CHAP. extent of ten millions sterling. Such an addition or sub

- traction is to be compared, not to the entire amount of

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 When this great effect of an expansion or contraction of the currency effect 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.



nce of

vertible urrency as


As the increase or diminution of the currency in any CHAP. considerable degree is thus attended with such incalcu- _ lable effects upon the industry, enterprise, and prosperity • 18

12. of every country which is largely engaged in under- Vast imtakings, it becomes of the last importance to preserve its an inconamount as equal as may be, and to exclude, if possible, a all casual or uncalled-for expansions or contractions. af!

. of prices. 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 pre

13. cious metals, or consists of them, can possibly be exempt A currency from such fluctuations, because, being valuable all over the world, these are always liable to be drained away at metals in particular times by the mutations of commerce or the ble to flucnecessities 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


sed on LUCIU WIL VIV the precious




CHAP. weeks' rain in August in England-events, unhappily,

nearly equally probable—may at any time induce the calamity. 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 either by having had such immense treasures of gold and silver in the country, that they are 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

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, 14. Concurring and thereby rendered the national currency, with the

exception of £14,000,000, which the Bank was authorised brought to abour the to issue upon securities, entirely dependent on the retenof 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

causes which

country. In the next place, there was the natural dread CHAP.


X. on the part of all the holders of realised wealth of such – a continued elevation of prices as might lessen the ex- 18 changeable value of their fortunes, and in some degree deprive them of their inheritances or the fruits of their toil. Thirdly, the whole persons engaged in manufactures—a large and increasing class—were impressed with the same ideas, from the experience which the opening of the harbours had afforded them, since the peace, of the great difference between the money wages of labour and prices of raw material on the Continent, where money was scarce, because its inhabitants were poor, and England, where it was plentiful, because they were rich, and the necessity of contracting the currency in order to lower prices, especially of raw material and labour, and enable them better to compete with their Continental rivals. The Whigs, as a party, naturally and unanimously adhered to the same opinion. They did so, because Mr Pitt and Lord Castlereagh had supported the opposite system, on the principle of Mr Tierney : “ The business of the Opposition is to oppose everything, and turn out the Government.” Lastly, the political economists, struck with the obvious dangers of great variations in prices, of which recent times had afforded so many examples, formed the same opinion, from an idea that, gold being the most precious of all metals, and the most in request in all countries and ages, no circulation could be considered as safe or lasting except such as was built upon that imperishable foundation. These circumstances, joined to the weight and abilities of Mr Huskisson, Mr Horner, and the Bullion Committee, who had recommended the resumption of cash payments, and of Mr Peel, who had recently embraced their views, and the general ignorance of the greater part of the community on the subject, produced that “chaos of unanimity” which, as already mentioned, led to the resolutions introducing it being adopted iv. $ 78. by the House of Commons without one dissenting voice.1


a currency
rested on
a metallic

CHAP. A chaos of unanimity, however, which confounds par

ties, obliterates old impressions, and is followed by new 1819. alliances, is seldom in the end attended by advantages;

15. Danger of on the contrary, it is in general the herald of misfortune. 109 As it arises from the judgment of men being obliterated

for a season, by the pressure of some common passion or apprehension, so it ends in their interests being confounded in one common disaster. The great danger of considering paper as the representative of gold and silver, not, when required, a substitute for them, consists in this, that it tends necessarily to multiply or diminish them both at the same time; a state of things of all others the most calamitous, and fraught with danger to the best interests of society. When gold and silver are plentiful abroad, and they flow in large quantities into this country, from its being the best market which the holders of those metals can find for them, they, of course, accumulate in large quantities in the banks, especially the Bank of England, which being obliged to take them at a fixed price, often above the market value, of course gets the largest proportion. It pays for this treasure with its own paper, which thus augments the circulation, already, perhaps, too plentiful from the affluence of the precious metals. Then prices rise, money becomes easy, credit expands, and enterprises often of the most absurd and dangerous kind are set on foot, and are generally for a brief period attended with great profit to the fortunate holders of shares. When a change arrives—as arrive it must, from this rapid increasing of the currency both in specie and paper at the same time, and the precious metals are as quickly withdrawn to other countries, probably to pay the importations which the preceding fever had brought into the country—the very reverse of all this takes place. The banks, finding their stock of treasure daily diminishing, take the alarm ; discounts cease, credits are contracted ; the greatest mercantile houses are unable to obtain even incon

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