Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/considerationsonOOtookrich ,!yr" CONSIDERATIONS ON THE STATE OF THE CURRENCY, By THOMAS TOOKE, F.R.S. LONDON: JOHN MURRAY, ALBEMARLE-STREET. MDCCCXXVI. i^rttCKt:.,. r^^'* ^^.^1 LONDON: Printed by William Clowes, Northumberland- court' ADVERTISEMENT. The original design of this publication was that it should serve as a sequel to one in which I have endeavoured to trace the causes of the fluctuations which had occurred down to 1822. And in pursuance of that design it was my in- tention to introduce a detailed description of the circumstances which have led to the late crisis, with statements of quantities, as well as of prices, illustrative of the different points which it was my object to explain. But in the progress of my attempt, I found that to pursue this plan systematically woul3 require, in the collection and arrangement of materials, more time than I could allot to it, consistently with the purpose of being ready for publication within the period in which alone the discussion a 2 IV was likely to be of any interest or use. It occurred to me also, upon consideration, that as the greatest part of the facts which I had originally purposed to insert, are either matter of notoriety or of ready access, a detailed de- scription of them would have made the work more cumbersome, without -adding, in a propor- tionate degree, to the force of the conclusions. I have confined myself, therefore, in the follow- ing pages, to a sketch of the most prominent features of the circumstances which have pre- ceded and accompanied the recent transitions, and to such statements only as are essential to a full exposition of my view of the general causes which have produced those transitions. Richmond Terrace, IVhitehall, Jan,2S, 1826. \ / y or THE ' UNIVERSITY INTKODUCTION. The period of three years, which has elapsed since I attempted to explain the causes which had produced the variations of prices in the thirty years terminating in 1822, has been signalized by fluctuations almost as great as in that remarkable interval, and by revul- sions of commercial credit, still more striking and destructive. The urgent necessity of devising means of preventing, or at least diminishing the range of such fluctuations, has been painfully brought home to the conviction of the public. But this object, if it is attainable at all, can only be realized by an accurate appreciation of the whole of the causes of the evil. No remedy can be applied until all the defects in the system of our currency be exposed. To do this as com- pletely as the importance and extent of the sub- ject would require, is a task requiring much more leisure than I can devote to it. If there are a few points relating to the discussion of these topics, which the following pages will be found to elucidate, my purpose in publishing them will be fully answered. Of the different causes which I had occasion to assign, in explanation of the fluctuations that occurred from 1793 to 1822, the alterations in the system of our currency, by the bank restric- tion and resumption of cash payments, and by the effects of war and the transition from war to peace, being wholly inapplicable to the fluc- tuations of the last three years, there remain only, 1. The seasons. 2. • Alterations in the value of the currency*, * On reference to the arguments contained in my former work on the subject of alterations in the value of the currency, as among the concurrent causes of the great fluc- tuations of prices which had occurred in the thirty years ending in 1822, I am sensible of an error in the mode of statement of the arguments, and in one or two expressions, which, although of no great importance, I take this opportu- nity of explaining. The whole scope and object of my argu- ment was to negative the alleged influence of the bank re- striction and resumption acts in raising and depressing general prices beyond the degree indicated by the difference between paper and gold. I did not mean to deny that there were great fluctuations in the value of the currency during the period referred to, beyond the indication by that test : on the contrary, I distinctly stated, that from the powerful in- in a state of the circulation in which the bank paper is perfectly convertible. But the former not having been, in the last three years, characterized by any very decided deficiency or exuberance of general produce, cannot be adduced as having had any promi- nent share in the recent, as they undoubtedly had in the former, fluctuations. I shall, there^ fore, not consider these under a distinct head, ducements held out to speculation, by the circumstances of the war and the vicissitudes of the seasons, there were great alternations of enlargement and contraction of country bank- notes, and of private paper, and credit, occasioning great tem- porary variations, which would equally have occurred in the value of the currency, independent of the bank restriction. But I ought, at the outset of the work, to have stated, more distinctly than I did, the division of the argument into two branches, w'z., that of alterations in the value of the currency arising from the suspension and resumption of cash payments, and that of alterations in the value of the currency from cir- cumstances which would have affected it independently of those measures. With this explanation, and with the correc- tion of two passages, viz., one in page 135, second edition, line 16, from top, where, instead of the mere word " currency," should have been inserted the words *' alterations in the system of the currency ;" and the other, in page 143, in last line but one, where I have inadvertently used the word " value'* instead of " si/s^em of the currency," I am perfectly ready to abide by the result of any comparison of the con- sistency of the views which I then entertained with those which I am now bringing forward on the subject of the currency. but only notice them incidentally. And the whole discussion in the following pages will turn upon the degree in which the currency has been connected, in the relation of cause and effect, with the violent transitions between high and low prices, between the extremes of con- fidence and alarm which have prevailed in the commercial world. SECTION I. Upon the causes which determine the rate of interest, and the application of these to the late fluctuations. Among the most striking and important of the fluctuations which have occurred within the period under discussion, are those of the prices of the British and Foreign funds : but the prices of the funds, in as far as there is no question of risk, are neither more nor less than the mea- sure of the variations in the rate of interest. In accounting, therefore, for the great alterations in the prices of government annuities and secu- rities, it becomes desirable, as a preliminary- step, to investigate the circumstances on which the rate of interest depends. It will appear, moreover, that the rate of interest enters as cause and effect into every consideration of the regulation of the paper currency in this country ; it would be difficult, therefore, if not impossible, to proceed intelligibly in the discussion of the manner in which the paper circulation has been administered, or of the merits of the system itself, without something like a clear under- standing of the causes which influence that rate. The commonly received opinion, and that I 6 which is generally adopted by political econo- mists is, that the rate of interest is governed by the rate of profit. In an article in the Edinburgh Review, No. 79, under the title " Standard of National Prosperity," pp. 8 and 9, which is nearly a transcript of some of the opinions con- tained in the lectures delivered by Mr. Mac Culloch, is the following passage : ** Interest rises as the rate of profit rises, and falls as it falls: the one is directly as the other." It is admitted, in the same passage, that *' it is often difficult to determine what is the precise ave- rage rate of profit at any particular period; but,'* the reviewer adds, ** it is never difficult to de- termine whether it is higher or lower at one period than another, or whether it is rising or falling." " For," he goes on to say, *'this may always be learned with the greatest facility from the rate of interest paid for capital lent on good security." My only purpose, at present, is to inquire in what respect the rate of interest is an index of the rate of profit, and how far the former depends upon the latter. Without entering therefore into the question, whether the rate of profit ever has been, or is, or ever can be deter- mined, as applied to the return to capital, in a national point of view, I would ask, whether the rate of interest, at any particular period, is in- dicative of past, present, or future profit? Fast profits, the present rate of interest cannot indi- cate, because the capital borrowed for the purpose of obtaining that profit, has, by the supposition, been realized, and the borrower has, for that purpose, no further object in pay- ing for the use of the capital. Present profits, as contra-distinguished from past or future, cannot be said to exist. When they have been real- ized, they are past ; as long as they depend on a contingency, they are future or expected profits. The proposition, then, resolves itself into this. That the rate of interest, at any time, indicates the degree of expectation of profit : and then^ as it is assumed that the expectations of those who borrow money, with a view to profitable em- ployment, are likely, on an average, or in the long run, to be realized, the average rate of in- terest may be supposed to bear some proportion to the rate of profit. Thus, on an average of some indefinite number of years, sufficient to equalize the effects of seasons, political and commercial changes, alterations in the value of money, and every source of miscalculation, the customary rate of interest might be assumed to bear some proportion to the rate of profit. But, even on this supposition, the rule would be of little practical utility in the application to passing occurrences, or to determine whether, in any period so short as three or four, or even 8 ten years, the rate of profit was higher or lower, rising or falling, compared with any other equal period. The author, however, of the article which I have quoted, infers, that be- cause the rate of interest at the precise time when he was writing, had fallen, and was appa- rently falling, the rate of profit, and the power of accumulation in this country, were dimi- nished in a corresponding degree. By the same rule it might be inferred, that, as within the last few months the rate of interest has risen conside- rably, the rate of profit and the power of accu- mulation are, in the present distressed state of the commercial community, greater than they were two years ago : nay, even extending the remark to longer periods, viz. of ten or twenty years' duration, what, according to that rule, would be the inference as to the rate of profit ? Cer- tainly this : that as, during the whole of the last century, and the twenty-five years of the pre- sent, the average, or customary rate of interest on good security, was higher during the periods of war, than in the intervening periods of peace, the rate of profit, and consequently the power of national accumulation, must have been greater in the periods of war than in the pe- riods of peace. But as I believe that no person conversant with the nature of the money market would for a moment doubt that in every future war, if of any extent and duration, the 9 rate of interest not merely on government secu- rities, but on all safe investments, would be higher than in an equal period of the preceding or succeeding peace, the proposition would, upon the grounds supposed, admit of being generalized thus: That the rate of profit, and the power of accumulation, must be greater in war than in peace ; and the final conclusion would be, that perpetual war would be attended with perpetual prosperity : a conclusion so mon- strous, that it must naturally lead to a suspicion, or rather to a conviction, that the premises are unsound, I am inclined to think that one of the funda- mental errors of the doctrine in question is, that the following consideration is overlooked, viz: that while the returns to the whole of the national capital laid out with a view to reproduction, are, and must be, estimated in kind*, (supposing that there were means of making such estimate,) the rate of interest is always computed in money ; consequently, pro- fits estimated in money are not, necessarily, in the ratio of national profits estimated in commo- dities : the variation of the one is not, therefore, * And that the author of the article which I have quoted supposes the estimate of profit to be made in kind, or in the quantity of commodities, may be collected from what he states at p. 14 to 16 of that article, and, indeed, from the whole course of his reasoning. 10 necessarily indicative of the variation of the other. It would be incumbent on the reviewer, in the first instance, to point out the invariable connexion between the returns to national capital, estimated in kind, and the returns to individual capitals, estimated in money ; and in the next place, the invariable equality of the proportions of the whole national capital, com- pared with its productiveness, and of the supply of monied capital seeking secure investment, compared with the demand for the use of such capital, by persons having good security to offer, this latter being the condition by which the rate of interest is determined. This, the author whom I have quoted has not attempted to do. Another source of error in the reasoning, which seems to lead to the conclusion which I have pointed out, is the unqualified assumption, that money is borrowed with a view only to repro- duction, or in other words, for profitable em- ployment. The assumption is an unqualified one, otherwise it would not bear out the con- clusion. For admitting that such may be the case in the majority of instances, the exceptions might be, as they are, so large as to destroy the application of it to the business of real life. A third source of error consists in overlook- ing the consideration, that monied capitals may increase in a greater ratio than the means of 11 employing them, without personal superintend- ence, although the sources of production, and the degree of their productiveness may likewise have increased. And thus the interest on the best securities, involving no trouble, may fall, as the returns to mercantile, or other profes- sional skill, rise. Having thus noticed what I conceive to be the errors of a doctrine, which proceeding from a writer whose opinions have deservedly very great weight, might, if not pointed out, lead to injurious practical results, I will proceed to state what occurs to me in explanation of the causes of the variations in the rate of interest. I should define the rate of interest to be that proportional sum which the lender is content to receive, and the borrower to pay, annually, or for any longer or shorter period, for the use of a certain amount of monied capital*, without * To distinguish with perfect accuracy between monied capital and currency is a matter of some difficulty, and perhaps would require a detailed analysis of every species of mercantile transaction. In general terms, however, that may be called monied capital which is lent on the security of bills, that is, on discount, on mortgage, or on any other kind of security ; — while currency is that medium^ whether consisting of gold, notes, bills, or credit, by which the purchase of commodities is effected. In ordinary discourse, both monied capital and currency are called money, and the market for monied or disposable capital is called the money' market, and hence much confusion arises from the use of 12 any consideration for trouble in the collection of the income, or for risk as to the punctual repayment of the interest or principal at the stipulated periods. Whatever is received by the owner of a monied capital fo** the loan of it, beyond that rate, ought to be considered in the light of a remuneration for risk or trouble. ^ In this view, the rate of interest is the measure i of the net profit on capital. All returns beyond ' ' this, on the employment of capital, are resolva- ble into compensations under distinct heads, for risk, rouble, or skill, or for advantages of situation or connexion. When the owner of a capital employs it actively in reproduction, he does not come under the head of those capital- ists, the proportion of whom, to the number of borrowers, determines the rate of interest. It is only that class of capitals, the owners of which are unwilling or unable to employ their money actively themselves, which has any immediate influence on the rate of interest. This is the description of capitals which M. Say calls Capitaux disponibles. the word monej/, where monied capital is meant. M. Say notices this distinction between money and disposable capital^ and the errors to which the confounding of the two terms together has given rise, in his excellent and justly celebrated work " Traite d'Economie Politique," p. 112. et seq. The possessors of disposable monied capitals, who operate on the rate of interest as lenders, may be classed under the following heads : 1. Persons or bodies of persons, trustees, or others, who are precluded by legal or other disability from investing any money which they have to lay out, in any security that is attended with either risk or trouble. Banks, whether corporate, or consisting of private individuals, in as far as they conduct their business ac- cording to correct banking principles, may be reckoned under this head. It is perfectly pos- sible that, within certain limits, an increasing proportion of national monied income may be accumulated in the hands of persons or bodies coming under this description, to such an amount that if the borrowers who have secu- rities to offer which involve neither risk nor trouble to the lenders, be limited to a certain number, the rate of interest upon such se- curities may be depressed in almost any degree*. It is clear, in this point of view, that a fall in the rate of interest on the best securities is no criterion of the returns to ♦ It is on this account that an increased issue of Bank of England, and other bank, notes in the way of loans to go- vernment, or of discount on mercantile bills, contributes to reduce the rate of interest, when there is no corresponding increase of borrowers having the most undoubted security to offer. 14 capital actively employed, which involves the necessity of risk, trouble, and skill. If by any financial operation, brought about without any intermediate disturbance of property, as for instance, by an effective sinking fund, our national debt were reduced to one or two hun- dred millions, it is not inconceivable that any perpetual annuities offered by government, within that amount, would fetch fifty years' purchase, or in other words, that the rate of interest, al) other things remaining the same, would, on such securities, be reduced as low as two per cent, per annum. A state of war, on the other hand, may easily be supposed to raise the rate of interest by creating a supply of that description of security to a larger amount, and more rapidly, than could be absorbed by the accumulations of the class coming under this head. A rise in the rate of interest is, therefore, a condition for obtaining the requisite funds from the other classes of persons possessing monied capitals. Hence it may be seen why the rate of in- terest, as measured by securities involving no risk or trouble, should be lower in peace than in war, without resorting to any difference in the rate of profits, to account for that difference in the rate of interest. 2. Persons who are willing to take some u trouble, with little if any risk, and who invest their monied capitals in mortgages, ground- rents, or in loans on goods and other secu- rities involving the necessity of superinten- dence, and more or less of trouble and exertion in collecting the annual interest. In proportion to the difficulty of obtaining good securities of this kind, except at a reduced rate of interest, this class would be liable to merge into the next class which will be mentioned. The prevalence, however, of habits of pru- dence, and the consequently increasing propor- tion of the national income accumulating in the hands of this, as well as of the first class, would enable persons possessing skill for the active employment of capital, or enjoying advantages of situation or connexion, and offering sufficient security, to retain a larger portion of the re- turns, as a compensation for their risk, trouble, and skill. Supposing the whole returns to capital to remain the same, a diminishing pro- portion might go as the net profit to the monied capitalist, and an increasing one to mercantile, manufacturing, farming, or other pro- fessional skill. These returns, beyond the mere interest of money, and beyond what may arise from rent or the monopoly of situation, con- nexion, &c., M. Say classes under the head of 16 profits industriels, as contra-distinguished from profits de capitaux, a distinction which our eco- nomists might adopt with advantage. 3. Persons, who, in order to obtain a higher rate of interest, or a higher price for the use of their monied capitals, are willing to run an extra degree of risk in the investment of them, but without bestowing personal labour, or pos- sessing any technical knowledge or skill, to qualify them for the active management of such investment. This is a class, the extent of which could not have been adequately conceived till the ex- perience of late years, in which the success of foreign loans, and mining schemes of the most hazardous nature, proves how many per- sons there were in this country, who, having some property, were willing to embark it in enterprises of more or less hazard, provided that such enterprises promised on the face of them to yield more than the common rate of in- terest, without requiring labour or skill. In pro- portion as the funds of this class have been absorbed in successive payments to the loans and schemes, they must have been withdrawn from the competition with the two first classes of lenders, and this new mode of investment must, consequently, have operated thus far in preventing a fall, if not, in occasioning a rise, in 17 the rate of interest on the best securities in this country. At the same time that the progressive reduction in the rate of interest, on the best securities, must have detached many raonied capitalists from the two first classes, and brought them into the third. There can be no doubt, therefore, that the fall in the rate of in- terest, an artificial one as it now appears, was, in some degree, a necessary condition of the success of those loans and schemes to the ex- tent to which they were carried. The three classes of persons here enumerated as being lenders of monied capital, include those, who, being actively engaged in trade, manufactures, or farming, accumulate more than they can re-invest in their own occupation, with the prospect of getting the ordinary rate of interest, after allowing for a remuneration for their labour and risk. A material consideration to be here borne in mind is, that it is only as long as those capitals are floating, or disposable, that they operate on the rate of interest. When once they are in- vested, whether for a long or a short time, they are out of the competition of lendable capitals, and cease to affect, directly, the rate of interest. Thus, if I have invested my monied capital in the discount of bills, however undoubted in point c 18 of security, and at however short a date, that sum is withdrawn from the amount of floating or disposable capital. I may, indeed, if I have a sudden occasion to require so much money for immediate use, get the bills re-discounted for me, but tlien this sum must be withdrawn from the amount of floating or disposable capital in other quarters. These being the principal heads under which the lenders of monied capitals may be classed, constituting one of the conditions on which the rate of interest depends, viz., the supply, it re- mains to consider what is the description of the borrowers, who constitute the demand. These may be classed as follows : — 1. Persons who have the prospect of being able to employ a capital beyond their own funds, in such a manner as to afford a return adequate to remunerate them for their trouble, and skill, and risk, after replacing the amount advanced, together with the sum stipulated for the use of it. 2. Persons who, having embarked the whole of the capital which they possessed, and having entered into engagements which require larger advances, and afford smaller returns than they had anticipated, call for a further sum, of such an amount, as their securities, or credit, enable 19 them to obtain, in order to make up for the de- ficiency, or temporary absence of the returns which they had reckoned upon. 3. Persons who have occasion to borrow, in order to supply the means of unproductive ex- penditure beyond their income. This head in- cludes a great number of borrowers, having various kinds of securities. It embraces not only those who are proprietors of lands and houses, which admit of being mortgaged, or who have personal security to offer, but the government, which may mortgage the revenues of the state. Under this head may be con- sidered the agents of foreign governments, who may raise loans in this country, or, in more general terms, may offer foreign government se- curities, which hold out adequate temptation for investment on the part of capitalists in this country. An attempt at a classification of particulars like these, may appear to some too much like a parade of science ; but it is only by treating the subject in this way, that the causes of variation in the current rate of interest can be extricated from the confusion in which they are involved by the attempts which have been made, in discussions purely scientific, to account for all such variations by the supposition of correspond- ing alterations in the rate of profit. c a 20 The simplest way, as it strikes me, on all such occasions, is, where any thing like an analysis can be made, to consider, in the first place, the effect of an alteration in each class of the circumstances under consideration sepa- rately, the others remaining the same, and then to trace the influence of any variation in each class on all the others. To do this completely, however, would require a much greater length of discussion than would be consistent with the immediate object of the present inquiry ; and I shall content myself with pointing out the manner in which the state of the currency affects the conditions of the rate of interest, and in which the change of these conditions again affects the state of the currency. Suppose that, at a given time, all these con- ditions were in their ordinary state, and that the current rate of interest were, consequently, steady, it is very easy, then, to conceive how a sudden increase in the issue of paper, by banks of circulation, may disturb that state of things, notwithstanding that the amount of such increase may be apparently small, when compared with the whole of the national capital ; for it is not with the whole, nor even with any conside- rable part of the national capital, that what I consider as a nominal addition to it, by a fresh issue of bank promissory notes, comes in com- 21 petition. The amount of capital seeking invest- ment, at any given time, may easily be imagined to be so limited, that what might otherwise appear to be an insignificant sum, may yet be a large proportion of that amount, and may, consequently, produce a great temporary de- pression in the rate of interest, on that de- scription of security for which it comes directly into competition. But in reducing the rate of interest on the best class of securities, this competition drives the possessors of capital seeking investment, to the alternative of submitting to a diminished income, or of running a risk which they other- wise would not have done, in the disposal of it. And it is, in most instances, the proprie- tors of the smaller capitals, being those upon whom the reduction of income presses hardest, who have recourse to the more hazardous in- vestments, whether on comparatively slender private security, or in sleeping partnerships, or in joint-stock companies, or in foreign loans. It must be evident that the same reduction of interest, which leads the possessors of float- ing capital to incur an extra risk in their invest- ments, is likely to induce persons who have credit, and who are in the active employment of capital, to extend their engagements, if there be any speculative ground for anticipating an 22 advance of prices. This they may do, either by purchases on credit, to a greater extent than usual, or by borrowing at the reduced rate of interest. If the reduction in the rate of interest, and the facility of credit thence arising, should coincide with a tendency from other causes, ta a speculative rise of prices, and with the opening of new fields for enterprise, there will naturally be a great extension of the demand for the loan of capital, by borrowers under the first head. In the period, however, the consideration of which will form the chief subject of the present inquiry, the increase of borrowers under that head, in consequence of the disposition to spe- culate, and to form joint-stock companies, had not any immediate or very sensible effect in raising the rate of interest : it merely prevented the greater fall, which, otherwise, must have been occasioned by the immense augmentation of paper, or nominal capital*, which was created * I make a distinction between capital in the scientific use of the term as applied to the actual funds destined for re- production, consisting of raw materials, &c., and monied capitaL In a settled or uniform state of the currency, how- ever, and in the ordinary use of credit, these two terms may be considered as identical or convertible. But during the progress of an increase of the currency there is a factitious increase of monied capitalj and this I have called nominal, which comes in competition with the pre-existing monied 23 during that period, as will be hereafter more particularly noticed. The supply of nominal capital ; and it is while in this state of increase that it both reduces the rate of interest, and diminishes the value of money. It cannot enter into circulation otherwise than by reducing the rate of interest, other things remaining the same ; as it must inevitably, at the time it is issued, increase the number of lenders, or diminish the number of borrowers. The additional currency, in whatever way it comes into circulation, and whether it is in the form of gold or paper, or mere credit, must, eventually, raise the price of commo- dities and labour. But as almost every increase of paper, excepting what is paid by the bank for bullion, is issued in the way of loan, either to government, or to individuals, it is likely to affect the rate of interest in the first instance, before it comes in contact with commodities. And this may account for an observation which I have heard made, and which appears to me to have some foundation, and that is, that the effects of an increased circulation are perceivable in an advance of the funds, and other securities bearing inte- rest, before they can be traced to the prices of commodities : and the converse holds with regard to a diminution of the currency while in progress. When the amount of the cur- rency has become settled, for any length of time, at a par- ticular level, it is immaterial, as relates to the rate of inte- rest, whether the level of the currency be at one half or at double of its former value : the rate of interest will then be governed entirely by the supply of, and demand for, capital, as resulting from circumstances independent of the currency. But it cannot be too constantly borne in mind, that every alteration in the amount of currency produces a temporary effect upon the rate of interest. 24 capital was increased, during that period, in a ratio equal to, if not beyond, that of the imme- diate increase of demand, great as it was. In the early progress of a general specula- tion, the immediate absorption of capital is com- paratively small. The increased demand for capital by the class of borrowers described under the first head, may not only not outrun the increased supply of nominal capital, created by an enlargement of the circulating medium, so as to produce a rise in the rate paid for the use of such capital, but the enlargement of the circulating medium may be, and, indeed, com- monly is, under such circumstances, so large as to produce a/a// in the rate of interest. But the case, in the further progress and termina- tion of a general speculation, is widely different. There is, then, an immense increase in that class of borrowers, which comes under the second head ; and in proportion as the faci- lity of obtaining credit, as indicated by a low rate of interest, has been such as to give great latitude to speculation, there will be an increased demand for capital, and the intensity of the demand will be indicated by a great rise in the rate of interest. The demand is no longer limited, as it was, by the prospect of ad- vantage to be made by the outlay of the capital, after defraying the rate required for the use of 25 it ; it is now limited only by the utmost extent of the securities of every description, which all persons who have entered into engagements beyond their own immediately available or con- vertible capital can bring forward. If, there- fore, the nominal amount of capital were the same as it had been when the disposition to over-trade was at its height, there would, by the rapidly increasing absorption of funds, and the consequently urgent wants of the borrowers, be a considerable rise in the rate of interest. "No complaint (observes Dr. A. Smith, Wealth of Nations, vol. ii. p. 151 and 152) is more common than that of a scarcity of money. Money, like wine, must always be scarce with those who have neither wherewithal to buy it, nor credit to borrow it. Those who have either, will seldom be in want of the money, or of the wine, which thev have occasion for. This com- plaint, however, of the scarcity of money, is not always confined to improvident spendthrifts ; it is sometimes general through a whole mer- cantile town and the country in its neighbour- hood : over-trading is the common cause of it. Sober men, whose projects have been dispro- portioned to their capitals, are as likely to have neither wherewithal to buy money, nor credit to borrow it, as prodigals, whose expense has been disproportioned to their revenue. Before their projects can be brought to bear, their stock is gone, and their credit with it. They run about everywhere to borrow money, and every body tells them that they have none to lend." But coincidently with, and partly arising out of the very circumstances which entail a recoil of the speculation, and a consequent in- crease of the number of borrowers, is the occur- rence of a great diminution of the amount of disposable or monied capital. All that part of the nominal capital which arose out of the in- crease of the circulating medium, beyond what the ultimate reference and necessary subsidence to a level with the value of gold, in the rest of the commercial world, could admit of being retained in circulation, is swept away by the process which I have, on former occasions, described. Not only is there a very great dimi- nution of the amount of disposable capital, from this cause, but a further reduction must be allowed for, from the large proportion of per- sons, bankers and others, who having, in ordi- nary times, and during the general prevalence of prudence in the conduct of business, confined themselves to the safest ^nd most convertible securities, have been tempted, if not driven by the low rate of interest, into loans on doubtful 27 or inconvertible securities, and, perhaps, into engagements by which they are themselves brought into the class of borrowers. Thus, while the demand for capital is in- creased in a very great degree, the supply of it is diminished, not only relatively to the in- creased demand, but to the former amount of supply. There can, therefore, be no difficulty in such cases, in accounting for the great rise in the rate of interest. And this process has been strikingly exemplified in the recent state of the money-market*. * The following extract from a paper published at New York in July last, describing a state of things very similar to that which we have lately witnessed here, and arising from similar causes, may, perhaps, not be uninteresting as an illustration of the foregoing remarks : — " The scarcity of money is probably greater in Wall-street at this moment than it has been for many years ; the full explanation whereof, it would perhaps be difficult to ascer- tain. Some of the causes may, however, be assigned. Among the most prominent, we should be disposed to place that of the many new companies incorporated by the last Legislature. It was assumed as a fact, both by the petitions for these companies, and by the Legislature itself, that a great mass of unemployed capital was lying idle in New York, to which these companies would afford the means of profitable investment and employment. This assumption was, in our judgment, unfounded. We do not believe there was any excess or superabundance of capital ; and all calcu- lations, therefore, made on the existence of such were er- 28 roneous. New companies, however, were chartered, and great demand was created for these stocks — a spirit of spe- culation was engendered, and men of all descriptions and degrees, were seen striving to get shares in this or that bubble, not with any view to (for most of them had not the means of) a permanent investment ; but calculating that, by- good management on the part of the directors, and from the craving of the superabundant capital for employment, these shares must rise. Hence persons without any means, or any judgment or knowledge in such matters, became subscribers ; borrowing, on the pledge of their shares, the money to pay for them, until, by a repetition of this process, one and the same sum was often made to represent as many times its value as there were new companies. All of a sudden, how- ever, in the natural course of trade, that capital which was deemed superabundant, but which was in fact only awaiting its usual and accustomed modes of employment, is called for— the purchaser of cotton has to pay for it — the importer of goods has to remit, the projector of distant voyages has to prepare his funds. Moreover, receipts from foreign ship- ments have fallen short of expectation. The adventures round Cape Horn and to the Brazils, in flour, &c., have brought back few or no returns ; the markets are glutted — the shipments to the Spanish Main, of dry goods, have been overdone. The pause in cotton abroad has interrupted sales ; hence, from all these combined causes, the merchant is thrown upon his resources at home, and the money that had been lent on pledges of stotk, is recalled to its natural and proper vocation. But how is it to be repaid ? The borrowers of it must sell the stock given to secure the loans. But the very demand for money, for the purposes above enumerated, dampens the spirit and means of speculating in the stocks, and ^ales cannot be made therefore without great sacrifices. "What is the consequence ? The holders for the rise make 29 every possible effort to avoid the necessity of selling ; they borrow anywhere and everywhere, and at every rate of in- terest. They besiege the Banks, the Insurance Companies, and individuals — for they must, at some sacrifice or other, repay what they have borrowed, or their career is up ; and it is precisely, as we are informed, among tliis class of spe- culators, that the distress for money is most severely felt. " Another cause, perhaps, of the scarcity of money, and of the extreme unwillingness of the banks to discount, is the disproportion between the specie in bank, and the paper in circulation. It is very — we should say, if censure could be made to bear where it ought — inexcusably great. How this has happened, it would at this moment carry us too far to inquire, though we may attempt it hereafter. The fact, however, is indisputable." The following extract of a Letter from an eminent mer- chant in New York, dated 23rd November, is likewise strongly corroborative of my observations respecting the effect produced on the interest by the recoil of extensive speculations : — ** No bill of exchange can be sold here but on credit of two, three, and four months ; and such is the precarious state of commerce, that such payments are hazardous in the extreme, and paper discounted at from 1^ to 3 per cent, per month. Failures are consequently daily occurring, and nu- merous ; some, to a considerable amount." 30 SECTION II. Upon the high and low Prices of the last three Years, and upon the Degree in which these have been connected with the State of the Currency. The phenomena of the high and low prices, which have occurred within the three last years, may be classed under two distinct heads. The first comprehends those articles of which the rise of price may be clearly traced to a de- ficiency of supply, arising from the operation of natural or artificial causes, such as the seasons or other casualties in some instances, and in other instances from the more permanent influ- ence of monopoly, as in the case especially of articles of food, this class of commodities still maintaining a high range of prices. The second comprehends the commodities and other objects of exchange, which, having risen more or less, as a consequence of un- founded speculation, have, in the majority of cases, subsided to, and in some below, the level from whence they rose. The latter class is that alone, the great va- riation in the prices of which can fairly be ascribed to the operation of the currency ; but it embraces objects of such extent and im- 31. portance, as fully to account for the alternation of general excitement and despondency, and for the appearances of unbounded commercial pro- sperity, succeeded by every indication of de- pression, stagnation, and discredit, which have marked the period under consideration. That a great part of these fluctuations of prices may be ascribed to the state of the cur- rency, is, a priori, to be inferred from princi- ples generally admitted : for the theory of money alone would lead us to expect, in cases where a great alteration in the prices of nume- rous and extensive classes of commodities or other objects of exchange, cannot be distinctly traced to any adequate difference in the circum- stances affecting the supply and demand, that there must have been some corresponding alter- ation in the amount of the circulating medium. The correctness of this inference a przon, admits, in the present instance, of being confirmed by direct evidence of the fact of an enlargement of the circulating medium, sufficiently consi- derable in point of amount, and coincident in point of time, to account for the rise of prices : while, on the other hand, in the absence of any direct evidence of the relative amount of Bank of England notes, since the fall of prices hasi occurred, the extensive destruction of the cir- 32 culation of country notes by the numerous failures and suspensions of the banks, and the depression of mercantile credit, are quite suffi- cient to establish the fact of a great diminution of the aggregate amount of the circulating medium*. The directors of the Bank of England, in pursuance of a policy, which, without being beneficial to themselves or the proprietors, is very injurious in its consequences to the public, commonly endeavour to throw a veil of secrecy and mystery over their proceedings. Being called upon in Parliament, during last session, for a return of their issues of notes since Fe- bruary, 1824, the date of the last return made by them, they thought proper to refuse to comply with the request. Parliament having acquiesced in that refusal, it would have been * Consistently with my main object, of giving practical and detailed proofs in illustration of the points now under discussion, it will be superfluous for me to enter here into the general reasoning, from which it is to be inferred, that no such extensive rise of prices, except in case of scarcity, could take place without an increase of the effective powers of the circulating medium, and vice versd. I shall content myself, therefore, with merely referring, in general terms, to the obvious nature of the grounds on which that conclu- sion rests, and assume it to be granted. , 33 difficult, if not impossible, to obtain any account of the amount of bank notes in circulation, be- yond the very imperfect information given in answer to questions by proprietors, at their half-yearly meetings. But it was, fortunately, discovered, that as the bank was obliged, by Act of Parliament, to deliver to the Commis- sioners of Stamps, on the 1st of May in each year, an account of its weekly issues, the de- sired accounts might be obtained through the Stamp Office. Owing to the wording of the order, in the first instance, a return was made only of the averages for the three periods of three years each, ending respectively in April, 1823, 1824, 1825. This return presented the following results : — In 3 years, ending April 1823, . . f . 20,603,548 , 1824, . . . 18,984,499 1825, . . . 19,092,005 exhibiting a decrease in the two last averages. This circumstance was deemed by most of those who commented upon it at the time, as being conclusive against any imputation upon the bank, of having contributed, by its issues, to the speculations which then prevailed. It was, however, not difficult to see, that the view pre- sented by this return was a fallacious one ; for the first average contained more than a year, D 34 and the second a few months, in which the issues of II. notes formed a considerable pro- portion, not less, probably, than seven or eight millions ; whereas, in the period embraced by the last average, the 1/. notes had been called in, and replaced by an issue of sovereigns. The amount of the 1/. notes ought to have been allowed for, either as a deduction from the first two averages, or to have been added as sove- reigns, after the period when and in proportion as the I/, notes were withdrawn. The fallacy became evident upon a return from the Stamp Office, in obedience to an amended order for the weekly issues. From this document, which was ordered by the House of Commons to be printed, on the 2d of June, 1825, it appears that there was a very considerable increase of the issues during the two years ending April, 1825. The increase is most striking upon a comparison of some particular weeks in corresponding periods of each year : thus, the amount of notes in circulation was, Jan. 4, 1823, ....£. 16,379,530 Jan. 3, 1824, 17,230,799 Jan. 1, 1825, 20,756,948 But as this difference may be supposed to be accidental, and of a duration insufficient to in- fluence the value of the currency, let us take the 35 average of the weekly returns for each of the three years, ending April, 1825, viz., April, 1823, . . . £17,750,473 April, 1824, . . . 19,011,575 April, 1825, . . . 20,881,123 After these statements, it is presumed that the fact of an increase in the bank-circulation, of three millions, having taken place in the year ending April, 1825, as compared with the cir- culation in the year ending April, 1823, will not be disputed*. I am very far from contending that an exten- sion of the issues of Bank of England notes necessarily operates in raising prices, and even- tually depressing the exchanges. Much less that it is, as has been sometimes asserted, inva- riably accompanied by a corresponding increase in the issues of country banks, and in the circu- lation of private paper : on the contrary, I have, in my former work, adduced instances to shew that a considerable diminution of country bank notes, and of private paper, and a great fall of prices, have sometimes occurred coincidently with a marked increase of Bank of England notes. * I have inserted in the Appendix (B), a statement of the monthly averages of the weekly issues for each of the three years, ending April, 1825, as stated in the return from the Stamp Office, dated May 28, 1825. D 2 36 In such instances it was clear that a reduc- tion of the other component parts of the circu- lation had taken place in a proportion greatly beyond the increase of Bank of England notes, and that the total of the circulating medium was diminished. But I had further occasion to shew that if, under circumstances favourable to speculation, and, consequently, to the extension of country bank notes, and private paper, an extended quantity of Bank of England notes were issued, the rise of prices would be so much the greater and more rapid. It so happens in the instance before us, that the extension of the bank circulation took place at a time, when other circumstances were contributing, in a remarkable degree, to ex- cite speculation, and when, even if the bank issues had remained stationary, there would, in all probability, have been an increase in the general circulation, by means of the country bank notes and private paper. After the close of 1822, there was a pro- gressive rise in the prices of agricultural produce. This rise may be referred chiefly to the following causes. — Of corn, the produce of 1822, although very fine in quality, was a bare average in quantity. The glut, which had previously existed, had 37 been abated by the increased consumption consequent on the low prices ; and as the harvest of 1823 was not above, and that of 1824 was rather below an average produce, the stock on hand, which had previously been of extraordinary magnitude, was undergoing a gradual diminution, This circumstance com- bined with a still increasing population, has brought the monopoly created by the Corn laws into full operation, and a higher range of prices has been the consequence. Of meat, the rise in price is easily accounted for by the unusually extensive slaughter of cattle and sheep during the great depression of prices three years ago, and by the prevalence of an extensive rot among the latter, in conse- quence of the extreme wetness of the autumn of 1824, leaving a reduced number to meet the demand*. This rise in agricultural pro- duce afforded the means for an extension of * That the rise in the price of corn, and of farming stock in general, was the cause rather than the effect of the increase of the issues of the country banks, may, I think, fairly be inferred from the following considerations. While the prices of all other commodities which, without being in deficient supply, rose between the close of 1824, and the first three or four months of 1825, from 30 to 50, and, in some instances, as high as 100 per cent, have fallen in the last three months of 1825, to, or below the level from which they rose ; the prices of corn, and of meat, have been 38 the issues of the country banks ; and ac- cordingly it appears from the following official on the average of the corresponding periods, as high in the latter period as in the former. The comparison will stand thus : — Aggregate average of the six weeks ending — ' Wheat. Barley. Oats. Rye. Beans. Pease. s. d. s. d. s. d. s. d. 8. d. s. d. Dec. 24, 1824, 63 6 40 3 23 4 38 4 40 7 47 7 Mar. 31, 1825, 69 1 38 11 24 8 39 7 37 2 39 9 Dec. 26, 1825, 64 4 41 2 26 8 44 1 45 9 48 10 Hence it will appear that notwithstanding the great con- traction of the circulation of the whole kingdom during the last six weeks of 1825, the price of all grain, wheat ex- cepted, was higher than even during the great speculations of the first three months of that year. The fall in wheat, since that time, may be accounted for, first, by the admission of between three and four hundred thousand quarters of fo- reign, which were bonded prior to May, 1 822, and by the circumstance of the wheat-crop of 1825 having been both early and abundant. As to barley, it is well known that it was artificially^ kept doAvn, in order to prevent the ports opening for it in August last, and that the subsequent rise, which admitted the importation, was from scarcity over- powering both that effort and the effect of the contraction of the currency which was already felt. The prices of the best meat in Smithfield market, as quoted from the Farmer's Journal^ are as follow, viz : Highest. Beef. Lowest. Mean. Mutton. Highest. Lowest. Mean. s. d. s. d. s, d. S. d. s. d. «. d. Last Quar. of 1824, 4 10 4 4 5 5 4 2 4 7 First Ditto 1825, 5 3 4 10 5 6 5 5 6 Trfjsl Ditto 1825, 5 4 4 8 5 5 4 5 5 2 The 39 statement, that there had been from that time, to the latest period to which the returns have been made up, a progressive increase in that branch of the circulation. By an account from the Stamp Office, ** of the number of country bankers' notes stamped in each year from 10th October, 1820, to the latest period at which the same can be made up" — the number stamped amounted. In the year ending 10th October, 1822 to . 2,293,035 ending 10th October, 1823 . 2,455,731 ending 10th October, 1824 . 2,935,081 And in the half-year ending 5th April, 1 825 1,716,387 According to the proportions here given of the number of notes stamped, and assuming the common calculations, that the total amount in 1822 was about twelve millions, to be cor- rect, the amount in 1825 would be between The prices have kept up during the greatest pressure of the contraction of the currency, at nearly the same height as they were during the greatest enlargement of the circulation, and are almost as high as they were on the average of the last war. If this statement does not afford a presumption of scarcity, I do not know what can ; and I believe that I may appeal to all those who are conversant with country matters, for the notoriety of the fact, that the stock of cattle, and particularly of sheep, has been deficient in the last two years. The probability now is, that the supply will be increased, from the great encouragement held out by the high prices of those two years. 40 eighteen and nineteen millions, making an in- crease in the interval of between six and seven millions. While this rise of the prices of agricultural produce, and the accompanying increase in the country bank circulation, were in progress, several other articles of general consumption became objects of speculation. In some instances it was found that low prices had induced a rate of consumption be- yond the ordinary supply, and that a rise in price was the necessary condition of an increase of production, or of a diminution in the con- sumption. But until nearly the close of 1823, these speculations were partial, of short dura- tion, and mostly on a moderate scale. There was still some prevalence of the pru- dence and caution which had been taught and enforced among the commercial classes, by the reverses and losses which they had so recently sustained. Some attention was still paid to the most obvious elements of mercantile calcu- lation ; and although there was an evident ten- dency to increased speculation, the objects for the exercise of it were selected with a consi- derable degree of care and sobriety. Goods had been imported or bought in the home- market at the lowest prices, and with a practical knowledge of the actual and contingent supply 41 compared with the probable consumption ; and manufacturers had laid in their raw materials, and erected their machinery on such terms as enabled them to supply both the foreign and home-market with wrought goods at a fair profit. There was enough, however, of commercial enterprise bordering on speculation, to favour an extended circulation of private paper and credit. In this state of things, any addition to the issues of the Bank of England was evidently beyond the wants of the circulation. At the commencement of 1824, two new and powerful incentives to speculation came into play. The rapid fall in the rate of interest*, as indicated by the rise of the public securities, and the situation, political and financial, of the South American States, which had virtually established their independence, and of which a recognition, partial indeed, but sufficient * The fall in the rate of interest may be seen from the following comparative statement of the price of the 3 per cent, consols (exclusive of the accruing dividend,) and of the premium on exchequer bills :- — 3 per cent. Consols^ Prem. on Exchequer Bills. April 3, 1823, 73§ 10 to 12 July 1, 801 21 to 24 Oct. 3, 82i 37 to 40 Jan. 1, 1824, 86 51 to 53 April 2, 1824, 94i 56 to 58 42 for commercial security, had been made by the government of this country. The fall in the rate of interest, which was, to a certain extent, the effect of the increased issues of paper, became, in its turn, a cause of speculation, and thence of a further increase of the circulation, by the facilities which it afforded for the use and abuse of credit. The rise of the funds had allowed a great profit on the subscriptions to some of the new insurance companies, and other schemes. It had also operated in raising the premium on several of the South American and other foreign loans. These causes, combined with those which have been before alluded to, were in operation, subject only to occasional and trifling reaction through 1824 ; and were sufficient to render the circulation excessive, without any increase in the amount of the Bank of England issues. Indeed, the tendency to excess in the circu- lating medium, and to an exportation of the precious metals, was already indicated by the shipments of bullion to South America which were in the course of being made in the Spring of 1824 ; and although the exchanges with the continent of Europe did not apparently yield a profit on the export of gold until July of that year, there is reason to believe that there were some operations which kept up the ex- 43 changes by the transmission of gold, when an attempt to have remitted the amount in bills might have caused a great and alarming de- pression. Unaccountable as it may seem, the Bank of England, instead of taking warning from the indications of pre-existing excess, actually in- creased its issues in July of that year. The amount of Bank of England notes in cir- culation in January, 1824, - - was - - £. 19,800,615 July, - 1824, 21,660,973 But it was reserved for the first three or four months of 1825, to display to the fullest extent the effects of an increased issue of Bank of England notes, coinciding with circumstances favourable to speculation. The close of each year is the period at which, by annual custom, the stocks of goods on hand and the prospects of supply and consumption for the coming season, are stated and reasoned upon by merchants and brokers, in circular let- ters addressed to their correspondents and em- ployers. By these circulars it appeared that, of some important articles, the stock on hand fell short of that at the close of the preceding year. From this, the conclusion was more or less plausibly deduced, that the rate of the annual 44 consumption of those articles was outrunning the rate of the annual supply, and that an advance in price ought to take place ; at the same time there were, as in the case of cotton and silk, con- fident reports of failure of crops, or other causes, which would inevitably diminish the forthcom- ing supply. Expectation of scarcity was thus combined with actual deficiency in exciting the spirit of speculation. This was directed, in the first instance, to the articles which, upon fair mercantile grounds, justified and called for some advance in price, inasmuch as the rate of the consumption of them had outrun the average rate of supply. The rise, however, which would have been requisite to increase the supply, or to diminish the consumption, would, in most of the cases in question, have been trifling. But, when speculation is once on foot, with a circulation of the expansive nature of ours, the rise of any one article may not only be in a ratio far greater than the occasion really calls for, but by increasing the aggregate of the cir- culating medium, may cause indirectly a rise in other commodities. The impulse, therefore, to a rise being given, and every succeeding purchaser having realized, or appearing to have the power of realizing, a profit, a fresh inducement appeared at every 45 step of the advance to bring forward new buy- ers. These were no longer such only as were conversant with the market : many persons were induced to go out of their own line, and to embark their funds or stretch their credit, with a view to engage in what was represented to them by the brokers as a certain means of realizing a great and immediate gain. Cotton exhibited the most extraordinary in- stance of speculation carried beyond all reason- able bounds. Silk, wool*, and some other * It is the more worth while to notice the speculations in silk and wool, because some of the consequences of those speculations have been the pretence for calling in question the soundness of the policy of the commercial measures which have been brought forward by the president of the Board of Trade. The complaints of those who arraign the policy in question, are not, however, exactly alike in every particular as regards the two articles. But on one point they agree, viz., in considering that the excessive importations of these articles, which have contributed to depress the exchanges, were the effects of the reduction of duty. Now I am inclined to believe that no part of the excess of importation can be ascribed to the reduction of duty. The detailed reasons for that opinion would be here misplaced, as not immediately bearing on the subject under discussion in the text. One remark, however, is obvious, and, at the same time, decisive, on the question, and that is, that a still greater excess of speculation and consequent importation has taken place in cotton, in which there was no alteration of the import duty. The same re- 46 articles, in which some advance was justified by the relative state of the supply and demand, became the subjects of a speculative anticipa- tion, and advanced much beyond the occasion, mark applies to other articles which are now, very low, such as tallow, flax, timber : on none of these has any alteration of duty taken place ; on the other hand, the importation of hemp, on which the duty has been reduced 50 per cent, has been much smaller in this last season, than on the average of the three preceding years. With regard to silk, independently of the charge brought by those who ob- ject to the reduction of duty on the raw material, that it tends by inducing excessive importation, to depress the changes, the manufacturers complain of the depress- ing effects produced upon the vent of wrought silks, by the anticipation of the admission of the foreign manufacture in July next, at a duty of 30 per cent. If stagnation and depression were peculiar to the trade in manufactured silk, and could not be distinctly traced to other causes, the complainants might have, at least, a plau- sible ground for considering the impending foreign compe- tition as the cause of that depression, although this would form no sufficient ground for continuing to tax the consumers of silk, for the benefit of the manufacturers. But how happens it that the same stagnation and depression exist in cotton, linen, woollen, and other manufactured goods, in which there can be no such dread of foreign competition ? Is not the same sufficient cause applicable to them all, viz., the excessive importation consequent upon the previous speculative advance of prices ? Excessive importation has produced a decline of the raw material, and this again of the manufactured article. The depression in the silk trade is perfectly accounted for by this general cause. 47 as the event proved, though not in so great a degree as cotton. Speculative operations embracing so many commodities of great importance in point of amount, necessarily created a large mass of paper, and of transactions on mere credit; thus adding to a circulation already swelled by the increase of country bank notes. Such were the circumstances under which the Bank of England issued, and for some months main- tained in circulation, an increased amount of its notes. Although this increased issue by the bank, as I shall have occasion to shew more particularly hereafter, did not alone cause the great additional excitement of the spirit of speculation which followed it ; yet it gave a fresh and powerful stimulant to that spirit, and assisted in convert- ing incipient delusion into absolute insanity. For never did the public (that part of it at least which entered into the vortex of the operations in question) exhibit so great a degree of infa- tuation, so complete an abandonment of all the most ordinary rules of mercantile reasoning since the celebrated bubble-year 1720, as it did in the latter part of 1824, and in the first three or four months of 1825. The speculative anticipation of an advance was no longer confined to articles which pre- 48 seated a plausible ground for some rise, how- ever small. It extended itself to articles which were not only not deficient in quantity, but which were actually in excess. Thus, coffee, of which the stock was increased, compared with the average of former years, advanced from 70 to 80 per cent. Spices rose, in some instances, from 100 to 200 per cent., without any reason whatever, and with a total ignorance on the part of the operators, of every thing connected with the relation of the supply to the con- sumption. In short, there was hardly an article of mer- chandise which did not participate in the rise. For it had become the business of the specula- tors or the brokers, who were interested in raising and keeping up prices, to look minutely through the General Price Currents, with a view to discover any article which had not ad- vanced, in order to make it the subject of anti- cipated demand. If a person, not under the influence of the prevailing delusion, ventured to inquire for what reason any particular article had risen, the common answer was, '' Every thing else has risen, and therefore this ought to rise." The comparative statement of prices in the Appendix (F), will exhibit the most striking in- stances of this extraordinary rise. 49 While such were the transactions in the mar- ket for goods, and while there was an extension of the system of loans to the Transatlantic States, some of them affording little or no secu- rity, but almost all coming out at a premium, an enlarged field was presented for the spirit of gambling to enter upon. New mining, insurance, and other schemes, were set on foot on the principle of joint-stock companies, in immense numbers. The earliest South American mining asso- ciations formed in this country, had been en- tered into with considerable circumspection; the parties with whom they originated, had, by local information and connexion, secured com- paratively beneficial contracts and priority of the working of some of the most productive mines. These apparent advantages being made known, attracted numerous persons to buy shares from the original subscribers at a pro- gressively increasing premium. The great gains, or rather premiums in anticipation of gains, thus obtained by one or two of these associations, held out an inducement to the formation of new ones. It is well known how numerously mining and other joint-stock companies sprung up, and how successful they were for some time in catching and turning to account the disposition 50 far hazardous adventure which pervaded the nation. The operators on the share-market made the new schemes the basis for an enormous extent of gambling. Many persons, quite removed from all connexion with business, retired offi- cers, widows, and single women of small for- tune, risked their incomes or their savings in every species of desperate enterprise. The com- petition and scramble for premiums in concerns which ought never to have been otherwise than at a discount, were perfectly astonishing to those who took no part in these transactions. These operations in shares had an effect like that of the speculations in goods, in adding to the mass of the circulation of paper and credit ; and this, be it still kept in mind, concurrently with the addition which had been made to the Bank of England issues. It is not possible to compute, with even any approach to accuracy, the amount of the addi- tion to the total of the circulating medium by these united causes ; but if I were called upon to hazard an estimate, I should conjecture that the whole amount of the circulating medium, including transactions on credit without the intervention of paper, must have been, on the average of the four months, ending April, 1825, little, if at all short of fifty per cent, above what 61 it had been in the corresponding period of 1823. The approximation of this estimate to the truth is rendered probable, by the consideration, that upon the principles which determine money prices and nominal values, such a general rise of prices, amounting, in some instances, to up- wards of 100 per cent., without even the allega- tion of any general scarcity, could not have taken place without an immense expansion of the circulating medium. It is also to be con- sidered, that the greater part of the transfers of the original shares in the foreign loans, and new schemes, while the payments on them were light, and while confidence was still en- tire, were carried on by a medium engendered in a great degree by those very transactions ; and that the profits realized or anticipated by the successive shareholders, afforded a fund of additional credit as well as of nominal capital, with which they might and did appear as pur- chasers of other objects of exchange. This sort of medium comes under the de- scription of what is familiarly and expressively denominated a bubble, which bursts upon the test of metallic value, or of ultimate payment in the basis of the currency being applied to it. But it does not the less, while it lasts, add to the mass of nominal values and exchanges; nor are the fluctuations arising out of it less real E 2 52 in their influence upon the fortunes of indi- viduals, than the fluctuations arising out of busi- ness more strictly mercantile. Thus far, then, as to the enlargement of the currency in part caused by, and in part caus- ing, a high range of prices. We now come to that which has constituted the main feature of the fluctuations which are the subject of the present investigation — tho fall of prices. It was perfectly clear to any person not pos- sessed by the mania which prevailed last spring, that there was no solid foundation for the general rise of prices which had then oc- curred, and appeared to be still in progress. From the information which had been commu- nicated to me by Mr. Jacob, as stated in the Sup- plementary Section to my last work, it appeared that there had been a great falling off" in the an- nual supply of gold and silver from America. The fact had since been fully confirmed by official accounts of the coinage of the mint of Mexico down to the close of 1823 ; and, by an official report from the great mining district of Gua- naxuato, which stated both the fact, and the cause of the diminished produce of the metals, viz.y the abandonment of the principal mines. Now the reduced produce seems to be little, if at all, more than may be considered to be 53 sufficient to supply the consumption for plate, ornaments, 3 17 6 November . 28 25 60 — 25 62| December . 26 25 32i — ... 1824 January . . 6 25 52^ — 25 55 May . . . 25 25 35 — 25 40 June . . 29 25 35 — 25 37i July . . . 30 25 15 — 25 20 August . • 31 25 20 — 25 15 September . 28 25 22^ — 25 25 October . . 29 25 10 — 25 12^ November . 30 25 05 — 25 10 December . 31 25 05 — ... 1825 January . . 28 25 05 — 25 10 >3 17 9 March . . 1 25 05 — 25 07^ . April . . 5 25 10 — 25 12i J May . . . 3 25 10 — 25 12i June . . 3 25 05 — 25 07J July . . . 1 25 05 — 25 10 ► 3 17 10| August . . 2 25 07^ — 25 10 September . 6 25 10 — 25 12^ >> . 27 25 17J — 25 20 October . 7 25 25 — 25 27^ Is 17 6 » . . 18 35 15 — 25 17i J }) • . . 21 25 17^ — 25 20 3 17 8 November . 4 25 10 — 25 15 3 17 9 December . 18 . 2 25 07i — 25 10 25 12| — 25 15 }^ 17 lOJ f) ' . 6 25 15 — 25 20 . 9 25 20 — 25 25 . 20 . 23 25 30 — 25 35 25 25 — 25 27^ 3 17 6 » . 27 25 20 — 25 2^5 » . SO 25 20 — 25 25 148 X o 00 ^ 00 -t ■~~ 00 o <0 rr 00 o ~l 6 o Oi 00 oo -^ « a S 2d ;« «o Tj< TT ■^ Tf ^ oo 30 00 00 Q* CN O* s , — ^— , ■* " 00 « c< oo 05 Q 3 B IS 1^ 1 1^ 1 -2 it 1o r- ^ CM •» oo 2» o» m 00 . ,-, ^ tl 00 05 o 0> 00 O O) 00 »- •^ 04 o» oo O) (N 00 o* ex o* o» i eg b ^ GO C5 1 1 B I 05 1 ^ :g « 1 1 t^ 1 1 1 3 i 1 1 1 ~~"^ ""-^ """" 11 ot 't Tf CO e* o» Tt- CO CO 0< c« o CD s s 6 CO CO CO >o U5 00 — ■ »o 00 0* 00 3^ ;s5 Tf CO ?- »- t- CO CO CO >n >o IC r*. CN 2 U) ^ 2 s ^ 00 »* CO ■ — CO »D ■* ^ ^^ o 1 c 2 04 o» CM o» o» 0* o» oo o» o» (N 00 00 CO 2 xi 2 s § ll o> II o> i 3i (0 vi g a; 1 "•S i 1 i t- g if -1 CO s ■S S S •-5 (^ Q ^ 3 eg (S IS 3 * & s 3 1 i"r e to 00 o CD O CO o o CD rf o -«*• 00 ■1 ^ 1 d o» t;;^ o» M5 OS CI rf »- 00 (N rj< o oo 2 ;z: ©J (N o» ^- o OJ <-^ W Tf TJ< H ,^ -2 ^ a i £ s -= ^^ Tj< o o o 1— 1 o w 05 o> 00 t- »*< ^ ti « c» CO 00 00 o» 00 o» CN (N 0» CN 04 n w 1 CO 00 1^ 00 00 00 1 s § 1 a> § g CO 0) a s 0) B i ^ 1 Q 5 a s II c 3 eg ^ s a Qt 3 0; •■^i CO 1 U3 hJ CO <; CN CO o» o* 00 CO 00 CO Tj< CO •c CN ■* ■<*" Eh cj § 00 00 io Q 00 t- ^ 0* o» Tf 00 00 t- Z. Vi 00 00 « 04 00 ■* IC 00 Ui OS ><) Tf o» 00 « 0» w i S 1 00 00 00 1 J3 00 (m ^ n ii 3 s 1 (U e 1 1 c a '-i ft, •-5 6 & a 3 a. eg 1 II eg 144 O oo oooooocsoooooo CN«0 O «— 1»0 CNSiO^i^OO »0 CM t* t^ O O 0«5 »0 bo 1.2 ^ I 3 C u c n '2§ J — ' 0) 4J *^ CQM ^^ •- a; .5 C C3 «S a " ^ o o .-2 S fl owe 3 fl 43 O « 3 ;2 g £ X o »oHhJP3Eh^ .{^ ^ *- s o O o o o « T?< OS C5 00 c>» (-1 O O CO b- GO t- o» 05 CO t- 00 »o 00 Ui OC G p. 54, 147 creased their discounts about two millions ; and, in conse- quence, we find the scale is increased an unit, from 1 ^ to 2^, which accords exactly with this evidence. Comparing the numbers in Table III. with those in the following table, tlie mean number in the latter, or that which expresses two millions, appears to be 90. If, therefore, the cash and bul- lion, and the discounts be reduced agreeable to those solu- tions, their amount compared with the bank notes in circu- lation, and the advances to government (as stated in the reports of the committees) will be as follows:" DATE. Cash and Bullion. Average of Bank Notes circulated. BilU discounted. Average Advances to Government. 1793 March . . 3,508,000 11,963,820 4,817,000 8,735,200 June . . . 4,412,000 12,100,650 5,128,000 9,434,000 September 6,836,000 10,938,620 2,065,000 9,455,700 December 7,720,000 10,967,310 1,976,000 8,887,500 1794 March . . 8,608,000 11,159,720 2,908,000 8,494,100 June . . . 8,208,000 10,366,450 3,263,000 7,735,800 September 8,096,000 10,343,940 2,000,000 6,779,800 December 7,768,000 10,927,970 1,887,000 7,545,100 1795 March . . 7,940,000 12,432,240 2,287,000 9,773,700 June . . . 7,356,000 10,912,680 3,485,000 10,879,700 September 5,792,000 11,034,790 1,887,000 10,197,600 December 4,000,000 11,608,670 3,109,000 10,863,100 1796 March . . 2,972,000 10,824,150 2,820,000 11,351,000 June . , . 2,582,000 10,770,200 3,730,000 11,269,700 September 2,532,000 9,720,440 3,352,000 9,901,100 December 2,508,000 9,645,710 3,796,000 9,511,400 179T Feb. 26 1,272,000 8,640,250 2,905,000 10,672,490 Thus far is extracted literally from the Monthly Maga- L 2 148 zine, for October, 1797, p. 24-9 to 251. The following- Table, No. 5, is made up, as far as relates to the scale of cash and bullion and of discounts, from materials furnished by the foregoing Tables, Nos. 1 to 3. The amount of bank notes in circulation, and of advances to government, from 1782 to 1792, is extracted from the Reports of the Lords* Committee of Secrecy in 1797, p. 96 and 98. 149 TABLE v.— -Shew ine the SCALE of CASH and BUIXION in the BANK, 1 the Amount of Notes in circulation, of Bills discounted, and of Advances 1 to Government, from 1782 to 1797. 1 DATE. Scale. Cash and Bullion. Atnoant of Bank Notes in Circulation. Bills discounted. I8cal« of DiicounU.) Advances to Government. 1782 Mar. . 602 Computation at 660 to 4,000,000. Mar, 9,160,470 Unit tuppoied (o be 3,000,000. 3,648,000 ■> June. . Sept. . 586 382 3,552,000 2,333,000 June Oct. 8,775,680 6,371,300 A to IJ 9,991,678 Dec. . . 352 2,133,000 Dec. 5,994,970 1783 Mar. . 208 1,261,000 Mar, 7,338,230 1 June. . Oct. . . 136 78 824,000 473,000 June Oct. 6,970,660 5,894,520 .Ij to 1 to li 9,629,071 Dec. . 116 703,000 Dec. 6,006,950 1784 June. . 224 1,355,000 June 6,716,950 ^ Sept. 25 326 1,976,000 Oct. 6,073,480 .IJtoll 7,565,853 Dec. j81 445 2,697,000 Dec. 5,948,380 1 J 1785 Mar. 19 582 3,527,000 1 June 25 Sept. 24 884 1174 5,358,000 7,115,000 • . . . . . . • H to 2 to li 7,030,200 Dec. 31 1226 7,430,000 1786 Mar. 24 1178 7,139,000 June SO Sept. 80 1220 1256 7,394,000 7,612,000 *. . . .... about 1 6,634,872 Dec. 30 1190 7,212,000 1787 Mar. 21 1096 6,642,000 June 30 Sept. 28 1140 1270 6,909,000 7,697,000 -Feb.25 8,688,570 IJtoU 7,144,896 Dec. 29 1186 7,188,000 150 TABLE V. -Continued. DATE. Scale. Cash and Bullion. Amount of Bank Notes in Circulation. Bills discounted. (Scile of Discounts.) Advances to Government. 1788 Mar. June Sept. 29 28 27 1124 Computation at 660 to 4,000,000. Feb.25 1 Unit supposed to he 2.000,000. 7,347,699 6,812,000 9,3' ro,350 U toll to 1 1240 1404 7,515,000 8,509,000 Dec. 24 1438 8,715,000 1 1789 Mar. 28 1462 8,861,000 June Sept. 27 26 1634 1764 9,903,000 10,691,000 » 9,9( )5;240 itoi 7,948,435 Dec. 24 1756 10,642,000 1790 Mar. 26 1712 10,376,000 June Sept. 25 24 1652 1685 10,012,000 10,204,000 ' . 10,2 17,360 1 to ^ to 1 7,908,968 Dec. 31 1616 9,794,000 J 1791 Mar. 26 1516 9,188,000 ^ June Sept. 25 24 1552 1582 9,406,000 9,588,000 > 11,6 39,140 1 to i to 1 9,603,978 Dec. 31 1420 8,606,000 1792 Mar. 31 1236 7,491,000 1 June Sept. SO 28 1132 1032 6,861,000 6,255,000 5J 11,3 49,810 h to 1 9,839,338 Dec. 29 868 5,260,000 51 ^ o o coo ^ ^ . <5 »o o 8 oT 00 00 O »o >• OS 'O CN OO 0< 04 o> w g «. •—^ « c5 >«« (J CM <"^ >o~ CQ a; a c Oi o> flj J2 o « S CO - ^ C Cm f S 1 o 1 7900 shar dividend do. (U E i o 2 c § 1 2 r Ui «0 "5 T3 tf c o 8 o c o O ^ o < ^1 1 4) s 1 CO a u _ PQ > 152 F. COMPARATIVE STATEMENT of the PRICES of the following Articles in the Years 1823, 1824, and 1825. 1 ARTICLES. • Prices in 1823. (In Bond.) Prices in 1824. (In Bond.) Prices in 1825. (In Bond.) Lowest. Highest. Lowes*. Highest. Highest. Lowest. Cochinea , Spanish .... S. d, 20 *•. d. 24 s. d. 19 s. 20 d. S. d. 26 s. d. 19 Coffee, British Plantation 120 142 100 114 133 100 St. Domingo . . 82 112 58 75 88 56 Cotton, Bowed Georgia . 8J lOh 9 91 1 6^ *0 9| Bengal and Surat 6^ 8k 6J sk 1 li 6| Indigo, Iron, East India . . . British 9 9 £. s, 6 12 £. s. 7 9 £. s. 6 15 £. 11 s. 16 £. s. 13 12 £. s. 10 Lead, Saltpetre, British East India . . . 22 10 s. d. 24 23 10 s. d. 39 23 s. d. 20 23 s. 23 10 d. 30 10 s. d. 36 22 10 s. d. 24 Spices, Cinnamon . . . 6 8 8 3 6 8 7 6 13 6 7 6 Mace 5 2 6 3 4 8 5 10 18 5 6 Nutmegs .... 3 1 3 6 2 8 5 8 12 3 6 Pepper, black . . 5^ 71 5| 6| 9i 6 Sugar, B.P. Gaz. average 30 10 38 21 29 2 34 5^ 45 2 36 111 Havaunah, white 44 48 40 44 57 0^ 44 Silk, Reggio 11 6 16 11 6 15 17 12 Spelter Tallow, China, Raw. . . 20 £. s. 22 £. s. 20 £. s. 20 10 s. d. 31 6 21 £, 30 s. 34 s. d. 6 28 £. s. 41 15 s. d. 43 20 £. s. 26 s. d. 31 6 St. Petersb. Y. C. 's. ' d. 31 s.' d. 37 Tobacco, Virg. ord. & mid. 2i 31 2\ H 6J 4 Wool, German, fine . . 6 6 8 6 6 6 9 6 9 6 6 6 * In the early part of 1823, Pri the war -like aspect of politics, in and the apprehension that this com :e8 of some Articles were driven up by a speculation upon consequence of the proposed invasion of Spain by France, itry might be involved in the war. 1 Printed by WILLIAM CLOWES, Northumberland-Court, Strand. \B R A JT or THE UNIVERSITY ALBEMARLE'STREET, Dee. 29, 1825. On Wednesday, the 25tli of January, 1826, Mr. MURRAY will commence the Publication of A Daily Morning Newspaper, THE REPRESENTATIVE. 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