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Chap. than one entirely of specie. Let him go into any bank x' at a distance from London, and he will find that they 1819. give nim sovereigns to any extent without any

charge; but that for Bank of England notes, or a bill on London, they will, in one form or other, charge a premium: and if he has any doubt of the superior convenience of bank-notes over specie for the transactions of life, he is recommended to compare travelling in England with £500, in five English notes, in his waistcoat pocket, with doing so in France with the same sum in napoleons in his portmanteau.

The question is often asked, "What is a pound ?" and what ia the Sir Robert Peel, after mentioning how Mr Locke and Sir value" ° Isaac Newton had failed, with all their abilities, in answering it, said that he could by no possible effort of intellect conceive it to be anything but a certain determinate weight of gold metal. Perhaps if his valuable life had been spared, and he had seen the ounce of gold selling in Australia at £3 to £3, 10s. instead of £3, 17s. 10^d., the mint price, he would have modified his opinion. In truth, a pound is an abstract measure of value, just as a foot or a yard is of length; and different things have at different periods been taken to denote that measure according as the conveniency of men suggested. It was originally a pound weight of silver; and that metal was till the present century the standard in England, as it still is in most other countries. When gold was made the standard, by the Bank being compelled by the Act of 1819 to pay in that metal, the old word, denoting its original signification of the less valuable metal, was still retained. During the war, when the metallic currency disappeared, the pound was a Bank of England poundnote: the standard was thus paper,—for gold was worth 28s. the pound, from the demand for it on the Continent. Since California and Australia have begun to pour forth their golden treasures, the standard has practically come again to be silver, as the precious metal which is least changing in value at this time. The proof Chap.

of this is decisive ;—the ounce of gold is selling for £3 to .—

£3,10s. at Melbourne; gold is measured by silver, not silver im by gold. In truth, different things at different times are taken to express the much-coveted abstract standard ; and what is always taken is that article in general circulation which is most steady in value and most generally received.

None but those practically acquainted with the subject can conceive how powerfully, and often rapidly, an vut effect extension or contraction of the currency acts upon the fnt^ra"-8 general industry and fortunes of the country. All other rencycauses, in a commercial state, sink into insignificance in comparison. "The judicious operations of banking," says Mr Smith, "enable the trader to convert his dead stock into active and productive stock. The first forms a very valuable part of the capital of the country, which produces nothing to the country. The operation of banking, by substituting paper in room of a great part of the gold and silver, enables the country to convert a great part of dead stock into active and productive stock—into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, docs not itself produce a single pile of either. The judicious operations of banking enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby increase considerably the annual produce of its land and labours."1 To this it may be added, that so great is the i wealth or effect of an increase of the paper circulation, and conse- b.u'.Ti quently of the expansion of the credit, industry, and enterprise of a commercial state, that a country which has dead stock, as Mr Smith says, of the value of twenty thousand millions, may find the value of all its articles of merchandise enhanced or diminished fifty per cent by the expansion or contraction of the currency to the

VOL. II. 2 B

Chap. extent of ten millions sterling. Such an addition or subx' traction is to be compared, not to the entire amount of 1819- its realised wealth, but to the amount of that small portion of it which forms its circulating medium, upon which its prosperity depends; just as the warmth of a house is determined, not by the quantity of coals in the cellar, but by what is put upon the fires. Such an addition to the wealth of a state may be as nothing to the value of its dead stock, but it is much to the sum total of its circulating medium.

It is not in the general case immediately that this wheu this great effect of an expansion or contraction of the currency pf«e.takes acts upon the price of the produce and the remuneration of the labour of the country: months may sometimes elapse after the augmented issues go forth from the bank before their effects begin to appear upon prices and enterprise; years, before these effects are fully developed. But these effects are quite certain in the end: an expansion never fails by degrees to stimulate, a contraction to depress. The reason of the delay in general is, that it takes a certain time for the augmented supplies of money and extended credit to flow down from the great reservoirs in the metropolis, from whence it is first issued, to the country banks which receive it, and through them upon their different customers, whose speculation and industry it developes. There is no immediate connection between augmented supplies of money, whether in gold, silver, or paper, and a rise in the price of commodities, or between their diminution and a fall; it is by the gradual process of stimulating enterprise, and increasing the demand for them in the one case, and diminishing it in the other, that these effects take place; and either is the work of time. When matters approach a crisis, however, and general alarm prevails, any operations on the currency are attended with effects much more rapidly, and sometimes instantaneously. Several instances of this will appear in the sequel of this history.

As the increase or diminution of the currency in any Chap. considerable degree is thus attended with such incalcu-'

1819.

12.

lable effects upon the industry, enterprise, and prosperity of every country which is largely engaged in under- Vast Cmtakings, it becomes of the last importance to preserve its En"rneon-0 amount as equal as may be, and to exclude, if possible, cumnly as all casual or uncalled-for expansions or contractions. lfi$££r Such variations are fatal to prudent enterprise and legitimate speculation, because they induce changes in prices irrespective altogether of the judgment with which they were undertaken, against which no wisdom or foresight can provide, and which render commercial speculations as hazardous, and often ruinous, as the gamingtable. They are injurious in the highest degree to the labouring classes, because they encourage in them habits of improvidence and lavish expenditure at one time, which are inevitably succeeded by depression and misery at another. They often sweep away in a few months the accumulated savings of whole generations, and leave the nation with great undertakings on its hands, without either credit or resources to carry them on. Their effects are more disastrous than those of plague, 'pestilence, and famine put together, for these, in their worst form, affect only an existing generation; but commercial crises extend their ravages to distant times, by sweeping away the means of maintaining the future generations of man.

No currency which is based exclusively upon the precious metals, or consists of them, can possibly be exempt A currency from such fluctuations, because, being valuable all over JjJfpdre°"olu the world, these are always liable to be drained away at 2TM,n». particular times by the mutations of commerce or the bleAuc

* ". tuatious.

necessities of war in the neighbouring states. A war between France and Austria occasioning a great demand for gold on the Continent; a bad harvest in England rendering necessary a great exportation of it to bring grain from Poland or America; a revolution in France; three Chap. weeks' rain in August in England—events, unhappily,

nearly equally probable—may at any time induce the cala

1819- # mity. True, the precious metals will always in the end be attracted to the centre of wealth and commerce; but before they come back, half the traders and manufacturers in the country may be rendered bankrupt. Any interruption of the wonted issues of cash to them is like the stopping the issuing of rations to an army, or food to a people. The only possible way of averting so dire a calamity, is cither by having had such immense treasures of gold and silver in the country, that they arc adequate to meet any possible strain which may come upon them, and may fairly be considered inexhaustible; or by having some currency at home not convertible into specie, but which, issued in moderate quantities, and under sufficient safeguards against excess, may supply its place, and do its work during its temporary absence. Of the first, Great Britain and the whole civilised world afforded in 1852 a memorable example, when the vast and newly-discovered treasures of California and Australia diffused animation and prosperity over every nation ; the second was illustrated by England in 1797 and 1810, when not a guinea was left in the country, but every difficulty was surmounted by the moderate issue of an inconvertible paper, which, without becoming excessive, was adequate to the wants of the community. ,( The bill of 1819, which re-established cash payments, Concurring and thereby rendered the national currency, with the "ms! exception of £14,000,000, which the Bank was authorised abouuhe. to issue upon securities, entirely dependent on the retenb,llof 1819- tion of the precious metals in the country, was brought about by a singular but not unnatural combination of causes. In the first place, there was the natural reaction of the human mind against the enormous evils which had arisen in France from the abuse of the system of assignats, the quantities of which issued exceeded at one time £700,000,000 sterling, and caused such a rise of prices as swept away nearly the whole realised capital of the

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