Blackwood's Edinburgh Magazine, Volume LXII., No. 381, July, 1847

by Various

It may sound paradoxical when we say that we are almost glad when a crisis like the present has arisen, because we are convinced that nothing short of actual and painful experience will open the eyes of the community to the miserable fallacies upon which the views of their former and their present rulers are founded. Of all questions which can be agitated we are quite aware that that of the currency is the least palatable to the general reader, and the one which he most gladly escapes from in a kind of mazed bewilderment, and generally with a confession that its intricacies are beyond his comprehension. It is now full time that this state of general apathy should be ended. If we hope to preserve much longer our course of national prosperity, we must face the question manfully, and not shrink even from the array of figures which quacks in currency invariably adduce for the purpose of mystifying their audience; just as their medical brethren contrive to render themselves unintelligible by the use of a peculiar jargon. There is, after all, no great mystery in the matter, if men would take the trouble of reflecting for themselves. The laws which ought to regulate the currency of a country should have reference to the real property of that country as its basis, and not an artificial substitute like gold, which, in addition to its scarcity and its liability to fluctuation, is incomparably the dearest circulating medium which has ever yet been adopted. In the words of the authors of the Gemini Letters—a publication, by the way, which is well worthy the attention of every man who seeks to make himself master of the details of the currency question—“we must not expect to be relieved from the distress, and difficulties, and dangers which overshadow the land, so long as we are determined that the value of the produce of our lands, mines, and manufactures, and the amount of the wages of labour, shall be dependant upon the possession of a few millions more or less of gold coin. Will some stickler for a high metallic standard tell us what proportion the value of the whole of the gold generally to be had in the United Kingdom at one time, bears to the value of all the other property of the country? If this question were satisfactorily answered, it is probable that we should not much longer be “Resolved,
Like sugar-loaf turn’d upside down,
To stand upon the smaller end,”
but rather be disposed to treat this particular metal in the way that we treat all other marketable commodities—namely, suffer it to find its proper level.”

It is edifying to remark the different interpretations which are given, by different supporters of the bullion representative system, of the present acknowledged distress and unparalleled tightness in the money markets of Great Britain. Sir Robert Peel—the apostle of the system, upon whose shoulders, we maintain, the primary burden of this enormous responsibility must rest—cannot but admit the fact of the gloomy deficiency; but he falls back upon the ultimate causes. These are, according to his view, over-speculation in railways, joined with a scarcity of food and an increase in the price of cotton. Granting all this to be true, what has that to do with the great question at issue? We are perfectly ready to admit that at the present moment there is an immense demand for money, and that the demand may be owing, in a great measure, to these and similar causes. We know perfectly well that if there exists a drain upon this country for gold, in order to purchase from abroad the supply of food which is deficient in consequence of the scarcity at home, the currency must necessarily be contracted, so long as a five-pound note of the Bank of England, or of any other bank, is held to be, in the eye of the law, not the representative of so much real property—be it land, or stock, or iron—but the eidolon or shadow of five golden coins of a certain weight and fineness, which cannot escape from the empire without annihilating the existence of the subsidiary paper. What we complain of in effect is this, that the whole enormous property of the three kingdoms should be represented merely by the insignificant and insufficient issue of thirty-two millions in bank-notes, and that the whole remainder of the currency is entirely metallic. For although there may certainly at times be a larger amount of paper in circulation, that paper, beyond the thirty-two millions, must be represented by bullion in the bank, and if the latter be withdrawn, the representative issue must be recalled. So that, by a large drain of gold, we may be reduced, and are at this moment becoming so, to so contracted a circulation, that trade must necessarily stand still for the sheer want of a common representative of property.

Why, and on what principles, the amount of our paper circulation was fixed at so low a point, we are utterly unable to conceive, unless it was for the purpose of compelling a large portion of our trading capital to remain fruitless and withdrawn from use in the form of unprofitable gold. Thirty-two millions, even in ordinary times, is not above one-half of what is required for the needful circulation of the country. In 1810 the currency of the paper for the three kingdoms was not less than sixty millions; and during the thirty-seven years which have elapsed since that time, not only has our population increased at an enormous ratio, but our trade and enterprise augmented in a more than corresponding degree. The tendency, however, of our improved system of banking has been to reduce the circulation within the lowest possible limit; but that limit was necessarily variable, and adjusted itself to meet the occurring contingencies of the country. Now it is fixed by the legislature at a point so low, that we are absolutely dependent upon the amount of gold which we can retain in the country, for the means of commercial interchange. We are obliged at present, it seems, to transport a large portion of our gold to America for the purchase of food. For every sovereign which leaves our shores a note is taken out of circulation, and no means whatever are permitted to individuals or to banking companies to supply the deficiency. In ordinary times, it might be expected that the gold would again find its way to Britain; at present, however, it is absorbed and scattered for the purpose of enabling America to prosecute her aggressive war against Mexico. And of what use, we ask, to the nation at large, are some ten or twelve millions converted into specie and stored up in the vaults beneath the Bank of England? Sir Robert Peel tells us, with a smile of peculiar complacency, that the hoarding up of so much bullion is a safeguard against a panic, because it renders any run upon the banks for gold a matter of absolute impossibility. With only thirty-two millions of paper extant for the common circulation of the nation, we shrewdly suspect that any apprehensions of a run upon the banks are as visionary as the dreams of El Dorado. No one knows better than Sir Robert Peel that the paper currency of a country must be sorely depreciated indeed before any such event can take place; and surely there are many means of preventing an over-issue, without bringing us to such a pass that in every season of scarcity or of war we must be reduced to an absolute halt—which, in a commercial country like ours, is a word equivalent to the impoverishment and the ruin of thousands.

We presume that Sir Robert Peel, when he carried through the Banking Restriction Act, intended that measure to be a permanent one. We cannot suppose that he meant it merely to apply to the present situation and necessities of the country, or that it was left to be repealed and altered every session of parliament, to suit the state of the money market, and the fluctuations of the national prosperity. If so, we think it must at once become apparent to every reasonable man, that a gross and palpable absurdity was involved in the very principle of the measure. For to limit the supply of the ordinary circulation in a commercial country like ours, liable as it is to expansion and contraction, to periods of peculiar activity and of occasional serious depression, is quite as preposterous an idea as it would be to declare by statute what amount of food or what extent of water should in all time coming be used by the inhabitants of the British Islands. To interfere with the operation of credit, which is the object of Sir Robert Peel, is practically the greatest blow that can be given to the enterprise and the advancement of the country; for it just amounts to this, that not having a sufficiency of straw wherewith to manufacture our bricks, we are even denied the privilege of going out into the fields to collect the subsidiary stubble. The Pharaoh of Tamworth is a heavier taskmaster than the Egyptian. He demands our daily rate of taxes, but will neither furnish us with the material, nor permit us to gather it for ourselves.

If permanent, it is incumbent upon the supporters of the Banking Restriction Act, who are the very parties at present refusing to relax one iota of our bondage, to show that their measure is well adapted for every political contingency. That, we apprehend, would require greater hardihood, and certainly more ingenuity, than they have yet enlisted on their side. There are many things besides a scarcity or a famine which may occasion a drain of gold. That metal has a peculiar facility of finding its own level; it is liable to sudden demands, and its price is variable accordingly. Were this country to be again engaged in a European contest like the last, we should have a recurrence of the drain of 1814, when gold was at the rate of £5, 8s. per ounce, or upwards of one pound ten shillings and two-pence above its present value. No political foresight, no legislative enactment whatever, can guard us against such a state of things; and the consequence would be an entire disappearance of bullion. According to our present system, the loss of bullion would necessarily produce such a contraction as would lay the credit of the country prostrate. All our extra circulation, founded on the metallic basis, would immediately be called in; taxes could no longer be paid, and the result would be a revolution or the sponge. Are the capitalists of the kingdom, who, we were told some time ago, were the chief supporters of Sir Robert Peel, anxious that the experiment should be made? We can assure them that if it is intended to maintain the circulation of the country permanently upon its present basis, they stand in imminent danger, not only of occasional panics, but of that repudiation which in America was the consequence of a similar tampering with the banks, and the like metallic delusion. At best they must make up their minds for the recurrence of many seasons as hard and as cruel as the present; and it will be well if many of their class are not involved in the ruin which is impending at this moment over the heads of the minor traders.

But, say some of the bullionists, this measure is not intended to be permanent. It is, like all other legislative enactments, subject to modification; and we are prepared, when occasion presses, to alter it accordingly. Why, then, in the name of common sense—nay, in that of common humanity—has not the alteration been made? Is it intended that the public shall sink beneath the pressure of this law before the smallest portion of its burden shall be removed? Is it wise to delay all relief until the Gazette is full, and to keep credit suspended at the very moment when it is most urgently and clamantly required? And what kind of law, we ask, is that which in prosperous times—that is, whenever gold is abundant—confessedly puts no check whatever upon speculation, but which, at the least turn of the tide, is an absolute engine of destruction? Look at it in any view, and we maintain that a more miserable instance of legislation upon false and contracted principles was never yet invented by the brain of a political economist.

The host of pamphlets which has recently issued from the press, upon this momentous and interesting topic, sufficiently demonstrates the pressing nature of the crisis. Whatever difference of opinion may be found amongst so many writers, with regard to the intermediate basis and proper representative of property, they are almost to a man combined in denouncing the impolicy of the late restrictions. Lord Ashburton, the advocate and apologist of the Bank of England, is at one with Mr Enderby, the able opponent of the gold standard, as to this particular point. They are all agreed that the system which professes to rectify an inevitable drain of gold, by crippling the trade of the country, and forcing down the value of its property, is nothing short of absolute infatuation, and that, considered by itself, it admits of no intelligible defence. It would be well, therefore, if an effort were made, in the first instance, to get rid of the odious and absurd restrictions, or at least to substitute for the present miserable driblet, a much larger amount of paper currency, which may be based upon government securities. There is but one opinion prevalent throughout the country with regard to the present insufficiency of the currency, so long at least as the Bank is compelled by statute to deprive us of the means of fair and legitimate accommodation. Sir Robert Peel has placed the directors in this anomalous and invidious position, that they must put on the screw whenever there is a prospect of adverse exchanges; and the immediate effect of that measure is a stoppage of trade, and at the same time a depression in the value of every kind of merchandise and product. Taken singly, this is an evil of the very worst description—in fact nothing worse could be expected from the most formidable combination of natural and political causes. Taken in connexion with the late tariffs, which, without securing reciprocity, have opened the home market to the competition of the foreigner, who is less taxed and cheaper fed than our own redundant population, each recurrence of it is a blow to our commercial prosperity, which if often repeated would bring us to the verge of ruin. The first measure, therefore, which ought to be taken—and we entreat the serious attention of every man who understands the currency question to this—is to emancipate the Directors of the Bank of England from their present false position, by removing the restriction of their paper issues, or at least by fixing these at a point which will enable them to supply the ordinary wants of the community, without reference to an accidental or inevitable drain of bullion, so that the internal trade and production may never be checked so long as there is a remunerative demand. A similar regulation must of course be made with regard to the country bankers; and were this done, we have very little fear indeed that any crisis at all equal to the present one could arise. But we must not be left in absolute dependence for our circulation upon the state of the harvest, or cripple labour at the very season when employment is most urgently required.

We do not say that the repeal of the Act of 1844, or the increase of the paper issues to a larger fixed point, can set the question of the currency at rest. No thinking man who has devoted his time and energies to the study of our monetary history, would be bold enough to make so rash and confident an assertion: on the contrary, we think that the time is not far distant, when the leading theories of the bullionists must be thoroughly probed, and the consideration of the expediency of a fixed gold standard most seriously and deliberately resumed. The experience of some thirty years of peace has furnished data to us which were not known to the older political economists, and we are now far better enabled to explain the phenomena of commercial fluctuation. But it would be extremely unwise at the present moment, when a palpable and tangible evil is before us, to attempt too wide a reformation, and so to peril the chance of a present amendment, on the necessity of which we are all most thoroughly agreed.

From some quarters we have heard an expression of extreme surprise that the late Premier, who cannot but be awake to the mischief which he has so wantonly caused, should have been so obstinate and inflexible in his adherence to the restrictive system. Very little consideration indeed is requisite to discover the reason. Upon this question of the currency the whole character and repute of Sir Robert Peel as a financial minister are staked, and he dare not abandon his measure of 1844, without tacitly admitting that he has committed a most serious and unpardonable blunder. Accident has intervened to postpone any actual test of the efficiency of his other measures. We do not yet know what effect the alteration of the corn laws may produce upon the welfare of the nation in an ordinary year, or whether any of the blessings so abundantly promised may be realized to the poor without a more than corresponding depression. The tariffs abroad continue still hostile and unrelaxed, and although the smaller manufacturer, artisan, and workman, are already beginning to feel the baneful effects of foreign competition in the home market, their cry is not yet loud enough to excite a large share of the popular commiseration. Two great events stand prominently forward in the aspect of the present year—the scarcity and high price of food, and the want of commercial accommodation among ourselves.

The first is the act of Providence. No human foresight, no political skill, could have prevented it, and the scourge has mercifully fallen at a time when the demand for labour has materially lessened its severity in Great Britain. But that same scarcity, by leading to an exportation of the precious metal, has been undoubtedly the means of testing the soundness of our monetary system. As the prosperity of these islands, and our wonderful ascendency in the great markets of the world, depend upon the state of our trade and our manufactures at home, it was obviously the duty of a minister, who, more than any other, professed his intimacy with commercial principles, to take care that the evil of a scarcity should not at the same time be combined with the still greater one of a monetary crisis. If gold must be paid away in order to purchase the necessary supply of food for our population—if in addition to our own wants we are compelled to ward off starvation from the thoughtless and unenterprising Irish—we were doubly bound to take care that our great staple resources, our trade and our manufactures, should not suffer from any cause over which we had the evident control. And yet, how do we stand at the present moment? No sooner does the drain of bullion begin, than the Directors of the Bank of England, placed by this odious and uncalled-for measure of Peel’s in sudden jeopardy of their charter, begin to put on the screw. The country bankers, who must take their cue from, because they are rendered entirely subordinate to the great establishment in London, are compelled to follow the example. First of all the rates of discount are raised, and then credit is peremptorily refused. This, be it remarked, is at a time when the solvency of individuals is unsuspected,—were it otherwise, the crash must have been tremendous ere now. The enormous bulk of the real circulation of the country, which is represented by bills of exchange, and which never can be estimated with any thing like an approximation to its amount, is thus instantaneously checked. The Banks cannot discount—the bills become useless, and the property on which they are based, can not now command its representative. Fifty thousand pounds of silver bullion could not command five thousand pounds of money in the public market of London. The manufacturer saw his credit stopped, his bills unnegociable, but he had still to pay the weekly rate of wages, or suspend labour, as indeed in many instances has been done. And all this, because Sir Robert Peel has forced the fountain of our currency to run dry. And then comes a depreciation of the value of property, the extent of which would be almost incredible, were not every one of us, except the Capitalist and the Annuitant, aware of it by melancholy experience. According to Lord Ashburton—“It would not be easy to estimate this depreciation, extending over all merchandise, stocks, railway shares, &c.; it would probably not be overstated at FROM TEN TO TWENTY PER CENT.; but what is worse, it has paralysed this property in the hands of the possessors, rendered it unavailable towards meeting their engagements, and thus produced in many cases pecuniary sacrifices much beyond the mere depreciation of the property itself. It has further occasioned the suspension of the execution of orders from our customers in every quarter, thus distressing manufacturers, and impeding those very operations which would have corrected the tendency to an unfavourable balance of trade, and given safety to the circulation of the Bank.”