, and A. 1734, Silver became 27s. 
 per Ounce. From A. 1734 to A. 1738, more Bills were 
 cancelled than emitted, Exchange fell from 440 to 400 per 
 Cent. Advance. A. 1738 Rhode Island emitted 100,0007. upon 
 Loan, Silver rose from 2V s. to 29s. per. Oz. 
 
 In New-England, as in all other trading Countries, from 
 some particular Accidents and Circumstances, there hap- 
 pened at Times, some small Fluctuations in Exchange, 
 without any regard to Emissions of Paper-Money. At all 
 Times, when Keturns in Ship-building, Whale Oil, and Fins, 
 Naval Stores, &c. turn out well at Home ; Silver and 
 Exchange here suffer a small fall : at other Times when 
 these prove bad Returns, Silver and Exchange rise a small 
 Matter; the most noted Instance, was A. 1729, when the 
 usual Returns to Great Britain turned to bad Account ; the 
 Merchants from Home, directed their Factors here, to make 
 Remittances in Silver or Exchange only, and at any Rate ; 
 together with an Agency from this Province, and that of 
 Connecticut, fitted out with a Silver Supply ; Silver rose very 
 considerably, but after a few Months fell again to the former 
 Price. 
 
 The Instance of Barladoes must put this Assertion be- 
 yond all Dispute with sober thinking honest Men. A. 1702, 
 by the Persuasion of Mr. W. from New-England, Barbadoes 
 emitted 16,0007. Bills of publick Credit on a Fund of 3s. 9d. 
 Negro Tax ; at first they passed at a Discount, but no more 
 being emitted, and the Period of cancelling being short, they 
 rose again to near Par : This encouraged them to make an 
 enormous Emission of 80,0007. Bills on Land Security at 
 4 per Cent Principal, payable after 5 Years ; These Bills 
 
 22 
 
of the British Plantations in America, &c. 23 
 
 immediately fell 40 per Cent, below Silver : By an Order 
 from Home, they were soon suppressed, and their Currency 
 became Silver Value as before. That Province has ever 
 since kept their Currency up to Proclamation Value, Ballance 
 of Trade in their Favour, Exchange to Great Britain being 
 generally under 33 per Cent, the Par. 
 
 III. Large repeated Emissions of publick Bills of Credit, 
 called Paper Money, is no Addition to the Medium of Trade. 
 No Country can have an indefinite or unlimited Credit ; the 
 further a Country endeavours to stretch its Credit beyond a 
 certain Pitch, the more it depreciates. The Credit of a 
 Country may be compared to that of a private Trader ; if 
 his Credit is equal to 100,0007. Sterl. his Notes of Hand for 
 100,0007. will be as good as Silver; if it be known that he 
 passes Notes of Hand for 200,0007. Sterl. their full Credit 
 will be suspected, and eventually be worth no more than his 
 real Credit 100,0007. Sterl. if he can be supposed to utter 
 500,0007. Bills or Notes, his 57. Note will be worth 20s. 
 Sterling. 
 
 In New England, A. 1713, there were about two thirds 
 Bills to one third Silver Current, equally at 8s. per Oz. Silver 
 Value ; there being an Allowance of 5 per Cent, in all pub- 
 lick Payments in favour of Bills only, gave them a Credit 
 beyond their natural Stretch. At that Time the publick 
 Bills of the four Provinces were about 175,0007. at 8s. per 
 Oz. Silver Value (we use always the nearest round Numbers) 
 is 438,000 Oz. Value, with 219,000 Oz. of Silver Currency, 
 is 657,000 Oz. Silver Value. A. 1718, the publick Bills of 
 New England were 300,0007. (Silver all drove away by the 
 worse Currency of Bills) at 12s. per Oz. Silver, is 500,000 
 Oz. Value in Silver. A. 1731, New England publick Bills 
 were 470,0007. at 20s. per Silver, is 470,000 Oz. Silver Value. 
 A. 1739, the current Paper Money of New England was 
 630,0007. at 29s. per Oz. Silver is in Value 434,000 Oz. 
 Silver. Here it is plain, that the more Paper Money we 
 emit our real Value of Currency or Medium becomes less, 
 and what we emit beyond the trading Credit of the Country, 
 does not add to the real Medium, but rather diminishes from 
 
 23 
 
24 Discourse Concerning the Currencies 
 
 it, by creating an Opinion against us, of bad Oeconomy and 
 sinking Credit. 
 
 A Country may exceed in any Commodity or Medium, 
 excepting in that universally Staple Commodity and Medium 
 Silver ; and a smaller Quantity of any other Commodity or 
 Medium will turn to the same or better Account than a larger. 
 In Holland, upon a too large Importation of Spices, they 
 destroy some Part, to keep up the Value of Spices. Not 
 long since in Virginia, finding that Tobacco (their Currency 
 as well as Export) by its too large Cultivation began to 
 depreciate; by Act of Assembly they restricted it to 1000/. 
 wt. per Annum per Tythable. In Maryland, A. 1734. & 
 A. 1735, for the same Reason they burnt yearly 150/. wt. 
 per Rateable. If our House of Representatives allow our 
 Paper Money to be cancelled in Course, and be sparing in 
 the Manufacture of more ; the Value of the Remainder, 
 would be equal to the Value of the whole now current, or 
 proposed to be added to the Currency. 
 
 It is therefore vain and inconsistent to make Provincial or 
 Municipal Bills of Credit, for a Medium of general Trade : 
 Merchants know how to find their own Tools, or Medium of 
 Trade, better than any Civil Administration can prescribe : 
 In Fact, they who call out loudest for this Paper Medium, 
 are not our large Traders ; but such as would take up Money 
 at any bad Lay, viz. the Idle, those in desperate Circum- 
 stances, and the Extravagant ; who never can have any other 
 Claim to Money but by Fraud ; we must except some, who 
 tho" naturally honest are misguided. Publick Bills of Credit 
 in a proper Sense are only to defray the incident Charges of 
 Government which may accrue, before the proper Ways and 
 Means of Taxes can take Place ; but so soon as can be, to 
 be cancelled by those Taxes. We know of no Country in 
 Europe, where Exchequer Notes, State Bills, or other Bills 
 of publick Credit, have been issued by the Government for 
 a Medium of Trade. 
 
 IV. This Infatuation in favour of Paper Money, has had 
 a mutinous bad Effect upon the Civil Government in several of 
 our Colonies. The Representatives of the People, have 
 
 24 
 
of the British Plantations in America, &c. 25 
 
 frequently refused to provide for the necessary Charges 
 of Government, and other wholesome Laws ; because the 
 Governors and Councils, would not (in Breach of their 
 Instructions from the Crown) concur in emitting large Sums 
 of Paper Money to defraud the industrious Creditor and fair 
 Dealer. I shall mention only a few Instances in S. Carolina, 
 A. 1719, the People deposed the Proprietors Governor on 
 this Account : It is true, the King did not much resent this 
 Mutiny; perhaps, that the Proprietors might be weary of 
 their Property and Government ; and accordingly seven of 
 the eight Proprietors, for a small Consideration, did A. \ 729, 
 resign and sell to the Crown : Upon Governor Johnson's 
 arrival in S. Carolina, A. 1731, there had been no Supply 
 granted in the four preceding Years. The Government of 
 the Massachusetts Bay, has from Time to Time been distressed, 
 by our Representatives refusing Supplies for the necessary 
 Charges of Government, and other publick Affairs, neglected 
 on this Account : Our present Governour's Fortitude and 
 steady Adherence to the King's Instructions, and his having 
 shortened the long Periods of Emissions for Charges of Govern- 
 ment (I am under no Obligation to flatter) are highly laudable. 
 New Hampshire Representatives for five Years preceding 
 A. 1736, granted no Supply. As the French Humour 
 of building Forts, to protect their Settlements against an 
 Enemy, is perverted to the enslaving of the Subjects ; and as 
 the Spanish Humour of Devotion, in building Churches and 
 Convents, is perverted, by their becoming Nurseries of Idle- 
 ness and other Vices ; so the English Liberty and Property 
 of the Subject, in many of our Plantations are sometimes 
 abused, to Levelling and Licentiousness ; it is true, all Men 
 are naturally equal, but Society requires Subordination. 
 
 V. Long Credit, is not one of the least of the bad Effects of 
 Paper Money. People run in Debt, endeavour after a long 
 Credit, and refuse paying their Debts when due; because 
 while Bills are continually depreciating, the longer the Debt 
 is outstanding, they pay their Creditors with a less and less 
 Value, than was contracted for. Sir Alexander Cumings in 
 his Defence, wrote A. 1729. says, That in his Time in South 
 
 25 
 
26 Discourse Concerning the Currencies 
 
 Carolina, Pay after twelve Months, was reckoned as ready 
 Money. Long Credit thus obtained, does in its turn, forward 
 a bad Currency, they go Hand in Hand. A Creditor after 
 being long out of his Money, chuses rather to take the bad 
 Currency and run the Risque of passing it off again (as was 
 the Case of the Rhode-Island Emissions, A. 1733 and 1738) 
 than of losing his Debt, if another Creditor should take it, 
 and the Debtor afterwards become insolvent. 
 
 With ready Money, or short Credit, Business goes on brisk 
 and easy. Long Credit occasions the Unthinking of all Con- 
 ditions and Occupations, to involve themselves. A Merchant 
 over-trades himself, a Shop-keeper buys more Goods, and at 
 a greater Advance than he can afterwards comply with ; the 
 Countryman buys and mortgages Lands, to his final Ruin. 
 
 VI. Insensibility of Discredit, does naturally follow long 
 Credit: All Shame and Modesty is banished even in the 
 Creditor ; who, tho' formerly a modest forbearing Man, is 
 now obliged to Dun incessantly, or lose his Debt. Ready 
 Money and short Credit, give a quick Circulation ; the 
 quicker the Circulation, the less Quantity of Medium is 
 required to carry on the same Trade and Business : Long 
 Credit, and Insensibility of Discredit, have the contrary 
 Effect. There are at present extant of New England pub- 
 lick Bills of Credit about 630,0007. a much larger Sum than 
 ever was extant at any other Time ; yet Money was never 
 so scarce, and Debts worse paid : People chuse rather to hoard 
 it up, and wait for better Times, than put it out and not be 
 able to recover it again, but after an unreasonable Length of 
 Time and much Trouble ; Money hoarded up, is the same as 
 if not in being, as to Currency. If a Shopkeeper does not 
 clear with his Merchant, till after two or three Years due ; 
 he is notwithstanding esteem'd as honest as his Neighbour : 
 Our Courts are full of plain Bonds, and Notes of Hand ; 
 Appeals on them are allowed, Executions delay'd, frc. This 
 Insensibility of Discredit, breaks all Friendship ; it makes a 
 Man cautious of lending his Money to his best Friend, and 
 nearest Relation. 
 
 A general Clamour for a depreciating Paper Currency, is 
 
 26 
 
of the, British Plantations in America, &c. 27 
 
 a certain Sign of the Country being generally in bad Cir- 
 cumstances ; that is, in Debt', because all Creditors, who by 
 their Industry and Frugality, have acquired Rents, Bonds, 
 Notes, and Book Debts, lose by its depreciating ; and the 
 Debtors (the Idle and Extravagant Part of the People) come 
 off easy by the Creditors Loss. Seeing they who are despe- 
 rately in Debt, and want to pay a smaller Value than con- 
 tracted for, or they who have nothing to lose, are generally 
 of the Party for Paper money ; this ought to be a strong 
 Prejudice against it, with sober thinking Men. 
 
 We have some prevailing Customs and some Laws in force, 
 which seem to encourage this Insensibility of Discredit in 
 Debtors; 1. A Maxim amongst Shopkeepers, That the most 
 ready Way to grow rich, without any Expence of Industry, 
 is, to run boldly in Debt, procure a long Credit ; after Time 
 of Payment is elapsed, to bear Dunning with a good Face, 
 and finally to let the Debt take its full Course in the Law, 
 which further requires twelve Months or more, at a small 
 Cost: Notwithstanding this Chain of Iniquity, the Debtor 
 keeps his Countenance, and many Factors continue to trust 
 him with their Employer's Goods, as formerly. 2. Estates too 
 easily allowed to be represented as Insolvent ; whereby Creditors 
 are defrauded of some Part of their Due. 3. Appeals upon 
 plain Bonds, Notes of Hand, and Defaults, to the great Re- 
 lief of the fraudulent Debtor, and Damage of the honest 
 Creditor. 4. Sheriffs impune Delay of Executions, while the 
 Creditor is allowed neither Interest nor Damage upon the 
 Debt. 5. The too general Laws for the Relief of insolvent 
 Debtors, whereby the Fraudulent, the Idle, and the Extra- 
 vagant, when sent to Goal, are too soon, and at too easy a 
 Rate, turned loose to follow the same Courses. What I have 
 here said, cannot be understood in Contempt of our Legislative 
 Authority ; because of that valuable Privilege belonging to 
 our Constitution, viz. of repealing, amending, or explaining 
 what Laws from Experience may be found to require the same. 
 
 The Arguments current amongst the Populace in favour of 
 Paper Money are, 
 
 I. In most of the Paper Money Colonies one of the 
 
 27 
 
28 Discourse Concerning the Currencies 
 
 principal Reasons alledged for their first Emissions ; was, to 
 prevent Usurers imposing high Interest upon Borrowers, from 
 the Scarcity of Silver Money. It is true, that in all Countries 
 the increased Quantity of Silver, falls the Interest or Use 
 of Money ; but large Emissions of Paper Money does 
 naturally rise the Interest to make good the sinking Princi- 
 pal : for Instance, in the Autumn, A. 1737, Silver was at 
 26s. to 27s. per Ounce, but by a large Rhode-Island Emission, 
 it became in Autumn 1739, 29s. per Oz. this is 7 per Cent. 
 Loss of Principal, therefore the Lender, to save his Principal 
 from sinking, requires 13 per Cent, natural Interest (our 
 legal Interest being 6 per Cent.) for that Year. In Autumn, 
 A. 1733, Silver was 22s. per Oz. by large Emissions it became 
 27s. in the Autumn, A. 1734 ; is 22 per Cent, loss of Prin- 
 cipal ; and the Lender to save his Principal ; requires 28 per 
 Cent, natural Interest for that Year. Thus the larger the 
 Emissions, natural Interest becomes the higher ; therefore the 
 Advocates for Paper Money (who are generally indigent 
 Men, and Borrowers) ought not to complain, when they 
 hire Money at a dear nominal Rate. 
 
 If Bills were to depreciate after a certain Rate, Justice 
 might be done to both contracting Parties, by imposing the 
 Loss which the Principal may sustain in any certain Space 
 of Time (the Period of Payment) upon the Interest of a 
 Bond or Price of Goods : but as Depreciations are uncertain, 
 great Confusions in Dealings happen. 
 
 II. That the Merchants arbitrary Rise upon the Price of 
 Goods, does from Time to Time depreciate the Denominations 
 of our Paper Money, is imposed upon the unthinking Part of 
 the People, as a certain Truth, by designing Men. It is 
 certain, that in all Countries of JEurope, where, by Recoin- 
 ages or Proclamations, the current Specie has been debased, 
 the nominal Price of Goods did naturally rise in Proportion : 
 is it not more natural to. say, that formerly in France their 
 Recoinings or lessening the Value of their Denominations, 
 did raise the Price of Goods ; than to say, that the Rise of 
 the Price of Goods was the Cause of their Recoinages ? 
 A continued Rise on Goods in general is from a depreciating 
 
 28 
 
of the British Plantations in America, &c. 29 
 
 Medium ; but Fluctuations in particular Goods, are from the 
 Quantities and Demand ; thus A. 1739, Provisions, the most 
 Staple of all Commodities, have been cheap, viz. Wheat at 
 105. per Bushel, Silver being 295. per Ounce, whereas A. 
 1738, Wheat was at 18s. per Bushel, when Silver was only 
 275. per Oz. 
 
 When a large Emission can be foreseen, the Price of 
 Goods rises ; because, being sold upon long Credit, the 
 Effects of the Emission will take Place before the time of 
 Payment : henc-e it is that, generally, the Price of Goods 
 advances, before Exchange and Silver do rise ; Exchange and 
 Silver being bought with ready Money, cannot take Place 
 until the Addition is made to the Currency by this new 
 Emission, and then only gradually as the Merchant receives 
 his Pay ; thus the large Emissions of A. 1733 did not bring 
 Silver to its Height, 27s, per Oz. until Autumn, A. 1734 : 
 Hence proceeds that inculcated Fallacy of the Advance on 
 Goods rising the Price of Silver and Exchange. The same 
 Reason for Lenders of Money, imposing a high Interest, 
 holds in the Rise of the Price of Goods : Custom has given 
 a long Credit, Insensibility of Discredit, makes it still longer, 
 and before the Merchant is paid, the Currency is become 
 much depreciated. 
 
 III. The Sticklers for Paper Credit, requiring long Periods, 
 as well as large Emissions, is a most natural Desire. Some of 
 the Massachusetts- Bay Loan, of A. 1717, is still outstanding 
 A. 1739 : The several Rhode-Island Loans do not terminate 
 in less than 20 Years : By this unnatural Contrivance they 
 oblige Posterity to supply the Extravagancies of their 
 Parents and Ancestors, instead of the common and natural 
 Instinct of Parents providing for their Children. 
 
 IV. It is not repeated large Emissions of a base Paper- Cur- 
 rency, but our Imports exceeding our Exports, that occasions 
 Silver to be ship'd off in Ballance ; therefore we are not to expect 
 a Silver- Currency, supposing all Bills cancelled. Before Paper- 
 Money took place in New England, Silver abounded in 
 Currency as much, and perhaps more, than in many of our 
 Colonies: Our Exports are always in Demand, viz. Ship- 
 
 29 
 
30 Discourse Concerning the Currencies 
 
 building, all Branches of Fishery, Naval-Stores to Great 
 Britain, Logwood from the Bay of Honduras, Lumber, Stock, 
 and other Provisions to the other Colonies ; and (Bermudians 
 excepted) our Navigation is the cheapest of all Carriers. 
 Silver began to be generally shipM off as Paper became the 
 Currency ; which gave the Merchant the Liberty of shipping 
 off his Silver as Merchandize, which otherways he must have 
 kept as Cash, seeing no Business can be carried on to Advan- 
 tage without Cash. In all Countries, if a bad Medium is 
 introduced, People take Care to secure the better Mediums, 
 and they are no more current. 
 
 The Fallacy of Quantities of Paper-Money, has increased 
 our superfluous Imports, much beyond what was in former 
 Times. The seeking Factors upon a large Emission, advise 
 the Merchant in Great Britain, that Money being now very 
 plenty, a large Quantity of Goods will sell : Accordingly a 
 Glut of Goods is sent to New England, more than can be 
 sold for ready Money and short Credit ; the Consequence is, 
 a long Credit, with its consequential Multitude of Evils ; 
 that is, Returns or Exports in full, are never, or not till after 
 a long Time, shipM off. 
 
 Our Paper-Money being only passable amongst ourselves, 
 is the Reason, why, they who deal only in buying and selling 
 ashore, get the most Money ; all their Profits are upon our- 
 selves, and run no Risque of precarious Returns ; while the 
 generous Merchant loses upon his Exports to a foreign 
 Market. This is a ruinous Case. 
 
 As Paper-Money grows scarce, Imports will be less, and be 
 sold cheaper ; no Country can want a true real Medium of 
 Trade, while their Exports exceed their Imports ; Let us 
 then lessen our Imports by our Frugality, and add to our 
 Exports by our Industry ; and we shall have no occasion for 
 this chimerical ill founded Medium, Paper Money. 
 
 V. The goodly Appearance, which Boston and the Country 
 in general at present, make in fine Houses, Equipage, and Dress, 
 is owing to Paper Money. All our Plantations, from some 
 Infatuation, are inclinable to run into Prodigality, Profuse- 
 ness, and Show: these Paper Loans, (from publick or 
 
 30 
 
of the British Plantations in America, &c. 31 
 
 private Schemes) upon long Periods, give the unthinking 
 and unwary. Opportunities of involving themselves, by thus 
 sinking what they have borrowed; by repeated Emis- 
 sions, they have Opportunities of paying a former Debt, by 
 running further in Debt, till at length they become Insol- 
 vents. People do not consider, that all Emissions upon Funds 
 of Taxes, or upon Loans, is running the Country more and 
 more in Debt, and will in Course fall heavy upon every 
 Individual. Never were greater Complaints of want of 
 Money, while at the same Time, never more Extravagance in 
 Equipages and Dress. Boston, like a private Man of a small 
 Fortune., does not become richer but poorer, by a rich goodly 
 appearance. 
 
 What Part of these Emissions have we laid out in 
 Improvements of Produce, or Manufacture ? Not any. It 
 is true, it gave some Men Opportunities of building Vessels, 
 and running into Trade ; but their Education and Experience 
 not lying that Way, and having no other Bottom of their 
 own, they soon became broken Merchants. 
 
 Expending in fine Houses and Apparel what ought to 
 have purchased Exports, is one of the Reasons, why Ballance 
 of Trade is against us. 
 
 There is another Fund for all this Finery, and of which we 
 ought not to boast, but be ashamed. By the Means of a 
 depreciating Currency the Merchant at Home, has been paid 
 in less Value, than was contracted for; his Loss was our 
 Gain. Several Factors, from Time to Time, have, by Arti- 
 fice and Assurance, procured large Commissions from Home, 
 and with Effrontery and Insensibility of Discredit, have 
 become Bankrupts : Thus the Produce of these Effects 
 remained here, and makes good in some Sense, that Position 
 of Dr. Mandeville's ; Private Vices are Publick Benefits. 
 
 VI. This Country formerly had but a small Trade, now our 
 Trade being much enlarged, we require a large Medium. This, 
 like all the Arguments commonly used to pervert the People, 
 is very unnatural : because the more a Country grows in 
 good Trade, the more true Medium of Trade it acquires, and 
 
 31 
 
32 Discourse Concerning the Currencies 
 
 would have no Occasion to have Recourse to a fallacious 
 Succedaneum, or Shift. Notwithstanding the vast Floods of 
 Paper Money lately emitted, and our Trade also more 
 general : we find that, in former Times, the People were more 
 willing and able to pay high Rates, than at present. The 
 first Assembly upon the new Charter, did, in June A. 1692, 
 lay a Tax of 30,0007. (equal to upwards of 120,0007. present 
 Currency) payable within the Year, viz. one half before the 
 25th of December A. 1692, and the other half before the 
 first of May 1693; towards paying off Charges formerly 
 incurred by the Canada Expedition, and Charges of that 
 Year. A. 1694 the Tax was 17,5897. (equal to upwards of 
 70,0007. present Currency) towards paying off the Govern- 
 ment Charges of that and the preceding Year. Whereas, 
 we who reckon ourselves so much increased in Trade at pre- 
 sent A. 1739 refuse a small Rate of about only 50,0007. 
 towards paying Government Charges incurred A. 1728, 
 A. 1733, and A. 1737. 
 
 VII. How can we pay our Taxes and Debts, if the Govern- 
 ment do not make large Emissions of Paper Money ? In all 
 Countries, excepting in Paper Money Colonies, the People 
 support the Government : it is absurd to imagine that a 
 Government finds Money for its People, it is the People 
 who, by their Trade and Industry, provide not only for their 
 own Subsistence, but also for the Support of Government, 
 and to find their own Tools or Medium of Trade. It is true, 
 the Government, that is, the Stewards of the Publick, may 
 (by the Consent of their Principals, the collective Body of 
 the People) raise Money upon the Credit of the real and per- 
 sonal Estates of the People : but this, in propriety of Speech 
 is not making, (or acquiring) of Money, as we term it, but 
 the reverse : A Prodigal who involves his Estate to raise 
 ready Money, is it not ridiculous to say he has made so much 
 Money ? whereas, in effect, he has spent so much Money by 
 sinking some Part of his Estate. The unthinking Part of our 
 People do not consider, that every Emission of Paper Credit, 
 called Money, is laying a heavy Tax upon us, which in Time 
 
 32 
 
of the British Plantations in America, &c. 33 
 
 will contribute to our Misery : and is really analogous to the 
 Negroes in Guinea, who sell their Progeny into Slavery, for 
 the sake of raising some ready Pence. 
 
 Our present Rates, are only a calling in Bills formerly 
 Emitted, and therefore are supposed in being, and do not 
 require a new Emission. This Cry is the same as if a private 
 Person borrows of another 100/. payable after some Time, and 
 in the mean while, by profuseness and bad (Economy, be- 
 comes incapable of satisfying the Debt when the Term of 
 Payment is come : But says to the Lender, you use me very 
 ill, if you do not lend me 200/. to enable me to pay the first 
 100/. and for other Occasions : if the Lender proceeds thus 
 to indulge the Borrower, this bad Husband must at length be 
 reduced to a State of Bankruptcy : Province Bills are as much 
 a Debt upon the collective Body of the People, as a private Man's 
 Bonds and Notes of Hand, are a Debt upon himself. 
 
 VIII. The Emission o/35,000/. to 40,000 per Ann. for the 
 Ordinary Charges of Government, is a small insignificant 
 Addition to our Currency ; publick Loans have been found 
 inconvenient ; let us then emit large Sums in Province Bills (the 
 Charge of making Bills is a Trifle) towards publick Edifices, 
 Fortifications) Guarda Costas, Bridges, Castles in the Air, or 
 any Thing, tho* of no use or Consequence : They will draw out 
 larger Sums, and considerably increase our Currency. They do 
 not consider, that this contracting a large unnecessary Debt, 
 to be redeemed after some Years, by heavy Rates and Taxes, 
 will occasion a Clamour, perhaps a Mutiny, worse than the 
 present groundless Complaints of Oppression. Such unne- 
 cessary Impositions are frequently Grounds of Complaint in 
 the People against some Governors : but that the People 
 should thus impose upon themselves, is one of the unnatural 
 Effects of Paper Money. 
 
 IX. Seeing there is like to be no Stop to our Infatuation in 
 receiving the depreciating Bills of Rhode-Island ; why should 
 they reap all the Profit in our Ruin : Why should not some of 
 our merciful Selves (as the Authors of the 500,000/. Scheme 
 calhhernselves) partake with them in the Plunder, by taking 
 the Advantage of our present Indispositions and Weakness ? 
 
 33 
 
34 Discourse Concerning the Currencies 
 
 Carry the Imposition further than that of Rhode- Island ; even 
 beyond what could have entered into the Heart of Man, at 
 any other Time or Place, to conceive : I mean the emitting 
 of 500,000/. in Notes, without Fund or Period ; a Project to 
 out-do the Rhode- Islanders in Fraud, and to make these Bills 
 more Current, because worse than those of Rhode- Island : It 
 is almost incredible to what a Pitch of Iniquity some People 
 are arrived, even prophanely to lard their Proposals with 
 Scripture Phrases, to impose upon the Vulgar waste Paper, 
 instead of a valuable Medium. 
 
 The several Projections or Schemes which occur at present, 
 towards rectifying our Currency, or at least to prevent its grow- 
 ing worse, are, 
 
 I. Of a publick Nature. 
 
 1. Is palliative, to prevent its growing worse, by bringing it 
 to a Standard. By Act of Assembly let the Governor and 
 Council be impowered, with the Advice of Merchants, to settle 
 once or twice a Year the Price of Exchange to London, 
 or of Silver, in Province Bills ; all Bonds, Notes, and Book, 
 Debts, when paid, shall be received in Province Bills, 
 equal in Value to the Exchange or Price of Silver, as it was 
 thus settled at the Time of contracting : For Instance, if I 
 contract for 500/. New England Bills of Credit, whenExchange 
 is settled at 5 New England for 1 Sterling, and when the 
 Contract is to be satisfied, Exchange is settled at 6 for 1 ; 
 1 must pay the true or Sterling Value, which is 600/. New 
 England Bills : This is strict Equity and natural Justice ; it 
 will effectually obviate the fraudulent Practices of those who 
 are constantly clamouring for more Province Bills, and pre- 
 vent the neighbouring Colonies from imposing their depre- 
 ciating Bills upon us. Both "Carolinas have given us a suc- 
 cessful Precedent. 
 
 2. As private Credit, being under Coercion, is better than 
 publick Faith, which being above the Law, is lawless, Let 
 the Legislature give a Sanction to some Society, of good sub- 
 stantial Men, who may be willing to emit Bills upon a good 
 Silver Bottom, continually meliorating at a small Rate, v. g. 
 3 per Cent, per Ann. to prevent their being hoarded up ; 
 
 34 
 
of the British Plantations in America, <&c. 35 
 
 and receivable in Taxes, and all publick Payments : Such 
 Bills will soon bring a Discount upon all other Bills. We 
 have at this Time (Christmas, A. 1739,) a remarkable 
 Instance of private Credit being good, and publick Faith of 
 no. Account : Merchants Notes (a private Emission some Years 
 ago upon a Silver Bottom) are sold at 33 per Cent. Advance, 
 their true Value above common Currency ; at the same Time, 
 our Province Bills of the New Tenor, which in good Faith are 
 25 per Cent, better than the other Currencies, pass promis- 
 cuously with the bad Currencies at Par. 
 
 3. Let Massachusetts-Bay Bills only, be receivable by the 
 Treasurer of the Province, Counties, and Towns ; all Bills of 
 the old Tenor, when brought into their Treasury, to issue 
 out no more : That all publick Bills hereafter to be emitted, be 
 of the Nature of our late Bills of a New Tenor, with this addi- 
 tional Clause, " And after the last of December An 
 
 the Treasurer is hereby directed, without further Advice or 
 Order, to pay to the Bearer Silver, or Gold, upon Sight :" 
 The Fund for bringing in this Silver and Gold from abroad, 
 to be Impost upon Goods, Tonnage, and Light-House 
 Money, payable in Silver or Gold only. At the several 
 Emissions let there be an equal Sum taxed on subsequent 
 Years within the Period; and these Taxes, at the same Time, 
 assessed on the several Towns, ordering the Province Trea- 
 surer at the stated Times to issue out his Warrants accord- 
 ingly, without further Order ; to prevent Breach of Faith in 
 future Assemblies, refusing to assess the Taxes of the Year, 
 which is the same as postponing. Thus all these Bills will 
 have the Credit of a Silver Bottom, tho' in their Nature they 
 will be cancelled in Course by Taxes, before the Period of 
 redeeming them by Silver arrive ; that is, there will be none 
 left to make a Demand upon the Treasury ; The Silver lodged, 
 will, after the Period, be ready for any Exigency of Govern- 
 ment. In Fact, if Breach of publick Faith do not intervene, 
 the present Bills of the new Tenor will, by the End of December 
 A. 1742, bring Silver to 20s. per Oz. Let all new Emissions 
 be in Bills of a second new Tenor, two for three of the first 
 new Tenor, payable in Silver or Gold, after the last of De- 
 
 35 
 
36 Discourse Concerning the Currencies 
 
 cember, A if not paid in by Taxes as above. Thus Silver will 
 be brought to 13s. 4d. per Oz. Finally, after some Years, Jet 
 all future Emissions be in Bills of a third new Tenor, 1 for 2 of 
 the second Tenor, payable in Silver or Gold, after the last of 
 December A. ,with the forementioned Circumstances ; Silver 
 will then be 6s. Sd. per Oz. It is plain, that 100,0007. of this 
 last Money, will be a larger Medium of Trade, than 400,0007. 
 of the present Currency. This promises best, and would be a 
 gradual^ gentle, and easy Method of making our Currency as 
 valuable as that of Virginia) which is the most valuable of all 
 our Colony Currencies. 
 
 4. The Parliament of Great Britain are at this Time, perhaps, 
 taking some more summary Method of settling our Plantation 
 Currencies, towards redressing the injured Merchants at home : 
 and the fair Dealers in the Colonies : They made some Steps 
 towards it last Sessions of Parliament. It is probable, they 
 may abridge the Plantations of this Privilege, which they 
 have assumed, of making their publick Bills of Credit, a Tender 
 at any Rate they please to impose, which is equal to the 
 King's Prerogative in Coins. And to prevent private Societies 
 from bubbling the People, perhaps, they may extend the Act 
 6th Anna, to the Plantations, viz. That no Partnership 
 exceeding Six shall act as Bankers. 
 
 II. Private Schemes. It happens unluckily for our Paper- 
 money Advocates, that, at this Time, when the Parliament 
 are about redressing these Grievances, they should madly 
 advance many more Schemes (some fraudulent, some foolish, 
 and some good, but impracticable) than ever before, for mul- 
 tiplying of Paper-money : This makes good the old Saying, 
 Quern Deus vult perdere, prius dementat. 
 
 All private Banks for large Sums upon Subscription, have 
 the same bad Consequence which attends publick Loans, viz. 
 a Snare to the People, by giving the Unwary, and the Pro- 
 digal, Opportunities of borrowing, that is, of involving and 
 ruining themselves. Our Legislature, from Experience, are 
 become sensible of this Error, and for many Years have 
 issued no publick Loans. 
 
 1. Land Banks. The famous Mr. Law, noted for his 
 
 36 
 
of the British Plantations in America, fyc. 37 
 
 Knowledge in the Chances of the Games called Hazard, and 
 for these Fallacies called Sharping ; in Favour of a Land 
 Bank, being preferable to Silver says, That Land mortgaged 
 serves for Money, and Culture, or Produce at the same Time ; 
 whereas Silver cannot serve for Money and Plate at the same 
 Time. As he did not understand Trade, he did not consider 
 that Silver serves for Money and Merchandize at the same Time, 
 and that Trade is more profitable than Agriculture. A Land 
 Credit or Bank may do in a Country of no Trade ; but it is 
 ridiculous to imagine, that it can serve as a Medium for 
 foreign Commerce. It cannot be shipt off as Merchandize or 
 Returns, as is the Case of Silver : It cannot be transferred 
 by Bills of Exchange ; for so many Ounces of Silver received 
 in Boston, I can draw upon my Correspondent for so many 
 Ounces of Silver payable in London ; but for so many Acres of 
 Land made over to me in New England, I cannot draw upon 
 England for any number of Acres, Quantity and Quality 
 adjusted. 
 
 In a Country where the Denominations of their Currency 
 depreciates, Land being fixed in itself, rises in Denomination 
 Value ; whilst what is owing upon the Land, becomes so 
 much less as the Denominations do depreciate: Hence it 
 is, that a Land Bank is so much desired, by those who are 
 in Debt by Mortgage, or who desire to run in Debt by 
 mortgaging their Lands. 
 
 2. A Credit, or Bank of Produce, and Manufacture, will 
 never answer in a Country where Idleness and Indolence 
 prevails : A late large Bounty upon Hemp did not encourage 
 the raising of any considerable Quantity thereof : It would 
 prove a most perplexed labouring Affair, viz. inspecting the 
 Quality, settling from Time to Time the Market-price, De- 
 ficiencies in case of bad Crops, and other Misfortunes : Notes 
 payable at these unwieldy Stores, would be of the same 
 Nature, and attended with the same Inconveniencies, as the 
 so much deservedly exclaimed-against Shop- Notes. In the 
 Infancy of Countries, particularly of this Province, some Part 
 of the Taxes were paid in Produce, called Stock in the Trea-* 
 
 37 
 
38 Discourse Concerning the Currencies 
 
 sury ; but as our foreign Trade did grow, it was found most 
 convenient to discontinue it. 
 
 I shall exemplify our present Projections of Banks upon 
 Land, Produce, or Manufacture, by only one Instance. The 
 Bubble of 450,0007. upon Land and Produce, which fills by 
 Subscriptions at a great Pace ; the Subscribers by their 
 Articles, give their Twelve Directors a Negative in the whole 
 Management; a Power never before heard of in any Society 
 of Bankers or joint Stocks: It is true, they deserve it; 
 because, by the Face of their Bills, the Directors or Signers 
 promise to circulate the whole 450,0007. upon Sight But is it 
 possible that any Man, who gives himself the Trouble of 
 thinking seriously, can imagine, that 12 Men of small 
 Fortunes (who perhaps do not trade for 30,0007. per Ann.) 
 should in their Trade immediately circulate 450,0007. ? Can it 
 be supposed possible to negotiate Notes of so great a Sum upon 
 so small a Bottom ? In short, this Scheme is so full of Incon- 
 sistencies, that it .seems to exceed any of the Bubbles (which 
 were upwards of 100 in Number) projected in London, in 
 that Year of Bubbles A. 1720. 
 
 3. A Credit upon a Silver Fund, well regulated as to Periods 
 and Discounts, would answer if there were no concomitant bad 
 Currency : But as a bad Currency already prevails, and will 
 in all Probability increase, by Two Years Charges of this 
 Government to be emitted at once, by a 100,0007. Rhode- 
 Island Emission, which they may throw in upon us at 
 Pleasure; and by a new Emission of 10,0007. from Connec- 
 ticut, which they have been endeavouring from Time to 
 Time, by trying to drop a Majority of the present Assistants 
 or Council ; Silver will then rise in Price, and these Notes 
 on a Silver Bottom becoming more valuable, will be hoarded 
 up, lie dormant, and answer no Design of a Currency : It is 
 true, they will secure to the Possessor his Principal, with a 
 growing Interest; but as to Currency, they are worse than 
 common Bills, which, being daily let upon Bond, do circulate 
 and promote Business, tho' at the same Time the Owner or 
 Creditor sinks part of his Principal, by its depreciating ; 
 and his Interest is ill paid, from a general Insensibility of 
 
 38 
 
of the British Plantations in America, dc. 39 
 
 Discredit. Such Bills will never obtain a Currency until they 
 force a Discount upon the bad Currency.. 
 
 An Experiment of this Kind has already been made by 
 the Merchants Notes so called, without any good Effect : They 
 never became a Currency'; they proved a Snare to many of 
 the Subscribers and Borrowers : Silver did rise in Price as 
 much, and perhaps more, than if they had never been 
 emitted. Any Scheme of this Nature, if upon a longer 
 Period, will, on that Account, be the more defective. 
 
 If the Scheme for emitting Company Notes or Bills, to 
 be paid after 15 Years, with Silver at 20s. per Oz. can be so 
 contrived, as to bring a growing Discount upon the bad 
 Currency, it will be of the greatest Service to this Province. 
 It seems to bid fair for it (I am no Undertaker nor Promoter 
 thereof, and therefore may be deemed impartial) ; the 
 Undertakers are Men of known Probity, of the best Estates 
 and of the largest Trade in this Place : By their Articles 
 they oblige themselves, under high pecuniary Penalties, to 
 circulate these Bills at a certain annually growing Value, 
 until they arrive at 205. per Oz. and, in Conformity to a late 
 Law of this Province, to refuse all future Emissions of the 
 neighbouring Governments, unless founded upon a Silver 
 Bottom. 
 
 It may perhaps be adviseable to suspend the Execution of 
 any Paper-money Schemes, as the Affair of Colony Paper- 
 Credit is, this present Sessions, under the immediate Considera- 
 tion of the Parliament of Great Britain, our supreme and 
 absolute Lawgiver; lest the Subscribers {Undertakers) or 
 Possessors of these Bills and Notes should suffer some consider- 
 able Damage, by their peremptory Suppression. 
 
 The Projectors of the many various private Banks for 
 Currency, seem to presume too much upon the Indulgence 
 or Connivance of our Legislature : Some audaciously question 
 their Power to prevent the People from bubbling one another, 
 being (as they call it) an Act of Liberty and Property to pass 
 and receive Notes of Hand : Others impudently impeach the 
 Integrity of the Majority of the Legislature, as being, in a 
 private Capacity, Promoters and Encouragers of these 
 
 39 
 
40 Discourse Concerning the Currencies 
 
 Bubbles. Doubtless our Legislature, as the natural Guar- 
 dians of the People, will compassionately prevent their 
 ruining of themselves, by proper Laws ; such as those in 
 Great Britain, 6th of Anna, against Bankers, and sundry 
 Acts against Bubbles ; or, to go no further for a Precedent, 
 that of our neighbouring Colony Connecticut^ A. 1733, 
 against private Society or Bank Bills. There seems, at 
 least for the present, an absolute Necessity to suppress 
 those which will unavoidable have a riotous Consequence ; 
 I mean, the passing upon the Unwary, for a valuable Con- 
 sideration, Bills without any true Fund or Bottom : Such Bills 
 soon stop in Currency, and the poor innocent Possessors, 
 the Tradesmen and Artificers, who, for special Reasons (as 
 they express it) are made their Dupes, will be provoked to 
 use the Persons and Effects of the Projectors and Signers of 
 those Bills in a riotous Manner. Our Assembly did formerly 
 effectually suppress the pernicious Bubbles of private 
 Lotteries. Our Law enacted in January, A. 1738, may be 
 extended, so as to comprehend private Societies amongst 
 ourselves. This Act forbids passing or receiving Bills to be 
 issued by the neighbouring Governments, unless redeemable by 
 lawful Money, (Silver, Proclamation Value) upon good 
 Security, (to appear upon the Face of the Bill) within ten Years 
 after their Jirst Emission. 
 
 While this Affair of Colony Paper-Money is under Con- 
 sideration of Parliament for Redress, it will appear as a 
 daring Presumption to proceed to large Emissions, especially 
 in those Colonies who have valuable Charters to lose. I 
 mention this with a particular Regard to Connecticut, who 
 have hitherto behaved well ; but at present their Eastern 
 Borders, being tainted by a bad (I had almost said 
 abandonded) Neighbourhood, the Colony in general ought to 
 be upon their Guard. 
 
 In redressing of this Error, in which many of our Planta- 
 tions have obstinately persisted for many Years, it is to be 
 hoped the Parliament of Great Britain will not use any 
 rigorous sudden Methods; but give us Time, gently and 
 gradually to extricate ourselves ; That we may be allowed, 
 
 40 
 
of the British Plantations in Ameiica, $c. 41 
 
 upon any sudden extraordinary public Exigences, toemit 
 Government Notes to be a Tender only in publick Taxes, and 
 to be called in as soon as may be, by subsequent Taxes : 
 That publick Bills may never be a Tender in Trade and 
 Business. As to the calling in of publick Bills already 
 extant ; in those Governments where the Periods are short, 
 (in New Hampshire , Massachusetts Bay, and Connecticut, they 
 do not extend beyond A. 1742,) they may be allowed to run 
 their Course : Where the Periods are long ; if upon Taxes, 
 as the Governments have the Privilege of Taxing at any 
 Time, they may be required to assess the same at any Time 
 sooner ; if upon Loan, the Borrowers may be obliged to pay 
 in yearly, for a few Years, a certain Part of the Debt ; but, 
 if they insist upon the original long Period, let the Govern- 
 ments give Premiums upon all such Bills, as they are brought 
 in : Thus few or none of these Bills will be left with the 
 Borrowers; and at the Expiration of the Periods of the 
 Loans, they must pay in Lawful Money, Proclamation 
 Value ; which they will by all Means endeavour to avoid, 
 by paying as is directed. 
 
 41 
 
42 Discourse Concerning the Currencies 
 
 POSTSCRIPT. 
 
 IN the Discourse, I enumerated and endeavoured to 
 answer in so plain, clear and easy a Manner, all the Argu- 
 ments, and Suggestions, then current amongst the Populace 
 in Favour of Paper-Money ; that nothing but the raising a 
 Mist of Obscurity, together with bold Assertions in Place 
 of Argument, could affect it : accordingly there soon fol- 
 lowed a Pamphlet called An Enquiry, fyc. in Favour of Paper 
 Currencies, consisting of a new kind or Set of Arguments 
 in Abstracto (as the School's Term is) without any Regard to 
 Matter of fact, but supported with Mobbish Hints, such as, 
 " The Author of the Discourse shakes his Rod over us, 
 by threatning us with Parliamentary Enquiries His 
 numerous and gross Reflections upon the civil Administra- 
 tion. What he says is to distress the Province, *c." 
 
 This Piece is swelled to a considerable Bulk, by some idle 
 digressions ; giving an imperfect Account of the Banks of 
 Venice and Amsterdam, of Baron Gorts Munt tokyns in 
 Sweden, of Mr. Law's projected Land Bank, and his per- 
 nicious unsuccessful Paper Money- Scheme in France, 
 together with some Scraps from Mr. Locke and others con- 
 cerning Money, Banks, and the like. 
 
 To write satisfactorily to competent Judges, and to 
 enlighten, but not to amuse the Vulgar with empty Words, 
 is my present Design, lest his bare, but bold Affirmations, 
 in favour of Paper-money, might have some Influence in 
 carrying on the Delusion in weak Minds : Weak Minds in 
 all Ages, after being well advis'd, do in Time come to the 
 Truth and Right of Affairs: It is therefore the Duty of 
 good Men, according to their Capacity, candidly, and with 
 Fortitude, to inform those who are not conversant in such 
 Matters, but are blindly led away by evil Men ; political 
 Constitutions have at Times been subject to Maladies which 
 require and do admit of a Cure. 
 
 42 
 
of ike British Plantations in America, &c. 43 
 
 Before I proceed to prevent Misrepresentations and 
 Prejudices, I must observe, that by the Vulgar and Popu- 
 lace^ I always mean the unthinking Part of Mankind, who 
 are not capable of consulting their own Interest; the 
 Mobility, who do not reason for themselves, but are tossed 
 about with every Wind of designing ill Men. The Word 
 Vulgar is injuriously applied to the honest Tradesmen, 
 Artificers, and common Labourers, who are the Support of 
 the Commonwealth : Amongst them are found great Souls, 
 who at Times, in several Countries have excell'd as Prime 
 Ministers and other Officers of State. 
 
 This Postscript, tho' a short, just, and serious Abstract 
 of his Book and Scheme, I am afraid will seem to any 
 Person who has not perus'd his Book, to be a Piece of 
 Banter, or ludicrous Representation, because the Enquiry 
 itself appears to be not properly an accidental temporary 
 Aberration of Mind, called a Delirium, but the Produce of 
 a certain native Anomaly of Mind called by an English cant 
 Expression WRONG-HEAD. The Enquiry being Anonymous, 
 allows any Freedom consistent with Truth, without the 
 Imputation of designed Reflections against the Author. 
 
 The Author must excuse me if, for the Sake of Propriety of 
 Expression, I class his Positions or Arguments by the Name 
 of Paradoxes. He may also allow me, with Regard to his 
 perplexed, diffused, tedious, and trifling Manner of express- 
 ing Things, to utter them more concisely and distinctly, but 
 without deviating from his Sense. 
 
 I. The principal and fundamental Paradox. Bills, without 
 any other Fund or Period than common Consent, and no other 
 Standard than a variable Market Price, are the only valuable 
 Bills : all Bills promising Silver at a certain Price and Period, 
 ought to he prohibited. Because (says he) as they promise 
 nothing, they cannot be negociated by proper Premiums and 
 Discounts ; and do thus prevent usurious Practices, Suits in 
 Law, and other Inconveniencies If they depreciate, they 
 cannot properly be said to have suffered a Discount, because 
 a Discount signifies something fixed from which the Discount 
 is made. Having no other Fund but common Consent, if 
 
 43 
 
44 Discourse Concerning the Currencies 
 
 this is gradually and at length finally withdrawn (nothing is 
 more precarious than the incertum Vulgus) the suffering 
 Possessors can lay the Blame no where but upon their own 
 Folly, in giving Consent : They are remediless in Law, and 
 according to the Nature of the Scheme are fairly dealt with, 
 and ought to take Care not to deal in such perishable 
 Commodities in Time to come. 
 
 How is it possible to imagine, that this perishable Con- 
 sent should be better than Silver) an adequate Deposition, 
 which abides for ever? Is it not plain that such Bills 
 promising nothing but waste Paper, if left free to their 
 Course in the Market, their Market Price would be 
 accordingly ? 
 
 By common Consent, he means the Vox Populi, because 
 he frequently mentions Government and common Consent, 
 as distinct Things. If common Consent were to take Place, 
 all the Effects in the Province would be equally divided 
 amongst the People, because we are all born equal : After 
 some Time the Idle and Extravagant becoming empty- 
 handed, while the Frugal and Industrious become rich, com- 
 mon Consent would divide again. Our depreciating Paper 
 Currency, by taking from Time to Time Part of the Estates 
 of the Creditors, in favour of the Debtor, has the same 
 Tendency : Is this to encourage Industry ? Who would 
 labour in Produce and Manufacture, to be thus stript of 
 his Earnings? Suppose a Company of Men, who have little 
 or nothing to lose, valuing themselves upon their Numbers 
 (which is our Author's common Consent) should proceed in a 
 Scheme of Bills without any other good Foundation ; at 
 first they pass them amongst themselves and Friends, and in 
 Course will be made a Tender to others, under Penalty of 
 the Forfeiture of Goods and Merchandize for which they 
 are offered, the supreme Lex of the Mob being Rapine: 
 That is, the inevitable Consequence will be Riots and 
 Mutiny, without any Regard to the general Rules of 
 Commerce or particular Acts of Government. 
 
 II. All Standards of Currencies are pernicious : Currencies, 
 like Commodities ought to have their free Course in the Market, 
 
 44 
 
of the British Plantations in America, &c. 45 
 
 not to be limited by Funds or Periods, which are Imperfections. 
 He excludes our Bills of the new Tenor from his Currencies, 
 because they promise something, viz. Silver, at a definite 
 Period. He instances, 1st. Barbados Bills of A. 1702, 
 which, because redeemable at a certain Time, suffered a 
 proper Discount, whereas if there had been no Period there 
 could have been no Discount, or rather, he should have said, 
 no Acceptance or Currency at any Rate. 2d. Maryland Bills, 
 immediately upon their Emission suffered a large Discount, 
 because they promised Sterling Value after a long Period : 
 If they had promised nothing, or if any Thing, never to be 
 paid ; a Discount would not have been fixed, and they would 
 have proved a good Currency, which they are not, tho' a 
 Tender in Law. 
 
 III. Silver is not the best Measure, nor the best Instrument 
 in Commerce. All the Trading World at present, and Time 
 out of mind, have used a Silver Medium. The Patriarch 
 Abraham purchased a Field with Silver, which he calls the 
 Merchant's Currency. 2. Silver, in a Course of Years, 
 changes its Value more than most Commodities. In England* 
 since King Edward the Sixth's Time a Silver Shilling hath 
 lost but two Grains of its Value. Since we begun to manu- 
 facture Bills, which have undergone vast Alterations, Silver 
 Currency in the trading World has suffered no Alteration. 
 3. The Imperfection of Silver is the true Cause of the Intro- 
 duction of Banks. He should have added, and for the same 
 Reason, of Merchants keeping Cash Books ; whereas the 
 universal, fixed, and durable Value of Silver, is the Founda- 
 tion of all Banks. 4. An Impression upon Paper is better 
 than an Impression upon Silver. Whereas the first is a most 
 tender Matter, and of no intrinsick Value ; the other is a 
 durable intrinsically adequately valuable Metal. 5. The 
 fluctuation of Silver as a Commodity, as in London./r0m 5s. 3d. 
 to 5s. and 6d. per Oz. is the same as our Bills depreciating 
 many Hundreds per Cent. 6. Whether we had made Paper 
 Money or not, all Contracts and Debts would have depreciated 
 after the same Rate\ that is, 3 Oz. of Silver contracted would 
 have at present weighed only 1 Oz. Such Paradoxes do 
 
 45 
 
46 Discourse Concerning the Currencies 
 
 admit of no Comment. 7. One Years small Payment of 
 Impost in Silver did rise Silver from 27 to 31s. per Oz. Why 
 did not the preceding and subsequent Years of Silver Impost 
 Money, raise Silver after the same Rate ? Why did Silver 
 rather fall than rise in Price from A. 1734 to 1738, notwith- 
 standing the large Silver Payments upon Account of calling 
 in the Merchants Notes ? 8. Bills promising Silver at a 
 certain Value and Period, their present Value is much less than 
 the Value of our Province Bills. He seems as much preju- 
 diced agaiust Matters of Fact, as against a Silver Cur- 
 rency. We all know that last Christmas, Merchants Notes 
 payable after four Years in Silver, were negotiated at 15 
 per Cent, better than Province Bills. 
 
 IV. Every Country's* every Man's natural Pound is 
 according to his Circumstances. That is ; if I borrow of a 
 Man ten Times richer than myself a certain Sum of Money, 
 and at the Period of Payment, let him have my natural 
 Pound, being only one Tenth of the real original Value 
 which I borrowed, I have in Equity satisfied the Debt. As 
 People's Circumstances differ as much as their Faces, what 
 Confusion would this occasion in Dealings ! Do not the 
 Courts of Judicature in all Nations make up Judgments 
 against Debtors indifferently, without Distinction of Cir- 
 cumstances. A Bankrupt, (he says) by Imprudence, Mis- 
 fortunes or Viliany without Distinction, who pays only 5 or 
 10s. in the Pound, pays his Pound, and satisfies his Debt as 
 honestly and laudably as he who pays 20s. in the Pound. A 
 nominal Pound is as good as a real Pound : no Standard of 
 Justice : Or, as he elsewhere (deviating from himself) well 
 observes, we deal as if we had no Yard nor Bushel : This is 
 pleading the Cause of Bankruptcy, and exposes this Country 
 much, by comparing our depreciating Paper Money, to a 
 Bankrupt's Pound : What we do not return, he says, is so 
 much forgiven us by the Merchants at home. But to carry 
 on the Comparison : If a Bankrupt pays his Creditors only 
 one Shilling for a Crown, ought this Bankrupt's one Shilling 
 be made a Tender for a Crown in all Dealings ? 
 
 V. Bills are a Commodity, and therefore do naturally rise 
 
 46 
 
of the British Plantations in America, &c. 47 
 
 and fall in the Market. If so, ours are a very bad Com- 
 modity, because always a falling in the Market Price. A 
 Commodity, in the general Acceptation and Letter of the 
 Word, signifies what is materially useful, as a Necessary or 
 Conveniency of Life ; take from Bills the Notion of Cur- 
 rency, they are only waste Paper, as to their Matter; 
 whereas Silver is equally valuable as a Commodity, or as a 
 Currency. 2. Silver being a universally staple Commodity, 
 and Bills only a local Commodity, makes no Difference. 3. 
 Our (fluctuating or rather continually depreciating) Paper 
 Bills are a Standard for Silver. That is, a Ship upon the 
 Coast progressively under Sail, stands still, while the Fields 
 and Trees fluctuate. 
 
 VI. Our Bills are emitted upon the best Plan the World 
 ever did see ; all the essential Parts of the Banks of Venice 
 and Amsterdam, are to be found in our Province Bills of the Old 
 Tenor. This Hint seems borrowed from a facetious Writer, 
 who finds all the Beauties of the best Greek and Latin 
 Authors, in the History of Tom Thumb. The Credit of 
 those Banks, is the universal Consent or Acceptance of the 
 whole trading World, an adequate Depositum in Silver, and 
 Agio above the current Price of Silver : Our Bills have only 
 a small local Provincial Consent, no Depositum, many per 
 Cts. worse than Silver, and continually depreciating or grow- 
 ing worse than themselves from Time to Time. Forgetting 
 himself, in another Place, he says, our bad Circumstances 
 are the Reason, why our Bills are not upon the same good 
 Establishment as the Transfers of the Banks of Venice and 
 Amsterdam : How then can they be essentially as good ? 
 He should have plainly expressed it thus ; at present our 
 Circumstances render us incapable of having a solid Bank 
 of Credit. 
 
 For the great Benefits accruing to a Country from Paper 
 Money, he unluckily instances South Carolina, where its 
 bad Effects have been the most notorious, by occasioning 
 the greatest Confusions, even Mutiny itself. The flourishing 
 State of that Province, proceeds from its Soil and Climate, 
 producing a good Staple, the best of Rice; and from a 
 
 47 
 
48 Discourse Concerning the Currencies 
 
 neighbouring vast Indian Country, affording large Quantities 
 of Deer Skins : Their large Dealings are not transacted in 
 Paper Money, but in Kice, and Bills of Exchange. 
 
 VII. The cancelling of publick Bills, according to publick 
 Faith, is a publick Fraud or iniquitous Administration ; it is 
 establishing of Iniquity by a Law, because as they promise no 
 effective Payments, the Postponing of them is Justice and Right- 
 eousness. He hints at what he imagines a Sort of Magna 
 Charta, granted A. 1712 by our Assembly to the People, 
 whereby they virtually took upon themselves, to supply the 
 Province with Bills to serve as Money, therefore if we do 
 not postpone these Bills, the Legislature are guilty of a 
 Breach of Magna Charta. Was there ever a Heresy from 
 any Scriptural System, so enthusiastically imagined, and so 
 ill founded ? 
 
 VIII. Paper Money borrowed is not running in Debt, 
 Province Bills are only a Debt amongst our selves, and therefore 
 improperly to be called a Debt. The publick Debts in England 
 to the several Companies or Stocks there, are upon ail Occa- 
 sions called heavy Debts, and the Poor the Consumers are 
 very sensible of the Load of the Funds, the grievous Taxes 
 upon Coals, Candles, Soap, Leather, and some other Ne^es- 
 saries of Life: We murmur yearly because of our great 
 Taxes or Rates, occasioned by this Paper Money Debt; 
 every Emission of our Paper Money, is sensibly found to be 
 contracting of Debt, when the Taxes or Mortgages on which 
 they are founded come to be paid. 2. We grow daily richer 
 by means of this Paper Money, we are three Times richer than 
 we were at the introducing of these Bills. If this coidd be 
 supposed true, while we daily pay less and less in the Pound, 
 how should we avoid the Imputation of a fraudulent Bank- 
 ruptcy ; a Country or Town may look well to outward Ap- 
 pearance, and yet be in a Galloping Consumption, as the 
 vulgar Phrase is. In London a Merchant or Tradesman 
 making a more than usually splendid Appearance, is fre- 
 quently a Fore-runner of Bankruptcy. 
 
 The Paper Money Advocates represent our 630,000 
 present Paper Currency, as a clear Medium of Trade, and 
 
 48 
 
of the British Plantations in America, <&c. 49 
 
 say that it is not too much for New England, and is but a 
 Trifle when reduced to a Sterling Value : whereas it is 
 really an Incumbrance or Debt to be paid, and is already 
 without Additions, too heavy upon the good People of this 
 Province, and will oblige them to sink Part of their trading 
 Stock (instead of inlarging their Trade) to pay their large 
 Taxes. 
 
 By Experience we find, that our Credit does not allow of 
 so large a Debt, without depreciating ; therefore all new 
 Emissions being additional Debts, do sink the Credit of 
 our Bills more and more. Our inordinate Desire of more, 
 may be compared to Thirst in a Dropsy, which by endea- 
 vouring to satisfy with Drink, increases the Distemper. 
 Cressit indulgens sibi dirus Hydrops. 
 
 IX. The Mother Country, Widows, and Orphans, have 
 suffered for want of a sufficiency of Bills. That the Mer- 
 chants of Great Britain have been the greatest Losers by 
 Discounts in their Returns of some Hundreds per Cent, is 
 acknowledged by all Parties. Widows, Orphans, Societies 
 incorporated or voluntary, who have a considerable Part of 
 their Stock at Interest, have suffered very much. The 
 College of Cambridge in New England, have sunk above 
 10,0007. A charitable Scots Society in Boston (formed in 
 Imitation of the Scots charitable Corporation in London) 
 have suffered very much ; some of their Bonds are lately 
 paid in, at the Rate of 29s. per Oz. Silver, which were con- 
 tracted when Silver was at 7s. per Oz. ; this is 300 per 
 Cent, loss of Principal : Ministers of religious Congregations, 
 are not paid the real and true Value of their Stipends con- 
 tracted for: In short, all Creditors who have dealt in 
 Honesty and Simplicity of Heart, have been thus sharped 
 upon. Our Author with an open Countenance, says, That 
 the Rhode- Islanders outwitting of us, by their repeated large 
 Emissions, is doing for their own Interest, what all wise 
 
 People ought to do. The Papeiv Money Solicitors in 
 
 Answer, say, That the reducing of Contracts to Specialties, 
 i.e. to Silver by "Weight, is not forbid ; therefore private 
 Men must blame themselves, Orphans must blame their 
 
 49 
 
50 Discourse Concerning the Currencies 
 
 Guardians, and Widows their Advisers, for not making their 
 Contracts in Silver Value, and not in those Bills : This is 
 giving up the Cause of a good Currency, and allowing that 
 every prudent Man should have refused the Currency of 
 those fallacious Bills ; or that our Legislature, the common 
 Guardian of us all, to prevent our being cheated by others, 
 and our cheating of ourselves, ought to have established a 
 Specialty, as has lately been done in the Carolinas with good 
 
 Effect. " 
 
 Sufficiencies of Bills, properly speaking, are the Sums 
 
 which the trading Credit of a Paper Money Country can 
 bear ; the more that these Sums are exceeded, the more they 
 become a negative Sufficiency (as Mathematicians to say of 
 positive Quantities in a continued Progression to certain 
 Limits, after which they become more and more negative) 
 and their Credit, depreciates, and the Creditors or Acceptors 
 of such Bills suffer more and more. This negative Sufficiency 
 multiplied, is what our Author proposes for our Relief, and 
 for the introducing of Silver again ; but as Bills, by their 
 increasing Quantity, superceded and drove away Silver, 
 Silver can never be again thus introduced, unless, at length, 
 Bills, by their Quantity and bad Bottom, become as Waste- 
 Paper, then Silver must take Place. 
 
 X. The Legislature to make Laws to bring the Balance of 
 Trade in our Favour. This is as unnatural and impracticable 
 as the Legislature making a Medium of Trade ; both which 
 can only be effected by Trade itself. Balance of Trade, 
 when against a Country, is answered by exporting the 
 current Cash, equal to what the Exports in Merchandize 
 fell short of the Imports; our Paper Currency is not ex- 
 portable to pay a foreign Debt, and therefore will answer no 
 Balance of Trade. 2. Our Bills have depreciated, in Propor- 
 tion to the Balance of Trade increasing against us. In S. 
 Carolina, where the Balance of Trade is much in their 
 Favour, many of the Inhabitants having large Sums of 
 Money lodged in England ; their Paper Money notwithstand- 
 ing is much more depreciated than ours, because of their 
 greater Paper Money Emissions, and Breach of publick Faith. 
 
 50 
 
of ike British Plantations in America, &c. 51 
 
 XL Contracts reduced to Writing, but not the Silver con- 
 tracted for, is the Money or Medium. He might perhaps have 
 the Hint of this, from the Analogy of many Spendthrifts 
 amongst us, who after being long dunn'd for a Book Debt, 
 if the Creditor accepts of their Notes or Bonds, they become 
 as easy as if they had paid the Money. Medium of Trade 
 in its proper Sense, signifies some intermediate adequately 
 valuable Commodity, such as is Silver. Some Colonies 
 of peculiar Produce, allow of a local (therefore imperfect) 
 Medium ; as Sugar, Tobacco, Rice, in some of our Colonies 
 are Tenders. 
 
 XII. Every landed Man, even to the mortgaging of his last 
 Acre, has a Right to make Money. He should have added, 
 and finally has a Right to the Aims-House. Thus these 
 projected Banks give the Idle and Extravagant Opportuni- 
 ties of borrowing or involving of themselves, that is, these 
 Banks tend to the Ruin of the Province ; we allow, that in 
 Prudence a landed Man may sell oif some Part, the better 
 to improve the Remainder. 
 
 XIII. The projected Bank or Scheme, commonly called 
 
 J C and others, is built upon the lest and only good 
 
 Foundation we have : the Subscribers are Men of Judgment, 
 Integrity, and Estates. Notes of a dubious, some say, despe- 
 rate Credit, not receivable in Taxes, no legal Tender, bearing 
 no Interest to the Possessor, obligatory only for Goods at 
 a precarious Price, and not actionable till after 20 Years. 
 Shop Notes, which our Author (happening accidentally to be 
 in the right) deservedly, tho' inconsistently with himself, so 
 much exclaims against, are much preferable to such Bills, 
 because payable upon Sight, and in Case the Shopkeeper 
 uses the Bearer very ill, are immediately returnable to the 
 Merchant. Such Bills, being ill founded, will soon stop in 
 Circulation, the Possessor, in time, must have a Law-suit 
 with the Signers, who perhaps prove insolvent : But if they 
 may be supposed solvent, the Signers, for their own Redress, 
 must sue a numerous Tribe of (perhaps generally) insolvent 
 Subscribers, and occasion a Convulsion in the Government. 
 
 51 
 
52 Discourse Concerning the Currencies 
 
 To give a Hint, of such Notes satisfying of Contracts pay- 
 able in Province Bills, is the Height of 
 
 A Depositum of Silver, Land Security, Government Se- 
 curity, are proper collateral or additional Securities ; but we 
 know of no Bank without an adequate Depositum of Silver, 
 if they negociate on Transfers ; or Silver sufficient to answer 
 all their Cash Notes upon Demand, if they deal in Cash Notes. 
 It is impracticable to circulate Produce and Manufacture, 
 being perishable, unweildly, uncertain, fallacious Matters. 
 The Land Bank projected in England in K. William's Reign, 
 tho' established by an Act of Parliament, like a Mushroom, 
 soon came to nothing. The only proper Land Banks, are 
 our Country Registers, where Lands are regularly transferred 
 daily. 
 
 I shall dismiss this Paper Money Agent, by observing, 
 that his Memory sometimes gives him the slip, and, inconsis- 
 tently with himself, he deviates into Truth. I shall mention a 
 few Instances. Contracts ought to be paid in Silver, at the 
 current Market Price as when made, but not as it now is, if 
 depreciated. All other Commodities keep Pace with Silver, 
 is it not the most natural Medium 9 When People were 
 obliged to receive light Pieces of Eight in Currency, they 
 advanced upon their Goods in their Contracts accordingly : 
 This equally holds good with respect to a depreciating Cur- 
 rency (our Bills) of any kind. Upon a large Emission 
 of Bills, Silver and other Returns must remarkably rise. 
 By emitting and calling in of Bills, their Value may be 
 fixed or diminished : This is our grand Argument against 
 large and frequent Emissions, viz. the depreciating of our Cur- 
 rency. Thus unwarily he gives a full Answer to his own 
 Book. Further, I must observe, that in Recommendation 
 of his Land Banks, he says, The Mother Country will sooner 
 make Abatements in our Pay, than take Lands. 
 
 I shall conclude with a Recapitulation of some general 
 Remarks, concerning our Paper Money. 
 
 1. If Bills, provincial or national, would answer all the 
 Intentions of Money, no Country, in the most chargeable, 
 
 52 
 
of ike British Plantations in America, <&c. 53 
 
 unsuccessful Wars, or in the greatest Bankruptcy as to 
 Trade, would be distressed for want of Money. If Bills 
 upon Land Security could answer the Intention of Money, 
 the Emperor would not have given into that late inglorious 
 Peace with the Turks, for want of Money to support his 
 Forces. The Spaniards might make themselves easy, though 
 their Flota's, Galleons, Flotillas, Assogues, and Register 
 Ships proceed no more. A Manufacture from Copper Plates, 
 Paper, and Ink (a late Invention of the British Colonies in 
 America) is a more compendious, and infinitely less charge- 
 able Method of Currency and Medium of Trade. A sort of 
 Philosophers Stone (a Term used by the Alchymists) or Art, 
 by which no Country (a Country always supposes Land) 
 can be without a sufficient Quantity of Money : The Spanish 
 Mines in America, an industrious Trade, are becoming mere 
 Chimeras and Deceptions ; if Land should be exhausted, 
 there remains still a better Fund, viz. common Consent, 
 without any other Bottom. 
 
 2. The Party for multiplying a depreciating Paper Cur- 
 rency, are, 1. The Idle and Extravagant, who want to borrow 
 Money at any bad Lay, tho' finally to their own Ruin. 
 2. The fraudulent Debtors, that they may pay their Creditors 
 in less Value than contracted for, and notwithstanding retain 
 their Credit without being reckoned Bankrupts; a mort- 
 gaged Estate can be redeemed by a smaller dismembering, 
 a Shopkeeper pays his Merchant at a great Discount. Some 
 Men of Substance, and industrious, but of a natural Impro- 
 bity and Depravity of Mind, who by Experience have found, 
 that the greater Confusion such Emissions occasion in Busi- 
 ness, the greater Latitude is given for cheating : For Instance, 
 in a depreciating Paper Money Country, the only Method 
 (much practised by the Advocates for Paper Money) of 
 growing rich, is by a Series of the greatest Acts of Injustice, 
 viz. to owe to others more than is due to themselves, to pro- 
 cure long Credit, when due, to postpone Payments, and bear 
 dunning, and finally, to let the Law, which in this Province 
 is tedious, and not chargeable, take Place. 4. The Weak 
 and Ignorant, (here I include a large Number of good honest 
 
 53 
 
54 Discourse Concerning the Currencies 
 
 Men, but misled) who imagine, or are taught, that the Legis- 
 lature can give every individual Person of the Government, 
 what Money they may desire, without any other Bottom, 
 but an Act of Assembly ; and that the with-holding of it is 
 Step-Father or Step-Mother's Usage. 
 
 3. The Party against a depreciating Paper-money Cur- 
 rency, are, 1. The Industrious and Frugal, our considerable 
 foreign Traders and rich Men ; who, because of their great 
 Substance deposited in the Country, are obliged to have the 
 Interest of the Country most at Heart: Thus in Great 
 Britain (to compare great Things with small) the Peers, by 
 reason of their great Estates in the Kingdom, are deemed 
 the natural and standing Council of the King and Country. 
 The Industrious and Frugal have Reason to withstand the 
 raising of Money upon Taxes by a Paper- Credit, because 
 by the other Party, who are the most numerous, they are 
 loaded with almost the whole Burthen of the Assessments : 
 The Assessors ought to consider, that the easing of the 
 Extravagant in their Taxes, is so much Encouragement 
 allowed them to carry on their Extravagancies : In other 
 Countries, Extravagancies and the Extravagant are much 
 taxed. 2. The honest Creditors, who are for fixing the Value 
 of their Contracts and Debts by a Standard : This is called 
 by the Paper-money Party, endeavouring after unlawful 
 Gain : 3. The fair Dealer, who desires neither to bubble nor 
 be bubbled. 4. The considerate thinking Man, who, from 
 Experience, finds that all Emissions are contracting of Debts. 
 
 4. All Mankind exclaim against clipping of Coin, because 
 it is a Fraud to tender Denominations of a lessened Value ; 
 making of a depreciating Paper Money Currency, a Tender 
 in Law, has the same Effect. It is allowed by every Body, 
 that the most glorious Action of K. William's Reign, was 
 the calling in of the clip'd Money, and ascertaining the 
 Value of it by a milVd Recoinage : The Progress our late 
 Assemblies are making towards sinking of our precarious 
 Bills of the Old Tenor, and reforming them into new Tenor 
 Bills of a fixed Value, will have the same good Effect. A 
 depreciating Paper Money, has a vastly worse Effect than 
 
 54 
 
of ike British Plantations in America, fyc. 55 
 
 clipping of Silver Coin, which never reached further than a 
 Fraud of 25 or 30 per Cent, but the other has reached in 
 New England to 450 per Cent in S. Carolina to 700 per Cent. 
 in N. Carolina to 900 per Cent. As the effectual Cure of 
 the clip'd Coin in most Nations in Europe, was reducing it 
 to miird Money ; or to Weight as in Bardadoes : So our 
 Provincial Bills may be brought to a Sterling Price, by 
 fixing Exchange from Time to Time, as in the Carolina's. 
 
 5. The Paper Money Men (some anomalous excepted) 
 generally allow, that Silver is a better Medium than Paper ; but 
 as it is impossible (so they express it) for Silver ever to be made 
 Current with us, they are for continuing and increasing the 
 Paper Money Currency. Let us not despair, it is not impos- 
 sible to give Silver again it's Currency ; let us tread our Foot 
 Steps back, and we shall naturally return to where we came 
 from : That is, as the increasing Quantity of Paper Money 
 drove away Silver, a gradual lessening of the same, will make 
 Room for this better Currency ; 1 . As Bills grow scarce, the 
 Merchants will be obliged to convert some Part of that 
 Commodity Silver into Cash, as in other trading Countries ; 
 no Man can trade to Advantage without Cash. 2. The 
 Scarcity of our Province Bills will effectually bring a Dis- 
 count upon the Bills of the neighbouring Colonies, because 
 Premiums will be given in other Bills, for Bills of our own 
 Province to pay Taxes ; and no more Bills being emitted 
 from Time to Time than sufficient for the present Charge of 
 Government, our Bills may be brought to Proclamation, or 
 Sterling Value. 3. Bills growing scarce, our extravagant 
 Way of Living, that is, our Imposts will lessen for some 
 Time ; we find at present the Homespun is more in Wear 
 by the Country People, and Spinning is more practised, than 
 at any Time since the Beginning of this Century. If this 
 Scarcity of Currency oblige us to go further into Shop Notes 
 for small Dealings, and into Barter for larger Transactions, 
 it will be only for a Season, (in Sweden, from Baron Gortz's 
 Munt tokyns, they went into Barter, and from thence back 
 again unto their intrinsically good Currency) until the Incon- 
 veniencies thereof become still more sensible, and then the 
 
 55 
 
56 Discourse Concerning Currencies, fyc. 
 
 very good Husbands will retain Silver for Cash, whereby 
 they can deal to better Advantage ; and seek out for other 
 Returns, to supply its Place as a Commodity. Bills are in 
 their own Nature, only proper to be returned by Taxes into 
 the Treasury, from which they issued ; and perhaps in small 
 Quantities may pass as Inland Notes, but are not fit for a 
 Medium of foreign Trade. 
 
 FINIS. 
 
BANKS 
 
 AND 
 
 PAPER-MONEY; 
 
 FROM 
 
 ESSAYS, 
 
 MORAL, POLITICAL, &c., 
 BY 
 
 DAVID HUME, Escu 
 
 PUBLISHED IN 
 
 1752. 
 
Hume on Banks, fyc. 59 
 
 * * * THIS has made me entertain a doubt con- 
 cerning the benefit of banks and paper-credit, which are so 
 generally esteemed advantageous to every nation. That 
 provisions and labour should become dear by the encrease of 
 trade and money, is, in many respects, an inconvenience ; 
 but an inconvenience that is unavoidable, and the effect of 
 that public wealth and prosperity which are the end of all 
 our wishes. It is compensated by the advantages, which we 
 reap from the possession of these precious metals, and the 
 weight, which they give the nation in all foreign wars and 
 negociations. But there appears no reason for encreasing 
 that inconvenience by a counterfeit money, which foreigners 
 will not accept of in any payment, and which any great 
 disorder in the state will reduce to nothing. There are, it 
 is true, many people in every rich state who having large 
 sums of money, would prefer paper with good security ; as 
 being of more easy transport and more safe custody. If the 
 public provide not a bank, private bankers will take advan- 
 tage of this circumstance ; as the goldsmiths formerly did in 
 LONDON, or as the bankers do at present in DUBLIN : And 
 therefore it is better, it may be thought, that a public com- 
 pany should enjoy the benefit of that paper-credit, which 
 always will have place in every opulent kingdom. But to 
 endeavour artificially to encrease such a credit, can never be 
 the interest of any trading nation ; but must lay them under 
 disadvantages, by encreasing money beyond its natural pro- 
 portion to labour and commodities, and thereby heightening 
 their price to the merchant and manufacturer. And in this 
 view, it must be allowed, that no bank could be more advan- 
 tageous, than such a one as locked up all the money it 
 received,* and never augmented the circulating coin, as is 
 
 * This is the case with the bank of AMSTERDAM. 
 3 
 
60 Hume on Banks 
 
 usual, by returning part of its treasure into commerce. A 
 public bank, by this expedient, might cut off much of the 
 dealings of private bankers and money-jobbers ; and though 
 the state bore the charge of salaries to the directors and 
 tellers of this bank (for, according to the preceding sup- 
 position, it would have no profit from its dealings), the 
 national advantage, resulting from the low price of labour 
 and the destruction of paper-credit, would be a sufficient 
 compensation. Not to mention, that so large a sum, lying 
 ready at command, would be a convenience in times of great 
 public danger and distress ; and what part of it was used 
 might be replaced at leisure, when peace and tranquillity was 
 
 restored to the nation. 
 
 ***** 
 
 I scarcely know any method of sinking money below its 
 level, but those institutions of banks, funds, and paper-credit, 
 which are so much practised in this kingdom. These render 
 paper equivalent to money, circulate it throughout the whole 
 state, make it supply the place of gold and silver, raise pro- 
 portionably the price of labour and commodities, and by 
 that means either banish a great part of those precious 
 metals, or prevent their farther encrease. What can be 
 more short-sighted than our reasonings on this head ? We 
 fancy, because an individual would be much richer, were his 
 stock of money doubled, that the same good effect would 
 follow were the money of every one encreased ; not consider- 
 ing, that this would raise as much the price of every 
 commodity, and reduce every man in time to the same 
 condition as before. It is only in our public negociations 
 and transactions with foreigners, that a greater stock of 
 money is advantageous ; and as our paper is there absolutely 
 insignificant, we feel, by its means, all the ill effects arising 
 from a great abundance of money, without reaping any of 
 the advantages.* 
 
 * We observed in Essay III. that money, when encreasing, gives 
 encouragement to industry, during the interval between the encrease 
 of money and rise of the prices. A good effect of this nature may 
 
 4 
 
and Paper-Money. 61 
 
 Suppose that there are 12 millions of paper, which 
 circulate in the kingdom as money (for we are not to 
 imagine that all our enormous funds are employed in that 
 shape), and suppose the real cash of the kingdom to be 18 
 millions : Here is a state which is found by experience to 
 be able to hold a stock of 30 millions. I say, if it be able 
 to hold it, it must of necessity have acquired it in gold and 
 silver, had we not obstructed the entrance of these metals 
 by this new invention of paper. Whence would it have 
 acquired that sum? From all the kingdoms of the world. 
 But why? Because, if you remove these 12 millions, money 
 in this state is below its level, compared with our neigh- 
 bours; and we must immediately draw from all of them, 
 till we be full and saturate, so to speak, and can hold no 
 more. By our present politics we are as careful to stuff the 
 nation with this fine commodity of bank-bills and chequer- 
 notes, as if we were afraid of being overburthened with the 
 precious metals. 
 
 It is not to be doubted, but the great plenty of bullion 
 in FRANCE is, in a great measure, owing to the want of 
 paper-credit. The FRENCH have no banks : Merchants bills 
 do not there circulate as with us: Usury or lending on 
 interest is not directly permitted ; so that many have large 
 sums in their coffers : Great quantities of plate are used in 
 private houses ; and all the churches are full of it. By this 
 means, provisions and labour still remain cheaper among them, 
 than in nations that are not half so rich in gold and silver. 
 The advantages of this situation, in point of trade as well 
 as in great public emergencies, are too evident to be 
 disputed. 
 
 The same fashion a few years ago prevailed in GENOA, 
 which still has place in ENGLAND and HOLLAND, of using 
 services of CniNA-ware instead of plate ; but the senate, 
 foreseeing the consequence, prohibited the use of that brittle 
 
 follow too from paper-credit ; but it is dangerous to precipitate matters, 
 at the risk of losing all by the failing of that credit, as must happen 
 upon any violent shock in public affairs. 
 
 5 
 
62 Hume on Banks 
 
 commodity beyond a certain extent ; while the use of silver- 
 plate was left unlimited. And I suppose, in their late dis- 
 tresses, they felt the good effect of this ordinance. Our tax 
 on plate is, perhaps, in this view, somewhat impolitic. 
 
 Before the introduction of paper money into our colonies, 
 they had gold and silver sufficient for their circulation. 
 Since the introduction of that commodity, the least incon- 
 viency that has followed is the total banishment of the 
 precious metals. And after the abolition of paper, can it 
 be doubted but money will return, while these colonies 
 possess manufactures and commodities, the only thing 
 valuable in commerce, and for whose sake alone all men 
 desire money ? 
 
 What pity LYCURGUS did not think of paper-credit, 
 when he wanted to banish gold and silver from SPARTA I 
 It would have served his purpose better than the lumps of 
 iron he made use of as money ; and would also have pre- 
 vented more effectually all commerce with strangers, as 
 being of so much less real and intrinsic value. 
 
 It must, however, be confessed, that, as all these ques- 
 tions of trade and money are extremely complicated, there 
 are certain lights in which this subject may be placed, so as 
 to represent the advantages of paper- credit and banks to be 
 superior to their disadvantages. That they banish specie 
 and bullion from a state is undoubtedly true ; and whoever 
 looks no farther than this circumstance does well to condemn 
 them ; but specie and bullion are not of so great conse- 
 quence as not to admit of a compensation, and even an over- 
 balance from the encrease of industry and of credit, which 
 may be promoted by the right use of paper-money. It is 
 well known of what advantage it is to a merchant to be 
 able to discount his bills upon occasion ; and every thing that 
 facilitates this species of traffic is favourable to the general 
 commerce of a state. But private bankers are enabled 
 to give such credit by the credit they receive from the 
 depositing of money in their shops; and the bank of 
 ENGLAND in the same manner, from the liberty it has to 
 issue its notes in all payments. There was an invention of 
 
 6 
 
and Paper- Money. 63 
 
 this kind, which was fallen upon some years ago by the 
 banks of EDINBURGH ; and which, as it is one of the most 
 ingenious ideas that has been executed in commerce, has 
 also been thought advantageous to SCOTLAND. It is there 
 called a BANK- CREDIT ; and is of this nature. A man goes 
 to the bank and finds surety to the amount, we shall suppose, 
 of a thousand pounds. This money, or any part of it, he 
 has the liberty of drawing out whenever he pleases, and he 
 pays only the ordinary interest for it, while it is in his hands. 
 He may, when he pleases, repay any sum so small as twenty 
 pounds, and the interest is discounted from the very day of 
 the repayment. The advantages, resulting from this contri- 
 vance, are manifold. As a man may find surety nearly to 
 the amount of his substance, and his bank-credit is equiva- 
 lent to ready money, a merchant does hereby in a manner 
 coin his houses, his household furniture, the goods in his 
 warehouse, the foreign debts due to him, his ships at sea ; 
 and can, upon occasion, employ them in all payments, as if 
 they were the current money of the country. If a man 
 borrow a thousand pounds from a private hand, besides that 
 it is not always to be found when required, he pays interest 
 for it whether he be using it or not ; His bank-credit costs 
 him nothing except during the very moment in which it is 
 of service to him : and this circumstance is of equal advan- 
 tage as if he had borrowed money at a much lower interest. 
 Merchants, likewise, from this invention, acquire a great 
 facility in supporting each other's credit, which is a con- 
 siderable security against bankruptcies. A man, when his 
 own bank-credit is exhausted, goes to any of his neighbours 
 who is not in the same condition ; and he gets the money, 
 which he replaces at his convenience. 
 
 After this practice had taken place during some years at 
 EDINBURGH, several companies of merchants at GLASGOW 
 carried the matter farther. They associated themselves into 
 different banks, and issued notes so low as ten shillings, 
 which they used in all payments for goods, manufactures, 
 tradesmen's labour of all kinds ; and these notes, from the 
 established credit of the companies, passed as money in all 
 
 7 
 
64 Hume on Banks and Paper-Money. 
 
 payments throughout the country. By this means, a stock 
 of five thousand pounds was able to perform the same 
 operations as if it were six or seven ; and merchants were 
 thereby enabled to trade to a greater extent, and to require 
 less profit in all their transactions. But whatever other 
 advantages result from these inventions, it must still be 
 allowed that, besides giving too great facility to credit, 
 which is dangerous, they banish the precious metals ; and 
 nothing can be a more evident proof of it, than a comparison 
 of the past and present condition of SCOTLAND in that par- 
 ticular. It was found, upon the recoinage made after the 
 union, that there was near a million of specie in that 
 country : But notwithstanding the great encrease of riches, 
 commerce, and manufactures of all kinds, it is thought, that, 
 even where there is no extraordinary drain made by 
 ENGLAND, the current specie will not now amount to a third 
 of that sum. 
 
 FINIS. 
 
ESSAY 
 
 On PAPER-MONEY and 
 BANKING; 
 
 FROM ESSAYS ON THE 
 
 PUBLIC DEBT, FRUGALITY, &c. 
 
 e te klrtua?, Q^U< 
 
 Ptiblijhed in 
 
 M.DCC.LV. 
 
PAPER-MONEY, BANKING, &c. 
 
 IT , is with the greatest concern I have heard, for some 
 years past, the daily complaints made by all 
 ranks of people in this part of the country, in com- 
 mon with the rest of the kingdom, upon the scarcity of 
 gold and silver money ; the decay of trade and manu- 
 factures ; the slow progress of husbandry ; and lastly, (what 
 one would scarcely believe could be a concomitant evil with 
 those just mentioned) the increase of luxury, and expence 
 of living. And it is with no less astonishment, that I have 
 so long observed the supine sloth and careless indifference of 
 my countrymen about the causes or cure of this complicated 
 mischief, which threatens poverty and ruin to themselves 
 and their posterity for some generations. It might have 
 been expected, at least, that some one of public spirit, 
 endowed with sufficient abilities, would have drawn his pen 
 in such a national cause, and, in that belief, I had no inclina- 
 tion to undertake a task, for which I found myself very 
 unequal ; but when I reflected that the greatest events have 
 been brought to pass, and taken their rise from the smallest 
 beginnings, that the Roman empire was saved by the 
 cackling of a goose, I was not without hopes that my own 
 weak endeavours might be successful, in some measure, to 
 awaken my countrymen to a sense of their present misery, 
 and perhaps be assistant to them in finding a remedy : if 
 what I now write can have that effect, I shall be well 
 pleased. 
 
 Frugality and industry are the two great sources of 
 riches ; and when we consider that a desire of gain and an 
 application to the means by which it is to be attained are 
 inseparable from the common principle of self-preservation, 
 one would think there would be little occasion to recommend 
 the practice of these virtues to mankind ; but if we reflect, 
 
 3 
 
68 Paper -Money and Banking. 
 
 that among such a number as that of mankind, all pursuing 
 the same end, of providing for themselves, and, as it were, 
 running to one common goal, the more active, cunning and 
 vigilant will soon over-reach those of less abilities, it must 
 follow, that the views and interests of individuals thus 
 interfering, will beget a sort of universal war among man- 
 kind, and in proportion, as one set of men prevail in their 
 pursuits, the opposite interests must be sunk and dis- 
 couraged ; thus industry and frugality may be swallowed up 
 by rapine and violence. 
 
 Now, I take this to be the case with agriculture, trade 
 and manufactures in this country : every one is sensible of 
 the slow progress of the first, and of the stagnation and 
 decay of the other two ; and, I imagine, it is no less obvious, 
 that this effect cannot have been produced by any cause 
 flowing from the nature of the things themselves ; for industry 
 sets no bounds to itself, and 'tis but a foolish pretence to say 
 that trade can be overstocked, so long as the numbers of 
 mankind and their wants are in proportion, the cause there- 
 fore must be extraneous; our industry must be borne down 
 and oppressed by the superior industry, weight or interest of 
 those whose pursuits after gain are inconsistent with the 
 good of trade and manufactures. 
 
 The arts by which industry may be oppressed, are as 
 various as those whereby it is promoted ; every quality in 
 nature hath its contrary ; but we need not search very 
 deep to find out the cause of our present misery, one pre- 
 sents itself, which will solve the whole phaenomena and 
 symptoms of it, and that is, the currency of PAPER-MONEY 
 or BANK-NOTES, which by increasing the quantity, has sunk 
 the intrinsic value of our money, and introduced all the real 
 inconveniencies of plenty of money, without the smallest 
 advantage to any individual but the bankers themselves. 
 
 I may venture to affirm that there is, at least, twice the 
 value of bank-notes as there is of real money circulating in 
 Scotland,, (if I had said six times the value, perhaps I had 
 spoke within bounds) and these notes have equal cur- 
 rency with the money itself, which they represent ; so that 
 
 4 
 
Paper- Money and Banking. 69 
 
 here is the whole cash of the kingdom tripled by a fiction, 
 without any addition to our riches : let us attend to its 
 operation, and the inconvenience will be obvious. 
 
 It is a maxim, that the price of labour arid commodi- 
 ties is always regulated by the quantity of money circulat- 
 ing in a state ; increase or diminish the money, and prices 
 must rise or fall in a certain proportion : the consequence to 
 agriculture, trade and manufactures, is apparent ; when 
 money is augmented, the farmer and handy-craftsman must 
 pay higher wages to his servants, and must raise the price of 
 his grain or commodity, to indemnify himself. The merchant 
 buying these at a high price, must sell accordingly, if he 
 can, but will soon find himself undersold at foreign markets, 
 where the same goods manufactured or produced in other 
 states, which have less money, can be sold, perhaps, a half 
 or a third cheaper, and to more profit; this obliges the 
 merchant to give over his trade, or be ruined; and the 
 industry of the merchant being thus stopt, the stagnation 
 must operate backwards from one trade to another, till it 
 affects agriculture, where it begun. 
 
 These inconveniencies, when arising from a plenty of 
 real money, are fully compensated by the riches which 
 occasioned them, and the above stagnation of trade will last 
 no longer than other states continue to undersell us, which 
 cannot be very long ; for the trade of any state will be an 
 inlet to riches, and money will flow in upon it till that state 
 be likewise full, and its entrance be stopt by the same reple- 
 tion : from that state it will go to another, and so on, till it 
 becomes on a perfect level and equality throughout the 
 whole. 
 
 But what must be the miserable situation of trade and 
 manufactures, in a state, where the policy and interested 
 motives of individuals have so contrived it, that the entrance 
 of money, which would be the necessary consequence of its 
 trade, is debarred by a kind of stratagem or illusion, viz. by 
 creating an imaginary money of paper, which the substance, 
 credit or interest of the projectors makes to supply the place 
 of real money? 
 
 5 
 
70 Paper-Money and Banking. 
 
 Now, such is our own situation, an immense value of 
 bank-notes hath been poured in upon us, and increaseth 
 daily. Every body takes them for money, without the 
 smallest scruple, and believes himself as rich when possessed 
 of them, as if he had the value in gold and silver; with 
 this imagination, the price of labour and every commodity, 
 and consequently the expence of living is raised, industry, 
 arts, and trade overwhelmed and discouraged, and every 
 other inconveniency felt, that can be produced by the plenty 
 of real gold and silver. Under such a pressure, it must add 
 greatly to our mortification, when we consider that all the 
 real specie, which these notes falsely represent, would have 
 actually entered into the country, by the means of trade, 
 before prices could have been raised, or trade sunk to such a 
 degree as they are at present ; and when that inconveniency 
 happened, we should, at least have had the consolation to think 
 that we had got our fill before we removed from the feast, 
 and might then have said : 
 
 Edisti satis atque bibisti 
 
 tempus abire tibi est 
 
 whereas all we gain by our present oeconomy, is to look fat and 
 fair while we consume away with a dropsy. But this public 
 calamity, however destructive of the general good of the 
 society, hath been contrived and brought upon us, as I have 
 said, by the policy and interested motives of individuals, 
 whose fortunes are thus built upon the ruins of their fellow- 
 subjects ; the certainty of which may be -easily demon- 
 strated ; for it is apparent, that the value of all the immense 
 quantity of notes circulating in the kingdom, must have 
 been paid to these bankers, when they were first issued, 
 either in money, labour, or commodities ; and if we shall 
 suppose the quantity of those circulating notes to be double 
 to the real circulating specie, it follows that two-thirds of 
 the substance and trade of the nation have got into the 
 hands of the bankers ; for as the whole money in a state 
 represents, and is the value of the whole stock of labour and 
 commodities which it produces, so two-thirds of the one 
 must be equal to two-thirds of the other. 
 
 6 
 
Paper-Money and Banking. 71 
 
 And altho' these bankers by the creation of so much 
 money, have raised the price of labour and commodities to 
 such an excessive height, as must be the destruction of trade 
 and manufactures, yet they are the only individuals in the state 
 who do not suffer by it ; for by continually increasing their 
 imaginary money, they balance the increase of the price, and 
 so are no poorer by buying dearer than they were before. 
 
 One may be apt to wonder how these pernicious prac- 
 tices of bankers should remain so long unchecked in a well 
 regulated society ; and it must be confesbed, that such an 
 imposture could never have been palmed upon us, but under 
 favour, and by the assistance of a spirit of blindness and 
 delusion, which has thrown, as it were, a mist before 
 our eyes, to lead us astray : no man, with his eyes 
 open, would tamely behold another picking his pocket ; and 
 is it to be supposed^ that a thinking people would give away 
 two-third parts of their stock for a bit of paper which a 
 foreigner would not take for a farthing, and which any com- 
 motion in the state may reduce to as little value at home ? 
 
 But here it may be asked, Is there then no national 
 advantage arising from this institution of banks and paper- 
 credit, in a state ? Is there no plausible plea, at least 
 founded either on reason or experience, for a practice so 
 universal ? For answer, I beg leave to refer to the following 
 verses of Mr. Pope : 
 
 Blest paper credit ! last and best supply ! 
 That lends corruption lighter wings to fly I 
 Gold, imp'd by thee, can compass hardest things. 
 Can pocket states, can fetch or carry Kings ; 
 A single leaf shall waft an Army o'er, 
 Or ship off senates to some distant shore ; 
 A leaf, like SybiFs, scatter to and fro 
 Our fates and fortunes as the winds shall blow ; 
 Pregnant with thousands flits the scrap unseen, 
 And silent sells a King, or buys a Queen. 
 But after al! 3 it must be confessed that banks, if under due 
 regulations, might be of use to facilitate commerce in a 
 state ; such for instance, as a bank, constituted on the model 
 
 7 
 
72 Paper-Money and Banking. 
 
 of that of Amsterdam, (where all the money that comes into 
 it is lockt up, and never again sees the light, no payments 
 being there made again in money, but by way of transfers 
 of stock), or such a bank, where no more notes should be 
 issued than exactly corresponded to the money given in ; in 
 which case, the notes would be much more convenient than 
 the money itself, as being of more easy transport, and safe 
 custody ; and the bankers would become a very usefel and 
 harmless part of the society, as being a sort of public ser- 
 vants for keeping and telling out our money : but as for our 
 present scheme, which leaveth an unlimited dictatorial 
 power to bankers to send abroad notes to what value they 
 please, tho' perhaps twenty times as much as the value of all 
 the money in the kingdom, and impose the same upon us for 
 gold and silver, I make no hesitation to pronounce it abso- 
 lutely pernicious, and destructive of all trade, industry, and 
 manufactures. I cannot represent this our mismanagement, 
 or the advantage of a contrary scheme, in better words 
 than those of the ingenious Mr. Hume, in his Political 
 Essays, from which I have borrowed some of the foregoing 
 arguments : after taking notice that the practices of bankers 
 will introduce paper-credit into every opulent kingdom, 
 he adds : " But to endeavour artificially to increase such a 
 " credit, can never be the interest of any trading nation ; 
 " but must lay them under disadvantages, by increasing money 
 " beyond its natural proportion to labour and commodities, 
 " and thereby heightening their price to the merchant and 
 " manufacturer. And in this view it must be allowed, that 
 " no bank could be more advantageous than such a one as 
 " lockt up all the money it received, and never augmented the 
 " circulating coin, as is usual, by returning part of its trea- 
 " sure into commerce. A public bank, by this expedient, 
 " might cut off much of the dealings of private bankers and 
 " money jobbers ; and tho' the state bore the charge of 
 "salaries to the directors and tellers of this bank, (for 
 " according to the preceding supposition, it would have no 
 " profit from its dealings) the national advantage, resulting 
 " from the low price of labour and destruction of paper- 
 
 8 
 
Paper-Money and Banking. 73 
 
 " credit, would be a sufficient compensation. Not to men- 
 t( tion, that so large a sum, lying ready at command, would 
 " be a great convenience in times of public danger and 
 " distress ; and what part of it was used might be replaced 
 " at leisure, when peace and tranquillity were restored to the 
 " nation." 
 
 As I would be loath to ominate bad things, I shall not 
 take upon me to foretel the evil consequences of this implicit 
 faith, this unlimited trust, this lethargic carelessness of my 
 countrymen, with regard to paper-credit ; I need only say, 
 that it is a maxim, that security is always dangerous, and 
 often the fore-runner of destruction. 
 
 But I hope that the evil consequences to trade, industry 
 and arts, which have been already produced and so heavily 
 felt, by the means of this paper-money, will be sufficient to 
 awaken the spirit of every one who wishes well to the country, 
 and to make him stand up in self-defence, to oppose this 
 torrent which threatens to swallow up our trade and in- 
 dustry, to close up the sluices by which it has entered, and 
 endeavour to force it back to the fountains from whence it 
 proceeded. 
 
 I am sensible how difficult a matter it will be to remedy 
 this evil of so long standing, which like an inveterate malady 
 hath become part of our constitution, and is not to be con- 
 quered by sudden or violent applications. It is not to be 
 supposed, that the bankers, who are possessed of such a share 
 of the riches, trade, and consequently the power of the 
 nation, will submit to be spoiled of all by those who are 
 weaker than themselves: a very considerable part of our 
 merchants are furnished with credit by those bankers, to near 
 the full extent of their trade, and so have become obliged, 
 thro' necessity, to circulate their notes, or lose the credit 
 which supports their trade ; the reformation therefore cannot 
 be expected to begin from them, though it is they who must 
 give it the finishing stroke : it must therefore proceed from 
 those who are not immediately dependent on the bankers, 
 that is, the landed gentlemen, farmers, and manufacturers, 
 who have the command of all the labour and native commo- 
 
 9 
 
74 Paper-Money and Banking. 
 
 dities in the kingdom. There is no law that obligeth us to 
 take bank-notes for money ; and if these three classes would 
 make a vigorous resolution not to circulate any such, or 
 receive them in payment for their grain, labour, or manufac- 
 tures, unless at an advanced price, we should very soon see 
 these notes shrink into a narrow compass, and, with the same 
 pace as they retire, we shall see trade, industry and arts ad- 
 vance, and assume new life and vigour ; for by this vast diminu- 
 tion of our circulating money, the prices of labour and every 
 thing must soon fall in a certain proportion ; the farmer will 
 soon get servants at reasonable wages, which will be a spur 
 to his industry, and enable him to cultivate his ground, pro- 
 duce more grain, and to pay a higher rent to his landlord ; 
 the cheapness of all the necessaries of life will enable the 
 landlord to sell his grain, and every artizan his commodity, 
 at a lower price, without diminution of his profit ; the mer- 
 chant buying all these at a lower price, can afford to carry 
 them to foreign markets, where he is sure of a ready sale 
 and profitable returns. This will encourage him to enlarge 
 his trade, arts and industry will flourish, and money will flow 
 in upon us, till its entrance is checked again by its plenty 
 and high prices. 
 
 All these good effects, which I have mentioned, will be 
 the necessary consequence of the diminution of the quantity 
 of our circulating money. Add to this, the pleasure and 
 satisfaction which it must be to every one's mind, when he 
 reflects that the money he acquires by his industry or 
 good fortune is his own, and will afford him the necessaries 
 or pleasures of life, at home or abroad, independent of any 
 commotions or credit of bankers : this consideration alone, I 
 say, ought to banish paper-money for ever. 
 
 FINIS. 
 
 10 
 
ESSAY 
 
 Of BANKS and of PAPER CREDIT; 
 
 FROM 
 
 CHARACTERISTICS of the 
 
 PRESENT STATE OF 
 
 GREAT BRITAIN, 
 
 . c I : CA- 
 
 Publijhed in 
 M.DCC.LVIII. 
 
BANKS and PAPER CREDIT. 
 
 IN order to form a true judgment of the political state of 
 Great Britain, it is necessary to consider the nature of 
 Paper-credit, and whether Banks are useful or dangerous to 
 a nation. 
 
 One would think, the advantages of Banks must have 
 been so manifest from experience.) that, long before this time, 
 no doubt could have been entertained of their usefulness. 
 But, instead of any universal agreement in their favour, such 
 violent prejudices have been contracted against them, that 
 not only the vulgar, who have never considered the subject, 
 but some very inquisitive and ingenious gentlemen, have 
 fallen into considerable mistakes in this matter, and look on 
 Banks as detrimental to trade and industry. 
 
 However, as experience hath convinced the trading part of 
 the world of the advantages of Banking ; it will not be 
 difficult to shew, from the nature of the thing, in what manner 
 Banks become useful in commerce. 
 
 In a nation that is chiefly addicted to agriculture and to pas- 
 turage, where the people, satisfying themselves with a simple 
 life, and wanting only a few conveniencies, deal but little 
 in trade and in manufactures ; money will not be very neces- 
 sary. Much of their commerce may be carried on by barter. 
 But, where there is a great variety of manufactures and 
 commodities, where all sorts of arts are encouraged, and 
 where elegance is studied; much money will not only be 
 profitable, but be absolutely necessary for the exigencies of the 
 state. 
 
 However, there may be too much money in a nation. 
 And there is certainly too much, if it renders the great body 
 of the people idle, and enables them to purchase what they 
 want, from foreigners, without any labour or industry of 
 their own. This was the case with Spain, two or three 
 hundred years ago, and did great harm to that country. 
 
 3 
 
78 Banks and Paper-Credit. 
 
 But it will scarce be possible to procure so much money by 
 trade alone. 
 
 Industry and labour are far better than money, and will 
 soon be able to procure it in exchange for commodities. Yet 
 industry stands sometimes in need to be quickened; and 
 money is very serviceable for this purpose. 
 
 Let us suppose, that there is a certain quantity of money 
 and of commodities in any country. The quantity of money 
 may be said to represent the commodities, and to determine 
 the prices of them. The prices of particular commodities 
 may vary in different circumstances ; but, if the sums of the 
 money and of the commodities continue much the same, the 
 prices, on the whole, cannot much alter. In such a case, if no 
 more money comes into the country, unless the dispositions 
 of the people are remarkably changed by some extraordinary 
 accident or revolution, it will be very difficult to carry on a 
 great deal of more work on a sudden, or speedily to increase 
 the sum of the commodities. 
 
 But, if a great sum of money should be brought into the 
 nation at once, and be distributed any way whatever, 
 provided the labouring and industrious part of the nation 
 do not get such sums as will keep them idle ; though some 
 part of it would undoubtedly be hoarded up, and would 
 thereby be rendered useless, yet the greatest part of it 
 would be employed, and become useful. The great people 
 would immediately lay out part of it in adding to their 
 houses, to their furniture, to their equipages, and to their 
 tables. The merchants and manufacturers would employ 
 more hands, and carry on a greater trade. The farmers 
 would improve their lands. The graziers would breed a 
 greater and a better stock of cattle. Every one would be 
 enabled to spend a little more, and to carry on his business 
 better. By these means there, would be every where more 
 labour. Of course, the commodities, or real riches, which 
 are quite different from money, would be greatly increased. 
 
 Again : If the stock of money should be increased by 
 this industry; or, if another sum of money should be intro- 
 duced by other means, and be distributed as before ; this 
 
 4 
 
Banks and Paper-Credit. 79 
 
 would again increase the stock of commodities. And so on 
 continually, or to a certain limit, 
 
 Now, Banks, settled by public authority under right 
 regulations, continually increase the current species, by 
 issuing notes, which circulate as money. By giving credit, 
 they furnish men of substance with the means of giving 
 greater employment to the industrious, and enable merchants 
 to carry on a more extensive trade. The more notes the 
 Banks can circulate in this way, the more will industry and 
 trade be promoted. Nor can their be any limit, while the 
 borrowers from these banks can give good security, and the 
 managers take care to issue no more notes, than, by expe- 
 rience, they have learned, they can answer, according to the 
 ordinary course of demand. Whatever sums landed men, 
 merchants, or others, borrow, provided they can give good 
 security, and borrow on reasonable prospects ; this is so far 
 from being a loss, that it increases industry and consumption. 
 A great quantity of Bank-notes only shews, that great sums 
 have been borrowed by one part of the nation from another, 
 upon good security, for carrying on trade, and for other 
 reasonable purposes : Which is so far from being either a 
 sign, or the cause, of poverty, that it is both the sign, and a 
 mean, of greater riches. 
 
 It is of no consequence, in this argument, that there 
 may be more paper-money than silver and gold, and that the 
 proportion betwixt them may not be ascertained ; provided 
 the former regulations are duly observed. 
 
 It is of no consequence that foreign nations will not take 
 our Bank-notes. They will take our goods, which are pro- 
 duced by the circulation of these notes among ourselves. 
 
 It is of no consequence, though the value of the Bank- 
 notes should happen to extend to a vast sum, provided the 
 Banks, which are to answer these notes, have an equal value 
 in coin, bullion, lands, goods, and good debts, to which there 
 is convenient access. 
 
 It is of no consequence, though landed men mortgage 
 part of their estates for Bank-notes, and may be said to coin 
 their lands, and to bring them into the market. On the 
 
 5 
 
80 Banks and Paper-Credit, 
 
 contrary, the more the lands of any country are locked up, 
 the country must be less improved. And the more easily 
 lands can be transferred and exchanged in commerce; industry, 
 trade, and manufactures will be more speedily and success- 
 fully promoted. 
 
 Banks are not only profitable, but may be said, in many 
 cases, to be necessary. When a spirit of industry is any way 
 excited in a nation, if, by this industry, both the commodities, 
 and the number of the people, shall be increased, before they 
 have much commerce with foreign nations to fetch them 
 money ; in such a condition, either there must be a currency 
 of Paper-credit, or the industrious part of the people will be 
 continually obliged to use barter, which will expose them to 
 many inconveniencies. 
 
 In fact, we see that nations have prospered by setting up 
 Banks. This is true of Holland, of Genoa, and of other 
 places ; and it will be found to be true both of England and 
 of Scotland. 
 
 By making the interest of money fall, Banks must pro- 
 mote industry and trade. 
 
 Public Banks are preferable to private Bankers. 
 
 It may be observed, that Banks have greatest credit 
 under free governments, or such as have a mixture of the 
 aristocratical or democratical form; a strong presumption in 
 their favour. Absolute monarchies seem hardly capable of 
 such a wise institution. Under arbitrary governments the 
 credit of Banks cannot be firm. Absolute princes would be 
 disposed to lay them under contribution, and would have too 
 ready access to their treasures. It is easy to see, how the 
 ingenious author of the Querist would answer the 303d 
 query, which he hath proposed*, " Whether it be possible 
 " for a national Bank to subsist and maintain its credit 
 
 Fifth edition, printed 1750. 
 
 No man hath explained the general nature of Banking, hath shown 
 the advantages of Banks, and, hath answered the objections against 
 them, more concisely, and with greater force of argument, than this 
 ingenious author ; whose Querist deserves well to be perused by every 
 lover of his country, and of mankind. 
 
 6 
 
Banks and Paper-Credit. 81 
 
 " under a French government?" Perhaps, it might flourish 
 for a little time, under a very wise and just prince : but it 
 must sink under one of another character, who would be 
 tempted to lay hold on its treasures, as our King Charles II. 
 shut up his exchequer, and seized the money which belonged 
 to his creditors. 
 
 In this manner we may better account for the want of 
 Banks and of Paper-credit in France, than by the supposition 
 of a superior policy in that country, in order to acquire and 
 retain greater quantities of silver and gold. Thus, the 
 French policy in not instituting Banks, in not admitting such 
 a circulation of merchants bills as in England, and in not 
 directly permitting lending on interest, which Mr. Hume 
 imagines to be a mighty advantage to the French*, appears 
 to be quite the reverse, and is truly a disadvantage, arising 
 from the pernicious nature of an absolute monarchy. 
 
 However, Banks, like all other political institutions, are 
 attended with inconveniencies. The four following are much 
 insisted on. 
 
 First ; That too great a run may be made upon Banks, 
 and they may not be able to answer their notes; by which 
 many innocent persons may suffer, and a great deal of con- 
 fusion may be raised in the country. But in answer : 
 Though this indeed is possible, there is little danger of its 
 happening ; if the Bank is not originally on a bad footing, 
 and the mismanagements are not very great. Banks have 
 continued long in Europe, without such disorders ; and may 
 be so well constituted and managed, as to prevent them in 
 times to come. 
 
 Secondly ; It is said, that Banks cannot be depended on 
 during civil wars, or when a foreign enemy is in the heart of 
 the country. But what can be preserved in such a case ? 
 Shall we make no wise establishments in time of peace, 
 because we cannot secure them in time of war? 'Tis true, 
 if we cannot defend ourselves against the French King, or 
 the Pretender, our Banks will be of little use to us. But, 
 in such circumstances, we must lay our account with greater 
 
 * In his Political Discourse of the Balance of Trade. 
 
 7 
 
82 Banks and Paper-Credit. 
 
 losses than the loss of our Paper -credit. We should lose our 
 more substantial riches. We should lose our religion and 
 liberty. In short, we should be able to secure nothing but 
 the soil of our island ; and that too we should be obliged to 
 cultivate, not for ourselves, but for others. 
 
 Besides these objections, which may be reckoned incon- 
 siderable, there are two of greater importance. The one, 
 That Paper-money prevents the acquisition of greater quan- 
 tities of silver and gold. The other, That it heightens the 
 price of labour, and therefore hurts our foreign trade. But 
 neither of these objections rests on a solid foundation. 
 
 " Suppose, (says an ingenious writer*) there are twelve 
 " millions of paper, that circulate in a kingdom as money ; 
 " and suppose, that the real cash is eighteen millions. Here 
 " is a state, which is found by experience able to hold a 
 " stock of thirty millions : I say, if it be able to hold it, it 
 " must of necessity have acquired it in gold and silver, had 
 " it not obstructed the entrance of these metals by this new 
 " invention of Paper. Whence would it have acquired that 
 " sum ? From all the kingdoms of this world. But why ? 
 " Because, if you remove these twelve millions of paper, 
 ''money in this state is below its level compared with its 
 " neighbours, and it must immediately draw from all of 
 te them, till it be full and saturate, so to speak, and can hold 
 " no more." This is the argument brought to prove that 
 paper-money prevents the entrance of silver and gold. But 
 it is too subtile to be convincing. 
 
 If at any period, the coin in any kingdom is eighteen 
 millions, this nation may carry 011 a considerable trade, and 
 in time may acquire twelve millions more in silver and gold, 
 without Paper-credit. But if, at the time at which they 
 have only eighteen million:* in coin, the nation should fall 
 into the use of Paper-credit, and should circulate a sum of 
 twelve millions in paper-money, in order to quicken industry, 
 and to enable the people to carry on a more extensive trade; 
 it is evident, they may carry on a greater trade with the 
 thirty millions of paper and coin, than with the eighteen 
 
 * Mr. Hume in his Political Discourse of the Balance of Trade 
 
 8 
 
Banks and Paper-Credit. 85 
 
 millions of coin alone. And, as they don't take paper in 
 payment from foreign nations, if they are gainers by trade, 
 they must receive the balance in silver and gold. Conse- 
 quently, the national stock must be sooner increased in the 
 one case than the other. If we shall suppose, further, that 
 we could remove the twelve millions of paper-money, with- 
 out any shock or confusion, by allowing less credit; we 
 would only put a stop to so much industry, and would 
 disable the people from carrying on so extensive a trade. 
 This is not the way of bringing in either silver or gold. 
 How is it possible, therefore, that the want of so much credit 
 can add to the treasure of the nation in any way whatever ? 
 
 The other objection is more plausible, and is stated in this 
 manner by Mr. Hume*: " That, by increasing the current 
 " species of a country, we increase the price of labour and 
 il provisions ; consequently, enable poorer nations, where 
 " labour and provisions are cheaper, to work cheaper, and 
 " undersell us at foreign markets: That this is even a 
 " necessary consequence of a great trade, in whatever way 
 " it is upheld, and is inseparably connected with great plenty 
 <c of silver and gold. On which account, trade must neces- 
 " sarily circulate; and the poorer nations must gradually 
 " carry it off from the richer. However, there is some 
 " comfort (it is said) in losing our trade by plenty and 
 " fulness ; but it is extremely foolish to lose it by an 
 " imaginary wealth, and artificially to increase the natural 
 " disadvantages of plenty." 
 
 This is the most plausible objection, that ever has been 
 made against Paper-credit. But, when fully examined, it 
 will appear to be ill founded. 
 
 Credit of some kind or other is necessary wherever there ia 
 much trade. In nations, where there is great simplicity of 
 manners and little trade, there is little necessity either of 
 borrowing, or of buying, upon credit. But as commerce is 
 enlarged, credit must be enlarged in proportion. There can 
 be little trade, where every one buys for ready money. 
 
 * In his Political Discourse of Money. 
 9 
 
<b4 Banks and Paper- Credit. 
 
 If therefore we would encrease our trade, we must sub- 
 mit to the disadvantages or rather natural consequences, 
 arising from credit; since credit is absolutely necessary to 
 an extensive commerce. 
 
 In whatever manner this credit is given, it may be said to 
 come in the place of money, to answer for it, or to supply 
 the want of it. It may be reckoned money, and is truly a 
 kind of money. 
 
 Credit can never be given without end. None will give 
 credit but to men either of substance, or of integrity, pru- 
 dence, and activity. Here then are natural checks and 
 limits, beyond which credit will not be extended. 
 
 Regard being had to these natural limits, credit must 
 always be useful to a nation, while it supports and encreases 
 industry and useful labour. 
 
 Besides the credit given by private dealers one to another, 
 and the advantages arising from such credit, equal or greater 
 advantages may be gained by a more regular and publick 
 credit, given by Banks under proper regulations, and estab- 
 lished by proper authority. 
 
 The credit of these Banks, as well as credit of all other 
 sorts, may be said to create a new species of money; which, 
 like all other kinds of money, must contribute to raise the 
 prices of labour, of provisions, and of all other commodities. 
 But this is necessary in commerce, promotes industry, and 
 is, upon the whole, a manifest advantage. 
 
 It may be granted therefore to Mr. Hume, that Bank- 
 notes contribute to encrease the price of labour, and, perhaps, 
 of all sorts of commodities. But this is not a valid argument 
 against banking ; since it is only by increasing industry and 
 consumption, that Bank-notes encrease these prices. Mr. 
 Hume, confesses, that even a greater quantity of silver and 
 gold doth not encrease prices immediately ; that a certain 
 interval is required, before it produces this effect; that it 
 must first quicken the diligence of every individual, before 
 it encreases the price of labour*. In no other way can 
 
 * In his Political Discourse of Money. 
 10 
 
Banks and Paper-Credit. 85 
 
 Bank-notes encrease the prices of labour or of goods : Notes 
 must, therefore, be beneficial. Nor does any other disadvan- 
 tage arise from them which doth not arise equally from 
 money. It is true, they have no intrinsic value ; in which 
 respect money is preferable to them. But they are equally 
 useful in all kinds of domestic commerce. They produce as 
 much industry, as is produced by the same quantity of 
 money, and serve for money in every case, except in trans- 
 acting with foreigners. 
 
 But might not we have the same industry without the 
 notes ? It is absolutely impossible. As no man can trade 
 to so great an extent without credit, as with it ; so paper, 
 taken in payments, must go farther than money alone. When 
 a spirit of industry is once raised, it may require a larger 
 circulation of specie to support it, than the gold or silver in 
 the country can supply. In this case there is an absolute 
 necessity for Paper-credit. When there are many indus- 
 trious merchants or manufacturers, who could usefully employ 
 greater sums than they possess, or can have on credit from 
 private hands, they can never carry their trade to the utmost 
 length, if there is not a Bank for furnishing them with this 
 necessary credit. It may therefore be allowed, that Bank- 
 notes raise the prices of labour and goods ; but this is not so 
 properly the effect of the notes, as of that industry which 
 they raise and assist, and which, with all its disadvantages, 
 is confessed to be beneficial to a nation. 
 
 Whether in any one year half a million is brought into a 
 commercial country by trade, or issued out by Banks, in 
 notes, upon good security, it will serve for the same purposes. 
 Part of it will be laid out in producing more of the same 
 kinds of commodities which the country produced before; 
 another part in making these kinds better; another in 
 raising new manufactures at home; another in procuring 
 more foreign goods. The farmer will raise more and better 
 grain ; the grazier breed more and better cattle ; the manu- 
 facturer make more and better cloth ; the artisan make 
 better work, and in a greater quantity ; and the merchant 
 
 11 
 
86 Banks and Paper- Credit. 
 
 will extend his foreign trade. Thus, the notes will propagate 
 and support greater industry; which will do greater service, 
 by encreasing the substance of a nation, than it can do harm, 
 by raising the prices of labour and of provisions. 
 
 Besides ; it is not upon the quantity of current specie 
 alone, that prices depend ; they- rather depend on the pro- 
 portion between the number of buyers, and that of sellers. 
 If there are more buyers than sellers, the prices rise, and 
 rise in proportion to the greater number of buyers. When 
 the demand is lessened, or the sellers exceed the buyers, the 
 prices fall : if the demand is much lessened, they fall greatly. 
 Again, this proportion between buyers and sellers depends on 
 a thousand accidents, that make one sort of goods more 
 necessary, fashionable, or saleable, than another. Thus, 
 when money abounds most, the prices of some things fall 
 very low ; and when it is very scarce, the prices of other 
 things are high. The most necessary things, such as corn 
 and cattle, will depend least upon fashion. Yet these depend 
 upon it in some measure^ At some times, and in some 
 nations, greater quantities of those necessary commodities 
 are consumed than in others. But corn, and other things 
 that are most necessary, depend oftener upon worse and 
 better crops and seasons, and upon the proportion between 
 the crops of different countries. 
 
 Besides the quantity of money, the manners of the 
 people have a great influence in altering the methods of 
 living, and determining the prices of labour and of commod- 
 ities. These manners are changeable, and are found very 
 different after long intervals of time. It is 'commonly said, 
 that a crown, two or three hundred years ago, served the 
 same purpose which a pound does at present*. This is true; 
 but not always, perhaps, in the sense in which it is commonly 
 understood. In some cases, no doubt, one could have pur- 
 chased, for one crown, as much, as he can now purchase for 
 four. In other cases he could not. But considering the 
 different methods of living, there is a sense, in which it is 
 
 * Mr. Hume's Political Discourse of Money. 
 12 
 
Banks and Paper-Credit. 87 
 
 always true. In those days, in which a quarter of a pound 
 was equivalent to a whole pound at present, men needed less 
 than they do now. They wanted only corn, beef, and beer, 
 coarse cloaths and coarse furniture. A little money purchased 
 them. Men of the same rank in our days want finer cloaths, 
 finer furniture ; and, besides corn, beef and beer of a better 
 kind, they must have spiceries, fruits, and wines, and stand 
 in need of more money to procure them. Thus, the methods 
 of living and men's opinions are constantly changing ; and a 
 variety of circumstances, besides the quantity of current 
 specie, contributes to make labour and provisions dearer at 
 one time than at another. 
 
 Mr. Hume* seems to be no less mistaken in the limits, 
 which he assigns to trade, than in his opinion of Banking. 
 According to his maxims, trade gives check to itself; and 
 there is a limit, beyond which it ca?mot\>Q encreased. Poorer 
 nations, that is, nations with less money or foreign commerce, 
 can work cheaper than those -that are richer; and must, 
 therefore, carry away their trade. On this head, much Jias 
 been said of the dearness of labour and of provisions in 
 England, of their cheapness in France ; that the French can 
 work cheaper by a third. It is foretold that the French 
 must gradually carry away the whole foreign trade of 
 England ; since they can undersell the English in foreign 
 markets. 
 
 As to this particular fact, that the French work cheaper 
 than the English, I shall not examine it. It cannot, how- 
 ever, be true in all cases. An Englishman must, no 
 doubt, be better fed, and earns higher wages by the day ; 
 but he will work many things by the piece, as cheap, or 
 cheaper than a Frenchman. He works harder, and can do 
 more work in the same time. Further, there are places in 
 Britain and Ireland, where provisions are as cheap as in 
 France. But, be this as it will, and though it should be 
 granted, that, in several cases, poorer nations will work 
 cheaper, and be able to undersell those that are richer; 
 
 * In his Political Discourse of Money. 
 13 
 
88 Banks and Paper-Credit. 
 
 and more commercial nations, will, in general, be able 
 to make many things, which poorer nations either cannot 
 make at all, or cannot make so well, Hence they may main- 
 tain a greater foreign trade, notwithstanding a greater 
 quantity of money. Trade is, indeed, limited, because the 
 earth and every thing in it are limited. One nation can 
 never extend its trade in infrnitum, or over all the earth. But 
 a richer nation, by a proper management, may always main- 
 tain its superiority in trade over a poorer. Nay a greater 
 quantity of money or credit, instead of being a loss, will 
 often be an advantage for this end. It is not evident either 
 from reason or from experience, that there must be an 
 equilibrium in trade, as in fluids. One may easily account, 
 from other principles, for the circulation of trade, and for its 
 shifting its seat from one nation to another. 
 
 But, in truth, neither the riches, nor the happiness of a 
 nation depends so much on foreign trade, as many merchants 
 are apt to imagine. Though such gentlemen are better 
 furnished, than others, with the knowledge of particular 
 facts, they are often misled by prejudices, are too confined in 
 their views, and too much consider their own particular 
 traffic. After all that they have asserted concerning the 
 necessity of foreign trade, it may justly be maintained, that 
 such a nation as Britain, with a large territory, may be great 
 and flourishing, may be more powerful than ever it has been 
 hitherto, by industry and domestic commerce, without an 
 extensive foreign trade. 
 
 A nation, where the people are not bred to war, but are 
 chiefly employed in agriculture, manufactures, and other 
 arts of peace; if they lye on a continent, where their 
 neighbours have great standing armies, they also must have 
 a standing army, or a very good militia, to defend them from 
 foreign invasions. If they possess an island, such as Britain, 
 and have not a great standing army, or a good militia, they 
 must have as much foreign or domestic trade, as will enable 
 them to support a good navy for their security. Foreign 
 trade is likewise an advantage in other respects. It opens an 
 easy communication with all parts of the globe. It gives us 
 
 14 
 
Banks and Paper- Credit . 8 9 
 
 the means of enlarging our knowledge of nature and of man- 
 kind, and of acquiring a share of the riches of every nation. 
 If it be managed with wisdom, it may be a more speedy 
 mean of acquiring wealth than domestic commerce alone. 
 If there are no mines in a country, without foreign trade it 
 cannot have either silver or gold. But such an island as 
 Britain, can never be said to depend chiefly on its foreign 
 trade for its greatness and riches. A nation, whose territory 
 is so small, that its native produce is not sufficient to feed 
 and cloath its inhabitants, cannot subsist without a foreign 
 trade. The British are in different circumstances. Their 
 island is more than sufficient to feed and to cloath its 
 inhabitants, though they were much more numerous than 
 they are. No doubt they will be the better for some foreign 
 delicacies and ornaments. They will stand in need of some 
 foreign materials for improving their domestic commerce. 
 But these can be procured without an extensive foreign trade. 
 If the people be generally industrious in improving their 
 lands, and in making the best use of the produce of their 
 own island, they may both become very numerous, and enjoy 
 the necessaries and comforts of life in great plenty, with 
 little foreign trade. This is made out by the author of 
 the Querist beyond the possibility of a reply. This is 
 confessed by Mr. Hume*; who acknowledges, that, when 
 industry and manufactures are once introduced into a nation, 
 they may lose most of their foreign trade, and continue, 
 notwithstanding, a great and powerful people. Nay, this 
 gentleman scruples not to affirm, that the disadvantages to 
 the foreign trade of England, arising from the high price 
 of labour, are not to be put in competition with the happi- 
 ness of so many millions of the commons of England, with 
 whose superior riches, above those of any other people, the 
 high price of labour is so closely connected. 
 
 Such a maxim is suitable to a humane disposition. 
 Agreeably to such a benevolent sentiment, we ought to 
 
 * In his Political Discourse of Commerce. 
 15 
 
90 Banks and Paper-Credit. 
 
 extend our notions of trade, and consider not only how much 
 money it gains to a nation, but how far it is conducive to 
 the happiness of the people. That government and policy 
 is best, where most people are most happy and easy. 
 Neither government nor trade ought to be managed with 
 the sole view of procuring vast riches to afew, at the expence 
 of grinding the faces of the poor, and of rendering the 
 labouring people, who are the great body of a nation, 
 miserable. The systems of too many, both merchants and 
 landed gentlemen, tend to no other purpose. While such 
 gentlemen swim in luxury, and have more than heart could 
 wish, they grudge a small pittance to the lower classes of 
 mankind. We ought to propose more equitable and more 
 merciful schemes. By considering things in this light, we 
 may see, how much the policy of England is preferable to 
 that of France. 
 
 It is not proposed to compare the taxes of England with 
 those of France, or to determine, which of them are highest 
 or imposed with the greatest judgment. When the expences 
 of the French armies and government are so great, when such 
 vast sums are actually levied, when both the people and their 
 parliaments make such loud complaints of their taxes being 
 so burdensome, it is scarce to be conceived, that the difference 
 in the price of labour and of provisions in France and in 
 England should arise from the difference of taxes. So far 
 as it is real, it arises from another source. The English 
 gentry in general are richer than the gentry in France, 
 excepting those of very high rank. The middling people in 
 England are richer than those of the same rank in France. 
 The commons in France are much poorer, and live more 
 poorly, than the commons in England. Riches are more 
 universally diffused in England, than in France. Where- 
 ever this is to be found, cceteris paribus, prices must be 
 higher. Hence, the difference in the prices of labour and of 
 provisions in France and in England is chiefly owing to the 
 poverty of the commons in France, and to the riches of the 
 commons in England: a truth, which ought to be acknow- 
 
 16 
 
Banks and Paper-Credit. 91 
 
 ledged for the honour of English policy. Accordingly, 
 Mr. Hume* confesses, that the great advantage of England 
 above any nation at present in the world, or that appears in 
 the records of any story, consists in the riches of its artizans 
 and common people: which, in his esteem, is most suitable 
 to human nature, augments the power of the State, makes 
 the burden of taxes feel light on every shoulder, and ought 
 to endear to Englishmen that free Government under which 
 they live. Thus, were we obliged to make a choice, com- 
 passion, as well as good policy, might engage us to prefer a 
 scheme, by which the bulk of a people will be easy, to 
 another, that bears hard upon the multitude. But, in truth, 
 England may have abundance of foreign trade, notwith- 
 standing the higher price of labour. An extensive foreign 
 trade is the natural consequence of a great domestic com- 
 merce ; since it is scarce possible, that an industrious nation, 
 consisting of ten millions of people, should not work up 
 many commodities, which they do not want at home, and 
 should not exchange them for the commodities of foreign 
 nations. 
 
 * In his Political Discourse of Commerce. 
 
 FINIS 
 
NOTE 
 
 On the SUSPENSION of 
 CASH PAYMENTS, 
 
 AT THE 
 
 BANK OF ENGLAND, 
 
 IN 
 1797. 
 
SUSPENSION OF CASH PAYMENTS. 
 
 WITH the exception of a run for gold occasioned by 
 the advance of the Highlanders to Derby in 1745, 
 there was no considerable run on the Bank of England till 
 1792. But owing to the previous over-issue of country 
 bank paper, a fall of the exchange, and a revulsion, accom- 
 panied by a good deal of mercantile distress, took place in 
 the latter part of that year, and the early part of 1793. 
 This crisis proved fatal to numerous country banks. And 
 the vacuum caused by the withdrawing of their notes from 
 circulation having restored the currency to its proper value, 
 the exportation of bullion ceased, and the exchange rose to 
 par, or became favourable. 
 
 The next, and by far the most important crisis in the 
 history of the paper currency of Great Britain took place 
 in 1797. Owing partly to events connected with the war 
 in which we were then engaged, to loans to the Emperor of 
 Germany, to bills drawn on the treasury by the British 
 agents abroad, and partly and chiefly, perhaps, to the large 
 advances made by the Bank of England to Government, 
 the exchange became unfavourable in 1795, and in that and 
 the following year large quantities of specie were demanded 
 from the Bank. No doubt, however, the ultimate crisis was 
 wholly owing to political causes. Alarms with respect to 
 invasion, and reports of descents, said to have been made 
 on the coast, became exceedingly prevalent in the 
 latter part of 1796, and the beginning of 1797. This 
 produced a strong desire among many individuals, but chiefly 
 among the small farmers and retail dealers, to convert as 
 much as possible of their property into cash. Heavy runs 
 were in consequence made upon most country banks ; and 
 the bankruptcy of some of these establishments at New- 
 castle and other parts of the country gave additional force 
 
 3 
 
96 Suspension of 
 
 to the previous panic. Demands for supplies of cash 
 poured' in upon the Bank of England from all parts of the 
 country ; and the stock of coin and bullion in her coffers,, 
 which amounted to 7,940,000 in March, 1795, was re- 
 duced on Saturday, the 25th of February, 1797, to 
 1,272,000, with every prospect of a violent run taking 
 place on the following Monday. In this emergency, a 
 meeting of the Privy Council was held, when it was resolved 
 to suspend payments in cash at the Bank until the sense of 
 Parliament could be taken on the matter ; and an Order in 
 Council to that effect was issued on Sunday, the 26th of 
 February, 1797. 
 
 Much difference of opinion has been entertained with 
 respect to the policy of this measure. But the circum- 
 stances were so peculiar, and, at the same time, so ur- 
 gent, that it appears to have been altogether indispen- 
 sable. The run was not one that could be checked by 
 ordinary measures. Not having originated in commercial 
 causes, in an excess of paper, or in any doubts with regard 
 to the solidity of the Bank, but in the fears and apprehen- 
 sions caused by alarms of invasion, it was clear, that so 
 long as these continued, no paper convertible into gold would 
 continue in circulation. And as the Bank was without the 
 means of immediately converting her capital into cash, 
 it is difficult to see how her downfall, and that of the 
 country banks, who all depend on her for supplies of bullion, 
 could have been averted otherwise than by the interference 
 of Government. The crisis was confessedly fraught with the 
 greatest hazard, and required to be promptly dealt with. 
 Had the Bank been forced to stop payment, every sort of 
 credit and confidence would have been paralyzed ; and it is 
 impossible to estimate what might have been the effect 
 of the sudden stoppage of the circulation of bank paper 
 that would have been experienced. Under any circumstances 
 such an event would most likely be attended with disastrous 
 results ; and had it occurred during war, and in a period of 
 great danger and difficulty, it might have led either to a 
 public bankruptcy, or to some serious convulsion. 
 
 4 
 
Cash Payments, 1797. 97 
 
 Hence it would seem that this was a crisis in which 
 Government were not justified only, but bound to inter- 
 pose. The really objectionable part of their conduct 
 consisted in their continuing the suspension after the 
 alarms of invasion which had occasioned the panic had com- 
 pletely subsided; when the confidence of the public in the 
 stability of the Bank stood higher than ever ; and there was 
 no longer any thing to fear from a return to cash payments. 
 Various motives have been assigned for this conduct ; but 
 ill-founded apprehensions as to a recurrence of the run, and 
 the facilities which the restriction gave the Bank of making 
 large advances to Government, without subjecting herself to a 
 drain for bullion, through a fall of the exchange, were most 
 probably the chief causes of its being continued. Much op- 
 position was made to the measure in Parliament, but without 
 effect. After repeated discussions the suspension was ulti- 
 mately prolonged for an indefinite period, or until six months 
 after the signature of a definitive treaty of peace. 
 
 Though not declared by law to be legal tender, the notes 
 of the Bank of England became such in effect from the period 
 of the suspension. Immediately upon its taking place, a 
 meeting was held of the principal merchants, bankers, and 
 traders of the metropolis, when they agreed to subscribe 
 resolutions expressive of their readiness to accept Bank of 
 England notes in payment of all debts and obligations due to 
 them, and pledging themselves to use all their influence to 
 make them be accepted by others. A Committee of the 
 House of Commons was at the same time appointed to 
 inquire into the affairs of the Bank, and it soon after re- 
 ported, that exclusive of the debt due by the public to the 
 Bank of 11,684,800, she had a surplus fund of 3,825,890, 
 after providing for every claim that could be made upon her. 
 No doubt, therefore, could be entertained in regard to the 
 more than perfect solvency of the Bank. And this circum- 
 stance, coupled with the ready acceptance of her notes 
 as cash by the merchants and bankers, and in all pay- 
 ments to the Exchequer, secured their currency ; while 
 the moderation with which they were issued hindered their 
 
 5 
 
98 Suspension of Cash Payments, 1797. 
 
 value from being depreciated from excess, so that they con- 
 tinued for a considerable period nearly on a par with gold. 
 
 Owing in great measure to the fortunate circumstance of 
 no such crisis having previously occurred in this country, 
 the reader will not be surprised to learn that many very absurd 
 theories were broached in regard to the circumstances which 
 were to determine the value of notes, now that the Bank was 
 no longer obliged to pay them on demand. But it was imme- 
 diately seen, at least by all the more intelligent inquirers, such 
 as Sir Francis Baring, Mr. Thornton, and Lord King, that 
 a limitation of their quantity was indispensable to prevent 
 their sinking below their previous level. And shortly after 
 the suspension, and while the discussions with respect to it 
 were going forward in the House of Commons, Sir F. Baring 
 published a tract, in which he recommended that during its 
 continuance, the issue of bank notes should be limited, and 
 that they should be made legal tender.* The avowed 
 object of this proposal was to take from the Bank Directors 
 the ability to abuse the privilege conferred on them by the 
 suspension. Bat it was contended, as is usual on such occa- 
 sions, that there was no reasonable ground for anticipating 
 any abuse; and the power to regulate the value of the 
 currency was committed without any kind of check, to the 
 discretion of the Directors. 
 
 And it is but just to state that for awhile these gentlemen 
 exercised the unparalleled powers with which they were 
 invested with exemplary moderation. It was not, indeed, 
 till 1800 that the value of notes began to fall as compared 
 with the standard. But for some years their depreciation 
 was inconsiderable. And it will be afterwards seen that 
 until 1809 and 1810 the fall in their value had not become 
 so great as to attract and fix the public attention. 
 
 * Observations on the Establishment of the Bank of England, and 
 on the Paper Circulation of the country, by Sir Francis Baring, Bart., 
 2nd edit. p. 72, &c. 
 
THE 
 
 UTILITY 
 
 OF 
 
 COUNTRY BANKS 
 
 CONSIDERED, &c. 
 
 LONDON I 
 
 PRINTED FOR J. HATCHARD, PICCADILLY, 
 MDCCCII. 
 
UTILITY OP COUNTEY BANKS. 
 
 THE Bank of England, which is allowed to be the 
 Bank of greatest circulation in Europe, was incor- 
 porated pursuant to Act of Parliament, by a Charter 
 under the Great Seal, dated 27th of July, 1694. It 
 advanced at that time 1,200,0007. for an annuity of 100,0007. 
 being 96,0007. a year interest, at eight per cent, and 4,0007. 
 a year for the expence of management. During the re- 
 coinage of the silver in 1696, the Bank discontinued the 
 payment of its notes, which brought them into such dis- 
 credit that they were at twenty per cent, discount. Tallies 
 had been at forty, fifty, and sixty per cent, discount. For 
 the support of public credit, the Bank was allowed in 
 1697, to enlarge its capital stock by ingrafting on it 
 1,001,1717. 10s. Its whole capital stock therefore amounted 
 at this time to 2,201,1717. 10s. In 1708, in pursuance of 
 the 7th Anne, c. vii. the Bank paid into the Exchequer the 
 sum of 400,0007. making in all the sum of 1,600,0007. 
 which it had advanced upon its original annuity of 96,0007. 
 interest, and 4,0007. for expence of management. In pur- 
 suance of the same Act, the Bank cancelled Exchequer Bills 
 to the amount of 1,775,0297. 17 s. lO^d. at six per cent, 
 interest, and was at the same time allowed to take in sub- 
 scriptions for doubling its capital. In 1708 therefore the 
 capital of the Bank amounted to 4,402,3437. and it had 
 advanced to Government the sum of 3,375,0277. 17s. 10^7. 
 In 1709, by a call of fifteen per cent, there was paid in and 
 made stock 656,2047. Is. 9d. and in 1710, by another often 
 per cent. 501,4487. 125. lie?. In consequence of those 
 two calls, then the capital of the Bank amounted to 
 5,559,9957. 14s. 8d.* In pursuance of the 3d Geo. I. c. 8. 
 
 * Postlethwayt's Hist, of the Revenue, p. 301. 
 3 
 
102 Utility of Country Banks. 
 
 the Bank delivered up to be cancelled two millions of 
 Exchequer Bills. At this time, therefore, it had advanced 
 to Government 5,375,0277. 17s. lOd. The Bank purchased 
 of the South Sea Company, in pursuance of the 8th Geo. I. 
 stock to the amount of 4,000.0007. and in 1722 its capital 
 stock was increased by 3,400,0007. in consequence of 
 the subscriptions which it had taken in to enable it to 
 make this purchase. The Bank then had advanced to 
 the public at this time 9,375,0277. 17s. lOjd. and its 
 capital stock amounted only to 8,959,9957. 14s. Sd. It 
 was now that the Bank began to have an undivided capital 
 over and above its divided one, and it has continued to have 
 an undivided one of the same kind ever since. The Bank 
 in 1746 had, upon different occasions, advanced to the public 
 11,686,8007. and its divided capital had been raised by 
 different calls and subscriptions to 30,780,0007. In pur- 
 suance of the 4th Geo. III. c. 25. the Bank paid to govern- 
 ment for the renewal of its charter 110,0007. without in- 
 terest or re-payment. This sum therefore did not increase 
 either of the two other, sums. The Bank dividends have 
 varied according to the rate of interest received for money 
 advanced to the public, and other circumstances, from eight 
 to three per cent. The Bank dividends for some years have 
 been at five and a half per cent. The Bank of England not 
 only acts as an ordinary Bank, but it must be viewed as a 
 great engine of state. It advances to government the annual 
 amount of the land and malt tax, it circulates exchequer 
 bills, receives and pays the greater part of the annuities 
 which are due to the creditors of the public, and in various 
 other ways aids the operations of government. 
 
 On several occasions the Bank has supported the credit 
 of the principal houses in England, Hamburgh, and Holland. 
 It likewise discounts merchants' bills. The operations of this 
 Bank during the war are too well known to require any 
 detail in this place. By a late act of parliament it has been 
 provisionally empowered to pay all demands upon it in its 
 own paper. 
 
 The invention of Bank credit, as it is called in Scotland, 
 
 4 
 
Utility of Country Banks. 103 
 
 has tended much to the prosperity of that country. It is the 
 practice in Edinburgh and Glasgow for the merchants to 
 open an account at a Bank, by getting some one to join as 
 their surety in a security to the amount they require sup- 
 pose five thousand pounds. This money, or any part of it, 
 he has the liberty of drawing out whenever he pleases, and 
 he pays only the ordinary interest for it, while it is in his 
 hands. He may when he pleases repay any sum, so small as 
 twenty pounds, and the interest ceases on the day of repay- 
 ment. The advantages of this contrivance, says Mr. 
 Hume, are manifold "as a man may find surety nrarly to 
 the amount of his substance, and his Bank credit is equiva- 
 lent to ready money, a merchant does hereby in a manner 
 coin his houses, his household furniture, the goods in his 
 warehouse, the foreign debts due to him, his ships at sea, and 
 can upon occasion employ them in all payments, as if they 
 were the current money of the country. If a man borrows 
 five thousand pounds from a private hand, besides that it is 
 n >t always to be found when required, he pays interest for it 
 whether he be using it or not ; his Bank credit costs him 
 nothing except during the very moment in which it is of service 
 to him. And this circumstance is of equal advantage as if he 
 had borrowed money at much lower interest. Merchants like- 
 wise, from this invention, acquire a great facility in support- 
 ing each other's credit, which is a considerable security 
 against bankruptcies. A man, when his own Bank credit 
 is exhausted, goes to any of his neighbours who is not in 
 the same condition, and he gets the money, which he 
 replaces at his convenience."* 
 
 The practice of the Country Banks in Yorkshire, and 
 I believe in most parts of England, is very much like the 
 Bank Credit in Scotland. The Bankers advance sums on 
 the joint note of any two traders, or persons of credit. The 
 usual period of the bill is one or two months, and many 
 Banks will discount bills of this kind at two months date, 
 for one month's interest, which is in fact to lend money at 
 two and a half per cent, interest. 
 
 * Essay V. of the Balance of Trade, p. 96. 
 
 5 
 
104 Utility of Country Banks. 
 
 " A paper money consisting in bank notes, issued by 
 people of undoubted credit, payable upon demand without 
 any condition, and in fact always readily paid as soon as 
 presented, is in every respect equal in value to gold and silver 
 money, since gold and silver money can always be had for it. 
 Whatever is bought or sold for such paper, must necessarily 
 be bought or sold as cheap as it could have been for gold 
 and silver."* A paper money consisting of bills of exchange, 
 or promissory notes, payable at a future day, might have a 
 different operation, as such paper would bear a discount, and 
 not be convertible into ready money without a loss to the 
 holder; such paper, therefore, would not have the same 
 consequences on the circulating medium as cash. 
 
 It was some years ago the custom in Scotland for some 
 of the banking companies to insert into their bank notes 
 what they called an optional clause, by which they promised 
 payment to the bearer, either as soon as the note should be 
 presented, or in the option of the directors, six months after 
 such presentment, together with the legal interest for the 
 said six months. It will readily be supposed, that such a 
 practice degraded the currency of these banking companies, 
 and sunk it below the value of gold and silver. 
 
 During the continuance of this abuse, in 1762, 1763, and 
 1764, while the exchange between London and Carlisle was 
 at par, that between London and Dumfries would sometimes 
 be four per cent, against Dumfries, though this town is only 
 thirty miles from Carlisle. But at Carlisle, bills were paid 
 in gold and silver, and at Dumfries in Scotch Bank notes 
 the uncertainty of getting gold and silver coin for those bank 
 notes had degraded them four per cent. 
 
 These optional clauses were very wisely abolished by that 
 act of parliament which suppressed ten and five shilling bank 
 notes, by which means the exchange between Scotland and 
 England was restored to the fair rate which the course 
 of trade and remittances happen to make it. These optional 
 clauses found their way into Yorkshire, and we smile to read 
 
 Smith's Wealth of Nations, vol. i. p. 490. 
 
 6 
 
Utility of Country Banks. 105 
 
 as a clause in a bank bill for sixpence, that the bearer must 
 bring change for a guinea, as the condition of receiving the 
 cash. Notwithstanding the prohibition by act of parliament, 
 I am told that notes for half a guinea are at present circu- 
 lated at Sheffield, and some of the large towns in the West 
 Riding of Yorkshire. The paper currencies of North 
 America consisted of a government paper, not payable to the 
 bearer on demand, but the payment of which could not be 
 demanded till several years after it was issued ; and the 
 colony governments, though they paid no interest to the 
 holders of this paper, declared it to be a legal tender of pay- 
 ment for the full value for which it was issued. Such an 
 act of injustice, such want of security in the property of a 
 state, as might have been foreseen, depreciated the currency 
 to an astonishing degree. It appeared from the course of 
 exchange with Great Britain, that one hundred pounds ster- 
 ling was considered as equivalent to one hundred and thirty 
 pounds, and in others even to eleven hundred pounds 
 currency this difference arising from the different quan- 
 tities of paper circulated in different colonies, and the 
 period and probability of its final discharge and redemption. 
 In the course of the French Revolution we have seen great 
 changes in their paper currency. In the year 1792 I received 
 at Paris one hundred and sixty pounds in assignats, for one 
 hundred pounds sterling, and though the price of most things 
 was regulated by the worth of the louis-d'or in assignats, yet 
 many things bore only the paper-price. Amongst these, 
 posting was to the traveller a material article. Assignats 
 were at that time received in payment as cash at all the posts ; 
 and in a journey from Calais through Paris to Geneva I 
 saved many pounds, by providing myself with assignats, in- 
 stead of gold or silver coin. Books were sold for paper 
 currency, and I availed myself of this circumstance by the 
 purchase of several editions of French authors, with which I 
 had an opportunity of obliging my friends in England. In con- 
 sidering the effects of a paper currency, it must be remembered, 
 that whilst the trade and commerce of any place continue the 
 same, the whole paper money of every kind, which can 
 
 7 
 
106 Utility of Country Banks. 
 
 easily find circulation in it, can never exceed the value of 
 the gold and silver, of which it supplies the place. To 
 increase the circulation, it will be necessary to increase 
 the trade hence the beneficial effects of those Banks in all 
 countries, which enable the trader and merchant to extend 
 their concerns. 
 
 It is very evident that the system of banking multiplies 
 prodigiously the specie of the country ; when from the con- 
 fidence placed in the character and responsibility of any 
 particular firm, its promissory notes have the same currency 
 as gold and silver money. The stock added to the capital 
 of the community is precisely to the extent of its issues, over 
 and above the sum necessary to be kept in its coffers, for the 
 purpose of answering the demands of those who prefer, or 
 have occasion for coin, instead of its paper. 
 
 It would not be very easy to calculate the precise sum 
 necessary for this purpose, but it is very readily seen that a 
 small comparative sum may, on most occasions, be sufficient. 
 By the introduction of paper, therefore, a very large sum can 
 be spared. Let us suppose that the whole circulating money 
 of Yorkshire amounts to two millions sterling, which sum is 
 found to be sufficient for circulating the whole annual pro- 
 duce of land and labour. Let us take the issues of all the 
 bankers in that county at two millions in promissory notes 
 payable in cash, on demand ; to answer which sum, suppose 
 that they have in their coffers four hundred thousand 
 pounds. There would then be sixteen hundred thousand 
 pounds in gold and silver, and two millions of their bank 
 notes, or thirty-six hundred thousand pounds of paper and 
 money together. The goods to be bought and sold remain- 
 ing precisely the same, two millions of money will be 
 sufficient for buying and selling them ; the overplus, or 
 sixteen hundred thousand pounds thus created, being over 
 and above what is wanted in that part of the country, will be 
 at hand for the profitable purposes of trade and commerce. 
 
 As the paper cannot go abroad, where the money seeks 
 for a profit in foreign trade, gold and silver, or bills of exchange 
 will be employed. If the money thus added to the trading 
 
 8 
 
Utility of Country Banks. 107 
 
 capital on the credit of the Yorkshire Bankers be employed 
 in purchasing goods in a foreign country, to supply the con- 
 sumption of another, or in what is called the carrying trade, 
 whatever profit they make will be an addition to the 
 neat revenue of their own country. It is in fact a new fund, 
 raised for the purpose of carrying on a new trade, the gold 
 and silver being converted into a fund for this new trade, by 
 the contrivance of transacting the business of the country by 
 means of paper currency. 
 
 If the money be employed in purchasing foreign goods for 
 home consumption, it may either procure a return of foreign 
 wines, foreign silks, &c. or it may purchase an additional 
 stock of materials, tools, and provisions, which may serve to 
 maintain and employ an additional number of industrious 
 people, who re-produce with a profit, the value of their 
 annual consumption. The latter is the most usual way in which 
 the gold and silver is employed, that is thus forced abroad 
 by the operations of banking, in purchasing foreign goods 
 for home consumption. "When paper," says a great writer, 
 " is substituted in the room of gold and silver money, the 
 quantity of the materials, tools, and maintenance, which the 
 whole circulating capital can supply, may be increased by 
 the whole value of gold and silver which used to be employed 
 in purchasing them. The whole value of the great wheel of 
 circulation and distribution, is added to the goods which are 
 circulated and distributed by means of it. The operation in 
 some measure resembles that of the undertaker of some great 
 work, who in consequence of some improvement in mechanics, 
 takes down his old machinery, and adds the difference 
 between its price and that of the new to his circulating capital, 
 to the fund from which he furnishes materials and wages to 
 his workmen."* 
 
 When the gold and silver necessary for circulation, is 
 reduced by the substitution of paper to perhaps a fifth part 
 of the former quantity, if the value of only the greater part 
 of the other four-fifths te added to the funds appropriated 
 
 * Smith on the Wealth of Nations, vol. i. p. 441. 
 9 
 
108 Utility of Country Banks. 
 
 for the maintenance of industry, a very considerable addition 
 will be made to the quantity of that industry, and con- 
 sequently to the value of the annual produce of land and 
 labour. How desirable then for every country to have 
 these advantages ? What a source of wealth and happiness 
 are we now contemplating ? To those whose prejudices 
 will call these facts visionary theories, I will produce 
 historical truth in support of my argument. The doc- 
 trine was first verified in Scotland, where the business 
 of the country has for forty years been carried on by means 
 of the paper currency of different banks ; and what country, 
 lei me ask, has flourished so much in so short a time ? In 
 Scotland the whole face of the country has been changed ; 
 beautiful cities, elegant towns, comfortable villages, fertile 
 fields, increased population, thriving manufactories, exten- 
 sive commerce, and a happy people have arisen. We need 
 not heighten the colouring of this picture by the recollec- 
 tion of rags and beggary of former times. It is asserted, 
 and the fact is pretty well established, that the trade of 
 Glasgow doubled in about fifteen years after the first erec- 
 tion of the banks there, and that the trade of Scotland 
 has more than quadrupled since the first erection of the two 
 public banks at Edinburgh. 
 
 The Bank of Scotland was established by act of parlia- 
 ment in 16^5 ; the other, called the Royal Bank, by royal 
 charter, in 1727. Whoever has been in Scotland knows 
 that, notwithstanding the appearances which denote real 
 wealth, no coin but that of copper is common ; gold and 
 silver are scarcely visible ; it is even difficult sometimes to 
 get silver in change of a twenty shillings Bank Note. Pur- 
 chases and payments of all kinds are commonly made in 
 paper. 
 
 The whole paper money which can find a ready circula- 
 tion in any country, never can exceed the value of the gold 
 and silver of which it supplies the place, or which, commerce 
 being the same, would circulate there, if there was no paper 
 money. Should the circulating paper at any time exceed 
 that sum, it must immediately be returned to the banks that 
 
 10 
 
Utility of Country Banks. 109 
 
 issued it, to be exchanged for gold and silver, since the 
 excess could neither be sent abroad, nor employed in the 
 circulation of the country. To those who imagine that the 
 Country Banks are mere paper mills which can issue an 
 indefinite number of sheets, these observations may afford some 
 consolation. Nothing is more demonstrable than that a super- 
 fluous issue of paper would cause a run upon the bank which 
 issued it. On their own account therefore Country Bankers are 
 obliged to be careful in balancing the amount of their issues. 
 Let us suppose that all the paper of a particular bank which 
 can be easily employed in the circulation of the country, 
 amounts to exactly eighty thousand pounds, and to answer 
 this demand, this bank has at all times twenty thousand 
 pounds of gold and silver in its coffers, let this bank attempt 
 to circulate eighty-eight. thousand pounds, the surplus of eight 
 thousand pounds above what the circulation can easily em- 
 ploy, would return upon it almost as fast as they were issued. 
 To answer its occasional demands, this bank must in that case 
 keep an additional sum in readiness, equal to the surplus 
 issue ; instead of twenty, it must keep twenty eight thousand 
 pounds at hand, which as it would increase the expence, and 
 diminish the profits of the firm, no judicious bankers would 
 ever continue to do. It follows then that the safety of the 
 public is connected with the real interest of the bankers ; and 
 it may be worth while to observe, that the multiplication of 
 banking companies, so far from being an evil, is itself a good, 
 as it increases the security of the public, by obliging all of 
 them to be very circumspect in their conduct, and not extend 
 their issues beyond a due proportion to their cash, to prevent 
 those heavy and malicious runs, which are often occasioned 
 by rival competitors ; the consequences of a failure of any 
 one company become less injurious to the public, and a free 
 competition will induce the bankers to be liberal in their 
 transactions with their customers. 
 
 It being true that the Country Banks can only issue as 
 much paper currency as will supply the place of the coin, 
 which would otherwise be required for the same purposes of 
 circulation, it follows that to render a bank profitable, the 
 
 11 
 
1 10 Utility of Country Banks. 
 
 money thus obtained on the credit of the firm, must be em- 
 ployed ; if it were all to lie dead in the coffers of the banking 
 shop, it might as well lie in the coffins of the churchyard ; it 
 would be as effectually withdrawn from the circulating mass. 
 What is employed in circulation alone yields a profit ; hence 
 it follows, that the smaller quantity of coin with which a 
 banking-house can carry on its business, the greater good it 
 does to the community. Suppose the issue of a house to be 
 precisely fifty thousand pounds, if to answer that issue fifty 
 thousand pounds in coin were always ready in a chest to 
 answer the demand of every holder of the notes, it is 
 evident that no profit could arise from such issue; nothing 
 would be gained by the bank ; nothing would be added 
 to the public stock. Suppose again, that to answer 
 the issue of fifty thousand pounds, five or ten thousand 
 pounds in specie should be kept ready in an unproductive 
 state, then forty or five and forty thousand pounds would in 
 this way be added to the capital stock of the nation, and 
 as effectually added by the circulation of this country paper, as 
 by the importation of an equal quantity of gold and silver 
 from the mines of Peru. In this point of view then every 
 Country Bank must be considered as a mine to the kingdom 
 and the bankers as the workers of this mine for the public 
 good. As they can only make a profit by employing their 
 capital in some way or other, and in whatever way money 
 is employed, it is of use to some part of the community, so it 
 follows that the greater their profits, the greater good results 
 to the public. We never need be afraid of too great a cir- 
 culation, for the market will not admit of a surplus ; the 
 only danger is, that the profits of the bank should fail ; and 
 as the best concerted projects will sometimes miscarry, so it 
 may happen that the large speculations into which bankers, 
 as well as merchants sometimes enter, may prove unsuccess- 
 ful. Even in such a case, if the partners of the firm had 
 assets, no holder of a bill would in the end be a loser, since 
 the law secures their claim, wherever there is a property. 
 That failures of this kind may have sometimes been attended 
 with calamitous circumstances cannot be denied ; but whilst 
 
 12 
 
Utility of Country Banks. Ill 
 
 the law protects, as it now does, the claims of the holders of 
 Country Bank Notes, and whilst gentlemen of great property 
 and well known integrity engage in these concerns, there is 
 no very great danger from the generality of Country Banks. 
 Security is the primary object of the bankers ; and their in- 
 terest and that of the public is so intimately connected, that 
 it will very rarely happen that they will be tempted to engage 
 in visionary projects, when their sure, safe, and real profits 
 are so large. 
 
 The country is much indebted to gentlemen of large landed 
 property for emerging from the indolence of their forefathers, 
 and entering into the commercial concerns of a Bank. They 
 have given a degree of respectability to these undertakings, 
 at the same time that they have added to the confidence and 
 security of the people ; yet notwithstanding the certainty of 
 the intrinsic value of the notes issuing from a Bank of this 
 kind, it is surprising to see what a panic has sometimes sud- 
 denly seized a whole country, arising from the prejudices of 
 the people, or sometimes from the jealousies, or illiberal arts 
 of rival competitors. 
 
 About the commencement of the War, it may be remem- 
 bered that a great alarm was excited, and if it had not been 
 for the stand made at that time by many bankers of large 
 landed property, the country might have lost all the benefits 
 which it has since derived from these institutions. A Bank 
 in Yorkshire had at that time a run upon it, which created as 
 much clamour, confusion, and bustle, as the invasion of a 
 foreign enemy could have done. A sudden panic having 
 seized the holders of the bills of this Bank, all the carriages, 
 carts, horses, and even asses, were put in a state of requisi- 
 tion ; and though every holder of a guinea bill knew that 
 one of the partners had a landed estate of above twenty thou- 
 sand pounds in the neighbourhood of the Bank, they clamo- 
 rously demanded cash for his promissory notes; and the 
 security of twenty thousand pounds a year, with the colla- 
 teral security of the other respectable partners of this firm, 
 was not deemed sufficient, in the minds of these poor, terri- 
 fied, ignorant persons. Clamours of this kind are much to 
 
 13 
 
1 12 Utility of Country Banks. 
 
 be deprecated ; and the promoters of them should be severely 
 punished. 
 
 It is the duty of every man who has the welfare of his 
 country at heart, to place a rational confidence in the re- 
 spectability of character. Whilst our provincial Banks main- 
 tain the confidence of the public, and by an unsullied integrity 
 and by a liberal accommodation to the mercantile part of the 
 community, promote the industrious endeavours of an enter- 
 prising people, it will be impossible for the empire of Great 
 Britain to be outri vailed in her commerce. By extending 
 the trading capitals of the merchants, the wealth of the 
 country is put into a progressive state of improvement, and 
 from the largeness of the capitals employed in trade, we must 
 command a great superiority over other nations. 
 
 Whatever tends to increase the mass of industry and 
 quantity of labour, must have a material operation on the 
 state of society. The industrious poor, when they can have 
 work, will never be burdensome to their parishes; hence 
 amongst the good effects may be reckoned the tendency of 
 these establishments to diminish the poor rates. And here 
 I cannot help expressing the hope that some regulation or 
 modification of the system of poor laws may soon be effected. 
 By removing the difficulties of gaining a settlement, many 
 hardships to the poor, and very expensive litigations and 
 oppressions might be prevented to parishes. Certificates 
 should be abolished, and every honest, industrious man, mar- 
 ried or single, should be at liberty to settle wherever he 
 could gain a livelihood ; by which means the scarcity ot' hands 
 in one parish, would be relieved by the superabundance in 
 another. The law of settlements as it now stands, is a public 
 grievance, which the wisdom of parliament would do well to 
 take into its serious consideration. The great increase of 
 population, and the encouragement necessary to be given to 
 industrious artists and labourers, most especially on the con- 
 clusion of a war, imperiously call on the legislature for its 
 immediate attention to this subject. 
 
 The populousness of ancient nations is a theme which has 
 
 14 
 
Utility of Country Banks. 113 
 
 occupied the attention of many philosophic writers, and not- 
 withstanding the investigation which it has received, it appears 
 to be involved in much obscurity. Mr. Hume, unable to 
 account for the amazing population of some parts of Greece, 
 as described by some authors, boldly ventures to assert, that 
 there is often a mistake in the arithmetical figures of the 
 ancients ; and in one instance he tells us, that we should 
 read only forty thousand, instead of four hundred thousand. 
 Athena3us says, that by the enumeration of Demetrius Pha- 
 lereus, there were in Athens 21,000 citizens, 10,000 strangers, 
 and 400,000 slaves. This number is much insisted on by 
 those who are advocates for the extreme populousness of the 
 ancients, but the arguments of Mr. Hume carry with them 
 great probability. There can be no doubt, however, that 
 the free states of Greece were extremely populous. Egypt 
 and Rome were likewise well peopled. Pliny* tells us, 
 that Seleucia, the seat of the Greek empire in the East, con- 
 tained 600,000 people ; and Carthage is said by Strabof to 
 have contained 700,000. The cities of Pekin, Paris, and 
 Constantinople, are supposed to contain about the same 
 number at present. 
 
 A circle of two hundred miles radius drawn from Dover 
 or Calais would comprehend London, Paris, the Nether- 
 lands, the United Provinces, and some of the best cultivated 
 parts of France and England. Perhaps we might safely 
 affirm with Mr. Hume, that no spot of ground can be found 
 in antiquity, of equal extent, which contained near so many 
 great and populous cities, and was so stocked with riches and 
 inhabitants. To balance in both periods the states which 
 possessed most art, knowledge, civility, and the best police, 
 seems the truest method of comparison, and in this point of 
 view it will appear, that the moderns have the superiority. 
 
 Were it possible for the prolific virtue of man to act in 
 its full extent, the number of the human species would per- 
 haps be doubled in every generation. Poverty and necessity 
 impose restraints, which in some countries are so great as to 
 
 * Lib. vi. cap. 28. t Lib. xvii. 
 
 15 
 
114 Utility of Country Banks. 
 
 prevent an increase. Such countries require a supply from 
 others, where a happier state of things prevail. Poverty, it 
 - must be admitted, does not prevent generation, neither does 
 it altogether exclude marriage. In Ireland, and in the High- 
 lands of Scotland, the lower orders of people marry at a 
 very early age, and the women bring forth many children ; 
 but it has been remarked, that in the Highlands of Scotland 
 in particular, it is not uncommon for a mother who has borne 
 twenty children, not to have two alive. In Ireland likewise 
 the children of the cottars look very sickly, and though from 
 the readiness with which they are supplied with milk and 
 potatoes, proper food of infants, many live over the period 
 of childhood, yet when nature requires a more substantial 
 food, and more expensive clothing, those who are not so for- 
 tunate as to be otherwise provided for either by entering into 
 the service of their richer neighbours, or the service of the 
 state, generally fall victims to maladies of some kind or other. 
 Poverty being thus unfavourable to the rearing of children, 
 it follows that whatever tends to ameliorate the comforts and 
 situation of the poor, must be politically viewed as one great 
 cause of the populousness of a country ; and in this point of 
 view, I consider the institutions we are viewing, as of great 
 national importance. All animals multiply naturally in pro- 
 portion to their means of subsistence, and no species can ever 
 multiply beyond it. In civilized society the scantiness of 
 subsistence among the lower ranks of the people sets a limit 
 to the multiplication of the human species, by destroying a 
 great part of the children produced by their fruitful mar- 
 riages. When labour is to be had and is liberally rewarded, 
 the lower orders are enabled to provide better for their chil- 
 dren. A greater number is consequently reared, and added 
 to the national stock of population. It necessarily does this 
 too as nearly as possible in the proportion which the demand 
 for labour requires. In this point of view we may consider 
 the institutions which tend to set it in motion, the manufac- 
 tures of a country, as inventions for the multiplication of the 
 human species, and the propagation of intellectual beings ; 
 they are the creative powers of thought, happiness, and moral 
 
 16 
 
Utility of Country Banks. 115 
 
 existence. Without such fostering establishments, life would 
 decay, and society wither at its root. With such aid the 
 demand for man increases, and the reward of labour* neces- 
 sarily encourages the marriages and multiplication of 
 labourers, so that a continual increasing demand is supplied 
 by a continually increasing population. An increase o 
 wealth produces the liberal reward of labour, which is the 
 cause of increasing population. To complain of it, is to 
 lament over the necessary cause and effect of the greatest 
 public prosperity. 
 
 The present flourishing state of America affords a strong 
 proof of this doctrine. From the address of the president 
 Mr. Jefferson to the representatives, just published, it 
 appears that from the census taken of the population for a 
 period of ten years, the whole population of that extensive 
 country will be doubled in about twenty-two years. Through- 
 out the greater part of Europe the number of inhabitants is 
 not supposed to double in less than five hundred years. 
 
 Agriculture, manufactures, and foreign commerce, are the 
 three great sources of riches to a nation, and on all of these 
 we see the action of the establishments we are considering. 
 According to the natural course of things the lands are first 
 cultivated ; but as we do not live in a state of nature, we 
 must not look for natural orders alone in the present state of 
 society. Accordingly we find that the cultivation of lands 
 in many commercial countries has not kept pace with the 
 extension of its commerce ; but there is a species of re-action 
 which has an effect on the agriculture of a country, and it is 
 very observable in many parts of Great Britain, where we 
 find the inhabitants of a sea-port, or large trading town 
 grown rich by trade, begin to turn their attention to the 
 improvement of the country adjacent to such towns. Every 
 one who has travelled through the different counties of 
 England and Scotland, must have noticed these improve- 
 ments. Agriculture may, therefore, in these cases, be said 
 to owe its improvement to the increase of manufactures, 
 or foreign commerce. In other instances, manufactures 
 
 17 
 
116 Utility of Country Banks. 
 
 have been the offspring of agriculture. The manufactures 
 of Leeds, Halifax, Sheffield, Birmingham, &c. are of this 
 kind. /The cheapness of living in those places, appears to 
 have induced the manufacturers to settle in those parts of 
 the country. The workmen found that in those places, by 
 their industry, they could procure more of the necessaries 
 and conveniencies of life, than in other places. By working 
 up the materials of manufacture which the land produces, 
 and exchanging their finished work for more materials and 
 provisions, or what is the same thing, for the price of them, 
 they give a new value to the surplus part of the rude pro^ 
 duce, and furnish the cultivators of the land with something 
 in exchange. Thus the farmer and manufacturer are 
 mutually encouraged by each other's industry, and enabled 
 to increase this surplus produce by a further improvement 
 in the cultivation of the land. And as the fertility of the 
 land gave rise to the manufacture, so the extension of the 
 manufacture re-acts upon the soil, and increases the produce 
 of the farm. When manufactures have arrived at a con^ 
 siderable degree of perfection, the price of a great quantity 
 of rude produce is frequently contained in a small bulk. A 
 piece of cloth, for instance, which weighs one hundred 
 pounds, when it reaches the Cloth Hall at Leeds, contains 
 not only the price of one hundred pounds of wool, but of 
 many quarters of corn^ pounds of meat, and pots of beer, 
 the maintenance of the different working people, and of the 
 persons immediately employing them. 
 
 The produce of agriculture then, in the form of corn, 
 cattle, and malt liquor, is in this manner in the shape of com- 
 plete manufacture; a finished bale of cloth, virtually 
 exported, and may be sent to any corner of the world. In 
 the history of modern times, the manufactures which have 
 sprung from foreign commerce, have generally been sooner 
 extended and improved, than those which were the offspring 
 of agriculture. The English manufacture of fine cloths 
 made of Spanish wool, was famous for above a century 
 before any of those which now flourish in the above-men-* 
 
 18 
 
Utility of Country Banks. 117 
 
 tioned places were fit for a foreign market. The improve- 
 ment and extension of these arose from the extension and 
 improvement of agriculture, the last and greatest effect of 
 foreign commerce, and of the manufactures immediately 
 produced by it. The commerce and manufactures of large 
 towns, instead of being the effect, have been the cause of 
 the improvement and cultivation of the country. To this 
 sort of re-action of the prosperity of the towns on the face 
 of the country, we may attribute the great improvements 
 which have lately been made, and are now making, in the 
 neighbourhood of Hull, Liverpool, Gainsborough, and other 
 trading towns. They are peculiarly remarkable in the 
 vicinity of the latter, which is a small inland town on the 
 banks of the navigable river Trent, inhabited by very, 
 wealthy, respectable, and industrious merchants, who, as well 
 as the carrying trade to London and the coast, carry on a 
 very considerable trade to the Baltic and other places, from 
 which even during the war they have derived great wealth, 
 which has lately been employed in improving the agricul- 
 ture of the adjacent country. Sandy heaths and marshy 
 bogs have been converted into fertile fields, and several 
 extensive inclosures have been undertaken, to the great 
 advantage of the country, and profit of individuals, which 
 improvements have been greatly promoted by the Banks of 
 that thriving town. To purchase land has been, till lately, 
 every where in Europe, a most unprofitable employment of 
 a small capital. 
 
 It has been remarked that the improvements in the 
 agriculture of Great Britain have by no means kept pace 
 with the advances of commerce and manufactures, but the 
 rapid progress of a few years, shows the attention which 
 has been paid to this source of wealth. 
 
 It is probable that the greatest part of the country was 
 in a state of cultivation before the reign of Elizabeth ; but 
 the improvements in every part of agriculture, and the 
 science of farming are of modern date and rapid growth. 
 The plentifulness of ready money, it cannot be doubted, has 
 greatly contributed to this desirable object. No country in 
 
 19 
 
118 Utility of Country Banks. 
 
 which the right of primogeniture takes place, which pays 
 tithes, and where, though contrary to the spirit of the law, 
 perpetuities are admitted in some cases, can give more 
 advantage to agriculture than England does. The attention 
 lately given by several patriotic noblemen and gentlemen, 
 has produced advantages not to be appreciated ; but they 
 are only secondary causes which serve to put into motion 
 the cash manufactories of the respective counties. 
 
 The state of agriculture in France previous to the 
 Revolution, was certainly inferior to that of England. We 
 are told by Guicciardin, that before the invasion of 
 Charles VIII. Italy was cultivated in the most barren and 
 mountainous parts of the country, as well as in the fertile 
 plains. Nothing, in my opinion, can shew the real wealth 
 of a commercial nation so much, or prove it so clearly, as 
 improvements in agriculture. It is the real demonstration 
 of wealth, realized by trade and commerce ; for the profits 
 of agriculture in general are so small, when compared with 
 the profits arising from trade and commerce, that when 
 we observe the re-action before mentioned, we may be 
 assured that the increase of wealth has given rise to these 
 improvements. 
 
 No part of the wealth obtained by merchandize, can 
 properly be said to belong to any particular country, till it 
 has spread itself over the face of that country in buildings, or 
 the durable improvement of lands. The great wealth said 
 to have been possessed by some of the Hans Towns, 
 and of which we read in the obscure histories of the thir- 
 teenth and fourteenth centuries, has totally disappeared, 
 and it is not thoroughly ascertained where some of them 
 were situated, or to what towns in Europe the Latin names 
 given to some of them belong. Lombardy and Tuscany 
 are still reckoned among the most populous and best culti- 
 vated countries in Europe, though the troubles of Italy in 
 the end of the fifteenth and beginning of the sixteenth cen- 
 turies, greatly diminished their commerce and manufactures. 
 The great trade of Antwerp, Ghent, and Bruges, was driven 
 from Flanders by the civil wa^s, and the bad policy of the 
 
 20 
 
Utility of jCountry Banks. 1 1 9 
 
 Spanish government which succeeded ; yet Flanders is at 
 this time one of the richest, most populous, and best culti- 
 vated parts of Europe. From the observations which I was 
 able to make in passing through the Pays-Bas, Holland, 
 Lombardy, Tuscany, and various parts of Italy, the Austrian 
 Kethelands appeared to me the most fertile and best culti- 
 vated, but Holland the most populous. 
 
 The revolutions and wars of governments not unfre- 
 quently exhaust or annihilate the springs of riches which 
 flow from trade and commerce ; but the wealth derived from 
 the more solid improvements of agriculture, will resist the 
 convulsive shocks of barbarous hostility, as we learn from the 
 history of the fall of the Roman empire in the western pro- 
 vinces of Europe. 
 
 It is truly grateful to the feelings of every patriotic 
 breast, to observe the progress which of late years has been 
 made in the agriculture, manufactures, and commerce of 
 Great Britain ; and, in tracing the effects, we are gradually 
 led to an examination of the causes ; amongst which the 
 establishment of Country Banks holds a primary place. To 
 those who think we mistake an effect for the cause, and 
 would willingly attribute the rise of the Banks to the pre- 
 vious increase of money derived from the flourishing state of 
 the manufactures and commerce, we would produce Scotland 
 as the instance of the cause preceding the effect. In that 
 country, no sooner had the banking system began to operate, 
 than its effects were observable. The Bankers, by advancing 
 money to their customers, enabled them to increase their 
 trading capitals, by which means more hands were employed, 
 the mass of industry increased, and the natural consequences of 
 this order of things, were observable in the opulence which 
 followed. This will serve to shew that we have not mistaken 
 an effect for a cause. The operations of banking are creative 
 of wealth ; for wherever a Bank can flourish, it will convert 
 the product of industry into money. 
 
 It may not be amiss to pursue this enquiry, by making 
 some observations on the nature and effects of war on the 
 productive capital of a nation ; and by duly considering the 
 
 21 
 
120 Utility oj Country Banks. 
 
 real sources of wealth, we shall probably be able to explain 
 some phenomena which have surprised the reasoners on 
 finance. 
 
 The increasing prosperity of the nation, during along and 
 expensive war, its gradual and progressive advances in 
 opulence, have been causes of surprise to those most versed 
 in political disquisitions. If we shall be able to shew that 
 the establishments now under our consideration have in any 
 degree tended to this prosperity, we shall enhance their value 
 in a political point of view. We shall considerably increase 
 the magnitude of their operations, by making them engines 
 of war, as well as peace. Whatever contributes to give 
 strength to an empire groaning under the afflictions of war, de- 
 serves the attention of every wise statesman. We shall begin 
 by stating, that it must be admitted as a fact, that Great 
 Britain is not, in the present refined state of commerce, com- 
 pelled, as in former times, to accumulate large quantities of 
 gold and silver, to enable her to carry on foreign wars, and 
 to maintain fleets and armies. It is not with gold and silver 
 that fleets and armies are maintained, but with consumable 
 goods. " The nation which from the annual produce of its 
 domestic industry, from the annual revenue arising out of its 
 lands, and labour, and consumable stock, has wherewithal to 
 purchase those consumable goods in distant countries, can 
 maintain foreign wars there " * 
 
 The last French war prior to that which is now on 
 the eve of being terminated, cost Great Britain upwards of 
 ninety millions sterling, including not only the seventy-five 
 millions of new debt that was then contracted, but the 
 additional two shillings in the pound land tax, and what was 
 annually borrowed of the sinking fund. More than two- 
 thirds of this expence were laid out in distant countries; in 
 Germany, Portugal, America, the ports of the Mediter- 
 ranean, and in the East and West Indies. The kings of 
 England had not, as in former times, an accumulated trea- 
 sure ; the enormous expence then of that war, and the same 
 
 * Smith's Wealth of Nations, vol. ii. p. 157. 
 22 
 
Utility of Country Banks. 121 
 
 observation equally applies to the present or late war, could 
 not have been defrayed by the exportation of gold or silver, 
 but by that of British commodities of some kind or other. 
 That a great, an enormous quantity of gold and silver were 
 exported at different periods of the war is beyond a doubt, 
 and that the Country Banks considerably aided these opera- 
 tions of government cannot likewise be doubted. We may 
 truly assert, that without the intervention of paper currency, 
 all the real gold and silver of the nation would not have 
 paid the expences of one year of the war ; and though the 
 parliament had enacted sooner than it did the payment of all 
 demands at the Bank of England in their own paper, yet even 
 that could not have supplied the currency of the country ; for it 
 is a fact very well known, that the people at large have not 
 the same confidence in the Bank of England, that they have 
 even in some of the Country Banks. And it may be safely 
 affirmed that the gold and silver of the country can be more 
 readily collected by the circulation of Country Bank Notes, 
 than those of the Bank of England : each Bank being indeed 
 a depot of the cash which would otherwise necessarily be 
 employed in the circulation of its adjacent circuit. In view- 
 ing these depots of coin then as so many public funds ready 
 to be called into action for the advantage of the community, 
 we first see the activity of country banks in collecting the 
 specie. We next find their utility in increasing the quantity 
 of those commodities, which during a war serve as the great 
 medium of payment to a commercial country. When go- 
 vernment, or those who act under them, contract with a mer- 
 chant for a remittance to a foreign country, he consequently 
 endeavours to pay his foreign correspondent upon whom he 
 has drawn a bill, by sending abroad commodities of some 
 kind or other, rather than gold and silver. Even if the pro- 
 ducts of the empire were not in demand in that country, he 
 would endeavour to send them to some other country, in 
 which he could purchase a bill upon that country. When 
 gold and silver are sent abroad to purchase foreign commo- 
 dities the profits of the merchant arise, not from the pur- 
 chase, but from the sale of the returns ; but when these are 
 
 23 
 
122 Utility of Country Banks. 
 
 sent abroad merely to pay a debt, he gets no returns, and 
 consequently no profits. 
 
 The national currency of a country receives its direc- 
 tion and movement from the commodities circulated in the 
 neighbourhood of each particular country ; the money of the 
 mercantile republic from those circulated between the different 
 countries with which it communicates. Both are employed 
 in facilitating exchanges, the one between the different indi- 
 viduals of the same, the other between those of different 
 nations. Part of this money of the great mecantile republic 
 probably was employed in carrying on the late war, and we 
 may suppose that during a war large sums necessarily circu- 
 late around the seat of war, and are employed in purchasing 
 there, and in the neighbouring countries, the pay and provi- 
 sions of the different armies. But it is a fact, that whatever 
 part of this money of the mercantile republic may have 
 been annually employed in this manner by government, it 
 must have been annually purchased either with British com- 
 modities, or with something else that had been purchased 
 with them. In whatever way we consider it then, commo- 
 dities, the annual produce of the land and labour* of the 
 country, are the ultimate resources by which we have been 
 enabled to carry on the late expensive war. 
 
 The finer manufactures, which contain a great value in 
 a small bulk, and can therefore be exported to a great dis- 
 tance at little expence, are the commodities most proper, 
 and most usually employed to purchase the pay and provi- 
 sions of troops on foreign service. It is by means of our 
 manufactures then that we have been enabled to carry on 
 the war, they being the resource ; and the banking system 
 the source of our whole prosperity. The ability of Great 
 Britain to carry on war is as durable as her home trade, 
 foreign commerce, and paper credit ; but destroy all, or any 
 one of these, and her fleets and armies perish. Without these 
 three resources there would be no fleets to make conquests, 
 no armies to command victories. When we look into the 
 history of our own country, and compare the present with 
 the past, the retrospect is truly gratifying ; dreadful as war is, 
 
 24 
 
Utility of Country Banks. ] 23 
 
 a consolation will arise to the people, who feel that when 
 involved in its horrors, they have the power of defence. 
 
 Formerly the monarchs of England, when they had ex- 
 hausted their treasure, could not continue the expences of 
 war without violent and often oppressive exactions on their 
 subjects ; and though we must acknowledge that the evils of 
 war have been, and always must be felt by individuals, yet 
 the resources of Great Britain have been so great, by the 
 surplus produce of her manufactories, that notwithstanding 
 the unparalleled expence, the prosperity of the nation has 
 increased under the pressure of the late war. In former 
 times, when we had nothing with which to purchase the pay 
 and provisions of our armies employed in foreign countries, 
 but the rude produce of the kingdom, or the still ruder coarse 
 manufacture, money was necessarily used and as necessarily 
 exported to the impoverishment of the nation. A sovereign 
 in such a state, and under such circumstances, could seldom 
 draw considerable aid from his people. 
 
 Foreign trade carries out that surplus part of the produce 
 of land and labour for which there is no demand at home, 
 and brings back that for which there is a demand. It gives 
 value to superfluities and opens an extensive market for the 
 surplus of home consumption ; it gives encouragement to the 
 productive powers of the real revenue and wealth of society. 
 The country which is employed in sending out the greatest 
 quantity of superfluities, is generally the greatest gainer by 
 foreign trade. All nations, however, may be more or less 
 enriched by it. 
 
 As grand political machines, moving the great levers of 
 the empire, and raising the ponderous powers of war, Na- 
 tional Banks may be contemplated as national bulwarks, 
 towers of strength, and edifices of defence. 
 
 What the Bank of England is to government and mer- 
 chants of the metropolis, Country Banks are to traders and 
 gentlemen of landed property in the country. They assist 
 them in their necessities, and aid them in their enterprises. 
 By discounting the bills of the former, they render money 
 plentiful, where it otherwise would never appear. At no 
 
 25 
 
124 Utility of Country Banks. 
 
 period have their good effects been more manifest than during 
 a war, which having drained the nation of its cash, must have 
 ended in the ruin of its trade, had it not happily met with 
 support from gentlemen of respectability and property form- 
 ing themselves into Banking Companies, to the great advan- 
 tage of the community. At a time when money was not to 
 be borrowed on mortgage, many men of the greatest landed 
 property could not have raised money for their occasions but 
 by means of the Country Banks, which I am informed has 
 been very extensively given throughout the country. At 
 the time when government opened its subscriptions for the 
 war, and levied the triple assessment, money was not to be 
 had on mortgages, and such persons as had not ready money, 
 whatever might be the amount of their real property, were 
 extremely distressed and perplexed how to raise it. A noble- 
 man of my acquaintance who paid above a thousand pounds 
 to government on that occasion, borrowed the money at a 
 Country Bank, and from that bank alone he was supplied 
 with twenty thousand pounds, which enabled him to make 
 considerable alterations and improvements on his estate, by 
 which means he employed a great number of persons who 
 would otherwise have been out of employment, and probably 
 a burden to their parishes. When we consider the many 
 instances of this kind, on a larger and smaller scale through- 
 out the country, we shall learn to appreciate the value of 
 Country Banks, which have served to sustain the poor, 
 support the rich, and adorn the nation. Many of the 
 greatest undertakings of the kingdom could not have been 
 carried on at all during the war without this aid. I am 
 told that many of the canals intersecting the interior 
 of the kingdom, and opening a communication from the 
 most inland counties to the farthest extent of navigated 
 seas, could never have been effected, but from the facility 
 with which money was obtained from the bankers where the 
 undertaking was carried on. Many, if not all large manu- 
 facturers, have received continual or occasional accommoda- 
 tions of the same kind. Building, though considerably 
 checked during the war, has in many parts of the country 
 
 26 
 
Utility of Country Banks. 125 
 
 proceeded with vigour, and houses, streets, and towns, have 
 been raised as substantially on paper currency, as brick or 
 stone cemented by gold or silver, could have built them. 
 Agriculture, and all the spirit of farming, never was pur- 
 sued with such ardour in its various branches as at this pre- 
 sent time, and though we must view the large profits as the 
 spur, yet we must consider the Country Banks as the means 
 by which these large farming concerns have been carried on. 
 And here one cannot but lament the prejudice of those who 
 attempt to deny the utility of these Banks, and who attribute 
 to them bad consequences, without admitting the good. 
 
 The high price of provisions, it has been said, and more 
 especially that of corn,* is owing to the facility with which 
 a set of monopolists are supplied with cash by Country 
 Banks. That there should be monopolies or combinations 
 amongst individuals which have the effect of raising the price 
 of the necessaries of life, is much to be lamented, and I am 
 ready to admit that restrictive laws would be desirable, if they 
 could exist without injury to the freedom of trade. But 
 admitting this opinion in its full force, and allowing that the 
 Country Banks advance money on what they think proper 
 security, to monopolists and speculating cornfactors, by which 
 
 * The Athenians, to prevent corn from rising above its ordinary 
 price, prohibited every citizen, under pain of death, from buying above 
 a certain quantity. Five drachmas, (three shillings and nine-pence 
 English) the medimnus was reckoned the ordinary price. The medim- 
 nus was about four of our bushels, (Goguet, de 1'Origine des Lois, <fcc. 
 t. iii. p. 260.) The quantity which each citizen might purchase, was 
 according to the text of Lysias Trevr^Kovra <op/itDi/, which may be ren- 
 dered fifty baskets it is a measure, the exact value of which is not 
 known. The punishment of death was likewise denounced against the 
 inspectors of corn, if they neglected to prevent a monopoly a practice 
 at all times forbidden to individuals, but in some places employed by 
 the government to increase its revenues. Lys. in Darden, p. 392. 
 Aristot. de Rep. lib. i. cap. 11. 
 
 The Athenians brought yearly from Pontus 400,000 medimni of corn, 
 as appeared from entries in the books at the custom-house, and which, 
 as Mr. Hume observes, was the greatest part of their importation of 
 corn : but Mr. Hume was mistaken in supposing the medimnus only 
 equal to our bushel. Mr. Goguet has shewn it to be equal to a quantity, 
 which in English or Winchester measure, is about four bushels. 
 
 27 
 
126 Utility of Country Banks. 
 
 means the price in some instances may be raised beyond its 
 level : yet in this trade, injurious as it appears, as well as in 
 every branch of commerce, it is for the advantage of the 
 community that there should be many competitors, for it is 
 by competition alone that the market can be fairly regulated 
 and brought to its due level. If therefore the Country 
 Banks aid many to purchase, as whatever is purchased must 
 be brought to market to fetch a profit, for no profit can arise 
 from constantly hoarding a perishable substance like corn, so 
 the greater the number of dealers, the greater is the proba- 
 bility of the price being lowered. It is highly improbable, 
 therefore, that the Country Banks, by aiding many persons 
 to speculate in corn, are the means of enhancing its price, for 
 it is clear that a general aid to speculators must have a con- 
 trary tendency, and effectually do away monopoly. The fact 
 seems to be, that in some places two or three monied men, 
 who act from their own weight in the scale of prices, inde- 
 pendent *of any bank, for such men are in themselves banks, 
 and whether they pay in Bank of England, or Country Bank 
 Notes, or guineas, is exactly the same thing, perhaps do com- 
 bine to keep up the price. We have seen this observation 
 verified in the case of hops, where one wealthy individual, 
 solely from the operation of his own weight in the scale, could 
 regulate and raise the price of what we now deem a neces- 
 sary of life. But it did not appear that the individual alluded 
 to received any aid in his operations from Country Banks. 
 
 That the high price of corn might, in some measure, 
 arise from combinations of this kind amongst wealthy per- 
 sons'in some markets, I am ready to admit, and that such 
 persons may keep an account with a Country Banker, and 
 pay in his notes ; but such an occurrence is no proof of the 
 bad effects to be attributed to the Country Banks ; it must 
 be attributed solely to the operation of wealth on the free 
 trade of a free country. Men with large capitals will natu- 
 rally endeavour to command the price of the articles in which 
 they trade, and those who trade in corn will be as anxious to 
 sell at a great price as any other traders. 
 
 28 
 
Utility of Country Banks. 127 
 
 If the Country Banks had acted as has been asserted, 
 they must have had an effect very different from what those 
 gentlemen who made the assertion seem to have imagined. 
 If they had really advanced large sums of money to many 
 persons to purchase corn, the greater the number of persons 
 so employing their capital, the lower must necessarily have 
 been the price competition produces cheapness. It is 
 evident, therefore, that the high price of provisions is totally 
 independent of any system of banking known in this country. 
 
 For all the purposes of agriculture the establishment of 
 Country Banks has its utility. Most of the enclosures of 
 land have been promoted and carried into effect by their 
 means. Even during the war the progress of this improve- 
 ment has been rapid beyond example. Except in the 
 vicinity of the metropolis, we everywhere find the face of 
 the country enriched, by the cultivation of its heaths, its 
 moors, and waste land. 
 
 These improvements could not have taken place in many 
 parts of the country without the assistance of the Country 
 Bankers, who, on various species of security, advanced the 
 money necessary for such very considerable undertakings. 
 By these means many hundred thousand acres of land have 
 become productive ; many thousand quarters of wheat and 
 other grain added to the national stock ; many thousand 
 families of labourers, artificers, husbandmen, and others sup- 
 ported. These reflections are truly gratifying to every lover 
 of his country, and friend of humanity. 
 
 In a tour which I made in the course of the Summer, 
 I had an opportunity of observing the improvements which 
 have taken place, within a very few years, in one of the 
 most barren, desolate, parts of England, I mean the Wolds 
 of Yorkshire, whose bleak mountains, which hardly furnished 
 a blade of grass to a few famished sheep, are now waving 
 with fields of corn. The crops of oats and barley were, this 
 last harvest, immense ; and where the fields had been sown 
 with seeds, a most luxuriant crop of grasses appeared. Im- 
 provements like these are objects of national importance ; 
 and it is my opinion, that they never could have been 
 
 29 
 
128 Utility of Country Banks. 
 
 effected without the aid derived from Country Banks. The 
 Bank of England would not have advanced to individuals 
 the sums necessary, and as they were vested for such enter- 
 prises, and on mortgages from common individuals, the 
 money could not have been procured. 
 
 In many instances the Country Bankers set the example 
 of improvement. One of the large tracts of the wolds, of 
 of which I have been speaking, has been enclosed, cultivated, 
 and ornamented with several excellent farm-houses by a 
 banker of Hull, to whom the country is greatly indebted. 
 The support given to the manufacturers in the country has 
 been very extensive. 
 
 I know a very large manufactory which would have 
 failed early in the war, but for the support it received from 
 a Country Bank. There are, doubtless, many instances 
 of the kind. The foreign trade, and every branch of 
 commerce, has been greatly promoted by these establish- 
 ments. 
 
 Having pointed out the utility of Country Banks, as 
 applied to the improvements which have taken place in the 
 nation by an increase of its trade, commerce, manufactures 
 and agriculture, let us take a view of the advantages which 
 arise to government by the operations of these Banks. As 
 a source of revenue, let us first notice the sums annually 
 paid to government by the bankers themselves, for stamps 
 on which their notes are issued. This will amount to a 
 considerable sum ; to which add the consumption of bill 
 stamps, and we shall be astonished at the sum paid to 
 government by means of this circulation. We must like- 
 wise take into account the quantity of paper, all of which 
 pays a duty. And lastly, let us attend to the sums paid for 
 postage of letters arising solely from these transactions. 
 Considered then as an object of revenue, the Country 
 Banks are of considerable importance to government. By 
 the aid given to the manufacturer his capital becomes 
 enlarged; he employs and supports a greater number of 
 individuals than he otherwise would have been able to do ; 
 these individuals add to the riches and wealth of the nation 
 
 30 
 
Utility of Country Banks. 1 29 
 
 by their industry : marriage is encouraged ; whole families 
 are called into existence ; population is increased, and poverty 
 banished from parishes, which otherwise would have been 
 oppressed with an indigent, unemployed poor. This em- 
 ployment of the poor, and encouragement of industry, by 
 facilitating the comforts of marriage, may be considered 
 amongst the happiest effects of an increase of riches 
 to any nation. An increased population, with an 
 increased means of support, forms the strength and 
 is the sure sign of a tendency to improvement in any 
 state increased population causes an increased con- 
 sumption of those articles which give rise to and support the 
 various trades, arts, and manufactures of a country. An 
 increased consumption augments the revenues by an 
 increased addition to the duties and taxes paid in a great 
 variety of ways to government, in the form of excise, house- 
 tax, window-tax, &c. 
 
 . In this point of view, then, these establishments demand 
 the fostering care of government. It is indeed to the security 
 of our admirable Constitution that these institutions owe 
 their rise the protection given by law to the property of 
 the subject, encourages the commercial spirit of an enter- 
 prising people. From what has been said, it will appear 
 that we can have nothing to fear, generally speaking, from 
 an excess of paper currency payable on demand in gold or 
 silver coin, for the nature of its circulation is such as to 
 limit its extent : neither have we any thing to fear from the 
 multiplication of the banks, since they operate as checks on 
 each other, and like all other competitions in trade, are for 
 the benefit of the public. If it be objected that gold, the 
 sight of which so gratifies the human eye, is now seldom to 
 be seen, let it be remembered that it is invisibly performing 
 its magic effects on the commerce of the nation. We may 
 be assured that every guinea, though unseen, is actively 
 employed for the good of the community ; its paper repre- 
 sentative is not intended to supply its place, that it may 
 sleep in idleness : on the contrary, it goes forth to seek new 
 
 31 
 
130 Utility of Country Banks. 
 
 adventures ; the chrysal of the day is not bred up in idle- 
 ness ; he seldom sleeps long in the iron chests of bankers. 
 
 The intention and object of all bankers, it must be ob- 
 vious, is to use the coin which they get in exchange for their 
 paper ; and let it be remembered, that it is scarcely possible 
 for them to employ it to the disadvantage of the country. 
 They may, though they seldom do, employ it unskilfully, but 
 even in that case, the employment may have its utility. 
 When we recollect that it is the real interest of the bankers 
 to employ with great caution the coin which they borrow of 
 the public, and when we consider the property which they 
 have at stake, the most timid reasoner, can see but little 
 danger to the holders of country bank-notes in general. It 
 is seldom that persons without real bond fide property can 
 engage in banking concerns ; and if we examine the firms of 
 the banks throughout the country, we shall find that they 
 consist very generally of gentlemen of well known, and often 
 of very large property ; and as the bankrupt laws are very 
 wisely framed, and very uprightly administered, we have 
 very little to fear from fraudulent failures, which can hardly 
 ever happen in banking partnerships. If, therefore, from any 
 sudden run upon any of these banks, they should not be able, 
 as might accidentally happen to the most respectable of them, 
 to pay in gold or silver on such occasion, no person who 
 really believed in the validity of the assets of the firm, would 
 have any real cause of alarm, for though he might experience 
 an inconvenience, he could not ultimately be a loser by such 
 an occurrence. The credit, it is true, of such a house, would 
 receive a shock, but it is with pleasure, that every honest 
 man, has seen the recovery of some firms from blows of this 
 kind, malignantly aimed by illiberal competitors. To com- 
 prehend fully the utility of any establishment it must be 
 examined in various points of view. I have endeavoured to 
 treat my subject in this manner, and if I am not mistaken, 
 the arguments in favour of the banking system are drawn 
 from facts fully admitted, and established by the best writers 
 and most accurate political enquirers. 
 
 32 
 
Utility of Country Banks, 131 
 
 It might be curious to ascertain the precise sum now 
 added to the mass of the circulating medium of the country 
 by the present establishments, but I must own that I am not 
 sufficiently acquainted with practical concerns of this kind to 
 offer any thing like an arithmetical calculation on this sub- 
 ject ; but it seems probable, that some millions of money are 
 thus added to the productive capital of the nation ; and it is 
 a satisfaction to think, that the mines from which these 
 riches spring, must be as durable as the constitution of the 
 country, and this coinage, if I may so term it, be as plentiful 
 as the wants of industry require it. It is a source whence 
 wealth flows precisely as it is wanted ; whilst Great Britain 
 increases in industry, she may safely increase her paper cur- 
 rency, and multiply her banks. The period is very far dis- 
 tant that will obstruct the operations of banking ; our mer- 
 chants have great scope for their enterprises, and our manu- 
 facturers for their produce. The rapid increase of popula- 
 tion will give rise to new towns or villages ; the rapid 
 improvements in agriculture will give employment to new 
 labourers ; and under the administration of a wise and 
 enlightened government, the empire of Great Britain may 
 flourish for ages yet to come in a progressive state of im- 
 provement. Ireland will afford an ample field for the 
 employment of the largest capitals : and when the good effects 
 of the Union shall manifest themselves to the people of that 
 hitherto distracted country, they will soon begin to emerge 
 from the wretched state in which they have so long been 
 sunk ; and by the pursuits of industry raise themselves from 
 the miseries of poverty, to the enjoyment of wealth, comfort, 
 and happiness. Now that the Union has so happily united 
 the interests of the two nations, and done away that spirit 
 of jealousy which so long obstructed the springs of com- 
 merce, we may hope soon to see the same improvements 
 take place in Ireland, which have followed the union of 
 Scotland with England. Everything that science, humanity, 
 and virtue can accomplish, will be effected by the noble 
 Lord who now governs that country. 
 
 It is well worth the Irish politician's attention, to con- 
 
 33 
 
132 Utility of Country Banks. 
 
 sider how far the example of Scotland might safely be 
 followed, and the trade of Ireland increased by the estab- 
 lishment of a greater number of banks. Whatever may be 
 the sum added to the capital stock of the country, when it 
 is viewed as the circulating capital, we shall be astonished at 
 its effects f( The circulation of money is money, and so 
 much that it cannot be computed by any calculation. 
 
 " We every day see bankers, living not only in affluence, 
 but magnificence, building palaces, and purchasing estates, 
 by the sole profits of capitals, very inconsiderable ; continually 
 circulated ; and some, by circulating the wealth of others, 
 without any capital at all. A few thousand pounds diffused 
 through the various occupations and professions of a small 
 town, will maintain all the families, of which it is composed, 
 better than the same sum would support one family 5 if it 
 remained unemployed in the hands of a single person. The 
 butcher and the baker feed the taylor and the draper, who 
 clothe them in return ; the farmer employs the carpenter, 
 the bricklayer, and the labourer, and they assist him by con- 
 suming part of his crop ; the parson maintains a wife and 
 six children, and the attorney builds a house and buys land, 
 and they are all paid in their turns by the perpetual rota- 
 tion of the same money. If, then, the circulating a small 
 sum, within such narrow limits can do all this, what will not 
 the circulation of so many millions be able to effect in the 
 hands of a great and powerful nation, when employed in 
 improving commerce, agriculture, and manufactures."* 
 
 From the observations which I have already made, it 
 will appear that the Country Banks may be considered 
 as political machines of great power in a commercial state. 
 Their operation is extensive, and not local or limited 
 to the spot on which they are erected. The circulation of 
 the paper, it is true, may, and generally is, very limited to a 
 county, or often to a few parishes ; but their efforts may 
 extend to the utmost boundaries of commerce. Nations in 
 every region of the globe may be acted upon by these power- 
 
 * Soame Jenyn's Essays, vol. ii. p. 284. 
 34 
 
Utility of Country Banks. 133 
 
 ful engines ; for as they promote and facilitate trade, their 
 operations become as extensive as the trade they produce ; 
 and when we consider the effects of an extended commerce, 
 we may trace the twenty shilling note of a Glasgow bank, 
 from its embarkation in the Clyde, in its form of manufac- 
 ture, through the West or East Indies, till it returns, in the 
 suite of a Nabob, who fixes it in a palace which he builds in 
 the neighbourhood of his native city, on his return from 
 Asia, whither he himself was probably first sent by the 
 operation of paper currency. 
 
 As trade produces reciprocal advantages, so the good 
 effects, so evidently manifested in our own country, may be in 
 a considerable degree promoted in very distant parts of the 
 world. The industry of Indostan may be increased ; the 
 inhabitants of Calcutta multiplied ; the woods of America 
 cleared, the marshes drained, and its agriculture improved ; 
 the produce and population of Africa and the West Indies 
 may all be affected by the establishment of a new bank in 
 any part of Great Britain ; which, by increasing the trading 
 capital of a great commercial nation, may produce political 
 consequences in every quarter of the world. 
 
 I shall conclude this work with a few brief observations 
 on the balance of trade, the course of exchange, and the 
 causes of the export of gold or bullion from the country. 
 
 The commercial exports and imports of any state, readily 
 become proportionate to each other : they seldom continue 
 for any length of time greatly favourable or unfavourable to 
 any particular country. 
 
 The balance must be paid in bullion, or it must remain a 
 debt. The unwillingness of the richer state to lend, and the 
 disinclination of the poorer to borrow to an unlimited extent, 
 promote the equalization of the commercial exports and im- 
 ports. A great inequality, however, will not fail to arise 
 occasionally from various causes. War, scarcity, and, above 
 all, a bad or good harvest will produce very manifest effects. 
 In consequence of the late bad harvests, the large imports 
 of corn have cost the nation many millions of ready money ; 
 
 35 
 
134 Utility of Country Banks. 
 
 which served alike to drain the country of gold, and to 
 turn the course of exchange considerably against Great 
 Britain. 
 
 In speaking of the commercial exports and imports, we 
 here mean those articles for which an equivalent is given. 
 Many of our commodities which are exported, and some 
 which are imported, furnish no return. The numerous stores 
 which were shipped during the war, for the support of the 
 navy and army in foreign parts loans and subsidies to our 
 Allies dividends transmitted to the foreign proprietors of 
 British Stock the capital sent annually from this kingdom 
 to the West Indies, to be employed in the cultivation of 
 lands are of this kind : whilst, on the other hand, a very 
 considerable capital is brought into this country from the 
 East Indies, both by the India Company and by individuals. 
 
 Exports and imports of this kind tend, like a bad harvest 
 to render the balance of trade unfavourable, and by creating 
 a debt to foreign countries, promote the exportation of 
 bullion. 
 
 The commercial exports and imports seldom continue 
 long disproportionate : they have a tendency to equalization 
 from two causes : first, the limitation of the debt which 
 foreigners will suffer British merchants to contract; and 
 secondly, from the quantity of English bullion which is 
 exportable. 
 
 Gold itself being an article of intrinsic value as well as 
 the medium of payments, is exported and imported by mer- 
 chants accordingly as the export or import is likely to yield 
 a profit. 
 
 It is contrary to law to export gold coin, or gold which 
 has been melted down from coin, but it is generally believed 
 that when the profit on exportation is very great, the law is 
 evaded, and large quantities of English gold find their way 
 into foreign countries. Whilst our paper currency maintains 
 its credit we have no great reason to lament this occurrence, 
 for it should be remembered that gold is an unproductive 
 part of our capital ; by the exportation of it, the country 
 
 36 
 
Utility of Country Banks. 135 
 
 saves the interest of the sum exported, and the exchange 
 with foreign countries, is improved by discharging the debt 
 due on account of an unfavourable balance of trade it is 
 said likewise to prevent the depreciation of our own paper 
 currency as compared with the current money payments of 
 other countries.* 
 
 * Thornton on Paper Currency, p. 134. 
 
 FINIS. 
 
 37 
 
AN 
 EN^UIR T 
 
 INTO 
 
 THE NATURE AND EFFECTS 
 
 OF 
 
 THE PAPER CREDIT 
 
 OF 
 GREAT BRITAIN. 
 
 BY 
 
 HENRT THORNTON, 
 M. P. 
 
 LONDON : 
 
 PRINTED FOR J. HATCHARD, AND MESSRS. F. AND 
 C. RIVINGTON. 
 
 1802. 
 
INTRODUCTION. 
 
 THE first intention of the Writer of the following pages 
 was merely to expose some popular errors which related 
 chiefly to the suspension of the cash payments of the Bank 
 of England, and to the influence of our paper currency on 
 the price of provisions. But in pursuing his purpose, many 
 questions occurred which it seemed important to discuss, 
 partly on account of their having some bearing on the topics 
 under consideration, and partly because they appeared to be 
 of general importance, and had either been left unexplained, 
 or had been inaccurately stated by those English writers 
 who have treated of paper credit. This work has, therefore, 
 assumed, in some degree, the character of a general treatise. 
 
 The first Chapter contains a few preliminary observations 
 on commercial credit. The object of the two following 
 Chapters is distinctly to describe the several kinds of paper 
 credit : to lay down some general principles respecting it ; 
 and, in particular, to point out the important consequences 
 which result from the different degrees of rapidity in the 
 circulation of different kinds of circulating medium, and also 
 in the circulation of the same medium at different periods of 
 time. 
 
 The nature of the institution of the Bank of England is 
 then explained ; the necessity of maintaining the accustomed, 
 or nearly the accustomed, quantity of its notes, however 
 great may be the fluctuations of its cash, is insisted on : and 
 the suspension of its cash payments is shewn to have resulted 
 neither from a deficiency in its resources, nor from a too 
 great extension of its loans to government, nor from rashness 
 or improvidence in its directors, but from circumstances 
 which they had little power of controuling : this event being 
 one to which a national establishment, like the Bank of 
 England, is, in some situations of the country, unavoidably 
 subject. 
 
 The manner in which an unfavourable balance of trade 
 
 3 
 
140 Introduction . 
 
 affects the course of exchange, and in which an unfavourable 
 exchange creates an excess of the market price above the 
 mint price of gold, and a profit on the exportation of our 
 coin, are the subjects of a succeeding Chapter. 
 
 The- circumstances, also, which have led to the multipli- 
 cation of our country banks, and the several advantages and 
 disadvantages of those institutions, are fully stated. 
 
 The earlier parts of the work having tended to shew the 
 evil of a too great and sudden diminution of our circulating 
 medium, some of the latter Chapters are employed in point- 
 ing out the consequences of a too great augmentation of it. 
 The limitation of the amount of the notes of the Bank of 
 England is shewn to be the means of restricting the quantity 
 of the circulating paper of the kingdom, of preventing a 
 rise in the price of commodities in Great Britain, and of 
 thus extending our exports and restraining our imports, and 
 rendering the exchange more favourable. Some objections 
 to the limitation of the Bank of England paper are likewise 
 stated and answered. 
 
 The last Chapter treats of the influence of paper credit 
 on the price of all the articles of life : a subject, the difficul- 
 ties of which are in some degree removed by the antecedent 
 discussions. 
 
 In the course of this enquiry, several passages in the 
 work of Dr. A. Smith on the Wealth of Nations are ani- 
 madverted on, as are also some observations made by Mr. 
 Hume in his Essays on Money and on the Balance of Trade, 
 and by Sir James Steuart in his book on Political CEconomy, 
 as well as some remarks in the writings of Locke and Mon- 
 tesquieu. 
 
 The mode in which the subjects of coin, of paper credit, 
 of the balance of trade, and of exchanges (subjects inti- 
 mately connected with each other), have been treated by 
 those writers, was suggested by the circumstances of more 
 early times : and we ought not to be surprised, if, in treatises 
 necessarily in some degree theoretical, or written for the 
 purpose of establishing a particular truth, certain incidental 
 observations should not be just, nor even if some main prin- 
 
 4 
 
Introduction. \ 4 1 
 
 ciples should have been laid down in terms not sufficiently 
 guarded. 
 
 A person who presumes to differ from the authorities 
 which have been mentioned, and who proposes to correct the 
 public opinion on the important subject of our paper credit, 
 ought, undoubtedly, to be very cautious lest he should pro- 
 pagate new errors while he is endeavouring to remove the 
 old. A. sense of the duty of mature consideration has caused 
 some delay in the publication of the following work. That 
 its leading doctrines are just, the writer feels a confident 
 persuasion. That it may have imperfections, and some, 
 perhaps, w T hich greater care on his part might have corrected, 
 he cannot doubt. But he trusts, that a man who is much 
 occupied in the practical business of life, will be excused by 
 the public, if he should present to them a treatise less elabo- 
 rate, and, in many respects, more incomplete, than those on 
 which he has found it necessary to remark. Future enquirers 
 may possibly pursue, with advantage, some particular topics 
 on which he has felt a certain degree of distrust. 
 
 It may not be irrelevant or improper to observe, that the 
 present work has been written by a person whose situation 
 in life has supplied information on several of the topics under 
 discussion, and that much use has been made of those means 
 of correcting the errors of former writers which recent events 
 have afforded. 
 
CONTENTS. 
 
 CHAP. I. 
 
 OF Commercial Credit ; of Paper Credit, as arising out 
 of it. Of Commercial Capital 145 
 
 CHAP. II. 
 
 Of Trade by Barter. Of Money. Of Bills of Exchange and 
 Notes. Of Bills and Notes, considered as discountable 
 Articles. Of Fictitious Bills 3 or Bills of Accommodation 151 
 
 CHAP. III. 
 
 Of circulating Paper. Of Bank Notes. Of Bills considered 
 as circulating Paper. Of the different Degrees of Rapidity 
 in the Circulation of different Sorts of circulating Medium, 
 at different Times. Error of Dr. A. Smith. Difference in 
 the Quantity wanted for effecting the Payments of a Country 
 in Consequence of this Difference of Rapidity : Proof of 
 this taken from Events of 1793. Fallacy involved in the 
 Supposition that Paper Credit might be abolished 160 
 
 CHAP. IV. 
 
 Observation of Dr. Smith, respecting the Bank of England: 
 Of the Nature of that Institution : Reasons for neve)" 
 greatly diminishing its Notes : its Liability to be exhausted 
 of Guineas : the Suspension of its Cash Payments not 
 owing to too great Issue of Paper, nor to too great Loans. 
 Propriety of Parliamentary Interference 1 72 
 
 CHAP. V. 
 
 Of the Balance of Trade. Of the Course of Exchange : 
 Tendency of an unfavourable Exchange to take away Gold : 
 of the Probability of the Return of Gold : of the Man- 
 ner in which it may be supposed that the exported Gold is 
 employed on the Continent. Reasons for having renewed 
 the Law for suspending the Cash Payments of the Bank of 
 England 210 
 
 7 
 
144 Contents. 
 
 CHAP. VI. 
 
 Page. 
 
 Error of imagining that Gold can be provided at the Time of 
 actual Distress. Reasons j "or n^ot admitting the Presumption 
 that the Directors of the Bank must have been to blame, for 
 not making r , beforehand , a more adequate Provision 229 
 
 CHAP. VII. 
 
 Of Country Banks : their Advantages and Disadvantages. 236 
 
 CHAP. VIII. 
 
 Of the Tendency of a too great Issue of Bank Paper to pro- 
 duce an Excess of the Market Price above the Mint Price 
 of Gold: of the Means by which it creates this Excess, viz. 
 by its Operation on the Price of Goods, and on the Course 
 of Exchange. Errors of Dr. A. Smith on the Subject of 
 Excessive Paper. Of the Manner in which the Limitation 
 of the Quantity of the Bank of England Paper serves to 
 limit the Quantity, and sustain the Value of all the Paper 
 in the Kingdom 261 
 
 CHAP. IX. 
 
 Of the Circumstances which cause the Paper of the Bank of 
 England, as well as all the other Paper of the Country, to 
 fail of having their Value regulated according to any exact 
 Proportion to the Quantity of Bank of England Notes 279 
 
 CHAP. X. 
 
 Objections to the Doctrine of the two preceding Chapters 
 answered. Of the Circumstances which render it necessary 
 that the Bank should impose its own Limit on the Quantity 
 of its Paper. Efect of the Law against Usury. Proof of 
 the Necessity of restricting the Bank Loans, drawn from the 
 Case of the Transfer of Capital to Foreign Countries 297 
 
 CHAP. XI. 
 
 Of the Influence of Paper Credit on the Price of Commodities. 
 Observations on some Passages of Montesquieu and 
 Hume. Conclusion 325 
 
AN ENQUIRY 
 
 INTO THE 
 
 NATURE AND EFFECTS 
 
 OF THE 
 
 PAPER CREDIT OF GREAT BRITAIN. 
 
 CHAP. I. 
 
 Of commercial Credit. Of Paper Credit, as arising out of it. 
 Of commercial Capital. 
 
 /COMMERCIAL credit may be defined to be that con- 
 \^J fidence which subsists among commercial men in 
 respect to their mercantile affairs. This confidence operates 
 in several ways. It disposes them to lend money to each other, 
 to bring themselves under various pecuniary engagements by 
 the acceptance and indorsement of bills, and also to sell and 
 deliver goods in consideration of an equivalent promised to 
 be given at a subsequent period. Even in that early and 
 rude state of society, in which neither bills nor money are as 
 yet known, it may be assumed, that if there be commerce, a 
 certain degree of commercial credit will also subsist. In 
 the interchange, for example, of commodities between the 
 farmer and the manufacturer, the manufacturer, probably, 
 will sometimes deliver goods to the farmer on the credit of 
 the growing crop, in confidence that the farmer will come 
 into possession of the fruits of his labour, and will be either 
 compelled by the law of the land, or induced by a sense of 
 justice, to fulfil his part of the contract when the harvest 
 shall be over. In a variety of other cases it must happen, 
 even in the infancy of society, that one man will deliver 
 property to his neighbour without receiving, on the spot, 
 
 9 
 
146 Thornton on 
 
 the equivalent which is agreed to be given in return. It 
 will occasionally be the interest of the one party thus to 
 wait the other's convenience : for he that reposes the con- 
 fidence will receive in the price an adequate compensation 
 for the disadvantages incurred by the risk and the delay. In 
 a society in which law and the sense of moral duty are 
 weak, and property is consequently insecure, there will, of 
 course, be little confidence or credit, and there will also be 
 little commerce. 
 
 This commercial credit is the foundation of paper credit; 
 paper serving to express that confidence which is in the 
 mind, and to reduce to writing those engagements to pay, 
 which might otherwise be merely verbal. It will here- 
 after be explained in what manner, and to how very great a 
 degree, paper credit also spares the use of the expensive 
 article of gold ; and how the multiplication of paper secu- 
 rities serves to enlarge, confirm, and diffuse that confidence 
 among traders, which, in some measure, existed indepen- 
 dently of paper, and would, to a certain degree, remain, 
 though paper should be abolished. 
 
 If there may be a convenience in giving credit in the 
 infancy of society, when the interchange of commodities is 
 small, there may be, at least, the" same convenience when 
 goods begin to be multiplied, when wealth is more variously 
 distributed, and society is advanced. 
 
 The day on which it suits the British merchant to pur- 
 chase and send away a large quantity of goods, may not be 
 that on which he finds it convenient to pay for them. If it 
 is made necessary for him to give ready money in return, he 
 must always have in his hands a very large stock of money ; 
 and for the expence of keeping this fund (an expence con- 
 sisting chiefly in the loss of interest) he must be repaid in 
 the price of the commodities in which he deals. He avoids 
 this charge, and also obtains time for preparing and adjust- 
 ing his pecuniary concerns, by buying on credit ; that is to 
 say, by paying for his goods not by money, but by the 
 delivery of a note in which he promises the money on a 
 future day He is thus set more at liberty in his specu- 
 
 10 
 
Paper Credit. 147 
 
 lations ; his judgment as to the propriety of buying or not 
 buying, or of selling, or not selling, and also as to the time 
 of doing either, may be more freely exercised. 
 
 The general principle, according to which the length of 
 the customary credit in different trades has adjusted itself, 
 seems clearly to have been that of mutual advantage and 
 convenience. For example, if we suppose the merchant 
 importers of any particular article for home consumption to 
 be generally rich, and the retailers of it to be poor that is, 
 to have a capital insufficient to enable them to keep the 
 assortment and stock of goods necessary in their retail 
 commerce the credit customarily given by the importers, 
 and taken by the retail traders, will naturally be long. In 
 other words, it will be the custom of the importers to lend 
 part of their capital to the retail dealers, in consideration of 
 an advantage in the price proportionate to the benefit con- 
 ferred by the loan. Sometimes two or more customs pre- 
 vail, as to the period of credit, in the same trade ; and to 
 each custom there are individual exceptions. The devia- 
 tions from the rule obviously arise out of that principle of 
 mutual advantage and convenience on which the rule itself 
 has been founded. 
 
 The option of buying and of selling on longer or shorter 
 credit, as it multiplies the number of persons able to buy 
 and to sell, promotes free competition, and thus contributes 
 to lower the price of articles. A variety of degrees in the 
 length of credit which is afforded, tends more especially to 
 give to some of the poorer traders a greater power of pur- 
 chasing, and cherishes that particular sort of competition 
 most adapted to lower prices, namely, the competition of 
 dealers likely to be contented with a very moderate rate of 
 gain. Opulent merchants sometimes complain of the intru- 
 sion of dealers who possess a small capital and take long 
 credit, for this very reason, that such dealers reduce the 
 profits of trade. 
 
 But the custom of taking and giving long credit has its 
 inconveniences as well as its advantages. It encreases the 
 amount of the bad debts incurred in the course of com- 
 
 11 
 
148 Thornton on 
 
 mercial transactions. The apprehension of loss, is, there- 
 fore, continually operating on the mind of the lender as a 
 restraint on the custom of giving credit, while the compen- 
 sation he receives for the use of the capital which he sup- 
 plies, acts as an encouragement to the practice. The sub- 
 sisting state of credit may, in general, be considered as 
 resulting out of a comparison made both by lenders and 
 borrowers of the advantages and disadvantages which each 
 discover that they derive from giving and taking credit. 
 
 Mercantile confidence, however, is not always dealt out in 
 that proportion in which there is reasonable ground for it. 
 At some periods it has risen to a most unwarrantable height, 
 and has given occasion to the most extravagant and hurtful 
 speculations. Of these the cases of the Ayr bank, and of the 
 South Sea scheme, are instances. Evils of this kind, how- 
 ever, have a tendency to correct themselves. In a country 
 possessed of commercial knowledge and experience, con- 
 fidence, in most instances, will not be misplaced. 
 
 Some persons are of opinion, that, when the custom of 
 buying on credit is pushed very far, and a great quantity of 
 individual dealings is in consequence carried on by persons 
 having comparatively little property, the national commerce 
 is to be considered -as unsupported by a proper capital ; and 
 tbat a nation, under such circumstances, whatever may be 
 its ostensible riches, exhibits the delusive appearance of 
 wealth. 
 
 It must, however, be remembered, that the practice of 
 buying on credit, in the internal commerce of the country, 
 supposes the habit of selHng on credit also to subsist ; and 
 to prevail, on the whole, in an exactly equal degree. In 
 respect to the foreign trade of a country, the practice of 
 dealing on credit indicates poverty or riches, in proportion as 
 the credit generally taken is longer or shorter than the credit 
 given. The custom which tradesmen have of selling to the 
 consumers on credit, is also an indication of wealth in the 
 commercial world; the traders must possess a surplus of 
 wealth, either their own or borrowed, which bears an exact 
 proportion to the amount of debts due to them by the 
 
 12 
 
.Paper Credit. 149 
 
 consumers. Thus that practice of trading on credit which 
 prevails among us, so far as it subsists between trader and 
 trader, is an indication neither of wealth nor of poverty in 
 the mercantile body ; so far as it respects our transactions 
 with foreign countries, is an indication of extraordinary 
 wealth belonging to the merchants of Great Britain ; and so 
 far as it respects the trade between the retailer and the 
 consumer, implies a deficiency of wealth in the consumers, 
 and a proportionate surplus of it among commercial men. 
 The existing customs imply, that, on the whole, there is 
 among our traders a great abundance of wealth. 
 
 It may conduce to the prevention of error, in the sub- 
 sequent discussions, to define, in this place, what is meant 
 by commercial capital. This consists, first, in the goods 
 (part of them in the course of manufacture) which are in 
 the hands of our manufacturers and dealers, and are in their 
 way to consumption. The amount of these is necessarily 
 larger or smaller in proportion as the general expenditure 
 is more or less considerable, and in proportion, also, as 
 commodities pass more or less quickly into the hands of the 
 consumer. It further consists in the ships, buildings 
 machinery, and other dead stock maintained for the purpose 
 of carrying on our manufactures and commerce, under which 
 head may be included the gold found necessary for the 
 purposes of commerce, but at all times forming a very small 
 item in this great account. It comprehends also the debts 
 due to our traders for goods sold and delivered by them on \ 
 credit ; debts finally to be discharged by articles of value 
 given in return. 
 
 Commercial capital, let it then be understood, consists not 
 in paper, and is not augmented by the multiplication of this 
 medium of payment. In one sense, indeed, it may be 
 encreased by paper. I mean, that the nominal value of the 
 existing goods may be enlarged through a reduction which 
 is caused by paper in the value of that standard by which all 
 property is estimated. The paper itself forms no part of 
 the estimate. 
 
 This mode of computing the amount of the national 
 
 13 
 
150 Thornton on 
 
 capital engaged in commerce, is substantially the same with 
 that in which each commercial man estimates the value of 
 his own property. Paper constitutes, it is true, an article 
 on the credit side of the books of some men : but it forms 
 an exactly equal item on the debit side of the books of 
 others. It constitutes, therefore, on the whole, neither a 
 
 ^debit nor a credit. The banker who issues twenty thousand 
 pounds in notes, and lends in consequence twenty thousand 
 pounds to the merchants on the security of bills accepted by 
 them, states himself in his books to be debtor to the various 
 holders of his notes to the extent of the sum in question-; 
 and states himself to be the creditor of the accepters of the 
 bills in his possession to the same amount. His valuation, 
 therefore, of his own property, is the same as if neither the 
 bills nor the bank notes had any existence. Again ; the 
 merchants, in making their estimate of property, deduct the 
 bills payable by themselves which are in the drawer of the 
 banker, and add to their estimate the notes of the banker 
 which are in their own drawer ; so that the valuation, like- 
 wise, of the capital of the merchants is the same as if the 
 paper had no existence. The use of paper does not, there- 
 fore, introduce any principle of delusion into that estimate of 
 
 , property which is made by individuals. The case of gold, 
 on the other hand, differs from that of paper inasmuch as 
 the possessor of gold takes credit for that for which no man 
 debits himself. The several commercial capitals of traders, 
 as estimated in their books, would, unquestionably, be found, 
 if deducted from their other property and added together, to 
 correspond, in amount, with a general estimate of the com- 
 mercial stock of the country, calculated under the several 
 heads already stated. 
 
 It is true, that men, in estimating their share in the public 
 funds of the country, add to their estimate a debt due to 
 them which no individual deducts from his valuation. On 
 this head, it may be observed, that the nation is the debtor. 
 But the commercial capital, which has been described, exists 
 independently of capital in the public funds. The man in 
 trade has property in trade. If he has property in the 
 
 14 
 
Paper Credit. 151 
 
 stocks, he has the property in trade in addition to it. In 
 speaking, therefore, of the commercial capital, whether of 
 the nation or of an individual, the idea that any part of it is 
 composed either of the paper credit or of the stocks of the 
 country, is to be totally excluded. 
 
 CHAP. II. 
 
 Of Trade by Barter. Of Money. Of Bills of Exchange 
 and Notes. Of Bills and Notes, considered as discountable 
 Articles. Of fictitious Bills, or Bills of Accommodation. 
 
 SOCIETY, in its rudest state, carries on its trade by the 
 means only of barter. When most advanced, it still con- 
 ducts its commerce on the same principle ; for gold and 
 silver coin, bankers' notes, and bills of exchange, may be 
 considered merely as instruments employed for the purpose 
 of facilitating the barter. The object is to exchange such a 
 quantity of one sort of goods for such a quantity of another, 
 as may be deemed, under all circumstances, a suitable 
 equivalent*. 
 
 Barter being soon felt to be inconvenient, the precious \ 
 metals are resorted to as a measure of value, they being, at ! 
 once, portable, steady in their price, and capable of subdi- 
 
 * By the term suitable equivalent, is not intended that equiva- 
 lent which an impartial umpire, determining according to the strict 
 rule of equity, might dictate. The equivalent obtained by men dealing 
 in the way of barter is not exactly of this sort : for that power which , 
 the proprietors of a scarce and necessary commodity have over the , 
 consumers of it, will always lead them to demand a much higher price 
 than the production of it may have cost. 
 
 In Africa, for example, where the mode of barter prevails, the price 
 of rice is at some times equal to about two pounds, and at others ta 
 about sixteen pounds per ton. It cannot be supposed that the variations 
 in the crops of different seasons can bear any proportion to this variation 
 of prices. Monopoly also is an evil which is incident to trade as 
 trade. It is, indeed, more particularly apt to exist in the infancy of 
 commerce. 
 
 15 
 
152 Thornton on 
 
 visions. The state fixes a stamp upon them, in order thus 
 to certify the quantity and fineness of each piece. 
 
 The precious metals, when uncoined (or in the state of 
 bullion), are themselves commodities ; but when converted 
 into money they are to be considered merely as a measure of 
 the value of other articles. They may, indeed, be converted 
 back into commodities ; and it is one recommendation of 
 their use as coin, that they are capable of this conversion. 
 
 We shall now advert to some of the simplest forms in 
 which it may be supposed that paper credit will first exist. 
 
 To speak first of bills of exchange. 
 
 It is obvious, that, however portable gold may be in 
 comparison of any other article which might be made a 
 measure of value, to carry it in quantities to a great dis- 
 tance must prove incommodious. Let it be supposed, that 
 there are in London ten manufacturers who sell their article 
 to ten shopkeepers in York, by whom it is retailed; and 
 that there are in York ten manufacturers of another com- 
 modity, who sell it to ten shopkeepers in London. There 
 would be no occasion for the ten shopkeepers in London to 
 send yearly to York, guineas for the payment of the York 
 manufactures, and for the ten York shopkeepers to send 
 yearly as many guineas to London. It would only be 
 necessary for the York manufacturers to receive from each 
 of the shopkeepers, at their own door, the money in question 
 (for we may assume a sufficient quantity to be usually 
 circulating in the place): giving in return letters which 
 should acknowledge the receipt of it ; and which should also 
 direct the money, lying ready in the hands of their debtors 
 in London, to be paid to the London shopkeepers, so as to 
 cancel the debt in London in the same manner as that at 
 York. The expence and the risk of all transmission of 
 money would thus be saved; and the traders in question 
 would of course be, on the whole, enabled to sell their 
 article at a price proportionably lower than that which they 
 would otherwise require. Letters ordering the transfer of 
 the debt, are termed, in the language of the present day, 
 bills of exchange. They are bills by which the debt of one 
 
 16 
 
Paper Credit. 153 
 
 person is exchanged for the debt of another : and the debt, 
 perhaps, which is due in one place for the debt due in 
 another. 
 
 To speak next of Promissory Notes. 
 
 When goods are delivered in consideration of an equiva- 
 lent in money to be received at a subsequent period, it 
 becomes desirable that, for the sake of precisely recording 
 the day on which payment is to be made, and the exact 
 amount of the sum, a note, expressing each of these par- 
 ticulars, should be given. The term "value received" is 
 introduced into the note, as also into every bill of exchange ; 
 that expression being deemed necessary in law to make the 
 bill or the note binding. 
 
 Bills of exchange and notes have been hitherto considered 
 as created only for those simple purposes for which they 
 seem originally to have been drawn, and which are professed 
 by the form always used in drawing them. Both these sorts 
 of paper must now be spoken of as possessing an additional 
 character, namely, that of being Discountable Articles, or 
 articles which there is an opportunity of converting, at any 
 time, into money ; such a discount or deduction from the 
 amount of the bill or note as is equal to the interest upon it, 
 during the period for which it has to run, being paid as the 
 price of the conversion. The bills of exchange, which were 
 described as drawn from York on London, and as serving to 
 transfer debts, would equally answer that purpose at what- 
 ever date they might be payable. It is customary, however, 
 to make almost all bills payable at a period somewhat dis- 
 tant. Country bankers, for instance, and shopkeepers, who 
 often act in this respect as bankers, indemnify themselves for 
 the trouble and expence attending the drawing of bills, not 
 by a commission, but by a protraction of the time at which 
 the bills are to become payable. Thus is created a paper 
 credit, which shall remain in existence for perhaps one or more 
 months, and may serve, during any part of that time, as a 
 discountable article. 
 
 Promissory notes were before represented as drawn on the 
 occasion of the sale of goods, and made payable at a distant 
 
 17 
 
154 Thornton on 
 
 period. In returning to the more careful consideration of 
 them, we shall discover the existence of the same disposition 
 to multiply paper credit. 
 
 When a merchant in this country sells his goods on credit, 
 it is, perhaps, not very important to him that he should 
 receive from the buyer a promissory note (or an accepted 
 bill, which is the same thing), if the only object of taking 
 the note or bill is the ascertainment of the exact amount of 
 the debt, and of the period of payment. It is true that the 
 law gives superior facility to the reco\ 7 ery of debts for which 
 promissory notes have been given. Nevertheless, if the sum 
 be small, and the party in credit, all these advantages, in the 
 present high state of confidence, would, in many cases, be 
 thought scarcely to compensate even the trifling expence of 
 the note stamp. The debt will be a book debt, if no note 
 be taken ; and, as such, may be sufficiently secure. 
 
 Notes, even for goods sold and delivered, are therefore to 
 
 : be considered as given chiefly for the sake of a convenience 
 of another kind, which the seller finds in having them. The 
 
 I note, like the bill of exchange just spoken of, is a discountable 
 
 \ article. It may be turned, if circumstances require, into 
 N . money ; or into bank notes, which answer the same purpose. 
 
 / It is not, perhaps, fully intended to turn the note or bill into 
 money ; they are taken rather as a provision against a con- 
 tingency. The holder is rendered secure against the effect 
 of disappointments in the receipt of cash. It is in this 
 manner that his credit is fortified, and that he is enabled to 
 fulfil with punctuality his pecuniary engagements ; for there 
 is a certain sort and quantity of bills and notes, on the 
 turning of which into money, at the common rate of dis- 
 count, the holder, if he be a man of credit, may almost as 
 confidently rely as on the changing of a bank note into 
 guineas, or of a guinea into silver. 
 
 The interest which traders have in being always possessed 
 of a number of notes and bills, has naturally led to a great 
 multiplication of them ; and not only to the multiplication 
 of notes given for goods sold, or of regular bills of exchange, 
 but to the creation of numerous other notes and bills. Of 
 
 18 
 
Paper Credit. 155 
 
 these, some are termed notes and bills of accommodation: 
 and the term fictitious is often applied to them. It may be 
 useful to describe them particularly. 
 
 It was before shewn, that the principal motive for fabri- 
 cating what must here be called the real note, that is, the 
 note drawn in consequence of a real sale of goods, is the wish 
 to have the means of turning it into money. The seller, 
 therefore, who desires to have a note for goods sold, may be 
 considered as taking occasion to ingraft on the transaction 
 of the sale, the convenient condition of receiving from the 
 buyer a discountable note of the same amount with the value 
 of the goods. A fictitious note, or note of accommodation, is 
 a note drawn for the same purpose of being discounted ; 
 though it is not also sanctioned by the circumstance of 
 having been drawn in consequence of an actual sale of goods. 
 Notes of accommodation are, indeed, of various kinds. The 
 following description of one may suffice. 
 
 A, being in want of 100/., requests B to accept a note 
 or bill drawn at two months, which B, therefore, on the face 
 of it, is bound to pay ; it is understood, however, that A 
 will take care either to discharge the bill himself, or to 
 furnish B with the means of paying it. A obtains ready 
 money for the bill on the joint credit of the two parties. A 
 fulfils his promise of paying it when due, and thus concludes 
 * the transaction. This service rendered by B to A is, how- 
 ever, not unlikely to be requited at a more or less distant 
 period by a similar acceptance of a bill on A, drawn and 
 discounted for B's convenience. 
 
 Let us now compare such a bill with a real bill. Let us 
 consider in what points they differ, or seem to differ ; and in 
 what they agree. 
 
 They agree, inasmuch as each is a discountable article ; 
 each has also been created for the purpose of being dis- 
 counted : and each is, perhaps, discounted in fact. Each 
 therefore, serves equally to supply means of speculation to 
 the merchant. So far, moreover, as bills and notes constitute 
 what is called the circulating medium, or paper currency, 
 of the country (a topic which shall not be here antici- 
 
 19 
 
156 Thornton on 
 
 pated), and prevent the use of guineas, the fictitious and the 
 real bill are upon an equality ; and if the price of commo- 
 dities be raised in proportion to the quantity of paper cur- 
 rency, the one contributes to that rise exactly in the same 
 manner as the other. 
 
 Before we come to the points in which they differ, let us 
 advert to one point in which they are commonly supposed to 
 be unlike ; but in which they cannot be said always or 
 necessarily to differ. 
 
 " Real notes," it is sometimes said, ee represent actual 
 " property. There are actual goods in existence, which are 
 " the counterpart to every real note. Notes which are not 
 ' drawn, in consequence of a sale of goods, are a species of 
 "false wealth, by which a nation is deceived. These supply 
 " only an imaginary capital ; the others indicate one that is 
 real." 
 
 In answer to this statement it may be observed, first, that 
 the notes given in consequence of a real sale of goods cannot 
 be considered as, on that account, certainly representing any 
 actual property. Suppose that A sells one hundred pounds 
 worth of goods to B at six months credit, and takes a bill at 
 six months for it ; and that B, within a month after, sells the 
 same goods, at a like credit, to C, taking a like bill ; and 
 again, that C, after another month, sells them to D, taking a 
 like bill, and so on. There may then, at the end of six* 
 months, be six bills of 100Z. each existing at the same time ; 
 and every one of these may possibly have been discounted. 
 Of all these bills, then, one only represents any actual 
 property. 
 
 In the next place it is obvious, that the number of those 
 bills which are given in consequence of sales of goods, and 
 which, nevertheless, do not represent property, is liable to 
 be encreased through the -extension of the length of credit 
 given on the sale of goods. If, for instance, we had sup- 
 posed the credit given to be a credit of twelve months instead 
 of six, 1,2007. instead of 600/. would have been the amount 
 of the bills drawn on the occasion of the sale of goods ; and 
 
 20 
 
Paper Credit. 157 
 
 1,1007. would have been the amount of that part of these 
 which would represent no property. 
 
 In order to justify the supposition that a real bill (as it is 
 called) represents actual property, there ought to be some 
 power in the bill-holder to prevent the property which the 
 bill represents, from being turned to other purposes than that 
 of paying the bill in question. No such power exists ; neither \ 
 the man who holds the real bill, nor the man who discounts 
 it, has any property in the specific goods for which it was 
 given : he as much trusts to the general ability to pay of the 
 giver of the bill, as the holder of any fictitious bill does. 
 The fictitious bill may, in many cases, be a bill given by a 
 person having a large and known capital, a part of which the 
 fictitious bill may be said, in that case, to represent. The 
 supposition that real bills represent property, and that ficti- 
 tious bills do not, seems, therefore, to be one by which more 
 than justice is done to one of these species of bills, and some- 
 thing less than justice to the other. 
 
 We come next to some points in which they differ. 
 
 First, the fictitious note, or note of accommodation, is 
 liable to the objection that it professes to be what it is not. 
 This objection, however, lies only against those fictitious bills 
 which are passed as real. In many cases, it is sufficiently 
 obvious what they are. Secondly, the fictitious bill is, in 
 general, less likely to be punctually paid than the real one. 
 There is a general presumption, that the dealer in fictitious 
 bills is a man who is a more adventurous speculator than he 
 who carefully abstains from them. It follows, thirdly, that 
 fictitious bills, besides being less safe, are less subject to 
 limitation as to their quantity. The extent of a man's 
 actual sales form some limit to the amount of his real notes ; 
 and, as it is highly desirable in commerce that credit should 
 be dealt out to all persons in some sort of regular and due 
 proportion, the measure of a man's actual sales, certified by 
 the appearance of his bills drawn in virtue of those sales, is 
 some rule in the case, though a very imperfect one in many 
 respects. 
 
 A fictitious bill, or bill of accommodation, is evidently, 
 
 21 
 
158 Thornton on 
 
 in substance, the same as any common promissory note ; and 
 even better, in this respect, that there is but one security 
 to the promissory note, whereas, in the case of the bill of 
 accommodation, there are two. So much jealousy subsists 
 lest traders should push their means of raising money too 
 far, that paper, the same in its general nature with that 
 which is given, being the only paper which can be given, by 
 men out of business, is deemed somewhat discreditable when 
 coming from a merchant. And because such paper, when in 
 the merchant's hand, necessarily imitates the paper which 
 passes on the occasion of a sale of goods, the epithet fictitious 
 has been cast upon it ; an epithet which has seemed to coun- 
 tenance the confused and mistaken notion, that there is 
 something altogether false and delusive in the nature of a 
 certain part both of the paper and of the apparent wealth of 
 the country. 
 
 Bills of exchange are drawn upon London to a great 
 amount, from all parts, not only of Great Britain, but of the 
 world ; and the grounds on which they have been drawn in a 
 great degree elude observation. A large proportion of them, 
 no doubt partakes of the nature of bills of accommodation. 
 They have, however, in general, that shape communicated to 
 them, whatever it may be, which is thought likely to render 
 them discountable ; and it is not difficult, as the preceding 
 observations will have shewn, to make use of some real, and, 
 at the same time, of many seeming, transactions of commerce 
 as a ground for drawing, and as a means of multiplying such 
 bills. 
 
 The practice of creating a paper credit, by drawing and 
 re-drawing, has been particularly described by Dr. Adam 
 Smith ; and is stated by him to have a tendency which is very 
 ruinous to the party resorting to it. This practice, however, 
 is often carried on at much less expence to those engaged in 
 it than Dr. Smith imagines. A, for instance, of London, 
 draws a bill at two months on B, of Amsterdam, and receives 
 immediate money for the bill. B enables himself to pay the 
 bill by drawing, when it is nearly due, a bill at two months 
 on A for the same sum, which bill he sells or discounts ; and 
 
 22 
 
Paper Credit. 159 
 
 A again finds the means of payment by again drawing a bill, 
 at two months, on B. The transaction is, in substance, 
 obviously the same as if A and B had borrowed, on their 
 joint security, the sum in question for six months. The 
 ground on which transactions of this sort have been stated by 
 Dr. Adam Smith to be ruinous is, that of the heavy expence 
 of a commission on every bill drawn, which is paid by him 
 who raises money in this manner. If, for instance, one-half 
 per cent, is the commission, and the bills are drawn at two 
 months, and a discount of five per cent, per annum is paid, 
 the money is raised at an interest of eight per cent. Such 
 transactions, however, are often carried on alternately for 
 the benefit of each of the two parties ; that is to say, at one 
 time the transaction is on the account of A, who pays a com- 
 mission to B ; at another it is on the account of B, who pays 
 a commission to A. Thus each party, on the whole, gains 
 about as much as he pays in the shape of such commissions ; 
 and the discount in turning the bill into money, which is the 
 same as that on any other bill, may, therefore, be considered 
 as the whole expence incurred. Money may be raised in 
 this manner at an interest of only five per cent. In the 
 case recently proposed, the drawing and re-drawing were 
 imagined to be only between A, of London, and B, of Am- 
 sterdam. This practice, however, is often carried on between 
 three or more parties drawing from three or more places. In 
 such case, the draft is drawn on the place on which the 
 existing course of exchange shews that it will best answer to 
 draw it. An operation of this sort may obviously be carried 
 on partly for the purpose of raising money, and partly for 
 that of profiting by a small turn in the exchange. Transac- 
 tions which are the converse to this, are, on the other hand, 
 entered into by those who happen to possess ready money. 
 They remit, if the exchange seems to favour their remittance, 
 and draw in consequence of having remitted. To determine 
 what bills are fictitious, or bills of accommodation, and what 
 are real, is often a point of difficulty. Even the drawers 
 and remitters themselves frequently either do not know, or 
 do not take the trouble to reflect, whether the bills ought 
 
 23 
 
160 Thornton on 
 
 more properly to be considered as of the one class or of the 
 other ; and the private discounter, or banker, to whom they 
 are offered, still more frequently finds the credit of the bills 
 to be the only rule which it is possible to follow in judging 
 whether he ought to discount them. 
 
 CHAP. III. 
 
 Of circulating Papei of Bank Notes of Bills considered as 
 circulating Paper different Degrees of Rapidity in the 
 Circulation of different Sorts of circulating Medium and of 
 the same Sort of circulating Medium at different Times 
 Error of Dr. A. Smith Difference in the Quantities wanted 
 for effecting the Payments of a Country in Consequence of 
 this Difference of Rapidity Proof of this taken from Events 
 of 1793 Fallacy involved in the Supposition that Paper 
 Credit might be abolished. 
 
 WE proceed next to speak of circulating paper, and first 
 of Notes payable to Bearer on Demand, whether issued by a 
 public bank or by a private banker. 
 
 When confidence rises to a certain height in a country, it 
 occurs to some persons, that profit may be obtained by issuing 
 notes, which purport to be exchangeable for money ; and 
 which, through the known facility of thus exchanging them, 
 may circulate in its stead ; a part only of the money, of which 
 the notes supply the place, being kept in store as a provision 
 for the current payments. On the remainder interest is 
 gained, and this interest constitutes the profit of the issuer. 
 Some powerful and well accredited company will probably 
 be the first is.suers of paper of this sort, the numerous pro- 
 prietors of the company exerting their influence, for the 
 sake of the dividends which they expect, in giving currency 
 to the new paper credit. The establishment of a great 
 
 24 
 
Paper Credit. 161 
 
 public bank has a tendency to promote the institution of 
 private banks. The public bank, obliged to provide itself 
 largely with money for its own payments, becomes a reservoir 
 of gold to which private banks may resort with little diffi- 
 culty, expence, or delay, for the supply of their several 
 necessities. 
 
 Dr. A. Smith, in his chapter on Paper Credit, considers 
 the national stock of money in the same light with those 
 machines and instruments of trade which require a certain 
 expence, first, to erect, and afterwards to support them. 
 And he proceeds to observe, that the substitution of paper, 
 in the room of gold and silver coin, serves to replace a very 
 expensive instrument of commerce with one much less costly, 
 and sometimes equally convenient. "Thus," he says, "a 
 " banker, by issuing 100,OOOZ. in notes, keeping 20,000/. in 
 " hand for his current payments, causes 20,OOOZ. in gold and 
 " silver to perform all the functions which 100,000/ would 
 "otherwise have performed; in consequence of which, 
 rt 80,OOOZ. of gold and silver can be spared, which will not 
 " fail to be exchanged for foreign goods, and become a new 
 " fund for a new trade, producing profit to the country/'* 
 
 Dr. Smith, although he discusses at some length the 
 subject of Paper Circulation, does not at all advert to the 
 tendency of bills of exchange to spare the use of bank paper, 
 or to their faculty of supplying its place in many cases. 
 
 In the former Chapter it was shewn that bills, though 
 
 * Dr. Smith, in conformation of this, remarks how greatly Scotland 
 had been enriched in the twent' -five or thirty years preceding the time 
 at which he wrote, by the erection of new banks in almost every con- 
 siderable town, and even in some country villages, the effects havicg 
 been, as he affirms, precisely those which he had described. The trade 
 of Glasgow he states to have been doubled in about fifteen years after 
 the erection of its first bank, and the trade of Scotland to be thought 
 to have been more than quadrupled since the first erection of its two 
 first public banking companies. This effect, indeed, he conceives to be 
 too great to be accounted for by that cause alone ; though he deems it 
 indisputable, that the banks have essentially contributed to the aug- 
 mentation of the trade and industry of Scotland. The gold and silver 
 of Scotland, circulating before the union, is estimated by him at full a 
 million ; the quantity since the union at less than half a million ; and 
 the paper circulating in Scotland since the union at about one million 
 and a half. 
 
 25 
 
162 Thornton on 
 
 professedly drawn for the purpose of exchanging a debt due 
 to one person for a debt due to another, are, in fact, created 
 rather for the sake of serving as a discountable article, and 
 of forming a provision against contingencies; and that, by 
 being at any time convertible into cash (that is, into either 
 money or bank notes) they render that supply of cash which 
 is necessary to be kept in store much less considerable. 
 
 But they not only spare the use of ready money ; they 
 also occupy its place in many cases. Let us imagine a 
 farmer in the country to discharge a debt of 107. to his 
 neighbouring grocer, by giving to him a bill for that sum, 
 drawn on his cornfactor in London for grain sold in the 
 metropolis ; and the grocer to transmit the 'bill, he having 
 previously indorsed it, to a neighbouring sugar-baker, in 
 discharge of a like debt ; and the sugar- baker to send it, 
 when again indorsed, to a West India merchant in an 
 outport, and the West India merchant to deliver it to 
 his country banker, who also indorses it, and sends it into 
 further circulation. The bill in this case will have effected 
 five payments exactly as if it were a 10/. note payable to 
 bearer on demand. It will, however, have circulated in con- 
 sequence chiefly of the confidence placed by each receiver of 
 it in the last indorser, his own correspondent in trade; 
 whereas, the circulation of a bank note is owing rather to 
 the circumstance of the name of the issuer being so well 
 known as to give to it an universal credit. A multitude of 
 bills pass between trader and trader in the country in the 
 manner which has been described ; and they evidently form, 
 in the strictest sense, a part of the circulating medium of 
 the kingdom.* 
 
 Bills, however, and especially those which are drawn for 
 
 * Mr. Boyd, in his publication addressed to Mr. Pitt on the Subject 
 of the Bank of England Issues, propagates the same error into which 
 many others have fallen, of considering bills as no part of the circulat- 
 ing medium of the country. He says, " by the words means of circula- 
 tion," " circulating medium," and " currency," (which are used as 
 " synonymous terms in this Letter) I understand always ready money, 
 " whether consisting of bank notes or specie, in contradiction to bills of 
 " exchange, navy bills, exchequer bills, or any negotiable paper which 
 " form no part of the circulating medium, as I have always understood 
 
 26 
 
Paper Credit. 163 
 
 large sums, may be considered as in general circulating more 
 slowly than either gold or bank notes, and for a reason which 
 it is material to explain. Bank notes, though they yield an 
 interest to the issuer, afford none to the man who detains 
 them in his possession ; they are to him as unproductive as 
 guineas. The possessor of a bank note, therefore, makes 
 haste to part with it. The possessor of a bill of exchange 
 possesses, on the contrary, that which is always growing more 
 valuable. The bill, when it is first drawn, is worth some- 
 thing less than a bank note, on account of its not being due 
 until a distant day ; and the first receiver of it may be sup- 
 posed to obtain a compensation for the inferiority of its value 
 in the price of the article with which the bill is purchased. 
 When he parts with it, he may be considered as granting to 
 the next receiver a like compensation, which is proportionate 
 to the time which the Bill has still to run. Each holder of a 
 bill has, therefore, an interest in detaining it. 
 
 Bills, it is true, generally pass among traders in the 
 country without there being any calculation or regular 
 allowance of discount; the reason of which circumstance is, 
 that there is a generally understood period of time for which 
 those bills may have to run, which, according to the custom 
 of traders, are accepted as current payment. If any bill 
 given in payment has a longer time than usual to run, he 
 who receives it is considered as so far favouring the person 
 from whom he takes it ; and the favoured person has to com- 
 pensate for this advantage, not, perhaps, by a recompence of 
 the same kind accurately calculated, but in the general ad- 
 justment of the pecuniary affairs of the two parties. 
 
 This quality in bills of exchange (and it might be added 
 of interest notes, &c.) of occupying the place of bank paper, 
 
 " that term. The latter is the circulator ; the former are merely objects 
 "of circulation."... See note to the first page of Mr. Boyd's Letter to Mr. 
 
 It will be seen, in the progress of this work, that it was necessary to 
 clear away much confusion which has arisen from the want of a suffi- 
 ciently full acquaintance with the several kinds of paper credit ; and 
 in particular, to remove, by a considerable detail, the prevailing errors 
 respecting the nature of bills, before it could be possible to reason 
 properly upon the effects of paper credit. 
 
 27 
 
164 Thornton on 
 
 and of also throwing the interest accruing during their deten- 
 tion into the pocket of the holder, contributes greatly to the 
 use of them. The whole trading world may be considered 
 as having an interest in encouraging them. To possess some 
 article which, so long as it is detained, shall produce a regular 
 interest, which shall be subject to no fluctuations in price, 
 which, by the custom of commerce, shall pass in certain cases 
 as a payment, and shall likewise be convertible into ready 
 money by the sacrifice of a small discount, is the true policy 
 of the merchant. Goods will not serve this purpose, because 
 they do not grow more valuable by detention ; nor stocks, 
 because, though they yield an interest, they fluctuate much 
 in value ; and, also, because the expence of brokerage is 
 incurred in selling them, not to mention the inconveniences 
 arising from the circumstance of their being transferable 
 only in the books of the Bank of England. Stocks, how- 
 ever, by being at all times a saleable and ready money article, 
 are, to a certain degree, held by persons in London on the 
 same principle as bills, and serve, therefore, in some measure, 
 like bills, if we consider these as a discountable article, to 
 spare the use of bank notes. Exchequer bills will not fully 
 answer the purpose, because there is a commission on the 
 sale of these, as on the sale of stocks ; and because, not to 
 speak of some other inferior objections to them, they fluc- 
 tuate, in some small degree, in price. 
 
 Bills, since they circulate chiefly among the trading 
 world, come little under the observation of the public. The 
 amount of bills in existence may yet, perhaps, be at all times 
 greater than the amount of all the bank notes of every kind, 
 and of all the circulating guineas.* 
 
 The amount of what is called the circulating medium of 
 a country has been supposed by some to bear a regular pro- 
 portion to the quantity of trade and of payments. It has, 
 
 * Liverpool and Manchester effect the whole of their larger mercantile 
 payments not by country bank notes, of which none are issued by the 
 banks of those places, but by bills at one or two months date, drawn on 
 London. The bills annually drawn by the banks of each of those towns 
 amount to many millions. The banks obtain a small commission on 
 these bills. 
 
 28 
 
Paper Credit. 165 
 
 however, been shewn, that such part of the circulating . 
 medium as yields an interest to the holder will effect much 
 fewer payments, in proportion to its amount, than the part j 
 which yields to the holder no interest. A number of country 
 bank notes, amounting to 100/., may, for instance, effect on 
 an average one payment in three days ; while a bill of 1007. 
 may, through the disposition of each holder to detain it, 
 effect only one payment in nine days. 
 
 There is a passage in the work of Dr. Adam Smith which 
 serves to inculcate the error of which I have been speaking ; 
 a passage on which it may be useful to comment with some 
 particularity. 
 
 He says, " The whole paper money of every kind which 
 " can easily circulate in any country, never can exceed the 
 " value of the gold and silver of which it supplies the place, 
 " or which (the commerce being supposed the same) would 
 " circulate there, if there was no paper money." 
 
 Does Dr. Smith mean to include, in his idea of " the 
 l{ whole paper money of every kind which can easily circulate," 
 all the bills of exchange of a country, or does he not? And 
 does he also include interest notes, exchequer bills, and India 
 bonds, and those other articles which very much resemble 
 bills of exchange ? In an earlier part of his chapter, he has 
 this observation " There are different sorts of paper money ; 
 tf but the circulating notes of banks and bankers are the 
 " species which is best known, and which seems best adapted 
 for this purpose." We are led to judge by this passage, and 
 also by the term {f paper money of every kind" in the passage 
 before quoted, that it was his purpose to include bills of 
 exchange ; on the other hand, if all the bills of exchange of 
 a country are to be added to the bank notes which circulate, 
 it becomes then so manifest, that the whole of the paper 
 must be more than equal to the amount of the money which 
 would circulate if there were no paper, that we feel sur- 
 prised that the erroneousness of the position did not strike Dr. 
 Smith himself. He introduces, indeed, the qualifying word 
 (i easily ;" he speaks of " the whole paper money of every 
 " kind which can easily circulate." But this term, as I ap- 
 
 29 
 
166 Thornton on 
 
 prehend, is meant only to refer to an easy, in contradistinc- 
 tion to a forced, paper circulation ; for it is on the subject of 
 a forced circulation that a great part of his observations 
 turn. He seems, on the other hand, to have paid no regard 
 to the distinction on which I have dwelt, of a more slow and 
 a more rapid circulation ; a thing which is quite different 
 from an easy and a difficult circulation. He appears, in 
 short, not at all to have reflected how false his maxim is 
 rendered (if laid down in the terms which he has used) both 
 by the different degrees of rapidity of circulation which 
 generally belong to the two different classes of paper of 
 which I have spoken, and also by the different degrees of 
 rapidity which may likewise belong to the circulation of the 
 same kinds of paper, and even of the same guineas, at 
 different times. 
 
 The error of Dr. Smith, then, is this : he represents the 
 whole paper, which can easily circulate when there are no 
 guineas, to be the same in quantity with the guineas which 
 would circulate if there were no paper ; whereas, it is the 
 quantity not of " the thing which circulates," that is, of the 
 thing which is capable of circulation, but of the actual cir- 
 culation which should rather be spoken of as the same in 
 both cases. The quantity of circulating paper, that is, of 
 paper capable of circulation, may be great, and yet the 
 quantity of actual circulation may be small, or vice versa. 
 The same note may either effect ten payments in one day, 
 or one payment in ten days; and one note, therefore, will 
 effect the same payments in the one case, which it would 
 require a hundred notes to effect in the other. 
 
 I have spoken of the different degrees of rapidity in the 
 circulation of different kinds of paper, and of the consequent 
 difference of the quantity of each which is wanted in order 
 to effect the same payments. I shall speak next of the 
 different degrees of rapidity in the circulation of the same 
 medium at different times : and, first, of bank notes. 
 
 The causes which lead to a variation in the rapidity of 
 the circulation of bank notes may be several. In general, it 
 may be observed, that a high state of confidence serves to 
 
 30 
 
Paper Credit. 167 
 
 quicken their circulation ; and this happens upon a principle 
 which shall be fully explained. It must be premised, that 
 by the phrase a more or less quick circulation of notes, will 
 be meant a more or less quick circulation of the whole of 
 them on an average. Whatever encreases that reserve, for 
 instance, of Bank of England notes which remains in the 
 drawer of the London banker as his provision against con- 
 tingencies, contributes to what will here be termed the less 
 quick circulation of the whole. Now a high state of con-\ 
 fidence contributes to make men provide less amply against ) 
 contingencies. At such a time, they trust, that if the ' 
 demand upon them for a payment, which is now doubtful 
 and contingent, should actually be made, they shall be able 
 to provide for it at the moment ; and they are loth to be at 
 the expence of selling an article, or of getting a bill dis- 
 counted, in order to make the provision much before the 
 period at which it shall be wanted. When, on the contrary, 
 a season of distrust arises, prudence suggests, that the loss 
 of interest arising from a detention of notes for a few addi- 
 tional days should not be regarded. 
 
 It is well known that guineas are hoarded, in times of 
 alarm, on this principle. Notes, it is true, are not hoarded 
 to the same extent; partly because notes are not supposed 
 equally likely, in the event of any general confusion, to find 
 their value, and partly because the class of persons who are 
 the holders of notes is less subject to weak and extravagant 
 alarms. In difficult times, however, the disposition to 
 hoard, or rather to be largely provided with Bank of 
 England notes, will, perhaps, prevail in no inconsiderable 
 degree. 
 
 This remark has been applied to Bank of England notes, 
 because these are always in high credit ; and it ought, 
 perhaps, to be chiefly confined to these. They constitute 
 the coin in which the great mercantile payments in London, 
 which are payments on account of the whole country, are 
 effected. If, therefore, a difficulty in converting bills of 
 exchange into notes id apprehended, the effect both on 
 bankers, merchants, and tradesmen, is somewhat the same as 
 
 31 
 
168 Thornton on 
 
 the effect of an apprehension entertained by the lower class 
 of a difficulty in converting Bank of England notes or 
 bankers' notes into guineas. The apprehension of the 
 approaching difficulty makes men eager to do that to-day, 
 which otherwise they would do to-morrow. 
 
 The truth of this observation, as applied to Bank of 
 England notes, as well as the importance of attending to it, 
 may be made manifest by adverting to the events of the 
 year 1793, when, through the failure of many country 
 banks, much general distrust took place. The alarm, the 
 first material one of the kind which had for a long time 
 happened, was extremely great. It does not appear that 
 the Bank of England notes, at that time in circulation, were 
 fewer than usual. It is certain, however, that the existing 
 number became, at the period of apprehension,, insufficient 
 for giving punctuality to the payments of the metropolis ; 
 and it is not to be doubted, that the insufficiency must have 
 arisen, in some measure, from that slowness in the circu- 
 lation of notes, naturally attending an alarm, which has been 
 just described. Every one fearing lest he should not have 
 his notes ready when the day of payment should come, 
 would endeavour to provide himself with them somewhat 
 beforehand. A few merchants, from a natural though 
 hurtful timidity, would keep in their own hands some of 
 those notes, which, in other times, they would have lodged 
 with their bankers ; and the effect would be, to cause the 
 same quantity of bank paper to transact fewer payments, or, 
 in other words, to lessen the rapidity of the circulation of 
 notes on the whole, and thus to encrease the number of 
 notes wanted. Probably, also, some Bank of England 
 paper would be used as a substitute for country bank notes 
 suppressed. 
 
 The success of the remedy which the parliament admi- 
 nistered, denotes what was the nature of the evil. A loan 
 of exchequer bills was directed to be made to as many 
 mercantile persons, giving proper security, as should apply. 
 It is a fact, worthy of serious attention, that the failures 
 abated greatly, and mercantile credit began to be restored, 
 
 32 
 
Paper Credit. 169 
 
 not at the period when the exchequer bills were actually 
 delivered, but at a time antecedent to that sera. It also 
 deserves notice, that though the failures had originated in an 
 extraordinary demand for guineas, it was not any supply of 
 gold which effected the cure. That fear of not being able to 
 obtain guineas, which arose in the country, led, in its con- 
 sequences, to an extraordinary demand for bank notes in 
 London ; and the want of bank notes in London became, 
 after a time, the chief evil. The very expectation of a 
 supply of exchequer bills, that is, of a supply of an article 
 which almost any trader might obtain, and which it was 
 known that he might then sell, and thus turn into bank 
 notes, and after turning into bank notes might also convert 
 into guineas, created an idea of general solvency. This 
 expectation cured, in the first instance, the distress of 
 London, and it then lessened the demand for guineas in the 
 country, through that punctuality in effecting the London 
 payments which it produced, and the universal confidence 
 which it thus inspired. The sum permitted by parliament 
 to be advanced in exchequer bills was five millions, of which 
 not one half was taken. Of the sum taken, no part was lost. 
 On the contrary, the small compensation, or extra interest, 
 which was paid to government for lending its credit (for it 
 was mere credit, and not either money or bank notes that 
 the government advanced), amounted to something more 
 than was necessary to defray the charges, and a small 
 balance of profit accrued to the public. For this seasonable 
 interference, a measure at first not well understood and 
 opposed at the^ time, chiefly on the ground of constitutional 
 jealousy, the mercantile as well as the manufacturing inte- 
 rests of the country were certainly much indebted to the 
 parliament, and to the government. 
 
 That a state of distrust causes a slowness in the circu- 
 lation of guineas, and that at such a time a greater quantity 
 of money will be wanted in order to effect only the same 
 money payments, is a position which scarcely needs to be 
 proved. Some observations, however, on this subject may 
 not be useless. When a season of extraordinary alarm 
 
 33 
 
170 Thornton on 
 
 arises, and the money of the country in some measure 
 disappears, the guineas, it is commonly said, are hoarded. 
 In a certain degree this assertion may be literally true. 
 But the scarcity of gold probably results chiefly from the 
 circumstance of a considerable variety of persons, country 
 bankers, shopkeepers, and others, augmenting, some in a 
 smaller and some in a more ample measure, that supply 
 | which it had been customary to keep by them. The stock 
 thus enlarged is not a fund which its possessor purposes, in 
 no case, to diminish, but a fund which, if he has occasion to 
 r lessen it, he endeavours, as he has opportunity, to replace. 
 It is thus that a more slow circulation of guineas is occa- 
 sioned; and the slower the circulation, the greater the 
 quantity wanted, in order to effect the same number of 
 money payments. 
 
 Thus, then, it appears, that the sentiment which Dr. 
 Smith leads his readers to entertain, namely, that there is 
 in every country a certain fixed quantity of paper, supply- 
 ing the place of gold, which is all that " can easily circulate" 
 (or circulate without being forced into circulation), and 
 which is all (for such, likewise, seems to be the intended 
 inference) that should ever be allowed to be sent into cir- 
 culation, is, in a variety of respects, incorrect. The exis- 
 tence of various hoards of gold in the coffers of bankers, and 
 of the Bank of England, while there are no corresponding 
 hoards of paper, would of itself forbid any thing like accu- 
 rate comparison between them. Many additional, though 
 smaller, circumstances might be mentioned as contributing 
 to prevent the quantity of notes which will circulate from 
 being the same as the quantity of gold which would circu- 
 late if there were no notes ; such as their superior conve- 
 nience in a variety of respects, the facility of sending them 
 by post, the faculty which they have of being either used as 
 guineas, or of supplying the place of bills of exchange, and 
 furnishing a remittance to distant places. 
 
 There is a further objection to the same remark of Dr. 
 Smith. It would lead an uninformed person to conceive, 
 that the trade of a country, and of this country in particular, 
 
 34 
 
Paper Credit. 171 
 
 circumstanced as it now is, might be carried on altogether 
 by guineas, if bank notes of all kinds were by any means 
 annihilated. It may already have occurred, that if bank 
 paper were abolished, a substitute for it would be likely to 
 be found, to a certain degree, in bills of exchange ; and 
 that these, on account of their slower circulation, must, in 
 that case, be much larger in amount than the notes of 
 which they would take the place. But further ; if bills and 
 bank notes were extinguished, other substitutes than gold 
 would unquestionably be found. Recourse would be had to 
 devices of various kinds by which men would save them- 
 selves the trouble of counting, weighing, and transporting 
 guineas, in all the larger operations of commerce, so that 
 the amount of guineas brought into use would not at all 
 correspond with the amount of the bills and notes suppressed. 
 Banks would be instituted, not of the description which now 
 exist, but of that kind and number which should serve best 
 to spare both the trouble of gold, and the expence incurred 
 by the loss of interest upon the quantity of it in possession. 
 Merely by the transfer of the debts of one merchant to 
 another, in the books of the banker, a large portion of what 
 are termed cash payments is effected at this time without 
 the use of any bank paper,* and a much larger sum would 
 be thus transferred, if guineas were the only circulating 
 
 * The following custom, now prevailing among the bankers within 
 the city of London, may serve to illustrate this observation, and also to 
 shew the strength of the disposition which exists in those who are not 
 the issuers of bank notes to spare the use both of paper and guineas. 
 It is the practice of each of these bankers to send a clerk, at an agreed 
 hour in the afternoon, to a room provided for their use. Each clerk 
 there exchanges the drafts on other bankers received at his own house, 
 for the drafts on his own house received at the houses of other bankers. 
 The balances of the several bankers are transferred in the same room, 
 from one to another, in a manner which it is unnecessary to explain in 
 detail, and the several balances are finally wound up by each clerk into 
 one balance. The difference between the whole sum which each banker 
 has to pay to all other city bankers, and the whole sum which he has to 
 receive of all other city bankers, is, therefore, all that is discharged 
 in bank notes or money ; a difference much less in its amount than the 
 several differences would be equal to. This device, which serves to 
 spare the use of bank notes, may suggest the practicability of a great 
 variety of contrivances for sparing the use of gold, to which men having 
 confidence in each other would naturally resort, if we could suppose 
 bank paper to be abolished. 
 
 35 
 
172 Thornton on 
 
 medium of the country. Credit would still exist ; credit in 
 books, credit depending on the testimony of witnesses, or on 
 the mere verbal promise of parties. It might not be paper 
 credit; but still it might be such credit as would spare, 
 more or less, the use of guineas. It might be credit of a 
 worse kind, less accurately dealt out in proportion to the 
 desert of different persons, and therefore, in some instances, 
 at least, still more extended; it might be credit less con- 
 tributing to punctuality of payments, and to the due fulfil- 
 ment of engagements; less conducive to the interests of 
 trade, and to the cheapening of articles ; and it would, per- 
 haps, also be credit quite as liable to interruption on the 
 occasion of any sudden alarm or material change in the 
 commercial prospects and circumstances of the country. 
 
 CHAP. IV. 
 
 Observation of Dr. Smith respecting the Bank of England 
 Of the Nature of that Institution Reasons for never 
 greatly diminishing its Notes Its Liability to be exhausted 
 of Guineas The Suspension of its Cash Payments not owing 
 to too great Issue of Paper Nor to too great Loans 
 Propriety of parliamentary Interference. 
 
 DR. ADAM SMITH, after laying down the principle which 
 has been lately animadverted on " that the quantity of 
 " paper which can easily circulate in a country never can 
 " exceed the gold and silver which would circulate if there 
 " were no paper/' proceeds to observe, that the Bank of 
 England, ft by issuing too great a quantity of paper, of 
 " which the excess was continually returning, in order to be 
 " exchanged for gold and silver, was, for many years toge- 
 " ther, obliged to coin gold to the extent of between eight 
 " hundred thousand pounds and a million a year. For this 
 (( great coinage the bank was frequently obliged to purchase 
 " gold bullion at 41. an ounce, which it soon after issued in 
 
 36 
 
Paper Credit. 173 
 
 " coin at 3/. 17 s. lOJc?. an ounce, losing two and a half and 
 *' three per cent, on the coinage." Dr. Smith probably 
 could not be acquainted with the secret of the actual quan- 
 tity of those bank notes, of the number of which he com- 
 plains ; he must, therefore, have taken it for granted, that 
 they were what he terms excessive, on the ground of the 
 price of gold being high, and the coinage great. He does 
 not proceed, in any respect, to guard or to limit the obser- 
 vation in question ; an observation which, when thus unqua- 
 lified, may lead the reader to suppose, that whenever the 
 bank finds itself subjected to any great demand for gold in 
 consequence of a high price of bullion, the cause of this evil 
 is an excess of circulating paper, and the remedy a reduction 
 of bank notes. There is also danger, lest it should be 
 conceived, that if the remedy should appear to fail, it can 
 fail only because the reduction is not sufficiently great. 
 
 The point of which we are speaking is of great impor- 
 tance, and will be the subject of much future discussion. 
 One object of the present and succeeding Chapter will be 
 to shew, that, however just may be the principle of Dr. 
 Smith when properly limited and explained, the reduction of 
 the quantity of Bank of England paper is by no means a 
 measure which ought to be resorted to on the occasion of 
 every demand upon the bank for guineas arising from the 
 high price of bullion, and that such reduction may even 
 aggravate that sort of rise which is caused by an alarm in 
 the country. 
 
 It will be proper, first, to describe the nature of the 
 institution of the Bank of England, and the relation in 
 which it stands to the public ; in this detail, the event of 
 the late stoppage of its cash payments will be particularly 
 noticed. 
 
 Bills are drawn on London from every quarter of the 
 kingdom, and remittances are sent to the metropolis to 
 provide for them, while London draws no bills, or next to 
 none, upon the country. London is, in this respect, to the 
 whole island, in some degree, what the centre of a city is to 
 the suburbs. The traders may dwell in the suburbs, and 
 
 37 
 
1 74 Thornton on 
 
 lodge many goods there, and they may carry on at home a 
 variety of smaller payments, while their chief cash account 
 is with the banker, who fixes his residence among the other 
 bankers, in the heart of the city. London also is become, 
 especially of late, the trading metropolis of Europe, and, 
 indeed, of the whole world ; the foreign drafts, on account 
 of merchants living in our out-ports and other trading- 
 towns, and carrying on business there, being made, with 
 scarcely any exceptions, payable in London. The metro- 
 polis, moreover, through the extent of its own commerce, 
 and the greatness of its wealth and population, has immense 
 receipts and payments on its own account ; and the circum- 
 stance of its being the seat of government, and the place 
 where the public dividends are paid, serves to encrease its 
 pecuniary transactions. The practice, indeed, of transfer- 
 ring the payments of the country to London being once 
 begun, was likely to extend itself. For, in proportion as 
 the amount and number of payments and receipts is aug- 
 mented in any one particular place, the business of paying 
 and receiving is more easily and cheaply transacted, the 
 necessary guineas becoming fewer in proportion to the sums 
 to be received and paid, and the bank notes wanted, though 
 encreasing on the whole, becoming fewer in proportion also. 
 On the punctuality with which the accustomed payments of 
 London are effected, depends, therefore, most essentially the 
 whole commercial credit of Great Britain. The larger 
 London payments are effected exclusively through the paper 
 of the Bank of England; for the superiority of its credit is 
 such, that, by common agreement among the bankers, whose 
 practice, in this respect, almost invariably guides that of 
 other persons, no note of a private house will pass in pay- 
 ment as a paper circulation in London. 
 
 The bank has a capital of near twelve millions, to which 
 it has added near four millions of undivided profits or 
 savings : all this capital and savings must be lost before the 
 creditors can sustain any loss. 
 
 The Bank of England is quite independent of the execu- 
 tive government. It has an interest, undoubtedly (of the 
 
 38 
 
Paper Credit. 175 
 
 same kind with that "of many private individuals), in the 
 maintenance of our financial as well as commercial credit. 
 It is also in the habit of lending out a large portion of its 
 ample funds on government securities of various kinds, a 
 comparatively small part only, though a sum not small in 
 itself, being lent to the merchants in the way of discount. 
 The ground on which the bank lends so much to government 
 is clearly that of mutual convenience, as well as long habit. 
 It is the only lender in the country on a large scale ; the 
 government is the only borrower on a scale equally extended ; 
 and the two parties, like two wholesale traders in a town, 
 the one the only great buyer, and the other the only great 
 seller of the same article, naturally deal much with each 
 other, and have comparatively small transactions with those 
 who carry on only a more contracted business. The bank, 
 moreover, in time of peace, is much benefited by lending to 
 Government. It naturally, therefore, continues those loans, 
 during war, which it had been used to grant at all antecedent 
 periods. It occasionally furnishes a considerable sum to the 
 East India company. If, indeed, it lent more to the mer- 
 chants during war, and less to the government, the difference 
 would not be so great as might, perhaps, at first view be 
 supposed. If, for instance, it furnished a smaller sum on 
 the security of exchequer bills, that article might then be 
 supposed to fall in price, or, in other words, to yield a higher 
 and more tempting interest ; and the bankers, in that case, 
 would buy more exchequer bills, and would grant less aid to 
 the merchants ; they would, at least, in some degree, take 
 up whichever trade the Bank of England should relinquish. 
 The preference given by the bank to the government securi- 
 ties, is, therefore, no symptom of a want of independence in 
 its directors ; they are subject, in a much greater degree, to 
 their own proprietors than to any administration. The 
 strong manner in which* the directors of the bank* at the 
 
 * See the correspondence of the bank on this subject, in the Ap- 
 pendix to the Report of the House of Commons respecting the order of 
 council for authorising the suspension of the cash payments of the bank. 
 
 39 
 
 I 
 
176 Thornton on 
 
 time antecedent to the suspension of their cash payments, 
 insisted on having four millions and a half paid up to them 
 by the government a payment which, though demanded 
 at a very inconvenient time, was accordingly made may be 
 mentioned as one sufficiently striking mark of the indepen- 
 dence of that company. There is, however, another much 
 more important circumstance to be noticed, which is conclu- 
 sive on this subject. The government of Great Britain is 
 under little or no temptation either to dictate to the Bank of 
 England, or to lean upon it in any way which is inconve- 
 nient or dangerous to the bank itself. The minister has 
 been able to raise annually, without the smallest difficulty, 
 by means of our funding system, the sum of no less than 
 between twenty and thirty millions. The government, 
 therefore, is always able to lessen, by a loan from the public, 
 if it should be deemed necessary, the amount of its debt 
 
 r running with the bank. To suppose that bank notes are 
 issued to excess, with a view to furnish means of lending 
 money to the minister, is, in a high degree, unreasonable. 
 The utmost sum which he could hope to gain in the way of 
 loan from the bank, by means of an extraordinary issue of 
 bank notes, could hardly be more than four or five millions ; 
 and it is not easy to believe, that a government which can 
 raise at once twenty or thirty millions, will be likely, for the 
 sake of only four or five millions (for the loan of which it 
 must pay nearly the same interest as for a loan from the 
 public), to derange the system, distress the credit, or en- 
 danger the safety of the Bank of England.* This banking 
 company differs in this most important point from every one 
 of those national banks, which issue paper, on the continent. 
 /I understand that the banks of Petersburgh, Copenhagen, 
 Stockholm, Vienna, Madrid, and Lisbon, each of which 
 issues circulating notes, which pass as current payment, are 
 
 * The same remark has beeii made in a short pamphlet lately pub- 
 lished by Sir Francis Baring. 
 
 40 
 
Paper Credit. 177 
 
 all in the most direct and strict sense government banks.* / 
 It is also well known, that the governments residing in these 
 several places have not those easy means of raising money, S 
 by a loan from the people, which the minister of Great 
 Britain so remarkably possesses. Those governments, there- 
 fore, have, in times even of moderate difficulty, no other! V2 
 resource than that of extending the issue of the paper of 
 their own banks; which extension of issue naturally pro- 
 duces a nearly correspondent depreciation of the value of 
 the notes, and a fall in the exchange with other countries, if 
 computed at the paper price. The notes, moreover, being 
 once thus depreciated, the government, even supposing its 
 embarrassments to cease, is seldom disposed to bring them 
 back to their former limits, to do which implies some sacrifice 
 on their part at the time of effecting the reduction ; but it 
 contents itself, perhaps, with either a little lessening, or with 
 not further adding to, the evil. The expectation of the 
 people on the continent, therefore, generally is, that the 
 paper, which is falling in value, will, in better times, only 
 cease to fall, or, if it rises, will experience only an immaterial 
 rise, and this expectation serves of course to accelerate its 
 fall. Hence it has happened, that in all the places of Europe, 
 of which mention has been made, there exists a great and 
 established, and, generally, an increasing discount or agio 
 between the current coin and the paper money of the 
 kingdom. Nor, indeed, is this all ; several of the govern- 
 ments of Europe have not only extended their paper in the 
 manner which has been described, but have, besides this, 
 depreciated, from time to time, their very coin ; and thus 
 there has been a two-fold cause for a rise in the nominal 
 
 * The bank of Amsterdam did not issue circulating notes, but was 
 a mere bank for deposits, the whole of which it was supposed by some to 
 keep always in specie. It was discovered, however, when the French 
 possessed themselves of Holland, that it had been used privately to lend 
 a certain part of them to the city of Amsterdam, and a part to the old 
 Dutch government. These loans ought certainly rather to have been 
 furnished in that open manner in which those of our bank are made. 
 Neither of the two debts, as I understand, have yet been discharged. 
 The bank of Amsterdam had no capital of its own. 
 
 41 
 
178 Thornton on 
 
 price of their commodities when exchanged with the current 
 paper. There is, therefore, a fundamental difference between 
 the nature of the paper of the Bank of England, and that 
 of all the national or government banks on the continent. 
 No one supposes that the English guinea contains less and 
 less gold than heretofore, through frauds practised by govern- 
 ment in the coinage ; and as little is it to be suspected that 
 the Bank of England paper is about to be depreciated by an 
 excessive issue either ordered or needed by the government. 
 There is, moreover, at present, this further ground for as- 
 suming that the issue of Bank of England notes is not likely 
 to be excessive, that it has lately become a practice to make 
 the number of them public. Their quantity, as it now 
 appears, has never, in any short time, varied very greatly ; 
 has seldom, in late years, been below ten or eleven millions, 
 even when no one pound and two pound notes were issued ; 
 and has at no moment exceeded the sum of about fifteen 
 millions and a half, including two millions and a half of one 
 pound and two pound notes. It is not impossible that the 
 discredit into which the paper of the government banks of 
 the continent of Europe has fallen, into which also the paper 
 of the American banks sunk at the time of the American 
 war, through the same extension of its issues by the then 
 American government ; and also that the total annihilation 
 of the paper issued by the successive French revolutionary 
 governments, may have, in some degree, contributed, though 
 most unjustly, to that fall in the exchange which Great 
 Britain has experienced. Foreigners not adverting to that 
 independence of the Bank of England, the grounds of which 
 have been stated, and misled possibly by the abundant mis- 
 representations which have taken place in this country, may 
 have thought that it was the government which, by its loans, 
 involved the bank in difficulties (a point which shall be dis- 
 cussed presently), and that the bank is merely an instrument 
 in the hands of the government ; an instrument which may 
 be turned, as the government banks on the continent have 
 been, to the purpose of issuing notes to an extravagant 
 extent. If such should, in any degree, be their sentiment, 
 
 42 
 
Paper Credit. 179 
 
 it would be just in them to infer from thence, that the Bank 
 of England notes are not unlikely to fall in their value in 
 the same manner as the notes of the continental banks. An 
 unwillingness to leave in this country whatever sums they 
 may have a right to draw from us (sums probably small in 
 the whole) may have been the consequence of this fear, and a 
 great unwillingness to trust with us even a small quantity 
 of property, may happen to cause, under certain circum- 
 stances, a considerable fall in the exchange. 
 
 It may be mentioned as an additional ground of con- 
 fidence in the Bank of England, and as a circumstance of 
 importance in many respects, that the numerous proprietors 
 who chuse the directors, and have the power of controlling 
 them (a power of which they have prudently forborne to 
 make any frequent use), are men whose general stake in the 
 country far exceeds that particular one which they have in 
 the stock of the company. They are men, therefore, who 
 feel themselves to be most deeply interested not merely in 
 the increase of the dividends or in the maintenance of the 
 credit of the Bank of England, but in the support of com- 
 mercial as well as of public credit in general. There is, 
 indeed, both among them and among the whole commercial 
 world, who make so large a portion of this country, a 
 remarkable determination to sustain credit, and especially the 
 credit of the bank ; and this general agreement to support 
 the bank is one of the pillars of its strength, and one pledge 
 of its safety. The proprietors of it themselves are not 
 likely to approve of any dangerous extension even of their 
 own paper ; both they and the directors know the importance 
 of confining the bank paper, generally speaking, within its 
 accustomed limits, and must necessarily be supposed to 
 prefer its credit, and the paper credit of the nation, to the 
 comparatively trifling consideration of a small increase in 
 their own dividends ; an increase which would prove delu- 
 sory, if it should arise from that extravagant issue of bank 
 notes which would have the effect of depreciating all the 
 circulating medium of the country, since it would thus raise 
 upon the proprietors of bank stock, as well as on others, the 
 
 43 
 
I 
 
 180 Thornton on 
 
 price of all the articles of life.* While the proprietors and 
 directors of the bank have thus an interest, on the one hand, 
 in limiting the quantity of paper issued, they are also 
 naturally anxious, on the other, in common with the whole 
 commercial world, to give the utmost possible credit to it : 
 and although an opinion should prevail, even to some extent 
 among persons out of business, that the appearance of gold 
 is the only test of wealth, and that the absence of it, how- 
 ever temporary, implies great danger to the country, the 
 mercantile interest, and in particular the bank proprietors, 
 the bankers, and the traders of London, by whose transac- 
 tions the value of the London paper is upheld, may be con- 
 sidered as combined in the support of a juster sentiment. 
 The bank itself is known to have experienced, at former 
 times (as appears from the evidence of the directors given to 
 parliament), very great fluctuations in its cash ; and, in one 
 period of returning peace and prosperity, a reduction of it 
 below that which took place at the time of the late suspen- 
 sion of its cash payments : the amount of gold in the bank, 
 at any one particular asra, is, perhaps, therefore, on the 
 ground of this experience, not now considered by the com- 
 mercial world as having all that importance which was given 
 to it when the bank affairs were involved in greater mystery. 
 It is perfectly well understood among all commercial men, 
 that gold coin is not an article in which all payments (though 
 it is so promised) are at any time intended really to be made ; 
 that no fund ever was or can be provided by the bank which 
 shall be sufficient for such a purpose ; and that gold coin is 
 to be viewed chiefly as a standard by which all bills and 
 paper money should have their value regulated as exactly as 
 possible ; and that the main, and, indeed, the only, point is 
 
 * If the bank notes were increased even five millions, the additional 
 profit which would accrue to the proprietors would not be more than 
 two per cent. A proprietor qualified to vote in the bank court (that is, 
 having 5001. stock) would, therefore, gain by this extravagant issue, 
 supposing it to be maintained for a year, the sum of 10. A large pro- 
 portion of the bank proprietors do not hold more than 10001. stock. 
 The gain of each of these would not be more than 201. ; a sum perfectly 
 insignificant, compared with the interest which they have in the main- 
 tenance of the general commercial credit of the country. 
 
 44 
 
Paper Credit. 181 
 
 to take all reasonable care that money shall in fact serve as 
 that standard. 
 
 This is the great maxim to be laid down on the subject '- 
 of paper credit. Let it, then, be next considered what is 
 necessary, in order sufficiently to secure that, whatever the 
 circulating paper may be, gold shall be the standard to which 
 the value of that paper shall conform itself. It is no doubt 
 important, that there should be* usually in the country a 
 certain degree of interchange of gold for paper, for this is 
 one of the means which will serve to fix the value of the 
 latter. Whether the interchange wanted to produce this 
 effect must be more or less large and frequent, depends much 
 on the habits and dispositions of the country, and, in par- 
 ticular, on the degree of knowledge of the nature of paper 
 credit generally prevailing, and on the degree of confidence 
 in it. 
 
 In order to secure that this interchange shall at all times \ 
 take place, it is important that, generally speaking, a con- 
 siderable fund of gold should be kept in the country, and 
 there is in this kingdom no other depository for it but the 
 Bank of England. This fund should be a provision not 
 only against the common and more trifling fluctuations in the 
 demand for coin, but also against the two following contin- 
 gencies. First, it should serve to counteract the effects of 
 an unfavourable balance of trade, for this infallibly will 
 sometimes occur, and it is what one or more bad harvests 
 cannot fail to cause. It is also desirable, secondly, that the 
 reserve of gold should be sufficient to meet any extraordinary 
 demand at honie, though a demand in this quarter, if it 
 should arise from great and sudden fright, may undoubtedly 
 be so unreasonable and indefinite as to defy all calculation. 
 If, moreover, alarm should ever happen at a period in which 
 the stock of gold should have been reduced by the other 
 great cause of its reduction, namely, that of a call having 
 been recently made for gold to discharge an unfavourable 
 balance of trade, the powers of any bank, however ample its 
 general provision should have been, may easily be supposed 
 to prove insufficient for this double purpose. 
 
 45 
 
182 Thornton on 
 
 To revert, then, to the Bank of England. A short time 
 before the suspension of its cash payments, the gold in its 
 coffers had been reduced materially through an unfavourable 
 balance of trade. The exchange with Europe had, however, 
 so far improved for some time preceding the suspension, as to 
 have caused gold to begin again to flow into the country. 
 When it was thus only beginning to return, the fear of an 
 invasion took place, and it led to the sudden failure of some 
 country banks in the north of England Other parts felt the 
 influence of the alarm, those in Scotland, in a great measure, 
 excepted, where, through long use, the confidence of the 
 people, even in paper money of a guinea value, is so great 
 (a circumstance to which the peculiar respectability of the 
 Scotch banks has contributed), that the distress for gold was 
 little felt in that part of the island. A great demand on the 
 Bank of England for guineas was thus created, a demand 
 which every one who can possess himself of a bank note is 
 entitled to make by the very terms in which the note is 
 expressed. In London, it is observable that much distress 
 was beginning to arise, which was in its nature somewhat 
 different from that in the country. In London, confidence 
 in the Bank of England being high, and its notes maintaining 
 their accustomed credit, its guineas were little called for 
 with a view to the mere object of London payments. The 
 guineas applied for by persons in London, was, generally 
 speaking, on the account of people in the country. The 
 distress arising in London, like that which took place in 
 \ 1793, was a distress for notes of the Bank of England. So 
 great was the demand for notes, that the interest of money, 
 for a few days before the suspension of the payments of the 
 bank, may be estimated (by calculating the price of exche- 
 quer bills, the best test that can be referred to, as well as by 
 comparing the money price of stocks with their time price ) 
 to have been about sixteen or seventeen per cent, per ann. 
 The bank, on this occasion, pursued, though only in a small 
 degree, the path which a reader of Dr. Smith would consider 
 him to prescribe, as in all cases the proper and effectual 
 means of detaining or bringing back guineas. They lessened 
 
 46 
 
Paper Credit. 183 
 
 the number ot their notes, which, having been for some 
 years before near eleven millions, and having been reduced, 
 for some time, to between nine and ten millions, were at 
 this particular moment brought down to between eight and 
 nine millions. 
 
 It has been shewn already, that, in order to effect the 
 vast and accustomed payments daily made in London, pay- 
 ments which are most of them promised beforehand, a 
 circulating sum in bank notes, nearly equal to whatever may 
 have been its customary amount is necessary. But a much 
 more clear idea of this subject will be gained by entering 
 into some detail. 
 
 There are in London between sixty and seventy bankers, 
 and it is almost entirely through them that the larger pay- 
 ments of London are effected. It may be estimated (though 
 the conjecture is necessarily a loose one) that the sums paid 
 daily by the bankers of London may not be less than four or 
 five millions. The notes in their hands form, probably, a 
 very large proportion of the whole circulating notes in the 
 metropolis. It is certain, at least, that only a very small 
 proportion of Bank of England notes circulate far from 
 London, and that it is to the metropolis itself that all the 
 larger ones are confined. The amount of the bank notes in 
 the hands of each banker, of course, fluctuates considerably ; 
 but the amount in the hands of all probably varies very 
 little ; and this amount cannot be much diminished consis- 
 tently with their ideas of what is necessary to the punctuality 
 of their payments, and to the complete security of their 
 houses. Thus there is little room for reduction as to the 
 whole of that larger part of the notes of the Bank of 
 England which is in the hands of the London bankers : the 
 notes which may chance to circulate among other persons, 
 especially among persons carrying on any commerce, if we 
 suppose the usual punctuality of payments to be maintained, 
 and the ordinary system of effecting them to proceed, can 
 admit also of little diminution. A deficiency of notes in 
 London is a very different thing from a deficiency either of 
 country bank notes or of coin in the country. A large pro- 
 
 47 
 
184 Thornton on 
 
 portion of the London payments are payments of bills 
 accepted by considerable houses, and a failure in the punc- 
 tuality of any one such payment is deemed an act of 
 insolvency in the party. The London payments are, more- 
 over, carried on by a comparatively small quantity of notes ; 
 and they, perhaps, cannot easily be effected, with due 
 regularity, by a much smaller number, so complete has been 
 the system of economy in the use of them which time and 
 experience have introduced among the bankers. There is, 
 moreover, no substitute for them. They have an exclusive, 
 ( though limited, circulation. They serve, at the same time, 
 both to sustain and regulate the whole paper credit of the 
 country. It is plain, from the circumstances which have 
 just been stated, that any very great and sudden diminution 
 of Bank of England notes would be attended with the most 
 serious effects both on the metropolis and on the whole 
 kingdom. A reduction of them which may seem moderate 
 to men who have not reflected on this subject a diminution, 
 for instance, of one-third or two-fifths, might, perhaps, be 
 sufficient to produce a very general insolvency in London, of 
 which the effect would be the suspension of confidence, the 
 derangement of commerce, and the stagnation of manufac- 
 tures throughout the country. Gold, in such case, would 
 unquestionably be hoarded through the great consternation 
 which would be excited ; and it would, probably, not 
 again appear until confidence should be restored by the 
 previous introduction of some additional or some new paper 
 circulation. 
 
 The case which has been put, is, however, merely hypo- 
 thetical ; for there is too strong and evident an interest in 
 every quarter to maintain, in some way or other, the regular 
 course of London payments, to make it probable that this 
 scene of confusion should occur ; or, even if it should arise, 
 that it should continue. Whether there might chance to be 
 much or little gold in the country, steps would be taken to 
 induce the bank to issue its usual quantity of paper, or 
 measures would be resorted to for providing, by some other 
 means, a substitute for it. The credit, however, of even 
 
 48 
 
Paper Credit. 185 
 
 
 
 the best substitute, would be far inferior to that of the old \ 
 and known Bank of England notes; for the new paper 
 would be guaranteed by a capital probably far less ample 
 than that of the Bank of England : it would also be just as 
 impossible for the issuers of it to procure, at the time in 
 question, a supply of guineas to be given in payment of it, 
 as it would for the Bank of England to provide a supply of 
 guineas for payment of their notes. The new paper, then, ' 
 though it should be the same in its general nature, would be 
 inferior to that of the bank. It would yield, indeed, a profit 
 to the issuers, a profit which the bank would lose the oppor- 
 tunity of gaining ; and the desire of this profit might co- 
 operate in producing a disposition in new bodies of men to 
 proceed to the creation of it. If we suppose it to be created, 
 and to form one part of the current circulating medium of 
 the metropolis ; and if we suppose, also, as we necessarily 
 must, a reduced quantity of Bank of England notes to con- 
 tinue current at the same time, the new paper would then be 
 easily exchangeable for the Bank of England paper; and 
 every holder of the new paper would, therefore, be able, by 
 first exchanging it for the bank paper, to draw gold out of 
 the bank. The directors of the bank, therefore, by proceed- 
 ing to such a reduction of their notes, as should create a 
 necessity for the bankers and merchants to create a new 
 paper among themselves, would only increase the general 
 paper circulation in London. They have now, by their 
 exclusive power of furnishing a circulating medium to the 
 metropolis, the means of, in some degree, limiting and regu- 
 lating its quantity ; a power of which they would be totally 
 divested, if, by exercising it too severely, they should once 
 cause other paper to become current in the same manner as 
 their own. Projects for the introduction of a new circulat- 
 ing medium into the metropolis have, at different times, been 
 formed ; all such schemes, however, must necessarily fail, as 
 long as there continues to be an unwillingness among the 
 bankers to unite in giving currency to the new paper. This 
 unwillingness would, of course, diminish in proportion as 
 the pressure should become general and severe. 
 
 49 
 
186 Thornton on 
 
 The idea which some persons have entertained of its 
 being at all times a paramount duty of the Bank of Eng- 
 land to diminish its notes, in some sort of regular proportion 
 to that diminution which it experiences in its gold, is, then, 
 an idea which is merely theoretic. It must be admitted, 
 however, to be very natural. 
 
 It has been supposed by some, that the pressure on the 
 mercantile world which a great diminution of notes must 
 cause, would, especially if it were a severe one, induce the 
 merchants to send for gold from abroad, in order to supply 
 their own want of money. The supposition, when thus put, 
 is stated in much too vague a manner to be susceptible of 
 that close examination which I wish to give to it. There 
 can be no doubt that we shall find it altogether false, when 
 pushed to the extent of assuming that the extreme severity of 
 the pressure is to be the remedy. Let us consider this point 
 in as practical a way as possible. 
 
 It was supposed that the difficulty of obtaining bank 
 notes would cause the merchants to send abroad for gold, in 
 order to effect their payments. But what merchants ? Cer- 
 tainly not those merchants whose goods are unfit for a foreign 
 market, and are in no demand there. They must first ex- 
 change these unsuitable goods for goods which are suitable, 
 that is, they must sell them; and if they sell them, they 
 must sell them, in the first instance, for money, or what 
 passes as money, and answers, in their view, all the same 
 purposes. Thus they get possession of the very thing, to 
 supply their want of which they are supposed to send abroad. 
 The trader acts, in this respect, like any one who is not a 
 trader. If distressed for the means of effecting what is 
 called cash payment, he no more turns his thoughts to a 
 foreign country for a supply of gold, than the farmer or 
 landed gentleman who is equally pressed. He considers only 
 what part of his property he can turn into bank notes. 
 These he sees to be at hand ; of the gold which is in foreign 
 countries he knows nothing. 
 
 It will be allowed, then, that it is not on our traders in 
 general that the pressure will so operate as to induce them to 
 
 50 
 
Paper Credit. 187 
 
 send for gold from the continent. It will, perhaps, however, 
 be said to operate on our foreign merchants : but we must 
 now distinguish, also, between one foreign merchant and 
 another. The export trade to foreign countries is, generally 
 speaking, one trade : the trade of importing from foreign 
 countries is a second ; the trade of sending out and bringing 
 home bullion, in order to pay or receive the difference 
 between the exports and imports, may be considered as a third. 
 This third trade is carried on upon the same principles with 
 any other branch of commerce, that is, it is entered into just 
 so far as it is lucrative to the speculator in bullion, -and no 
 farther. The point, therefore, to be enquired into is clearly 
 this, whether the pressure arising from a scarcity of bank 
 notes tends to render the importation of bullion a more 
 profitable speculation. 
 
 In solving this question, there is not, perhaps, all the 
 difficulty which might be supposed; for it is obvious that, 
 generally speaking, it will answer to import gold into a 
 country just in proportion as the goods sent out of it, in the 
 way of trade (that is the goods which must be paid for), are 
 greater in value than the goods which are, in the way of 
 trade, brought into it. We may, therefore, now dismiss also 
 the case of the mere dealer in bullion from our consideration. 
 We have only to examine in what way the pressure arising \ 
 from the suppression of bank notes will affect the quantity I 
 of goods which are in the way of trade either exported or^ 
 imported. 
 
 That a certain degree of pressure will urge the British 
 merchants in general who buy of the manufacturers, as well 
 as the manufacturers themselves, to sell their goods in order 
 to raise money ; that it will thus have some influence in 
 lowering prices at home ; and that the low prices at home 
 may tempt merchants to export their articles in the hope of 
 a better price abroad, is by no means an unreasonable sup- 
 position. But, then, it is to be observed on the other hand, 
 first, that this more than ordinary eagerness of all our 
 traders to sell, which seems so desirable, is necessarily 
 coupled with a general reluctance to buy, which is exactly 
 
 51 
 
188 Thornton on 
 
 proportionate to it: it must be obvious, that, when the 
 general body of merchants, being urged by the pecuniary 
 difficulties of the time, are selling their goods in order to 
 raise money, they will naturally also delay making the 
 accustomed purchases of the manufacturer. They require 
 of him, at least, that he shall give them a more than usually 
 extended credit ; but the manufacturer, experiencing the 
 same difficulty with the merchants, is quite unable to give 
 this credit. The sales of the manufacturer are, therefore, 
 suspended; but though these are stopped, his daily and 
 weekly payments continue, provided his manufacture pro- 
 ceeds. In other words, his money is going out while no 
 money is coming in ; and this happens at an sera when the 
 general state of credit is such, that he is not only not able to 
 borrow, in order to supply his extraordinary need, but when 
 he is also pressed for a prompter payment than before of all 
 the raw materials of his manufacture. Thus the manufac- 
 turer, on account of the unusual scarcity of money, may 
 even, though the selling price of his article should be pro- 
 fitable, be absolutely compelled by necessity to slacken, if 
 not suspend, his operations. To inflict such a pressure on 
 the mercantile world as necessarily causes an intermission of 
 manufacturing labour, is obviously not the way to increase 
 that exportable produce, by the excess of which, above the 
 imported articles, gold is to be brought into the country. 
 
 But, secondly, that very diminution in the price of manu- 
 factures which is supposed to cause them to be exported, 
 may also, if carried very far, produce a suspension of the 
 labour of those who fabricate them. The masters naturally 
 turn off their hands when they find their article selling 
 exceedingly ill. It is true, that if we could suppose the 
 diminution of bank paper to produce permanently a diminu- 
 tion in the value of all articles whatsoever, and a diminution, 
 as it would then be fair that it should do, in the rate of 
 wages also, the encouragement to future manufactures would 
 be the same, though there would be a loss on the stock in 
 hand. The tendency, however, of a very great and sudden 
 reduction of the accustomed number of bank notes, is to 
 
 52 
 
Paper Credit. 189 
 
 create an unusual and temporary distress, and a fall of 
 price arising from that distress. But a fall arising from 
 temporary distress, will be attended probably with no cor- 
 respondent fall in the rate of wages ; for the fall of price, 
 and the distress, will be understood to be temporary, and 
 the rate of wages, we know, is not so variable as the price 
 of goods. There is reason, therefore, to fear that the 
 unnatural and extraordinary low price* arising from the 
 sort of distress of which we now speak, would occasion much 
 discouragement of the fabrication of manufactures. 
 
 Thirdly, a great diminution of notes prevents much of 
 that industry of the country which had been exerted from 
 being so productive as it would otherwise be. When a time 
 either of multiplied failures, or even of much disappoint- 
 ment in the expected means of effecting payments arises, 
 plans of commerce and manufacture, as well as of general 
 improvement of every kind, which had been entered upon, 
 
 * It may, perhaps, be supposed, that a diminution of the quantity 
 of Bank of England notes, if permanent, would produce that perma- 
 nent diminution of the price of articles which is so much desired, and 
 the observation made above may be thought to give some countenance 
 to this supposition. Such permanent reduction in the price of commo- 
 dities could not, however, as I apprehend, be by any such means 
 effected. The general and permanent value of bank notes must be the 
 same as the general and permanent value of that gold for which they 
 are exchangeable, and the value of gold in England is regulated by the 
 general and permanent value of it all over the world ; and, therefore, 
 although it is admitted that a great and sudden reduction of bank 
 notes may produce a great local and temporary fall in the price of 
 articles (a fall, that is to say, even in their gold price, for we are here 
 supposing gold and paper to be interchanged), the gold price must, in a 
 short time, find its level with the gold price over the rest of the world. 
 The continuance of/the great limitation of the number of bank notes 
 would, therefore, lead either, as has already been observed, to the crea- 
 tion of some new London paper, or possibly to some new modes of 
 economy in the use of the existing notes ; the effect of which economy 
 on prices would be the same, in all respects, as that of the restoration of 
 the usual quantity of bank notes. What seems most probable, is, that 
 the continuance of any great limitation of the number of bank notes 
 would lead to the transfer of the present cash payments of London to 
 some other place or places in which the means of effecting payments 
 should not be obstructed through the too limited exercise of that exclu- 
 sive power of furnishing a paper circulation with which the Bank of 
 England has, by its charter, been invested. This subject of the 
 influence of paper credit on prices will be more fully entered into in a 
 future chapter. 
 
 53 
 
190 Thornton on 
 
 are changed or suspended, and part of the labour which had 
 been bestowed proves, therefore, to have been thrown away. 
 If, for instance, expensive machinery had been erected, 
 under an expectation of regular employment for it, a press- 
 ing want of the means of effecting payments may cause 
 that machinery to stand idle. The goods which ought to 
 form part of the assortment of the factor or the shopkeeper, 
 and to be occuying their premises, are loading the ware- 
 house of the manufacturer,* and, perhaps, are suffering 
 damage by too long detention. On the other hand, some 
 sales are forced; and thus the goods prepared for .one 
 market, and best suited to it, are sold at another. There 
 cease, at such a time, to be that regularity and exactness in 
 proportioning and adapting the supply to the consumption, 
 and that dispatch in bringing every article from the hands 
 
 * When an interruption of the usual credit arises, it naturally 
 happens that the individuals having the least property, and the fewest 
 resources, are the most pressed ; and it is sometimes assumed by the 
 public, rather too readily, that those who suffer are justly punished for 
 the too great extent of their speculations. It is true, undoubtedly, 
 that those who prove to be the first to fail, have probably been men of 
 too eager and adventurous a spirit. Let the spirit of adventure among 
 traders, however, have been either more or less, the interruption of the 
 usual credit cannot fail to cause distress ; and that distress will fall 
 upon those who have merely been comparatively, the more adventurous 
 part of the trading world. It is often also assumed by the public (and 
 without the least foundation) that the want not of gold merely, but of 
 bond fide mercantile capital in the country is betrayed by a failure of 
 paper credit. The error of this supposition is not only plain, from the 
 general principles laid down in the first chapter of this work, but it is 
 also distinctly proved by the circumstance stated above, that while the 
 premises of the factor and of the shopkeeper are becoming empty of 
 goods, the warehouse of the manufacturer is growing proportionably full. 
 The time soon comes, indeed, when that suspension of labour (which, 
 it should be remembered, is the- consequence of the suspension of credit) 
 causes the general stock of goods (or the mercantile capital of the 
 country) to be diminished. The evil, therefore, consists not in the 
 want of bond fide capital, but in the want of such a quantity of the 
 circulating medium as shall be sufficient, at the time, to furnish the 
 means of transferring the goods of the manufacturer from his own 
 warehouse to that of the factor and the shopkeeper. The quantity 
 wanted to be employed in the circulation, and especially the quantity 
 of gold, becomes more, as was observed in the third chapter, when con- 
 fidence is less, because the rapidity of the circulation is less. The sub- 
 stitution of gold for paper, and of better paper for that which is worse, 
 and some temporary increase of the gold and good paper actually cir- 
 culating, are obviously the remedy. 
 
 54 
 
Paper Credit. 191 
 
 of the fabricator into actual use, whk-h are some of the 
 great means of rendering industry productive, and of adding 
 to the general substance of a country. Every great and 
 sudden check given to paper credit not only operates as a 
 check to industry, but leads also to much of this misapplica- 
 tion of it. Some diminution of the general property of the \ 
 country must follow from this cause ; and, of course, a 
 deduction also from that part of it which forms the stock for \ 
 exportation. It can hardly be necessary to repeat, that on 
 the quantity of exported stock depends the quantity of gold 
 imported from foreign countries. 
 
 It will be supposed, perhaps, that the limitation of bank I 
 notes, by lessening the means of payment of the importing \ 
 merchant, may induce him to suspend his imports ; and that, 
 since it is the excess of exports above the imports which 
 causes gold to enter the country, the limitation of paper 
 may, with a view to the diminution of imports, be very 
 desirable. There is, probably, some justice in this supposi- 
 tion. It should, however, be observed on this subject, that 
 Great Britain, at that period of an unfavourable balance 
 which we are now supposing, may be considered as import- 
 ing chiefly either, first, corn, of which no one would wish to 
 check the import by a limitation of paper ; or secondly, that 
 class of articles which are brought from one country in order 
 to be transported to another ; articles which come chiefly from 
 very distant parts, and of which the payment cannot be 
 declined, it having been promised long before hand ; articles, 
 also, which soon serve to swell the exports in a somewhat 
 greater degree than they had increased the imports; or, 
 thirdly, that ruae produce of other countries which forms 
 the raw materials of our own manufacture, and serves, after 
 a short time to supply exportable articles to a very increased 
 amount. 
 
 The limitation of credit at home will chiefly be of use by 
 urging the exporting merchant to press the sale of the goods 
 which he has abroad, and to direct them to be sold, if he 
 can, at a short credit ; and also by its urging, in like 
 manner, the importing merchant to delay buying abroad, as 
 
 55 
 
192 Thornton on 
 
 (long as he can, and to buy at a long credit. In other words, 
 it may be of use in leading English merchants, in their 
 dealings with foreigners, to anticipate their receipts, and to 
 delay their payments ; on the other hand, it is carefully to 
 be remembered, that an anticipation of receipts, and a delay 
 of payments, are only a temporary benefit ; while a suspen- 
 sion of manufactures operates, as far as it goes, as so much 
 permanent and entire loss to the country. It is, moreover, to 
 / be borne in mind, that a very severe pressure is sure to pro- 
 duce a suspension of manufactures, while it is not sure to cause 
 British merchants to obtain an extension of credit from 
 V foreigners. Any very extraordinary suppression of bank 
 notes must produce distrust abroad through the failures at 
 home, to which it is known abroad to give rise. It, therefore, 
 indisposes foreign merchants to lend money to England, and 
 it induces those foreigners, who have debts due to them from 
 Englishmen, to urge the payment of those debts. England, 
 during the prevalence of any great distrust, is obliged to 
 send abroad manufactures, not for the payment of goods 
 imported, or for the purchase of gold, but for the extinction 
 of debt. 
 
 Although, therefore, it may possibly admit of a doubt 
 whether some moderate restriction of the paper of the bank 
 may not be expedient with a view to mend for the time an 
 unfavourable balance, it seems sufficiently clear that any 
 very sudden and violent reduction of bank notes must tend, 
 by the convulsion to which it will lead, to prevent gold from 
 coming into the country rather than to invite it, and thus to 
 increase the danger of the bank itself. The observation 
 which was before made may, therefore be repeated, that it is 
 not the severity of the pressure which is to be the remedy. It is, 
 indeed, in every respect plain that it must be important to 
 maintain, and to maintain carefully, the credit of the 
 country, at that time in particular, when its guineas are few, 
 and are also leaving it ; that is the time when our own funds 
 are necessarily low, when the most regular industry should 
 by every means be promoted, and when there is the most 
 need of the aid both of our domestic and foreign credit ; and 
 
 56 
 
Paper Credit. 1 93 
 
 it belongs to the Bank of England, in particular, to guard 
 and to superintend the interests of the country in this 
 respect. The very policy of the bank differs, in this par- 
 ticular, from that of the individual country banker, whose 
 own share of the evil resulting to the country, from the 
 sudden suppression of his own notes, is small; who may 
 trust, moreover, that there will be a substitution either of 
 guineas or of other paper in the place of his own paper 
 which is suppressed ; and who, it may be remarked, supplies 
 himself with the means of discharging his own notes by 
 obtaining guineas from the Bank of England. 
 
 But the Bank of England, has no bank to which it can 
 resort for a supply of guineas proportioned to its wants 
 in the same manner in which it is resorted to by the country 
 banks; nor have the bankers and traders in London, to 
 whom at present is transferred the business of effecting the 
 great cash payments of the whole country, the same resource 
 in case Bank of England notes are suppressed which traders 
 in the country have, supposing country bank notes to be 
 withdrawn. The country payments being not strictly pro- 
 mised before hand, may, many of them, bear to be post- 
 poned. Bills of exchange on London may also form some 
 substitute for country bank notes, and may pass as such in 
 the manner which was some time ago described ; but if 
 Bank of England notes are suppressed, and are suppressed, 
 as we have been supposing them to be, in consequence of 
 guineas being scarce, there then remain no means whatever 
 of effecting the London payments. There can be no doubt 
 that the extinction or very great diminution of bank 
 notes would be a far greater evil, in the present circum- 
 stances of the metropolis, than the disappearing of guineas. 
 If guineas disappear, notes may be substituted in their / 
 place ; and through that general confidence which may be y 
 inspired by the agreement of bankers and other leading 
 persons to take them, they will not fail, provided the issues 
 are moderate, and the balance of trade is not very unfavour- 
 able to the country, to maintain exactly the gold price. The 
 punctuality thus introduced into all the larger operations of 
 
 57 
 
194 TJwrnton on 
 
 commerce, will facilitate contrivances for effecting the 
 smaller payments. 
 
 Differences of opinion, undoubtedly, may exist as to the 
 exact degree in which the notes of the Bank of England 
 ought, under any given circumstances, to be diminished. It 
 may be hoped, however, that at least one point has noAv 
 been fully and completely established, namely, that there 
 may be an error on the side of too much diminishing bank 
 notes, as well as on the side of too much increasing them. 
 There is an excessive limitation of them, as every one must 
 admit, which will produce failures : failures must cause con- 
 sternation, and consternation must lead to a run upon the 
 bank for guineas. There must, in short, then, be some 
 point at which the bank must stop in respect to the reduc- 
 tion of its notes, however progressive may be the drain upon 
 it for guineas. 
 
 But if its notes are not lessened, or if even they are 
 lessened, but are not entirely extinguished, it is then in the 
 power of any one who can possess himself of a bank note 
 to possess himself also of guineas, and as long as the bank 
 pays in guineas ; and it will be found to follow, moreover, 
 that the bank is thus rendered liable to be totally exhausted 
 f of guineas. I mean, that it is liable to be totally exhausted 
 ! of them, however great their number may have been, if it 
 determines to maintain even the smallest number of notes. 
 By maintaining, that is to say, five millions, or two millions, or 
 even one million, of notes,, the bank cannot avoid being ex- 
 hausted (supposing the alarm to rise high enough to do it) of 
 even five millions, or ten millions, or, if it had them, of twenty 
 or fifty millions of guineas. It will depend, in such case, on 
 the degree of alarm, and not on the maintenance of the 
 ater or of the less quantity of notes, whether the guineas 
 shall be more or less rapidly called for from the bank ; or, 
 in other words, the bank may be as much exhausted of 
 guineas if it maintains five millions of notes as if it maintains 
 ten millions, provided the alarm is only the same in the one 
 case as in the other. If, therefore, the maintenance of the 
 five millions of notes is sure to produce more alarm than the 
 
 58 
 
Paper Credit. 195 
 
 maintenance of ten, then the maintenance of the larger 
 quantity of notes will serve to diminish the demand for 
 guineas, and the maintenance of the smaller number to 
 increase it. 
 
 The following is the manner in which that operation, 
 which is finally to exhaust all the guineas of the bank, may 
 be supposed to proceed. A, for instance, the holder of a 
 note of 10007. (and it is what any man may obtain by selling 
 goods) carries it to the bank and demands 10007. in gold. 
 The bank gives the gold ; which gold, let it be remarked, 
 either goes abroad to pay for an unfavourable balance of 
 trade, or, as we are now rather supposing, fills a void in the 
 circulation of the country, occasioned by the withdrawing of 
 country bank notes in consequence of alarm, or serves as an 
 addition to the fund of country banks, or forms a hoard in 
 the hands of individuals. The 10007. in gold, thus furnished 
 by the bank, does not supply, in any degree, the place of 
 the 10007. note for which it was given ; for the 1000/. note 
 had been employed in London in making the larger pay- 
 ments. It is hardly ever, in almost any degree, as a substi- 
 tute for Bank of England notes, that the gold taken from 
 the bank is wanted. The bank, therefore, having paid 
 away this 1000/. in gold, and having received for it their 
 own note for 10007. must now re-issue this note, if they are 
 resolved to maintain the amount of their paper circulation. 
 How, then, is the bank to issue it ? The only means which 
 the bank on its part, is able to take for the extension of its 
 paper circulation, is to enlarge its loans. It must, therefore, 
 re-issue the 10007. note, in the shape of a loan, to some 
 person who offers a bill to discount. It receives, therefore, 
 a bill of 10007. and gives a note of 10007. in return for it. 
 For the same note, thus re-issued, we may suppose 10007. 
 in money to be again demanded, and to be again paid. The 
 paper circulation of the bank is now again diminished 10007. 
 and, therefore, there arises a necessity for issuing the same 
 10007. note, or some other note or notes to like amount a 
 third time, in order to maintain the amount of notes in cir- 
 culation. The like transaction, or rather a number of such 
 transactions, may be supposed to be repeated either five, or 
 
 59 
 
196 Thornton on 
 
 fifty, or a hundred, or a thousand times. Even if we should 
 suppose the bank to bring down its paper circulation to one 
 hundred thousand pounds, and to maintain it at that sum, it 
 is obvious that this same operation might be so reiterated, 
 from day to day, as to extract at length from the bank even 
 the greatest imaginable number of guineas. Thus, then, the 
 bank is rendered liable to be exhausted of its guineas, by its 
 determination to maintain the number of its notes, whether 
 that number be greater or smaller ; and here, also, let it be 
 remarked by the way (a point on which more shall be said 
 presently), that the bank, in consequence of its determina- 
 tion to maintain a given number of notes, is placed under 
 an absolute necessity of increasing its loans to the very 
 same extent to which it is deprived of its guineas. The 
 bank, let it be remembered, was stated to lend an additional 
 WOOL on the occasion of each reiterated demand upon it for 
 1000Z. in guineas. It thus clearly appears that the Bank of 
 England is placed, by the very nature of its institution, in 
 a situation in which it may not be possible to avoid a tem- 
 porary failure in the regularity of its cash payments. 
 
 An idea has, indeed, prevailed, than which nothing can 
 be more natural, that because an individual merchant is pre- 
 sumed to be blameable if he is not able to make good his 
 payments, therefore, also, a national bank, in case of failure, 
 may be presumed to be censurable in like manner ; and, on 
 account of the greater importance of its transactions, to be 
 censurable even in a still higher degree. But the total dis- 
 parity in the circumstances of the two cases should be taken 
 into consideration. Private houses may, in general, be 
 fairly presumed to be in fault if they fail in the punctuality 
 of their cash payments, supposing the bank of England to 
 pay in money, because, if they have made on their part a 
 tolerably prudent provision, they may be in general con- 
 sidered as having in the bank a sure resource. Take away 
 from them that resource, and they will then be not only as 
 liable as the Bank of England to the like accident, but they 
 will be much more so, their means of supplying themselves 
 with guineas becoming then exceedingly precarious. It 
 may be apprehended, also, that, if instead one national 
 
 60 
 
Paper Credit 197 
 
 bank two or more should be instituted, each having a small 
 capital; each would then exercise a separate judgment; 
 each would trust in some measure to the chance of getting 
 a supply of guineas from the other, and each would allow 
 itself to pursue its own particular interest, instead of taking 
 upon itself the superintendence of general credit, and seek- 
 ing its own safety through the medium of the safety of the 
 public; unless, indeed, we should suppose such a good 
 understanding to subsist between them as to make them act 
 as if they were one body, and resemble, in many respects, 
 one single institution. 
 
 The accident of a failure in the means of making the 
 cash payments of a country, though it is one against which 
 there can be no security which is complete, seems, therefore, 
 to be best provided against by the establishment of one 
 principal bank. It, however, becomes the public not to 
 judge the bank, which is thus rendered its servant, and is 
 completely subjected to its interests, by the game rules by 
 which it judges of smaller banking and commercial esta- 
 blishments, but to advert to the peculiarity of its case. 
 
 If there has been any fault in the conduct of the Bank 
 of England, the fault, as I conceive, has rather been, as has 
 just been stated, on the side of too much restricting its notes 
 in the late seasons of alarm, than on that of too much 
 enlarging them. In doing this, it has happened to act 
 (though but in part) according to what seems likely to have 
 been the advice of Dr. A. Smith in the case. It has also 
 taken that course which is the natural one for smaller banks, 
 and which might, perhaps, have been the proper one for the 
 Bank of England itself, in the infancy of its establishment, 
 when the country was less dependent upon it for the means 
 of effecting its payments. It has, probably, pursued a prin- 
 ciple which had been acted upon, by its own directors, in 
 all former times. It has also followed what was, at the 
 very period in question, the common opinion of the public 
 on the subject. It has, moreover, only diminished those 
 notes, perhaps, in too great a degree, which there might 
 possibly be found to be some argument for restraining with 
 
 61 
 
198 Thornton on 
 
 a more gentle hand. I venture, however, with deference, 
 to express a suspicion that the bank may have, in some 
 measure, aggravated, perhaps, rather than lessened, the 
 demand upon itself for guineas through the suppression of 
 too many notes at the time preceding the suspension of its 
 cash payments ; and I will hazard an opinion, that it might 
 also, with propriety, have somewhat extended the temporary 
 issue of its paper, in the year 1793, when that alarm, 
 arising from the failure of country banks, which has been 
 already spoken of, took place. It is clear, at least, that it 
 did not, in the more recent instance, succeed by the 
 diminution of its notes in curing the evil which it thus 
 aimed to remedy. 
 
 A suspicion prevailed, at the time of which we have 
 been chiefly speaking, that the loans afforded by the bank 
 to the government had caused the distress of the bank. 
 But the government, it should be remembered, has no supply 
 I of guineas with which it can discharge any debt. It is 
 circumstanced in this respect, like any other debtor of the 
 bank. It must, if forced to pay its debt, pay it in bank 
 notes, an article which the bank cannot refuse to take. And 
 the government must collect these notes wherever they are 
 to be obtained ; that is, from the bankers and traders, and 
 other persons in possession of them, to whom it must, in 
 return, give new stock or exchequer bills, which it may, at 
 all times, easily create ; though, at a period of mercantile 
 distress, this would be done at a somewhat unfavourable 
 price. We learn, from the evidence given to parliament, 
 that the government was urged by the bank to pay up four 
 and a half millions of existing debt a short time before the 
 period in question, and that it complied with the demand ; 
 that is, the government collected some of the bank notes 
 which were in circulation, and paid them into the bank ; 
 and then a part, but only a part, of the notes so paid in 
 were re-issued to the merchants. If the whole of the notes 
 paid into the bank by the government had been immediately 
 re-issued in loans to private traders, then the sum of notes in 
 circulation would have been the same. The government is 
 
 62 
 
Paper Credit. 199 
 
 only one large borrower from the bank ; the merchants are 
 a number of similar, though smaller, borrowers. Whether, 
 therefore, the bank lent more to individuals and less to 
 government, or less to government and more to individuals, 
 the effect as to the number of notes allowed to be in cir- 
 culation, must have been equal. The Exchequer, after 
 receiving notes from the bank, almost as quickly pays them 
 away, and thus sends them into the common circulation as 
 the merchant does ; and it is the total quantity of circulat- 
 ing notes, and not the manner in which they come into 
 circulation, that is the material point. 
 
 It may be thought, indeed, that commerce would be encou- 
 raged, and commercial credit, as well as general paper credit, 
 would be supported in a much greater degree by the bank 
 sending their notes into circulation, through the medium of a 
 loan to the merchants, than through that of a loan to govern- 
 ment. But the difference would not, as I apprehend, be so 
 great as many commercial men themselves at that time ima- 
 gined. Those merchants who obtained an increase of the ac- 
 customed advances from the bank, would, some of them, pro- 
 bably invest, in the new exchequer bills which were created, a 
 part of that very sum with which the bank favoured them. 
 The merchants in higher credit, of course, would have the 
 preference at the bank ; and they were certainly under a very 
 strong temptation to borrow of the bank at five per cent, 
 interest for the sake of investing the sum so borrowed in 
 exchequer bills, yielding five and a half or six, or, for a time, 
 even seven or eight per cent, or more. As far as this was 
 the case, it is obvious that the bank, instead of lending to 
 the government, would only lend to those who lent to the 
 government, the government paying an additional interest, 
 and the merchants receiving it. Where this did not take 
 place, that might happen which would be exactly equivalent. 
 The bankers finding that the merchants were, many of them, 
 allowed to become larger borrowers at the bank than before, 
 would think it less necessary to lend to them, and would, 
 therefore, add to the sum which they themselves kept in 
 exchequer bills, the great profit on that article tempting 
 
 63 
 
200 Thornton on 
 
 them, at the same time, to do this. The bank, on this sup- 
 position, would lend to the merchants, who would forbear to 
 borrow of the banker (which is the same thing for the pre- 
 sent purpose as lending to the banker), who would lend to 
 the government. But let us put a third case. Let us 
 imagine it to be a gentleman in the country who invested 
 the property in the new exchequer bills. That property 
 would probably, since we must suppose it easily applicable to 
 such investment, have been lying in some private hand at 
 interest. Let us imagine it to consist of 1007. which had 
 been in the hands of a country banker : the country banker, 
 in this case, would draw upon his London banker; the 
 country banker's account with the London banker would 
 then be worse by 1007. : and the London banker having 100/. 
 less deposits, would be able to lend 1007. less to the London 
 merchants. In other words, the Bank of England, in this 
 case, instead of lending to the government, would lend to the 
 London merchant, who would forbear to borrow of the 
 London banker, who would lend to, or, perhaps, forbear to 
 borrow of the country banker, who would forbear to bor- 
 row of the country gentleman, who would lend to the 
 government ; which also seems to be much the same as if 
 the Bank of England themselves lent to the government. 
 This detailed case has been put partly for the sake of obser- 
 ving upon it, that the necessity which would be created for 
 the transfer of this 1007. through so many hands, would pro- 
 duce a want of some degree of additional circulating medium 
 in order to effect these several payments. It would, however, 
 be chiefly by the means of a bill on London that the transac- 
 tion just now supposed would be conducted ; but the bill must 
 finally be paid by a Bank of England note. Let us imagine 
 a fourth case. Let us suppose a sum to be invested in the 
 new exchequer bills by a person obtaining money for the 
 purpose of the investment, not by calling in a sum lying at 
 interest, as was last assumed, but by selling goods, land, or 
 any other article. We must, then, necessarily suppose a 
 buyer of those goods, of that land, or of that other article to 
 be created by such sale. We shall find, also, that it is neces- 
 
 64 
 
Paper Credit. 201 
 
 sary to suppose either that buyer to become a borrower, or 
 to become the seller to one who would become a borrower ; 
 or, at least, we must come to a borrower at last. We are 
 supposing one man to sell goods for 100/. and not to restore 
 this 1007. to trade, but to lend it out. We must, then, 
 necessarily suppose some other man to borrow 100/. and by 
 thus borrowing to add that 100/. capital to trade which the 
 other had taken from it ; for since the trade goods in the 
 country remain the same, the capital invested in trade must 
 be the same also. The body of lenders, therefore, whoever 
 they might be, who lent the four and a half millions to 
 government, necessarily created a body of borrowers to exactly 
 the same amount in what may be called the general money 
 market of the country. Thus a pressure was, on the whole, 
 created, which was just equal to that which was relieved ; a 
 pressure, in the first instance, falling in some degree (though 
 by no means entirely, or even principally) in a different 
 quarter than before ; a pressure, however, very soon extend- 
 ing itself to the same persons ; for there is a competition 
 among the several classes both of borrowers and of lenders in 
 the money market, which, notwithstanding some inequality 
 occasioned by the usury laws, causes the increased distress 
 brought upon any one class of the accustomed borrowers very 
 soon to distribute itself among all. The bank, it is true, 
 would, by lending the four and a half millions in bills at two 
 months, possess more means of at any time diminishing 
 its loans, and of thus lessening also its notes, than if the 
 same sum had been invested in exchequer bills, since the 
 latter are at a longer date ; and it was natural for the bank 
 to call in its loan to government for this reason. If, however, 
 the calling in of the loan to government was only to furnish 
 the means of limiting the notes, then that question returns 
 which has already been discussed, namely, whether the dimi- 
 nution of the notes was not carried possibly somewhat 
 farther than was desirable, even for the sake of the bank 
 itself. During the existence of this loan to government, that 
 reduction of notes, which has been supposed to have been 
 too great, may have been, perhaps, to a certain degree 
 
 65 
 
202 Thornton on 
 
 obstructed, though by no means necessarily precluded ; since 
 an opportunity of diminishing the discounts to the merchants, 
 and of thus lessening the notes, at all times existed. On the 
 whole, there appears to be no reason to infer, from the cir- 
 cumstance of the demand for the four and a half millions 
 having been made upon government, that the government 
 was either the more remote or the more immediate cause of 
 the suspension of the cash payments of the bank, except, 
 undoubtedly, so far as the war in general, or the particular 
 circumstance of a remittance of a subsidy to the Emperor a 
 short time before the event in question, might be considered 
 as affecting the balance of trade, and thus contributing to 
 draw gold out of the country. 
 
 It is, on public grounds, so important to shew that the 
 more than usual largeness of the bank loans to government (for 
 it can hardly fail to be true that they were more than com- 
 monly extended) was not the cause of the suspension of the 
 cash payments of the bank, that I shall dwell for some time 
 longer on this subject. This was continually charged as the 
 cause, and it was not unnatural to suppose it to be so. The 
 paper circulation of the bank, however, it has been observed, 
 was at this time not increased. It was, on the contrary, 
 much reduced. It was by no means higher than was neces- 
 sary for securing the regularity of the payments of the 
 I metropolis. Now, if it be allowed that there was this neces- 
 sity for maintaining the existing quantity of notes, it then 
 was not the notes which must be considered as issued for the 
 purpose of making the loans, but the loans must be considerd 
 as made in consequence of the issue of notes. When the 
 notes of the bank are increased, the loans must be increased 
 also; when the notes are maintained, the loans must be 
 maintained in as great proportion ; when the notes are 
 decreased, the loans can be decreased only in that proportion. 
 There can, then, be no matter of blame on account of the 
 magnitude of the loans, unless there be matter of blame on 
 account of the magnitude of the notes. But the notes I have 
 stated to have been probably rather too few than too many. If 
 the reader has agreed with me in this, he must then agree 
 
 66 
 
Paper Credit. 203 
 
 with me that the loans were too scanty rather than too large. 
 In other words, then, the bank, at the time of the failure 
 of its cash payments, had lent too little rather than too much. 
 If the bank would have somewhat diminished its danger by 
 issuing more notes, the granting of more loans would have 
 also diminished its danger. Thus the very converse to the 
 common opinion on this subject seems to be the truth. 
 
 There is, however, another point of importance here to be 
 remarked. The loans which the bank had made on the whole, 
 that is, the loans to government and to individuals taken 
 together, at the time of the suspension of its cash payments, 
 were not only maintained in that proportion in which the 
 notes were maintained, but they were increased beyond that 
 proportion. This increase beyond that proportion was also a 
 matter of necessity. 
 
 The loans of the bank do not simply keep pace with the 
 notes. The loans necessarily increase or diminish through 
 another cause ; they diminish as gold flows in to the bank, 
 and increase as gold goes out, supposing, as we generally 
 may, the article of deposits to remain the same; that is, 
 they necessarily increase and diminish in a ratio directly con- 
 trary to that which a theorist would prescribe, and which the 
 public naturally would suppose. 
 
 To those who are but slightly acquainted with these sub- 
 jects, this truth will probably be made much clearer by a 
 statement of the whole disposable effects of the Bank of 
 England, and of the manner in which those effects are 
 employed. The statement is important, because it will serve 
 to prove, beyond the possibility of contradiction, that the 
 extraordinary largeness of the loans of the bank, at the critical 
 period in question, ought to be considered not as a conse- 
 quence of any disposition in the bank to be great and 
 adventurous lenders at a time when their guineas grew low, 
 but as arising out of the necessity under which they were 
 placed. I mean that they could not avoid lending to the whole 
 extent to which they did, provided even that small number 
 of notes which they kept in circulation was maintained. 
 
 The effects of the bank on the 25th February 1797, I 
 
 67 
 
204 Thornton on 
 
 mean those effects which were their own, as well as those 
 placed in their hands belonging to other persons, may, in 
 conformity to the account rendered by themselves to par- 
 liament, be stated, in round numbers, to have been as 
 follows. 
 
 (It may be premised, that they had a capital of their own 
 of about 11,626,0007. which shall be excluded from our pre- 
 sent consideration, it being lent to government at three per 
 cent, per annum interest). 
 
 1. They had a sum of undivided profits which formed 
 
 an additional and disposeable capital of nearly - - L.3,800,000 
 
 2. They had of deposits lodged with them by customers 
 
 of various classes about - 5,100,000 
 
 These deposits include, as may be presumed, the divi- 
 dends belonging to many proprietors of stock, which may 
 be viewed in the same light with the cash kept by an 
 individual in the hands of his banker. 
 
 3. They had what may be considered as disposeable 
 effects, or deposits placed in their hands in return for bank 
 
 notes issued* - 8,600,000 
 
 Thus the bank had, at that time, disposeable effects 
 amounting in all to - L.17,500,000 
 
 * The reader, perhaps, may not understand upon what principle it 
 is that the amount of the notes of the Bank of England is classed 
 among the deposits. The amount of them was placed on this side of 
 the account in the statement given to parliament by the bank, and very 
 properly, or rather very necessarily. It is not, however, the notes 
 which themselves form deposits. They are given in return for deposits ; 
 and they are, therefore, the measure of those deposits. It is in substance 
 the same thing whether a person deposits 1001. in money with the 
 bank, taking no note, but obtaining a right to draw a draft on a bank- 
 ing account which is opened in his name, or whether he deposits the 
 same \00l. and receives for it a bank note. The possession of the right 
 to draw obtained in the one case, is exactly equivalent to the possession 
 of the note obtained in the other. The notes, it is true, are commonly 
 issued not in consideration of money received, but of bills discounted ; 
 but the deposits, it may also be observed, are generally formed by the 
 same means of bills discounted. The manner of transacting the dis- 
 counting business at the bank is this : the discounter opens a banking 
 account with the bank, and usually keeps a smail balance upon it ; 
 when he sends bills to be discounted, those bills, if the bank consents to 
 discount them, are placed to the credit of his banking account ; and 
 when he draws for them, or for any part of them, the bearer of his draft 
 receives the amount of it in bank notes. The numerous balances, there- 
 fore (in general small ones), which the discounters keep with the bank, 
 are included, no doubt, in the bank account, under the head of deposits, 
 and form a part of the second item in the statement above. The sum 
 which I have considered as deposited in the bank, by those who take 
 
 68 
 
Paper Credit. 205 
 
 It will much illustrate what is about to be added, if the 
 following observations respecting these three several heads of 
 disposeable effects are here made. 
 
 First, let it be remarked, that the first sum of 3,800,0007. 
 does not fluctuate ; it only increases gradually, and in a small 
 degree. 
 
 Secondly. The second sum of 5,100,0007. fluctuates pro- 
 bably but little ; and as far as it does so, it fluctuates not at 
 the pleasure of the bank, but at the will of its customers. 
 
 Thirdly. The third, then, is the only one of the three 
 component parts of the disposeable effects of the bank which 
 it is in the power of the bank to increase or diminish at its 
 own option. The bank exercised their power of diminishing 
 this article, at the time in question, so far as to bring it down 
 to about 8,600,0007. To reduce it thus far was, as has been 
 repeatedly stated, to reduce it, perhaps, somewhat too much; 
 but let us assume only, that the reduction was sufficient, or 
 nearly sufficient. The bank, then, it must be admitted, had 
 17,500,0007. of disposeable effects, and it was not to be 
 ascribed to them as a matter of blame that these effects then 
 stood at about the sum at which they did. 
 
 Having, then, these effects, and being under a necessity 
 of disposing of them in some way or other, let us state next 
 how they did in fact employ them. 
 
 In proceeding to make this statement, it will be necessary, 
 with a view to the object for which it is made, to name some 
 specific sum (it matters not whether more or less than the 
 real one) for the amount of that part of the effects of the 
 bank which was, on the 25th February, 1797, invested in 
 bullion. In the account rendered to parliament, the value 
 of the bullion and of the bills discounted, &c. are put to- 
 gether, and are stated at nearly seven millions. Let it be 
 supposed that the bullion was either one, two, or three mil- 
 lions ; and that the bills discounted, &c. were, therefore, 
 
 away the notes, they opening no account, is not termed deposits in the 
 bank statement. I have, however, thought it necessary so to term it, in 
 order to make the subject the more clear to the reader. 
 
 69 
 
206 Thornton on 
 
 either four, five, or six millions. The mode of disposing of 
 the 17,500,0007. will then be as follows. 
 
 The bank invested in government securities, that is, in exchequer 
 bills, in loans to government made on the security of the land and malt 
 tax which was coming in, and in treasury bills of exchange growing 
 due, about - - L.10,500,000 
 
 They invested, as shall for the present be assumed in 
 conformity to the estimate which it was before proposed 
 to make, "in bills discounted to the merchants," in what 
 is termed in their account, " money lent," and in some 
 other (probably small) " articles," - 4,000,000 
 
 And they had property invested in bullion, as shall for 
 the present be assumed, amounting to ' - 3,000,000 
 
 Making together, as the investment necessarily must, 
 the same sum exactly which the disposeable effects were 
 before stated to amount to, namely - L.I 7,500,000 
 
 This same account of the investment may be given more briefly 
 and conveniently for our present purpose, in the following manner, viz. 
 the total sum lent both to government and to individuals, or, in other 
 words, the total loans were - L.14,500,000 
 
 The total of the bullion was - 3,000,000 
 
 Making together - - L.I 7,500,000 
 
 It will now be obvious to the reader, that if the bullion, 
 instead of three millions, is supposed to have been only two 
 millions, then the total of the loans must be supposed to be 
 increased one million ; and that if the bullion, instead of 
 three millions, is supposed to be only one million, then the 
 loans must be supposed to be increased two millions. 
 
 In other words, the account of the investment may either be stated 
 as has been just done, or it may be stated as follows : 
 
 Total loans - - - LI 5,500,000 
 
 Bullion - 2,000,000 
 
 Making together, as before, - - - 17,500,000 
 
 Or total loans ----- 16,500,000 
 Bullion 1,000,000 
 
 Making together, as before, - - L.I 7,500,000 
 
 It thus appears, that the loans necessarily must increase in propor- 
 tion as the gold decreases, provided the disposeable effects remain the 
 
 It follows, on the principle which has just been explained, 
 that if we suppose, as we necessarily must, the bullion to 
 have been, twelve months before the time of the suspension 
 of the cash payments of the bank, much higher than at the 
 
 70 
 
Paper Credit. 207 
 
 period of the suspension, the loans would, during the course 
 of those twelve months, necessarily increase. Let us (for the 
 sake of illustration) suppose the gold to have been a year 
 before the suspension eight millions, and to have fallen on the 
 26th February, 1797, to the sum of two millions. In that 
 case, if we were to suppose the disposeable effects of the 
 bank to have been at both periods the same, there must 
 necessarily have been, in the course of the year, an increase 
 of the bank loans of no less than six millions. But the effects 
 of the bank were not quite the same at the two periods. 
 They probably were higher by about two millions at the 
 former period ; for the notes were higher by nearly that sum. 
 The notes, then, fell in the year two millions, but the bullion 
 fell six. The loans, therefore, would be decreased two mil- 
 lions through the decrease of notes ; but would be increased 
 six millions through the decrease of bullion ; that is, they would 
 necessarily be increased, in. the course of the year, four mil- 
 lions. I have dwelt thus particularly on this circumstance, 
 because the whole of the suspicion, that the magnitude of 
 the bank loans were the cause of the failure of its cash, seems 
 to me to rest upon it. The largeness of those loans was not 
 the cause of the guineas going from them, as has been ordi- 
 narily supposed ; it was the effect. Nothing could be more 
 natural than for the public to call that the cause, in this 
 instance, which was the effect, and that the effect which was 
 the cause. In the case of private persons it is often very 
 justly said, that a man fails in his payments because he has 
 lent so largely ; and it would seem very strange to reply that 
 this was not the case, for that the man in question had found 
 it necessary to lend largely, because his cash failed him ; 
 and that the failure of the cash was the cause, and the lend- 
 ing merely an effect. That, however, which could not be 
 affirmed of an individual, is true in the case of the bank, and 
 the circumstances which give occasion for this peculiarity in 
 our reasonings respecting that institution, are these two ; 
 first, the difficulty in obtaining a supply of guineas which 
 the bank experiences, a difficulty totally unknown to indivi- 
 duals who draw their guineas from the bank itself; and, 
 
 71 
 
208 Thornton on 
 
 secondly, the singular necessity under which the bank is 
 placed of maintaining at all times its notes. 
 
 It was thought by some, that the interference on the part 
 of the government and parliament was improper, inasmuch 
 as the bank ought not to have been prevented from con- 
 tinuing ~to pay in cash as long as it had any remaining ability 
 to do so. Every bank note, it was urged, is a contract to 
 pay money entered into between the bank and the possessor 
 of it, in consequence of what has been deemed a valuable 
 consideration ; and no authority of parliament ought, except 
 in a case of the last necessity, to interpose itself to prevent 
 the fulfilment of such a contract. To this it seems to be a 
 fair answer to say, that the question is not whether any one 
 holder of a note shall have his claim to receive money for it 
 interfered with, but that it is a question respecting all the 
 holders of notes, as well as all other persons having a right to 
 demand any cash payments in any quarter whatever. Now, 
 there are few or no creditors who are not also debtors ; and 
 a very large proportion of debtors owe as much to others, 
 as others owe to them. Bankers and traders are greater 
 debtors than other men ; but they are also greater creditors. 
 The bank itself is a great creditor, its credits, indeed, being 
 far greater than its debts, and it is intitled to receive a part 
 of its debts almost immediately. The case, then, is this: a 
 comparatively very small portion of the persons having a 
 right to demand cash, are led, by sudden alarm, to urge their 
 claim for guineas to such an extent as to invest even a large 
 portion of their capital in that article of which a quantity 
 has been provided which is sufficient only for the purpose of 
 the ordinary kind of payments. All the cash in the world 
 would not satisfy claims of this sort, if all men, having a 
 right to urge them, were disposed equally to do so. The 
 very persons who press for these payments do not reflect, 
 that they themselves, perhaps, have creditors who might, 
 with equal justice, exact the immediate money payment of a 
 still larger debt against them. The law authorizing the sus- 
 pension of the cash payments of the bank, seems, therefore, 
 to have only given effect to what must have been the general 
 
 72 
 
Paper Credit, 209 
 
 wish of the nation in the new and extraordinary circum- 
 stances in which it found itself. If every bill and engage- 
 ment is a contract to pay money, the two parties to the 
 contract may be understood as agreeing, for the sake of a com- 
 mon and almost universal interest, to relax as to the literal 
 interpretation of it, and as consenting that "money should 
 " mean money's worth," and not the very pieces of metal : 
 and the parliament may be considered as interposing in order 
 to execute this common wish of the public. 
 
 By authorising the suspension of the ca.sh payments of 
 the bank, while a certain quantity of guineas still remained 
 in its coffers, the parliament, moreover, much diminished the 
 shock which this extraordinary event might naturally be 
 expected to occasion ; and also provided the means of 
 furnishing the guineas actually necessary after that sera for 
 some smaller current payments, as well as the means of 
 securing the credit of bark notes, thus rendering them a 
 more valuable medium of exchange for goods, and a fairer 
 substitute for guineas than they might otherwise have been. 
 The parliament, then, were led by the practical view which 
 they took of the subject, to disregard theory, as well as 
 some popular prejudice, for the sake of more effectually 
 guarding the public safety, and promoting real justice. 
 
 The danger chiefly to be apprehended in London, was, 
 that the common class of people, not receiving their pay in 
 the usual article of coin, and not knowing at the first that 
 one and two pound notes would purchase every thing in the 
 same manner as gold, might be excited to some tumultuous 
 proceedings. It was also feared that, through the discredit 
 cast on small notes by the common people, this new paper 
 might fall, at the first issue of it, to a discount. It was 
 important, therefore, to continue for a time to pay the 
 labouring people in money ; and to circulate the new one 
 and two pound notes, in the first instance, by the medium 
 of the higher classes. Of the sum remaining in the bank, 
 a small part was issued to each of the bankers, after the 
 suspension took place, for the convenience of common work- 
 men. It was obviously desirable, that a farther sum should 
 
 73 
 
210 Thornton on 
 
 be reserved in the bank as a provision for any subsequent 
 and important uses. 
 
 Immediately after this event, the bank extended the 
 quantity of its notes nearly to the amount of the sum 
 usually in circulation : and not only was credit revived, but 
 in no long time guineas became remarkably abundant. The 
 bank, as is commonly supposed, was replenished with them. 
 And there is this infallible proof, that gold flowed into the 
 country; that the course of exchange became much in 
 favour of it. 
 
 CHAP. V. 
 
 Of the Balance of Trade Of the Course of Exchange- 
 Tendency of an unfavourable Exchange to take away Gold 
 Of the Probability of the Return of Gold Of the 
 Manner in which it may be supposed that exported Gold is 
 employed on the Continent Reasons for having renewed the 
 Law for suspending the Cash Payments of the Bank of 
 England. 
 
 THE law which authorised the suspension of the cash 
 payments of the bank having been re-enacted ; the high 
 price of provisions having given occasion to much specu- 
 lation on the subject of paper credit ; the course of exchange 
 having again turned greatly against the country ; and gold 
 having to a material degree disappeared, its place being 
 occupied by small paper notes; it is not surprising that 
 suspicions of the necessity of an alteration in the system of 
 our paper credit should have become prevalent. Some con- 
 sideration shall here be given to that unfavourable state of 
 the exchange between this country and Europe, which 
 operated during the last two years of the war, in again 
 drawing away our guineas. 
 
 It may be laid down as a general truth, that the com- 
 mercial exports and imports of a state (that is to say, the 
 exported and imported commodities, for which one country 
 
 74 
 
Paper Credit. 211 
 
 receives an equivalent from another) naturally proportion 
 themselves in some degree to each other; and that the 
 balance of trade, therefore (by which is meant the differ- 
 ence between these commercial exports and imports), can- 
 not continue for a very long time to be either highly favour- 
 able or highly unfavourable to a country. For that balance 
 must be paid in bullion, or else must constitute a debt. To 
 suppose a very great balance to be paid, year after year, in 
 bullion, is to assume such a diminution of bullion in one 
 country, and such an accumulation of it in another, as are 
 not easy to be imagined : it may even be questione'd whether 
 the commercial prosperity of a state does not tend, on the 
 whole, to reduce, rather than augment, the quantity of gold 
 in use, through that extension of paper credit to which it 
 leads. To suppose large and successive balances to be 
 formed into a debt, is to assume an accumulation of debt, 
 which is almost equally incredible. A prosperous nation 
 commonly employs its growing wealth, not so much in 
 augmenting the debts due to it from abroad, as in the 
 enlargement of its capital at home ; I mean, in the culti- 
 vation of its lands, in the encrease of its buildings, the 
 extension of its machinery, the multiplication of its docks 
 and its canals, and in a variety of other improvements, which 
 become the sure sources of an encreasing income. The 
 state may be progressive in these respects, even in years in 
 which the balance of trade is unfavourable. There is a 
 customary length of credit in foreign parts which the British 
 exporter, however overflowing his capital may be, is not 
 very willing to enlarge. And events fail not occasionally to 
 arise, which remind him of the danger of committing too 
 great a portion of his property into the hands of those who 
 are not subject to the same laws with himself; and whose 
 country may suddenly be involved, at any moment, in a war 
 with Great Britain. 
 
 The equalization of the commercial exports and imports 
 is promoted not only by the unwillingness of the richer 
 state to lend to an unlimited extent, but also by a disin- 
 clination to borrow in the poorer. There is in the mass of 
 
 75 
 
212 Thornton on 
 
 the people, of all countries, a disposition to adapt their 
 individual expenditure to their income. Importations con- 
 ducted with a view to the consumption of the country into 
 which the articles are imported (and such, perhaps, are the 
 chief importations of a poor country), are limited by the 
 ability of the individuals of that country to pay for them 
 out of their income. Importations, with a view to subse- 
 quent exportation, are in like manner limited by the ability 
 to pay which subsists among the individuals of the several 
 countries to which the imported goods are afterwards 
 exported. The income of individuals is the general limit 
 in all cases. If, therefore, through any unfortunate circum- 
 stance, if through war, scarcity, or any other extensive 
 calamity, the value of the annual income of the inhabitants 
 of a country is diminished, either new economy on the one 
 hand, or new exertions of individual industry on the other, 
 fail not, after a certain time, in some measure, to restore the 
 balance. And this equality between private expenditures 
 and private incomes tends ultimately to produce equality 
 between the commercial exports and imports. 
 
 But though the value of the commercial exports and 
 imports of a country will have this general tendency to 
 proportion themselves to each other, there will not fail 
 occasionally to arise a very great inequality between them. 
 A good or a bad harvest, in particular, will have a con- 
 siderable influence in producing this temporary difference. 
 The extra quantity of corn and other articles imported into 
 Great Britain in this and the last year, with a view to 
 supply the deficiency of our own crops, must have amounted 
 in value to so many millions, that it may justly excite 
 surprise that we should have been able, during an expen- 
 sive war, to provide the means of cancelling our foreign 
 debt so far even as we have done ; especially when the 
 peculiar interruptions to our commerce are also considered. 
 In this country, however, as in all others, the two principles 
 of economy and exertion are always operating in proportion 
 to the occasion for them. But the economy and exertion 
 follow rather than accompany the evil which they have to 
 
 76 
 
Paper Credit. 213 
 
 cure. If the harvest fails, and imports are necessary, in 
 order to supply the deficiency, payment for those imports is 
 almost immediately required : but the means of payment 
 are to be supplied more gradually through the limitation of 
 private expenditure, or the encrease of individual industry. 
 Hence a temporary pressure arises at the time of any very 
 unfavourable balance. To understand how to provide 
 against this pressure, and how to encounter it, is a great 
 part of the wisdom of a commercial state. 
 
 By the commercial exports and imports which have been 
 spoken of, those articles have been intended for which an 
 equivalent is given ; not those which form a remittance, for 
 which nothing is obtained in exchange. Many of our 
 exported and some of our imported commodities are of that 
 class which furnish no return. 
 
 For example, numerous stores were shipped, during the 
 war, for the support of our navy and army in foreign parts. 
 Remittances were made, in the way of loan and subsidy, to 
 our allies. Some dividends may be supposed to have been 
 transmitted to the foreign proprietors of British stock. 
 Much property is also sent out of the kingdom, which con- 
 stitutes a capital employed in the cultivation of lands in the 
 West Indies. On the other hand, capital is transmitted to 
 Great Britain from the East Indies, both by the India 
 Company and by individuals. 
 
 Although exports and imports of this class form no part 
 of the commercial exports and imports which have been 
 spoken of, they affect the quantity of those commercial 
 exports and imports, and they contribute, exactly like the 
 circumstance of a bad harvest, to render the balance of 
 trade unfavourable ;* they tend, that is to say, in the same 
 
 * This point may be illustrated in the following manner : 
 Let us suppose a subsidy, for example, of two millions to be remitted 
 to the Emperor of Germany, through the medium of bills to that 
 amount, directed to be drawn by Vienna on London. By these bills, 
 Great Britain is laid under a necessity of exporting two millions, either 
 of goods or of bullion, or of both, for which no foreign commodities will 
 be given in return. These two millions of exports diminish our fund 
 of exportable goods ; and they also satisfy a part of the foreign demand 
 for British articles. They tend, in both these respects, to reduce the 
 
 77 
 
214 Thornton on 
 
 manner, to bring Great Britain into debt to foreign coun- 
 tries, and to promote the exportation of our bullion. Our 
 mercantile exports and imports, nevertheless, by whatever 
 means they may be rendered disproportionate, necessarily 
 become, in the long run, tolerably equal; for it is evident 
 that there is a limit, both to the debt which foreigners will 
 permit British merchants to incur, and also to the quantity 
 of British bullion which is exportable. 
 
 Gold has been spoken of in this Chapter as that article 
 by which a balance of trade is discharged, and not as itself 
 constituting a commodity. Gold, however, when exported 
 and imported, may be considered in the same light with all 
 other commodities; for it is an article of intrinsic* value: 
 its price, like that of other commodities, rises and falls 
 according to the proportion between the supply and the 
 demand; it naturally seeks, like them, that country in 
 which it is the dearest ; and it is, in point of fact, like them, 
 exported by our merchants accordingly as the export or 
 import is likely to yield a profit. Some description of the 
 circumstances which cause the export of gold to become 
 a profitable speculation to the merchant may serve to illus- 
 trate this subject. 
 
 When a bill is drawn by one country on another by 
 Hamburgh, for instance, on London it is sold (or dis- 
 
 quautity of goods which can be exported by us in the way of ordinary 
 commerce, and to turn the balance of trade against us. Capital trans- 
 ferred to our colonies, dividends transmitted to foreigners, and articles 
 shipped for the use of our fleets and armies, contribute in the same 
 manner as foreign subsidies to render the balance of trade unfavourable. 
 It may be added, that articles consumed at home, in the support of 
 similar fleets and armies, as well as all other expenditure in Great 
 Britain, must have the same general tendency. 
 
 It may be worthy of remark, that since an additional internal 
 expenditure, in the same manner as the remittance of a subsidy to 
 foreign parts, contributes to an unfavourable balance of trade, and 
 therefore, also, to the exportation of our gold, it follows, that, if the 
 remittance of a small subsidy tends to produce at home a large saving ; 
 if, for instance, it spares the expense of maintaining a great naval and 
 military force for the defence of our own island, through the continental 
 diversion to which it leads, the subsidy may conduce to render our 
 balance of trade more favourable ; and may, on the whole, prevent 
 rather than promote the exportation of our coin A circumstance which, 
 in considering the policy of furnishing an aid to foreign allies, is not 
 always taken into contemplation. 
 
 78 
 
Paper Credit. 215 
 
 counted) in the place in which it is drawn, to some person 
 in the same place ; and the buyer or discounter gives for 
 the bill that article, whatever it may be, which forms the 
 current payment of the spot. This article may consist 
 either of gold or silver coin, or of bank paper, or, which is 
 much the same thing as bank paper, of a credit in the books 
 of some public bank. 
 
 Let us now suppose that the exporter of corn from 
 Hamburgh to London draws a bill for 100/. on London, and 
 offers it for sale on the Hamburgh Exchange at the season 
 when great exportations of corn to London are taking place. 
 The persons in Hamburgh having occasion to buy bills are 
 fewer, in such a case, than those who want to sell them ; 
 and the price of the bill, like that of any other article, 
 fluctuates according to the proportion subsisting between 
 the supply and the demand. The disproportion, then, 
 between the number of those persons at Hamburgh who 
 want to sell London bills for Hamburgh coin, and the 
 number of those who want to sell Hamburgh coin for 
 London bills, causes the price of London bills to fall, and of 
 Hamburgh coin to rise. Thus gold is said to rise at Ham- 
 burgh ; and the exchange between London and Hamburgh 
 becomes unfavourable to London. This fluctuation in the 
 exchange will, in the first instance, be small. It will be 
 limited to that trifling sum which it costs to transport 
 bullion from the one place to the other, so long as there is 
 bullion to be transported. But let us now suppose the 
 number of Hamburgh bills on London, drawn for the 
 payment of the goods imported into the latter place, to be 
 so numerous, that the exportation of all the bullion which is 
 purchasable in Great Britain, has not sufficed for their 
 payment. Gold coin, in this case, will be exported, being 
 first melted down for the purpose. Coin, indeed, is not 
 allowed to be exported from Great Britain, nor gold which 
 has been melted down from coin ; an oath being required of 
 every exporter of gold, that the gold which he exports does 
 not consist of guineas which have been melted. There are, 
 however, many ways of escaping the law which imposes 
 
 79 
 
216 Thornton on 
 
 this oath. The law is dishonestly evaded either by the 
 clandestine exportation of guineas, no oath at all being 
 taken ; or by taking a false oath ; or by contriving that the 
 person taking the oath shall be, in some degree, ignorant of 
 the melting which has been practised. The operation of the 
 law is avoided without this dishonesty, through the expor- 
 tation of gold which had been turned, or had been about to 
 be turned, to the purposes of gilded and golden ornaments, 
 the place of this gold being supplied by gold melted down 
 from coin. The state of the British law unquestionably 
 serves to discourage and limit, though not effectually to 
 hinder, that exportation of guineas which is encouraged by 
 an unfavourable balance of trade; and, perhaps, scarcely 
 lessens it, when the profit on exportation becomes very 
 great. The law tends, indeed, to produce a greater inter- 
 change of gold for paper at home. But it encreases what- 
 ever evil arises from an unfavourable state of the exchange 
 with foreign countries. 
 
 Let it now be considered how this high price of gold in 
 London must operate in respect to the Bank of England. 
 Great demands for guineas will be made on the bank ; and, 
 in general, probably by persons not intending to melt or 
 export guineas themselves, but wishing only to supply that 
 want which all have begun to experience in consequence of 
 the large illicit exportations carried on by a few unknown 
 persons. It is assumed, for the present, that the bank is 
 paying in guineas. What, then, is the course which the 
 bank will naturally pursue ? Finding the guineas in their 
 coffers to lessen every day, they must naturally be supposed 
 to be desirous of replacing them by all effectual and not 
 extravagantly expensive means. They will be disposed, to a 
 certain degree, to buy gold, though at a losing price, and to 
 coin it into new guineas ; but they will have to do this at the 
 very moment when many are privately melting what is 
 coined. The one party will be melting and selling, while 
 the other is buying and coining. And each of these two 
 contending businesses will now be carried on not on account 
 of an actual exportation of each melted guinea to Hamburgh, 
 
 80 
 
Paper Credit. 217 
 
 but the operation (or, at least, a great part of it) will be 
 confined to London ; the comers and the melters living on the 
 same spot, and giving constant employment to each other. 
 
 The bank, if we suppose it, as we now do, to carry on 
 this sort of contest with the melters, is obviously waging a 
 very unequal war ; and even though it should not be tired 
 early, it will be likely to be tired sooner than its adversaries. 
 
 The dilemma in which the bank is thus placed, is evi- 
 dently one which implies no deficiency in its wealth, in its 
 credit, or in the strength of its resources. The public, 
 during all this time, may have the highest confidence in it. 
 The notes of the bank may be of the same number as usual, 
 possibly somewhat lower in number ; its capital and savings 
 may be immensely great, and perfectly well known; its 
 stock may be selling at much above par ; its clear annual 
 profits may be considerable. Its gold, nevertheless^ through 
 the operation of that one cause which has just been named, 
 may be growing less and less. And it is not at all impos- 
 sible, if an alarm at home should draw away the gold at the 
 same time, that, however ample its general fund may have 
 been, it may be reduced to its last guinea ; and may actually 
 be brought under the necessity of making a temporary 
 suspension of its payments. 
 
 An important subject of enquiry here suggests itself. 
 Dr. Smith, as was remarked in the beginning of the former 
 chapter, in some degree leads his reader to assume the Bank 
 of England to be in fault (that is, to have issued too many 
 notes) whenever an excess of the market price above the 
 mint price of gold takes place, an excess which produces, as 
 shall immediately be shewn, that difficulty, in replenishing 
 the coffers of the bank which has been recently described. 
 If the observation of Dr. Smith be, without exception or 
 qualification true, then the quantity of paper issued by the 
 Bank of England has undoubtedly been excessive through- 
 out the last two years ; for the excess of the market price 
 above the mint price of gold has been, during that time, 
 considerable. Then, also, it is the bank which has placed in 
 its own way that obstacle to the purchase of gold which has 
 
 81 
 
218 Thornton on 
 
 been spoken of. Any enquiry tending to indicate the 
 causes which place the bank under this singular difficulty, 
 seems to be important. 
 
 I shall here endeavour clearly to explain what is meant 
 by the high and the low price of gold; and also by that 
 difference between the mint price and the market price, 
 which has such material consequences. 
 
 Gold must be considered as dear, in proportion as goods 
 for which it is exchangeable are cheap ; and as cheap, in 
 proportion as goods are dear. Any circumstance, therefore, 
 which serves to make goods generally dear must serve to 
 make gold generally cheap, and vice versa ; and any circum- 
 stance which serves to make goods dear at any particular 
 time or place, must serve to make gold cheap at that time 
 or place, and vice versa. 
 
 The reason of the difference between the mint price and 
 the market price of gold, does not easily occur. If the bank, 
 from time to time, buys gold at a high price, that is, if it 
 gives for gold a large quantity of goods (or something con- 
 vertible into a large quantity, which is the same thing) ; it 
 is natural, on the first view, to suppose that the high price 
 given by the bank, which is the principal and almost the 
 only English purchaser, must form the current English 
 price ; and that this high current price of gold in England 
 will prove the means both of bringing it hither, and of 
 detaining it here; causing goods, which are cheap, to go 
 abroad ; and gold, which is dear, to come hither, and also to 
 remain in the country. Undoubtedly gold would remain in 
 England, when tempted hither by t'le high price given for 
 it by the bank, if it were not for the following circumstance. 
 Gold is bought by the bank, in order to be converted into 
 coin; and, when turned into coin, it forms a part of the 
 circulating medium of the country, paper constituting 
 another part. If, then, this paper is by any means rendered 
 cheap, and if the paper so rendered cheap is currently inter- 
 changed for one sort of gold, namely, for gold which has 
 been coined, then the coined gold will partake in the cheap- 
 ness of the paper ; that is, it will buy, when in the shape of 
 
 82 
 
Paper Credit. 219 
 
 coin, a smaller quantity of goods than it will purchase when 
 in the form of bullion. In other words, an ounce of gold 
 coming from the mint in the shape of guineas, and making 
 3/. 17*. 10 \d. (for that is the sum into which an ounce always 
 is coined at the mint), will be worth less than the same 
 ounce of gold was worth before it went to the mint, and 
 less than it would again be worth if converted back into 
 bullion. There arises, therefore, a temptation to convert 
 back into bullion, and then to export ; or, which is the same 
 thing, to export, and then convert back into bullion ; or, 
 which is also the same thing, to convert back into bullion, 
 and then sell to the bank, at the price which would be 
 obtained by exportation, that gold which the bank had 
 turned from bullion into coin. In proportion as the diffi- 
 culty of collecting, melting, and sending abroad the gold 
 coin is augmented (and it encreases as the quantity of coin 
 diminishes), the difference between the mint and market 
 price of bullion will become more considerable, supposing 
 the demand for gold in foreign countries to continue. Thus 
 it is through the interchangeableness of gold coin with 
 paper, that gold coin is made cheap in England ; or, in 
 other words, that goods, in comparison with gold coin, are 
 made dear. The goods which are dear remain, therefore, in 
 England ; and the gold coin, which is cheap (for the bank is 
 indisposed to buy it, on account of the loss sustained on 
 each coinage,) goes abroad. 
 
 There is, undoubtedly, much ground for the supposition 
 of Dr. Smith, that a diminution of the quantity of paper has 
 a tendency to cure this evil. It tends to render the paper 
 more valuable, and, therefore, to make that gold coin more 
 valuable for which the paper is interchangeable, and thus to 
 destroy that excess of the market price above the mint price 
 of gold, which forms the obstacle to the introduction of a 
 supply of gold into the coffers of the bank. There seems, 
 nevertheless, to be much of inaccuracy and error in the doc- 
 trine of Dr. Smith on this subject. He begins by representing 
 the quantity of paper which may properly circulate, as to be 
 measured by that of the gold which would circulate if there 
 
 83 
 
220 Thornton on 
 
 were no paper. The reader is, therefore, led to believe, 
 that a difference between the mint price and the market 
 price of gold arises from an issue of a greater quantity. Dr. 
 Smith also too much countenances an idea, that the excess 
 consists of paper forced into circulation ; for he terms the 
 proper quantity that paper which will " easily circulate." 
 He, moreover, induces his reader to suppose, that the exces- 
 sive issue is an issue to a more than usual amount. At the 
 time of a very unfavourable balance of trade (an event which 
 Dr. Smith leaves totally out of his consideration), it is very 
 possible, as I apprehend, that the excess of paper, if such it 
 is to be called, is merely an excess above that very low and 
 reduced quantity to which it is necessary that it should be 
 brought down, in order to prevent the existence of an excess 
 of the market price above the mint price of gold. I con- 
 ceive, therefore, that this excess, if it arises on the occasion 
 of an unfavourable balance of trade, and at a time when 
 there has been no extraordinary emission of notes, may fairly 
 be considered as an excess created by that unfavourable 
 balance, though it is one which a reduction of notes tends to 
 cure. 
 
 The fair statement of the case seems to be this. At the 
 time of a very unfavourable balance (produced, for example, 
 through a failure of the harvest), a country has occasion for 
 large supplies of corn from abroad : but either it has not the 
 means of supplying at the instant a sufficient quantity of 
 goods in return, or, which is much the more probable case, 
 and the case which I suppose more applicable to England, 
 the goods which the country having the unfavourable balance 
 is able to furnish as means of cancelling its debt, are not in 
 such demand abroad as to afford the prospect of a tempting 
 or even of a tolerable price ; and this want of a demand may 
 happen possibly through some political circumstance which 
 has produced, in a particular quarter, the temporary inter- 
 ruption of an established branch of commerce. The country, 
 therefore, which has the favourable balance, being, to a cer- 
 tain degree, eager for payment, but not in immediate want 
 of all that supply of goods which would be necessary to pay 
 
 84 
 
Paper Credit. 221 
 
 the balance, prefers gold as part, at least, of the payment ; 
 for gold can always be turned to a more beneficial use than 
 a very great overplus of any other commodity. In order, 
 then, to induce the country having the favourable balance to 
 take all its payment in goods, and no part of it in gold, it 
 would be requisite not only to prevent goods from being very 
 dear, but even to render them excessively cheap. It would 
 be necessary, therefore, that the bank should not only not 
 encrease its paper, but that it should, perhaps, very greatly 
 diminish it, if it would endeavour to prevent gold from going 
 out in part of payment of the unfavourable balance. And 
 if the bank do this, then there will arise those other ques- 
 tions, which Dr. Smith leaves totally out of his consideration; 
 namely, whether the bank, in the attempt to produce this 
 very low price, may not, in a country circumstanced as Great 
 Britain is, so exceedingly distress trade and discourage 
 manufactures as to impair, in the manner already specified, 
 those sources of our returning wealth to which we must 
 chiefly trust for the restoration of our balance of trade, and 
 for bringing back the tide of gold into Great Britain. It is 
 also necessary to notice in this place, that the favourable 
 effect which a limitation of bank paper produces on the ex- 
 change is certainly not instantaneous, and may, probably, 
 only be experienced after some considerable interval of time; 
 it may, therefore, in many cases, be expected that the 
 exchange will rectify itself before the reduction of bank 
 paper can have any operation. It is also to be recollected 
 (a point, indeed, which Dr. Smith himself states), that gold 
 is retained or drawn away, not by the limitation or the 
 encrease of the Bank of England paper alone, but by that 
 of their paper, conjointly with that of the other paper of the 
 country. The bank paper serves, it is true, to regulate, in a 
 great degree, that other paper ; but not with exactness. The 
 bank, by proceeding to that reduction of its own paper which 
 is necessary to bring gold into the country, may possibly 
 annihilate, before it is aware, a part or even almost the whole 
 of the circulating country bank notes, and much other paper 
 also ; and it may, in that case, have to supply gold sufficient to 
 
 85 
 
222 Thornton on 
 
 fill the whole void, perhaps more than the whole void, which it 
 has created; for it maybe called upon to furnish large additional 
 sums which may forthwith be hoarded in consequence' of the 
 alarm thus occasioned. Hence, even though it should encrease 
 the supply of gold from abroad ; it may augment, in a far 
 greater degree, the demand for it at home. For this reason, it 
 may be the true policy and duty of the bank to permit, for a time, 
 and to a certain extent, the continuance of that unfavourable 
 exchange, which causes gold to leave the country, and to be 
 drawn out of its own coffers: and it must, in that case, 
 necessarily encrease its loans to the same extent to which 
 its gold is diminished. The bank, however, ought generally 
 to be provided with a fund of gold so ample, as to enable it 
 to pursue this line of conduct, with safety to itself, through 
 the period of an unfavourable balance ; a period, the duration 
 of which may, to a certain degree, be estimated, though dis- 
 appointment in a second harvest may cause much error in 
 the calculation. 
 
 The more particular examination of this subject of an 
 unfavourable exchange, brings us, therefore, to the same 
 conclusion to which we were led in the former Chapter; 
 namely, that the bank ought to avoid too contracted an issue 
 of bank notes. The absence of gold, though itself an evil, 
 may prevent other evils of greater moment ; and may thus 
 conduce, under certain circumstances, to the good of the 
 country. Our gold has lately furnished the prompt payment 
 for a part of that corn, which has been necessary for our 
 consumption. The common manufacturer, if he understood 
 his own interest, would approve rather than complain of the 
 temporary substitution of paper for gold, which has been 
 thus occasioned : for the export of gold has served to ease 
 him in the first instance : his labour, indeed, must hereafter 
 purchase back again the gold which has been exported, but 
 he will have to buy it back by exertions less severe than 
 would otherwise have been needful. The price of the goods 
 which he manufactures, and, consequently, the price also of 
 his own labour, is rendered somewhat higher by not glutting 
 the foreign market with a quantity of articles altogether 
 
 86 
 
Paper Credit. 223 
 
 disproportionate to the demand. It should farther be re- 
 membered, that gold is an unproductive part of our capital : 
 that the interest upon the sum exported is so much saved to 
 the country : and that the export of gold serves, as far as it 
 goes, to improve the exchange, by discharging the debt due 
 on account of an unfavourable balance of trade ; and to 
 prevent the depreciation of our own paper currency, as com- 
 pared with the current money payments of other countries. 
 
 It may probably be thought that the exported gold will 
 not return. This subject may deserve a careful enquiry. It 
 should be observed, in the first place, that, in order to pro- 
 duce an improvement in the exchange, we have only to 
 suppose the present degree of the pressure for payment of 
 goods imported to abate. It may happen, for instance, that 
 in consequence of Hamburgh having become richer through 
 the favourable harvest enjoyed in the surrounding countries, 
 and through the high price obtained for its exported corn, 
 while Britain has become poorer ; the antecedent custom of 
 Hamburgh merchants being in debt to London merchants 
 may change, and a contrary custom may become prevalent. 
 If this new debt of London to Hamburgh should be per- 
 mitted to exist in the same manner as the Hamburgh debt 
 may be supposed to have existed before, the exchange will 
 not be affected by it. The debt which affects the exchange 
 is only that sort of debt, the payment of which is more or 
 less eagerly demanded. A country, therefore, seems likely 
 soon to arrive at a limit in this respect. It has only to 
 diminish not the debt itself, but the pressure of the demand 
 for payment, and the exchange begins to mend. Let the 
 two countries become equally satisfied to allow the debt to 
 continue as it is, and the exchange finds its level. Again ; 
 let the country in debt prove itself to be somewhat more 
 desirous to pay its debt, a debt of course running at interest, 
 than the creditor country is to receive payment ; and the 
 exchange will be even in favour of the debtor country. 
 
 It may naturally be enquired what becomes of the gold 
 which has been supposed to go from this country to Ham- 
 burgh ; and how it comes to pass that it is there demanded 
 
 87 
 
224 Thornton on 
 
 in such large quantities. When Britain has already spared 
 out of its circulation, and out of the coffers of its principal 
 bank, many millions, perhaps, of gold ; whence happens it 
 that Europe, having only the same trade as before, uses all 
 that is sent, and continues to call, by means of the exchange, 
 for a still encreasing supply ? 
 
 I understand that, at the period of every very favourable 
 exchange to Hamburgh, most of the gold poured in thither is 
 melted down into the several sorts of coin which are current 
 on the continent ; and that it then becomes an article of 
 remittance to various places. It is, of course, remitted to 
 those parts in which the balance of trade with Hamburgh is 
 unfavourable to that city. Still, however, the difficulty of 
 accounting for the new and general demand for gold seems 
 to remain. The following considerations may afford some 
 solution of it. When the trade of the world, or of many 
 separate and considerable places, is more than usually fluc- 
 tuating, as in times of political uncertainty or convulsion it 
 can hardly fail to be, a larger quantity of gold is wanted 
 than when confidence is high, and when the several exports 
 and imports of different countries more nearly balance each 
 other. Gold, during any extraordinary irregularity in trade 
 between independent states, is the most commodious of all 
 articles of remittance. It is a species of return which 
 Hamburgh, for instance, can send to every place from which 
 its spirit of speculation may have called for articles of com- 
 merce. It is, indeed, only the balance of the accounts which 
 is paid in money ; but, at different times, there may be 
 balances of different sizes to be thus discharged. Whatever 
 event, therefore, so disturbs the course of trade over the 
 continent as to cause an encrease in the balances of the 
 trade of independent countries, seems likely to cause an 
 augmentation of the general demand for gold. But the 
 general demand for gold is also affected by the degree of 
 confidence at the same time subsisting. It has been already 
 shewn, that the quantity of gold requisite for the circulation 
 of any single country may be very different at different 
 periods, and that the difference is proportioned to the degree 
 
 88 
 
Paper Credit. 225 
 
 of confidence between man and man existing at the several 
 seasons. The quantity of gold wanted for the general trade 
 of the world may also fluctuate, in some degree, from the 
 same cause. It is, however, likely also to vary from a 
 variation in the confidence subsisting between independent 
 countries. For the sake of illustration, let us suppose that 
 Hamburgh owes to some town in Prussia, one hundred miles 
 distant, 100,0007. sterling, in consequence of an unfavour- 
 able balance of trade occasioned by corn purchased there, 
 and exported by Hamburgh merchants to London; a balance 
 which, if the creditors in the Prussian town were willing to 
 wait six months, would probably by that time be repaid, and 
 even more than repaid, through the importation into the same 
 town of West India articles which Hamburgh would have 
 received within that period from Great Britain. If con- 
 fidence is high, the merchants of this town will be content, 
 for the sake, perhaps, of an addition of one per cent, to the 
 stipulated interest, to permit, the debt to remain unextin- 
 guished for the six months ; and in this case the course of 
 exchange between the Prussian town and Hamburgh will 
 alter to the extent of one per cent. But if, through the 
 want of confidence subsisting between the Prussian town 
 and Hamburgh, an addition not of one, but of two per cent, 
 to the current interest should be considered to be the adequate 
 compensation for the risk incurred, the exchange will fluctu- 
 ate two per cent. ; and a variation of two per cent, in the 
 exchange will produce, let it be supposed, to the Hamburgh 
 debtors a greater loss than would be incurred by the expence 
 of transporting 100,000/. in gold to the Prussian town in 
 question. Gold is, therefore, in that case, transported. On 
 the two circumstances, taken together, of the largeness of 
 the balance between the independent places, and the degree 
 of confidence subsisting between them, appears to depend 
 the quantity of bullion required. It seems, therefore, by 
 no means difficult to account for the manner in which large 
 quantities of gold exported from this country may be 
 employed on the continent in seasons of general distrust, 
 
 89 
 
226 Thornton on 
 
 even though we should not suppose any great portion to be 
 hoarded. 
 
 Bullion to a very large amount was retained in the 
 Spanish settlements, during the latter period of the war, 
 through the fear of capture; and perhaps, therefore, we 
 might trace in part the want of gold, of which we have 
 complained, to those successful exertions in watching the 
 ports of the enemy which have been made by the British 
 navy. 
 
 The immediate cause, however, of the exportation of our 
 coin has been an unfavourable exchange, produced partly by 
 our heavy expenditure, though chiefly by the superadded 
 circumstance of two successively bad harvests. When the 
 recurrence of a favourable balance of trade is long delayed, 
 the fluctuation of the exchange may be expected to be not 
 an immaterial one. The exchange is, in some degree, sus- 
 tained for a time, which is thought likely to be short, through 
 the readiness of foreigners to speculate in it ; but protracted 
 speculations of this sort do not equally answer, unless the 
 fluctuation in the exchange is very considerable. If, for 
 example, a foreigner remits money to London, at a period 
 when the exchange has become unfavourable to England to 
 the extent of three per cent., places it at interest in the 
 hands of a British merchant, and draws for it in six months 
 afterwards, the exchange having by that time returned to its 
 usual level, he gains two and a half per cent, for a half year's 
 interest on his money, and also three per cent, by the course 
 of exchange, which is five and a half per cent, in half a year, 
 or eleven per cent, per annum. But if the same foreigner 
 remits money to England when the exchange has, in like 
 manner, varied three per cent., and draws for it not in six 
 months but in two years, the exchange having returned to 
 its usual level only at the end of that long period, the 
 foreigner then gains ten per cent, interest on his money, and 
 three per cent, by the exchange, or thirteen per cent, in two 
 years : that is to say, he gains in this case six and a half pel- 
 cent, per annum, but in the other eleven per cent, per 
 
 90 
 
Paper Credit. 227 
 
 annum. If a variation of three per cent, is supposed neces- 
 sary to induce foreigners to speculate for a period which is 
 expected to end in six months, a variation of no less than 
 twelve per cent, would be necessary to induce them to 
 speculate for a period which is expected to end in two years. 
 The improvement of our exchange with Europe having been 
 delayed through a second bad harvest, it is not surprising 
 that the expectation of its recovery within a short time 
 should have been weakened in the mind of foreigners. 
 Indeed, many circumstances,, some of which have been 
 already touched upon,* concurred, towards the conclusion of 
 the war, in rendering our exchange unfavourable. 
 
 Some gold, it may be presumed, was retained in the 
 bank coffers, which, if the cash payments of that company 
 had not been suspended, would have found its way to foreign 
 countries, and have contributed to remedy the existing 
 evil. 
 
 We depended chiefly, as will be shewn hereafter, on the 
 proper limitation of the quantity of our circulating paper, 
 though partly, also, on the degree of expectation which was 
 kept up abroad of the future improvement of our exchange; 
 an expectation which might be rendered greater or less by a 
 variety of circumstances. Great Britain has had this great 
 advantage over those countries which are in the habit either 
 of depreciating their coin or of allowing a discount on their 
 paper, that they, in anticipating the return of a more favour- 
 able state of their trade, look forward onlv to a time when 
 
 * A mistaken idea of the bank payments having been suspended 
 through the improper largeness of its loans to government, and of its 
 resembling the continental banks which have issued excessive quantities 
 of paper for the service of their several governments, was before stated 
 to be not unlikely to have prevailed abroad, too much countenance 
 having been given in this country to such a sentiment. Foreigners, if 
 such was their opinion, would conceive that our exchange was a per- 
 manently declining one, and that it would, therefore, answer better to 
 them to draw than to remit, and to draw immediately than to delay 
 drawing. The idea that foreign property might be seized in England 
 as an act of retaliation for the British property seized in the north of 
 Europe, may also have had some influence. The expectation of seizures 
 on each side would prejudice the exchange of whichever country was in 
 debt, and the country in debt happened to be Great Britain. 
 
 91 
 
228 Thornton on 
 
 their uncertain and unstable rate of exchange may be me- 
 liorated in a degree not easy to be calculated ; whereas we 
 have anticipated a period when an intrinsically valuable and 
 specific standard would be restored, when our banks would 
 be obliged to pay fully in guineas containing the same weight 
 of gold as before, and when our exchange, therefore, might 
 be expected completely to return to its former level. 
 
 Undoubtedly, circumstances of so great and extraordi- 
 nary a nature may arise as to prevent the return of gold at 
 an early or assignable period. It may, however, be safely 
 affirmed, that when the main sources of a country's wealth 
 are unimpaired ; when its population, its industry, its manu- 
 facturing and trading capital, its general commerce, its credit, 
 its colonial possessions, its political strength and independ- 
 ence, its laws and constitution remain ; and when, moreover, 
 its paper is confined within its accustomed bounds; the 
 absence of its gold, more especially if it be the obvious con- 
 sequence of one or more unfavourable seasons, is an evil 
 which is likely neither to be durable, nor in any respect very 
 important. ^ 
 
 Under such circumstances, to alter materially the old 
 and accustomed system of paper credit, and, in particular, to 
 restrain in any very extraordinary degree the issues of paper 
 of more responsible banks, is to deprive a country of those 
 means of recovering itself which it naturally possesses. This 
 seems to be the fair inference from the observations which 
 have been stated in the present and preceding Chapters. 
 The return of gold is to be promoted not so much by any 
 legislative measure directed to that immediate object, as by 
 cherishing the general industry, and attending to the higher 
 and more leading interests of the community. 
 
 It may be proper here to add, that the experience of past 
 times, both of war and peace, leads us to suppose, that the 
 exchange between Great Britain and foreign countries is not 
 likely to remain for any long period unfavourable to Great 
 Britain. Experience has likewise proved, that the return of 
 gold has not been precluded by the law which authorized 
 the continuance of the suspension of the cash payments of 
 
 92 
 
Paper Credit. 229 
 
 the bank ; for, while that law was in force, there occurred 
 one season during which gold flowed with a remarkably 
 strong tide into the country. 
 
 It seems scarcely necessary now to dwell on the reasons 
 which evince that the repeal of the law in question, in the last 
 period of the war, would have been inexpedient. It would 
 have been to repeal it at a time not a little resembling that 
 in which the parliament first thought proper to enact it : for 
 it would have been to repeal it when gold had been recently 
 drawn out of the country by an unfavourable exchange ; and 
 when we were subjected, as before, to alarms of invasion. 
 To have opened the bank would have been, moreover, to 
 have subjected it not only to a demand for gold on these two 
 accounts but also to such extra calls as might have arisen 
 from the anxiety of the country banks to provide for the 
 event of the first opening more amply than might have been 
 permanently necessary. The renewal, therefore, of the law 
 for suspending the cash payments of the bank stood on the 
 ground of the particular circumstances of the times, and not 
 on any principle which necessarily implied the permanence 
 or even the long continuance of the suspension. 
 
 CHAP. VI. 
 
 Error of imagining that Gold can be provided at the Time of 
 actual Distress Reasons for not admitting the Presumption 
 that the Directors of the Bank must have been to blame for 
 not making beforehand a more adequate Provision. 
 
 THE impracticability of encreasing the fund of gold in the 
 Bank of England, when an alarm at home has already taken 
 place, or even during the period of a very unfavourable 
 balance of trade, has been manifested in the preceding 
 pages. 
 
 There is a peculiar inconsistency in the supposition that 
 
 93 
 
230 Thornton on 
 
 a country ought, at such a season, to take its measures for 
 encreasing the quantity of its gold. The argument for such 
 an attempt would r.un thus " The stock of gold has been in 
 " past time too low, as appears by the experience of the pre- 
 " sent period ; for it is not now sufficient to supply what 
 " is necessary for our own circulation, and to enable us also 
 " to pay our unfavourable balance. We ought, therefore, 
 <( to take due care that, in time to come, there shall be a 
 tl larger provision of gold in the country." So far, un- 
 doubtedly, there may be some general justice in the reason- 
 ing. But if the further inference is added, that we must, 
 therefore, now begin to make the provision, this is to propose 
 to take measures to provide against a want, which is future 
 and contingent, at a time when that very want which we 
 would prevent is actually pressing upon us. With as fair an 
 appearance of justice it might have been argued in respect 
 to the stock of corn in hand in the country ft The stock of 
 te corn has been, as now appears, for some time too low ; for 
 " it is, at the present season, insufficient for the due supply 
 " of the country. We ought, therefore, to take care that, 
 " in time to come, there shall be a better provision for such 
 " contingencies as the present." So far, undoubtedly, there 
 might be justice in the observation. But to proceed in our 
 reasoning as to corn, in the same manner as is sometimes 
 done in respect to guineas, would be to add " Therefore, 
 se now, while the scarcity is pressing upon us, let us begin 
 " to make this provision ; let us instantly stock our granaries 
 " with a surplus quantity of corn ; let us divert the little 
 " grain which we possess from those most necessary uses to 
 " which it is now destined. Let us encrease our present diffi- 
 " culty, in order that the country may be put, for the future, 
 " out of the reach of the danger which it is experiencing at 
 " the present hour." The two cases are not, indeed, precisely 
 parallel ; but there seems to be sufficient resemblance to 
 justify the elucidation. 
 
 There is, however, another ground on which the directors 
 of the bank may possibly be thought censurable that of 
 
 94 
 
231 
 
 having failed to supply themselves with a sufficient quantity 
 of gold at an antecedent period. Let us, therefore, enquire 
 whether the public has sufficient reasons for entertaining 
 this suspicion. 
 
 Let it be premised, that, since the directors of the Bank 
 of England can have no particular temptation to improvi- 
 dence ; and since our national bank is, from its very nature, 
 liable to that accident which has lately, for the first time, 
 befallen it, a liability which; for obvious reasons, it may 
 have been the custom too studiously to conceal, there is not 
 all that previous presumption of blame which might be 
 supposed. There can be no doubt that the credit of the 
 Bank of England has been, at all periods, most anxiously 
 consulted by its directors ; and that present profit has uni- 
 formly been only the second consideration. 
 
 There are, however, certain limits which, even when 
 gold is most easily purchased, the bank naturally prescribes 
 to itself in respect to its stock of that article. The amount 
 of the disposable effects of the bank, on the 26th of 
 February, 1797, was stated under three heads in a former 
 place ; and it was then observed, that the only part of them 
 which the bank itself could enlarge was the deposits lodged in 
 return for bank notes issued. But even the bank notes 
 cannot safely be encreased in a degree which is very con- 
 siderable. Indeed, experience has proved, that there may 
 be some sort of limit to the demand for them ; for the appli- 
 cations for loans have often amounted, during peace, to less 
 than the bank has been disposed to afford on the credit of 
 good bills at the existing rate of discount. 
 
 Let us, then, proceed to illustrate our subject by sup- 
 posing the disposable effects of the bank to have usually 
 stood, for some years antecedent to the suspension of its 
 cash payments, at the sum of about nineteen millions ; that 
 is to say, let us allow them to have been about a million and 
 a half more than they amounted to at that period. 
 
 It must not be imagined that these nineteen millions 
 could, at any time, be with propriety invested in gold. 
 For the Bank of England, like every other mercantile esta- 
 
 95 
 
232 Thornton on 
 
 blishment, carries on its business on such principles as will 
 produce a profit. And the very lowest profit which can 
 serve as a sufficient inducement to pursue the trade of bank- 
 ing, must be somewhat higher than the mere current interest 
 of money. Let us reckon this necessary profit of the bank 
 to be six per cent. The bank makes no more than three 
 per cent, interest on the capital subscribed by its members, 
 which is permanently lent to government. It must, then, 
 so manage its disposable effects as to gain an annual sum 
 equal to an additional three per cent, upon its own capital, 
 that is, about 350,0007. This it must do by lending out at 
 interest a part of the nineteen millions ; and it must lend 
 out, at interest, a still farther part of it, both in order to 
 defray the annual charges of its establishment, and in order 
 also to furnish the means of paying those occasional sums to 
 government which are required as the price of the renewal 
 of its charter. It will be found, perhaps, that not less than 
 ten or twelve of the nineteen millions must be always at 
 interest in order to provide for these objects ; and, conse- 
 quently, that eight or nine millions will have formed the 
 highest average sum which the bank can have kept in gold, 
 consistently with the acquisition of merely the necessary 
 profit on its capital. But neither is it fair to suppose, that 
 these eight or nine millions ought to have been the general 
 or average sum kept in gold. The cash of the bank fluc- 
 tuates very greatly ; and in order to secure the keeping of 
 cash and bullion to the average amount of eight or nine 
 millions, it will occasionally have been necessary to keep 
 twelve or fourteen millions, or possibly even more. This 
 sum would be most unreasonably large ; for during the time 
 when twelve or fourteen millions are invested in gold, the 
 bank, instead of gaining six per cent, on its capital, will not 
 gain above three or four ; and, moreover, it cannot exactly 
 know how long this extraordinary quantity of gold may 
 continue in its coffers. It certainly can never count before- 
 hand on those great reductions of cash which may serve, by 
 increasing the sum at interest, to compensate for what is 
 lost by a large detention of bullion : for the reduction of 
 
 96 
 
Paper Credit. 233 
 
 cash happens not through any measures taken by the bank, 
 but in consequence of events difficult to be foreseen, and, as 
 has been already shewn, by no means easy to be controlled. 
 The bank, therefore, without impeachment of the character 
 of its directors, may be reasonably presumed to have been at 
 least somewhat indisposed to make investments in bullion, 
 which, while they lasted, should reduce its income very far 
 below the necessary annual profit. 
 
 Thus the bank, in endeavouring to secure what has been 
 termed the necessary annual profit, would naturally be led 
 to make, on the whole, something more than that profit ; 
 and, indeed, a variety of circumstances have lately occurred 
 which have had a tendency to encrease its gains to a degree 
 which must have been unexpected by the bank itself. Let 
 us, then, suppose that the profits which the bank, consider- 
 ing all circumstances, may fairly and properly have derived 
 from its business for some years past, may have been not six 
 per cent, (which was spoken of as the lowest sum neces- 
 sary for carrying on the trade of banking), but seven or 
 eight per cent. Now seven or eight per cent, or a little 
 more, seems likely to be that profit which the bank has, in 
 point of fact, been gaining. The dividends which it has 
 paid to the proprietors have been, for some time, seven per 
 cent. ; and it has also added 3,800,0007. to its capital. This 
 addition has been accruing, no doubt, during a long course 
 of years. If we assume that it has accumulated at the rate 
 of about 116,0007. per annum, the bank will have gained 
 annually one per cent, on its capital, besides the seven per 
 cent, which has been divided ; if at 232,0007.* per annum, 
 the bank will have gained annually two per cent, on its 
 capital, besides the seven per cent, which has been divided. 
 
 The bank, then, let it be supposed, has been gaining 
 eight or nine per cent, when seven or eight per cent, is as 
 much as it is reasonable that it should have acquired. I 
 
 * This is to suppose that the savings of the bank have been 
 between sixteen and seventeen years in accumulating, a period certainly 
 much too short ; but the accumulation must have been more rapid 
 during the last years. 
 
 97 
 
234 Thornton on 
 
 have entered into this detail, which, in various parts, may 
 be somewhat erroneous, merely for the sake of shewing that 
 any proposed enquiry whether the quantity of gold kept by 
 the bank may or ^nay not have been too small, must neces- 
 sarily be much narrower than many persons may imagine. 
 According to the supposition just made, it can relate only 
 to the propriety of a past annual gain of about one per cent, 
 or at most of two per cent, on the bank capital. A gain of 
 one per cent, would have been about 116,0007. per annum; 
 and consequently the bank, by taking this gain, have, on an 
 average, kept a stock of gold which has been smaller than 
 it would otherwise have possessed by about 2,300,0007. 
 Whether this sum of 2,300,0007., or whether any sum 
 somewhat greater than this, or somewhat short of it, ought 
 or ought not, in time past, to have been invested in gold in 
 addition to the sum which was invested, is a point on which 
 all that it seems safe to affirm with confidence, is, that no 
 person, unacquainted with the affairs of the bank can be 
 capable of pronouncing any clear judgment. There must 
 have existed many arguments, and some standing even on 
 the ground of safety and credit, against maintaining the 
 additional fund which has been mentioned. 
 
 If the whole profits of the bank had been lately restricted 
 to seven per cent., they would have been limited to that 
 sum which the bank proprietors had been for some time in 
 the habit of receiving. They would have been confined to 
 a sum which would not easily have admitted of accumula- 
 tions, By obtaining a higher profit the directors have 
 secured to the proprietors the continuation of the same 
 regular dividend, and have thus prevented that uncertainty 
 which would have encouraged gambling in bank stock. 
 
 They have also made, in the course of years, an impor- 
 tant addition to their capital ; an addition which has caused 
 it to maintain nearly an uniform proportion to the growing 
 extent of the transactions of the bank, and to the advancing 
 commerce of the country ; an addition also, by the help of 
 which they have lately lent to government three millions 
 without interest, for a short term of years, as the price of 
 
Paper Credit. 235 
 
 the renewal of their charter. They have thus strengthened 
 that security which the creditors of the bank possess, so far 
 as additional capital can strengthen it ; and they will be able 
 hereafter, if it shall seem necessary, to invest in gold, in 
 addition to what they could otherwise have invested, a much 
 larger sum than they could with any propriety have so 
 invested in time past. 
 
 It must farther be borne in mind, that the necessity 
 under which the bank has been placed of providing gold 
 which is to fill the void occasioned by the disappearing of 
 country bank notes, has been, in part, a new necessity, 
 country bank notes not having circulated, at remoter 
 periods, in so great a degree as they have lately ; and that 
 the additional sum of two or even of three or four millions 
 would have been no security against the effects of a general 
 alarm in the country. The fluctuation in the balance of trade 
 with foreign countries, which we experience, is also become, 
 in consequence of the greater extent of our population and 
 commerce, larger than heretofore. The scale of all things 
 having encreased, the scale of this balance may have 
 encreased also to a degree unexpected by the bank. A war, 
 moreover, unprecedented as that in which we have lately 
 been engaged was not to be anticipated ; and the case of a 
 succession of two bad harvests, and of an importation of 
 corn, amounting in two years to the value of fifteen or 
 twenty millions, is felt by all to have been an extraordinary 
 event. We need not wonder, then, if events unforeseen by 
 others, were not foreseen by the Bank of England ; nor if 
 for unforeseen events an adequate provision was not at 
 hand. 
 
 On the whole, it may be suggested to those who cast 
 blame on the bank for its improvidence in time past, that 
 they should consider well the several points which have here 
 been briefly pointed out ; and that if, afterwards, they con- 
 tinue to think the bank censurable, they should ask them- 
 selves, before they become the censurers, whether they are 
 sure that, in taking upon themselves the office, they exercise 
 that candour with which they would expect to be judged if 
 
 99 
 
236 Thornton on 
 
 they had been themselves, during the late difficult ancl try- 
 ing period, directors of that institution. 
 
 It has already been observed, that, in that crisis during 
 which the conduct of the directors has been more particu- 
 larly known, they proceeded, perhaps, with too great fear 
 and caution rather than with too little. There seems, there- 
 fore, to be a presumption, that a character, if not for 
 caution, at least for tolerable prudence, must have generally 
 been their due. To say the least, there appears to be no 
 ground for charging them with having acted in antecedent 
 times on a directly opposite principle. 
 
 CHAP. VII. 
 Of Country Banks their Advantages and Disadvantages. 
 
 THE country banks in Great Britain appear to have 
 amounted, in the year 1797, to three hundred and fifty-three. 
 By a numeration taken in 1799, they appear to have been 
 three hundred and sixty-six. By a third numeration taken 
 in 1800, they were three hundred and eighty-six.* It 
 seems, therefore, that no material addition to their number 
 has arisen in these three years. 
 
 A great increase of country banks took place during the 
 time which intervened between the American and the pre- 
 sent war, and chiefly in the latter part of it ; a period during 
 which the trade, the agriculture, and the population of the 
 country must have advanced very considerably. The 
 circumstance of so many of our country banks having 
 originated at such a time, affords a presumption that they are 
 consequences and tokens of the prosperity, rather than 
 
 * This statement of the number of country banks is taken from 
 three printed accounts of them, the first of which may not have been 
 very accurate, but may be presumed to state them at too low rather 
 than too high a number. The two later enumerations were made in a 
 more careful manner. 
 
 100 
 
Paper Credit. 237 
 
 indications of the declining state of the country. No banks 
 have arisen in France during the period of its troubles, 
 though several attempts to erect them have been made. It 
 was with difficulty that any banks supported themselves in 
 America during the war; but after the establishment of 
 peace, banks were instituted in most of the American states. 
 They seem naturally to belong to all commercial countries ; 
 but are more particularly likely to be multiplied in a state 
 like ours, in which the mercantile transactions are extended, 
 the population is great, and the expenditure of individuals 
 considerable ; and where also a principal bank exists, which, 
 through the necessity imposed on it by its situation, under- 
 takes the task of providing a constant reservoir of gold 
 accessible to every smaller banking establishment. The 
 creation of the large bank operates as a premium on the 
 institution of the smaller. 
 
 A description of the origin of one of our smaller country 
 banks may elucidate the subject before us. In every town, 
 and in many villages, there existed, antecedently to the crea- 
 tion of what were afterwards termed banks, some trader, 
 manufacturer, or shopkeeper, who acted, in many respects, 
 as a banker to the neighbourhood. The shopkeeper, for 
 example, being in the habit of drawing bills on London, and 
 of remitting bills thither, for the purposes of his own trade, 
 and receiving also much money at his shop, would occasionally 
 give gold to his customers, taking in return their bills on the 
 metropolis, which were mixed with his other bills, and sent 
 to his London correspondent. 
 
 Persons who were not customers being also found to 
 want either money for bills, or bills for money, the shop- 
 keeper was led to charge something for his trouble on accom- 
 modating them : and the trade of taking and drawing bills 
 being thus rendered profitable, it became an object to encrease 
 it. For the sake of drawing custom to his house, the shop- 
 keeper, having as yet possibly little or no view to the issuing 
 of bank notes, printed " The Bank " over his door, and 
 engraved these words on the checks on which he drew his 
 bills. 
 
 101 
 
238 Thornton on 
 
 It may be assumed, also, to have been not uncommon, 
 before country banks were established, for the principal 
 shopkeeper in a town to take at interest some of the money 
 of his neighbours, on the condition, however, that he should 
 not be required to pay it back without some notice. The 
 money thus deposited with him, or borrowed by him (it is 
 difficult to say which term is the more proper), might either 
 be thrown into his trade, or employed in discounting bills 
 soon to become due ; but the latter would evidently be the 
 more safe and prudent way of investing it. 
 
 All these parts of the banking business arose out of the 
 situation and circumstances of the country ; and existed in 
 many places before the name of banker was assumed. 
 
 The practice of issuing country bank notes, that is to 
 say, notes payable to the bearer on demand, may, un- 
 doubtedly, be considered as a separate branch of business. 
 These notes, however, have been shown to be not so very 
 different in their nature from other paper as is commonly 
 imagined. 
 
 For the sake of more particularly proving this point, let 
 us advert to the nature of interest notes, a species of paper 
 which some country banks have issued to a great extent. 
 Even the shopkeeper, it was lately observed, would take sums 
 at interest. For each of these sums, especially if he became 
 a banker, he would give out his note, in which would be 
 expressed the sum lent or deposited, the rate of interest upon 
 it, and the time which was to intervene before payment 
 could be demanded. This note would be transferable to any 
 third person. There would, however, be some impediments 
 to its circulation. The interest must be calculated as often 
 as it should change hands. Some of the persons to whom it 
 was offered might not be disposed to accept it as a payment, 
 especially if it had a long time to run. Although these 
 notes might circulate, they would circulate heavily. In 
 order to promote their circulation, and thus encrease the 
 whole number of issuable notes, the banker would be inclined 
 to lessen the time within which they should be payable ; and 
 he would find that, in proportion as he adopted this practice, 
 
 102 
 
Paper Credit. 239 
 
 a lower rate of interest on the notes would suffice to induce 
 persons to take them. Notes carrying no interest would 
 circulate, if due within a short time, better than notes 
 bearing interest which should be due at a very distant 
 period. But the only notes which would circulate freely 
 would be those which should be payable, or at least paid, 
 without any notice. Some banks wishing, on the one 
 hand, to encourage the circulation of their paper, anJ, on 
 the other, to avoid the inconvenience of a strict obligation 
 to pay without notice have issued notes payable after a 
 certain time, and yet have been in the regular practice of 
 giving money for them whenever payment was demanded, 
 and have taken no discount for the accommodation. 
 
 Thus, then, the shorter the notice is, the greater is the 
 currency of the note ; and in proportion, therefore, as the 
 circumstances of a country render it more safe for the banks 
 to shorten their notice, in the same proportion it may be 
 expected that notes to the bearer on demand will be issued, 
 and gold displaced. 
 
 Some speculative persons have imagined, that the practice 
 pursued by bankers of emitting notes payable on demand 
 is founded on an altogether vicious and unwarrantable prin- 
 ciple, inasmuch as such paper is issued with a view to a 
 profit which is to be obtained only by lending out part of the 
 sum necessary for the payment. A number of promises, it 
 is said, are thus made, which the banker has evidently placed 
 it out of his power to perform, supposing the fulfilment of 
 them all to be required at the same time, an event by no 
 means impossible. This objection implies, that the banker 
 ought not, after receiving the deposits left with him by his 
 customers, to lend out part of the sum necessary for the pay- 
 ment of those deposits ; for he is as much bound to discharge 
 demands for deposits without notice, as to pay without notice 
 all his notes. The Bank of England, the London banker, 
 the country banker, the merchant, and also the individual of 
 every class, proceed, in respect to all their promises to pay 
 money, not on any principle of moral certainty, but on that 
 of reasonable and sufficient probability. The objection to 
 
 103 
 
240 Thornton on 
 
 bank notes, as such, if pushed to that extent to which, if it 
 is at all just, it might be carried, would apply to all verbal 
 promises to pay money, and, indeed, to almost all promises 
 whatever ; for there is scarcely any class of these for the 
 performance of which a perfectly sure provision is always 
 made at the time of giving the promise. The objection 
 implies, therefore, that men ought to be prohibited from 
 acting in their commercial concerns according to that rule of 
 sufficient probability by which all the other affairs of human 
 life are conducted.* 
 
 It is completely understood by the holders of notes, as 
 well as by the customers of banks, that instant payment is 
 provided for only a part of that sum which may, by possi- 
 bility, be demanded ; and the banker, therefore, seems fully 
 justified if he makes such provision as the general and known 
 usage of others in the same profession (for he is supposed, 
 by those who trust him, to follow this usage), and a prudent 
 regard to all the circumstances of his own case teach him to 
 consider as sufficient. 
 
 The practice of issuing notes payable to bearer on 
 demand became very common a few years antecedent to the 
 present war, when various circumstances united to encourage 
 this part of the country banker's employment. Confidence 
 was then high, the number of traders in the country had 
 been greatly multiplied, the income and expenditure of 
 individuals were much . encreased, and every branch, there- 
 fore, of the banking business had naturally enlarged itself. 
 Some addition had been made to the number of London 
 bankers ; and a few of these took forward and active mea- 
 sures to encourage the formation even of very small banks 
 
 * In some of the democratic pamphlets of the present day, bank 
 notes of every kind are spoken of not merely as liable to be carried to 
 excess, or to be issued by irresponsible persons, or as producing par- 
 ticular evils, but as radically and incurably vicious ; they are con- 
 sidered in the light of a complete fraud upon the public, which is prac- 
 tised by the rich, and connived at by the government ; and the very 
 issue of them has been stigmatised as equivalent to the crime of forgery. 
 The resemblance of bank notes to other paper, and the resemblance of 
 a promise on paper to any other promise, have been here touched upon 
 with a view of exposing the absurdity of those doctrines. 
 
 104 
 
Paper Credit. 241 
 
 in the country, with a view to the benefit expected from a 
 connection with them. In many of our great towns, a fair 
 opening was afforded for the erection of additional banks. 
 These new establishments having taken place, various 
 country traders, who had before made use of their own 
 correspondents in London, fell into the practice of transacting 
 their business with the metropolis through the medium of 
 the country banker with whom they kept their cash. The 
 country banker drew largely on a London banker on the 
 account of the country traders, and the London banker was 
 willing to execute the extensive country business which he 
 thus acquired, in consideration of a much lower commission 
 than had before been paid by the several country traders to 
 their separate correspondents in London, who had been, for 
 the most part, London merchants. The reduction of the 
 rate of commission arose from two causes : first, from the 
 new security which was afforded to the transactions between 
 the town and the country, by the interposition of the credit 
 of rich and responsible country banks ; and, secondly, from 
 the transfer to one house of that labour of keeping accounts, 
 writing letters, and receiving and paying bills, which had, 
 before, been divided among many. The risk and trouble 
 being diminished, a proportionate abatement in the rate of 
 commission could be afforded. 
 
 The multiplication even of country banks, purposing to 
 deal chiefly in bills, would tend, in many ways, to produce 
 an encreased issue of notes on demand. Some deposit of 
 gold would be kept by banks of every class, with the view 
 of satisfying the demands of their customers ; and the stock, 
 maintained for this purpose, would form a part of the neces- 
 sary provision for the payment of notes payable on demand, 
 and it would, therefore, become an encouragement to the 
 issue of them. The multiplication of deposits of gold 
 through the country would, moreover, furnish, in many 
 cases, more prompt means of obtaining gold on any sudden 
 emergency ; since one country bank might often procure a 
 supply from a neighbouring one, especially if a good under- 
 standing on this subject should subsist between them. The 
 
 105 
 
242 Thornton on 
 
 \ 
 
 establishment of mail coaches afforded, at the same time, a 
 more cheap and ready method than before of bringing gold 
 from, London, as well as of transmitting thither any super- 
 fluity of it which might arise in the country. In proportion 
 to the facility of obtaining gold, the unproductive stock of it 
 kept in hand might be reduced ; or, if the same stock should 
 be maintained, the issue of notes payable on demand would 
 be less hazardous. Indeed, a few old and respectable coun- 
 try banks had long been in the habit of emitting much 
 paper of this sort, and had seldom experienced any incon- 
 venience from doing it. The new ones, therefore, many of 
 which were not at all inferior in property to the old, were 
 led into the practice partly by example. 
 
 The circumstance which chiefly operated in procuring 
 currency to the new circulating paper, was that participation 
 of the benefit resulting from it which was enjoyed by the 
 customers of the country banker ; for he lent among them 
 the capital which was acquired by the issue of his paper, 
 and they became his instruments in sending it into circu- 
 lation, by accepting it as a ready-money payment in return 
 for bills discounted. In consideration of their obligations to 
 the banker, and of the interest which they had in his 
 stability, they were also forward, on most occasions, in the 
 support of his credit. Such appear to have been the chief 
 circumstances which led to that great encrease of our 
 country banks, and to that substitution of paper in the place 
 of gold, which have been, for some years past, so much the 
 subject of complaint. 
 
 In order to assist the reader in judging whether a pre- 
 ponderance of good or of evil results from our numerous 
 country banks, an endeavour shall now be made to enume- 
 rate the principal benefits as well as inconveniences of 
 them. 
 
 That country banks have, in a variety of respects, been 
 highly advantageous, can scarcely admit of a doubt. They 
 have afforded an accommodation to many descriptions of 
 persons; but more especially to those who are engaged in 
 commerce. They may be regarded as an effect of that 
 
 106 
 
Paper Credit. 243 
 
 division of labour which naturally takes place in every 
 opulent country. The receipts and the payments of money 
 are now no longer conducted at home, even by the middling 
 trader, but are become a separate branch of business in the 
 hands of bankers. It was to be expected that they to whom 
 this employment has been transferred would find means of 
 abridging labour, and of sparing the use of coin, the most 
 expensive circulating medium. By their skill in attaining 
 these objects, they transact an important portion of the 
 business of the trader at an expence far inferior to that 
 which he must incur were he to conduct it by his own 
 clerks; and they derive a profit to themselves, which, no less 
 than the saving to the customer, may be regarded as clear 
 gain to the kingdom. 
 
 Country banks are also useful by furnishing to many 
 persons the means of laying out at interest, and in a safe 
 manner, such money us they may have to spare. Those 
 banks, in particular, which give interest notes for very 
 small sums, afford to the middling and to the lower class of 
 people an encouragement to begin to lay up property, and 
 thus to make provision for the time of sickness or old age. 
 Country banks also furnish a very convenient method of 
 distributing to one class of men the superfluity of another. 
 All who have money to spare know where they can place it, 
 without expence or loss of time, not only in security, but 
 often with pecuniary advantage : and all commercial per- 
 sons of credit understand in what quarter they can obtain 
 such sums, in the way of loan, as their circumstances will 
 fairly warrant them in borrowing. While country banks 
 thus render a benefit of the first magnitude to fair and 
 prudent commerce, they are important barriers against rash 
 speculation, though not unfrequently they are loudly accused 
 of favouring it. However some few banks may have 
 subjected themselves to this charge, banks in general, and 
 particularly those which have been long established, take 
 care to lend the sums which have been deposited in their 
 hands, not to the imprudent speculator, or to the spendthrift, 
 by whom they are in danger of suffering loss, but to those 
 
 107 
 
244 Thornton on 
 
 who, being known to possess some wealth and to manage 
 their concerns with prudence, give proof that they are likely 
 to repay the loan. Borrowers of this class are not apt to 
 enter into very large and perilous undertakings; for they 
 are unwilling to risk the loss of their own capital. Bankers, 
 especially men of eminence, feel a special motive to circum- 
 spection, in addition to that which operates with other 
 lenders. The banker always lends under an impression 
 that, if he places in any one a boundless or immoderate 
 confidence, the imprudence will necessarily be known, in 
 case the borrower should fail, as the affairs of every bank- 
 rupt are laid open to the body of creditors ; and that his 
 rashness is, therefore, liable to become the subject of con- 
 versation among his customers. Indiscretion of this kind, 
 even if the particular instance be of no prominent magni- 
 tude, may thus prove an occasion of injuring the character 
 and credit of the banking house, and of lessening the general 
 profits of the business. 
 
 The banker also enjoys, from the nature of his situation, 
 very superior means of distinguishing the careful trader 
 from him who is improvident. The bill transactions of the 
 neighbourhood pass under his view ; the knowledge, thus 
 obtained, aids his judgment; and confidence may, therefore, 
 be measured out by him more nearly than by another person, 
 in the proportion in which ground for it exists. Through 
 the creation of banks, the appreciation of the credit of 
 numberless persons engaged in commerce has become a 
 science ; and to the height to which this science is now 
 carried in Great Britain we are in no small degree indebted 
 for the flourishing state of our internal commerce, for the 
 general reputation of our merchants abroad, and for the 
 preference which in that respect they enjoy over the traders 
 of all other nations. It is certainly the interest, and, I 
 believe, it is also the general practice, of banks to limit not 
 only the loan which any one trader shall obtain from them- 
 selves, but the total amount also, as far as they are able, of 
 the sum which the same person shall borrow in different 
 places ; at the same time, reciprocally to communicate in- 
 
 108 
 
Paper Credit 245 
 
 telligence for their mutual assistance.; and, above all, to 
 discourage bills of accommodation. While the transactions 
 of the surrounding traders are thus subject to the view of 
 the country banks, those of the country banks themselves 
 come under the eye of their respective correspondents, the 
 London bankers ; and, in some measure, likewise, of the 
 Bank of England. The Bank of England restricts, accord- 
 ing to its discretion, the credit given to the London banker. 
 Thus a system of checks is established, which, though cer- 
 tainly very imperfect, answers many important purposes, 
 and, in particular, opposes many impediments to wild 
 speculation. 
 
 Country banks, also, as well as the Bank of England, 
 have been highly beneficial, by adding, through the issue of 
 their paper, to the productive capital of the country*. By 
 this accession our manufactures, unquestionably, have been 
 very much extended, our foreign trade has enlarged itself, 
 and the landed interest of the country has had a share of the 
 benefit. The common charge which is brought against 
 country banks, of having raised up a fictitious capital in the 
 country, admits of the following answer. They have sub- 
 stituted, it is true, much paper in the place of gold: but 
 the gold which has gone abroad has brought back, as Dr. 
 Smith observes, valuable commodities in return. The 
 guinea spared from circulation has contributed to bring 
 
 * Dr. Smith remarks, that it is not by augmenting the capital of 
 the country, but by rendering a greater part of that capital active and 
 productive than would otherwise be so, that the most judicious opera- 
 tions of banking can encrease the industry of the country. " Dead 
 stock," he observes, "is converted into active and productive stock." 
 Whether the introduction of the use of paper is spoken of as turning 
 dead and unproductive stock into stock which is active and productive, 
 or as adding to the stock of the country, is much the same thing. The 
 less the stock of gold is, the greater will be the stock of other kinds ; 
 and if a less stock of gold will, through the aid of paper, equally well 
 perform the work of a larger stock, it may be fairly said that the use of 
 paper furnishes even additional stock to the country. Thus, for example, 
 the use of a new sort of machinery which costs less in the erection than 
 that which was employed before, and which just as effectually does the 
 work required, since it enables the owner to have always more goods in 
 the course of manufacture, while he has exactly the same means of 
 manufacturing them, might not improperly be described as adding to 
 the stock of the country. 
 
 109 
 
246 Thornton on 
 
 home the timber which has been used in building, the iron 
 or the steel which has been instrumental to the purposes of 
 machinery, and the cotton and the wool which the hand of 
 the manufacturer has worked up. The paper has thus given 
 to the country a bond fide capital which has been exactly 
 equal to the gold which it has caused to go abroad ; and this 
 additional capital has contributed, just like any other part of 
 the national stock, to give life to industry. 
 
 It has lately been objected to paper credit, that, by 
 supplying the farmers with large loans, it has enabled them 
 to keep back their corn from the market, and enhance the 
 price. It is true, that farmers, both in the last and many 
 preceding years, may have obtained larger loans than they 
 would have procured if no country bank notes had existed. 
 The capital so furnished to the farmers may possibly have 
 induced some of them, at certain times, to keep in hand a 
 larger quantity of grain than they would otherwise have 
 found it convenient to hold. We know, however, that the 
 general stock of grain in the autumn of 1800 was particu- 
 larly low. Since, therefore, but a small part of the capital 
 of the farmers, whether borrowed or their own, was then 
 vested in grain, the principal share would probably be laid 
 out on their land, and would encrease its produce ; for, 
 unquestionably, the value of a crop obtained from a farm 
 depends chiefly on the sum employed in cultivation and 
 improvement. Country bank notes have thus added to the 
 general supply of grain ; and, by doing so, have contributed 
 to prevent a rise in its price : they have, probably, in this 
 manner, afforded much more than a compensation for any 
 temporary advance in price to which they may have given 
 occasion by enabling farmers to keep a larger quantity in 
 hand. The very possession of a large quantity in hand is 
 to be considered as, in general, a benefit rather than a 
 disadvantage; for it is our chief security against scarcity, 
 and, consequently, also against dearness. To the want of a 
 larger surplus stock at the end of the years 1799 and 1800 
 is to be ascribed, in a great degree, the subsequent high 
 price of provisions. The tendency, therefore, of country 
 
 110 
 
Paper Credit. 247 
 
 bank paper to encrease generally the stock of grain in the 
 hands of the farmer is to be ranked among the advantages 
 of country banks. The tendency to encrease it at the 
 particular time of actual scarcity, is to be classed among the 
 evils which they produce; and it is an inconsiderable evil, 
 which is inseparable from a great and extensive good. To 
 those who are disposed to magnify this occasional evil, it 
 may be further observed, that the farmer is enabled to 
 enlarge his stock by the encrease of his own as well as of 
 the general wealth, much more, no doubt, than by the share 
 which he obtains of that particular part of the new capital of 
 the kingdom which is created through the substitution of 
 country bank notes for gold ; only a portion, therefore, of 
 the mischief complained of is to be referred to country bank 
 notes. 1 1 is principally to be ascribed to the growing riches 
 and prosperity both of the farmers and other inhabitants of 
 the country. 
 
 It is no small additional recommendation of the use of 
 our paper, that the public draws a large yearly revenue 
 from the tax imposed on bills and notes. If paper credit 
 did not exist, a sum equal to that which is thus raised must 
 be supplied by taxes either burthening the industry, or paid 
 out of the property of the people. The public has, since the 
 late additional tax, become a very considerable sharer in the 
 profits of the country bankers' business. 
 
 Since, therefore, a paper medium has served the purposes 
 which have been described, and has been, generally speak- 
 ing, quite as convenient an instrument in settling accounts 
 as the gold which it has displaced, the presumption in favour 
 of its utility seems to be very great; and, if it could be 
 added, that no other effects than those which have as yet 
 been stated have arisen or are likely to arise from it, the 
 advantage of it would be beyond dispute. To reproach it 
 with being a merely fictitious thing, because it possesses 
 not the intrinsic value of gold, is to quarrel with it on 
 account of that quality which is the very ground of its 
 merit. Its merit consists in the circumstance of its costing 
 almost nothing. By means of a very cheap article the 
 
 111 
 
248 Thornton on 
 
 country has been, for some years, transacting its money 
 concerns, in which a very expensive material had previously 
 been employed. If this were the whole question, the sub- 
 stitution of paper for gold would be as much to be approved 
 as the introduction of any other efficacious and very cheap 
 instrument in the place of a dear one. It would stand on 
 the same footing with the substitution, for example, of cast 
 iron for wrought iron or steel ; .of water-carriage for land 
 carriage ; of a steam-engine for the labour of men and 
 horses ; and might claim a high rank among that multitude 
 of ingenious and economical contrivances to be found among 
 us, by the aid of which we have attained to the present 
 unrivalled state of our manufactures and commerce. 
 
 Some very solid objections, however, may be urged 
 against the system of banking in the country. 
 
 The first which I shall mention, is, the tendency of 
 country banks to produce, occasionally, that general failure 
 of paper credit, and with it that derangement and suspen- 
 sion of commerce, as well as intermission of manufacturing 
 labour, which have been already spoken of. 
 
 Country bank notes, and especially the smaller ones, 
 circulate, in a great measure, among people out of trade, 
 and pass occasionally into the hands of persons of the lower 
 class ; a great proportion, therefore, of the holders of them, 
 have few means of judging of the comparative credit of the 
 several issuers, and are commonly almost as ready to take 
 the paper of any one house calling itself a bank, as that of 
 another. A certain degree of currency being thus given to 
 inferior paper, even the man who doubts the ultimate sol- 
 vency of the issuer is disposed to take it ; for the time 
 during which he intends to detain it is very short, and his 
 responsibility will cease almost as soon as he shall have 
 parted with it.* Moreover, the amount of each note is so 
 
 * I apprehend that, supposing a country bank to fail, the holder of 
 one of its notes, who should have parted with it in sufficient time to 
 afford to the next holder an opportunity of applying for the discharge 
 of it before the day of failure, could not be called upon for the payment 
 of the value of it. The responsibility, therefore, of him who has 
 been the holder of a country bank note commonly ceases in about one 
 
 112 
 
Paper Credit. 249 
 
 small, that the risk seems, also, on that account, insignificant. 
 The notes of the greater and of the smaller country banks, 
 thus obtaining, in ordinary times, a nearly similar currency, 
 they naturally fall at a season of alarm into almost equal 
 discredit. If any one bank fails, a general run upon the 
 neighbouring ones is apt to take place, which, if not checked 
 in the beginning by pouring into the circulation a large 
 quantity of gold, leads to very extensive mischief. Many 
 country bankers, during a period of danger, prescribe to 
 themselves a principle of more than ordinary reserve in the 
 issue of their notes, because they consider these as the more 
 vulnerable part of their credit. They know, that if the 
 character of their house should be brought into question, 
 through the fears or even the caprice of any of those 
 strangers into whose hands their circulating paper passes, 
 some distrust may be excited among their customers, the 
 effect of which may be a sudden demand for the payment of 
 large deposits. The amount, therefore, of the country 
 bank notes circulating in the kingdom is liable to great 
 fluctuation. The country banker, in case of an alarm, turns 
 a part of the government securities, bills of exchange, or 
 other property which he has in London, into Bank of 
 England notes, and those notes into money; and thus 
 discharges many of his own circulating notes, as well as 
 enlarges the fund of gold in his coffers. The Bank of 
 England has, therefore, to supply these occasional wants of 
 the country banker ; and, in order to be fully prepared to 
 do this, it has, ordinarily, to keep a quantity of gold equal 
 to that of the notes liable to be extinguished, as well as a 
 quantity which shall satisfy the other extraordinary demands 
 which may be made at the same season of consternation 
 either by banking houses, or by individuals. Thus the 
 country banker by no means bears his own burthen, while 
 the Bank of England sustains a burthen which is not its 
 
 or two days after it has been parted with. That of the holder of a bill 
 continues till after the bill is due, namely, for a period, perhaps, of one 
 or two months. 
 
 113 
 
250 Thornton on 
 
 own, and which we may naturally suppose that it does not 
 very cheerfully endure.* 
 
 The national bank, indeed, may fairly be called upon, in 
 consideration of the benefits enjoyed through its monopoly, 
 to submit to a considerable expence in supplying gold for 
 the country ; but there must be some bounds to the claims 
 which can equitably be made upon it : and, in estimating 
 the benefit arising to the kingdom from the use of country 
 bank notes, we have either to deduct the loss which the 
 Bank of England incurs by maintaining an additional supply 
 of gold sufficient to answer the demands which they 
 occasion, or else we have to take into consideration the risk 
 which the bank incurs by only keeping a fund of gold which 
 is somewhat inadequate. The country banks may, perhaps, 
 cause the bank in some measure to encrease its general 
 fund of gold, though not to hold so much of this unproduc- 
 tive article as to afford a security equal to that which the 
 bank would enjoy if no country bank notes existed. 
 
 It is obvious, that the additional capital given to the 
 kingdom through the use of country bank notes must not 
 be measured by the amount of those notes, but that a 
 deduction must be made of the sum kept in gold in the 
 coffers of the issuers, as their provision for the occasional 
 payments to which their bank paper subjects them. The 
 other deduction, which has been spoken of, is of the same 
 nature. It is a second deduction, which must be made on 
 account of a similar, and, perhaps, no less considerable pro- 
 vision for the payment of country bank notes, which is 
 rendered necessary to be kept in the coffers of the Bank of 
 
 * At the time of the distress of 1793, some great and opulent 
 country banks applied to the Bank of England for aid, in the shape of 
 discount, which was refused on account of their not offering approved 
 London securities: some immediate and important failures were the 
 consequence. The Bank of England was indisposed to extend its aid 
 to houses in the country. The event, however, shewed that the relief 
 of the country was necessary to the solvency of the metropolis. A sense 
 of the unfairness of the burthen cast on the bank by the large and 
 sudden demands of the banking establishments in the country, probably 
 contributed to produce an unwillingness to grant them relief. 
 
 114 
 
Paper Credit. 251 
 
 England. In other words, the capital given to the country, 
 through the use of country bank notes, is only equal (and it 
 was so stated in speaking of that subject) to the amount of 
 the gold which they cause to be exported. 
 
 I shall endeavour here to explain more particularly than 
 has yet been done, some of those circumstances which cause 
 a great diminution of country bank notes to bring distress 
 on London, and to end in a general failure of commercial 
 credit. 
 
 In a former chapter it was observed, that when that 
 alarm among the common people, which produces an unwil- 
 lingness to take country bank paper, and an eagerness for 
 gold has risen to a considerable height, some distrust is apt 
 to be excited among the higher class of traders ; and that 
 any great want of confidence in this quarter produces an 
 encreased demand for that article, which is, among London 
 bankers and merchants, in much the same credit as gold ; I 
 mean Bank of England notes, and which forms, at all times, 
 the only circulating medium of the metropolis in all the 
 larger transactions of its commerce. This more than usual 
 demand for Bank of England notes the bank is at such a 
 time particularly unwilling to satisfy, for reasons which I 
 shall endeavour fully to detail. The reader will have been 
 prepared to enter into them by the observations on the 
 subject of the bank, introduced towards the close of the 
 chapter which treated of that institution. 
 
 First, the bank may be supposed to be unwilling to 
 satisfy that somewhat encreased demand for its notes which 
 a season of consternation is apt to produce, because it is not 
 unlikely to partake, in some degree, in the general alarm, 
 especially since it must necessarily be supposed to have 
 already suffered, and to be still experiencing a formidable 
 reduction of the quantity of its gold. The natural opera- 
 tion of even this general sort of fear must be to incline it to 
 contract its affairs, and to diminish rather than enlarge its 
 notes. 
 
 But it must also be recollected, that the bank has neces- 
 sarily been led already to encrease its loans in the same 
 
 115 
 
252 Thornton on 
 
 degree in which its gold has been reduced, provided it has 
 maintained in circulation the accustomed quantity of notes. 
 This point was explained in the chapter on the subject of 
 the bank. The directors, therefore, must seem to themselves 
 to act with extraordinary liberality towards those who apply 
 to them for discounts, if they only go so far as to maintain 
 the usual, or nearly the usual, quantity of notes. The 
 liberality in lending which they must exercise, if, when the 
 gold is low, they even augment their paper, must be very 
 extended indeed. 
 
 In order to render this subject more clear, let us suppose 
 that an extra demand on the Bank of England for three 
 millions of gold has been made through the extinction of the 
 paper of country banks, and through the slower circulation 
 and hoarding of gold which have attended the general alarm. 
 Let us assume, also, that the bank, during the time of its 
 supplying this gold, has thought proper to reduce its notes 
 one million. It will, in that case, have necessarily increased 
 its loans two millions. Let us further assume, as we not very 
 unreasonably may, that the two millions of additional loans 
 have been afforded, not to the government, who owe a large 
 and standing sum to the bank (suppose eight or ten millions 
 besides the bank capital), but exclusively to the merchants ; 
 and let the total amount of loans antecedently afforded to 
 the merchants be reckoned at four millions. The bank, in 
 this case, will have raised its discounts to the merchants 
 from four millions to six ; that is, it will have encreased 
 them one half, even though it has diminished its notes one 
 million. This extension of the accustomed accommodation 
 to the mercantile world must appear to call for the thanks of 
 that body, rather than to leave any room for complaint; and 
 yet it is plain from reasoning, and, I believe, it might be also 
 proved from experience, that it will not ease the pressure. 
 The difficulties in London, notwithstanding the additional 
 loan of two millions to the merchants, will be somewhat 
 encreased ; for a sum in gold, amounting to three millions, 
 has been drawn from the bank by the London agents of the 
 country bankers and traders, and has been sent by those 
 
 116 
 
Paper Credit. 253 
 
 agents into the country. London, therefore, has furnished 
 for the country circulation three millions of gold ; and it has 
 done this by getting discounted at the bank two additional 
 millions of bills, for which it has received two of the millions 
 of gold, and by sparing one million of its circulating notes as 
 a means of obtaining the other million. This reduction of 
 the usual quantity of notes is borne by the metropolis with 
 peculiar difficulty at a time of general alarm. However 
 liberally, therefore, the bankers and merchants may acknow- 
 ledge themselves to have been already relieved by the bank, 
 they will repeat, and will even urge more than ever, their 
 application for discounts. 
 
 It may be observed, with a view to the further elucidation 
 of this part of our subject, that both the bank, and they who 
 borrow of it, are naturally led to fix their attention rather on 
 the amount of the loans furnished than on that of the notes 
 in circulation. The bank is used to allow to each borrower 
 a sum bearing some proportion to his supposed credit ; but 
 seldom or never exceeding a certain amount. It is true, the 
 various borrowers do not always in an equal degree avail 
 themselves of their power of raising money at the bank; and, 
 therefore, a material enlargement of the sum total of the 
 bank loans may take place at a moment of difficulty, through 
 the encreased use which some of the richer merchants then 
 make of their credit, as well as through the creation of a few 
 new borrowers at the bank. The directors also, in particular 
 cases, may suffer their rule to be relaxed. The circumstance, 
 however, of the general principle on which the bank ordina- 
 rily, and, indeed, naturally proceeds, being that of a limita- 
 tion of the amount of each of its loans to individuals, must 
 tend, as I conceive, to place something like a general limit 
 to the total sum lent. It must conduce to prevent the fluc- 
 tuation in the bank loans from keeping pace with the variation 
 in the necessities of the public, and must contribute to 
 produce a reduction of notes at that season of extraordinary 
 distrust, when the state of the metropolis, as was more fully 
 remarked in a former part of this Work, calls rather for 
 their encrease. 
 
 117 
 
254 Thornton on 
 
 That the borrowers at the bank are likely to pay no 
 attention to the subject of the total quantity of notes in cir- 
 culation is easily shewn. They have, indeed, no means of 
 knowing their amount. They can only judge of the liberality 
 of the bank by the extent of its loans ; and of this they form 
 an imperfect estimate by the sum which they or their con- 
 nexions have been able to obtain. Scarcely any one reflects, 
 that there may be a large encrease of the general loans of the 
 bank, as well as possibly an extension of each loan to indivi- 
 duals, while there is a diminution of the number of bank 
 notes ; and that the amount of the notes, not that of the 
 loans, is the object on which the eye should be fixed, in 
 order to judge of the facility of effecting the payments of the 
 metropolis. 
 
 It was remarked, in a former chapter, that the bank, at 
 the time antecedent to the suspension of its cash payments, 
 having diminished the sum lent by it to government, and 
 enlarged, though not in an equal degree, that furnished to the 
 merchants, the pressure on the merchants was not relieved, 
 as was expected, by the encreased loan afforded them, but 
 even grew more severe. It was also shewn, that this could 
 not fail to be the case, since the bank notes necessary for 
 effecting the current payments of the metropolis were then 
 diminished, and since the additional loans afforded to the 
 merchants only in part compensated for the new pressure 
 which was created in the general money market of the 
 kingdom, by the circumstance of the government being 
 obliged to become a great borrower in that market. When- 
 ever the bank materially lessens its paper, a similar pressure 
 is likely to be felt. Neither the transfer of the bank loans 
 from the government to the merchants, nor even a large 
 encrease of its loans, when that encrease is not carried so far 
 as is necessary to the maintenance of the accustomed, or 
 nearly the accustomed, quantity of bank paper, can prevent, 
 as I apprehend, distress in the metropolis ; and this distress 
 soon communicates itself to all parts of the kingdom. The 
 short explanation of the subject is this. Many country bank 
 notes having disappeared, a quantity of gold is called for, 
 
 118 
 
Paper Credit. 255 
 
 which is so much new capital suddenly needed in the country. 
 The only place in which any supply of gold exists is the 
 Bank of England. Moreover, the only quarter from whence 
 the loan of the new capital, under all the circumstances of the 
 case, can come, is also the Bank of England : for the gold in 
 the bank is the only dead or sleeping stock in the kingdom 
 which is convertible into the new active capital which is 
 wanted. The bank, therefore, must lend, the gold which it 
 furnishes ; it must lend, that is to say, to some individuals a 
 sum equal to the gold which other individuals have taken 
 from it : otherwise it does not relieve the country. 
 
 If it should be asked, Why does not the bank in such 
 case demand something intrinsically valuable, instead of con- 
 tenting itself with mere paper in return? the answer is, 
 first, that -if the bank were to receive goods in exchange for 
 its gold, or, in other words, were to purchase goods, it would 
 have afterwards to sell them ; and it would then become a 
 trading company, which it is forbid to be by its charter ; it 
 is allowed to traffic only in bullion. The answer is, secondly, 
 that if it were to take goods as a mere security, and to detain 
 them as such, it would then prevent their passing into con- 
 sumption with the desirable expedition. By proceeding on 
 either of these plans, it would also involve itself in a degree 
 of trouble which would not be very consistent with the 
 management of the business of a banking Company.* It may 
 be answered, thirdly, that the bills which the bank discounts, 
 are, generally speaking, so safe, that the security either of 
 goods, or stocks, or land, none of which are received in 
 pledge by the directors, may be considered as nearly super- 
 fluous. A very small proportion of the five per cent, dis- 
 count, gained upon the bills turned into ready money at the 
 
 * Of the parliamentary loan of exchequer bills in 1793, which was 
 directed to be granted on the security either of sufficient bondsmen, or 
 of a deposit of goods, only a small proportion was taken on the latter 
 principle, on account of the great obstruction to the sale of goods, which 
 was thought to arise from warehousing them on the account of the com- 
 missioners appointed by parliament. It has been already remarked, that 
 no part of the sum lent was lost. 
 
 119 
 
256 Thornton on 
 
 bank, has compensated, as I believe, for the whole of the loss 
 upon them, even in the years of the greatest commercial 
 failures which have yet been known. 
 
 The observations which have now been made sufficiently 
 shew what, is the nature of that evil of which we are speak- 
 ing. It is an evil which ought to be charged not to any 
 fault in the mercantile body, but to the defects of the banking 
 system. It is a privation which the merchants occasionally 
 experience of a considerable part of that circulating medium 
 which custom has rendered essential to the punctual fulfil- 
 ment of their engagements. In good times, the country 
 banks furnish this necessary article, which they are enabled 
 to do through the confidence of the people in general ; but 
 when an alarm arises, the country banks cease to give it out, 
 the people refusing what they had before received ; and the 
 Bank of England, the only body by whose interposition the 
 distress can be relieved, is somewhat unwilling to exercise all 
 the necessary liberality, for the reasons which have been so 
 fully mentioned. The merchants are some of the chief 
 sufferers, and they are generally, also, loaded with no incon- 
 siderable share of censure; but the public, the country 
 banks, and the Bank of England, may properly divide the 
 blame. 
 
 The mischief produced by a general failure of paper credit 
 is very considerable. How much such a failure interrupts 
 trade and manufacturing industry, and, therefore, ultimately 
 also tends to carry gold out of the country, has been already 
 stated at large. It also causes a great, though merely tem- 
 porary, fall in the market price of many sorts of property ; 
 and thus inflicts a partial and very heavy loss on some 
 traders, and throws extraordinary gain into the hands of 
 others ; into the hands, I mean, of those who happen to have 
 superior powers of purchasing at the moment of difficulty. 
 By giving to all banking, as well as mercantile, transactions 
 the appearance of perilous undertakings, it deters men of 
 large property, and of a cautious temper, from following the 
 profession of bankers and merchants. It creates no small 
 uneasiness of mind, even among traders who surmount the 
 
 120 
 
Paper Credit. 257 
 
 difficulties of the moment. Above all, it reduces many 
 respectable, prudent, and, ultimately, very solvent persons 
 to the mortifying necessity of stopping payment ; thus 
 obliging them to share in that discredit, in which, it is much 
 to be desired, that traders of an opposite character only 
 should be involved. If, indeed, we suppose, as we necessarily 
 must, that, on account of the multitude of failures which 
 happen at the same time, the discredit of them is much 
 diminished, then another evil is produced, which, in a com- 
 mercial country, is very great. Acts of insolvency, leaving 
 less stigma on the character, become not so much dreaded as 
 might be wished. The case of some, who bring difficulties 
 on themselves, being almost unavoidably confounded with 
 that of persons whose affairs have been involved through the 
 entanglement of paper credit, to stop payment is considered 
 too much as a misfortune or accident, and too little as a fault; 
 and thus a principal incentive to punctuality in mercantile 
 payments is weakened, and an important check to adventu- 
 rous speculation is in some measure lost. 
 
 The observations which have been made, will, however, 
 shew that the tendency of country bank paper to produce a 
 general failure of paper credit, is an evil which may be 
 expected to diminish ; for, first, if the Bank of England, in 
 future seasons of alarm, should be disposed to extend its 
 discounts in a greater degree than heretofore, then the 
 threatened calamity may be averted through the generosity 
 of that institution.* If, secondly, the country bankers should 
 be taught (as, in some degree, unquestionably they must), 
 by the difficulties which they have experienced, to provide 
 
 * It is ^by no means intended to imply, that it would become the 
 Bank of England to relieve every distress which the rashness of country 
 banks may bring upon them : the bank, by doing this, might encourage 
 their improvidence. There seems to be a medium at which a public 
 bank should aim in granting aid to inferior establishments, and which 
 it must often find very difficult to be observed. The relief should neither 
 be so prompt and liberal as to exempt those who misconduct their busi- 
 ness from all the natural consequences of their fault, nor so scanty and 
 slow as deeply to involve the general interests. These interests, never- 
 theless, are sure to be pleaded by every distressed person whose affairs 
 are large, however indifferent or even ruinous may be their state. 
 
 121 
 
258 Thornton on 
 
 themselves with a larger quantity of that sort of property 
 which is quickly convertible into Bank of England notes, 
 and, therefore, also, into gold, then the country bankers will 
 have in their own hands a greater power of checking the 
 progress of an alarm. Still, indeed, their resource will be 
 the gold which is in the bank. The encreased promptitude, 
 however, with which the greater convertibility of their funds 
 will enable them to possess themselves of a part of the bank 
 treasure, will render a smaller supply of it sufficient ; and 
 this smaller supply may be expected to be furnished, without 
 difficulty, either by means of such a trifling addition to the 
 bank loans as the bank will not refuse, or by sparing the 
 necessary sum from the paper circulation of the metropolis, 
 which, if commercial confidence is not impaired, will always 
 admit of some slight and temporary reduction. The Bank 
 of England will itself profit by the circumstance of its gold 
 becoming more accessible to the country banks; for the 
 untoward event of a general failure of paper credit will thus 
 be rendered less probable, and, therefore, a smaller stock of 
 gold will be an equally sufficient provision for the extraordi- 
 nary demands at home to which the bank will be subject. 
 Or if, thirdly, those among whom country bank notes circu- 
 late should learn to be less variable as to the confidence 
 placed by them in country paper, or even to appreciate more 
 justly the several degrees of credit due to the notes of dif- 
 ferent houses, then the evil which was before supposed to be 
 obviated by the liberality of the Bank of England, or by the 
 prudence of the country banker, will abate through the 
 growth of confidence and the diffusion of commercial know- 
 ledge among the public. It seems likely that by each of 
 these means, though especially in the second mode which was 
 mentioned, the tendency of country bank notes to produce 
 an occasional failure of commercial credit will be diminished. 
 In time past, the mischief has been suffered to grow till it 
 appeared too formidable to be encountered ; and this has 
 happened partly in consequence of our wanting that know- 
 ledge and experience which we now possess. 
 
 122 
 
Paper Credit. 259 
 
 Another evil attending the present banking system in the 
 country is the following. 
 
 The multiplication of country banks issuing small notes 
 to bearer on demand, by occasioning a great and permanent, 
 diminution in our circulating coin, serves to encrease the 
 danger, lest the standard by which the value of our paper is 
 intended to be at all times regulated should occasionally not 
 be maintained. 
 
 The evils of a great depreciation of paper currency are 
 considerable. In proportion as the article which forms the 
 current payment for goods drops in value, the current price 
 of goods rises. If the labourer receives only the same nominal 
 wages as before the depreciation took place, he is underpaid. 
 Antecedent pecuniary contracts, though nominally and per- 
 haps, legally fulfilled, are not performed with due equity. 
 It is true that the general stock of wealth in the country 
 may remain nearly the same ; and it is possible that the cir- 
 culating paper may be 'restored to its full value when the 
 period of the particular difficulty shall have passed by. Some 
 degree, however, of unfairness and inequality will, in the 
 mean time, have been produced, and much pressure may 
 have been felt by the lower classes of people, whose wages 
 are seldom raised until some time after the occasion for a rise 
 has begun to exist. 
 
 In those countries in which the government is the chief 
 banker or issuer of notes, a temptation arises, on the occasion 
 of every public pressure, either to lessen the quantity of 
 precious metal contained in the chief current coin, as one of 
 the means of detaining it in the country, or to allow paper 
 to pass at a considerable and professed discount, which is 
 another mode of preventing the coin from being exported. 
 These are evils from which we consider ourselves as happily 
 secured by the established principles of good faith which 
 prevail in Great Britain. Those principles, however, should, 
 perhaps, lead us even to place ourselves at a distance from 
 that temptation to depreciate coin, or to permit a discount 
 on paper, to which so many other countries have yielded. 
 The possession, in ordinary times, of a very considerable 
 
 123 
 
260 Thornton on 
 
 quantity of gold, either in the bank or in general circulation, 
 or both, seems necessary for our complete security in this 
 respect. The substitution of country bank notes for gold 
 tends to lessen that security. The evil of them is not that 
 they create any false and merely ideal riches, or that they 
 do any constant prejudice to the country. They enable the 
 trader to vest a capital in merchandize, which, without 
 them, he would not possess, and thereby add to the annual 
 income of the nation. In their immediate effect, therefore, 
 they are beneficial ; but they leave us more exposed to an 
 occasional evil, against which it is prudent to guard, provided 
 we can accomplish that purpose without too great a sacrifice 
 of present advantages. It seems, on this account, as well as 
 on some others, very undesirable to render permanent the 
 temporary law passed some years since, and subsequently 
 renewed, for the purpose of permitting the issue of English 
 notes under five pounds. When it shall have expired, the 
 power of re-enacting it, which we shall possess, will be a 
 valuable resource. If, moreover, any measure can be devised, 
 which, by encreasing the public confidence in good paper, 
 will lessen the danger of a general failure of paper credit, 
 and of a run upon the bank for gold, and which, also, by 
 obstructing the issue of five and ten pound notes by smaller 
 and less respectable banks, will somewhat extend the use of 
 coin, on the whole, it will have a twofold argument to re- 
 commend it*. 
 
 The reader will observe, that even our circulating gold coin 
 has here been considered in the light of a provision against 
 an unfavourable balance of trade with foreign countries, and, 
 therefore, as exportable. Part of our coin will, in fact, 
 always be exported when the balance is very unfavourable, 
 
 * Various objections, however, occur against almost every parliamen- 
 tary measure for the regulation of country banks. Dr. Smith is of 
 opinion, that a law prohibiting the issue of small notes is alone a sufficient 
 remedy for the evils attending these institutions, and that the danger 
 arising from banks is lessened by the multiplication of them. It is the 
 object of this Work not so much to canvass any question respecting the 
 particular means of regulating paper credit, as to lay down some general 
 principles concerning it. 
 
 124 
 
Paper Credit. 261 
 
 and the exportation, under such circumstances, is beneficial 
 to the country. We are apt to think that it is the interchange 
 of the usual gold coin for paper at home which alone main- 
 tains the value of our paper; and we are partly, on this 
 account, much more anxious to detain our gold at home, than 
 we are to discharge by means of it an unfavourable balance 
 of trade, and thereby to improve our exchange with foreign 
 countries. I apprehend, however, that an unfavourable 
 course of exchange, which the export of our gold would 
 cure, will, in many cases, tend much more to depreciate our 
 paper, and to produce a rise in the nominal price of articles, 
 than the want of the usual interchange of gold for paper at 
 home. Our coin itself, as has been already remarked, 
 when paper is depreciated, passes not for what the gold in 
 it is worth, but at the paper price ; though this is not gene- 
 rally observed to be the case. It is the maintenance of our 
 general exchanges, or, in other words, it is the agreement of 
 the mint price with the bullion price of gold which seems 
 to be the true proof that the circulating paper is not 
 depreciated. 
 
 CHAP. VIII. 
 
 Of the Tendency of a too great Issue of Bank Paper to produce 
 an Excess of the Market Price above the Mint Price of Gold 
 Of the means by which it creates this Excess, namely, by 
 its Operation on the Price of Goods and on the Course of 
 Exchange Errors of Dr. A. Smith on the Subject of 
 excessive Paper Of the Manner in which the Limitation of 
 the Quantity of the' Bank of England Paper serves to limit 
 the Quantity and sustain the Value of all the Paper of the 
 Kingdom. 
 
 A THIRD objection commonly made to country banks, is, the 
 influence which their notes are supposed to have in raising 
 the price of articles. 
 
 125 
 
262 Thornton on 
 
 By the principles which shall be laid down in this Chap- 
 ter, I propose to prove, that, though a general encrease of 
 paper has this tendency, the objection, when applied to the 
 paper of country banks, is particularly ill founded. 
 
 It will be necessary, in the discussion which is now about 
 to take place, to join the consideration of two subjects, that 
 of the influence which an enlarged emission of paper has in 
 lifting up the price of commodities, and that of its influence, 
 also, in producing an excess of the market price above the 
 mint price of gold,, and in thus exposing the bank to failure, 
 and the country to considerable inconvenience. It is 
 through the medium of the enhanced price of commodities 
 that I conceive the ill effect on the mint price of gold to be 
 brought about. 
 
 The discussion of these topics will best be introduced by 
 a statement of the principle which regulates the value of all 
 the articles of life. 
 
 The price of commodities in the market is formed by 
 means of a certain struggle which takes place between the 
 buyers and the sellers. It is commonly said, that the price 
 of a thing is regulated by the proportion between the supply 
 and the demand. This is, undoubtedly, true; and for the 
 following reason. If the supply of an article or the demand 
 for it is great, it is also known to be great ; and if small, it 
 is understood to be small. When, therefore, the supply, for 
 example, is known to be less than the demand, the sellers 
 judge that the buyers are in some degree at their mercy, 
 and they insist on as favourable a price as their power over 
 the buyers is likely to enable them to obtain. The price 
 paid is not at all governed by the equity of the case, but 
 entirely by the degree of command which the one party has 
 over the other. When the demand is less than the supply, 
 the buyers, in their turn, in some degree, command the 
 market, giving not that sum which is calculated to indemnify 
 the seller against loss, but so much only as they think that 
 the seller will accept rather than not sell his article. The 
 question of price is, therefore, in all cases, a question of 
 power, and of power only. It is obvious, that a rise in the 
 
 126 
 
Paper Credit. 263 
 
 price of a scarce commodity will be more or less considerable 
 in proportion as the article is felt to be one of more or less 
 strict necessity. 
 
 The principle which has been laid down as governing the 
 price of goods, must be considered as also regulating that of 
 the paper for which they are sold ; for it may as properly be 
 said, on the occasion of a sale of goods, that paper is sold for 
 goods, as that goods are sold for paper : thus the sale of a 
 single commodity, as it is called, is a twofold transaction, 
 though not commonly understood to be so : I mean, that 
 the price at which the exchange (or sale) takes place depends 
 on two facts ; on the proportion between the supply of the 
 particular commodity and the demand for it, which is one 
 question ; and on the proportion, also, between the state of 
 the general supply of the circulating medium and that of the 
 demand for it, which is another. 
 
 Paper, moreover (of which I shall here speak as if it 
 were the only circulating medium, it being the only one 
 used in the larger payments), is, to some persons, somewhat 
 in the same manner as bread is to all, an article of necessity. 
 It is necessary to traders, partly because they have come 
 under engagements to make payments which are only to be 
 effected by means of their own previous receipts : and partly 
 because they hold goods which must, within no long time, be 
 sold for money, that is to say, for paper, since a continually 
 growing loss accrues from the detention of them. Paper, 
 therefore, must be bought by the trader : and if there is a 
 difficulty in obtaining it, the buyer of it is brought under 
 the power of the seller, and, in that case, more goods must 
 be given for it. 
 
 Let us, now, trace carefully the steps by which an encrease 
 of paper serves to lift up the price of articles. Let us sup- 
 pose, for example, an encreased number of Bank of Eng- 
 gland notes to be issued. In such case the traders in the 
 metropolis discover that there is a more than usual facility 
 of obtaining notes at the bank by giving bills for them, and 
 that they may, therefore, rely on finding easy means of 
 performing any pecuniary engagements into which they may 
 
 127 
 
264 Thornton on 
 
 enter. Every trader is encouraged, by the knowledge of this 
 facility of borrowing, a little to enlarge his speculations ; he 
 is rendered, by the plenty of money, somewhat more ready 
 to buy, and rather less eager to sell ; he either trusts that 
 there will be a particular profit on the article which is the 
 object of his speculation, or else he judges, that, by extend- 
 ing his general purchases, he shall at least have his share of 
 the ordinary profit of commercial business, a profit which he 
 considers to be proportioned to the quantity of it. The 
 opinion of an encreased facility of effecting payments causes 
 other traders to become greater buyers for the same reason, 
 and at the same time. Thus an inclination to buy is created 
 in all quarters, and an indisposition to sell. Now, since the 
 cost of articles depends on the issue of that general conflict 
 between the buyers and sellers, which was spoken of, it fol- 
 lows, that any circumstance which serves to communicate a 
 greater degree of eagerness to the mind of the one party 
 than to that of the other, will have an influence on price. 
 It is not necessary to suppose either a monopoly, or a com- 
 bination, or the least unfairness, to exist, or even large and 
 improper speculations, i The encrease in the eagerness of 
 each buyer may be trifling. The zeal to buy, being generally 
 diffused, may, nevertheless, have a sensible operation on 
 price. 
 
 That, on the other hand, a reduction of the quantity of 
 paper causes a fall in the price of goods, is scarcely necessary 
 to be proved. It may be useful, however, in some degree, to 
 illustrate this point by facts. I understand, that at the 
 time of the great failure of paper credit in 1795, the price 
 of corn fell, in a few places, no less than twenty or thirty 
 per cent. The fall arose from the necessity of selling corn 
 under which some farmers were placed, in order to carry on 
 their payments. Much of the circulating medium being 
 withdrawn, the demand for it was in those places far greater 
 than the supply ; and the few persons, therefore, who were 
 in possession of cash, or of what would pass as cash, having 
 command of the market, obliged the farmers to sell at a 
 price thus greatly reduced. It was a new and sudden 
 
 128 
 
Paper Credit. 265 
 
 scarcity of cash, not any new plenty of corn, which caused 
 the price of corn to drop. 
 
 It has been already observed, that some few days antece- 
 dently to the suspension of the cash payments of the bank, 
 exchequer bills, as well as stocks, when sold for ready money, 
 that is to say, for bank notes, fell in price. Not many days 
 afterwards, although no material event had occurred except 
 that of the stoppage of the bank, they rose. This fall and 
 rise in the price of government securities evidently did not 
 result from any corresponding fluctuation in the national 
 confidence in them ; for the fall took place when the national 
 credit would naturally be the highest, namely, when the 
 bank was as yet paying in cash, and the approaching stop- 
 page was not known ; and the rise happened when the 
 national credit would be the lowest, namely, within a few 
 days after that discouraging event. The reason of each of 
 the fluctuations unquestionably was the fluctuation in the 
 quantity of the Bank of England notes, which, as it has 
 since appeared, were, during the day or two which preceded 
 the suspension, about a million less than they were either a 
 short time before or a short time afterwards. The notes 
 being fewer during those few days, the price of them was, 
 at the same time, higher. It was, in fact, therefore, the 
 price of notes which rose, rather than that of stocks which 
 fell, on the days immediately preceding the suspension ; and 
 it was the price of notes which a few days afterwards fell, 
 rather than that of stocks which rose.* 
 
 * In the event of any great public alarm, such, for instance, as that 
 which might be occasioned by the landing in this country of any con- 
 siderable body of enemies, it is likely that the price of Bank of England 
 notes, compared with that of stocks, or other articles for which there 
 is a ready money market, would in like manner rise, even though the 
 quantity of paper should continue the same : this would happen in 
 consequence of that encreased demand for bank notes, to which it has 
 been repeatedly observed that a state of consternation always gives 
 occasion. Many bankers, at such a time, would feel a doubt whether 
 they might not be drawn upon more largely than usual by some of their 
 more timid customers ; and whether, also, they might not be subjected 
 to more than common difficulty in selling government securities, an 
 article which, in ordinary times, they are used to turn into cash 011 the 
 shortest notice, and which, while a prompt sale of them is to be 
 
 129 
 
266 Thornton on 
 
 I shall, for the present, consider the doctrine which has 
 been laid down, as being sufficiently established, namely, 
 that paper fluctuates in price on the same principles as any 
 other article, its value rising as its quantity sinks, and vice 
 versa ; or, in other words, that an augmentation of it has a 
 general tendency to raise, and a diminished issue to lower, 
 the nominal cost of commodities, although, partly for rea- 
 sons which have been already touched upon, and partly for 
 some which shall be hereafter given, an exact correspon- 
 dence between the quantity of paper and the price of com- 
 modities can by no means be expected always to subsist. 
 
 The reader possibly may think that, in treating of this 
 subject, I have been mistaking the effect for the cause, an 
 encreased issue of paper being, in his estimation, merely a 
 consequence which follows a rise in the price of goods, and 
 not the circumstance which produces it. That an enlarged 
 emission of paper may often fairly be considered as only, or 
 chiefly, an effect of high prices, is not meant to be denied. 
 It is, however, intended to insist, that, unquestionably, in 
 some cases at least, the greater quantity of paper is, more 
 properly speaking, the cause. A fuller explanation of this 
 apparently difficult and disputable position will be given in 
 the further progress of this Work. 
 
 I proceed, in the next place, to show in what manner a 
 
 depended on, they prefer to bank notes, because an interest is gained 
 by holding the one, and not by detaining the other. 
 
 During the short crisis of an invasion, the advantage of accruing 
 interest would be little regarded, and each banker, therefore, would 
 make an effort to exchange his exchequer bills, or perhaps, his stocks, 
 for Bank of England notes, an effort which must prove generally 
 ineffectual, supposing the quantity issued to be the same ; but which, 
 however, would have the effect of bringing down the comparative price 
 of the article so eagerly offered in exchange for notes. Thus the price 
 of government securities would appear to fall, when, in part at least, it 
 would rather be the price of bank notes, which should be said to rise. 
 Some encrease of the bank issues seems very justifiable at such a time ; 
 such an encrease, I mean, as should be sufficient only to prevent what 
 may be termed an unnatural rise in the value of bank notes. This 
 issue would be the means of preventing a misconception among the 
 public respecting the degree of distrust in government securities enter- 
 tained by the dealers in them, a circumstance which might be of some 
 political importance in a moment of general consternation. 
 
 130 
 
Paper Credit. 267 
 
 general rise in the cost of commodities, whether proceeding 
 from an extravagant issue of paper, or from any other cir- 
 cumstance, contributes to produce an excess of the market 
 price above the mint price of gold. 
 
 It is obvious, that, in proportion as goods are rendered 
 dear in Great Britain, the foreigner becomes unwilling to 
 buy them, the commodities of other countries which come 
 into competition with our's obtaining a preference in the 
 foreign market ; and, therefore, that in consequence of a 
 diminution of orders from abroad, our exports will be 
 diminished ; unless we assume, as we shall find it necessary 
 to do, that some compensation in the exchange is given to 
 the foreigner for the disadvantage attending the purchase 
 of our articles. But not only will our exports lessen in 
 the case supposed ; our imports also will encrease ; for the 
 high British price of goods will tempt foreign commodities 
 to come in nearly in the same degree in which it will 
 discourage British articles from going out. I mean only, 
 that these two effects (that of a diminished export, and 
 that of an encreased import) will follow, provided that we 
 suppose, what is not supposable, namely, that, at the time 
 when the price of goods is greatly raised in Great Britain, 
 the course of exchange suffers no alteration. For the fol- 
 lowing reason, I have said that this is not supposable. Under 
 the circumstances which have been described of a diminished 
 export, and an encreased import, the balance of trade must 
 unavoidably turn against us; the consequence of which 
 must be, that the drawers of bills on Great Britain in 
 foreign countries will become more in number than the 
 persons having occasion to remit bills. This disparity 
 between the number of individuals wanting to draw, and of 
 those wanting to remit, as was remarked in a former 
 Chapter, must produce a fall in the price at which the 
 overabundant bills on England sell in the foreign market. 
 The fall in the selling price abroad of bills payable here, 
 will operate as an advantage to the foreign buyer of our 
 commodities in the computation of the exchangeable value 
 of that circulating medium of his own country with which 
 
 131 
 
268 Thornton on 
 
 he discharges the debt in Britain contracted by his purchase. 
 It will thus obviate the dearness of our articles : it will 
 serve as a compensation to the foreigner for the loss which 
 he would otherwise sustain by buying in our market. The 
 fall of our exchange will, therefore, promote exportation 
 and encourage importation. It will, in a great degree, pre- 
 vent the high price of goods in Great Britain from producing 
 that unfavourable balance of trade, which, for the sake of 
 illustrating the subject, was supposed to exist. 
 
 The compensation thus made to the foreigner for the 
 high British price of all articles is necessary as an induce- 
 ment to him to take them, somewhat in the same manner as 
 a drawback or bounty on exportation is the necessary 
 inducement to take those particular goods which have been 
 rendered too dear for the foreign market by taxes laid on 
 them in this country. In each case the British consumer 
 pays the high price, and the foreigner is spared, because 
 otherwise he will not accept our commodities. 
 
 The fall in our exchange was just now defined to be an 
 advantage gained in the computation of the exchangeable 
 value of that foreign circulating medium with which the 
 foreigner discharges his debt in Great Britain, a debt paid 
 in the circulating medium of this country. It implies, 
 therefore, a high valuation of his circulating medium, and 
 a low valuation of our's ; a low valuation, that is to say, 
 both of our paper and of the coin which is interchanged 
 with it. 
 
 Now, when coin is thus rendered cheap, it by no means 
 follows that bullion is rendered cheap also. Coin is rendered 
 cheap through its constituting a part of our circulating 
 medium; but bullion does not constitute a part of it. 
 Bullion is a commodity, and nothing but a commodity ; and 
 it rises and falls in value on the same principle as all other 
 commodities. It becomes, like them, dear in proportion as 
 the circulating medium for which it is exchanged is ren- 
 dered cheap, and cheap in proportion as the circulating 
 medium is rendered dear. 
 
 In the case, therefore, which has now been supposed, 
 
 132 
 
Paper Credit. 269 
 
 we are to consider coin as sinking below its proper and 
 intrinsic worth, while bullion maintains its natural and 
 accustomed price. Hence there arises that temptation, 
 which was formerly noticed, either to convert back into 
 bullion and then to export ; or, which is the same thing 
 to export and then convert back into bullion ; or which is 
 also the same thing, to convert back into bullion, and then 
 sell to the bank, at the price which would be gained by 
 exportation, that gold which the bank has purchased, and 
 has converted from bullion into coin. 
 
 In this manner an encrease of paper, supposing it to be 
 such as to raise the price of commodities in Britain above 
 the price at which, unless there is some allowance afforded 
 in the course of exchange, they will be received in foreign 
 countries, contributes to produce an excess of the market 
 price above the mint price of gold, and to prevent, there- 
 fore, the introduction of a proper supply of it into the Bank 
 of England, as well as to draw out of its coffers, that coin 
 which the directors of the bank would wish to keep in 
 them. 
 
 Dr. Smith appears to me to have treated the important 
 subject of the tendency of an excessive paper circulation to 
 send gold out of a country, and thus to embarrass its bank- 
 ing establishments, in a manner which is particularly 
 defective and unsatisfactory. It is true, that he blames the 
 Bank of England for having contributed to bring on itself, 
 during several successive years, a great expence in buying 
 gold through a too great circulation of its paper ; and that 
 he also charges the Scotch banks with having had, through 
 their excessive issues, a share in producing this evil. Thus, 
 therefore, he seems to give to his reader some intimation of 
 the tendency of an excessive issue of paper to create an 
 excess of the market price above the mint price of gold.* 
 
 It appears, however, in some degree, from the passage in 
 question, though much more clearly from other parts of his 
 
 * Enquiry into the Nature and Causes of the Wealth of Nations, 
 vol. i. page 451, 4th edit. 8vo. 
 
 133 
 
270 Thornton on 
 
 work, that he considers every permanent excess, whether of 
 the market price above the mint price, or of the mint price 
 above the market price of gold, as entirely referable to 
 * something in the state of the coin/'* 
 
 In one place he remarks, that a high price of bullion 
 arises from the difference between the weight of our more 
 light and that of our more heavy guineas ; the value of the 
 gold in the heavier guineas, as he represents the case, deter- 
 mining the general current value of both the lighter and 
 the heavier pieces of coin ; and the superior quantity of gold 
 in the heavier guineas constituting, therefore, so much profit 
 on the melting of those heavier pieces : a supposition mani- 
 festly erroneous, and contradicted by experience; for it 
 implies that the excess of the market price above the mint 
 price of gold both never is and never can be greater than 
 the excess of the weight of the heavier above the lighter 
 guineas ; and, also, that the price of bullion cannot fluctuate 
 while the state of our coinage remains in all respects the 
 same. We have lately experienced fluctuations in our 
 exchange, and correspondent variations in the market price, 
 compared with the mint price of gold, amounting to no less 
 than eight or ten per cent., the state of our coinage con- 
 tinuing, in all respects, the same. 
 
 Dr. Smith recommends a seignorage, as tending to raise 
 the value both of the lighter and heavier coin ; and thus, 
 also, to diminish, if not destroy, the excess of the market 
 price above the mint price of gold.f 
 
 * Wealth of Nations, vol. i. page 69, 4th edit. 8vo. 
 
 t " Were the private people who carry their gold and silver to the 
 *" mint to pay themselves for the coinage, it would add to the value of 
 " those metals in the same manner as the fashion does to that of plate. 
 <l Coined gold and silver would be more valuable than uncoined. The 
 " seignorage, if it was not exorbitant, would add to the bullion the 
 " whole value of the duty, because the government having every where 
 " the exclusive privilege of coining, no coin can come to market cheaper 
 " than they think proper to afford it. 
 
 " A seignorage will, in many cases, take away altogether, and will in 
 " all cases diminish, the profit of melting down the new coin. This 
 " profit always arises from the difference between the quantity of 
 " bullion which the common currency ought to contain, and that which 
 " it actually does contain. If this difference is less than the seignorage, 
 
 134 
 
Paper Credit. 271 
 
 It is remarkable, that this Writer does not, in any 
 degree, advert either to that more immediate cause (a fall 
 of our exchanges), from which I have, in this as well as in 
 a former Chapter, described the excess in question, as in 
 all cases, arising ; or to that more remote one on which I 
 have lately dwelt, namely, a too high price of goods, which 
 produces a fall of our exchanges. 
 
 " there will be loss instead of profit. If it is equal to the seignorage, 
 " there will neither be profit nor loss. If it is greater than the seignor- 
 " age, there will, indeed, be some profit ; but less than if there were no 
 " seignorage." Wealth of Nations, vol. ii. Book iv. Chap vi. pages 333, 
 334, and 335. 
 
 These observations, on the subject of a seignorage, seem erroneous 
 in the following respects. Plate, when bought, is purchased in order 
 not to be sold again, but to be retained by the possessor ; and the price 
 paid by the original buyer, may, therefore, be not unfairly considered, 
 as it is by Dr. Smith, to be the current price of the article. Gold, on 
 the contrary, is no sooner bought a:id coined, than it is sent into circu- 
 lation ; it is sold, that is to say (or exchanged for commodities), again 
 and again. What we mean, therefore, by the current price of gold 
 coin, is that price at which it passes, not in the original bargain for 
 bullion between the seller of it, and the bank, but in the general course 
 of this subsequent circulation. Guineas, moreover, not only circulate 
 at home, but are liable to be sent abroad in the event of any unfavour- 
 able balance of trade. They are worth, in that case, just as much as 
 the foreign country will give for them ; and the foreign country, in 
 estimating their value, since it means to melt them, does not at all 
 take into its calculation the expence of the coinage of the piece of 
 metal. It acts like a buyer not of new but of old plate, who destines 
 it to the melting pot, and, therefore, refuses to allow any thing for " the 
 fashion." 
 
 This foreign price of our coin principally determines the current 
 value of the price of coin in England. It appears to me to do this in 
 the following manner. 
 
 When the price which our coin will fetch in foreign countries is such 
 as to tempt it out of the kingdom, the directors of the bank naturally 
 diminish, in some degree, the quantity of their paper, through an 
 anxiety for the safety of their establishment. By diminishing their 
 paper they raise its value ; and in raising its value, they raise also the 
 value in England of the current coin which is exchanged for it. Thus 
 the value of our gold coin conforms itself to the value of the current 
 paper, and the current paper is rendered by the bank directors of that 
 value which it is necessary that it should bear in order to prevent large 
 exportations ; a value sometimes rising a little above, and sometimes 
 falling a little below, the price which our coin bears abroad ; a price, in 
 the formation of which no regard is had to the fashion. 
 
 A seignorage, nevertheless, might add to the current value of the 
 coin of the kingdom for the following reason. It might incline the 
 directors of the bank to improve the value of their paper by a stricter 
 limitation of it, for the sake of more effectually exempting themselves 
 
 135 
 
272 TJiornton on 
 
 Dr. Smith does not, in any of his observations on this 
 subject, proceed sufficiently, as I conceive, on the practical 
 principle of shewing how it is through the medium of prices 
 (of the prices of goods in general, and of bullion in parti- 
 cular, compared with the price of the current circulating 
 medium), that the operations of importing and exporting 
 gold are brought about. He considers our coin as going 
 abroad simply in consequence of our circulation at home 
 being over full. Payment in coin, according to his doctrine 
 is demanded of every bank for as much of its paper as is 
 excessive, because the excessive paper can neither be sent 
 abroad nor turned to any use at home ; whereas, when it is 
 changed into coin, the coin may be transmitted to a foreign 
 part, and may there be advantageously employed.* 
 
 The reader will perceive, that, according to the principle 
 which I have endeavoured to establish, coin does not merely 
 leave the country because, the circulation being full, no use 
 can be found at home for additional circulating medium ; but 
 that every encrease of paper has been represented as enhanc- 
 ing the price of goods, which advanced price of goods affords 
 employment to a larger quantity of circulating medium, so 
 that the circulation can never be said to be over full. This 
 advanced price of goods is the same thing as a reduced price 
 of coin ; the coin, therefore, in consequence of its reduced 
 price, is carried out of the country for the sake of obtaining 
 for it a better market. The heavier pieces, undoubtedly, 
 
 from an occasional burthen, which is now borne for them by the 
 government. The point below which they would wish to prevent their 
 paper from falling would still be the same as it is now, namely, the 
 selling price of our coin when melted and carried to foreign countries : 
 the care, however, which they would take to prevent its falling below 
 that price would, perhaps, be greater, and would be such as to raise its 
 average price, if, in the event of each depression, they should be subject 
 not only as they are now, to loss in the purchase of gold, but to a 
 further loss in coining it. There seems no reason, however, to suppose, 
 that the degree of fluctuation which is now apt to subsist between the 
 market price and mint price of gold could, by any efforts of the 
 bank, be materially lessened. It results from the fluctuations in the 
 exchange ; and those fluctuations, in general, proceed from varia- 
 tions in the markets of Europe, which affect the balance of trade, and 
 cannot, by any management of bank paper, be exactly counteracted. 
 * Wealth of Nations, vol. i. page 450. 
 
 136 
 
Paper Credit. 273 
 
 will be preferred, if there is a facility of obtaining and 
 transporting them ; but the lighter guineas will also be 
 exported, when the state of the exchange shall be sufficiently 
 low to afford a profit on such a transaction. One of the 
 consequences of Dr. Smith's mode of treating the subject, is, 
 that the reader is led into the error of thinking, that when, 
 through an excessive issue of paper, gold has been made to 
 flow away from us, the expence of restoring it consists 
 merely in the charge of collecting it and transporting it from 
 the place to which it is gone. It follows, on the contrary, 
 from the principles which I have laid down, that, in order to 
 bring back gold, the expence not only of importing it may 
 be to be incurred, but that also of purchasing it at a loss, 
 and at a loss which may be either more or less considerable : 
 a circumstance of great importance in the question. If this 
 loss should ever become extremely great, the difficulties of 
 restoring the value of our paper might not easily be sur- 
 mounted, and a current discount or difference between the 
 coin and paper of the country would scarcely be avoidable. 
 
 Dr. Smith, indeed, represents the expence of bringing 
 back gold as considerable; but he seems to impute the 
 greatness of it to the circumstance of its recurring again and 
 again : and he describes it as continuing to recur in the case 
 of each individual bank, whether in town or country, which 
 persists in the false policy of issuing more paper than is 
 sufficient to fill the circulation of the neighbouring district. 
 I shall here take occasion to notice some great inaccuracies 
 in one part of his reasoning upon this point. 
 
 He says " A banking company which issues more paper 
 Ce than can be employed in the circulation of the country, 
 " and of which the excess is continually returning upon them 
 " for payment, ought to encrease the quantity of gold and 
 "silver which they keep at all times in their coffers, not only 
 (( in proportion to this excess, but to a much greater propor- 
 " tion. Suppose, for instance, all the paper of a particular 
 "bank, which the circulation of the country can easily 
 "absorb, amounts to forty thousand pounds, and the bank 
 " keeps usually ten thousand pounds in gold and silver for its 
 
 137 
 
274 Thornton on 
 
 " occasional demands. If this bank should attempt to cir- 
 " culate forty-four thousand pounds, the excess of four 
 "thousand pounds will return as fast as it is issued. Four- 
 " teen thousand pounds must then be kept instead of ten 
 " thousand pounds, and the bank will gain nothing by the 
 " excessive circulation. On the contrary, it will lose the 
 " whole expence of continually collecting four thousand 
 f< pounds in gold and silver, which will be continually going 
 " out of its coffers as fast as they are brought in." 
 
 He then adds " Had every particular bank always 
 " understood and attended to its own interest, the circulation 
 " would never have been overstocked with paper money." 
 
 There is, no doubt, some sort of ground for saying that 
 an excess of paper will come back upon the banks which 
 issue it, and that, in coming back, it will involve the issuing 
 banks in expence. Much exception, however, might be 
 taken against Dr. Smith's mode of estimating the expence 
 which the quantity which would come back would bring 
 upon the issuing banks. But the objection which I shall, in 
 the first place, urge against the remark of Dr. Smith, is, 
 that, even granting it to be just, it can be just only in a case 
 which can scarcely ever occur among the country banks of 
 this kingdom. I mean, that it can apply solely to the case 
 of a single bank of which the paper circulates exclusively 
 through a surrounding district : it obviously cannot hold in 
 the case of many banks, the paper of all of which circulates 
 in the same district. 
 
 In order to explain this clearly, let us make the following 
 supposition, Let us imagine the circulation of country 
 bank paper which a certain district will bear to be one 
 hundred thousand pounds, and ten banks to be in that dis- 
 trict, each usually circulating and able to keep in circulation 
 ten thousand pounds. Let us also suppose an excessive issue 
 of four thousand pounds, and let us allow the effect of this 
 on the ten banks to be that which Dr. Smith describes, a 
 point which might certainly be disputed, namely, that a 
 necessity will arise for always keeping (for this is what Dr. 
 Smith's language implies) an additional stock of gold amount- 
 
 138 
 
Paper Credit. 275 
 
 ing to exactly four thousand pounds, and also that a 
 reiterated expence will be incurred (Dr. Smith does not say 
 how frequently reiterated) in collecting and transporting 
 these four thousand pounds of gold. Still it must be 
 observed, that we may suppose the issue of the four thou- 
 sand pounds excessive paper to be made by some one only of 
 the ten banks, while the charge incurred by such issue may 
 be divided among them all. It may, therefore, on Dr. 
 Smith's own principles, answer to one of several banks 
 emitting paper which circulates in the same place, to issue 
 the paper which is considered by him as excessive ; and the 
 practice of doing so may be owing to the country banker's 
 too well knowing his own interest, and not, as Dr. Smith 
 supposes, to his too ill understanding it. 
 
 But the case which I have supposed has been put merely 
 by way of illustration. When many banks issue notes cir- 
 culating over the same district, it is impossible to say whose 
 paper constitutes the excess. Whatever temptation to 
 excess exists, must be a general one. It is, however, 
 counteracted not only by the charge of transporting gold 
 on which alone Dr. Smith dwells, but likewise by all the 
 other charges, as well as by all the risks to which country 
 bank notes subject the issuers ; not to mention the difficulty 
 of finding a channel through which a quantity of paper 
 much larger than common can be sent by the country bank 
 into circulation. 
 
 Dr. Smith supposes, in the passage which has just been 
 quoted, that, when there is an excessive circulation of 
 country bank paper, the excess returns upon the banks to be 
 exchanged for gold and silver. The fact is, that it returns 
 to be exchanged not for gold and silver only, but either for 
 gold and silver, or for bills on London. A bill on London 
 is an order to receive in London, after a certain interval, 
 either gold or Bank of England notes. This order imposes 
 on the country banker the task of providing a fund in 
 London sufficient to answer his draft : it serves, however, to 
 spare that expence of transporting gold, as well as to lessen- 
 .that necessity of maintaining a stock of guineas, which Dr. 
 
 139 
 
276 Thornton on 
 
 Smith assumes to be the consequence of every excessive 
 emission of notes, and to be the certain means, if bankers 
 do but understand their interest, of limiting their issue. 
 
 The remark which has just been made derives particular 
 importance from the circumstances of the period through 
 which we have passed. For, if the usual means of prevent- 
 ing an excess of country bank notes were nothing else than 
 the liability of the issuers to be called upon for a money pay- 
 ment of them, it might fairly be assumed, that, at a time 
 when the money payment of them has been suspended, we 
 must necessarily have been exposed to the greatest inunda- 
 tion of country paper, and to a proportionate depreciation 
 of it. The unbounded issue of country bank notes has been 
 restrained by the obligation under which country bankers 
 have considered themselves to be of granting bills on Lon- 
 don ; that is to say, orders to receive in London Bank of 
 England paper in exchange for their notes, if required to do 
 so : and it is certain that they would be required to do so 
 whenever the quantity of their notes should be much greater 
 in proportion to the occasion for them, than the quantity of the 
 notes of the Bank of England in proportion to the occasion 
 for those notes. 
 
 For the sake of explaining this, let it be admitted, for a 
 moment, that a country bank has issued a very extraordinary 
 quantity of notes. We must assume these to be employed 
 by the holders of them in making purchases in the place in 
 which alone the country bank paper passes, namely, in the 
 surrounding district. The effect of such purchases, accord- 
 ing to the principles established in this Chapter, must be a 
 great local rise in the price of articles. But to suppose a 
 great and merely local rise, is to suppose that which can 
 never happen or which, at least, cannot long continue to 
 exist ; for every purchaser will discover that he can buy 
 commodities elsewhere at a cheaper rate ; and he will not 
 fail to procure them in the quarter in which they are cheap, 
 and to transport them to the spot in which they are dear, for 
 the sake of the profit on the transaction. In order that he 
 may be enabled to do this, he will demand to have the notes 
 
 140 
 
Paper Credit. 277 
 
 which pass current in the place in which we have supposed 
 goods to have been rendered dear by the extraordinary 
 emission of paper, converted into the circulating medium of 
 the place in which goods are cheap: he will, therefore, 
 require to have his country bank note turned into a Bank of 
 England note, or into a bill on London, which is nearly the 
 same thing, provided Bank of England notes are fewer in 
 proportion to the occasion for them than the country bank 
 notes ; that is to say, provided Bank of England notes have 
 less lifted up the price of goods in London than country 
 bank notes have lifted up the price of goods in the country. 
 
 This point may be still more fully illustrated in the 
 following manner. Let us imagine a mercantile house to 
 consist of two branches, the one placed in the metropolis, 
 the other in the country, and each branch to be accustomed 
 to make certain payments in the spot in which it is situated, 
 each, however, to be in the habit of borrowing as largely as 
 it is able, the one of a neighbouring country bank, the other 
 of the Bank of England, and of applying these loans to the 
 joint use of the trading concern. Let us next suppose an 
 extraordinary facility of borrowing at the country bank to 
 arise, while the opportunities of obtaining loans at the Bank 
 of England remain the same.* In such case the mercantile 
 house, provided its London payments continue to bear the 
 same proportion as before to its country payments, which 
 will hardly fail to be the case, will exchange some part of its 
 encreased loans in the country, consisting in country bank 
 notes, for bills on London, or, in other words, for Bank of 
 England notes. It will thus adjust, with the greatest 
 nicety, the quantity of London and of country paper to the 
 
 * The case here put is assumed to exist only by way of argument. 
 The point intended to be shewn, is, that the case cannot happen ; or, at 
 least, that such cannot be the case, at the same time, of all the country 
 banks in the kingdom. A single individual, it is true, may find his 
 means of borrowing at a particular country bank to encrease in the 
 manner which is here supposed ; for he may obtain a preference over 
 other borrowers. A single bank, also, may find its means of lending to 
 encrease ; for its notes may usurp the place of those of other banks. 
 There can, however, be no material enlargement on the whole of the 
 paper of the country, while the facility of borrowing in London remains 
 the same. 
 
 141 
 
278 Thornton on 
 
 amount of the pecuniary demands upon it in each quarter ; 
 and, in doing so, it will contribute to prevent the supply of 
 notes in either place from becoming greater in proportion to 
 the demand than in the other. What has been supposed of 
 one house, may be supposed of many similar ones ; and not 
 only of houses of the particular description which has been 
 spoken of, but also of the several independent establishment! 
 in the two distant places which have pecuniary transactions 
 together, and have an interest in accommodating each other. 
 Their general operations, of a pecuniary kind, must be such 
 as always to check a local rise in the price of commodities in 
 either place, while it is as yet so small as to be scarcely 
 perceptible. In this manner, therefore, the exchangeable- 
 ness of country paper for London paper will never fail very 
 nearly to equalize the value of them both. It is, moreover, 
 important clearly to point out that their value will be 
 equalized, or nearly equalized, not by a tendency in the 
 London paper to partake in a low value which the country 
 paper has acquired in consequence of its not being limited by 
 any voluntary act of the issuers ; nor by a tendency in each 
 to approximate in value to the other ; but by a tendency in 
 the country paper to take exactly the high value which the 
 London paper bears in consequence of its being restricted 
 by the issuers. That this must be the case is plain, from 
 the remark which has just been made ; for it has been shewn, 
 that the country paper, however it may fail to be limited in 
 quantity by any moderation or prudence of the issuers, 
 becomes no less effectually limited through the circumstance 
 of their being compelled by the holders to exchange as much 
 of it as is excessive for the London paper which is limited ; 
 which is limited, I mean, in consequence of a principle of 
 limitation which the directors of the Bank of England have 
 prescribed to themselves. 
 
 The country paper, let it then be observed, does not add 
 any thing to the quantity of the London paper ; for the 
 effectual limitation of the London paper is the great point, 
 which it must be borne in mind, that we have assumed. 
 The countrv paper, therefore, does not in any degree diminish 
 
Paper Credit. 279 
 
 the price of the London paper; for its price must remain 
 fixed so long as its quantity continues fixed, supposing, as 
 we do in our present argument, that the demand for it is the 
 same. It has been proved, however, that the country paper 
 is rendered, by its exchangeableness with the London paper, 
 almost exactly equal to it in value. It is, then, rendered almost 
 exactly equal in value to a paper of which the value is 
 completely sustained. Thus, therefore, the limitation of the 
 supply of the single article of London paper, of which, 
 however, we are taking for granted that the demand con- 
 tinues the same, is the means both of sustaining the value of 
 London paper, and also of sustaining the value as well as 
 limiting the quantity of the whole paper of the country. 
 
 It is, however, necessary here to point out to the reader, 
 that, in the immediately preceding observations, we have 
 assumed certain facts to exist, for the sake of stating clearly 
 a general principle. It will be the object of a succeeding 
 Chapter to shew in what respects the case which has been 
 supposed differs from the actual one. 
 
 CHAP. IX. 
 
 Of the Circumstances which cause the Paper of the Bank of 
 jEngland, as well as all the other Paper of the Country, to 
 fail of having their Value regulated according to any exact 
 Proportion to the Quantity of Bank of England Notes. 
 
 SEVERAL points may be considered as having been as- 
 sumed, for the sake of describing clearly the principle which 
 was laid down in the close of the former Chapter. They 
 may be stated to have been the following. 
 
 First, the notes of the Bank of England were spoken 
 of as forming exclusively the whole circulating medium of 
 the district which surrounds the metropolis, and as having 
 no circulation beyond the boundaries of that district. The 
 object was, then, to evince, that supposing, secondly, the 
 
 143 
 
280 Thornton on 
 
 quantity of Bank of England paper to continue the same ; 
 and supposing, thirdly, the payments within the district to 
 be the same ; and supposing also, fourthly, the general cir- 
 cumstances to be such as to render the same quantity of 
 circulating medium just as sufficient as before to effect the 
 same payments ; the Bank of England paper could not fail 
 both to maintain its own value, and also to maintain the 
 value as well to restrict the quantity of the general paper of 
 the country. 
 
 In attempting to shew in what respects the case thus put 
 may have differed from the actual one, I shall advert to 
 each of the four points which have just been mentioned. 
 
 First, the notes of the Bank of England have a circula- 
 tion, which is not perfectly exclusive, over any definable 
 district. In the metropolis itself, and in its neighbourhood, 
 they are the only current paper, some coin circulating also. 
 In many distant parts of the country a very small quantity 
 of Bank of England notes circulate, and also much other 
 paper, as well as a certain quantity of coin. This London 
 and country coin, as well as country paper, may happen 
 through various causes to supplant the Bank of England 
 paper, or to be supplanted by it, either in a greater or in a 
 less degree ; and every such variation will have an effect 
 which it is necessary to consider. If, for example, a larger 
 quantity than usual of Bank of England notes should cir- 
 culate in the country; then the quantity of them which 
 remains applicable to the uses of the London district will be 
 smaller, supposing the total amount issued to be the same. 
 In the case, therefore, of more Bank of England notes cir- 
 culating in the country, and in the case also of some Bank 
 of England notes occupying the place of guineas antece- 
 dently current in London, an issue of a larger total quantity 
 of Bank of England paper will be necessary, in order to give 
 the same means as before of effecting London payments, and 
 in order to produce the same limitation as before of the total 
 quantity of circulating paper in the country. 
 
 All the one and two pound notes of the Bank of Eng- 
 land (a species of paper which has been issued only since the 
 
 144 
 
Paper Credit. 281 
 
 suspension of its cash payments) have clearly formed that 
 sort of addition to the bank paper of which I have been 
 speaking. These have circulated, some in London, and 
 many of them in the country, in the place of guineas, which 
 have disappeared ; and the amount of them has lately been 
 two millions. In order, therefore, to produce the same 
 effect on the country paper as before the suspension, the 
 total amount of Bank of England notes lately circulating 
 ought to have exceeded the quantity issued before the sus- 
 pension by about two millions, supposing all other things 
 the same. There are other causes which occasionally pro- 
 duce variations in that part of the Bank of England paper, 
 which assists in supplying the distant country circulation : 
 and these variations may sometimes be considerable, and may 
 not easily be estimated. They probably, however, have not 
 lately been material. For though, while the practice of 
 paying in gold has been suspended, country banks, on the 
 one hand, may have been encouraged somewhat more than 
 before to push their notes into circulation, and may thus 
 have supplanted some of the paper of the Bank of England 
 usually passing in their neighbourhood; they certainly, on 
 the other hand, have many of them kept lately in their 
 drawer a fund of Bank of England notes, which was not 
 heretofore deemed necessary, for the sake of being able to 
 offer these in payment of their own paper.* 
 
 I have to consider, secondly, how far, allowing for that 
 difference of two millions of which mention has been made, 
 the circulating quantity of Bank of England paper has lately 
 corresponded with that of antecedent periods. 
 
 The average amount of Bank of England notes in circu- 
 lation during three years ending in December 1795, appears 
 to have been 11,975,5737. The amount in circulation on 
 the 26th of February 1797, the day antecedent to the sus- 
 pension of the cash payments of the bank, has been already 
 stated to have been about 8,600,0007., this being that very 
 
 * Some Bank of England notes have also been recently employed in 
 the place of small bills on London, the use of which has been dis- 
 couraged by the late additional duty on bills and notes. 
 
 145 
 
282 Thornton on 
 
 low sum to which they were then reduced. By a statement 
 of their amount on the 6th December 1800, laid before the 
 House of Commons, they appear to have been then 
 15,450,970/. This last mentioned sum includes the two 
 millions of one and two pound notes. If these two millions 
 are deducted, the amount on the 6th December 1800 will 
 exceed the average amount in three years antecedent to the 
 suspension of the cash payments of the bank by 1,475,397/. 
 It remains, however, to be observed, that the notes of the 
 Bank of England were stated to the House of Commons by 
 the governor of that company, in the spring of 1801, to have 
 been then reduced to a sum less by about a million and a half 
 than their amount on the 6th December 1800. The total 
 quantity, therefore, of the Bank of England notes in circu- 
 lation in one part of the spring of 1801, if the two millions 
 be deducted, almost exactly agrees with their average amount 
 during the three years ending December 1795.* 
 
 * This account of the comparative quantities of the Bank of England 
 notes circulating before, and of those circulating after the suspension of 
 the cash payments of the bank, differs greatly from that of Mr. Boyd, 
 who has, in his pamphlet, minutely investigated the same subject. The 
 causes of this disagreement are the following. 
 
 He mentions, as I have done, the amount of Bank of England notes 
 to have been, on the 6th December 1800, 15,450,970^. He then com- 
 pares this their highest amount (for such, or nearly such, I consider it 
 to be), first with their lowest amount, namely, with their amount on the 
 26th February 1797, which was 8,640,250^, and then with their average 
 amount for three years antecedent to the suspension of the cash pay- 
 ments of the bank, viz. 11,975,573^., the same average amount at which 
 I have reckoned them, for I have adopted Mr. Boyd's own statement. 
 He then infers, that, on the first of his principles of comparison, an 
 addition of nearly four-fifths, and, on the second, of three-tenths, had 
 been made to the sum in circulation. 
 
 To this representation the answer is, as will appear from the text, first 
 that of the 15,450,970^. stated to the House of Commons to be the amount 
 of Bank of England notes in circulation on the 6th December 1800, the 
 sum of about two millions, consisting in one and two pound notes, ought 
 to have been deducted by Mr. Boyd in forming his comparison. These 
 notes evidently filled the place which was before occupied by guineas. 
 They were, for that reason, not added to the 13,450,970^. in the return 
 made by the bank to parliament, as they have been in the pamphlet of 
 Mr. Boyd, but were set down as a separate article. Bankers have com- 
 monly given out these one and two pound notes as a substitute for 
 guineas ; and every individual, whether in London or in the country, 
 who has had a note of this description in his pocket, has obviously kept 
 it in the place of gold. 
 
 146 
 
Paper Credit. 283 
 
 We have to consider, thirdly, whether the payments of 
 the metropolis may be likely to have been the same in the 
 last year as in some preceding years. 
 
 A subject, in the examination of which there may seem 
 to be some difficulty, shall here, in the first place, be dis- 
 cussed. It has been already observed, that the quantity of 
 Bank of England notes is limited by the bank directors who 
 issue them ; and that the quantity of country bank paper, 
 though restricted in an equal degree, is limited not by the 
 act of the issuers, but through the circumstance of its 
 exchangeableness for London paper. By saying that the 
 country paper is limited in an equal degree, I always mean 
 not that one uniform proportion is maintained between the 
 quantity of the London paper and that of the country paper, 
 but only that the quantity of the one, in comparison with 
 the demand for that one, is the same, or nearly the same, as 
 
 It is to be replied, secondly, that the sum of 8,640,250. with which 
 one of the comparisons of Mr. Boyd is made, is that remarkably low 
 sum to which the bank improperly, as I have ventured to suspect, and 
 certainly to the no small distress of the metropolis, had suffered their 
 notes to fall on the day antecedent to the suspension of their cash pay- 
 ments, a sum of the smallness of which Mr. Boyd himself has com- 
 plained. Their notes on the 18th February, that is, exactly one week 
 
 before, were .9,137,950 
 
 They were two weeks before 9,431,550 
 
 Three weeks before 9,667,460 
 
 A month before 10,024,740 
 
 And five weeks before 10,550,830 
 
 Their notes also, immediately after they were at that lowest sum of 
 8,640,250^., with which Mr. Boyd forms the first of his comparisons, were 
 encreased considerably : they were, on the 4th March, that is, one week 
 after, 10,416,520^., and they were gradually raised still higher. 
 
 There can, therefore, be no doubt that the comparison ought to have 
 been made with the number which were in circulation, not at the 
 remarkable aera of the 26th February, 1797, but only during an average 
 of years preceding the suspension. 
 
 The fact of the Bank of England notes having been reduced near a 
 million and a half in the spring of 1801, a circumstance which renders 
 the amount of them almost exactly equal at the two periods at which 
 both I and Mr. Boyd have made our comparison, could not be known to 
 Mr. Boyd at the time of writing his pamphlet. 
 
 Mr. Boyd founds, on the supposed fact of the vast encrease of Bank 
 of England notes, the opinion which he states in the beginning of his 
 Work, that " to the augmentation of bank paper not convertible into 
 specie, more than to any other cause, is to be ascribed the high price of 
 provisions." 
 
 147 
 
284 Thornton on 
 
 the quantity of the other in proportion to the call for the 
 other. 
 
 The reader, in reasoning on this state of the case, may, 
 perhaps, be inclined to infer, and it is a question which seems 
 to deserve consideration, that when the Bank of England 
 paper is more than usually restricted, the pressure in London 
 which in such case takes place (for it is there that the general 
 pressure originates), may be likely to relieve itself either by 
 drawing to London a large part of the Bank of England 
 paper usually circulating in the country, the place which it 
 occupied being supplied by country paper, or by causing 
 many of the payments of London to transfer themselves to 
 the country. If either of these two consequences should 
 result from every pressure in London, then, even though the 
 total amount of Bank of England paper should be diminished, 
 that part of it which circulates in London may possibly con- 
 tinue to be just as sufficient as before to perform the task 
 assigned to it of effecting the London payments ; and in that 
 case the country paper also, since it always takes the price 
 of the London paper, will so far encrease itself as to become 
 in the same manner as before commensurate with the country 
 payments. If any considerable effect of this kind should 
 follow from every limitation of the London paper ; then the 
 principle which w r as laid down in the close of the former 
 Chapter in a great measure fails : and the bank has not that 
 power which was ascribed to it of restricting the quantity 
 and regulating the value of the paper of the country. 
 
 That a pressure in London is not likely to produce the 
 first of the two effects which have been mentioned, that of 
 drawing to London the Bank of England notes circulating 
 in the country, is a point on which I shall not separately 
 dwell, except so far as to observe, that a pressure in London, 
 if it be very sudden and severe, may be suspected of having 
 a tendency directly contrary to that of bringing Bank of 
 England notes from the country to London ; for it is apt, 
 through the alarm which it excites, to produce, as was for- 
 merly explained, an extraordinary diminution of country 
 bank notes ; a diminution, I mean, which is even greater in 
 
 148 
 
Paper Credit. 285 
 
 proportion to the country payments to be effected than that 
 of the notes of the Bank of England in proportion to the 
 London payments. In such case, a necessity is created for 
 the substitution of other circulating medium in the place of 
 the country paper which has been suppressed. The sub- 
 stitute principally demanded will be gold ; but some Bank 
 of England paper is not unlikely to be also employed in 
 filling the void. 
 
 In proceeding to enquire whether a pressure in London, 
 arising from the restriction of Bank of England paper, is 
 likely to cause the transfer to the country of many of the pay- 
 ments usually made in London, I shall advert to past experience. 
 
 It was mentioned in an early Chapter of this Work, that 
 there seems to have existed, for some time, an encreasing 
 disposition to transfer to London the pecuniary part of 
 even those commercial transactions which belong properly 
 to the country. It here naturally occurs to us to enquire 
 for what reason the restriction of the notes of the Bank of 
 England by the issuers in time past, has not served to remove 
 this disposition, and even to cause the quantity of London 
 payments, compared with those of the country, continually 
 to lessen, rather than to encrease. The Bank of England 
 paper, let it here be observed, operated before the suspension 
 of the cash payments of the bank in restricting the country 
 paper, exactly in the same manner as it has done since that 
 event. It is commonly and very naturally supposed, that it 
 was the exchangeableness of the country paper for guineas 
 which used to sustain its value. This, however, was not the 
 case : its value was sustained by its exchangeableness for 
 Bank of England notes. The country paper bore always 
 and necessarily the same value as the notes of the Bank of 
 England ; and not always or necessarily the same value as 
 the gold contained in the coin, for which the country paper 
 was exchangeable. It is true, indeed, that the quantity of 
 gold in our coin had an influence on the value of country 
 paper. It had, however, only an influence which was imper- 
 fect and indirect. It served to dictate to the directors of 
 the Bank of England what was that quantity of paper which 
 
 149 
 
286 Thornton on 
 
 they might properly emit. For, if at any time the exchanges 
 of the country became so unfavourable as to produce a mate- 
 rial excess of the market price above the mint price of gold : 
 the directors of the bank, as appears by the evidence of some 
 of their body given to parliament, were disposed to resort to 
 a reduction of their paper as a means of diminishing or 
 removing the excess, and of thus providing for the security 
 of their establishment. They, moreover, have at all times 
 been accustomed to observe some limit as to the quantity of 
 their notes, for the same prudential reasons. 
 
 This interest in the prevention of any great excess of the 
 market price above the mint price of gold was in no degree 
 felt by the country banker ; for the loss sustained by every 
 new conversion of bullion into coin was borne not by him, 
 but by the bank of England, out of whose coffers all the 
 guineas called for in every part of the kingdom were sup- 
 plied. The bank of England, if coin was demanded of it, had 
 to purchase bullion at a losing price. The country banker, 
 if coin was in like manner required of him, had only to pos- 
 sess himself of a Bank of England note, which was ex- 
 changeable at the bank for guineas without any discount. 
 If, therefore, the directors of the Bank of England suffered 
 their paper to be worth less than the gold contained in the 
 coin for which their paper was exchangeable, the country 
 paper was worth less also ; or, in other words, the degree 
 of expence and difficulty which the country banker in- 
 curred in obtaining guineas was to be measured by the 
 degree of expence and difficulty incurred in obtaining 
 Bank of England notes, and not by the degree of expence 
 and difficulty incurred in buying and then coining gold. 
 The necessity which the Bank of England felt of curing 
 any great excess of the market price above the mint price 
 of gold, caused the limitation of Bank of England paper ; 
 and then this limitation, in proportion as it took place, pro- 
 duced the limitation of the paper of the country. It was in 
 this manner that an excessive issue of the paper of the 
 kingdom was restrained before the suspension of the cash 
 payments of the Bank of England. If then, the directors of 
 
 150 
 
Paper Credit. 287 
 
 the bank were used before the suspension of their cash 
 payments to limit their issues through a necessity which some- 
 times urged them, and if thus they limited the paper of the 
 country in the manner which has been described, it follows 
 that, supposing them after that event to have restrained their 
 issues in like manner, though through a somewhat less urgent 
 motive, the general effect must have been the same. There 
 can, therefore, be no more reason to suppose a transfer to 
 have lately taken place of London payments to the country, 
 or of Bank of England notes circulating in the country to 
 London, than there is to suppose the same transfer to have 
 taken place in the time when the bank paid in gold. Both 
 the nature of the pressure, and the principle on which our 
 paper credit stood, were the same at both periods. 
 
 It remains for us to enquire, how far the payments of 
 London are likely to have varied through any other cause. 
 It is probable that, under ordinary circumstances, they do 
 not fluctuate in any very considerable degree within a short 
 distance of time. War seems likely, on the whole, to encrease 
 them, both by the additional business in the stocks, and also 
 by the other pecuniary transactions on the account of 
 government (transactions generally carried on entirely in 
 London), to which it gives occasion. It also encreases the 
 payments of London, in common with those of the country, 
 by contributing to a general rise in the price of articles. It 
 is, however, necessary to guard this observation. In respect 
 to the total quantity of consumable articles produced and sold 
 in the kingdom, war, perhaps, may be considered as usually 
 making little difference ; for, while it gives a spur to some, 
 it operates as a check to other branches of industry ; and, 
 while it encreases national consumption, it may possibly 
 diminish, in an almost equal degree, that of individuals. It 
 raises, however, the price of commodities, and thus enlarges 
 the general amount of payments, though it more particularly 
 augments those payments which are made in the metropolis. 
 This general augmentation, however, of the price of our 
 articles, unattended by a similar rise in the price of the 
 commodities of other countries, obstructs as has been already 
 
 151 
 
288 Thornton on 
 
 shewn, the exportation of our goods ; since it renders them 
 less able to stand the competition to which they are subject 
 in foreign markets, unless a compensation for the rise is 
 afforded to the foreigner in the computation of the exchange 
 between the two countries. The reader may, perhaps, be 
 led here to imagine, that the bank ought to prevent this rise 1 
 according to the principles which it is the object of this 
 Chapter to establish, a sufficiently considerable reduction of 
 its paper being all that is necessary for the purpose. No 
 doubt the fact is, that the tendency of goods to rise is con- 
 tinually restrained by the limitation of the paper of the 
 Bank of England. And I apprehend that it is restrained 
 just as much as it is proper, or, perhaps, practicable, to 
 restrain it, if the paper of the bank is so far confined 
 as to prevent an excess of the market price above the 
 mint price of gold : for, in that case, it is restrained so 
 far as still to afford to our goods the opportunity of sale in a 
 foreign market, without giving to the foreigner that com- 
 pensation in the exchange which leads to the exportation of 
 the current coin of the country. To suppose the bank paper 
 to be restrained much farther, is to suppose a profit on the 
 importation of bullion ; a profit, to which the continuance of 
 the importations of that article must soon put a period. In 
 saying, therefore, that war enhances the price of goods, and 
 thus causes an encrease of payments, we ought here to bear 
 in mind that it ought only to be allowed to lift them up to 
 that point to which they can be raised consistently with the 
 general maintenance of our exchanges ; and that, so far as 
 they permanently stand above that point, it is the enlarged 
 and too great quantity of notes of the Bank of England 
 which is to be considered as the cause of the high price of 
 goods, rather than the high price of goods which is to be 
 taken to be the cause of the enlarged quantity of notes of 
 the Bank of England*. There is considerable danger, lest 
 
 * It was observed in a former place, that this difficult and disputable 
 point would be again adverted to in the progress of the present 
 Work. The fairest mode, as it appears to me, of determining which ought 
 to be deemed the cause and which the effect, is that which has been 
 
 152 
 
Paper Credit. 289 
 
 in this respect, we should, in some degree, at least, mistake 
 the effect for the cause ; and should too much incline to con- 
 sider an advanced price of commodities to be both the cause 
 of an encreased issue of paper and the justification of it. 
 
 War, on the contrary, may be supposed to lessen the 
 amount of general payments, or, at least, to check their 
 growth, so far as it obstructs the accumulation of wealth and 
 the natural progress of commerce. We know, however, that, 
 during the late war, the amount of our exported and im- 
 ported articles continued greatly to encrease. This happened 
 partly, no doubt, through the general tendency of our trade 
 to enlarge itself, partly through the advantages resulting 
 from some new colonial acquisitions, and partly from the cir- 
 cumstance of the commerce of our competitors having been 
 still more interrupted than our own. Our exports and 
 imports it is true, form no just measure of the total quantity 
 either of our commercial transactions or of our general pay- 
 ments : they afford, however, some presumption of the 
 enlargement of both. If we take into consideration all the 
 points which have been touched upon, there will appear 
 sufficient reason to believe, that, during the late war, a very 
 considerable and progressive augmentation of the payments 
 of the metropolis must have taken place. 
 
 It now remains only to consider, fourthly, how far cir- 
 cumstances may have been such as to have rendered the 
 same quantity of Bank of England notes either more or less 
 sufficient for effecting the same quantity of London pay- 
 ments. 
 
 adopted in the text ; namely, to charge too much paper with being the 
 cause when the price of bullion is rendered permanently higher than 
 that of coin, and, when otherwise, to consider it rather as an effect. By 
 the term "permanently," I, "however, mean such a degree of permanence 
 as may serve to shew that the fall of our exchanges, and the rise in the 
 price of bullion, are not referable to any extraordinary and passing event, 
 such as that of one or even of two particularly bad harvests ; for these 
 may not unfairly be termed temporary circumstances, though their 
 influence may extend over a period of one or two years. In general it 
 may, perhaps, also be assumed, that an excessive issue of paper has not 
 been the leading cause of a fall in the exchange, if it afterwards turns 
 out that the exchange is able to recover itself without any material 
 reduction of the quantity of paper. 
 
 153 
 
290 Thornton on 
 
 Several causes may have contributed to spare the use of 
 notes. First, it is to be remembered, that a small extension of 
 their quantity may be sufficient to effect a comparatively 
 large number of additional payments ; for the private bankers 
 in London, who are the chief holders of Bank of England 
 paper, by no means find it necessary to enlarge their stock of 
 it in full proportion to the encreased number of their pecu- 
 niary transactions. The talent of economizing bank notes is 
 also a continually improving one ; and the very circumstance 
 of the suspension of the cash payments of the bank, by 
 serving to strengthen mercantile credit, has favoured the 
 exercise of reconomy in the use of the paper of the Bank of 
 England. When payments were currently made in gold, the 
 country banks were subject to sudden demands for cash 
 through temporary alarms among the holders of their notes. 
 From these they have lately been more exempt, in conse- 
 quence of no other option having been given to those who 
 demanded payment of country bank paper than that of 
 receiving Bank of England notes in return. Since the sus- 
 pension of the cash payments of the bank, credit has been 
 less subject to interruption, and the quantity both of country 
 paper and of Bank of England notes has probably been less 
 variable ; or, if the fluctuations of the latter have been as 
 considerable as before, they may have more nearly corre- 
 sponded with the variations in the wants of the public*. 
 
 * Immediately after the payment of the quarterly dividends on the 
 public funds, the amount of Bank of England paper in circulation is 
 considerably encreased ; but the expectation that the plenty of it will 
 soon cease, disposes bankers aud others to hold for a time a superfluous 
 quantity. In consequence of the additions to the public debt made 
 during the war, the occasional enlargements of the quantity of bank 
 paper, arising from this cause, have become much more considerable. 
 A diminution of notes, if known to be temporary, aud if also moderate, 
 produces, on the other hand, little pressure : for the expectation of 
 returning abundance serves to maintain confidence, and to dispose the 
 bankers to deem a somewhat reduced stock of bank paper for the time 
 sufficient, The chief occasion of a diminution of the number of bank 
 notes has been, that of the payment of the instalments on the public 
 loans. The government, during the latter years of the war, issued from 
 week to week a species of exchequer bills, which they received back in part 
 of the payments on the loans. By thus lessening the quantity of paper 
 taken out of circulation at the time of each instalment, they gave new 
 
 154 
 
Paper Credit. 291 
 
 To sum up the observations which have now been made : 
 it thus appears, that since the suspension of the cash pay- 
 ments of the bank, the number of its notes has been the 
 same, or nearly the same, as before that event, if those two 
 millions of one and two pound notes, which have been a mere 
 substitute for gold, are deducted ; that the payments, how- 
 ever, of the metropolis have been much encreased ; but that, 
 on the other hand, the same number of notes has probably 
 sufficed of late for more than the same number of payments. 
 
 It has not been the object of these remarks to found upon 
 them any exact estimate of the effect which the quantity of 
 Bank of England paper lately issued is likely to have had on 
 the cost of commodities, or on the market price of bullion ; 
 but rather, on the contrary, to shew that no such estimate 
 can with confidence be formed, on account of the number of 
 circumstances, some of them very difficult to be appreciated 
 which affect the question. I believe the fact to be, that very 
 little correspondence has subsisted between the fluctuation 
 in the amount of Bank of England notes in circulation at 
 different times, and the variations in the general price of 
 articles at the same periods ; and this want of a very dis- 
 cernible connexion between the cause and the effect, seems 
 not unlikely to have led some persons too hastily to conclude, 
 that the enlargement and diminution of Bank of England 
 paper have not that influence on the exchanges or on the 
 price of commodities which has been spoken of*. 
 
 facility to the operation of raising the public money ; an operation which, 
 however great, has in itself no other difficulty than that which arises 
 from the too sudden diminution of London paper to which it is apt to 
 lead. It can scarcely be necessary to add, that a great loan may, never- 
 theless, portend difficulty in other quarters, and that the degree of ease 
 with which the payment of our loans may be accomplished, is, therefore, 
 no true criterion of the state of the public resources. 
 
 * It is not long since the Bank of England first adopted the custom 
 of issuing notes for five pounds. These have circulated for some years 
 in the place partly of gold, partly of country bank notes, and partly also, 
 though it is impossible to say in what degree, in the place of ten pound 
 Bank of England notes. There is, therefore, an unknown number of 
 notes for five pounds which has formed that sort of addition to the Bank 
 of England paper, which has no influence in raising the price of articles. 
 This is only one of many circumstances, some operating in one direction, 
 and some in the contrary, which render it difficult to draw a correct 
 
 155 
 
292 ITiornton on 
 
 Let it, therefore, be carefully remembered, that I by no 
 means suppose a limitation of London paper to operate 
 simply by causing an equal reduction of country paper, and 
 then such a fall in the price of goods over the kingdom as 
 is exactly commensurate with the general diminution of 
 paper ; and, finally, also such a variation in the exchange as 
 is precisely proportionate to the reduction of paper, and to 
 the fall in the price of goods. Counteracting circumstances 
 of various kinds may prevent these proportions from being 
 maintained ; and the full effects may not follow their cause 
 until after the lapse of some period of time. 
 
 It must, in particular, be borne in mind, that a limita- 
 tion of Bank of England paper affects prices in a great mea- 
 sure by its operation on the state of commercial confidence ; 
 and this influence on the minds of men will be far from 
 uniform. A small limitation of Bank of England paper 
 may give a great shock to confidence, when the state of 
 credit is delicate ; and may, therefore, at such a time, much 
 discourage speculation. The very same limitation, under 
 other circumstances of the country, may be almost without 
 effect. 
 
 But although there is so great difficulty in estimating the 
 precise influence on the cost of articles, or on the market 
 price of bullion, which each alteration in the quantity of 
 Bank of England notes may produce, there is no reason, on 
 that account, to doubt the general truth of the proposition 
 which was laid down in the close of the former Chapter, 
 namely, that the restriction of the paper of the Bank of 
 England is the mean both of maintaining its own value, and 
 of maintaining the value, as well as of limiting the quantity 
 of all the paper in the country. Although it should be 
 difficult, or even impossible, to determine to what point the 
 limitation must be carried in order to produce a given effect, 
 it may be sufficiently clear that the tendency of the limita- 
 tion is to secure the benefit in question. 
 
 inference from those accounts of the quantity of Bank of England notes 
 circulating at a variety of periods, which have been lately laid before 
 parliament. 
 
 156 
 
Paper Credit. 293 
 
 The perplexities of this subject being such as I have now 
 described, it naturally occurs to us to reason from the effect 
 to the cause, and to infer a too great issue of paper when 
 we perceive that there is an excess of the market price 
 above the mint price of gold. But this inference is one 
 which, for reasons formerly given, should always be very 
 cautiously made ; for it is to be borne in mind, that the 
 excess may arise from other causes besides that of a too 
 great emission of paper. Let the manner in which an ex- 
 travagant issue of notes operates in producing the excess be 
 recollected. It raises, and probably by slow degrees, the 
 cost of British goods. It thus obstructs the export of them, 
 unless a compensation for the high price is afforded to the 
 foreign buyer in the rate of exchange ; and the variation in 
 our exchange produces a low valuation of our coin, com- 
 pared with that of bullion. The state of the exchange, then, 
 is the immediate cause of the evil in question. Now, a 
 suspension of the foreign demand for British manufactures, 
 or an encrease of the British demand for foreign articles, 
 circumstances which may arise when there is no encrease of 
 bank paper, are the much more frequent as well as the more 
 obvious causes of a fall in our exchange, and, therefore, also 
 of a high price of bullion. 
 
 We are thus led back to the point which was dwelt upon 
 some time since. Our two defective harvests, and the 
 interruptions experienced in our export trade, very suffi- 
 ciently account for the late fluctuation of our exchanges. 
 In these respects there has evidently been much in our 
 situation which has been remarkable ; while, as has been 
 proved in the present Chapter, there has been nothing which 
 ought to be deemed extraordinary in the quantity of paper 
 issued by the Bank of England. 
 
 It must, however, be admitted, that if an excessive issue of 
 Bank of England notes produces, as it has been shewn to do, 
 an unfavourable exchange ; a reduction of them below the 
 accustomed number must have a tendency to improve our 
 exchange, by whatever means it may have been made to 
 turn against us. But, after this admission, it may be 
 
 157 
 
294 Thornton on 
 
 remarked, that it may be necessary to encounter much evil 
 in effecting the reduction. We have been lately placed 
 between two dangers ; between that of a depreciated paper 
 currency on the one hand, and that of an interruption to our 
 paper credit, and a consequent stagnation of our commerce 
 and manufactures, on the other. And, on the whole, we 
 have, perhaps, owed much to that liberal policy of the 
 directors of the Bank of England, which has led them to 
 maintain a quantity of notes in appearance encreased, and 
 in reality not diminished, in spite of some political as well 
 as popular prejudices on this subject: at a time, also, 
 when their conduct was observed with particular jealousy, 
 on account of the suspension of their cash payments, and 
 even when the course of exchange was much against us. 
 Whether the bank may have erred a little on the one side or 
 on the other, is a point which it would be invidious very 
 critically to examine, and difficult to determine with cer- 
 tainty. It seems sufficiently clear, that if, at the period of 
 the late northern confederacy, when our exchanges were the 
 least favourable, the bank had materially diminished its 
 paper, the embarrassment of our manufacturers and mer- 
 chants, which- the state of the continent had begun to 
 render great, would have immediately become far greater ; 
 and that manufacturing labour, which was then in some 
 degree interrupted by a suspension of the demand for 
 British goods on the continent, would have been likewise 
 obstructed at the same season (a season of peculiar pressure 
 on the common people, from the circumstance of the scarcity) 
 by a more than ordinary difficulty which our manufacturers 
 would have experienced in effecting their payments. The 
 stock of goods in our warehouses, made ready for subse- 
 quent exportation, would, in this case, have been smaller ; and 
 we might, therefore, on the whole, have had to look forward 
 to a less early rectification of our exchanges. The diffi- 
 culties of 1793 might have been added to those of the spring 
 of 1801 ; and if commercial confidence had failed, political 
 credit might in consequence have been shaken at one of the 
 most critical periods of our history. 
 
 158 
 
Paper Credit. 295 
 
 From the principles recently laid down, some additional 
 inferences may be deduced. 
 
 It was the object of several former Chapters to point out 
 the evil of a too contracted issue of paper. The general 
 tendency of the present, as well as of the preceding one, 
 has been to shew the danger of a too extended emission. 
 Two kinds of error on the subject of the affairs of the Bank 
 of England have been prevalent. Some political persons 
 have assumed it to be a principle, that in proportion as the 
 gold of the bank lessens, its paper, or, as is sometimes 
 said, its loans (for the amount of the one has been con- 
 founded with that of the other), ought to be reduced. It 
 has been already shewn, that a maxim of this sort, if strictly 
 followed up, would lead to universal failure. A sentiment 
 has prevailed among other persons, which has bordered on 
 a very different extreme. They have complained of nothing, 
 except the too scanty liberality of the bank, and have seen 
 no danger in almost any extension of its discounts, or pro- 
 fusion in the issue of its paper, provided only the bills dis- 
 counted (that is, the bills received by the bank in return for 
 its notes) were real bills, and were those also of sufficiently 
 safe and responsible houses. 
 
 But it will appear from the principles laid down in this 
 and the preceding Chapter, that there may be a disposition 
 among very rich and punctual men to borrow a sum far 
 exceeding that which it may be prudent in the bank to lend. 
 Every additional loan obtained from the bank, if w r e suppose 
 its gold to remain the same, implies an encreased issue of 
 paper, but the measure of such issue has been shewn to be 
 regulated by a principle which is not even connected with 
 the question of the opulence of the borrowers at the bank, 
 or of the nature of the bills discounted. The borrowers 
 make a promise (and we will suppose that there is no reason 
 to doubt the fulfilment of it) that the loan shall be repaid 
 with punctuality. But in what manner is the payment to 
 be effected ? It will be made either in notes furnished by 
 the Bank of England itself, or else in gold supplied by the 
 same company, which notes and gold the bank must take 
 
 159 
 
296 Thornton on 
 
 care to render interchangeable for each other ; and this is 
 only to be done by keeping down their quantity, and thus 
 maintaining their value. 
 
 Objections have been made by some to the monopoly of 
 the bank. And its indisposition to lend to safe houses, on 
 the security of real bills, to an extent which is deemed suffi- 
 cient, has probably been the circumstance which has induced 
 some mercantile persons to favour the idea of the establish- 
 ment of a rival establishment. Competition, it is thought, 
 would lead to greater liberality; and, in a variety of 
 respects, would operate beneficially in this case, as it is 
 known to do in many others. 
 
 It has been evinced, however, in the present Chapter, 
 that we derive a material advantage from the power enjoyed 
 by the Bank of England of exclusively furnishing the paper 
 circulation of the metropolis. To this very circumstance 
 the bank stands indebted for its faculty of regulating all the 
 paper of the kingdom. On the bank is devolved the task 
 of providing guineas for the whole country : with the bank 
 is lodged the power of so restricting the general paper, as 
 to render bullion purchasable, except in some extraordinary 
 cases of alarm or difficulty. If these excepted cases should 
 arise, and the cash payments of the bank should be sus- 
 pended, an event of the possible recurrence of which we 
 must not altogether exclude the idea ; then the same cir- 
 cumstance of the monopoly of the bank affords to it the 
 means of still sustaining the value both of its own paper and 
 of that of the whole island. It serves also to impose upon 
 the directors of this powerful company a complete respon- 
 sibility. If a rival institution to the Bank of England were 
 established, both the power and the responsibility would 
 be divided ; and, through the additional temptation to exer- 
 cise that liberality in lending, which it is the object of com- 
 petition to promote, the London notes, and also the country 
 bills and notes, would be more liable to become excessive. 
 Our paper credit would, therefore, stand in every respect 
 on a less safe foundation. 
 
 160 
 
Paper Credit. 297 
 
 CHAP. X. 
 
 Objections to the Doctrine of the two preceding Chapters 
 answered. Of the Circumstances which render it necessary 
 that the Bank should impose its own Limit on the quantity of 
 its Paper. Effect of the Law against Usury. Proof of the 
 Necessity of restricting the Bank Loans, drawn from the 
 Case of the Transfer of Capital to Foreign Countries. 
 
 SINCE it is not improbable that the reasoning of the pre- 
 ceding Chapters may have failed to produce full conviction 
 in the mind of those who have been in the habit of deeming 
 all limitation of the bank paper by the bank itself to be 
 unnecessary ; some few pages may be usefully employed in 
 answering popular objections to the doctrine which has been 
 laid down, and in more fully elucidating the subject. 
 
 " The encrease of Bank of England paper/ 5 we will 
 suppose it to be still said by an objector (( is the effect and 
 " not the cause of an advanced price of commodities. To 
 " enlarge the Bank of England notes merely in proportion 
 " as safe and real bills are offered in return for them, is only 
 " to exchange one species of paper for another, namely, 
 fi Bank of England notes for bills, which, though not so 
 " current or so safe as bank notes, are sufficiently worthy of 
 " credit. It is, therefore, simply to afford a guarantee to 
 "the transactions of the merchant, and thus to render that 
 " accommodation to commerce which it belongs to the bank 
 " to give." 
 
 " The depreciation of paper," it may be added, " is apt to 
 <(i arise not so much from an extension of its quantity, as 
 " from a want of sufficient confidence in it. The great 
 " object of the bank should, therefore, be to maintain the 
 " public confidence ; to which it contributes by furnishing, 
 " in return for bills confessedly good, a species of paper still 
 " better. The evil of an unfavourable exchange, and of a 
 " consequent high price of gold, arises from an unfavourable 
 
 161 
 
298 Thornton on 
 
 <( balance of trade, and from that cause only. The true 
 " mode of preventing this evil, or of remedying it, if unfor- 
 " tunately it exists, is to encrease the national industry. 
 sf The way to encourage industry is to give full scope to 
 " trade and manufactures by a liberal emission of paper. 
 " The balance of trade will not fail to be rendered favour- 
 " able by that abundance of exportable articles which the 
 Cf labour thus excited must necessarily create. The course 
 <s of exchange will, consequently, be supported ; all excess 
 f( of the market price above the mint price of gold will be 
 i( prevented; and thus the value of our paper will be sus- 
 " tained by the very means of its encrease." 
 
 Suppose a reasoner, on the same side, to add, that when 
 the credit of the assignats of France was overthrown, the 
 fall especially at the first, was owing rather to the preva- 
 lence of distrust than to the excessive quantity of the 
 article, and that the depreciation of assignats rarely bore a 
 regular proportion to the extension of their amount.* 
 
 It may, with equal truth, be affirmed by the objector, 
 that if a reference be made to the prices of corn in the 
 London corn-market at various aeras, and also to the account 
 of the quantity of bank notes stated by the bank to have 
 been in circulation at the same or at immediately preceding- 
 periods, the price of grain in London will by no means be 
 found to .have been high in proportion as the number of 
 Bank of England notes has been great, and low in propor- 
 tion as it has been small ; but that the very contrary has 
 often been remarkably the case. 
 
 To these objections it may be answered, that they who 
 
 * The following extract from Mr. Arthur Young's Tour through 
 France, seems to establish the above-mentioned fact. 
 
 " In September, 1790, four hundred millions of assignats were in 
 " circulation ; but the discount at Bordeaux never exceeded ten, at 
 " Paris six, per cent. And in May, 1791, after many hundred millions 
 " more were issued, the discount was from seven to ten per cent. Con- 
 " dorcet, with other theorists, expected that the prices of corn, and of 
 " other necessaries of life, would enormously advance ; but the contrary 
 " happened to be the event the price of corn declined. The assignats 
 " amounted, on the dissolution of the first assembly, to eighteen hundred 
 millions." Vol. i. 4to edition, page 520. 
 
 162 
 
Paper Credit. 299 
 
 represent an unlimited issue of Bank of England paper as 
 having no tendency to produce the evils of a rise in the 
 price of commodities in Great Britain, of a fall in our ex- 
 change, and of an excess of the market price above the 
 mint price of gold, are bound to prove one of the two fol- 
 lowing propositions ; either, first, that, supposing the 
 directors of the bank to make the most enormous addition to 
 their paper; to raise it, let us suppose, to fifty millions, 
 even this augmentation will not lead to the consequences 
 which have been mentioned ; or if they do not affirm this 
 strong position, but admit that there is a certain quantity of 
 notes which will not fail to produce the evils in question, 
 then, secondly, in order to prove that the bank need not 
 place any limit to the issue of its own paper, they are bound 
 to shew that the bank paper has a natural tendency suffi- 
 ciently to limit itself. 
 
 Let us separately investigate each of these two points. 
 
 When we assume the fact of the bank paper being 
 raised from its present amount of about fifteen millions to 
 to the sum of fifty millions, we are led, in the first place, to 
 enquire in whose hands the additional sum of thirty-five 
 millions would be placed, and what would be the motive for 
 holding it ? I admit, or rather it is a point on which I 
 would insist, that the maintenance of the price of the 
 assignats of France by no means rested entirely, nor, for a 
 time, even principally, on their quantity. It depended 
 much on the opinion entertained by Frenchmen respecting 
 the value of the lands declared to be purchasable by means 
 of this particular kind of paper, and respecting the fidelity 
 of the French government to its engagements. Assignats, 
 it is true, bore no interest ; but the prospect of an ultimate 
 profit to be reaped by the possessor of them, would operate, 
 for a time, exactly like an accruing interest, in causing 
 many persons to detain them ; and, therefore, although 
 they were used as a circulating medium, it is probable 
 that only a part of them was turned to this purpose, and 
 that even that part circulated but slowly. The reader 
 is here desired to recollect a point which was* explained in 
 
 163 
 
300 Thornton on 
 
 an early part of this work ; namely, that the quantity of 
 circulating medium which can be employed without injury 
 to its value, is to be' estimated not merely by its propor- 
 tion to the quantity of trade or of payments, but also by 
 the relative rapidity of its circulation. A species of circu- 
 lating medium which changes hands once in ten days, will 
 need to be a hundred times as great in quantity as the paper 
 which passes through ten hands in one day. When that 
 sanguine spirit which had at first inspired the holders of 
 assignats subsided, the article would naturally sink in value 
 with considerable rapidity ; and in proportion as its price 
 fell, the French government would be under the necessity 
 of extending its issues. It is therefore, not at all surprising 
 that French assignats should, for a time, have borne a price 
 which was proportionate not so much to their quantity as to 
 their credit. Their quantity, however, after a certain 
 period, operated on their credit, and became a very power- 
 ful cause of their depreciation. 
 
 Bank of England notes are exactly the converse to 
 assignats in the points which have been mentioned; and 
 their value, on that account, will be found to depend not so 
 properly on their credit as on their quantity. It is true, 
 that when, in consequence of alarm, a run is made upon the 
 bank for guineas, the same confidence which is placed in 
 gold is not reposed in iBank of England paper. Even in 
 this case, however, it is only a small part of the community 
 which is eager for gold : the holders of a very large propor- 
 tion of the bank paper remain exactly as well contented as 
 before to use it as the medium of their payments. And 
 since the hoarders of gold prefer it not to paper only, but to 
 land, to goods, and to almost every species of property, the 
 paper of the bank cannot be affirmed to fall into discredit 
 in consequence of applications for coin made with a view to 
 hoard it, so properly as gold may be said to come into 
 peculiar demand. In a season of alarm, our guineas are 
 preferred by some persons both to our bank notes and 
 to goods, on the same principle on which, in a state of 
 extreme political convulsion, diamonds, because they may be 
 
 164 
 
Paper Credit. 301 
 
 still more easily transported or concealed, would probably be 
 preferred to gold. 
 
 By saying, therefore, that the value of bank notes 
 depends not on their credit, but on their quantity, I mean 
 to affirm that their credit, so far as it affects their value, is 
 always good ; and that the common fluctuations of their 
 price, in exchange both for goods and bullion, are not, in the 
 smallest degree, to be referred to variations in the degree of 
 confidence placed by Englishmen in the good faith or the 
 solidity of the Bank of England. The magnitude of its 
 capital is perfectly well known, and not the slightest doubt 
 subsists respecting the sufficiency of its effects to answer 
 much more than all its engagements. If the rise and fall 
 in the public confidence in bank notes were the cause of the 
 gradations in their price, the period at which their value 
 would have been the lowest would have been that which 
 followed the suspension of the cash payments of the bank ; 
 an event certainly calculated, more than any other which 
 has been experienced, to affect the reputation of that com- 
 pany. But it is a most remarkable fact, and a fact decisive 
 on the present point, that the exchanges of this country 
 improved, or, in other words, that Bank of England paper 
 rose in value when compared with bullion, in the months 
 subsequent to the suspension of its payments in cash. 
 
 Bank of England paper, therefore, is not apt to vary in 
 its value in consequence of the fluctuations of the public 
 confidence in it ; but essentially differs in this respect from the 
 late assignats of France. It presents to the holder no hope 
 of future profit from the detention of it. Not only does it 
 bear no interest (in this point, indeed, resembling assignats), 
 but it offers no substitute for interest ; it holds out no pri- 
 vileges, certain or contingent, real or pretended, tempting 
 the possessor to detain it. There is, on the contrary, a 
 known and continually encreasing loss sustained by keeping 
 it. On this account the quantity held by each person is 
 only that which the amount of payments to be effected by 
 it renders, in his opinion, necessary. 
 
 We are at present assuming, for the sake of illustrating 
 
 165 
 
302 Thornton on 
 
 the subject, that thirty-five millions of additional bank 
 paper are retained in the hands of the public. Imagine a 
 London banker to acquire his share of them. The supply 
 of bank notes which he chuses to reserve in his drawer is 
 always estimated by the scale of his payments ; or, to speak 
 more correctly, by the probable amount of the fluctuations 
 in his stock of notes, which fluctuations are proportionate, or 
 nearly proportionate, to the scale of his payments. So long, 
 therefore, as his payments remain the same (and they will 
 not materially alter while the price of goods suffers no 
 variation, supposing his transactions to retain their former 
 proportion to those of the whole kingdom), he will be per- 
 fectly indisposed to hold fifty thousand pounds in bank 
 notes, in the place of each fifteen thousand pounds which 
 he has been accustomed to deem necessary. He will make 
 haste to part with the whole superfluous quantity ; he will 
 offer to lend it to any safe merchants, and even at a reduced 
 rate of interest, in case he shall find that borrowers cannot 
 otherwise be invited. 
 
 If we imagine the merchants to become possessed of the 
 new paper, the same difficulty of accounting for the deten- 
 tion of it remains ; unless we admit that the principles laid 
 down in the two former Chapters are just, and that the 
 larger quantity of circulating medium will cause goods to 
 rise in value, and will thus find for itself employment. 
 
 There seem to v be only two modes in which we can 
 conceive the additional paper to be disposed of. It may be 
 imagined either, first, to be used in transferring an encreased 
 quantity of articles, which it must, in that case, be assumed 
 that the new paper itself has tended to create ; or, secondly, 
 in transferring the same articles at a higher price. 
 
 Let us examine the first of these cases. 
 
 An encreased quantity of articles can only arise from 
 additional commodities either brought from abroad or 
 produced at home through the exertion of new industry. 
 A.n extraordinary issue of paper will bring goods from 
 abroad only so far as it enables the country to export either 
 gold, or additional commodities created at home, as the 
 
 166 
 
Credit. 303 
 
 means of paying for the foreign articles. The export of 
 gold has its limit. It is, moreover, desirable, for reasons 
 which have been fully stated, that this limit should be 
 narrow. Whether a very great emission of notes tends to 
 encrease the quantity of goods produced at home, is the 
 point which remains to be considered. 
 
 In examining this question, an error into which it is very 
 natural to fall must be developed. When the Bank of 
 England enlarges its paper, it augments, in the same degree, 
 as we must here suppose, its loans to individuals. These 
 favoured persons immediately conceive, and not without 
 reason, that they have obtained an additional though bor- 
 rowed capital, by which they can push their own particular 
 manufacture or branch of commerce; and they are apt, 
 also, though not with equal justice, to infer that the new 
 capital thus acquired by themselves is wholly an accession 
 to that of the kingdom ; for it does not occur to them that 
 the commerce or manufactures of any other individuals can 
 be at all reduced in consequence of this encrease of their 
 own. 
 
 But, first, it is obvious, that the antecedently idle per- 
 sons to whom we may suppose the new capital to give 
 employ, are limited in number ; and that, therefore, if the 
 encreased issue is indefinite, it will set to work labourers, of 
 whom a part \vill be drawn from other, and, perhaps, no less 
 useful occupations. It may be inferred from this conside- 
 ration, that there are some bounds to the benefit which is to 
 be derived from an augmentation of paper ; and, also, that a 
 liberal, or, at most, a large encrease of it, will have all the 
 advantageous effects of the most extravagant emission. 
 
 Let us also consider the mode in which the new paper 
 operates through the medium of these individual borrowers, 
 as unquestionably it does, in giving life to fresh industry. 
 The bank notes convey to them the power of obtaining for 
 their own use, or of destining to such purposes as they 
 please, a certain portion of purchasable commodities. The 
 extraordinary emission of paper causes no immediate differ- 
 ence in the total quantity of articles belonging to the king- 
 
 167 
 
304 Thornton on 
 
 dom. This is self-evident. But it communicates to the 
 new borrowers at the bank a power of taking to themselves 
 a larger share of the existing goods than they would 
 otherwise have been able to command. If the holders of 
 the new paper thus acquire the power over a larger portion 
 of the existing stock of the kingdom, the possessors of the 
 old paper must have the power over a smaller part. The 
 same paper, therefore, will purchase fewer goods, or, in 
 other words, commodities will rise in their nominal value. 
 The proprietors of the new paper will become greater 
 encouragers of industry than before ; the owners of the old 
 paper, being able to command less property, will have less 
 power of employing labour. For industry is excited, strictly 
 speaking, not by paper, but by that stock which the paper 
 affords the means of purchasing. Money of every kind is 
 an order for goods. It is so considered by the labourer 
 when he receives it, and is almost instantly turned into 
 money's worth. It is merely the instrument by which the 
 purchasable stock of the country is distributed with con- 
 venience and advantage among the several members of the 
 community. 
 
 It may be said, however, and not untruly, that an 
 encreased issue of paper tends to produce a more brisk 
 demand for the existing goods, and a somewhat more prompt 
 consumption of them ; that the more prompt consumption 
 supposes a diminution of the ordinary stock, and the appli- 
 cation of that part of it, which is consumed, to the purpose 
 of giving life to fresh industry ; that the fresh industry 
 thus excited will be the means of gradually creating addi- 
 tional stock, which will serve to replace the stock by which 
 the industry had been supported ; and that the new circu- 
 lating medium will, in this manner, create for itself much 
 new employment. 
 
 The supposition which has now been made is admitted 
 to be just. Let the reader, however, take notice, that it 
 assumes the demand both for goods and labour to become 
 more eager than before. Now the consequence of this 
 encreased eagerness in the demand must, unquestionably, 
 
 168 
 
Paper Credit. 305 
 
 be an enhancement of the price of labour and commodities, 
 which is the very point for which I am contending. Indeed, 
 whatever view we take of the subject, we seem obliged to 
 admit, that, although additional industry will be one effect 
 of an extraordinary emission of paper* a rise in the cost of 
 articles will be another. 
 
 Probably no small part of that industry which is excited 
 by new paper is produced through the very means of the 
 enhancement of the cost of commodities. While paper is 
 encreasing, and articles continue rising, mercantile specu- 
 lations appear more than ordinarily profitable. The trader, 
 for example, who sells his commodity in three months after 
 he purchased it, obtains an extra gain, which is equal to 
 such advance in the general price of things as the new paper 
 has caused during the three months in question : he con- 
 founds this gain with the other profits of his commerce ; and 
 is induced, by the apparent success of his undertakings, to 
 pursue them with more than usual spirit. The manufac- 
 turer feels the same kind of encouragement to extend his 
 operations ; and the enlarged issue of paper supplies both 
 him and the merchant with the means of carrying their 
 plans into effect. As soon, ho \vever, as the circulating 
 medium ceases to encrease, the extra profit is at an end; 
 and, if we assume the augmented paper to be brought back 
 to its ordinary quantity, we must suppose industry to 
 languish for a time, through the ill success which will appear 
 to attend mercantile transactions. 
 
 Mr. Hume has an observation in his Essay on Money, 
 which, in some degree, confirms the remarks whicli have 
 been made in the text. Having represented an influx of 
 money as exciting industry (and we may presume an 
 encrease of paper to have exactly the same effect), " At 
 " first," he says, " no alteration is perceived ; by degrees 
 " the price rises first of one commodity, then of another, 
 " till the whole, at last, reaches a just proportion with the 
 " new quantity of specie which is in the kingdom. In my 
 (( opinion, it is only in this interval or intermediate situation 
 " between the acquisition of money and rise of prices" 
 
 169 
 
306 Thornton on 
 
 (Mr. Hume must mean, no doubt, the completion of the rise, 
 and not the commencement of it) " that the encreasing quan- 
 " tity of gold and silver is favourable to industry."* 
 
 It must be also admitted, that, provided we assume an 
 excessive issue of paper to lift up, as it may for a time, the 
 cost of goods though not the price of labour, some augmen- 
 tation of stock will be the consequence; for the labourer, 
 according to this supposition, may be forced by his necessity 
 to consume fewer articles, though he may exercise the same 
 industry. But this saving, as well as any additional one 
 which may arise from a similar defalcation of the revenue of 
 the. unproductive members of the society, will be attended 
 with a proportionate hardship and injustice. This suppo- 
 sition also implies the acknowledgment of the point for 
 which we are contending, that an encreased issue of paper 
 tends to raise the price of commodities. 
 
 It has thus been admitted that paper possesses the 
 faculty of enlarging the quantity of commodities by giving 
 life to some new industry. It has, however, been affirmed, 
 
 * Mr. Hume, in observing that, when money en creases, " the price 
 " rises first of one commodity, then of another, till the whole, at last, 
 " reaches a just proportion with the new quantity of specie which is 
 " in the kingdom," appears to me not sufficiently to advert to the 
 tendency of money to go abroad as soon as it shall have raised the gold 
 price of articles above their level in other countries, allowing for the 
 charges of transportation ; a subject which will be more fully treated of 
 in the next Chapter. He also describes the operation of an encrease of 
 coin in raising prices as proceeding somewhat more slowly than, per- 
 haps, it would be found to do. An augmentation of Bank of England 
 notes operates, no doubt, in this respect, more quickly than an encrease 
 of money ; for the London bankers, who are the great holders of bank 
 paper, are likely to be much less disposed to detain, for example, a 
 double quantity of it, than all the individuals of the kingdom are to 
 detain in their several drawers, or in their pockets, a double quantity of 
 guineas. The banking system, by committing the business of payments 
 to few hands, has made much difference in respect to the time within 
 which an encreased quantity of circulating medium may be supposed 
 to raise the price of articles. It has given to many great holders of 
 Bank of England paper a very strong interest on the side of not keeping 
 a superfluous quantity of it. 
 
 That an encrease of the circulating medium tends to afford temporary 
 encouragement to industry, seems also to be proved by the effects of the 
 Mississippi scheme in France ; for it is affirmed by French writers, that 
 the notes of Mr. Law's back appeared for a time to have a very powerful 
 influence in extending the demand for labour, and in augmenting the 
 visible and bond fide property of the kingdom. 
 
 170 
 
Paper Credit. 307 
 
 that the encrease of industry will by no means keep pace 
 with the augmentation of paper. The question now to be 
 considered, is, whether, if we suppose thirty-five millions of 
 new paper to be suddenly issued, the fresh industry which 
 would, consequently, be excited, would create a quantity of 
 goods, the sale of which would give employment to all the 
 new paper. Let it be admitted, for the sake of illustrating 
 this point, that the thirty-five millions of additional bank 
 notes will have the extraordinary power of calling at once 
 into being thirty-five millions of new goods ; still it may be 
 remarked, that even all this additional property would by 
 no means find employment for that equal quantity of paper 
 which is here assumed to have given existence to it. 
 
 We shall be able to explain this circumstance, as well as 
 to throw some new light on the general subject, by suppos- 
 ing an individual, A, to become, in consequence of an 
 extraordinary issue of paper, a new borrower at the bank to 
 the extent of twenty thousand pounds. The twenty thou- 
 sand pounds, while it is held in the shape of paper, affording 
 him no interest ; he will make haste to part with it, by 
 purchasing goods, stocks, land, or some other article, to the 
 extent of the sum in question. Suppose him to make the 
 purchase from B, in three days after he received the notes. 
 B is now in possession of twenty thousand pounds in new 
 bank paper, created by the extraordinary emission ; and is, 
 in like manner, in haste to part with it. Imagine him, also, 
 to pay a\*ay the same paper in return for goods at the end 
 of three days. Thus the same notes will in six days have 
 effected two purchases amounting together to forty thousand 
 pounds. If we imagine the like transaction to be repeated 
 again and again ; the same notes will in twelve days have 
 effected the purchase of goods amounting to eighty thousand 
 pounds ; in about a month to two hundred thousand pounds; 
 and in a year to about two millions. Thirty-five millions 
 of new paper will thus effect in a year the sale of goods to 
 the extent of two or three thousand millions. In order, 
 therefore, to account for the employment of the thirty-five 
 millions, we must assume, if we allow no rise in prices to 
 
 171 
 
308 Thornton on 
 
 take place, such a new quantity of goods to be called into 
 existence by the magic influence of the new paper, as to 
 become a subject for purchases, amounting, in a year, to no 
 less than these two or three thousand millions. We must 
 assume the creation not of thirty-five millions of property, 
 but of five, ten, or, perhaps, twenty times that sum ; or else 
 we must suppose, what is not supposable, that the newly 
 created capital of thirty-five millions changes hands as 
 frequently as the thirty-five millions of bank notes which 
 created it; that is to say, that the new property undergoes 
 a fresh sale on every third day. 
 
 The case which has been put is inaccurate, inasmuch as 
 the payments effected by bank notes are on the account not 
 merely of goods and other articles sold, but likewise of 
 numberless sums borrowed and repaid. It is probable, how- 
 ever, that payments of this latter kind will always bear a 
 nearly uniform proportion to those of the other class. The 
 general inference which was intended to be drawn from the 
 case, will, therefore, be just. 
 
 In speaking formerly of the reduction of bank paper, 
 much pains were taken to point out the important difference 
 between that limitation of loans which leads to a diminution 
 of paper, and that which produces no such diminution ; and 
 it was then observed, that it was by the quantity of Bank of 
 England paper, and not by the amount of loans, or by the 
 amount of loans so far only as they influence the quantity of 
 paper, that a judgment was to be formed of the j^ressure on 
 the metropolis, and of the reduction of prices. Many of the 
 remarks then made respecting the limitation of bank paper, 
 apply with nearly equal force to the subject of its encrease. 
 It has now been fully shewn, first, that Bank of England 
 paper is an article of such a nature, that a very superfluous 
 quantity of it will never be for a long time retained in any 
 quarter ; and, secondly, that the vast encrease of it, which, 
 for the sake of more convenient discussion, was assumed to 
 take place, cannot possibly create such a new capital as shall 
 furnish the new paper with employment. There remains, 
 therefore, no other mode of accounting for the uses to which 
 
 172 
 
Paper Credit. 309 
 
 the additional supply of it can be turned, than that of 
 supposing it to be occupied in carrying on the sales of the 
 same, or nearly the same, quantity of articles as before, at 
 an advanced price, the cost of goods being made to bear the 
 same, or nearly the same, proportion to their former cost, 
 which the total quantity of paper at the one period bears to 
 the total quantity at the other. 
 
 We are thus brought, though by a different course, to 
 the point at which we arrived in an early part of a former 
 Chapter. An enlarged issue of paper, it was then observed, 
 produces an encreased facility of borrowing, as well as an 
 opinion of encreased facility ; and thus adds to the eagerness 
 of purchasers. It communicates an additional power of 
 purchasing, not only to the original borrower at the bank, 
 but successively, also, as has now been shewn, to all the 
 other individuals into whose hands the new bank notes pass 
 in the course of their circulation. 
 
 Very strong confirmation of the present doctrine may be 
 furnished by a reference to the case of gold. No one 
 doubts, that, in the event of an augmented supply of this 
 article from the mines, the value of it would fall nearly in 
 proportion to the extension of its quantity ; especially if it 
 were used for the sole purpose of a circulating medium, and 
 were also the only kind of circulating medium. The metro- 
 polis of Great Britain is so circumstanced, that the issue of 
 an extraordinary quantity of bank paper for the purpose of 
 effecting the payments of London, in a considerable degree 
 resembles the creation of an extraordinary supply of gold 
 for the general uses of the world. 
 
 It was stated in the beginning of this Chapter, as one 
 objection to the doctrine which I have been endeavouring to 
 establish, that " to enlarge the quantity of Bank of England 
 " notes merely in proportion as sufficient and real bills are 
 " offered in return for them, is only to exchange one species 
 te of paper for another,, namely, Bank of England notes for 
 " bills, which, though not so current or so safe as bank notes, 
 " are sufficiently worthy of credit. That it was, therefore, 
 " simply to afford a guarantee to the transactions of the 
 
 173 
 
310 Thornton on 
 
 " merchant, and thus to render that accommodation to com- 
 " merce which it belongs to the bank to give." This objec- 
 tion will be sufficiently answered by repeating an observa- 
 tion which has been already frequently made, namely, that 
 the effect produced by paper credit on the price of articles 
 depends not merely on the quantity of paper in existence, 
 but also on its currency, or, in other words, on the rapidity 
 of its circulation. It was admitted in the objection, that 
 bills are not current like bank notes, and that it is the 
 greater currency of the latter which causes the exchange to 
 be desired. 
 
 It was mentioned, as another argument against the 
 doctrine which has been laid down, that corn has not usually 
 borne any sort of proportion to the quantity of Bank of 
 England paper in circulation at the same time. The answer 
 is, that the directors of the bank have never augmented 
 their notes in such a degree as to be likely to produce any 
 material alteration in the general price of goods ; that one 
 or more of those circumstances which were dwelt upon in 
 the preceding Chapter, may have counteracted the tendency 
 of the fluctuations of the quantity of paper to produce cor- 
 respondent variations in the price of commodities; and, 
 above all, that even a small reduction of the supply of grain 
 can hardly fail to lead to a rise in its value when exchanged 
 for paper, so great as to forbid all comparison between the 
 effects of an alteration of the quantity of the one article and 
 of an alteration of the quantity of the other. Paper has 
 been spoken of as raising the cost of commodities, at the 
 most, only in proportion to its encreased quantity. But in 
 the case of a diminished supply of corn, the price rises 
 according to a very different ratio; and for this obvious 
 reason, that we cannot accustom ourselves to the use of a 
 reduced allowance of grain, in the same manner in which we 
 are able, by degrees, to accommodate ourselves to a smaller 
 quantity of circulating medium.* 
 
 * The following extract from the work of Sir W. Davenant, who 
 wrote from 1695 to 1712, may give some idea of the vast effect which 
 a small failure of the supply of corn has on the price of this necessary 
 of life. 
 
 174 
 
Paper Credit. 311 
 
 Let the principle which was laid clown as regulating the 
 cost of all articles be recollected. The question of prices is 
 a question of power, and of power only; and, in the event 
 of the scarcity of any commodity, the buyers are more or 
 less under the power of the sellers, in proportion as the 
 article in question is of more or less urgent necessity. 
 
 That the quantity of circulating paper must be limited, 
 in order to the due maintenance of its value, is a principle 
 on which it is of especial consequence to insist, as it has 
 been overlooked by some writers on paper credit. In the 
 work of Sir James Steuart on Political (Economy, banks 
 are discussed at considerable length; but little intimation is 
 given of. the necessity of confining the total quantity of 
 circulating paper, or of the tendency of an excessive emission 
 to render the exchange unfavourable, and thus to cause gold 
 to be drawn away. On the other hand, the duty of not 
 giving out bank paper, except for sufficient value received 
 (a point on which, at the present time, there is less occasion 
 
 " It is observed, that but one-tenth defect in the harvest may raise 
 " the price three-tenths ; and when we have but half our crop, which 
 " now and then happens, the remainder is spun out by thrift and good 
 " management, and eked out by the use of other grain ; but this will 
 " not do for above one year, and would be a small help in the succession 
 " of two or three unseasonable harvests. 
 
 " We take it, that a defect in the harvest may raise the price of corn 
 ** in the following proportions : 
 
 " A defect of ~"| . (~ above the common rate 
 
 " 1 tenth . . . . g, 3 tenths, 
 " 2 tenths . . . . I J 8 tenths, 
 " 3 tenths . . . . f -g | 1 six-tenths, 
 " 4 tenths .... 2 eight-tenths, 
 
 " 5 tenths . . . . J 'g I 4 five-tenths. 
 
 " So that, when corn rises to treble the common rate, it may be pre- 
 u surned that we want above one-third of the common produce ; and if 
 " we should want five-tenths, or half the common produce, the price 
 " would rise to near five times the common rate." 
 
 This scale is not likely to be very accurate. It is, indeed, by no 
 means clear, whether it proceeds on the supposition of a deficiency of 
 the antecedent crop only ; or of a deficiency of the total stock, that 
 is to say, of the antecedent crop and of the stock remaining over 
 from a former year taken together; which are two very different ques- 
 tions. And many circumstances may render such calculations, however 
 just, by no means equally applicable to every period. The passage, 
 therefore, is quoted merely for the purpose of giving some general ideas 
 on the subject. 
 
 175 
 
312 Thornton on 
 
 to enlarge), is strongly urged by this writer, and the security 
 of bills of exchange is implied by him to be. inadequate, 
 that of land alone being fully approved. Bank notes 
 emitted without obtaining value in return, are termed by 
 him paper issued for " value consumed ;" and are represented 
 as the great source both of loss and danger to a banking 
 company. His mode of expressing himself on this point is 
 such as to make him appear to lend much countenance to 
 the error which it is the object of the present Chapter to 
 expose ; namely, that of imagining that a proper limitation 
 of bank notes may be sufficiently secured by attending 
 merely to the nature of the security for which they are given. 
 
 Dr. A. Smith, who is a more late writer, has asserted the 
 necessity of a limitation of paper, in the passage which was 
 quoted in an early part of this work ; but he has done this 
 in terms which are inaccurate, and he has given an erro- 
 neous and inadequate idea of the evil which may result from 
 a very extended emission. 
 
 Mr. Locke has lent some countenance to the error which 
 I am endeavouring to expose, by his way of considering the 
 subject of the balance of trade, which is the same mode in 
 which I supposed, in the beginning of this Chapter, an 
 objector to conceive of it. " The evil of an unfavourable 
 tc exchange," I imagined my opponent to say, " and of a 
 " consequent high price of gold, arises from an unfavourable 
 " balance of trade, and from that only. The true way of 
 " preventing this evil, or of remedying it, if it unfortunately 
 " exists, is to encrease the national industry ; and the way 
 *' to encourage industry, is to give full scope to trade and 
 " manufactures by a liberal emission of paper. The balance 
 "of trade will not fail to be rendered favourable by that 
 " abundance of exportable articles which the labour thus 
 " excited must necessarily be supposed to create." 
 
 Mr. Locke's language respecting an unfavourable balance 
 of trade, and its influence in causing gold to be melted 
 down and exported, is as follows. . 
 
 " Profit," he says, " can be made by melting down our 
 " money, but only in two cases. First, when the current 
 
 176 
 
Paper Credit. 313 
 
 " prices of the same denomination are unequal and of 
 " different weights, some heavier some lighter ; for then 
 " the traders in money cull out the heavier, and melt them 
 " down with profit. The other case wherein our money 
 " comes to be melted down, is a losing trade, or, which is 
 " the same thing in other words, an over great consumption 
 " of foreign commodities. Whenever the over-balance of 
 " foreign trade makes it difficult for our merchants to get 
 "bills of exchange, the exchange presently rises. If the 
 " law makes the exportation of our coin penal, it will be 
 " melted down ; if it leaves the exportation of our coin free, 
 " it will be carried out in specie one way or other, go it 
 " must. But this melting down carries not away one grain 
 " of our treasure out of England. The coming and going of 
 " that depends wholly upon the balance of trade"* 
 
 The error which I consider as encouraged and supported 
 by this passage of Mr. Locke (and much similar language is 
 to be found in other writers), is this; the passage implies, 
 that it is the comparative state of our exports and imports 
 which regulates the exchange, and not at all the state of the 
 exchange which regulates the comparative state of our 
 exports and imports. It leads us to suppose, that an un- 
 favourable balance of trade (that is, the excess of the goods 
 imported above those exported) is exclusively the cause, and 
 that the bad state of the exchange is altogether the effect. 
 The passage inclines us not at all to suspect a circumstance 
 which Mr. Hume admits in a note in his Essay on Money, 
 namely, " that an unfavourable exchange becomes a new 
 encouragement to export." 
 
 The point which I wish here to establish may be still 
 more clearly explained in the following manner. It has 
 been shewn in a former Chapter, and, indeed, it is stated by 
 Mr. Locke, that the selling price of bills determines the 
 rate of exchange. When, therefore, for example, persons 
 abroad wishing to sell bills on England are more numerous 
 than those who are disposed to buy them, the price of bills 
 
 * Further Considerations concerning raising the Value of Money. 
 
 177 
 
314 Thornton on 
 
 must drop ; and it must continue to fall until it becomes so 
 low as to tempt some individuals to become purchasers of 
 them. They who buy the bills on England, are the buyers 
 of so many orders to receive in England either money or 
 bank notes. The money or bank notes thus received, unless 
 left in some English hand (and they will be so left in some 
 few cases only), must be invested in British articles, and 
 exported. The profit afforded by the fall in the selling price 
 of the bills must, therefore, be sufficient to cause the specu- 
 lation of the buyers of the bills to answer the speculation 
 I mean of either bringing over British gold, which would 
 not otherwise have been transferred, or of purchasing and 
 exporting British commodities which would not otherwise 
 have been at that time transported. Thus, therefore, an 
 unfavourable exchange may be considered not only as 
 becoming, according to Mr. Hume's expression, "a new 
 encouragement to export," but as affording all that degree of 
 encouragement to export which is necessary to secure as 
 much actual exportation either of gold or of goods, or both, 
 as shall serve to equalize the exports and imports ; unless, 
 indeed, the same cause, namely, the unfavourableness of the 
 exchange, should tempt foreigners to remit money to Eng- 
 land, and lodge it for a time in our hands, with a view to the 
 profit to be obtained by this species of speculation. 
 
 The principle which I would lay down on the subject 
 now under consideration, is, I think, simple and intelligible, 
 and it applies itself to all periods of time, and to every kind 
 of circulating medium which may happen to be in use. I 
 would be understood to say, that in a country in which coin 
 alone circulates, if, through any accident the quantity should 
 become greater in proportion to the goods which it has to 
 transfer than it is in other countries, the coin becomes cheap 
 as compared with goods, or, in other words, that goods become 
 dear as compared with coin, and that a profit on the exporta- 
 tion of coin arises. This profit, indeed, soon ceases through 
 the actual exportation of the article which is excessive. 
 
 I would say again, that in a country in which coin and 
 paper circulate at the same time, if the two taken together 
 
 178 
 
Paper Credit. 315 
 
 should, in like manner, become, in the same sense of the 
 term, excessive, a similar effect will follow. There will, I 
 mean, be a profit on sending away the coin, and a consequent 
 exportation of it. 
 
 I would say, thirdly, that in a country in which paper 
 alone circulates, if the quantity be in the same sense excessive, 
 supposing the credit of the banks which issued it to be 
 perfect, the paper will fall in value in proportion to the 
 excess, on an exactly similar principle ; or, in other words, 
 that goods will rise ; and that a necessity will exist for 
 granting, in the shape of exchange, a bounty on the ex- 
 portation of them equal to that which would have been 
 afforded in the two former suppositions, assuming the 
 quantity of circulating medium to be excessive in an equal 
 degree in all the three cases. 
 
 It thus appears, that " the coming and going of gold" 
 does not (as Mr. Locke expresses it, and as was supposed in 
 the objection at the beginning of this Chapter) u depend 
 wholly on the balance of trade." It depends on the quantity 
 of circulating medium issued ; or it depends, as I will 
 allow, on the balance of trade, if that balance is admitted 
 to depend on the quantity of circulating medium issued. 
 Mr. Locke, however, is very far from leading his reader to 
 conceive that the balance of trade depends on the quantity of 
 circulating medium issued ; for he describes an unfavourable 
 balance as resulting from a " losing trade/' and from an 
 " over great consumption of foreign commodities ;" terms 
 which seem to imply an unprosperous state of commerce, 
 and a too expensive disposition in the people, and which 
 naturally lead to the conclusion, that the prosperity of the 
 country will effectually secure us against the danger of the 
 exportation of our coin, whatever may be the quantity of 
 our paper. 
 
 It has now, I trust, been made sufficiently to appear, 
 that banks, if they pay in gold, or if, while not paying in 
 gold, they maintain the value of their notes, must observe 
 some limit in respect to their emission of them. 
 
 If, indeed, we could suppose a country to have no inter- 
 
 179 
 
316 Thornton on 
 
 course with any other, we might imagine an unlimited issue 
 of paper to take place without producing any difference in 
 its value when exchanged for gold. In that case it would be 
 necessary to assume the price of goods to rise indefinitely, 
 but the people to be content to use a less and less proportion 
 of gold to paper, and on that account to continue to consider 
 the relative value of gold and paper as the same. This 
 unlimited rise in the price of goods, and equally indefinite 
 fall in the value of gold, are every where precluded by the 
 commercial communications which take place between 
 different parts of the world; gold in exchange for goods, 
 allowing for the expence of transporting them, necessarily 
 bearing that price, or nearly that price, in each country 
 which it bears in all. The variations in the value of 
 bullion, as compared with that of the circulating medium, 
 serve, therefore, to detect and restrain that too great emis- 
 sion of notes to which all countries would otherwise be 
 prone ; and those operations of the exchange, which have 
 been described, are the means by which every bank is com- 
 pelled to make the value of its paper conform itself to the 
 ancient standard. 
 
 Let the case of the continental bank notes, already 
 spoken of, be here adverted to. The depreciation of these 
 has been apt to originate, as I conceive, in the state of the 
 exchanges. The unfavourable exchange has produced a dif- 
 ference between the value of bullion, and that both of the 
 current paper of those banks and of the current coin ; and, 
 when this difference has become permanent and considerable, 
 a discount on the paper has established itself; in other words, 
 coin has ceased to bear the price of paper, and has taken the 
 price of bullion, and from that time the paper alone has 
 passed at the reduced rate. The difference between the 
 value of the circulating medium of this country and that of 
 bullion has always been sufficiently small to prevent the 
 like discount from arising ; and so long as we avoid a dis- 
 count, persons, in general, do not discover that any depre- 
 ciation of our paper exists. But even the most insignificant 
 of those depressions in the value of our circulating medium, 
 
 180 
 
Paper Credit. 317 
 
 which are indicated by the exchange, are to be referred to 
 the same immediate cause from which the depreciation of 
 the bank paper on the continent has originated. I do not 
 mean that our smaller and their greater depreciations are 
 alike to be referred to an excess of paper. I would affirm, 
 however, that they have equally resulted from the circum- 
 stance of goods, at the time in question, being too high in value 
 (possibly, in the one case, through an excess of paper, and, 
 in the other, through a fluctuation in the markets) to bear to 
 be exported in sufficient quantity to satisfy the debt for which 
 payment has been demanded, unless an advantage in the exchange 
 was granted to the exporting merchant. 
 
 It may be convenient to the reader here to recapitulate 
 the several points which have been lately dwelt upon. 
 
 I have shewn, first, that since Bank of England paper 
 affords no profit to the holder, a very superfluous quantity is 
 not likely to be held in any quarter ; and that the additional 
 thirty-five millions, which have been spoken of, must, there- 
 fore, be supposed to be employed either in transferring an 
 encreased quantity of goods, which, in that case, it must be 
 assumed to have itself created, or in transferring the same 
 goods at a higher price. I have, then, insisted, that since 
 the fresh industry which is excited cannot be supposed to be 
 commensurate with the new paper, it is necessary to assume 
 (conformably to the principles of a former Chapter), that a 
 great rise in the price of commodities will take place. This 
 rise in the cost of articles in Great Britain must produce, as 
 has been also shewn, a diminution of the demand for them 
 abroad, unless a compensation for their high price is given 
 to the foreigner in the rate of exchange : so that the too 
 great emission of paper will be the cause of a disadvan- 
 tageous balance of trade, and also of an unfavourable 
 exchange; or, in other words, of a low valuation of the 
 circulating medium of Great Britain when compared with 
 that of other countries. 
 
 It has, likewise, been observed, that even the smallest of 
 those depressions in the value of our circulating medium, 
 which are indicated by the exchange, arise out of the same 
 
 181 
 
318 Thornton on 
 
 circumstance which has produced the greater depreciations 
 of the continental bank paper; goods, it has been said, 
 being rendered too high (in the one instance, probably, by an 
 excess of paper, in the other by a fluctuation in the markets) 
 to bear to be exported in sufficient quantity to satisfy the 
 debts for which payment has been demanded ; unless a 
 bounty, in the shape of the exchange, be granted to the 
 exporting merchant, 
 
 We come next to the second topic of enquiry, namely, 
 whether those bounds within which Bank of England paper 
 must be confined, in order to guard against a dangerous 
 depreciation of it, are likely to be observed, in consequence 
 of some natural tendency which it has to limit itself, so that 
 it is unnecessary that the bank should restrain it. 
 
 In examining this question, I mean also to enquire 
 whether the adoption merely of such rules as may tend, in a 
 general way, to confine the loans of the bank, may be suffi- 
 cient ; or whether, also, any limitation of the specific sums 
 lent may be necessary. 
 
 First, it is obvious that the principle of lending, simply 
 in proportion to the property of those who desire to borrow, 
 cannot be a safe one. If mere capital were to give a title to 
 bank loans, the borrowers might become beyond measure 
 numerous ; even all proprietors of the public funds might 
 prefer a claim for assistance. 
 
 If it should be said that the bank loans ought to be 
 afforded only to traders, and on the security of real bills, 
 that is to say, of bills drawn on the occasion of an actual 
 sale of goods, let it be remembered that real bills, as was 
 observed in an early part of this work, may be multiplied to 
 an extremely great extent ; and, moreover, that it is only 
 necessary sufficiently to extend the customary length of 
 credit, in order to effect the greatest imaginable multiplica- 
 tion of them. If the bank directors were to measure their 
 discounts by the amount of real bills offered, it may be 
 apprehended, that bankers and other discounters, who now 
 take this better kind of paper, might become much more 
 considerable holders of mere notes of hand, or of fictitious 
 
 182 
 
Paper Credit. 319 
 
 bills; nnd that an opportunity might thus be afforded of 
 pouring a vast additional quantity of real bills into the Bank 
 of England. 
 
 It may be imagined, that if the directors were to govern 
 their conduct by a regard partly to the capital of the bor- 
 rowers, partly to the species of bills offered, but partly, also, 
 to the probability of punctual payment, the addition of this 
 third check to the former might suffice. But it is here to be 
 recollected, that the bank itself, if we suppose a progressive 
 enlargement of notes, must be assumed to furnish perpetually 
 encreasing means of effecting payments, and thus to render 
 punctuality in fulfilling even the most extravagant engage- 
 ments convenient and easy to the merchants. 
 
 It only remains to enquire, lastly, whether any principle 
 of moderation and forbearance on the part of the borrowers 
 at the bank may be likely to exempt the directors of that 
 institution from the necessity of imposing their own limit. 
 
 It may possibly be thought, t-iat a liberal extension of 
 loans would soon satisfy all demands, and that the true point 
 at which the encrease of the paper of the bank ought to stop, 
 would be discovered by the unwillingness of the merchants 
 to continue borrowing. 
 
 In order to ascertain how far the desire of obtaining loans 
 at the bank may be expected at any time to be carried, we 
 must enquire into the subject of the quantum of profit 
 likely to be derived from borrowing there under the existing 
 circumstances. This is to be judged of by considering two 
 points : the amount, first, of interest to be paid on the sum 
 borrowed ; and, secondly, of the mercantile or other gain to 
 be obtained by the employment of the borrowed capital. 
 The gain which can be acquired by the means of commerce 
 is commonly the highest which can be had; and it also 
 regulates, in a great measure, the rate in all other cases. 
 We may, therefore, consider this question as turning prin- 
 cipally on a comparison ot the rate of interest taken at the 
 bank with the current rate of mercantile profit. 
 
 The bank is prohibited, by the state of the law, from 
 183 
 
320 Thornton on 
 
 demanding, even in time of war, an interest of more than 
 five per cent., which is the same rate at which it discounts in 
 a period of profound peace. It might, undoubtedly, at all 
 seasons, sufficiently limit its paper by means of the price at 
 which it lends, if the legislature did not interpose an obstacle 
 to the constant adoption of this principle of restriction. 
 
 Any supposition that it would be safe to permit the bank 
 paper to limit itself, because this would be to take the more 
 natural course, is, therefore, altogether erroneous. It im- 
 plies that there is no occasion to advert to the rate of interest 
 in consideration of which the bank paper is furnished, or to 
 change that rate according to the varying circumstances of 
 the country. 
 
 At some seasons an interest, perhaps, of six per cent, per 
 annum, at others, of five, or even of four per cent., may 
 afford that degree of advantage to borrowers, which shall be 
 about sufficient to limit, in the due measure, the demand upon 
 the bank for discounts. Experience, in some measure, 
 proves the justice of this observation ; for, in time of peace, 
 the bank has found it easy to confine its paper by demanding 
 five per cent, for interest ; whereas, in war, and especially in 
 the progress and towards the conclusion of it, as well as for 
 some time afterwards, the directors have been subject, as I 
 apprehend, to very earnest solicitations for discount, their 
 notes, nevertheless, not being particularly diminished. It is, 
 therefore, unreasonable to presume that there will always be 
 a disposition in the borrowers at the bank to prescribe to 
 themselves exactly those bounds which a regard to the safety 
 of the bank would suggest. The interest of the two parties 
 is not the same in this respect. The borrowers, in con- 
 sequence of that artificial state of things which is produced 
 by the law against usury, obtain their loans too cheap. That 
 which they obtain too cheap they demand in too great 
 quantity. To trust to their moderation and forbearance 
 under such circumstances, is to commit the safety of the 
 bank to the discretion of those who, though both as mer- 
 chants and as British subjects they may approve in the 
 
 184 
 
Paper Credit. 321 
 
 general of the proper limitation of bank paper, have, never- 
 theless, in this respect, an individual interest which is at 
 variance with that of the Bank of England. 
 
 The temptation to borrow, in time of war, too largely at 
 the bank, arises, as has been observed, from the high rate of 
 mercantile profit. Capital is then scarce, and the gain 
 accruing from the employment of it is proportionably con- 
 siderable. 
 
 The reader, possibly, may think that an extension of 
 bank loans, by furnishing additional capital, may reduce the 
 profit on the use of it, and may thus lessen the temptation 
 to borrow at five per cent. It has been already remarked in 
 this Chapter, that capital, by which term bond fide property 
 was intended, cannot be suddenly and materially encreased 
 by any emission of paper. That the rate of mercantile profit 
 depends on the quantity of this bond fide capital, and not 
 on the amount of the nominal value which an encreased 
 emission of paper may give to it, is a circumstance which it 
 will now be easy to point out. 
 
 I admit, that a large extension of bank loans may give a 
 temporary check to the eagerness of the general demand for 
 them. It will cause paper to be for a time over abundant, 
 and the price paid for the use of it, consequently, to fall. 
 
 It seems clear, however, on the principles already stated, 
 that when the augmented quantity of paper shall have been 
 for some time stationary, and shall have produced its full 
 effect in raising the price of goods, the temptation to borrow 
 at five per cent, will be exactly the same as before ; for the 
 existing paper will then bear only the same proportion to 
 the existing quantity of goods, when sold at the existing 
 prices, which the former paper bore to the former quantity 
 of goods, when sold at the former prices: the power of 
 purchasing will, therefore, be the same ; the terms of lend- 
 ing and borrowing must be presumed to be the same ; the 
 amount of circulating medium alone will have altered, and it 
 will have simply caused the same goods to pass for a larger 
 quantity of paper. To assume under such circumstances 
 the same rate of mercantile profit to subsist, is only to 
 
 185 
 
322 Thornton on 
 
 suppose that the trader will be situated neither more nor 
 less advantageously than before ; and that the annual gain 
 which he will obtain by trading with the same quantity of 
 goods, will bear the same proportion as before to their 
 current cost. If this observation be just, there can be no 
 reason to believe that even the most liberal extension of 
 bank loans will have the smallest tendency to produce a 
 permanent diminution of the applications to the bank for 
 discount. It is the progressive augmentation of bank paper, 
 and not the magnitude of its existing amount, which gives 
 the relief. It thus appears, that the moderation and for- 
 bearance among borrowers, which were supposed likely to 
 restrain the too great emission of paper, are only to be 
 excited by the means of its perpetual encrease ; by the 
 means, that is to say, of the very evil which it was assumed 
 that they would be sufficient to prevent. 
 
 The danger of enlarging the loans of the bank in pro- 
 portion to the extension of the demand for them, may be 
 more particularly shewn by adverting to the case of the 
 sudden transfer to foreign countries of capital which had 
 been antecedently lodged in this. Let us suppose the 
 foreign owners, either of British stocks, or of property left 
 in the hands of English correspondents, to draw during the 
 space of three mpnths to a very large amount ; and let us 
 imagine that, in consequence of such an event, the exchange 
 turns against Great Britain to the extent of five per cent. ; 
 and moreover that, at the end of the three months, the drafts 
 ceasing, and the mercantile state of the country improving, 
 the exchange returns to its proper level. In this case any 
 Englishman who can send goods abroad on his own account, 
 and draw for them during the three months in question, will 
 gain an extra profit of five per cent., supposing him to buy 
 them in England for the same English money, and to sell 
 them abroad for the same foreign money, for which goods 
 may be bought and sold at the periods preceding, and follow- 
 ing the interval of time of which we are speaking. A similar 
 extra profit will be obtainable during the same three months 
 by a variety of other modes of employing capital. It is 
 
 186 
 
Puper Credit. 323 
 
 obvious, for example, that the public funds may be expected 
 to experience a sudden fall through the great sale of foreign 
 property in the stocks, which we have imagined to take 
 place. He, therefore, who shall buy into the funds at the 
 season of depression, and shall sell out at the expiration of 
 the three months, will be likely to derive a benefit from this 
 species of speculation. It is also plain that the quantity of 
 goods in Great Britain will be reduced through the enlarged 
 exportations, as well as through the suspension of imports, 
 to which the state of the exchange will have given occasion. 
 The profit, therefore, on the use of the remaining stock will 
 be generally augmented. The exportation of bullion will 
 afford a gain of the same sum of five per cent., the expence 
 of transporting it being, indeed, deducted. The demand 
 upon the bank for discounts is, therefore, likely to be par- 
 ticularly earnest during the period of which we are speak- 
 ing ; and it is important here to notice, that the ground on 
 which it will be made will not be that which was spoken of 
 in an early part of this work. It will not be the privation 
 of that quantity of circulating medium which is necessary 
 for carrying on the accustomed payments, for these will be 
 very immaterially encreased ; the cause of the extraordinary 
 applications to the bank will be the temporary advantage 
 which may be gained, or the loss which ma'y be avoided, by 
 borrowing, during the three months in question, at the rate 
 of five per cent. A pressure, it is true, may be occasioned 
 by the multitude of foreign drafts, and it may resemble that 
 which would arise from a diminution of Bank of England 
 paper. Some of those merchants in whose hands the foreign 
 property had been placed may not be able, with sufficient 
 readiness, to spare from their commerce the sums necessarv 
 to answer the bills drawn upon them. Creditors, not being 
 permitted to demand more than five per cent, interest from 
 their debtors, are apt, at particular junctures, to call in 
 their money, for the sake of taking to themselves the extra- 
 ordinary b'enefit to be obtained by the use of capital. The 
 disappointments thus brought on persons trading with 
 borrowed wealth are often productive of much evil The 
 
 187 
 
324 Thornton on 
 
 maintenance of the accustomed quantity of Bank of England 
 notes may, therefore, be insufficient to furnish the means of 
 securing the usual regularity of the payments of the metro- 
 polis ; and a material diminution of paper may be particu- 
 larly inconvenient. Possibly an augmentation of it may be 
 necessary to the due maintenance of credit. If we suppose^ 
 however, a very great encrease of bank notes to take place 
 (and an encrease, probably, equal to the total capital trans- 
 ferred on account of foreigners, will immediately be desired), 
 the result must be a very important fall in the exchange, in 
 addition to the fall of five per cent, already mentioned; 
 and a new and proportionate danger to the Bank of 
 England. 
 
 The point which it has been the object here to explain^ 
 might have been equally illustrated by imagining either the 
 case of a strong disposition in many British subjects to- 
 transfer their own property to foreign countries, in order to 
 lodge it there ; or the case of a general eagerness to extend 
 foreign commerce ; for we must assume the transfer to 
 foreign parts of an additional British capital to take place 
 on either of these suppositions. 
 
 The preceding observations explain the reason of a 
 determination, adopted some time since by the bank 
 directors, to limit the total weekly amount of loans fur- 
 nished by them to the merchants. The adoption of a regu- 
 lation for this purpose seems to have been rendered neces- 
 sary by that impossibility of otherwise sufficiently limiting, 
 at all times, the Bank of England paper, which it has been 
 the design of this Chapter to point out. 
 
 The regulation in question 1 consider as intended to 
 confine within a specific, though in some degree fluctuating, 
 sum, the loans of the bank, for the sake of restricting the 
 paper. The variations in the amount of loans fail of pro- 
 ducing exactly correspondent variations in the amount of 
 paper, in proportion as the gold of the bank fluctuates. But 
 the regulation being a weekly one, opportunity is afforded 
 of correcting this attendant imperfection before any material 
 evil can have arisen, The changes which occur in the 
 
 188 
 
Paper Credit. 325 
 
 amount of the loans to government form another ground for 
 taking into weekly consideration the sum which shall, in the 
 succeeding week, be afforded to the merchants. 
 
 To limit the total amount of paper issued, and to resort 
 for this purpose, whenever the temptation to borrow is 
 strong, to some effectual principle of restriction ; in no case, 
 however, materially to diminish the sum in circulation, but 
 to let it vibrate only within certain limits ; to afford a slow 
 and cautious extension of it, as the general trade of the 
 kingdom enlarges itself; to allow of some special, though 
 temporary, encrease in the event of any extraordinary alarm 
 or difficulty, as the best means of preventing a great demand 
 at home for guineas ; and to lean to the side of diminution, 
 in the case of gold going abroad, and of the general ex- 
 changes continuing long unfavourable ; this seems to be 
 the true policy of the directors of an institution circum- 
 stanced like that of the Bank of England. To suffer 
 either the solicitations of merchants, or the wishes of 
 government, to determine the measure of the bank issues, 
 is unquestionably to adopt a very false principle of conduct. 
 
 CHAP. XI. 
 
 Of the Influence of Paper Credit on the Price of Commo- 
 dities Observations on some Passages of Montesquieu and 
 Hume Conclusion. 
 
 THIS subject has been in so great a degree anticipated 
 by the discussions which have taken place ; that it will 
 scarcely be necessary to do more than to remind the reader 
 of the principles which have been laid down, and to point 
 out the manner in which they bear upon the present 
 question. 
 
 It was observed in a former Chapter, that a very con- 
 siderable advance in the price of the commodities bought 
 and sold in one quarter of this kingdom, while there was no 
 
 189 
 
326 Thornton on 
 
 such rise in any other, was not supposable; because the 
 holders of the circulating medium current in the spot in 
 which goods were imagined to have been rendered dear, 
 would exchange it for the circulating medium of the part in 
 which they were assumed to be cheap, and would then buy 
 the commodities of the latter place, and transport them to 
 the former, for the sake of the profit on the transaction. 
 
 The exchangeableness of our country paper for our 
 London paper was represented as always in this manner 
 preventing the quantity of paper circulating in one place 
 from being very disproportionate to the quantity circulating 
 in another; and as also precluding any great local rise in the 
 price of commodities within our own island. 
 
 We may justly extend our views, and conceive of Europe, 
 and even of the world, as forming one great kingdom, over 
 the whole of which goods pass and repass, as suits the inte- 
 rest of the merchant, nearly in the same manner in which 
 they spread themselves through this single country. 
 
 In one particular, indeed, the resemblance between the 
 two cases fails. Country bank paper, as compared with 
 Bank of England notes, cannot be, to a material degree, 
 excessive in any part of England ; because, by the custom 
 of our country banks, it is convertible, without any discount, 
 into the London paper. But British paper is not exchange- 
 able for the circulating medium of the continent, unless a 
 discount, or difference, be allowed. Of this fluctuating 
 discount, or difference, the variations in the course of ex- 
 change are the measure. 
 
 It is true that the continental circulating medium, like 
 our own, varies in value. Both, however, commonly vibrate 
 only within certain limits; and both may be considered as 
 fluctuating exactly so far as their value differs from that of 
 bullion. To say that bullion varies in its price, is to say 
 that there is an alteration in the general exchangeable value 
 of that article, which constitutes the standard of the world. 
 
 We are led, by these observations, to divide our subject 
 into two branches of enquiry : first, into the question how 
 far our paper credit may have raised the price of goods in 
 
 190 
 
Paper Credit. 327 
 
 Great Britain, by causing their current price here (that is 
 to say, their price in British paper, as well as in British 
 coin) to be higher than their bullion price ; and, secondly, 
 how far also the bullion price of our commodities here (that 
 is to say, their value in exchange for the article of bullion) 
 may be suspected of having been enhanced by means of the 
 paper credit of Great Britain. 
 
 As to the first question ; the highest influence which a 
 too extended paper credit can have had in raising the 
 current price of commodities in Great Britain abtfve their 
 bullion price, must be measured by the difference which has 
 subsisted between the market price and mint price of gold ; 
 or, which is nearly the bame thing, by the fluctuation in the 
 state of our general exchanges. This difference or fluctua- 
 tion has at no period been more than about ten or twelve 
 per cent. Even this variation, however, has not been fairly 
 referable to a too great issue of paper, but rather to the 
 peculiar circumstances of the country ; and, in particular, to 
 our two bad harvests, which sufficiently account for the 
 unfavourable state of our exchanges. 
 
 The second question is, how far the bullion price of our 
 commodities may be suspected of having been raised through 
 the influence of the paper credit of Great Britain. 
 
 It was formerly stated, that the bullion price of articles 
 may be considered to be their general price : because bul- 
 lion necessarily bears that value, or nearly that value, in 
 each country, in exchange for goods, which it bears in all, 
 allowance being made for the expence of their transmission, 
 inclusive of export and import duties, ordinary profit of the 
 merchant, freight, insurance, and other customary charges. 
 The expence of the transportation of commodities from the 
 several places of their growth or manufacture, an expence 
 which is great in some cases, and small in others, is the 
 measure of the difference subsisting between the bullion 
 prices of the same articles, at the same time, in different 
 parts of the world. Each addition to this difference implies 
 an extra profit on the transportation either of bullion or of 
 goods ; and must be supposed soon to cause the one or the 
 
 191 
 
328 Thornton on 
 
 other to be carried over in such quantity as to restore their 
 due relative price. Every rise, therefore, of the bullion 
 price in Great Britain of those commodities which she is 
 accustomed to export, if we suppose the usual exportation to 
 continue, implies an equal, or nearly equal, enhancement of 
 the bullion price of all articles of the same class in every 
 foreign part in which our commodities are sold. 
 
 Great Britain so remarkably takes the lead in manufac- 
 tures and commerce, that she may not unjustly be deemed 
 to have the power, especially in a time of general war, of 
 prescribing to foreign countries the rate at which they shall 
 buy her commodities. 
 
 That monopoly of the supply, however, which I am here 
 supposing Great Britain to possess, is, probably, but tempo- 
 rary, and, in every respect, imperfect. In most of her sales 
 abroad she meets with strong competition ; for, though other 
 countries may not rival her in the quality of her goods, 
 they can, generally, furnish a substitute, which, if British 
 prices are much lifted up, will gain, by comparative cheap- 
 ness, the preference. Every great enhancement of the cost 
 of our articles must lessen the foreign demand for them. It 
 must reduce our exported and augment our imported goods. 
 By thus turning the balance of trade against us, and render- 
 ing our exchanges unfavourable, it must cause the rise at 
 home to be a rise not in the bullion price of our articles, 
 the subject which we are now considering, but in the paper 
 or current price, the point which was noticed before. If the 
 advance is in the paper or current price, the bank is com- 
 pelled to restrict its issues ; and the reduction of the quan- 
 tity of bank notes has a tendency to limit the cost not only 
 of those particular commodities which are the subjects of 
 exportation, but of every commodity in the kingdom. 
 
 That the bullion price of some British articles has lately 
 been much encreased, and that the bullion price of all, or of 
 almost all, has in some degree risen, are facts which cannot 
 be doubted. But that this enhancement is to be charged to 
 an encrease of paper, is not equally to be admitted ; for it 
 is plain that other causes have powerfully operated, namely, 
 
 192 
 
Paper Credit. 329 
 
 a state of war, new taxes, and two bad harvests, which, by 
 raising the price of bread, have in some degree lifted up 
 that of labour, and of all commodities. Our prices may 
 have also been partly augmented by the enhancement of the 
 cost of raw materials brought from other countries. 
 
 Although it should be granted, as it must, either that 
 the amount of our paper has been enlarged in proportion to 
 the extension of pecuniary transactions ; or that an encreased 
 ceconomy in the use of it has rendered an equal quantity 
 sufficient for more payments (and it seems of little moment 
 which of these two suppositions is adopted) : still it may be 
 questioned whether the extended issue of paper ought to be 
 deemed the cause of the high prices ; or whether the high 
 prices ought not to be deemed the cause, and the encrease 
 of paper the effect. 
 
 It was before remarked, that it seems in general more 
 fair to consider the latter to be the case, when the extension 
 of paper is not such as to be the means of reducing its value 
 below that of bullion. To prove the reasonableness of this 
 observation, let us imagine the paper credit of this country 
 to be abolished, and our payments to be conducted by a 
 circulating medium consisting wholly of gold ; and let us 
 assume, that we still find ourselves able to procure for our 
 commodities sent abroad a higher bullion price than before. 
 In this case the bullion price of articles at home will also 
 experience a rise ; for the high bullion prices abroad will 
 have the effect of enlarging our exported and diminishing 
 our imported goods ; of rendering our balance of trade 
 favourable, and of bringing gold into the kingdom ; which 
 encrease of gold will have precisely the same effect as an 
 augmentation of paper, namely, that of raising British prices. 
 The bullion will continue to flow in until it shall have 
 brought the bullion price of goods in England to a level 
 with the bullion price of the same articles in foreign parts, 
 allowing for charges of transportation. On the ability, 
 therefore, of Great Britain to maintain a high bullion price 
 for her goods abroad, would depend the bullion price of her 
 
 193 
 
330 Thornton on 
 
 commodities at home, in the event of her employing gold as 
 her only circulating medium. 
 
 If we suppose paper to constitute the circulating medium 
 of Great Britain, and an encreased bullion price for her 
 commodities abroad to be in like manner obtainable, the case 
 will in the main be similar, though in one particular it will 
 differ. The case will be similar, inasmuch as Great Britain 
 will experience, exactly as if she made use only of gold, an 
 encrease in the price of her commodities at home, as well as 
 an enlargement of the quantity of her circulating medium ; 
 such an enlargement, I mean, as is necessary for effecting 
 her more extended payments. The case will differ, inas- 
 much as, instead of importing the additional circulating 
 medium which is wanted, she will create it. The produc- 
 tion, therefore, of a rather less quantity of exportable articles 
 will be necessary on the one supposition than on the other ; 
 and the state of the exchange itself will be in some degree 
 affected by this variation in the circumstances of the two 
 cases. 
 
 It may, perhaps, be thought, that I have considered the 
 bullion price of goods in Great Britain as exclusively 
 depending on the bullion price of the same kind of commo- 
 dities abroad ; and that I ought to have stated the converse 
 to be also in some measure the fact, namely, the bullion 
 price of articles abroad to depend in part on the bullion 
 prices of Great Britain. I have intended thus to represent 
 the case. My position has been this, that the bullion price 
 of articles in Great Britain conforms itself to the bullion 
 price abroad ; but that, in the formation of this bullion price 
 abroad, the British price has some share of influence : and 
 this influence I have considered to be proportioned to the 
 degree of our monopoly of the supply of the foreign markets. 
 
 There is an additional mode of considering the influence 
 of paper credit on the bullion price of articles. 
 
 The encreased use of paper in each individual country 
 must contribute to lower the price of bullion, by lessening 
 the general demand for it in the world. On every advance 
 
 194 
 
Paper Credit, 331 
 
 in the cost of commodities, it may be suspected that the 
 means of effecting the encreased payments are supplied not 
 by bringing more gold into use, but rather by the enlarge- 
 ment of that part of the circulating medium which consists 
 in paper. No inconsiderable portion of British gold coin is 
 employed in effecting the fractional parts of payments ; and 
 the total amount of these does not encrease in the same 
 proportion in which the sum total of payments is aug- 
 mented.* Moreover, the art of oeconomizing gold is 
 continually advancing. The very vicissitudes of commerce, 
 probably, tend to improve it. A time of distress, such as 
 was felt in 1793, compels many to resort to new expedients, 
 tending to spare the use both of Bank of England notes 
 and of coin. The measures adopted, at first, through neces- 
 sity, are afterwards persisted in because they are economical. 
 To put the case which we have more recently experienced. 
 An unfavourable balance of trade, arising out of the disad- 
 vantageous circumstances of the country, causes our guineas 
 to go abroad. Paper is necessary to supply their place. 
 Experience of the loss incurred by hoarding money, and of 
 the practicability of sustaining both private and public 
 credit during the absence of gold, strengthens the general 
 
 * The bank notes in circulation commonly are notes for five, ten, 
 fifteen, twenty, twenty-five, thirty, forty, fifty, and one hundred pounds and 
 upwards. If we suppose the price of all articles to be doubled, then we may 
 assume every payment of one guinea to be a payment of two guineas, 
 and to employ a double quantity of gold ; every payment of two guineas 
 to be a payment of four guineas, and also to employ a double quantity 
 of gold ; but every payment of three guineas will be a payment of six, 
 and it may employ a five pound note, the fractional part only being paid 
 in money. This particular payment will, therefore, require less gold. 
 A payment of four guineas will be a payment of eight, and will also 
 require less gold. The payments of more than four guineas, when, in 
 like manner, doubled, will some of them employ a greater and some a 
 less quantity of gold than before. They will employ, taking them 
 together, the same quantity. It is evident from this statement, that an 
 encrease of the quantity of the circulating medium of a country employ- 
 ing paper in its larger payments, and coin only in the smaller, will 
 consist chiefly of paper ; a circumstance which may considerably tend 
 to prevent an encreased demand for bullion on the occasion of an 
 augmentation of prices, and which may, therefore greatly facilitate a 
 rise of the bullion price of articles in the world. 
 
 195 
 
332 Thornton on 
 
 
 
 confidence in a paper currency, and encourages a perma- 
 nently encreased use of it. If we could suppose as large a 
 substitution of paper in the place of coin to take place in 
 other countries as we have lately experienced in our own ; 
 the diminution of the demand for bullion might be such as 
 very materially to affect its general value, and to enhance 
 the money price of articles over the world. 
 
 There is, however, a limit to this evil. The annual supply 
 of the precious metals is obtained from mines, of which some 
 afford to the proprietors a higher and others a lower revenue, 
 and some probably no revenue at all. If we suppose the 
 encreased use of paper to lower, in any degree, the value of 
 the precious metals ; we must assume those mines which 
 have not yielded any rent, to be no longer worked ; and the 
 supply of gold and silver to be, in consequence, somewhat 
 reduced. If we imagine the reduction of the price of the 
 precious metals to be progressive, we must conceive a period 
 to arrive when all mines will be unable to defray the charge 
 of extracting the ore, except those which now yield the very 
 highest rent. At this point the fall will necessarily stop. 
 In other words, gold and silver must continue to bear that 
 price, or nearly that price, at which they are now exchange- 
 able for commodities, a deduction being made of the total 
 present rent derived from the richest mines; a deduction 
 which, if Dr. A. Smith's observations on this subject are just, 
 cannot be very considerable. 
 
 Mr. de Montesquieu has represented, in the following 
 manner, the principle which regulates the price of the pre- 
 cious metals. He " compares the mass of gold and silver in 
 " the whole world with the quantity of merchandize therein 
 " contained," and " every commodity with a certain portion 
 " of the entire mass of gold and silver :" and then observes, 
 that, " Since the property of mankind is not all at once in 
 " trade, and as the metals or money also are not all in trade 
 " at the same time ; the price is fixed in the compound 
 " ratio of the total of things with the total of signs, and that 
 " of the total of things in trade with the total of signs in 
 " trade also/' This theory, though not altogether to be 
 
 196 
 
Paper Credit. 333 
 
 rejected, is laid down in a manner which is very loose and 
 fallacious*. 
 
 Not to mention the misconception of the subject which 
 may arise from the silence of Mr. de Montesquieu respecting 
 the state of the mines, it may be observed, first, that he 
 alludes, in a manner so imperfect as to be scarcely intelligible, 
 to those effects of the different degrees of rapidity in the 
 circulation both of money and of goods, which it has been 
 one object of this work to explain. It is on the degree of 
 the rapidity of the circulation of each, combined with the 
 consideration of quantity, and not on the quantity alone, that 
 the value of the circulating medium of any country depends. 
 
 Mr. de Montesquieu also leaves out of his consideration 
 the custom of transacting payments by means of entries in 
 books, and of other expedients. In proportion as contrivances 
 of this sort prevail ; and they must abound more and more as 
 commercial knowledge advances in the world ; the demand 
 for bullion will be diminished. 
 
 He also does not advert to that reserve of gold and silver 
 in the coffers of the banks of various countries which merely 
 forms a provision against contingencies. The amount of this 
 reserve will depend on the opinion which the banks entertain 
 respecting the extent of the sum likely to be suddenly drawn 
 from them, in consequence either of fluctuations in the 
 national balances of trade, or of temporary interruptions of 
 credit among individuals. In proportion, therefore, as the 
 variations in the national balances of trade, as well as in the 
 state of commercial confidence, are greater or smaller, the 
 fund of gold which is kept out of circulation will be more or 
 less considerable. On the amount of this fund depends, in 
 no inconsiderable degree, the price of bullion in the world. 
 
 Mr. de Montesquieu likewise omits to take into his account 
 that now immense and perpetually encreasing influence in 
 sparing the precious metals which arises from the use of 
 paper credit. The false impression which he gives of this 
 
 * It is controverted at great length in the work of Sir James Steuart 
 on Political (Economy. 
 
 197 
 
334 Thornton on 
 
 subject may chiefly be referred to his not having contem- 
 plated the effects of the introduction of the banking system. 
 
 Mr. Hume has spoken strongly of the influence of paper 
 credit in sparing the use of the precious metals, and in pro- 
 portionably lowering their value, and raising that of labour 
 and of commodities. He inveighs against bank paper on 
 this account, as well as on some others ; but, in so doing, he. 
 appears to assume, that paper credit causes a merely local 
 rise in the price of articles ; a rise, I mean, which extends 
 itself only over the whole of the single independent country 
 in which the paper is issued. The bank is considered by him 
 as most advantageous to a state, which locks up all the gold 
 received in return for its notes [he admits that it will have 
 no profit on its dealings], and thus causes the total quantity 
 of circulating medium to remain the same. The price of 
 labour, he says, will^in- this manner, be kept down. The 
 Bank of Amsterdam is approved by him, on account of its 
 being an establishment of this nature*. In thus representing 
 the subject he appears to forget, that, when the total circula- 
 ting medium of a country, whether consisting of gold, or of 
 paper, or of both, is rendered excessive ; when it has thus 
 lifted up the gold price of articles above the point at which 
 they stand in adjacent countries, the gold is obliged, by the 
 operation of the exchange, to transport itself to those other 
 parts ; and that paper credit, therefore, enhances the prices 
 not of that single spot in which it passes, but of the adjoining 
 places, and of the world. The state which issues paper only 
 in such quantity as to maintain its general exchanges, may 
 be considered as substituting paper in the place of gold, and 
 as gaining additional stock in return for whatever coin it may 
 cause to be exported. It derives, therefore, from its own 
 issue, the whole advantage of this augmentation of capital. 
 It participates with other countries in that inconvenience of a 
 generally en creased price of commodities which its paper has 
 contributed to produce. 
 
 That the popular opinion which was lately entertained 
 
 * Hume's Essay on Money. 
 198 
 
Paper Credit. 335 
 
 of the great influence of paper credit in raising the price not 
 only of commodities in general, but of provisions in particular, 
 had no just foundation, is a position which admits of easy 
 proof. 
 
 First, that opinion has proceeded on the assumption of 
 the fact of a vast encrease of the total circulating medium of 
 the kingdom, within the last two or three years, the period 
 during which the high prices have subsisted. But I have 
 shewn both that the amount of the notes of the Bank 
 of England has lately not been such as to imply a material 
 augmentation of the circulating medium of the metropolis, 
 and, also, that the quantity of circulating medium in the 
 country necessarily conforms itself to that of London, for 
 which it is exchangeable. It has obviously been the use of 
 country bank notes, and especially of the smaller ones, in 
 the place of gold, not in addition to it, which has been the 
 chief occasion of the prevailing suspicion ; for the common 
 complaint has been not only that paper has been multiplied, 
 but, also, that guineas have been hardly to be seen ; and it 
 has not been considered, that by this double invective some 
 sort of acknowledgment is made that the one article is only 
 that substitute for the other, by which none of the supposed 
 effect on the price of commodities can be produced. 
 
 It is sometimes said, that the additional loans which the 
 paper of the country banks has enabled them to furnish, 
 have encouraged mercantile speculation ; and that we may 
 ascribe to the spirit thus excited much of the late rise in the 
 price of articles in general, and of corn in particular. 
 
 There is an error in the public sentiment on this subject, 
 which it is important to correct. 
 
 It has been already shewn, that it is by the amount not 
 of the loans of the Bank of England, but of its paper ; or if 
 of its loans, of these merely as indicating the quantity of its 
 paper, that we are to estimate the influence on the cost of 
 commodities. The same remark may be applied to the sub- 
 ject of the loans and paper of country banks. For the sake 
 of more fully illustrating this point, let us examine into the 
 several ways in which a country banker may be supposed 
 
 190 
 
336 Thornton on 
 
 to extend his loans, without augmenting the quantity of cir- 
 culating medium in the kingdom. 
 
 He may be enabled to do this, first, through the enlarge- 
 ment of the deposits lodged with him. In this case some of 
 his customers may be considered as leaving with him, or as 
 lending to him a sum which is lent by him to dther customers. 
 This is the same thing as if some individuals were to lend to 
 others, without the intervention of the banker. Loans of 
 this nature will be admitted not to have the supposed influence 
 on prices. 
 
 A country banker may also encrease his loans, without 
 augmenting the quantity of the circulating medium of the 
 country, in the following manner. He may extend the issue 
 of his own paper, and then that paper may circulate in the 
 place of gold either hoarded or exported. If the gold is 
 hoarded ; if a quantity of coin locked up by one man equals 
 the amount of the new paper issued by another ; it is plain 
 that there will not be the supposed influence on prices. If 
 the gold is exported, we must consider it in the same light with 
 any other commodity sent abroad. It is true that the paper, 
 according to this supposition, may be said to give existence 
 to an additional exportable article : but so also does every 
 encreased exertion of the national industry, as well as every 
 favourable harvest. An augmentation of prices is no more 
 to be inferred from the creation of a new exportable com- 
 modity in the one case than in the others. 
 
 The following facts furnish a convincing proof that the 
 late high prices of corn have not been owing to the enlarge- 
 ment of Bank of England paper. 
 
 By the account which the bank rendered to Parliament, 
 it appears, that the amount of Bank of England notes was, 
 on the 25th of February, 1795, 13,539,1607. In the three 
 months immediately following the 25th of Februay, 1795, 
 the average price of wheat, in the London corn-market, was 
 about 57s. per quarter. 
 
 By the same bank account, it appears, that the amount 
 of Bank of England notes was, on the 25th of February, 
 1796, 11,030,1167. In the three months immediately fol- 
 
 200 
 
Paper Credit, 337 
 
 lowing the 25th of February, 1796, the average price of 
 wheat, in the London corn-market, was about 94s. per 
 quarter. 
 
 Thus wheat bore a comparatively low price when the 
 amount of bank notes in circulation was greater ; and a 
 comparatively high price when their amount was smaller. 
 It bore the moderate price of 57s. per quarter, at ti time when 
 the amount of Bank of England notes was full as considerable 
 (allowing for about two millionsof 17. and 21. notes) as it is 
 known to have been at any period. 
 
 Paper credit may be considered as tending, in some 
 respects, to reduce the price of commodities. It was corn- 
 pared, in a former chapter, to a cheap species of machinery 
 which is substituted in the place of a dear one ; and it is 
 obvious, that in proportion as any instrument of manufac- 
 tures or commerce is less expensive, the articles which it 
 contributes to produce may be afforded at a lower rate. 
 
 Paper credit, also, promotes general cheapness, by sparing 
 much expence and trouble in weighing, counting, and trans- 
 porting, money ; and by thus facilitating more particularly 
 the larger transactions of the merchant. Mr. Hume appears 
 to suppose, that, when a great encrease of it takes place, the 
 augmentation is artificially produced. But it has been shewn, 
 that mercantile persons naturally resort more and more to 
 the use of paper, in proportion as wealth accumulates, con- 
 fidence improves, and commerce advances. The consumers 
 of commodities may be considered as having an interest in 
 permitting the merchants to follow their own plans of 
 ^economy, in this respect, in the same manner as in all 
 others. 
 
 But whatever may be the amount of that influence on 
 the price of commodities which ought to be ascribed to paper 
 credit, one point is clear, namely, that, during the period in 
 which our paper has extended itself, our trade has prospered, 
 the state of our agriculture has advanced, and both the 
 capital and the income of the country have been augmented. 
 
 The chief mischiefs which, according to Mr. Hume, are 
 to be apprehended from any considerable addition to our 
 
 201 
 
338 Thw*nton on 
 
 paper currency, may be stated to be the following : first, the 
 great enhancement of the price of British labour and com- 
 modities, an evil with which we ought unquestionably to 
 connect that of the diminution of the sale of our manufac- 
 tures in foreign markets ; secondly, the inconvenience to 
 which we may be exposed in time of war through the want 
 of sufficient means of making remittances in bullion to other 
 countries ; and, thirdly, the confusion which the failure of 
 paper credit may produce at home in the event of any great 
 disorder in the nation. 
 
 That the first consequence (the great enhancement of the 
 price of British labour and commodities) cannot follow from 
 the enlargement of our paper currency in the degree which 
 Mr. Hume supposes, has been proved from the circumstance 
 of our paper causing guineas to go abroad, and tending, 
 therefore, to raise the prices of the world rather than those of 
 our own single island. That our prices, however high, have 
 not been such as to lessen the vent abroad of our home made 
 articles, and, have, therefore, not been raised above the prices 
 of other countries, is proved by those documents from our 
 custom-house, which state the continually encreasiug quan- 
 tity of manufactures exported by Great Britain. 
 
 That the second evil (that of our being reduced to diffi- 
 culty in making remittances abroad in time of war through 
 the want of bullion) is one which there is less reason to dread 
 than Mr. Hume has imagined, may likewise be inferred from 
 recent experience. We have been able to maintain the 
 credit of our funds, and to carry on all our financial opera- 
 tions, during the whole of the late expensive and protracted 
 contest, although in the commencement of it our stock of 
 circulating gold was probably less than in many former 
 periods ; and although, also, in the last years of the struggle, 
 a period in which we lent considerable sums to Ireland, and 
 had to purchase immense quantities of foreign grain, we were 
 in a great measure deprived of current coin, and the cash 
 payments of the Bank of England remained suspended. 
 
 Mr. Hume himself has remarked, " That want of money 
 can never injure any state within itself; for that men and 
 
 202 
 
Paper Credit. 339 
 
 commodities are the real strength of any community." He 
 might have added, that Want of money can never injure any 
 state in its transactions with foreign countries, provided it 
 sufficiently abounds with commodities which are in demand 
 abroad, and which it can afford to sell at a bullion price lower 
 than that for which foreign articles of a similar kind can be 
 afforded. The power of manufacturing at a cheap rate is far 
 more valuable than any stock of bullion. Even the greatest 
 quantity of gold which can be supposed at any time to pos- 
 sess, bears but a small proportion to our extraordinary ex- 
 penditure in time of war, and affords a security which is 
 extremely slender in comparison of that which we derive from 
 the commercial capital, the manufacturing skill, and the other 
 resources of the country. 
 
 That the third evil (the confusion which the failure of 
 paper credit may produce in the event of any disorder at 
 home) is less a subject for apprehension than Mr. Hume and 
 other British writers have conceived, is a point which a 
 great part of the preceding work will have contributed to 
 establish. 
 
 During the late scenes of trouble and consternation on 
 the continent, the possession of a stock of the precious metals 
 probably added little to the security of any nation. When 
 the French armies approached, or when an insurrection was 
 projected, a stock of gold and silver possessed by a govern- 
 ment bank might contribute to invite attack ; or if the fund 
 should at such a juncture be expended in the public service, it 
 would not long continue to perform the office of a circulating 
 medium. It might even disappear after effecting a single 
 payment. 
 
 Our own island has been preserved, through the favour 
 of Providence, from those violent convulsions which have 
 been felt on the continent. We have, however, been exposed 
 to many smaller evils, and, in particular, to the interruption 
 of our mercantile credit. It was probable that the enemy, 
 knowing how much our political strength depended on our 
 commercial prosperity, and our commercial prosperity on the 
 due maintenance of mercantile confidence among us, would 
 
 203 
 
340 Thornton on Paper Credit. 
 
 direct his endeavours to the very object of exciting alarms 
 over the kingdom, with the view of thus disturbing the 
 course of our trade and manufactures. It therefore became 
 us to protect ourselves by the best means in our power 
 against this species of injury ; and the continuance of the law 
 for suspending the cash payments of the Bank of England 
 has been one of the steps which parliament has deemed 
 necessary. 
 
 There can be no doubt that, in the situation in which we 
 have thus found ourselves placed, we have been greatly bene- 
 fited by the circumstance of our having been previously 
 accustomed to the free use of a paper credit. In a commercial 
 country, subjected to that moderate degree of occasional 
 alarm and danger which we have experienced, gold is by 
 no means that kind of circulating medium which is the most 
 desirable. It is apt to circulate with very different degrees 
 of rapidity, and also to be suddenly withdrawn, in conse- 
 quence of its being an article intrinsically valuable, and 
 capable of being easily concealed. If, during the war, it had 
 been our only medium of payment, we might sometimes have 
 been almost totally deprived of the means of carrying on our 
 pecuniary transactions ; and much confusion in the affairs of 
 our merchants, great interruption of manufacturing labour 
 and very serious evils to the state, might have been the 
 consequences. 
 
 Paper credit has, on this account, been highly important 
 to us. Our former familiarity with it prepared us for the 
 more extended use of it. And our experience of its power 
 of supplying the want of gold in times of difficulty and peril, 
 is a circumstance which, though it ought not to encourage a 
 
 ' n o O 
 
 general disuse of coin, may justly add to the future confidence 
 of the nation. 
 
 FINIS. 
 
 204 
 
N O T E 
 
 ON THE 
 
 STATE OF THE EXCHANGE 
 
 BETWEEN 
 
 LONDON AND DUBLIN 
 
 FROM 1797 TO 1804. 
 
Exchange London arid Dublin. 343 
 
 EXCHANGE. 
 
 THE suspension of cash payments in 1797 extended 
 to Ireland as well as Great Britain ; and the first decided 
 proof of the depreciation of the paper currency from over- 
 issue was supplied by the former. 
 
 The nominal value of the Irish shilling having been raised 
 in 1689 from I2d. to 13d.* 1087. 65. 8d., Irish money be- 
 came equal to only 1007. British money ; and the exchange 
 between Great Britain and Ireland was said to be at par 
 when it was nominally 8-j per cent, against the latter. In the 
 eight years preceding 1797, when the paper currency of both 
 countries was convertible into gold, the exchange between 
 London and Dublin fluctuated from 7J to 9 per cent., that 
 is, from per cent, in favour of Dublin to-J per cent, against 
 it. In September 1797 it was at 6 per cent., or 2-J- per cent. 
 in favour of Dublin. The amount of Bank of Ireland notes 
 in circulation in January 1797 was only 621,9177. ; whereas 
 in January 1801 they had increased to 2,258,8167., and the 
 exchange was then at 12 per cent., or 3-J per cent, against 
 Dublin. In January 1804 the Bank of Ireland notes in 
 circulation amounted to 2,986,9997., and the exchange was 
 then quoted at 16J per cent, that is at very near 8 per cent, 
 against Dublin ! 
 
 The fact of the exchange between London and Dublin 
 having fluctuated but little from par during the eight years 
 previously to the restriction, shows that the circulating 
 medium of Great Britain and Ireland had been adjusted so 
 
 * By a proclamation of James II. The arrangement was continued 
 by the revolutionary government, and was confirmed by proclamation, 
 29th September 1737. But in 1825 the currencies of Great Britain and 
 Ireland were assimilated. 
 
 3 
 
344 Note on the Exchange 
 
 as to be nearly of the same value in the two countries. But, in 
 these circumstances, it was evidently impracticable, supposing 
 the value of British currency to remain nearly stationary, 
 that the amount of Irish bank, paper could be a good deal 
 more than quadrupled in the short space of seven years, 
 without rendering the currency of Ireland redundant, and 
 sinking its value below that of England. Had the Bank of 
 England increased her notes in something like the same 
 ratio as the Bank of Ireland, then, as the currency of both 
 countries would have been equally depreciated, the exchange 
 between London and Dublin would have continued at par, 
 or near it. While, however, the notes of the Bank of Ireland 
 were increased from 621,9177. to 2,986,9997, or in the pro- 
 tion of 1 to 4*802, those of the Bank of England were only 
 increased from 9,674,7807. (their amount on 28th February 
 1797), to 17,077,8307. (their amount on the 29th February, 
 1804) or in the proportion of 1 to 1'766. But for this addition 
 to the issues of the Bank of England, the exchange, it is 
 plain, would have been still more unfavourable to Dublin. . 
 It should be observed that a portion of the increased 
 issue in both countries consisted of 17. and 27. notes, that 
 were issued, for the first time, in!797,in the view of supplying 
 the place of the guineas that had been withdrawn from cir- 
 culation. Of these the Bank of England had about 1,800,0007. 
 in circulation in 1798, and 4,711,1507. on the 25th of January, 
 1804. We have not seen any account of the notes of the 
 Bank of Ireland for less than 57. in circulation at the above 
 periods. But the Committee of the House of Commons, in 
 their Report on the Circulating Paper, &c. of Ireland, 
 state, that " if the whole paper of the Bank of Ireland in 
 circulation in January last (1804) be divided into five parts, 
 one will appear necessary as having existed prior to the 
 restriction ; two are to be set down as occupying the place of 
 gold withdrawn ; and no sufficient reasons have been given 
 for the issue of the other two parts, or for the bank not 
 having diminished its paper when the exchange rose, in the 
 same manner that they must have done in case the Restriction 
 act had not been in force.'* 
 
 4 
 
between London and Dublin. 345 
 
 In the debates on the Bullion Report, it was contended 
 that the increase of Bank of Ireland paper could not have been 
 the cause of the unfavourable exchange upon Dublin, seeing 
 that it had again become favourable notwithstanding the 
 issues of the Bank of Ireland had been still further increased. 
 But to give this reasoning the least weight, it should have 
 been shown that the currency of Great Britain retained its 
 value in the interim, or that it had not been depreciated to 
 the same extent as that of Ireland. For it is obvious that 
 the depreciation of Irish bank paper might go on subsequently 
 to 1804, and yet, if English bank paper were depreciated still 
 more rapidly, the exchange would become more favourable 
 to Dublin. This is merely supposing the circumstances 
 which took place in the first six years of the restriction to 
 be reversed in the second six. Let us briefly inquire how 
 the fact stands. 
 
 We have seen, that in January 1804, when the exchange 
 was nominally 16 per cent, against Dublin, the issues of the 
 Bank of England amounted to 17,077,8307., and those of 
 the Bank of Ireland to 2,986,9997. And by referring to the 
 accounts of the issues of the latter, it is seen that from 1805 
 to 1808, they were rather diminished; and that, in 1810, 
 they amounted to only 3,251,7507., being an increase of not 
 more than 264, 7511. in the space of six years, or at the rate of 
 1*477 per cent, per annum ; but in the same period (from 1804 
 to 1810) the issues of the Bank of England were increased 
 from 17,077,8307. to 22,541,5237., or at the rate of 5-333 
 per cent, per annum. And this is not all : For Mr. Wake- 
 field tell us that there were fifty registered bankers in Ireland 
 in 1804, and only thirty -three in 1810, of which fourteen were 
 new houses, thirty-one of the old establishments having dis- 
 appeared, and, " I believe," he adds " for the most part failed." 
 And as the reduction of the issues of these banks may be fairly 
 presumed to have been at least proportional to the reduction 
 in their number, this diminution of country paper could not 
 fail greatly to raise its value, and to countervail a corre- 
 
 * " Account of Ireland," vol ii. p. 171. 
 5 
 
346 Note on the Exchange 
 
 spending increase, if such there had been, in the issues of 
 the national bank. Now, the reverse of all this took place 
 in England. In 1800 there were 386 country banks in this 
 country ; and in 1810, this number, instead of being dimi- 
 nished as in Ireland, had increased to 721, having at least 
 three times the number of notes in circulation in the latter 
 as in the former period ! 
 
 It appears, therefore, that in the period between 1797 
 and 1804, when the amount of paper in circulation in Ireland 
 was increased, and its value depressed more rapidly than 
 in England, the exchange between London and Dublin be- 
 came proportionally unfavourable to the latter ; and that in 
 the six years subsequent to 1804, when the paper currency 
 of England was increased more rapidly than that of Ireland, 
 its relative value was diminished, and the exchange became 
 less unfavourable to Dublin. 
 
 This is sufficiently conclusive. But there is still better 
 evidence to show that the unfavourable exchange of Dublin 
 upon London, in 1802, 1803, 1804, etc., was entirely owing 
 to the comparative redundancy or depreciation of Irish bank 
 paper. The linen manufacturers and weavers, with the 
 majority of the other inhabitants of a few counties in Ulster, 
 being at the period of the Restriction, strongly disaffected 
 towards government, very generally refused to receive bank- 
 notes in payment either of commodities or wages. The land- 
 lords having also stipulated for the payment of their rents 
 in specie, a gold currency was maintained in the north long 
 after it had been banished from the south of Ireland. If, 
 therefore, the depression of the exchange between London 
 and Dublin had been occasioned, as many contended, by an 
 unfavourable balance of trade between Ireland and Great 
 Britain, or by remittances from the former on account of 
 absentees, it would have been equally depressed between 
 London and the commercial towns in the northern counties. 
 But so far was this from being the case, that in December 
 1803, when the exchange of Dublin on London was about 
 16 per cent., that of Belfast on London was about 5 per cent. ; 
 or, in other words, at the very time that the exchange be- 
 
 6 
 
between London and Dublin. 347 
 
 tween Dublin, which had a paper currency, and London, was 
 near 8 per cent, against Ireland, the exchange between 
 Belfast, which had a gold currency, and London, was about 
 3 per cent, in its favour. And this is not all : For, while 
 there was a difference of 11 per cent, in the rate of exchange 
 between Dublin and London, and Belfast and London, the 
 inland exchange between Dublin and Belfast was about 
 10 per cent, in favour of the latter ; that is, bills drawn in 
 Dublin, and payable in the gold currency of Belfast, brought 
 a premium of ten per cent., while bills drawn in Belfast, and 
 payable in the paper currency of Dublin sold at 10 per cent, 
 discount !* 
 
 * Farther information on this subject may be obtained from the 
 Report referred to above, of the Committee of the House of Commons in 
 1804, on the state of the circulating paper in Ireland, its specie, etc. ; 
 from Mr. Foster's very able essay on the Principle of Commercial 
 Exchanges ; and from the pamphlets of Sir Henry Parnell, Lord King, 
 Huskisson, etc. 
 
 FINIS, 
 
REMARKS 
 
 ON 
 
 PAPER CURRENCY; 
 
 FROM 
 
 A TREATISE 
 
 ON THE 
 
 COINS OF THE REALM, 
 
 BY THE 
 
 EARL OF LIVERPOOL, 
 PUBLISHED IN 
 
 1805. 
 
Liverpool on Paper Currency. 351 
 
 PAPER CURRENCY. 
 
 a 
 
 * * * I SHOULD stop here, but there is a subject of so 
 great importance, and so nearly connected with the Coins of 
 Your Majesty's realm, that I should not discharge my duty 
 if I left it wholly unnoticed ; I mean what is now called 
 paper currency ; which is carried to so great an extent that 
 it is become highly inconvenient to Your Majesty's subjects, 
 and may prove in its consequences, if no remedy is applied, 
 dangerous to the credit of the kingdom. It is certain, that 
 the smaller Notes of the Bank of England, and those issued 
 by country Bankers, have supplanted the Gold Coins, 
 usurped their functions, and driven a great part of them out 
 of circulation; in some parts of Great Britain, and espe- 
 cially in the southern parts of Ireland, small notes have 
 been issued to supply the place of Silver Coins, of which 
 there is certainly a great deficiency. 
 
 I will first observe, that if this practice is suffered to 
 continue, as at present, without any limitation, there can be 
 neither use nor advantage in converting Bullion or either of 
 the precious metals into Coins, except so far as it may serve 
 for the convenience of Your Majesty's subjects in their most 
 private concerns ; that is, no greater quantity than many of 
 the writers, who have of late speculated on this subject, will 
 allow to continue in currency : the Bullion, of which these 
 Coins are made, had better be exported in its natural state, 
 like any other unmanufactured commodity, for the use of 
 which the trade of the country has no occasion. The Coins 
 of Your Majesty, when carried into foreign countries, will 
 only be valued as Bullion ; and the precious metals, whether 
 exported in Coins or in Bullion, will equally serve the pur- 
 pose of a commercial capital ; and it is useless and absurd 
 to impose upon the public the expence of making Coins, 
 merely for the purpose of sending them out of the kingdom. 
 
 3 
 
352 Liverpool on 
 
 It has been a common artifice, practised by those who 
 have written on Paper currency, to confound Paper credit 
 with Paper currency, and even the higher sorts of Paper 
 currency with the inferior sorts, such as immediately inter- 
 fere with the use of the Coins of the realm. Paper credit 
 is not only highly convenient and beneficial, but is even 
 absolutely necessary in carrying on the trade of a great 
 commercial kingdom. Paper currency is a very undefined 
 term, as used by speculative writers.* To find arguments 
 in its support, at least to the extent to which it is at present 
 carried, they have been obliged to connect it with Paper 
 credit ; so that the principles on which the use of Paper 
 credit is truly founded, may be brought in support of a 
 great emission of Paper currency : I do not mean to say, 
 that even the higher orders of Paper currency may not be 
 very convenient in carrying on many branches of the trade 
 of a country so wealthy as Great Britain : the sort of Paper 
 currency to which I principally object, is that which inter- 
 feres with the use of the Coins of the realm, more especially 
 in the payment of labourers and artificers, of the sailor and 
 soldier, and in the smaller branches of the retail trade of the 
 kingdom. 
 
 Many words are not necessary to point out the evils to 
 which Your Majesty's subjects are exposed by the practice 
 which now prevails of issuing the lower sort of Paper 
 currency by country Bankers ; the complaints on this head 
 are universal. The Notes of these country Bankers have 
 credit only within a certain extent or district ; if a traveller 
 passes from one district to another, he must provide hirosel* 
 with the Notes of other Bankers which have credit within 
 the district on which he is entering ; and an inconvenience 
 to which travellers have hitherto been subject, in passing 
 from one small independent state on the continent to 
 another, is experienced by those who travel through Your 
 
 * Paper currency, strictly speaking, consists only of bills, or notes 
 payable or convertible into cash on demand by the person who issued 
 the same, at the will of the holder. See Report of the Secret Committee 
 of the House of Lords in 1797, p. 249. 
 
 4 
 
Paper Currency. 353 
 
 Majesty's dominions, in passing from one district to another ; 
 so that the circulating medium of the different parts of Your 
 Majesty's dominions is various ; an evil which I believe 
 never existed before in one great United Kingdom. 
 
 But I have not hitherto described the principal evils 
 resulting from this Paper currency. It was natural to 
 suppose that the precious metals, being no longer wanted 
 in the same degree for the purpose of being converted into 
 Coins, the price of them would fall in the British market : 
 on the contrary, for a considerable time. Bullion, both of 
 Gold and Silver, has not been generally sold, but at a price 
 above the rate at which each of them is valued at Your 
 Majesty's Mint. It would not be proper for me at present 
 to assign the probable cause of this apparent contradiction : 
 in such a state of things, whatever may be the cause, no 
 Bullion, either of Gold or Silver, will be brought to Your 
 Majesty's Mint to be coined ; for it cannot be coined with- 
 out a loss to the person who brings it ; and if it were con- 
 verted into Coins, the moment they were issued they would 
 be thrown into the melting pot, and reconverted into 
 Bullion, because it would be of more value in the shape of 
 Bullion, than in that of Coins. Till some remedy is applied 
 to this evil no new system of Coinage can be aodpted with 
 any reasonable hope of success. 
 
 When the situation of the Bank of England was under 
 the consideration of the two Houses of Parliament, in the 
 year 1797, it was my opinion, and that of many others, that 
 the extent to which Paper currency had then been carried 
 was the first and principal, though not the sole cause of the 
 many difficulties to which that corporate Body was then, 
 and had of late years, from time to time, been exposed, in 
 supplying the Cash occasionally necessary for the commerce 
 of the kingdom ; for the Bank of England being at the 
 head of all circulation, and the great repository of unem- 
 ployed Cash, it necessarily happens, that whenever a sudden 
 increased supply of Coins becomes indispensable, in conse- 
 quence of private failures or general discredit, by which 
 Notes of the before-mentioned description are driven out of 
 
 5 
 
354 Liverpool on 
 
 circulation, the Bank of England can alone furnish the 
 Coins which are required to make up this deficiency ; and 
 this corporate body is thereby rendered responsible, not only 
 for the value of its own Notes which it may issue, but in a 
 certain degree, for such as may be issued by every private 
 Banker in the kingdom, let the substance, credit, or discre- 
 tion of such a Banker be what it may : and if the price of 
 both the precious metals in Bullion should then be above 
 that at which they are rated at the Mint, the Bank of 
 England have it not in their power to supply this deficiency, 
 but at a great loss to its proprietors ; and even if they were 
 to submit to this loss, and issue new Coins in consequence, 
 it would only be, as has been already observed, in order that 
 they might be thrown into the melting pot and converted 
 into Bullion ; so that till some remedy is applied to this 
 evil, the Bank of England cannot, I think, return to the 
 first principles of its institution, under which it has so long 
 and so greatly flourished, and reassume without any restric- 
 tion its payments in Cash. 
 
 The state of the Paper currency of this country, in its 
 manner and extent taken together, is, I believe, without 
 example in the history of mankind. The trade or profession 
 of banking has been exercised in all countries and in all 
 ages ; it existed in the Republics of Greece,* and in ancient 
 Borne: there were in all these States men who received 
 money as a deposit, repaid it upon the drafts of those who 
 had entrusted them with it, and derived their profits from 
 having this money in their custody ; but it does not appear 
 that they ever issued Notes, such as are now called Paper 
 currency. 
 
 In the middle ages, the traffic in money was exercised 
 solely by the Jews ; for Christian men, as they were then 
 called, from a mistaken principle of religion, would not 
 engage in it : but the Jews, who interpreted the law of Moses 
 
 * For what relates to the Grecian republics see the Voyage du Jeune 
 Anacharsis, ch. 55, and the Grecian authors referred to therein. For 
 what relates to the Roman Republic, see the words Pnescribere and 
 Prsescriptio, in Gesner's Thesaurus, and the passages of Cicero and other 
 authors referred to by him. 
 
 6 
 
Paper Currency. 355 
 
 in a different sense from the Christians, thought that they 
 might lawfully carry it on with strangers, and to them 
 every man was a stranger who was not a Jew. The wealth 
 of these Jews, and the extortions and cruelties to which 
 they were exposed on this account, contrary to the principles 
 of humanity and justice, are well known to every one. 
 
 When commerce was first revived in the republics of 
 Italy, Banking Companies and private Bankers appeared in 
 numbers, and carried on the trade in money, and particu- 
 larly in bills of exchange, to a very great extent. The 
 origin and history of the Banks of Venice* and Genoaf 
 need not be here inserted ; the wealth]: of these banks was 
 very great, and many of the principal families in Italy 
 derive their origin and their ample fortunes from persons 
 who once exercised the trade of banking. I cannot, how- 
 ever, discover from history, that either the Jews before- 
 mentioned, or the Banking Companies established in Italy, 
 or any of the private Bankers, ever issued what is now 
 called Paper currency : it is certain, at least, that they did 
 not issue it in so great a degree as to drive the Coins out of 
 the country ; for it is asserted by historians of undoubted 
 credit, || that Italy at that time had drawn to itself almost 
 the whole of the Gold of Europe. 
 
 After the example of what had been thus practised in 
 Italy, Banking Companies were gradually established in 
 many of the principal cities of Europe, particularly at 
 Hamburgh, Nuremberg, and Amsterdam : many of these 
 Corporate Banks issued Paper currency for the payment of 
 foreign, and sometimes inland, bills of exchange ; but this 
 privilege was always exercised under certain regulations and 
 restrictions, &anctioned by the governments of these places, 
 
 * Called Banco del Giro. 
 
 t Called Banco de Sa Giorgio. 
 
 J The wealth of the Bank of St. George at Genoa in process of time 
 became so great, that Machiavel says, there was reason to apprehend 
 that it would become possessed of all the territories of that little state. 
 See Histotia Florentina, lib. 8. 
 
 || See Histoire de la Ligue de Cambray, liv. v. Bodin, Reponse a 
 Maletroit, p. 49, and Histoire de Louis XI., p. 708. 
 
 7 
 
356 Liverpool on 
 
 for the security of the individuals who trusted them, and 
 for the preservation of public credit. It is singular, that it 
 was found necessary to require, that the Notes of these 
 Banks should be accepted and employed exclusively in 
 certain payments : but the privilege thus given never 
 included any payments for which a single piece of Coin, or, 
 as I believe, any small number of them, was sufficient, so as 
 to interfere with the retail trade of the country. The 
 reasons for establishing this Paper currency have been fully 
 explained in a former part of this Letter; and I have never 
 heard that private Bankers issued Paper currency in any 
 European country to the extent in which it is now practised 
 in the British dominions : if it has prevailed anywhere to 
 excess, it has been in the United Provinces of America. 
 
 The practice of issuing Paper currency within Your 
 Majesty's dominions first began in Scotland :* it was natural 
 that this device should originate in a country where there 
 was a great want of Coins and capital : the evils it produced 
 were felt so early as the year 1765, when a wise law was 
 passed by the Legislature, 51 to restrain and regulate it 
 within that part of the united kingdom. This law did not 
 extend to England, for the evil at that time had not been 
 felt here : Your Majesty's English subjects, however, soon 
 followed the example of their northern brethren ; and in the 
 year 1775 the mischiefs arising from the issue of small Paper 
 Notes were so severely felt, that a law was passed for 
 regulating and restraining it ; b but it was afterwards found 
 that this law did not remedy the evil, and a second law, still 
 more restrictive, was passed in 1777. c These measures 
 were recommended to the Legislature by many of the most 
 eminent of your Majesty's subjects and servants, to whose 
 consultations I, though unworthy, was admitted : I remem- 
 ber, too, that the restrictions then imposed on this practice 
 
 * See some account of Mr. Law, and of the famous project pre- 
 sented by him to the Parliament of Scotland before the Union, and 
 afterwards to the Regent of France, in Smith's Wealth of Nations, vol. i. 
 p. 478, and the Histoire du Systems. 
 
 * 5th Geo. III. ch. 49. i> 15th Geo. III. ch. 51. 
 
 * 17th Geo. III. ch. 30. 
 
 8 
 
Paper Currency. 357 
 
 were considered by many as not sufficient. It was neces- 
 sary, however, for a temporary purpose to enact a short 
 suspension of these laws, in consequence of the difficulties to 
 which public credit was exposed in the year 1797. At the 
 same time the Bank of England was discharged by the 
 Legislature from the obligation of paying in Cash: but, 
 contrary to expectation, these suspensions have been con- 
 tinued to the present day ; and from that period the Bank 
 of England have issued Notes for smaller sums, and to a 
 greater extent than they ever did before ; and the number 
 of private Bankers spread over every part of the country 
 during that interval has been more than doubled.* 
 
 It is true that there have been a few memorable in- 
 stances, I believe but three, in which, under the authority 
 of government, Paper currency has been issued to an extra- 
 vagant extent in a neighbouring country. The first was 
 while France was governed by a Regency, in the beginning 
 of the last century ; the two others are of a later date : and 
 each of these experiments has proved, in its results, dis- 
 honourable to the Government, and disastrous to the people. 
 During the emission of this Paper currency, the Coins of 
 that country were in a very great degree driven out of 
 circulation ; but they re-appeared in considerable quantities 
 as soon as this Paper currency was discredited and annihi- 
 lated. It ought always to be kept in remembrance, that 
 this Paper currency was issued to so great an excess, either 
 by Corporate Bodies, under the authority and protection of 
 Government, or directly by the Government itself, and 
 not on the sole credit and responsibility of unauthorized 
 individuals. 
 
 It is certain, that the principles on which speculative 
 writers would justify the emission of Paper currency in 
 Your Majesty's dominions, would leave it almost without 
 
 * It is stated in the summary of the Report of the Secret Committee 
 of the House of Lords in 1797, that the number of Country Bankers, 
 which had in 1792 amounted to 280, had in 1797 been reduced to 230. 
 It appears by the list of Country Bankers now published that they 
 amount to 517. 
 
358 Liverpool on 
 
 limitation. The ablest writer on this subject, Dr. Adam 
 Smith, appears, however, sensible that there must be some 
 limitation. That adopted by him is, " that the whole Paper 
 st currency of every kind, which can easily circulate in any 
 " country, a never can exceed the value of the Gold and 
 " Silver of which it supplies the place; or which (the 
 " commerce being supposed the same, ) would circulate 
 " there, if there was no Paper Money." From this passage 
 it may be inferred, that even in this writer's opinion Paper 
 currency may be issued to so great an extent as to take the 
 place of all the Gold and Silver Coins necessary for carrying 
 on the commerce of the kingdom, though it cannot easily be 
 carried to a greater. But later writers pay no attention to 
 the moderation with which this master of political economy 
 has supported his system : and as they are not satisfied with 
 the opinion thus given, we may presume they mean, that 
 Paper currency may be made to represent, according to the 
 system of the well known Mr. Law, even immovable pro- 
 perty ; that is, a portion at least of the lands and buildings 
 of the kingdom, and as such sent into circulation. It seems 
 to have been discovered of late years in this country, that, 
 by a new sort of alchemy, Coins of Gold and Silver, and 
 almost every other sort of property, may be converted into 
 Paper ; and that the precious metals had better be exported, 
 to serve as capital to foreign countries, where no such 
 discovery has yet been made. But this new sort of fictitious 
 capital, thus introduced within the kingdom, has contributed 
 more than any other circumstance to what is called over- 
 trading ; that is, rash and inconsiderate speculations, and 
 what is almost a necessary consequence, unworthy artifices 
 to support the credit of adventurers already ruined, as well 
 as other evils, which tend to corrupt the morals of the 
 trading part of the community, and to shake the credit on 
 which not only Paper currency, but the internal commerce 
 of the kingdom is founded. In every commercial system 
 capital is certainly a necessary ingredient ; but the pros- 
 
 a Vol. i., p. 448. 
 10 
 
Paper Currency. 359 
 
 perity of the British commerce depends not singly on capital ; 
 it depends still more on the good faith, honour, and punc- 
 tuality of British merchants, for which they are so justly 
 celebrated. 
 
 Impressed as I am with the idea, that no system of 
 Coinage can be adopted with the prospect of permanent 
 advantage till some regulations have been made for reme- 
 dying the evils resulting from the present state of Paper 
 currency, I have thought it right thus to lay before Your 
 Majesty some account of the excess to which it has of late 
 been carried within your kingdoms. I am unwilling to 
 enter into farther discussion on a question so important, and 
 so much agitated, because it is not a fit subject for a Letter 
 to Your Majesty ; nor will I treat of the remedies which 
 ought to be applied, because these cannot be administered 
 by the authority of Your Majesty, as in the case of Coins ; 
 but they require the authority of the Two Houses of Par- 
 liament, in conjunction with that of Your Majesty. Certain 
 I am, that in a kingdom like Great Britain, the most com- 
 mercial, and for its extent the richest perhaps that ever 
 existed in the world, every branch of circulating medium, of 
 whatever it may consist, should be founded on solid, wise, 
 and honest principles; and Coins in particular, which are 
 the only true measure of property and instrument of com- 
 merce, and by which every other circulating medium must 
 be regulated, should be made and kept as perfect as the 
 nature of the subject will admit. * * * 
 
 11 
 
THE 
 
 HIGH PRICE 
 
 OF 
 
 BULLION 
 
 A PROOF OF THE 
 
 DEPRECIATION OF BANK NOTES. 
 
 BY DAVID RICARDO. 
 
 THE FOURTH EDITION, CORRECTED. 
 
 LONDON: 
 
 PRINTED FOR JOHN MURRAY, J2, FLEET STREET. 
 
 iSn. 
 
HIGH PRICE OF BULLION 
 
 A PROOF OP 
 
 THE DEPRECIATION OF BANK NOTES. 
 
 THE precious metals employed for circulating the com- 
 modities of the world previously to the establishment 
 of banks, have been supposed by the most approved writers on 
 political economy to have been divided into certain proportions 
 among the different civilized nations of the earth, according 
 to the state of their commerce and wealth, and therefore 
 according to the number and frequency of the payments 
 which they had to perform. While so divided they preserved 
 every where the same value, and as each country had an 
 equal necessity for the quantity actually in use, there could 
 be no temptation offered to either for their importation or 
 exportation. 
 
 /Gold and silver, like other commodities, have an intrinsic 
 value, which is not arbitrary, but is dependent on their 
 scarcity, the quantity of labour bestowed in procuring them, 
 and the value of the capital employed in the mines which 
 produce them. 
 
 " The quality of utility, beauty, and scarcity/' says Dr. 
 Smith, " are the original foundation of the high price of 
 " those metals, or of the great quantity of other goods for 
 " which they can every where be exchanged. This value 
 " was antecedent to, and independent of their being employed 
 a as coin, and was the quality which fitted them for that 
 " employment." \ 
 
 3 
 
364 Ricardo on the 
 
 I/ 
 
 the quantity of gold and silver in the world employed 
 as money were exceedingly small, or abundantly great, it 
 would not in the least affect the proportions in which they 
 would be divided among the different nations the variation 
 -in their quantity would have produced no other effect than 
 to make the commodities for which they were exchanged 
 comparatively dear or cheap. The smaller quantity of money 
 would perform the functions of a circulating medium, as well 
 as the larger. Ten millions would be as effectual for that 
 purpose as one hundred millions. Dr. Smith observes, " that 
 " the most abundant mines of the precious metals would add 
 " little to the wealth of the world. A produce of which 
 " the value is principally derived from its scarcity is neces- 
 " sarily degraded by its abundance." 
 
 r If in the progress towards wealth, one nation advanced 
 more rapidly than the others, that nation would require and 
 obtain a greater proportion of the money of the world. Its 
 commerce, its commodities, and its payments, would increase, 
 and the general currency of the world would be divided 
 according to the new proportions. All countries therefore 
 would contribute their share to this effectual demand. 
 
 In the same manner if any nation wasted part of its 
 wealth, or lost part of its trade, it could not retain the same 
 quantity of circulating medium which it before possessed. 
 A part would be exported, and divided among the other 
 nations till the usual proportions were re-established. 
 
 ^While the relative situation of countries continued un- 
 altered they might have abundant commerce with each other, 
 but their exports and imports would on the whole be equal. 
 England might possibly import more goods from, than she 
 would export to, France, but she would in consequence 
 export more to some other country, and France would import 
 more from that country ; so that the exports and imports of 
 all countries would balance each other; bills of exchange 
 would make the necessary payments, but no money would 
 pass, because it would have the same value in all countries. 
 
 If a mine of gold were discovered in either of these 
 countries, the currency of that country would be lowered in 
 
 4 
 
High Price of Bullion. 365 
 
 value in consequence of the increased quantity of the pre- 
 cious metals brought into circulation, and would therefore 
 no longer be of the same value as that of other countries. 
 Gold and silver, whether in coin or in bullion, obeying the 
 law which regulates all other commodities, would immedi- 
 ately become articles of exportation ; they would leave the 
 country where they were cheap, for those countries where 
 they were dear, and would continue to do so, as long as the 
 mine should prove productive, and till the proportion exist- 
 ing between capital and money in each country before the 
 discovery of the mine, were again established, and gold and 
 silver restored every where to one value. In return for the 
 gold exported, commodities would be imported ; and though 
 what is usually termed the balance of trade would be against 
 the country exporting money or bullion, it would be evident 
 that she was carrying on a most advantageous trade, export- 
 ing that which was no way useful to her, for commodities 
 which might be employed in the extension of her manufac- 
 tures, and the increase of her wealth. 
 
 If instead of a mine being discovered in any country, a 
 bank were established, such as the Bank of England, with 
 the power of issuing its notes for a circulating medium ; after 
 a large amount had been issued either by way of loan to 
 merchants, or by advances to government, thereby adding 
 considerably to the sum of the currency, the same effect 
 would follow as in the case of the mine. The circulating 
 medium would be lowered in value, and goods would expe- 
 rience a proportionate rise. The equilibrium between that 
 and other nations would only be restored by the exportation 
 of part of the coin. 
 
 The establishment of the bank and the consequent issue 
 of its notes therefore, as well as the discovery of the mine, 
 operate as an inducement to the exportation either of bullion 
 or of coin, and are beneficial only in as far as that object may 
 be accomplished. The bank substitutes a currency of no 
 value for one most costly, and enables us to turn the pre- 
 cious metals (which, though a very necessary part of our 
 capital, yield no revenue,) into a capital which will yield 
 
366 Ricardo on the 
 
 one. Dr. A. Smith compares the advantages attending the 
 establishment of a bank to those which would be obtained by 
 converting our highways into pastures and cornfields, and 
 procuring a road through the air. The highways, like the 
 coin, are highly useful, but neither yield any revenue. Some 
 people might be alarmed at the specie leaving the country, 
 and might consider that as a disadvantageous trade which 
 required us to part with it ; indeed the law so considers it 
 by its enactments against the exportation of specie ; but a 
 very little reflection will convince us that it is our choice, 
 and not our necessity, that sends it abroad ; and that it is 
 highly beneficial to us to exchange that commodity which is 
 superfluous, for others which may be made productive. 
 
 The exportation of the specie may at all times be safely 
 left to the discretion of individuals ; it will not be exported 
 ' more than any other commodity, unless its exportation 
 should be advantageous to the country. If it be advanta- 
 geous to export it, no laws can effectually prevent its expor- 
 tation. Happily in this case as well as in most others in 
 commerce where there is free competition, the interests of 
 the individual and that of the community are never at 
 variance. 
 
 Were it possible to carry the law against melting or 
 exporting of coin into strict execution, at the same time that 
 the exportation of gold bullion was freely allowed, no advan- 
 tage could accrue from it, but great injury must arise to 
 those who might have to pay, possibly, two ounces or more 
 of coined gold for one of uncoined gold. This would be a 
 real depreciation of our currency, raising the prices of all 
 other commodities in the same proportion as it increased 
 that of gold bullion. The owner of money would in this case 
 suffer an injury equal to what a proprietor of corn would 
 suffer, were a law to be passed prohibiting him from selling 
 his corn for more than half its market value. The law against 
 , the exportation of the coin has this tendency, but is so easily 
 1 evaded, that gold in bullion has always been nearly of the 
 v same value as gold in coin. 
 
 Thus then it appears that the currency of one country 
 
 6 
 
High Price of Bullion. 367 
 
 can never for any length of time be much more valuable, as 
 far as equal quantities of the precious metals are concerned, 
 than that of another ; that excess of currency is but a relative 
 term; 7 that if the circulation of England were ten millions, 
 that of France five millions, that of Holland four millions, 
 &c. &c. whilst they kept their proportions, though the cur- 
 rency of each country were doubled or trebled, neither 
 country would be conscious of an excess of currency. The 
 prices of commodities would every where rise, on account of 
 the increase of currency, but there would be no exportation 
 of money from either. But if these proportions be destroyed 
 by England alone doubling her currency, while that of France, 
 Holland, &c. &c. continued as before, we should then be 
 conscious of an excess in our currency, and for the same 
 reason the other countries would feel a deficiency in theirs, 
 and part of our excess would be exported till the proportions 
 of ten, five, four, &c. were again established. 
 
 If in France an ounce of gold were more valuable than 
 in England, and would therefore in France purchase more of 
 any commodity common to both countries, gold would im- 
 mediately quit England for such purpose, and we should 
 send gold in preference to, any thing else, because it would 
 be the cheapest exchangeable commodity in the English 
 market; for if gold be nearer in France than in England, 
 goods must be cheaper; we should not therefore send them 
 from the dear to the, cheap market, but, on the contrary, 
 they would come from the cheap to the dear market, and 
 would be exchanged for our gold. 
 
 The Bank might continue to issue their notes, and the 
 specie be exported with advantage to the country, while 
 their notes were payable in specie on demand, because they 
 could never issue more notes than the value of the coin which 
 would have circulated had there been no bank.* 
 
 If they attempted to exceed this amount, the excess would 
 
 * They might, strictly speaking, rather exceed that quantity, because 
 as the Bank would add to the currency of the world, England would 
 retain its share of the increase. 
 
368 Ricardo on the 
 
 be immediately returned to them for specie; because our 
 currency, being thereby diminished in value, could be advan- 
 tageously exported, and could not be retained in our circu- 
 lation. These are the means, as I have already explained, 
 by which our currency endeavours to equalize itself with the 
 currencies of other countries. As soon as this equality was 
 attained, all advantage arising from exportation would cease ; 
 but if the Bank assuming, that because a given quantity of 
 circulating medium had been necessary last year, therefore 
 the same quantity must be necessary this, or for any other 
 reason, continued to re-issue the returned notes, the stimulus 
 which a redundant currency first gave to the exportation of 
 the coin would be again renewed with similar effects ; gold 
 would be again demanded, the exchange would become 
 unfavourable, and gold bullion would rise, in a small degree, 
 above its mint price, because it is legal to export bullion, but 
 illegal to export the coin, and the difference would be about 
 equal to the fair compensation of the risk. 
 
 In this manner if the Bank persisted in returning their 
 notes into circulation, every guinea might be drawn out of 
 their coffers. 
 
 If to supply the deficiency of their stock of gold they 
 were to purchase gold bullion at the advanced price, and 
 have it coined into guineas, this would not remedy the evil, 
 guineas would be still demanded, but instead of being ex- 
 ported would be melted and sold to the Bank as bullion at 
 the advanced price. " The operations of the Bank," observed 
 Dr. Smith, alluding to an analogous case, (t were upon this 
 " account somewhat like the web of Penelope, the work that 
 " was done in the day was undone in the night." The same 
 sentiment is expressed by Mr. Thornton: "Finding the 
 " guineas in their coffers to lessen every day, they must 
 (t naturally be supposed to be desirous of replacing them by 
 (( all effectual and not extravagantly expensive means. They 
 " will be disposed, to a certain degree, to buy gold, though 
 " at a losing price, and to coin it into new guineas ; but they 
 " will have ^ to do this at the very moment when many are 
 " privately melting what is coined. The one party will be 
 
 8 
 
High Price of Bullion. 369 
 
 w melting and selling while the other is buying and coming. 
 " And each of these two contending businesses will now be 
 fi carried on, not on account of an actual exportation of each 
 " melted guinea to Hamburgh, but the operation or at least 
 " a great part of it, will be confined to London ; the coiners 
 (< and the melters living on the same spot, and giving con- 
 " stant employment to each other. 
 
 " The Bank," continues Mr. Thornton, " if we suppose 
 ** it, as we now do, to carry on this sort of contest with the 
 (i melters, is obviously waging a very unequal war ; and even 
 '' though it should not be tired early, it will be likely to be 
 " tired sooner than its adversaries." 
 
 The Bank would be obliged therefore ultimately to adopt 
 the only remedy in their power to put a stop to the demand 
 for guineas. They would withdraw part of their notes from 
 circulation, till they should have increased the value of the 
 remainder to that of gold bullion, and consequently to the 
 value of the currencies of other countries. All advantage 
 from the exportation of gold bullion would then cease, and 
 there would be no temptation to exchange bank-notes for 
 guineas. 
 
 In this view of the subject, then, it appears, that the 
 temptation to export money in exchange for goods,; or what 
 is termed an unfavourable balance of trade^' never arises but 
 from a redundanY'tjm^ncy. But Mr. Thornton, who has 
 considered this subject very much at large, supposes that a 
 very unfavourable balance of trade may be occasioned to this 
 country by a bad harvest, and the consequent importation of 
 corn ; and that there may be at the same time an unwilling- 
 ness in the country, to which we are indebted, to receive our 
 goods in payment ; the balance due to the foreign country 
 must therefore be paid out of that part of our currency, con- 
 sisting of coin, and that hence arises the demand for gold 
 bullion and its increased price.- He considers the Bank as 
 affording considerable accommodation to the merchants, by 
 supplying with their notes the void occasioned by the 
 exportation of the specie. 
 
 As it is acknowledged by Mr. Thornton, in many parts of 
 
 9 
 
370 Ricardo on the 
 
 his work, that the price of gold bullion is rated in gold coin : 
 and as it is also acknowledged by him, that the law against 
 melting gold coin into bullion and exporting it is easily 
 evaded, it follows, that no demand for gold bullion, arising 
 from this or any other cause, can raise the money price of 
 that commodity. The error of this reasoning proceeds from 
 not distinguishing between an increase in the value of gol(J y 
 and an increase in its money price* 
 
 If there were a great demand for corn its money price 
 would advance ; because, in comparing corn with money, we 
 in fact compare it with another commodity; and for the 
 same reason, when there is a great demand for gold its corn 
 price will increase ; but in neither case will a bushel of com- 
 be worth more than a bushel of corn, or an ounce of gold 
 more than an ounce of gold. An ounce of gold bullion could 
 not, whatever the demand might be, whilst its price was rated 
 in gmd coin, be of more value than an ounce of coined gold ? 
 or 3* 17s. lOJrf. 
 
 If this argument should not be considered as conclusive, 
 I should urge, that a void in the currency, as here supposed, 
 can only be occasioned by the annihilation or limitation of 
 paper currency, and then it would speedily be filled by im- 
 portations of bullion, which its increased value, in conse- 
 quence of the diminution of circulating medium, would 
 infallibly attract to the advantageous market. However 
 great the scarcity of corn might be, the exportation of money 
 would be limited by its increasing scarcity. Money is in 
 such general demand, and in the present state of civilization 
 is so essential to commercial transactions, that it can never 
 be exported to excess ; even in a war such as the present, 
 when our enemy endeavours to interdict all commerce with 
 us, the value which the currency would bear, from its 
 increasing scarcity, would prevent the exportation of it from 
 being carried so far as to occasion a void in the circulation. 
 
 Mr. Thornton has not explained to us, why any unwil- 
 lingness should exist in the foreign country to receive our 
 goods in exchange for their corn ? and it would be necessary 
 for him to show, that if such an unwillingness were to exist, 
 
 10 
 
High Price of Bullion. 371 
 
 we should agree to indulge it so far as to consent to part 
 with our coin. 
 
 If we consent to give coin in exchange .for goods, it must 
 be from choice, not necessity. We should not import more 
 goods than we export, unless we had a redundancy of cur- - 
 rency, which it therefore suits us to make a part of our 
 exports. The exportation of the coin is caused by its cheap- 
 ness, and is not the effect, but the cause of an unfavourable / 
 balance: we should not export it, if we did not send it to a 
 better market, or if we had any commodity which we could 
 export more profitably. It is a salutary remedy for a redun- 
 dant currency ; and as I have already endeavoured to prove, 
 that redundancy or excess is only a relative term, it follows, 
 that the demand for it abroad arises only from the compara- 
 tive deficiency of the currency of the importing country, 
 which there causes its superior value. 7 
 
 It resolves itself entirely into a question of interest. If 
 the sellers of the corn to England, to the amount I will 
 suppose of a million, could import goods which cost a million , 
 in England, but would produce, when sold abroad, more than 
 if the million had been sent in money, goods would be pre- 
 ferred ; if otherwise, money would be demanded. 
 
 It is only after a comparison of the value in their markets 
 and in our own, of gold and other commodities, and because 
 gold is cheaper in the London market than in theirs, that 
 foreigners prefer gold in exchange for their corn. If we 
 diminish the quantity of currency, we give an additional 
 value to it : this will induce them to alter their election, and 
 prefer the commodities. If I owed a debt in Hamburgh of 
 1007. I should endeavour to find out the cheapest mode of 
 paying it. If I send money, the expence attending its trans- 
 portation being I will suppose 51. to discharge my debt 
 will cost me 1057. If I purchase cloth here, which, with 
 the expences attending its exportation, will cost me 1067. 
 and which will in Hamburgh sell for 1007. it is evidently 
 more to my advantage to send the money. If the purchase 
 and expences of sending hardware to pay my debt, will take 
 1077. I should prefer sending cloth to hardware, but I would 
 
 11 
 
372 Ricardo on the 
 
 send neither in preference to money, because money would 
 be the cheapest exportable commodity in the London market* 
 The same reasons would operate with the exporter of the 
 corn, if the transaction were on his own account. But if the 
 Bank, " fearful for the safety of their establishment/' and 
 knowing that the requisite number of guineas would be 
 withdrawn from their coffers at the mint price, should think 
 it necessary to diminish the amount of their notes in circu- 
 lation, the proportion between the value of the money, of 
 the cloth, and of the hardware, would no longer be as 105, 
 106, and 107 ; but the money would become the most 
 valuable of the three, and therefore would be less advanta- 
 geously employed in discharging the foreign debts. 
 
 If, which is a much stronger case 7 we agreed to pay a 
 subsidy to a foreign power, money would not be exported 
 whilst there were any goods which could more cheaply dis- 
 charge the payment. The interest of individuals would 
 render the exportation of the money unnecessary*. 
 
 Thus then specie will be sent abroad to discharge a debt 
 *S only when it is superabundant ; only when it is the cheapest 
 exportable commodity.. If the Bank were at such a time 
 paying their notes in specie, gold would be demanded for 
 that purpose. It would be obtained there at its mint price, 
 whereas its price as bullion would be something above its 
 value as coin, because bullion could, and coin could not, be 
 legally exported. 
 
 It is evident, then, that a depreciation of the circulating- 
 medium is the necessary consequence of its redundance ; and 
 that in the common state of the national currency this 
 
 * This is strongly corroborated, by the statement of Mr. Rose, in the 
 House of Commons, that our exports exceeded our imports by (I believe) 
 sixteen millions. In return for those exports no bullion could have 
 been imported, because it is well known, that the price of bullion having 
 been during the whole year higher abroad than in this country, a large 
 quantity of our gold coin has been exported. To the value of the balance 
 of exports, therefore, must be added the value of the bullion exported. A 
 part of the amount may be due to us from foreign nations, but the 
 remainder must be precisely equal to our foreign expenditure, consisting 
 of subsidies to our allies, and the maintenance of our fleets and armies 
 on foreign stations. 
 
 12 
 
High Price of Bullion. 373 
 
 depreciation is counteracted by the exportation of the pre- 
 cious metals*. 
 
 Such, then, appear to me to be the laws that regulate 
 the distribution of the precious metals throughout the world, 
 and which cause and limit their circulation from one country 
 to another, by regulating their value in each. \But before 
 I proceed to examine on these principles the main object of 
 my enquiry, it is necessary that I should shew what is the 
 standard measure of value in this country, and of which, 
 therefore, our paper currency ought to be the representative, 
 because it can only be by a comparison to this standard that 
 its regularity or its depreciation may be estimated. 
 , ^ U^ permanent! measure of value can be said to exist in 
 
 * It has been observed, in a work of great and deserved repute, the 
 Edinburgh Review/ 1 that an increase in the paper currency will only 
 occasion a rise in the paper or currency^ price of commodities, but will 
 not cause an increase in their bullion price. 
 
 This would be true at a time when the currency consisted wholly 
 of paper not convertible into specie, but not while specie formed any 
 part of the circulation. In the latter case the effect of an increased 
 issue of paper would be to throw out of circulation an equal amount of 
 specie ; but this could not be done without adding to the quantity of 
 bullion in the market, and thereby lowering its value, or in other words, 
 increasing the. bullion price of commodities. It is only in consequence of 
 this fall in the value of the metallic currency, and of bullion, that the 
 temptation to export them arises : and the penalties on melting the coin 
 is the sole cause of a small difference between the value of the coin and 
 of bullion, or a small excess of the market above the mint price. But 
 exporting of bullion is synonymous with an unfavourable balance of 
 trade.- From whatever cause an exportation of bullion, in exchange for L 
 commodities, may proceed, it is called (I think very incorrectly) an If 
 unfavourable balance of trade. 
 
 When the circulation consists wholly of paper, any increase in its 
 quantity will raise the money price of bullion without lowering its value, 
 in the same manner, and in the same proportion, as it will raise the>A 
 prices of other commodities, and for the same reason will lower the ,^ 
 foreign exchanges ; but this will only be a nomin&b, not a real fall, and 
 will not occasion the exportation of bullion, because the real value of 
 bullion will not be diminished, as there will be no increase to the quan- 
 tity in the market. 
 
 T Strictly speaking, there can be no permanent measure of value. 
 
 I A measure of value should itself be invariable ; but this is not the case /? 
 with either gold or silver, they being subject to fluctuations as well as ^-C(s 
 other commodities. Experience has indeed taught us, that though the r "^ 
 variations in the value of gold or silver may be considerable, on a com- 
 
 -f S***C* 
 
 a Vol. I. p. 183. 
 13 
 
371 Ricardo on the 
 
 any nation while the circulating medium consists of two 
 metals, because they are constantly subject to vary in value 
 with respect to each other. However exact the conductors 
 of the mint may be, in proportioning the relative value of 
 gold to silver in the coins, at the time when they fix the 
 ratio, they cannot prevent one of these metals from rising, 
 while the other remains stationary, or falls in value. When- 
 ever this happens, one of the coins will be melted to be sold 
 for the other. Mr. Locke, Lord Liverpool, and many other 
 writers, have ably considered this subject, and have all agreed, 
 that the only remedy for the evils in the currency proceeding 
 from this source, is the making one of the metals only the 
 .standard measure of value. Mr. Locke considered silver as 
 the most proper metal for this purpose, and proposed that 
 gold coins should be left to find their own value, and pass for 
 a greater or lesser number of shillings, as the market price 
 of gold might vary with respect to silver. 
 
 Lord Liverpool, on the contrary, maintained that gold 
 was not only the most proper metal for a general measure 
 of value in this country, but that, by the common consent of 
 the people, it had become so, was so considered by foreigners, 
 and that it was best suited to the increased commerce and 
 wealth of England. 
 
 He, therefore, proposed, that gold coin only should be a 
 legal tender for sums exceeding one guinea, and silver coins 
 for sums not exceeding that amount. As the law now stands, 
 gold coin is a legal tender for all sums ; but it was enacted 
 in the year 1774, " That no tender in payment of money 
 " made in the silver coin of this realm, of any sum ex- 
 " ceeding the sum of twenty-five pounds at any one time, 
 " shall be reputed in law, or allowed to be legal tender within 
 " Great Britain or Ireland, for more than according to its 
 " value by weight, after the rate of 5s. 2d. for each ounce 
 
 parison of distant periods, yet for short spaces of time their value is 
 tolerably fixed. It is this property, among other excellences, which 
 fits them better than any other commodity for the uses of money. 
 Either gold or silver may therefore, in the point of view in which we 
 are considering them, be called a measure of value. ' ' 
 
 14 
 
High Price of Bullion. 375 
 
 ** of silver." The same regulation was revived in 1798, and 
 is now in force. 
 
 For many reasons given by Lord Liverpool, it appears 
 proved beyond dispute, that gold coin has been for near a 
 century the principal measure of value, but this is, I think, 
 to be attributed to the inaccurate determination of the mint 
 proportions. Gold has been valued too high; no silver, 
 therefore, can remain in circulation which is of its standard 
 weight. 
 
 If a new regulation were to take place, and silver to be 
 valued too high, or (which is the same thing,) if the market 
 proportions between the prices of gold and silver were to 
 become greater than those of the mint, gold would then dis- 
 appear, and silver become the standard currency. 
 
 This may require further explanation. The relative value 
 of gold and silver in the coins is as 15^^- to 1. An ounce of 
 gold which is coined into 31. 17s. W^d. of gold coin, is 
 worth, according to the mint regulation, 15-j-f^ ounces of 
 silver, because that weight of silver is also coined into 
 31. 17s. lO^d. of silver coin. Whilst the relative value of 
 gold to silver is in the market under 15 to 1, which it has 
 been for a great number of years till lately, gold coin would 
 necessarily be the standard measure of value, because neither 
 the Bank, nor any individual, would send 15^^- ounces of 
 silver to the Mint to be coined into 31. 17s. IQ^d. when they 
 could sell that quantity of silver in the market for more than 
 31. 17 s. I0d. in gold coin, and this they could do by the 
 supposition, that less than 15 ounces of silver would purchase 
 an ounce of gold. 
 
 But if the relative value of gold to silver be more than 
 the mint proportion of 15yf T to 1, no gold would then be 
 sent to the mint to be coined, because as either of the metals 
 are a legal tender to any amount, the possessor of an ounce 
 of gold would not send it to the mint to be coined into 
 31. 17s. lO^d. of gold coin, whilst he could sell it, which he 
 could do in such case, for more than 31. 17 s. lO^d. of silver coin. 
 Not only would not gold be carried to the Mint to be coined, 
 but the illicit trader would melt the gold coin, and sell it as 
 
 15 
 
376 Ricardo 01. the 
 
 bullion for more than its nominal value in the silver coin. 
 Thus then gold would disappear from circulation, and silver 
 coin become the standard measure of value. As gold has 
 lately experienced a considerable rise compared with silver, 
 (an ounce of standard gold, which, on an average of many 
 years, was of equal value to 14| ounces of standard silver, 
 being now in the market of the same value as 15^ ounces.) 
 this would be the case now were the Bank Eestriction-bill 
 repealed, and the coinage of silver freely allowed at the Mint, 
 in the same manner as that of gold ; but in an Act of Par- 
 liament of 39 Geo. III. is the following clause : 
 
 " Whereas inconvenience may arise from any coinage of silver until 
 such regulations may be formed as shall appear necessary ; and 
 whereas from the present low price of silver bullion, owing to tempo- 
 rary circumstances, a small quantity of silver bullion has been brought 
 to the mint to be coined, and there is reason to suppose that a still 
 further quantity may be brought ; and it is therefore necessary to 
 suspend the coining of silver for the present ; be it therefore enacted, 
 That from and after the passing of this act, no silver bullion shall be 
 coined at the mint, nor shall any silver coin that may have been coined 
 there be delivered, any law to the contrary notwithstanding." 
 
 This law is now in force. 
 
 It would appear, therefore, to have been the intention of 
 the legislature to establish gold as the standard of currency 
 in this country. Whilst this law is in force, silver coin must 
 be confined to small payments only, the quantity in circula- 
 tion being barely sufficient for that purpose. It might be for 
 the interest of a debtor to pay his large debts in silver coin 
 if he could get silver bullion coined into money ; but being 
 prevented by the above law from doing so, he is necessarily 
 obliged to discharge his debt with gold coin, which he could 
 obtain at the mint with gold bullion to any amount. Whilst 
 this law is in force, gold must always continue to be the 
 standard of currency. 
 
 Were the market value of an ounce of gold to become 
 equal to thirty ounces of silver, gold would nevertheless be 
 the measure of value, whilst this prohibition continued in 
 force. It would be of no avail, that the possessor of 30 ounces 
 of silver should know that lie once could have discharged a 
 debt of3/. 175. lOid. by procuring 15 T f T ounces of silver to 
 
 16 
 
High Price of Bullion. 377 
 
 be coined at the mint, as he would in this case have no 
 other means of discharging his debt but by selling his 30 
 oz. of silver at the market value, that is to say, for one ounce 
 of gold, or 37. 17s. IQ^d. of gold coin. 
 
 The public has sustained, at different times, very serious 
 loss from the depreciation of the circulating medium, arising 
 from the unlawful practice of clipping the coins. 
 
 In proportion as they become debased, so the prices of 
 every commodity for which they are exchangeable rise in 
 nominal value, not excepting gold and silver bullion : accord- 
 ingly we find, that before the re-coinage in the reign of 
 King William the Third, the silver currency had become so 
 degraded, that an ounce of silver, which ought to be contained 
 in sixty-two pence, sold for seventy-seven pence ; and a 
 guinea, which was valued at the mint at twenty shillings, 
 passed in all contracts for thirty shillings. This evil was 
 then remedied by the recoinage. Similar effects followed 
 from the debasement of the gold currency, which were again 
 corrected in 1774 by the same means, y 
 
 Our gold coins have, since 1774, continued nearly at their 
 standard purity ; but our silver currency has again become 
 debased. By an assay at the mint in 1798, it appears 
 that our shillings were found to be twenty-four per cent., 
 and our sixpences thirty-eight per cent, under their mint 
 value ; and I am informed, that by a late experiment they 
 were found considerably more deficient. They do not, there- 
 fore contain as much pure silver as they did in the reign of 
 King William. This debasement, however, did not operate 
 previously to 1798, as on the former occasion. At that time 
 both gold and silver bullion rose in proportion to the debase- 
 ment of the silver coin. All foreign exchanges were against 
 us full twenty per cent., and many of them still more. But 
 although the debasement of the silver coin had continued for 
 many years, it had neither, previously to 1798, raised the 
 price of gold nor silver, nor had it produced any effect on the 
 exchanges. This is a convincing proof, that gold coin was, 
 during that period, considered as the standard measure of 
 value. Any debasement of the gold coin would then have 
 
 17 
 
378 Ricardo on the 
 
 produced the same effects on the prices of gold and silver 
 bullion, and on the foreign exchanges, which were formerly 
 caused by the debasement of the silver coins.* 
 V \ ^kile the currency of different countries consists of the 
 precious metals, or of a paper money which/is at all times 
 exchangeable for them ; and while the metallic currency is 
 not debased by wearing, or clipping, a comparison of the 
 weight, and degree of fineness of their coins, will enable us to 
 j ascertain their par of exchange. Thus the par of exchange 
 between Holland and England is stated to be about eleven 
 florins, because the pure silver contained in eleven florins is 
 equal to the pure silver contained in twenty standard 
 shillings. 
 
 This par is not, nor can it be, absolutely fixed ; because 
 gold coin being the standard of commerce in England, and 
 silver coin in Holland, a pound sterling, or f -f of a guinea, 
 may at different times be more or less valuable than twenty 
 standard shillings, and therefore more or less valuable than 
 its equivalent of eleven florins. Estimating the par either 
 by silver or by gold will be sufficiently exact for our 
 purpose. 
 
 y If I owe a debt in Holland ; by knowing the par of 
 exchange, I also know the quantity of our money which will 
 be necessary to discharge it. 
 
 If my debt amount to 1100 florins, and gold have not 
 varied in value, 1007. in our pure gold coin will purchase as 
 much Dutch currency as is necessary to pay my debt. By 
 exporting the 100Z. therefore in coin, or (which is the same 
 thing) paying a bullion merchant the 100Z. in coin, and 
 allowing him the expences attending its transportation, such 
 as freight, insurance, and his profit, he will sell me a bill 
 which will discharge my debt ; at the same time he will 
 export the bullion, to enable his correspondent to pay the 
 bill when it shall become due, 
 
 * When the gold coin was debased, previously to the re-coinage in 
 1774, gold and silver bullion rose above their mint prices, and fell im- 
 mediately on the gold coin attaining its present perfection. The 
 exchanges were, owing to the same causes, from being unfavourable 
 rendered favourable. 
 
 18 
 
High Price of Bullion. 379 
 
 These expences then are the utmost limits of an unfavour- 
 able exchange. However great my debt may be, though it 
 equalled the largest subsidy ever given by this country to an 
 ally ; while I could pay the bullion-merchant in coin of 
 standard value, he would be glad to export it, and to sell me 
 bills. But if I pay him for his bill in a debased, coin or in a 
 depreciated paper-money, he will not be willing to sell me 
 his bill at this rate ; because, if the coin be debased, it does 
 not contain the quantity of pure gold or silver which ought 
 to be contained in 1007., and he must therefore export an 
 additional number of such debased pieces of money to enable 
 him to pay my debt of 100/. or its equivalent, 1 100 florins. If 
 I pay him in paper-money ; as he cannot send it abroad, he 
 wiLLfiOJisider whether it will purchase as much gold or silver 
 bullion as is contained in the coin for which it is a substitute ; 
 *TF it will do this, paper will be as acceptable to him as coin : 
 but if it will not, he will expect a further premium for his 
 bill, equal to the depreciation of the paper. 
 
 While the circulating medium consists, therefore, of coin 
 undebased, or of paper-money immediately exchangeable for 
 undebased coin, the exchange can never be more above, or 
 more below, par, than the expences attending the transpor- 
 tation of the precious metals. But when it consists of a 
 depreciated paper money, it necessarily will fall according to 7 ' 
 the degree of the depreciation. 
 
 The exchange will, therefore, be a tolerably accurate 
 criterion by which we may judge of the debasement of the 
 currency, ^proceeding either from a clipped coinage, or a 
 depreciated paper-money. 
 
 It is observed by Sir James Steuart, tf That if the foot 
 " measure was altered at once over all England, by adding 
 " to it, or taking from it, any proportional part of its standard 
 u length, the alteration would be best discovered, by com- 
 " paring the new foot with that of Paris, or of any other 
 4C country, which had suffered no alteration. 
 
 " Just so, if the pound sterling, which is the English unit, 
 " shall be found any how changed ; and if the variation it 
 
 19 
 
380 Ricardo on the 
 
 " has met with be difficult to ascertain, because of a com- 
 " plication of circumstances ; the best way to discover it will 
 " be to compare the former and the present value of it, with 
 " the money of other nations which has suffered no varia- 
 '' tion. This the exchange will perform with the greatest 
 " exactness." 
 
 The Edinburgh reviewers, in speaking of Lord King's 
 pamphlet, observe, that et it does not follow because our 
 " imports always consist partly of bullion, that the balance 
 (e of trade is therefore permanently in our favour. Bullion," 
 they say, fi is a commodity, for which, as for every other, 
 " there is a varying demand ; and which, exactly like any 
 " other, may enter the catalogue either of imports or exports ; 
 " and this exportation or importation of bullion will not 
 " affect the course of exchange in a different way from the 
 te exportation or importation of any other commodities." 
 
 No person ever exports or imports bullion without first 
 considering the rate of exchange. It is by the rate of ex- 
 change that he discovers the relative value of bullion in the 
 two countries between which it is estimated. It is therefore 
 consulted by the bullion-merchant in the same Wanner as 
 the price-current is by other merchants, before they determine 
 on the exportation or importation of other commodities. If 
 eleven florins in Holland contain an equal quantity of pure 
 silver as twenty standard shillings, silver bullion, equal in 
 weight to twenty standard shillings, can never be exported 
 from London to Amsterdam whilst the exchange is at par, or 
 unfavourable to Holland. Some expence and risk must 
 attend its exportation, and the very term par expresses that 
 a quantity of silver bullion, equal to that weight and purity, 
 is to be obtained in Holland by the purchase of a bill of 
 exchange, free of all expence. Who would send bullion to 
 Holland at an expence of three or four per cent, when, by 
 the purchase of a bill at par, he in fact obtains an order for 
 the delivery to his correspondent in Holland of the same 
 weight of bullion which he was about to export ? 
 
 It would be as reasonable to contend, that when the price 
 
 20 
 
High Price of Bullion. 381 
 
 of corn is higher in England than on the Continent, corn 
 would be sent, notwithstanding all the charges on its expor- 
 tation, to be sold in the cheaper market. 
 
 Having already noticed the disorders to which a metallic 
 currency is exposed, I will proceed to consider those which, 
 though not caused by the debased state of either the gold or 
 silver coins, are nevertheless more serious in their ultimate 
 consequences. 
 
 Q)ur circulating medium is almost wholly composed of 
 paper, and it behoves us to guard against the depreciation of 
 the paper currency, with at least as much vigilance as against 
 that of the coins. 
 
 This we have neglected to do. ^ 
 
 Parliament, by restricting the Bank from paying in 
 specie, have enabled the conductors of that concern to in- 
 crease or decrease at pleasure the quantity and amount of 
 their notes ; and the previously existing checks against an 
 over-issue having been thereby removed, those conductors 
 have acquired the power of increasing or decreasing the value 
 of the paper currency. 
 
 In tracing the present evils to their source, and proving 
 their existence by an appeal to the two unerring tests I have 
 before mentioned, namely, the rate of exchange and the price 
 of bullion, I shall avail myself of the account given by Mr. 
 Thornton of the conduct of the Bank before the restriction, 
 to shew how clearly they acted on the principle which he has 
 expressly acknowledged, viz. that the value of their notes is 
 dependent on their amount, and that they ascertained the 
 variation in their value by the tests I have just referred 
 to. 
 
 Mr. Thornton tells us, " That if at any time the exchanges 
 66 of the country become so unfavourable as to produce a 
 " material excess of the market above the mint price of 
 " gold, the directors of the Bank, as appears by the evidence 
 (e of some of their body, given to parliament, were disposed 
 " to resort to a reduction of their paper, as a means of dimi- 
 <( nishing or removing the excess, and of thus providing for 
 " the security of their establishment. They moreover have at 
 
 21 
 
382 Ricardo on the 
 
 fi all times/' he says, " been accustomed to observe some 
 " limit as to the quantity of their notes, for the same pru- 
 " dential reasons." And in another place : " When the price 
 " which our coin will fetch in foreign countries is such as to 
 " tempt it out of the kingdom, the directors of the Bank 
 " naturally diminish, in some degree, the quantity of their 
 f( paper through an anxiety for the safety of their establishment. 
 " By diminishing their paper, they raise its value ; and in 
 (f raising its value, they raise also the value m England of 
 " the current coin which is exchanged for it. Thus the value 
 " of our gold coin conforms itself to the value of the current 
 " paper, and / the current paper is rendered by the Bank- 
 " directors, of that value which it is necessary that it should 
 " bear in order to prevent large exportations ; a value 
 (C sometimes rising a little above, and sometimes falling a 
 " little below, the price which our coin bears abroad." 
 
 The necessity which the Bank felt itself under to guard 
 the safety of its establishment, therefore, always prevented, 
 before the restriction from paying in specie, a too lavish issue 
 of paper money. 
 
 Thus we find that, for a period of twenty-three years 
 previously to the suspension of cash payments in 1797, the 
 average price of gold bullion was 37. 17s. 1\d. per oz. about 
 2d. under the mint price ; and for sixteen years previously 
 to 1774, it never was much above 41. per oz. It should be 
 remembered that during these sixteen years our gold coin 
 was debased by wearing, and it is therefore probable that 4/. 
 of such debased money did not weigh as much as the ounce 
 of gold for which it was exchanged. 
 
 Dr. A. Smith considers every permanent excess of the 
 market above the mint price of gold,, as referrible to the state 
 of the coins. While the coin was of its standard weight and 
 purity, the market price of gold bullion, he thought, could 
 not greatly exceed the mint price. 
 
 Mr. Thornton contends that this cannot be the only cause. 
 " We have," he says, " lately experienced fluctuations in 
 " our exchanges, and correspondent variations in the market, 
 " compared with the mint price of gold, amounting to no 
 
 22 
 
High Price of Bullion. 383 
 
 " less than eight or ten per cent. ; the state of our coinage 
 " continuing in all respects the same." Mr. Thornton should 
 have reflected that at the time he wrote, specie could not be 
 demanded at the Bank in exchange for notes ; that this was 
 a cause for the depreciation of the currency which Dr. Smith 
 could never have anticipated. If Mr. Thornton had proved 
 that there had been a fluctuation of ten per cent, in the price 
 of gold, while_ the Bank paid their notes in specie, and the 
 coinjvas undebased, he would then have convicted Dr. Smith 
 of " having treated this important subject in a defective and 
 " unsatisfactory manner."* 
 
 But as all checks against the over issues of the Bank are 
 now removed by the act of parliament, which restricts them 
 from paying their notes in specie, they are no longer bound 
 by "fears for the safety of their establishment" to limit the 
 quantity of their notes to that sum which shall keep them of 
 the same value as the coin which they represent. Accord - 
 
 * An excess in the market above the mint price of gold or silver bul- 
 lion, may, whilst the coins of both metals are legal tender, and there is no 
 prohibition against the coinage of either metal, be caused by a variation 
 in the relative value of those metals ; but an excess of the market above 
 the mint price proceeding from this cause will be at once perceived by 
 its affecting only the price of one of the metals. Thus gold would be at 
 or below, while silver was above, its mint price, or silver at or below its 
 mint price, whilst gold was above. 
 
 In the latter end of 1795, when the bank had considerably more 
 notes in circulation than either the preceding or the subsequent year, 
 when their embarrasssments had already commmenced, when they 
 appear to have resigned all prudence in the management of their 
 concerns, and to have constituted Mr. Pitt sole director, the price 
 of gold bullion did for a short time rise to 4.1. 3s. or 41. 4s. per oz. ; but 
 the directors were not without their fears for the consequences. In a 
 remonstrance sent to them by Mr. Pitt, dated October 1795, after stating, 
 " that the demand for gold not appearing likely soon to cease," and 
 " that it had excited great apprehension in the court of directors," they 
 observe, " The present price of gold being 41. 3s. to 41. 4*.t per ounce, 
 " and our guineas being to be purchased at 31. 17 s. lOJe?., clearly demon- 
 " strates the grounds of our fears ; it being only necessary to state those 
 " facts to the Chancellor of the Exchequer" It is remarkable that no price 
 of gold above the mint price is quoted during the whole year in 
 Wetenhall's list. In December it is there marked 31. 17s. 6d. 
 
 t It is difficult to determine on what authority the directors made 
 this assertion, as by a return lately made to parliament it appears that 
 during the year 1795 they did not purchase gold bullion at a price higher 
 than 31. 17 s. 6d. 
 
 23 
 
384 Ricardo on the 
 
 ingly we find that gold bullion has risen from 31. 17 s. 
 
 the average price previously to 1797, to 47. 10s. and has been 
 
 lately as high as 47, 13s. per oz. 
 
 We may therefore fairly conclude that this difference in 
 the relative value, or, in other words, that this depreciation in 
 the actual value of bank-notes has been caused by the too 
 / abundant quantity which the Bank has sent into circulation. 
 The same cause which has produced a difference of from 
 fifteen to twenty per cent, in bank-notes when compared 
 with gold bullion, may increase it to fifty per cent. There 
 can be no limit to the depreciation which may arise from a 
 constantly increasing quantity of paper. The stimulus which 
 a redundant currency gives to the exportation of the coin has 
 acquired new force, but cannot, as formerly, relieve itself. 
 We have paper money only in circulation, which is neces- 
 sarily confined to ourselves. Every increase in its quantity 
 degrades it below the value of gold and silver bullion, below 
 the value of the currencies of other countries. 
 
 The effect is the same as that which would have been 
 produced from clipping our coins. 
 
 If one-fifth were taken off from every guinea, the market 
 price of gold bullion would rise one-fifth above the mint 
 price. Forty-four guineas and a half (the number of guineas 
 weighing a pound, and therefore called the mint price), would 
 no longer weigh a pound, therefore a fifth more than that 
 quantity, or about 567. would be the price of a pound of gold, 
 and the difference between the market and the mint price, 
 between 567. and 467. 14s. 6d. would measure the depre- 
 ciation. 
 
 If such debased coin were to continue to be called by the 
 name of guineas, and if the value of gold bullion and all 
 other commodities were rated in the debased coin, a guinea 
 fresh from the mint would be said to be worth 17. 5s. and 
 that sum would be given for it by the illicit trader ; but it 
 would not be the value of the new guinea which had in- 
 creased, but that of the debased guineas which had fallen. 
 This would immediately be evident, if a proclamation were 
 issued, prohibiting the debased guineas from being current 
 
 24 
 
High Price of Bullion. 385 
 
 but by weight at the mint price of 37. 17s. lO^d. ; this would 
 be constituting the new and heavy guineas, the standard 
 measure of value, in lieu of the clipped and debased guineas. 
 The latter would then pass at their true value, and be called 
 17 or 18 shillings-pieces. So if a proclamation to the same 
 effect were now enforced, bank-notes would not be less 
 current, but would pass only for the value of the gold 
 bullion which they would purchase. A guinea would then 
 no longer be said to be worth I/. 5s. but a pound note would 
 be current only for 16 or 17 shillings. At present gold coin 
 is only a commodity, and bank-notes are the standard measure 
 of value, but in that case gold coin would be that measure, 
 and bank-notes would be the marketable commodity. 
 
 " It is/' says Mr. Thornton, " the maintenance of our 
 " general exchanges, or, in other words, it is the agreement 
 " of the mint price with the bullion price of gold, which 
 tf seems to be the true proof that the circulating paper is not 
 " depreciated." 
 
 When the motive for exporting gold occurs, while the 
 Bank do not pay in specie, and gold cannot therefore be 
 obtained at its mint price, the small quantity that can be 
 procured will be collected for exportation, and bank-notes 
 will be sold at a discount for gold in proportion to their 
 excess. In saying however that gold is at a high price, we 
 are mistaken ; it is not gold, it is paper which has changed 
 its value. Compare an ounce of gold, or 37. 17s. 10df. to 
 commodities, it bears the same proportion to them which it 
 has before done ; and if it do not, it is referrible to increased 
 taxation, or to some of those causes which are so constantly 
 operating on its value. But if we compare the substitute 
 of an ounce of gold 3/. 17s. 10rf. in bank-notes with com- 
 modities, we shall then discover the depreciation of the bank- 
 notes. In every market of the world I am obliged to part 
 with 41. 10s. in bank-notes to purchase the same quantity of 
 commodities which I can obtain for the gold that is in 
 37. 17s. W^d. of coin. 
 
 It is often asserted, that a guinea is worth at Hamburgh 
 26 or 28 shillings ; but we should be very much deceived if 
 
 25 
 
y 
 
 386 Ricardo on the 
 
 we should therefore conclude that a guinea could be sold at 
 Hamburgh for as much silver as is contained in 26 or 28 
 shillings. Before the alteration in the relative value of gold 
 and silver, a guinea would not sell at Hamburgh for as much 
 silver coin as is contained in 21 standard shillings ; it will at 
 the present market price sell for a sum of silver currency, 
 which, if imported and carried to our mint to be coined, will 
 produce in our standard silver coin 21s. 5d.* 
 
 It is nevertheless true, that the same quantity of silver 
 will, at Hamburgh, purchase a bill payable in London, in 
 bank notes, for 26 or 28 shillings. Can there be a more 
 satisfactory proof of the depreciation of our circulating 
 medium ? 
 
 It is said, that, if the Restriction-bill were not in force, 
 every guinea would leave the country.f 
 
 This is, no doubt, true ; but if the Bank were to diminish 
 the quantity of their notes until they had increased their 
 value fifteen per cent., the restriction might be safely removed, 
 as there would then be no temptation to export specie. 
 However long it may be deferred, however great may be the 
 discount on their notes, the Bank can never resume their 
 payments in specie, until they first reduce the amount of 
 their notes in circulation to these limits. 
 
 The law is allowed by all writers on political economy to 
 be a useless barrier against the exportation of guineas : it is 
 so easily evaded, that it is doubted whether it has had the 
 effect of keeping a single guinea more in England than there 
 would have been without such law. Mr. Locke, Sir J. 
 Steuart, Dr. A. Smith, Lord Liverpool, and Mr. Thornton, 
 all agree on this subject. The latter gentleman observes, 
 ** That the state of the British law unquestionably serves 
 " to discourage and limit, though not effectually to hinder, 
 " that exportation of guineas which is encouraged by an 
 
 * The relative value of gold and silver is on the Continent nearly the 
 same as in London. 
 
 t It must be meant that every guinea in the Bank would leave the 
 country ; the temptation of fifteen per cent, is amply sufficient to send 
 those out which can be collected from the circulation. 
 
 26 
 
High Price of Bullion. 387 
 
 " unfavourable balance of trade, and perhaps scarcely lessens 
 " it when the profit on exportation becomes very great." 
 Yet after every guinea that can in the present state of things 
 be procured by the illicit trader has been melted and ex- 
 ported, he will hesitate before he openly buys guineas with 
 bank-notes at a premium, because, though considerable 
 profit may attend such speculation, he will thereby render 
 himself an object of suspicion. He may be watched, and 
 prevented from effecting his object. As the penalties of the 
 law are severe and the temptation to informers great, secrecy 
 is essential to his operations. When guineas can be procured 
 by merely sending a bank-note for them to the Bank, the 
 law will be easily evaded ; but when it is necessary to collect 
 them openly and from a widely diffused circulation, consist- 
 ing almost wholly of paper, the advantage attending it must 
 be very considerable before any one will encounter the risk 
 of being detected. 
 
 When we reflect that above sixty millions sterling have 
 been coined into guineas during his present Majesty's reign, 
 we may form some idea of the extent to which the exporta- 
 tion of gold must have been carried. But repeal the law 
 against the exportation of guineas, permit them to be openly 
 sent out of the country, and what can prevent an ounce of 
 standard gold in guineas from selling at as good a price for 
 bank-notes, as an ounce of Portuguese gold coin, or standard 
 gold in bars, when it is known to be equal to them in fine- 
 ness ? And if an ounce of standard gold in guineas would 
 sell in the market, as standard bars do now, at 4/. 10s. per 
 oz., or as they have lately done at 41. 13*. per oz., what 
 shopkeeper would sell his goods at the same price either for 
 gold or bank-notes indifferently? If the price of a coat 
 were 3/. 17 's. IQ^d. or an ounce of gold, and if at the same 
 time an ounce of gold would sell for 4/. 135., is it conceivable 
 that it would be a matter of indifference to the tailor whether 
 he were paid in gold or in bank-notes ? 
 
 It is only because a guinea will not purchase more than 
 a pound-note and a shilling, that many hesitate to allow that 
 bank-notes are at a discount. The Edinburgh Review sup- 
 
 27 
 
388 Ricardo on the 
 
 ports the same opinion ; but if my reasoning be correct, I 
 have shewn such objections to be groundless. 
 
 Mr. Thornton has told us that an unfavourable trade 
 will account for an unfavourable exchange ; but we have 
 already seen that an unfavourable trade, if such be an 
 accurate term, is limited in its effects on the exchange. That 
 limit is probably four or five per cent. This will not account 
 for a depreciation of fifteen or twenty per cent. Moreover 
 Mr. Thornton has told us, and I entirely agree with him, 
 u That it may be laid down as a general truth, that the com- 
 " mercial exports and imports of a state naturally proportion 
 " themselves in some degree to each other, and that the 
 " balance of trade therefore cannot continue for a very long 
 " time to be either highly favourable or highly unfavourable 
 " to a country." Now the low exchange so far from being 
 temporary, existed before Mr. Thornton wrote in 1802, and 
 and has since been progressively increasing, and is now from 
 fifteen to twenty per cent, against us. Mr. Thornton must 
 therefore, according to his own principles, attribute it to 
 some more permanent cause than an unfavourable balance of 
 trade, and will, I doubt not, whatever his opinion may 
 formerly have been, now agree that it is to be accounted for 
 only by the depreciation of the circulating medium. ' 
 
 It can, I think, no longer be disputed that bank-notes 
 are at a discount. While the price of gold bullion is 
 47. 10s. per oz., or in other words, while any man will consent 
 to give that which professes to be an obligation to pay nearly 
 an ounce, and a sixth of an ounce of gold, for an ounce, it 
 cannot be contended that 4/. 10s. in notes and 4/. 10s. in gold 
 coin are of the same value. 
 
 An ounce of gold is coined into 3/. 17s. IQ^d. ; by pos- 
 sessing that sum therefore I have an ounce of gold, and would 
 not give 4/. 10s. in gold coin, or notes which I could imme- 
 diately exchange for 4/. 10s., for an ounce of gold. 
 
 It is contrary to common sense to suppose that such could 
 be the market value, unless the price were estimated in a 
 depreciated medium. 
 
 If the price of gold were estimated in silver indeed, the 
 
 28 
 
High Price of Bullion. 389 
 
 price might rise to 4/., 51., or Wl. an ounce, and it would, of 
 itself, be no proof of the depreciation of paper currency, but 
 of an alteration in the relative value of gold and silver. I 
 have, however, I think proved, that silver is not the standard 
 measure of value, and therefore not the medium in which 
 the value of gold is estimated. But if it were, as an ounce 
 of gold is only worth in the market 15|oz. of silver, and as 
 15 J ounces of silver is precisely equal in weight, and is there- 
 fore coined into 80 shillings, an ounce of gold ought not to 
 sell for more than 4L 
 
 Those then who maintain that silver is the measure of 
 value cannot prove that any demand for gold which may 
 have taken place, from whatever cause it may have pro- 
 ceeded, can have raised its price above 41. per oz. All above 
 that price must, on their own principles, be called a depre- 
 ciation in the value of bank-notes. It therefore follows, that 
 if bank-notes be the representative of silver coin, then an 
 ounce of gold, selling as it now does for 4?l. 1 0*. sells for an 
 amount of notes which represent 17f ounces of silver, whereas 
 in the bullion market it can only be exchanged for 15^ 
 ounces. Fifteen ounces and a half of silver bullion are 
 therefore of equal value with an engagement of the Bank to 
 pay to bearer seventeen ounces and a half. 
 
 The market price of silver is at the present time 5s. 9^. 
 per oz. estimated in bank-notes, the mint price being only 
 5s. 2d. } consequently the standard silver in 100/. is worth 
 more than 112/. in bank-notes. 
 
 But bank notes, it may be said, are the representatives of 
 our debased silver coin, and not of our standard silver. This 
 is not true, because the law which I have already quoted 
 declares silver to be a legal tender, for sums only not ex- 
 ceeding 25/. except by weight. If the Bank insisted on 
 paying the holder of a bank-note of WOOL in silver coin, they 
 would be bound either to give him standard silver of full 
 weight, or debased silver of an equal value, with the excep- 
 tion of 251. which they might pay him in debased coin. But 
 the WOOL so consisting of 97 5L pure money, and 251. debased, 
 is worth more than 1112/. at the present market value of 
 silver bullion. 
 
 29 
 
390 Ricardo on the 
 
 It is said that the amount of bank-notes has not increased 
 ^ in a greater proportion than the augmentation of our trade 
 required, and therefore Cannot be excessive. This assertion 
 would be difficult to prove, and if true, no argument but 
 what is delusive could be founded on it. In the first place, 
 the daily improvements which we are making in the art of 
 economizing the use of circulating medium, by improved 
 methods of banking, would render the same amount of notes 
 excessive now, which were necessary for the same state of 
 commerce at a former period. Secondly, there is a constant 
 competition between the Bank of England and the country- 
 banks to establish their notes, to the exclusion of those of their 
 rivals, in every district where the country banks are established. 
 
 As the latter have more than doubled in number within 
 very few years, is it not probable that their activity may 
 have been crowned with success, in displacing with their 
 own notes many of those of the Bank of England ? 
 
 If this have happened, the same amount of Bank of 
 England notes would now be excessive ; which, with a less 
 extended commerce, was before barely sufficient to keep our 
 currency on a level with that of other countries. No just 
 conclusion can therefore be drawn from the actual amount 
 of bank notes in circulation, though the fact, if examined, 
 would, I have no doubt, be found to be, that the increase in 
 the amount of bank-notes, and the high price of gold, have 
 usually accompanied each other. 
 
 It is doubted, whether two or three millions of Bank- 
 notes (the sum which the Bank is supposed to have added to 
 the circulation, over and above the amount which it will 
 easily bear,) could have had such effects as are ascribed to 
 them; but it should be recollected, that the Bank regulate 
 the amount of the circulation of all the country banks, and 
 it is probable that if the Bank increase their issues three 
 millions, they enable the country banks to add more than 
 three millions to the general circulation of England. 
 
 The money of a particular country is divided amongst its 
 
 _. different provinces by the same rules as the money of the 
 
 world is divided amongst the different nations of which it is 
 
 30 
 
High Price of Bullion. 391 
 
 composed. Each district will retain in its circulation such - 
 a proportionate share of the currency of the country, as its 
 trade, and consequently its payments, may require, com- 
 pared to the trade of the whole ; and no increase can take 
 place in the circulating medium of one district, without being \ 
 generally diffused, or calling forth a proportionable quantity / 
 in every other district. It is this which keeps a country 
 bank note always of the same value as a Bank of England 
 note. If in London where Bank of England notes only 
 are current, one million be added to the amount in circu- 
 lation, the currency will become cheaper there than else- 
 where, or goods will become dearer. Goods will, there- 
 fore, be sent from the country to the London market, to be 
 sold at the high prices, or which is much more probable, the 
 country banks will take advantage of the relative deficiency 
 in the country currency, and increase the amount of their 
 notes in the same proportion as the Bank of England had 
 done; prices would then be generally, and not partially 
 affected. 
 
 In the same manner, if Bank of England notes be dimi- 
 nished one million, the comparative value of the currency of 
 London will be increased, and the prices of goods diminished. 
 A Bank of England note will then be more valuable than a 
 country-bank note, because it will be wanted to purchase 
 goods in the cheap market ; and as the country banks are 
 obliged to give Bank of England notes for their own when 
 demanded, they would be called upon for them till the quan- 
 tity of country paper should be reduced to the same propor- 
 tion which it before bore to the London paper, producing a 
 corresponding fall in the prices of all goods for which it was 
 exchangeable. 
 
 The country banks could never increase the amount of 
 their notes, unless to fill up a relative deficiency in the 
 country currency, caused by the increased issues of the 
 Bank of England.* If they attempted it, the same check 
 
 * They might, on so.ne occasions, displace Bank of England notes, 
 but that consideration does not affect the question which we are now 
 discussing. 
 
 31 
 
39? Ricardo on the 
 
 which compelled the Bank of Eg land to withdraw part of 
 their notes from circulation when they used to pay them on 
 demand in specie, would oblige the country-banks to adopt 
 the same course. Their notes would, on account of the 
 increased quantity, be rendered of less value than the Bank of 
 England notes, in the same manner as Bank of England notes 
 were rendered of less value than the guineas which they 
 represented. They would therefore be exchanged for Bank 
 of England notes until they were of the same value. 
 
 The Bank of England is the great regulator of the 
 country paper. When they increase or decrease the amount 
 vh of their notes, the country banks do the same ; and in no 
 case can country banks add to the general circulation, unless 
 the Bank of England shall have previously increased the 
 amount of their notes. 
 
 V It is contended, that the rate of interest, and not the 
 price of gold or silver bullion, is the criterion by which we 
 may always judge of the abundance of paper-money ; that if 
 i it were too abundant, interest would fall, and if not suffi- 
 ^ ? ciently so, interest would rise. It can, I think, be made 
 manifest, that the rate of interest is not regulated by the 
 abundance or scarcity of money, but by the abundance or 
 scarcity of that part of capital, not consisting of money. 
 
 " Money," observes Dr. A. Smith, " the great wheel of 
 <f circulation, the great instrument of commerce, like all 
 " other instruments of trade, though it makes a part, and a 
 " very valuable part of the capital, makes no part of the 
 " revenue of the society to which it belongs ; and though the 
 " metal pieces of which it is composed, in the course of their 
 " annual circulation, distribute, to every man the revenue 
 " which properly belongs to him, they make themselves no 
 '* part of that revenue. 
 
 " When we compute the quantity of industry which the 
 u circulating capital of any society can employ, we must 
 " always have regard to those parts of it only which consist 
 " in provisions, materials, and finished work : the other, 
 (f which consists in money, and which serves only to circulate 
 " those three, must always be deducted. In order to put 
 
 32 
 
High Price of Bullion. 393 
 
 " industry into motion, three things are requisite : materials 
 " to work upon, tools to work with, and the wages or 
 " recompense for the sake of which the work is done. Money 
 f( is neither a material to work upon, nor a tool to work with ; 
 " and though the wages of the workman are commonly paid 
 te to him in money, his real revenue, like that of all other 
 " men, consists not in money, but in money's worth ; not in 
 " the metal pieces, but what can be got for them." 
 
 And in other parts of his work, it is maintained, that the 
 discovery of the mines in America, which so greatly increased 
 the quantity of money, did not lessen the interest for the 
 use of it : the rate of interest being regulated by the profits 
 on the employment, of capital, and not by the number or 
 quality of the pieces of metal which are used to circulate its 
 produce. 
 
 Mr. Hume has supported the same opinion. The value 
 of the circulating medium of every country bears some pro- 
 portion to the value of the commodities which it circulates. 
 In some countries this proportion is much greater than in 
 others, and varies, on some occasions, in the same country. 
 It depends upon the rapidity of circulation, upon the degree 
 of confidence and credit existing between traders, and above 
 all, on the judicious operations of banking. In England so 
 many means of economizing the use of circulating medium 
 have been adopted, that its value, compared with the value 
 of the commodities which it circulates, is probably (during a 
 period of confidence*) reduced to as small a proportion as is 
 practicable. What that proportion may be has been variously 
 estimated. 
 
 No increase or decrease of its quantity, whether consisting 
 of gold, silver, or paper money, can increase or decrease its 
 value above or below this proportion. If the mines cease to 
 supply the annual consumption of the precious metals, money 
 will become more valuable, and a smaller quantity will be 
 employed as a circulating medium. The diminution in the 
 quantity will be proportioned to the increase of its value. 
 
 * In the following observations, I wish to be understood as supposing 
 always the same degree of confidence and credit to exist. 
 
 33 
 
394 Ricardo on the 
 
 In like manner, if new mines be discovered, the value of 
 the precious metals will be reduced, and an increased quan- 
 tity used in the circulation ; so that in either case, the relative 
 value of money, to the commodities which it circulates, will 
 continue as before. 
 
 If, whilst the Bank paid their notes on demand in specie, 
 they were to increase their quantity, they would produce 
 little permanent effect on the value of the currency, because 
 nearly an equal quantity of the coin would be withdrawn 
 from circulation and exported. 
 
 If the Bank were restricted from paying their notes in 
 specie, and all the coin had been exported, any excess of 
 their notes would depreciate the value of the circulating 
 medium in proportion to the excess. If twenty millions had 
 been the circulation of England before the restriction, and 
 four millions were added to it, the twenty-four millions 
 would be of no more value than the twenty were before, 
 provided commodities had remained the same, and there 'had 
 been no corresponding exportation of coins ; and if the Bank 
 were successively to increase it to fifty, or a hundred millions, 
 the increased quantity would be all absorbed in the circula- 
 tion of England, but would be, in all cases, depreciated to 
 the value of the twenty millions. 
 
 I do not dispute, that if the Bank were to bring a large 
 additional sum of notes into the market, and offer them on 
 loan, but that they would for a time affect the rate of in- 
 terest. The same effects would follow from the discovery of 
 a hidden treasure of gold or silver coin. If the amount were 
 large, the Bank, or the owner of the treasure, might not be 
 able to lend the notes or the money at four, nor perhaps, 
 above three per cent. ; but having done so, neither the notes, 
 nor the money, would be retained unemployed by the bor- 
 rowers ; they would be sent into every market, and would 
 every where raise the prices of commodities, till they were 
 absorbed in the general circulation. It is only during the 
 interval of the issues of the Bank, and their effect on prices, 
 that we should be sensible of an abundance of money; 
 interest would, during that interval, be under its natural 
 
 34 
 
High Price of Bullion. 395 
 
 level ; but as soon as the additional sum of notes or of money / 
 became absorbed in the general circulation, the rate of j- 
 interest would be as high, and new loans would be demanded 
 with as much eagerness as before the additional issues. 
 
 The circulation can never be over-full. If it be one of 
 gold and silver, any increase in its quantity will be spread 
 over the world. If it be one of paper, it will diffuse itself 
 only in the country where it is issued. Its effects on prices 
 will then be only local and nominal, as a compensation by 
 means of the exchange will be made to foreign purchasers. 
 
 To suppose that any increased issues of the Bank can 
 have the effect of permanently lowering the rate of interest, 
 and satisfying the demands of all borrowers, so that there 
 will be none to apply for new loans, or that a productive 
 gold or silver mine can have such an effect, is to attribute a 
 power to the circulating medium which it can never possess. 
 Banks would, if this were possible, become powerful engines 
 indeed. By creating paper money, and lending it at three 
 or two per cent, under the present market rate of interest, the 
 Bank would reduce the profits on trade in the same proportion ; 
 and if they were sufficiently patriotic to lend their notes at 
 an interest no higher than necessary to pay the expenses of 
 their establishment, profits would be still further reduced ; 
 no nation, but by similar means, could enter into competition 
 with us, we should engross the trade of the world. To what 
 absurdities would not such a theory lead us ! Profits can 
 only be lowered by a competition of capitals not consisting 
 of circulating medium. As the increase of bank notes does 
 not add to this species of capital, as it neither increases our 
 exportable commodities, our machinery, or our raw materials, 
 it cannot add to our profits nor lower interest.* 
 
 * I have already allowed that the Bank, as far as they enable us to 
 turn our corn into " materials, provisions, <fec." have produced a 
 national benefit, as they have thereby increased the quantity of productive 
 capital ; but I am here speaking of an excess of their notes, of that 
 quantity which adds to our circulation without effecting any corre- 
 sponding exportation of coin, and which, therefore, degrades the notes, 
 below the value of the bullion contained in the coin which they 
 represent. 
 
 35 
 
396 Ricardo on the 
 
 When any one borrows money for the purpose of entering 
 into trade, he borrows it as a medium by which he can pos- 
 sess himself of <f materials,, provisions, &c." to carry on that 
 trade ; and it can be of little consequence to him, provided 
 he obtain the quantity of materials, c. necessary, whether 
 he be obliged to borrow a thousand, or ten thousand pieces 
 of money. If he borrow te*n thousand, the produce of his 
 manufacture will bs ten times the nominal value of what it 
 would have been, had one thousand been sufficient for the 
 same purpose. The capital actually employed in the country 
 is necessarily limited to the amount of the " materials, pro- 
 visions, &c." and might be made equally productive, though 
 not with equal facility, if trade were carried on wholly by 
 barter. The successive possessors of the circulating medium 
 have the command over this capital : but however abundant 
 may be the quantity of money, or of bank-notes ; though it 
 may increase the nominal prices of commodities ; though it 
 may distribute the productive capital in different proportions ; 
 though the Bank, by increasing the quantity of their notes, 
 may enable A to carry on part of the business formerly 
 engrossed by B and C, nothing will be added to the real 
 revenue and wealth of the country. B and C may be injured, 
 and A and the Bank may be gainers, but they will gain 
 exactly what B and C lose. There will be a violent and an 
 unjust transfer of property, but no benefit whatever will be 
 gained by the community. 
 
 For these reasons I am of opinion that the funds are not 
 indebted for their high price to the depreciation 7>f our cur- 
 rency. Their price must be regulated by the general rate 
 of interest given for money. If before the depreciation I 
 gave thirty years' purchase for land, and twenty-five for an 
 annuity in the stocks, I can after the depreciation give a 
 larger sum for the purchase of land, without giving more 
 years' purchase, because the produce of the land will sell for 
 a greater nominal value in consequence of the depreciation ; 
 but as the annuity in the funds is paid in the depreciated 
 medium, there can be no reason why I should give a greater 
 nominal value for it after than before the depreciation. 
 
 If guineas were degraded by clipping to half their present 
 
 36 
 
High Price of Bullion. 397 
 
 value, every commodity as well as land would rise to double 
 its present nominal value ; but as the interest of the stocks 
 would be paid in the degraded guineas, they would, on that 
 account, experience no rise. 
 
 The remedy which I propose for all the evils in our cur- 
 rency, is that the Bank should gradually decrease the amount 
 of their notes in circulation until they shall have rendered the 
 remainder of equal value with the coins which they repre- 
 sent, or, in other words, till -the prices of gold and silver 
 bullion shall be brought down to their mint price. I am 
 well aware that the total failure of paper credit would be 
 attended with the most disastrous consequences to the trade 
 and commerce of the country, and even its sudden limitation 
 would occasion so much ruin and distress, that it would be 
 highly inexpedient to have recourse to it as the means of 
 restoring our currency to its just and equitable value. 
 
 If the Bank were possessed of more guineas than they 
 had notes in circulation, they could not, without great injury 
 to the country, pay their notes in specie, while the price of 
 gold bullion continued greatly above the mint price, and the 
 foreign exchanges unfavourable to us. The excess of our 
 currency would be exchanged for guineas at the Bank and 
 exported, and would be suddenly withdrawn from circula- 
 tion. Before therefore they can safely pay in specie, the 
 excess of notes must be gradually withdrawn from circula- 
 tion. If gradually done, little inconvenience would be felt ; 
 so that the principle were fairly admitted, it would be for 
 future consideration whether the object should be accom- 
 plished in one year or in five. I am fully persuaded that we 
 shall never restore our currency to its equitable state, but 
 by this preliminary step, or by the total overthrow of our 
 paper credit. 
 
 If the Bank directors had kept the amount of their notes 
 within reasonable bounds : if they had acted up to the principle 
 which they have avowed to have been that which regulated their 
 issues when they were obliged to pay their notes in specie, 
 namely, to limit their notes to that amount which should prevent 
 the excess of the market above the mint price of gold, we should 
 
 37 
 
 \ 
 
898 Ricardo on the 
 
 not have been now exposed to all the evils of a depreciated and 
 perpetually varying currency. 
 
 Though the Bank derive considerable advantage from the 
 present system, though the price of their capital stock has 
 nearly doubled since 1797, and their dividends have propor- 
 / tionally increased, I am ready to admit with Mr. Thornton, 
 that the directors, as monied men, sustain losses in common 
 with others by a depreciation of the currency, much more 
 serious to them than any advantages \vhich they may reap 
 from it as proprietors of Bank stock. I do therefore acquit 
 them of being influenced by interested motives, but their 
 mistakes, if they are such, are in their effects quite as per- 
 nicious to the community. 
 
 The extraordinary powers with which they are entrusted, 
 
 enable them to regulate at their pleasure the price at which 
 
 those who are possessed of a particular kind of property, 
 
 called money, shall dispose of it. The Bank directors have 
 
 imposed upon these holders of money all the evils of a 
 
 maximum. To-day it is their pleasure that 4Z. 10s. shall pass 
 
 v for 31. 17s. 1 0%d., to-morrow they may degrade 47. 15s. to 
 
 \> .the same value, and in another year 107. may not be worth 
 
 Umore. By what an insecure tenure is property consisting of 
 
 money or annuities paid in money held ? What security has 
 
 the public creditor that the interest on the public debt, 
 
 which is now paid in a medium depreciated fifteen per cent., 
 
 may not hereafter be paid in one degraded fifty per cent. ? 
 
 The injury to private creditors is not less serious. A debt 
 
 contracted in 1797 may now be paid with eighty-five per 
 
 cent, of its amount, and who shall say that the depreciation 
 
 will go no further ? 
 
 The following observations of Dr. Smith on this subject 
 are so important, that I cannot but recommend them to the 
 serious attention of all thinking men. 
 
 " The raising the denomination of the coin has been the 
 " most usual expedient by which a real public bankruptcy 
 " has been disguised under the appearance of a pretended 
 " payment. If a sixpence, for example, should either by 
 fC act of parliament or royal proclamation be raised to the 
 
 38 
 
High Price of Bullion. 399 
 
 " denomination of a shilling, and twenty sixpences to that of 
 " a pound sterling, the person who under the old denomina- 
 " tion had borrowed twenty shillings, or near four ounces of 
 " silver, would, under the new, pay with twenty sixpences, or 
 " with something less than two ounces. A. national debt of 
 " about a hundred and twenty millions, nearly the capital of 
 " the funded debt of Great Britain, might in this manner be 
 " paid with about sixty-four millions of our present money. 
 " It would indeed be a pretended payment only, and the 
 " creditors of the public would be defrauded of ten shillings 
 " in the pound of what was due to them. The calamity 
 " too would extend much further than to the creditors of the 
 " public, and those of every private person would suffer a 
 " proportionable loss ; and this without any advantage, but 
 " in most cases with a great additional loss, to the creditors 
 " of the public. If the creditors of the public indeed were 
 " generally much in debt to other people, they might in some 
 " measure compensate their loss by paying their creditors 
 " in the same coin in which the public had paid them. But 
 " in most countries the creditors of the public are the greater 
 " part of them wealthy people, who stand more in the rela- 
 " tion of creditors than in that of debtors towards the rest of 
 " their fellow-citizens. A pretended payment of this kind, 
 <f therefore, instead of alleviating, aggravates in most cases 
 " the loss of the creditors of the public ; and without any 
 " advantage to the public, extends the calamity to a great 
 " number of other innocent people. It occasions a general 
 " and most pernicious subversion of the fortunes of private 
 " people ; enriching in most cases the idle and profuse debtor 
 " at the expence of the industrious and frugal creditor, and 
 " transporting a great part of the national capital from the 
 '" hands which are likely to increase and improve it, to those 
 " which are likely to dissipate and destroy it. When it 
 " becomes necessary for a state to declare itself bankrupt, in 
 " the same manner as when it becomes necessary for an indi- 
 si vidual to do so, a fair, open, and avowed bankruptcy is 
 " always the measure which is both least dishonourable to 
 " the debtor, and least hurtful to the creditor. The honour 
 
 39 
 
400 Ricardo on the 
 
 " of a state is surely very poorly provided for, when in order 
 " to cover the disgrace of a real bankruptcy, it has recourse 
 " to a juggling trick of this kind, so easily seen through, and 
 Cs at the same time so extremely pernicious/' 
 
 These observations of Dr. Smith on a debased money are 
 equally applicable to a depreciated paper currency. He has 
 enumerated but a few of the disastrous consequences which 
 attend the debasement of the circulating medium, but he has 
 sufficiently warned us against trying such dangerous expe- 
 riments. It will be a circumstance ever to be lamented, if 
 this great country, having before its eyes the consequences 
 of a forced paper circulation in America and France, should 
 persevere in a system pregnant with so much disaster. Let 
 us hope that she will be more wise. It is said indeed that 
 the cases are dissimilar : that the Bank of England is inde- 
 pendent of government. If this were true, the evils of a 
 superabundant circulation would not be less felt; but it may 
 be questioned whether a Bank lending many millions more 
 to government than its capital and savings can be called 
 independent of that government. 
 
 When the order of council for suspending the cash pay- 
 ments became necessary in 1797, the run upon the Bank was, 
 in my opinion, caused by political alarm alone, and not by a 
 superabundant, or a deficient quantity (as some have supposed) 
 of their notes in circulation.* 
 
 This is a danger to which the Bank, from the nature of 
 its institution, is at all times liable. No prudence on the 
 part of the directors could perhaps have averted it : but if 
 their loans to government had been more limited; if the 
 same amount of notes had been issued to the public through 
 the medium of discounts ; they would have been able, in all 
 probability, to have continued their payments till the alarm 
 had subsided. At any rate, as the debtors to the Bank would 
 have been obliged to discharge their debts in the space of 
 sixty days, that being the longest period for which any bill 
 discounted by the Bank has to run, the directors would in 
 
 * At that period the price of gold kepi steadily under its mint price. 
 
 40 
 
High Price of Bullion. 401 
 
 that time, if necessary, have been enabled to redeem every 
 note in circulation. It was then owing to the too intimate 
 connection between the Bank and government that the 
 restriction became necessary ; it is to that cause too that we \J 
 owe its continuance. 
 
 To prevent the evil consequences which may attend the 
 perseverance in this system, we must keep our eyes steadily 
 fixed on the repeal of the Restriction-bill. 
 
 The only legitimate security which the public can possess 
 against the indiscretion of the Bank is to oblige them to pay 
 their notes on demand in specie ; and this can only be effected 
 by diminishing the amount of bank-notes in circulation till 
 the nominal price of gold be lowered to the mint price. 
 
 Here I will conclude ; happy if my feeble efforts should 
 awaken the public attention to a due consideration of the 
 state of our circulating medium. I am well aware that I 
 have not added to the stock of information with which the 
 public has been enlightened by many able writers on the 
 same important subject. I have had no such ambition. My 
 aim has been to introduce a calm and dispassionate enquiry 
 into a question of great importance to the state, and the 
 neglect of which may be attended with consequences which 
 every friend of his country would deplore. 
 
 FINIS 
 
REPORT, 
 
 FROM 
 
 Ci)e Delect Committee 
 
 OF THE 
 
 HOUSE OF COMMONS, 
 
 ON THE 
 
 HIGH .PRICE 
 
 OF 
 
 GOLD BULLION, 
 
 Ordered to be printed, 8 June 1810. 
 
THE following are the Names of the Members who formed 
 the Bullion Committee : 
 
 F. HORNER, Esq., Chairman. 
 
 Et. Hon. S. PERCEVAL, Chancellor of the Exchequer. 
 
 Et. Hon. G. TIERNEY. 
 
 Earl TEMPLE. 
 
 Hon. T. BRAND. 
 
 H. PARNELL, Esq. 
 
 D. M. MAGENS, Esq. 
 
 G. JOHNSTONE, Esq. 
 
 D. GIDDY, Esq. (in the room of the Rt. Hon. G. ROSE, 
 who declined.) 
 
 W. DICKINSON, Esq. 
 H. THORNTON, Esq. 
 Et. Hon. E. B. SHERIDAN. 
 A. BARING, Esq. 
 W. MANNING, Esq. 
 
 E. SHARP, Esq. 
 
 P. GRENFELL, Esq. 
 J. L. FORSTER, Esq. 
 T. THOMPSON, Esq. 
 J. IRVING, Esq. 
 W. HUSKISSON, Esq. 
 Hon. J. ABERCROMBIE. 
 
Price of Gold Bullion. 405 
 
 THE SELECT COMMITTEE appointed to enquire into 
 the Cause of the High Price of GOLD BULLION, and to 
 take into consideration the State of the CIRCULATING 
 MEDIUM, and of the EXCHANGES between Great Britain 
 and Foreign Parts ; and to report the same, with their 
 Observations thereupon, from time to time, to The 
 House ; HAVE, pursuant to the Orders of The House, 
 examined the matters to them referred ; and have 
 agreed to the following KEPORT : 
 
 YOUE Committee proceeded, in the first instance, to 
 ascertain what the price of Gold Bullion had been, as 
 well as the rates of the Foreign Exchanges, for some time 
 past ; particularly during the last year. 
 
 Your Committee have found that the price of Gold 
 Bullion, which, by the regulations of His Majesty's Mint, is 
 3/. 17. lO^d. per ounce of standard fineness, was, during 
 the years 1806, 1807 and 1808, as high as 41. in the market. 
 Towards the end of 1808 it began to advance very rapidly, 
 and continued very high during the whole year 1809 ; the 
 market price of standard Gold in bars fluctuating from 
 41. 9s. to 41. 12s. per oz. The market price at 41. 10s. is 
 about 15^ per cent, above the Mint price. 
 
 Your Committee have found, that during the three first 
 months of the present year, the price of standard Gold in 
 bars remained nearly at the same price as during last year; 
 viz. from 41. 10s. to 41. 12s. per oz. In the course of the 
 months of March and April, the price of standard Gold is 
 quoted but once in WettenhalFs tables ; viz. on the 6th of 
 April last, at 41. 6s. which is rather more than 10 per cent, 
 above the Mint price. The last quotations of the price of 
 Gold, which have been given in those /tables, are upon the 
 18th and 22d of May, when Portugal Gold in coin is quoted 
 at 41. 11s. per oz. : Portugal Gold coin is about the same 
 fineness as our standard. It is stated in the same tables, 
 
 3 
 
406 Report on the High 
 
 that in the month of March last, the price of new Doubloons 
 rose from 41. 7s. to 41. 9s. per oz. Spanish Gold is from 
 4J to 4j grains better than standard, making about 4s. per 
 oz. difference in value. 
 
 It appears by the Evidence, that the price of foreign 
 Gold coin is generally higher than that of bar Gold, on 
 account of the former finding a more ready vent in foreign 
 markets. The difference between Spanish and Portugal 
 Gold in coin and Gold in bars, *ha& of late been about 2s. per 
 ounce. Your Committee have also to state, that there is 
 said to be at present a difference of between 3s. and 4s. per 
 ounce between the price of bar Gold which may be sworn 
 off for exportation as being foreign Gold, and the price of 
 such bar Gold as the Dealer will not venture to swear off; 
 while the former was about 41. 10s. in the market, the latter 
 is said to have been about 41. 6s. On account of these ex- 
 trinsic differences, occasioned either by the expense of coinage, 
 or by the obstructions of law, the price of standard Gold in 
 bars, such as may be exported, is that which it is most mate- 
 rial to keep generally in view through the present enquiry. 
 
 It appeared to Your Committee, that it might be of use, 
 in judging of the cause of this high price of Gold Bullion, 
 to be informed also of the prices of Silver during the same 
 period. The price of standard Silver in His Majesty's Mint 
 is 5s. 2d. per ounce ; at this standard price, the value of a 
 Spanish Dollar is 4s. 4d. or, which comes to the same thing, 
 Spanish Dollars are, at that standard price, worth 4s. ll^e?. 
 per ounce. It is stated in Wettenhall's tables, that through- 
 out the year 1809, the price of new Dollars fluctuated from 
 5s. 5d. to 5s. Id. per ounce, or from 10 to 13 per cent, above 
 the Mint price of standard Silver. In the course of the 
 last month, new Dollars have been quoted as high as 5s. Sd. 
 per ounce, or more than 15 per cent, above the Mint price. 
 
 Your Committee have likewise found, that towards the 
 end of the year 1808, the Exchanges with the Continent 
 became very unfavourable to this Country, and continued 
 Btill more unfavourable through the whole of 1809, and the 
 three first months of the present year. 
 
 4 
 
Price of Gold Bullion. 407 
 
 Hamburgh, Amsterdam, and Paris, are the principal 
 places with which the Exchanges are established at present. 
 During the last six months of 1809, and the three first 
 months of the present year, the Exchanges on Hamburgh 
 and Amsterdam were depressed as low as from 16 to 20 per 
 cent, below par; and that on Paris still lower. The 
 Exchanges with Portugal have corresponded with the others ; 
 but they are complicated by some circumstances which shall 
 be explained separately. 
 
 Your Committee find, that in the course of the month of 
 March last, that is, from the 2d of March to the 3d April, 
 the Exchanges with the three places above mentioned 
 received a gradual improvement. The Exchange with 
 Hamburgh rose gradually from 29. 4. to 31.; that with 
 Amsterdam from 31. 8. to 33. 5. ; that with Paris from 
 19. 16. to 21. 11. Since the 3d of April last to the present 
 time, they have remained nearly stationary at those rates, 
 the Exchange with Hamburgh, as stated in the tables 
 printed for the use of the Merchants, appearing as much 
 against this Country as 9/. per cent, below par ; that with 
 Amsterdam appearing to be more than 11. per cent, below 
 par ; and that with Paris more than 14/. per cent, below par. 
 
 So extraordinary a rise in the market price of Gold in 
 this Country, coupled with so remarkable a depression of 
 our Exchanges with the Continent, very early, in the judg- 
 ment of Your Committee, pointed to something in the state 
 of our own domestic currency as the cause of both appear- 
 ances. But before they adopted that conclusion, which 
 seemed agreeable to all former reasonings and experience, 
 they thought it proper to enquire more particularly into the 
 circumstances connected with each of those two facts ; and 
 to hear, from persons of commercial practice and detail, what 
 explanations they had to offer of so unusual a state of 
 things. 
 
 With this view, Your Committee called before them 
 several Merchants of extensive dealings and intelligence, 
 and desired to have their opinions, with respect to the cause 
 of the high price of Gold and the low rates of Exchange. 
 
 5 
 
408 Report on the High 
 
 It will be found by the Evidence, that the high price of 
 Gold is ascribed, by most of the Witnesses, entirely to an 
 alleged scarcity of that article, arising out of an unusual 
 demand for it upon the Continent of Europe. This unusual 
 demand for Gold upon the Continent is described by some of 
 them as being chiefly for the use of the JFr~ehch Armies, 
 though increased also by that state of alarm, and failure of 
 confidence, which leads to the practice of hoarding. 
 
 Your Committee are of opinion, that, in the sound and 
 natural state of the British currency, the foundation of which 
 is gold, no increased demand for Gold from other parts of the 
 world, however great, or from whatever causes arising, c"an 
 have the effect of producing here, for a considerable period 
 of time, a material rise in the market price of Gold. But 
 before they proceed to explain the grounds of that general 
 opinion, they wish to state some other reasons which alone 
 would have led them to doubt whether, in point of fact, such 
 a demand for Gold, as is alleged, has operated in the manner 
 supposed. 
 
 If there were an unusual demand for Gold upon the 
 Continent, such as could influence its market price in this 
 country, it would of course influence also, and indeed in the 
 first instance, its price in the Continental markets ; and it 
 was to be expected that those who ascribed the high price 
 here to a great demand abroad, would have been prepared 
 to state that there was a corresponding high price abroad. 
 Your Committee did not find that they grounded their 
 inference upon any such information ; and so far as Your 
 Committee have been enabled to ascertain, it does not ap- 
 pear that during the period when the price of Gold Bullion 
 was rising here, as valued in our paper, there was any 
 corresponding rise in the price of Gold Bullion in the market 
 of the Continent, as valued in their respective currencies, 
 Mr. Whitmore, indeed, the late Governor of the Bank, stated, 
 that in his opinion it was the high price abroad which had 
 
 6 
 
Price of Gold Bullion. 409 
 
 carried our Gold coin out of this Country ; but he did not 
 offer to Your Committee any proof of this high price. Mr. 
 Greffulhe, a Continental Merchant, who appeared to be 
 remarkably well informed in the details of trade, being asked 
 by the Committee, If he could state whether any change 
 had taken place in the price of Gold in any of the foreign 
 markets within the last year ? answered, " No very material 
 change that I am aware of." Upon a subsequent day, having 
 had time to refer to the actual prices, he again stated to the 
 Committee, " I beg leave to observe, that there has been 
 "JIG alteration of late in the Mint price of Gold in foreign 
 (f places, nor have the market prices experienced an advance 
 " at all relative to the rise that has taken place in England ; 
 "one of the papers I have delivered shews the foreign 
 " prices reduced into sterling money at the present low rates 
 " of Exchange, and the excess above our market price may 
 " be considered as about equal to the charges of convey ance. 5 ' 
 The paper he refers to, and the statement made by Mr. 
 Greffulhe throws great light upon this part of the subject ; 
 as it shews, that the actual prices of Gold in the foreign 
 markets are just so much lower than its market price here, 
 as the difference of Exchange amounts to. Mr. Greffulhe's 
 paper is confirmed by another, which has been laid before 
 Your Committee. Mr. Abraham Goldsmid has also stated 
 to Your Committee, that, during that part of last year 
 when the market price of Gold here rose so high, its 
 price at Hamburgh did not fluctuate more than from 3 to 4 
 per cent. 
 
 Here Your Committee must observe, that both at Ham- 
 burgh and Amsterdam, where the measure of value is not 
 Gold as in this Country, but Silver, an unusual demand for 
 Gold would affect its money price, that is, its price in Silver ; 
 and that as it does not appear that there^ has been any con- 
 siderable rise in the price of Gold, as valued in Silver, at 
 those places in the last year, the inference is, that there was 
 not any considerable increase in the demand for Gold. That 
 permanent rise in the market price of Gold above its Mhr 
 price, which appears by Mr. Gretfulhe's paper to have take* 
 
 7 
 
410 Report on the High 
 
 place for several years both at Hamburgh and Amsterdam, 
 may in some degree be ascribed, as Your Committee conceive, 
 to an alteration which has taken place in the relative value 
 of the two precious metals all over the world ; concerning 
 which, much curious and satisfactory Evidence will be found 
 in the documents laid before Your Committee by Mr. Allen. 
 From the same cause, a fall in the relative price of Silver 
 appears to have taken place in this Country for some time 
 before the increase of our paper currency began to operate. 
 Silver having fallen in its relative value to Gold throughout 
 the world, Gold has appeared to rise in price in those 
 markets where Silver is the fixed measure, and Silver has 
 appeared to fall in those where Gold is the fixed measure. 
 
 With respect to the alleged demand for Gold upon the 
 Continent for the supply of the French Armies, Your Com- 
 mittee must further observe, that, if the wants of the military 
 chest have been latterly much increased, the general supply 
 of Europe with Gold has been augmented by all that 
 quantity which this great commercial Country has spared in 
 consequence of the substitution of another medium of circu- 
 lation. And Your Committee cannot omit remarking, that 
 though the circumstances which might occasion such an 
 increased demand may recently have existed in greater force 
 than at former periods, yet in the former wars and convul- 
 sions of the Continent, they must have existed in such a 
 degree as to produce some effect. Sir Francis Baring has 
 very justly referred to the seven years war and to the Ame- 
 rican war, and remarks, that no want of Bullion was then 
 felt in this Country. And upon referring for a course of 
 years to the tables which are published for the use of the 
 Merchants, such as Lloyd's Lists and Wettenhall's Course of 
 Exchange, Your Committee have found that from the middle 
 of the year 1773, when the reformation of the Gold coin 
 took place, till about the middle of the year 1799, two years 
 after the suspension of the cash payments of the Bank, the 
 market price of standard Gold in bars remained steadily 
 uniform at the price of 37. 17s. 6d. [being, with the small 
 allowance for loss by detention at the Mint, equal to the 
 
 8 
 
Price of Gold Bullion. 411 
 
 Mint price of 3/. 17s. !(%/.] with the exception of one year, 
 from May 1783 to May 1784, when it was occasionally 
 3Z. 185. During the same period it is to be noticed, the 
 price of Portugal Gold coin was occasionally as high as 
 47. 25. ; and Your Committee also observe, that it was stated 
 to the Lords r Committee in 1797 by Mr. Abraham Newland, 
 that the Bank had been frequently obliged to buy Gold 
 higher than the Mint price, and upon one particular occasion 
 gave as much for a small quantity, which their agent pro- 
 cured from Portugal, as 4L 8s. But Your Committee find, 
 that the price of standard Gold in bars was never for any 
 length of time materially above the Mint price, during the 
 whole period of 24 years which elapsed from the reformation 
 of the Gold coin to the suspension of the cash payments of 
 the Bank. The two most remarkable periods prior to the 
 present, when the market price of Gold in this country has 
 exceeded our Mint price, were in the reign of King William, 
 when the Silver coin was very much worn below its standard, 
 and in the early part of His present Majesty's reign, when 
 the Gold coin was very much worn below its standard. In 
 both those periods, the excess of the market price of Gold 
 above its Mint price was found to be owing to the bad state 
 of the currency ; and in both instances, the reformation of 
 the currency effectually lowered the market price of Gold to 
 the level of the Mint price. During the whole of the years 
 1796 and 1797, in which there was such a scarcity of Gold, 
 occasioned by the great demands of the country Bankers in 
 order to increase their deposits, the market price of Gold 
 never rose above the Mint price. 
 
 Your Committee have still further to remark upon this 
 point, that the Evidence laid before them has led them to 
 entertain much doubt of the alleged factr that a scarcity of 
 Gold Bullion has been recently experienced in this country. 
 That Guineas have disappeared from the circulation, there 
 can be no question ; but that does not prove a scarcity of 
 Bullion, any more than the high price proves that scarcity. 
 If Gold is rendered dear by any other cause than scarcity, 
 those who cannot purchase it without paying the high price, 
 
 9 
 
412 Report on the High 
 
 will be very apt to conclude that it is scarce. A very exten- 
 sive home dealer who was examined, and who spoke very 
 much of the scarcity of Gold, acknowledged, that he found 
 no difficulty in getting any quantity he wanted, if he was 
 willing to pay the price /or it. And it appears to Your 
 Committee, that, though in the course of the last year there 
 have been large exportations of Gold to the Continent, there 
 have been also very considerable importations of it into this 
 Country from South America, chiefly through the West 
 Indies. The changes which have affected Spain and Portu- 
 gal, combined with our maritime and commercial advantages, 
 would seem to have rendered this country a channel through 
 which the produce of the mines of New Spain and the 
 Brazils passes to the rest of the world. In such a situation, 
 the imports of Bullion and Coin give us the opportunity of 
 first supplying ourselves ; and must render this the last of 
 the great markets in which a scarcity of that article will be 
 felt. This is remarkably illustrated by the fact, that Portu- 
 gal Gold coin is now sent regularly from this Country to the 
 Cotton Settlements in the Brazils, Pernambuco, and Maran- 
 ham, while Dollars are remitted in considerable quantities to 
 this country from Rio Janiero. 
 
 It is important also to observe, tbat the rise in the 
 market price of Silver in this country, which has nearly 
 corresponded to that of the market price of Gold, cannot 
 in any degree be ascribed to a scarcity of Silver. The 
 importations of Silver have of late years been unusually 
 large, while the usual drain for India and China has been 
 stopped. 
 
 For all these reasons, Your Committee would be inclined 
 to think, that those who ascribe the high price of Gold to an 
 unusual demand for that article, and a consequent scarcity, 
 assume facts as certain of which there is no evidence. But 
 even if these assumptions were proved, to ascribe the high 
 price of Gold in this Country to its scarcity, seems to your 
 Committee to involve a misconception, which they think 
 it important to explain. 
 
 In this Country, Gold is itself the measure of all ex- 
 
 10 
 
Price of Gold Bullion. 413 
 
 changeable value, the scale to which all money prices are 
 referred. It is so, not only by the usage and commercial 
 habits of the country, but likewise by operation of law, ever 
 since the Act of the 14th of His present Majesty [finally 
 rendered perpetual by an Act of the 39th year of the reign] 
 disallowed a legal tender in Silver coin beyond the sum of 
 2~)l. Gold being thus our measure of prices, a commodity 
 is said to be dear or cheap according as more or less Gold is 
 given in exchange for a given quantity of that commodity ; 
 but a given quantity of Gold itself will never be exchanged 
 for a greater or a less quantity of Gold of the same standard 
 fineness. At particular times it may be convenient, in 
 exchange for Gold in a particular coin, to give more than an 
 equal quantity of other Gold ; but this difference can never 
 exceed a certain small limit : and thus it has happened that 
 the Bank, while liable to pay its notes in specie, has under 
 particular emergencies been put to the necessity of purchas- 
 ing Gold at a loss, in order to keep up or to repair its stock. 
 But, generally speaking, the price of Gold, being itself 
 measured and expressed in Gold, cannot be raised or lowered 
 by an increased or diminished demand for it. An ounce of 
 Gold will exchange for neither more nor less than an ounce 
 of Gold of the same fineness, except so far as an allowance 
 is to be made, if the one ounce is coined or otherwise manu- 
 factured and the other is not, for the expence of that coinage 
 or manufacture. An ounce of standard Gold Bullion will 
 not fetch more in our market than 31. 17s. IQ^d., unless 
 31. 17s. lO^d. in our actual currency is equivalent to less 
 than an ounce of Gold. An increase or diminution in the 
 demand for Gold, or, what comes to the same thing, a 
 diminution or increase in the general supply of Gold, will, 
 no doubt, have a material effect upon the money prices of 
 all other articles. An increased demand for Gold, and a 
 consequent scarcity of that article, will make it more 
 valuable in proportion to all other articles ; the same quan- 
 tity of Gold will purchase a greater quantity of any other 
 article than it did before : in other words, the real price of 
 Gold, or the quantity of commodities given in exchange for 
 
 11 
 
414 Report on the High 
 
 it, will rise, and the money prices of all commodities will 
 fall ; the money price of Gold itself will remain unaltered, 
 but the prices of all other commodities will fall. That this 
 is not the present state of things is abundantly manifest ; 
 the prices of all commodities have risen and Gold appears 
 to have risen in its price only in common with them. If 
 this common effect is to be ascribed to one and the same 
 cause, that cause can only be found in the state of the cur- 
 rency of this Country. 
 
 Your Committee think it proper to state still more spe- 
 cifically, what appear to them to be the principles which 
 govern the relative prices of Gold in Bullion and Gold in 
 Coin, as well as of Paper circulating in its place and ex- 
 changeable for it. They cannot introduce this subject more 
 properly, than by adverting to those simple principles and 
 regulations, on which a coinage issuing from the King's 
 Mint is founded. 
 
 The object is, to secure to the people a standard of a 
 determinate value, by affixing a stamp, under the Royal 
 authority, to pieces of Gold, which are thus certified to 
 be of a given weight and fineness. Gold in Bullion is 
 the standard to which the Legislature has intended that 
 the coin should be conformed, and with which it should 
 be identified as much as possible. And if that intention 
 of the Legislature were completely fulfilled, the coined 
 Gold would bear precisely the same price in exchange for 
 all other commodities, as it would have borne had it con- 
 tinued in the shape of Bullion ; but it is subject to some 
 small fluctuations. 
 
 First, there is some expense incurred in converting Bul- 
 lion into coin. Those who send Bullion to be coined, and it 
 is allowed to any one to send it, though they are charged 
 with no seignorage, incur a loss of interest by the detention 
 of their Gold in the Mint. This loss may hitherto have 
 amounted to about 17. per cent., but it is to be presumed 
 that the improvements of the system of the new Mint will 
 cause the detention and consequent loss to be much smaller. 
 This II. per cent, has formed the limit, or nearly the limit, 
 
 12 
 
Price of Gold Bullion. 415 
 
 to the possible rise of the value of coin above that of Bullion ; 
 for to suppose that coin could, through any cause, advance 
 much above this limit, would be to assume that there was a 
 high profit on a transaction, in which there is no risk, and 
 every one has an opportunity of engaging. 
 
 The two following circumstances conjoined, account for 
 the depression of the Coin below the price of Bullion, and 
 will shew what must have been the limit to its extent before 
 1797, the period of the suspension of the Cash payments of 
 the Bank of England. First, the Coin, after it had become 
 current, was gradually diminished in weight by use, and 
 therefore if melted would produce a less quantity of Bullion. 
 The average diminution of weight of the present current 
 Gold Coin below that of the same Coin when fresh from the 
 Mint, appears by the Evidence to be nearly II. per cent. 
 This evil, in more ancient times, was occasionally very great. 
 It was particularly felt in an early period of His present 
 Majesty's reign, and led to the reformation of the Gold 
 Coin in 1773. But it is now carefully guarded against, not 
 only by the legal punishment of every wilful deterioration 
 of the Gold Coin, but also by the regulation of the Statute, 
 that Guineas, of which the full weight when fresh from the 
 Mint is 5 dwts. 9 -J|- grains, shall not be a legal tender if 
 worn below 5 dwts. 8 grs. ; the depreciation thus allowed 
 being at the utmost I'll per cent. A still more material 
 cause of depression is the difficulty under which the holders 
 of Coin have been placed when they wished to convert it 
 into Bullion. The Law of this Country forbids any other 
 Gold Coin than that which has become light to be put into 
 the melting pot, and, with a very questionable policy, pro- 
 hibits the exportation of our Gold Coin, and of any Gold, 
 unless an oath is taken that it has not been produced from 
 the Coin of this realm. It appears by the Evidence, that 
 the difference between the value of Gold Bullion which may 
 be sworn off for exportation) and that of the Gold produced 
 or supposed to be produced from our own Coin, which by 
 Law is convertible only to domestic purposes, amounts at 
 present to between 3s. and 4s. per ounce. 
 
 13 
 
416 Report on the High 
 
 The two circumstances which have now been mentioned 
 have unquestionably constituted, in the judgment of Your 
 Committee, the whole cause of that depression of the value 
 of the Gold Coin of this Country in exchange for commodi- 
 ties', below the value of Bullion in exchange for commodities, 
 which has occasionally arisen or could arise at those times 
 when the Bank paid in specie, and Gold was consequently 
 obtainable in the quantity that was desired ; and the limit 
 fixed, by those two circumstances conjoined, to this excess of 
 the market price of Gold above the Mint price, was there- 
 fore a limit of about 5^ per cent. The chief part of this 
 depression is to be ascribed to that ancient but doubtful 
 policy of this Country, which, by attempting to confine the 
 Coin within the Kingdom, has served, in the same manner 
 as permanent restrictions on the export of other articles, to 
 place it under a disadvantage, and to give to it a less value 
 in the market than the same article would have if subject 
 to no such prohibition. 
 
 The truth of these observations on the causes and limits 
 of the ordinary difference between the market and Mint 
 price of Gold, may be illustrated by a reference to the 
 mode, explained in the Evidence, of securing a fixed stan- 
 dard of value for the great commercial payments of Ham- 
 burgh. The payments in the ordinary transactions of life 
 are made in a currency composed of the coins of the several 
 surrounding States ; but Silver is the standard there resorted 
 to in the great commercial payments, as Gold is in England. 
 No difference analogous to that which occurs in this Country, 
 between the Mint and market price of Gold, can ever arise 
 at Hamburgh with regard to Silver, because provision is 
 made that none of the three causes above specified, [the 
 expense of coinage, the depreciation by wear, or the obstruc- 
 tion to exportation] shall have any operation. The large 
 payments of Hamburgh are effected in Bank money, which 
 consists of actual Silver of a given fineness, lodged in the 
 Hamburgh Bank by the merchants of the place, who there- 
 upon have a proportionate credit in the Bank books, which 
 they transfer according to their occasions. The Silver being 
 
 14 
 
Price of Gold Bullion. 417 
 
 assayed and weighed with scarcely any loss of time, the 
 first-mentioned cause of fluctuation in the relative value of 
 the current medium compared with Bullion is avoided. 
 Certain masses of it being then certified (without any stamp 
 being affixed on the metal) to be of a given quantity and 
 fineness, the value is transferred from individual to individual 
 by the medium merely of the Bank books, and thus the 
 wearing of the Coin being prevented, one cause of deprecia- 
 tion is removed. A free right is also given to withdraw, 
 melt, and export it ; and thus the other and principal source 
 of the occasional fall of the value of the current medium of 
 payment, below that of the Bullion which it is intended to 
 represent, is also effectually precluded. 
 
 In this manner, at Hamburgh, Silver is not only the 
 measure of all exchangeable value, but it is rendered an 
 invariable measure, except in so far as the relative value of 
 Silver itself varies with the varying supply of that precious 
 metal from the mines. In the same manner the usage, and 
 at last the law, which made Gold Coin the usual and at 
 last the only legal tender in large payments here, rendered 
 that metal our measure of value : and from the period of 
 the reformation of the Gold Coin down to the suspension of 
 the Bank payments in specie in 1797, Gold Coin was not a 
 very variable measure of value ; being subject only to that 
 variation in the relative value of Gold Bullion which 
 depends upon its supply from the mines, together with that 
 limited variation which, as above described, might take 
 place between the market and the Mint price of Gold Coin. 
 
 The highest amount of the depression of the Coin which 
 can take place when the Bank pays in Gold, has just been 
 stated to be about 5^ per cent. ; and accordingly it will be 
 found, that in all the periods preceding 1797, the difference 
 between what is called the Mint price and market price of 
 Gold never exceeded that limit. 
 
 Since the suspension of Cash payments in 1797, how- 
 ever, it is certain, that, even if Gold is still our measure of 
 value and standard of prices, it has been exposed to a new 
 cause of variation, from the possible excess of that paper 
 
 15 
 
418 Report on the High 
 
 which is not convertible into Gold at will ; and the limit of 
 this new variation is as indefinite as the excess to which that 
 paper may be issued. It may indeed be doubted, whether, 
 since the new system of Bank of England payments has 
 been fully established, Gold has in truth continued to be our 
 measure of value ; and whether we have any other standard 
 of prices than that circulating medium, issued primarily by 
 the Bank of England and in a secondary manner by the 
 country Banks, the variations of which in relative value may 
 be as indefinite as the possible excess of that circulating 
 medium. But whether our present measure of value, and 
 standard of prices, be this paper currency thus variable in 
 its relative value, or continues still to be Gold, but Gold 
 rendered more variable than it was before in consequence of 
 being interchangeable for a paper currency which is not at 
 will convertible into Gold, it is, in either case, most desirable 
 for the public that our circulating medium should again be 
 conformed, as speedily as circumstances will permit, to its 
 real and legal standard, Gold Bullion. 
 
 If the Gold Coin of the Country were at any time to 
 become very much worn and lessened in weight, or if it 
 should suffer a debasement of its standard, it is evident that 
 there would be a proportionable rise of the market price of 
 Gold Bullion above its Mint price : for the Mint price is the 
 sum in coin, which is equivalent in intrinsic value to a given 
 quantity, an ounce for example, of the metal in Bullion ; 
 and if the intrinsic value of that sum of Coin be lessened, it 
 is equivalent to a less quantity of Bullion than before. The 
 same rise of the market price of Gold above its Mint price 
 will take place, if the local currency of this particular 
 Country, being no longer convertible into Gold, should at 
 any time be issued to excess. That excess cannot be ex- 
 ported to other countries, and, not being convertible into 
 specie, it is not necessarily returned upon those who issued 
 it ; it remains in the channel of circulation, and is gradually 
 absorbed by increasing the prices of all commodities. An 
 increase in the quantity of the local currency of a particular 
 country, will raise prices in that country exactly in the same 
 
 16 
 
Price of Gold Bullion. 419 
 
 manner as an increase in the general supply of precious 
 metals raises prices all over the world. By means of the 
 increase of quantity, the value of a given portion of that 
 circulating medium, in exchange for other commodities, is 
 lowered ; in other words, the money prices of all other com- 
 modities are raised, and that of Bullion with the rest. In 
 this manner, an excess of the local currency of a particular 
 country will occasion a rise of the market price of Gold 
 above its Mint price. It is no less evident, that, in the 
 event of the prices of commodities being raised in one 
 country by an augmentation of its circulating medium, 
 while no similar augmentation in the circulating medium of 
 a neighbouring country has led to a similar rise of prices, 
 the currencies of those two countries will no longer continue 
 to bear the same relative value to each other as before. The 
 intrinsic value of a given portion of the one currency being 
 lessened, while that of the other remains unaltered, the 
 Exchange will be computed between those two countries to 
 the disadvantage of the former. 
 
 In this manner a general rise of all prices, a rise in the 
 market price of Gold, and a fall of the Foreign Exchanges, 
 will be the effect of an excessive quantity of circulating 
 medium in a country whicli has adopted a currency not 
 exportable to other countries, or not convertible at will into 
 a Coin which is exportable. 
 
 II. 
 
 Your Committee are thus led to the next head of their 
 inquiry ; the present state of the Exchanges between this 
 Country and the Continent. And here, as under the former 
 head, Your Committee will first state the opinions which 
 they have received from practical men, respecting the causes 
 of the present state of the Exchange. 
 
 Mr. Greffuthe, a general merchant, trading chiefly to the 
 Continent, ascribed the fall of Exchange between London 
 and Hamburgh, near 18 per cent, below par, in the year 1809, 
 " altogether to the commercial situation of this Country 
 
 17 
 
420 Report on the High 
 
 " with the Continent ; to the circumstance of the imports, and 
 " payments of Subsidies, &c. having very much exceeded 
 <( the exports." He stated, however, that he formed his 
 judgment of the balance of trade in a great measure from 
 the state of the Exchange itself, though it was corroborated 
 by what fell under his observation. He insisted particularly 
 on the large imports from the Baltic, and the wines and 
 brandies brought from France, in return for which no 
 merchandize had been exported from this Country. He 
 observed on the other hand, that the export of Colonial 
 produce to the Continent had increased in the last year 
 compared with former years ; and that during the last year 
 there was an excess, to a considerable amount, of the 
 exports of colonial produce and British manufactures to 
 Holland above the imports from thence, but not nearly 
 equal, he thought, to the excess of imports from other parts 
 of the world, judging from the state of the Exchange as well 
 as from what fell generally under his observation. He after- 
 wards explained, that it was not strictly the balance of trade, 
 but the balance of payments, being unfavourable to this 
 Country, which he assigned as the principal cause of the 
 rate of Exchange ; observing also, that the balance of 
 payments for the year may be against us, while the general 
 exports exceed the imports. He gave it as his opinion, that 
 the cause of the present state of Exchange was entirely 
 commercial, with the addition of the foreign expenditure of 
 Government ; and that an excess of imports above exports 
 would account for the rates of Exchange continuing so high 
 as 16 per cent, against this country, for a permanent period 
 of time. 
 
 It will be found in the Evidence, that several other 
 Witnesses agree in substance with Mr. Greffulhe, in this 
 explanation of the unfavourable state of the Exchange; 
 particularly Mr. Chambers and Mr. Coningham. 
 
 Sir frauds Baring stated to the Committee, that he 
 considered the two great circumstances which affect the 
 Exchange in its present unfavourable state, to be the 
 restrictions upon trade with the Continent, and the increased 
 
 18 
 
Price of Gold Bullion. 421 
 
 circulation of this Country in paper as productive of the 
 scarcity of Bullion. And he instanced, as examples of a 
 contrary state of things, the seven years war, and the 
 American war, in which there were the same remittances to 
 make to the Continent for naval and military expenditure, 
 yet no want of Bullion was ever felt. 
 
 The Committee likewise examined a very eminent Con- 
 tinental Merchant, whose evidence will be found to contain 
 a variety of valuable information. That Gentleman states, 
 that the Exchange cannot fall in any country in Europe at 
 the present time, if computed in coin of a definitive value, 
 or in something convertible into such coin, lower than the 
 extent of the charge of transporting it, together with an 
 adequate profit in proportion to the risk attending such 
 transmission. He conceives that such fall of our Exchange 
 as has exceeded that extent in the last 15 months, must 
 certainly be referred to the circumstance of our paper 
 currency not being convertible into specie ; and that if that 
 paper had been so convertible, and Guineas had been in 
 general circulation, an unfavourable balance of trade could 
 hardly have caused so great a fall in the Exchange as to the 
 extent of 5 or 6 per cent. He explains his opinion upon 
 the subject more specifically in the following Answers, which 
 are extracted from different parts of his Evidence. 
 
 "To what causes do you ascribe the present unfavourable 
 course of Exchange ? The first great depreciation took 
 place when the French got possession of the North of 
 Germany, and passed severe penal decrees against a com- 
 munication with this Country ; at the same time that a 
 sequestration was laid upon all English goods and property, 
 whilst the payments for English account were still to be 
 made, and the reimbursements to be taken on this Country ; 
 many more bills were in consequence to be sold than could 
 be taken by persons requiring to make payments in England. 
 The communication by letters being also very difficult and 
 uncertain, middle men were not to be found, as in usual 
 times, to purchase and send such bills to England for 
 returns; whilst no suit at law could be instituted in the 
 
 19 
 
422 Report on the High 
 
 Courts of Justice there against any person who chose to 
 resist payment of a returned bill, or to dispute the charges 
 of re-exchange. Whilst those causes depressed the Ex- 
 change, payments due to England only came round at 
 distant periods ; the Exchange once lowered by those cir- 
 cumstances, and Bullion being withheld in England to make 
 up those occasional differences, the operations between this 
 Country and the Continent have continued at a low rate, as 
 it is only matter of opinion what rate a pound sterling is 
 there to be valued at, not being able to obtain what it is 
 meant to represent." 
 
 "The Exchange against England fluctuating from 15 
 to 20 per cent, how much of that loss may be ascribed to 
 the effect of the measures taken by the enemy in the North 
 of Germany, and the interruption of intercourse which has 
 been the result, and how much to the effect of the Bank of 
 England paper not being convertible into cash, to which 
 you have ascribed a part of that depreciation ? I ascribe 
 the whole of the depreciation to have taken place originally 
 in consequence of the measures of the enemy ; and its not 
 having recovered, to the circumstance of the paper of 
 England not being exchangeable for cash." 
 
 " Since the conduct of the enemy which you have 
 described, what other causes have continued to operate on 
 the Continent to lower the course of Exchange? Very 
 considerable shipments from the Baltic, which were drawn 
 for and the bills negotiated immediately on the shipments 
 taking place, without consulting the interest of the Pro- 
 prietors in this country much, by deferring such a nego- 
 tiation till a demand should take place for such bills : The 
 continued difficulty and uncertainty in carrying on the 
 correspondence between this Country and the Continent: 
 The curtailed number of houses to be found on the Con- 
 tinent willing to undertake such operations, either by accept- 
 ing bills for English account drawn from the various parts 
 where shipments take place, or by accepting bills drawn 
 from this Country, either against property shipped, or on a 
 speculative idea that the Exchange either ought or is likely 
 
 20 
 
Price of Gold Bullion. 423 
 
 to rise: The length of time that is required before goods 
 can be converted into cash, from the circuitous routes they 
 are obliged to take : The very large sums of money paid to 
 foreign Ship Owners, which in some instances, such as on 
 the article of Hemp, has amounted to nearly its prime cost 
 in Russia : The want of middle men who as formerly used 
 to employ great capitals in Exchange operations, who, from 
 the increased difficulties and dangers to which such opera- 
 tions are now subject, are at present rarely to be met with, 
 to make combined exchange operations, which tend to anti- 
 cipate probable ultimate results." 
 
 The preceding Answers, and the rest of this Gentleman's 
 Evidence, all involve this principle, expressed more or less 
 distinctly, that Bullion is the true regulator both of the 
 value of a local currency and of the rate of Foreign 
 Exchanges; and that the free convertibility of paper cur- 
 rency into the precious metals, and the free exportation of 
 those metals, place a limit to the fall of Exchange, and not 
 only check the Exchanges from falling below that limit, but 
 recover them by restoring the balance. 
 
 Your Committee need not particularly point out in 
 what respects these opinions, received from persons of prac- 
 tical detail, are vague and unsatisfactory, and in what 
 respects they are contradictory of one another; consider- 
 able assistance however may be derived from the informa- 
 tion which the evidence of these persons affords, in explain- 
 ing the true causes of the present state of the Exchanges. 
 
 Your Committee conceive that there is no point of trade, 
 considered politically, which is better settled, than the 
 subject of Foreign Exchanges. The PAR of Exchange 
 between two Countries is that sum of the currency of either 
 of the two, which, in point of intrinsic value, is precisely 
 equal to a given sum of the currency of the other ; that is, 
 contains precisely an equal weight of Gold or Silver of the 
 same fineness. If 25 livres of France contained precisely 
 an equal quantity of pure Silver with twenty shillings 
 sterling, 25 would be said to be the Par of Exchange between 
 London and Paris. If one country uses Gold for its prin- 
 
 21 
 
424 Report on the High 
 
 cipal measure of value, and another uses Silver, the par 
 between those countries cannot be estimated for any par- 
 ticular period, without taking into account the relative value 
 of Gold and Silver at that particular period; and as the 
 relative value of the two precious metals is subject to fluc- 
 tuation, the Par of Exchange between two such countries is 
 not strictly a fixed point, but fluctuates within certain 
 limits. An illustration of this will be found in the Evi- 
 dence, in the calculation of the Par between London and 
 Hamburgh, which is estimated to be 34/3i Flemish shillings 
 for a pound sterling. That rate of exchange, which is pro- 
 duced at any particular period by a balance of trade or pay- 
 ments between the two countries, and by a consequent 
 disproportion between the supply and the demand of bills 
 drawn by the one upon the other, is a departure on one side 
 or the other from the real and fixed Par. But this real Par 
 will be altered if any change takes place in the currency of 
 one of the two countries, whether that change consists in 
 the wear or debasement of a metallic currency below its 
 standard, or in the discredit of a forced paper currency, or 
 in the excess of a paper currency not convertible into 
 specie ; a fall having taken place in the intrinsic value of a 
 given portion of one currency, that portion will no longer 
 be equal to the same portion, as before, of the other cur- 
 rency. But though the real Par of the currencies is thus 
 altered, the dealers, having little or no occasion to refer to 
 the par, continue to reckon their course of Exchanges from 
 the former denomination of the par ; and in this state of 
 things a distinction is necessary to be made between the real 
 and computed course of Exchange. The computed course of 
 Exchange, as expressed in the tables used by the Merchants, 
 will then include, not only the real difference of exchange 
 arising from the state of trade, but likewise the difference 
 between the original par and the new par. Those two sums 
 may happen to be added together in the calculation, or they 
 may happen to be set against each other. If the country 
 whose currency has been depreciated in comparison with 
 the other, has the balance of trade also against it, the com- 
 
 22 
 
Price of Gold Bullion. 425 
 
 puted rate of exchange will appear to be still more unfavour- 
 able than the real difference of exchange will be found to 
 be ; and so if that same country has the balance of trade in 
 its favour, the computed rate of exchange will appear to be 
 much less favourable than the real difference of exchange 
 will be found to be. Before the new coinage of our silver 
 in King William's time, the Exchange between England 
 and Holland, computed in the usual manner according to 
 the standard of their respective mints, was 25 per cent, 
 against England; but the value of the current coin of 
 England was more than 25 per cent, below the standard 
 value ; so that if that of Holland was at its full standard, 
 the real exchange was in fact in favour of England. It 
 may happen in the same manner, that the two parts of the 
 calculation may be both opposite and equal, the real 
 exchange in favour of the country by trade being equal to 
 the nominal exchange against it by the state of its currency: 
 in that case, the computed exchange will be at par, while 
 the real exchange is in fact in favour of that country. 
 Again, the currencies of both the countries which trade 
 together may have undergone an alteration, and that either 
 in an equal degree, or unequally : in such a case, the ques- 
 tion of the real state of the exchange between them becomes 
 a little more complicated, but it is to be resolved exactly 
 upon the same principle. Without going out of the bounds 
 of the present inquiry, this may be well illustrated by the 
 present state of the Exchange of London with Portugal, as 
 quoted in the tables for the 18th of May last. The 
 exchange of London on Lisbon appears to be 67^; 67^d. 
 sterling for a mill ree is the old established par of exchange 
 between the two countries : and 67^ accordingly is still 
 said to be the par. But by the evidence of Mr. Lyne, it 
 appears, that, in Portugal, all payments are now by law 
 made one-half in hard money, and one-half in Government 
 paper; and that this paper is depreciated at a discount of 
 27 per cent. Upon all payments made in Portugal, there- 
 fore, there is a discount or loss of 13J per cent.; and the 
 exchange at 67J, though nominally at par, is in truth 13 \ 
 
 23 
 
426 Report on ike High 
 
 per cent, against this Country. If the exchange were really 
 at par, it would be quoted at 56^%^, or apparently 13 \ per 
 cent, in favour of London, as compared with the old par 
 which was fixed before the depreciation of the Portuguese 
 medium of payments. . Whether this 1 3 J per cent, which 
 stands against this Country by the present Exchange on 
 Lisbon, is a real difference of Exchange, occasioned by the 
 course of trade and by the remittances to Portugal on 
 account of Government, or a nominal and apparent Ex- 
 change occasioned by something in the state of our own 
 currency, or is partly real and partly nominal, may perhaps 
 be determined by what Your Committee have yet to state. 
 
 It appears to Your Committee to have been long settled 
 and understood as a principle, that the difference of Exchange 
 resulting from the state of trade and payments between two 
 countries is limited by the expence of conveying and insur- 
 ing the precious metals from one country to the other ; at 
 least, that it cannot for any considerable length of time 
 exceed that limit. The real difference of Exchange, result- 
 ing from the state of trade and payments, never can fall 
 lower than the amount of such expence of carriage, includ- 
 ing the Insurance. The truth of this position is so plain, 
 and it is so uniformly agreed to by all the practical autho- 
 rities, both commercial and political, that Your Committee 
 will assume it as indisputable. 
 
 It occurred however to Your Committee, that the 
 amount of that charge and premium of insurance might be 
 increased above what it has been in ordinary periods even 
 of war, by the peculiar circumstances which at present 
 obstruct the commercial intercourse between this Country 
 and the Continent of Europe ; and that as such an increase 
 would place so much lower than usual the limit to which our 
 Exchanges might fall, an explanation might thereby be 
 furnished of their present unusual fall. Your Committee 
 accordingly directed their enquiries to this point. 
 
 It was stated to Your Committee, by the Merchant who 
 has been already mentioned as being intimately acquainted 
 with the trade between this Country and the Continent, that 
 
 24 
 
Price of Gold Bullion. 427 
 
 the present expence of transporting Gold from London to 
 Hamburgh, independent of the premium of Insurance, is 
 from li to 2 per cent. ; that the risk is very variable from 
 day to day, so that there is no fixed premium, but he con- 
 ceived the average risk, for the fifteen months preceding the 
 time when he spoke, to have been about 4 per cent. : making 
 the whole cost of sending Gold from London to Hamburgh 
 for those fifteen months, at such average of the risk, from 
 54 to 6 per cent. Mr. Abraham Goldsmid stated, that in 
 the last five or six months of the year 1809, the expence of 
 sending Gold to Holland varied exceedingly from 4 to 7 per 
 cent, for all charges, covering the risk as well as the costs 
 of transportation. By the Evidence which was taken before 
 the Committees upon the Bank affairs in 1797, it appears 
 that the cost of sending specie from London to Hamburgh 
 in that time of war, including all charges as well as an 
 average insurance, was estimated at a little more than 3 
 per cent. It is clear, therefore, that in consequence of the 
 peculiar circumstances of the present state of the war, and 
 the increased difficulties of intercourse with the Continent, 
 the cost of transporting the precious metals thither from this 
 Country has not only been rendered more fluctuating than 
 it used to be, but, upon the whole, is very considerably 
 increased. It would appear, however, that upon an average 
 of the risk for that period when it seems to have been 
 highest, the last half of the last year, the cost and insurance 
 of transporting Gold to Hamburgh or to Holland did not 
 exceed 7 per cent. It was of course greater at particular 
 times, when the risk was above that average. It is evident 
 also that the risk, and consequently the whole cost of trans- 
 porting it to an inland market, to Paris for example, would, 
 upon an average, be higher than that of carrying it to 
 Amsterdam or Hamburgh. It follows, that the limit to 
 which the Exchanges, as resulting from the state of trade, 
 might fall and continue unfavourable for a considerable 
 length of time, has, during the period in question, been a 
 good deal lower than in former times of war ; but it appears 
 also, that the expence of remitting specie has not been 
 
 25 
 
428 Report on the High 
 
 increased so much, and that the limit, by which the depres- 
 sion of the Exchanges is bounded, has not been lowered so 
 much, as to afford an adequate explanation of a fall of the 
 Exchanges so great as from 16 to 20 per cent, below par. 
 The increased cost of such remittance would explain, at 
 those moments when the risk was greatest, a fall of some- 
 thing more than 7 per cent, in the Exchange with Ham- 
 burgh or Holland, and a fall still greater perhaps in the 
 Exchange with Paris ; but the rest of the fall, which has 
 actually taken place, remains to be explained in some other 
 manner. 
 
 Your Committee are disposed to think, from the result 
 of the whole evidence, contradictory as it is, that the cir- 
 cumstances of the trade of this Country, in the course of 
 the last year, were such as to occasion a real fall of our 
 Exchanges with the Continent to a certain extent, and 
 perhaps at one period almost as low as the limit fixed by the 
 expence of remitting Gold from hence to the respective 
 markets. And Your Committee are inclined to this opinion, 
 both by what is stated regarding the excess of imports from 
 the Continent above the exports, though that is the part of 
 the subject which is left most in doubt ; and also by what 
 is stated respecting the mode in which the payments in our 
 trade have been latterly effected, an advance being paid 
 upon the imports from the Continent of Europe, and a long 
 credit being given upon the exports to other parts of the 
 world. 
 
 Your Committee, observing how entirely the present 
 depression of our Exchange with Europe is referred by 
 many persons to a great excess of our imports above our 
 exports, have called for an account of the actual value of 
 those for the last five years ; and Mr. Irving, the Inspector- 
 General of Customs, has accordingly furnished the most 
 accurate Estimate of both that he has been enabled to form. 
 He has also endeavoured to forward the object of the Com- 
 mittee, by calculating how much should be deducted from 
 the value of goods imported, on account of articles in return 
 for which nothing is exported. These deductions consist of 
 
 26 
 
Price of Gold Bullion. 429 
 
 the produce of Fisheries, and of imports from the East and 
 West Indies, which are of the nature of rents, profits, and 
 capital remitted to Proprietors in this Country. The 
 balance of trade in favour of this Country, upon the face of 
 the Account thus made up, was 
 
 In 1805 about - - . 6,616,000. 
 
 1806 - . 10,437,000. 
 
 1807 - . 5,866,000. 
 
 1808 - . 12,481,000. 
 
 1809 - . 14,834,000. 
 
 So far therefore, as any inference is to be drawn from the 
 balance thus exhibited, the Exchanges during the present 
 year, in which many payments to this Country on account 
 of the very advantageous balances of the two former years 
 may be expected to take place, ought to be peculiarly 
 favourable. 
 
 Your Committee, however, place little confidence in 
 deductions made even from the improved document which 
 the industry and intelligence of the Inspector- General has 
 enabled him to furnish. It is defective, as Mr. Irving has 
 himself stated, inasmuch as it supplies no account of the 
 sum drawn by Foreigners (which is at the present period 
 peculiarly large) on account of freight due to them for the 
 employment of their shipping, nor, on the other hand, of 
 the sum receivable from them (and forming an addition to 
 the value of our exported articles) on account of freight 
 arising from the employment of British shipping. It leaves 
 out of consideration all interest on capital in England 
 possessed by Foreigners, and on capital abroad belonging 
 to Inhabitants of Great Britain, as well as the pecuniary 
 transactions between the Governments of England and Ire- 
 land. It takes no cognizance of contraband trade, and of 
 exported and imported Bullion, of which no account is ren- 
 dered at the Custom-house. It likewise omits a most im- 
 portant article, the variations of which, if correctly stated, 
 would probably be found to correspond in a great degree 
 with the fluctuations of the apparently favourable balance ; 
 
 27 
 
430 
 
 Report on the High 
 
 namely, the bills drawn on Government for our naval, 
 military, and other expences in Foreign parts. Your Com- 
 mittee had hoped to receive an account of these from the 
 table of the House ; but there has been some difficulty and 
 consequent delay in executing a material part of the Order 
 made for them. It appears from " an Account, as far as it 
 could be made out, of sums paid for Expences Abroad in 
 1793, 4< 3 5, and 6," inserted in the Appendix of the Lords' 
 Report on the occasion of the Bank Restriction Bill, that 
 the sums so paid were, 
 
 In 1793 - 
 
 4 
 
 5 - 
 6 
 
 - . 2,785,252. 
 . 8,335,591. 
 
 - .11,040,236. 
 . 10,649,916, 
 
 The following is an account of the official value of our 
 Imports and Exports with the Continent of Europe alone, 
 in each of the last five years : 
 
 
 
 
 Balance in favour 
 
 
 IMPORTS. 
 
 EXPORTS. 
 
 of Great Britain, 
 reckoned in 
 
 
 
 
 Official Value. 
 
 
 , 
 
 . 
 
 . 
 
 1805 
 
 10,008,649 
 
 15,465,430 
 
 5,456,781 
 
 1806 
 
 8,197,256 
 
 13,216,386 
 
 5,019,130 
 
 1807 
 
 7,973,510 
 
 12,689,590 
 
 4,716,080 
 
 1808 
 
 4,210,671 
 
 11,280,490 
 
 7,069,819 
 
 1809 
 
 9,551,857 
 
 23,722,615 
 
 14,170,758 
 
 The balances with Europe alone in favour of Great 
 Britain, as exhibited in this imperfect statement, are not 
 far from corresponding with the general and more accurate 
 balances before given. The favourable balance of 1809 
 with Europe alone, if computed according to the actual 
 value, would be much more considerable than the value of 
 the same year, in the former general statement. 
 
 A favourable balance of trade on the face of the Account 
 
 28 
 
Price of Gold Bullion. 431 
 
 of Exports and Imports, presented annually to Parliament, 
 is a very probable consequence of large drafts on Govern- 
 ment for foreign expenditure ; an augmentation of exports, 
 and a diminution of imports, being promoted and even 
 enforced by the means of such drafts. For if the supply of 
 bills drawn abroad, either by the Agents of Government, or 
 by individuals, is disproportionate to the demand, the price of 
 them in foreign money falls, until it is so low as to invite pur- 
 chasers ; and the purchasers, who are generally Foreigners, 
 not wishing to transfer their property permanently to 
 England, have a reference to the terms on which the bills 
 on England will purchase those British commodities which 
 are in demand, either in their own country, or in interme- 
 diate places, with which the account may be adjusted. Thus, 
 the price of the bills being regulated in some degree by that 
 of British commodities, and continuing to fall till it becomes 
 so low as to be likely to afford a profit on the purchase and 
 exportation of these commodities, an actual exportation 
 nearly proportionate to the amount of the bills drawn can 
 scarcely fail to take place. It follows, that there cannot be, 
 for any long period, either a highly favourable or unfavour- 
 able balance of trade ; for the balance no sooner affects the 
 price of bills, than the price of bills, by its reaction on the 
 state of trade, promotes an equalization of commercial 
 exports and imports. Your Committee have here considered 
 Cash and Bullion as forming a part of the general mass of 
 exported or imported articles, and as transferred according 
 to the state both of the supply and the demand ; forming, 
 however, under certain circumstances, and especially in the 
 case of great fluctuations in the general commerce, a pecu- 
 liarly commodious remittance. 
 
 Your Committee have enlarged on the documents sup- 
 plied by Mr. Irving, for the sake of throwing further light 
 on the general question of the balance of trade and the 
 Exchanges, and of dissipating some very prevalent errors 
 which have a great practical influence on the subject now 
 under consideration. 
 
 That the real Exchange against this Country with the 
 
 29 
 
432 Report on the High 
 
 Continent cannot at any time have materially exceeded the 
 limit fixed by the cost at that time of transporting specie, 
 Your Committee are convinced upon the principles which 
 have been already stated. That in point of fact, those 
 Exchanges have not exceeded that limit, seems to receive 
 a very satisfactory illustration from one part of the evidence 
 of Mr. Greflfulhe, who, of all the Merchants examined, 
 seemed most wedded to the opinion, that the state of the 
 balance of payments alone was sufficient to account for any 
 depression of the Exchanges, however great. From what 
 the Committee have already stated with respect to the par 
 of Exchange, it is manifest that the Exchange between two 
 countries is at its real par, when a given quantity of Gold 
 or Silver in the one country is convertible at the market 
 price into such an amount of the currency of that country, 
 as will purchase a bill of Exchange on the other country for 
 such an amount of the currency of that other country, as 
 will there be convertible at the market price into an equal 
 quantity of Gold or Silver of the same fineness. In the 
 same manner the real Exchange is in favour of a country 
 having money transactions with another, when a given 
 quantity of Gold or Silver in the former is convertible for 
 such an amount in the currency of that latter country, as 
 will there be convertible into a greater quantity of Gold or 
 Silver of the same fineness. 
 
 Upon these principles, Your Committee desired Mr. 
 Greffulhe to make certain calculations, which appear in his 
 Answers to the following Questions; viz. 
 
 " Supposing you had a pound weight troy of Gold of 
 the English standard at Paris, and that you wished by means 
 of that to procure a Bill of Exchange upon London, what 
 would be the amount of the Bill of Exchange which you 
 would procure in the present circumstances ? I find that a 
 pound of Gold of the British standard at the present market 
 price of 105 francs, and the exchange at 20 livres, would 
 purchase a Bill of Exchange of 591. 8s. 
 
 " At the present market price of Gold in London, how 
 much standard Gold can you purchase for 597. 8s. ? At 
 
 30 
 
Price of Gold Bullion. 433 
 
 the price of 4L 12s. I find it will purchase 13 ounces of 
 Gold, within a very small fraction. 
 
 <c Then what is the difference per cent, in the quantity 
 of Standard Gold which is equivalent to 597. 8s. of our 
 currency as at Paris and in London ? About 8J percent. 
 
 " Suppose you have a pound weight troy of our standard 
 Gold at Hamburgh, and that you wished to part with it for 
 a Bill of Exchange upon London, what would be the amount 
 of the Bill of Exchange, which, in the present circumstances, 
 you would procure? At the Hamburgh price of 101, and 
 the Exchange at 29, the amount of the Bill purchased on 
 London would be 587. 4s. 
 
 " What quantity of our standard Gold, at the present 
 price of 41. 12s. do you purchase for 58/. 4s? About 12 
 ounces and 3 dwte. 
 
 " Then what is the difference per cent, between the 
 quantity of standard Gold at Hamburgh and in London, 
 which is equivalent to 58/. 4s. sterling ? About 5^ per cent. 
 
 " Suppose you had a pound weight troy of our standard 
 Gold at Amsterdam, and wished to part with it for a Bill of 
 Exchange upon London, what would be the amount sterling 
 of the Bill of Exchange which you would procure ? At the 
 Amsterdam price of 14J, Exchange 31. 6. and Bank agio 
 1 per cent, the amount of the Bill on London would be 
 5SI. 18s. 
 
 "At the present price of 41. 12s. what quantity of our 
 standard Gold do you purchase in London for 581. 18s. 
 sterling? 12 oz. 16 dwts. 
 
 f( How much is that per cent. ? 7 per cent." 
 
 Similar calculations, but made upon different assumed 
 data, will be found in the evidence of Mr. Abraham Goldsmid. 
 From these answers of Mr. Greffulhe, it appears, that when 
 the computed Exchange with Hamburgh was 29, that is, 
 from 16 to 17 per cent, below par, the real difference of 
 Exchange, resulting from the state of trade and balance of 
 payments was no more than 5J per cent, against this Country ; 
 that when the computed Exchange with Amsterdam was 
 31. 6. that is about 15 per cent, below par, the real Exchange 
 
 31 
 
434 Report on the High 
 
 was no more than 7 per cent, against this Country ; that, 
 when the computed Exchange with Paris was 20, that is 2O 
 per cent, below par, the real Exchange was no more than 8^ 
 per cent, against this Country. After making these al- 
 lowances, therefore, for the effect of the balance of trade 
 and payments upon our Exchanges with those places, there 
 will ^till remain a fall of 11 per cent, in the Exchange with 
 Hamburgh, of above 8 per cent, in the Exchange with 
 Holland, and of 1 1 ^ per cent, in the Exchange with Paris, 
 to be explained in some other manner. 
 
 If the same mode of calculation be applied to the more 
 recent statements of the Exchange with the Continent, it 
 will perhaps appear, that though the computed Exchange is 
 at present against this Country, the real Exchange is in its 
 favour. 
 
 From the foregoing reasonings relative to the state of 
 the Exchanges, if they are considered apart, Your Com- 
 mittee find it difficult to resist an inference, that a portion 
 at least of the great fall which the Exchanges lately suffered 
 must have resulted not from the state of trade, but from a 
 change in the relative value of our domestic currency. But 
 when this deduction is joined with that which Your Com- 
 mittee have stated, respecting the change in the market price 
 of Gold, that inference appears to be demonstrated. 
 
 III. 
 
 In consequence of the opinion which Your Committee 
 entertain, that, in the present artificial condition of the 
 circulating medium of this Country, it is most important to 
 watch the Foreign Exchanges and the market price of Gold, 
 Your Committee were desirous to learn, whether the Direc- 
 tors of the Bank of England held the same opinion, and 
 derived from it a practical rule for the control of their cir- 
 culation ; and particularly whether, in the course of the last 
 year, the great depression of the Exchanges, and the great 
 rise in the price of Gold, had suggested to the Directors any 
 suspicion of the currency of the Country being excessive. 
 
 32 
 
Price of Gold Bullion. 435 
 
 Mr. WHITMORE, the late Governor of the Bank, stated 
 to the Committee, that in regulating the general amount of 
 the loans and discounts, he did " not advert to the circum- 
 " stance of the Exchanges; it appearing upon a reference to 
 " the amount of our notes in circulation, and the course of 
 S( Exchange, that they frequently have no connexion." He 
 afterwards said, " My opinion is, I do not know whether it 
 " is that of the Bank, that the amount of our paper circula- 
 " tion has no reference at all to the state of the Exchange." 
 And on a subsequent day, Mr. Whitmore stated, that " the 
 " present unfavourable state of Exchange has no influence 
 " upon the amount of their issues, the Bank having acted 
 " precisely in the same way as they did before." He was 
 likewise asked, whether, in regulating the amount of their 
 circulation, the Bank ever adverted to the difference between 
 the market and Mint price of Gold ? and having desired to 
 have time to consider that question, Mr. Whitmore, on a 
 subsequent day, answered it in the following terms, which 
 suggested these further questions : 
 
 " In taking into consideration the amount of your notes 
 " out in circulation, and in limiting the extent of your dis- 
 " counts to Merchants, do you advert to the difference, when 
 t( such exists, between the market and the Mint price of Gold ? 
 " We do advert to that, inasmuch as we do not discount at 
 <f any time for those persons who we know, or have good 
 " reason to suppose, export the Gold. 
 
 "Do you not advert to it any further than by refusing 
 t( discounts to such persons ? We do advert to it, inasmuch 
 " as whenever any Director thinks it bears upon the ques- 
 tion of our discounts, he presses to bring forward the 
 ss discussion. 
 
 " The market price of gold having, in the course of the 
 "last year, risen as high as 41. 10s. or 47. 12s. has that cir- 
 sf cumstance been taken into consideration by you, so as to 
 " have had any effect in diminishing or enlarging the amount 
 " of the outstanding demands ? It has not been taken into 
 " consideration by me in that view. 3 ' 
 
 Mr. PEAKSE, now Governor of the Bank, agreed with 
 
 33 
 
436 Report on the High 
 
 Mr. Whitmore in this account of the practice of the Bank, 
 and expressed his full concurrence in the same opinion. 
 
 Mr. PEAKSE. "In considering this subject, with re- 
 ference to the manner in which Bank notes are issued, 
 " resulting from the applications made for discounts to supply 
 " the necessary want of Bank notes, by which their issue' in 
 " amount is so controlled that it can never amount to an 
 " excess, I cannot see how the amount of JBank notes issued 
 " can operate upon the price of Bullion, or the state of the 
 " Exchanges, and therefore I am individually of opinion that 
 " the price of Bullion, or the state of the Exchanges, can 
 " never be a reason for lessening the amount of Bank notes 
 " to be issued, always understanding the control which I 
 " have already described. 
 
 "Is the Governor of the Bank of the same opinion which 
 " has now been expressed by the Deputy Governor ? 
 
 Mr. WHITMORE. te I am so much of the same opinion, 
 " that I never think it necessary to advert to the price of 
 " Gold, or the state of the Exchange, on the days on which 
 " we make our advances. 
 
 " Do you advert to these two circumstances with a view 
 " to regulate the general amount of your advances ? I do not 
 " advert to it with a view to our general advances, conceiving 
 " it not to bear upon the question." 
 
 And Mr. HARMAN, another Bank Director, expressed 
 his opinion in these terms; "I must very materially alter 
 " my opinions, before I can suppose that the Exchanges 
 " will be influenced by any modifications of our paper 
 "currency." 
 
 These Gentlemen, as well as several of the Merchants 
 who appeared before the Committee, placed much reliance 
 upon an argument which they drew from the want of cor- 
 respondence in point of time, observable between the amount 
 of Bank of England Notes and the state of the Hamburgh 
 Exchange during several years ; and Mr. Pearse presented a 
 Paper on this subject, which is inserted in the Appendix. 
 Your Committee would feel no distrust in the general prin- 
 ciples which they have stated, if the discordance had been 
 
 34 
 
Price of Gold Bullion, 437 
 
 greater; considering the variety of circumstances which 
 have a temporary effect on exchange, and the uncertainty 
 both of the time and the degree in which it may be influenced 
 by any given quantity of paper. It may be added, that the 
 numerical amount of Notes (supposing I/, and 21. Notes to 
 be excluded from the statement) did not materially vary 
 during the period of the comparison ; and that in the last 
 year, when the general Exchanges with Europe have become 
 much more unfavourable, the notes of the Bank of England, 
 . as well as those of the country Banks, have been very con- 
 siderably increased. Your Committee however, on the whole, 
 are not of opinion that a material depression of the Ex- 
 changes has been manifestly to be traced in its amount and 
 degree to an augmentation of notes corresponding in point 
 of time. They conceive, that the more minute and ordinary 
 fluctuations of Exchange are generally referable to* the course 
 of our commerce ; that political events, operating upon the 
 state of trade, may often have contributed as well to the 
 rise as to the fall of the Exchange ; and in particular, that the 
 first remarkable depression of it in the beginning of 1809, 
 is to be ascribed, as has been stated in the evidence already 
 quoted, to commercial events arising out of the occupation 
 of the North of Germany by the troops of the French 
 emperor. The evil has been, that the Exchange, when fallen, 
 has not had the full means of recovery under the subsisting 
 system. And if those occasional depressions, which arise 
 from commercial causes, are not after a time successively 
 corrected by the remedy which used to apply itself before the 
 suspension of the cash payments of the Bank, the conse- 
 quences may ultimately be exactly similar to those which a 
 sudden and extravagant issue of paper would produce. The 
 restoration of the Exchange used to be effected by the clan- 
 destine transmission of Guineas, which improved it for the 
 moment, by serving as a remittance ; and unquestionably 
 also in part, probably much more extensively, by the reduc- 
 tion of the total quantity of the remaining circulating 
 medium, to which reduction the Bank were led to contribute 
 by the caution which every drain of Gold naturally excited. 
 
 35 
 
438 Report on the High 
 
 Under the present system, the former of these remedies 
 must be expected more and more to fail, the Guineas in cir- 
 culation being even now apparently so few as to form no 
 important remittance; and the reduction of paper seems 
 therefore the chief, if not the sole corrective, to be resorted 
 to. It is only after the Bank shall have for some time 
 assumed its cash payments, that both can again operate, as 
 they did on all former occasions prior to the restriction. 
 
 The Committee cannot refrain from expressing it to be 
 their opinion, after a very deliberate consideration of this 
 part of the subject, that it is a great practical error to sup- 
 pose that the "Exchanges with Foreign Countries, and the 
 price of Bullion, are not liable to be affected by the amount 
 of a paper currency, which is issued without the condition 
 of payment in specie at the will of the holder. That the 
 Exchanges will be lowered, and the price of Bullion raised, 
 by an issue of such paper to excess, is not only established as 
 a principle by the most eminent authorities upon Commerce 
 and Finance ; but its practical truth has been illustrated by 
 the history of almost every State in modern times which has 
 used a paper currency; and in all those countries, this prin- 
 ciple has finally been resorted to by their Statesmen as the 
 best criterion to judge by, whether such currency was or was 
 not excessive. 
 
 In the instances which are most familiar in the history 
 of Foreign Countries, the excess of paper has been usually 
 accompanied by another circumstance, which has no place in 
 our situation at present, a want of confidence in the suffi- 
 ciency of those funds upon which the paper had been issued. 
 Where these two circumstances, excess and want of con- 
 fidence, are conjoined, they will co-operate and produce their 
 effect much more rapidly than when it is the result of the 
 excess only of a paper of perfectly good credit ; and in both 
 cases, an effect of the same sort will be produced upon the 
 Foreign Exchanges, and upon the price of Bullion. The 
 most remarkable examples of the former kind are to be found 
 in the history of the paper currencies of the British Colonies 
 in North America, in the early part of the last century, 
 
 36 
 
Price of Gold bullion. 439 
 
 and in that of the assignats of the French Republic: to 
 which the Committee have been enabled to add another, 
 scarcely less remarkable, from the money speculations 
 of the Austrian Government in the last campaign, which 
 will be found in the Appendix. The present state of the cur- 
 rency of Portugal affords, also, an instance of the same kind. 
 
 Examples of the other sort, in which the depreciation 
 was produced by excess alone, may be gathered from the 
 experience of the United Kingdom at different times. 
 
 In Scotland, about the end of the seven years' war, 
 Banking was carried to a very great excess ; and by a prac- 
 tice of inserting in their promissory notes an optional clause 
 of paying at sight, or in 6 months after sight with interest, 
 the convertibility of such notes into specie at the will of the 
 holder was in effect suspended. These notes accordingly 
 became depreciated in comparison with specie ; and while 
 this abuse lasted, the exchange between London and Dum- 
 fries, for example, was sometimes four per cent, against 
 Dumfries, while the exchange between London and Carlisle, 
 which is not thirty miles distant from Dumfries, was at par. 
 The Edinburgh Banks, when any of their paper was brought 
 in to be exchanged for bills on London, were accustomed to 
 extend or contract the date of the bills they gave, according 
 to the state of the Exchange ; diminishing in this manner 
 the value of those bills, nearly in the same degree in which 
 the excessive issue had caused their paper to be depreciated. 
 This excess of paper was at last removed by granting bills 
 on London at a fixed date ; for the payment of which bills, 
 or, in other words, for the payment of which excess of paper, 
 it was necessary in the first instance to provide, by placing 
 large pecuniary funds in' the hands of their London cor- 
 respondents. In aid of such precautionary measures on the 
 part of the Edinburgh Banks, an act of parliament prohibited 
 the optional clauses, and suppressed ten and five shilling 
 notes. The Exchange between England and Scotland was 
 speedily restored to its natural rate ; and bills on London at 
 a fixed date having ever since been given in Exchange for 
 the circulating notes of Scotland, all material excess of 
 
 37 
 
440 Report on the High 
 
 Scottish paper above Bank of England has been prevented, 
 and the Exchange has been stationary. (Wealth of Nations, 
 vol. i. p. 492. Report of Committee upon Irish Exchange, 
 1 804. Mr. Mansfield's Evidence.). 
 
 The experience of the Bank of England itself, within a 
 very short period after its first establishment, furnishes a 
 very instructive illustration of all the foregoing principles 
 and reasonings. In this instance, the effects of a deprecia- 
 tion of the coin, by wear and clipping, were coupled with 
 the effect of an excessive issue of paper. The Directors of 
 the Bank of England did not at once attain a very accurate 
 knowledge of all the principles by which such an institution 
 must be conducted. They lent money not only by discount, 
 but upon real securities, mortgages, and even pledges of 
 commodities not perishable ; at the same time the Bank 
 contributed most materially to the service of Government 
 for the support of the Army upon the Continent. By the 
 liberality of those loans to private individuals, as well as by 
 the large advances to Government, the quantity of the notes 
 of the Bank became excessive, their relative value was 
 depreciated, and they fell to a discount of 17 per cent. At 
 this time there appears to have been no failure of the public 
 confidence in the funds of the Bank ; for its Stock sold for 
 110 per cent, though only 60 per cent, upon the subscrip- 
 tions had been paid in. By the conjoint effect of this 
 depreciation of the paper of the Bank from excess, and of 
 the depreciation of the Silver coin from wear and clipping, 
 the price of Gold Bullion was so much raised, that Guineas 
 were as high as 30s. ; all that had remained of good Silver 
 gradually disappeared from the circulation ; and the Ex- 
 change with Holland, which had been before a little affected 
 by the remittances for the Army, sunk as low as 25 per cent, 
 under par, when the Bank notes were at a discount of 17 
 per cent. Several expedients were tried, both by Parlia- 
 ment and by the Bank, to force a better Silver coin into 
 circulation, and to reduce the price of Guineas, but without 
 effect. At length the true remedies were resorted to : first, 
 by a new coinage of Silver, which restored that part of the 
 
 38 
 
Price of Gold Bullion. 441 
 
 currency to its standard value, though the scarcity of money 
 occasioned by calling in the old coin brought the Bank into 
 streights, and even for a time affected its credit ; secondly, 
 by taking out of the circulation the excess of Bank Notes. 
 This last operation appears to have been effected very judi- 
 ciously. Parliament consented to enlarge the Capital Stock 
 of the Bank, but annexed a condition, directing that a cer- 
 tain proportion of the new subscriptions should be made 
 good in Bank Notes. In proportion to the amount of Notes 
 sunk in this manner, the value of those which remained in 
 circulation began presently to rise ; in a short time the notes 
 were at par, and the Foreign Exchanges nearly so. These 
 details are all very fully mentioned in authentic tracts pub- 
 lished at the time, and the case appears to Your Committee 
 to afford much instruction upon the subject of their present 
 Enquiry. (See a short Account of the Bank, by Mr. God- 
 frey, one of the original Directors ; and A short History of 
 the last Parliament, 1699, by Dr. Drake; both in Lord 
 Somers' Collection of Tracts.) 
 
 Your Committee must next refer to the confirmation 
 and sanction which all their reasonings receive from the 
 labours of the Committee of this House, which was appointed 
 in a former Parliament to examine into the causes of the 
 great depreciation of the Irish Exchange with England in 
 1804. Most of the mercantile persons who gave evidence 
 before that Committee, including two Directors of the Bank 
 of Ireland, were unwilling to admit that the fall of the 
 Exchange was in any degree to be ascribed to an excess of 
 the paper currency arising out of the restriction of 1797; 
 the whole fall in that case, as in the present, was referred to 
 an unfavourable balance of trade or of payments ; and it 
 was also then affirmed, that " Notes issued only in propor- 
 tion to the demand, in exchange for good and convertible 
 securities payable at specific periods, could not tend to any 
 excess in the circulation, or to any depreciation." This doc- 
 trine, though more or less qualified by some of the Wit- 
 nesses, pervades most of the evidence given before that 
 Committee, with the remarkable exception of Mr. Mansfield, 
 
 39 
 
442 Report on the High 
 
 whose knowledge of the effects of that over issue of Scotch 
 paper, which has just been mentioned, led him to deliver a 
 more just opinion on the subject. Many of the Witnesses 
 before the Committee, however unwilling to acknowledge 
 the real nature of the evil, made important concessions, 
 which necessarily involved them in inconsistency. They 
 could not, as practical men, controvert the truth of the 
 general position, that 6t the fluctuations of Exchange be- 
 tween two countries are generally limited by the price at 
 which any given quantity of Bullion can be purchased in 
 the circulating medium of the debtor country, and converted 
 into the circulating medium of the creditor country, together 
 with the insurances and charges of transporting it from the 
 one to the other." It was at the same time admitted, that 
 the expense of transporting Gold from England to Ireland, 
 including insurance, was then under one per cent.; that 
 before the restriction, the fluctuations had never long and 
 much exceeded this limit ; and moreover, that the exchange 
 with Belfast, where Guineas freely circulated at the time of 
 the investigation by that Committee, was then 1J in favour 
 of Ireland, while the Exchange with Dublin, where only 
 paper was in use, was 10/. per cent, against that country. 
 It also appeared from such imperfect documents as it was 
 practicable to furnish, that the balance of trade was then 
 favourable t,o Ireland. Still, however, it was contended, 
 that there was no depreciation of Irish paper, that there was 
 a scarcity and consequent high price of Gold, an<J that the 
 diminution of Irish paper would not rectify the Exchange. 
 "The depreciation of Bank paper in Ireland (it was said by one 
 of the Witnesses, a Director of the Bank of Ireland) is entirely 
 a relative term with respect to the man who buys and sells 
 in Dublin by that common medium ; to him it is not depre- 
 ciated at all ; but to the purchaser of a Bill on London, to 
 him in that relation, and under that circumstance, there is a 
 depreciation of ten per cent." By thus avoiding all com- 
 parison with a view to the point in issue, between the value 
 of their own paper and that of either the then circulating 
 medium of this Country or of Gold Bullion, or even of Gold 
 
 40 
 
Price of Gold Bullion. 443 
 
 coin then passing at a premium in other parts of Ireland, 
 they appear to have retained a confident opinion, that no 
 depreciation of Irish paper had taken place. 
 
 It is further observable, that the value of a considerable 
 quantity of Dollars put into circulation by the Bank of 
 Ireland at this period, was raised to 5s. a Dollar, for the 
 professed purpose of rendering the new Silver coin con- 
 formable to the existing state of the Exchange ; a circum- 
 stance on which the Committee animadverted in their 
 Report, and which serves to shew that the Irish paper 
 currency could not stand a comparison with the standard 
 price of Silver, any more than with that of Gold Bullion, 
 with Gold in coin, or with the then paper currency of this 
 kingdom. 
 
 A fact was mentioned to that Committee on the evidence 
 ot Mr. Colville, a Director of the Bank of Ireland, which 
 though it carried no conviction to his mind of the tendency 
 of a limitation of paper to lower Exchanges, seems very 
 decisive on this point. He stated, that in 1753 and 1754, 
 the Dublin Exchange being remarkably unfavourable, and 
 the notes of the Dublin Bank being suddenly withdrawn, 
 the Exchange became singularly favourable. The mercan- 
 tile distress produced on that occasion was great, through 
 the suddenness of the operation ; for it was effected, not by 
 the gradual and prudential measures of the several Banks, 
 but through the violent pressure which their unguarded 
 issues had brought upon them. The general result, how- 
 ever, is not the less observable. 
 
 With a vie'w to the further elucidation of the subject of 
 the Irish Exchanges, which so lately attracted the attention 
 of Parliament, it may be proper to remark, that Ireland has 
 no dealings in Exchange with foreign countries, except 
 through London ; and that the payments from Ireland to 
 the Continent are consequently converted into English 
 currency, and then into the currency of the countries to 
 which Ireland is indebted. In the Spring of 1804, the 
 Exchange of England with the Continent was above par, 
 and the Exchange of Ireland was in such a state that 
 
 41 
 
444 Report on the High 
 
 118/. 10s. of the notes of the Bank of Ireland would pur- 
 chase only 1007. of those of the Bank of England. There- 
 fore, if the notes of the Bank of Ireland were not depre- 
 ciated, and it was so maintained, it followed that the notes 
 of the Bank of England were at more than 10 per cent, 
 premium above the standard coin of the two countries. 
 
 The principles laid down by the Committee of 1804 had 
 probably some weight with the Directors of the Bank of 
 Ireland ; for between the period of their Report (June 
 1804) and January 1806, the circulation of the notes of the 
 Bank of Ireland was gradually (though with small occasional 
 fluctuations) reduced from about three millions to 2,410,000/., 
 being a diminution of nearly l-5th ; at the same time, all 
 the currency which had been issued under the name of 
 Silver Tokens was by law suppressed. The paper currency, 
 both of the Bank of England, and of the English Country 
 Banks, seems during the same period to have gradually 
 increased. The combination of these two causes is likely to 
 have had a material effect in restoring to par the Irish 
 Exchange with England, 
 
 The Bank of Ireland has again gradually enlarged its 
 issues to about 3,100,000/. being somewhat higher than 
 they stood in 1804, an increase probably not disproportionate 
 to that which has occurred in England within the same 
 period. Perhaps, however, it ought not to be assumed, that 
 the diminution of issues of the Bank of Ireland between 
 1804 and 1806, would produce a corresponding reduction in 
 the issues of private Banks in Ireland, exactly in the same 
 manner in which a diminution of Bank of England paper 
 produces that effect on the Country Banks in Great Britain ; 
 because the Bank of Ireland does not possess the same ex- 
 clusive power of supplying any part of that country with a 
 paper currency, which the Bank of England enjoys in respect 
 to the metropolis of the Empire. The Bank of England, by 
 restricting the quantity of this necessary article in that 
 important quarter, can more effectually secure the improve- 
 ment of its value ; and every such improvement must neces- 
 sarily lead, by a corresponding diminution in amount, to a 
 
 42 
 
Price of Gold Bullion. 445 
 
 similar augmentation of the value of Country Bank paper 
 exchangeable for it. That the same diminution of the cir- 
 culation of private Banks took place in Ireland is more than 
 probable, for the private Banks in Ireland are accustomed to 
 give Bank of Ireland paper for their own circulating notes 
 when required to do so, and therefore could not but feel the 
 effect of any new limitation of that paper for which their 
 own was exchangeable. 
 
 It is due, however, in justice to the present Directors of 
 the Bank of England, to remind the House, that the sus- 
 pension of their cash payments, though it appears in some 
 degree to have originated in a mistaken view taken by the 
 Bank of the peculiar difficulties of that time, was not a 
 measure sought for by the Bank, but imposed upon it by 
 the Legislature for what were held to be urgent reasons of 
 State policy and public expediency. And it ought not to 
 be urged as matter of charge against the Directors, if in this 
 novel situation in which their commercial Company was 
 placed by the law, and intrusted with the regulation and 
 control of the whole circulating medium of the Country, 
 they were not fully aware of the principles by which so 
 delicate a trust should be executed, but continued to con- 
 duct their business of discounts and advances according to 
 their former routine. 
 
 It is important, at the same time, to observe, that under 
 the former system, when the Bank was bound to answer its 
 Notes in specie upon demand, the state of the Foreign 
 Exchanges and the price of Gold did most materially influ- 
 ence its conduct in the issue of those Notes, though it was 
 not the practice of the Directors systematically to watch 
 either the one or the other. So long as Gold was demand- 
 able for their paper, they were speedily apprized of a 
 depression of the Exchange, and a rise in the price of Gold, 
 by a run upon them for that article. If at any time they 
 incautiously exceeded the proper limit of their advances and 
 issues, the paper was quickly brought back to them, by 
 those who were tempted to profit by the market price of 
 Gold or by the rate of Exchange. In this manner the evil 
 
 43 
 
446 Report on the High 
 
 soon cured itself. The Directors of the Bank having their 
 apprehensions excited by the reduction of their stock of 
 Gold, and being able to replace their loss only by reiterated 
 purchases of Bullion at a very losing price, naturally con- 
 tracted their issues of paper, and thus gave to the remaining 
 paper, as well as to the Coin for which it was interchange- 
 able, an increased value, while the clandestine exportation 
 either of the coin, or the Gold produced from it, combined 
 in improving the state of the Exchange, and in producing 
 a corresponding diminution of the difference between the 
 market price and Mint price of Gold, or of paper convertible 
 into Gold. 
 
 Your Committee do not mean to represent that the 
 manner, in which this effect resulted from the conduct which 
 they have described, was distinctly perceived by the Bank 
 Directors. The fact of limiting their paper as often as they 
 experienced any great drain of Gold, is, however, unques- 
 tionable. Mr. Bosanquet stated, in his evidence before the 
 Secret Committee of the House of Lords, in the year 1797, 
 That in 1783, when the Bank experienced a drain of Cash 
 which alarmed them, the Directors took a bold step, and 
 refused to make the advances on the loan of that year. 
 This, he said, answered the purpose of making a temporary 
 suspension in the amount of the drain of their Specie. And 
 all the three Directors who have been examined before Your 
 Committee, represent some restriction of the Bank issues as 
 having usually taken place at those periods antecedent to 
 the suspension of the cash payments of the Bank, when they 
 experienced any material run. A very urgent demand for 
 Guineas, though arising not from the high price of Gold 
 and the state of the Exchange, but from a fear of Invasion, 
 occurred in 1793, and also in 1797, and in each of these 
 periods the Bank restrained their discounts, and consequently 
 also the amount of their Notes, very much below the demand 
 of the merchants. Your Committee question the policy of 
 thus limiting the accommodation in a period of alarm, unac- 
 companied with an unfavourable Exchange and high price 
 of Bullion ; but they consider the conduct of the Bank at 
 
 44 
 
Price of Gold Bullion. 447 
 
 the two last-mentioned periods, as affording illustration of 
 their general disposition, antecedently to 1797, to contract 
 their loans and their paper, when they found their Gold to 
 be taken from them. 
 
 It was a necessary consequence of the suspension of 
 cash payments, to exempt the Bank from that drain of Gold, 
 which, in former times, was sure to result from an unfavour- 
 able Exchange and a high price of Bullion. And the 
 Directors, released from all fears of such a drain, and no 
 longer feeling any inconvenience from such a state of things, 
 have not been prompted to restore the Exchanges and the 
 price of Gold to their proper level by a reduction of their 
 advances and issues. The Directors, in former times, did 
 not perhaps perceive and acknowledge the principle more 
 distinctly than those of the present day, but they felt the 
 inconvenience, and obeyed its impulse; which practically 
 established a check and limitation to the issue of paper. In 
 the present times, the inconvenience is not felt ; and the 
 check, accordingly, is no longer in force. But Your Corn- 
 initfee beg leave to report it to the House as their most clear 
 opinion, that so long as the suspension of Cash Payments is 
 permitted to subsist, the price of Gold Bullion and the 
 general Course of Exchange with Foreign Countries, taken 
 for any considerable period of time, form the best general 
 criterion from which any inference can be drawn, as to the 
 sufficiency or excess of paper currency in circulation ; and 
 that the Bank of England cannot safely regulate the amount 
 of its issues, without having" reference to the criterion pre- 
 sented by these two circumstances. And upon a review of 
 all the facts and reasonings which have already been stated, 
 Your Committee are further of opinion, that, although the 
 commercial state of this Country, and the political state of 
 the Continent, may have had some influence on the high 
 price of Gold Bullion and the unfavourable Course of Ex- 
 change with Foreign Countries, this price, and this deprecia- 
 tion, are also to be ascribed to the want of a permanent 
 check, and a sufficient limitation of the paper currency in 
 this Country. 
 
 45 
 
448 Report on the High 
 
 In connexion with the general subject of this part of 
 their Report, the policy of the Bank of Phigland respecting 
 the amount of their circulation, Your Committee have now 
 to call the attention of the House to another topic, which 
 was brought under their notice in the course of their Enquiry, 
 and which in their judgment demands the most serious con- 
 I sideration. The Bank Directors, as well as some of the 
 / Merchants who have been examined, shewed a great anxiety 
 I to state to Your Committee a doctrine, of the truth of which 
 I they professed themselves to be most thoroughly convinced, 
 / that there can be no possible excess in the issue of Bank of 
 England paper, so long as the advances in which it is issued 
 are made upon the principles which at present guide the 
 conduct of the Directors, that is, so .long as the discount of 
 mercantile Bills is confined to paper of undoubted solidity, 
 arising out of real commercial transactions, and payable at 
 short and fixed periods. That the Discounts should be made 
 only upon Bills growing out of real commercial transactions, 
 and falling due in a fixed and short period, are sound and 
 well-established principles. But that, while the Bank is 
 restrained from paying in specie, there need be no other limit 
 to the issue of their paper than what is fixed by such rules 
 of discount, and that during the suspension of Cash pay- 
 ments the discount of good Bills falling due at short periods 
 cannot lead to any excess in the amount of Bank paper in 
 circulation, appears to Your Committee to be a doctrine 
 wholly erroneous in principle, and pregnant with dangerous 
 consequences in practice. 
 
 But before Your Committee proceed to make such ob- 
 servations upon this theory as it appears to them to deserve, 
 they think it right to shew from the Evidence, to what 
 extent it is entertained by some of those individuals who 
 have been at the head of the affairs of the Bank. The opinions 
 held by those individuals are likely to have an important 
 practical influence ; and appeared to Your Committee, more- 
 over, the best evidence of what has constituted the actual 
 policy of that establishment in its corporate capacity. 
 
 Mr. Whitmore, the late Governor of the Bank, expressly 
 
 46 
 
Price of Gold Bullion. 449 
 
 states, " The Bank never force a Note in circulation, and 
 " there will not remain a Note in circulation more than the 
 " immediate wants of the public require ; for no Banker, I 
 " presume, will keep a larger stock of Bank Notes by him 
 * than his immediate payments require, as he can at all times 
 " procure them." The reason here assigned is more par- 
 ticularly explained by Mr. Whitmore, when he says, " The 
 " Bank Notes would revert to us if there was a redundancy 
 ts in circulation, as no one would pay interest for a Bank 
 t( Note that he did not want to make use of." Mr. Whitmore 
 further states, " The criterion by which I judge of the exact 
 " proportion to be maintained between the occasions of the 
 " Public, and the issues of the Bank, is by avoiding as much 
 " as possible to discount what does not appear to be legitimate 
 fc< mercantile paper." And further, when asked, What mea- 
 sure the Court of Directors has to judge by, whether the 
 quantity of Bank Notes out in circulation is at any time 
 excessive ? Mr. Whitmore states, that their measures of the 
 security [scarcity ?~\ or abundance of Bank Notes is certainly 
 by the greater or less application that is made to them for 
 the discount of good paper. 
 
 Mr. Pearse, late Deputy Governor, and now Governor of 
 the Bank, stated very distinctly his concurrence in opinion 
 with Mr. Whitmore upon this particular point. He referred 
 " to the manner in which Bank Notes are issued, resulting 
 te from the applications made for discounts to supply the 
 t( necessary want of Bank Notes, by which their issue in 
 c< amount is so controlled that it can never amount to an ex- 
 "cess." He considers "the amount of the Bank Notes in 
 " circulation as being controlled by the occasions of the 
 " public, for internal purposes," and that from the manner 
 c in which the issue of Bank Notes is controlled, the public 
 " will never call for more than is absolutely necessary for their 
 " wants." 
 
 Another Director of the Bank, Mr. Harman, being 
 asked, if he thought that the sum total of discounts applied 
 for, even though the accommodation afforded should be on 
 the security of good bills to safe persons, might be such as 
 
 47 
 
450 Report on the High 
 
 to produce some excess in the quantity of the Bank issues if 
 fully complied with ; he answered, u I think if we discount 
 " only for solid persons, and such paper as is for real bond 
 "fide transactions, we cannot materially err." And he after- 
 wards states, that what he should consider as the test of a 
 superabundance would be, " money being more plentiful in 
 " the market." 
 
 It is material to observe, that both Mr. Whitmore and 
 Mr. Pearse state that " the Bank does not comply with the 
 " whole demand upon them for discounts, and that they are 
 " never induced by a view to their own profit, to push their 
 " issues beyond what they deem consistent with the public 
 " interest." 
 
 Another very important part of the Evidence of these 
 Gentlemen upon this point, is contained in the following 
 Extract ; 
 
 " Is it your opinion that the same security would exist 
 " against any excess in the issues of the Bank, if the rate of 
 " the discount were reduced from 57. to 47. per cent. ?" 
 Answer. " The security of an excess of issue would be, I 
 (f conceive, precisely the same." Mr. Pearse. " I concur in 
 " that Answer." 
 
 " If it were reduced to 37. per cent. ?" Mr. Whitmore, 
 " I conceive there would be no difference, if our practice 
 fl ~ remained the same as now, of not forcing a note into 
 " circulation." Mr. Pearse. " I concur in that Answer." 
 
 Your Committee cannot help again calling the attention 
 of the House -to the view which this Evidence presents, of 
 the consequences which have resulted from the peculiar 
 situation in which the Bank of England was placed by the 
 suspension of Cash payments. So long as the paper of the 
 Bank was convertible into specie at the will of the holder, 
 it was enough, both for the safety of the Bank and for the 
 public interest in what regarded its circulating medium, that 
 the Directors attended only to the character and quality of 
 the Bills discounted, as real ones and payable at fixed and 
 short periods. They could not much exceed the proper 
 bounds in respect of the quantity and amount of Bills dis- 
 
 48 
 
Price of Gold JJullion. 451 
 
 counted, so as thereby to produce an excess of their paper 
 in circulation, without quickly finding that the surplus 
 returned upon themselves in demand for specie. The private 
 interest of the Bank to guard themselves against a continued 
 demand of that nature, was a sufficient protection for the 
 public against any such excess of Bank paper, as would 
 occasion a material fall in the relative value of the circulat- 
 ing medium. The restriction of cash payments, as has 
 already been shewn, having rendered the same preventive 
 policy no longer necessary to the Bank, has removed that 
 check upon its issues which was the public security against 
 an excess. When the Bank Directors were no longer 
 exposed to the inconvenience of a drain upon them for Gold, 
 they naturally felt that they had no such inconvenience to 
 guard against by a more restrained system of discounts and 
 advances; and it was very natural for them to pursue as 
 before (but without that sort of guard and limitation which 
 was now become unnecessary to their own security) the same 
 liberal and prudent system of commercial advances from 
 which the prosperity of their own establishment had resulted, 
 as well as in a great degree the commercial prosperity of the 
 whole Country. It was natural for the Bank Directors to 
 believe, that nothing but benefit could accrue to the public 
 at large, while they saw the growth of Bank profits go hand 
 in hand with the accommodations granted to the Merchants. 
 It was hardly to be expected of the Directors of the Bank, 
 that they should be fully aware of the consequences that 
 might result from their pursuing, after the suspension of cash 
 payments, the same system which they had found a safe one 
 before. To watch the operation of so new a law, and to 
 provide against the injury which might result from it to the 
 public interests, was the province, not so much of the Bank 
 as of the Legislature : And, in the opinion of Your Com- 
 mittee, there is room to regret that this House has not taken 
 earlier notice of all the consequences of that law. 
 
 By far the most important of those consequences is, that 
 while the convertibility into specie no longer exists as a 
 check to an over issue of paper, the Bank Directors have 
 
 49 
 
452 Report on the High 
 
 not perceived that the removal of that check rendered it 
 possible that such an excess might be issued by the discount 
 of perfectly good bills. So far from perceiving this, Your 
 Committee have shewn that they maintain the contrary 
 doctrine with the utmost confidence, however it may be 
 qualified occasionally by some of their expressions. That 
 this doctrine is a very fallacious one, Your Committee cannot 
 entertain a doubt. The fallacy, upon which it is founded, 
 lies in not distinguishing between an advance of capital to 
 Merchants, and an additional supply of currency to the 
 general mass of circulating medium. If the advance of 
 capital only is considered, as made to those who are ready to 
 employ it in judicious and productive undertakings, it is 
 evident there need be no other limit to the total amount of 
 advances than what the means of the lender, and his prudence 
 in the selection of borrowers, may impose. But, in the 
 present situation of the Bank, intrusted as it is with the 
 function of supplying the public with that paper currency 
 which forms the basis of our circulation, and at the same 
 time not subjected to the liability of converting the paper 
 into specie, every advance which it makes of capital to the 
 Merchants in the shape of discount, becomes an addition also 
 to the mass of circulating medium. In the first instance, 
 when the advance is made by notes paid in discount of a bill, 
 it is undoubtedly so much capital, so much power of making 
 purchases, placed in the hands of the Merchant who receives 
 the notes ; and if those hands are safe, the operation is so 
 far, and in this its first step, useful and productive to the 
 public. But as soon as the portion of circulating medium, 
 in which the advance was thus made, performs in the hands 
 of him to whom it was advanced this its first operation as 
 capital, as soon as the notes are exchanged by him for some 
 other article which is capital, they fall into the channel of 
 circulation as so much circulating medium, and form an 
 addition to the mass of currency. The necessary effect of 
 every such addition to the mass, is to diminish the relative 
 value of any given portion of that mass in exchange for 
 commodities. If the addition were made by notes conver- 
 
 5,) 
 
Price of Gold Bullion. 453 
 
 tible into specie, this diminution of the relative value of any 
 given portion of the whole mass would speedily bring back 
 upon the Bank, which issued the notes, as much as was 
 excessive. But if by law they are not so convertible, of 
 course this excess will not be brought back, but will remain 
 in the channel of circulation, until paid in again to the Bank 
 itself in discharge of the bills which were originally dis- 
 counted. During the whole time they remain out, they per- 
 form all the functions of circulating medium ; and before they 
 come to be paid in discharge of those bills, they have already 
 been followed by a new issue of notes in a similar operation 
 of discounting. Each successive advance repeats the same 
 process. If the whole sum of discounts continues outstand- 
 ing at a given amount, there will remain permanently out in 
 circulation a corresponding amount of paper ; and if the 
 amount of discounts is progressively increasing, the amount 
 of paper, which remains out in circulation over and above 
 what is otherwise wanted for the occasions of the Public, 
 will progressively increase also, and the money prices of com- 
 modities will progressively rise. This progress may be as 
 indefinite, as the range of speculation and adventure in a 
 great commercial country. 
 
 It is necessary to observe, that the law, which in this 
 Country limits the rate of interest, and of course the rate at 
 which the Bank can legally discount, exposes the Bank to 
 still more extensive demands for commercial discounts. 
 While the rate of commercial profit is very considerably 
 higher than five per cent, as it has lately been in many 
 branches of our Foreign trade, there is in fact no limit to 
 the demands which Merchants of perfectly good capital, and 
 of the most prudent spirit of enterprise, may be tempted to 
 make upon the Bank for accommodation and facilities by 
 discount. Nor can any argument or illustration place in a 
 more striking point of view the extent to which such of the 
 Bank Directors, as were examined before the Committee, 
 seem to have in theory embraced that doctrine upon which 
 Your Committee have made these observations, as well as 
 
 51 
 
454 Report on the High 
 
 the practical consequences to which that doctrine may lead 
 in periods of a high spirit of commercial adventure, than the 
 opinion which Mr. Whitmore and Mr. Pearse have delivered ; 
 that the same complete security to the public against any 
 excess in the issues of the Bank would exist if the rate of 
 discount were reduced from five to four, or even to three per 
 cent. From the Evidence, however, of the late Governor 
 and Deputy Governor of the Bank, it appears, that though 
 they state the principle broadly, that there can be no excess 
 of their circulation if issued according to their rules of dis- 
 count, yet they disclaim the idea of acting up to it in its 
 whole extent. Though they stated the applications for the 
 discount of legitimate bills to be their sole criterion of 
 abundance or scarcity, they gave Your Committee to under- 
 stand, that they do not discount to the full extent of such 
 ^applications. In other words, the Directors do not act up to 
 1 the principle which they represent as one perfectly sound 
 ; and safe, and must be considered, therefore, as possessing no 
 distinct and certain rule to guide their discretion in controll- 
 ing the amount of their circulation. 
 
 The suspension of Cash payments has had the effect of 
 committing into the hands of the Directors of the Bank of 
 England, to be exercised by their sole discretion, the im- 
 portant charge of supplying the Country with that quan- 
 tity of circulating medium which is exactly proportioned to 
 // the wants and occasions of the Public. In the judgment 
 of the Committee, that is a trust, which it is unreasonable 
 to expect that the Directors of the Bank of England should 
 ever be able to discharge. The most detailed knowledge of 
 the actual trade of the Country, combined with profound 
 science in all the principles of Money and circulation, would 
 not enable any man or set of men to adjust, and keep always 
 adjusted, the right proportion of circulating medium in a 
 country to the wants of trade. When the currency con- 
 sists entirely of the precious metals, or of paper convertible 
 at will into the precious metals, the natural process of com- 
 merce, by establishing Exchanges among all the different 
 
 52 
 
Price of Gold Bullion. 455 
 
 countries of the world, adjusts, in every particular country, 
 the proportion of circulating medium to its actual occasions, 
 according to that supply of the precious metals which the 
 mines furnish to the general market of the world. The pro- 
 portion, which is thus adjusted and maintained by the 
 natural operation of commerce, cannot be adjusted by any 
 human wisdom or skill. If the natural system of currency 
 and circulation be abandoned, and a discretionary issue of 
 paper money substituted in its stead, it is vain to think that 
 any rules can be devised for the exact exercise of such a 
 discretion; though some cautions may be pointed out to 
 check and control its consequences, such as are indicated by 
 the effect of an excessive issue upon Exchanges and the 
 price of Gold. The Directors of the Bank of England, in 
 the judgment of Your Committee, have exercised the new 
 and extraordinary discretion reposed in them since 1797, 
 with an integrity and a regard to the public interest, accord- 
 ing to their conceptions of it, and indeed a degree of for- 
 bearance in turning it less to the profit of the Bank than it 
 would easily have admitted of, that merit the continuance of 
 that confidence which the public has so long and so justly 
 felt in the integrity with which its affairs are directed, as 
 well as in the unshaken stability and ample funds of that 
 great establishment. That their recent policy involves 
 great practical errors, which it is of the utmost public irn- \ 
 portance to correct, Your Committee are fully convinced ; 
 but those errors are less to be imputed to the Bank Directors, 
 than to be stated as the effect of a new system, of which, 
 however it originated, or was rendered necessary as a tem- 
 porary expedient, it might have been well if Parliament had 
 sooner taken into view all the consequences. When Your 
 Committee consider that this discretionary power, of supply- 
 ing the Kingdom with circulating medium, has been exer- 
 cised under an opinion that the paper could not be issued to 
 excess if advanced in discounts to Merchants in good bills 
 payable at stated periods, and likewise under an opinion 
 that neither the price of Bullion nor the course of Exchanges 
 
 53 
 
456 Report on the High 
 
 need be adverted to, as affording any indication with respect 
 to the sufficiency or excess of such paper, Your Committee 
 cannot hesitate to say, that these opinions of the Bank must 
 be regarded as in a great measure the operative cause of the 
 continuance of the present state of things. 
 
 IV. 
 
 Your Committee will now proceed to state, from the 
 information which has been laid before them, what appears 
 to have been the progressive increase, and to be the pre- 
 sent amount of the Paper circulation of this Country, con- 
 sisting primarily of the Notes of the Bank of England not at 
 present convertible into specie ; and, in a secondary manner, 
 of the Notes of the Country Bankers which are convertible, 
 at the option of the holder, into Bank of England Paper. 
 After having stated the amount of Bank of England Paper, 
 Your Committee will explain the reasons which induce 
 them to think that the numerical amount of that Paper is 
 not alone to be considered as decisive of the question as to 
 its excess : and before stating the amount of Country Bank 
 Paper, so far as that can be* ascertained, Your Committee 
 will explain their reasons for thinking, that the amount of 
 the Country Bank circulation is limited by the amount of 
 that of the Bank of England. 
 
 1. It appears from the Accounts laid before the Com- 
 mittees upon the Bank Affairs in 1797, that for several 
 years previous to the year 1796, the average amount of 
 Bank Notes in circulation was between 10,000,0007., and 
 11,000,0007. hardly ever falling below 9,000,0007, and not 
 often exceeding to any great amount 11,000,0007. 
 
 The following Abstract of the several Accounts referred 
 to Your Committee, or ordered by Your Committee from 
 the Bank, will shew the progressive increase of the Notes 
 from the year 1798 to the end of the last year. 
 
 54 
 
Price of Gold Bullion. 
 
 457 
 
 Average Amount of Bank of England Notes in circulation 
 in each of the following years : 
 
 
 Notes of 51. 
 
 
 
 
 and upwards, 
 including 
 Bank Post 
 
 Notes 
 under 51. 
 
 TOTAL. 
 
 
 Bills. 
 
 
 
 
 . 
 
 . 
 
 . 
 
 1798 
 
 11,527,250 
 
 1,807,502 
 
 13,334,752 
 
 1799 
 
 12,408,522 
 
 1,653,805 
 
 14,062,327 
 
 1800 
 
 13,598,666 
 
 2.243,266 
 
 15,841,932 
 
 1801 
 
 13,454,367 
 
 2,715,182 
 
 16,169,594 
 
 1802 
 
 13,917,977 
 
 3,136,477 
 
 17,054,454 
 
 1803 
 
 12,983,477 
 
 3,864,045 
 
 16,847,522 
 
 1804 
 
 12,621,348 
 
 4,723,672 
 
 17,345,020 
 
 1805 
 
 12,697,352 
 
 4,544,580 
 
 17,241,932 
 
 1806 
 
 12,844,170 
 
 4,291,230 
 
 17,135,400 
 
 1807 
 
 13,221,988 
 
 4,183,013 
 
 17,405,001 
 
 1808 
 
 13,402,160 
 
 4,132,420 
 
 17,534,580 
 
 1809 
 
 14,133,615 
 
 4,868,275 
 
 19,001,890 
 
 
 i 
 
 
 Taking from the Accounts the last half of the year 1809, 
 the average will be found higher than for the whole year, 
 and amounts to 19,880,3107. 
 
 The Accounts in the Appendix give very detailed Re- 
 turns for the first four months of the present year, down 
 to the 12th May, from which it will be found that the 
 amount was then increasing, particularly in the smaller 
 Notes. The whole amount of Bank Notes in circulation, 
 exclusive of 939,9907. of Bank Post Bills, will be found 
 on the average of the two Returns for the 5th and 12th 
 May last, to be 14,136,6107. in Notes of 57. and upwards, 
 and 6,173,3807. in Notes under 57. making the sum of 
 20,309,9907. and, including the Bank Post Bills, the sum 
 of 21,249,9807. 
 
 By far the most considerable part of this increase since 
 1798, it is to be observed, has been in the article of small 
 notes, part of which must be considered as having been 
 introduced to supply the place of the specie which was 
 deficient at the period of the suspension of cash payments. 
 It appears however that the first supply of small notes, 
 
 55 
 
458 Report on the High 
 
 which was thrown into circulation after that event, was very 
 small in comparison of their present amount ; a large aug- 
 mentation of them appears to have taken place from the 
 end of the year 1799 to that of the year 1802; and a very 
 rapid increase has also taken place since the month of May 
 in the last year to the present time ; the augmentation of 
 these small notes from 1st May 1809 to the 5th vof May 
 1810, being from the sum of 4,509,4707. to the sum of 
 6,161,020/. 
 
 The notes of the Bank of England are principally issued 
 in advances to Government for the public service, and in 
 advances to the Merchants upon the discount of their 
 bills. 
 
 Your Committee have had an Account laid before them, 
 of Advances made by the Bank to Government on Land 
 and Malt, Exchequer Bills, and other securities, in every 
 year since the suspension of cash payments : from which, as 
 compared with the Accounts laid before the Committees of 
 1797, and which were then carried back for 20 years, it will 
 appear that the yearly advances of the Bank to Government 
 have upon an average, since the suspension, been consider- 
 ably lower in amount than the average amount of advances 
 prior to that event ; and th*e amount of those advances in 
 the two last years, though greater in amount than those of 
 some years immediately preceding, is less than it was for 
 any of the six years preceding the restriction of cash 
 payments. 
 
 With respect to the amount of commercial discounts, 
 Your Committee did not think it proper to require from 
 the Directors of the Bank a disclosure of their absolute 
 amount, being a part of their private transactions as a com- 
 mercial Company, of which, without urgent reason, it did 
 not seem right to demand a disclosure. The late Governor 
 and Deputy Governor, however, at the desire of Your 
 Committee, furnished a comparative Scale, in progressive 
 numbers, shewing the increase of the amount of their dis- 
 counts from the year 1790 to 1809, both inclusive. They 
 made a request, with which your Committee have thought 
 
 56 
 
Price of Gold Bullion. 459 
 
 it proper to comply, that this document might not be made 
 public ; the Committee therefore have not placed it in the 
 Appendix to the present Report, but have returned it to the 
 Bank. Your Committee however have to state in general 
 terms, that the amount of discounts has been progressively 
 increasing since the year 1796 ; and that their amount in 
 the last year (1809) bears a very high proportion to their 
 largest amount in any year preceding 1797. Upon this 
 particular subject, Your Committee are only anxious to 
 remark, that the largest amount of mercantile discounts by 
 the Bank, if it could be considered by itself, ought never, 
 in their judgment, to be regarded as any other than a great 
 public benefit ; and that it is only the excess of paper 
 currency thereby issued, and kept out in circulation, which 
 is to be considered as the evil. 
 
 But Your Committee must not omit to state one very 
 important principle, That the mere numerical return of the 
 amount of Bank notes out in circulation, cannot be con- 
 sidered as at all deciding the question, whether such paper 
 is or is not excessive. It is necessary to have recourse to 
 other tests. The same amount of paper may at one time 
 be less than enough, and at another time more. The 
 quantity of currency required will vary in some degree 
 with the extent of trade ; and the increase of our trade, 
 which has taken place since the suspension, must have 
 occasioned some increase in the quantity of our currency. 
 But the quantity of currency bears no fixed proportion to 
 the quantity of commodities ; and any inferences proceeding 
 upon such a supposition would be entirely erroneous. The 
 effective currency of the Country depends upon the quick- 
 ness of circulation, and the number of exchanges performed 
 in a given time, as well as upon its numerical amount ; and 
 all the circumstances, which have a tendency to quicken or 
 to retard the rate of circulation, render the same amount of 
 currency more or less adequate to the wants of trade. A 
 much smaller amount is required in a high state of public 
 credit, than when alarms make individuals call in their 
 advances, and provide against accidents by hoarding ; and in 
 
 57 
 
460 Report OK the High 
 
 a period of commercial security and private confidence, than 
 when mutual distrust discourages pecuniary arrangements 
 for any distant time. But, above all, the same amount of 
 currency will be more or less adequate, in proportion to the 
 skill which the great money-dealers possess in managing and 
 economising the use of the circulating medium. Your 
 Committee are of opinion, that the improvements which 
 have taken place of late years in this Country, and parti- 
 cularly in the district of London, with regard to the use and 
 economy of money among Bankers, and in the mode of 
 adjusting commercial payments, must have had a much 
 greater effect than has hitherto been ascribed to then), in 
 rendering the same sum adequate to a much greater amount 
 of trade and payments than formerly. Some of those im- 
 provements will be found detailed in the Evidence : they 
 consist principally in the increased use of Bankers 5 drafts in 
 the common payments of London ; the contrivance of bring- 
 ing all such drafts daily to a common receptacle, where 
 they are balanced against each other; the intermediate 
 agency of Bill-brokers ; and several other changes in the 
 practice of London Bankers, are to the same effect, of ren- 
 dering it unnecessary for them to keep so large a deposit of 
 money as formerly. Within the London district, it would 
 certainly appear, that a smaller sum of money is required 
 than formerly to perform the same number of exchanges and 
 amount of payments, if the rate of prices had remained the 
 same. It is material also to observe, that both the policy of 
 the Bank of England itself, and the competition of the 
 Country bank paper, have tended to compress the paper of 
 the Bank of England, more and more, within London and 
 the adjacent district. All these circumstances must have 
 co-operated to render a smaller augmentation of Bank of 
 England paper necessary to supply the demands of our 
 increased trade than might otherwise have been required; 
 and show how impossible it is, from the numerical amount 
 alone of that paper, to pronounce whether it is excessive or 
 not : a more sure criterion must be resorted to, and such a 
 criterion, Your Committee have already shown, is only to 
 
 58 
 
Price of Gold Bullion. 461 
 
 be found in the state of the Exchanges,, and the price of 
 Gold Bullion. 
 
 The particular circumstances of the two years which are 
 so remarkable in the recent history of our circulation, 1793 
 and 1797, throw great light upon the principle which Your 
 Committee have last stated. 
 
 In the year 1 793, the distress was occasioned by a failure 
 of confidence in the country circulation, and a consequent 
 pressure upon that of London. The Bank of England did 
 not think it advisable to enlarge their issues to meet this 
 increased demand, and their Notes, previously issued, cir- 
 culating less freely in consequence of the alarm that pre- 
 vailed, proved insufficient for the necessary payments. In 
 this crisis, Parliament applied a remedy, very similar, in its 
 effect, to an enlargement of the advances and issues of the 
 Bank ; a loan of Exchequer Bills was authorised to be made 
 to as many mercantile persons, giving good security, as 
 should apply for them ; and the confidence which this mea- 
 sure diffused, as well as the increased means which it afforded 
 of obtaining Bank Notes through the sale of the Exchequer 
 Bills, speedily .relieved the distress both of London and of 
 the country. Without offering an opinion upon the expe- 
 diency of the particular mode in which this operation was 
 effected, Your Committee think it an important illustration 
 of the principle, that an enlarged accommodation is the true 
 remedy for that occasional failure of confidence in the country 
 districts, to which our system of paper credit is unavoidably 
 exposed. 
 
 The circumstances which occurred in the beginning of 
 the year 1797, were very similar to those of 1793; an 
 alarm of invasion, a run upon the Country Banks for Gold, 
 the failure of some of them, and a run upon the Bank of 
 England, forming a crisis like that of 1793, for which, 
 perhaps, an effectual remedy might have been provided, if 
 the Bank of England had had courage to extend instead of 
 restricting its accommodations and issue of Notes. Some 
 few persons, it appears from the Report of the Secret Com- 
 mittee of the Lords, were of this opinion at the time ; and 
 
 59 
 
462 Report on the High 
 
 the late Governor and Deputy Governor of the Bank stated 
 to Your Committee that they, and many of the Directors, 
 are now satisfied, from the experience of the year 1797, 
 that the diminution of their Notes in that emergency in- 
 creased the public distress ; an opinion in the correctness of 
 which Your Committee entirely concur. 
 
 It appears to Your Committee, that the experience of 
 the Bank of England in the years 1793 and 1797, contrasted 
 with the facts which have been stated in the present Report, 
 suggests a distinction most important to be kept in view, 
 between that demand upon the Bank for Gold for the supply 
 of the domestic channels of circulation, sometimes a very 
 great and sudden one, which is occasioned by a temporary 
 failure of confidence, and that drain upon the Bank for Gold 
 which grows out of an unfavourable state of the Foreign 
 Exchanges. The former, while the Bank maintains its high 
 credit, seems likely to be best relieved by a judicious increase 
 of accommodation to the Country : the latter, so long as the 
 Bank does not pay in specie, ought to suggest to the Direc- 
 tors a question, whether their issues may not be already too 
 abundant. 
 
 Your Committee have much satisfaction in thinking, that 
 the Directors are perfectly aware that they may err by a too 
 scanty supply in a period of stagnant credit. And Your 
 Committee are clearly of opinion, that although it ought to 
 be the general policy of the Bank Directors to diminish their 
 paper in the event of the long continuance of a high price 
 of Bullion and a very unfavourable Exchange, yet it is 
 essential to the commercial interests of this Country, and to 
 the general fulfilment of those mercantile engagements 
 which a free issue of paper may have occasioned, that the 
 accustomed degree of accommodation to the Merchants 
 should not be suddenly and materially reduced ; and that if 
 any general and serious difficulty or apprehension on this 
 subject should arise, it may, in the judgment of Your Com- 
 mittee, be counteracted without danger, and with advantage 
 to the public, by a liberality in the issue of Bank of England 
 paper proportioned to the urgency of the particular occasion. 
 
 60 
 
Price of Gold Bullion. 463 
 
 Under such circumstances,, it belongs to the Bank to take 
 likewise into their own consideration, how far it may be 
 practicable, consistently with a due regard to the immediate 
 interests of the public service, rather to reduce their paper 
 by a gradual reduction of their advances to Government, 
 than by too suddenly abridging the discounts to the Mer- 
 chants. 
 
 2. Before Your Committee proceed to detail what they 
 have collected with respect to the amount of Country Bank 
 paper, they must observe, that so long as the Cash payments 
 of the Bank are suspended, the whole paper of the Country 
 Bankers is a superstructure raised upon the foundation of 
 the paper of the Bank of England. The same check, which 
 the convertibility into specie, under a better system, provides 
 against the excess of any part of the paper circulation, is, 
 during the present system, provided against an excess of 
 Country Bank paper, by its convertibility into Bank of 
 England paper. If an excess of paper be issued in a country 
 district, while the London circulation does not exceed its 
 due proportion, there will be a local rise of prices in that 
 country district, but prices in London will remain as before. 
 Those who have the country paper in their hands will prefer 
 buying in London where things are cheaper, and will there- 
 fore return that country paper upon the Banker who issued 
 it, and will demand from him Bank of England Notes or 
 Bills upon London ; and thus, the excess of country paper 
 being continually returned upon the issuers for Bank of 
 England paper, the quantity of the latter necessarily and 
 effectually limits the quantity of the former. This is illus- 
 trated by the Account which has been already given of the 
 excess, and subsequent limitation, of the paper of the Scotch 
 Banks, about the year 1763. If the Bank of England 
 paper itself should at any time, during the suspension of 
 Cash payments, be issued to excess, a corresponding excess 
 may be issued of Country Bank paper which will not be 
 checked ; the foundation being enlarged, the superstructure 
 admits of a proportionate extension. And thus, under such a 
 system, the excess of Bank of England paper will produce 
 
 61 
 
464 Report on the High 
 
 its effect upon prices not merely in the ratio of its own 
 increase, but in a much higher proportion. 
 
 It has not been in the power of Your Committee to 
 obtain such information as might enable them to state, with 
 any thing like accuracy, the amount of Country Bank paper 
 in circulation. But they are led to infer from all the Evi- 
 dence they have been able to procure on this subject, not 
 only that a great number of new Country Banks has been 
 established within these last two years, but also that the 
 amount of issues of those which are of an older standing 
 has in general been very considerably increased : whilst on 
 the other hand, the high state of mercantile and public 
 credit, the proportionate facility of converting at short 
 notice all public and commercial securities into Bank of 
 England paper, joined to the preference generally given 
 within the limits of its own circulation to the paper of a 
 well established Country Bank over that of the Bank of 
 England, have probably not rendered it necessary for them 
 to keep any large permanent deposits of Bank of England 
 Paper in their hands. And it seems reasonable to believe, 
 that the total amount of the unproductive stock of all the 
 Country Banks, consisting of specie and Bank of England 
 paper, is much less at this period, under a circulation vastly 
 increased in extent, than it was before the restriction of 
 1797. The temptation to establish Country Banks, and issue 
 Promissory Notes, has therefore greatly increased. Some 
 conjecture as to the probable total amount of those issues, 
 or at least as to their recent increase, may be formed, as 
 Your Committee conceive, from the amount of the duties 
 paid for stamps on the re-issuable notes of Country Banks in 
 Great Britain. The total amount of these duties for the 
 year ended on the 10th of October 1808, appears to have 
 been 60,5227. 15s. 3d., and for the year ended on the 10th of 
 October 1809, 175,129Z. 17s. Id. It must, however, be 
 observed, that on the 10th of October, 1808, these duties 
 experienced an augmentation somewhat exceeding one-third ; 
 and that some regulations were made, imposing limitations 
 with respect to the re-issue of all notes not exceeding two 
 
 62 
 
Price of GoM Bullion. 
 
 465 
 
 Pounds two Shillings, the effect of which has been to pro- 
 duce a much more than ordinary demand for stamps or notes 
 of this denomination within the year 1 809. Owing to this 
 circumstance, it appears impossible to ascertain what may 
 have been the real increase in the circulation of the notes, 
 not exceeding two Pounds two Shillings, within the last 
 year ; but with respect to the notes of a higher value, no 
 alteration having been made in the Law as to their re-issue, 
 the following Comparison affords tbe best statement that can 
 be collected from the Documents before the Committee, of 
 the addition made in the year 1809 to the number of those 
 Notes. 
 Number of Country Bank Notes exceeding 21. 2s. each 
 
 stamped in the years ended the 10th of October 1808, 
 
 and 10th of October 1809, respectively. 
 
 
 1808 
 
 1809. 
 
 
 No. 
 
 No. 
 
 Exceeding 21. 2s. and not exceeding 51. 5s. 
 
 666,071 
 
 922,073 
 
 Exceeding 51. 5s. and not exceeding 201. 
 Exceeding 201. and not exceeding '301. 
 Exceeding 301. and not exceeding 501. 
 Exceeding 501. and not exceeding 100?. 
 
 198,473 
 
 380,006 
 2,425 
 674 
 2,611 
 
 Assuming that the notes in the two first of these classes 
 were all issued for the lowest denomination to which the 
 duties respectively attach, and such as are most commonly 
 met with in the circulation of country paper, viz. Notes of 
 51. and 1 0/., (although in the second class there is a con- 
 siderable number of 20/.) and even omitting altogether from 
 the comparison the Notes of the three last classes, the issue 
 of which Your Committee understands is in fact confined to 
 the chartered Banks of Scotland, the result would be, that, 
 exclusive of any increase in the number of notes under 
 21. 2s. the amount of Country Bank paper stamped in the 
 year ended the 10th of October 1809, has exceeded that of 
 the year ended on the 10th of October, 1808, in the sum of 
 
 63 
 
466 Report on the High 
 
 3,095,3407. Your Committee can form no positive con- 
 jecture as to the amount of Country Bank paper cancelled 
 and withdrawn from circulation in the course of the last 
 year. But considering that it is the interest and practice of 
 the Country Bankers to use the same notes as long as pos- 
 sible ; that, as the law now stands, there is no limitation of 
 time to the re-issuing of those not exceeding 21. 2s. ; and 
 that all above that amount are re-issuable for three years 
 from the date of their first issuing ; it appears difficult to 
 suppose that the amount of notes above 21. 2s. cancelled in 
 1809, could be equal to the whole amount stamped in 1808: 
 but even upon that supposition, there would still be an 
 increase for 1809 in the notes of 51. and 107. alone, to the 
 amount above specified of 3,095, 340/., to which must be 
 added an increase within the same period of Bank of Eng- 
 land Notes to the amount of about 1,500,OOOZ., making in 
 the year 1809, an addition in the whole of between four and 
 five millions to the circulation of Great Britain alone, 
 deducting only the Gold which may have been withdrawn 
 in the course of that year from actual circulation, which 
 cannot have been very considerable, and also making an 
 allowance for some increase in the amount of such country 
 paper, as, though stamped, may not be in actual circulation. 
 This increase in the general paper currency in last year, 
 even after these deductions, would probably be little short of 
 the amount which in almost any one year, since the discovery 
 of America, has been added to the circulating coin of the 
 whole of Europe. Although, as Your Committee has 
 already had occasion to observe, no certain conclusion can be 
 drawn from the numerical amount of paper in circulation, 
 considered abstractedly from all other circumstances, either 
 as to such paper being in excess, or still less as to the propor- 
 tion of such excess ; yet they must remark, that the fact of 
 any very great and rapid increase in that amount, when 
 coupled and attended with all the indications of a depreciated 
 circulation, does afford the strongest confirmatory evidence, 
 that, from the want of some adequate check, the issues of 
 guch paper have not been restrained within their proper limits. 
 
 64 
 
Price of Gold Bullion, 46"? 
 
 Your Committee cannot quit this part of the subject 
 without further observing, that the addition of between four 
 and five millions sterling to the paper circulation of this 
 Country, has doubtless been made at a very small expense to 
 the parties issuing it, only about 100,0007. having been paid 
 thereupon in stamps to the Revenue, and probably for the 
 reasons already stated, no corresponding deposits of Gold or 
 Bank of England Notes being deemed by the Country Banks 
 necessary to support their additional issues. These parties 
 therefore, it may be fairly stated, have been enabled under 
 the protection of the law, which virtually secures them 
 against such demands, to create within the last year or 
 fifteen months, at a very trifling expense, and in a manner 
 almost free from all present risk to their respective credits as 
 dealers in paper money, issues of that article to the amount 
 of several millions, operating, in the first instance and in 
 their hands, as capital for their own benefit, and, when used 
 as such by them, falling into and in succession mixing itself 
 with the mass of circulation of which the value in exchange 
 for all other commodities is gradually lowered in proportion 
 as that mass is augmented. If Your Committee could be of 
 opinion that the wisdom of Parliament would not be directed 
 to apply a proper remedy to a state of things so unnatural, 
 and teeming, if not corrected in time, with ultimate conse- 
 quences so prejudicial to the public welfare, they would not 
 hesitate to declare an opinion, that some mode ought to be 
 devised of enabling the State to participate much more 
 largely in the profits accruing from the present system ; but 
 as this is by no means the policy they wish to recommend, 
 they will conclude their observations on this part of the 
 subject, by observing, that in proportion as they most fully 
 agree with Dr. Adam Smith and all the most able writers 
 and Statesmen of this Country, in considering a paper cir- 
 culation constantly convertible into specie, as one of the 
 greatest practical improvements which can be made in the 
 political and domestic economy of any State ; and in viewing 
 the establishment of the Country Banks issuing such paper 
 as a most valuable and essential branch of that improvement 
 
 65 
 
468 Report on the High 
 
 in this Kingdom ; in the same proportion is Your Committee 
 anxious to revert, as speedily as possible, to the former 
 practice and state of things in this respect : convinced on 
 the one hand, that any thing like a permanent and sys- 
 tematic departure from that practice must ultimately lead to 
 results, which, among other attendant calamities, would be 
 destructive of the system itself; and on the other, that such 
 an event would be the more to be deprecated, as it is only in 
 a Country like this, where good faith, both public and pri- 
 vate, is held so high, and where, under the happy union of 
 liberty and law, property and the securities of every descrip- 
 tion by which it is represented, are equally protected against 
 the encroachments of power and the violence of popular 
 commotion, that the advantages of this system, unaccom- 
 panied with any of its dangers, can be permanently enjoyed, 
 and carried to their fullest extent. 
 
 Upon a review of all the facts and reasonings which have 
 been submitted to the consideration of Your Committee in 
 the course of their Enquiry, they have formed an Opinion, 
 which they submit to the House : That there is at present 
 an excess in the paper circulation of this Country, of which 
 the most unequivocal symptom is the very high price of 
 Bullion, and next to that, the low state of the Continental 
 Exchanges ; that this excess is to be ascribed to the want of 
 a sufficient check and control in the issues of paper from the 
 Bank of England ; and originally, to the suspension of cash 
 payments, which removed the natural and true control. For 
 upon a general view of the subject, Your Committee are of 
 opinion, that no safe, certain, and constantly adequate pro- 
 vision against an excess of paper currency, either occasional 
 or permanent can be found, except in the convertibility of 
 all such paper into specie. Your Committee cannot, there- 
 fore, but see reason to regret, that the suspension of cash 
 payments, which, in the most favourable light in which 
 it can be viewed, was orly a temporary measure, has been 
 continued so long ; and particularly, that by the manner in 
 which the present continuing Act is framed, the character 
 should have been given to it of a permanent war measure. 
 
 66 
 
Price of Gold Bullion. 469 
 
 Your Committee conceive that it would be superfluous 
 to point out in detail, the disadvantages which must result 
 to the Country, from any such general excess of currency 
 as lowers its relative value. TJie effect of such an augmen- 
 tation of prices upon all money transactions for time ; the 
 unavoidable injury suffered by annuitants, and by creditors 
 of every description, both private and public; the unintended 
 advantage gained by Government and all other debtors ; are 
 consequences too obvious to request proof, and too repugnant 
 to justice to be left without remedy. By far the most im- 
 portant portion of this effect appears to Your Committee to 
 be that which is communicated to the wages of common 
 country labour, the rate of w r hich, it is well known, adapts 
 itself more slowly to the changes which happen in the value 
 of money, than the price of any other species of labour or 
 commodity. And it is enough for Your Committee to allude 
 to some classes of the public servants, whose pay, if once 
 raised in consequence of a depreciation of money, cannot so 
 conveniently be reduced again to its former rate, even after 
 money shall have recovered its value. The future progress 
 of these inconveniences and evils, if not checked, must, at no 
 great distance of time, work a practical conviction upon the 
 minds of all those who may still doubt their existence ; but 
 even if their progressive increase were less probable than it 
 appears to Your Committee, they cannot help expressing an, 
 opinion, that the integrity and honour of Parliament are 
 concerned, not to authorize, longer than is required by 
 imperious necessity, the continuance in this great commercial 
 Country of a system of circulation, in which that natural 
 check or control is absent which maintains the value of money, 
 and, by the permanency of that common standard of value, 
 secures the substantial justice and faith of monied contracts 
 and obligations between man and man. 
 
 Your Committee moreover beg leave to advert to the 
 temptation to resort to a depreciation even of the value of 
 the Gold coin by an alteration of the standard, to which 
 Parliament itself might be subjected by a great and long 
 
 67 
 
470 Report on the High 
 
 continued excess of paper. This has been the resource of 
 many Governments under such circumstances, and is the 
 obvious and most easy remedy to the evil in question. But 
 it is unnecessary to dwell on the breach of public faith and 
 dereliction of a primary duty of Government, which would 
 manifestly be implied in preferring the reduction of the coin 
 down to the standard of the paper, to the restoration of the 
 paper to the legal standard of the coin. 
 
 Your Committee therefore, having very anxiously and 
 deliberately considered this subject, report it to the House, 
 as their Opinion, That the system of the circulating medium 
 of this Country ought to be brought back, with as much 
 speed as is compatible with a wise and necessary caution, to 
 the original principle of Cash payments at the option of the 
 holder of Bank paper. 
 
 Your Committee have understood that remedies, or pal- 
 liatives of a different nature, have been projected ; such as, 
 a compulsory limitation of the amount of Bank advances and 
 discounts, during the continuance of the suspension ; or, a 
 compulsory limitation, during the same period, of the rate of 
 Bank profits and dividends, by carrying the surplus of profits 
 above that rate to the public account. But, in the judgment 
 of Your Committee, such indirect schemes, for palliating the 
 possible evils resulting from the suspension of cash payme'nts, 
 would prove wholly inadequate for that purpose, because the 
 necessary proportion could never be adjusted, and, if once 
 fixed, might aggravate very much the inconveniencies of 
 a temporary pressure ; and even if their efficacy could be 
 made to appear, they would be objectionable as a most hurt- 
 ful and improper interference with the rights of commercial 
 property. 
 
 According to the best judgment Your Committee t has 
 been enabled to form, no sufficient remedy for the present, or 
 security for the future, can be pointed out, except the Repeal 
 of the Law which suspends the Cash Payments of the Bank 
 of England. 
 
 In effecting so important a change, Your Committee are 
 
 68 
 
Price of Gold Bullion. 471 
 
 of opinion that some difficulties must be encountered, and that 
 there are some contingent dangers to the Bank, against 
 which it ought most carefully and strongly to be guarded. 
 But all those may be effectually provided for, by intrusting 
 to the discretion of the Bank itself the charge of conducting 
 and completing the operation, and by allowing to the Bank 
 so ample a period of time for conducting it, as will be more 
 than sufficient to effect its completion. To the discretion, 
 experience, and integrity of the Directors of the Bank, Your 
 Committee believe that Parliament may safely intrust the 
 charge of effecting that which Parliament may in its wisdom 
 determine upon as necessary to be effected ; and that the 
 Directors of that great institution, far from making them- 
 selves a party with those who have a temporary interest in 
 spreading alarm, will take a much longer view of the per- 
 manent interests of the Bank, as indissolubly blended with 
 those of the Public. The particular mode of gradually 
 effecting the resumption of cash payments ought therefore, 
 in the opinion of Your Committee, to be left in a great 
 measure to the discretion of the Bank, and Parliament ought 
 to do little more than to fix, definitively, the time at which 
 cash payments are to become as before compulsory. The 
 period allowed ought to be ample, in order that the Bank 
 Directors may feel their way, and that, having a constant 
 watch upon the varying circumstances that ought to guide 
 them, and availing themselves only of favourable circum- 
 stances, they may tread back their steps slowly, and may 
 preserve both the course of their own affairs as a Company, 
 and that of public and commercial credit, not only safe but 
 unembarrassed. 
 
 With this view, Your Committee would suggest, that 
 the Restriction on Cash payments cannot safely be removed 
 at an earlier period than two years from the p.-esent time ; 
 but Your Committee are of opinion, that early provision 
 ought to be made by Parliament for terminating, by the end 
 of that period, the operation of the several Statutes which 
 have imposed and continued that restriction. 
 
 69 
 
472 Report on the High 
 
 In suggesting this period of two years, Your Committee 
 have not overlooked the circumstance, that, as the law stands 
 at present, the Bank would be compelled to pay in cash at 
 the end of six months after the ratification of a definitive 
 Treaty of Peace ; so that if Peace were to be concluded 
 within that period, the recommendation of Your Committee 
 might seem to have the effect of postponing, instead of 
 accelerating, the resumption of payments. But Your Com- 
 mittee are of opinion, that if Peace were immediately to be 
 ratified, in the present state of our circulation it would be 
 most hazardous to compel the Bank to pay cash in six months, 
 and would be found wholly impracticable. Indeed, the 
 restoration of Peace, by opening new fields of commercial 
 enterprise, would multiply instead of abridging the demands 
 upon the Bank for discount, and would render it peculiarly 
 distressing to the commercial world if the Bank were sud- 
 denly and materially to restrict their issues. Your Com- 
 mittee are therefore of opinion, that even if Peace should 
 intervene, two years should be given to the Bank for 
 resuming its payments ; but that even if the War should be 
 prolonged, Cash payments should be resumed by the end of 
 that period. 
 
 Your Committee have not been indifferent to the con- 
 sideration of the possible occurrence of political circum- 
 stances, which may be thought hereafter to furnish an argu- 
 ment in favour of some prolongation of the proposed period 
 of resuming cash payments, or even in favour of a new law 
 for their temporary restriction after the Bank shall have 
 opened. They are, however, far from anticipating a neces- 
 sity, even in any case, of returning to the present system. 
 But if occasion for a new measure of restriction could be 
 supposed at any time to arise, it can in no degree be grounded, 
 as your Committee think, on any state of the Foreign 
 Exchanges, (which they trust that they have abundantly 
 shown the Bank itself to have the general power of con- 
 trolling.) but on a political state of things producing, or 
 likely very soon to produce, an alarm at home, leading to so 
 
 70 
 
Price of Gold Bullion. 473 
 
 indefinite a demand for cash for domestic uses as it must be 
 impossible for any Banking establishment to provide against. 
 A return to the ordinary system of Banking is, on the very 
 ground of the late extravagant fall of the Exchanges and 
 high price of Gold, peculiarly requisite. That alone can 
 effectually restore general confidence in the value of the cir- 
 culating medium of the kingdom ; and the serious expecta- 
 tion of this event must enforce a preparatory reduction of 
 the quantity of paper, and all other measures which accord 
 with the true principles of Banking The anticipation of the 
 time when the Bank will be constrained to open, may also be 
 expected to contribute to the improvement of the Exchanges ; 
 whereas a postponement of this era so indefinite as that of 
 six months after the termination of the War, and especially 
 in the event of an Exchange continuing to fall, (which more 
 and more would generally be perceived to arise from an 
 excess of paper, and a constant depreciation of it) may lead, 
 under an unfavourable state of public affairs, to such a failure 
 of confidence (and especially among foreigners) in the 
 determination of Parliament to enforce a return to the 
 professed standard of the measure of payments, as may 
 serve to precipitate the further fall of the Exchanges, and 
 lead to consequences at once the most discreditable and 
 disastrous. 
 
 Although the details of the best mode of returning to 
 cash payments ought to be left to the discretion of the Bank 
 of England, as already stated, certain provisions would be 
 necessary, under the authority of Parliament, both for the 
 convenience of the Bank itself, and for the security of the 
 other Banking establishments in this Country and in 
 Ireland. 
 
 Your Committee conceive it may be convenient for the 
 Bank to be permitted to issue Notes under the value of 
 51. for some little time after it had resumed payments in 
 specie. 
 
 It will be convenient also for the Chartered Banks of 
 Ireland and Scotland, and all the Country Banks, that 
 
 71 
 
474 Report on the High Price of Gold Bullion. 
 
 they should not be compelled to pay in specie until some 
 time after the resumption of payments in Cash by the 
 Bank of England ; but that they should continue for a 
 short period upon their present footing, of being liable to 
 pay their own notes on demand in Bank of England 
 paper. 
 
 FINIS. 
 
OBSERVATIONS 
 
 ON THE 
 
 PRINCIPLES WHICH REGULATE 
 
 THE 
 
 COURSE OF EXCHANGE; 
 
 AND ON THE 
 
 PRESENT DEPRECIATED STATE 
 
 OF THE 
 
 CURRENCY. 
 
 By WILLIAM BLAKE, Esq., F.R.S. 
 
 LONDON. 
 
 1 8 10. 
 
Blake, &c. 477 
 
 ADVERTISEMENT. 
 
 THE first intention in writing the following pages, was 
 to animadvert on some opinions relating to the principles 
 of political economy, which had met with a very general 
 circulation, through the medium of several well-written 
 pamphlets on the depreciation of the currency. 
 
 It became irksome, however, and seemed but an invi- 
 dious task, to select from works that possessed generally a 
 very high degree of merit, a few particular passages, merely 
 to dwell upon their errors; and the author therefore deter- 
 mined to arrange his own thoughts upon the subject, in an 
 order that might admit of his incidentally commenting upon 
 such opinions of other writers, as appeared to be in opposi- 
 tion to his own. 
 
 It will perhaps be but too apparent that these remarks 
 upon the principles of exchange have been written and sent 
 to the press, with more haste than is altogether consistent 
 with the respect due to the public ; and the author would 
 willingly have delayed the publication till he had an oppor- 
 tunity of revising and correcting the style : but the circum- 
 stances of the present moment seem so peculiarly suited to 
 a Treatise of this nature, that he has not been deterred by 
 personal considerations, from communicating his opinions 
 to the public, on a subject which has long occupied his 
 attention. 
 
 In the execution of his plan, his endeavour has been, to 
 hold a middle course between such a conciseness as might be 
 incompatible with perspicuity, and that degree of superfluous 
 illustration which might appear to insult the understanding 
 of his readers. 
 
 3 
 
478 Blake 
 
 He is not without hopes that he may escape being 
 classed with those " who, while they imagined that they 
 " themselves had made important discoveries, uniformly 
 " found that no discoveries had been made by their prede- 
 " cessors," for the author neither pretends to discoveries him 
 self nor denies that merit to others. If the following obser- 
 vations have any claim upon the public attention, it can 
 arise solely from the attempt to discriminate, more accu- 
 rately than has hitherto been done, the operation of causes 
 that have been long known, and frequently discussed ; but 
 which have not met with so distinct and detailed a conside- 
 ration as the author deems essential to a due comprehension 
 of the subject. 
 
 May, 1810. 
 
On Exchange. 479 
 
 OBSERVATIONS, 
 
 INTRODUCTION. 
 
 THE principles which regulate the exchange will be 
 investigated in the simplest manner, by an arrange- 
 ment that may lead the mind gradually from the separate 
 consideration of the individual causes by which it is influ- 
 enced, to the more complicated results that arise from their 
 combined operation. 
 
 The effects of the exchange are first practically felt, 
 when the intercourse between foreign nations has rendered 
 it necessary to make a remittance from one country to 
 another. 
 
 The usual mode of making a remittance, either for the 
 discharge of debts previously existing, or for the purpose 
 of investing it in foreign produce, is to purchase and trans- 
 mit, to the person to whom the remittance is to be made, a 
 foreign bill of exchange. 
 
 A foreign bill of exchange is an order addressed to some 
 person residing abroad, directing him to pay a determinate 
 quantity of foreign currency to the person in whose favour 
 it is drawn. The quantity, therefore, to be paid, is fixed 
 by the sum specified in the bill ; but the amount of British 
 currency to be given here, for the purchase of the bill, is by 
 no means fixed, but is continually varying, from causes 
 which it is the object of this essay to explain. 
 
 When the market price of foreign bills is high, the 
 exchange is said to be unfavourable, because a larger sum 
 will be required for discharging a given amount of foreign 
 payments. When the market price is low, the exchange is 
 
 5 
 
480 Blake 
 
 said to be favourable, because the discharge of the same 
 amount of foreign payments will be effected by a smaller 
 quantity of British currency. Whatever therefore affects 
 the price of a foreign bill will affect the state of the 
 exchange. 
 
 Now the price of bills will depend, in the same manner 
 as that of any other commodity, upon two causes : 
 
 First, on their abundance or scarcity in the market, 
 compared with the demand for them ; and secondly, on the 
 value of the currency in which they are to be paid, compared 
 with the value of that with which they are bought. 
 
 If there be a certain quantity of foreign bills in the 
 market, and at the same time a great demand for making 
 foreign payments or investments, the holders of bills will 
 soon feel the effect of the competition for their purchase, and 
 will refuse to part with them, except an additional price be 
 given as a premium. If, on the contrary, there be an abun- 
 dant supply of bills in the market, and not much demand 
 for foreign payment or investment, there will be more per- 
 sons inclined to dispose of bills, than there are persons 
 desirous of purchasing them ; and the holders, who wish to 
 convert them into cash, will not be able to sell, except at a 
 discount ; so that this variation in the market price might 
 take place, though the value of the currency of the respec- 
 tive countries continued absolutely unchanged. 
 
 Supposing, however, the quantity of bills in the market 
 sufficient exactly to supply the demand, and that there are 
 no more persons wishing to sell than there are persons 
 wanting to purchase them, so that any alteration in their 
 price, from this cause, is precluded ; yet as the currency of 
 all countries is subject to continual fluctuations in its value, 
 the quantity of British currency to be given for a determi- 
 nate quantity of foreign currency, at any period of time, 
 will depend upon the comparative value of each. An 
 English guinea may be worth, sometimes, a certain number 
 of guilders, florins, or piastres, and at others a very different 
 number, depending either upon alterations in the value of 
 the guinea, or of the guilder, florin, or piastre. The moment 
 
 6 
 
on Exchange. 481 
 
 that these alterations take place, the information is com- 
 municated from one part of the mercantile community to 
 the other, and the price of foreign bills is regulated accord- 
 ingly. 
 
 The rate of the computed exchange, then, will vary from 
 two causes, totally distinct from each other. The first, 
 arising from the abundance or scarcity of bills in the 
 market, is the foundation of what may be called the real 
 exchange, which depends upon the payments a country has 
 to make, compared with those it has to receive, and has no 
 reference to the state of the currency. 
 
 The second, arising from alterations in the value of the 
 currency, is the foundation of what may be called the 
 nominal exchange, which has no reference whatever to the 
 state of debt and credit of the country. And as the effects, 
 which the real and nominal exchange have upon the general 
 dealings and commerce of the country, are as distinct as 
 their causes, the natural mode of investigating the subject 
 will be to follow the order which this division points out ; 
 and after tracing the operation of the real and nominal 
 exchange independently of each other, to consider their 
 combined effect, in treating upon the computed exchange. 
 
 OF THE REAL EXCHANGE. 
 
 IN order that the consideration of the real Exchange 
 may be kept perfectly distinct from that of the nominal, let 
 it be supposed, during the review of this subject, that the 
 Coin of any two countries that have intercourse with each 
 other is in a perfect state as to purity and weight ; and that 
 the proportion which the quantity of currency bears to the 
 commodities to be circulated by it in the respective coun- 
 tries, continues unchanged, so as to exclude any alteration in 
 its value. 
 
 In the commercial dealings which take place between 
 any two nations, the surplus produce of the one will be 
 exchanged for the surplus produce of the other. When 
 
 7 
 
482 Blake 
 
 neither of them imports from the other to a greater amount 
 than it exports to the same country, the debts and credits of 
 each will balance ; and there will be no difficulty in making 
 remittances from one to the other, without the actual trans- 
 fer of Bullion or money : for as the Bills drawn by the 
 merchants exporting produce would exactly equal, in 
 amount, the Bills drawn on the merchants importing pro- 
 duce, their mutual debts and credits would be easily liqui- 
 dated by the transfer of Bills of Exchange; and as the 
 supply of Bills would be equal to the demand for them, 
 they would neither bear a premium, nor be at a discount, 
 and the real Exchange would be said to be at par. 
 
 At any particular period of time, however, it may happen 
 that a nation may have imported to a greater amount than 
 it has exported, and consequently have more payments to 
 make than to receive. If at that time payment were 
 demanded, the balance due from the debtor country could 
 only be liquidated by the transfer of money or Bullion ; 
 and the merchant, rather than incur the expense of the 
 freight insurance and commission attending its conveyance, 
 will be induced to give more for a Bill of Exchange, than 
 the sum for which it is drawn. A competition will be 
 thereby created among the purchasers of Bills upon the 
 creditor country, and they will bear a premium in proportion 
 to the demand. In that country, on the contrary, there will 
 be more persons holding, than there are persons wanting 
 Bills, and the excess above the demand can only be converted 
 into Coin or Bullion by sending them to the place upon 
 which they are drawn. But this Bullion or Coin cannot be 
 conveyed to the creditor, without his paying the expense of 
 its transit; and the holder of a Bill in the creditor country, 
 if he be desirous of converting it into money, will be content 
 to receive something less than its amount. There will 
 therefore be in the creditor country a competition to sell, 
 and Bills will be at a discount in proportion to the supply. 
 The premium in one country will correspond with the 
 discount in the other. 
 
 Whatever, therefore, affects the proportion between the 
 
 8 
 
on Exchange. 483 
 
 payments to be made, and those to be received, will alter the 
 state of the real Exchange. 
 
 This proportion varies principally from the following 
 circumstances: first, from the effects of favourable or un- 
 favourable seasons creating a difference in the customary 
 supply of the annual produce of the land : secondly, from 
 the alterations which take place in the amount of the foreign 
 expenditure of a country, arising either from the expenses of 
 foreign establishments and expeditions, subsidies to foreign 
 powers, or remittances to absentee proprietors. 
 
 The population of the countries that have commercial 
 intercourse with each other, though it may vary considerably 
 in long periods of time, is not subject to any sudden changes 
 from year to year ; the wants, therefore, for annual con- 
 sumption may be considered as nearly constant; but the 
 supply of those wants depending principally on the annual 
 produce of the land, will vary to a very great extent. If 
 in any particular country there should be a failure in a 
 commodity which is also the common growth of the neigh- 
 bouring countries, the deficiency will be supplied, in a 
 greater or less degree, by an increased importation ; and 
 where the failure takes place in an article of the first neces- 
 sity, as for instance, in corn, which forms the principal part 
 of the food of the people, the importation will be augmented 
 nearly in proportion to the extent ot the deficiency. The 
 average amount of annual imports will in these cases be 
 exceeded, and the ordinary proportion of payments between 
 the country and foreign nations proportionably affected ; 
 and though the effects of the failure of a corn crop, from its 
 magnitude, and its being an article of the first necessity, are 
 most apparent, an alteration similar in kind, but not in 
 degree, will be induced by a failure in the produce of any 
 commodity to the use of which a country has been long 
 habituated. In an article of mere luxury, the deficiency of 
 its produce, by occasioning an increase of its price, may con- 
 tract the consumption, and thus cause the value of the 
 quantity exported or imported to be in a certain degree 
 uniform ; yet it may be easily conceived that a combination 
 
 ^ 
 
484 Blake 
 
 of circumstances would, even in commodities of less neces- 
 sity than corn, lead to an unusual export or import, and 
 therefore materially affect the state of debt and credit of a 
 country. 
 
 The second circumstance, which has been stated as 
 affecting the payments and receipts of a country, is the 
 variation in the amount of its foreign expenditure, under 
 which head may be included, the charge of maintaining its 
 foreign establishments, civil and military, subsidies to foreign 
 powers, and the remittances to absentee proprietors : the last 
 of which it may be sufficient merely to mention, since they 
 must bear so very small a proportion to the sum total of the 
 foreign expenditure of a great nation, that any variations in 
 their amount would scarcely have a perceptible effect upon 
 the general state of its payments and receipts. On the 
 contrary, the subsidies to foreign powers, and the expense of 
 maintaining the civil and military establishments abroad, 
 may vary, in times of war, to an enormous extent. 
 
 Now this expenditure may be supplied either by the 
 export of Bullion or Specie ; by purchasing foreign Bills in 
 the home market, 1 " and sending them to the place where the 
 money is wanted ; or by authorising the agents abroad to 
 draw Bills upon the government, and discount them at the 
 place where they are drawn, upon the best terms that the 
 Bill-market will allow. 
 
 By the export of Bullion or Specie the expenditure 
 would be at once defrayed, without creating any debt against 
 the country, and therefore without producing any effect 
 upon the real Exchange ; but there are various reasons why 
 this mode has not been generally adopted. In the first 
 place, the quantity of Bullion or Specie in a country which 
 has no mines of its own, is exceedingly limited, and the 
 total amount that can be spared or procured for exportation 
 will bear a very small proportion to the foreign expenditure 
 arising from protracted warfare. In the next place, there 
 must always be a certain expense of insurance and freight 
 attending its transport; and whenever, therefore, foreign 
 Bills can be procured at a less premium than the 
 
 10 
 
on Exchange. 485 
 
 amount of that expense, or Bills on the government 
 abroad can be negoclated at a less discount, the vehicle 
 of Bills will necessarily be preferred to that of Specie or 
 Bullion. 
 
 The foreign expenditure of this country, as appears by 
 the account presented to the Committee of Secrecy by 
 Mr. Long, in 1797, was principally paid by the draft of 
 Bills from the Continent upon England. A debt is thus 
 created against the country equal to the amount of the Bills 
 drawn upon the government, which must exist, in a greater 
 or less degree, till the whole of those bills are liquidated by 
 the remittance of value of some kind or other. Whatever, 
 therefore, be the proportion between the payments to be 
 made, and those to be received, at any period of time, arising 
 from the ordinary commercial dealings; whatever be the 
 quantity of Bills in the home or foreign market, which are, 
 in fact, the evidences of that proportion ; the foreign ex- 
 penditure of government must derange the natural state of 
 the balance, and produce an alteration proportional to its 
 amount.* If the Bills be drawn from abroad, they will in- 
 crease the quantity of British Bills in the foreign Bill mar- 
 ket, and lower their value from their abundance. If the 
 foreign Bills be purchased at home for the purpose of re- 
 mittance, the competition of government will immediately 
 raise their price, and increase their scarcity. Whether the 
 real Exchange, therefore, at the time of the expenditure 
 taking place, be favourable or unfavourable, it will always 
 be the less favourable, or the more unfavourable, in conse- 
 quence of that expenditure. 
 
 We have hitherto been considering the demand for 
 foreign Bills, as originating wholly in the necessity of 
 
 * See the examination of Mr. Huskisson before the Committee for 
 enquiry into the policy and conduct of the Expedition to the Scheldt ; 
 where he states the difficulty of making the remittances to Austria 
 without lowering the Exchange, which was already from 18 to 20 per 
 cent, against this country. 
 
 See also Mr. Moore's Narrative of the Campaign in Spain, and the 
 difficulty of negociating Bills there, for the supply of the army in that 
 country. 
 
 11 
 
486 Blake 
 
 liquidating balances arising from transactions that had 
 already taken place ; but there is another cause of demand, 
 which springs from the desire of entering upon new com- 
 mercial speculations whenever the relative prices in the 
 home and foreign markets are such, as to afford the prospect 
 of an adequate profit. If the current real prices abroad are 
 low, compared with those in the home market, there will 
 be an increased demand for foreign Bills, for the purpose of 
 making foreign investments ; and the extent of this demand 
 will be in proportion to the probable amount of the profits 
 to be derived, and the unemployed capital that will admit 
 of being diverted into that channel. As soon as a foreign 
 price-current is received, it is compared with the price- 
 currents at home, and the conduct of the merchant is regu- 
 lated accordingly. If commodities abroad be relatively 
 cheap, there will be more purchasers than usual of foreign 
 Bills ; if they be relatively dear, there will be fewer pur- 
 chasers than usual ; and thus whatever be the real Exchange 
 under any given balance of payment to be made, and pay- 
 ment to be received, the arrival of a foreign price-current, 
 or an alteration in the home price-current, will have an in- 
 stantaneous effect upon the foreign Bill market ; and the 
 weekly, and sometimes daily, fluctuations in the course of 
 the real Exchange, are attributable principally to the varia- 
 tions in this species of demand. 
 
 It must not be inferred, however, that because the prices 
 of commodities cause a fluctuation in the course of the real 
 Exchange, that therefore the real Exchange causes a fluctua- 
 tion in the prices of commodities. The prices of commodi- 
 ties in the home market (upon the supposition to which we 
 constantly adhere, that the value of the currencies through- 
 out the mercantile republic remains unaltered) cannot depend 
 upon the number of foreign Bills in the same market, but 
 upon the abundance or scarcity of the commodities them- 
 selves, compared with the real demand for them, that is, the 
 wants of consumers ; and it is essential that this peculiar 
 feature of the real Exchange should not escape the reader's 
 attention, since it forms one of the leading distinctions be- 
 
 12 
 
on Exchange. 487 
 
 tween the real., and the nominal Exchange, and is the cause 
 of the great difference of their effects upon the general 
 exports and imports of the country. 
 
 It may, then, be stated generally, that, whenever there 
 is a balance of debt against a country, arising, either from 
 an excess of imports over exports, a large foreign expendi- 
 ture of government, or the remittance of foreign subsidies ; 
 whenever, in short, there is a demand for foreign payment, 
 or foreign investment, the price of foreign Bills will rise, 
 and may bear a premium ; and the price of Bills drawn on 
 the country from abroad will fall, and be at a corresponding 
 discount ; and, on the contrary, when there is a balance of 
 debt due to a country, and a diminution of demand for 
 foreign payment or foreign investment, the price of Bills 
 drawn from abroad will increase, and may bear a premium ; 
 and the price of foreign Bills will fall in the home market, 
 and may be at a discount. 
 
 What effects the real Exchange has upon the general 
 exports and imports of the country, it will now be proper to 
 enquire. 
 
 The merchant is regulated in the conduct of his business, 
 by a comparison of the prices which commodities bear in the 
 home, and foreign market ; his attention is directed to the 
 prices current, accounts of which are constantly published, 
 and immediately communicated by his correspondents abroad. 
 If he finds that the price of any commodity abroad is so 
 much higher than the price of the same commodity in the 
 home market, that its sale abroad will pay the expenses of 
 freight and insurance, and at the same time leave him an 
 adequate profit for his trouble, he will immediately purchase 
 and export the commodity in question. As soon as the bill 
 of lading has been received by his correspondent to whom 
 the goods are consigned, he will draw his Bill upon him for 
 the amount ; and if the real Exchange be at par, will have 
 no difficulty in procuring money equal to the value specified 
 in the Bill, by negotiating it in the market at home. But if 
 the real Exchange should not be at par, it is evident that 
 his calculation upon the profit he is likely to derive from the 
 
 13 
 
488 Blake 
 
 export, must include the premium, or discount, which he 
 will receive, or pay, in the disposal of his Bill. If the 
 Exchange is unfavourable, or, in other words, if the pay- 
 ments to be made are greater than those to be received, 
 foreign Bills will bear a premium ; and consequently, the 
 additional sum which he will receive on the disposal of his 
 Bill, will enable him to export with profit, though the dif- 
 ference of prices of the commodity at home and abroad were 
 such, as would not allow him to export, with the real 
 Exchange at par. The more unfavourable the real Exchange, 
 the less might be the difference of prices that would induce 
 him to export ; so that an unfavourable state of the real 
 Exchange will operate as a bounty upon exportation, to the 
 amount of the premium, which he will receive upon his 
 foreign Bill. 
 
 The same calculation upon the state of the real Exchange 
 will be necessary, if the difference of prices at home and 
 abroad should lead him to import. But whatever be the 
 state of the real Exchange, it will affect the importing mer- 
 chant, and the exporting merchant, in a directly opposite 
 manner : for the importing merchant must pay for the goods 
 he imports, either by purchasing a foreign Bill to remit to 
 his correspondent abroad, for which, if the real Exchange be 
 unfavourable, he must pay a premium ; or, if his correspon- 
 dent abroad is authorised by the importing merchant to draw 
 a Bill upon him for the payment of the goods consigned, 
 as that Bill cannot be converted into money without a loss, 
 he must draw for such an additional sum above the invoice 
 price of the goods, as will counterbalance the discount to be 
 allowed in negotiating his Bill in the foreign market. This 
 additional sum, therefore, paid by the importing merchant in 
 the premium of the foreign Bill, or drawn for by the cor- 
 respondent to make up the loss on the discount, will be so 
 much deducted from his profit. Unless, then, the difference 
 of prices at home and abroad be such as to admit of this 
 deduction, the merchant must cease to import ; so that an 
 unfavourable real Exchange will operate as a duty upon im- 
 portation, in proportion to the premium on a foreign Bill, or 
 
 14 
 
on Excitant /e. 489 
 
 the corresponding discount on the Bill drawn from abroad ; 
 and in the same manner it is easy to see, that a favourable 
 real Exchange will operate as a duty upon exportation, and 
 will afford a bounty upon importation. 
 
 An unfavourable real Exchange will, therefore, have the 
 effect of forcing the exports of a country ; because, during 
 its unfavourable state, the merchant can afford to sell at a 
 lower price to the foreign consumer, and this diminution of 
 price will naturally lead to an increased consumption. It 
 will contract imports, because the importing merchant must 
 sell foreign produce at a higher rate to the home consumer, 
 to draw back the duty imposed upon him by the unfavour- 
 able state of the real Exchange, and consequently the high 
 price will dimmish the home consumption. 
 
 It is evident that during an unfavourable state of the 
 real Exchange, the bounty received by the exporting mer- 
 chant does not depend upon the nature of the commodity he 
 exports. Whatever kind of goods he sends abroad, it gives 
 him the power of drawing upon the person to whom he con- 
 signs them, to the amount of their value ; and upon this 
 Bill he receives the premium that the market affords. He 
 will of course select those commodities for exportation, 
 which, besides the premium afforded by his Bill, will give 
 him the greatest profit, by the difference of price abroad and 
 at home. Of all the commodities, which are the objects of 
 request among trading nations, there is none perhaps that is 
 subject to so little variation in its real price, as Bullion. 
 The annual quantity produced from the mines is very nearly 
 constant, its distribution, from the facility with which it is 
 transported, is exceedingly uniform, and its value, and con- 
 sequently its real price, throughout Europe at least, must be 
 considered as nearly the same. Unless, then, the bounty 
 afforded by the unfavourable state of the real Exchange, 
 were greater than the expenses attending the transit of 
 Bullion, it would be of all others the commodity* least likely 
 
 * Mr. Thornton, apparently from not being aware of the mode in 
 which the export of ordinary produce was increased by an unfavourable 
 
 15 
 
490 SMe 
 
 to be selected by the exporting merchant : but that same 
 uniformity of value and of price, which would prevent its 
 being exported before the premium on a foreign Bill ex- 
 ceeded the expenses of the transit of Bullion, would be the 
 very cause, why, as soon as the premium had reached that 
 point, it would immediately be chosen as one of the most 
 eligible for exportation. 
 
 The export and import of Bullion are generally con- 
 ducted by a class of the community remarkable for their 
 shrewdness, and the small profits upon which they transact 
 their business ; and as soon as the premium on a foreign 
 Bill exceeds, by a very small amount, the expenses of the 
 transit of Bullion, the certainty of the profit compensates in 
 some degree for its smallness, and the opportunity, when it 
 occurs, is seldom neglected. The adverse debt will then 
 begin to be paid, by the Bullion merchants exporting to take 
 advantage of the premium ; and the competition will be 
 such, that the real exchange will be very rapidly brought 
 down, so as no longer to afford a profit upon the export of 
 this article. The exporters of consumable produce will 
 during this period co-operate with the Bullion merchants ; 
 and when the latter have ceased to derive a profit, the former 
 will still continue their operations, till the unfavourable 
 Exchange is reduced to par, or, in other words, till the 
 exports have been such, as to counterbalance the adverse 
 debt, and render the quantity of foreign Bills in the market 
 equal to the demand. 
 
 From this statement it is obvious, that the natural limit 
 to the amount of the real Exchange is the expense of the 
 transit of Bullion ; and long before it has arrived at that 
 point, the export of ordinary produce will be forced, and its 
 import restrained ; so that the real Exchange can scarcely 
 begin to deviate from par, without calling into action a 
 principle that will correct its deviation. It may oscillate a 
 little on the one side, or the other, from its point of rest, 
 
 real Exchange, seems to imagine that the greater part of the adverse 
 balance must necessarily be paid in Bullion. 
 
 16 
 
on Exchange. 491 
 
 but can hardly admit of remaining either permanently 
 favourable, or permanently unfavourable, to a nation, in the 
 ordinary course of its transactions.* 
 
 It must not be inferred, however, because the expense of 
 the transit of Bullion is the limit of the real Exchange, that 
 it is therefore a fixed limit, and capable of being estimated 
 at a certain per-centage on the price of a foreign Bill : for 
 when the real Exchange has caused a transit of Bullion to 
 any considerable degree, it will at length create a difference 
 in the market price of Bullion itself. This article will 
 become scarce in the country from which it is sent, and 
 abundant in that into which it is flowing. Its price will 
 rise in the former, and fall in the latter. The exporter, 
 therefore, will then have to calculate the difference of prices 
 in the home and foreign market ; and if in the first instance 
 the profit were but just sufficient to induce him to export, 
 it is clear that after the change has taken place, the expor- 
 tation of Bullion, under the same rate of Exchange, will 
 cease. 
 
 Mr. Boyd, in his evidence before the Secret Committee 
 of the House of Lords, in 1797, respecting the mode of 
 remitting the Imperial loan to Vienna, states, a that he 
 " thought the remittances by Bills of Exchange were not 
 "quite so favorable as those in Bullion; but, if he had 
 (f stuck exclusively to Bullion, the price of this article would 
 tf have risen so high here, and probably sunk so low at 
 " Hambro', that instead of a good, it would have become 
 " a bad remittance." The limit therefore of the real 
 Exchange can only be fixed at a certain rate, upon the 
 supposition that the price of Bullion is the same in the 
 home and the foreign market ; for when the real price of 
 Bullion abroad is less than it is at home, the transit of 
 
 * This observation must be understood to apply to the general 
 balance that subsists between any one nation, and the whole of those 
 with which it has commercial intercourse, it being evident that where a 
 nation trades with more than one country, the real Exchange may be 
 constantly favourable with one, provided it be constantly unfavourable 
 with another. 
 
 17 
 
492 Blake 
 
 Bullion will not take place, unless the rate of Exchange be 
 sufficiently high, not only to pay the expences of transit, but 
 also to compensate for the loss attending the difference of 
 home and foreign prices. When, on the contrary, the price 
 of Bullion abroad is higher than in the home market, it is 
 equally evident that Bullion will be exported, when the 
 real Exchange is less than the expenses of the transit of 
 Bullion. 
 
 And thus it is that a very small part of the payment of 
 an unfavourable balance is effected by the transit of Bullion, 
 since its transit can scarcely begin to take place, without 
 rendering it a more unprofitable article of export than 
 ordinary consumable commodities. For the former cannot, 
 generally speaking, be considered as a commodity the con- 
 sumption of which will be augmented by a diminished price, 
 its use being confined to the wealthy few, who are not likely 
 to encrease the quantity of their plate, or indulge themselves 
 more freely in the purchase of ornamental manufactures, 
 from the temporary variations in the market price of Bullion : 
 but it is not so with ordinary produce. - The great mass of 
 mankind will always endeavour to purchase their comforts at 
 the lowest possible rate. If by means of an unfavorable 
 Exchange our merchants can supply the nations of the Con- 
 tinent with British manufactures, cheaper than when the 
 Exchange is at par, our manufactures will be bought and 
 consumed; and in proportion to the degree in which the 
 Exchange is unfavourable, in the same proportion, shall 
 we be enabled to enter more easily into a competition 
 with the manufactures abroad, even in their own market. 
 
 A possible case may, nevertheless, be supposed, where 
 the government may, from political causes, be induced to 
 continue a scale of warfare, demanding a larger foreign ex- 
 penditure than can be supplied by a proportional excess of 
 exports over imports ; and, consequently, if the quantity of 
 Bullion in the country were extremely limited, the real 
 Exchange might, notwithstanding the usual causes that 
 check and prevent its fluctuations, deviate so much from par, 
 
 18 
 
on Exchange. 493 
 
 and create so great a drain of Bullion, as to raise its market 
 price above its mint price. 
 
 It is certain that the Bullion merchants would in that 
 case, rather than pay the advanced market price, endeavour 
 to collect the current Coin for the purpose of exportation. 
 A pound of gold at the English mint is coined into forty- 
 four guineas and a half, or 467. 14s. 6d* By exchanging, 
 then, bank-notes at the Bank, for coin, they can always pro- 
 cure a pound of gold for 467. 14s. 6d. in notes ; and so long 
 as they have this power of purchasing gold at the mint price, 
 at the Bank, they will not give a higher market price else- 
 where. If the paper, therefore, be convertible into Coin at 
 the option of the holder, the Bullion merchants will be con- 
 stantly pouring in their notes upon the Bank, to be ex- 
 changed for Coin, which will be exported! as fast as it can 
 be procured ; and thus a drain upon the Bank will be es- 
 tablished, to a greater or less extent, in proportion to the 
 amount of foreign payment that must be discharged ; before 
 the real Exchange is sufficiently elevated to prevent any 
 profit upon the export of Bullion. As long as this drain 
 continues, the Bank will be compelled to purchase Bullion, 
 and to coin, for the purpose of supplying the demand occa- 
 sioned by the return of its notes ; and as the purchase must 
 be made at the then market price, it is evident that in what- 
 ever degree that shall exceed the mint price, the Bank must 
 sustain a loss proportional to the difference ; and that a con- 
 tinuance of the drain, under such circumstances, might 
 eventually lead to its ruin. 
 
 * Throughout this pamphlet, the Author, in speaking of Bullion, 
 has confined his. observations to Gold Bullion only : first, because the 
 Gold Coin is now the only one in which a legal payment can be 
 made for debts above 25. in amount ; and, secondly, because he has 
 derived considerable assistance from, and had frequent occasion to refer 
 to, Mr. Mushet's valuable Tables of the Exchange between London and 
 Hambro', since the year 1760, in which the price of Gold Bullion only is 
 noted. 
 
 t It is true the laws have affixed most severe penalties to the melting 
 or exporting the current Coin of the realm ; but these penalties have 
 always been found insufficient for its protection, the Coin having uni- 
 formly disappeared, whenever either of the above practices has been 
 attended with an adequate profit, 
 
 19 
 
494 Blake 
 
 It was upon this ground that the Directors of the Bank, 
 in the year 1795, remonstrated in so urgent a manner against 
 any further loans to the Emperor; lest the drain, which 
 those loans occasioned, should prove fatal to that establish- 
 ment. In a letter from the Directors to Mr. Pitt, dated 
 October 8, 1795, after observing upon the continual drain 
 that the loan to the Emperor had occasioned ; they proceed to 
 state, " that the present price of gold being from 47. 3s. to 
 i( 47. 4s. per ounce, and our guineas being to be purchased at 
 "37. 17s. 10 \d., clearly demonstrates the grounds of our 
 " fears, it being only necessary to state these facts to the 
 " Chancellor of the Exchequer/'* Now those very facts 
 ought to have led Mr. Pitt to suspect, that the drain upon 
 the Bank, at that time, arose from some other cause than 
 the loans to the Emperor ; for it has been already shewn 
 how impo'ssible it is, that the Bullion merchant should for 
 any length of time continue the export of Bullion, without 
 increasing the quantity abroad, and lowering its price so 
 much, that it would no longer afford a profitable speculation. 
 Mr. Pitt should have recollected, that for the last twenty- 
 one years from 1774, when the reformation in the gold Coin 
 took place, though the computed Exchange between Hambro' 
 and London had frequently been so unfavourable to London, 
 as far to exceed the expenses of the transit of Bullion, the 
 quantity required for export had been so easily supplied, 
 either from the spare Bullion, or from the export of the 
 Coin, that the market price of bullion had never exceeded 
 the mint price, except only for about six months, at the 
 time of the peace of Versailles, in the year 1783 ; and then 
 only by about 3s. f A\d. in 1007., not much more than y ^th 
 part. Now as during a great part of that period, the 
 country was engaged in active warfare, which would cause, 
 from the variations in the amount of the foreign expenditure, 
 occasional demands for large foreign payments, one would 
 have expected, that such an excessive increase of the market 
 price above the mint price, as was asserted by the Bank 
 
 * P. 152, Secret Committee of the House of Lords, 1797. 
 20 
 
on Exchange. 495 
 
 Directors to have taken place, amounting to 71. 4s. 5^d. per 
 cent., being forty-five times greater than any variation that 
 had occurred in the former war, would have led him to 
 receive their remonstrances with considerable suspicion. 
 
 If, in addition to this, he had called to mind that the 
 excess of the market price above the mint price, could be 
 accounted for, and might have taken place, though no loan 
 to the Emperor had been in a course of remittance ; that 
 the excess of the market price of Bullion over the mint 
 price had existed to a very great extent, attended with a 
 drain upon the Bank, prior to the year 1774, when the gold 
 currency was degraded below its standard weight ; that the 
 drain, under such circumstances, would have equally existed, 
 though there had been no demand for the exportation of 
 Bullion, (as will be fully explained, in the Section upon the 
 Nominal Exchange ;) it seems unaccountable that he should 
 so easily have yielded to the representations of the Directors; 
 and it is the more to be lamented, since the impressions he 
 then received, seem to have had considerable influence in 
 producing the fatal measure of permanent restriction on 
 Bank payments, which began in the year 1797, only fourteen 
 months after this period. 
 
 But assuming it to be the fact, that the foreign expen- 
 diture at that period was greater than on any former occa- 
 sion, and that the real cause of the drain was that assigned 
 by the Bank Directors, still they had the means of preven- 
 tion within their own power ; for it will be shown, in the 
 next Section, on the nominal Exchange, that when the cur- 
 rency of a country consists partly of Paper, and partly of 
 Coin, and that the former bears a large proportion to the 
 latter, the Bank can at all times contract the issue of its 
 notes, and produce a considerable diminution in the total 
 amount of the currency. By this means the nominal prices 
 of commodities, and amongst the rest, that of Bullion, will 
 be lowered. As soon, therefore, as a reduction has thus 
 been effected in the price of Bullion below its mint price, 
 the drain upon the Bank will at once be stopped ; since it 
 will no longer be the interest of the Bullion merchant to 
 
 21 
 
496 Blake 
 
 purchase gold at the mint price, by exchanging notes at the 
 Bank, when he can procure it at a cheaper rate in the 
 market. The Bank Directors were so well aware of this 
 mode of counteracting the effects of a drain upon them, that 
 they had recourse to it at the very period of making their 
 remonstrances ; and the market price of Bullion, which had 
 been 9s. 7d. per cent, below its mint price, in the beginning 
 of the year 1795, and which probably might never have been 
 raised, had not the Bank, at this period, extended its paper 
 from 11 to 13 millions, was, by the subsequent contraction 
 of it to 9f millions, again reduced before the middle of the 
 year 1796, to 9s. Id. below the mint price. Unfortunately, 
 too for the country, this same counteracting principle was 
 resorted to, when the drain took place in the beginning of 
 the year 1797, arising, not from a demand for bullion for the 
 purpose of exportation, nor from an excess in its market 
 price above the mint price, neither of which existed at the 
 time ;* but solely from the alarm occasioned by the fears of 
 invasion ; a drain that will always occur under similar cir- 
 cumstances, and which will be aggravated, rather than 
 relieved, by a contraction of paper. 
 
 It should be carefully remembered, that the profit from 
 the export of Bullion in consequence of an unfavourable 
 real Exchange, does not arise from Bullion selling for a 
 higher price in the foreign than in the home market, nor 
 from any scarcity of Bullion abroad occasioning an extraor- 
 dinary demand for it; but solely from the demand for 
 foreign bills, for the purpose of making foreign payments, 
 being so great, that the premium upon them exceeds the 
 expenses of the transit of bullion ; and, consequently, the 
 transit will take place and afford a profit to the exporter, 
 though the price of bullion be precisely the same abroad as 
 it is at home. 
 
 * In January, 1797, the computed Exchange between Hambro' and 
 London was 51. 4s. per cent, in favour of London, and during the year 
 rose to 13 per cent. ; it never being, at any part of the year, less than 
 31. 2s. in favour of London. The market price of Bullion, at the same 
 period, was never above its mint price. 
 
 22 
 
on Exchange. 497 
 
 When such a quantity of bullion has been exported as to 
 raise its market price above the mint price, the coin being 
 obtainable at the mint price, will be exported in preference 
 to bullion ; not in consequence of any depreciation in the 
 value of the coin, for it will purchase the same quantity of 
 ordinary produce after the rise of the price of bullion as 
 before; nor because it is more valuable abroad than it is 
 here, for it will not purchase more in the foreign than the 
 home market; but it will be exported, for the same reason 
 that the bullion is exported, to take advantage of the pre- 
 mium on foreign bills, and will be sent, though the price of 
 bullion be precisely the same in the continental market as 
 the English mint price. 
 
 After what has been stated, it will be sufficiently appa- 
 rent, upon what a false foundation the old notions respect- 
 ing the advantages of a favourable balance of trade are built, 
 and how futile all attempts must be to procure and detain 
 bullion, beyond the quantity that is actually wanted for con- 
 sumption. The transit of bullion from a high or low real 
 exchange is an unnatural transit, not arising from the wants 
 of the country into which it flows, but depending solely on 
 the profits which a temporary pressure for foreign payments 
 affords to the bullion merchants on the sale of foreign bills ; 
 and as soon as the cause that has produced the temporary 
 influx subsides, (an event that will sooner or later necessarily 
 take place, by the import of such ordinary produce as is 
 wanted for the purposes of consumption, "and increased 
 enjoyment of the people,) the superfluous and unused quan- 
 tity of bullion that has been accumulated, will flow back 
 from the country where its abundance has rendered its real 
 price low, to those nations from which it had been unnaturally 
 sent, and where its scarcity will have rendered its real price 
 high. 
 
 Much of the confusion that attends this question would 
 have been avoided, had the dealers in bills of exchange, and 
 the dealers in bullion, (that is, the persons who export or 
 import bullion for the supply of consumers,) been two dis- 
 tinct classes of merchants. It would then have been seen 
 
 23 
 
498 Blake 
 
 that the profits of the dealer in bills of exchange flowed 
 through very different channels from those of the dealer in 
 bullion. If at any time the course of exchange were such as 
 to afford a profit to the bill merchant by the sale of foreign 
 bills, he would export that bullion which had been imported 
 for the use of the manufacturer, and would continue to 
 export till it no longer afforded a profit. The bullion dealer 
 would then begin to re-import, in consequence of the differ- 
 ence of prices in the home and foreign markets, the bullion 
 that the bill merchant had sent away, in consequence of the 
 high premium on foreign bills. Whatever derangement the 
 bill merchants might occasion in the quantity of bullion that 
 would be otherwise naturally distributed among the diffe- 
 rent countries according to their wants, would be remedied 
 by the operations of the bullion merchants, who would find 
 their advantage in restoring the equilibrium that the bill 
 merchants had destroyed. 
 
 The dealer in bills of exchange would have employment, 
 when there was the least difference between the prices of 
 bullion in the home and foreign market, and the real ex- 
 change at the greatest deviation from par. 
 
 The bullion dealer would be most engaged, when there 
 was the greatest difference in these prices, and the real 
 exchange at its least deviation from par. 
 
 Had this distinction been attended to by Lord King, he 
 would never have entertained such erroneous opinions respect- 
 ing the exports of silver from this country to India, nor 
 have considered them as indications of an exchange constantly 
 in favour of England against the Continent ; for he would 
 have seen, that the export of bullion is not regulated merely 
 by the speculations of the dealers in bills of exchange, but 
 is effected, like that of any other commodity, when there is 
 such a difference in its real prices at any two places, as will 
 afford a profit on its transit, an occurrence that will fre- 
 quently take place, even with an exchange at par. 
 
 24 
 
on Exchange. 499 
 
 OF THE NOMINAL EXCHANGE. 
 
 THE market price of a foreign bill has been stated to 
 depend upon two circumstances: first, on the scarcity of 
 bills in the market compared with the demand for them ; 
 and secondly, on the value of the coin or currency in which 
 they are to be paid, compared with the value of the coin or 
 currency with \vhich they are bought. 
 
 The first of these, as connected with the real exchange, 
 formed the subject of the foregoing Section ; we shall now 
 proceed to examine the nature and effects of the second, on 
 which depend the alterations of the nominal exchange ; and 
 as in treating of the real exchange we endeavoured to keep 
 the subject as distinct as possible from the question of the 
 nominal exchange, by supposing no alteration to take place 
 in the value of the currencies in the respective countries ; 
 so in tracing the effects of the nominal exchange, we shall 
 suppose the state of the real exchange to remain unaltered ; 
 or the mutual dealings and intercourse between the nations 
 composing the great mercantile republic to be such, that the 
 price of foreign bills is not affected by any variation in 
 their abundance or scarcity, but that the supply of them is 
 constantly sufficient to answer the real demand. 
 
 In this case the variations in their price can arise only 
 from changes in the comparative value of the currencies in 
 which they are paid, and those with which they are bought. 
 
 It will not be necessary, therefore, to enter into any 
 enquiry respecting those changes which have taken place 
 from the discovery of the American mines, or which have 
 arisen from any cause that would affect all currencies in an 
 equal degree ; since the object is not to compare the value 
 of currencies now, with what they were at any former 
 period, but to estimate the local alterations that have taken 
 place in the currency of one country, without a correspond- 
 ing alteration in that of others. 
 
 25 
 
500 Blake 
 
 The currency of every nation is subject to continual 
 fluctuations in its value, principally from three circum- 
 stances. 
 
 First, An alteration in the quality and standard purity of 
 the metal of which the coin is formed. 
 
 Secondly, An alteration in the quantity of the metal 
 contained in coin of the same denomination. 
 
 Thirdly, An alteration in the total amount of the 
 currency of a country, without a corresponding alteration in 
 the commodities to be circulated by it. 
 
 The first of these is now seldom resorted to in a civilized 
 country, even under the most pressing necessities of the 
 government. 
 
 The second has been frequently adopted by princes and 
 sovereign states, who through a mistaken policy have 
 imagined that they derived a benefit from diminishing 
 the quantity of metals contained in their coins. The 
 English pound contained, in the time of Edward the First, 
 a pound of silver. The French livre contained a pound 
 weight of silver, in the time of Charlemagne. The English 
 pound contains, at present, only one-third, and the French 
 one-66th part of their original value ;* but I believe, except 
 in Turkey, there is no instance of this practice being coun- 
 tenanced by any of the modern governments. The metallic 
 currencies, however, of most nations, even where the govern- 
 ments have been desirous of maintaining them in a state of 
 the utmost possible perfection, have been much diminished 
 in value by being worn from use, and clipt or otherwise 
 degraded by the illicit practices of the people. To avoid 
 the confusion that would follow from the constant fluctua- 
 tions in the value of currencies, merchants have adopted a 
 mode by which they endeavour to estimate the extent of 
 these fluctuations ; and for this purpose, have ascertained 
 with tolerable accuracy, in what quantities of coin of the 
 mint standard in different countries, an equal weight of gold 
 or silver of the same standard fineness is contained. Thus 
 
 * Smith's Wealth of Nations, vol. i. p. 39. 
 26 
 
on Exchange. 501 
 
 it has been determined, that a pound sterling of the English 
 mint contains the same weight of silver, of a certain fine- 
 ness, as 33 schillings 8 grotes,* of the Hambro' banco- 
 money ; and in speaking of the exchange with Hambro', 
 33. 8. is in the technical language of merchants said to be 
 the par of exchange. In the same manner the par of 
 exchange with France is fixed at 24, because 24 livres of 
 the mint standard of France contain the same weight of 
 silver, of a certain fineness, as the pound sterling of the 
 English mint. 
 
 By means of this rule, the merchants of one country would 
 never be at a loss to estimate what quantity of their own 
 money would be equivalent to a specific sum of foreign 
 money, so far as regarded the weight of metal, provided the 
 coins of the respective countries contained the due weight of 
 their respective mints. But in some countries the coins are 
 more, in others less worn, and dipt or otherwise degraded 
 below the mint standard. When these alterations have taken 
 place, it would be necessary either to establish a new par of 
 exchange, to guide merchants in their money transactions, 
 or, as is now the general usage, not to alter the par of 
 exchange, but to mark the fluctuation of the currency, by 
 considering it as so much above or below the established par. 
 
 * From the evidence before the Secret Committee of the House of 
 Lords, in the year 1797, it appears that there is a difference in the mode 
 of estimating the par of Exchange with Hambro' ; the house of Gold- 
 smid considering 33. 8. and Mr. Boyd's 34. 8. as the par of Exchange. 
 The difference seems to have arisen, from the former estimating the par 
 according to the standard of Hambro' banco money ; the latter, accord- 
 ing to the actual currency of Hambro' which appears to be more than 
 
 3 per cent, below the standard of the banco money. Upon this supposi- 
 tion there is less difficulty in reconciling the apparent contradiction 
 that 3 schillings above the par, has the same effect one way, upon the 
 transit of gold, that 4 grotes below par has the other ; a fact that was 
 stated by Mr. Goldsmid's partner, but which he was unable satisfactorily 
 to explain. 
 
 If the Hambro' currency were so much degraded below the banco 
 money, that 35 schillings 4 grotes currency were worth no more than 
 33 schillings 8 grotes banco money, there would be a nomitial Exchange 
 of 1 schilling 8 grotes against Hambro', for every pound sterling ; and 
 if the par is estimated at 33. 8. 4 grotes, below that sum, and 3 schil- 
 lings above it, would be equally distant from the real par of 35 schillings 
 
 4 grotes. 
 
 27 
 
502 Blake 
 
 In King William's time, before the reformation of the silver 
 coin, (silver being then the metal in which the payments of 
 the country were legally made,) the current coin was rather 
 more than 25 per cent, below its standard value. The 
 established par, however, was not altered, but the exchange 
 was said to be 25 per cent, against England.* Before the 
 reformation of our gold coin in 1774, the guinea contained 
 so much less than its standard weight, that it was degraded 
 2 or 3 per cent, when compared with the French coin at the 
 same period ; and the exchange between England and France 
 was then computed to be 2 or 3 per cent, against this 
 country ; upon the reformation of the gold coin, the ex- 
 change rose to par. The Turkish government, in the course 
 of the last forty years, has made three great alterations in 
 its coin. Before these frauds were committed, the Turkish 
 piastre contained nearly as much silver as the English half 
 crown ; and in exchange, the par was estimated at 8 piastres 
 to the pound sterling. The consequence of these repeated 
 adulterations has been, the reduction of the silver in the 
 piastre to one half, and a fall in the exchange of 100 per 
 cent., bills on London having been bought in Turkey, in 
 1803, at the rate of 16 piastres for every pound sterling.f 
 Now though it is not absolutely conclusive, that these altera- 
 tions in the computed exchange were entirely owing to the 
 fluctuations in the value of coin, because the real exchange 
 at the time might not be constant ; yet the correspondence 
 of the difference of exchange, with the acknowledged degra- 
 dation of the coin, renders it more than probable, that the fall 
 of the computed exchange arose from an alteration in the 
 nominal exchange only. 
 
 It is unnecessary to enter further into the detail of the 
 consequences that arise from the degradation of the coin 
 below its mint standard. As soon as that degradation 
 (which never can remain long concealed) is discovered, the 
 inconveniences that would otherwise attend the commercial 
 
 1 Smith's Wealth of Nations, vol. ii. p. 216. 
 t Foster on Commercial Exchange, p. 93. 
 
 23 
 
on Exchange. 503 
 
 intercourse are obviated by a corresponding alteration in the 
 computed exchange ; and though during the continuance of 
 the degradation, the nominal exchange will remain per- 
 manently unfavourable to the country in which it prevails, 
 it will be immediately restored to par, by a reformation 
 of the circulating medium. We will, therefore, in the 
 remaining part of this enquiry into the nature and effects of 
 the nominal exchange, suppose, that the currencies are not 
 degraded below their mint standards, and confine our obser- 
 vations to the third cause, which has been stated to affect 
 the value of currencies, viz. the ratio, which the total amount 
 of the currency in one country bears to the commodities 
 to be circulated by it, compared with the ratio that the 
 currencies of other countries bear to the commodities 
 which they are respectively employed to circulate. It is 
 the fluctuation from this cause, which at present princi- 
 pally affects the nominal exchange. 
 
 Had the currencies of commercial states been confined 
 to the precious metals only, it is scarcely possible that any 
 increase of currency, more than was demanded by the wants 
 of increasing wealth, could have taken place, in countries 
 that had no mines of their own. As the metals of which 
 the coin was composed must have been purchased at their 
 value, no possible motive can be conceived, that would 
 induce the holder of bullion to convert it into coin, unless 
 there was a real demand for it. The circulating medium of 
 modern times no longer consists of the metals only, almost 
 all nations having adopted, on a greater or less scale, the use 
 of paper currency, issued generally, under the sanction of 
 government, by corporate bodies or banks, who are respon- 
 sible for the payment of it in specie on demand. As the 
 profits of these corporate bodies or banks are in proportion to 
 the quantity of the paper they can permanently keep in cir- 
 culation, there can be no doubt, that every effort consistent 
 with prudence, will be made to augment that quantity. 
 But it is impossible that such an increase can take place in 
 the quantity of any commodity that is given in exchange for 
 others, whose quantity is not augmented in the same pro- 
 
 29 
 
504 Blake 
 
 portion, without affecting their comparative value. If the 
 currency of a country is increased, while the commodities to 
 be circulated by it remain the same, the currency will be 
 diminished in value with respect to the commodities, and it 
 will require a larger proportion of the former to purchase a 
 given quantity of the latter; or, in other words, prices will 
 rise. If we were in the habit of considering money as pur- 
 chased by commodities, instead of commodities being pur- 
 chased by money, the diminution in the value of money from 
 its abundance, would be immediately apparent. "Mr. 
 " Thornton admits, in the most explicit manner, that if the 
 " quantity of circulating medium is permanently augmented, 
 16 without a corresponding augmentation of internal trade, a 
 " rise will unavoidably take place in the price of exchange- 
 " able articles. Indeed this is a principle upon which all the 
 " writers on Commerce, both practical and speculative, are 
 " agreed : they have thought it so undeniable as to require 
 " no particular illustration, and have rather assumed it as an 
 " obvious truth, than as a proposition that depended on 
 " inference. Upon this idea is founded Mr. Hume's well- 
 " known argument against banks, and it is equally implied in 
 " Dr. Smith's confutation of that objection ; it forms the 
 " foundation of those presumptions from which Mr. Boyd 
 " has lately inferred an improper increase of Bank of Eng- 
 " land paper ; and it is implicitly admitted, likewise, by Mr. 
 " Thornton, one great object of whose book is to persuade 
 " the public that there has been no such increase."* With- 
 out entering, therefore, into an unnecessary argument, I 
 shall, for the present, assume as admitted, that the increase 
 of currency, while the commodities to be circulated remain 
 the same, will be attended with an increase of nominal prices, 
 and a correspondent depreciation in the value of money. 
 
 Now it is impossible, when the currency of a country 
 has been thus depreciated, that the same amount of it 
 should purchase the same sum of foreign money as before 
 its depreciation. A foreign bill, or an order for payment of 
 
 * Edinb. Review, v. i. p. 178. 
 30 
 
on Exchange. 505 
 
 a given sum of foreign money abroad, will not be sold, 
 unless for such an increased amount of the depreciated cur- 
 rency, as will counterbalance the diminution of its value. 
 Foreign bills will, therefore, bear a premium, in proportion 
 to the depreciation. 
 
 In the same manner a bill on the country where the cur- 
 rency is depreciated will be bought abroad, where money 
 retains its value, for a much less nominal sum than the 
 amount for which it is drawn ; or, in other words, will be at 
 a discount. Suppose, for instance, that the coins being in 
 the utmost state of perfection in England and France, and 
 the real exchange at par, the augmentation of the total 
 amount of the currency in England were such as to raise 
 prices here, to double their former amount, it would require, 
 in that case, twice the sum to purchase the same commodity 
 in England that would be required in France. The same 
 nominal sum would, therefore, be only of half the value : 
 24 livres in France would purchase an order for the payment 
 of 27. sterling in England, and the nominal exchange, would 
 be 100 per cent, against England. 
 
 An augmentation of currency that affects prices, cannot 
 take place without a corresponding alteration in the nominal 
 exchange. Merchants, from the average sale of the produce 
 which they receive and remit, and from the uninterrupted 
 correspondence which they hold with each other, expressly 
 for the communication of the prices current, have not much 
 difficulty in distinguishing those fluctuations which are owing 
 to the partial abundance or scarcity of a few articles, from 
 that general increase of price which denotes a depreciation 
 of currency : or should they, from want of experience, be 
 tempted to engage in commercial speculations, from a differ- 
 ence of prices not depending upon the real demand, but 
 arising merely from an over-issue or contraction of currency, 
 the loss upon their returns would infallibly teach them more 
 caution in future. 
 
 After the par of exchange, therefore, has been estab- 
 lished, an alteration in the value of currency, whether it 
 arises from a debasement of the coin below its standard, a 
 
 31 
 
506 Blake 
 
 diminution of weight below the mint regulation, or depre- 
 ciation of its value from relative over- issue, will alike affect 
 the price of a foreign bill, and be made evident by an 
 unfavourable nominal exchange. 
 
 It now remains to trace the operation of the nominal 
 exchange on the several exports and imports of the country. 
 
 When foreign bills bear a premium from an unfavourable 
 nominal exchange, it appears advantageous, upon a superficial 
 view of the subject, to export produce, in consequence of the 
 profit arising from the sale of the bill, which the merchant 
 would be authorised to draw upon his correspondent abroad. 
 But a very little consideration will show that there is, in 
 this respect a striking difference between the real and the 
 nominal exchange. 
 
 It is true that the merchant will obtain a premium upon 
 his bill, but it is this premium which alone enables him to 
 export. The same cause that has given rise to this premium, 
 has increased the nominal prices of the articles, which he 
 buys, for the purpose of exportation, in the home market ; 
 whatever he gains upon the bill, he loses in the purchase of 
 his goods. The merchant, therefore, must calculate what is 
 the difference at home and abroad, in the real prices of com- 
 modities, by which I mean the prices at which those com- 
 modities would be bought and sold, if no depreciation of 
 currency existed. If those prices are such as to admit of a 
 profit, the merchant will continue to export, whether the 
 nominal exchange be favourable or unfavourable ; that 
 circumstance can make no difference whatever in his 
 transactions. 
 
 Suppose, for instance, the currencies of Hambro' and 
 London being in their due proportions, and therefore the 
 nominal exchange at par, that sugar, which from its abun- 
 dance in London sold at 507. per hogshead, from its scarcity 
 at Hambro' would sell at 1007. The merchant, in this case, 
 would immediately export. Upon the sale of his sugar, he 
 would draw a bill upon his correspondent abroad for 1007. 
 which he could at once convert into cash, by selling it in the 
 bill-market at home, deriving from this transaction a profit 
 
 32 
 
on Exchange. 507 
 
 of 507., from which he would have to deduct the expenses 
 of freight, insurance, commission, &c. Now suppose no 
 alteration in the scarcity or abundance of sugar in London 
 and Hambro', and that the same transaction were to take 
 place, after the currency in England had been so much in- 
 creased that the prices were doubled, and consequently, the 
 nominal exchange 100 per cent, in favour of Hambro'. The 
 hogshead of sugar would then cost 1007. leaving, apparently, 
 no profit whatever to the exporter. He would, however, as 
 before, draw his bill on his correspondent for 1007. ; and as 
 foreign bills would bear a premium of 1007. per cent, he 
 would sell this bill in the English market for 2007. and 
 and thus derive a profit from the transaction amounting to 
 100 depreciated pounds, or 507. estimated in undepreciated 
 currency ; deducting, as in the former instance, the expenses 
 of freight, insurance, commission, &c.* 
 
 The case would be precisely similar, mutatis mutandis, 
 with the importing merchant. The unfavourable nominal 
 exchange would appear to occasion a loss amounting to the 
 premium on a foreign bill, which he must give in order to 
 pay his correspondent abroad. But if the difference of real 
 prices in the home and foreign markets were such as to 
 admit of a profit upon the importation of produce, the 
 merchant would continue to import, notwithstanding the 
 premium ; for that would be repaid to him in the advanced 
 nominal price at which the imported produce would be sold 
 in the home market. 
 
 Suppose, for instance, the currencies of Hambro' and 
 London being in their due proportions, and therefore the 
 nominal exchange at par, that linen w r hich can^ be bought at 
 Hambro' for 507. will sell here at 1007. The importer 
 immediately orders his correspondent abroad to send the 
 linen, for the payment of which he purchases at 507. a foreign 
 bill in the English market, and on the sale of the consign- 
 ment for 1007. he will derive a profit amounting to the 
 
 * The reader will observe how much the nominal income, and ap- 
 parent profits, of the merchant are increased by the depreciation of the 
 currency. 
 
 33 
 
508 Blake 
 
 difference between 50/. and the expenses attending the 
 import. 
 
 Now, suppose the same transaction to take place, without 
 any alteration in the scarcity or abundance of linen at 
 Hambro' and London, but that the currency of England has 
 been so augmented, as to be depreciated to half its value. 
 The nominal exchange will then be 100 per cent, against 
 England, and the importer will not be able to purchase a 507. 
 foreign bill for less than 100/. But as the prices of com- 
 modities here will have risen in the same proportion as the 
 money has been depreciated, he will sell his linen to the 
 English consumer for 200/. and will, as before, derive a profit 
 amounting to the difference between 100/. depreciated money, 
 or 50/. estimated in undepreciated money, and the expenses 
 attending the import. 
 
 The same instances might be put in the case of a favour- 
 able exchange ; and it would be seen in the same manner, 
 that nominal prices and the nominal exchange being alike 
 dependent upon the depreciation of currency, whatever ap- 
 parent advantage might be derived from the former, would 
 be counterbalanced by a loss on the latter, and vice versa. 
 
 For the very same reasons that the nominal exchange 
 produces no alteration in the imports or the exports of ordi- 
 nary produce, it can have no effect on the export or import 
 of bullion. Nothing can be more evident, than that bullion 
 must be subject to the same variation in its prices from an 
 alteration in the value of currency as any other commodity. 
 If the value of currency is diminished, the prices of all 
 commodities must advance, and that of bullion among the 
 rest.* How then is the profit of the merchant, from the 
 export of bullion, to arise ? Is it not evident that upon an 
 unfavourable nominal exchange, whatever premium he may 
 gain upon his bill, as much will be lost in the advanced price 
 
 * " Bullion is a commodity, and nothing but a commodity, and it 
 " rises and falls on the same principle as all other commodities. It 
 " becomes, like them, dear in proportion as the circulating medium for 
 " which it is exchanged is rendered cheap ; and cheap in proportion as 
 " the circulating medium is rendered dear." (Thornton, Paper Credit.) 
 
 34 
 
on Exchange. 509 
 
 which he must pay for the bullion ? Yet all writers upon 
 the subject of political oeconomy, that I have met with, 
 seern to be persuaded, that when the rate of exchange has 
 deviated from par beyond the expenses of the transit of 
 bullion, bullion will immediately pass : and the error has 
 arisen, from not sufficiently distinguishing the effects of a real 
 and a nominal exchange. This false opinion seems to have 
 been strongly impressed upon all the merchants and Bank 
 Directors who were examined before the Secret Committee 
 of the Houses of Lords and Commons in the year 1797; 
 nor does Mr. Pitt himself appear to have been exempt from 
 its influence. Mr. Bosanquet expressly declares his opinion 
 " that the favourable state of the exchange afforded a 
 " prospect of purchasing foreign gold, and setting the 
 " mint at work," (p. 32. Com. H. of Lords, & passim.) 
 Now it is absolutely impossible that an exchange, arising 
 from depreciation of currency, can have any effect upon the 
 export or import of bullion. For supposing the nominal 
 exchange at par, and the real prices of bullion in London 
 and Hambro' precisely the same, it is clear there could be 
 no motive to export bullion, but that, on the contrary, it 
 would be attended with the certain loss of the expenses of 
 transit. Every thing else, then, remaining the same, let the 
 currency in England be augmented so that the prices of 
 commodities shall rise 4 per cent, and bullion of course 
 among the rest ; the depreciation of the currency will im- 
 mediately be indicated by an unfavourable nominal exchange 
 of 4 per cent. Is it possible that the bullion merchant can 
 be deluded with the idea, that he can derive any benefit 
 from a premium of 4 per cent, upon his bill, when he pur- 
 chases bullion here at an advanced price, and sells it at 
 Hambro' 4 per cent, lower ? Does he not lose as much from 
 the difference of prices, occasioned by the depreciation, as he 
 gains by the premium on his bill, occasioned by the same 
 depreciation ; and consequently subject himself to all the 
 expenses attending the transit, in the same manner as when 
 the nominal exchange is at par ? 
 
 For the same reason, there would be no advantage 
 
 35 
 
510 Blake 
 
 derived from the import of bullion if the nominal exchange 
 were favourable. Suppose it were 4 per cent, in favour of 
 this country ; it is evident that money here would be 4 per 
 cent, more valuable than at Hambro' ; prices, therefore, 
 Avould be 4 per cent, lower, and foreign bills in the English 
 market would be at 4 per cent, discount. Under those 
 circumstances, if foreign bills were purchased to be invested 
 in bullion at Hambro', and the bullion were sent here, would 
 it not be sold in the English market at 4 per cent, less than 
 was given for it at Hambro' ? thus destroying every advan- 
 tage derived from the nominal exchange, and subjecting the 
 importer to the same loss, as in the former instances. Is it 
 then to be wondered at, that with such opinions as the Bank 
 Directors seem to have entertained, they should be so totally 
 at a loss to reconcile the facts with their false theory respect- 
 ing the export and import of bullion? During the course 
 of the year 1796, for eleven months previous to the Bank 
 restriction, the exchange had been, with only two exceptions, 
 favourable ; and at the end of February, 1797, was so high as 
 considerably to exceed the expenses of the transit of bullion ; 
 yet when Mr. Raikes, on the 13th March, was examined 
 before the Secret Committee of the House of Commons,* 
 he acknowledged, that measures had been taken by the Bank 
 to procure a supply of bullion, but without effect, as it could 
 not be imported except at a considerable loss. On the 14th, 
 Mr. Bosanquet stated to the same Committee, that the influx 
 of bullion is occasioned by a favourable exchange ; that the 
 exchange had not been unfavourable for many months ; and, 
 when asked whether the importation had been such as it 
 ought to have been, considering the state of the exchange, 
 replied,! " I am not able to answer these kind of questions." 
 The fact is, that the nominal exchange might for years con- 
 tinue in favour of a country, and not cause a single ounce of 
 bullion to flow into it, or have any effect upon the general 
 state of exports and imports, which would proceed in their 
 
 * Secret Committee of the House of Commons, p. 23. 
 
 t Secret Committee of the House of Commons, p. 28. 
 
 36 
 
on Exchange. 511 
 
 usual course, regulated only by the wants of consumers, and 
 the supply of commodities.* 
 
 It is in vain therefore to look for any remedy for a high 
 nominal exchange from any alteration in the exports and 
 imports of a country. When it arises from a degraded state 
 of the coin, a new coinage immediately restores it to par ; 
 when it arises from the augmentation or contraction of 
 currency, the restoration of the currency to a due proportion 
 with the commodities to be circulated by it, will be the true 
 and only remedy. 
 
 In what manner this restoration of the currency to its 
 level is effected, it will now be proper to enquire. 
 
 In all countries the weight of bullion contained in any 
 specific quantity of coin issued at the mint is determined by 
 law. At the English mint, a pound weight of gold is coined 
 into 44 i guineas, which, at 21s. the guinea, is equal to 
 46/. 145. 6d. or 3/. 17 s. lO^d. per ounce. This is said to be 
 the mint price of gold in England, or the quantity of coin 
 which the mint returns for standard gold bullion. An 
 ounce of gold, therefore, so long as it remains in the shape 
 of coin, can never be worth more than 31. 17 s. IQd. because 
 while it retains that form, it cannot be legally tendered in 
 payment for more than that sum. As soon therefore as an 
 over-issue of currency has raised the prices of all commo- 
 dities, and that of bullion among the rest, the weight of gold 
 contained in any specific quantity of coin will sell for a 
 higher nominal value in bullion, than it will pass for in the 
 form of coin, or, as it is usually expressed, the market price 
 of bullion will exceed the mint price, and there will be a 
 profit attending the conversion of coin into bullion propor- 
 tionate to the difference of the nominal value. Accordingly, 
 the conversion immediately takes place, requiring very little 
 greater excess of the market price above the mint price, 
 than will pay for the fire that is to melt the coin. The 
 
 * It is not to be inferred, that because the nominal exchange has no 
 effect on the general exports and imports, that therefore the country 
 sustains no injury ; the contrary of which will be shewn, in treating of 
 the foreign expenditure of government, and the unequal pressure that 
 the depreciation occasions on the different classes of the community. 
 
 37 
 
512 Blake 
 
 operation is so simple, and requires so little apparatus, that 
 it may be performed with the utmost secresy, and no penal- 
 ties of the law, or vigilance of the officers of the Mint or 
 Bank, have ever been found adequate to its prevention. 
 
 To account for this, there is no necessity for supposing a 
 demand for bullion abroad. It is the conversion, that pre- 
 vents the currency from ever exceeding the due proportion 
 that is wanted for the purposes of circulation : for it can* 
 never exceed that proportion, without augmenting the 
 nominal price of bullion, and affording, as long as there is a 
 superfluous quantity, a profit to the melter. 
 
 It is true that the same conversion may take place, by 
 exporting the coin to any foreign country, where it will be 
 estimated according to its weight in bullion, and pass for its 
 intrinsic value; and probably this circumstance has led so 
 many writers to assign the capability of the transit of coin, 
 as the reason why currency convertible into coin can never 
 be depreciated by excess. But it is evident that, of the 
 two modes of conversion, that by melting will be preferred, 
 since it will be unattended by any expenses of transit. If 
 the market price of bullion in London were 4 per cent, 
 above its mint price, in consequence of the depreciation of 
 currency, while at Hambro' there was no depreciation what- 
 ever, 100 guineas conveyed to the latter place would pur- 
 chase the same value in commodities that 104 guineas would 
 do in London ; but as the expense of sending them would 
 amount to 3 per cent.,f there would be a profit to the 
 exporter of one guinea only; whereas the 100 guineas, 
 melted in London, would immediately sell in the market for 
 109Z. 4s., leaving a clear profit of four guineas by the opera- 
 tion. It is absurd, then, to suppose that any man would 
 
 * The reader will apply the proper limitation to this general asser- 
 tion, which is not meant to convey the idea that the effect will be in- 
 stantaneous, or that it may not be counteracted by other causes, but 
 that the over-issue of currency will have this tendency, and that 
 ultimately the nominal price of bullion will be raised above its natural 
 price, in proportion to the over- issue. 
 
 t The expense as stated by Mr. Eliason, is 3Z. 12s. lid. per cent. 
 Evidence Secret Committee House of Lords, 1797, p. 96. 
 
 38 
 
on Exchange. 513 
 
 expose himself to the penalties of the law, by exporting coin 
 for a profit of 1 per cent., when without subjecting himself 
 to severer penalties, he might, by melting it, secure a profit 
 of 4 per cent. 
 
 It is the melting, therefore, in consequence of the high 
 market price at home, and not the export in consequence of 
 a high nominal exchange, that will cause the disappearance 
 of the coin. It is true, that after the melting has proceeded 
 for some length of time, (unless indeed the melted coin be 
 purchased for the purpose of being recoined,) there will be 
 a gradual accumulation of bullion beyond what may be 
 wanted for consumption; and this abundance may render 
 the commodity so cheap, that the bullion merchant may find 
 his advantage in exporting it, in consequence of the differ- 
 ence of the real prices in the home and foreign markets. 
 But this exportation is the effect of the melting, and not the 
 cause of it. It is not a demand for the exportation of bullion 
 that has caused the melting of the coin ; but the coin 
 being melted, to take advantage of the high nominal price of 
 bullion, has lowered its real price so much, as to afford a 
 profit upon its exportation. It is by no means necessary, 
 however, that the bullion produced by the melting should be 
 exported, since there may be a greater demand for bullion 
 at home, for the purposes of manufacture, than there is 
 abroad. The melter will always derive his profit by selling 
 the melted coin at the high market price, which the bullion 
 merchant will be equally ready to give, whether he sell to 
 the home manufacturer, or the foreigner whether, at the 
 time, he be effecting the import or the export of bullion. 
 
 A want of attention to this distinction, so essentially 
 necessary towards a just conception of the principle, which 
 regulates the quantity of currency and the increase of prices, 
 has led to some very erroneous opinions respecting what is 
 called the universal level of currency : for it has been main- 
 tained by many writers upon political economy, and implied 
 by almost all, that specie leaves the country where it is 
 depreciated in consequence of the inferiority of its value to 
 
 39 
 
514 Kiake 
 
 the currency of other countries ;* that if the currencies of 
 other nations were depreciated in an equal proportion, there 
 would be no advantage attending the export ; and that upon 
 the supposition of the currency being proportionally in- 
 creased throughout the world, prices might be universally 
 and indefinitely augmented ; whereas the export has no 
 relation whatever to the value of currencies in other coun- 
 tries, but arises entirely from the relative value of gold in 
 the form of coin and in the form of bullion. 
 
 The coin of this country, when sent abroad, passes only 
 for its intrinsic value, according to its weight, and it will 
 not be sent abroad from an unfavourable nominal exchange, 
 unless its value in the shape of bullion is greater than its 
 value in the form of coin. But the real value of bullion on 
 the Continent is no more affected by the depreciation of the 
 currency there, than it is here. If there be a profit upon the 
 export of coin from this country at a time when the currency 
 is depreciated here, and is not depreciated upon the Con- 
 tinent, there would be the same profit, if the currency of the 
 Continent were depreciated also ; for the market price of 
 bullion, at which our exported coin would then be sold 
 abroad, would be so much higher in proportion to the depre- 
 ciation of the foreign currency. Suppose that the currency 
 at London and Hambro' being in their due proportions, and 
 
 * This error pervades Mr. Wheatley's Work on the Theory of Money 
 and Principles of Commerce. He was well aware of the fact, that 
 specie is frequently exported in consequence of an unfavourable ex- 
 change ; but as he does not admit of any alteration in the exchange, 
 from the abundance or scarcity of foreign bills, (which is the real cause 
 of the export of specie, when it does take place,) he attributed the 
 effect, to the difference in the value of currencies ; and thence inferred, 
 that the export of. coin was the remedy for its depreciation a principle, 
 that leads at once to the conclusion, that prices might be indefinitely 
 auinnented, if the currencies of all nations were proportionally increased. 
 Mr. Ricardo and Mr. Mushet have fallen into the same error, 
 respecting the export of specie, and do not seem to be aware, that the 
 alteration in prices, from over-issue or contraction of currency, has no 
 eifect upon the exports and imports of ordinary produce ; since they 
 uniformly describe commodities as flowing from the nominally cheap, to 
 the nominally dear market, without adverting to the counteracting 
 effects of the nominal exchange. 
 
 40 
 
on Exchange. 515 
 
 the nominal exchange at par, the real price of bullion corre- 
 sponds in both places with the English mint price. Let the 
 currency at London be depreciated by over-issue 4 per 
 cent. ; the market price of bullion at London would then 
 exceed the mint price 4 per cent., and the nominal exchange 
 would be unfavourable to the same amount. Under those 
 circumstances, a merchant exporting lOOZ.'s worth of specie 
 to Hambro 1 and drawing a bill upon his correspondent, would 
 gain 1 per cent, by the transaction : for the specie, on its 
 arrival at Hambro' where the market price of bullion, 
 according to the hypothesis, corresponds with the English 
 mint price, would sell in the bullion market for 100Z. The 
 English merchant would therefore draw for 100/. ; and, 
 foreign bills bearing a premium, would sell his bill in the 
 English bill market for 104/., which, after deducting 3 per 
 cent, for the expenses of transit, would leave him a profit of 
 I/, per cent. Now suppose the currency at Hambro' to be 
 also depreciated to the amount of 4 per cent. ; the nominal 
 exchange will then be at par, but the market price of bul- 
 lion at Hambro' will exceed the English mint price 4 per 
 cent. The lOO/.'s worth of specie will sell at Hambro' for 
 1047.; the merchant will therefore draw upon his corre- 
 spondent for 104?., and the exchange being at par, will 
 procure 104/. for his bill in the English bill market ; and 
 deducting 3 per cent for the expenses of transit, he will 
 obtain a profit of \l. per cent, as before. 
 
 It has been already demonstrated that bullion will not be 
 exported under an unfavourable nominal exchange, merely 
 in consequence of that exchange; and the reason why specie 
 is exported under the same circumstances, is, that the coin, 
 while it remains here, passes for less than its worth, and that 
 abroad it passes for its real value ; in this country it forms 
 a part of the currency, and partakes of the depreciation, 
 abroad, it passes as bullion, and is relieved from the depre- 
 ciation. But it is quite clear that even in the export of 
 specie, there would be no profit whatever, unless its deprecia- 
 tion were greater than the expenses attending its export ; 
 and therefore were there no other remedy for a depreciated 
 
 41 
 
516 Blake 
 
 currency than the export of specie, the nominal exchange 
 might for any length of time continue unfavourable, to an 
 extent somewhat less than the expenses of the transit of 
 bullion. But the fact is, that no such continuance of an 
 unfavourable exchange, even to that extent, can take place, 
 so long as the currency is capable of being converted into 
 bullion: for as soon as the depreciation is evinced by an 
 elevation of the market price of bullion above the mint 
 price, that moment the conversion of the superfluous cur- 
 rency commences; and it depends upon the comparative 
 demand for bullion in this country, and the demand, upon 
 the continent, whether the melted specie be exported or not. 
 
 It must be admitted, that, as soon as the depreciation 
 has exceeded the expenses of the transit of specie, and thus 
 afforded an option as to the mode of converting it into 
 bullion, the foreign merchant, by buying abroad the bills 
 upon England, which will necessarily be at a discount, and 
 ordering his correspondent to whom he sends the bills, to 
 invest them in English specie, will be enabled to procure 
 bullion at the English mint price. So that as long as he 
 can dispose of the bullion at that price abroad, he will derive 
 a profit equal to the excess of the discount at which he has 
 bought the English bills, above the expenses of the transit of 
 specie. But it having been already shewn, that the profit 
 on melting always exceeds the profit on exporting, by the 
 amount of the expenses attending the export, it can never be 
 believed that a merchant would collect the current coin, and 
 by exporting it, subject himself to the penalties of the law, 
 for the sake of obliging his foreign correspondent, and 
 enabling him to acquire a profit of 1 per cent., when by 
 melting the same coin, he might himself, with less risk, 
 obtain a profit of 4 per cent. 
 
 Again, if the nominal exchange were rendered favourable, 
 4 per cent, by a forced contraction of the currency, and the 
 price of bullion were lowered with that of other commodities, 
 BO as to be 4 per cent, below the mint price ; would any 
 merchant purchase foreign bills at a discount of 4 per cent., 
 and send them to Hambro' to be invested in foreign coin, for 
 
 42 
 
on Exchange. 517 
 
 the sake of gaining 1 per cent, upon its import, when, by 
 employing the same capital in the purchase of bullion in the 
 home market, and converting it into coin at the mint, he 
 would derive a profit of 4 per cent. ? 
 
 The only case in which a superior advantage would be 
 obtained from the export of specie, rather than from the 
 conversion of coin into bullion, or from the import of specie 
 rather than the conversion of bullion into coin, would be, 
 when the over-issue or contraction of the currency had 
 created a premium or discount of 4 per cent, on foreign bills, 
 without producing an alteration of 1 per cent, in the market 
 price of bullion. But it has been already shewn, that the 
 nominal price of bullion is raised or lowered in the same 
 manner as that of other commodities, to which it would 
 otherwise no longer bear its natural relative value. Such an 
 occurrence, therefore, if possible, can be but temporary, and 
 does not affect the general argument. 
 
 When the currency consists partly of coin, and partly of 
 paper convertible at option into coin, it is for the same 
 reason absolutely impossible that it can continue perma- 
 nently in a state of depreciation : for should the Bank be so 
 imprudent as to issue notes beyond the demands of increasing 
 wealth, as soon as the augmentation of prices, and a con- 
 sequent unfavourable nominal exchange, denoted the depre- 
 ciation of the currency, the market price of bullion would 
 exceed its mint price, and all that portion of the circulating 
 medium which could be converted into bullion would begin 
 to disappear. The paper of the Bank would be returned to 
 be exchanged for coin, which would be immediately melted, 
 and sold in the form of bullion, for notes, at the advanced 
 nominal price. These, in their turn, would be sent to the 
 Bank to be in the same manner exchanged for coin, which 
 would be melted and sold as soon as procured. 
 
 Now this process might be going forward, and continue 
 to drain the Bank of its gold, without the slightest demand 
 for bullion abroad, or without any demand for foreign pay- 
 ments. It would equally take place, though the country 
 were receiving payments instead of making them though 
 
 43 
 
518 Blake 
 
 it were importing bullion instead of exporting it. Should 
 the Bank persist in its over-issue, and still endeavour to 
 throw the same quantity of notes into circulation, the 
 Directors would be compelled to purchase bullion, and coin 
 it into guineas, in order to supply the drain occasioned by 
 the return of their notes ; and as Mr. Thornton states, 
 " they will have to do this at the very moment when many 
 " are privately melting what is coined. The one party 
 " might be melting and selling, while the ether is buying 
 " and coining ; and each of these two contending businesses 
 te will be carried on, not on account of an actual exportation 
 " of each melted guinea to Hambro' ; but the operation, or 
 " at least a great part of it, will be confined to London 
 te the coiners and melters living on the same spot, and giving 
 " constant employment to each other."* 
 
 Mr. Winthorp, in the evidence he gave before the Secret 
 Committee of the House of Commons in 1797, (p. 46 and 
 47,) concluded that because there was a -drain upon the 
 Bank, there must necessarily be a drain upon the country ; 
 and stated " his belief that the coffers of the Bank generally 
 " shew whether money is coming into or going out of the 
 " country." I should hope it would be unnecessary, after 
 what has been already observed, to offer anything further in 
 refutation of such opinions. The drain upon the Bank will 
 begin under any circumstances, whenever the depreciation 
 of currency from over-issue has raised the market price of 
 bullion above its mint price ; and it will continue, till the 
 loss which the Bank must suffer by the purchase of bullion 
 to supply the drain, shall compel the Directors to diminish 
 the number of their notes, so as to bring back the currency 
 to its natural level. The price of bullion will then fall to 
 its mint price, and no longer afford a profit on being melted ; 
 
 * Mr. Thornton admits that the melting is not always connected with 
 the export of bullion ; but as the object of his Book was to shew that 
 the currency was not depreciated, it was impossible for him to give even 
 a plausible explanation of this part of his subject, without attributing 
 the effect to an unfavourable real exchange. 
 
 44 
 
on Exchange, 519 
 
 the nominal exchange will invariably mark the amount of 
 the depreciation during its continuance ; and when the 
 depreciation ceases, the nominal exchange will rise to par. 
 
 The adoption of a paper currency, therefore, can never 
 be injurious to a country, so long as it is convertible at 
 option into specie. The temptation to its over- issue will 
 always be sufficiently checked by the principle that has been 
 just explained; and, independently of the convenience of 
 making the larger payments, it will certainly be advantage- 
 ous to carry on the circulation of a country by a cheap, 
 rather than a costly, machinery. 
 
 It is obvious, that as the nominal prices of commodities 
 will be increased by the over-issue of currency, so, for the 
 same reasons, the contraction of it below the natural wants 
 of circulation, will diminish the nominal prices in the same 
 proportion. A smaller quantity of currency will then 
 measure the same value, and the nominal exchange will be 
 favourable to the country where the value of the currency 
 is increased. This is an event that does not often occur : 
 for as the profits of a bank that issues paper-money depend 
 upon the quantity it can circulate, the directors of the 
 establishment will generally take care that the supply shall 
 not be less than the demand. When the market price of 
 bullion, however, has from any cause been elevated above 
 the mint price, the Bank has always the power of giving the 
 currency an artificial value by a diminution of its total 
 amount; and it is evident that by such a diminution, the 
 price of bullion will be lowered in the same proportion as 
 that of any other commodity. Bullion will then be of less 
 value in the market than in the form of coin, and the 
 merchant will carry it to the mint, to obtain the profit 
 attending its conversion into specie. If, under such circum- 
 stances, there should be a demand for bullion for the pur- 
 pose of exportation, this would evidently occasion no drain 
 upon the Bank, while it could be procured at a cheaper rate 
 in the market; and should the demand for exportation con- 
 tinue so long as to raise the price of this commodity, in 
 
 45 
 
520 Blake 
 
 consequence of its scarcity* the Bank would always have 
 the power by a greater contraction of its currency, to lower 
 its nominal price, and thus preserve the superiority of its 
 value in the form of coin over its value in the shape of 
 bullion. 
 
 It is thus that the value of the currency is made to 
 correspond with that of the precious metals of which it is 
 composed, or into which it is convertible ; and as long as 
 they continue to be the standard by which the value of 
 other commodities is estimated, the circulating medium of 
 the whole mercantile republic will suffer no permanent alter- 
 ations, but what arise from the variation in the intrinsic 
 value of the precious metals themselves. 
 
 It is some proof of the truth of these positions respecting 
 the uniformity of the value of currency, that from the 
 period of the reformation of the gold coin in 1774, to the 
 year 1797, the computed exchange between London and 
 Hambro' was generally in favour of the former, arising, 
 probably, from the superiority of our coin ; and that it 
 seldom varied, except in 1793, more than 5 per cent, on the 
 one side or the other of par. In that year the computed 
 exchange rose to 1 and 1 1 per cent, in favour of this country 
 owing to the sudden contraction of currency that took place 
 in consequence of the run upon and failure of the country 
 banks, at the breaking out of the French revolutionary war, 
 which had the effect of raising the nominal value of the 
 currency here to the degree indicated by the favourable 
 exchange. During the whole of this period the market price 
 of bullion never exceeded its mint price, except in the year 
 1783, by the very trifling amount that has been already 
 specified; and in the year 1795, when the Bank had 
 extended its paper from less than 11 to upwards of 13 
 millions and a half. 
 
 After this review of the subject, and the strong evidence 
 
 * The scarcity here spoken of refers only to the partial scarcity 
 arising in particular countries from the temporary unequal distribution 
 of bullion, and not an actual scarcity arising from a permanent 
 diminution of the usual quantity produced at the mines. 
 
 46 
 
on Exchange. 521 
 
 which presents itself that the currency of a kingdom, 
 whether consisting of coin only, or partly of coin and partly 
 of paper, can never be augmented beyond its due proportion, 
 so long as the paper is convertible at pleasure into specie 
 can any one for a moment doubt of the result, should this 
 salutary check be removed, and at the same time the paper 
 currency be made a legal tender for the payment of debts ?* 
 \Yithout this latter provision, motives of prudence might 
 induce the Bank so to restrain its issues, as not to create an 
 open discount upon its notes, and thus introduce a paper 
 and a money price for commodities : but under the protection 
 now afforded by the Restriction Act, there is no reason why 
 it should not push the issue of this currency to the utmost 
 possible limit, and particularly if there be a confidence in 
 the public, that sooner or later the notes will be convertible 
 into gold. There is no doubt, that with respect to the Bank 
 of England this confidence is strongly felt by the public, 
 and with good reason. Bank of England notes are never 
 issued but for a valuable consideration, being principally 
 advanced either upon Exchequer bills or in discounting the 
 bills of merchants. Unless, therefore, the government is 
 unable to redeem the former, or the merchants should be 
 incapable of paying the latter when they become due, there 
 must always be sufficient funds in the Bank to answer the 
 demands upon it.f The depreciation from over issue is 
 therefore by no means necessarily connected with any want 
 of confidence in the resources of the Bank, but rests upon 
 an entirely different foundation, and might equally take 
 place, whether the currency consisted partly of coin and 
 partly of paper, or was composed entirely of the former : for 
 it is not the paper only, but the whole currency, both the 
 paper and the coin, so long as it remains in the form of 
 coin, that is depreciated by over-issue. But as the latter is 
 
 * By the Restriction Act, bank notes are not absolutely a legal 
 tender ; but if a tender be made in notes, the debtor cannot be arrested. 
 
 t There must in fact be more than sufficient, since the value of the 
 outstanding notes must be less than that of the bills upon which they 
 were issued, by the amount of the interest deducted at the time they 
 were discounted. 
 
 47 
 
522 Blake 
 
 convertible into bullion by melting, it will be consigned to 
 the crucible, for the purpose of removing the depreciation 
 that it suffer^ while it constitutes a part of the currency. 
 
 The advocates for the Bank restriction triumphantly ask, 
 how it is possible that the notes can be depreciated, if 100/. 
 in bank notes will purchase as much as 100/. in specie: but 
 the question, as applied to the depreciation of the currency, 
 is absurd ; for the notes and the coin are alike depreciated,* 
 and therefore exchange, as before, for the same quantity of 
 produce in the market. But their intrinsic value is not the 
 same, because guineas being convertible into bullion, the one 
 may be relieved from its depreciation by a change in its 
 form ; whereas the other cannot. f This conversion is con- 
 stantly going on, an.i must continue till not a piece of coin 
 is left in circulation, unless its weight be so much reduced 
 below the standard as not to be worth the melting. The 
 disappearance of the coin is the proof of its depreciation. 
 
 * This opinion is controverted in the Edinbro' Review, No. 25, p. 54, 
 apparently under an idea that, as the price of gold and silver is nearly 
 the same in all the countries of the world, a depreciation of the cur- 
 rent specie in this country must necessarily be accompanied by a cor- 
 responding depreciation of the currency of all nations upon the face of 
 the earth. But there is a material distinction between the depreciation 
 of the specie, and the depreciation of the gold and silver that forms the 
 specie. The first may be effected by the over-issue of the Bank, but that 
 can have no influence on the real value of the bullion, which the specie 
 contains. As an argumentum ad hominem against Mr. Thornton, it is 
 indeed conclusive, because he imagines the remedy for a depreciated 
 currency consists in the exportation of coin to other countries, where it 
 is not so depreciated. It would be impossible, therefore, for the specie 
 to continue permanently degraded, upon his principles, unless the value 
 of the currency of every other nation were equally so. But it has been 
 shewn that the remedy for depreciated currency from over-issue depends 
 on its conversion into bullion, and not upon its exportation. 
 
 The gold and silver currency may therefore fall in value below the 
 level of the currency of neighbouring states, but this cannot be the case 
 with the gold and silver of which it is composed. 
 
 f- As long as the bank note for a guinea is convertible into gold 
 bullion, at the option of the holder, its intrinsic value may be said to be 
 the same as a guinea. Take away the convertibility, and the intrinsic 
 value of the note is the value of the ink and paper of which it is com- 
 posed. No banking operation, nor legislative provision, can ever alter 
 the real value of the gold bullion in a guinea, but the number of nomi- 
 nal pounds to be given for that quantity of gold bullion, may be 
 increased in the proportion that the total number of pounds in the 
 currency is increased beyond what is wanted. 
 
 48 
 
on Exc/ianyc, 523 
 
 The reason why the ordinary shopkeeper does not make a 
 distinction between the payments made to him in gold, and 
 those which he receives in paper, is, the confidence he feels 
 that at some time or other the notes will be paid in specie, 
 and that he is in the meantime deterred by the penalties of 
 the law from melting the guineas the only mode by which 
 he can derive a superior profit, from a payment in coin. But 
 the occupation of melting the specie is nevertheless fol- 
 lowed by a less scrupulous class of the community, who have 
 not hesitated to give a premium for guineas, whenever an 
 opportunity offered of purchasing them, anil of profiting 
 by their conversion, without danger of detection.* But the 
 difference in the intrinsic value of the notes and the guineas 
 is not the less real, because it cannot openly be avowed. If 
 the coin were allowed by law to be melted, if the penalties 
 for this offence were less severe, or if guineas could be 
 collected without exciting the suspicion of the officers of the 
 Bank and the Mint, neither the Restriction Bill, nor the 
 provision that bank notes may be tendered as legal payment, 
 would prevent a paper and a money price for commodities, 
 and consequently an open discount upon bank paper. 
 
 The drain upon the Bank, in the year 1797, is allowed 
 by all the Directors to have arisen from the alarm of inva- 
 sion. The market price of bullion was, at the time, below 
 its mint price ; the exchange with the Continent was in 
 favour of London ; and therefore all the causes, that are 
 usually assigned, as creating a drain upon the Bank, were 
 operating in a contrary direction. The alarm originated, 
 according to the evidence given by Mr. Burdon, one of the 
 proprietors of the Newcastle bank, before the Secret Com- 
 mittee in 1797, from the orders that had been issued for 
 taking an account of the stock of the farms of Northumber- 
 land, for the purpose of regulating the mode in which the 
 
 * An instance of this has recently come before the public, in conse- 
 quence of an information against a person charged with selling guineas 
 for more than they are allowed to pass for by law. 
 
 49 
 
524 Blake 
 
 county was to be driven, in case of invasion. The farmers 
 immediately sold their produce at very low prices, and the 
 notes which they received from the purchasers were poured 
 in upon the persons by whom they were issued, to be 
 exchanged for specie ; in consequence of which, the banks at 
 Newcastle were obliged to stop payment, and their failure 
 was followed by a similar run upon the country banks 
 throughout the kingdom, many of which were in like man- 
 ner obliged to stop. The alarm was communicated to the 
 metropolis, and occasioned a drain upon the Bank, which had 
 already been called upon for considerable advances, in con- 
 sequence of the run upon the country banks. The distress 
 of the mercantile class, from the great extent of the failures, 
 and the general distrust they occasioned, aggravated by a 
 violent, and therefore improvident, contraction of the usual 
 quantity of bank paper, combined to produce that crisis 
 which terminated in the restriction of cash payments at the 
 Bank. It is unnecessary now to enquire how far this restric- 
 tion at the time was politic or otherwise. It probably was a 
 measure of prudence ; but as the evil was temporary, so also 
 ought to have been the remedy. It might have been ex- 
 pected, that the complete relief of the merchants, and the 
 returning confidence of the people, would have been con- 
 sidered as the signal for discontinuing a law, which has 
 given the Bank Directors a power of permanently altering 
 the value of the circulating medium of the country. It has, 
 however, been decided otherwise ; and the consequence has 
 been, that as the fears of the Bank Directors have been dis- 
 pelled, the quantity of currency has been gradually increased, 
 and has produced all those symptoms, which any person 
 acquainted with the theory of money and exchange would 
 easily have anticipated; an augmentation in the price of 
 commodities, an increase of the market price of bullion over 
 the mint price, and an unfavourable nominal exchange. 
 
 The effect of the over-issue of bank-notes upon the 
 computed exchange may be visible from comparing the 
 amount of the notes in circulation in the years 1795 and 1797, 
 
 50 
 
on Excliange. 525 
 
 with the computed exchange at the some periods. The 
 amount was augmented in February 1795, to 13J millions,* 
 and the exchange between Hambro' and London, which was 
 then 6 per cent, above par., fell, before September, to 3J per 
 cent, against England. In February 1797, the paper in 
 circulation was reduced to 8^- millions, and the exchange 
 between Hambro' and London rose to 67. IBs. per cent, in 
 favour of England. By the last returns presented to Parlia- 
 ment, it appears that the bank notes now in circulation 
 amount to 21 millions, the market price of gold in Novem- 
 ber was 15/. 8s. 2d. per cent, above the mint price, and the 
 exchange between Hambro' and London 16/. 18s. per cent, 
 against England. 
 
 Should any one still be sceptical on the subject, a short 
 survey of the mode iri" which the business of the Bank is 
 conducted will probably remove his doubt. It has been 
 already shewn, that so long as its notes are convertible at 
 option into specie, a bank can never permanently keep in 
 circulation more paper than the wants of the country require. 
 But it is not perhaps, quite so clear, in what manner the 
 over-issues of the bank that is not liable to be called upon 
 for cash payments, will augment the nominal prices of all 
 commodities. 
 
 The notes of the Bank of England are issued to the 
 merchants who are in want of money, on the security of 
 bills of exchange of not more than 60 days date, which are 
 brought to the Bank for discount. 
 
 On the receipt of the bill, the Bank gives to the mer- 
 chant an equal amount in notes, deducting the interest at 
 the rate of 5 per cent. When the bill is due^ the Bank 
 presents it for payment, and receives the amount in full, 
 deriving a profit from the transaction equal to the interest 
 of the notes for the time. The oftener this process can be 
 repeated, and the greater the amount of the notes it lends, 
 the greater will be its profits. Now it is evident, that if the 
 purchases of the merchants could be effected by their own 
 
 * Secret Committee of the House of Lords in 1797, p. 176. 
 51 
 
526 Blake 
 
 bills, it would be unnecessary for them to apply to the Bank 
 for discounts; this application, then, is of itself a decisive 
 proof that the bills of private merchants will not pass in the 
 market with the same facility as the bills of a national 
 Banking Company. The conversion, therefore, of the bills 
 into notes is an increase of currency, which could not take 
 place without the assistance which a bank affords. 
 
 Now the merchant regulates the scale of his transactions 
 by the amount of the capital he can command. The greater 
 the extent of this capital, the larger the profits he will 
 expect to derive from its employment. If he can make a 
 profit of 10 per cent, by his business, he will always be 
 willing to extend it by borrowing capital, for which he is to 
 pay an interest of only 5 per cent. Here then are two parties 
 exactly suited to the supply of each other's wants, and co- 
 operating from mutual interest towards the same object. 
 The profits of the Bank are in proportion to the paper cur- 
 rency it can lend, and the expected profits of the merchant 
 are in proportion to the paper currency he can borrow. 
 Under such circumstances it is idle to talk of the Bank 
 Directors having the power to contract their discounts when 
 they perceive there has been an over-issue, unless a motive 
 can be shewn for the exercise of tjmt power. While the 
 Restriction Act is in force, the only rule of their conduct 
 will be the validity of the bills that are offered for discount, 
 and they are bound by the duty they owe to the Bank Pro- 
 prietors who appoint them, to profit by the facilities thus 
 imprudently granted by the government, and to employ to 
 the greatest possible advantage the funds of which they have 
 the disposal. 
 
 It is equally idle to say that the merchant will not 
 employ all the capital he can command, or that his credit 
 will enable him to borrow.* By the facilities that are now 
 
 * See a whimsical pamphlet published by Mr. Smith on the Theory 
 of Money. He asks, would bankers and merchants apply to have good 
 bills discounted at the Bank, if bank notes were depreciated 1 The 
 answer to which is obvious. The depreciation in no way affects the 
 dealings of the merchants ; who buy and sell at the high nominal 
 
 52 
 
on Exchange. 527 
 
 given to discounts, the merchnnts can always, either by 
 immediate application to the Bank by means of their 
 bankers, or, if in the country, by the intervention of the 
 country banks, coin their credit into currency, which will 
 operate upon the markets wherever it makes its appearance : 
 for the prices of any given supply of produce will depend 
 upon the number of purchasers, and the extent of the capital 
 they can command. The more easily capital can be pro- 
 cured, the greater will be the competition in the market. 
 Whenever the prospect of a profitable speculation offers, 
 merchants will be eager to embark in it, and the demand, 
 which, under ordinary circumstances, would be regulated by 
 the amount of real capital capable of being diverted into 
 that channel, will now be augmented in proportion to the 
 fictitious capital, called into existence by the facilities afforded 
 from the Bank discounts; and thus an over-issue of notes 
 will immediately take place, creating an additional number 
 of purchasers, or increasing their powers of purchasing in 
 proportion to the over-issue. If the increased currency be 
 employed in a foreign speculation, it immediately acts upon 
 the foreign bill-market, and creating there a fictitious 
 demand, it affects the nominal exchange ; iV it be employed 
 by the bullion-merchant, it raises the market price of that 
 article ; if by the homtr dealer, it augments the prices of 
 native commodities. No sooner has it left the merchants by 
 whose means it was called into existence, than it passes to 
 the wholesale dealers and master manufacturers, who, in 
 their turn, will raise the prices in their respective markets 
 by a competition which is called into action merely by the 
 over-issue. 
 
 If the evil were confined to the increased quantity of 
 currency thus thrown into circulation by the Bank of 
 England, it might not be attended with injurious conse- 
 quences of such magnitude as are now experienced : but the 
 misfortune is, that the same law which protects the National 
 
 prices, and whose profits are nominally increased in the same proportion 
 as money is depreciated. 
 
 53 
 
528 Blake 
 
 Bank, and enables it thus to derange the natural state of 
 the circulating medium, confers the same power on all the 
 country banks throughout the kingdom, which are now 
 relieved from the fears and inconvenience to which under 
 ordinary circumstances they would be subject, should they 
 at any time be tempted to issue their notes beyond the 
 amount which the wants of their respective districts might 
 require. 
 
 The country banks are, in the same manner as the Bank 
 of England, enabled to supply their respective connexions 
 with funds for speculation. If the excess of their paper 
 should at any time excite doubts of their solvency, and 
 create a run, they may be supplied by their correspondents 
 in London with notes from the great central paper mint; 
 and thus are all the lesser establishments throughout the 
 kingdom absolved from every difficulty. They issue their 
 notes almost without limit, and by these means enable the 
 country dealers to enter into speculations and purchases, 
 which, without their assistance, could never have been 
 effected. Can any one then be surprised that prices should 
 rise, when every addition of currency is attended with profit 
 to the Bank by which it is issued ; and that there can never 
 be an additional issue of currency without creating additional 
 purchasers to the same amount? 
 
 An objection has been urged against this view of the 
 subject, which deserves to be noticed. It has been stated, 
 that if only such bills are discounted at the Bank, as have 
 been drawn in consequence of bond fide commercial trans- 
 actions, no additional currency is thrown into circulation, 
 more than the wants of the mercantile community require ; 
 that the bills so discounted are the representatives of the 
 property, by the transfer of which they are created; and 
 thus a distinction has been attempted to be drawn between 
 real and fictitious bills ; or, as the latter are more generally 
 termed, bills of accommodation. But it will not require 
 much consideration to perceive that this, as far at least as 
 concerns the over-issue of currency, is a distinction with 
 little, if any, difference. Mr. Thornton has well observed, 
 
 54 
 
on Exchange. 529 
 
 that "notes given in consequence of a real sale of goods 
 " cannot be considered as on that account certainly repre- 
 " senting any actual property. Suppose that A. sells 100/. 
 <( worth of goods to B. at six months credit, and takes a bill 
 " at six months for it ; and that B. within a month after, 
 " sells the same goods to C. at a like credit, taking a like 
 <( bill ; that C. after another month, sells them to D. ; and 
 " so on ^ there may, at the end of six months, be six bills of 
 " 100Z. each, existing at the same time, and every one of 
 < them may possibly have been discounted. Of all these 
 " bills, then, one only represents any actual property. If 
 fl the credit given be a credit of twelve months instead of 
 " six, 1200/. instead of 600/. would have been the amount 
 " of the bills drawn on the occasion of the sale of goods, 
 " and IIOOL would have been the amount of those that 
 " represented no property. In order to justify the suppo- 
 * c sition that a real bill represents actual property, there 
 (e ought to be some power in the bill-holder to prevent 
 <f the property which the bill represents from being turned to 
 " other purposes than that of paying the bill in question."* 
 
 Now had these bills never been discounted, their circula- 
 tion would have been confined to those persons only, with 
 whom the parties, whose names appear on the bill, had 
 credit ; and their effect upon the general currency of the 
 country would in such case have been exceedingly limited, 
 compared with that which they have in the more negotiable 
 form of the notes of a Banking Company. 
 
 " One of the motives of the seller who desires to have 
 " a note for goods sold, is, that he may engraft on the trans- 
 " action of the sale the convenient condition of receiving 
 " from the buyer a discountable note of the same amount 
 " with the value of the goods. A fictitious note, or note of 
 " accommodation, is a note drawn for the same purpose of 
 ef being discounted, though it is not sanctioned by the cir- 
 ** cumstance of its having originated in an actual sale of 
 " goods." f The Bank of England professes to refuse the 
 discounting of any bills except those drawn for bond fide 
 
 * Thornton on Paper Credit, ante p. 156. t Ibid. 
 
 55 
 
530 Blake 
 
 mercantile considerations ; and so far as their own interests 
 are concerned, it may be a very proper and highly prudent 
 regulation : but to the public, it is of little moment upon 
 what degree of security the Bank may think right to lend 
 its notes; nor can the Directors, with all their vigilance, 
 discriminate between real and fictitious bills. Whether real 
 or fictitious, their conversion into notes will alike augment 
 the currency of the country, which, without the check that 
 has been pointed out in the foregoing pages, may be 
 increased in an unlimited degree. In the case of the real 
 bill, a bond fide transaction takes place prior to its being 
 converted into currency, in consequence of a credit subsist- 
 ing between the drawer of the bill and *the seller of the 
 goods. In the fictitious bill, for want of that credit between 
 the drawer and the seller, the conversion of the bill into 
 currency takes place in the first instance, and the bond fide 
 transaction follows. 
 
 From what has been stated, the distinction between the 
 real and nominal exchange will be sufficiently apparent; 
 they have been found to differ most essentially, both in their 
 causes and effects. 
 
 The real exchange has been proved to depend upon the 
 proportion between the foreign payments which a country 
 has to make, and the payments it has to receive. 
 
 The nominal exchange depends upon the comparative 
 value of currencies. 
 
 The real exchange has an immediate effect upon the 
 exports and imports. 
 
 The nominal exchange, whether favourable or unfavour- 
 able, has no effect whatever upon exports and imports. 
 
 An unfavourable real exchange, if its rate be sufficiently 
 high, will cause an export of bullion, and may, under pecu- 
 liar circumstances, lead to a drain upon the Bank. 
 
 An unfavourable nominal exchange, whatever be its rate, 
 will not necessarily lead to any export of bullion, but will 
 immediately cause a drain upon the Bank, for the conversion 
 of coin into bullion. 
 
 When the market price of bullion exceeds the mint price, 
 
 56 
 
on Exchange. 531 
 
 In consequence of its export from an unfavourable real 
 exchange, the currency is not depreciated, for it bears the 
 same relative value to all other commodities ; it is the real 
 price of bullion that is raised, from a temporary scarcity. 
 
 When there is an excess of the market price of bullion 
 above the mint price, together with an unfavourable nominal 
 exchange, the real price of bullion is not altered, for it bears 
 the same relative value to all other commodities ; it is the 
 currency that is depreciated, from a temporary abundance. 
 
 The real exchange cannot be permanently favourable or 
 unfavourable, whatever be the state of the currency. 
 
 The nominal exchange may continue for any length of 
 time favourable or unfavourable, provided the value of the 
 currency continues to be depreciated. 
 
 Now the computed exchange depends upon the combined 
 operations of the real and nominal exchange ; and unless the 
 distinctions just pointed out are kept constantly in view, it 
 will be impossible to reconcile the contradictory results to 
 which it appears to give rise. 
 
 OF THE COMPUTED EXCHANGE. 
 
 THE computed exchange is determined by the fluctuations of 
 the price which a foreign bill bears in the market, but affords 
 no criterion by which to distinguish whether those fluctuations 
 arise from variations in the state of the real, or of the nominal 
 exchange. As these are perfectly independent of each other, 
 it is evident that if both are favourable, or both unfavour- 
 able, the computed exchange will denote their sum ; but if 
 the one is favourable, while the other is unfavourable, it will 
 express their difference, and may be at par, though neither 
 the real or nominal exchange are so, provided the unfavour- 
 able state of the one be counteracted by the favourable state 
 of the other. Now let any one for a moment consider, what 
 different phenomena would present themselves under an 
 apparently similar state of the exchange, according to the 
 mode in which that similarity was produced. For the com- 
 
 57 
 
532 Blake 
 
 pitted exchange would be at par, if the real and nominal 
 exchange were so ; that is, if the supply of foreign bills were 
 equal to the demand, and the currencies of other countries of 
 the same value with our own, in which case the exports 
 and imports would proceed in their ordinary course. 
 
 It would be at par, though the real exchange were 
 unfavourable in any degree, if the nominal exchange were 
 favourable in the same degree ; that is, if the high price of 
 foreign bills, arising from their scarcity, were counteracted 
 by the superior value of our currency over that of other 
 countries. In this case the unfavourable real exchange 
 would induce an increased exportation and diminished 
 importation ; it would occasion a demand for bullion for 
 exportation, without creating any drain upon the Bank : 
 because from the contraction of the currency, the market 
 price of bullion would be below the mint price. Ordinary 
 produce would be cheap, the real exchange would be gradu- 
 ally restored to par by the operation of the exports and 
 imports ; and the nominal exchange would be raised to par 
 by the conversion of bullion into coin. 
 
 The computed exchange would also be at par, though 
 the real exchange were favourable, provided the nominal 
 exchange were unfavourable in a similar degree ; or, in 
 other words, provided the low price of foreign bills, arising 
 from their abundance, were counterbalanced by the depre- 
 ciation of our currency compared with that of foreign 
 countries. In this case there would be a diminished export 
 and increased import, arising from the favourable state of 
 the real exchange, attended with an influx of bullion; but 
 there would at the same time be a drain upon the Bank, in 
 consequence of the market price of bullion exceeding the 
 mint price, from the over-issue of currency. Ordinary pro- 
 duce would be dear; the operation of the exports and 
 imports would gradually restore the real exchange to par ; 
 and the nominal exchange would return to the same level 
 by the conversion of the superfluous currency into bullion. 
 
 Again, the computed exchange might be in favour of a 
 country, under very opposite states of the real and nominal 
 
 58 
 
on Exchange. 533 
 
 exchange. Thus it would be 2 per cent, in favour of this 
 country, if the real exchange were 3 per cent, above, and 
 the nominal exchange 1 per cent, below par. It would also 
 be two per cent, in favour of this country, with a favourable 
 nominal exchange to the amount of 3 per cent, and an 
 adverse real exchange of I per cent. In the same manner, 
 an adverse computed exchange might be shewn to arise from 
 very opposite states of the real and nominal exchange ;* and 
 it would be easy to point out, under any given circumstances, 
 in what manner the merchant would derive his profit from 
 the produce he was engaged either in exporting or import- 
 ing. Suppose, for instance, the computed exchange between 
 Hambro'' and London to be 1 per cent, against this country, 
 and that this arises from a real exchange which is favourable 
 to the amount of 4 per cent, and a nominal exchange 
 unfavourable to the extent of 5 per cent. ; let the real price 
 of bullion at Hambro' and London be precisely the same, 
 and consequently the nominal prices different by the amount 
 of the nominal exchange or 5 per cent. Now, if the expences 
 of freight, insurance, &c. on the transit of bullion from 
 Hambro' are 3 per cent, it is evident that a profit would be 
 derived from the import ot that article, notwithstanding the 
 computed exchange was 1 per cent, against us. In this case 
 the merchant must give a premium of 1 per cent, for the 
 foreign bill to pay for the bullion; 100/. worth of bullion 
 at Hambro' would therefore cost him 10H. and the charges 
 
 * Mr. Wheat-ley, who assigns the relative values of currencies as the 
 exclusive cause of the fluctuations in the computed exchange, has 
 endeavoured to prove, that the rate of exchange has constantly corres- 
 ponded with the relative issues of currency. But the tables published 
 by Lord King and Mr. Mushet furnish abundant proof of fluctuations in 
 the exchange, without a corresponding alteration in the currency. 
 Since the year 1797, when the correcting principle of the nominal 
 exchange was removed in consequence of the Bank Restriction Act, 
 there is, as might be expected, a general coincidence between the 
 increase of banknotes in circulation and the adverse computed exchange ; 
 yet even within that period, there have been considerable intervals 
 when the computed exchange between Hambro' and London has been in 
 favour of the latter, and that too at the time when the greatest issues 
 of currency recorded in Mr. Mushet's tables took place, viz. in May 1804, 
 and January 1805. 
 
 59 
 
534 Blake 
 
 of importation would increase this sum to 104. Upon the 
 subsequent sale, then, for 105/. of depreciated currency in 
 the home market he would derive from the transaction a 
 profit of IL This sum is precisely the difference between 
 the real exchange and the expences of transit, that part of 
 the computed exchange which depends upon the nominal, 
 producing no effect, since whatever is lost by its unfavourable 
 state, is counterbalanced by a corresponding inequality of 
 nominal prices. 
 
 In the same manner it might be shewn, that with a 
 favourable computed exchange, bullion might be flowing out 
 of the country ; but it would be tedious to multiply instances, 
 which, as the intelligent reader will easily conceive, may be 
 infinitely varied. Those which have been now adduced are 
 sufficient to shew, what contradictory conclusions may be 
 drawn from any given rate of the computed exchange, and 
 how impossible it is, from that alone, to determine either the 
 relative value of currencies, or whether, what is usually 
 called the balance of trade, be favourable or unfavourable to 
 a nation.* 
 
 The merchant, by knowing the computed exchange, and 
 
 * A singular instance of the confusion arising from a want of at- 
 tention to these distinctions occurs in the following passage from the 
 fifth Number of the Quarterly Review : "Mr. Thornton having used the 
 " following expression * If at any time the exchanges of the country 
 " become so unfavourable as to produce a material excess of the market 
 " over the mint price of gold' Mr. Ricardo comments on this represen- 
 " tation by concisely saying, ' Here the cause is mistaken for the effect/ 
 tl Mr. Thornton seems to us indisputably correct ; not but that the 
 " unfavourableness of the exchange, and the rise in the bullion price of 
 " gold, alternately act as cause and effect ; but the former may, in some 
 " cases, not improperly be said to precede the latter, and it certainly 
 " does so in the case of a bad harvest, of which Mr. Thornton is speak - 
 " ing in this case.'* P. 157. Here it is evident that Mr. Thornton's 
 observation, if confined to the real exchange is correct. Mr. Ricardo's 
 comment, if limited to the nominal exchange, may also be considered as 
 correct, though it would have been more accurate to have stated, the 
 unfavourableness of the exchange, and the excess of the market over 
 the mint price of gold, both, as effects of the depreciation of the cur- 
 rency ; and the Reviewer may be correct, if his observations are intended 
 to apply to the computed exchange. The apparent contradictions arise 
 from confounding the real, the nominal, and the computed exchange, 
 under the general, unqualified term, exchange. 
 
 60 
 
on Exchange. 535 
 
 the current prices in the home and foreign market, and with- 
 out any acquaintance with the theory of exchange, or the 
 principles which regulate it, will always have sufficient prac- 
 tical data to guide him in his commercial transactions ; but 
 the statesman should beware in making general legislative 
 provisions, that he is not misled by the partial statements of 
 men, whose individual interests are frequently in direct 
 opposition to the general welfare of the country. This 
 remark is not meant to convey any illiberal insinuations 
 against a most useful and respectable class of the community; 
 but experience sufficiently proves that self-interest gives a bias 
 to the mind, which, without its being conscious of the influ- 
 ence, will mislead and pervert the judgment. Perhaps a more 
 than ordinary degree of caution is requisite, in this commercial 
 country, where there seems to be a prevailing opinion, that 
 the riches of the merchants are evidence of the benefits that 
 the nation derives from its foreign trade ; it being forgotten, 
 or unnoticed, that the profits of that class of persons are 
 derived from the pockets of their countrymen; and that the 
 advantages of foreign commerce consist in the stimulus it 
 gives to the increase of the produce of the land and labour 
 of the country ; and to the opportunity which it affords, of 
 exchanging the surplus produce thus called into existence for 
 an equivalent, and only an equivalent produce, collected 
 from every climate, and materially contributing to the enjoy- 
 ments and the comforts of the community. 
 
 Of the Effects of the Depreciation of the Currency on the 
 Expenditure of Government, and on the Interests of the 
 different Classes of the Community. 
 
 The foreign expenditure of government being principally 
 discharged by the remittance or the draft of bills, 'must be 
 subject to the premium or discount in proportion to the 
 computed exchange. Whatever be the amount of that expen- 
 diture, it will always be effected with greater or less 
 advantage, according as the computed exchange is favourable 
 
 61 
 
536 Blake 
 
 or otherwise. It is of no consequence, so tar as the dis- 
 bursements of the Treasury are concerned, in what way the 
 foreign expenditure is ultimately discharged by the country ; 
 for as long as bills are made use of, as the immediate mode 
 of payment by the government, so long must the govern- 
 ment, whenever the computed exchange is unfavourable, pay 
 the premium for foreign bills, or submit to the discount upon 
 its own ; and so long, on the other hand, will it derive the 
 advantage of the discount on foreign, and the premium on 
 its own bills, whenever the state of the computed exchange is 
 in favour of the country. It is therefore most essential to 
 the interests of government, that the computed exchange 
 should at all times be as favourable as possible. Now this 
 can only be produced by a careful attention to the state of 
 the currency, and its effects upon the nominal exchange ; for 
 the circumstances that affect the real exchange are not, at 
 all times, within its control. 
 
 Bad harvests and deficient crops will always create an 
 increased and unusual importation ; and in the same degree, 
 a demand for foreign payment. This will eventually, 
 indeed, be discharged by an increased exportation ; but, in 
 the mean time, and during the continuance of the pressure, 
 the real exchange will become unfavourable, and will con- 
 tinue so till the consequent bounty upon all exported, and 
 the duty upon all imported, commodities, shall restore it 
 to par. 
 
 The nominal exchange, on the contrary, is completely 
 within the control of government, and can never be either 
 permanently favourable or unfavourable, so long as the legis- 
 lature exercises a due degree of vigilance over the state of 
 the circulating medium. If the coin, in which the legal 
 payments of the country are made, is not degraded, and the 
 paper is convertible at option into specie, it is impossible 
 that the currency can ever be reduced below the almost 
 uniform value, which the precious metals preserve among 
 the different nations of the earth ; because the depreciation 
 of the currency will always be prevented, by the conversion 
 of any superfluous quantity of it into bullion. 
 
 62 
 
on Exchange. 537 
 
 Should the legislature be induced by temporary circum- 
 stances to interfere with this regulating principle, and 
 restrict the issuers of notes from the obligation of paying in 
 specie, the consequences are easily foreseen, and must soon be 
 felt. There will be no longer any limit to the depreciation 
 of the currency ; the nominal exchange will continue per- 
 manently unfavourable, and will render the computed exchange 
 so much the less favourable, or so much the more unfavour- 
 able, in proportion to the extent to which the currency may 
 have been augmented beyond its natural amount. 
 
 The government, under these circumstances, will be 
 utterly unable to relieve itself from the loss which must be 
 incurred upon the total amount of its foreign expenditure, 
 in whatever mode it is discharged ; for the nominal exchange 
 has a very different effect on the foreign payments of the 
 state, and those of merchants in the course of their com- 
 mercial transactions. The exporting merchant gains a pre- 
 mium on his bill equivalent to the nominal exchange, and 
 by that advantage is repaid what would be otherwise lost in 
 the high price he must give for his goods here, and the low 
 price at which he must sell them abroad; he derives no 
 profit, and he suffers no loss. The importing merchant 
 gives a premium for the foreign bill with which he pays for 
 the produce he imports, but is repaid by the high nominal 
 price at which he sells the produce at home. He also 
 derives no profit, and sustains no loss. 
 
 But the government has no means of repaying itself for 
 the loss occasioned by the nominal exchange. The equiva- 
 lent is received abroad, and consumed there, and the bill for 
 which the premium has been given will purchase precisely 
 the same quantity of produce, whatever may have been paid 
 for it here. Neither would the situation of government be 
 altered, if, under an idea of saving the nominal exchange, it 
 were induced to export commodities for the immediate 
 supply of its armies, or its foreign establishments; for 
 independently of the expenses of the transit, it would lose 
 the whole amount of the nominal exchange, in the high 
 prices at which the commodities would be bought in the 
 
 63 
 
538 Blake 
 
 home market. If bullion could be procured, there would be 
 still the same loss ; first, in the expenses of the transit ; and 
 secondly, in the high market price at which it must be 
 bought here, while abroad it would pass for no more than its 
 intrinsic value. 
 
 Without access to the documents and vouchers of govern- 
 ment, there is no very accurate mode of estimating the 
 amount of the foreign expenditure ; but some approximation 
 to it may be made, by a comparison of the exports and 
 imports. It has been already observed, that the foreign 
 expenditure of a country can only be discharged by the 
 export of commodities to an equal amount ; and as the equi- 
 valent is received and consumed abroad, it follows, that in 
 every country where there is a foreign expenditure, the 
 exports must exceed the imports to that extent : the larger 
 the expenditure, the greater will be the excess of exports 
 over imports. From this acknowledged truth, the inference 
 seems very obvious, or at least there is strong presumptive 
 evidence to lead to this conclusion, that if a foreign expen- 
 diture cause an excess of exports over imports, an excess of 
 exports over imports will denote a foreign expenditure. 
 Yet even at this day there are not wanting men in the 
 Cabinet, in the Senate, and among the best-informed classes 
 of society, who still adduce as a proof of the gains, that are 
 made -by foreign commerce, this same excess, which indicates 
 expenditure, and not receipt.* Mr. Pitt was continually 
 
 * The same inference has been drawn, from the excess of exports, 
 by the present Chancellor of the Exchequer, while these sheets have 
 been passing through the press. See his speech upon opening the 
 budget. 
 
 The gradual increase, both of the annual imports, and exports, has 
 been frequently adduced as a decisive proof of the flourishing state of 
 our commerce a conclusion that may be exceedingly fallacious. The 
 nominal value of the exports and imports will in some degree keep 
 pace with the increase in the nominal price of commodities, and will 
 swell the apparent amount of merchandize exported and imported, 
 without any material addition to the actual quantity. That the present 
 increase arises principally from this cause, is rendered more than 
 probable, by a comparison of the relative amount of tonnage employed 
 for the transport of that merchandize, in the years 1807 and 1809. The 
 following table is drawn up from the returns made to the House of 
 Commons) January 30th and March 24th, 1810 : 
 
 64 
 
on Exchange. 
 
 539 
 
 vaunting of the resources of the nation, as evinced by this 
 circumstance; and Mr. Rose, in his a Brief Examination," 
 states, with the same view, the annual balance of trade in 
 favour of this country at 14,800,000/. Mr. Necker, acting 
 upon similar principles, estimated the annual balance in 
 favour of France at 3,000,0007. ; and all other countries 
 have in like manner prepared official statements of exports 
 and imports, and boasted of a favourable balance.* Those, 
 who have entered into the spirit of the observations upon 
 the real exchange, will think it unnecessary that I should 
 dwell upon these absurd opinions respecting a balance of 
 trade, either favourable or unfavourable to a nation ; it being 
 
 Tonnage of Vessels, British and Foreign, including their 
 repeated Voyages, in the several Ports of Great Britain, 
 from and to aff Parts of Europe. 
 
 Year ended 5th 
 Jan. 
 
 1808 
 
 Inwards. 
 Tons. 
 944,282 
 
 Outwards. 
 Tons. 
 811,255 
 
 1810 
 
 882,255 
 
 814,811 
 
 Official Value of the Imports and Exports for three 
 Quarters, ending the 10th of October. 
 
 Year. 
 
 Imports. 
 
 Exports. 
 
 1807 
 
 19,717,396 
 
 22,464,875 
 
 1809 
 
 29,000,782 
 
 39,824,104 
 
 As the nature of the commodities is specified in the returns, and 
 does not appear to vary materially, as to the proportions of value and 
 bulk in the respective years, the equality in the amount of tonnage 
 employed is conclusive, that the apparent increase of trade is in a great 
 measure nominal. 
 
 * " There is no mine, however productive, that could supply the 
 " necessary stores for the balances that are claimed by the different 
 " nations of the world. One country claims a balance of 14,800,000?. 
 " and another of 5,000,000?. another of 3, and others of 2 and 1, to the 
 " aggregate amount of nearly 40,000,000?. annually ; and as all assert 
 "their commerce to be favourable, it is obvious that their collective 
 " balances must be paid by a continual influx of bullion from the mines 
 ' correspondent with their amount ; but the annual produce of the 
 
 65 
 
540 Blake 
 
 evident, that, though at any particular moment there may 
 have been more produce sent from a country than has been 
 received in return for it, and that bullion does occasionally 
 pass to liquidate the balance, this happens merely in con- 
 sequence of a derangement of the usual commercial 
 exchanges, and the bullion must eventually again leave the 
 country into which it flows, unless detained there by the 
 wants of the people, either for the purpose of ornamental 
 manufacture, or an extended currency, in consequence of 
 increased wealth. 
 
 All trade, whether foreign or domestic, consists in an 
 exchange of equivalents. Gold and silver will be sent as 
 the equivalent, when gold and silver are wanted for use. 
 The hardware and woollens of England are exchanged for 
 the silks and the wines of France, because these are more 
 desired than the bullion of France. It it were the taste of 
 the people of England to use gold and silver for their ordi- 
 nary utensils, the bullion of France would be demanded as 
 the equivalent. But they prefer the wines and silks, and 
 rather than forego these luxuries, are content with utensils 
 formed of coarser materials. When the exports exceed the 
 imports, (as they must do, when there is a foreign expendi- 
 ture,) the equivalents for the excess are received " abroad 
 " in as full and ample a manner, as if the produce which they 
 " purchased were actually imported and entered in the 
 " Custom-house books, and afterwards sent to the seat of war 
 "for consumption. But from the circumstance of its not 
 " being inserted in the Custom-house entries as value received 
 " against the produce exported for its payment, the latter is 
 " deemed to constitute a favourable balance, when it is in 
 " reality exported to liquidate a balance against us."* 
 
 Notwithstanding, therefore, the inaccuracy of the Custom- 
 house returns, and the difficulty of ascertaining the actual 
 value of the imports and exports, notwithstanding that the 
 imports from the East and West Indies are confounded 
 
 " mines of the world does not exceed 7,000,000." (Wheatley on the 
 Theory of Money, p. 139.) 
 
 * See Wheatley on the Theory of Money, p. 219. 
 
 66 
 
on Exchange. 541 
 
 with the imports arising from trade, when in fact they are 
 merely remittances ; the one, of territorial revenue invested 
 in produce ; the other, of rents and profits remitted to 
 absentee planters resident in this country ; notwithstanding 
 also, that the contraband trade introduces an immense quan- 
 tity of commodities, which do not appear in the Custom-house 
 returns ; yet as the inaccuracies of one period are probably 
 neither much greater nor less than those of another, if the 
 ratio of the excess of exports to the foreign expenditure in 
 one year, is known, it is fair to conclude, that the excess of 
 any other year will be nearly in the same proportion to the 
 foreign expenditure of that year. 
 
 It appears from the accounts presented by Mr. Long to 
 the Secret Committee of the House of Lords, in 1797, that 
 the foreign expenditure in the year 1796, the fourth year of 
 the French revolutionary war, amounted to 10,649,0007. ; 
 and the excess of exports above the imports, for the same 
 year, taken from the Custom-house books, is 7,331,4947. ; 
 so that the foreign expenditure is to this excess in the ratio 
 nearly of 10 to 7.* The excess of exports over imports for 
 three-quarters of the year 1809, is 17,359,2297. or above 
 23 millions for the year, as appears by the returns from the 
 Custom-house presented to parliament the 10th of January, 
 1810 ; but as these returns are exclusive of the imports from 
 India, the amount of those imports must be deducted, to 
 make the calculations correspond with the returns for 1796, 
 in which those imports are included. The sale of the East 
 India Company's goods, from March 1, 1809, to March 1, 
 1810, amounted to 8,237,0357. the excess of exports over 
 imports for the year 1809, after deducting this sum, would 
 be about 15 millions, which, according to the ratio obtained 
 for the year 1796, would give a foreign expenditure of 21 
 millions ; and considering the enlarged scale of our military 
 operations, together with the establishments in Sicily and 
 
 * The excess of exports over imports appears to be actually less than 
 the foreign expenditure, in consequence of the produce remitted from 
 the East and West Indies being entered in the Custom-house returns 
 as imports. 
 
 67 
 
542 Blake * 
 
 Malta, it will perhaps be thought not much beyond the truth. 
 During the whole of the year 1809, the exchange between 
 London and Hambro' was never less than 7 per cent, in 
 favour of the latter ; and, increasing gradually towards the 
 end of the year, it rose in the month of November to 16 per 
 cent. Mr. Huskisson, in his examination before the Com- 
 mittee for inquiring into the policy and conduct of the 
 expedition to the Scheldt, states the difficulties of nego- 
 tiating bills in Spain, and in the Mediterranean, as 
 much greater than at Hambro'; so that it is not impro- 
 bable an additional expenditure of some millions has been 
 incurred in consequence of the unfavourable state of the 
 exchange, occasioning a correspondent loss to this country, 
 which might have been entirely avoided, had the currency 
 been sufficiently contracted to reduce the computed exchange 
 to par. 
 
 Without, however, placing too much reliance upon an 
 estimate, which at best can only be considered as an approxi- 
 mation, it must be evident that whatever may be the loss of 
 government from this cause, it can only be supplied by laying 
 additional burthens on the people. But this is not the only 
 injury sustained in consequence of the depreciation of the 
 currency ; the same evil pervades the whole expenditure of 
 government. Whatever purchases are made must be at an 
 increased cost in proportion to the nominal high prices that 
 an excessive currency produces. It will be felt through all 
 the departments of the state, and the enlarged scale of 
 expense must be balanced by an encreased scale of taxation. 
 It is a matter of general notoriety, that money within these 
 few years has been considerably reduced in value. The 
 depreciation has been visibly going forwards since the time 
 of the Bank restriction; and as long as it continues, the 
 interests of the Bank are in direct opposition to those of the 
 government and the public. 
 
 If the evils of an excessive currency affected all classes 
 of the community equally, there might be less reason for 
 complaint ; but the misfortune is, that one class suffers no 
 injury whatever, while another is subjected to the whole 
 
 68 
 
on Exchange. 543 
 
 pressure, without the possibility of relief. It is of no con- 
 sequence to the merchant whether he purchase with guineas 
 the commodities which were formerly bought with shillings. 
 His exports and his imports are in no degree affected ; he is, 
 in a great measure, relieved from the fear of pecuniary 
 embarrassment : and in the same degree that the value of 
 money is lowered, his nominal profits are increased. With- 
 out possessing greater means than before, of commanding 
 the comforts and the luxuries of life, he feels himself rela- 
 tively raised in the scale of society, as far at least as pro- 
 perty has the power of raising him, in proportion to the 
 nominal thousands he receives. 
 
 The landed proprietor is subject to all the evils of a 
 depreciated circulating medium during the continuance of 
 his current leases. As they expire, an opportunity is afforded 
 him of profiting from the high nominal prices of produce, 
 by raising his rents, and thus, to a certain degree, of pre- 
 serving his relative station in life ; but the uncertainty of 
 seasons, and the consequent excessive variations in the prices 
 of agricultural produce, will prevent him from increasing the 
 amount of his income in the same proportion that its value 
 is diminished ; and as the depreciation proceeds, he must 
 suffer from its effects, in proportion to the length of time 
 for which his leases are renewed. 
 
 But it is upon that class of the community, which 
 receives a nominal income, that the depreciation of the cur- 
 rency acts with the greatest severity. The public creditor, 
 the annuitant, the clergyman, the physician, the lawyer, the 
 soldier, and the sailor all the civil officers of government 
 all persons receiving salaries only, in short, all those who 
 have no produce to dispose of, by the high price of which 
 they might have the opportunity of remunerating them- 
 selves for the losses which the depreciation induces. They 
 not only bear the increased burthens which the government 
 is compelled to impose in consequence of the depreciation, 
 but the remainder of their income no longer possesses the 
 same power of procuring the necessaries and comforts of 
 life. 
 
 69 
 
544 Blake 
 
 Let this view of the injury sustained by the class receiv- 
 ing a nominal income be contrasted with the advantages 
 which the Eestriction Act has conferred on the Bank pro- 
 prietors. Since the year 1797, the proprietors of Bank 
 Stock have received, 
 
 In 1799, a bonus of 10 per cent. Loyalty. 
 
 In 1801, - 5 per cent. Navy 5 per cent. 
 
 In 1802, 2 1 per cent. Ditto. 
 
 In 1804, - - - 5 per cent. Cash. 
 
 In 1805, - - - 5 per cent. Ditto. 
 
 In 1806, - - - 5 per cent. Ditto. 
 
 In 1807, the dividend was raised from 7 to 10 per cent, 
 which, with the payment of the Property Tax, makes more 
 than 11 per cent, regular interest; and 100/. stock has 
 increased from 127 ^L its price in 1797, to 2807. its price in 
 1809.*. Besides which, there is generally understood to be 
 a very large surplus, which has not yet been divided amongst 
 the proprietors ; and, if the vast sums of money that have 
 been expended during this period upon the buildings of the 
 Bank, be considered, some idea may be formed of the immo- 
 derate profits that have been acquired by this establishment. 
 The question therefore is simply this, whether the inte- 
 rests of so large a part of the community are to be sacrificed 
 for the benefit of the proprietors of bank stock, and the 
 different banking partnerships throughout the kingdom ; 
 and it is yet to be explained on what grounds the continu- 
 ance of a system can be justified, which, if it were wise at 
 the time of its adoption, has long ceased to be either equita- 
 ble or politic. It might be called for by imperious necessity, 
 during the moment of alarm, and may be again resorted to 
 should similar circumstances demand it ; but in the mean 
 time, it seems no more than right, that the Bank should be 
 content with the profits that are to be acquired in a pursuit, 
 which has at all times afforded an adequate remuneration to 
 those who have embarked in it, without the assistance of a 
 
 * Reflections on the Abundance of Paper, &c., by Sir Philip Francis. 
 
 70 
 
on Exchange. 545 
 
 legislative provision, that has deranged, and will continue to 
 derange, so long as it exists, the circulating medium of the 
 country. 
 
 Applications are continually making to parliament for an 
 increase of salary to those who are unable to meet the pres- 
 sure of the times, and to keep up appearances suitable to 
 their stations in life. Instances of this have recently occur- 
 red, as well in the case of the inferior clergy, as of the 
 officers of the army and navy. The salaries in all public 
 offices, and public trading companies, are obliged to be raised, 
 to enable the persons who are employed in them to purchase 
 the necessaries of life.* Those who sell as well as buy, 
 have the means of transferring the weight from their own 
 shoulders ; but the possessor of a nominal income receives 
 the same number of pounds, whatever be their value ; he is 
 a buyer only, and must submit to his fate. The effects of 
 ordinary taxation are the depression of the same class, and a 
 tendency, as it proceeds to confound the different ranks of 
 society. It is the more incumbent therefore upon the legis- 
 lature to be careful, that this depressed class be not over- 
 whelmed by that extraordinary taxation, which arises from 
 the necessity of increasing the nominal revenue of govern- 
 ment, in proportion to the depreciation of its value. 
 
 The mode in which these evils are to be remedied, it is 
 unnecessary, after what has been already said, for me to 
 point out. When the cause that has produced the mischief 
 is removed, the evils will subside of themselves. Lord King 
 very justly observes, " Had parliament been called upon to 
 " authorize any of those direct frauds upon the currency, 
 " which have often disgraced arbitrary governments ; had it 
 " been recommended to them to raise the denominations of the 
 " current coin, there can be no doubt that such a proposal 
 (l would have been rejected with indignation. Yet an abuse 
 
 * Mr. Rose, hi his pamphlet on the Public Expenditure, in speaking 
 of the increase of the expense of collecting the Excise revenue, observes, 
 " The increase in the Excise is nearly altogether for the augmentation 
 " of the salaries of the officers on the establishment, to enable them to 
 " exist." p. 54. 
 
 7J 
 
546 Blake 
 
 " of the same nature has been established by law in this 
 " country. The power of reducing the value of the cur- 
 " rency by a silent and gradual depreciation, is more danger- 
 " ous, from the very circumstance of its being less direct, 
 u and less exposed to observation."* 
 
 The difficulty that now presents itself is, in what manner 
 t6 revert to the former system, without injury to the Bank, 
 or to the merchants who have so long been indulged with 
 the accommodation of procuring the discount of their bills ; 
 and this difficulty is the more embarrassing, from the very 
 peculiar and unprecedented combination of circumstances 
 that exist at the present moment. 
 
 In consequence of the large army now maintained by 
 this country on the Continent of Europe, and in the Medi- 
 terranean, our foreign expenditure is unusually great ; and 
 the export trade, which under the ordinary facilities of com- 
 mercial intercourse, would enable us to defray this expendi- 
 ture, is subjected to impediments from the control exercised 
 by the enemy over the commerce of the Continent, which it 
 is difficult to overcome. Our merchants are compelled to 
 find secret and circuitous modes of introducing their mer- 
 chandise into foreign countries, which, even after its intro- 
 duction, is liable to immediate confiscation. f This must 
 
 * Thoughts on the Restriction of Cash Payments at the Bank, 
 p. 121. 
 
 1 It has been said, that, in the countries more immediately under the 
 control of the French, the merchants refuse to take our produce in 
 exchange, and demand specie or bullion in payment for what we import 
 from them. Should this be the fact, it is a strong proof that the French 
 decrees have produced their effect, and that the risk of confiscation has 
 to a certain extent prevented British merchandize from being intro- 
 duced into those countries. It will be impossible, under these circum- 
 stances, much longer to continue such a commercial intercourse, unless 
 the means be found of procuring a very unusual supply of bullion from 
 the American mines : and it will become a question, whether the South 
 American market can take such a quantity of British produce as will be 
 sufficient to supply the bullion that will be wanted for effecting the 
 usual imports from Holland and France, and that part of the Continent, 
 where the French decrees can be enforced. Independently of this, the 
 accumulation of bullion on the Continent will by degrees render its 
 real price so low, that the quantity to be given in exchange for commo- 
 dities imported from thence, must be continually augmenting, and of 
 
 72 
 
on Exchange. 547 
 
 operate as a very powerful check upon the export of the 
 staple produce of the country : and great as the comparative 
 excess of exports appears to be, from the last returns of the 
 Custom-house that have been laid before Parliament, it is 
 probable that the foreign expenditure would have demanded 
 and produced a much greater excess, but for the restrictions 
 that the French decrees have imposed upon our commerce. It 
 is said, too, that the deficiency in the last year's harvest has 
 occasioned an increased and unusual importation of foreign 
 grain : so that the real exchange has been acted upon by the 
 combined influence of all the causes that can render it unfa- 
 vourable, a large foreign expenditure, demanding an excess 
 of exports which the restrictions on commerce obstruct ; and 
 an increased importation, to supply the failure of an article 
 of the first necessity, counteracting the effect of the export 
 trade, and diminishing its excess. If the market price of 
 bullion, therefore, were ever raised above the mint price by 
 an unfavourable real exchange, it might be expected under 
 the circumstances now enumerated ; and should this be the 
 case, and the Bank be immediately rendered liable to the 
 payment of its notes in specie, there would be no possibility 
 of its withstanding the drain that would immediately com- 
 mence, without such a sudden contraction of paper as would 
 endanger the stability of the merchants. For the nominal 
 and the real exchange being both unfavourable in a great 
 degree, the process of melting the coin, and the export of 
 bullion, would be carried on at the same time; the first, 
 to take advantage of the difference between the market aud 
 the mint price of gold ; the second, on account of the 
 excess of the premium upon foreign bills above the expenses 
 of the transit of bullion ; and this drain would continue till 
 the issues of bank paper were sufficiently contracted, to lower 
 the market price of bullion below its mint price. 
 
 It is not easy to ascertain what degree of contraction 
 might be requisite to produce this effect, for the issues of 
 
 course the price of continental produce so much enhanced to the 
 consumer here, as at length to stop the consumption altogether. 
 
 73 
 
548 Blake 
 
 the country banks are probably to the full as much above 
 their due proportion, as those of the Bank of England. In 
 the year 1795, before the drain took place which became the 
 subject of such serious complaints to Mr. Pitt, the usual 
 amount of bank notes in circulation was about 1 1 millions ; 
 at the time of the drain, the issue had been increased to 
 13 millions, and from the 25th of February, 1795, to the 
 25th of February, 1797, had been violently contracted to 
 8| millions. At that time bank notes were in common 
 circulation in all parts of the kingdom, and had not 
 been so completely displaced as they have since been, 
 by the country notes. The paper circulating medium, 
 therefore, required for the capital, and parts immediately 
 adjacent, would probably not exceed 10 millions. The 
 quantity of coin at the same period may be estimated by 
 the proportion between the cash and paper payments at the 
 Bank, as given in evidence by Mr. Abraham Newland, 
 before the Secret Committee of the House of Lords.* He 
 states, that previously to the restriction, if the dividends to 
 the public creditor amounted to 14,000,000/., not more than 
 from 1,300,0007. to 1,400,0007. would be paid in cash. If 
 in so large a payment, where cash in any quantity might be 
 demanded, and where there must have been many fractional 
 sums, one tenth only were paid in specie, it is fair to conclude 
 that not more than one tenth would be given in the 
 other money transactions of the metropolis. He adds, that 
 100,0007. would be sufficient for all the cash payments of the 
 Treasury ; that in the gross produce of the Customs, 
 which then amounted to 3,000,0007., the Bank did not 
 receive above 30007. in specie ; in the produce of the Excise 
 stated at 7,000,0007., not more than 60,0007.; and in the 
 instalments of a loan, consisting of much larger sums, not 
 above 1 per cent, upon the whole.f So that taking 1 to 10 
 as the probable proportion of the specie to the notes there 
 would be about one million of the former in circulation, 
 
 * p. 63. 
 
 t See Wheatley on the Theory of Money, p. 142 
 74 
 
on Exchange. 549 
 
 making, together with the paper, 1 1 millions for the total 
 amount of the currency of the metropolis. By the last 
 returns of the House of Commons, the bank notes in circu- 
 lation on the 12th of January in the present year, exclusive 
 of the Bank post bills, amounted to 20,522,810/. ; and as 
 the quantity of these notes that circulate in the country is 
 very trifling, it is not improbable that the currency of the 
 capital has been nearly doubled in the course of the last 
 thirteen years. The general opinion is, that the country 
 banks have made a still more extensive use of the privileges 
 which the Restriction Bill has afforded, and have multiplied 
 their paper to an enormous amount. There seems every 
 reason, therefore, to conclude, that the circulating medium 
 would be under-rated at double its amount, in the year 
 1797; and consequently that if the country does not require 
 a greater quantity of currency now, than it did at that 
 time, the Bank must contract its paper one-half, or to about 
 11 millions, before commodities could be brought back to 
 their natural prices.* 
 
 Those who have attended to the distress in which the 
 merchants were involved at the period to which we have 
 referred, by a reduction of bank paper from 13^ to 8^ 
 millions in two years, may conceive how infinitely more they 
 must suffer by a sudden diminution of it from 21 to 11 
 millions. But this circumstance, which is a cogent reason 
 against the immediate repeal of the Bank Restriction Bill, is 
 also the strongest proof of the effect which the contraction 
 of currency has upon prices ; for whence could the distress 
 of the merchants arise, but from their being compelled to 
 dispose of their stock at reduced prices ? They have now 
 been so long habituated to the enhanced rates, that their 
 purchases have been made with reference to this system, and 
 under an expectation of deriving their present high nominal 
 profits from its continuance. The number of purchasers in 
 the market, occasioned by the increased issues of paper, will 
 
 * The increase of prices, arising from the gradual progress of 
 taxation, will probably require a larger circulating medium than might 
 be wanted in 1797. 
 
 75 
 
550 Blake 
 
 be withdrawn, when the paper is again contracted, and 
 consequently the holders of produce that has been bought 
 upon credit, and for which bills are outstanding, must sell in 
 the falling markets, in order to meet their acceptances when 
 they become due. The Bank also, in consequence of the 
 drain, will be compelled to reduce its paper, which it cannot 
 effect, without refusing its usual discounts. The merchant, 
 no longer possessing the means as before, of coining his 
 credit into currency, must either sell, or be unable to make 
 good his payments. In the same proportion as an increase 
 of buyers was created by the over-issue, the contraction 
 will create an increase of sellers ; and thus it appears evident, 
 that so sudden a diminution of currency, as would be neces- 
 sary to protect the Bank, if the restriction were immediately 
 withdrawn, would inevitably occasion great pecuniary dis- 
 tress, and be attended with the most injurious consequences 
 to the credit and commerce of the nation. 
 
 But there is no necessity for such violence. The Bank 
 may gradually diminish the amount of its paper, in the 
 same manner in which it has for the last thirteen years been 
 gradually increased. It is true such a proceeding will not 
 be so popular with the merchants, but it will not be attended 
 with any real injury to their interests, whilst it will confer a 
 substantial benefit on the possessor of a nominal income, a 
 benefit to which he is upon every principle of justice 
 entitled. 
 
 It is only necessary for parliament to determine the 
 amount of the annual diminution of the issues of the Bank, 
 and to enforce the continuance of the measure, till it is 
 found that the market price of bullion is permanently 
 reduced, in a trifling degree, below its mint price. The 
 currency will then be of the same value as if it consisted 
 entirely of the precious metals, and the restriction may be 
 removed without the slightest injury to the Bank, or any 
 real injury to the merchant. This experiment may be made 
 with the utmost safety, both to the Bank and the country ; 
 because parliament will at any time have the power of 
 increasing or diminishing the annual contraction, should it 
 
 76 
 
on Exchange. 55 i 
 
 be found that, in the first instance, too low or too high a 
 limit had been assigned.* 
 
 It will require, however, much caution and some firm- 
 ness, lest the legislature should be misled by the clamours of 
 those who will first feel the effects of the remedy ; for as the 
 Bank will immediately experience a diminution of its profits, 
 and probably be at length compelled to lower the interest 
 to the proprietors ; as the issues of the country banker 
 will be restrained within their natural limits ; and as the 
 merchant, under the first alarm which the falling prices will 
 excite, and without forming any just conception of its cause, 
 will not fail to exclaim against a system apparently so 
 adverse to his interests ; there can be little doubt but that 
 the public, during its progress, will be assailed with the 
 most gloomy predictions of the decline of the general wealth, 
 and the ruin of the commercial prosperity of the nation. 
 But a full and accurate acquaintance with this most import- 
 ant subject, will lead the government and the people to dis- 
 regard and depise such idle and interested clamours, to 
 consider these effects not as symptoms of decay, but as 
 evidences of the efficacy of a measure tending to restore 
 the energies of the country. It will teach them the neces- 
 sity of perseverance, not merely for the purpose of obviat- 
 ing those mischiefs which have hitherto been experienced, 
 but in order to prevent the still greater evils, which must 
 infallibly result from an adherence to the same system. 
 Above all, it will induce them to submit with cheerfulness 
 to those trifling and partial inconveniencies, which may 
 
 * The Bank has been indulged so long in the exercise of the 
 extraordinary privileges conferred upon it by the legislature, and hafe, 
 by its extensive advances, acquired such a control over the finances of 
 individuals, and of government, that it may, perhaps, have become 
 questionable, whether the Directors of that establishment have not, at 
 this moment, the power of dictating their own terms ; and whether the 
 legislature may not be under the necessity of receiving, rather than of 
 proposing conditions. Should these conjectures have any foundation in 
 truth, they furnish the most cogent reasons for the immediate extinction 
 of a power, whose existence is incompatible with the independence and 
 the supremacy of government. 
 
552 Blake on Exchange. 
 
 occasionally be experienced during the progress of the 
 remedy, while they look forward with confidence to the 
 re-establishment of the ancient scale and order of things, 
 and the consequent increase, not only of the comforts of the 
 great mass of the community, but of the resources, the 
 powers, and the independence of the government. 
 
In the following Tables, the figures indicating the per centage 
 in favour of, and against London, denote pounds and the 
 decimal parts of pounds, which are not carried beyond one 
 decimal place. 
 
554 
 
 Blake 
 
 3 
 
 D S . 
 
 i 8 
 
 Si 
 
 PH J> 
 
 Per centage 
 above its Mi 
 Price. 
 
 so. 
 
 QQ 
 
 OO QO O5 Oi O Oi OO Oi O 
 
 rH O rH CO CO CO CO CO CO GO 
 
 against 
 London. 
 
 o a 
 
 co us CM co co 
 
 1 
 
 W 
 
 **-HOeOCNOO CO<MrHU5 rHOiCOCO r-lCMr-H(NCOt>-T-lOli-HrH 
 T-H i-l 1-1 i-H I-( 
 
 COCOCOCOMCOCOCOCOOTCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOSClCOCO 
 
 
 
 
 
 80 
 
on Exchange. 
 
 555 
 
 Per centage 
 below its Mint 
 Price. 
 
 
 
 -U 
 
 rH<N<MC*eOCOrHCO <NCq<NCOi-l<M COOlr-lCOCO rHCO rHOI 
 T-H j 1 i 1 r-(rHi II-HT I i-H rH i-H 
 
 "1 
 
 
 *o 
 
 O N 
 
 ||-S 
 
 1 ( TH 
 
 CQ 
 
 COCOCOCOCOCOCOCOCOCOCOCOCOMCOCOCOCOCOWCOCOCOWCOCO^^^^ 
 
 f.|| 
 
 JO *O ^O IO 00 
 r-li-l rH 
 
 C) *+* 
 
 
 go'* 
 
 ^^C^^CC^KXOO^C^C^ 
 
 Hamburgh. 
 
 i-l i-H rH i-( rH i-l 
 COCOCOCOCOCOCO(WWiOT<COCO<COMCOCOD3COCOCOWCO(COiM 
 
 
 
 
 
 
 U5 O t- CO Oi 
 
 81 
 
556 
 
 Blake 
 
 SI 
 
 eJ 
 f s 
 
 C<| W r-t CO W N i-H rH CO <N (N <M <M CO 
 
 I 
 
 +J j 
 
 usco ^5 coooeoco^ 
 
 i-HO OC^(MOICOc<jC^ 
 
 cococococococccccococococococococococococccococococococococo 
 
 O 
 
 co 
 
 
 
 82 
 
on Exchange. 
 
 557 
 
 
 II 
 
 coeocococoMcocccoeococowcoeocococococococococococococococo 
 
 5 -a g 
 
 ill 
 
 uieoooo oo 
 
 ^^^^^^^COCOC003OTCOCO<NG<I<NC<l<NOq-*-*^^OOOOCO-* 
 
 OTcococococococococococococccococococococoweocococQcococoeo 
 
 
 83 
 
558 
 
 Blake 
 
 55 -c 
 
 C<J <N <N Cq <N <M 
 <M <N 
 
 CO CO CO CO CO CO 
 
 o o o o o o 
 
 cococococococococococococooococococococococococococococococo 
 
 WOTCOOOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCO 
 
 w 
 
 
 84 
 
on Exchange. 
 
 559 
 
 ~S & 
 
 n^n^n^nn^^^^r^n^nnrn^^n^^^^ 
 
 ij* 
 
 ::::::::::::::::::::::::::: 
 
 j2| 
 
 
 CJ > 
 
 1 r\ . O 
 
 8 
 
 - 
 
 ^ 
 
 
 SO* 
 
 III 
 
 7-1 rH rH 
 
 1 
 
 co co co co co co co co co co co co co co co co co co co co co co co co co co co co co co 
 
 
 
 
 0) 
 
 111 
 
 
 ISd 
 
 
 
 s^ 
 
 M , M ^^^^c*e, TO ^,,^o, MM ^, 
 
 .s 
 
 
 } 
 
 I-i ' fHH rH 
 
 cocococococococococococococococococococococococococococococo 
 
 H 
 
 
 
 
 
 l5 O t~ CO <3 
 
 oo oo oo co oo 
 
 !>. t^ t~ JC^ 
 
 ^H r-l r-l rH rH 
 
 85 
 
560 
 
 Blake 
 
 ^^OVOXOWSOVOkOUSkOlO-^'^'^^-^-^'OtOi^t^^VOirtOCOO'O^ 
 COCOCCCCCOCOCOCOCCCOOTCCiCOCOCOCOCOCOCOCOCCCOCOCOCOCCICCCOOOCO 
 
 
 86 
 
on Exchange. 
 
 i 
 
 561 
 
 Hi 
 
 s|l 
 
 2 ~ F 
 
 
 fl fl 
 
 oooooooooooooooooo 
 
 ooo 
 
 OSt-^i 
 
 ooo 
 
 ^^O^ 
 
 a 
 
 13 < 
 
 5? 
 
 OS OS OS OS 
 
 oooo 
 
 OS OS OS 0> 0> 
 
 ooo oo 
 
 CO CO CO CO CO CO 
 
 o 
 
 f 
 
 *.* 
 
 
 co co co co co co co co co co co co co co co 
 
 ix 
 
 I 
 
 COCOCOCO^ 
 
 cococococo 
 
 cococococococococococococococococo 
 
 <o 
 
 O> 
 
 o* 
 
 Oi 
 
562 
 
 Blake 
 
 _ 
 
 ^*OD<MOOOi>tO<Oi>-<O<NCOOOCOCOa US-^TflO^O O 00 O O 
 I i I i 1 rH 
 
 COCOO5COCOCOCNCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCO 
 
 
 88 
 
on Exchange. 
 
 563 
 
 o~ 
 
 f 
 
 oooooooooooo 
 
 CO CO CO CO CO 
 
 
 r-tr-<lQCQ 
 
 <! 
 
 II & 
 
 02 
 
 o o o o o 
 
 OOOOO 
 
 
 
 OO(NO-*C3iOi 
 
 "* Oi i ( OS r I 
 
 CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO 
 
 ^^^^kO^tNt-lr-lOOOOJQO 
 CO CO CO CO CO CO CO CO CO CO C^l C^ C*3 
 
 
 
 
 89 
 
THE 
 
 QJJ E S T I O N 
 
 CONCERNING THE 
 
 DEPRECIATION 
 
 OUR 
 
 Currency 
 
 STATED AND EXAMINED 
 
 By W. HUSKISSON, Esq. M.P. 
 
 " It is the interest of every country that the Standard of its Money, once 
 settled, should be inviolably and immutably kept to perpetuity. For when- 
 ever that is altered, upon what pretence soever, the Public will lose by it. 
 
 " Men, in their bargains, contract, not for denominations or sounds, but 
 for the intrinsic value." LOCKE on Money. 
 
 THIRD EDITION CORRECTED. 
 
 LONDON: 
 1 8 10. 
 
Huskisson, dc. 567 
 
 PKEFACE 
 
 FROM the circumstance of my having been a member of 
 the Bullion Committee, and from its being known to several 
 of my friends that I had taken a part in the discussion which 
 preceded the Report, I have been pressed, by more than one 
 of them, for some explanation of my opinions respecting the 
 state of our currency and circulation, and of the grounds on 
 which those opinions are founded. Gratified to find their 
 attention awakened to all the importance of the subject, and 
 with my own feelings fully alive to it, I committed to paper 
 the substance of my opinions, in part before, and the 
 remainder very soon after, the publication of the Report. 
 
 Proportionate to the general interest excited by that 
 Report, has been the clamour raised against it. That clamour, 
 and the strange doctrines which are set up in opposition 
 to the principles and conclusions of the Committee, have 
 induced some of those who had originally read what I had 
 written with the partiality of friends, to express a wish that 
 I would publish it, 
 
 If this wish had not been fortified by other considera- 
 tions, I should not, by yielding to it, have exposed myself to 
 the imputation of that vanity, to which such indiscreet com- 
 pliance is generally, and perhaps often justly, ascribed. But 
 when so many pens are employed to propagate what appear 
 to me most false and dangerous theories upon the subject of 
 our currency ; when several of those who have taken upon 
 themselves to controvert the Report, have gone out of their 
 
 3 
 
568 Huskisson on the 
 
 way to misrepresent the conduct, and to cast obloquy on the 
 characters and motives of those who concurred in it; and 
 above all, when the many evil consequences of an erroneous, 
 or even an unsettled state of the public mind upon a question 
 of such vast importance, are considered ; I trust that I shall 
 be justified in submitting, what was originally prepared for 
 an indulgent and limited circle only, to the examination and 
 judgment of a more extended and impartial tribunal. 
 
 With deference then I venture to offer to the public an 
 exposition of the course of reasoning which led my mind to 
 the conclusion which I have formed upon a question in 
 which the public has so deep an interest. 
 
 Any man, I think, who has read the pamphlet of Sir 
 JOHN SINCLAIR, or the speech of Mr. HANDLE JACKSON 
 to the Proprietors of Bank Stock, (as reported in the news- 
 papers,) must admit that I have not unfairly described the 
 attacks which have been made upon the Report of the Bul- 
 lion Committee. 
 
 Both these productions appeared long after the following 
 observations were written. To enter into any examination 
 of their contents is not compatible with the object and limits 
 of these introductory remarks ; nor indeed, if it were, should 
 I be tempted to such an examination, notwithstanding the 
 circular invitation with which the Right Honourable Baronet 
 is said to have accompanied the distribution of his pamphlet. 
 
 When among other theories equally extraordinary, 
 (whimsically dignified with the name of axioms in the work 
 itself) this author, before he is well clear of his preface, 
 lays it down as a leading principle, " that the abundance of 
 " circulation is the great source of opulence and strength ;" 
 and emphatically styles it tl the mine of national prosperity" 
 when he defines Money to be " a well regulated paper cur- 
 " rency with a certain proportion of coin" I should be at a 
 loss how to deal with such axioms. They appear to belong 
 to that class of propositions which have been sometimes 
 characterized by rhetoricians as being " neither true nor 
 " false ;" and as they are (to me at least) wholly unintelli- 
 gible, they must of course be unanswerable. 
 
 4 
 
Depreciation of the Currency. 569 
 
 There is, however, one charge against the Committee, 
 much dwelt upon both in the speech and in the pamphlet to 
 which I have referred, with which I must detain my readers 
 for a few moments. It is that of having made a Report 
 directly contrary to, and altogether inconsistent with, the 
 evidence. This assertion has surprised me : and I have 
 looked in vain for any proofs in support of it. 
 
 The Committee endeavoured, in the first instance, to 
 collect and place upon their records certain facts; such, for 
 instance, as the continued high price of gold bullion, and 
 the great depression of the foreign exchanges. To any 
 explanations that were offered by the witnesses, of the causes 
 which had produced this state of things, they listened with 
 the most patient attention : and have given them a place 
 in the Appendix, in the words of the parties examined. But 
 when these explanations appeared to the Committee to be 
 either unfounded or insufficient ; to be contradicted by the 
 experience of former times, or by the actual state of facts ; 
 to be inconsistent with each other, or with the admissions of 
 the witnesses themselves ; could it be the duty of the Com- 
 mittee to adopt them as their creed ? Was it not rather 
 their duty to state, in what respect, in what degree, and 
 in what instances these explanations appeared to them 
 unfounded or insufficient ; and to point out the circumstances 
 by which they were contradicted, and the inconsistencies 
 which they involved ? 
 
 It was indeed for the House of Commons to consider 
 whether they would appoint such a Committee at all, or 
 refer such a subject to such a mode of examination : and if 
 it was foreseen that the promulgation of an opinion, such as 
 that which the Committee have formed, would be attended 
 with public mischief, (which I however am very far from 
 thinking) it might, in that case, be matter of regret that the 
 House should have consented to its appointment. But, 
 even in that case, nothing can be more unjust than to impute 
 as blame to the members of the Committee, acting under 
 the orders of the House, the due discharge of a duty which 
 the House had thought proper to impose upon them. 
 
 5 
 
570 Huskisson on the 
 
 In the execution of this duty it became necessary to 
 ascertain the principles by which the Directors of the Bank 
 of England had been governed in the issues of their paper 
 since the restriction. 
 
 This information could not be obtained from them in 
 their corporate capacity : it could only be collected from 
 those who were at the head of the Direction. 
 
 This forms by far the most important part of the evi- 
 dence : because the supply of our circulation being now 
 without control in the hands of the Directors, it was essen- 
 tial to ascertain by what rules and principles they were 
 guided in the exercise of this extensive discretion. Before 
 this enquiry, these rules and principles were, I believe, 
 unknown to the public : they were certainly unknown to 
 me. The Committee have stated them in the words of the 
 Governor and Deputy Governor of the Bank; and have 
 assigned reasons for thinking that they do not afford a check 
 constantly and sufficiently operative against an over-issue, 
 and consequent depreciation of Bank paper. Is this what is 
 called making a Report directly contrary to the evidence ? 
 
 Mr. JACKSON, indeed, is of opinion that the Committee 
 ought to have surrendered their judgment altogether to the 
 authority of those witnesses who asserted, that Bank Notes 
 are " not depreciated ;" and who stated as the grounds of 
 that assertion, that " in their extensive and various transac- 
 " tions, no difference exists between Bank Notes and coin." 
 As Mr. JACKSON is, unfortunately, not the only person to 
 whom this inference appears to be conclusive, it may be 
 regretted, as an omission, that the Report of the Committee 
 did not more particularly guard against it. There is perhaps 
 no part of the question which is capable of being settled 
 with greater ease and certainty. The experience of our 
 own, as well as of all other countries, has placed beyond 
 the reach of controversy the proposition, that if one part 
 of the currency of a country (provided such currency be 
 made either directly or virtually a legal tender, according to 
 its denomination^ be depreciated, the whole of that currency, 
 whether paper or coin, must be equally depreciated. This 
 
 6 
 
Depreciation of the Currency. 571 
 
 proposition, I trust, the reader will find satisfactorily made 
 out in the following pages. 
 
 Whilst I ani aware that I must despair of convincing 
 persons so entirely at variance with the first principles of 
 political economy, there is another, and I hope a larger class, 
 to whose understandings the following observations must 
 appear superficial and unnecessary. They certainly contain 
 nothing which is new ; or which can be striking or interest- 
 ing to any readers of that class. A discussion which goes 
 back to the first principles of our money system, and in 
 which, at the risk of a wearying repetition, the same pro- 
 position is illustrated in several different modes, must appear 
 superfluous to persons who are already well acquainted with 
 those principles ; and whose own ingenuity would supply 
 them with illustrations more apt than any that I have been 
 able to furnish. 
 
 But I am convinced, as well from the experience which I 
 derived from the enquiries carried on in the Bullion Commit- 
 tee, as from every thing that has since come under my 
 observation, that a great proportion of the public, including 
 (even in the limited circle of my own acquaintance) many 
 men of excellent understandings, have either overlooked the 
 elements of the whole question ; or, more probably, have 
 never turned their minds to the course of enquiry, which, it 
 properly pursued, must have prevented some of the miscon- 
 ceptions now afloat on this subject. To the want of this 
 knowledge, to the want of time, or opportunity, or inclina- 
 tion to attain it, much of the error which prevails in some 
 quarters, and of the doubts, uncertainty, and apprehension 
 which exist in many others, is, in my opinion, to be ascribed. 
 In the present state of the question, surely, no man who 
 takes any interest in public affairs, more especially if he 
 have any legislative duty to discharge, will hesitate to acquire 
 that knowledge ; and to overcome any disinclination that he 
 may feel from the natural dryness, or supposed intricacy of 
 the question. The necessary information is to be easily 
 obtained, by resorting to the history of our currency in for- 
 mer periods, and to those authors, in our own language, who 
 
 7 
 
572 Huskisson on the 
 
 are looked up to as of the highest authority in political 
 economy. To which I may add. that, since the agitation of 
 the question in Parliament, several excellent publications on 
 the subject have made their appearance. 
 
 Of most of these publications, however, including even 
 the very able pamphlet of Mr. BLAKE,* I cannot help 
 observing, that they appear to me, both to suppose a degree 
 of elementary information in their readers, which all do not 
 possess ; and to take for granted, on the part of their oppo- 
 nents in the argument, a concession of principles, which 
 have indeed, been long since established as fundamental 
 truths ; but which have been again called in question on the 
 present occasion. To revert, therefore, to first principles, 
 and to endeavour to prove again what has been already so 
 often proved, may, as I presume to think, be a useful, though 
 humble, help in the discussion which now agitates the public 
 opinion of the country. 
 
 They who think with me, that it is by the establishment 
 of sound, and the detection of false principles, upon points 
 of general interest and leading importance in political 
 economy, that the greatest benefits are secured to nations, 
 or the greatest calamities averted from them, will not find 
 fault with the mode in which I have ventured to treat the 
 subject. They will even pardon the repetitions, which I 
 have found unavoidable, when they consider that, in a ques- 
 tion of a complicated nature, but admitting (as I conceive) of 
 strict proof, one mode of arriving at the truth is more easily 
 apprehended by some minds, and another by others; and 
 that, in contentions, where interest and prejudice take a 
 part, it is not enough to establish a proposition ; it is also 
 necessary to expose the fallacy of the reasoning by which it 
 is attempted to be controverted. 
 
 Having once made up my mind to submit these remarks 
 
 * " Observations on the principles which regulate the Course of 
 "Exchange, and on the present depreciated State of our Currency." 
 By W. BLAKE, Esq. This pamphlet contains the most complete exposi- 
 tion of the whole doctrine of exchange that I have met with in any 
 language. 
 
 8 
 
Depreciation of the Currency. 573 
 
 to the public, I could not think of withholding my name. 
 I am anxious to meet, upon a fair and equal footing, those 
 persons who have publicly attacked the Report of the Com- 
 mittee. I wish to draw from them, either an admission of 
 the principles which I state ; or a clear and explicit exposi- 
 tion of their own. If they admit the principles stated by 
 me, it is for them to reconcile their own deductions to those 
 principles, so admitted ; and to disprove mine. If the dif- 
 ference between us be as to principles, let them lay fairly 
 before the public those, on which their theory is built ; and 
 shew the practical consequences, to which their own principles 
 would, in their own opinion, lead. . 
 
 I may add, that none of the considerations which some- 
 times disincline men in public life from this mode of declar- 
 ing their sentiments, apply in the present instance. The 
 question is already necessarily before the public. The 
 parliamentary discussion of it is unavoidably at some dis- 
 tance. It is plain that the opinion of the public will not 
 remain so long altogether suspended : and besides it is a 
 subject upon which many persons would rather collect their 
 ideas and form their decision in the leisure of the closet, than 
 in the warmth of debate. 
 
 I have yet another reason for avowing my opinions as 
 openly and as early as possible If I know my own mind, 
 those opinions have been formed as coolly and dispassionately, 
 as they could have been upon any point of abstract science : 
 and I should have felt it as impossible to avoid coming to the 
 conclusion to which I have been led upon this subject, as to 
 refuse my assent to the demonstration of any problem in 
 mathematics. I say this the rather, because I see (and I see 
 with deep regret) an attempt made to create political divi- 
 sions on this subject : and to array particular parties against 
 principles which, surely, are not to be classed among the 
 articles of any political creed, or to be considered as con- 
 nected with the separate interests of any party : principles 
 which, if false, may be disproved by calm argument, without 
 the aid of influence or combination ; but which, if true, can- 
 not be refuted by clamour, and could not be overpowered 
 
 9 
 
574 Huskisson on the 
 
 by numbers or authority, without material hazard to the 
 interests of the country. 
 
 So far as I know, and as I believe, this attempt has 
 not hitherto been successful. The speech of Mr. HANDLE 
 JACKSON, though it imputes party spirit to others, is 
 obviously dictated by nothing more than a corporation spirit: 
 a distinction which, fortunately, is too plain to be misunder- 
 stood. As to SIR JOHN SINCLAIR, the only other avowed 
 author of such imputations, it would be most unjust, both to 
 him and to mankind, to suppose him the organ of any other 
 sentiments than his own. 
 
 Fatal, indeed, would it be for the country, if those who 
 are to decide upon this question, (a question which, while 
 it is, on the one hand, so abstract as not to allow to error the 
 apology of passion, yet, on the other hand, affects, in its 
 practical consequences, the interests and the comforts of 
 every class of society,) could be persuaded to regulate 
 their conduct, upon this occasion, by any feelings of political 
 partiality or hostility. I trust that such feelings will not be 
 allowed to disturb and exasperate this discussion : and, as to 
 myself, I am most anxious to declare and record my opinions, 
 while these feelings have not yet made any progress ; and 
 while the course of party politics, (if, most unfortunately, 
 party politics are at any period to mix themselves with the 
 subject,) is yet unascertained. 
 
 I am aware that I have already detained the reader too 
 long upon points which are, in some degree, of a personal 
 nature ; especially as there is one other, more entirely per- 
 sonal, perhaps, on which I must request his indulgence for a 
 few sentences. In discussions of an amicable nature which 
 have arisen with those for whom these observations were 
 originally intended, I have been asked, (and the question 
 may possibly be repeated in a less amicable manner,) " Why 
 I did not give to the public an earlier warning on the sub- 
 ject, why not. while I was myself in office, and before the 
 evil had grown to its present height ?" 
 
 My answer is, first that it is one thing to trace effects, 
 the existence of which is manifest, up to the causes which 
 
 10 
 
Depreciation of the Currency. 575 
 
 produced them : but that it would have been another, to 
 foresee all the possible consequences of a new measure ; 
 especially when those consequences were liable to be pro- 
 duced, or to be varied, by circumstances of which one had 
 no knowledge. To the perspicacity, which alone could have 
 qualified me for such foresight I do not pretend ; but 
 nothing more than diligence and impartiality was required to 
 qualify for the task of that enquiry and examination which, 
 where the conclusion is as plain, as to my understanding it 
 appears in the present instance, could not fail to lead to 
 conviction. 
 
 I answer secondly, that neither I, nor any man with 
 whom I ever had intercourse, official or private, upon the 
 subject, at any time considered the restriction of Bank pay- 
 ments as any other than an expedient, originating in neces- 
 sity ; and determinate whenever that necessity should 
 cease. Nor could I have imagined, till the examinations 
 before the Committee produced the disclosure, that there 
 existed any individual who viewed it as an improvement in 
 our money system, or who could look with satisfaction to 
 the possibility of its indefinite continuance. 
 
 I answer further, that those consequences of this measure 
 w'lich are developed in the Report of the Committee did not 
 arise till a late period. Up to that period, the foreign 
 exchanges were not unfavourable ; and the market price of 
 gold not materially above the Mint price : two circumstan- 
 ces, of which I felt assured that the Bank Directors never 
 lost sight in regulating their issues. During the suspension 
 of cash payments, a permanent depression of those exchanges, 
 or a rise in the price of gold, appeared to be pointed out to 
 them, by the principles of their institution, and by the course 
 of all former experience, as the obvious and best criterion of 
 any tendency to excess in the amount of their paper. It 
 was therefore natural to conclude, that, in regulating their 
 issues, they constantly and carefully watched these indica- 
 tions of the value of their notes. Persons more conversant, 
 than I could be, with the course of business at the Bank, 
 and whose opinions might naturally be supposed to have 
 
 11 
 
576 Huskisson on the 
 
 great weight with some of the Directors, whilst they urged 
 the importance of this criterion, appeared to entertain the 
 same confidence with myself, that to all practical purposes, it 
 was duly observed.* It was not, till the Committee were 
 furnished with the evidence of the Governor and Deputy 
 Governor of the Bank, that I found that, in regulating the 
 amount of their issues, the Bank had no reference to this 
 criterion. 
 
 Before that declaration was made, I own that my 
 opinions upon the whole subject were much more undecided. 
 When the great fall in the foreign exchanges first took 
 place, I ascribed it, without hesitation, and perhaps without 
 much reflection, altogether to the effect of the violent mea- 
 sures, political and commercial, adopted on the Continent ; 
 and to the suspension of our commercial intercourse with 
 the United States. When that fall had continued for near 
 a twelvemonth, doubts arose in my mind whether, the cause 
 of its long continuance might not be, that the Bank, from 
 too much indulgence to their customers at some particular 
 moment, had somewhat improvidently extended their issues; 
 and too much delayed restoring them to a proper level. 
 But as I still took for granted that they had not lost sight 
 of the criterion above mentioned, my doubts went no 
 further. 
 
 Such was the state of my mind at the time when I 
 retired from office. Every month which passed from that 
 time, whilst our exchanges were growing worse, and the 
 price of gold rising, (notwithstanding that our expedition to 
 the Continent was terminated, and our pecuniary aid to 
 Austria discontinued,) could not fail to increase those doubts. 
 
 Under these circumstances, and very soon after the open- 
 ing of the last session, the subject was taken up in parliament. 
 When the Committee was appointed, I gave to the Enquiry 
 all the attention in my power. The general principles 
 which I carried with me to that committee were the same 
 
 * See An Enquiry into the Nature and Effects of the Paper Credit 
 of Great Britain. By Henry Thornton, Esq. M.P. 
 
Depreciation of ike Currency. 577 
 
 which I now profess ; but the information which has led 
 me to a more specific and particular application of them 
 was chiefly derived from what came out in the investigation. 
 When I found that the principle of regulating the issues 
 and ascertaining the value of their paper by a reference to 
 some fixed standard) and even the existence of such a fixed 
 standard were either altogether overlooked by the Bank, 
 (they could scarcely be unknown to them) or utterly dis- 
 regarded in their practice, my astonishment was great 
 indeed. From that moment I was more at a loss to explain 
 to myself why the evil was not greater, than to account 
 for its present extent. 
 
 I am not ashamed to add that my individual efforts 
 would not have enabled me to follow in all its practical 
 bearings a subject of such extent and intricacy, without a 
 far more regular and careful attention than was compatible 
 with the incessant occupation, and multiplied duties of such 
 public situations as it has been my lot to fill : and this is 
 far from the only instance in which the studies and self- 
 examination of retirement have shewn to me how great in 
 almost every respect (assiduity perhaps excepted) were my 
 own deficiencies in office. 
 
 I can, however, conscientiously declare that whatever 
 humble means I may possess of discriminating between 
 truth and error, between degrees of probability and strict 
 proof, between conjecture and certainty : have been recently 
 and anxiously employed in the re-examination of the opinion 
 which I supported in the Committee. 
 
 Eartham, 23d October, 1810. 
 
 13 
 
Huskisson on Depreciation, fyc. 579 
 
 THE 
 
 QUESTION, &-c. 
 
 various definitions of the word money, and the 
 different acceptations in which that word is used in 
 the ordinary transactions of life, have contributed to pro- 
 duce much of the doubt and uncertainty which prevail at 
 this moment respecting the state of our currency. 
 
 Money, in the popular sense, is frequently considered aa 
 having no other value than one purely arbitrary and con- 
 ventional. It is sometimes defined to be the representative 
 of all other commodities ; and sometimes the common mea- 
 sure of them. These definitions are both incomplete, as 
 applied to money ; because they are equally applicable to 
 every description of currency, whether consisting of the 
 precious metals, of paper, or of any other article. 
 
 It is of the essence of money to possess intrinsic 
 value. 
 
 The quality of representing commodities does not neces- 
 sarily imply intrinsic value ; because that quality may be 
 given either by confidence, or by authority. The quality 
 of being a common measure does not necessarily imply 
 intrinsic value, any more than the possession of a foot rule 
 implies the power of acquiring whatever it enables us to 
 measure. Money -, or a given quantity of gold or silver, is 
 not only the common measure, and common representative of 
 all other commodities ; but also the common and universal 
 equivalent. 
 
 Paper currency has, obviously, no intrinsic value. 
 
 A promissory note, under whatever form, or from what- 
 ever source it may issue, represents value. It does so, in as 
 
 15 
 
580 Huskisson on the 
 
 much as it is an undertaking to pay, in money, the sum for 
 which it is issued. 
 
 The money, or coin of a country is so much of its capital. 
 Paper currency is no part of the capital of a country. It is 
 so much circulating credit. 
 
 Whoever buys, gives whoever sells, receives such a 
 quantity of pure gold or silver as is equivalent to the article 
 bought or sold : or if he gives or receives paper instead 
 of money, he gives or receives that which is valuable only as 
 it stipulates the payment of a given quantity of gold or 
 silver. So long as this engagement is punctually fulfilled^ 
 paper will of course pass current with the coin with which 
 it is thus constantly interchangeable. Both money, there- 
 fore, and paper, promissory of money, are common measures 
 and representatives of the value of all commodities. But 
 money alone is the universal equivalent; paper currency is 
 the representative of that money. 
 
 Of paper currency, however, there are two sorts ; the 
 one resting upon confidence, the other upon authority. 
 Paper resting upon confidence, is what I have described as 
 circulating credit ; and consists in engagements for the pay- 
 ment, on demand, of any specific sums of money : which 
 engagements, from a general trust in the issuers of such 
 paper, they are enabled to substitute for money in the 
 transactions of the community. Paper resting upon 
 authority, is what, in common language, is called paper 
 money; and consists in engagements issued and circulated 
 under the sanction, and by the immediate intervention of 
 the public power of the state. 
 
 Paper, such as alone used to be current in Great Britain 
 before the restriction on the Bank, was strictly circulating- 
 credit. The paper current in Austria^ Russia, &c., is pro- 
 perly denominated paper money. 
 
 The division and subdivision of the precious metals 
 into various shapes and sizes; the proportion of alloy 
 mixed with them in the coins of different countries ; the 
 stamp affixed upon such coins, and the names by which 
 they pass current, are things in their nature arbitrary; 
 
 16 
 
Depreciation of the Currency. 581 
 
 and subject to such regulations as may be made by the 
 sovereign power of each independent state. By any altera- 
 tion in these particulars, the price of all other commodities, 
 or, in other words, the amount or denomination of money 
 in which their value is stated, may be altered; but these 
 changes cannot affect the relation which the value of the 
 bullion contained in the coin bears to that of such commo- 
 dities. 
 
 Price^ therefore, is the value of any given article, in the 
 currency, by reference to which that article is measured; 
 and must, of course, be varied by any variation in the 
 quantity of gold or silver contained in such currency. 
 
 Supposing, for instance, the currency of a country to 
 consist of gold, and that, without any variation in the 
 relative proportion of this metal to that of other articles, 
 the denomination, of the existing coin should be raised, or its 
 standard lowered, in any given proportion, the prices of all 
 commodities would rise in the same proportion; although 
 the real value of every such commodity, measured by a 
 reference to the quantity of gold in such coin, would remain 
 the same. If, on the other hand, the quantity of gold in 
 such a country (considered for the moment abstractedly 
 from its intercourse with other countries) should be 
 increased in any given proportion, the quantity of other 
 articles and the demand for them remaining the same, the 
 value of any given commodity, measured in the coin of that 
 country, would be increased, or, in other words, the relative 
 value of gold to other commodities would be decreased in 
 the same proportion ; although the denomination and stan- 
 dard of the coin should remain unaltered t and although no 
 addition should have been made to the actual amount of 
 that coin. 
 
 It must be almost superfluous to observe that by deno- 
 nomination is meant the specific name under which a piece 
 of metal of a given quantity is known in the state of coin ; 
 and that standard is the precise quantity (ascertained by 
 weight and fineness) fixed by law for pieces of each deno- 
 mination. Thus the standard fineness of our gold coin is 
 
 17 
 
582 Huskisson on the 
 
 eleven parts of pure gold and one of alloy ; and the deno- 
 mination of a piece weighing 5 dwts. 9-|-f-grs. is a guinea. 
 
 It follows from this, that the right and duty of coining, 
 which, in every independent state, is one of the most impor- 
 tant attributes and functions of sovereignty, consists in 
 affixing to certain pieces of the precious metals a stamp ; 
 which becomes to the subjects of that state, and to all the 
 world, a public voucher, that each piece, according to its 
 denomination, is of the weight and fineness fixed by the law 
 of that state. The public honour and integrity of the legis- 
 lature are pledged to the fidelity and exactness of the 
 voucher, which is thus issued in the name of the Sovereign. 
 
 There is not therefore, nor can there be, any difference 
 whatever, between any given coin, and an uncoined piece 
 of the same metal of equal weight and fineness, except 
 that the quantity of the former is accurately ascertained 
 and publicly proclaimed to all the world by the stamp which 
 it bears. 
 
 To apply these general observations to the particular 
 money of this country : 
 
 I assume, as admitted, that, in Great Britain, gold is the 
 scale to which all prices are referred, and, since the 39th of 
 the King, the only LEGAL TENDER, except for payments 
 under 257. 
 
 I likewise assume, as unquestionable, both in fact and 
 in law, 
 
 1st. That a pound of gold, of our standard, is coined 
 into 44 guineas and a half; and that any person may, at 
 the King's Mint, procure any quantity of gold to be so 
 coined, free of any expense whatever ; the officers of the 
 Mint being obliged to return, in coin, precisely the same 
 quantity which may have been deposited with them, 
 without making any charge for the conversion of it into 
 money. 
 
 2dly. That, by law, these guineas which, when fresh 
 from the Mint, weigh 5dwts. 9-Jf grs. each, cease to be a legal 
 tender if, by wear or otherwise, they are reduced below 
 
 18 
 
Depreciation of the Currency. 583 
 
 5 dwts. 8 grs., which is a diminution in their value of a small 
 fraction more than one per cent. 
 
 Consequently, the law of England, before the year 
 1797, distinctly secured to every man, that he should not be 
 compelled to take, in satisfaction of a legal debt, for every 
 guinea of that debt, less than 5 dwts. 8 grs. of gold of stan- 
 dard fineness ; and, as distinctly, that he should not be 
 obliged to receive, as the representative of a guinea, or a 
 guinea's worth, any article or thing which would not pur- 
 chase or procure that quantity of gold. 
 
 Such was the state of our current coin before the year 
 1797. 
 
 The Bank of England, as every body knows, is a char- 
 tered Company of Merchants whose promissory notes, for 
 more than a century, have constituted a very large propor- 
 tion of the circulatiug credit of this country. From the 
 institution of that Company up to the year 1797, there had 
 been no interruption to the convertibility of their notes into 
 money ; nor any interference on the part of the State in any 
 thing that concerned the issue or circulation of those notes. 
 This Company were simply the Bankers of the State, and, 
 by a condition of their charter, its Agent for the payment of 
 the dividends due to the public creditor. 
 
 In 1797, in consequence of a demand upon the Bank 
 for gold, continued for a time, and in a degree, altogether 
 unusual, and arising from a combination of untoward circum- 
 stances and events, partly political, and partly commercial ; 
 the Directors of that institution felt themselves bound to 
 state to the Government the unprecedented difficulties and 
 embarrassments of their situation. 
 
 It is but justice to them to remark, that they did not 
 resort to this measure, till they had tried, and found unavail- 
 ing, all those means of checking the drain of cash, which 
 had been effectual on former occasions. On these former 
 occasions the Directors had uniformly found, that to 
 lessen the amount of their issues of paper, was the 
 sure mode of checking and ultimately stopping the demand 
 for gold. It was natural for them, as practical men 
 
 19 
 
584 Huskisson on the 
 
 to follow their established course; but when they found 
 that, instead of abating, the drain increased every day, 
 in proportion as they contracted the amount of their 
 paper, it was equally natural for them to mistrust their own 
 experience. 
 
 In this state of affairs, the remedy which was applied to 
 the difficulties of the Bank and of the Country, was an act 
 for the temporary suspension of cash payments. 
 
 It is material to understand precisely the nature of the 
 change which this act created in the state of our circulation ; 
 a change, of the magnitude of which no man was more 
 sensible than the persons whose duty it was to propose it to 
 Parliament. 
 
 This act did not repeal any of the former regulations 
 to which I have adverted, and which are the foundation of 
 our money system. Neither did it make Bank notes a legal 
 tender. It did not alter in any respect the existing state 
 of the law, either as to the weight or the fineness of the 
 gold coin ; or the act of the 39th of the King. It merely 
 suspended other provisions of law (having in themselves no 
 reference to our circulation, or money system) by which, in 
 default of payment, the person and goods of a debtor are 
 made liable for his debt. This liability it suspended, in 
 cases where a tender shall have been made to the creditor of 
 the amount of his claim in notes of the Bank of England. 
 
 If it had been proposed, at once, to make Bank notes a 
 legal tender, and, in direct terms, to enact that every man 
 should, thenceforward, be obliged to receive them as equiva- 
 lent to the gold coin of the realm, without reference to the 
 quantity of gold bullion which might be procured by a Bank 
 note of any given denomination ; such a proposition would 
 have excited universal alarm, and would have forcibly drawn 
 the attention of the legislature and the public to the real 
 nature of our circulation, and to the possible consequences 
 of such an innovation. But, certainly, nothing of the sort 
 was in the contemplation of any man when the first sus- 
 pension act was passed. That it was then considered and 
 proposed, as an expedient which would be but of short 
 
 20 
 
Depreciation of the Currency. 585 
 
 duration, the course of the proceedings in Parliament 
 abundantly indicates. 
 
 Such being the original character of the measure, it is 
 not extraordinary that, in that crisis, Parliament, without 
 much hesitation, and without any suspicion of the ultimate 
 possible consequences, should have afforded a temporary 
 protection from arrest to a debtor, who should have made a 
 tender of payment in Bank notes. But if, in the year 1797, 
 it had been foreseen that this temporary expedient would be 
 attempted to be converted into a system for an indefinite 
 number of years; and that, under this system, in the year 1810, 
 every creditor, public or private, subject or alien, to whom 
 the law, as it then stood, and as it now stands, had secured 
 the payment of a pound weight of standard gold for every 
 467. 14s. 6d. of his just demand, would be obliged to accept, 
 in full satisfaction, about 10-j- ounces, or not more than 
 seventeen shillings in the pound ; with a prospect of a still 
 further reduction in every subsequent year : it is impos- 
 sible to conceive that the attention and feelings of Parlia- 
 ment would not have been alive to all the individual 
 injustice, and ultimate public calamities, incident to such a 
 state of things ; and that they would not have provided for 
 the termination of the restriction, before it should have 
 wrought so much mischief, and laid the foundation of so 
 much confusion in all the dealings and transactions of the 
 community. 
 
 Whether the actual state of things be such as I have 
 just described, is the question upon which the public atten- 
 tion is now fixed : and to which, I conceive, there can be 
 but one answer. If the reader shall go along with me in the 
 following statement, that answer will appear to him as 
 obvious as it does to me. 
 
 1st. A pound, or twelve ounces of gold, by the law of 
 this country, is divided into 44 guineas and a half, or 
 467. 14s. 6d. 
 
 2ndly. By this division, which is made at the public 
 
 21 
 
586 Huskisson on the 
 
 expence, and without charge for coinage, nothing is added 
 to the value of the gold ; and nothing taken away from it. 
 
 3dly. A pound of gold, therefore, and 467. 14s. 6d. being 
 equivalent, being in fact the same thing under different 
 names, any circulating credit which purports to represent 
 467. 14s. 6d. ought, by the law of this country, to be ex- 
 changeable at will for a pound of gold. 
 
 4thly. No alteration has been made in this state of law 
 except by the Act of 1797. 
 
 5thly. The professed and intended operation of the Act 
 of 1797 was not to diminish the quantity of gold for which 
 any specific amount of circulating credit ought to be ex- 
 changeable, but merely to suspend, for a time, the option of 
 the exchange. 
 
 Gthly. But the sum of 467. 145. 6d. in our present paper, 
 will procure in exchange for gold, only 10J- ounces of that 
 metal : A pound of gold is now exchangeable for 567. in 
 paper currency. Any commodity, therefore, which is 
 equivalent to a pound of gold, is also equivalent to 561. in 
 paper. 
 
 It follows that the difference between 56Z., and 
 467. 14s. 6d. or between 12 and 10^ ounces of gold, arises 
 from the depreciation of the paper ; and is the measure 
 of that depreciation, as well with respect to gold, the 
 universal equivalent, as to every other commodity. 
 
 Those who differ from me in opinion must be prepared 
 to deny some one of these facts, from which, if not dis- 
 proved, the conclusion necessarily follows. They must 
 either shew, that I have mis-stated the permanent laws of the 
 realm which regulate our coinage, and determine our legal 
 tender ; or they must shew, that gold is not the basis of our 
 money that its value is not measured by its quantity 
 that the value of that quantity is varied by its conversion 
 into coin. But these are propositions which no man who 
 has ever looked at the subject will attempt to maintain. 
 
 Otherwise they must shew that the intention of the 
 temporary law of 1797 was different from that which I have 
 ascribed to it : and that it was intended, by that law, either 
 
 22 
 
Depreciation of the Currency. 587 
 
 to lower our standard, to alter our legal tender, or to leave 
 us without any standard at all. But even if they should 
 be able to shew, that the intention of this temporary law was 
 to make any one of these alterations, still, by the establish- 
 ment of their proposition, they will not invalidate but con- 
 firm the conclusion which I have stated. They will only 
 have established, by their own arguments, the fact of the 
 depreciation, and will no otherwise have varied the question 
 arising out of it, than by making it appear, that such depre- 
 ciation of our currency was not the unforeseen consequence, 
 but the premeditated result of an act of the Legislature. 
 
 Although these" appear to be the only imaginable grounds 
 on which any exception can be offered to my statement, 
 they are such as will not be taken by any man who does 
 justice to the character of the Legislature, or has any 
 recollection of the circumstances under which it passed the 
 Act of 1797. 
 
 It would be monstrous to imagine that it could ever be 
 in the contemplation and intention of either House of Par- 
 liament, that Bank notes, at their present, or at any less 
 value, to which they might possibly be reduced, should be a 
 legal tender. To entertain such an opinion would be to 
 impute to Parliament a design to practise a deception, and 
 to encourage a fraud. What would have been the consis- 
 tency, what the integrity of a Legislature, which, leaving 
 unrepealed and unmodified the regulations which take away 
 the character of a legal tender from every guinea weighing 
 less than 5 dwts. 8 grs. would give it to a Bank note, purport- 
 ing to be a security for the same denomination, but the real 
 value of which is, at this moment, 4 dwts. 14 grg., or, in 
 other words, about three shillings less than the lightest 
 guinea which is allowed to pass in payment ? 
 
 If such be the effect of the Act of 1797 ; let us see, by 
 a comparison of that effect with the whole purport and ten- 
 dency of all the antecedent laws, which regulate and govern 
 our currency, what is the present legal state of that cur- 
 rency ; and what the situation of the subjects of this realm, 
 under the whole system as it now stands. 
 
 23 
 
588 Huskisson on the 
 
 By law, a guinea which weighs less than 5 dwts. 8 grs. 
 is no longer a guinea. It is deprived of its quality of coin. 
 It can no longer be tendered as money. But it may be sold 
 for what it will fetch in the market as bullion) for the 
 purpose of being melted down. 
 
 By law, it is an offence punishable with severe penalties 
 to melt a guinea weighing more than 5 dwts. 8 grs. ; or to 
 reduce it, by clipping, filing, or any other process, below 
 that weight. 
 
 By law, a guinea of that weight cannot be exchanged 
 for more than the sum of 21s. which sum in paper currency 
 is worth at present 4 dwts. 14 grs. of gold. To sell, or to 
 buy guineas at a higher rate than 21s. each in Bank paper, 
 is an offence highly punishable. 
 
 For this last offence a man has recently been tried and 
 convicted. 
 
 If the guineas purchased by him had been light guineas, 
 viz. guineas weighing upon an average 5 dwts. 7-J-* grs. each, 
 he might have bought and sold them without incurring any 
 penalty. 
 
 The state of the law, therefore, is this. The possessor 
 of a heavy guinea, which is intrinsically worth about 24s. 6d. 
 in Bank paper, who should exchange it for more than 21s. 
 of that paper, would be liable to fine and imprisonment. 
 The more fortunate possessor of a light guinea is entitled 
 by law to exchange it for what it will fetch, which would 
 be about 24s. 3d. 
 
 A light guinea, therefore, cried down, no longer current, 
 no longer a legal tender, is, at the present moment, more 
 valuable than a guinea of full weight, in the proportion of 
 24s. M. to 21s. 
 
 The light guinea, by melting, is converted into 5 dwts. 
 7J grs. of bullion. 
 
 The heavy guinea being, by law, incapable of being 
 
 * From the evidence of Mr. Merle, in the Appendix to the 
 Report of the Bullion Committee, it appears that this is the average 
 weight of light guineas. 
 
 24 
 
Depreciation of the Currency. 589 
 
 converted into bullion, or of being reduced, by a diminution 
 of quantity, into the more valuable shape of a light guinea, 
 is equivalent to 4 dwts. 14 grs. of gold. The difference of 
 value in favour of the light guinea is 17^ grains of gold. 
 
 This is the present state of our currency ; and the opera- 
 tion of the laws by which it is regulated. 
 
 Is it possible to conceive that this is the state of things, 
 which the Legislature, in passing the Act of 1797, had it in 
 contemplation to produce ? Is it one, which, having been 
 produced unintentionally, does not require such an altera- 
 tion as would bring back the currency of the country to an 
 agreement with its ancient legal standard ? 
 
 For my own part, I confess that, if absolutely driven to 
 the necessity of deciding between the alternative, of suffer- 
 ing the present state of things to continue, or of resorting at 
 once to the stale and wretched expedient of either raising 
 the denomination, or lowering the standard of our currency, 
 in any fixed and limited proportion, I should not hesitate to 
 prefer the latter. This expedient, I admit, though not 
 unfrequently practised, in former and less enlightened 
 periods of the history of this and other nations, is now 
 universally and justly reprobated and condemned, as too 
 disgraceful in its principle, and too ruinous in its policy, to 
 be resorted to, even by governments the most arbitrary in 
 their internal administration, and the most destitute of more 
 substantial resources. Yet, let me ask any of those who 
 would have been startled at such a proposal, what would 
 be the real difference between a state of law, which, either 
 leaving the guinea at its present weight and fineness, should 
 raise its denomination to 24s. 6d. ; or, leaving it at its pre- 
 sent denomination, should lower its standard to 4 dwts. 
 14 grs. and a state of law, which obliges every man to 
 receive the latter quantity of gold as 21s., or to give 245. 6d. 
 for the former? 
 
 One difference, indeed, would be this : that, the injury 
 once done, the fraud once committed, the extent of the evil 
 
 25 
 
590 Huskisson on the 
 
 would be known and ascertained. Prices at home, and 
 abroad, once accommodated to the change in the value of 
 our currency, all uncertainty, and consequent speculation 
 upon a further derangement, would cease- Creditors, 
 annuitants, and all who possess incomes, fixed in their 
 amount by a contract of any description, would be able to 
 measure the extent of their loss. All future leases, and 
 bargains for time, would be made with a reference to this 
 definite alteration in the common measure of all exchange- 
 able commodities. Salaries and wages of every description 
 would be more speedily and more proportionably compen- 
 sated for the change. The existing evil, on the contrary, of 
 which the present measure may be reckoned at about 15 per 
 cent., is indefinite, uncertain, and fluctuating, though pro- 
 gressive in its growth. It has, consequently, a greater 
 tendency to derange and unsettle all the transactions of 
 society, and to depress the labouring classes, and all who 
 derive their incomes from salary or wages of any description. 
 It increases, at the same time, the foreign expenditure of 
 Government, in proportion to the fall of the exchange ; and its 
 domestic expenses, in proportion to the increased price of all 
 commodities at home. It adds, in the same proportion, to 
 the amount of our annual loans and taxes. A saving, it is 
 true, accrues to the State from paying the wages of valour, 
 talent, industry, and labour, in a depreciated currency, and 
 from the reduction which is thus made (really though not 
 nominally) in the value of the dividend paid to the public 
 creditor. But it is equally true that these unfair and 
 unintended savings to the State are more than counter- 
 balanced by its increased expenditure : whilst this increased 
 expenditure, and the increased taxation necessarily conse- 
 quent upon it, doubly aggravate the evil on those classes of 
 the community at whose expense these savings are made, 
 by taking from each a greater proportion of their already 
 depreciated income, for the payment of all the other charges 
 of the State. 
 
 26 
 
Depreciation of the Currency. 591 
 
 The propositions which I have stated appear to me so 
 clear and conclusive that I am almost ashamed of saying 
 anything more on this part of the question. But the doubt 
 and confusion which prevail in the minds of many sensible 
 persons, and the sophistry to which they have been induced 
 to listen, from the want of clear and precise ideas on this 
 subject, are quite extraordinary. There are those who 
 reason as if they had persuaded themselves, and who endea- 
 vour to persuade others, that Bank paper is the real and 
 fixed measure of all commodities ; and that gold is only one of 
 the articles, of which, in common with others, the value is to 
 be ascertained by a reference to this invariable standard and 
 universal equivalent, Bank paper. So widely extended is the 
 error in this respect, that, however much in contradiction 
 with some of their own principles, it pervades, more or less, 
 nearly the whole of the evidence of the respectable mer- 
 chants who were examined before the Bullion Committee. 
 For instance, in the examination of Mr. CHAMBERS, 
 (p. 102), a gentleman who deservedly enjoys the reputation 
 of great intelligence and extensive information in the 
 commercial world, we find the following evidence. 
 
 rt At the Mint price of standard gold in this country, 
 how much gold does a Bank-of-England note for one pound 
 represent ? 5 dwts. 3 gr." 
 
 " At the present market-price of 47. 12s. per ounce, how 
 much gold do you get for a Bank note of one pound ? 
 4 dwts. 8 gr." 
 
 "Do you consider a Bank-of-England note for one 
 pound, under these present circumstances, as exchangeable 
 in gold for what it represents of that metal ? / do not con- 
 ceive gold to be a fairer standard for Bank-of-England notes 
 than indigo or broad cloth" 
 
 Question repeated f ' If it represents twenty shillings of 
 that metal at the coinage-price) it is not" 
 
 In these answers this leading doctrine is manfully and 
 ingenuously asserted and maintained ; and all who stand 
 up for the undepreciated value of Bank paper, however 
 
 27 
 
592 Huskisson on the 
 
 disguised their language, must ultimately come to the same 
 issue. 
 
 Mr. CHAMBERS plainly avows, that " He does not con- 
 ceive gold to be a fairer standard for Banh~of-England notes 
 than indigo or broad cloth " and that " a one pound note does 
 NOT represent twenty shillings of that metal at the coinage price" 
 * These answers, to my understanding at least, completely 
 give up the whole of the case. 
 
 If " gold be not a fairer standard for Banh-of-England 
 notes than indigo or broad cloth" I could wish to learn what 
 is the really fair standard ? 
 
 If " a one -pound note does not represent twenty shillings of 
 that metal at the coinage price" what does it really represent ? 
 
 Need I recall to any man's recollection the obvious, and, 
 as I till lately imagined, undisputed grounds on which the 
 precious metals have, not in this country only, and by our 
 system of laws, but in all civilized countries, and in all ages 
 of the world, been received, by the common consent of 
 mankind, as the fittest standard for measuring the value of 
 all other commodities; and employed as the universal 
 equivalent for effecting their exchange ? That the precious 
 metals are less bulky in proportion to their value that they 
 are accurately, easily, and almost infinitely divisible that 
 they are less subject to decay less likely to fluctuate in 
 their supply, less liable to be counterfeited or adulterated, 
 more homogeneous and uniform in quality, than either 
 indigo, or broad cloth, or any other known commodity ? 
 
 Gold in this country (as silver at Hamburgh) is really 
 and exclusively the fixed measure of the rising and falling 
 value of all other things in reference to each other. The 
 article itself which forms this standing measure, never can 
 rise or fall in value with reference to this measure 
 that is, with reference to itself. A pound weight of 
 gold never can be worth a pound and a quarter of gold ; 
 and being divided, in this country, into 44 and ^ pieces, 
 called guineas, an ounce of this gold will always be worth T ^ 
 of this sum, or 31. 17 s. lO^d. The truth of these proposi- 
 
 28 
 
Depreciation of the Currency. 593 
 
 tions, which cannot, I conceive, be called in question, would 
 not be affected by any imaginable increase or diminution 
 in the quantity of gold in the country. By such an 
 increase or diminution, indeed, the value of all other things, 
 (the quantity of those other things and the demand for 
 them continuing the same), would be increased or diminished 
 in the same proportion, with reference to gold ; but gold 
 itself would still remain, just as much as before, the fixed 
 measure of the rising and falling value of all other commo- 
 dities, in reference to each other. 
 
 A Bank note is not a commodity : it is only an engage- 
 ment for the payment of a certain specified quantity of 
 money. It cannot vary its value in exchange for any com- 
 modity, except in reference to the general increase or 
 diminution of the value of such commodity in gold, and in 
 the precise proportion of that increase or diminution. Gold, 
 therefore, is the test by which the value of Bank notes 
 must be tried ; and if a one-pound note, being an engage- 
 ment to pay 5 dwts. 3 gr. of gold, is worth in the market 
 only 4 dwts. 8 gr. as stated by Mr. CHAMBERS in his 
 evidence, it is equally worth only 4 dwts. 8 gr. in exchange 
 for any other commodity. 
 
 It follows from this ; that a general increase of prices 
 in all the ordinary commodities of any country is not, in 
 itself, an indication of the depreciation of its currency. 
 Such an effect may arise from other cause. It could not 
 fail to be produced by an increase of the precious metals. 
 But any considerable or durable increase of price in the pre- 
 cious metal which forms the standard of that currency cannot 
 be ascribed to anything but the depreciation of such currency; 
 even if the price of all other commodities should be falling 
 at the same time. This would happen in any country if, at 
 the same period, when its currency is depreciated, in any 
 given proportion, the supply of the precious metals were 
 diminished, or the demand for them increased, in a greater 
 proportion. 
 
 The currency of a country may be depreciated from two 
 different causes. 
 
 29 
 
594 Huskisson on the 
 
 1st. By the standard coin containing a less quantity of 
 the precious metal which forms that standard, than it is 
 certified by law to contain. 
 
 2dly. By an excess in the amount of that currency. 
 
 A great depreciation, arising from the first cause, took 
 place, in this country, in King WILLIAM'S time, when the 
 quantity of precious metal actually contained in our coin was 
 upon an average, nearly 30 per cent, less than that coin was 
 certified to contain. A smaller depreciation, arising from the 
 same cause, was felt early in the present Reign, when the 
 quantity of gold contained in our guineas was reduced by 
 long wear, or otherwise, from 4 to 5 per cent, below the 
 quantity they were certified to contain. To this evil, within 
 these limits, it was then thought necessary to apply a remedy. 
 That remedy was the general recoinage of our gold in 1773. 
 
 Since that period the first cause of depreciation has 
 ceased to operate in this country. 
 
 The existing depreciation, therefore, must be occasioned 
 by excess. Depreciation from excess, if the coin of a country 
 be maintained at its standard, cannot take place to any 
 amount, or continue for any length of time, unless the cur- 
 rency of such a country consists, partly of paper, and partly 
 of the precious metals : except indeed in the extreme case 
 of that currency consisting wholly of paper, without any 
 reference to its value in coin. 
 
 If the circulation of any country were performed exclu- 
 sively by gold, for instance, and the supply of that metal in 
 such a country were, from any imaginable cause, doubled, 
 whilst the quantity of gold, and the demand for it should 
 continue the same in all other parts of the world ; the price 
 of gold in such a country would be diminished. This dimi- 
 nution of the price of gold would appear in the proportionate 
 rise of all commodities ; but gold being so much cheaper in 
 the country in which its quantity had been thus increased, 
 it would be bought by other countries, and exported from 
 that country, till its price was restored again to a level in 
 the different parts of the world. 
 
 If the circulation of a country were supplied, partly by 
 
 30 
 
Depreciation of the Currency. 595 
 
 gold and partly by paper, and the amount of that circulation 
 were doubled by an augmentation of that paper, the effect upon 
 prices at home would be the same as in the former ca&e. 
 But gold not becoming by this augmentation of currency 
 more abundant, in such a country, than in other parts of the 
 world, as a commodity, its relative value to other commodi- 
 ties would remain unaltered ; as a commodity also, its price 
 would rise in the same proportion as that of other commodi- 
 ties, although, in the state of coin, of which the denomination 
 is fixed by law, it could only pass current according to that 
 denomination. 
 
 When paper is thus augmented in any country, the 
 exportation of the gold coin, therefore, will take place ; not 
 because gold, as a commodity., is become more abundant and 
 less valuable with reference to other commodities in such a 
 country ; but, from the circumstance of its value as currency 
 remaining the same, while its price in that currency is 
 increased in common with the prices of all other commodi- 
 ties. So far as such exportation takes place, the diminution 
 which it effects in the total amount of the currency, has a 
 tendency to support the value of the remainder, just as much, 
 and for the same reason, as if, in the case of the circulation 
 consisting wholly of gold, first an augmentation, and then an 
 exportation to the same amount, had taken place, according 
 to the first supposition. 
 
 An excess of paper has, in the first instance, the same 
 effect upon prices as an excess of the precious metals, to the 
 same amount, would have, in any particular country. But 
 it does not admit of the same relief : it cannot right itself by 
 exportation. 
 
 The currency of a country, then, is depreciated, 
 
 1st, If its standard coin contains less of gold or silver than 
 it is certified to contain. In that case, the paper, as repre- 
 senting that coin, is also depreciated, and precisely in the same 
 degree as the coin : 
 
 2dly, If the paper is exchangeable for less of the coin 
 than it represents ; that coin containing the quantity of gold 
 
 31 
 
596 Huskisson on the 
 
 or silver certified by law. In that case, the coin, though 
 undiminished in value, must, as part of the currency, partake 
 of the depreciation of the whole. 
 
 Consequently, if the coin be itself, as coin, depreciated,. 
 the paper which circulates with it cannot be otherwise than 
 depreciated to the same degree. But if the coin be unde- 
 preciated as coin, and there be, notwithstanding, a deprecia- 
 tion of the general currency, the cause of that depreciation 
 can only be in the paper : and that cause can be no other 
 than the excess in which that paper is issued. 
 
 I shall now proceed to state some of the assertions, and 
 to examine some of the arguments and explanations of those 
 who maintain the sound and undepreciated state of our pre- 
 sent currency. 
 
 The first and principal of these arguments and assertions is 
 one which, if it could be established, would at once preclude 
 all further discussion. It is this " That there can be no 
 " excess of Bank of England paper in circulation, so long as 
 " it is issued only in the discount of bills of undoubted solidity, 
 " founded in real mercantile transactions, and payable at 
 *' fixed and not distant dates (60 or 90 days at the utmost), 
 " or upon loan to government for public securities." The 
 limits of the latter description of advances are not quite so 
 accurately defined, but the principal criterion seems to be 
 " government not being able to dispose of such securities to 
 66 better advantage in the open market."* 
 
 * Vide examination of Mr. Pearse, the present Governor of the Bank, 
 Bullion Report, Appendix. 
 
 It is now many years since I had occasion to look into the Treatise 
 of the famous Mr. LAW ; and from not having it at hand, I have no 
 opportunity of referring to it at this moment. But I have a confident 
 recollection that there exists a very strong resemblance between the 
 principles on which his celebrated SCHEME was founded, and this leading 
 doctrine of the Bank. I mention this not invidiously, but by way of 
 caution to those practical men, who see nothing in the Report of the 
 Bullion Committee, but the production of wild theorists, and speculative 
 politicians. I should be glad to know under what class of theorists, and 
 in what order of politicians, they would have ranged any man, who, 
 before the year 1797, should have ventured to recommend, as a safe 
 system, the principles by which the Bank now professes to regulate its 
 practice ? 
 
 32 
 
Depreciation of the Currency. 597 
 
 Now admitting, what the Bank itself however states to 
 be impossible, that any extent of experience, or any degree of 
 caution, can be sufficient to guard them against ever dis- 
 counting bills which do not fully answer the above descrip- 
 tion it must, I think, be matter of astonishment to any man 
 whose attention has been at all turned to these subjects, that, 
 in the new state in which the Bank of England has been 
 placed since the suspension of cash payments, they could rely 
 upon this mode of regulating their advances, as a perfect, 
 steady, uniform and adequate check against any excess in 
 the issues of their notes. 
 
 The confidence with' which this doctrine was stated and 
 maintained by the Governor and Deputy- Governor of the 
 Bank, as well as by several eminent merchants, (not in the 
 Bank direction,) before the Bullion Committee, is a strong 
 proof, not only how much great corporate establishments 
 are wedded to an existing system, and long established rules 
 of action, however inapplicable to a new state of things ; 
 but how slow and reluctant, in such a state of things, indi- 
 viduals, otherwise of observing minds and excellent under- 
 standings, are, to call in question and examine the truth 
 of early impressions adopted upon authority, and followed 
 from usage. This tardiness and reluctance are naturally 
 increased, when interest is manifestly on the side of the 
 existing system. 
 
 The Directors of the Bank, governing themselves by the 
 rule above-mentioned, had continued for a century to issue 
 their notes, without those issues having ever led to an excess 
 of paper circulation, at least of any continuance. But then, 
 during the whole of that century, their paper was convertible 
 into cash at the option of the holder. The security against 
 excess was not in their rule, but in this corrective. 
 
 Their profits, as a Bank, depending on the amount of 
 their issues, it was their interest, at all times, to make those 
 issues as large as possible : in this, the public had a sufficient 
 security that the supply of paper should not be less than the 
 demand. But, on the other hand, it was the obvious and 
 plain interest of the Bank to guard itself against direct and 
 
 33 
 
598 Huskisson on the 
 
 positive loss : and in this the public had another, and not 
 less adequate, security, that those issues should not be carried 
 to excess. The tendency and result of such excess, if con- 
 tinued, for any time, would infallibly have been the rise of 
 the market price of gold above the Mint price ; and the 
 consequent return of such excess of paper to the Bank in 
 demand for guineas. This demand would have imposed 
 upon the Directors the necessity of purchasing and coining 
 gold at a loss; until, by a diminution of their notes, they 
 should have restored their value to a level with the standard 
 of money. 
 
 By the conflicting action of these opposite interests, the 
 currency was kept at its proper amount, and in its regular 
 course. But one of these interests having ceased to operate, 
 it is as vain to expect that the uncontrolled action of the 
 other should continue to produce precisely the same effect, 
 as it would be, in mechanics, to expect that a body im- 
 pelled by two powers, acting in different directions, would 
 continue in the same line of motion, if one of those powers 
 were withdrawn. 
 
 The circumstance of the Bank confining its discounts to 
 " bills of undoubted solidity, and founded in real mercan- 
 tile transactions," has no connexion whatever with the 
 question of sufficiency or excess in the amount of their 
 notes in circulation. The " reality of the transaction," in 
 which the bill originates, and the " solidity " of the holder, 
 who, by the deposit of such a bill, obtains an advance of 
 notes, are prudent considerations with the Bank, in their 
 character of a mercantile company ; but they evidently 
 afford no security to the public, that bills, though uniting 
 both these qualities, may not be discounted to excess. 
 
 The shortness of the date of any such bill, " 60 or at 
 most 90 days date," is another prudent banking precaution : 
 and so long as the currency of this country continued in its 
 sound and natural state, this regulation may, indeed, have 
 been fairly considered as forming a part of the security of 
 the public against any durable excess of paper. It gave the 
 Bank a power, in the case of a drain of guineas, to diminish 
 
 34 
 
Depreciation of the Currency. 599 
 
 expeditiously the amount of their issues by contracting their 
 discounts ; to shorten the duration of the run upon them ; 
 and to restore the value of their paper without any large 
 sacrifice of their gold. 
 
 Now, however, that they cannot be assailed with any 
 such indication of excess now, that they have every motive 
 for enlarging their discounts, and no inconvenience to 
 apprehend from such an enlargement, this regulation is only 
 of consequence to themselves, as bankers, duly careful of 
 their own interest, in selecting for discount the best and 
 safest bills ; but it is altogether without avail for protecting 
 the public against the evils of a permanent excess in the 
 circulation of their notes. 
 
 The present Governor of the Bank (for whom as a 
 personal friend I have the most sincere respect) having, in 
 his evidence before the Bullion Committee, stated that 
 " in his view of the restriction on cash payments^ no positive 
 inconvenience would bs likely to result from its being made a 
 permanent measure,"* it may appear to him, perhaps, rather 
 extraordinary, that I should recur to the aid of his argu- 
 ments, and to the weight of his authority, in support and 
 illustration of the proposition which I have now stated, 
 
 * In a subsequent examination this opinion was explained by 
 Mr. PEARSE, in the following manner. 
 
 " I have already stated that I am not aware of any positive incon- 
 " venieuce resulting from the present operation of the Restriction Bill, 
 " or likely to result from its being rendered permanent, except as far as 
 u regards an expectation on the part of the public that it will be 
 " removed ; but this circumstance is, in my opinion, essential, and 
 " cannot be kept out of view in any consideration of the subject. 
 " Whether it would be advisable to secure the public against a liability 
 " to the recurrence of the inconveniences that led to the Restriction 
 " Bill, by sacrificing their feelings on this point, and absolutely removing 
 " all expectation of its being only a temporary measure, appears to 
 " me to be entirely a political question, on which I do not conceive 
 " myself qualified to give an opinion ; but I may venture to observe, 
 " that public credit and public opinion always go hand in hand, and 
 " that the one is invariably influenced by the other." APPENDIX, 
 page 120. 
 
 It is therefore clear that, abstractedly of " this expectation on the 
 " part of the public," the present Governor is of opinion, that " no 
 " positive inconvenience would be likely to result from the restriction 
 " being rendered permanent." 
 
 35 
 
600 Huskisson on the 
 
 namely that the security to the public against any excess 
 in the circulation of Bank paper was the certainty of such 
 excess being returned upon them for gold ; and that this 
 is the only check by which the amount of their issues can be 
 permanently kept within its proper level. 
 
 In his evidence,* adverting to the possibility of an 
 excessive issue of paper by the country banks, he says 
 
 " This excess (of country paper), in my opinion, would no 
 " sooner exist in any material degree, than it would be corrected 
 <( by its own operation, for the holders of such paper would 
 i( immediately return it to the issuers, when they FOUND THAT, 
 " in CONSEQUENCE or THE OVER ISSUE, its value was reduced, 
 fi or likely to be reduced below PAR : thus, though the balance 
 " might be slightly and transiently disturbed, no considerable or 
 "permanent over issue could possibly take place." 
 
 Now what is the state of a country bank ? It will not 
 be denied that it has the same interest, and the same ten- 
 dency, as the Bank of England, to make its issues as large 
 as possible. But then a country bank, from its being liable, 
 at all times, to pay its notes in those of the Bank of 
 England, at the option of the holder, is placed precisely in 
 the same situation, by this check upon the amount of its 
 issues, as the Bank of England itself was, by the necessity 
 of paying in guineas, before the restriction. If, in any 
 particular district of the kingdom, the circulation of which 
 is supplied by country paper, an excess were to exist as 
 compared with the circulation of the metropolis, which i& 
 exclusively supplied by Bank notes, the holders of such 
 paper would immediately return it to the issuers, and would 
 demand Bank of England paper, or, what is, for this pur- 
 pose, the same thing in effect, bills upon London. 
 
 Whilst near 800 country banks, rivals of the Bank of 
 England, and of each other, are exerting every endeavour 
 to put forth their notes, what is it but the check created by 
 this power in every holder of their paper to demand Bank 
 notes, or bills upon London, that prevents any local or 
 
 * Report of the Bullion Committee, Appendix. 
 36 
 
Depreciation of the Currency. 601 
 
 partial excess, and keeps the circulation of every district in 
 the kingdom upon a PAR with that of the metropolis ? 
 Certainly not the description of securities on which the 
 country banks make their advances : for, in this respect, 
 they (at least many of them) are less prudent than the 
 Bank of England, and do not confine themselves to "good 
 " bills of Exchange, founded on real mercantile transactions, 
 e( and payable at short and fixed dates." Yet it is admitted 
 that they cannot make, or permanently maintain in circu- 
 lation, any over-issues of their paper. On this point there 
 is no difference of opinion in the evidence taken before the 
 Bullion Committee.* Indeed it cannot be disputed, so long 
 as the country paper is interchangeable at PAR with that of 
 the Bank. 
 
 Again, what was it, before the restriction act, but the 
 check created by the power in the holders of Bank paper to 
 demand gold for it from the issuers, which prevented any 
 material or durable excess of Bank paper ? This check was 
 constantly ready to be applied, if " in consequence of an 
 " over issue, the value of Bank notes was reduced or likely to 
 <f be reduced below PAR," in reference to the price of bullion, 
 either here, or in the other parts of Europe ; the circulation 
 of the Bank of England being, in this respect, to that of 
 Europe, what the circulation of a country bank is now to 
 that of the Bank of England. 
 
 Thus, as it is most correctly expressed in the words of 
 the Governor of the Bank, "though the balance might be 
 " slightly and transiently disturbed, no considerable or perma- 
 " nent over issue could possibly take place." 
 
 The circulation of country bank paper being, therefore, 
 in exact proportion to that of the Bank of England, it 
 
 * After the conclusive evidence of the present Governor of the Bank, 
 and of the other witnesses who were examined before the Bullion Commit- 
 tee on this subject, I have been rather surprised to find the proprietors of 
 Bank stock at their late meeting (as for as the sense of that meeting 
 can be collected from the language of their learned orator) disposed to 
 contrast the sparing amount of their own notes with the profuse emission 
 of paper by the country banks ; and to charge the latter exclusively with 
 any excess in the amount of our circulation. 
 
 37 
 
602 Huskisson on the 
 
 follows, that, in whatever degree the issues of the latter 
 shall be excessive, the former must partake of such excess ; 
 and, consequently, that no regulation, affecting or restrain- 
 ing country banks, could be of the smallest avail towards 
 diminishing the total amount of the paper circulation of this 
 country, so long as the Bank of England shall continue to 
 act upon its present system. If, in any one district, or in 
 all the districts, where country paper now circulates, one 
 half of it were withdrawn or put down, its place would be 
 supplied by some other paper. Otherwise, the proportion 
 between the circulation of the metropolis and that of the 
 districts so affected would be destroyed. The result, there- 
 fore, of any intervention of the legislature for this purpose, 
 besides being highly objectionable as an interference with 
 the rights of individuals and of private property, would be, 
 only to add several millions more, and principally in small 
 notes, to the amount of issues of the Bank of England ; 
 leaving the present evil exactly as it is : a change which 
 would open a wide door to forgery, and be attended with 
 many other public disadvantages. 
 
 Whether security should be required from country 
 bankers, before they are licensed to issue paper, is a subject 
 which it would be foreign to my purpose to discuss. Such 
 security, in a few instances perhaps, might improve the 
 degree of credit which they might have a right to expect 
 with the public. But this subject has nothing to do with 
 the present question; which is simply, whether there be 
 an excess of paper now in circulation, and from what -causes 
 arising ? and not what may be the degree of confidence to 
 which the issuers of any such paper may be respectively 
 entitled ? The depreciation occasioned by such an excess 
 would be just the same, if every country bank were noto- 
 riously as solid and as rich as the Bank of England.* 
 
 * This is a part of the subject which it is material should be well 
 understood ; because many persons, witnessing the great multiplication 
 of country banks within these two last years, are disposed, at first view, 
 to think that in them is the root of the evil. Let the parent stock be 
 restored to its natural, healthy, and sound state, and the country will 
 have nothing to apprehend from these ramifications of credit and 
 
 38 
 
Depreciation of the Currency. 603 
 
 The explanations which have been offered by those who 
 have endeavoured to shew that the high price of gold in 
 England is not connected with any excess in the issue of 
 Bank paper, are, 1st. That the immediate and operative 
 cause is a great scarcity of gold, and a consequent demand 
 for it, on the continent. And. 2dly, That speculation in the 
 purchase of it in this country has been carried, and is still 
 going on, to a very great extent, in consequence of the 
 course of exchange with the continent having been for the 
 last two years, and still continuing, so much against this 
 country. 
 
 In these explanations everything is assumed. First, it 
 is assumed that gold is very dear on the continent. Dear, 
 in exchange for what ? For the gold coin of the continent ? 
 Such an assertion would be ridiculous. Dear, in exchange 
 for any depreciated paper ? This is very probable in several 
 parts of the continent, but is surely not the criterion to 
 which we shall be referred. Dear, in exchange for all other 
 commodities ? Is this a fact ? Where is the evidence of it ? 
 Are cloth, corn, iron, or any other leading articles twenty per 
 cent, cheaper on the continent, than they were, if paid for 
 in gold? Certainly not. And if they were so on the 
 continent, has not the drain lasted long enough to bring 
 matters to a level, and produce the same effect in this 
 country? Has the price of commodities, in this country, 
 fallen within these two years ? Is not the contrary noto- 
 riously the fact ? 
 
 circulation. No special interference with them would, in my opinion, 
 be requisite or beneficial. 
 
 The Report of the Bullion Committee has been the subject of much 
 artful misrepresentation ; sometimes ascribing to the members of that 
 Committee a wish to put an end to paper credit altogether ; sometimes 
 an opinion that it ought to be reduced to the same amount as in 1797. 
 Nothing like such a wish, or such an opinion, can be collected from 
 the Report. - On the contrary, it speaks in the strongest terms of the 
 advantages of an extensive circulating credit, and expressly states, that 
 any increase in its numerical amount is, of itself, no proof whatever of 
 its being in excess. 
 
 39 
 
604 Huskisson on the 
 
 But it may be said, that we have Bank notes as a sub- 
 stitute for gold, and that it is by an abundant supply of 
 them that prices at home are raised and improved. Be it so. 
 In proportion as commodities are dear in Bank notes, Bank 
 notes are cheap in respect to commodities. Gold, we are 
 told, is scarce, and, therefore, must be dear, whether 
 measured in those same commodities, or in any thing else. 
 What is this argument, on the part of those who deny the 
 depreciation of Bank notes, but to tell us, in the same 
 breath, that gold is dear, that Bank notes are cheap but 
 that Bank notes are of the same value as gold ? 
 
 Nothing appears to me to indicate that the value of gold, 
 in reference to ordinary commodities, has increased in the 
 general market of EUROPE. The annual produce of the 
 gold mines, it is true, appears not to have been so large, 
 during the last half century, as at some former periods ; but 
 the supply does not seem to have suffered any diminution of 
 late years. 
 
 The relative value of gold to silver may have been, in 
 some trifling degree, increased. The quantity of silver 
 lately imported from America, has been unusually large; 
 while the demand from the East Indies and China has alto- 
 gether ceased: nay, I am informed that a large supply of 
 dollars was imported from the latter country, by the fleet 
 recently arrived from Canton. Every presumption, there- 
 fore, is, that the value of silver continues progressively, 
 though slowly, to decrease in Europe. 
 
 This alteration in the relative value of the two precious 
 metals, may render it necessary, hereafter perhaps, to change 
 the proportion which they now bear to each other in our 
 Mint regulations. 
 
 In FRANCE, where the currency is chiefly silver, an 
 alteration appears to have been recently made in the gold 
 coin, to the effect of raising its proportion to that of silver, 
 from 15^, to about 15^. According to Mr. GREFULHE'S 
 evidence, this slight alteration appears, very nearly, to have 
 put an end to the premium which before existed on the gold 
 coin. In ENGLAND the present proportion of our Mint is 
 
 40 
 
Depreciation of the Currency. 605 
 
 about 15-i- to one. If, at any future period, it should be 
 thought necessary to raise that proportion, the alteration 
 would perhaps be best effected by lowering, in whatever 
 degree it might be necessary, the standard price of silver, so 
 as to leave that of gold, which is our currency and legal 
 tender, always fixed and invariable.* 
 
 It is not, however, to a diminished produce from the 
 mines, but to a greatly increased demand occasioned by the 
 wants of the armies, or to the practice of hoarding, or to 
 both, that the alleged high price of gold on the continent is 
 imputed. The change in the proportion of gold to silver, 
 by the recent alteration in France before stated, appears to 
 have been rather less than 2 per cent. Now, for many 
 years before this alteration, and consequently before the 
 high price of gold in England, there was at Paris a premium 
 or agio of about 1 J per cent, in favour of gold. This agio 
 is now stated to be reduced to i at the utmost. Conse- 
 quently all the rise that can possibly be ascribed to the 
 temporary causes to which the present demand for gold is 
 attributed cannot exceed f per cent. 
 
 It is true that, both at Hamburgh and Amsterdam, there 
 appear to have been occasional fluctuations to a greater 
 amount, and that, for certain short periods, a larger premium 
 is said to have been given, sometimes for gold in bars, 
 and sometimes for some particular coin; though very far 
 within the limits of the difference between the Mint and 
 
 * It was once my intention, in the course of this discussion, to have 
 made some observations on the state of our silver coin, and the many 
 serious inconveniences which are brought upon the community, (par- 
 ticularly upon the lower classes) from its scarcity, as well as from its 
 debasement ; and also to have stated my ideas on the subject of a new 
 silver coinage. But a very little reflection will satisfy every reader 
 that, in the present state of things, and so long as we have no fixed 
 standard of value for our currency, it would be absurd, and almost 
 impracticable, to send into circulation any new coinage. The present 
 evil, therefore, admits of no remedy ; but will rather increase, so long 
 as the depreciation of our currency is suffered to continue : when that 
 shall cease, it will be time enough to consider what should be done in 
 respect to our silver coin. The want of it is an evil, of no trifling 
 moment in our money system, but secondary, as well in point of 
 importance, as in order of time, to the question now under con- 
 sj deration. 
 
 41 
 
606 Huskisson on the 
 
 market price in London. This must have been owing to 
 some particular circumstance, having a temporary effect on 
 those markets : otherwise the agio at Paris would soon have 
 been affected in the same degree ; which does not appear to 
 have been the case. 
 
 But facts are not the only difficulty in the way of this 
 explanation ; it furnishes abundant argument to destroy 
 itself. It will scarcely be contended by any one, that the 
 commerce, the manufactures, or the internal prosperity of 
 the continent, have so rapidly increased, of late years, as to 
 require any great and rapid increase in the amount of its 
 circulating medium. If, from any peculiar and temporary 
 circumstances, a disposition exists to prefer gold to silver, as 
 that medium, it cannot well be denied, that, in proportion 
 as silver is discarded (especially whilst the supply from 
 AMERICA is more than usually abundant, and the demand 
 from ASIA stopped), silver at least ought to be particularly 
 cheapen exchange for undepreciated Bank notes, of the full 
 standard value of the coin of this realm. Now is this the 
 case? 
 
 Gold, we know, has risen so much above this newly 
 established paper standard as to be worth 4/. 125. per ounce 
 in that paper. Has not the price of silver risen in nearly 
 the same proportion ? The present market price of silver 
 of standard fineness is about 5s. W^d. per ounce ; which 
 ounce, by the Mint regulation, is divided into 5s. 2d. only. 
 If the relative value of gold to that of silver be somewhat 
 increased, as there is reason to believe ; if it should, in 
 consequence, be thought expedient to vary the proportion of 
 our Mint from 15-J- to 15^, the depreciation of our paper, 
 measured in silver, would then be very nearly, if not 
 altogether, as great, as it now is, if measured in gold. 
 
 Let us now briefly inquire what aid the question of our 
 foreign exchange can afford, in explanation of the difference 
 between the standard of our coin, and the actual value of 
 our currency. 
 
 42 
 
Depreciation of the Currency. 607 
 
 Respecting the nature of exchange, and what is under- 
 stood to be the real PAR between two countries, there is no 
 point in dispute. The real PAR, it is admitted, on all sides, 
 consists in the equality of either of the precious metals 
 measured in the respective currencies of the two countries. So 
 far, all the merchants who were called before the Bullion 
 Committee concur with the statement of the Report. In 
 substance, they are likewise all agreed with the Report, 
 (however much the admission is at variance with some of 
 their own arguments) that the real depression of the 
 exchange can never exceed, for any length of time, the 
 expense of transporting bullion from the debtor to the 
 creditor country. Nothing can more strongly confirm the 
 truth of this last position, than the evidence and calculations 
 furnished to the Committee by Messrs. Grefulhe and Gold- 
 smid; which prove that, at the period of the present year, 
 when the quoted rates of exchange with the Continent were 
 most unfavourable, the real fall did not materially, if at all, 
 exceed this amount: consequently the difference between 
 the loss on the real and the nominal rates of those exchanges 
 was to be ascribed to some other cause. 
 
 Two very erroneous opinions on this subject are most 
 generally received in the theory of the mercantile world. 
 
 1st. That, whenever the exchange is against any country, 
 the natural and general course of balancing the account is 
 by a payment in bullion. 
 
 2dly. That the balance of these payments in favour of 
 any country is finally to be measured by what is called the 
 Balance of Trade ; or the excess of exports above imports. 
 
 These two positions lead to a third, which is the fashion- 
 able doctrine of the day ; namely, 
 
 3dly. That the Balance of Payments may, for a time, be 
 very much against a country, although the Balance of Trade 
 is, at the same time, very much in its favour : that is, that a 
 country, buying for ready money, and selling at long credits, 
 may be exporting a great quantity of its bullion ; although 
 a much greater quantity is actually due to it, and will be 
 
 43 
 
608 HusJcisson on the 
 
 forthcoming in the adjustment of its accounts, when these 
 credits come to maturity. 
 
 Such is affirmed to be the present situation of this 
 country, and the true explanation of the very depressed state 
 of our foreign exchanges. 
 
 The first of these positions is so little conformable to 
 truth, and to the real course of business between nations, 
 that there is, perhaps, no one article of general consumption 
 and demand, which forms the foundation of so few operations 
 of trade between the different countries of Europe as bul- 
 lion : and that the operations, which do take place, originate 
 almost entirely in the fresh supplies which are yearly poured 
 in from the mines of the New World ; and are chiefly con- 
 fined to the distribution of those supplies through the 
 different parts of Europe. If this supply were to cease 
 altogether, the dealings in gold and silver, as objects of 
 foreign trade, would be very few, and those of short 
 duration. 
 
 To establish and illustrate this view of the subject, let 
 us suppose that, in consequence of purchases made by Eng- 
 land on the Continent, greater than had been made by the 
 Continent here, or in payment of any debt, service, or 
 demand, bills upon England are offered for sale in the 
 markets of the Continent ; and that the supply of such bills 
 exceeds the demand. Their price, like that of any other 
 article, under similar circumstances, must fall ; and the 
 exchange, which we will suppose to have been before at PAR, 
 will of course turn against England : but to this fall there 
 are limits in the competition of the buyers. This competi- 
 tion commences as soon as those bills are offered at such a 
 price as enables a buyer to use the credit which he obtains 
 upon England by the purchase of such a bill, either as the 
 means of paying for any goods for which he has already 
 contracted ; or of buying others, so as to afford him the 
 prospect of a profitable employment for the capital engaged 
 in the transaction. Much of the skill of a general merchant 
 consists in these calculations ; and his intelligence is aided 
 by a comparison of prices current; as well as by the peculiar 
 
 44 
 
Depreciation of the Currency. 609 
 
 means of information which he may be able to procure from 
 any other sources, respecting the state of supply and demand 
 in the different markets of the world. Now, of all the 
 articles of trade, bullion is the least likely to offer this 
 temptation to the purchaser of a bill of exchange ; because 
 its price is more steady and uniform, and always nearer to a 
 level (from which it never long departs,) than that of any 
 other commodity, in the different markets of Europe. In 
 proportion as these bills are bought at a greater difference 
 below PAR, is any holder of them enabled to buy goods 
 cheaper in England. For instance, . if, for 100 ounces of 
 gold at Hamburgh, of any given weight and fineness, he 
 obtain an assignment for 105 ounces in London; it is clear 
 that this is equal to a premium of five per cent, on the pur- 
 chase of such goods. An unfavourable course of exchange 
 consequently, operates as a bounty upon all exports, and as 
 a tax upon all imports. This bounty and this tax necessarily 
 excite a competition to export, and a diminished disposition 
 to import ; by the joint effect of which, in all ordinary cases, 
 without any transmission of bullion, the real exchange is 
 brought back to its PAJt, and probably rises above it. In its 
 turn, this rise is checked and counteracted by the operation 
 of the same causes ; and thus, like the mariner's compass, 
 the exchange is in a state of frequent variation ; but of 
 variation confined within certain natural limits. If indeed 
 a fall in the real exchange exceeds these limits, which are 
 confined to the actual expense of transmitting bullion from the 
 debtor to the creditor country, particular individuals will 
 export bullion. They will be induced to do so by a profit 
 much smaller than would tempt them to a speculation in any 
 other merchandize, because such profit, however small, is in 
 this case quick and certain. But, this exportation of bullion, 
 in the ordinary transactions of trade, instead of being, as is 
 supposed, the habitual mode of adjusting accounts between 
 one country and another, is of rare occurrence, and, when it 
 occurs, can never continue long, because the transmission of 
 a comparatively small quantity of that metal which forms 
 the standard and currency of a country, not only operates, 
 
 45 
 
610 Huskisson on the 
 
 like that of any other commodity, to diminish in so much 
 the balance of debt to other countries ; but likewise to force 
 the exportation, and to diminish the importation of all other 
 goods ; and thus more rapidly to improve the exchange, than 
 the export of any other commodity to the same amount. 
 As the exchange improves, the exportation of bullion of 
 course ceases. 
 
 The principle and its application are the same, whether 
 we contemplate only one transaction, or embrace the aggre- 
 gate result of all the different transactions in trade, and of all 
 subsidies and government expenditure abroad, on the one 
 hand, and payments to be made here, on the other, as well 
 as all other causes and speculations influencing the bill 
 market on both sides of the water. 
 
 The circumstances of the exchange between Ireland and 
 Great Britain in the years 1803 and 1804, as stated in the 
 very able Report of the Committee appointed by the House 
 of Commons, in the latter of these years, if to enquire into 
 the state of Ireland, as to its circulating paper, its specie, and its 
 current coin, and the exchange between that part of the United 
 Kingdom and Great Britain" afford a striking illustration of 
 the doctrine which I have endeavoured to explain, and of the 
 fallacy of that theory, which refers all the variations of 
 exchange to the balance of payments and the balance of trade. 
 
 The commercial intercourse between Great Britain and 
 Ireland is exposed to no political interruption ; the trade 
 between them in bullion is free; the standard of both 
 countries is the same ; the transfer of coin from one to the 
 other is liable to no interruption or restraint ; the actual 
 expense of transporting it was proved before that Committee 
 not to exceed one per cent; it was then, as it is now 
 admitted, that the fluctuations in the exchange between any 
 two countries could not materially or for any length of time 
 exceed this actual expense : and although the exchange had 
 been for several months from 8 to 10 per cent, against Dublin ; 
 although it was proved that what is called the balance of 
 trade was in favour of Ireland ; although there was no 
 reason to believe that there was any transmission of guineas 
 
 46 
 
Depreciation of the Currency. 611 
 
 from Ireland to Great Britain ; although the exchange 
 between London and the north of Ireland, (Belfast), in which 
 no paper currency existed, instead of being from 8 to 10 per 
 cent, against, was, during the same months, about one per 
 cent in favour of Ireland ;* although this fact alone incon- 
 trovertibly proved that the real exchange was in favour of 
 Ireland, and consequently that there could be no exportation 
 of gold from it ; although it was a necessary consequence 
 of this state of things, that the exchange between Dublin 
 and Belfast was from 9 to 1 1 per cent, in favour of the latter ; 
 (just as in the last century, and from a similar cause, it had 
 been from 4 to 6 per cent, in favour of London and Newcastle 
 against Edinburgh;) although it was impossible for the 
 merchants and Bank Directors, examined before that Com- 
 mittee, to controvert these facts, or to reconcile them with 
 their own doctrines and admissions ; still nearly all of them 
 professed to be thoroughly convinced that there could be no 
 excess or depreciation of Bank paper in Ireland. They per- 
 sisted in ascribing the fall of the exchange altogether to the 
 balance of payments and the balance of trade ; and rejected 
 all explanation which connected that fall with the depreciation 
 of Irish paper. 
 
 Now, if under these circumstances Irish paper was not 
 depreciated in 1804, with reference to the currency of other 
 countries, it follows, that English paper was then, with 
 reference to the same criterion, at from 8 to 10 per cent. 
 premium. Does any man believe this to have been the case ? 
 If there be any man who does, he and he alone, has a right 
 to maintain that our paper (having in some way or other, 
 since got rid of that premium) is now at PAR. 
 
 Soon after the Report of 1804, the amount of issues of 
 the Bank of Ireland being reduced, the exchange with 
 Dublin was gradually improved ; and the Directors of the 
 circulation of that country have since kept the depreciation 
 
 * In the middle of February, 1804, for instance, the exchange of 
 Dublin upon London was 1 7^ that of Belfast upon London 7f . 
 Vide Appendix to the Report of 1804. 
 
 47 
 
612 Huskisson on the 
 
 of their paper generally upon a level with that of English 
 paper. 
 
 What the currency of Ireland was in 1804, as compared 
 with that of Great Britain, the currency of the United 
 Kingdom now is, with reference to that of Hambourg or 
 Amsterdam. The arguments and preconceived theories of 
 those who stood up for the undiminished value of the one, 
 were the same as are now resorted to by those who deny the 
 depreciation of the other. 
 
 If the reader should concur with me in the few observa- 
 tions, which I have ventured to submit to his judgment, he 
 will now be able to form a tolerably just estimate of what is 
 called the Balance of Trade. 
 
 If one country have a claim upon another, the holders of 
 that claim have but two ways of using it ; either they will 
 leave the amount in the debtor country, as so much capital 
 to be vested there at interest, or employed in such other 
 manner as they may think proper; or they will withdraw 
 it. The latter is so much the more usual course, that, in the 
 magnitude of the operations of this country at least, we may, 
 except perhaps from very temporary circumstances, consider 
 the former as having little or no influence on the exchange. 
 Now, no claim can arise from one country upon another 
 (except in the way of tribute or exaction) which is not 
 founded in some equivalent. 
 
 An exchange of equivalents is the foundation of all com- 
 merce, from the simple barter of the untutored Indian, to the 
 most complicated and extensive operations of the London 
 merchant. No nation, therefore, can permanently export to 
 a greater value than it imports, as far as exports and imports 
 are created by a commercial intercourse with other nations. 
 But a considerable part of our imports are not derived from 
 commerce. From our colonies, a great proportion of them is 
 in the nature of rent remitted in kind, to the owners of 
 colonial estates who reside in England ; to which are to be 
 added, as farther exceptions, the produce of our fisheries ; 
 
 48 
 
Depreciation of the Currency. 613 
 
 and of any portion of our territorial revenue in India, or of 
 the savings of public servants civil and military, in that 
 quarter, sent home in goods. If these returns were abated 
 from the sum total of our imports, the annual Balance of 
 Trade in our favour, as stated to Parliament, would appear 
 still more considerable. Yet, taken for any length of years, 
 no part of this balance is created by our commerce. For 
 every thing that we receive, through that channel, an equiva- 
 lent, and no more, is returned. All that we send out, above 
 the amount which is thus returned, is drawn from us by the 
 remittance of the profits of foreign capital vested in this 
 country, or is to be accounted for under the several heads of 
 our foreign expenditure. A great balance of trade, there- 
 fore, instead of being the natural criterion of increasing 
 wealth at home, is only a certain indication of a great 
 expenditure abroad. It is an indication of wealth, only in 
 the same way as any other great expenditure, by proving 
 the power and ability of the country to sustain it. 
 
 Whilst it is true, however, tha.t the vaunted Balance of 
 Trade, or the excess of our exports above our imports, is 
 not, as it has been represented, and is generally believed, the 
 measure and the realization of the profit derived to us from 
 our foreign trade ; but is, in fact, only capital sent out of 
 the country for which no capital is returned to it ; it is by 
 no means to be inferred that this expenditure is without 
 equivalent, though without commercial return: still less 
 that it is not beneficial to the country, or that the sum so 
 expended could be employed in any manner equally con- 
 ducive to its interests. Nor is it to be inferred that the not 
 incurring this expenditure abroad would be a clear saving, or, 
 perhaps, any saving at all. 
 
 It must be obvious to every one, that the two great heads 
 of this expenditure are our armies and fleets abroad ; and 
 subsidies to foreign states. Our soldiers, our sailors, the 
 public servants of every description, so far as they are 
 furnished abroad with whatever is necessary for themselves, 
 or for the operations in which they are engaged, give, to 
 those by whom they are supplied, assignments upon the pro- 
 
 49 
 
614 Huskisson on the 
 
 duce of this country. These assignments, like any other 
 bills of exchange, are converted into whatever articles the 
 ultimate holders of them find it most to their advantage to 
 export from this country. If this head of our foreign 
 expenditure, therefore, were reduced by the recall of 'all our 
 public servants, civil, naval, or military, now maintained 
 abroad ; still if the same number were to be maintained at 
 home, the real saving to the country would not bear any 
 considerable proportion to the reduction in our foreign 
 expenditure. The Balance of Trade would be diminished in 
 proportion to that reduction : but such diminution would 
 obviously be no proof whatever of the declining prosperity 
 of the country. 
 
 A subsidy to a foreign state may or may not be politically 
 wise ; but, in the view which is here in question, it must be 
 considered as being paid for a service to be performed, which 
 is held to be equivalent to the expense incurred. The with- 
 holding such a subsidy would, in many cases, be obviously 
 the very reverse of economy ; but it seems quite as obvious 
 that, in whatever mode it be remitted, it must augment to 
 that amount what is called the Balance of Trade in our 
 favour. 
 
 It may, perhaps, be asked, if commerce is nothing more 
 than an exchange of equivalents, and the Balance of Trade, 
 taken for any length of time, only the measure of our 
 foreign expenditure, in what way is a country enriched by 
 trade? To those who may be disposed to ask this question 
 I would, in the first place, reply by putting one or two 
 others. What is the internal trade of any country, that is, 
 the trade carried on between different districts of the same 
 state within the limits of its territory, but an exchange of 
 equivalents ? Is this a trade by which the one gains and the 
 other loses? by which Yorkshire is enriched at the expense 
 of Kent? Then, if our internal trade be an exchange of 
 equivalents, what is the distinction, in this respect, between it 
 and foreign trade ? What takes away this character from 
 the latter ? and what, after all, is the latter ? 
 
 To the question how then are we enriched by trade? 
 
 50 
 
Depreciation of the Currency. 615 
 
 the answer appears to me as obvious, as it is consistent with 
 this doctrine. 
 
 The mind and faculties of man are constantly engaged 
 in pursuit of his own happiness, and in multiplying the 
 means of subsistence, comfort, and enjoyment. Trade, which 
 effects the exchange of a part of the productions of the soil, 
 industry, and talent of any one country, against those of the 
 soil, industry, and talent of all other countries, is the great 
 instrument of multiplying these means. By the aid of this 
 exchange, not only those natural productions, which Provi- 
 dence has distributed in abundance in one portion of the 
 globe, and refused to some other, are rendered common to 
 all ; but the soil of every country, and of every portion of 
 every country, is left at liberty to be cultivated principally, 
 or wholly, if necessary, in raising those productions for 
 which it is best calculated and adapted; those which, by 
 experience, it has been found to afford of the best quality, in 
 the greatest abundance, and at the least expense of capital 
 and labour. Labour or capital, employed in manufactures, 
 is enabled to avail itself of local situations and natural 
 advantages (for instance, a stream or a coal-mine), and to 
 adapt itself, exclusively, to those pursuits, in which, from 
 any peculiar disposition, dexterity, ingenuity, or fortuitous 
 discovery, the people of any particular country, or any par- 
 ticular part of them, may excel. The advantage derived 
 from the division of labour is well known. What is effected 
 by the operation of that principle, for a single undertaking, 
 is, by the aid of commerce, effected for the whole world. 
 Commerce enables the population of each separate district to 
 make the most of its peculiar advantages, whether derived 
 from nature, or acquired by the application of industry, 
 talent, and capital ; to make the most of them for its own 
 consumption ; leaving, at the same time, the greatest possible 
 remainder to be given in exchange for any other commodities 
 produced more easily, more abundantly, or of better quality, 
 in other districts of the world. It is thus that a country is 
 enriched by commerce. 
 
 Apply this, for example, to England. Much is required 
 
 51 
 
616 Huskisson on the 
 
 for the subsistence, much for the comfort, mucli for the 
 enjoyments and luxury, of the people of this country. Now, 
 if we could not, or, by a mistaken policy, would not, procure 
 salt meat from Ireland ; a country, in which, we will assume, 
 that, from its superior pasture, one acre will feed as many 
 cattle as can be fed upon two in this country ; it is obvious 
 that, if we still wanted to consume the same quantity of 
 meat, a larger portion of our soil must be allotted to pasture. 
 Consequently, we should have less of corn, hops, or some 
 other article of our present growth. 
 
 In the same way, if we had resolved, that, instead of 
 importing sugar, we would make it from beet-root, the sweet 
 maple-tree, or any other vegetables, which could be raised in 
 this climate ; we should be obliged to allot a great portion of 
 our soil to their growth : and, after all, we should have very 
 little sugar ; and we should have much less of other produce 
 than we now have, together w r ith an abundant supply of 
 sugar. The same observation will apply to hemp, or to any 
 other article principally imported from other countries. 
 
 Certain small states, which have been enriched by com- 
 merce, form no exception to the truth of these observations. 
 Favoured by natural advantages of situation ; pursuing a 
 more enlightened commercial policy than their neighbours ; 
 deriving commercial security from their own political weak- 
 ness, and from the jealousy and wants of more powerful 
 nations ; they became, when trade was little understood and 
 less esteemed, the carriers for all the other parts of the 
 world. Great capitals were requisite for this purpose; and 
 being thus concentrated in certain spots, they were gradually 
 increased by thrifty management, till the owners were 
 enabled, by successive accumulations, to employ part of their 
 wealth in advances to the countries with which they traded, 
 and thus to become partners in the produce of those nations. 
 VENICE and AMSTERDAM, each in the days of its prosperity, 
 may have been, what LONDON now is, the focus, in which 
 the greatest mass of capital is drawn together ; the largest 
 emporium of the goods and produce of all other countries ; 
 and the fountain-head of commercial credit, 
 
 52 
 
Depreciation of the Currency. 617 
 
 The great profits, which centre in these capitals of the 
 trading world, are the result of wealth gradually accumu- 
 lated, or tempted from other quarters, by better prospects of 
 advantage, and by confidence in a more assured state of 
 property. It is this wealth which, in the first instance, 
 creates the trade, and not the trade the wealth. But what- 
 ever may have been the profits and accumulation of wealth 
 made by the mercantile community in any one of them, or 
 the incidental advantage of such accumulation to the parti- 
 cular country ; the benefits conferred on all individuals, and 
 all countries, whose productions were exchanged by the 
 intervention of their capital, industry, and talents, were 
 reciprocal, and to each equivalent. 
 
 Every addition to the productions of a country, whether 
 ultimately consumed at home or not, adds equally to its 
 means of commercial exchange with other countries. To 
 improve agriculture, therefore, is to extend commerce : and 
 every new channel opened to the latter, affords additional 
 encouragement to the former. It is thus that they both 
 contribute to the wealth of a country ; and that the improve- 
 ment of that wealth is most effectually consulted by leaving 
 to every part of the world to raise those productions for 
 which its soil and climate are best adapted. Yet, such is 
 the barbarian ignorance, or detestable policy, which presides 
 in the councils of France, and sways those of continental 
 Europe, that we are boastingly told of whole districts in 
 Italy and Provence, naturally fertile in other rich produc- 
 tions, being devoted to the raising, at vast expense, of a 
 little very bad cotton. We hear of Princes in Germany 
 devising wretched substitutes for coffee, or planting forests 
 of sweet maple, and sinking great capitals in the erection of 
 works for the manufacturing of sugar : and all this, at the 
 same time that the natural productions of their agriculture, 
 those best suited to their soil and climate, in exchange for 
 which these articles might be procured in abundance, are 
 rotting in the fields for want of a market. 
 
 If it were in the nature of violent passions and head- 
 strong power to take lessons from experience, Buonaparte 
 
 53 
 
618 Hmkisson on the 
 
 perhaps would begin to perceive, that the mercantile supe- 
 riority, for which he envies and hates this country, grows, 
 not so much out of commercial regulations, as out of a 
 system of laws, which affords perfect protection to property, 
 admits of no degrading distinctions in society, encourages 
 industry, fosters genius, and excites emulation, and is sup- 
 ported by that moral, manly, and national character of our 
 people, which is only another of the many advantages 
 derived from that system ; that the wealth, which is em- 
 ployed in commerce, is the result of long accumulation, 
 uninterrupted by popular violence, or arbitrary exactions ; 
 that so long as these blessings are continued to us, on the 
 one hand, and, as on the other, his warlike pursuits abroad, 
 and .capricious regulations at home, conspire to drive com- 
 merce from the Continent, the capitals engaged in trade 
 will seek protection and employment in England ; and that, 
 whilst he is thus engaged in adding incalculably to the 
 misery of Europe, by debarring it more and more from the 
 benefits and enjoyments which commercial intercourse affords 
 to mankind, the blow, aimed at this country is counteracted 
 by the course which he pursues ; and the national capital and 
 resources of Great Britain are, upon the whole, perhaps, 
 rather increased by the very system on which he has 
 founded the vain hope of reducing us, either to submission, 
 or to ruin. 
 
 These few observations would suggest many more on 
 this interesting and important branch of political economy. 
 But I am aware that I have already been guilty, in some 
 degree, of a digression from my subject ; to which, however, 
 I have been tempted by a persuasion that there is no poli- 
 tical question on which the prevalence of false principles is 
 so general, as in what relates to the nature of commerce, 
 and to the pretended balance of trade; and that there are 
 few which have led to a greater number of practical mis- 
 takes, attended with consequences extensively prejudicial to 
 the happiness of mankind. 
 
 In this country, our parliamentary proceedings, our 
 public documents, and the works of several able and popular 
 
 54 
 
Depreciation of the Currency. 619 
 
 writers, have combined to propagate the impression that 
 we are indebted for much of our riches to what is called the 
 balance of trade. This impression, which has spread through 
 Europe, has contributed, not a little, every where, to 
 suggest the imposition of unnecessary restraints upon trade, 
 and perhaps to render acceptable for a time, even to the 
 nations who were suffering from it, the wild attempt to 
 exclude British commerce from the continent. The jealousy, 
 which our general prosperity creates, is enhanced by a 
 notion that it is altogether the effect of our commerce. 
 Whilst our merchants are individually reputed pre-eminent 
 for good faith and fair dealing, the opinion entertained of 
 us, as a nation, is, that we are little short of sharpers in 
 trade ; and that, whatever we gain by it is so much lost to 
 those who deal with us. For the countenance given to this 
 opinion, prejudicial to every country, but not least so, to 
 ourselves, we have, 1 think, more to answer than the most 
 envious of our neighbours. Our true policy would surely 
 be to profess, as the object and guide of our commercial 
 system, that which every man, who has studied the subject, 
 must know to be the true principle of commerce : the 
 interchange of reciprocal and equivalent benefit. We may 
 rest assurred that it is not in the nature of commerce to 
 enrich one party at the expense of the other. This is a 
 purpose at which, if it were practicable, we ought not to 
 aim; and which, if we aimed at it, we could not accom- 
 plish. Let us not then disclam a virtue, which we, perforce, 
 must practise. The boast of wealth growing out of unequal 
 advantages would be but a vulgar boast, even if it could, in 
 the nature of things, rest on a real foundation. Our legiti- 
 mate pride should consist, not in the superiority of the 
 means with which Providence has blessed us for the improve- 
 ment and extension of our own commerce, but in the 
 consciousness that those means cannot be employed for 
 purposes purely selfish, and that we do not desire so to 
 employ them. Our national character is to be exalted in 
 the eyes of foreigners, not by a self complacent display of 
 our own prosperity, but by shewing to surrounding nations 
 
 55 
 
620 Huskisson on the 
 
 that they have an interest in that prosperity, and that we 
 prize it the more, not because we believe it to be exclusive, 
 but because we know it to be communicable. 
 
 To come back, however, to the subject of foreign ex- 
 change. I have hitherto proceeded upon the supposition of 
 the money of any two countries, between which an exchange 
 is established, retaining their relative weight and fineness, 
 according to the standard of their respective Mints, upon 
 which the PAR between them was originally settled. If, in 
 either country, the standard, or the denomination, be altered, 
 whilst, in the other, they remain the same ; of course, the 
 real PAR will be altered in the same proportion, although this 
 alteration will most probably be effected without any varia- 
 tion in the mode of stating the course of the exchange ; just 
 as a shilling is still called a shilling in Ireland, although its 
 current value has long since been raised from I2d. to I3d. 
 This gives rise to what, in the Report of the Bullion Com- 
 mittee, is called the computed PAR. Even without any 
 change being made by law in the standard or denomination 
 of the currency of either country, this PAR would seldom be 
 found perfectly to accord with the real par ; because the 
 degree of wear might be different in the two currencies, 
 or even in different portions of the same currency. It is 
 only when both contain the full quantity required by the 
 Mint regulations of the respective countries, or are equally 
 diminished by wear, that the computed and the real PAR are, 
 in fact, exactly the same. The real PAR will also vary 
 where the standard of the one country is gold, and that of 
 the other silver, with every fluctuation in the relative value 
 of these two metals. 
 
 The regulation by which our gold coin, if reduced more 
 than a small fraction 'above one per cent, ceases to be a legal 
 tender, would prevent the foreign exchange from being 
 affected to any greater degree, by the wear or clipping of 
 our coin ; even if the currencies of other countries were 
 constantly of their full standard weight and fineness. It is 
 
 56 
 
Depreciation of the Currency. 621 
 
 owing to this regulation that the exchange became much 
 steadier, and was more generally in our favour, after the 
 re-coinage of our gold in 1773. 
 
 No alteration can be made in the standard, or denomina- 
 tion of the currency of any country, without the precise 
 effect of it upon the value of such currency being imme- 
 diately and generally known : and a corresponding alteration 
 as immediately ensues in the rates of exchange with other 
 countries, though the former mode of computing it may 
 still be continued. In Ireland the standard is precisely the 
 same as in England ; but the denomination of the shilling 
 being raised, in the former country, to thirteen-pence, the 
 exchange is at the real PAR when it is stated to be 8-J- against 
 Ireland : on the other hand, if the standard of our gold were 
 lowered in England -Jj, whilst it remained the same in 
 Ireland, or if the denomination of our shilling were raised 
 to thirteen-pence, or that of our guinea to 22s. 9d. the effect, 
 in either case, would equally be to do away this computed 
 difference against Ireland. It would be very easy to 
 multiply examples of similar alterations in the currency of 
 different countries, attended with a corresponding effect 
 upon their respective exchanges. 
 
 Although our present situation is somewhat different 
 from that which would arise from an alteration in the 
 standard, or in the denomination of the coin, the effect on 
 our foreign exchange is precisely the same. 
 
 Our gold coin is not materially deteriorated by clipping 
 or wear ; nor has its standard been lowered, or its denomina- 
 tion raised : but for coin we have substituted a paper cur- 
 rency ; which, from being issued to excess, and from that 
 cause only, no longer actually represents the quantity of 
 gold which it purports to represent. 
 
 The following case will perhaps illustrate this part of 
 the subject. 
 
 Suppose 12 ounces of gold, of standard fineness, to be 
 converted at PARIS into French currency, and that, with the 
 proceeds, is bought a bill of exchange upon LONDON for 567. 
 sterling. If, at the same moment, this last sum in English 
 
 57 
 
622 Huskisson on the 
 
 currency (Bank notes,) would purchase exactly 12 ounces of 
 standard gold in London, the real exchange of Paris upon 
 London, it is admitted, would be at PAR. If that sum would 
 purchase 12 ounces and a half, the real exchange would be 
 against London ; if it would purchase 11 ounces and a half 
 only, the real exchange would be in favour of London. Now, 
 12 ounces of gold being equal to 44 guineas and a half, or 
 461. 14^. 6d. the difference between that sum and 561. would, 
 in the first supposition, be the measure of the depreciation 
 of the latter sum in Bank paper. In the same manner, that 
 depreciation may be calculated in the two other instances. 
 
 In the first case, the loss upon the exchange arises solely 
 from the depreciation of the paper, and is exactly equal to 
 it. In the second, the loss on the exchange is greater than 
 the depreciation of the paper ; in the third less : the differ- 
 ence, one way or the other, being half an ounce of gold, or 
 17. 185. \Hd. 
 
 Whether, in point of fact, the real exchange with the 
 Continent, be, at this moment, for or against this country, 
 it may be difficult accurately to determine. If the difference, 
 here, between the Mint and the Market price of gold, such 
 as can be legally exported, be less than the loss on the com- 
 puted exchange ; the presumption is, that the real exchange 
 is against us, in nearly the amount of that difference. 
 
 It being admitted, on all hands, that our currency has no 
 value in a foreign country, except in proportion to the quan- 
 tity of gold which it actually contains, or which can be pro- 
 cured for it by purchase in the market ; I could wish that 
 some of those who have made this admission, but who do not 
 admit the depreciation of our paper, would explain, distinctly, 
 what it is, other than that quantity, which determines the 
 value of such currency amongst ourselves ? Is it any thing 
 in the coinage ? Those who allow that 44 guineas and a half, 
 new from the Mint, and 467. 14s. 6d. in Bank notes, are equal 
 values, and who cannot deny the fact that 561. in notes, will 
 not buy one grain more of gold than is contained in those 
 44|- guineas, will hardly contend that any thing is gained 
 by the coinage. In truth, their position, as to the undimi- 
 
 58 
 
Depreciation of the Currency. 623 
 
 nished value of our currency, can not be maintained at all, 
 unless they can make out that two unequal quantities of the 
 same article are equal to one another : and, if they can 
 succeed in this, they may as well raise the guinea to the 
 value of five guineas, and declare all our shillings crowns at 
 once. 
 
 But, after all, the subject of foreign exchange is, of itself, 
 of little interest or importance, compared with the question, 
 to which it is incidental, of the diminished or undiminished 
 value of our currency at home. It is, indeed, connected with 
 the question of depreciation only as it is a symptom of that 
 depreciation. Whether it be, as has been contended by me, 
 and is, I think, satisfactorily made out, a symptom consequent 
 upon the existence of the disease ; or whether as others con- 
 tend, it is the predisposing cause of it ; in either case, the 
 disease equally exists, and equally demands a remedy. To 
 talk of postponing the remedy until this symptom shall cease, 
 is, in fact, to perpetuate the disease. 
 
 In King WILLIAM'S time, the same disease (a depreciation 
 of our currency) was accompanied, as it is now, with a cor- 
 responding depression of the foreign exchange. Then as now, 
 there were not wanting those who wished to invert the rela- 
 tion which these two evils really bear to each other ; who 
 maintained that the high price of bullion, as measured in our 
 currency, was produced by the unfavourable course of the 
 foreign exchange ; and who would fain have recommended 
 to Parliament, rather to wait, in helpless expectation, for the 
 disappearance of the evil over which they had no controul, 
 than to apply themselves to the grievance which it was in 
 their power to redress. But Parliament, at that time, felt, 
 that, whatever might be the depression of the foreign ex- 
 change, it was their first duty to deal with the manifest evil 
 in the state of our currency, from a conviction that it was, 
 not only a question of policy, but strictly of good faith. 
 
 That it is a question of good faith, can any man doubt, 
 when he considers that the stamp affixed to our coin is 
 nothing more than a guarantee given by the sovereign that, 
 in weight and fineness, the money of the country is in exact 
 
 59 
 
624 Huskisson on the 
 
 conformity to the standard fixed by law ?- -when he considers 
 that for the express purpose of making this guarantee com- 
 pletely effectual, the law which makes that money a legal 
 tender, has at the same time, denounced the severest penal- 
 ties against those who shall imitate or counterfeit such stamp ; 
 and takes away the character of legal tender from any portion 
 of that money so stamped, if, from any accident or circum- 
 stance whatever, the quantity of gold certified by the stamp, 
 is reduced in a greater proportion than about 1 ^ per cent. ? 
 that the value of our money being thus accurately ascer- 
 tained and determined, all pecuniary contracts and bargains 
 have been made, and all engagements accepted, in the full 
 confidence and assurance, that the public faith so firmly 
 pledged, so strongly sanctioned, and so cautiously guarded, 
 would never be violated or impaired ? 
 
 Does it not follow from these premises, that any contri- 
 vance which, under the same denomination of money to which 
 this guarantee applies, should compel any individual to accept, 
 in payment of a legal debt, a smaller quantity of gold than is 
 certified by the stamp to be contained in such denomination, 
 would be a violation of the public faith ; and a loss, to him 
 as creditor, of whatever may be the difference between the 
 quantity of gold to which he is entitled under the guarantee 
 of the sovereign, and the quantity contained in the currency 
 in which he is actually paid, or which can be procured for it 
 at the time of such payment ? 
 
 In truth there is but one security for the maintenance of 
 the public faith of a country in this respect ; and that is, to 
 preserve the STANDARD of its currency immutable and inviolable. 
 I have already shown that the intention of the Act of 1797 
 was not to introduce, or authorize any variation of our 
 standard. Practically, for a series of years, it had no such 
 effect. Within a late period such an effect has been pro- 
 duced. The standard of our currency has been virtually 
 altered ; and that, which no legislature would advisedly have 
 consented to do, or could have done without violating the 
 obligations of justice, has been unadvisedly and innocently 
 done by the Corporation of the Bank. Not that the Bank 
 
 60 
 
Depreciation of the Currency. 625 
 
 were aware that they were exercising, any more than the 
 legislature had it in contemplation to transfer to them, any 
 such power. Yet, it is obvious that while in principle and 
 in law our standard remains the same, in practice and in 
 effect it is lost. If a foreigner had at any time enquired 
 what was the standard of our currency ? the answer at any 
 period from the time of the TUDORS* downwards would 
 have been, to refer him to the unvaried letter of the statute, 
 as strictly executed in the regulations of our Mint. The 
 answer to such a question must now be sought in the current 
 price of bullion in the market, and in the discretion of the 
 Bank. 
 
 Admitting these evils, however, it may yet be said, that 
 the restriction is but a temporary measure, which once re- 
 moved, every thing will return to its proper level. True: 
 but, if it be much longer continued, what confusion and 
 derangement must, in the mean time, ensue in all the tran- 
 sactions of society ? True : but the very evils which this 
 measure has created, and which it alone keeps alive, are 
 assigned as the reasons for continuing it, so long as they 
 exist. True, again, it is, that this is a temporary measure :f 
 
 * The last alteration in our standard was made in the 43d of Eiiz. 
 when it was lowered between 3 and 4 per cent. 
 
 t I trust there is no doubt of this fact, but I am sorry to see that the 
 Bank Proprietors (if their sentiments can be collected from the report 
 of their proceedings at their last general meeting) entertainel a different 
 expectation. 
 
 An uninformed stranger, from reading the account of these proceed- 
 ings, would be led to conclude, that the proposal of the Bullion Com- 
 mittee to allow .the Bank two years to prepare for the resumption of 
 cash payments, is a direct and gross infringement of their charter. It 
 was condemned as a plan of compulsion and injustice. The Orator of 
 the Bank, on that occasion, seemed to prefer even their dissolution, as a 
 trading company, to this resumption of the functions for which they 
 were originally instituted. " Let Government" (he is reported to have 
 said) " pay us the 18 millions they owe us, and we will make up the 
 " remaining two millions by subscription among ourselves within an 
 " hour, so as immediately to discharge all our notes." 
 
 In reply to this lofty language, I would observe ; 1st. that no one 
 suspects the Bank of being insolvent, or of having made any advances 
 without very good and ample security ; that no man has imputed the 
 depreciation of their notes to any suspicion that their concerns as a 
 Bank are not prosperous, and that their management for themselves is 
 
 61 
 
626 Huskisson on the 
 
 and, out of this very circumstance grow most important con- 
 siderations for those whose high office it is to administer 
 
 not extremely prudent ; 2dly. that if the Bank Proprietors, as a body, 
 should, after mature consideration, be disposed to petition Parliament 
 for leave to surrender their charter, there would be no difficulty in finding 
 other members of the community, who, upon a transfer to them of that 
 charter, and the other advantages of the Bank, woulct be perfectly ready 
 to make good any advances from the Bank to Government, and to take 
 upon themselves the whole concern, without refusing to resume cash 
 payments at the expiration of two years. But I must add, that while 
 on the one hand, I should be very sorry to witness such a transfer, on the 
 other, I have not the smallest apprehension that the Bank Proprietors, 
 when they shall come to weigh the arguments of their learned advocate, 
 will put it in the power of any other body of men to acquire the advan- 
 tages which they now derive 1st, from the exclusive privileges of their 
 charter ; 2dly. from their being the agents of the state in all pecuniary 
 matters ; Srdly. from their being the Bank of deposit in which all the 
 money arising from the receipt of the revenue, or issued for the expen- 
 diture of the state, is lodged. 
 
 With respect to the sum of 18 millions, which was said to be due by 
 Government, it would have been well if, at the same time, that the 
 aggregate was so ostentatiously announced, some of the heads of that 
 debt had been stated. Such an explanation would have prevented many 
 unfounded inferences, which, to the prejudice of Government, have been 
 drawn from that statement in other quarters : as if sacrifices to such 
 an amount had, since the restriction, and in consequence of the facilities 
 which it afforded, been made by the Bank to the Government. On the 
 contrary, I believe, there never was a period of war in which Govern- 
 ment were less, or so little, indebted upon floating securities to the 
 Bank as at the moment of Mr. RANDLE JACKSON'S assertion. 
 
 The first and largest item of which this sum of 18 millions is made 
 up, is the advance originally made by the Bank of their capital stock 
 amounting to 1 1,686,000. 3 per cents ; which advance has been carried 
 on upon each successive renewal of their charter. This advance has no 
 more connexion with the issues of the Bank than any other three per cent, 
 stock which Mr. JACKSON, or any of the Proprietors may possess indivi- 
 dually ; or than the whole mass of the funded debt of the country. This 
 stock, though ultimately liable for their engagements, is no part of the 
 securities upon which their notes are issued -. it is the subscription capital 
 of the company, and the repayment of it is not due or demandaUe till 
 the expiration of the present charter in 1833. 
 
 The next sum consists of two advances, of three millions each : the 
 first lent in 1800, for six years without interest, as the price of the last 
 renewal of their charter ; and continued since the expiration of that 
 period, at an interest of three per cent. : the other advanced, without 
 any interest, under an agreement with Government made in 1808. Both 
 these advances are in consideration of the profits accruing to the Bank ; 
 from the deposit of the public balances in their hands. These deposits 
 it is quite obvious, have no connection with the circulation of the Bank ; 
 and would be continued, to nearly the same amount, if that circulation 
 were restored to its sound state. The average amount of these deposits 
 exceeds ten millions sterling. 
 
 62 
 
Depreciation of the Currency. 627 
 
 justice in equity, and to whose care and ^custody are committed 
 the protection and preservation of property belonging to the 
 most helpless classes of society. 
 
 No part of this advance of six millions is demandable until six mouths 
 after the termination of the war. 
 
 The difference between the amount of interest paid to the Bank on this 
 advance, and the amount of legal interest at 5 per cent, on that sum, is 
 correctly stated by Mr. JACKSON at 210,100. per annum. 
 
 Thus are 17,686,000^. out of the 18,000,000^. so confidently, but pre- 
 maturely, called for by Mr. JACKSON, disposed of. 
 
 The small remainder of any debt from the Government to the Bank 
 consists, either of the ordinary annual advance on the land and malt, the 
 repayment of which is amply secured by those taxes ; their weekly 
 produce being appropriated for that purpose, until the whole advance of 
 each year principal and interest is repaid or of any advances which the 
 Bank may have voluntarily made, by the purchase of Exchequer Bills, 
 for the repayment of which, with interest, they have the same security, 
 and are upon the same footing, as any individual who may purchase 
 such bills in the market. 
 
 With respect to the sum of 210,000., annually saved to the public 
 upon the advance of the six millions, made, as I have stated, in consi- 
 deration of a deposit in the Bank amounting, upon a permanent average, 
 to more than ten millions ; I must be allowed to express my regret and 
 surprise, that, at a general m eting of the Bank Proprietors, where the 
 very Directors with whom the agreement for this advance had been so 
 recently made on the part of the Bank, were probably present, (and 
 surely the conditions and nature of such an agreement must be known 
 to all the Directors) it should have been more than insinuated, without 
 contradiction from any quarter, that this sacrifice of 210,000?. per 
 annum, is made by the Bank to Government, in consideration of the 
 advantage which the Bank derives from the suspension of cash payments. 
 The words of Mr. JACKSON as stated in the report of his speech (Morn- 
 ing Chronicle, 21st September) are 
 
 " But when the Committee determined so earnestly to recommend 
 " the resumption of cash payments, and a compulsive measure upon this 
 " institution, it would have been but becoming in them to recommend, 
 ' as a preliminary step, the repayment to the Bank of the 18 millions due 
 1 from the public, and also the restoration of the 210,000^. derived from 
 1 the Bank in consequence of the supposed advantages resulting from the 
 ' non-payment of cash. This was a line of proceeding which at least 
 ' common justice should have urged the committee to propose." 
 
 Fortunately the correspondence on this subject between Government 
 and the Bank in 1808 was laid before Parliament, and is published. By 
 a reference to that correspondence every one may satisfy himself that 
 this sum is the price paid by the Bank for the use of the public balances, 
 and on no other account whatever : to which I may add, that it was the 
 opinion of several persons in the House of Commons, and particularly 
 of the leading members of the Committee of Finance, in consequence 
 of whose report this bargain was made ; that the advance obtained from 
 the Bank was not adequate to the advantages which they derived from 
 the agreement. 
 
 63 
 
628 Huskisson on the 
 
 If the nature of our money be such as I have stated ; 
 if the laws of England, by which its standard is fixed, 
 guarded, and guaranteed, have been correctly described by 
 me ; (and upon these points, so well understood, and so long 
 settled, there can be no difference of opinion) if it be of 
 the essence of those laws, that every legal bargain for money 
 can only be satisfied by the payment of the stipulated 
 quantity; I cannot help suggesting a doubt, whether the 
 many important pecuniary interests committed to the care 
 of our Courts of Equity may not be wrongfully deteriorated 
 by the continuance of the present state of our currency ? 
 Whether, for instance, an old lease, at the rent of 1000 
 guineas per annum, being virtually, though not in terms, a 
 contract on the part of the lessee to pay in each year, at the 
 very least, 266 oz. 13 dwts. 8 grs. of gold, (allowing each of 
 these 1000 guineas to be of the lowest standard weight per- 
 mitted by law) that contract can be equitably fulfilled by 
 the payment of 220 ounces ? Whether even during the 
 existence of this temporary restriction law; which (be it 
 always remembered) is to cease in six months after the 
 termination of the war, and must be so construed and 
 contemplated by every court, either of justice or equity, 
 1000 guineas, weighing any thing short of 266 ounces, 
 would entitle the lessee to a discharge ? By a tender of 
 that which is equivalent only to 220 ounces, it is true, that 
 he is now protected against the process of the court ; but in 
 equity is he entitled to a discharge ? Will he be entitled to 
 it, next year, if that which he may tender should be equi- 
 
 Be that as it may, I must decidedly protest against the assertion that 
 Government has, at any time, demanded or received from the Bank any 
 participation in the profits which accrue to them from the suspension of 
 cash payments. Every administration, I am sure, since 1797, will join 
 me in repelling this insinuation ; and in maintaining, that, whatever 
 measures Parliament may think proper to adopt, in consequence of the 
 report of the Bullion Committee, their deliberations cannot be influenced 
 or fettered by any direct agreement, or implied understanding, with 
 respect to the continuance of the suspension. Nothing in fact has ever 
 passed between Government and the Bank which can have the effect of 
 preventing the Legislature from fixing the period for the resumption 
 of cash payments, without reference to any other consideration than the 
 interest and the safety of the country. 
 
 64 
 
Depreciation of the Currency. 629 
 
 valent to 20 ounces only ? Will he be entitled to it the day 
 after the signature of a peace, although it is admitted and 
 notorious that six months after that day, the law would 
 compel him to pay 266 ounces ? 
 
 I know not whether, by possibility, any man can have 
 reflected upon this subject so little, or to so little purpose, as 
 to object to the doubts which I have now suggested that 
 they proceed on the supposition that it belongs to the pro- 
 vince of courts of Equity to take care that the value of 
 money should never be altered. Nothing so absurd ever 
 entered my imagination. The value of the precious metals 
 relatively to other commodities, cannot be fixed. It is 
 subject to be affected by the same circumstances of abund- 
 ance, scarcity, supply or demand, as affect the value of all 
 other articles. That it has greatly decreased within the 
 period which has elapsed since the discovery of America is 
 notorious that it continues to decrease slowly and progres- 
 sively, I am also disposed to believe. This is an inconve- 
 vience, but is not an injustice, to a creditor. All that he 
 has any right to expect, all that his contract stipulates, and 
 the law guarantees, is, that the quantity shall be the same : 
 not that the value of that quantity shall continue invariably 
 to bear a proportion relatively as favourable to that of other 
 commodities. The reverse might have been the case : still 
 he would have been entitled to the same quantity. True it 
 is that the natural and progressive diminution of the value 
 of money is peculiarly felt by that class of the community 
 which depends for support upon fixed incomes ; true it is 
 that the unavoidable increase of taxation adds to this peculiar 
 pressure. The more incumbent is it upon the Legislature 
 not to aggravate this pressure by prolonging a system, which 
 in its effects greatly outsteps the natural course of events ; 
 and not to augment the amount of the necessary deductions 
 from income, by one which adds nothing to the revenue of 
 the state. 
 
 65 
 
630 Huskisson on the 
 
 One or two observations of those who maintain that 
 there is nothing wrong in the present state of our currency 
 remain to be noticed. 
 
 From the abettors of the present state of things, when 
 they have been referred to the rapid rise in the price of all 
 ordinary commodities as a very strong indication of the 
 depreciation of our currency, I have often heard this 
 answer, "that this is sufficiently accounted for by the 
 progressive diminution in the value of the precious metals ; 
 that is by their increasing abundance. When the same 
 persons, in consequence of this answer, have been referred 
 to the high price of these precious metals themselves, if 
 purchased in our currency, as a more certain and unequivocal 
 proof of its depreciation, their answer has been " that this 
 is the natural effect of the scarcity of these metals." 
 
 But, because gold that can be sworn off for exportation, 
 is worth about 3s. per ounce more in our market, than gold, 
 of the same fineness, which cannot be legally exported, an 
 inference is drawn, that gold must be dearer abroad than in 
 England, not only by this difference, but by all the expense 
 of transporting it to the Continent ; and that this circum- 
 stance accounts for its scarcity, and consequent high price 
 here. This inference has already been so fully examined, 
 and, I think, disposed of, in a former part of this Enquiry, 
 that I shall, at present, content myself with offering what 
 appears to me the real explanation of the fact with which 
 it is here connected. 
 
 Since the Restriction Law, and the issuing of one and 
 two pound notes, the quantity of gold coin in circulation has 
 rapidly diminished ; and within these last two years, guineas 
 have almost entirely disappeared. For some years, prior to 
 the autumn of 1808, the price of standard gold was pretty 
 steady at 4Z. per oz. and this was the buying price at the 
 Bank. Towards the end of that year, the price rose very 
 rapidly, and has since continued, with trifling fluctuations, 
 at about 47. 10s. per ounce ; the Bank declining however to 
 offer more than 47. 
 
 It is within this last period, principally, that the differ- 
 
 66 
 
Depreciation of the Currency. 631 
 
 ence in price between gold that could be sworn off for 
 exportation, and that which was confined to the home market, 
 has arisen. 
 
 Now, the demand for gold, like the demand for any other 
 commodity, depends upon the consumption ; and the price 
 is regulated by the demand. The consumption in England, 
 before the Restriction, was, either for the purposes of our 
 manufactures, or for coin. The quantity used in the former 
 was very inconsiderable, and probably still continues unal- 
 tered. The great demand was for the purpose of supplying 
 and keeping up a certain amount of gold currency ; and the 
 great purchasers were the Bank. This demand has alto- 
 gether ceased ; and the purchases of the Bank, for these last 
 two years, must have been suspended. The fact, I know, is 
 not in evidence; but a comparison of prices sufficiently 
 warrants the inference. Hence it appears, that the market 
 of this country, for internal consumption, is fallen off almost 
 to nothing, whilst the market of the Continent remains just 
 as brisk as before. The necessary result is, that whatever 
 gold there may be in England, or may come to England in 
 the course of trade, and which can be legally exported, goes 
 to the better market. It possesses a privilege which the law 
 has taken away from other gold ; and, under the present 
 circumstances, this privilege makes it more valuable. There 
 is nothing surprising in this, any more than there would be 
 to find that a better price was given for exportable coffee, for 
 instance, if that privilege were given only to a certain 
 limited quantity 5 and the remainder of the stock in hand 
 were confined to the comparatively small consumption of 
 this country. 
 
 The only way to stop this exportation of gold is that 
 the Bank should give the market price, and revive the use of 
 it in circulation. If that price be 90s. per ounce, 90s. must 
 be given : but, in proportion as the value of their notes in 
 circulation shall be raised by the gradual withdrawing of the 
 present excess, that price will diminish, until it shall be 
 restored to the Mint price, and their notes consequently to 
 PAR. On the other hand, if the excess of Bank paper shall 
 
 67 
 
632 Huskisson on the 
 
 continue progressively to increase, 90s. will 'soon cease to 
 be a sufficient price for an ounce of gold : and either more 
 must be given ; or it will continue to be carried to other 
 markets. 
 
 The difference between the market and the Mint price, 
 it is true, will be just so much loss to the Bank upon all the 
 gold which they may now buy, whenever they shall resume 
 cash payments : but it is equally true, that this difference is, 
 at this moment, just so much loss to the holders of their 
 notes ; and that the latter have no chance of that compen- 
 sation which the Bank has so amply secured to itself, by the 
 increased amount of its issues since the Restriction. 
 
 It is, therefore, because the use of gold has been super- 
 seded by the present state of our currency, whilst the over- 
 issue of that currency has diminished its relative value ; and 
 because the Bank of England, not making a sufficient allow- 
 ance for that diminished value, has ceased to offer the market 
 price, that exportable gold is of more value than that which 
 cannot legally be sent out of the country. 
 
 If the law which prohibits the melting of our gold coin, 
 and its exportation, either as coin or in bars, could be much 
 enforced, the difference of price would be greater than it 
 now is : but every one knows how easily both these pro- 
 visions are evaded ; and how impossible it is to make them 
 effectual. I have therefore no doubt that there has been 
 sent to the Continent within these last two years, partly in 
 bars, and partly in coin, a considerable quantity of gold not 
 exportable by law ; which would have remained in England, 
 if the Bank Directors had raised their buying price in 
 proportion as the value of their paper was depreciated.* 
 
 * Any bank of which the profits are proportionate to the amount 
 of its issues, and which has nothing to consider, in making those issues 
 but the quality and character of the securities upon which its loans are 
 advanced, must have a natural tendency to a continual increase of its 
 paper. It appears to me, therefore, extremely probable, that, for some 
 considerable time before the depreciation of our paper currency was 
 materially marked by the high price of gold bullion, the amount of 
 Bank issues was in excess. But the full effect of this excess was not so 
 sensibly felt, because so long as our currency consisted of a mixture of 
 
Depreciation of the Currency. 633 
 
 But the Bank, I may be told, could not buy guineas for 
 more than 21s. each. Be it so: but it might have given 
 4/. 10^. for gold in bars: and, if this had been the Bank 
 price, the guineas which have now gone abroad, either in 
 bars, or in coin, (the latter to be melted abroad,) would 
 have found their way, as bars, to the cellars of the Bank. 
 
 This is precisely what happened before the Restriction 
 Law, whenever, from a temporary over-issue of paper, (to 
 which the Bank, from the nature of its institution, must be 
 ever prone,) the market price of gold was raised, for a short 
 
 gold and paper, the former would give way, 'and either be exported, or 
 melted down and by thus gradually making room for the augmentation 
 of paper, the value of the latter would be, in a great degree, sustained. 
 But, when, by these successive additions to the amount of Bank of 
 England and country paper, nearly the whole of the gold had been shoved 
 out of circulation, whilst the same disposition and motives to increase 
 the issues of paper still continued, the effect of any such further 
 increase would be more rapidly and seriously felt in the diminished value 
 of our remaining currency. By an unfortunate coincidence of circum- 
 stances, a disposition to apply for a great increase of discounts was 
 excited in the mercantile world, much about the same time when the 
 greatest part of our gold had already been driven away ; and the facility 
 with which these discounts were effected, must have contributed, in this 
 state of things, to accelerate the depreciation of our currency. 
 
 I cannot help observing, on this occasion, that I have lately seen, 
 with regret, that an issue of seven-shilling pieces (I hope to a very 
 limited amount) has been made by the Bank. Such issues of coin can 
 answer no good purpose, so long as the value of their paper is kept 
 materially below PAR ; for it is impossible that gold should continue in 
 circulation, and the quantity of it remaining in the hands of the Bank 
 is thus fruitlessly diminished. 
 
 The stamped dollars, though issued at five shillings each, which is 
 somewhat more than their value at the present price of silver, will in 
 like manner, (as indeed they do every day) though from a different 
 reason, disappear. I say from a different reason, because it is true that 
 for a one-pound note you may purchase more silver bullion than is con- 
 tained in four stamped dollars. But each of these dollars, now worth 
 about 4s. 9d., is a substitute in circulation for five shillings of our silver 
 coin, worth upon an average about '3s. Any man, therefore, who 
 exchanges five of these shillings for a dollar, gains about sixty per cent. 
 The profit on the purchase of silver bullion would be somewhat 
 greater ; but the dollar is preferred, because it is in the way of the 
 shillings which would otherwise in a great degree soon cease to be 
 current in circulation. This is no imaginary case, but a practice which, 
 more or less, is going on every day. So long as our silver currency shall 
 be suffered to continue in its present state, the industry and ingenuity 
 of individuals, however restrained by law, will not be wanting to keep 
 up and supply its circulation. This debased currency will drive away 
 any other which under the same denomination, possesses a much greater 
 intrinsic value, just as our paper drives away the gold. 
 
 69 
 
634 Huskisson on the 
 
 time, above the Mint price. Guineas, notwithstanding the 
 law, were immediately melted, and the bars sold to the Bank 
 at the advanced price : whilst other guineas were demanded 
 from them, which were melted in their turn, if the difference 
 of price lasted so long ; giving to the melter a profit equal to 
 that difference, and to the Bank a warning to reduce the 
 amount of their paper.* Thus the gold coin did not go 
 abroad, and though small quantities of it were occasionally 
 melted down, no scarcity of coin was ever felt for any length 
 of time. 
 
 Much less would it have gone abroad within these two 
 last years if the demand and use for gold in this country had 
 continued the same; or if the Bank price had at all corre- 
 sponded to the market price : for it appears, by the evidence 
 annexed to the report of the Bullion Committee, that, owing 
 to political circumstances, the expense and risk of transporting 
 gold to the Continent have been more than double what they 
 were before the year 1797 ; and it must be obvious that 
 any increased charge, in this respect, operates as a tax to 
 discourage exportation, f 
 
 For these two last years, therefore, if the restriction law 
 had not been in force, we should have had a greater security 
 against our coin being exported, than at any former period : 
 but, owing to that law, and to the consequent conduct of 
 the Bank, a certain exportation has taken place, and will be 
 continued, more or less, so long as the same circumstances 
 shall continue, in spite of those laws, by which we in vain 
 endeavour to restrain it. Those laws, indeed, it might be 
 easily shewn, would be prejudicial to the public interest, if 
 
 * On this subject, the reader is referred to Mr. THORNTON'S "Essay 
 on Paper Credit^ Ante Page 215, <fec. 
 
 t Owing to a great proportion of our guineas being locked up in 
 the Bank, or hoarded by individuals, to the difficulty of collecting such 
 as are still in circulation ; to the expense, probably, of purchasing them 
 at a premium, and the charge and risk of sending them abroad : the 
 whole quantity of our gold exported has not, I conceive, been very large, 
 and certainly not to such an amount as there would be any difficulty in 
 replacing by purchases in the market here, or in the foreign markets 
 which are open to us. I should very much doubt whether the quantity 
 of gold which has been exported, by an evasion of the law, can exceed 
 from two to three millions sterling. 
 
 70 
 
Depreciation of the Currency. 635 
 
 they could be made effectual. Failing in their object, they 
 are still highly objectionable, as holding out a strong temp- 
 tation to perjury. On this ground alone, their repeal would 
 be desirable. They are inconsistent with the true principles 
 of commerce, and with the long established policy of the 
 most enlightened commercial states of Europe ;* states, 
 whose currency, amidst all the political calamities, and 
 military exactions, to which they have been subject, for the 
 last fifteen years, has suffered no debasement, nor ever made 
 way for a system of paper currency, not convertible into 
 specie at the option of the holder. Respecting these laws, 
 all that I have further to observe, at present, is, that, how- 
 ever desirable it may be that the gold coin, which has been 
 exported within these last two years, had been kept at home 
 by a different system of policy; the eagerness for enforcing 
 those laws, recently manifested by the very persons, who 
 see, in the present system of our currency, nothing but 
 sound wisdom and national advantage, appears peculiarly 
 whimsical and absurd. Under this system, gold, a commo- 
 .dity of universal value, and of which we formerly possessed 
 a great deal, ceases to be of use here, except to a very 
 limited amount. Yet, in proportion as the system, which 
 they applaud, becomes every day more complete, do they 
 feel a perverse, but unavailing anxiety to keep at home so 
 much dead and unproductive capital, instead of allowing it 
 to be exchanged abroad for other commodities, for which 
 there is a beneficial use and demand in this country. 
 
 So long as the present system is persevered in, there 
 can be very little doubt but that the quantity of our gold 
 coin will rather diminish, and that the small amount which 
 still remains in circulation, if not hoarded, will be exported. 
 Fortunately, there is quite as little doubt that, whenever, by 
 the termination of this system, gold shall become again, in 
 fact, what it is now in law> the foundation and standard of 
 our currency, it will again make its appearance ; and that 
 
 * Such as Holland and Hamburgh. A similar policy prevails in the 
 United States of America ; whilst Spain and Portugal, who possess the 
 mines from which the precious metals are drawn, have always endea- 
 voured by the severest penalties, and always in vain, to prevent their 
 being exported. 
 
 71 
 
6 3 6 Huskisson on the 
 
 when we shall have a use for it, we shall be at no loss to 
 procure a supply adequate to the demand. 
 
 Bullion is a commodity for which we must pay, as we do 
 for any other which we want. But, for the same reason 
 that, of all articles of trade, it is that which it is the most 
 difficult for us to keep at home by any operation of law, now 
 that it is not in demand ; so would it be that which it would 
 be impossible for the intervention of foreign powers to 
 prevent us from importing, in proportion to the use and 
 demand which we might have for it here. If a supply be 
 necessary for our circulation, it must be procured, and may 
 be procured, by an exchange of other commodities which we 
 can spare, just in the same way as hemp, for instance, an 
 article of which it is at least as much the interest of our 
 enemies to intercept the supply. But, in as much as gold 
 in the state of coin is so much capital engaged in an unpro- 
 ductive though necessary employment, it cannot be the wish 
 of any man conversant with this subject, to proscribe the 
 circulation of paper, or not to allow and even countenance 
 it to the fullest extent ; only taking care that all such circu- 
 lation should be concurrent with the standard coin of the 
 realm, and that such paper should be kept invariably at PAK, 
 by being constantly exchangeable for that coin at the option 
 of the holder. 
 
 It will be objected to me, perhaps, that, in this argu- 
 ment, I appear to have assumed that guineas were pro- 
 scribed and excluded from circulation ; whereas, they are 
 still current at their standard price. This objection natu- 
 rally brings me to the other main defence of those who stand 
 up for the undiminished value of Bank notes : namely, 
 " that commodities have but one price, whether paid for in 
 " gold, or Bank paper ; and, consequently, that the latter 
 " cannot be depreciated." 
 
 This argument is altogether fallacious: whilst the fact 
 on which it is founded affords the real explanation of the 
 disappearance of our gold. That our gold coin is not cried 
 
Depreciation of the Currency. 637 
 
 > 
 
 down and prohibited, is unquestionably true : and that the 
 value of the gold contained in a guinea, in its state of coin, 
 and when used as currency, is only V more than that of a 
 pound note, is not denied. But then the question is this 
 Is Bank paper or gold our standard ? If paper, then the 
 value of a guinea ought to be measured by it ; and the deno- 
 mination of the guinea being fixed by law at only one shilling 
 more than a pound note, its value can only be V more than 
 that of the note, be the latter worth what it may. If gold, 
 as I contend, and as I have been all along contending, then 
 a one-pound note ought to be exchangable for ff parts of 
 the quantity of gold contained in a guinea. That it is not 
 so exchangable is undisputed. That, measured by this 
 standard, Bank paper is depreciated, is undeniable : and it 
 is only by making that paper a nominal standard, under the 
 protection of law, that the value of coin exchanged for 
 commodities, in the ordinary dealings of the community, 
 becomes referable to this fictitious standard. The conse- 
 quence is, that our coin is depreciated as currency to a level 
 with the paper with which it circulates; that twenty 
 guineas, for instance, circulating upon this footing, lose as 
 currency the value of all the gold which they contain above 
 the quantity which might be purchased in the market by 
 twenty-one Bank notes of one pound each.* 
 
 * The very able and elaborate essay of Mr. THORNTON " On the 
 Nature and Effects of Paper Credit," was published in 1802. 
 
 In this work, to which I have already had occasion to refer, the 
 reader will find the true principles of political economy united with the 
 practical, I might almost say hereditary, knowledge of a well informed 
 merchant, and the extensive experience of a great London banker. In 
 applying these principles to the actual state of our circulation in 1802, 
 Mr. THORNTON was led to the satisfactory conclusion, that, from the 
 date of the restriction up to that period, our currency had not been 
 materially depreciated ; perhaps not at all. This was the fair deduction 
 from the facts to which his principles were then applied. From the 
 application of the same principles to a different state of facts, such as 
 were, at that time, matter of supposition only, the depreciation of our 
 currency, it was shewn by Mr. THORNTON, would be the necessary infer- 
 ence. The case which he then supposed, is now realized in all its parts. 
 Every argument by which he proved in 1802 that our paper was not 
 more than sujficierit, equally proves its excess in 1810. But Mr. THORN- 
 TON did not even stop here. In 1802, he appears almost to have forc- 
 
 73 
 
638 Huskisson on the 
 
 No wonder then that guineas cannot be retained in 
 circulation. By melting down, or by exportation, the gold 
 they contain is restored to its intrinsic value, and relieved 
 from the depreciation attached to it by law in its state of 
 currency. 
 
 Laws, however severe, cannot alter the inherent and 
 essential qualities, which determine the relations of value. 
 They may, indeed, impose the same denomination upon values 
 essentially different, but the difference will not be the less 
 perceived; for no restraint upon human actions can perma- 
 nently or effectually countervail the nature of things. When, 
 therefore, the currency of a country consists, partly of gold of 
 standard weight, and the remainder of a paper currency, in 
 fact depreciated, but clothed by law with the character of a 
 legal tender, the denomination fixed for such paper currency 
 being the same as for the coin, the latter will have an irresis- 
 tible tendency to escape from the depreciation in which it is 
 by law retained, so long as it continues in the character of 
 coin ; and, either by melting or exportation, it will recover 
 its intrinsic value. 
 
 This doctrine will, perhaps, be best illustrated by refer- 
 ence to a remarkable period of our history, and to the pro- 
 seen and anticipated some of the leading objections which would be set 
 up against his conclusions in 1810 : this in particular ; that the 
 deterioration of our gold coin to the level of the depreciation of our 
 paper, would be confidently offered as a proof that the latter was not 
 depreciated. His words are these : " Our coin itself, when paper is 
 11 depreciated, passes not for what the gold in it is worth, but at the paper 
 " price, though this is not generally observed to be the case. It is the main- 
 11 tenance of our general exchanges, or, in other words, it is the agreement of 
 " the Mint price with the bullion price of gold, which seems to be the true 
 " proof that the circulating paper is not depreciated" 
 
 It is highly fortunate for the country at this moment, that the 
 Bullion Committee had the benefit of Mr. THORNTON'S most active 
 assistance, and not less so, that the legislature possesses in him, not only 
 a member unconnected with party, but ono intimately acquainted with 
 the whole business of banking, with all the details of commercial credit, 
 and all the bearings of our money system. 
 
 The practical use of such knowledge in public life cannot be more 
 forcibly illustrated than by stating, that the country is already indebted 
 to Mr. THORNTON for the suggestions contained in the second report of 
 the committee of Finance respecting the Bank. The consequence of 
 those suggestions has been a saving to the public exceeding 250,000. 
 per annum. 
 
 74 
 
Depreciation of the Currency. 639 
 
 ceedings of the English Parliament at a period to which, by 
 common consent, Englishmen look back as a time when the 
 theory of our government, in all its parts, was best under- 
 stood, and the principles of justice and good faith, on which 
 all free governments must rest, were most scrupulously 
 practised : a period illustrated by great names, both in the 
 science and in the practice of politics, and which has this 
 further recommendation to our attention, that it resembles 
 our own times in one striking particular, that of having 
 been distinguished by a most anxious and energetic struggle 
 for our independent existence, against the power and preten- 
 sions of France. I refer to the reign of King WILLIAM. 
 
 Towards the end of the 17th century, the current coin 
 of this country had been reduced, by clipping and other 
 practices, about 30 per cent, below the standard of the 
 Mint. At that time, the pieces, new from the Mint, had no 
 more value as currency than this debased coin : though no 
 man, I apprehend, could now by any sophistry, however 
 ingenious, convince, either himself or his neighbour, that the 
 latter was really of the same value as the former. One 
 consequence was, that the pieces of full weight disappeared 
 as fast as they were issued, just as our guineas now disap- 
 pear ; another, that the exchange was permanently from 20 
 to 30 per cent, against this country, as it is now from 15 to 
 20 ; a third, that guineas (silver* being the then legal tender, 
 and the silver coin that which was debased) rose to 30 
 
 * For an account of the circumstances which, in the course of the 
 last century, gradually led to the substitution of gold for silver, as the 
 sole legal standard and tender, I beg leave to refer the reader to the very 
 clear and satisfactory treatise on our coin, contained in a letter from the 
 late Earl of LIVERPOOL to the King. But this substitution, however 
 produced, has taken place without any alteration in the weight or fineness 
 of either of the precious metals in our respective coins, and, conse- 
 quently, without creating any difference in their relative value to each 
 other, as fixed by law, and the long established regulations of our Mint. 
 It is obvious therefore, from this statement, as well as from the facts I 
 have already mentioned, respecting the market price of silver, that the 
 change in our legal tender has nothing to do with the depreciation of 
 our paper ; and that, under the like circumstances of excess in the 
 amount of Bank issues, that depreciation would have been just the same, 
 if no such change had occurred. 
 
 75 
 
640 Huskisson on the 
 
 shillings each, as they have now risen to upwards of 24, 
 measured in our new legal tender Bank paper : and a fourth, 
 that silver which could be sworn off for exportation was, as 
 exportable gold is now, at a premium. 
 
 But how little do nations profit by experience ? The 
 same fallacious explanations which are now given, were then 
 offered to the public. The same delusive plans of relief 
 were suggested The balance of trade or the balance of pay- 
 ments was said to be against us. To this was attributed the 
 unfavourable course of exchange : to the unfavourable course 
 of exchange, the exportation and melting down of the stan- 
 dard coin, and the high price of bulfion at home. The 
 remedy proposed was, in the language of the day, " to raise 
 the value of our money" with a reference to the scarcity, and 
 consequent high price of bullion : and the specific plan 
 suggested was, to coin an ounce of silver into 6s. 3d. instead 
 of 5s. 2d. These doctrines and this plan were supported by 
 official characters of the greatest reputation and practical 
 knowledge, and by persons of the most extensive experience 
 in trade. Fortunately, the fallacy of them was detected and 
 exposed, and the Government of that day was rescued from 
 the adoption of a pretended remedy, which would have per- 
 petuated the injustice, and aggravated the calamities for 
 which it was confidently offered as a cure.* 
 
 The present state of our currency is, in its principle, and 
 in its consequences, precisely the same as the case which I 
 have now described. The effect is the same, whether the 
 currency of any country being wholly metallic, consists in 
 part of a coin, of full standard weight, and in part of a coin, 
 which under the same denomination, should be materially 
 deteriorated either in weight or fineness ; or in part of coin 
 
 * I would earnestly wish to recommend to my readers to look at the 
 writings of Mr. LOCKE on this subject. The arguments by which that 
 great man was enabled to convince Lord SOMERS of the real nature of 
 the evil, are worthy of their attention. The sanction of two such 
 names, and of the Parliament of 1695, which had the wisdom and firm- 
 ness to adopt their advice, in spite of all the interested misrepresenta- 
 tions of that period, will shew that the doctrines which I have 
 attempted to establish cannot fairly be considered as either new or 
 dangerous. 
 
 76 
 
Depreciation of the Currency. 641 
 
 of the former description, and in part of a depreciated paper, 
 discharging the functions of money in the same manner, 
 with the same denomination, and under the same authority of 
 law, as the light coin. 
 
 It being then, as I conceive, placed beyond all doubt that 
 our paper currency is depreciated ; that its depreciation is 
 to be ascribed altogether to an excess* in the issue of that 
 paper, and that without the restriction law no such excess 
 could have existed, or at least have been permanently main- 
 tained ; it follows, that the repeal of that temporary law is 
 the obvious remedy for this evil. The precautions which it 
 may be necessary to observe in removing that restriction, 
 and the precise period when it ought to cease, are points 
 upon which it would ill become me to anticipate the decision 
 of Parliament. 
 
 I shall content myself with offering a few observations 
 on the practicability of the measure, and with noticing such 
 objections as have either occurred, or been suggested to me. 
 
 * It can scarcely be necessary to protest against any idea of the 
 depreciation being, in any degree, to be ascribed to a want of con- 
 fidence in the solidity of the Bank. A corporation originally possessed 
 of a great capital, since increased by immense profits, which never 
 makes an advance but upon the best securities, and which might call 
 in the whole of those advances within three months, can never be 
 exposed to any such suspicion. 
 
 Paper MONEY issued in the name of the state, in aid of its own 
 Exchequer, and in compulsory payment of its expenses, such as has 
 been resorted to in various parts of the world, is happily unknown to 
 this country. Such paper is in the nature of & forced loan, which, in 
 itself, implies a want of credit. From this circumstance alone, it falls 
 below PAR ; and its first depreciation is soon accelerated by the neces- 
 sity of augmenting the issues in proportion to their diminished value. 
 Thus an excess of paper co-operates with public mistrust, to augment its 
 "depreciation. Such was the fate of the paper issued by the American 
 Congress in the war for their independence ; more recently of the 
 assignats in France : and such is now the state of the paper of the 
 Banks of Vienna and Petersburgh. Whereas, the state of our currency, 
 in regard to its diminished value, is no other than it would be if our 
 present circulation, being retained to the same amount, were, by some 
 sudden spell, all changed to gold, and, by another spell, not less sur- 
 prising, such part of that gold, as, by its excess, created a proportionate 
 diminution in its value here, with reference to its value in other 
 countries, could not by exportation, or otherwise, find its way out of 
 our separate circulation. It is excess not relievable by exportation. 
 
 77 
 
642 Huskisson on the 
 
 In considering the great and general importance to the 
 whole country of reverting as soon as possible to the former 
 system of cash payments, it must be recollected that there 
 are two parties more nearly and particularly concerned in the 
 present discussion, namely the Bank, and the commercial 
 interest. 
 
 With respect to the former, it may perhaps be incon- 
 siderately supposed, that, in case any specific, though remote, 
 period should be fixed for the termination of the restriction, 
 the interests of that corporation would lead the Directors, 
 within the shortest possible time after the passing of a law 
 for that purpose, to reduce the amount of their issues, until 
 their notes should have been so raised in value, as to enable 
 them to purchase Gold at a price not exceeding that of the 
 Mint. Unquestionably it is in their power to effect such a 
 diminution very rapidly. If the separate advantages of any 
 part of the community could, in a matter of this importance, 
 be held distinct from that interest which must be common to 
 all, in guarding against any general pressure of public dis- 
 tress, those classes who suffer most by the depreciation, 
 without deriving, even indirectly, any profit from it, and not 
 the Bank, would be most benefited by their pursuing this 
 line of conduct It is true, however, that, neither the great 
 profits which the Proprietors of Bank stock have derived 
 from the restriction, nor any circumstances by which they 
 stand connected with the Government, or the trade of the 
 country, would, of themselves, entitle the public to expect 
 that the Directors should make any positive and considerable 
 sacrifice of the interests of their constituents. But how far 
 would this be the case, should they pursue a more moderate 
 course? I assume that, in the event of a period for the 
 opening being fixed, the Bank would find it necessary to buy 
 gold. In order to purchase it they would be obliged to give 
 the market price ; and I admit that the difference between 
 that price and that of the Mint would, ultimately, be so 
 much loss to the Bank. But then, independently of the 
 profits which they have made of late years by an enlarged 
 circulation, unattended with any sacrifice for the purchase of 
 
 78 
 
Depreciation of the Currency. 643 
 
 gold ; it is obvious, that, in whatever proportion above the 
 Mint price their future purchases might be made, in the 
 same proportion must their issues, bearing interest, be above 
 the amount which ought to be in circulation, or which, in 
 fact, they would be able to maintain in circulation, if the 
 restriction did not exist. Suppose one million in gold to be 
 bought at an average of ten per cent, above the Mint price, 
 in the course of the first year after the Bank shall have 
 received notice of a definite period for the resumption of 
 cash payments : if, during that year, the Bank should have 
 in circulation, upon an average, two millions of paper, 
 beyond the proportion, which, but for the restriction, it 
 would have been able to issue, the immediate and accruing 
 profit from the interest on the latter sum, would be exactly 
 equal to the contingent loss upon the purchase of the gold, 
 when cash payments should be resumed. 
 
 Without, therefore, exposing the Proprietors of Bank 
 stock to any material loss, or probably to any loss at all, the 
 Directors may effect a reduction in their issues, gradually 
 and slowly, by apportioning that reduction over nearly the 
 \vhole time which the law may assign to them to prepare for 
 the opening. In the same manner they may, during the 
 whole of that period, and without forcing the market, be 
 adding to their stock of gold, of which the nominal price 
 would continue to fall, in proportion as the amount of their 
 notes was brought nearer to its proper level. This balance 
 of profit, from excess of issues on the one side, and of loss 
 upon their purchases of gold on the other, fluctuating, per- 
 haps, in a trifling amount one way or the other, would of 
 course cease altogether, so soon as the paper should be 
 restored to the value it purports to represent. 
 
 The Bank, therefore, as a trading company, would have 
 very little, or perhaps no inducement to make a sudden and 
 violent reduction of its issues ; such as might derange prices, 
 and distress trade, . or operate to the prejudice of the fair 
 credit and legitimate dealings of the community. In all the 
 other relations of life and public duty in which the Directors 
 staiid, as merchants of the first eminence, as men attached 
 
 79 
 
644 Huskisson on the 
 
 to the prosperity of their country, and studious to preserve 
 that high estimation in which they are justly and universally 
 held, they would find the most powerful motives for adopting 
 a moderate and cautious line of conduct, in the reduction of 
 their issues. 
 
 It will not escape the reader, that, in the view which I 
 have taken of the mode in which the interests of the Bank 
 would be affected by the necessity of purchasing gold under 
 the present circumstances, the argument by which I have 
 endeavoured to shew that it would be attended with no real 
 sacrifice, is derived, not from a comparison with their present 
 situation and advantages, but of what their situation and 
 advantages would have been, from the circulation which they 
 would now have been able to maintain, if no interruption 
 had taken place in their cash payments. This, and not their 
 present scale of profits, it must be obvious, is the fair com- 
 parison. These profits are increased, not only by an amount 
 of issues carried beyond its proper limits ; but by the Bank 
 being relieved altogether from the necessity of purchasing 
 gold in proportion to that circulation, or indeed of purchas- 
 ing any gold at all.* 
 
 * Although the measure of the loss be different, in principle, and in 
 degree, it is as much a diminution of profit to the Bank, to purchase 
 gold at 21. 17s. 10|d. as at 41. 10s. or any other price. The notes issued 
 for such purchases^are the only part of their circulation from which they 
 derive no profit. All their other issues are upon securities bearing 
 interest. As a Bank, therefore, their policy, at all times, must be that 
 the proportion cf their notes issued for the former purpose should be as 
 small, and for the latter as large as possible. Still better for them, if 
 this buying of gold can be dispensed with altogether. This last advan- 
 tage appears to be ensured to the Bank, so long as, by an excess of 
 circulation, the market price of gold shall be higher than 41. per ounce, 
 which the Directors have fixed upon for their buying price. By every 
 addition to their circulation, therefore, they not only secure to the 
 Proprietors of Bank stock an augmentation of profit proportionate to 
 the increase of that circulation ; they also effectually guard against any 
 drawback to that profit, by permanently maintaining the price of gold 
 above 41. per ounce. This course of proceeding is, at once, so ingenious 
 and so simple, in its operation so effectual, and in its application so 
 completely in the power of those who are exclusively benefited by it, so 
 long as the restriction law shall continue, that it is not very surprising 
 that the Proprietors of Bank stock should be disposed to resist any sug- 
 gestion which touches that law ; and to prefer the sound discretion of the 
 Directors, unfettered by the control of cash payments. 
 
 80 
 
Depreciation of the Currency. 645 
 
 Another difficulty may be started against the proposal 
 
 for fixing a period, however distant, for the resumption of 
 
 Every one must be aware how very near this state of things, now 
 openly avowed as a system, and almost claimed as a right, comes to a 
 state of paper MONEY, according to the definition which has been given 
 of {xiper money. It is paper rendered current by the authority, though 
 not issued for the benefit of the State. It consists of loans advanced at 
 interest : that interest being altogether for the benefit of the corporation 
 of the Bank. I may be told, however, that there is no resemblance 
 between Bank notes and paper money, because these notes circulate 
 entirely upon confidence. To which I answer, that the law, which vir- 
 tually makes Bank paper a legal tender, as much forcesit into circulation 
 in this country as paper money could ^forced in any other country, by 
 any law, which might, in the most direct terms, make the paper of such 
 a country a legal tender. Whether the government first originate the 
 paper money in payment of its own creditors, and compel all other per- 
 sons to receive it from them ; or whether it authorize a Bank to advance 
 loans of such money for its own profit, and compel all other persons to 
 receive it from those who obtain such advances, there is no difference as 
 to the degree of compulsion. I may add, that in both cases, such paper 
 will be received in the purchase of all commodities by a reference to the 
 price of the precious metals in that paper ; and consequently that the 
 principle which determines the current value of Bank notes and of 
 paper money respectively, is the same. Confidence, in the sense in which 
 it is here used, is only the measure ot that value. 
 
 I have thought it necessary to state thus much, because the assertion, 
 " that a Bank note is never forced into circulation," is constantly put 
 forward as an irrefragable proof that those notes cannot be depreciated. 
 May I be allowed to ask, whether the Bank do not pay the public divi- 
 dends, and whether, under the law for raising the Property Tax, they 
 do not pay them at the rate of eighteen shillings for every twenty 
 shillings stipulated for in the contract 1 What would be thought of the 
 logic of any man who should tell the public creditor, that he is not 
 compelled to take eighteen shillings in the pound, because he is at liberty 
 to abstain from receiving his dividend at all ? But if he does receive 
 his dividend, he is compelled to leave two shillings in the pound, or ten 
 per cent, in the hands of the Bank, in trust for the use of the State. 
 He is equally compelled to receive the remaining eighteen shillings in 
 Bank paper, subject, however, to the same option of not receiving them 
 at all. A payment in such paper is, at this moment, a virtual deduction 
 from his dividend of three shillings more, or of 15 per cent ; just as 
 much a real and a forced deduction, as if it were made directly from 
 eighteen shillings of standard money, under all the powers and penalties 
 of the Property Act. The public creditor, therefore, receives fifteen 
 shillings in the pound of standard sterling money and no more. If the 
 Bank of England were, to-morrow, to issue such an amount of notes as 
 would reduce the paper pound in value to one shillingsworth of gold, 
 every man would be compelled, just as much as he is now, when it is still 
 worth seventeen shillings, to receive those paper pounds for twenty 
 shillings each. 
 
 Preposterous as this extreme case may appear, there is no security, as 
 the law now stands, against such an issue, except in the discretion of the 
 Bank. 
 
 81 
 
646 Huskisson on the 
 
 cash payments, namely that the Directors of the Bank, 
 notwithstanding any decision of Parliament, may increase 
 the amount of their paper, or, at least, may not so reduce 
 that amount, as to be prepared for the opening, when the 
 time that may be fixed for it shall arrive : and that, by this 
 expedient, they might compel Parliament to grant them a 
 further term in the restriction. 
 
 That any provision which Parliament can make for ter- 
 minating the restriction will be so far incomplete, that it will 
 not necessarily carry along with it the means of enforcing 
 its own object, is certainly true. This objection, however, 
 to the specific period suggested by the Bullion Committee, 
 would equally apply to any other proposal founded on the 
 principle of assigning some fixed determination to the opera- 
 tion of the restriction law. But this difficulty, like that 
 which would arise from an over-rapid diminution of Bank 
 paper, rests on a supposition, possible certainly, but most 
 improbable. They are both extreme cases. Neither of 
 them stated, nor contemplated, by those who concur in the 
 principles and suggestions of the Report : though intimated 
 in language too plain to be misunderstood, by those who 
 profess themselves most anxious to prevent any change in 
 the present system. As far as these insinuations affect the 
 character of the Bank, they may do mischief, as coming 
 from persons professing to- be friendly to that institution. 
 The conduct of the Directors, under whatever arrangement 
 may be finally adopted by the wisdom of Parliament, will, I 
 am confident, fully shew that all such insinuations are 
 entirely unfounded. 
 
 With respect to the manner in which our trade may be 
 affected by the resumption of cash payments, no argument 
 has been offered to shew, and no statement, I am persuaded, 
 can be produced to prove, that any serious difficulty or pres- 
 sure is likely to arise, if the excess of our circulation shall 
 be withdrawn in that gradual, cautious, and almost imper- 
 ceptible manner, in which this change may be effected, in 
 case two years shall be allowed for the purpose. This, 
 beside, is a period within which every adventure now pend- 
 
 82 
 
Depreciation of the Currency. 647 
 
 ing will probably be completed, and every credit now 
 outstanding brought to maturity. Every merchant, conse- 
 quently, will have ample notice, and full time to regulate his 
 dealings, and to bring his affairs within such a compass, 
 compared to his capital and state of credit, as he may think 
 prudent and necessary. No one will be taken by surprise. 
 There will be no sudden fall in the price of goods ; no 
 rapid fluctuations in the markets. Our currency, I am 
 sanguine enough to hope, may be brought back to its sound 
 state, if not altogether without difficulty in some quarters ; 
 at least with much less difficulty than has been experienced, 
 within these few last months, from the consequences of the 
 speculation and over-trading, created and fostered by the 
 excess of that currency. 
 
 Some persons, wholly unacquainted with the nature of 
 commerce, or with any of the details or bearings of the 
 subject, I am told, dismiss the Bullion Report with a short 
 remark, u that it recommends what is impossible: for that 
 gold cannot be procured." To this, I think, I have already 
 given a sufficient answer, unless the principles which regu- 
 late the purchase, and sale of the precious metals are now 
 become altogether different from those which have hitherto 
 applied invariably to all commodities which can be the 
 objects of barter. I may, however, further observe, that 
 gold does not form the basis of the currency of any other 
 country ; that the quantity of gold in Europe is not less 
 now, and is probably greater, than it was at any former 
 period; that the price has not risen on the Continent ; that it 
 is to be purchased in the markets there; in the markets of 
 Africa and America ; in our own market. If, in these mar- 
 kets, the Bank will buy progressively, and, through proper 
 agents, whatever gold bullion may be obtained without 
 raising the price against itself, a very large quantity may be 
 procured in two years, and, upon the whole, at a fair price. 
 But then, in order to ascertain what is a fair price for gold, 
 we must take its relative value* to silver such as it now exists. 
 
 * Supposing that value, as it appears by the evidence of Mr. GRE- 
 FULKE arid others, to be 011 the continent 15^ to one : then 15^ ounces 
 
 83 
 
648 Huski&son on the 
 
 It is no secret, that the Bank, soon after the Restriction, 
 bought and imported a very considerable supply of gold. It 
 has since issued very little. To these facts, I may add my 
 confident opinion, (though this of course can be only matter 
 of opinion) that it is, therefore, actually possessed of a large 
 stock of gold. This stock, even without any addition, would, 
 of course, be brought nearer to the proportion which it 
 ought to bear to the amount of notes issued, as the latter is 
 gradually diminished. 
 
 A great quantity of gold, which is now hoarded, would 
 also make its appearance, if guineas were restored to their 
 use and value as currency. In this respect, the country is 
 in the same situation as it was in King WILLIAM'S time, 
 when our metallic currency was so much depreciated. 
 Before the determination to restore that currency to its 
 standard, pieces of full weight were as scarce as guineas are 
 now; but when that determination was taken and carried 
 into effect, a great quantity of good money, which had been 
 hoarded, was brought back into circulation. 
 
 In opposition to all these grounds of confidence, that the 
 difficulty of resuming cash payments will not be so great as 
 is generally imagined, it has been stated, that the increase of 
 our commerce and of our revenue requires a vast increase of 
 currency. 
 
 It might easily be shewn, indeed it is obvious, that in a 
 country at once rich and free, in which, from these advant- 
 ages, joined to the long enjoyment of public tranquillity, 
 credit, either verbal or written, transferable or dormant, is 
 extended to all the transactions of society, operations to a 
 much greater amount may be carried on with a proportion of 
 currency which would be altogether insufficient for the same 
 operations in another country, not possessing these benefits, 
 
 of silver are equal to 3. 17 s. 10|d. or to an ounce of gold. In Bank 
 paper 15 ounces of standard silver, at the present market price, which 
 is about 5s. lO^d. per ounce, cannot be purchased for less than 91 
 shillings. 
 
 84 
 
Depreciation of the Currency. 649 
 
 or in which they might be less firmly established, or less 
 amply enjoyed. In this country, where they are all united 
 in the highest degree, the ingenuity of individuals, especially 
 of our merchants and bankers, is constantly at work, to 
 devise new means of substituting credit for the actual inter- 
 vention of money, and to find fresh expedients, either to 
 supply its place, or to economize the use of it, in their 
 dealings with one another. If this were a proper occasion 
 for such a detail, it might easily be shewn, that in this way, 
 many improvements have been made, of late years, in the 
 mode of carrying on the banking and commercial concerns of 
 the metropolis, all tending to introduce a greater economy 
 in the use of money. The quantity of currency, therefore, 
 requisite for the purpose of exchanging and distributing the 
 commodities of a country, is not to be measured by the 
 extent of its wealth and commerce, compared with the wealth 
 and commerce of other countries, or with its own, at former 
 periods. Neither is that quantity to be measured by the 
 public revenue. In proof of this assertion, as applicable to 
 the present state of this country, it is not necessary to go 
 into a minute statement of the course of proceeding at the 
 Exchequer, although it is by such a detail that the proof 
 would be most completely established. It is sufficient to 
 state, that in the evening of each day, the whole receipt of 
 the revenue, within that day, is carried to the Bank ; and 
 that from the Bank the whole amount of such receipt may 
 be, and probably is, sent into circulation again on the follow- 
 ing day, in the discount of commercial or Government 
 securities. If the daily receipt of the Exchequer be, upon 
 an average, increased from twenty to one hundred thousand 
 pounds, it by no means follows that any thing like a pro- 
 portionate increase, or indeed that any very considerable 
 increase in the whole amount of the circulation would be 
 requisite, in consequence of this increase in the revenue. 
 Did any man, before the Restriction, ever dream of enquiring 
 into the numerical amount of Bank issues, and of regulating 
 and adjusting that amount by the quarterly account of the 
 Consolidated fund, or by the annual return of our Imports 
 
 85 
 
650 Huskisson on the 
 
 and Exports ? What is the link which connects the value of 
 paper, regulated in its amount by some such numerical 
 scale, with that of the precious metals ? By what standard 
 of value is that scale to be increased or diminished ? Is that 
 standard to be sought for in artificial checks and banking 
 regulations bye-laws of the Bank Corporation, made not 
 for the object of restraining their loans, but for their own 
 protection against the risk of insolvency in those to whom 
 such loans are advanced ? 
 
 But even if it were admitted that a much greater numeri- 
 cal account of money is necessary in consequence of the 
 increased revenue and commerce of the country, it by no 
 means follows that this augmentation would require to be 
 made in the metallic part of our currency. Circulating 
 credit, either in the shape of Bank notes, or in some other 
 description of security, will always be preferred to coin in 
 all the large operations of trade. For all considerable pay- 
 ments, paper possesses many obvious advantages over metal- 
 lic currency. In other respects it is also more convenient. 
 The actual holder of a note, convertible at will into cash, 
 knows that the guineas which that note represents, and 
 which it can always command, are not liable to be under 
 weight, or to become so by wear in his possession ; while 
 every person who may receive that note in succession, 
 equally knows that, without the trouble of weighing, or the 
 risk of deception, it conveys the same title to him. 
 
 The Bullion Committee proposes that the small notes of 
 the Bank of England should not be withdrawn till a certain 
 period after the resumption of cash payments. If this pre- 
 caution should be adopted, I have no doubt that many of 
 those small notes will continue to circulate till the end of 
 that period, from the preference, which, in many instances, 
 will be given to them over gold.* 
 
 * The withdrawing of the small notes is a measure suggested by 
 considerations of public expediency which ought to outweigh perhaps 
 the economical advantages which the country derives from the use of 
 them. It is not necessary at present to examine the question in this 
 comparative view, although I own that I very much doubt whether 
 
 86 
 
Depreciation of the Currency. 651 
 
 It has been suggested, as another objection, against ter- 
 minating the Restriction law, that a state of circumstances 
 might, by possibility, arise, in which it might be proper to 
 re-enact that law. 
 
 I admit that it is possible, in the present extraordinary 
 state of the world, that, in the course of events, a recurrence 
 of similar circumstances, of general alarm, commercial pres- 
 sure, and stagnation of individual credit, such as existed in 
 1797, may, at some future period, again compel the Govern- 
 ment of this country to afford to the Bank a temporary 
 protection against the demands which may be made upon it 
 for gold. For it must be obvious, that no Bank, however 
 cautious and prudent, can possibly exist, either with advan- 
 tage to itself, or to the country, unless its circulation of 
 Paper, upon an average, shall considerably exceed the 
 amounts of its deposits, in cash or bullion, for meeting the 
 possible demands that may be made upon it. The conse- 
 quences of sudden public alarm cannot be measured. They 
 baffle all ordinary calculation. Cash is then withdrawn, not 
 because the circulation is excessive, but by the country 
 Banks and the town Bankers, for the purpose of meeting 
 possible demands upon them, and by the community at 
 large, either directly from the Bank, or indirectly through 
 the former channels, for the purpose of hoarding, from the 
 dread of some imaginary or contingent danger. In such a 
 crisis, every reduction in the amount of Bank paper, is so 
 far from checking the drain, that it aggravates the general 
 distress ; because the gold which is taken out of the Bank, 
 instead of being substituted in circulation for the notes 
 withdrawn from it, is for the most part locked up, and thus, 
 in proportion as the stagnant and straightened circulation 
 wants life and aid, it becomes every day more embarrassed, 
 whilst each new calamity produced by such a state of things, 
 contributes to spread and increase the general apprehension. 
 It is therefore manifest, that by a possible combination of 
 circumstances, the Bank might be driven to part with its 
 
 country Banks ought not to be allowed to issue notes as low as two 
 pounds. 
 
 87 
 
652 Huskisson on the 
 
 last guinea, not only without having checked the drain, but 
 with the certainty of increasing it, in proportion as the 
 amount of their notes was diminished. At such a moment 
 the preservation of the Bank from actual failure, though an 
 important, is but a secondary consideration : that of the 
 country is the first. The possible cases, however, which may 
 call for such an intervention of power, are not capable of 
 being foreseen or defined by law. The necessity may not 
 occur again : if it should, the application of the remedy 
 must be left to those who may then be at the head of affairs, 
 subject to their own responsibility, and to the judgment of 
 Parliament, But I must observe, that in proportion as the 
 knowledge to be derived from the experience of 1797, on 
 the one hand, and of the two last years on the other, shall 
 be more generally spread through the country, and as the 
 principles of our money system and of circulating credit 
 shall be better known and more generally understood, will 
 the recurrence of such a crisis be rendered less probable, 
 the danger of it more easily met and overcome, and the 
 nature of the remedy, as well as the extent to which it may 
 be used, more fully ascertained. It is a possible, temporary, 
 and transient interruption of the ordinary course of our 
 circulation, of which we are compelled to meet the risk, in 
 order to insure to ourselves the habitual, permanent, and 
 incalculable advantages of an extensive and secure circu- 
 lating paper credit. This is the lesson we should learn from 
 the use of the Restriction in 1797, on the one hand; and 
 from the inconveniences to which the abuse of it has led on 
 the other. 
 
 It has been objected, that the consequences derived from 
 the arguments which prove the depreciation of our currency, 
 if pushed to their full extent, would go to establish a title 
 in persons, who suffer from being paid ih that depreciated 
 currency, to some compensation for the difference between 
 the payment received, and the amount in standard money of 
 their just and legal demands. According to the principles of 
 
 88 
 
Depreciation of the Currency. 653 
 
 strict justice, it may indeed be impossible to deny that this 
 compensation is due to them. The injury which they now 
 sustain, by being paid in Bank notes, is precisely of the 
 same description as if they were compelled to receive in 
 payment clipped and light coin. In the latter case, every 
 man would agree that such coin ought to pass, not by tale, 
 and according to its denomination, but by weight only. To 
 the former, the same principle might apply. But no argu- 
 ments are to be looked at with more suspicion than those, 
 which, from the acknowledged impossibility of attaining to 
 perfection, would infer, that it is absurd to attempt the 
 nearest possible approximation to it. If a system be erro- 
 neous, the very consequences of its errors generally con- 
 stitute the most powerful impediment to a correction of it. 
 But if that impediment were to be held conclusive, the result 
 would be no other than this that the errors of inadvertency, 
 when they have prevailed for a certain time, are, upon a 
 discovery of their nature, to be persevered in, from delibera- 
 tion and choice. In the present instance, the result would be, 
 that, a certain degree of injustice having been innocently 
 done, and a certain degree of injury unavoidably suffered, 
 the awakened consciousness of that injustice and that injury, 
 should only lead to an advised confirmation of the system 
 by which they have been produced. Any man who will 
 give the slightest consideration to the subject, will see that 
 it is not possible to redress the inconveniences which have 
 been sustained ; and to every man of sober understanding 
 " that it is impossible" is a sufficient answer. But the future 
 is within our power. The legislature can prevent the con- 
 tinuance and augmentation of the evil ; and it is, therefore, 
 its bounden duty TO do so. 
 
 I am not sure that some persons will not be found, who, 
 however unable to deny that the depreciation of our paper 
 is proved beyond all doubt, will still be disposed to maintain 
 that the evil of such a state of things, great as it is, is more 
 than compensated by some greater public advantages. It 
 
 89 
 
654 Huskisson on the 
 
 will be incumbent upon them to shew what those advantages 
 are, that ought, in their judgment and in their morality, to 
 outweigh the strongest claims of justice, and the plainest 
 dictates of public honour; and distinctly to point out to 
 what extent, and by what classes of the community, they 
 are enjoyed. I purposely forbear again adverting to the 
 various classes and descriptions of persons, subsisting upon 
 fixed incomes, whom I have already shewn to be pre- 
 eminently (though they are not exclusively) sufferers from 
 the present state of things. 
 
 First, then, is it for the benefit of the landed interest 
 that the present system should be continued ? Surely this 
 part of the community is too just to wish for profit to be 
 obtained at the expense of others, even their nearest rela- 
 tions or friends ; too enlightened to countenance a system 
 which, progressive in its nature, would, if unchecked, ulti- 
 mately lead to the subversion of all property.* One large 
 class of landed proprietors indeed those whose lands are 
 actually under lease being for the remainder of those 
 leases within the description of persons of fixed income, 
 suffer in the same manner as other persons which that class 
 comprehends. They even suffer more ; inasmuch as the 
 reserved rent is generally subject to repairs and other out- 
 goings, the expense of which is of course increased in pro- 
 portion to the depreciation of the currency in which it is 
 paid. In such a state of things, landlords will be naturally 
 disinclined to grant new leases. Is this the way in which 
 the cheapness of paper is to contribute to the improvement 
 of their estates ? So far from it that every landlord must 
 be satisfied, by a moment's reflection, that the advancement 
 of agriculture is best secured by holding out a fair induce- 
 ment to the employment of capital in this most essential 
 branch of national industry ; and that it is, by the real 
 improvement of the land, and not by a mere nominal increase 
 in the annual rent, that he must measure the rise in 
 
 * If ever there was a proposition universally true, this has proved 
 itself to be so in all countries in which paper currency, from any com- 
 bination of circumstances, has been suffered to grow into a paper MONET. 
 
 90 
 
Depreciation of the Currency. 655 
 
 the value of his estate. If, by good husbandry, the produce 
 of an estate be doubled, its real value will be proportionably 
 increased; but, if the produce remain the same, and the 
 increased rent, in Bank paper, be not exchangeable for a 
 greater quantity of gold than the landlord was intitled to 
 receive under the old rent, the real value of the estate will 
 be any thing but augmented by such a rise in the rent.* 
 
 Secondly, is the commercial class really benefited by this 
 state of things ? It is impossible to deny that some, and, 
 perhaps, many individuals, connected with trade, have derived 
 advantage from the greatly increased facility which has pre- 
 vailed, within these two or three last years, of obtaining 
 credit upon the discount of commercial securities ; and that 
 a few, who have been fortunate, in watching their opportu- 
 nities, and in boldly availing themselves of this facility, have 
 made great and rapid profits by their speculations. But 
 whether the mercantile body of this country, considered in 
 the aggregate, has reaped any substantial advantage, or will 
 ultimately derive any benefit, from the super-abundance of 
 paper currency, is to me at least, a much more doubtful 
 question. It is impossible for any observer of events accu- 
 rately to discriminate between the adventures to which this 
 excess has given rise, or, at least, a principal aid and support, 
 and those which have their foundation in the mercantile 
 capital and industry of the country, and would have been 
 carried to the same, or, perhaps, to a greater extent, if the 
 amount of discounts and circulation had been kept within 
 those limits which are compatible with the sound state and 
 undepreciated value of our currency. That some specu- 
 lations which, it may be fairly presumed, belong to the former 
 
 * The price of land (either to rent or sell) like that of all other 
 objects, is, of course, raised in proportion to the depreciation of our 
 currency. But a great part of the increased value which landed pro- 
 perty has acquired within these last ten years, is, I believe, fortunately 
 for the prosperity of this country, of a more durable and substantial 
 nature ; and is fairly to be accounted for by the great improvements 
 made in the science and practice of agriculture ; by which the produc- 
 tions of our soil have been both ameliorated in quality and increased in 
 quantity. 
 
 91 
 
656 Hiiskisson on the 
 
 class, have turned out unfortunate ; whilst others, which are 
 still pending, are of precarious issue, is, I am afraid, an 
 opinion but too well founded, and one to which, I apprehend, 
 that recent and passing events have made many converts 
 among those who have the best practical knowledge on these 
 subjects. 
 
 The convulsions of the world have thrown a principal 
 part of the trade of Europe and America into new channels. 
 The first who explored those channels, and had the address 
 to elude the difficulties and dangers which beset the ap- 
 proaches to them, were eminently successful. Their exports 
 were inadequate to the demand abroad ; their returns unequal 
 to our wants at home. Great profits were the result. This 
 result became generally known, and the temptation was 
 irresistible. Not only the original adventurers, in most 
 instances, re-embarked largely in the same pursuits ; but hosts 
 of new ones sprung up in every corner of the kingdom : every 
 one, anticipating a gain like that of the first speculators, 
 became of course, anxious to procure credit to the greatest 
 possible amount negotiable securities were multiplied in 
 every shape discount was sought for in every quarter 
 ingenuity was at work to multiply the means of obtaining 
 and affording accommodation.* So long as the sales were 
 
 * It has been said, that any step which may be taken towards the 
 resumption of cash payments, would immediately compel the Bank 
 Directors to reduce, in a very great degree, the amount of their accom- 
 modation to the merchants ; and some persons have gone so far as to 
 insinuate that they would probably cease to discount altogether. The 
 abettors of the present system have used this language with much suc- 
 cess, as the means of creating an alarm in the mercantile world. To me 
 there appears to be no necessity for making any sudden or violent 
 diminution in their discounts ; indeed there is no reason why they 
 might not be continued to the same amount as at present. Every 
 facility that could be required would, no doubt, be afforded by Par- 
 liament in this respect. The whole of the six millions, advanced 
 in consideration of the deposits of public money, if necessary, might be 
 repaid ; and, instead of this advance, an annual sum might be paid by 
 the Bank to the public equivalent to the saving on the interest of this 
 loan. This repayment would afford to the Bank more than a sufficient 
 latitude for gradually reducing their circulation without any diminu- 
 tion whatever of their commercial discounts. But this is a narrow view 
 of the question The root of the evil is not in the discounts of the Bank. 
 Their power of giving an increased accommodation to the trade 
 
 92 
 
Depreciation of the Currency. 657 
 
 brisk ; so long as the demand, both for raw materials and 
 manufactured goods, continued to increase, and prices to rise 
 in the home market, every thing went on smoothly, as much 
 to the satisfaction of the manufacturer and merchant, as of 
 those to whom they were indebted for the discount of their 
 bills. It was then that all these parties discovered to what 
 a degree the suspension of cash payments afforded facility 
 and security to the extension of this description of credit: but 
 the currency, in which the discounts were effected, became 
 depreciated in proportion to the rapid increase in its amount. 
 If trade had continued in its ancient and accustomed course, 
 and the spirit of rash adventure had not been excited by new 
 prospects of extravagant gain, there is reason to believe that 
 the expense of discount, aided by the strict adherence of the 
 Bank to its long established regulations, and by the reluct- 
 ance to engage in Country Banks, which had been created 
 by the disasters of 1793 and 1797, might have afforded, for 
 some time longer, (as they had for several years after the 
 restriction was first imposed) a sufficient guard against any 
 very material excess, or any great depreciation of our cur- 
 rency. But, on this occasion, the Directors of the Bank 
 appeared to have considered the increased eagerness for dis- 
 
 of the country, and the extent to which it is now carried, depend more 
 on the greatly increased amount of the balances deposited by Govern- 
 ment in their hands, and which are lent out again upon good bills of 
 exchange, than upon the enlarged amount of their circulation. The 
 amount of these deposits is independent of the amount of the latter, and 
 would not be affected by its reduction, whilst the effect of that reduc- 
 tion, in raising the value of their paper, would be precisely the same, 
 whether it were brought about by a diminution of their loans to Govern- 
 ment or to individuals ; because it is to the aggregate excess of their 
 issues, and not to the particular nature of the securities on which they 
 are made, that the depreciation is to be ascribed. That excess affords a 
 facility to the abuse of credit, and gives birth to wild adventures in other 
 quarters : those, I admit, will be checked by a diminution in the total 
 amount of their currency ; although it should be effected without any 
 diminution in t-he scale of commercial discounts at the Bank of England. 
 But have we not seen enough of the ultimate effects of this artificial 
 facility, and these forced speculations 1 To those who still shut their 
 eyes to the melancholy but instructive lessons which we have lately 
 received in this respect, it would be useless to offer any other proof's of 
 their dangerous tendency. They would remain unconvinced, even if all 
 the follies of the South Sea adventure, or of the Mississippi scheme, were 
 acted over again. 
 
 93 
 
658 Huskisson on the 
 
 count as requiring some increased indulgence on their part ; 
 and, perhaps, whilst trade appeared so flourishing, it was not 
 unnatural that they should consult their own fair interest as 
 bankers in this respect. 
 
 The amount of their paper was, in consequence, consider- 
 ably increased, although, by the great and simultaneous 
 augmentation in the circulation of Country Banks, the use 
 of Bank paper beyond the limits of the metropolis be- 
 came every day more circumscribed. Under these circum- 
 stances, the rise in the price of goods, which, at first, was 
 the effect of an increased demand, was soon considerably 
 aided by the depreciation of the currency, as well as by the 
 power which the facility of discount afforded to new specu- 
 lators (calculating upon a still further rise) of keeping back 
 their purchases from market. Thus the diminution in the 
 value of our currency, brought on in a great measure by this 
 mercantile delusion, has, in its turn, been one of the principal 
 means by which the latter has been kept up and supported 
 in the home market. Many a speculation, probably, within 
 these two last years, for which the party takes to himself the 
 credit of commercial acuteness and great foresight, was prin- 
 cipally founded, however unconsciously to himself at the 
 time, in the decreasing value of our currency. 
 
 In making use of the words mercantile delusion, as appli- 
 cable to a considerable part of the trade, which has been 
 created and fostered, within the two or three last years, by 
 the circumstances which I have stated : I feel that it would 
 be incumbent upon me to offer some more enlarged explana- 
 tion of the subject, if, unfortunately, many recent occur- 
 rences did not, at once, establish the facts, and justify the 
 terms I have applied to them. In the nature of things, 
 such a speculation could not continue universally and unin- 
 terruptedly fortunate. The markets, at first scantily 
 supplied, would soon be overstocked. Some of the adven- 
 turers, from being too late, others, from ignorance or mis- 
 conduct, extravagance or misfortune, would fail. The chain 
 was sure to give way in some of its links great and 
 numerous failures are the consequence suspicion and alarm 
 
 94 
 
Depreciation of the Currency. 659 
 
 become general securities, hitherto negociable, can no 
 longer find discount many of the discounters themselves 
 are ruined, and all put upon their guard the markets fall 
 goods are forced upon sale, when all are afraid to buy ; and, 
 whilst the fortunate yew retire upon wealth rapidly accumu- 
 lated, thousands are left to lament the ruin, which, deluded 
 by the example of such rapid success on the one hand, and 
 tempted by the facility of overtrading on the other, they 
 have brought upon themselves. 
 
 I may therefore be allowed to doubt, whether a very 
 great proportion of the more recent speculators to South 
 America, as well as to Malta, Heligoland, and the Baltic, do 
 not repent that they ever became acquainted with the 
 tempting tale of a few early adventurers, or were so easily 
 furnished with the means of engaging in similar risks, to an 
 extent out of all proportion, either to the amount of their 
 capitals, or to the demand from abroad ; and whether, 
 ultimately, the legitimate advantages of commerce, as well as 
 the real interests of the trading and manufacturing classes, 
 will not be injured, rather than advanced, by the conse- 
 quences of the protracted suspension of cash payments. 
 
 This part of the subject reminds me that a few words 
 are still necessary respecting what is called the 6( balance of 
 payments " with foreign countries, to which I have adverted 
 in a former part of these observations. I then left to the 
 reader to judge for himself how far this fashionable doctrine 
 affords a sufficient explanation of the long-continued depres- 
 sion of the foreign exchange, and of the high price of Bullion 
 at home. 
 
 That a nation, like Great Britain, possessed of great 
 commercial capital, should afford long credits to other 
 countries, where capital is wanting, and where the rate of 
 interest is consequently much higher, is certainly very 
 natural ; and it is an obvious advantage to us in trade. But 
 these credits are given in succession, and some are daily 
 coming to maturity, whilst others are created; so that, 
 although the different parts of the world are constantly 
 indebted to this country, the aggregate amount of those 
 
 95 
 
660 Huskisson on the 
 
 debts cannot, in the ordinary course of things, very 
 materially vary. 
 
 But it is obvious, that if, from any peculiar circum- 
 stances, an unusual facility of discount exists at home, 
 whilst abroad an advance in price, far exceeding the rate of 
 interest here, is given for goods sold upon long credits, or a 
 proportionate abatement made upon those bought by us for 
 ready money, the balance of debt to this country may be 
 somewhat increased, and the exchange thereby rendered 
 unfavourable for a short time. This fall, if our currency 
 were not depreciated, could not exceed the expense of trans- 
 porting Bullion to the Continent, or continue, as it has done, 
 for two years. Within that period too, it may be remarked, 
 the longest of those credits must probably have come round, 
 and consequently there would now be an end of the 
 argument. 
 
 Besides, the increase of foreign debt, and whatever fall 
 of the exchange it may, at one time, have occasioned, are to 
 be ascribed to the abundance and cheapness of our paper ; 
 for, if the Bank, when it was liable to pay its notes in cash, 
 had enlarged its issues, till the market price of Bullion, and 
 consequently the course of exchange, were materially 
 affected, these circumstances would have compelled them 
 to make a diminution in the amount of their discounts. 
 That diminution, by rendering money more scarce at home, 
 would have prevented merchants from extending their 
 credits abroad, and induced them, as far as possible, to 
 accelerate the payment of those that were becoming due. 
 The effect would have been to assist in improving the 
 foreign exchange, till it was restored to its proper level, and, 
 with it, the facility of discount at home to its ordinary 
 course. This increased balance of debt (on which is founded 
 the pretended " balance of payments") is therefore only a 
 further instance of the manner in which the harmony of the 
 whole system is destroyed by the derangement of one of its 
 parts, and an additional reason for restoring the value of our 
 paper currency to the standard of our coin. 
 
 96 
 
Depreciation of the Currency. 661 
 
 I will not add to the length of this discussion by examin- 
 ing more in detail the manner in which the interests of the 
 mercantile and manufacturing part of the community are 
 likely to be affected by the continued debasement of our 
 currency. That they are not necessarily exposed to the 
 same injury as is cast upon the other classes of the com- 
 munity I am ready to admit ; but then let them recollect 
 all the ties by which they are connected with those classes, 
 and that the durable prosperity of the one cannot be built 
 upon the distress of the other. 
 
 The business of a merchant is to buy cheap and sell 
 dear. His general wish is to be able, for this purpose, to 
 command as large a credit as possible. He must conse- 
 quently, upon abstract principle, be favourable to any 
 system which is likely to give facility to the discount of 
 commercial securities. His interest, therefore, appears to 
 be the same as that of the banker ; whose profit increases 
 with the extension of such discounts. His skill and his 
 success depend upon his rapidly converting credit into 
 goods, and, thereafter, re-selling those goods at advanced 
 prices. Generally, therefore, a merchant is a large pos- 
 sessor, or creditor of produce, and a debtor for a considerable 
 part of the sum with which it was purchased. If the cur- 
 rency, in which that debt is to be liquidated, be progressively 
 decreasing in value, his profit, upon every transaction, will 
 be augmented in proportion to the increased depreciation of 
 the currency. But is this the fair profit of trade ? Are 
 these the gains to which the unsophisticated meaning of our 
 laws, the clearest principles of justice on which they are 
 founded, the sacred obligations of public faith, of which 
 they are the pledge, and the rights and interests of the wholfi_J 
 community are to be sacrificed ? Is this the description of 
 trade, or rather of gambling, which ought to find friends 
 among the real merchants, or advocates in the Legislature 
 of this country ? 
 
 Besides, the continued success of such a trade depends / 
 upon the progressive increase of the depreciation of ourj 
 currency. In the more probable case, of a fluctuating 
 
 97 
 
662 Huskisson on the 
 
 depreciation"; liable to be increased or diminished by every 
 change in the councils of the Bank ; by any extensive or 
 sudden failures of Country Banks, or by the doubts and 
 suspicions to which all currency, if not referable to some 
 established and certain criterion of value, must be obnoxious, 
 it cannot, I think, be long before every merchant (if he be 
 really worthy of that name) must wish for some fixed stan- 
 dard, by which he may ascertain the value of his commo- 
 dities, may regulate his purchases and sales, and measure 
 the extent of his engagements before he must be convinced 
 that paper, " though never issued except in the discount of 
 perfectly good bills, founded in real mercantile transactions" 
 may yet be carried to excess that its real use and benefit 
 (and they cannot be prized too highly) are not in what it 
 adds to the currency of a country, but in what it saves of 
 expense in providing it. That from the profit incident to 
 the issues of such paper, the public derive a sufficient 
 security that the wants of our circulation will be constantly 
 supplied: but that the full and safe enjoyment of this con- 
 venience, essentially depends on the assurance that such 
 paper shall be strictly circulating credit ; that it shall retain 
 its value in conformity to our own standard, and thereby, in 
 reference to the currency of other countries; and that 
 nothing but its interchangeableness with cash, can now 
 restore that assurance, or, at any time, permanently main- 
 tain it. 
 
 Lastly, is it the interest of the Government which calls 
 for this system ? This question can hardly be put without 
 seeming to imply an admission which every man must be 
 anxious to deny that there can be an interest in the 
 Government separate from that of the community. We 
 are told, however, that the taxes could not be raised that 
 the loans for carrying on the war could not be negociated 
 and that the whole of our finance is a superstructure, 
 built upon the basis of our present paper currency. These 
 are assertions wholly unsupported by proof. Why could 
 
 98 
 
Depreciation of the Currency. 663 
 
 not the taxes be raised ? How were they raised before the 
 restriction ? Would not the real wealth and capital of the 
 country, as well as its population and industry, continue the 
 same ? and what are the taxes but a given proportion of the 
 annual income, which the people of this country derive 
 from their soil, their industry, and the employment of their 
 capitals ? 
 
 It is true that, the price of all articles being restored to 
 their proper relative value, the taxes upon consumption 
 would, in reality, bear a somewhat higher proportion to the 
 prime cost of the commodities upon which they attach, than 
 they do at present ; but not higher than they did when they 
 were first imposed. Besides, as this effect would be pro- 
 duced without any real augmentation of burthen, persons 
 of a fixed income would be able to consume more, and those 
 whose incomes have increased in proportion to the depre- 
 ciation of money, would not (even should their incomes 
 thenceforward be nominally diminished in the same propor- 
 tion) be reduced to consume less than at present. The case 
 of the assessed taxes, it must be admitted, would be some- 
 what different, some of them partaking of the nature of an 
 ad valorem duty ; but, upon the whole, there could be no 
 very material or permanent diminution in their amount. 
 The ad valorem taxes upon the transfer of property, such as 
 the auction duty,* and the stamps upon conveyances, would 
 
 * This duty, in the year ended the 5th of April, 1808, produced 
 272,570^., and in the year ended the 5th of April last, 363,434, being 
 an augmention of one-third : although, certainly, in the last year, there 
 was no pressure in the country to force property into the market. The 
 auction duty is under the management of the excise ; and it is not, 
 perhaps, undeserving the attention of those who may wish to look at 
 the difference in the first consequences of a depreciation in the cur- 
 rency of a country, upon the prices of labour and property respectively, 
 that, whilst the produce of this tax has increased more than 30 per 
 cent., most of the other taxes, in the same collection, being upon 
 general consumption, such as malt, British spirits, candles, soap, and 
 glass, have within the same period, been rather decreasing ; and others, 
 such as beer, leather, salt, &c., have been very nearly stationary. The 
 increased produce of taxes of this class must await an increase in the 
 wages and salaries of labour and industry, proportionate to the decrease 
 in the value of the Currency in which those wages are paid. To what- 
 ever degree that increase has already taken place, and in proportion as 
 
 99 
 
664 Huskisson on the 
 
 certainly suffer a nominal diminution ; but these branches of 
 the revenue are not very considerable in their amount, and 
 are the only portion of our permanent income which could be 
 much affected. The property tax, being also an ad valorem 
 duty, would be liable to some diminution, but as a great part 
 of this tax is levied upon persons of fixed incomes, the fall- 
 ing off, in the first instance, would not be considerable, and 
 would soon be made np by the growing wealth of the 
 country.* 
 
 Why could not any loans, that may be necessary, be 
 negociated ? Is it not the amount of capital, compared with 
 the demand for it, and not the amount of circulation, which 
 regulates the rate of interest in a country ? And what is 
 it that supports the public credit of a country, except 
 general confidence in the sufficiency of its resources, and a 
 character for punctuality and good faith in its engagements ? 
 Are Bank notes not convertible into cash, the test of the 
 solidity of our resources ? Are payments made in a cur- 
 rency referable to no fixed standard of value, the essential 
 criterion of punctuality and good faith ? 
 
 It is true, that the abundance and cheapness of our 
 paper have, in the first instance, a tendency to raise the 
 price of the public securities, which enables the Govern- 
 ment to borrow money on terms nominally better ; but it is 
 equally true that, from these same causes, the amount of 
 the loans requisite for the public service is increased : and 
 who does not see that the latter effect compensates the 
 former ? It does so, in the very year in which the loans are 
 made. But if we consider its operation on posterity ; if we 
 consider that, in order to effect a small nominal saving now 
 
 it may become general (if the value and standard of our money shall 
 remain unsettled), the nominal benefit of it will probably be felt in 
 these branches of the public revenue. This appears to me a very 
 strong proof that the effects of a depreciation of currency upon all the 
 transactions, and upon all the comforts of life, are not merely 
 imaginary. 
 
 * I have already observed in how many ways, and to what a degree 
 our public expenditure is increased by the present state of our currency ; 
 and that the savings which form some set off to that increase, are 
 neither honorable nor just, nor likely to be permanent. 
 
 100 
 
Depreciation of the Currency. 665 
 
 in the rate per cent, at which our loans are borrowed, we 
 engage to pay for all time to come an increased amount of 
 interest : That we contract to pay the more, because that 
 contract is made in depreciated paper; but that those 
 payments are hereafter to be made in undepreciated money ; 
 who does not see the improvidence of such a system? 
 Who does not see that we purchase the show of what is at 
 best a fallacious and temporary facility, at the expense of a 
 more than necessary accumulation of real and permanent 
 burthen ? Can any one believe, that considerate men will 
 much longer look to the public funds of the country as a 
 safe and proper deposit for any permanent provision which 
 they may be enabled to make for their families, if the prin- 
 ciple on which the value of our currency now rests should 
 either be countenanced and supported, upon system, as 
 beneficial to the State, or defended and continued, as a 
 necessary evil admitting of no remedy ? This consideration 
 alone forms a most important part of the subject, with a 
 reference to the policy of the present system ; and cannot 
 be too seriously weighed by those who must ultimately 
 decide upon the whole merits of this great question. In 
 coming to this decision, let them also look to the character 
 and honour of the nation, and to the impression which that 
 decision will not fail to make in other countries. Foreigners 
 will not be influenced, either by interest or prejudice, in 
 forming their judgment respecting the value of our parje,r*: 
 If they see all the symptoms of a depreciated currency, such 
 as they have witnessed in different parts of the continent, 
 they will not doubt that our paper also is depreciated ; and 
 they would by degrees conclude (if all foundation for such a 
 conclusion be not speedily done away) that the change in 
 our money system, by which we have virtually made paper 
 a legal tender, (however, in its origin the evil may have been 
 unsuspected, or may still be palliated in its progress,) will 
 ultimately produce the same disasters, which have marked 
 the course and termination of similar attempts in other 
 parts of the world. Respecting the language, or the pre- 
 dictions of our avowed enemy, on this subject, I am little 
 
 101 
 
666 Huskisson on the 
 
 solicitous ; but from the dread and mistrust which prevail in 
 every part of Europe, of any thing which, in principle, 
 bears so near a resemblance to paper MONEY, I am convinced 
 that the state of our currency, if not speedily rectified, will 
 be a source of disquietude to all those whose hearts and 
 wishes are really with us in this great contest. Nor must 
 we allow ourselves to hope that our national character for 
 strict integrity, and for a rigid adherence to good faith in all 
 our engagements, would not suffer by the protracted dura- 
 tion of the present derangement in our currency. By a 
 refined, and perhaps overstrained sense of our obligations in 
 this respect, we have exempted that part of the interest of 
 our public funds which belongs to foreigners from the pro- 
 perty tax : and shall we feel no scruples in paying that 
 interest in a currency, of which the depreciation unavoidably 
 exposes them to a much heavier deduction ? How can we 
 expect that our dealings and contracts will continue to be 
 looked to with the same unbounded confidence, and to be 
 held in the same high estimation, if that upon which they 
 all turn, and by which their amount is measured, instead 
 of being accurately ascertained and invariably fixed, is 
 referable to no established standard of value whatever, and 
 liable to fluctuations from causes over which the foreigner 
 can have no controul ? His apprehensions will soon outstep 
 the reality of the evil, and his speculations on its future 
 progress will contribute to aggravate its present pressure. 
 
 The occurrence of some general alarm, arising from 
 preparations, or attempts which may be made by the enemy 
 against this country, or possibly from some internal cause, 
 should not be lost sight of in the consideration of this 
 subject. 
 
 The difficulties incident to such a state of things, were 
 confined in 1797 to a stagnation of sales, and to an inter- 
 ruption of credit in all the larger transactions of trade and 
 of the community ; but they were not felt in the exchange 
 and distribution of commodities, in the common dealings by 
 which the daily wants of society are supplied. But what 
 would be the result of any general interruption of confi- 
 
 102 
 
Depreciation of the Currency. 667 
 
 dence in paper currency at the present moment, accom- 
 panied as it would necessarily be with an anxiety to part 
 with that currency, and a refusal to accept it in payment 
 for commodities on almost any terms ?* In proportion as 
 confidence would be suspended, would power be substituted 
 to give circulation to our paper ? from the absolute neces- 
 sity of the case, 1 apprehend that it would and what 
 power ? Not indeed that of the state, as in despotic coun- 
 tries, but the power, probably, of every possessor of a small 
 note, pressed by his own wants and by those of his family, 
 against the possessor of the commodities by which those 
 wants might be supplied. 
 
 But I have said enough, perhaps more than enough, both 
 as to the certain and the possible consequences of the con- 
 tinuance of the evil. I feel that it is more than time to 
 bring the subject to a close. Let it only be remembered, by 
 those whose duty it is to consider this great question, that 
 the existence of the evil cannot be disguised. It is too late 
 to determine that we will not avow it, even to each other : 
 a policy, which, though it sometimes tricks itself in the 
 garb of wisdom, is not a manly policy, nor one that, in the 
 nature of things, can ever be long successful. 
 
 To recommend helpless acquiescence, or to attempt to 
 palliate the mischief, is to hold out to all the world a dis- 
 couraging picture of the real situation of this country. It 
 is to represent, as our only support in the conflict, this 
 system, which is, in fact, but the lengthened and distorted 
 shadow of our real wealth; to represent the duration of 
 that system, unsubstantial as it is, as forming the real 
 measure of our resources. 
 
 Resources of a far different character this country pos- 
 sesses in abundance. They are to be found in the immense 
 and increasing produce of its territory : in the unwearied 
 extension of its manufacturing industry : in the elastic and 
 
 * Some idea may be formed of the distress which would result from 
 such a state of things, by the sudden inconvenience which has lately 
 been felt in some small districts of the kingdom in which the country 
 Banks, by which their circulation was supplied, have failed. 
 
 103 
 
668 Huskisson, dec. 
 
 expansive force of its legitimate commerce: all mutually 
 aiding and fostering each other: all fed and put in motion 
 by capital, the genuine growth of progressive accumulation 
 and not the factitious result of any artificial contrivance. 
 
 If, from the currency of a country thus circumstanced, 
 the precious metals have altogether disappeared, it is idle to 
 suppose, that such a disappearance can be the effect of 
 natural causes : it is absurd to exaggerate the process by 
 which they are to be re- acquired into an effort, or a sacri- 
 fice ; or to suppose that any other process can be necessary, 
 for that purpose, than that of restoring things to their 
 natural course. 
 
 THE END. 
 
 104 
 
INDEX. 
 
 A. 
 
 Absolute Government (See Govern- 
 ment) 
 
 Accounts, advantage of publishing ac- 
 counts of the issues of the Bank of 
 England, 178 ; (See also Tables) 
 
 Agriculture, trade more profitable than 
 agriculture, 37 ; agriculture one of 
 the three great sources of national 
 wealth, 115; how far manufactures 
 are the offspring of agriculture, 
 116, reaction of manufacture and 
 commerce in improving agricul- 
 ture, 117; science of farming of 
 modern date, 117; state of, in Eng- 
 land, France, and Italy, 118; the 
 establishment of country bankers a 
 spur to agriculture, 119, 125-129; 
 late improvements in, 127, 128, 
 655, note 
 
 America, " Discourse concerning the cur- 
 rencies of the British plantations in 
 America, especially with regard to 
 paper money" 1-41; postscript in 
 answer to "an enquiry" &c., 42- 
 56 ; depreciation of American 
 paper currencies not payable on 
 demand, 105, 178, 356, 438; rapid 
 rate of increase in her population, 
 115 
 
 Amsterdam, system of the bank of, with 
 regard to deposits, 59-60, 71, 72, 
 177 
 
 Annuitants, their loss, through a de- 
 preciation of the currency, 21, 49, 
 469, 543, 585, 590, 654, 663 
 
 Assignats (See France) 
 
 Athens, Athenseus cited as to popula- 
 tion of, 113; expedient adopted by 
 the Athenians to keep down the 
 price of corn, 125 note 
 
 . B, 
 
 Balance of Trade (See Trade) 
 
 Bank Credits, nature and effects of this 
 
 system in Scotland, 63, 102, 103; 
 
 similar practice in country banks 
 
 of Yorkshire, &c., 103 
 Bankers, pernicious practices of bankers 
 
 in issuing excessive quantities of 
 paper money, 70, 71 ; persons who 
 usually engage in banking, 110, 
 111; number of London bankers 
 and extent of their business, 183 ; 
 motive to circumspection in bank- 
 ers, 244 ; number of in England 
 and Ireland (1800-1810), 345, 346; 
 antiquity of the trade or profession 
 of banking, 354; number of country 
 bankers in 1792, 1797, and 1805, 
 357, note ; use of their drafts or 
 cheques in economizing the cur- 
 rency, 460 ; question whether se- 
 curity should be required of country 
 bankers before they are authorized 
 to issue notes? 602 
 Bank Notes (See Paper Money) 
 Bank of England " Note on the suspen- 
 sion of cash payments at the Bank of 
 England in 1797," 93-98; first run 
 upon the Bank in 1745, in conse- 
 quence of the advance of the High- 
 landers to Derby, 95 ; crisis of 
 1792-3, and its causes, 95 ; causes 
 and consequences of the crisis of 
 1797, 95, 400, 523, 524; necessity 
 for the suspension of cash pay- 
 ments in 1797, 96, 140; after the 
 suspension, the notes of the Bank 
 became quasi legal tender, 98, 102, 
 521, note; sketch of the nature, 
 rise, and progress of ihe Bank, 101, 
 102, 173. 583; effect of her discon- 
 tinuance to pay her notes in 1696, 
 during recoinage of silver, 101, 440, 
 44 1 ; her advances to Government, 
 101, 102, 234, 235, 401, 458, 626, 
 note ; hoarding of Bank of England 
 notes in time of alarm, 167; stric- 
 tures on the conduct of the Bank, 
 172, 173, 398, 400, 434-436, 448, 
 451-455. 459, 524, 525, 544, 596- 
 599, 625-628, 632-635. 643-644; 
 her large transactions with Govern- 
 ment, 175, 626 ; her independence, 
 175, 176; difference in her con- 
 stitution and practice from those of 
 foreign government banks. 176- 
 179, 227, note; advantage of her 
 published accounts, 178, 180; 
 
670 INDEX. 
 
 Bank of England : 
 
 grounds of confidence in the Bank, 
 178-180, 255, 256, 285, 286, 320, 
 324, 471, 521, 641 ; onus thrown 
 on the Hank of providing for the 
 country the necessary fund of gold 
 to meet contingencies, 181, 249, 
 250, 286, 296, 354, 651; events 
 which immediately preceded and 
 have followed her suspension of 
 cash payments, 182, 230, 265, 286, 
 287, 290, 291, 301, 340, 381, 400, 
 401, 446, 447, 450, 451, 457, 
 
 523, 524, 583, 597, 600, 601, 
 624-628, 633, 648, tendency of a 
 great and sudden reduction of 
 the accustomed number of bank 
 notes to create unusual and tem- 
 porary distress, 188, 189, 191, 
 192, 221, 222, 251-253, 292,462, 
 
 524, 547, 548, 550, 642, 647, 651 ; 
 duty of the Bank in time of pres- 
 sure, 192-193, 222, 257,446,462, 
 463 ; excessive limitations as well 
 as excessive issues to be avoided, 
 194, 295, 462, 524, 547, 548, 643, 
 644, 651 ; illustration of the mode 
 in -which the Bank specie might 1 e 
 exhausted, 195, 196, 216-219, 493, 
 517, 518, 651, 652; erroneous 
 notion that her loans to Govern- 
 ment have hampered her, 198, 199, 
 626 ; illustrations, 199-203, 625- 
 628; statement of her effects on 
 25th February, 1797, 203, 204 ; 
 analysis, 205, 206 ; the interference 
 of Government and Parliament at 
 the period of the suspension of cash 
 payments, and previous thereto 
 considered, 208-210, 445, 461, 651 ; 
 operation of the high price of gold 
 on the Bank, 214, 354, 411 ; profits 
 of the Bank, 232-234, 525, 597, 
 26, note, 642-645 ; defence of the 
 conduct of the Bank, 235, 234. 285, 
 286, 293, 295, 296, 445, 446, 455 ; 
 burden borne by her for the country 
 banks, 249, 250, 284, 285 ; bullion 
 the only traffic permitted to the 
 Bank by its charter, 255 ; difficulty 
 of her position in time of pressure, 
 257, note, 651 ; sphere of the cir- 
 culation of her notes, 280,281,460; 
 average amount thereof at different 
 times, 281, 282, 454, 457, 458, 524, 
 525 ; effect of her issue of no^es 
 under 5, 281, 457; the Bank not 
 possessed of the power ascribed to 
 her over the quantity and value of 
 the country paper, 284 ; economy 
 in the use of her notes in London, 
 290; advantages derive-i from htr 
 monopoly of the issue of the metro- 
 
 politan paper circulation, 296; the 
 price of corn and the number of her 
 notes in circulation on 25th Feb- 
 ruary, 1795, and 25th February, 
 1796, 336 ; her issues and those of 
 the Bank of Ireland, 1797-1804, 
 contrasted, 344, 345 ; the high price 
 of bullion a proof of the deprecia- 
 tion of bank notes, 363, 400, 438, 
 440, 447, 460, 461, 468, 510, 520, 
 524, 525, 593 ; evil effect of bank 
 restriction bill, 381, 401, 451, 452, 
 469, 521, 524-526,528, 537,544- 
 546, 549, 550. 570, 574, 575. 585 
 -589, 597, 605, 624, 630, 641-646, 
 652,653, 659, 665; necessity for 
 its repeal, 470-472, 524-526, 544, 
 550-552, 270, 575, 585, 538, 589, 
 602, 625-629, 631, 632, 635,636, 
 641, 642, 646, 652, 653, 668; the 
 Bank of England the great regu- 
 lator of country paper, 391, 444, 
 456,463, 464, 600-602; the only 
 legitimate security against the in- 
 discretion of the Bank is an obli- 
 gation on her part to pay her notes 
 in specie on demand, 401, 469, 579 ; 
 ignorance of the principles which 
 regulate the exchange manifested 
 by the Bank Directors in their 
 evidence before the Bullion Com- 
 mittee in 1810, 434-436, 449, 450- 
 452, 454, 570, 576, 577, 596, 599 ; 
 her duties as issuer of paper cur- 
 rency and as dealer in discounts dis- 
 tinguished, 452, 453 ; account of 
 Bank of England notes in circula- 
 tion, 1798-1809, 457; increase of 
 her discountsfrom 1790 to 1809. 458; 
 the permanent interests of the Bank 
 and of the public indissolubly blend- 
 ed, 471 ; alleged general power of 
 the Bank to conti-ol the exchanges, 
 472 ; when a drain on the Bank 
 will begin under any circumstances, 
 518; mode in which she conducts 
 her business, 525; advantages ac- 
 cruing to the Bank proprietors from 
 the Restriction Act, 544 ; great in- 
 crease of country bank paper con- 
 sequent on the Restriction Act, 
 548, 549 ; extraordinary privileges 
 of the Bank, 551, note, 626 
 Bank of Ireland, the issue of the Banks 
 of England and Ireland, 1797-1804, 
 compared, 344, 345 ; ignorance of 
 the directors displayed in their evi- 
 dence before the Committee of 1804 
 on Irish exchange, 441-443, 611, 
 612 ; to some extent the Bank of 
 Ireland regulates the Irish country 
 bank issues, 444 
 
INDEX. 
 
 671 
 
 Bank of Scotland, establishment of, in 
 
 1695. 108 
 
 Banks, Act 4 Anne, providing that no 
 partnership exceeding six, shall act 
 as bankers, cited and commended, 
 36, 40 ; the abuse of private banks, 
 36, 39, 40, 51, 70-74 ; how they 
 become a snare to the people, 36 ; 
 objections to land banks, 36, 37 ; 
 credit bank or bank of produce and 
 manufactures, 37 ; number of bub- 
 ble schemes projected in London, 
 in 1720, the year of bubbles, 38; 
 David Hume's essay on banks 
 and paper money, 59-64; doubt 
 concerning the benefit of banks, 
 and paper crpdit, 59 ; reasons for 
 establishing- public banks, 59, 60, 
 80 ; the French had none, 61, 81 ; 
 advantages of banking-, 77 ; public 
 preferable to private bank 5 ;, 80 ; 
 arbitrary government inimical to 
 banks, 80, 81 ; objections to banks 
 sta-ed and answered, 81, 125, 126; 
 effect of the crises of 1793 and 1797, 
 on the country banks, 95, 96 ; ad- 
 vantages and disadvantages of 
 country banks considered, 101, 110, 
 112, 123, 128, 129, 132, 135, 140, 
 236, 242 -248, 464, 527, 528 ; pros- 
 perity of Scotland attributed to 
 her banks, 108, 110,182, alleged 
 advantages of competition in banks 
 of issue, 109 ; how banking- be- 
 comes profitable, 109, 110; eulogy 
 on national banks, 123; country 
 banks considered as a source of 
 revenue, 128, 464; alleged that 
 fraudulent failure can hardly ever 
 happen in banking, 130 ; number 
 of country banks at different times, 
 236, 464 , origin of country banks, 
 237 ; banks of deposit in ancient 
 Greeee and Rome, 354 ; fame and 
 wealth of the banks of Venice and 
 Genoa, 355; paper currency first 
 issued by the more modern banks 
 of Hamburg, Amsterdam, &c., 
 365 ; the establishment of a bank 
 compared to the discovery of a 
 mine, 365; temptation in 1810 to 
 establish country banks and issue 
 promissory notes, 464 
 
 Barbadoes, ill success and suppression 
 of paper currency there, 16; trade 
 of in sugar, 18 
 
 Baring, Sir F.< his pamphlet on the es- 
 tablishment of the Hank, cited, 98, 
 176 note; his evidence before the 
 Bullion Committee, referred to, 
 410, 420 
 
 Barter, definition of trade by barter, 151 
 
 Belfast, curious state of her exchange 
 with London and Dublin in 1802, 
 1803, and 1804, 346, 347, 610, 611 
 
 Bill Brokers, their influence in econo- 
 mizing the paper currency of Lon- 
 don, 460 
 
 Bill Merchant, his opportunities, and 
 those of the bullion merchant point- 
 ed out and distinguished, 498 
 
 Billon, use of this base metal for small 
 change in some countries of Eu- 
 rope. 4 
 
 Bills of Exchange, conflicting opinions 
 as to their nature and qualities, 56, 
 104, 162, 163 note, 352; bills of 
 exchange distinguished from paper 
 money, 104 ; nature and origin of 
 bills of exchange, 152, 153, 214, 
 215, 355 ; discountable articles, 154, 
 155; bills of accommodation, their 
 fictitious nature, 155, 525 ; illustra- 
 tions of, 155, 520 ; difference be- 
 tween accommodation and real bills, 
 and their similarity, 155, 160, 528- 
 "530; argued that they circulate 
 more slowly than gold or notes, 
 162, 163; large amount constantly 
 in existence, 164, 168 note; ex- 
 tensive use of bills at short dates in 
 Liverpool and Manchester, 164, 
 note; extensive use of bills of ex- 
 chance by the banks of the Italian 
 republics, 355 ; circumstances af- 
 fecting the price of foreign bills of 
 exchange, 480 
 
 Blake, Wm., " Observations on the 
 principles which regulate the course 
 of exchange and on the present de- 
 preciated state of the currency" 
 475-563 ; eulogy on this pamphlet, 
 572, note 
 
 Bosanquet, Mr., his evidence before 
 Lords' Committee of 1797 referred 
 to, 446 
 
 Boyd, Mr., his definition of circulating 
 medium quoted, and its correctness 
 questioned, 162, 163; the correct- 
 ness of this statement in his pam- 
 phlet as to the Bank of England 
 questioned, 282, 283 note ; his evi- 
 dence before the Lords as to mode 
 of rernittingimperial loan to Vienna, 
 491-501 note 
 
 Bullion, paper money which does not re- 
 present bullion to its full amount 
 immediately depreciates, 23, 34, 35, 
 52, 400, 401, 523,625, 632 ; plenty 
 of bullion in France attributable to 
 the absence of paper credit, 61 j 
 effect of paper money to banish the 
 precious metals, 62-64, 108, 269, 
 351,357; paper money should merely 
 
672 INDEX. 
 
 Bullion : 
 
 re present bullion in possession of 
 the issuers, 72, 401 ; alleged that 
 banking multiplies the specie of the 
 country, 106 ; scarcity of specie 
 and prevalence of paper in Scotland, 
 108, 356 ; circumstances which 
 create a drain of bullion, 133, 134, 
 518,523; the precious metals in the 
 state of bullion are commodities, 
 152, 214, 268, 351, 363, 508. 636, 
 047; cure for the excess of the 
 market over the mint price of bul- 
 lion, 219, 220, 246,377,378, 511, 
 512,516,519,520,632; temptation 
 to convert coin into bullion un- 
 der certain circumstances 269, 
 354,366, 387, 495-497, 511, 512, 
 516, 522, 523, 547, 634, 638, 639; 
 the bullion price of articles their 
 general price, 327, 330 ; contri- 
 vances for economising the use of 
 bullion, 333, 460; the power of 
 manufacturing at a cheap rate more 
 valuable than any stock of bullion, 
 339 ; the high price of bullion a 
 proof of the depreciation of bank 
 notes, 363, 401, 438, 440. 447, 460, 
 461, 468, 510, 620, 545, 593, 604, 
 630, 638 ; evils of prohibiting the 
 melting or export of coin, and al- 
 lowing the export of bullion, 366, 
 634 ; effects of a debased coinage 
 on the price of bullion, 377, 378, 
 440, 441, 495; causes of the excess 
 of the market over the mint price 
 of bullion considered, 382, 383 note, 
 403, 474, 493, 495, 511, 516. 532, 
 630, 638 ; necessity for their coinci- 
 dence, 401, 638; prices of bullion 
 in 1806, 1807, 1808, 1809, 1810, 
 405, 406 ; mistaken notions as to 
 the cause of its high price exposed, 
 408, 412, 447; principles which 
 govern the relative prices of gold in 
 bullion, of gold in coin, as well as 
 of paper circulating in its place, 
 and exchangeable for it, 414 ; loss 
 of interest during coinage, 414; 
 wear of coins, 415 ; obstruction to 
 export, 416, 482, 484-489, 492, 
 508, 509, 515; amount of supply 
 from the mines, 417, 489; excess 
 of inconvertible paper currency, 
 419, 521-523; expence of trans- 
 porting gold to the continent, 427, 
 512,634; its real price through- 
 out Europe must be considered as 
 nearly the same, 489 ; a favourable 
 nominal exchange will not cause a 
 flow of bullion into a country, 510 , 
 cost per cent, of exporting coin, 
 512 (See Gold and Stiver) 
 
 Bullion Committee, Report from the 
 select committee of the House of Com* 
 mons en the high price of bullion," 
 403-474; names of the committee, 
 404 ; defence of the committee, 
 567, 603 
 
 Bullion Merchant, small profits of the 
 bullion merch >nt, 490 ; his oppor- 
 tunities pointed out, 498 
 
 C. 
 
 Calais, rich countries included within 
 radius of 200 miles from Dover or 
 Calais, 113 
 
 Capital, effects of war on the produc- 
 tive capital of a nation, 119, 287, 
 288, 321 ; definition of commercial 
 capital, 149-151, 321; it consists 
 not in paper, 149, 580; alleged 
 addition by the country banks to 
 the productive capital of the 
 country, 245 ; evils attending the 
 creation of fictitious capital by the 
 over issue of paper, 527, 528 ; the 
 coined money of a country is so 
 much of its capital, 580 
 
 Carthage, population of, 113 
 
 Cash Payments, note on the suspension 
 of, at the Bank of England in 1797, 
 93, 98 (See Bank of England) 
 
 Cheques (See Bankers) 
 
 Circulation, alleged that there is no 
 fear of too great a circulation of 
 paper as the market will not admit 
 of a surplus, 110; rapidity of cir- 
 culation now impeded by want of 
 confidence, 190, note; circulation 
 can never be overfull, 395 (See 
 also Coin, Currency, Money, and 
 Paper Currency} 
 
 Clearing House, its uses explained, 
 171, note, 460 
 
 Coin, iniquities connected with re- 
 coinages in France and England in 
 former times, 5, 500; the currency 
 of light coin banishes the heavy 
 pieces, 19, 21, 639; making depre- 
 ciated paper a legal tender has the 
 same effect as the clipping of coin, 
 54, 259, 384, 586, 587, 653 ; effect 
 of paper money to banish the pre- 
 cious rnetals, 62, 269, 351 , 357 ; apti- 
 tude of the precious metals for use as 
 coin, 152; coin the most expensive 
 circulating medium, 243, 650; in- 
 jurious effect of bank notes under 
 5 in limiting the use of coin, 260; 
 temptation to convert coin into bul- 
 lion under certain circumstances, 
 
INDEX. 
 
 C73 
 
 Coin : 
 
 269,354, 366, 387, 495-497, 511, 
 512, 632, 635, 638 ; evils of prohi- 
 biting the melting or export of coin 
 and allowing- the export of bullion, 
 366, 415, 416 ; effects of a debased 
 coinage on the price of bullion and 
 on exchange, 377, 378, 415, 440, 
 500 ; Adam Smith's denunciation of 
 the ordinary mode of debasing coin 
 by raising its denomination, 398- 
 400 ; principles which govern the 
 relative pr.ces of gold in bullion 
 and gold in coin, 414; principles 
 and regulations on which a coinage 
 is issued from the Mint, 414; loss 
 of interest the expense attending 
 coinage, 414, 415; average diminu- 
 tion of current coin in consequence 
 of wear, 405 ; cost per ceut. of 
 exporting coin, 512, note; the 
 money or coin of a country is so 
 much of its capital, 580 ; means 
 of debasing coin by raising its 
 denomination or lowering its stand- 
 ard, 581, 582, 620 ; use of the pre- 
 rogative of coining, 582, 623, 624 ; 
 when coins cease to be legal tender, 
 582, 53, 624 ; a light guinea more 
 valuable than one of full weight 
 under the operation of the Bank 
 restriction Act, 587-589 ; bad state 
 of our silver coin, 605 ; effect of 
 any alteration of the standard or 
 the denomination on the real par of 
 exchange, 620 (See Bullion, Gold 
 and Silver, Mint, and Standard) 
 
 Colonies, state of the currency in 
 British American colonies, 6 ; rea- 
 son of the partiality of the colonies 
 for a paper currency, 18; conse- 
 quent total banishment of the pre- 
 cious metals, 62 
 
 Commerce, all commerce is naturally a 
 truck trade, 3 ; credit absolutely 
 necessary to an extensive commerce, 
 84 ; foreign commerce one of the 
 three great sources of national 
 riches, 115; the establishment of 
 country banks a spur to commerce, 
 119, 122; commercial credit de- 
 fined, 145 ; commercial capital de- 
 fined, 149 ; benefit resulting from 
 country banks in a commercial 
 point of view, 243 ; impediments to 
 our commerce during the war, 
 546 (See Trade) 
 
 Commodities, effect of excessive paper 
 currency on the price of commodi- 
 ties, 59, 69, 71; bullion but a 
 commodity, 152, 214, 268, 351, 
 363, 538 ; a bank note not a com- 
 modity, 593 
 
 Constantinople, population of, 113 
 Corn, high price of, attributed to oper- 
 ations of country banks, 125 ; ex- 
 pedient adopted by the Athenians 
 to keep down the price of corn, 
 125, note ; high price in times of 
 scarcity disproportionate to the 
 deficiency of the harvest, 311, note; 
 the price of corn on 25th February, 
 1795, and 25th February, 1796, 
 with the Bank of England notes 
 then in circulation, 336 
 Country Banks (See Banks) 
 Credit, long credit one of the bad 
 effects of paper money, 25, 27, 
 147 ; advantages of ready money 
 system, 26 ; (See also Paper 
 Credit) private credit is under 
 coercion, but public faith being 
 above the law is lawless, 34, 35 ; 
 want of paper credit in France, 61; 
 credit necessarv wherever there is 
 much trade, 83', 84, 122, 146, 147, 
 648 ; definition of commercial cre- 
 dit, 145; its operation, 145; the 
 foundation and nature of paper 
 credit, 146, 352 ; advantages and 
 disadvantages of long credit, 147, 
 148 ; degrees of wealth and poverty, 
 indicated by credit given and taken, 
 148, 149; effect of an interruption 
 of credit, 190 ; the appreciation by 
 bankers of the credit of commercial 
 men has become a science in this 
 country, 244 ; mischief produced by 
 a general failure of paper credit, 
 256 ; evil influence of usury laws on 
 credit by discouraging loans, 320, 
 323, 324 ; paper currency not capital 
 but so much circulating credit, 580 
 Creditors, loss accruing to them through 
 the depreciation of the paper cur- 
 rency, 469 
 Crisis (See Panic) 
 Cumings, Sir Alexander, cited, 25 
 Currency (metallic), evils resulting from 
 tampering with a metallic currency, 
 4-6 ; historical sketch of the various 
 currencies, metallic and paper, of 
 the North American colonies, 7 ; 
 the introduction of a bad medium 
 banishes the better, 30 ; schemes 
 for rectifying a depreciated cur- 
 rency, 34 ; source whence a national 
 currency receives its direction and 
 movement, 122 ; coin the most 
 expensive circulating medium, 243, 
 650 ; our circulating medium 
 vibrates only within certain limits, 
 326 ; the circulating medium of 
 this country regulated by that of 
 London, 335 ; self regulating nature 
 
674 INDEX. 
 
 Currency : 
 
 of a metallic currency, 367 ; high 
 price of bullion a proof of the 
 depreciation of currency, 377, 378, 
 440, 441, 495, 593, 630 ; circum- 
 stances which subject the currency 
 of every nation to continual fluc- 
 tuations, 500 ; erroneous opinions 
 prevalent respecting 1 the universal 
 level of currency, 513; ignorance 
 common and error prevalent in 
 regard to currency questions, 571, 
 572, 652; illustrations, 568, 591, 
 592, 596, 599, 600, 603; absurd 
 state of the currency under the 
 operation of the Bank restriction 
 Act, 587-589, 621, 622; the cur- 
 rency of a country may be depre- 
 ciated from two causes, 593-596; 
 depreciation of our currency temp. 
 Wm. III., and its cure, 623 ; the 
 only security for the maintenance 
 of public faith is to preserve the 
 standard of currency immutable 
 and inviolable, 624 
 
 D. 
 
 Davenant. Sir W., quoted as to the dis- 
 proportionate rise in the price of 
 grain when compared with the 
 amount of deficiency in a harvest, 
 311 
 
 Delft, long credit an encouragement to 
 running into debt, 26 ; general laws 
 for relief of insolvent debtors pro- 
 nounced an encouragement to 
 fraud, 27 ; objectionable system of 
 entailing public debt on posterity, 
 29 ; nature of a public debt, 33 
 
 Discount, increase of the discounts of the 
 bank from 1790 to 1809, 458 459; 
 no decrease of discount by the bank 
 necessitated by the resumption of 
 cash payments, 456 
 
 *' Discourse concerning the Currencies of 
 the British Plantations in America, 
 fyc." 1-41; postscript in answer to 
 " an enquiry," &c., 42-56 
 
 Dover, rich countries within radius of 
 200 miles from Dover or Calais, 
 113 
 
 Drain (See Bullion) 
 
 Dublin " Note on the Exchange between 
 London and Dublin, 1797-1804," 
 343-347 
 
 E. 
 
 East India Company, produce of the 
 sale of her goods from 1st March, 
 1809, to 1st March, 1810, 541 
 
 Edinburgh Review, its alleged errors 
 pointed out, 373 note, 389, 522 note ; 
 quoted, 504 
 
 England, price of labour in France and 
 England, 87 ; a navy more essen- 
 tial to England than an army, 88 ; 
 riches more generally diffused in 
 England than in France, 90, 91 ; 
 admirable Government of England, 
 91, 618; state of agriculture in 
 England, France, and Italy, 118, 
 616, 617 ; foreign expenditure of 
 England in 1796, 541 ; her heavy- 
 war expenditure, 546 ; her reve- 
 nues, 667, 668 (See also Great 
 Britain) 
 
 " Enquiry into the Nature and Effects 
 of the Paper Credit of Great 
 Britain, by Henry Thornton, Esq., 
 M.P.," 137-340 
 
 " Essay on Paper Money and Banking, 
 from Essays on the Public Debt, 
 Frugality, Sfc., published in 1755," 
 67-74 
 
 Exchange, effect of superabundant pa- 
 - per currency on exchange, 8-17, 
 21-23. 421-3, 43S ; effect of paper 
 not payable on demand on the Ex- 
 change with the country using it, 
 21-3, 104, 177, 439, 440, 524, 525, 
 621-623; effect of war, scarcity, &c., 
 on exchange, 133, 134, 434, 437- 
 439,443,447,483, 523, 524, 536; 
 tendency of an unfavourable ex- 
 change to take away gold, 210-217, 
 484; alleged that the debt which 
 affects the exchange is only that 
 the payment of which is more or 
 less eagerly demanded. 223 note, 
 482 ; the course of exchange ex- 
 plained, 210-222, 293, 326, 378, 
 379, 479, 620 ; its influence on the 
 conduct of the Bank of England, 
 286; and on trade, 313; utmost 
 extent of the actual fluctuations of 
 our general exchanges, 327 ; note 
 on the exchange between London, 
 and Dublin, and Belfast, 1797-1804, 
 343-347; the exchange affords a tol- 
 erably accurate criterion of the de- 
 basement of the currency. 379, 419, 
 438, 447, 460, 461, 468, 473, 502, 
 506, 524, 525, 621; rates of the 
 foreign exchanges in 1808, 1809, 
 and 1810, 406, 407, 542; various 
 opinions as to the cause of an un- 
 favourable state of the exchange, 
 419,420,421,434-438,441,447,483, 
 519-525, 536, 607, 608, 621, 622 ; 
 definition of the par of exchange, 
 423, 424, 432, 482, 607, 620 ; defi- 
 nition of the rate of exchange, 424 ; 
 
INDEX. 
 
 675 
 
 Exchange : 
 
 exchange between England and 
 Scotland, 439, 611; and between 
 England and Ireland, 441-443, 611, 
 612, 621 ; alleged general power of 
 the Bank to control the exchanges, 
 472 ; observations on the prin- 
 ciples which regulate the course of 
 exchange, &c., 470, 530, 531 ; real, 
 nominal, and computed exchanges 
 distinguished, 481, 530, 531 ; causes 
 of the fluctuations in the real ex- 
 change, 486 ; alleged that the real 
 depression of the exchange can 
 never exceed for any length of 
 time the expense of transporting 
 bullion from the debtor to the cre- 
 ditor country, 489, 512, 607, 609; 
 causes of the alterations of the 
 nominal exchange, 499-506 ; illus- 
 trations of the effect of the over 
 issue of Bank notes on the computed 
 exchange, 524, 525, 621, 622; de- 
 pendence of the computed on the 
 combined operations of the real and 
 nominal exchanges, 531 ; causes of 
 variation in the computed exchange, 
 531 ; illustrations, 533 ; effects of 
 bad harvest on the real exchange, 
 536 ; the nominal exchange within 
 the control of the Government, 
 536 ; effect of suspension of cash 
 payments in rendering unfavour- 
 able the nominal exchange, 537 ; 
 table of the rates of exchange be- 
 tween London and Hambro, and 
 of the market price of gold from 
 1760 to 1810, 554-563; the com- 
 puted par of exchange, 620; when 
 the computed and real par coincide, 
 620 ; causes of variations in the 
 real par, 620, 621 
 
 Exchequer Bills, effect of loans of, by 
 Government, in restoring confi- 
 dence in 1793, 168, 169, 461 
 
 Exports and Imports, alleged tendency 
 of, to equalization, 133-135 ; causes 
 which produce great inequalities, 
 123; circumstances which check 
 the export of bullion, 416, 482, 
 484, 492 ; evil eff< ct of obstructing 
 the exportation of bullion, 423; 
 excess of our exports over our im- 
 ports, 1805-1809, 429; effects of 
 the real exchange on the general 
 exports and imports of the country, 
 487-498; table shewing value of 
 imports and exports of Britain in 
 1807 and 1809, 539 
 
 F. 
 
 Farming (See Agriculture) 
 
 Flanders, its trade driven from it by 
 civil war and Spanish misgovern- 
 ment, 118, 119; its subsequent ac- 
 quisition of wealth, 119 
 
 Foster on commercial exchange, referred 
 to, 502 
 
 France, frauds practised by recoinages, 
 from 1689 to time of Cardinal 
 Fleury, 5; the plenty of bullion 
 there, attributable to the absence 
 of paper credit, 61-81 ; usury 
 not directly permitted there, 61- 
 81 ; great qu mtHes of plate used 
 in French churches and private 
 houses, 61 ; price of labour in 
 France and Engla-id, 87 ; riches 
 more generally dilfused in England, 
 90, 91 ; dtprecia'ion of French pa- 
 per money at different times, 105, 
 178, 298, 299-301, 357; state of 
 of agriculture in France, England, 
 and Italy, 118; French currency 
 chiefly silver, 604 ; mistaken policy 
 of France as to trade, 617, 618 
 
 Francis, Sir Philip, his "Reflections on 
 the Abundance of Paper" referred 
 to, 544 
 
 Fraud, general laws for relief of insol- 
 vent debtors pronounced an encou- 
 ragement to fraud, 27 
 
 Funds, their price how regulated, 396 
 
 G. 
 
 Georgia (See America) 
 
 Germany, mistaken policy of German 
 princes as to agriculture and trade, 
 617 
 
 Gold and Stiver, tendency of excessive 
 paper circulation to send gold out 
 of the country, 62-64, 269, 351, 
 357, 630, 631 ; aptitude of the pre- 
 cious metals for a measure of value, 
 151, 152, 363, 592; their use as 
 money, 152 ; the precious metals 
 in the state of bullion are mere 
 commodities, 152, 214, 268, 351, 
 363, 508 ; Adam Smith's estimate 
 of the gold and silver in circula- 
 tion before the union with Scot- 
 land, 161, note ; prevalei.ce of 
 hoarding in time of alarm, 167- 
 170, 224, 634, 648. 651 ; circum- 
 stances which regulate the inter- 
 change of gold for paper, 181 ; the 
 Bank of England the ouly deposit 
 
676 INDEX. 
 
 Gold and Silver : 
 
 tory for our necessary fund of gold, 
 181 ; contingencies besides the or- 
 dinary demand for which this fund 
 is necessary, 181 ; the great maxim 
 is that gold should be the standard 
 to which the value of paper money 
 should conform, 181, 296,358,401, 
 469, 519, 520, 593, 637; tendency 
 of an unfavourable exchange to 
 take away gold, 210-217; opera- 
 tion of the high price of gold on 
 the Bank of England, 216, 354, 
 411 ; the price of gold, how regu- 
 lated, 218, 309, 314, 316, 332, 363, 
 364, 631, 647 ; causes of, and cure 
 for, the excess of the market over 
 the Mint price of gold, 219, 220, 
 266, 267, 401, 411, 631; the ab- 
 sence of gold, though itself an evil, 
 may prevent other evils of greater 
 moment, 222 ; circumstances which 
 promote its return, 228, 631, 632; 
 the art of economizing the use of 
 gold is continually advancing, 331, 
 393, 648 ; effects of variations in 
 the relative value of gold and silver, 
 considered, 373, 374,409, 410, 604, 
 605 ; evident intention of the le- 
 gislature to establish gold as our 
 standard, 375, 376, 412,413 ; prices 
 of gold and silver bullion in 1808- 
 1810, 405, 406 ; in 1773-1799, 410, 
 411; gold in this country the 
 measure of all exchangeable value, 
 412, 413, 592, 605 ; principles 
 which govern the relative prices of 
 of gold in bullion and gold in coin, 
 414 ; a drain of gold caused by in- 
 ternal failure of confidence distin- 
 guished from a foreign drain 
 caused by unfavourable exchanges, 
 462 ; remedies for both, 462 ; table 
 shewing the market price of gold 
 from 1760 to 1810, 554-563; deal- 
 ings in gold and silver, as objects 
 of foreign traie, very few and 
 limited, 608-610 (See also Bullion 
 and Silver) 
 
 Goldsmid, Mr. A., his evidence before 
 the Bullion Committee referred to, 
 427, 433 
 
 Gortz, Baron, his attempt to force a 
 paper currency on Sweden, and his 
 fate, 5, 55 
 
 Government, absolute Government un- 
 favourable to banks, 80 ; illustra- 
 tion, 81 ; that Government is best 
 where most people are most happy, 
 90 ; admirable Government of 
 England, 91 ; interference of the 
 Government and Parliament at the 
 period of the suspension of cash 
 
 payments considered, 96, 97, 208, 
 210. 381, 401, 451, 452, 469, 521, 
 524-526, 528, 537, 651, 652; con- 
 tinuance of the suspension after 
 the cessation of panic unjustifiable, 
 97, 401, 625-629 ; advances of the 
 Bank to Government, 101, 102, 
 
 175, 234, 235, 401, 458, 626 ; faci- 
 lities of the British Government in 
 raising money independently of 
 the Bank, by means of funding, 
 
 176, 177 ; erroneous notion as to 
 the effect of the Government debt 
 to hamper the Bank, 198, 
 199, 227, note, 627; illustration, 
 199-203 ; Government securities in 
 favour during time of confidence, 
 and avoided in time of consternation, 
 265, 266, note ; alleged embarrass- 
 ment to the Bank caused by her too 
 intimate connection with the Go- 
 vernment 401 ; effects of the de- 
 preciation of the currency on the 
 expenditure of Government, and 
 on the interests of all classes, 535, 
 590 ; the nominal exchange com- 
 pletely within the control of Go- 
 vernment, 536 ; national honour 
 involved in maintaining an unde- 
 preciated currency, 654, 666, in- 
 terest of Government to do so, 663, 
 664 
 
 Goguet, M., de Vorig'me des Lois, cited, 
 125 
 
 Grain, alleged effects of country notes 
 to add to the general supply of 
 grain, and to prevent the increase 
 of its price, 246 
 
 Great Britain, her banks her bulwarks, 
 122, 123 ; her improved agricul- 
 ture, 127, 128 ; her growing pros- 
 perity, 131 (See also England and 
 Scotland) 
 
 Greffulhe, Mr., his evidence on the 
 price of bullion quoted, 409 ; re- 
 ferred to, 419, 432 
 
 Guicciardini, cited as to state of agri- 
 culture in Italy, 118 
 
 II. 
 
 Hamburgh, silver her measure of value, 
 409 ; mode of making payments 
 there, 416 ; table of the rates of ex- 
 change between London and Ham- 
 burgh, from 1760 to 1810, 554-563 
 
 Hanse Towns, earlier history of them 
 very obscure, 118 
 
 Harman, Mr., his evidence before the 
 Bullion Commiitee referred to, 436, 
 449 
 
INDEX. 
 
 677 
 
 Harvests, bad harvests considered as a 
 cause of an unfavourable balance of 
 trade, 181, 220, 222, 226, 227, 327, 
 483, 536, their effect on the real 
 exchange, 536 
 
 Hoarding, prevalence of, in time of alarm, 
 167-170, 222, 224, 634, 648, 651 ; 
 cure for it, 648 
 
 Holland, gradual reduction in value of 
 nummary denominations there, 4, 
 5 ; her system of destroying spices 
 to keep up their value, 24 
 
 Hops, occasional monopoly of, 126 
 
 Hume, Daridj his "Essay on banks and 
 paper money" 57-64; quoted on 
 paper credit, 72, 73, 82, 83, 103, 
 305, 306; referred to, and his posi- 
 tion as to the effect of paper cre- 
 dit disputed, 334 
 
 Huskisson, Rt.Hon., his evidence before 
 the Committee on the Scheldt ex- 
 pedition referred to, 485, note, 542 ; 
 his pamphlet, " The question con- 
 cerning the depreciation of our cur- 
 rency stated and examined" given at 
 length, 565- 668 
 
 I. 
 
 Imports of superfluities encouraged by 
 excess of paper currency, 30 (See 
 Exports and Imports] 
 
 Inclosures, advantage of, 117 
 
 Insolvency -(See Debt) 
 
 Interest (See also Usury), relation of 
 the rate of interest to the current 
 rate of mercantile profit, 319, 320, 
 393 ; evil influence of the usury 
 laws, 320, 323, 324; influence of 
 rate of, on the price of funds, 396 
 
 Ireland, state of population there, 114; 
 Ireland a field for the employment 
 of capital, 131 ; how her trade 
 could be increased by the establish- 
 ment of banks, 132 ; exchange be- 
 tween England and Ireland, 1797- 
 1804, 344, 345, 441 ; and in 1753 
 and 1754,443; in 1804, 611 
 
 Italy, state of agriculture there, 118; 
 Lombardy and Tuscany still among 
 the most populous and best culti- 
 vated countries in Europe, 118; 
 great trade in money and in bills of 
 exchange on the revival of com- 
 merce in the Italian Republics, 355 
 
 J. 
 
 Jackson, Mr. Handle, his speech to the 
 proprietors of bank stock referred 
 to, 568 
 
 Jamaica, state of her currency in 1740, 
 19 
 
 Jeni/ns, Soame, quoted on the effects of 
 the circulation of money, 132 
 
 Jews, the traffic in money during the 
 middle ages carried on by them ex- 
 clusively, 354 
 
 K. 
 
 King, Lord, one of the intelligent 
 writers on currency, 98 ; his pam- 
 phlet quoted as to the insidious de- 
 preciation of the currency, conse- 
 quent on the Bank Restriction Act, 
 545, 546. 
 
 L. 
 
 Labour, effect of an artificial paper 
 credit to heighten its price, 59, 69, 
 71, 83; price of in France and 
 England, 87 ; the reward of, its 
 effect on population, 115 
 
 Labourers, how sufferers from a large 
 paper currency, 19, 69, 259, 469, 
 543, 585 ; illustrations, 19, 69 
 
 Land cannot serve like silver as a 
 medium for foreign commerce, 37 ; 
 trade more profitable than agricul- 
 ture, 37 ; science of farming of 
 modern date, 117 
 
 Land Banks, objections to, 36, 37, 358 ; 
 the Land Bank, temp. Wm. Ill, a 
 mushroom, 52 
 
 Landed Proprietors suffer from a depre- 
 ciation of currency till the expiry 
 of existing leases, 543, 654 
 
 Law, Mr., his schemes, their temporary 
 influence and failure, 5, 6, 36, 37, 
 306, note, 356, note, 358, 596 
 
 La w of Settlement (See Poor Laws') 
 
 Leeward Islands, currency of, 17 
 
 Liverpool (1st) Earl of ," Remarks on 
 Paper Currency from a Treatise 
 on the Coins of the Realm," 351- 
 359 ; cited, 639 
 
 Lloyd's List referred to, 410 
 
 Loans, usury laws an obstruction to 
 their negociation, 320, 623, 324 
 
 Locke, John, his erroneous view as to 
 the cause of an unfavourable ex- 
 change quoted and refuted, 312- 
 315 ; quoted as to the advantage of 
 a standard, 565 ; his efforts pre- 
 vented the debasement of the coin 
 in 1695, 640 
 
 Lombardy (See Italy) 
 
 London, number of London bankers, 
 and extent of their daily business, 
 
678 
 
 INDEX. 
 
 183 ; probable effect of a sudden 
 and considerable reduction of her 
 paper in circulation, 184 ; note on 
 the exchange between London and 
 Dublin from 1797 to 1804, 343- 
 347 ; table of the rates of exchange 
 between London and Hambro' from 
 1760 to 1810, 554-563 
 
 Lotteries, these pernicious bubbles at 
 one time effectually suppressed by 
 assembly of American colonies, 40 
 
 Lyne, Mr., his evidence before the 
 Bullion Committee referred to, 425 
 
 M. 
 
 Machiavelli " Historia Florentina" 
 cited, 355, note 
 
 Mandeville, cited, 31 
 
 Mansfield, Mr., his evidence before the 
 Bullion Committee referred to, 
 440 ; and commended, 441, 442 
 
 Manufactures considered as an en- 
 couragement to population, 1 14, 
 115 ; one of the three great sources 
 of national wealth, 115; how far 
 manufactures are the offspring of 
 agriculture, 116; importance of, to 
 Britain, 122, 123; encouraged by 
 country bankers, 128 ; paralyzing 
 effect on manufactures of a great 
 and sudden diminution of bank 
 notes, 188-192 ; the power of 
 manufacturing at a cheap rate far 
 more valuable than any stock of 
 bullion, 339 
 
 Maryland, large issue of paper money 
 there, and effect on exchange, 15 ; 
 her trade in tobacco, 15; plan of 
 burning tobacco there to keep up 
 its value, 24 
 
 Massachusetts Bay, its "flourishing con- 
 dition, 3 (See New England) 
 
 Merchants, how the British merchant 
 suffers from an excessive colonial 
 paper money, 20; illustrations, 20, 
 21 ; effect of a suppression of bank 
 notes on the foreign merchant, 186, 
 191, 192; three varieties of the 
 foreign merchant distinguished, 187; 
 much of the skill of a merchant 
 consists in his knowledge of ex- 
 change, 608, 609 
 
 Mint, principles and regulation on which 
 a coinage issues from the mint, 
 414, 623, the stamp affixed to our 
 coin is but a guarantee that in 
 weight and fineness the money is 
 in exact conformity to the legal 
 standard, 623, 624 
 
 Money (See also Coin and Paper Cur- 
 rency}, the currency of light coin 
 banishes the heavy, 17, 19 ; the ex- 
 cess of money how disadvantageous, 
 77, 78; 200 or 300 years ago a 
 crown served the same purpose as 
 a pound at present, 86, 87; Soame 
 Jenyns, quoted as to the effect of 
 the circulation of money, 122 ; 
 origin of the use of the precious 
 metals, 151; definition of money, 
 392, 393, 570, 579; it is of the es- 
 sence of money to possess intrinsic 
 value, 579 ; both money and paper 
 promissory of money, are common 
 measures of value, 580; but money 
 alone is the universal equivalent, 
 580 
 
 Monopoly, not encouraged by country 
 banks, 125, note, 126; monopoly apt 
 to exist in the infancy of commerce, 
 151 
 
 Montesquieu, M. de, criticism on his 
 mode of comparing the mass of 
 gold and silver in the world, with 
 the quantity of merchandize there- 
 in, 332-334 
 
 Moore, Mr., his narrative of the cam- 
 paign in Spain referred to, 485 
 
 Mortality among the lower orders in 
 Ireland and Highlands of Scotland, 
 114 
 
 Mushet, Mr., his tables of exchange be- 
 tween London and Hamburgh, re- 
 ferred to, 493, note ; given in de- 
 tail from 1760 to 1810, 554-563 
 
 N. 
 
 National Debt, objectionable system of 
 entailing public debt upon pos- 
 teritv, 29; nature of a public debt, 
 33 
 
 Navy, more important than an army to 
 England, 88 
 
 Necker, M., his statement of the annual 
 balance of trade in favour of France, 
 referred to, 539 
 
 New England, paper currency prevalent 
 there, 8 ; historical sketch of the 
 paper money of New Hampshire, 
 Massachusetts Bay, Rhode Island, 
 and Connecticut, 8*- 12 
 
 Newfoundland, usual currency there, 7 
 
 Neio Jerseys, historical sketch of their 
 currencies, 14 
 
 New York, historical sketch of its cur- 
 rencies. 13, 14 
 
 North Carolina, state of to paper cur- 
 rencv, 16 
 
INDEX. 
 
 679 
 
 " Note on the suspension of Cash Pay- 
 ments at the Bank of England, in 
 1797," 95-98 
 
 " Note on the state of the exchange be- 
 tween London and Dublin, from 
 1797 to 1804," 343-347 
 
 Nova Scotia, ordinary currency there, 7 
 
 O. 
 
 Observations on the principles which 
 regulate the course of Exchange, and 
 on the present depreciated state of 
 the Currency, by Wm. Blake, Esq." 
 475-563 
 
 P. 
 
 Panic, effect of one on paper money, 
 111, 168, 169 ; panics of 1793 and 
 1795, their effects and cure, 168, 
 264, 461 ; duty of the bank in time 
 of pressure, 192, 193, 222, 257, 446, 
 462, 463 ; how to provide against 
 and to encounter a temporary 
 pressure, shows the -wisdom of a 
 commercial state, 213; panic of 
 1797 described, 400, 461, 496, 523, 
 524 
 
 Paper Currency, failure of attempt to 
 force paper currencies in France 
 and Sweden, 5, 6 ; depreciation of 
 the currency in paper money 
 colonies, 17, 21 ; arbitrary pro- 
 ceeding to make legal tender of 
 notes bearing no interest and not 
 payable on demand, 17, 97, 98,521, 
 597, 641, 645, 665-667 ; objections 
 to paper money, 17-30, 59, 62-64, 
 68-74, 249, 612 ; mischief arising: 
 from an excessive paper currency, 
 19, 59, 60. 69, 71. 82, 259, 261, 
 289, 293, 312, 317, 322, 338, 351, 
 353-359, 384, 385, 401, 419, 423, 
 437, 438, 447, 452, 459, 463, 466, 
 467, 468, 474, 504, 521, 524, 527, 
 528, 532, 535, 542, 570, 585, 586, 
 589-591. 598, 599, 621, 623, 645, 
 652, 653, 657-659, 665-658 ; 
 classes which suffer from depre- 
 ciation of the currency, 19-21, 
 43-52, 59, 61, 69. 71-73, 177, 259, 
 4G9, 543. 585, 586, 590, 654, 663, 
 664 ; effects of excessive emissions 
 on the exchange, 21,404, 177, 439, 
 440-443, 524, 525, 621-623 ; paper 
 money which does not represent 
 bullion to its full amount soon 
 depreciates, 23, 34, 35, 44, 52, 68, 
 177, 315, 419, 438,466,457,470, 
 521, 585, 586, 633, long credit 
 
 one of the bad effects of paper 
 money, 25 ; popular arguments in 
 favour of, and answers thereto, 27- 
 34, 106, 122, 297, 298,299 ; importof 
 superfluities said to be encouraged 
 by paper money, 30 ; schemes for 
 ratifying depreciated colonial cur- 
 rency, 34-41 ; paradoxes advanced 
 by the author of "An Inquiry," 43- 
 52 ; different opinions as to the na- 
 ture of bills, 47, 56, 152, 153, 162, 
 579, 593 ; an inordinate desire for 
 paper money compared to thirst in a 
 dropsy, 49 ; making- depreciated 
 paper a legal tender has the same 
 effect as the clipping of coin, 
 54, 259, 384, 585-587, 653; 
 David Hume's essay on paper 
 money quoted, 59-64 ; effect of ex- 
 cessive paper currency to heighten 
 prices, 59, 64, 69, 71, 83, 259, 263, 
 
 264, 301-305, 308, 309, 335-338, 
 391, 395, 419, 453, 469, 504, 527, 
 581, 590-595; objections of the 
 French to paper credit, 61 ; effect of 
 paper money to banish the precious 
 metals, 62-64, 269, 351, 357 ; ad- 
 vantages which result from the right 
 use of paper money, 62, 78, 129,337, 
 340; excess of it in Scotland, 68, 69, 
 108, 356 ; objections to paper credit 
 stated and answered, 81-91, 337; 
 bank notes have no intrinsic value, 
 85 ; causes and consequences of the 
 crisis of 1797, and suspension of 
 cash payments at the Bank, 95-98, 
 
 265, 286, 287. 290, 291, 301, 340, 
 400, 401, 437, 469. 657, 658; after 
 the suspension Bank of England 
 notes became in effect legal tender, 
 97,98,521, 587, 645,665; Adam 
 Smith's description of paper 
 money equivalent to gold and sil- 
 ver, 104, 358 ; this paper money 
 distinguished from bills of ex- 
 change, 104, 352; paper money, 
 unless payable on demand, must 
 depreciate in value, 104-106, 439, 
 442, 469, 519. 598, 657, 658, 668 ; 
 Scotch notes with optional clause. 
 American paper currency, and 
 French assignats. cited in illustra- 
 tion, 104, 105, 298, 357, 439; 
 paper money compared to im- 
 proved machinery, 107, 337,519; 
 limit to the issue of paper money 
 defined, 108, 109, 358, 459, 467, 
 519, 597, 598 ; alleged advan- 
 tages of competition among banks 
 of issue, 109, 129, 296; effects 
 of panic on paper, 111, 459, 4GO; 
 notes of country banks in higher 
 
680 INDEX. 
 
 Paper Currency : 
 
 estimation in the provinces than 
 those of the Bank of England, 121, 
 464 ; source whence the money of 
 the mercantile republic receives 
 its direction and movement, 122 ; 
 nothing to fear from an excess of 
 paper money payable on demand 
 in gold or silver coin, 129, 519, 
 597, 598, 636 ; definition of com- 
 mercial credit, 145; the foundation 
 of paper credit, 146; its uses, 146, 
 147,340,650; commercial capital 
 consists not in paper, 149, 150, 580; 
 nature of bills of accommodation, 
 155 ; -wherein they resemble and 
 differ from real bills, 156-158, 160 ; 
 origin and nature of bank notes, or 
 notes payable on demand, 160, 
 238, 239, 240, 355, 579, 580, 593; 
 alleged error of Adam Smith as to 
 the proportion of our paper cur- 
 rency to the gold and silver which 
 it represents, 165, 166; different 
 degrees of rapidity in the circula- 
 tion of different kinds of paper, 
 and of the same at different times, 
 166, 300, 459 ; rapidity in the cir- 
 culation of bank notes, how af- 
 fected, 166; the Clearing House 
 in London described, 171 note; 
 circumstances which determine the 
 interchange of gold for paper, 181 ; 
 the great maxim is, that g>ld 
 should be the standard to which 
 the value of paper money should 
 conform, 181, 296, 358, 401, 469, 
 519, 520, 593, 637 ; effect of a very 
 great and sudden, and. of a mode- 
 rate reduction of the accustomed 
 number of bank notes, 188, 189, 
 190-192, 221, 222, 251, 292, 462, 
 496, 524, 547, 548, 550, 642-647 ; 
 excessive limitations should be 
 avoided as well as excessive issues, 
 194, 295, 462, 524, 547, 548, 643, 
 644, 651 ; a diminution in quan- 
 tity of paper considered as a cure 
 for excess of market over Mint , 
 price of gold, 219, 286, 363, 440, 
 441, 519, 631-633; merits of coun- 
 try bank paper, 245-248 ; revenue 
 derived from taxation of bills and 
 notes, 247, 465; cheapness and 
 convenience of the paper medium 
 one of its chief merits, 247, 519, 
 650; objections to country bank 
 paper, 248, 467, 527, 528, 548, 600, 
 601 ; liable to great fluctuations, 
 249, 549 ; mischief produced by a 
 general failure of paper credit, 256- 
 260, 338, 548, 6G7 ; objections to 
 small notes under 5, 259, 260, 
 
 351-353, 556, 464, 650, 651 ; the 
 equality of the Mint and market 
 price of gold, the test of the non- 
 depreciation of paper, 261, 363- 
 401, 519, 520; paper an article of 
 necessity to traders, 263, 340; 
 check on the over issue of country 
 bank paper, 274-276, 284, 292, 
 600-602; illustrations, 276, 277; 
 sphere of the currency of Bank of 
 England notes, 280, 281,460; ex- 
 tent of their circulation at different 
 times, 281, 282, 456-458 ; sustain- 
 ing causes of the value of country 
 bank paper 1 , 285, 464, 467, 600, 
 601 ; when excess of paper is 
 the cause, and when the effect, of 
 the high price of goods, 288, 
 289, note ; talent of economizing 
 bank notes in London, 290, 460, 
 648, 649 ; issue of 5 notes com- 
 paratively recent, 291, note; the 
 monopoly of metropolitan issue by 
 the Bank of England, one security 
 for the safety of our paper credit, 
 290 ; excessive paper money an 
 incitement to speculation, 303-305, 
 358, 453, 527, 528, 655-657, 661 ; 
 effect of our paper credit on the 
 price of goods in British paper, and 
 coin, and in bullion, 327 ; descrip- 
 tion of bank notes in circulation, 
 831, note; paper credit and paper 
 currency distinguished and de- 
 fined, 352 ; paper money not 
 known to the bankers of ancient 
 Greece and Rome, 354 ; neither 
 the^ Jews nor the Italian banks 
 seem to have issued paper money, 
 355 ; paper currency first issued 
 by banks of Hamburgh, Amster- 
 dam, &c., 355 ; effect of Bank Re- 
 striction Bill to remove salutary 
 checks on over issue of notes, 381, 
 401,451,452,469, 570, 624, 625; 
 the Bank of England the great 
 regulator of country paper, 391, 
 456 ; principles which govern the 
 relative prices of gold in bullion 
 and gold in coin, as well as of 
 paper circulations exchangeable for 
 it, 414, 518, 521, 636; account of 
 Bank of England notes in .circula- 
 tion in 1798-1809, 457 ; temptation 
 in 1810, to establish country banks 
 and issue promissory notes, 464; 
 amount of duties on country bank 
 notes, 1808 and 1809, 464 ; number 
 of country notes over 2 2s. stamp- 
 ed in 1808 and 1809 465, 466; ne- 
 cessity for repeal of the law sus- 
 pending cash payments, 470-472 ; 
 
INDEX. 
 
 681 
 
 Paper Currency: 
 
 increased taxation consequent on 
 depreciation of the currency, 542, 
 545 ; Mr. Huskisson's pamphlet 
 on depreciation of the currency, 
 given at length, 565-688 ; de- 
 finition of paper currency, 580 ; 
 both money and paper, promis- 
 sory of money, are common mea- 
 sures and representatives of the 
 value of all commodities, 580 ; 
 money alone is the universal equi- 
 valent, 580; paper currency is the 
 representative of that money, 580 ; 
 paper currency of two kinds, 580 ; 
 paper resting on confidence, called 
 circulating credit, and paper resting 
 on authority of the state, commonly 
 called paper money, 580 ; illustra- 
 tions of the depreciation of bank 
 notes, during the operation of the 
 Restriction Act, 585, 586 ; a bank 
 note is not a commodity, 593 ; the 
 currency of a co-.mtry may be de- 
 preciated from two causes, 593-596 ; 
 the only security for the mainte- 
 nance of public faith is to pre- 
 serve the standard of currency im- 
 mutable and inviolable, 624 ; ten- 
 dency of paper money to excess, 
 632, 633 ; paper currency distin- 
 guished from paper money, 654, note 
 
 Paris, population of, 113 
 
 Parliament, its measures to relieve the 
 commercial distress of 1793, 168, 
 461; the interference of Parliament 
 on the occasion of the suspension of 
 cash payments considered, 208, 
 210, 445; honour of Parliament 
 involved in the maintenance of the 
 money standard, 469-471 
 
 Pearce, Mr., his evidence before the 
 Bullion Committee referred to, 
 435, 449, 484 ; quoted and criticized, 
 596, 599, 600 
 
 Pekin, population of, 113 
 
 Pennsylvania, state of her paper cur- 
 rency, 15 
 
 Plate, great quantity of gold and silver 
 plate used in France, 61 ; impolicy 
 of tax on plate, 62 
 
 Pliny cited as to population of Seleucia, 
 '113 
 
 Poor, encouragement to accumulation 
 among the poorer classes afforded 
 by country banks, 243 
 
 Poor Laws, defective state of the law of 
 settlement, 112 
 
 Pofe, Alexr., his lines on paper money 
 quoted, 71 
 
 Populace, by "the vulgar" and "popu- 
 lace" is meant the unthinking part 
 of mankind, 43; natural tendency 
 
 of the vox populi to pronounce for 
 equal division of property, 44 
 
 Population, the populousness of ancient 
 nations involved in much obscurity, 
 113 ; Athenseus, Pliny, Strabo, and 
 Mr. Hume cited on this subject, 
 113; principle of increase, how 
 regulated, 113, 114 ; how encou- 
 raged by country banks, 829 
 
 Portugal, her abortive attempts to pre- 
 vent the export of her precious 
 metals, 635 
 
 PostleihwayCs history of the revenue, 
 cited, 101 
 
 Precious Metals (See Gold and Silvei'} 
 
 Price, effect of depreciated currency 
 on prices, 28, 59, 60, 69, 71, 83, 
 259, 263, 264, 288, 289, 303-305, 
 308,309,391,395, 419, 453, 469, 
 504, 519, 520. 524-527, 581, 590- 
 595 ; prices of wheat and silver in 
 1738 and 1739, 29 ; price of labour 
 in France and England, 87 ; effect 
 of country banks on the prices of 
 corn, 125-128 ; effect of long credit 
 on prices, 147 ; effect of adverse 
 exchange to lower prices, 187 ; the 
 rate of wages not so variable as the 
 price of goods, 189 ; tendency of a 
 great and sudden reduction of the 
 number of bank notes to lower 
 prices, 188, 189-191, 288, 292; 
 the price of gold how regulated, 
 218, 363, 631 ; cure for the excess 
 of the market over Mint price of 
 gold, 219, 220, 246, 377, 378, 511, 
 512, 516, 519, 520; alleged effect 
 of paper money to keep down the 
 price of grain, 246 ; principle which 
 regulates the price of commodities, 
 262 ; the question of price a ques- 
 tion of power, 262, 311 ; effect of 
 war in raising 1 prices of commodi- 
 ties, 287, 288 ; excessive rise in 
 price of grain in consequence of 
 scarcity, 311, note; the bullion 
 price of articles their general price, 
 327, 330; the high price of bullion 
 a proof of the depreciation of bank 
 notes, 353; excess of the market 
 over the Mint price of bullion con- 
 sidered, 382, 383, note, 405, 474, 
 511,512,519,524; the price of the 
 funds, how regulated, 396 ; prices of 
 gold and silver bullion at different 
 times, 405, 406 ; effect of the prices 
 of commodities on the course of 
 real exchange, 486 ; real price of 
 bullion the same throughout Eu- 
 rope, 489 ; definition of price, 581 
 
 Profits, statement of the profits of the 
 Bank of England, 232, 234 ; the 
 
682 
 
 INDEX. 
 
 current rate of mercantile profit is 
 commonly the highest to be had, 
 319 
 
 Promissory Notes, nature of, 153; dis- 
 countable articles, 153,154; where- 
 in they differ from bills, 158 
 
 Public Servants, when their salaries are 
 raised in consequence of a depre- 
 ciation of currency, a subsequent 
 reduction becomes difficult, 469, 
 545, and note 
 
 Q. 
 
 Quarterly Review, its confusion of the 
 real, nominal, and computed ex- 
 change, 534, note 
 
 Queen Anne, her liberality and its effect 
 on public credit, 12 
 
 " Question concetning the Depreciation of 
 our Currency stated and examined 
 by W. Huskisson, Esq., M.P.," 
 565-668 
 
 R. 
 
 " Remarks on Paper Currency, by the 
 Earl of Liverpool," 351-359 
 
 " Report from the Select Committee of the 
 House of Commons on the High 
 Price of Gold Bullion," 1810, 403- 
 474 
 
 " Report of Committee on Irish Ex- 
 change" 1804, referred to, 440 
 
 Revenue, country banks considered as a 
 source of revenue, 128, 247, 464, 
 injury accruing to the public 
 revenue from a depreciated paper 
 currency, 663, 664 
 
 Ricardo, David, his pamphlet, " the high 
 price of bullion a proof of the de- 
 preciation of bank notes" given at 
 length, 363-401 
 
 Riches, more generally diffused in Eng- 
 land than in France, 90, 91 ; agri- 
 culture, manufactures, and foreign 
 commerce, the three great sources 
 of national riches, 115; the exist- 
 ing custom of credit indicative of 
 great wealth among our traders, 
 149 ; wealth in the first instance 
 creates trade, and not trade the 
 wealth, 617 
 
 Rose, Mr. (Sir George}, his "brief ex- 
 amination" referred to, 539 ; quoted, 
 545, note 
 
 S. 
 
 Scarcity, effects of famine and scarcity 
 on the exchange, 133, 134, 536 
 
 Scotland, her system of bank credits 
 described, 63, 102, 103; alleged 
 excess of paper money there, 68, 
 356 ; depreciation of the old notes, 
 with optional clause as to payment 
 on demand, 104, 439, 442 ; abolition 
 of these by Act of Parliament, 104, 
 439 ; effect thereof on the exchange 
 between England and Scotland, 104, 
 439, 440; prosperity of Scotland 
 attributed to paper money, 108, 
 1 10 ; state of her Highland popula- 
 tion, 114; Adam Smith's estimate 
 of the gold and silver used there 
 before the Union, 161 ; respectabi- 
 lity of Scotch banks, 182 
 
 Seignorage, Adam Smith's arguments 
 in favour thereof, and answers 
 thereto, 270, 271, note; no seign- 
 orage on English Gold Coin, 414 
 
 Seleucia, population of, 113 
 
 Ship notes, evils of, 37, 51 
 
 Shipping (See Trade) 
 
 Silver, is itself a merchandize, and as 
 the least variable of all others, is 
 by consent the medium of trade in 
 some countries, 355, 409 ; all over 
 Europe, for many ages prior to the 
 14th century, the nummary and the 
 pound weight of silver were the 
 same, 4 ; effect of large emissions 
 of paper money on the price of, 
 21-23; price of as compared with 
 wheat in 1738 and 1739,29 ; absurd 
 arguments against silver as a mea- 
 sure and an instrument in com- 
 merce, 45; large quantities of plate 
 used in France, 62 (See also Bul- 
 lion, Gold, Silver, and Plate] 
 
 Sinclair, Rt. Hon Sir John, his pam- 
 phlet on paper currency criticized, 
 568 
 
 Smith, Adam, his " Wealth of Nations" 
 quoted regarding paper money 
 composed of bank notes payable on 
 demand, 104, 161, 273, 274,358; 
 paper money compared by him to 
 improved machinery, 107, 161 ; 
 quoted as to national power of 
 making war, 120 ; as to the proper 
 proportion of paper to me- 
 tallic currency, 165, 166, 219, 220, 
 358 ; his criterion of the over issues 
 of the Bank of England, 172, 173 ; 
 his defective manner of treating 1 
 the tendency of excessive paper 
 circulation to banish gold, 269, 
 273 ; his arguments in favour of a 
 
INDEX. 
 
 683 
 
 seignorage quoted and answered, 
 270, 271, note; quoted regarding 
 precious metals, 363, 364, 368 ; his 
 definition of money quoted, 392, 
 393 ; " Wealth of Nations" referred 
 to, 440, 500 ? 502 
 
 Somcrs Lord, his collection of tracts 
 referred to, 441 
 
 South Carolina, state of the pnper cur- 
 rency there, 1 6 ; hi j r trade in rice, 1 3 
 
 Spain, her currency tampered with in 
 1688, 65 ; her unwise policy in for- 
 bidding the export of precious 
 metals, 635 
 
 Speculation, excessive paper currency 
 an excitement to speculation and 
 over trading-, 303-305, 358, 453, 
 527, 528, 655-659, 661, speculation 
 in the funds, when likely to be 
 profitable, 323 
 
 Standard, evils resulting from depreci- 
 ation of standard coin, 4, 469, 470, 
 565, 581, 589 ; example of France, 
 Spain, Sweden, and American 
 plantations, 5, 6 ; absurd argument 
 that all standards of currencies are 
 pernicious, 44, 45, 46 ; the great 
 maxim is that gold should be the 
 standard to which the value of 
 paper money should conform, 181, 
 296, 358, 401, 469, 5i9, 520, 593; 
 evident intention of the legislature 
 to establish gold as our standard 
 of currency, 374, 375, 376, 412, 
 413, 592, 605 ; effect of an altera- 
 tion of a standard of measure or 
 value, 379, 380, 565; gold in bul- 
 lion is the standard to which it is 
 intended that our coin should be 
 conformed, 414 ; Parliament bound 
 to maintain our standard of money, 
 469, 470, 473, 474; definition of a 
 standard, 581, 592 ; effects of alte- 
 rations of the standard or denomi- 
 nation of a country on the real par 
 of exchange, 620. 621 ; the stamp 
 affixed to our coin is but a guarantee 
 that in weight and fineness the 
 money is equal to standard, 623, 
 624 ; the security for the mainte- 
 nance of public faith is to preserve 
 the standard of its currency im- 
 mutable and inviolable, 624 
 
 Steuart, Sir Jas., his treatment of the 
 subject of banks criticized, 311, 
 312 ; quot< d as to the effect of the 
 alteration of a standard, 379, 3SO 
 
 Sttabo, ciied as to population of Car- 
 thage, 113 
 
 Subsidies, remarks on the policy of 
 granting subsidies to foreign 
 nations, 214, note 
 
 Sugar, trade of Barbadoes, in 18 
 Sweden, unsuccessful attempt of Gortz 
 
 to force a paper currency on the 
 
 Swedes, 5, 55 
 
 T. 
 
 Tables, table showing balances of trade 
 in favour of this country, 1805, 
 1809, 429, 430 ; account of our 
 expenses abroad, 1793-1796, 430; 
 account of our imports and exports, 
 1805-1809,430; account of Bank 
 of England notes in circulation, 
 1798-1809, 457 ; account of country 
 bank notes stamped in 1808 and 
 1809, 465; account of tonnage, and 
 imports and exports of Britain, in 
 1807 and 1809, 539 ; table of the 
 rates of exchange between London 
 and Hamburgh, and of the market' 
 price of gold from 1760 to 1810, 
 554-563 
 
 Taxation, impolicy of tax on plate, 62 ; 
 increased taxation consequent ou 
 depreciation of currency, 542, 545, 
 598 ; comparative produce of the 
 auction duty and other taxes in 
 year ended 5th April, 1808, G63, 
 note 
 
 Tender, public bills should never be a 
 tender in trade and business, 41 ; 
 after the suspension of cash pay- 
 ments in 1797, Bank of England 
 notes became in effect legal tender, 
 97-98, 521, 587, 645, 665; when 
 coin ceases to be legal tender, 82, 
 583, 624 
 
 Thornton, Henry, Esq., M.P., cited, 98 ; 
 his work on paper currency, cited, 
 135, 576 634, 637 ; given at length, 
 137-340; nature of the work, 139- 
 141; quoted, 368, 369, 381-383, 
 386-388, 518, 529; his error in 
 confusing an increase in the value 
 of gold, and an increase in its 
 money price, 370 ; his error as to 
 the export of bullion pointed out, 
 489, 490, note; his work eulogized, 
 637, 638 
 
 Tonnage (See Trade) 
 
 Trade, large emissions of paper money 
 form no addition to the medium 
 of trade, 23 ; land cannot serve 
 like silver as a medium of trade, 
 37 ; trade more profitable than 
 agriculture, 37 ; public bills should 
 never be made a tender in trade 
 and business, 41 ; great importance 
 of trade, 88, 89, 123. 615 ; trade of 
 
684 
 
 INDEX. 
 
 Trade : 
 
 Scotland attributed to her batiks, 
 108 ; observations on the balance 
 of trade, 133-135, 210, 607. 612- 
 620 ; nature of trade by barter, 
 151, 152; bad harvests a cause of 
 an unfavourable balance of, 181, 
 182 ; balance of trade in favour of 
 this country in each of the five 
 years ended 1809, 429, 430; ab- 
 surdity of old notions of balance of 
 trade, 497, 608, 612-620, 640, 659; 
 tonnage employed by, and imports 
 and exports of Britain, in 1807 and 
 1809, 539; an exchange of equiva- 
 lents, the foundation of all com- 
 merce, 612; wealth in the first in- 
 stance creates trade and not trade 
 wealth, 617; effect of war on 
 trade, 656 (See also Commerce) 
 
 Tradesmen, how sufferers from a large 
 paper currency, 19 ; illustrations, 
 19, 20 
 
 Truck System, evils of, 19, 20 
 
 Turkey, debasement of her coin and its 
 effects, 502 
 
 Tuscany (See Italy) 
 
 U. 
 
 Usury not directly permitted in France, 
 61 ; relation of the rate of interest 
 to the current rate of mercantile 
 profit, 329 ; evil influence of usury 
 laws, 320, 323, 324 
 
 " Utility of Country Banks considered, 
 fyc." 101-135 
 
 V. 
 
 Value, depreciating the value of num- 
 mary denominations, and depre- 
 ciating paper credit currency are 
 the expedients of bad admin- 
 istrations, 4 ; bank notes have 
 no intrinsic value, 85, 579 ; apti- 
 tude of the precious metals as a 
 measure of value, 151, 152, 363; 
 principle which regulates the value 
 of all articles, 262 ; sustaining 
 causes of the value of country bank 
 paper, 285 ; effects of variation in 
 the relative value of gold and silver 
 considered, 373, 374,409,410, 604, 
 605; gold in this country the mea- 
 sure of all exchangeable value, 412, 
 413, 579; account of the official 
 value of our exports and imports 
 in each of the five years ending 
 with 1809, 430; table showing 
 
 official value of the imports and 
 exports in 1807 and 1809, 539 ; the 
 essence of money is to possess in- 
 trinsic value, 579 ; a promissory 
 note merely represents value, 579, 
 580 ; both money and paper pro- 
 missory of money are common 
 measures of value, but money alone 
 is the universal equivalent, 580 
 Virginia, integrity of her silver cur- 
 rency well preserved, 7, 15; her 
 trade in tobacco, 15 
 
 W. 
 
 Wages (Sje Labour) rate of wages 
 not so variable as the price of 
 goods, 189, 469 
 
 Wakefield, Mr., his account of Ireland 
 quoted as to the number of bankers 
 in 1804 and 1810, 345 
 
 War, effects of war on the productive 
 capital of a nation, 119, 287,288, 
 321 ; cost of continental war to 
 Britain, 120, 546; ultimate re- 
 sources by which war is carried on, 
 122 ; effects of on the exchange, 
 133, 134, 483-485, 547 ; effect of 
 war on prices and on the amount 
 of general payments, 287-289, 483, 
 484 ; statement of our expenses in 
 foreign parts 1793-1796, &c., 430, 
 546 ; effect of war on trade, 656 
 
 Wealth (See Riches) 
 
 Wealth of Nations (See Smith, Adam) 
 
 Wear and Tear, average diminution of 
 current coin in consequence of, 
 415 
 
 Weights and Measures, for many ages 
 the nummary pound and the pound 
 weight of silver were the same, 4 ; 
 effect of an alteration of a standard 
 of measure or value, 379, 380 
 
 Wettenhairs Course of Exchange re- 
 ferred to, 410 
 
 Wheat, prices of, in 1738 and 1739, 29, 
 in 1795 and 1796, 336, 337 
 
 Wheatley, Mr., his work on the theory 
 of money cited, 514, note, 533, 
 note, 548 ; quoted, 539, note, 540 
 
 Whitmore, Mr., his evidence before the 
 Bullion Committee referred to, 
 435, 449, 454 
 
 y. 
 
 Young, Arthur, quoted as to the depre- 
 ciation of French assignats during 
 the revolution, 298, note 
 
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