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siderable advances, and the nation is left with a vast CHAP. variety of speculations and undertakings on hand, without either funds or credit to bring them to a successful issue.

tem.

1819.

16.

The true system would be just the reverse. Proceeding on the principle that the great object is to equalise True systhe currency, and with it prices and speculation, it would enlarge the paper currency when the precious metals are withdrawn and credit is threatened with stoppage, and proportionally contract it when the precious metals return, and the currency is becoming adequate without any considerable addition to the paper. In this way, not only would the immense danger of the gold and paper being poured into the circulation at the same time be avoided, but a support would be given to credit, and an adequate supply of currency provided for the country when its precious metals are drained away, and a monetary crisis is at hand. A few millions, secured on Government credit, not convertible into cash, judiciously issued by Government commissioners when the exchanges are becoming unfavourable and money scarce, would at any time arrest the progress of the most dreadful monetary crisis that ever set in upon the country. That of 1793 was stopped by the issue of Exchequer bills; that of 1797 by suspending cash payments; that of 1825 was arrested, as will appear in the sequel, by the accidental discovery and issue of two millions of old bank-notes in the Bank of England, when their treasure was all but exhausted; that of 1847 was at once stopped by a mere letter of the Premier and Chancellor of the Exchequer, authorising the suspension of cash payments. The prospect even of a currency which was to be a substitute for gold, not a representative of it, at once arrested the panic, and saved the nation. Such an expedient, when intrusted to Government commissioners, and not to bankers or interested parties, is comparatively safe from abuse; and it would at once put an end to that fluctuation of prices and commer

CHAP. cial crises, which have been the constant bane of the country for the last thirty years.*

X.

1819.

17. Peculiar

dangers

tion of

payments

was attend

ed.

In addition to these dangers with which the resumption of cash payments and the establishment of a paper with which currency-the representative, not the substitute for gold, the resump and therefore dependent on the retention of the precious metals—must always be attended, there were peculiar circumstances which rendered it eminently hazardous, and its effects disastrous, at the time it was adopted by the English government. The annual supply of the precious metals for the use of the globe, which, as already mentioned, had been on an average, before 1810, ten millions sterling, had sunk, from the effects of the revolution in 1 Ante, c. i. South America, to little more than two millions.1 The great paper currency guaranteed by all the allied powers, issued so plentifully during 1813 and 1814, and which had circulated as cash from the banks of the Rhine to the wall of China, had been drawn in, in conformity with the Convention of London of 30th September 1813; and the Continent had never yet recovered from the contrac

§ 36.

* Adam Smith clearly saw the advantages of an inconvertible paper currency issued on such principles, and on such safeguards against abuse. “The government of Pennsylvania," says he, "without amassing any treasure, invented a method of lending, not money, indeed, but what is equivalent to money, to its subjects. By advancing to private people at interest, and upon land security to double the value, paper bills of credit, to be redeemed fifteen years after their date, and in the mean time made transferable from hand to hand like bank-notes, and declared by act of Parliament to be a legal tender in all payments by one inhabitant of the province to another, it raised a moderate revenue, which went a considerable way towards defraying the expenses of that orderly and frugal government. The success of an expedient of this kind must depend on three circumstances: first, upon the demand for some other instrument of commerce besides gold and silver money, or upon the demand for such a quantity of consumable stock as could not be had without sending abroad the greater part of their gold or silver money in order to purchase it; secondly, upon the good credit of the government which makes use of the expedient; thirdly, upon the moderation with which it is used, the whole value of the paper bills of credit never exceeding that of the gold and silver money which would have been necessary for carrying on their circulation, had there been no paper bills of credit. The same expedient was upon different occasions adopted by several other American States; but from want of this moderation, it produced in the greater part of them much disorder and inconve

CHAP.

X.

1819.

tion of credit and shortcoming of specie consequent on its disappearance, and on the cessation of the vast expenditure of the war. The loans on the Continent, in the years following its termination, had been so immense, that they had ruinously contracted the circulation, and destroyed credit. The fall of prices in consequence, and from the good harvest of 1818, had been as great in Germany after the peace as in Great Britain, and the cabinets of Vienna, Berlin, and St Petersburg, were as much straitened for money in the beginning of 1819 as the vi. § 76. French government.1 *

1 Ante, c.

the money

from the

In addition to this, the strain on the money market at 18. Paris, in the close of 1818 and commencement of 1819, Strain on had been so dreadful that a monetary crisis of the utmost market, severity had set in there, which had rendered it a matter immense of absolute necessity, as already mentioned, for the French loans on government to solicit, and the allied cabinets to grant, a nent. prolongation of the term for payment of the immense. sums they were required to pay, by the treaty of Aix-laChapelle, as the price of the evacuation of their territory,

nience."- Wealth of Nations, book v. chap. 2. This is the true principle which should regulate the issue of inconvertible paper, its main use serving as a substitute for gold and silver, not as a representative of it, to be used chiefly where the precious metals are drawn away, and never exceeding the amount of them which would have been required to conduct and facilitate its real transactions. The moderation of Pennsylvania was a prototype of the wisdom of the English; the extravagance of the other American colonies, of the madness of France in the use of this powerful agent for good or for evil during the subsequent revolutionary war.

* FALL OF PRICES OF WHEAT ON THE CONTINENT FROM 1817 TO 1819.

the Conti

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The bad harvest of 1816 was the cause of the high prices in 1817, but the prodigious fall in 1819 was due mainly to the pressure on the money market. -TOOKE On Prices, ii. 93, 94, and authorities there quoted.

CHAP. which was extended, by a convention in December 1818, X. from nine to eighteen months. It was not surprising

1819. 1 Ante, c. i. $76.

that such a financial crisis should have taken place on the Continent at this time, for the loans negotiated by its different governments in the course of 1817 and 1818 amounted to the enormous sum of £38,600,000,* of which £27,700,000 was on account of France. At least threefourths of these loans were undertaken in London and Amsterdam by Messrs Baring and Hope; and as the whole sums they had to pay up under them required to be remitted in specie, the drain which in consequence set in upon the Bank of England was so severe that its accumulated treasure, which in October 1817 had been Tooke, On £11,914,000, and in February 1818, £10,055,460, had sunk, on 31st August 1818, to £6,363,160, and on 27th February 1819 was only £4,184,000.2

Prices, ii.

54-96.

19.

perity of

and spring

of 1819, from exten

sion of its

currency.

It was the suspension of cash payments by the Bank Great pros- of England in 1817 and 1818, which, as already menEngland in tioned, alone enabled this country to prosper during this end of 1818 terrible crisis, which was acting with such severity upon other states, and occasioning so fearful a drain on its own metallic resources. But that suspension had not only, by providing it with an adequate internal currency, averted the catastrophe so general at that time on the Continent, but had given it at the very same time an extraordinary degree of prosperity. "In consequence," says Mr Tooke, "of the great fall in the French funds, combined with the great and sudden fall of the prices of grain on the Continent, extensive failures occurred in Paris,

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-Appendix to Lords' Com. on Cash Payments, 1819, p. 424.

95.

X.

1819.

Marseilles, and other parts of France, as also in Holland CHAP. and in Hamburg, in 1818, before any indication had appeared of discredit, or of any pressure on the money market of this country. A loan had also been negotiated in 1818 for the Russian government, the payments for a large proportion of which were made in bullion exported from this country, thus adding greatly to the pressure on the money market, and at the same time exhibiting the phenomenon of prices falling rapidly on the continent of Europe-much more rapidly than here-while bullion was flowing there from hence."1 It is not surprising it was 1 Tooke, ii. so; for the Continental states, during 1817 and 1818, had no paper adequate to sustain their industry during the scarcity of money, owing to the immense pressure on their money market, whereas England enjoyed in the highest degree that advantage. The paper circulation of Great Britain had greatly increased during the drain on the precious metals, and compensated for their want, and in the last of these years had reached £48,000,000 in England alone, a higher amount than in any year of the war. Hence the prosperity in this country which coexisted with the most serious pressure and distress on the Continent.*

20.

ity of the

The consequences of this abundant supply of the currency in Great Britain had been an extraordinary degree Great interof prosperity to the country in the last months of 1818 al prosperand first of 1819, accompanied by a corresponding and country. a too sudden start in speculations of every sort. It was so great, and the change so rapid, that it was made the

* CIRCULATION OF BANK OF ENGLAND AND COUNTRY NOTES.

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