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XXXV.

1834.

the seeds of certain and speedy disaster. The whole CHAP. community, and especially the working classes, having, by the extension of the currency, been placed in a position, for a time, of comparative affluence and prosperity, the consumption of every species of merchandise of course increases in a similar proportion, and much beyond what, from the want of a similar cause, takes place at the same time in foreign states. Thence a great and growing balance of imports over exports arises; and this balance, under the combined influence of free trade and a high state of commercial credit, has of late years sometimes risen to thirty or forty millions a-year. This immense balance of course must be chiefly paid in cash, or bills convertible into it, the only universally received medium of exchange among nations. Thence a rapid contraction of the currency to check the dreaded drain on the banks for gold, a serious fall of prices, a stoppage of mercantile discounts, a rise of interest and universal shake to credit, and suspension of enterprises of every sort, agricultural, manufacturing, and commercial. Thus prosperity, under a system of currency mainly dependent on the retention of gold, leads to alternations of prosperity and suffering as inevitably as night succeeds day and day night, and that altogether irrespective of drains of gold from extraneous causes, such as war loans, extensive importations of grain owing to bad harvests, or the like, which necessarily, and still more immediately, lead to a ruinous contraction of the currency, and consequent stoppage of credit, and general suffering.

* EXPORTS AND IMPORTS IN THE UNDERMENTIONED YEARS.

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CHAP.
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1834.

The way, and the only way, to avoid this is perfectly simple, although such is the combined influence of the clear appreciation of the subject by a few interested Remedy for parties on the one hand, and the benighted ignorance of these evils. it by the vast majority of the sufferers under it on the

7.

8.

interest in a

monetary crisis is not owing to want of capital.

other, that an entire generation required to be rendered bankrupt, or go to their graves, before the subject was generally understood. This is to have TWO CURRENCIES in every commercial community: the one convertible on demand into the precious metals for conducting its foreign transactions; the other not so convertible, to sustain its domestic industry. The latter currency should be open to expansion in proportion to the abstraction of the gold, which is the foundation of the first, for it is mainly serviceable in supplying the vacuum occasioned by the periodical abstraction of the former. Without doubt this domestic inconvertible currency must not be issued in too large quantities; care must be taken that it does not turn into assignats, and extinguish capital by lowering the value of the currency in which it may be discharged. But from the abuses of a system no argument can be drawn against its use. Because many drunkards perish by the undue use of ardent spirits, it does not follow that they are to be altogether proscribed in moderate quantities; because the Esquimaux reel about from gorging themselves with wheaten bread, it does not follow that a general abstinence from loaves is to be proclaimed.

The advocates of the present monetary system mainThe rise of tain that the high rate of interest, amounting sometimes to seven and eight per cent, which always ensues on a monetary crisis, is in reality owing not to any deficiency in the circulating medium, but to the supply of capital being at times, from accidental causes, within the demand. Two facts of universal notoriety and vast importance are decisive against this theory. The first is, that in the years. 1813 and 1814, at the close of a war of twenty years' duration, and the borrowing of £600,000,000 during its

continuance, loans of little short of £50,000,000 in each CHAP.

XXXV.

year were obtained by Government, the currency of Eng- 1834.

1 Hist. of

1789-1815,

land being £48,000,000, at £4, 12s. per cent.1 The second is, that in 1825 and 1848, when the interest of Europe, money was, during the monetary crises, from eight to ten c. 84, § 18. per cent, it was reduced within a few months to four or five per cent, the capital of the country having been diminished instead of being increased in the interim by the crash-in the first case by the accidental discovery and issuing of £2,000,000 of old notes by the Bank of England; in the second, by a letter from the Prime Minister and Chancellor of the Exchequer, amounting to a suspension of cash payments. These instances decisively prove that the extremely high rate of interest which always ensues in a monetary crisis, and is attended with effects so distressing, is in no degree owing to any deficiency of capital in proportion to the demand, but solely to the monetary laws, which render bankers and money-lenders reluctant to lend from dread of being immediately compelled to exchange the sums in which their loans are issued for gold, which is every day slipping out of their hands.

9.

of the bul

favour of

It is confidently maintained by the gold party, and has been argued with much ability by their acknowledged Argument head, Lord Overstone, that no lasting relief would be ex- lionists in perienced by the establishment of a double currency, partly their sysconvertible and partly not, because the inevitable effect of tem. the issue of inconvertible paper would immediately be to drive the gold out of the country, and then either the same scarcity of currency which was formerly complained of would still be felt, or the specie would be wholly sent abroad, and the currency would become one issued on securities, or not convertible only. If £5,000,000 of inconvertible notes are issued, it is said £5,000,000 of sovereigns will be driven abroad, and the nation will experience no relief, but merely witness the exchange of a metallic for a paper currency. The only remedy for such a danger, it is alleged, is the establishment of a system

.1834.

CHAP. which may compel a contraction of credit and of the curXXXV. rency when the exchanges become adverse, and thus bring back the gold by a diminution of transactions and fall of prices. The answer to this argument, which is so specious, and has been so ably stated that it has carried with it an entire generation, is threefold, and the whole merits of the question are involved in their consideration.

10.

this argu

ment.

In the first place, if the gold can only be retained, Answer to when exchanges become adverse, by strangling industry, starving the country, and so lowering the prices of the produce of every species of industry, the remedy is worse than the disease. Gold is a very good thing, and necessary for foreign exchanges, but it is not worth purchasing by the ruin of the country. In every one of the great monetary crises which have occurred every five or six years during the last thirty, from a hundred to a hundred and fifty millions sterling have been destroyed. Is the retention of gold worth purchasing at such a price? What is the use of it, if it can only be retained by making the capitalists rich and all other classes poor? In the next place, the experience of Great Britain, during the French war, demonstrates that, by means of an adequate paper currency, not only can calamity be averted, but the highest degree of social prosperity and national glory attained without any gold; witness the years 1809 and 1810, when a guinea was selling for 28s. In the third place, the apprehension so strongly felt by the bullion party of the gold leaving the country for any length of time, is entirely chimerical. What makes gold leave the country is its bearing a higher price abroad than at home, and what occasions this is very rarely a redundant paper circulation in the interior, but generally an extraordinary demand abroad, arising either from the necessities of foreign armies, the payment of foreign loans, a great importation of grain arising from deficient harvests, or a large increase of importations over exportations arising from great internal prosperity. When the extraordinary demand for gold arising from any of these causes has

XXXV.

ceased in foreign countries, or the want of it is felt in CHAP. this, gold will return to this, the centre of wealth and commerce, as certainly as the planets will revolve round the sun.

1834.

11.

rency must

be

based on

the national security.

To put this domestic currency on a proper footing, it is indispensable that it should be issued by Government, Such a curand Government only, and on the national security, and that every banker who chooses to deal in notes should not be permitted to usurp the king's prerogative, and issue the current coin of the realm. There is very great danger, under such a system, of a currency getting into circulation which is at once redundant in point of amount, and unsafe in point of security. The currency should be all issued by Government, and Government only, and the nation responsible for its value as it is for the Three per Cents. Nothing would be easier than to establish such a currency, and confine it within the requisite limits. One obvious way of limiting it in point of amount, and giving it adequate efficacy in averting evil, would be to limit it in the ordinary case to half the amount of taxes annually paid by the nation. Another, and a still better, to empower commissioners, for every million of bullion withdrawn from the Bank below a certain standard, say £16,000,000, to issue an additional million of the inconvertible notes, to be drawn in by being taken in payment of taxes without being reissued when the gold comes back. It belongs to practical men to devise the details of such a system; but if honestly set about by men of capacity, nothing would be more easy of accomplishment. And it may safely be affirmed, that if the requisite change is not made, the nation will continue to be visited every four or five years by periods of calamity which will destroy all the fruits of former prosperity,-like the unfortunate culprits who, under the former inhuman system of military law, when sentenced to one thousand or fifteen hundred lashes, were brought out at successive times to receive their punishment by instalments as soon as their wounds had been healed in the hospital.

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