"This measure having been carried by Mr Pitt, a committee was appointed, which reported shortly after that the funds of the Bank were £17,597,000, while its debts were only £13,770,000, leaving a balance of £3,800,000 in favour of the establishment; but that it was necessary, for a limited time, to suspend the cash payments. Upon this, a bill for the restriction of payments in specie was introduced, which provided that bank-notes should be received as a legal tender by the collectors of taxes, and have the effect of stopping the issuing of arrest on mesne process for payment of debt between man and man. The bill was limited in its operation to the 24th June; but it was afterwards renewed from time to time, and in November 1797 continued till the conclusion of a general peace; and the obligation on the Bank to pay in specie was never again imposed till Sir Robert Peel's Act in 1819.

"Such was the commencement of the paper system in Great Britain, which ultimately produced such astonishing effects; which enabled the empire to carry on for so long a period so costly a war, and to maintain for years armaments greater than had been raised by the Roman people in the zenith of their power; which brought the struggle at length to a triumphant issue, and arrayed all the forces of Eastern Europe in English pay, against France on the banks of the Rhine. To the same system must be ascribed ultimate effects as disastrous, as the immediate were beneficial and glorious; the continued and progressive rise of rents, the unceasing, and to many calamitous, fall in the value of money during the whole course of the war; increased expenditure, the growth of sanguine ideas and extravagant habits in all classes of society; unbounded speculation, prodigious profits and frequent disasters among the commercial rich; increased wages, general prosperity, and occasional depression among the labouring poor. But these effects, which ensued during the war, were as nothing compared to those which have, since the peace, resulted from the return to cash payments by the bill of 1819. Perhaps no single measure ever produced so calamitous an effect as that has done. It has added at least a third to the National Debt, and augmented in a similar proportion all private debt in the country, and at the same time occasioned such a fall of prices by the contraction of the currency as has destroyed the sinking fund, rendered great part of the indirect taxes unproductive, and compelled in the end a return to direct taxation in a time of general peace. Thence has arisen a vacillation of prices unparalleled in any age of the world; a creation of property in some and destruction of it in others, which equalled, in its ultimate consequences, all but the disasters of a revolution."[7]

The immediate effect of the suspension of cash payments on the part of the State bank was an enormous increase in the circulation of paper. The prices of commodities rose to nearly double their previous value, and a period of prosperity commenced, at least for one generation. During the twenty-two years which elapsed from the suspension of cash payments in 1797 down to 1819, when their resumption was provided for by Act of Parliament, or at least during eighteen years of that period, reckoning down to the re-establishment of peace in Europe, the career of England has no parallel in the annals of the world. The vast improvements and discoveries in machinery which were made towards the latter end of the century—the inventions of Hargreaves, Arkwright, Cartwright, Crompton, and Watt, came into play with astounding effect at a time when Great Britain held the mastery of the seas, and could divert the supplies of raw material from all other shores except her own. During the hottest period of the war, and in spite of all prohibitions, England manufactured for the Continent. Capital, or that which passed for capital, was plentiful; credit was easy, and profits were enormous. Some idea of the rapidity with which our manufactures progressed may be drawn from the fact that, whereas in 1785 the quantity of cotton wrought up was only 17,992,882 lbs., in 1810 it had increased to 123,701,826. Under this stimulus the population augmented greatly. The rise in the value of commodities gave that impulse to agriculture by means of which tracts of moorland have been converted into smiling harvest-fields, fens drained, commons enclosed, and huge tracts reclaimed from the sea. The average price of wheat in 1792, was 42s. 11d.; in 1810, it was 106s. 2d. per quarter. Wages rose, though not in the same proportion, and employment was abundant.

In short, the paper age, while it lasted, transcended, in so far as Britain was concerned, the dreams of a golden era. Those who suffered from the suspension of cash payments were the original fundholders, annuitants, and such landlords as had previously let their properties upon long leases. But the distress of such parties was little heard, and less heeded, amid the hum of the multitudes who were profiting by the change. The creditor might be injured, but the debtor was largely benefited. One immediate effect of this rise in prices was, a corresponding rise in fixed salaries and the expenses of government. Hence, the domestic expenditure of the country was greatly increased; new taxes were levied, and the permanent burden of the National Debt augmented to an amount which, sixty years ago, would have been reckoned entirely fabulous. As a specimen of the increased expense of cultivating arable land, it may here be worth while to insert the following comparative table, calculated by Mr Arthur Young, and laid before a committee of the House of Lords. The extent is one hundred acres:—

COMPARATIVE TABLE OF THE EXPENSES OF ARABLE LAND.
1790.1803.1813.
Rent,£8863¼£1212 7¼£161127¼
Tithe,20141¾2680¼38173¼
Rates,1713103177¾38192¾
Wear and tear,15135¼221410¼31210¾
Labour,8554118041611211¼
Seed,46410¼4927981710
Manure,480368623770¼
Team,674108080¼134198½
Interest,221111½3038½5056
Taxes,0000001814
Total,£4111511¾£5471011½£771164½
Deduct rent,8863¼12127¼161127¼
Nett expenses,£32398½£42684½£61039¼
Price of wheat per quarter,46s.56s. 9d.108s.9d.

So long as the war lasted, the import of corn from abroad into this country was insignificant in amount. In 1814 the amount of wheat and wheat flour brought in amounted to only 681,333 quarters, being considerably above the average of years since the commencement of the century. In fact, Britain was then self-supporting. In time of war it is plain that, from our insular position, we cannot trust to any supplies beyond those which are raised at home, and there cannot be any doubt of the capability of the land to support a much larger population than that which presently exists. To those who glance superficially at the above table, the price of wheat in the year 1813 will appear monstrous, even when the great increase in the cost of cultivation is taken into account. This is the error, and it is a gross one, which has been studiously perpetuated by our statists, and even by some eminent writers on political economy. True, the price of wheat was then 108s. 9d., but it was estimated in a depreciated currency. Owing to various causes which it would be tedious to explain, the apparent difference between the value of the pound note and the guinea was far slighter than might have been expected, not amounting to more than seven or eight shillings, and actual depreciation, by sale of the notes for less than their nominal value, was by statute made penal. The price of gold and silver bullion never rose to an extent commensurate with the depreciation of the paper: in fact the coinage, as must be in the recollection of many, almost entirely disappeared, and was replaced by tokens of little intrinsic value, which served as the medium of interchange. In this depreciated and fluctuating currency commodities were valued, and by far the greater part of our National Debt was contracted. The paper pound in 1813 was probably, we may almost say certainly, not worth more than 10s. of metallic currency. In this view the quarter, estimated according to the present standard, was sold for 54s. 4½d—a price which modern statesmen allow to be barely remunerative.

If this point were generally understood, a vast amount of delusion which possesses the public mind would be dispelled. The relative value of money to commodities has been as entirely changed, by the return to cash payments, as if shillings had been substituted for sixpences. If the creditor suffered in 1797, the debtor has suffered far more severely in consequence of the Act of 1819, as we shall immediately proceed to show. Meantime, we shall entreat the reader to keep in mind that all incomes and expenditure, public or private, during the war and the suspension of cash payments, are to be estimated not by our present metallic standard, but by the fluctuating value of a depreciated currency.

When peace was established the ports were opened. Then it became evident that foreign importations, if permitted, would at once and for ever extinguish the landed interest. The annual charge of the debt alone was, in 1816, the first year of peace, £32,938,751; and the current annual expenditure £32,231,020—in all, upwards of sixty-five millions. Had, therefore, the price of wheat in Britain been suddenly reduced to the Continental level, as would have been the case but for the imposition of the Corn Laws, the national bankruptcy would have been immediate. No argument is required to prove this and it has often struck us as singular that this crisis—for such it was—has been so seldom referred to, especially in later discussions. We are not now defending the original suspension of cash payments—a measure which, nevertheless, seems to us to have been dictated by the strongest political necessity, however baneful its results may prove to the present and future generations. We simply say, that eighteen years' operation of that system, with the enormous expenditure and liabilities which it entailed, rendered Protection necessary the moment importation was threatened, to save the country from immediate bankruptcy following on its unparalleled efforts.

It is utter folly, and worse, to say, as political economists now contend, and as ignorant demagogues aver, that the Corn Laws were originally proposed solely for the benefit of the landlords. Without the imposition of such laws, the whole financial system of Great Britain must instantly have disappeared. The amount of taxes which were required—first, to pay the interest of the National Debt, and, secondly, to meet the expenses of Government, (greatly increased by the change in the monetary laws effected in 1797)—rendered Protection to labour and to native produce absolutely indispensable. How could it be otherwise? Had wheat been sold in the British market at 46s., or even 50s., from what sources could the revenue have been levied? Under the new system, the expenses of cultivation had nearly doubled in twenty-three years—could the produce be put back to the same rates as before? So long as the monetary system then established did exist, that was clearly impossible. Protection was imperatively demanded, not by any class of the community, but by the state. To refuse it would have been national suicide. And so it was carried, doubtless very much against the inclination of the populace, who naturally enough expected that the return of peace would bring with it some substantial advantages in the shape of cheapness, and were proportionally disappointed when they discovered that the whole rent-charge of the wars, which had been so long maintained, must be liquidated before they could taste the anticipated blessings of the cheap loaf.

The return to cash payments, effected by the Act of 1819, is by far the most important event in our history since the change of dynasty. We believe that the late Sir Robert Peel, then a very young man, who was made the mouthpiece of a particular party on that occasion, really did not understand, to its full extent, the tremendous responsibility which he incurred. He acted simply as the exponent of the measure, at the instigation and by the direction of Mr Ricardo, who, under the guise of a political economist, concealed the crafty and selfish motives of the race from which he originally sprung. Ricardo was at that time considered a grand authority on matters of finance, his field of preparatory study having been the Stock Exchange, on which he is understood to have realised a large fortune. All his prepossessions, therefore, were in favour of the capitalists; and it is not uncharitable to conclude that his private interests lay in the same direction. That act provided for the gradual resumption of cash payments throughout England, to be consummated in 1823, for the establishment of a fixed gold standard, and for the withdrawal of all bank-notes under the amount of five pounds. Had this act been carried into effect in all its integrity, general bankruptcy must have immediately ensued, from the absorption of the circulating medium. The existence of the small notes, however, was respited, and this enabled the country bankers to go on for some time without a crash. Still the violent contraction of the currency, so caused, had the necessary effect of spreading dismay throughout all sections of the community. The circulation of the Bank of England, at 27th February 1819, was £25,126,700. On the 28th February 1823, it was contracted to £18,392,240. At the former period its private discounts amounted to more than nine millions; at the latter, they were considerably under five. As a matter of course, the country bankers were compelled to follow the example of the great establishment, and the immediate results of this grand financial measure may be described in a few words. The tree was thoroughly shaken. According to Mr Doubleday—

"As the memorable first of May 1823 drew near, the country bankers, as well as the bank of England, naturally prepared themselves, by a gradual narrowing of their circulation, for the dreaded hour of gold and silver payments "on demand," and the withdrawal of the small notes. We have already seen the fall of prices produced by this universal narrowing of the paper circulation. The effects of the distress produced all over the country—the consequence of this fall—we have yet to see."

"The distress, ruin, and bankruptcy, which now took place, were universal; affecting both the great interests of land and trade; but amongst the landlords, whose estates were burdened by mortgages, jointures, settlements, legacies, &c., the effects were most marked, and out of the ordinary course. In hundreds of cases, from the tremendous reduction in the price of land which now took place, the estates barely sold for as much as would pay off the mortgages; and hence the owners were stripped of all, and made beggars. I was myself personally acquainted with one of the victims of this terrible measure. He was a schoolfellow, and inherited a good fortune, made principally in the West Indies. On coming of age, and settling with his guardians, he found himself possessed of fully forty thousand pounds; and with this he resolved to purchase an estate, to marry, and to settle for life. He was a young man addicted to no vice; of a fair understanding and a most excellent heart; and was connected with friends high in rank, and likely to afford him every proper assistance and advice. The estate was purchased, I believe, about the year 1812 or 1813, for eighty thousand pounds, one moiety of the purchase money being borrowed on mortgage of the land bought. In 1822-3 he was compelled to part with the estate, in order to pay off his mortgage, and some arrears of interest; and when this was done, he was left without a shilling—the estate bringing only half of its cost in 1812."[8]