On this occasion, particular attention should be given to the present SINGULAR situation of this kingdom. This is a circumstance of the utmost importance; and as I am afraid it is not much considered, I will beg leave to give a distinct account of it.
At the Revolution, the specie of the kingdom amounted, according to[30] Davenant’s account, to eighteen millions and a half.—From the Accession to the year 1772, there were coined at the mint, near 29 millions of gold; and in ten years only of this time, or from January 1759 to January 1769, there were coined eight millions and a half.[31] But it has appeared lately, that the gold specie now left in the kingdom is no more than about twelve millions and a half.[32]—Not so much as half a million of Silver specie has been coined these sixty years; and it cannot be supposed, that the quantity of it now in circulation exceeds two or three millions. The whole specie of the kingdom, therefore, is probably at this time about fifteen millions. Of this some millions must be hoarded at the Bank.—Our circulating specie, therefore, appears to be decreased. But our wealth, or the quantity of money in the kingdom, is greatly increased. This is paper to a vast amount, issued in almost every corner of the kingdom; and, particularly, by the Bank of England. While this paper maintains its credit it answers all the purposes of specie, and is in all respects the same with money.
Specie represents some real value in goods or commodities. On the contrary; paper represents immediately nothing but specie. It is a promise or obligation which the emitter brings himself under to pay a given sum in coin; and it owes its currency to the credit of the emitter; or to an opinion that he is able to make good his engagement; and that the sum specified may be received upon being demanded.—Paper, therefore, represents coin; and coin represents real value. That is, the one is a sign of wealth. The other is the sign of that sign.—But farther. Coin is an universal sign of wealth, and will procure it every where. It will bear any alarm, and stand any shock.—On the contrary. Paper, owing its currency to opinion, has only a local and imaginary value. It can stand no shock. It is destroyed by the approach of danger; or even the suspicion of danger.
In short. Coin is the basis of our paper-credit; and were it either all destroyed, or were only the quantity of it reduced beyond a certain limit, the paper circulation of the kingdom would sink at once. But, were our paper destroyed, the coin would not only remain, but rise in value, in proportion to the quantity of paper destroyed.
From this account it follows, that as far as, in any circumstances, specie is not to be procured in exchange for paper, it represents nothing, and is, worth nothing.—The specie of this kingdom is inconsiderable, compared with the amount of the paper circulating in it. This is generally believed; and, therefore, it is natural to enquire how its currency is supported.—The answer is easy. It is supported in the same manner with all other bubbles. Were all to demand specie in exchange for their notes, payment could not be made; but, at the same time that this is known, every one trusts, that no alarm producing such a demand will happen, while he holds the paper he is possessed of; and that if it should happen, he will stand a chance for being first paid; and this makes him easy. And it also makes all with whom he traffics easy.—But let any events happen which threaten danger; and every one will become diffident. A run will take place; and a bankruptcy follow.
This is an account of what has often happened in private credit. And it is also an account of what will (if no change of measures takes place) happen some time or other in public credit. The description I have given of our paper-circulation implies, that nothing can be more delicate or hazardous. It is an immense fabrick, with its head in the clouds, that is continually trembling with every adverse blast and every fluctuation of trade; and which, like the baseless fabrick of a vision, may in a moment vanish, and leave no wreck behind.—The destruction of a few books at the Bank; an improvement in the art of forgery; the landing of a body of French troops on our coasts; insurrections threatening a revolution in government; or any events that should produce a general panic, however groundless, would at once annihilate it, and leave us without any other medium of traffic, than a quantity of specie not much more than the money now drawn from the public by the taxes. It would, therefore, become impossible to pay the taxes. The revenue would fail. Near a hundred and forty millions of property would be destroyed. The whole frame of government would fall to pieces; and a state of nature would take place.—What a dreadful situation! It has never had a parallel among mankind; except at one time in France after the establishment there of the Royal Mississipi Bank. In 1720 this bank broke;[33] and, after involving for some time the whole kingdom in a golden dream, spread through it in one day, desolation and ruin.—The distress attending such an event, in this free country, would be greater than it was in France. Happily for that kingdom, they have shot this gulph. Paper-credit has never since recovered itself there; and their circulating cash consists now all of solid coin, amounting, according to the lowest account, to no less a sum than 1500 millions of Livres;[34] or near 67 millions of pounds sterling. This gives them unspeakable advantages; and, joined to that quick reduction of their debts which is inseparable[35] from their nature, places them on a ground of safety which we have reason to admire and envy.
These are subjects on which I should have chosen to be silent, did I not think it necessary, that this country should be apprized and warned of the danger which threatens it. This danger is created chiefly by the national debt. High taxes are necessary to support a great public debt; and a large supply of cash is necessary to support high taxes. This cash we owe to our paper; and, in proportion to our paper, must be the productiveness of our taxes.—King William’s wars drained the kingdom of its specie. This sunk the revenue, and distressed government. In 1694 the Bank was established; and the kingdom was provided with a substitute for specie. The taxes became again productive. The revenue rose; and government was relieved.—Ever since that period our paper and taxes have been increasing together, and supporting one another; and one reason, undoubtedly, of the late increase in the productiveness of our taxes has been the increase of our paper.
Was there no public debt, there would be no occasion for half the present taxes. Our paper-circulation might be reduced. The balance of trade would turn in our favour. Specie would flow in upon us. The quantity of property destroyed by a failure of paper-credit (should it in such circumstances happen) would be 140 millions less; and, therefore, the shock attending it would be tolerable. But, in the present state of things, whenever any calamity or panic shall produce such a failure, the shock attending it will be intolerable.—May heaven soon raise up for us some great statesman who shall see these things; and enter into effectual measures, if not now too late, for extricating and preserving us.
Public banks are, undoubtedly, attended with great conveniences. But they also do great harm; and, if their emissions are not restrained, and conducted with great wisdom, they may prove the most pernicious of all institutions; not only, by substituting fictitious for real wealth; by increasing luxury; by raising the prices of provisions; by concealing an unfavourable balance of trade; and by rendering a kingdom incapable of bearing any internal tumults or external attacks, without the danger of a dreadful convulsion: But, particularly, by becoming instruments in the hands of ministers of state to increase their influence, to lessen their dependence on the people, and to keep up a delusive shew of public prosperity, when perhaps ruin may be near. There is, in truth, nothing that a government may not do with such a mine at its command as a public Bank, while it can maintain its credit; nor, therefore, is there any thing more likely to be IMPROPERLY and DANGEROUSLY used.—But to return to what may be more applicable to our own state at present.