XLIII. 1848. because labour is less highly paid. Thus the constant CHAP. tendency of commerce, in such an old and commercial State, is to run into an efflux of gold, and influx of commodities. The country which the gold first reaches becomes a mere siphon, by which it is conducted to foreign States. No state of traffic can be conceived more perilous, especially when currency and credit are rendered dependent on the retention of the precious metals; for the first keeps credit constantly on the verge of paralysis, the last industry, under the weight of irresistible foreign competition. Adam Smith, long ago, stated this low price of gold in Spain, and its constant tendency to leave the country in consequence, arising from the possession of the gold regions, which all the severity of the laws could not prevent, as the main cause of the decline of Old Spain; and whoever studies with attention the history of this country, since the gold discoveries came into operation in 1852, will have too much reason to fear that the same lasting and insurmountable difficulty, as long as the currency is based on gold, is beginning to affect its fortunes. 149. argument ists on this subject. Sensible of the truth of these facts, but anxious to avoid the inferences deducible from them, the supporters of the Erroneous bullion system affirm that the scarcity of money and rise the butt of of interest which is now periodically, and at short intervals, felt as so severe a scourge by the commercial and industrial interest of Great Britain, is not owing to the want of gold, but the want of capital; that the nation is at times engaged in a desperate struggle for money with foreign nations, which require it for undertakings of their own; and that it is this which runs interest up to 7 or 10 per cent. A very little consideration, however, must convince every dispassionate observer, that this view is entirely erroneous, and that it is not capital, but gold currency, which is awanting when interest is thus run up. The panic was stopped in 1825, and interest soon brought down, by the discovery of £2,000,000 of old notes in a chest, and the XLIII. 1848. CHAP. issue of £8,000,000 additional notes by the Bank of England; in 1848, by a letter from Lord John Russell suspending the Bank Charter Act, which in three months brought it down to 4 per cent ; in 1856, by the arrival of the James Baines and the Lightning, with £1,300,000 in specie, about half of which only remained in the vaults of the Bank. In all these cases, no addition was made to the capital of the country by the change which stopped the panic and lowered the interest, but an inconsiderable addition was only made to the circulating medium, which at once had that effect. On the contrary, the national capital was in all these cases seriously diminished before the rate of interest fell, by the fall of prices which the abstraction of the currency occasioned, but, nevertheless, interest was at once reduced by the addition of a few millions to the circulating medium. Under the present system, capital to the amount of £200,000,000 may be, and often is, waiting in London ready to be advanced at 3 or 3 per cent, when, nevertheless, it is all locked up like a fertilising stream by frost, solely by the abstraction of two or three millions of gold from the banks, in whose notes the payments to the borrowers are to be made. 150. tary crisis owing to Free Trade netary laws. The Free Trade and monetary systems of Sir R. The mone Peel, therefore, are directly chargeable with the extreme of 1847 was severity of the commercial and monetary crisis of 1847 and 1848, because the first established a state of comand the mo- merce in which the imports necessarily so largely preponderated over the exports that any considerable addition to the former, in the shape of commodities, required to be paid for in specie, thus occasioning a great drain of the precious metals, while the latter rendered unavoidable the destruction of credit and ruin of industry, from the effects of that very drain on the metallic treasures of the nation. Free Trade alone would never have produced these calamitous results, if unconnected with a monetary system, resting on the retention of gold; it would merely have produced a growing balance of im XLIII. 1848. ports over exports, which in the end might have proved CHAP. detrimental to native industry, and put a stop to national progress. But when, simultaneously with the removal of all restrictions on the importation of foreign agricultural produce, there was established a system which rendered the currency and credit of the nation entirely dependent on the stock of gold and silver in the Bank of England, which any bad harvest at home, or extraordinary demand for specie abroad, might at any time entirely exhaust, the united system rendered certain the frequent and periodical recurrence of the most appalling calamities. Such, accordingly, immediately ensued on the first failure of crop after 1846; and the experience of the last two years has abundantly proved, that not all the gold of Australia and California can prevent it recurring on the first considerable drain of the precious metals.* Sir R. Peel's monetary measure proceeded on the * Interest is now (17th Nov. 1856) at 7 per cent; the stock of gold in the Bank of England is only £9,530,000, notwithstanding the immense supplies, not less than £30,000,000, annually received from California and Australia. The entire absorption of this vast importation of the precious metals is in part owing to the steady drain of £6,000,000 or £7,000,000 annually to India and China. But it is, in a great degree, to be ascribed also to the vast export of gold to pay for grain imported under the new system, which in the year 1855, though a year of war and a fine harvest, cost the nation £17,500,000, the greater part of which was paid in specie, for the nations from whom we imported it would take nothing else. NOTE.-November 12, 1857. The paragraph in the text, and preceding note, were written on 6th November 1856. While this sheet is going through the press, the Times of November 12, 1857, contains these announcements: in New York, 25 per cent. 6. Suspension of cash payments general by all banks in the United 7. Two banks stopped in Glasgow, and one in Liverpool, and a great 8. Commercial credit and transactions almost suspended in the country. 10. Reserve notes in the Bank, £975,000. 11. Bank liabilities, £40,875,000. How soon has the prediction in the text been verified! XLIII. 151. Sir Robert Peel's ob ject in the Act of 1844. CHAP. principle that the distress which had so frequently overwhelmed the country in the last twenty years, was 1848. mainly owing to the over-trading encouraged by excessive issues of paper, and that the only way to check it, and at the same time to maintain the currency of the country upon a proper basis, was to compel the Bank to buy all the gold which might be brought to it, at a fixed price, and at the same time put it under such restrictions as should compel it to contract its issues as soon as the exchange became adverse, and a drain upon its metallic treasures appeared likely to set in. Having done this, he thought both over-speculation at one time, and a serious drain of gold at another, would be effectually prevented. He said to the Bank virtually: "I have laid you in irons; do your worst.' The object was praiseworthy, and such as cannot too seriously arrest the attention of every statesman who has the good of his country at heart. Unfortunately, the means he adopted to accomplish this object, so far from effecting it, had the directly opposite consequence, and have contributed more than anything else to the aggravation of the very evils against which they were intended to guard. 152. The very opposite ef followed. This is now decisively demonstrated by experience. So far from the Act of 1844 having been followed by an fects have equable and self-regulated currency, and speculation leading to disaster checked, neither were ever so frequent as they have been since his Act came into operation. From 1784 to 1844, interest had never varied more than from 4 to 5 per cent, with the exception of a short time in 1838, when it was at 6 per cent. But during the twelve years which have elapsed since 1844, its variations have been so excessive as to defeat all mercantile foresight, and, on repeated occasions, involve whole innocent classes in hopeless ruin. During that short period, there Newmarsh, have been no less than fifty changes of the rate of dis167, 563. count, which has varied from 1 to 10 per cent.1 It is hard to say whether its excessively low rate at one time, or 1 Tooke and iv. 406, vi. XLIII. 1848. its ruinous height at another, have proved most prejudicial. CHAP. In 1845 and 1846, the rate was 2 and 3 per cent, and it has frequently been even lower since that time, especially in 1852 and 1853, in the first of which years it was at 1, and the paper of the Bank of England in circulation rose to £24,000,000-of the whole empire, to £39,000,000. The consequence was, the excessive and inordinate speculation and undertakings of those years. In November 1847, it was at 8 per cent, and at 7 per cent for a month, as it was in April and November 1856. Thence the grievous contraction of credit and ruin of undertakings in those disastrous years, especially the first. The low rate of interest at one time plunged the nation into a host of undertakings, which the sudden raising of it, and contraction of credit at another, wholly disabled it from completing. And all this ensued from no fault on the part of the speculators, but simply from the operation of the monetary laws, which rendered currency and credit dependent on the retention of gold, which, under the Free-trade system, at the same time introduced, by the changes of foreign commerce could not by possibility be retained. 153. which the laws in The way in which the Act of 1844 inflamed speculation when times were prosperous, and the precious metals Way in flowed in in abundance, was this: Being obliged by law to monetary take all the gold presented to it at any time, and pay for flamed speit in silver, or its own notes, at the rate of £3, 17s. 101d., culation. whatever its market value was at the time, it necessarily followed that the Bank was gorged with gold at one time, when the market price was below that sum, and stripped of it at another, when it was above it. This accordingly ensued in a few years after the passing of the Act. In 1846, the gold in the Bank had reached the then unprecedented sum of £16,500,000; in 1847, it was down at £8,312,000; and in 1852 it was as high as £22,000,000. In the first period, the Bank directors being in advance for gold to the extent of sixteen millions |