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LIBRARY |
So. Enat
EGGNORIGS.
THE FALLACY
OF
OUR MONETARY SYSTEM,
SPR ROBERT PEELS,
DEFINITION OF A “ POUND.”
BY CHARLES ENDERBY, F.RS.
LONDON :
PELHAM RICHARDSON, 23, CORNHILL.
1847,
TIYApod HD
|
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THE FALLACY,
ETC. ETE.
So long as a difference of opinion exists as to the
basis of the monetary system by law established in
this country—so long, that'is, as the fundamental
question, whether a “ pound” (of account) be a sub-
stance or a shadow—remains undetermined, it will
be useless to exhaust our ingenuity in patching up
the superstructure, with the view to remedy the
financial disorder which we have periodically expe-
rienced since the year 1825, and from which we are
now so severely suffering. To this single point, there-
fore, I propose confining myself on the present occa-
sion; and | hope to be able to adduce reasons which
_ may lead to a right perception of the case at issue.
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The great authority on whom, as the architect of
our present monetary system, the nation seems to be
expected blindly to pin its faith in the matter, is Sir
Robert Peel, who prefers claims to a sort of infallibi-
lity respecting it. It is from his own definition of the
term “ pound,” as contained in the reports of his two
speeches on the Bank Charter Act of 1844—the
* boasted “complement of the Currency Act of 1819”—
iL
2
{
in The Times of the 7th and 21st of May of that year,
that I now proceed to show the utter fallacy of the
grounds on which both those measures have been
adopted. |
Sir Robert Peel begins by asking, “ What is a
2
A.
69/5 Aes
Pee Pe Sf
4
pound ? and what is the engagement to pay a pound?”
“Tf,” says he, °“‘a pound be a mere visionary theory
—a fiction which does not exist either in law or prac-
tice; in that case, one class of measures relating to
paper currency may be adopted. But if the word
‘pound’—your common denomination of value—sig-
nifies something more than a mere visionary fiction,
then another class of measures relating to paper cur-
rency will be requisite.”
We have here a distinct avowal that the subject
admits of two separate propositions, the one being
the alternative of the other, and each having its own
class of measures. But although conceding this—
although sensible that the case has a double issue—
Sir Robert Peel discards the first proposition without
the least examination of its merits, and confines him-
self entirely to the consideration of the last. ‘ Now,
the whole foundation of my measure rests,” he says,
‘upon the assumption that, according to law, accor-
ding to the ancient monetary policy of this country, the
meaning of a pound is neither more nor less than a
definite quantity of gold, with a mark upon it to deter-
mine its weight and fineness.” This definite quantity
of gold, as fixed by law (the Act of 1819) is 123,24,
grains of standard gold; consequently, one shilling
being the twentieth part of a pound, is equivalent to
about six grains of gold, and one penny to about half
a grain. But it is precisely this law which itself
requires to be justified before it can be urged as the
proper groundwork of an ulterior measure, and the
question raised on that point is now more agitated than.
ever ; for although no one denies that, according to law,
a pound is so many grains of gold, still but few are
agreed that a pound is, zm reality, what the law pro-
claims it to be. I will now examine how far Sir Ro-
bert Peel’s definition of a pound is correct, “ accor-
ding to the ancient monetary system of this country.”
He remarks as follows :—
5)
“ The origin of the term ‘ pound’ was this. Inthe
reign of William the Conqueror, a pound of silver
was the pound of account. The pound represented
both the weight of metal and the denomination of
money.” Now, we very well know that a pound of
silver, although the pound of account, was never
stamped and circulated as coi,.in the same manner
that the piece of gold, of the nominal value of a
pound, is now stamped and circulated. The pound of
silver was, in fact, nothing more than a lump of
metal, possessing, indeed, an intrinsic value, but not
constituting in itself a fixed standard of value. All
transactions were carried on by barter, and values
fluctuated in accordance with the natural law of sup-
ply and demand, as well of the precious metals as of
all other exchangeable commodities. It must be self-
evident, that in the absence of any denomination of
money, the pound of silver could not have changed its
denomination, and the subsequent alterations which
took place were, for a long period, in the purity of
the silver, and not in the weight denominated a
pound ; for how could that alter?) Whence, then, the
analogy which Sir Robert Peel has sought to esta-
blish? its pound has not even the merit of repre-
senting, like the ancient pound of account, ‘both the
weight of metal and the denomination of money ;” andall
that his argument amounts to is, that, inasmuch as,
formerly, a ‘‘ pound” was a pound of silver, so is it
now 123,27, grains of standard gold. We are,
therefore, told to consider that weight of gold as the
expressive substitute for a pound of silver; but al-
though, by the same rule, any thing else, no matter
what, might equally be a “‘ pound,” we are forbidden
to admit the possibility. The utter worthlessness of
Sir Robert Peel’s definition of the term is further
demonstrated by his own Act (that of 1844) which
sanctions the issue of 14 millions of paper pounds
upon securities which have no gold basis whatever.
Re:
According to the same authority, an ounce of gold
has been fixed by law to be £3: 17: 103, for
the reason that an ounce of gold and a pound of
silver are the equivalents of each other. I will here
again show that on this ground also Sir Robert Peel’s
premises and conclusions are just as much at variance
as before; observing moreover, parenthetically, that
if his reasoning as to the ancient silver pound were
worth anything (which it is not), it would follow,
upon the above hypothesis, that the present gold
pound should be, not 123,43, grains, but one
ounce.
In his first speech, already cited, Sir Robert Peel
declares that, “ the only meaning of an ounce of gold
for £3 : 17 : 103 is simply this—that it is the relation
which silver bears to gold with respect to value.” Ii,
however, we compare this declaration with his subse-
quent speech, delivered only a fortnight afterwards,
we shall find that he signally destroys the theory he
had previously laid down. Here are his own words—
‘‘ Silver has now ceased to be a standard of value.
Formerly 5s.2d. an ounce (2. e. £3: 2:0 per lb.) was
the Mint price for silver ; but there is now no reference
whatever to it. Your silver coin is now a mere token,
and nothing else; 5s. 2d. an ounce does not designate
the value of your silver coin. The pound of silver
now is about 66s. instead of 62s.” What a commen-
tary upon all that he had previously uttered.
First, a pound is now 123,43, grains of gold, be-
cause it was formerly a pound of silver; next, the
only meaning of an ounce of gold for £3:17: 104 is
its relative value to silver; and lastly, silver has now
ceased to be a standard of value. The silver coin is a
mere token, and the value of silver varies from 62s. to
66s. per lb.! Truly, we have here paradox upon para-
dox, and the mind seeks in vain the clue to such a
labyrinth. It is scarcely necessary to remark that if,
in effect, an ounce of gold and a pound of silver be
7
the co-relatives of each other, and £3:17: 103
(whatever £3:17: 104 may be) be, by some natural
law, the fixed and immutable value of the first, so also
must it be that of the last. Whereas, Sir Robert Peel’s
two quotations of the value of a pound of silver fall
short of this standard, in the one case by, ]1s. 104d.,
and in the other by 15s. 104d.,.a result clearly proving
how futile and mischievous must ever be the attempt to
determine by legislative interference the relative value
of one commodity to another. So much, then, for
the bases upon which the great champion of our
present monetary system rests his definition of a
pound, and the defence of his abortive financial sys-
tem, which does not even allow us to have a substi-
tute for gold when gold leaves us, in greater quantities
than it would if allowed to find its value in the market,
and when, therefore, if a substitute be ever needed,
it is most so. ‘To show that Sir Robert Peel, in what
precedes, has given expression to sentiments which
cannot be the result of immature reflection, it is only
necessary to quote the following passage from his speech
of the 6th of May, 1844, viz. :—‘* Then it is said—
and this is repeated over and over again—and ts one
conclusive proof I have, that he who says these things
has no more conception of the truth with respect to the
measure of value than he has of any speculations in the
most distant parts of the globe with which he is wholly
unacquainted—it is said what a monstrous injustice and
folly it is to tie down the Bank to issue gold at the
old price of £3: 17: 103 an ounce. Now, &c., &c.,”
The words which I have underlined I retort upon
himself, and appeal with confidence to others to decide
if I am not fully justified in doing so.
But what is to be understood by the present stand-
ard of value? Is £3: 17:10 an ounce of gold,
or only the value of an ounce of gold, and in this
case, in what is the value to be estimated? In itself ?
Then, if so, what are the terms for the expression of
8
that value? Are the terms pounds, shillings, pence
identical with ounces, pennyweights, grains? Is it a
matter of indifference, in short, whether our accounts be
kept in numbers or in weights? It might naturally be
supposed that the adherents of a gold standard would
have no difficulty m answering this question; yet
strange as it may seem, not one of them of whom I
have made the inquiry—and amongst whom are some
who, from circumstances, ought to be oracles on such
a subject—has been able to give me a satisfactory reply;
nay, so little is their concord, that no two answers
which I have received from them agree! Yet, assuredly,
if the theory of a gold standard of value—the pound
being a definite quantity of this precious metal—be at
all tenable, it is inseparable from the condition of
computation by weights in lieu of numbers ; and this of
course assumes the coining of the ounce of gold into
half and quarter ounce pieces, and so on to the lowest
denominations of the troy scale. Hence, the national
debt, in lieu of its present nominal amount in pounds
sterling, would figure (the impossibility, however, of
any such conversion effectually laying bare the debt’s
fictitious character) at about 200 million ounces of
gold ; and as, in consequence, the numbers denoting
prices must, in obedience to the same law, equally
resolve themselves into the same elements, viz., weights,
it follows that there could be no quotations ; for how,
in that case, would it be possible to express them ?
That this is the strictly logical view of the question,
and indeed the only one of which, without an abso-
lute perversion of intellect, the premises admit, is
manifest from the fact—on Sir Robert Peel’s own
showing—that if a national debt had existed in the
times when a pound of silver was the pound of ac-
count, it would have been expressed readly in pounds
of silver, even as it is now professedly expressed in
ounces of gold. We well know that the actual amount
of the National Debt could have been as little con-
“4
9
tracted as it can ever be repaid in the precious metals ;
a consideration which is or ought to be alone sufficient
to convince us how repugnant to reason, to justice,
and to common sense is the gold standard of value at
which, in effect, the debt is estimated.
To Sir Robert Peel’s inquiry—reiterated by him very
recently—‘“ If you promise to \pay £5, in what are
you going to make the payment?” the answer is an
easy one, and this:—In anything you please: name
your commodity, and the price at which you will take
it; that is, the price obtainable for it inthe market.
There can be no dispute on this point; for if you
know any product to be designated as of a certain
value, that value is estimated in numbers denotin
price, and is, consequently, exchangeable for the cur-
rent money in circulation, whether the same be paper
or gold. In the absence of due consideration to the
subject of the inconvertibility of paper money into
gold, it has been only too much assumed that gold
could not be obtained at pleasure by the holders of
bank paper during the last war. But no conclusion
could be more erroneous than this; for how does it
happen that we have a quotation of the price of gold
for the whole of that period, varying from £3:17:104
to £5:4:0 per ounce, if such quotations were not in
the current circulating medium at the time? Surely,
if any one holding Bank of England notes had been
desirous of purchasing therewith a quantity of the
precious metals, he could have done so in the market
unless they were absolutely without price ; and that this
was at no time the case is proved by the fact of the
quotations mentioned. ‘These considerations, viewed
in conjunction with the immense development of the
national industry and resources which took place
during the above eventful period, ought to satisfy
every one whose judgment is not entirely blinded by
prejudice, that, whatever may be alleged to the con-
trary, a paper currency not based upon gold can be
10
safely and efhciently introduced, without disturbing
either our domestic or foreign relations.
As regards a ‘‘ pound,” viewed with reference to the
foreign exchanges, Sir Robert Peel observes—“ All
payments abroad are regulated by the course of ev-
change, and it is founded on the intrinsic value, not
on the mere names of the coins. There is, I say, no
more reason why you should change a pound than to
say a foot shall be a foot and a half.” Doubtless, all
payments abroad are regulated by the course of ex-
change; but the course of exchange is a mere quota-
tion of prices which vary constantly, thereby proving
that the gold “ pound” is a fluctuating value, for it is
obvious that every variation in the rate of exchange
makes that pound, though nominally unaffected, in
reality more or less; and that, consequently, a pound
has not a tangible reality. To bear out Sir Robert
Peel’s view of the immutability of his pound, we must
suppose the quotations to express definite quantities of
the precious metals, a conclusion which is at once
ridiculous and illusory, since it converts prices into
weights, the same as in the case before suggested of
the National Debt being estimated in ounces of gold.
Nor is Sir Robert Peel more happy in his attempt to
illustrate the subject by reference to the foot measure.
Measures of length, weight, and capacity are things
determinate and unchangeable, and can no more be
increased or diminished, without ceasing to be what
their name implies (unless fraud be practised), than a
man can become a horse. They are not antagonistic to
themselves; for they do not combine in themselves
value and its measure. Hence, multiply them as
indefinitely as you may, throw them into or withdraw
them from circulation, the result is just the same—
they affect the value or the measurement of nothing ;
and were they all lost to-morrow, no inconvenience
would be felt, since their elements would remain, and
they could therefore be immediately replaced. Not
11
so, however, the Peel standard or measure of value.
Being made of a material at once scarce, costly, and
in use as merchandise, it is ever liable to the fluctua-
tions consequent on the supply and demand of that
material, nor can this tendency be counteracted (as ex-
perience proves) through the medium of an artificially
fixed price. The effect is that the measure of value, not
being able to separate itself from the fluctuating value
co-existing with it in the same material substance, is,
though professedly constant, ever varying and uncer-
tain, and is thus both a fraud and a delusion. To re-
peat, in conciser terms, what I have already stated, I
would merely add that if a vast number of foot-rules,
pound-weights, or bushel-measures were issued from
or withdrawn by the Exchequer, they would not alter
the weight, measurement, or capacity of any thing;
whereas the issue or withdrawal of a vast number of
measures of value (sovereigns) would derange the
values of all things. The absurdity, moreover, of con-
stituting such a commodity the standard of value will
appear still greater when it is considered that, were
every gold sovereign to be exported from the country in
the course of trade or from any other cause, the standard
of value would disappear also, and could not be re-
placed unless the gold came back again. Meanwhile,
although we might sorely miss the go/d as an article of
trade, we should get on, we may rest persuaded, much
better without the standard than with it. Should ever
this contingency be realised (and another deficient har-
vest might alone induce it), the climax of the absur-
dity and injustice of the gold standard would be
reached. The bare possibility of such an occurrence
is, indeed, a sufficient indication of the unsoundness
of the entire system. Nor would it answer any pur-
pose to raise the gold standard to a higher point, or
to substitute any other standard for it, for all ex pe-
rience attests that a fixed standard of value is in itself
a fallacy.
12
For the various reasons adduced, J submit that Sir
Robert Peel’s definition of a pound is false in theory,
and the “class of measures” founded on it are
ruinous in practice.
I maintain, on the other hand, that the expression
“pound” is merely a number—a conventional term—
an ideal unit, and, consequently, that the other “ class
of measures,” which Sir Robert Peel admits to be in-
volved in this proposition, should be adopted. ‘These
measures, I conceive, essentially resolve themselves
into——
1..The abolition of the gold standard, and the
convertibility of the paper currency into gold at its
market price.
2. The limitation of the issues to one, or, at most,
three banks, and the regulation of those issues by a
fixed rate of interest, say four per cent.
I propose neither an unlimited issue of paper money,
nor issues that are not based upon securities. It is not
the use, but the abuse, of that species of currency
which occasions insecurity; and we have the pros-
perity attained by this country during the war, through
the medium of a paper currency (although occasionally
mismanaged) to oppose to the objections which may be
made to the re-adoption of that system. If, in other
countries, as France, Russia, and the United States,
paper money has, at different periods, produced a
contrary effect, this has arisen from the circumstance
that it was not subjected there to the control of which
it is susceptible, the issues which took place not being
based upon securities, and being in excess of all fair
and reasonable demands.
In proof that paper money not resting on a gold
basis is susceptible of management, it may be sufficient
to refer (although to do so is to cite a case of monstrous
hardship and injustice) to the period between the
termination of the war and the resumption of specie
payments, when, owing to the powerful action brought
13
to bear upon the paper currency, for the purpose of es-
tablishing the gold standard, the prices as well of
labour as of products were reduced fifty per cent., gold
amongst the rest declining from £5:4:0 to £3: 17:10.
It is indisputable, therefore, that a paper currency,
based upon securities, is not, as some imagine, be-
yond the reach of regulation ; although, as in the case
adduced, the power may be wielded for the purpose
of effecting a pernicious object.
The very notion that such paper money can be in-
convertible is, | contend, an absurdity. So long as
prices continue to be quoted, say in pounds, shillings,
and pence, so long must a note expressing value be in
a position to buy any other note, or money, or any
commodity of similar denomination in value. If one
note for £5 will not exchange for another note of £5,
or for any given commodity, then there must exist a
want of confidence in the issuers of the former of such
notes, who, on its presentation to them, should be
compelled to enable the holder to obtain its current
value in the shape desired.
I do not recommend any alteration or contraction
of the coinage, other than that the Government should
charge a sufficient sum to meet the Mint expenses.
The gold coins, however, should merely be what the
silver and copper coins now are, viz. tokens ; and if
we consider how many of the sovereigns actually in
circulation are short of the standard weight, and in
fact not, therefore, worth more than 19s. 6d. or 19s. 9d.
each, we shall at once perceive that our gold coins
pass current at this moment for more than their real
value—a circumstance of which we were lately re-
minded when a cry was raised of ‘ light gold.” On
the other hand, if the price of gold should rise so
that the sovereign were worth, for instance, £1: 0: 3,
and, small notes being issued, speculators should avail
themselves of them to purchase gold for the purpose
of exportation, such exports, in the ordinary course of
trade, must necessarily be confined within very narrow
14
limits, for in what could other nations pay for our
whole stock of gold in circulation (£35,000,000), sup-
posing they desired to purchase it? or how could they
hope permanently to retain it? The effect of conti-
nuous large exports must be to depress the price of
gold in the market to which we sent it, and conse-
quently the gold would come back again and be paid
for in our goods without the process entailing any
such sacrifices as it involves under the present system.
In this country, as is well known, the reduction of
the rates of interest by the Bank of England has, on
numerous occasions, unduly stimulated speculation ;
while on the other hand, it is equally notorious that
when the inevitable re-action has taken place, the Bank,
by raising its rates, has caused incalculable loss to
those of whose stability there existed not the slightest
doubt.
Now, the object being that the rate of interest
should regulate the supply of money, without reference
to the precious metals (which should be treated the
same as other articles of merchandize), and not the
supply of money the rate of interest, it is necessary
that the rate of interest at which the banks of issue
(be they one or three) should advance their notes be
fixed, and I consider that four per cent. would be
sufficient to insure the object aimed at.
Whilst the rate of interest is fixed the value of
money is unchanged ; there may be speculation, and
losses may occur (as must be more or less the case
under whatsoever system); but should they happen,
they will not, at least, be attributable to too great a
facility in obtaining money; while, at all events,
neither speculation will be so great, nor the losses it
may entail so severe, as has always been the case
under a fluctuating rate of interest. Should it be
objected that the principle of a fixed rate of interest
has been given up in France, it may be replied
that this objection resolves itself into a charge,
not against a fixed rate of interest, but against a me-
15
tallic currency, since in France they co-existed ; whereas,
in England, the suggested fixed rate of interest would
co-exist with a paper currency, so that there is no
point of analogy between the cases.
The advances by the issuing banks should be on
bills or other securities, not having more than three
months to run, which bills should be as equally distri-
buted as possible over the whole period, so that by
their being gradually in course of liquidation, the
circulation would always regulate itself. The Bank
Directors would, doubtless, be desirous to extend
the circulation of their notes ; but they would not be
less scrupulous than at present in looking to the nature
of the securities on which they are to make advances ;
their issues, therefore, would be regulated by prudence
and the wants of trade.
Whilst money is scarce, the issuing Banks would
continue to make advances; the moment, however, the
market became sufficiently charged with notes, the fact
would betray itself by an excess of money, in the hands
of bankers, bill-brokers, &c., who would be willing to
advance money (that put in circulation by the issuing
bank or banks) at a reduced rate of interest. From
this period, therefore, any further extension of the
currency would be arrested; and a daily contraction
of the circulation would be effected by the securities
running out on which the Banks had made advances,
and the corresponding issues being returned to be
cancelled.
The bankers and bill-brokers, not being restricted
in their rates of interest, would generally be able to
obtain higher rates than the bank of issue, since they
would have the opportunity of advancing money on
bills at longer dates than three months, and on dock
warrants, &c. Opposed to a system of this simple
nature, how preposterous is the doctrine which makes
the precious metals—bullion or coin—lying idle in
the Bank, the indication of an abundance or a scarcity
16
of money in circulation! With just as much, or |
rather with as little reason, might it be argued that —
the gold ore in the mines should be an index of the
bullion in the Bank.
I have now completed, however imperfectly, the
task I set myself; and, in performing it, I have felt
that I have but discharged a public duty. Should the
facts and statements herein contained serve to stimu-
late the spirit of inquiry already animating the public
mind in regard to the all-important subject to which
they relate, my purpose will have been answered. I
lay down the proposition, and challenge any one to
refute it, that if a ‘‘ pound” (of account) be, as Sir
Robert Peel contends, a substance, then all trans-
actions must be purely transactions of barter, and
consequently there could be no fluctuations in prices
or exchanges, since there could be none in weights.
If, as Sir Robert Peel desires, we are to repose faith
in an argument which assumes the possibility of flue-
tuations in prices and exchanges, yet defines expressions
of money to be not mere numbers but the signification
of given weights of substances, then must we believe
what the evidence of our senses impels us to reject,
because, in this case, we must consider 12357, grains —
of gold to be something different from itself, as, for
instance, a fluctuating quantity of silver; and by a
parity of reasoning, a yard of cloth in one place may ~
be a bushel of wheat in another. For-it is manifest,
that if the variation in quotations of prices be held to
denote the relative values of the same product in
different places, so must it also denote that the same
denomination of value means two or more products. ~
>¥
7
FINIS.
PELHAM RICHARDSON, PRINTER, 23, CORNHILL.
1 UNIVERSITY OF ILLINOIS-URBANA
MCT
es 3.0112 041419430
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