' 
 
 THE UNIVERSITY 
 
 OF ILLINOIS 
 
 LIBRARY 
 
 352. 
 
 B875 
 V.27
 
 LETTER 
 
 TO 
 
 LORD GRENVILLE, 
 
 ON THE 
 
 EFFECTS ASCRIBED 
 
 TO THr 
 
 RESUMPTION OF CASH PAYMENTS 
 
 ON THE 
 
 VALUE OF THE CURRENCY. 
 
 Bv THOMAS TOOKE. Esq., F. R S. 
 
 LONDON : 
 JOHN MURRAY, ALBEMARLE STREET. 
 
 MDCCCXXIX.
 
 
 -* ^ 
 
 
 LONDON : 
 
 PRINTED BY WILLIAM CLOWES, 
 
 Stamford-Btreet.
 
 CONTENTS. 
 
 Page 
 Intruduction . . . . . .1 
 
 Section 1. — On the supposed Contraction of the Bank of 
 England Issues attributed to tlie Measures adopted 
 in 1819, for the eventual Resumption of Cash Pay- 
 ments . . . , . .6 
 
 Sections. — On, the supposed Influence of Mr. Peel's 
 
 Bill in contracting the Country Circulation . 27 
 
 Sbction 3. — On the general State of the Circulation of 
 
 the Bank of England during the Restriction . 39 
 
 APPENDIX 
 
 No. I. — Paper communicated by Mr. Pennington . 117 
 
 No. II — Applications from the Chancellor of the Exche- 
 quer, to the Bank, to purchase Exchequer Bills . 128 
 
 No. III. — An Account of the Amount of Bank Notes in 
 circulation on the days mentioned j distinguishing 
 the Bank Post Bills, and the amount of Notes under 
 Five Pounds, with the aggregate of the whole . 131 
 
 No. IV. — Prices of Gold and Silver, and Exchanges on 
 
 Hamburg and Paris . . . .132
 
 LETTER, 
 
 My Lord^ 
 
 Having adopted the form of letters for this 
 publication^ there is no one to whom with so much 
 propriety as regards the subject,, or with so much 
 gratification as regards myself, I can inscribe them, 
 as to your Lordship : there is no one who has taken 
 a more distinguished part in the discussions which 
 occurred on the great questions of the Restriction 
 and Resumption of Cash Payments, and no one who, 
 from personal experience, as well as from extensive 
 research, can bring more various information to bear 
 upon the subject, or who can better appreciate the 
 arguments brought forward by others. And as your 
 Lordship takes a lively interest in all that relates to 
 the preservation of the integrity of the Currency, I 
 venture to flatter myself with the prospect of your 
 concurrence in the object of my present attempt. 
 
 In the discussion which took place in both Houses 
 of Parliament, at the close of last Session, on the 
 Small Note Bill, and in the different pamphlets and
 
 2 
 
 articles of the periodical press which have appeared 
 upon the subject of the Currency, it seems to have 
 been impHcitly assumed that Mr. Ricardo and all 
 those who with him maintained that the utmost ope- 
 ration of Mr. Peel's Bill on the value of the Currency 
 could not exceed three or four per cent.^ have been 
 manifestly wrong-, for that the notorious effect of that 
 Bill had been to depress prices to an extent com- 
 puted by the most moderate at not less than twenty- 
 five per cent., but by tli^ generality of persons at a 
 much higher rate *. 
 
 Assertions to this effect have of late been repeated 
 so often_, and with so much confidence, while hardly 
 any, or only a very feeble contradiction has been 
 offered to them, that they seem to pass current and 
 unquestioned as a part of our financial and commercial 
 creed. These assertions, and the doctrines founded 
 upon them, are calculated, while they remain un- 
 
 *, The following quotation from Sir James Graham's " Com and 
 Currency, in an Address to the Land-owners," may serve for a sample 
 of the assertions to which I allude. 
 
 " This argument and authority combine to prove the fallacy, under 
 shelter of which, in 1819, the Bill for the resumption of cash payments 
 passed. Mr. Ricardo at first estimated the value added to money, 
 by the restoration of the ancient standard, at three per cent. ; after 
 . experience, in 1822, he admitted it to have been ten ; while Mr. Att- 
 wood and Mr. Ellice rate it at near fifty, and Mr. Baring from twenty- 
 five to thirty ; and when we come to trace the effect of the measure 
 in its full operation, I think it will be evident on which side the truth 
 preponderates," p. 43.
 
 contradicted and unrefiited, not only to falsify an im- 
 portant portion of the history of our monetary sys- 
 tem^ but to exercise a considerable and mischievous 
 influence on the future proceedings of the Legislature 
 regarding the Currency. 
 
 It is with a view^ therefore^ as well to guard the 
 public against all projects founded upon those doc- 
 trines for depreciating the value of the Currency, as 
 to vindicate the opinions delivered in 1819, by the 
 promoters of Mr. Peel's BiU) that I am induced to 
 take up my pen. 
 
 I have already^ indeed_, in a work published some 
 years since, adduced reasons which I then thought, 
 and still think, sufficient to justify the conclusion that 
 Mr. Peel's Bill was wholly inoperative in the resto- 
 ration of the value of the Currency. From the con- 
 tinued prevalence, however, of the opinions which it 
 was the object of that work to combat, it is clear that 
 the arguments contained in it are either little known, 
 or not deemed to be conclusive. But I have ad- 
 ditional facts bearing on the subject, and I am not 
 without hopes that I may succeed in placing the 
 general argument in points of view in which it has 
 not hitherto been considered. 
 
 The assertions and assumptions to which I allude, 
 and which it is my present purpose to controvert, 
 are to the following effect, viz. : — 
 
 B 2
 
 That the provisions of Mr. Peel's Bill, rendering 
 it incumbent on the Directors of the Bank of England 
 to make preparations with a view to the resumption 
 of cash payments within the period prescribed, had 
 the direct and necessary effect of contracting the 
 circulation ; and that the contraction which did take 
 place was such, in order of time and in degree, as to 
 account for the whole of the fall in prices, there not 
 being at the same time any other causes sufficient to 
 account for such fall. 
 
 Now, I think I can satisfactorily make out — 
 
 1. That a contraction of the Currency was not a 
 necessary consequence of, nor, in point of fact, pro- 
 duced by, Mr. Peel's Bill, or by any anterior pre- 
 paration on the part of the Bank, with a view to 
 cash payments : for that^ according to the rules by 
 which the Bank regulated its issues, there is every 
 reason to believe that, without any reference what- 
 ever to that Bill, or to any anterior preparation^ 
 the circulation of the Bank of England notes and 
 coin together, would have been neither more nor 
 less than it actually has been. 
 
 2. That the assumed contraction of the circu- 
 lation did not occur in such order of time as to justify 
 the assignment of such contraction as the originating 
 or moving cause of the fall of prices, even supposing 
 that there were no other adequate causes to account
 
 for it; but that the fall of prices does admit of 
 being- explained by circumstances affectiHg- the sup- 
 ply relatively to the demand, as regards commo- 
 dities^ independently of any alteration in the amount 
 of the Bank circulation. 
 
 The present letter will be entirely devoted to the 
 developement of the former of these propositions. 
 The latter will form the subject of another letter.
 
 Section I. — On the supposed Contraction of the Bank 
 of England Issues, attributed to the measures adopted 
 in 1819 for the eventual Resumption of Cash Pay- 
 ments. 
 
 It is impossible to conceive any thing more vague 
 than the manner in which the operation of Mr. 
 Peel's Bill is referred to by most of the speakers 
 and writers ' on the subject. By almost all of 
 them the operation of that measure is confounded 
 and used synonymously with the restoration of the 
 value of the paper to its metallic standard. This 
 restoration_, however, of the value of the paper had 
 already taken place in 1816 and 1817, and the sub- 
 sequent deviation had lasted only a few months. 
 But the persons who attribute enormous evils to 
 the restoration of the value of bank-notes previous 
 to 1819^ must adopt a different line of argument 
 from that which supposes Mr. Peel's Bill to have 
 been the great cause of derangement of the sys- 
 tem of our Currency. This argument admits,, how- 
 ever^ as will be hereafter seen, of the same ge- 
 neral answer. In the mean time it is to be ob- 
 served, that the great majority of those who declaim 
 on the increased value of the Cuirency confine their 
 invectives to Mr. Peel's Bill^ as the source of all the
 
 evils which they lament. And it is obvious^ at 
 least, that the charges against Mr. Ricardo and the 
 other promoters of that Bill_, of having underrated its 
 operation^ must be limited to the state of things at 
 and after the time of its passing. They are taunted 
 with having said, that the utmost effect of that mea- 
 sure would not exceed three or four per cent.^ or, at 
 the utmost^ ten per cent. Of course they must be 
 understood as having given their opinion prospec- 
 tively. Any contraction of the circulation which 
 had taken place antecedently to the Session of 1819 
 was naturally taken into consideration. 
 
 It was distinctly assumed^ as well in the evidence 
 before the Bullion Committee as in the debates upon 
 the Bill in 1819, that the amount of Bank of England 
 notes then in circulation was about 25 millions. And 
 it was with reference to that amount that Mr. Ricardo 
 gave it as his opinion, that little, if any contraction 
 would be found necessary. I had occasion to give 
 a similar opinion in my evidence before the Bullion 
 Committee. 
 
 Now, it does so happen, that the amount of 
 Bank of England notes in circulation, on the 26th 
 of August, 1819, was no less than 25,657,610/.; 
 and the price of gold had by that time actually 
 fallen to 3/. 18,?., or, in other words, to the Mint 
 price, the difference not being worth mentioning. 
 
 In that interval, viz., from February, 1819, to
 
 8 
 
 August,, 1819, not only was there no further repay- 
 ment by Government to the Bank, but an actual in- 
 crease of the advances by the latter — 
 
 On the 26th of Februay, 1819, the advances were £22,628,900. 
 26th of August, 1819, „ „ 24,528,900. 
 
 Thus the restoration of the value of the paper had 
 taken place without any reduction in the amount of 
 Bank of England notes, and without any further re- 
 payment by Government. 
 
 This was not a nominal fall in the price of gold, 
 actual purchases having been made at the quota- 
 tions. The exchange with Paris had risen rapidly 
 from 23.50, which it had been in February, 1819, 
 to 25.10 in August following. In the interval, not 
 one of the ingots provided by the Bank, and which 
 the holders of bank-notes were entitled to demand 
 at the rate of 4/. 2^. per oz., was called for as a 
 matter of business, although it is said that one or 
 two were applied for as a matter of curiosity. And 
 as from the state of the exchanges, which had already 
 reached par, and were still rising, there could be 
 no doubt of a further influx of bullion in the actual 
 state of the circulation, it was perfectly clear that 
 no reduction of the amount of bank-notes was ne- 
 cessary, at that time at least, to comply with the 
 provisions of Mr. Peel's Bill. No part of those 
 provisions had influenced, in the slightest degree,
 
 9 
 
 the operations of the Bank* since the passing of 
 the Bill, or even since the appointment of the Com- 
 mittee — no repayments by Goyernment in that in- 
 terval, — no refusal or limitation of discounts_, — no 
 calls upon the Bank for gold at the prices of the 
 scale fixed by Mr. Peel's Bill. 
 
 In what conceivable way^ then^ can it be main- 
 tained that Mr. Peel's Bill operated in obliging- the 
 Bank to curtail its issues^ with a view to prepare 
 for cash payments ? And after the rise of the Paris 
 exchange to and above par^ with an influx, conse- 
 quently^ of gold, what possible motive could the 
 Bank of England have to reduce its issues ? None_, 
 certainly. But a reduction of bank-notes did take 
 place in the six months following August, 1819, 
 and the average of February, 1820, was somewhat 
 more than one million and a half below that of 
 August, 1819. Whether this reduction of bank- 
 notes was compensated by an equal issue of sove- 
 reigns, or whether the issue of sovereigns, to which 
 the Governor of the Bank alluded in his speech at 
 a Court of Proprietors, of 21st March^ 1822, did not 
 
 * The Bank did, indeed, object to make the usual advances on the 
 Scrip, for the loan in 1819 : but all pressure on the money-market had 
 by that time ceased ; and if it had not, the only effect of the measure 
 would have been to increase the applications for discount to the full 
 extent to which the scrip receipts would otherwise have been lodged, 
 so that the circulation would in all probability have been the same.
 
 10 
 
 take place till after February, 1820, is immaterial 
 to my present argument, viz., — that the reduction 
 was not rendered necessary by the provisions of 
 Mr. Peel's Bill. 
 
 The state of the exchanges in August, 1819, 
 and the influx of gold which they insured, proved 
 that no reduction of circulation was required for 
 the eventual resumption of cash payments. The 
 reduction, therefore, can only be accounted for 
 on one of two suppositions: either that the Di- 
 rectors designedly and forcibly contracted the cir- 
 culation with a view to prepare for paying in 
 gold ; in which case, as for the reasons stated, such 
 contraction was unnecessary, and would involve the 
 charge of mismanagement which Mr. Ricardo made 
 against them* on that specific ground ; or the Direc- 
 tors were simply passive in the regulation of their 
 issues, following the routine by which they were 
 guided previously to 1819. The latter was the fact. 
 
 From the fall in the market rate of interest, and the 
 little inducement to speculation, the applications for 
 discount of mercantile bills fell off rapidly : these 
 stood at about eight to ten millions in Feb. 1819, 
 and it is probable that they were reduced to half 
 that amount by the end of the year ; not from any 
 
 * See Mr. Ricardo's speech on Mr. Western's motion concerning 
 the Resupiption of Cash Payments, 12th June, 1822.
 
 11 
 
 disinclination on the part of the Bank to grant the 
 accommodation^ but from want of inducement on the 
 part of the merchants to give five per cent, when 
 they could readily obtain discount through private 
 channels at one or two per cent. less. And as 
 Government^ from the improved state of the finances, 
 required no further advances from the Bank, (sup- 
 posing that the latter had been disposed to grant 
 them,) there remained no medium for maintaining 
 the circulation of Bank notes but the purchase of 
 bullion, and possibly a reduction of the Govern- 
 ment balances. It is owing to these two channels 
 for the issue of notes by the Bank, that the circula- 
 tion was not more reduced*. 
 
 * It may be urged that the Bank might and ought to have reduced 
 its rate of interest on mercantile bills, in order to keep up the amount 
 of its issues through that channel, or to have bought Exchequer Bills 
 in the market at a premium. How far it might have been expedient 
 to adopt either or both of these modes, I will not now stop to discuss ; 
 to have done either would, at any rate, have involved a departure 
 from their ordinary rules, and it would have been difficult for so un- 
 wieldy a body to abandon suddenly its established habits, without the 
 risk that its efforts might be too great in^the opposite direction. The 
 event proves that they might have ventured upon a considerable 
 eflfort for enlarging their issues ; and Mr. Ricardo was entitled to 
 contend that they ought to have made this effort, and that if they had, 
 the alteration in the value of the currency would not have been so 
 great as it proved to be. My own opinion is, that the Directors were 
 right, under the circumstances, in not deviating from their regular 
 course till after they had actually resumed cash payments. And I am 
 not at all sure that any evil consequences did arise from their having
 
 12 
 
 The question^ whether any contraction at all took 
 place subsequently to the passing of Mr. Peel's Bill, is 
 confined to the six months following August, 1819 ; 
 for, according to the following declaration of the 
 Governor of the Bank of England, at a Court of 
 Proprietors, held on the 21st March, 1822, the 
 issues of the Bank were greatly extended in the two 
 years following March, 1820 :—'' If," said he, " the 
 Bank had erred, it was not on the side of a re- 
 duction of the circulating medium ; for, on looking 
 at the amount of their issues, he found that, on the 
 9th March, 1822, their issues exceeded, by the sum 
 of 3,859,000/., those of the same date in the prece- 
 ding year ; and that the latter, viz. the 9th March, 
 1821, exceeded the issues of the 9th March, 1820, 
 by the sum of 3,440,000/. It was, therefore, quite 
 clear that the repayment of the Government debt, 
 called for in July, 1819, did not induce the Bank to 
 diminish their issues, for they had been increasing 
 them in the years which had since followed*." In 
 answer to a question from a Proprietor^ the Governor 
 
 adhered to their ordinary rules. If, at the close of 1819, they had 
 forcibhj, that is, by a departure from their ordinary rules, extended 
 their issues, they would have hastened the fall in the rate of interest, 
 and would so far only have hastened the inducement to Government 
 to diminish its unfunded debt, and consequently'to repay the Bank, as 
 it eventually did. 
 
 * Times of March 22, 1822.
 
 13 
 
 added : — " That the amount of issues from which he 
 had quoted^ of course, included the sovereigns issued 
 by the Bank.'* 
 
 According" to this declaration, the amount of the 
 circulation, as emanating- from the Bank of England,, 
 and forming the basis of the Currency, stood thus : — 
 
 Amount of bank-notes, Uth March, 1820 . . . £22,719,732 
 Add increase by the 9th March, 1821 3,440,009 
 
 Issues on the 9th March, 1821 £26,159,732 
 
 Increase by the 9th March, 1822 3,859,000 
 
 Total on the^th March, 1822 £30,018,722 
 
 Now, this authority is quite sufficient to esta- 
 blish the fact^ that, as far as regards the Bank 
 issues^ constituting the basis of the circulation,, 
 there was a considerable increase of the amount, 
 notes and sovereigns together*^ (and from the state 
 of the exchanges the whole of the sovereigns must 
 have remained in the country ;,) between March^. 
 1820, and March, 1822, as compared with the 
 amount at the time of the passing of Mr. Peel's 
 Bill ; and this interval of two years being that 
 
 * 1 am aware that this statement of the Governor has been con- 
 troverted by Mr. Mushet, on the Currency, p, 112, although not, as 
 it appears to me, on sufficient grounds; but as he admits some, 
 although not so large an increase, and as it is sufficient for ray argu- 
 ment, that there was no diminution of the Bank issues, paper and coin 
 together, it is superfluous here to examine the grounds of difference.
 
 14 
 
 ill which the principal phenomena of the fall of 
 prices, and the general depression ascribed to the 
 operation of Mr. Peel's Bill, occurred, it is of no 
 consequence to the general argument, wliether 
 there was or was not a small reduction in the 
 amount of the Bank issues in the six months be- 
 tween August, 1819, and March, 1820. 
 
 It appears, then, from this statement, that, as far 
 as regards the Bank of England issues, there was 
 not only no contraction of the circulation following 
 the passing of Mr. Peel's Bill, but an actual in- 
 crease of the amount (with the trifling exception of 
 the six months following August, 1819) down to 
 1822. The mere amount of bank-notes was certainly 
 diminished, but that diminution was more than com- 
 pensated by the issue of a larger amount of coin ; and 
 whatever coin was issued in that interval must, as 
 already observed, have remained in circulation, 
 because there would have been a heavy loss on its 
 exportation . 
 
 The restoration, therefore, of the value of the 
 paper to its metallic standard, having taken place 
 within six months after the appointment of the Bul- 
 lion committee, and within three months after the 
 passing of Mr. Peel's Bill, no reduction of the amount 
 of bank-notes having taken place in the interval ; 
 and the final resumption of cash payments having
 
 15 
 
 taken place in 1821-2^ after a substitution of sove- 
 reigns for Bank of England £1 notes^ coincident 
 with an increase of the issues^ of paper and coin toge- 
 ther^ from the Bank, Mr. Peel's Bill must be pro- 
 nounced to have been wholly inoperative in producing 
 any contraction, none having occurred^ in the amount 
 of the Bank circulation. 
 
 But it has been urged^ that the provisions of Mr. 
 Peel's Bill^ by directing a repayment to the Bank 
 of a certain amount of its advances to Government_, 
 necessarily occasioned the withdrawal of bank-notes 
 from circulation to that extent. I am quite pre- 
 pared to admit that the repayments by Govern- 
 ment to the Bank would have the effect of diminish- 
 ing the circulation, if there were no other channels 
 through which the bank-notes cancelled by such 
 repayment^ admitted of being re-issued. But it is 
 evident that, if the authority which I have quoted 
 is to be relied upon, there were other channels_, in- 
 cluding the purchases of gold, by which the sums, 
 repaid by Government, were re-issued ; and the main 
 question is as to the total amount of the Bank circu- 
 lation, and not the manner in which the issues were 
 made. 
 
 It may still be contended, however, that if the re- 
 payments had not been made, the circulation of the 
 Bank of England might have been larger by that 
 amount. This does not exactly follow, as I think I
 
 16 
 
 could show. It would, however, lead too far to enter 
 upon that point. It is sufficient here to observe, that 
 Mr. Peel's Bill cannot, with any fairness, be charged 
 with having rendered necessary the repayment of any 
 part of the Bank advances (taking the amount of 
 them as they stood in February, 1819), beyond 
 what would, in all probability, have been made by 
 1822, if that measure had not passed. 
 
 When the pi'ovisions of Mr. Peel's Bill, directing 
 the repayment of 10 millions to the Bank, were dis- 
 cussed in Parliament, it was proposed by some mem- 
 bers, that the time of repayment should be strictly 
 prescribed. But this was objected to by ministers 
 as being liable to inconvenience; and it was ob- 
 jected to by Mr. Ricardo, because he considered, 
 and, as the event proves, justly, that such repay- 
 ment might not be necessary, or even desirable. 
 The time, therefore, of repayment, was left open to 
 arranofement between the Bank and Government. 
 
 How little influence Mr. Peel's Bill had in has- 
 tening such repayment, has been seen by the 
 statement at page 8, where it appears that, by 
 August 26, 1819, the amount of advances was ac- 
 tually increased by nearly two millions, compared 
 with that at which they stood on the 26th February, 
 1819. These two millions were repaid by the 
 26th February, 1820, when the amount stood at 
 21,920,900/.^ nearly the same as it had done a
 
 17 
 
 twelvemonth before ; and I have to repeat, as it is a 
 most important fact, that the enlargement of the 
 amount of advances between February and August^ 
 1819, (being- within little more than two millions and 
 a half of the highest amount at which they stood in 
 1817,) took place coincidently with a rapid rise of the 
 exchanges, a restoration of the paper to par, and a 
 decided tendency of gold to flow into the country. 
 
 The repayments which took place subsequently to 
 1819, were clearly not necessary or desirable to the 
 Bank. The exchange, at short, on Paris on the 3d 
 March, 1820, was quoted 25.20, and by the 4th 
 July following, it rose to 25.80. This rapid rise 
 insured a great influx of gold, and proved that the 
 circulation required, at least, no reduction. It 
 would, therefore, have argued great mismanagement 
 on the part of the Bank Directors, if they had, under 
 such circumstances, urged the repayment from 
 Government, as the means of enabling them to pay in 
 gold ; and the promoters of Mr. Peel's Bill would not 
 have been accountable for the consequences of such 
 mismanagement. 
 
 But 1 do not impute to the Bank Directors of that 
 time such ignorance of their position. The pre- 
 sumption is, that it then suited Government, in its 
 financial arrangements, to reduce the amount of the 
 
 c
 
 18 
 
 unfunded debt, which was inconveniently and danger- 
 ously large ; and the opportunity for such reduction 
 presented itself in the great fall in the market rate 
 of interest and the rise of the funds, which occurred 
 between 1820 and 1822, in which interval the re- 
 payment was completed. 
 
 Whether, therefore, the repayments by Govern- 
 ment had produced an actual diminution of the 
 Bank issues, (which they did not,) or whether they 
 prevented such an enlargement of the circulation as 
 might otherwise have taken place^ (which they pos- 
 sibly did,) in neither case could the effect be imputed 
 to Mr. Peel's Bill, as it is highly probable that such 
 repayments were regulated mainly by the financial 
 views of Government ; and it would be a new and 
 somewhat dangerous doctrine to contend that Govern- 
 ment ought to enlarge or diminish the unfunded debt^ 
 not according to views strictly financial, but accord- 
 ing to their notions of the proper amount of the 
 circulating medium. 
 
 The inference from the preceding facts and rea- 
 soning is, that Mr. Peel's Bill had no influence 
 whatever on the Bank circulation. 
 
 In comparing the state of things which followed 
 Mr. Peel's Bill^ with what it might have been, if that 
 measure had not been introduced, I am supposing
 
 19 
 
 the adoption of either of the alternatives which pre- 
 sented themselves at the time, putting out of the 
 question the degradation, of the standard. These 
 alternatives were, first, To continue the restriction as 
 it had been from time to time extended, for one, two, 
 or three years further, without any intermediate pay- 
 ments in gold at a fixed price ; or, secondly. To leave 
 the continuance of the restriction to the convenience 
 and discretion of the Bank Directors ; they engaging, 
 according to their own suggestion, in the mean time, 
 to pay their notes in gold, if required, at the market 
 price. 
 
 The debates upon Mr. Peel's Bill turned chiefly 
 upon the compulsory clauses enforcing the payment 
 of bullion according to the scale. These clauses 
 were considered objectionable, as being calculated to 
 oblige the Bank forcibly to contract its circulation, 
 for the purpose of paying in bullion at the prescribed 
 periods ; and any very strict limitation of time for 
 the eventual resumption was objected to by the 
 friends of the paper system on the same ground. 
 But to the principle of the eventual restoration of the 
 value of the paper to gold at 3/. 17?. lO^d. per oz. 
 there was a pretty general assent, the chief exception 
 being Lord Folkstone, who proposed to take the de- 
 preciation as it then stood, and to degrade the stand- 
 ard to the market price of gold, viz. 41. per oz., and 
 
 c 2
 
 so 
 
 Mr. Hudson Gurney^ who considered that the stan- 
 dard ousrht to be altered*. 
 
 * If I succeed in showing that the vakie of the Currency was re- 
 stored without the operation of Mr. Peel's Bill, I may, of course, 
 pass over altogether the question of the expediency of debasing the 
 standard. Even if the reasons for attempling such a measure in 1819 
 had been of any force, the mere fact that it was not then adopted 
 puts it out of the pale of discussion with all persons who are not pre- 
 pared to produce anew the very same evil which has been so much 
 complained of, to wit, a disturbance of all contracts, and a change in 
 the value of all fixed incomes. In fact, the scheme is now entertained 
 by none but those who are quite careless of consequences, and con- 
 sider the maintenance of faith with all creditors, public or private, 
 and the security of every business of life, as of trifling importance, 
 compared with reducing the incumbrances of landlords. Even 
 in 1819, when it might have been entertained as a means of settlhigy 
 and not as now oi unsettling the value of the Currency, the difficulty 
 of choosing any one degree of depreciation rather than another, after 
 the old standard should be once abandoned, compelled many to be 
 favourable to Mr. Peel's Bill in practice, who were far from being 
 so in principle. — This is well illustrated by the following quotation 
 from the speech of Mr. Denison, in the debate in the House of Com- 
 mons on the Scottish Bank-note bill, last Session : — 
 
 " What would have been the proper course to take in 1819 ? To 
 have altered the standard. Such a measure would have prevented the 
 ruin of the farmer, the tradesman, and the artisan ; or, at least, it 
 wcftild have diminished the pressure upon them. The cause of all 
 the evils which we had endured, and which we are still enduring, was 
 the fatal policy of conh'acting a large debt in one description of cur- 
 rency, and trying to pay it in another. I may be asked, wh)', if I felt 
 this so strongly, if I was convinced of this expediency of altering the 
 standard, I did not myself luring forward such a proposition ? Tlie 
 truth is, that the question was one of such difficulty, that I may well 
 be pardoned for having shrunk from it. But it is well known to 
 many Hon, Members, that my Hon. friend, the late Member for 
 Coventry, and myself, did, in 1819, bestow great attention on the 
 subject, with a reference to bringing it under the consideration of the
 
 21 
 
 Whichever of the alternatives before referred to 
 had been adopted^ the same result, as relates to the 
 amount of the circulation of Bank paper, the time of 
 the restoration of its value, and the final resumption 
 of cash payments, would have occurred as the in- 
 evitable consequence of the state of things which 
 existed, independently of the Currency, in 1819 and 
 1820. 
 
 I refer to the fall in the market rate of interest, 
 and the consequent contraction of the channel for 
 the issue of bank-notes through the discount of 
 mercantile bills — -the improved state of the finances, 
 which enabled and induced Government to diminish 
 the unfunded debt — the large sums due from abroad, 
 for the unusually extensive exports of 1818, the 
 means of returns, excepting in gold, being at the 
 same time abridged by the shutting of our ports 
 against the importation of corn, and by the glut 
 which prevailed here of other foreign products, 
 in consequence of the large importations of 1818 
 
 House ; but that we found it a matter of such difficulty that we 
 shrunk from it. I will also candidly admit, that we could not exactly 
 agree as to what ought to be the amount of the standard. I was of 
 opinion that it ought to be 41. lOs., or 41. 15*., while my Hon. friend, 
 concurring with a noble Lord in the other House, thought that it ought 
 to be 5l. 5s., or 5l. 10s. The current appeared to run so strong, how- 
 ever, against either proposition, that it was abandoned."' — See Mirror 
 of Parliament, part xvii., pp. 177-5, 6.
 
 22 
 
 — these circumstances combined to determine 
 the tide of the metals so strongly into this coun- 
 try, that nothing- but a veiy unusual effort on 
 .the part of the Bank, involving" a departure from 
 its most settled habits, in forcing a greatly in- 
 creased issue of its paper, could have prevented, or 
 even materially have retarded, such influx. Instead, 
 therefore, of any effort being requisite on the part 
 of the Bank to comply with the provisions of Mr. 
 Peel's Bill, it would have required an extraordinary 
 effort to render them operative. * 
 
 * Mr. Ricardo does not appear to me to have sufficiently appre- 
 ciated this state of things, when he charged the Bank Directors with 
 mismanagement in having prematurely and unnecessarily enhanced 
 the value of the Currency by their large purchases of gold after the 
 passing of Mr. Peel's Bill. His mode of expression conveys the idea 
 that the Directors made an effort to buy gold ; that they created a 
 demand for it by a designed reduction of their issues for that specific 
 purpose. Now, the truth is, that they were perfectly passive, and 
 moved only in the ordinary routine of their business : they bought 
 gold simply as it was brought to them at or below the Mint price. 
 And it was a matter of indifference as concerned the amount of the 
 Currency, whether the gold were taken by the importers to the Mint, 
 and thence brought directly into circulation as coin, or were taken 
 in the shape of bullion to the Bank in return for its notes. 
 
 In the House of Commons, upon a discussion on the subject of the 
 Currency, 12th June, 1822, Mr, Pearse, (one of the senior Directors 
 of the Bank,) said, " That the Honourable Member for Portarlington 
 (Mr. Ricardo) had charged the Bank with error and indiscretion, in 
 having become too extensive purchasers of gold, in consequence of 
 the passing of the Act of 1819. The fact was, that the Bank were 
 quite passive in taking the gold from the merchants who offered it 
 for their purchase. The consequence, however, had been, that
 
 23 
 
 But if Mr. Peel's Bill was thus inoperative, and 
 therefore innocent of all the evils which have been so 
 abundantly and with so much superfluous eloquence 
 laid to its charge,, it may be asked^ what was the 
 merit of the Bill^ and what was the ground of the 
 importance attached to it by its promoters — seeing 
 that the same result would have attended any of 
 the alternatives proposed^ an alteration of the stan- 
 dard only excepted ? 
 
 The merit of Mr. Peel's Bill waSj as it has since 
 turned out^ independent of the event. That merit 
 consisted in the sanction which it afforded to the 
 principle, that the Bank has the power, by the regu- 
 lation of its issues, to preserve the value of its paper 
 on a level with that of gold : and the importance 
 attached to the Bill by its promoters, is fully justi- 
 fied by the consideration that, at the time when it 
 was under discussion, there was fair ground for con- 
 templating circumstances under which the compul- 
 sory clauses of the Act would come into operation. 
 
 Among the numerous contingencies which might 
 have rendered Mr. Peel's Bill operative in con- 
 
 iDullion had been paid whenever it had been demanded ; that an issue 
 of ten or eleven millions of gold sovereigns had taken place. 
 Ever since he had been connected with the establishment, he had 
 been invariably against all forced or artificial measures." — Han- 
 sard's Parliamentary Debates, June 12, 1822, p. 954.
 
 24 
 
 tracting" the circulation^ a fevv_, involving no very 
 great improbability^ may be noticed. The hai-vest 
 in 1820, proving deficient by more than a fourth, 
 (instead of being, as it was_, productive by more 
 than a fourth above an average,) and the conse- 
 quent opening of the ports to a very large importa- 
 tion of corn — speculations upon deficiency of cotton 
 or of other imported commodities — any great finan- 
 cial operation of the French government, — or an 
 earlier direction of capital in mining schemes_, and 
 loans to South America. 
 
 Some of these separately, but more especially if 
 combined, would, in an advanced state of their pro- 
 gress, have created such a mass of mercantile paper^ 
 and such a demand for the employment of borrowed 
 capital, as materially to raise the rate of interest. 
 The applications for discount at the Bank would 
 have been greatly increased ; and the same cause, 
 viz. a rise in the rate of interest, would have made it 
 difficult, or at any rate very inconvenient, for Govern- 
 ment to make any repayment of its advances ; or it 
 might, under such circumstances, have been induced 
 to ask for further accommodation. But while in this 
 state of things there would have been an increased 
 demand for paper, a tendency to an efflux of the 
 metals to answer the sudden call for payments 
 abroad, before any return for increased exports of
 
 25 
 
 commodities could meet that call, would have indi- 
 cated the expediency of contracting- the circulation. 
 
 In such case it is that Mr. Peel's Bill would have 
 been operative. The Bank Directors could not 
 then, without putting themselves out of condition to 
 conform to its enactments, have granted accommo- 
 dation in the way of discounts to the extent of the 
 applications for it ; and instead of making further 
 advances to Government, the early repayment of the 
 amount contemplated by Mr. Peel's Bill must have 
 been rigidly insisted on. 
 
 The limitation of discounts below the sums applied 
 for^ and the necessity which government would be 
 under of raising a loan, or of issuing Exchequer Bills 
 at a higher rate of interest to enable it to make the 
 repayment^ would have produced a great deal of 
 mercantile pressure and distress. This state of 
 things would have been compatible, as it was in the 
 spring of 1796, with a high price of corn. Al- 
 though, under such circumstances,, Mr. Peel's Bill 
 would have been strictly and severely operative 
 upon other classes, the landed interest, so long as 
 the prices of agricultural produce were maintained, 
 would not have made the discovery that it was a 
 measure calculated to diminish the value of all pro- 
 perty. 
 
 It is curious to remark, that the state of things
 
 26 
 
 which really rendered Mr. Peel's Bill inoperative 
 for the first few years after its enactment, should 
 have been taken as the specific ground for the 
 clamours against it^ while, under the opposite cir- 
 cumstances,, when it would have been strictly coer- 
 cive^ there would not have been the slightest 
 pretence for the complaints of those who have been 
 most violently opposed to it.
 
 27 
 
 Section II. — On the supposed Injluence of Mr. 
 Peel's Bill in contracting the Countnj Circulation. 
 
 As regards, .then_, the issues of the Bank of England,, 
 there appears to be no ground whatever for the 
 assertion^ that they were contracted by the operation 
 of Mr. Peel's Bill. But it is contended by some of 
 the opponents of that measure^ that^ although it had 
 not the effect of reducing the issues of the Bank of 
 England^ it greatly contracted the issues of the 
 country banks^ and thus occasioned the subsequent 
 fall of prices. That a considerable contraction of 
 country bank-notes took place subsequent to the 
 passing of Mr. Peel's Bill I am perfectly willing to 
 admits and that this contraction accompanied the 
 fall of prices which occurred between the beginning 
 of 1819 and the close of 1822 may be equally con- 
 ceded. But how that contraction was occasioned by 
 Mr. Peel's Bill^ has^ in no instance^ been satisfac- 
 torily shewn. /\ 
 
 The commonly-received opinion, which indeed 
 has been sanctioned by that of tlie BulUon Com- 
 mittee of 1810^ is, that the variations in the amount
 
 28 
 
 of country bank-notes depend essentially upon, 
 and usually follow, the variations in the amount 
 of Bank of England issues. If this were so, the 
 argument against the assumed operation of Mr. 
 Peel's Bill on the country circulation would be sim- 
 ple and conclusive. If the country banks are so 
 controlled in their issues by the circulation of the 
 Bank of England as to follow that circulation in 
 regular order of time and in proportion of amount, 
 then it is clear, that the assignment or negation 
 of any cause influencing the amount of Bank of 
 England issues, must apply to the circulation of the 
 country banks. And as Mr. Peel's Bill has been 
 shewn to have had no influence on the circulation of 
 the Bank of England, it would follow, that it was in- 
 operative on the issues of the country banks. 
 
 But there are facts innumerable, to prove the 
 absence of any immediate or direct influence of the 
 Bank of England issues on the circulation of the 
 country banks. Indeed, the instances of diver- 
 gence are more numerous than those of coincidence. 
 And on several occasions the tendency of the Bank 
 of England, and of the country bank circulation, 
 was in opposite directions * . Thus, to go no further 
 
 * It is not here meant to deny that the Bank of England has it so 
 far in its power to control the issues of the country banks, as, by a
 
 29 
 
 back than the year immediately preceding- that of the 
 passing- of Mr. Peel's Bill, while the Bank of Eng- 
 land^ in 1818^ reduced its circulation by nearly three 
 millions^ the country banks extended theirs^, accord- 
 ing to all the computations hitherto made from the 
 number of stamps issued in that year *_, by up- 
 . wards of four millions. 
 
 forced reduction of its own paper for that specific purpose, to compel 
 the country banks to reduce theirs. All that I contend for is that, 
 administered as the Bank has been, and under its ordinary rules, the 
 country bank circulation may fluctuate largely, while the Bank of 
 England paper is uniform ; and that the variations may be, as they 
 often have been, in opposite directions. 
 
 * The only materials from whence any estimate can be made of the 
 amount of the country circulation, consist in the number of stamps 
 issued. As the notes are re-issuable with the same stamps, and as no 
 allowances are made for such as are retained by the country bankers 
 for contingent use, or for such as are, soon after their issue, with- 
 drawn from circulation by failure of the bankers or other causes 
 nothing can be more vague than any attempt at computing the amount 
 of notes actually in circulation. The subjoined statement gives the 
 number of stamps and two computations, the one by Mr. Sedgwick 
 (as stated in the Bullion Report), and the other by Mr. Joplin (in his 
 pamphlet on the Currency in 1825), of the amount in circulation to be 
 inferred from the stamps : — 
 
 Computation of Amount, 
 
 
 Stamps. 
 
 Mr. Sedgwick. 
 
 Mr. Joplin. 
 
 ]S17, 
 
 9,075,958 
 
 15,898,000 
 
 23,124,373 
 
 1818, 
 
 12,316,808 
 
 20,507,000 
 
 27,816,292 
 
 1819, 
 
 6,130,313 
 
 17,366,875 
 
 27,033,139 
 
 1820, 
 
 3,574,894 
 
 11,767,391 
 
 21,532,075 
 
 1821, 
 
 3,987,582 
 
 8,414,281 
 
 13,202,789 
 
 1822, 
 
 4,217,241 
 
 8,067,260 
 
 11,779,817 
 
 1823, 
 
 4,657,589 
 
 8,798,277 
 
 12,802,512 
 
 1824, 
 
 6,093,307 
 
 10,004,172 
 
 14,968,297 
 
 1825, 
 
 8,532,438 
 
 14,147,211 
 
 18,915,771
 
 30 
 
 On the other hand, in the interval from 1819 to 
 1822, but more especially after the close of 1820, 
 while the circulation of the Bank of England, includ- 
 ins: the sovereiofns issued as a substitution for its one 
 pound notes, was rather increased than diminished, 
 that of the country banks is supposed to have under- 
 gone a great reduction. The degree of reduction is 
 variously computed, although all accounts concur in 
 stating it to be very considerable after 1819. I 
 am ready to admit it to the utmost extent that 
 can be claimed, but still I contend that such 
 reduction was not produced by Mr. Peel's Bill, but 
 was the result of circumstances which were totally 
 distinct from any operation of that measure, and 
 which rendered it morally impossible for the country 
 banks to keep up their issues. 
 
 Of the circumstances which favour an extension of 
 the country bank circulation on the one hand, or re- 
 press it on the other, I have already given an ex- 
 planation at some length in a former work. It will 
 have been seen by that explanation, that it is of the 
 nature of the circulation of country banks to be ex- 
 tended under circumstances favourable to a general 
 speculation upon the prospect of an advance of prices, 
 more especially as regards agricultural produce, or 
 upon the opening of any new fields for enterprise, and 
 to be diminished with the cessation or absence of any
 
 31 
 
 adequate grounds for such speculation*. Now^ at 
 the time immediately preceding the passing of Mr. 
 
 * The supposition of an immediate dependence of the country 
 bank circulation on the circulation of the Bank of England, and of a 
 consequent correspondence in a greater or less ratio in the variations 
 of the former with those of the latter, is founded upon the reasoning 
 of which the following passage of the Report of the Bullion Committee 
 of 1810 may be considered as an epitome. " If an excess of paper be 
 issued in a country district, while the London circulation does not 
 exceed its due proportion, there will be a local rise of prices in that 
 country district, but prices in London will remain as before. Those 
 who have the country paper in their hands, will prefer buying in 
 London, where things are cheaper, and will therefore return that 
 country paper on the banker who issued it, and will demand fi-om 
 him Bank of England notes or bDls upon London; and thus, the 
 excess of country paper being continually returned upon the issuers 
 for Bank of England paper, the quantity of the latter necessarily and 
 effectually limits the quantity of the former." As far as this reason- 
 ing goes to point out the check which is constantly operating to pre- 
 vent a rise of prices in a country district from an excess of local 
 paper, while London prices remain as before, it is undoubtedly cor- 
 rect ; and the same reasoning applies, to prove the impossibility of any 
 rise of importance in the country generally, from extended issues of 
 the local banks without a rise in the London prices. In fact, a specu- 
 lative advance' of prices generally originates in London, and then it 
 affords the means and inducement to an extension of country bank 
 paper. But in some instances the rise of prices in London, as well as 
 in the country, has taken place without any contemporaneous increase 
 of the Bank of England issues, and the eventual faU has occun-ed in 
 the face of a great extension of Bank of England paper. The error, 
 therefore, of the reasoning in the preceding extract, is in the assump- 
 tion that the whole amount of the London circulation is commen- 
 surate or identical at any given time with the Bank of England 
 paper circulating in the metropolis, and accordingly the conclu- 
 sion that a demand upon the country bankers for bills on Lon- 
 don is equivalent to a demand for Bank of England notes and re- 
 quires an increase of these to support extended issues of the country
 
 32 
 
 PeePs Bill,, there was a cessation, from causes totally 
 independent of that measure, of obvious grounds 
 for extensive speculation of any kind. And after 
 the summer of 1820^ when the extraordinary produc- 
 tiveness of the harvest began to be appreciated, 
 there was not only no reasonable ground for specu- 
 lating on an advance of the price of corn, but a well 
 founded apprehension of a fall. There was, accord-" 
 ingly, a greatly diminished inducement to farmers, 
 with a view of being enabled to hold, and to dealers 
 and millers with a view of being enabled to increase 
 their stock of corn, to obtain advances from the 
 country banks. The inducement was rendered still 
 less by the high rate of interest which these continued 
 to charge long after the general rate had fallen to 
 
 bankers, is incorrect, as referring to any limited period. In the ex- 
 planation which I gave in a former work, {High and Low Prices, 
 Part I. Sec. 7 .), of the expansive and contractile nature of the country 
 and London circulation, independently of any alteration of the amount 
 of Bank of England notes, I referred only in general terms to the 
 London circulation as being susceptible of gi'eat enlargement or con- 
 traction through the medium of more or less of resort to the use of 
 credit. I am indebted to my friend Mr. James Pennington for the 
 means of making my conclusion on this point more complete. He 
 has addressed a paper to me, noticing an analogy, which has not, as 
 far as I am aware, before been distinctly observed, between the book 
 credits of the London bankers and the promissory notes of country 
 banks. The point is so important, and bears so much upon the present 
 subject, that I am induced, with Mr. Pennington's permission, to insert • 
 the paper containing his views upon it, and upon one or two topics 
 connected with it, in the Appendix.
 
 S3 
 
 four, and even three per cent *. Independently, 
 then, of the other causes which have been noticed 
 as tending- , to diminish the demand for country 
 notes, the mere fall in the market rate of interest 
 below that charg-ed bv the bankers would account 
 for a considerable degree of contraction of their 
 issues. 
 
 It was, therefore, the operation of the high rate 
 of interest charged by the country bankers, and the 
 little inducement, with perhaps diminished means, 
 and consequently reduced credit on the part of their 
 customers to borrow, that so greatly contracted the 
 country circulation in the years 1820 and 1 821 ; when 
 Mr. Peel's Bill had ceased to be talked of, or even 
 to be thought of These causes operated in con- 
 tracting and keeping down the circulation of country 
 paper till the commencement of 1823, when, fiom 
 the state of the corn trade, which I shall have occa- 
 sion to notice hereafter, there was an increased in- 
 ducement for the employment of monied capital 
 among persons engaged in that very extensive 
 branch of commerce. And as the largest proportion 
 of that class of persons are customers of the country 
 
 * It is exactly the same cause which reduced the discounts of the 
 Bank of England in 1820, 21, and 22, to a most insignificant amount, 
 and which induced the Directors to resort to other expedients for 
 getting out their notes. 
 
 D
 
 34 
 
 banks, they naturally afforded^ under these circum- 
 stancesj an extended channel for the issue of local 
 notes*. 
 
 I do not mean to say, that the absence or dimi- 
 nished number of borrowers is at all times the only 
 cause of a diminished circulation of country notes. 
 In times of commercial revulsion, the country bank- 
 ers may, and commonly do feel the effect of the 
 general discredit, by having- their notes occasionally 
 rejected, on the score of distrust of the solidity of the 
 issuers. And, in the cases in which extensive fai- 
 lures of country bankers have occurred, a chasm has 
 been created in the circulation of local notes, which 
 has admitted, and even required an extension of 
 Bank of England issues to fill it. If, therefore, Mr. 
 Peel's Bill could be shown to have produced any 
 g-reat commercial revulsion which affected the credit 
 of the country bankers, so as to disable them from 
 accommodating applicants who had adequate security 
 to offer, or to induce them to call in the advances 
 already made, — then, indeed, some effect, although 
 
 * Mr. Hudson Giirney, on being asked by the Bullion Committee 
 of 1819 — " What determines, in your opinion, the fluctuations in the 
 amount of country bank paper ? " answers : " The price at which the 
 staple commodity of each district is selling : for example, I consider 
 that our circulation would increase with a high price of corn, and 
 would decrease with a low price of corn : corn being the staple of Nor- 
 folk."
 
 35 
 
 of very short duration^ might be ascribed to that 
 measure in the contraction of the circulation which 
 took place. But^ although there were several ex- 
 tensive failures of mercantile and manufacturing- esta- 
 blishments in 1819, the greater number of these had 
 already been embarrassed by the general stagnation 
 which occurred at the close of 1818, in consequence 
 of the overtrading of that and the preceding year. 
 And, upon the whole^ the commercial failures in 1819, 
 were neither so numerous nor extensive as might 
 have been expected from the alteration of prices^ and 
 from the extent of the previous overtrading. 
 
 But as to failures of country banks^ there were hardly 
 any, and none of any consequence, at the period of 
 the passing of Mr. Peel's Bill, or for a considerable 
 time after*. Indeed, it would be difficult to point 
 out an interval of equal length, in which there were 
 so few, or in which the conntry banks enjoyed fuller 
 credit than they did in 1819, and in the four or 
 five years following, or had larger balances in the 
 hands of the London bankers. It was not, there- 
 fore, from want of credit, or from any deficiency 
 
 * This comparative stability of commercial, but more especially of 
 banking credit, may be as cribed to the circumstance that the great 
 failm-es which had occurred in 181 4-1 5-1 G, were still recent, and had 
 cleared away the greater part, if not the whole of what had been rotten 
 or unsound in trade and banking, so that the losses arising from the 
 overtrading of 1818 fell on establishments that could bear them. 
 
 D 2
 
 36 
 
 of power to make their usual advances, but simply 
 from want of demand, upon adequate security, for 
 their notes, that they were under the necessity of 
 limiting- their issues. 
 
 It may here be objected, that the diminution of 
 demand for the country notes might arise not only 
 from the causes stated, but from the distressed con- 
 dition of the farmers, in consequence of the fall of 
 prices, which must so far diminish the number of 
 applicants for accommodation having good security 
 to offer. This may be granted without proving any- 
 thing in favour of the assumed operation of Mr. Peel's 
 Bill. I have always admitted, that a fall of prices 
 diminished the ability of many of the usual customers 
 of the country banks to borrow to the same extent 
 as before such fall ; and that, therefore, the con- 
 traction of country paper was a consequence of the 
 fall, and became in its turn an accelerating cause. 
 Whereas, the argument which I have been combat- 
 ing supposes that Mr. Peel's Bill operated directly 
 in originating the contraction, and that such contrac- 
 tion was the immediate and only cause of the fall of 
 prices. 
 
 In fact, the circumstances of 1820 to 1822 were, 
 as regards the state of the country and London cir- 
 culation, very similar to what they were in 1827 and 
 in the early part of 1828. The country bankers had 
 large balances in the hands of their London bankers ;
 
 37 
 
 and these, having larger deposits than usual from 
 their town as well as country customers, w^ere at a 
 loss for the employment of their funds, and were thus 
 compelled to hold unusually large reserves, getting 
 only a very low rate of interest for what they could 
 employ, and lodging the very considerable sums 
 which they could not employ, in the Bank of England. 
 
 It may, however, be contended, that though the 
 general provisions of Mr. Peel's Bill for the resump- 
 tion of cash payments had not any material influence 
 in the reduction which took place in the circulation 
 of the country banks from 1819 to 18:22; yet, that 
 the particular part of the enactment which enjoined 
 the suppression of the 1/. country notes in 1823, 
 was calculated to produce a considerable effect, by 
 inducing country bankers to make preparations for 
 withdrawing that portion of their paper. 
 
 The importance of the country 1/. note circulation, 
 upon the value of the whole of the currency, or, in 
 other words, its influence on prices, has been, and is, 
 in my opinion, extravagantly overrated. But what- 
 ever may be the importance of that part of the cir- 
 culation, the provisions which related to it in Mr. 
 Peel's Bill did not practically come into operation, in- 
 asmuch as that clause of the Act, which directed the 
 suppression in 1823, was repealed in June, 1822. 
 And there is no reason whatever to suppose that any 
 curtailment of that description of notes had taken
 
 38 
 
 place^ with a view to the provisions of Mr. Peel's 
 Billj previous to the prolongation of the term. Had 
 such curtailment taken place before the bring-ing in 
 of the Bill for continuing the circulation^ a propor- 
 tionate enlargement would of course have occurred 
 immediately after such prolongation ; whereas the 
 amount did not reach its lowest till some months 
 after the passing of the Act for continuing for ten 
 years longer the circulation of country 1/. notes. 
 The rise in the price of corn, which is so generally 
 ascribed to the supposed influence of the prolonga- 
 tion, the Bill for which was passed in the spring 
 of 1822, did not take place till more than six 
 months after^ and may be traced to causes totally 
 distinct from that measure. There is as little ground, 
 therefore, for imputing to Mr. Peel's Bill the contrac- 
 tion of this, as of the rest of the circulation of country 
 notes*. 
 
 * If Ministers had been weak enough, last Session, to yield to the 
 clamours of the country bankers, for a prolongation of the circulation 
 of small notes beyond April next, the rise in the price of corn, which 
 took place so soon after the adjournment, would inevitably have been 
 attributed, in great part, if not wholly, to the influence of the 1/, notes. 
 We have fortunately been saved, not only from the more substantial 
 evils of the continuance of that system, but from the false inferences 
 to which the coincidence of the prolongation of it with the return of 
 high prices would have given rise. And there has been this further 
 advantage from the approaching suppression of the small notes — that 
 the apprehension of the effects of the measure in cramping the circu- 
 lation, and in increasing the value of the currency, operated in a certain 
 degree to check the tendency to general speculation, which the de- 
 ficiency of the last haivest was calculated to engender.
 
 39 
 
 Section III. — On the general state of the Circulation 
 of the Bank of England during the Restriction. 
 
 The argument^ thus far, against the supposed ope- 
 ration of Mr. Peel's Bill^ in producing- a contrac- 
 tion of the Currency, appears to be conclusive ; 
 and may, it is presumed^ be considered a full 
 vindication of the correctness of the opinions ex- 
 pressed by the promoters of that Bill. 
 
 But many of the writers and speakers who are op- 
 posed to that measure, as if conscious of the weakness 
 of their ground, frequently shift their position^ and 
 refer to periods anterior to the passing of Mr. Peel's 
 Bill, or to the appointment of the Bullion Committee 
 of 1819, for the origin of the evils which they ascribe 
 to the restoration of the value of the Currency. Ac- 
 cording as it suits the purpose of their argument, they 
 fasten upon Mr. Peel's Bill, or they abandon it for a 
 more general ground. They contend, that, in every 
 instance of a fall of prices, and consequent distress, 
 subsequent to the termination of the war, such fall is 
 to be ascribed wholly to a contraction of the Cur- 
 rency, occasioned by preparations on the part of the 
 Bank of England for the restoration of cash pay- 
 ments ; and that every intermediate rise of prices,
 
 40 
 
 and consequent return of prosperity, are to be attri- 
 buted to a suspension of such preparation,, by an en- 
 largement of issues upon the occasional prolongation 
 of the Restriction Act. 
 
 But it is clear that the question of preparation for 
 cash payments on the part of the Bank, after the ter- 
 mination of the war, must be referred to the general 
 system pursued by them, in the regulation of their 
 issues, before that event. Accordingly, in nearly 
 all the discussions upon the effects of the resumption 
 of cash payments, a reference has been made to the 
 state of the circulation from the restriction in 1797 till 
 the termination of the war in 1814, as contrasted 
 with the circulation and with prices from 1814, to the 
 full restoration of the convertibility of Bank notes. 
 
 Now, I am ready to admit, that if the specific 
 charge against Mr. Peel's Bill be abandoned in favour 
 of the more general one against the restoration of the 
 convertibility of Bank notes, our judgment must be 
 formed upon the whole monetary history of that period. 
 In order, therefore, not to avail myselfof what might 
 be considered a cavil, if I were to confine the dis- 
 cussion specifically to the alleged effects of Mr. Peel's 
 Bill, I am prepared to enter again upon the more 
 general ground of the effects upon the amount of 
 the circulation and upon prices, of the system of our 
 currency during the whole period of the Bank re- 
 striction.
 
 41 
 
 I will, ill the first instance, endeavour to show, 
 that the restoration of the value of the paper must 
 have been without the intervention of the Legisla- 
 ture, and without any effort on the part of the Bank — 
 the consequence of the rules observed by that esta- 
 blishment in the regulation of its issues, as well 
 during, as prior and subsequent to the Restriction. 
 
 Of the rules by which the Directors were guided 
 during the interval in which they were absolved 
 from the necessity of attending to the only safe 
 guides for the correct regulation of their issues — 
 viz. the price of gold and the state of the ex- 
 changes, the information thus far before the public 
 is indeed very imperfect. 
 
 With the exception of the scanty materials to be 
 gleaned from the evidence of the Directors before the 
 Bullion Committees of 1810 and 1819, the means of 
 judging of the working of the machinery of the Bank, 
 are confined to the printed statements which have, 
 from time to time, been laid before Parliament, of 
 the amount of bank-not.es in circulation, and of the 
 advances by the Bank to Government, The ad- 
 vances, however, to Government form only one of 
 several channels through which Bank of England 
 notes are issued. The other principal channels are 
 purchases of bullion, and discounts of mercantile 
 bills ; and it must be evident that, without a refer-
 
 42 
 
 ence to the amounts issued under these heads, as 
 well as under that of advances to Government, all 
 reasoning- must be the most vague imaginable as to 
 what would have been the state of the circulation if 
 the restriction had not taken place, or had not been 
 removed. 
 
 A knowledge of the quantity of bullion in the 
 coffers of the Bank, and of its tendency to increase or 
 diminish, is especially important, as being indicative, 
 with the exchanges, of defect or excess of the circula- 
 tion, compared with the currency of other countries. 
 The amount of discounts, too, is very material in 
 considering the degree in which the issues through 
 this channel operated, sometimes as a compensat- 
 ing, and at others as an aggravating cause, in 
 determining the whole amount of the circulation. 
 Indeed, the information to be derived under these 
 two heads was of such obvious importance, that' the 
 Bullion Committee of 1819 required to be furnished 
 with it ; and accordingly the Directors supplied it, 
 but in so mystical a form as greatly to detract from 
 its use. Following the precedent of what had been 
 done in the case of the Secret Committee of the Lords 
 in 1797, they communicated two scales — one of 
 cash and bullion, and another of bills discounted, 
 for every month in each year, from January, 1 797, 
 to February, 1819, indicating the proportions only of
 
 43 
 
 each, and not the actual amount. These scales were 
 delivered to the Committees of the Lords and Com- 
 mons in 1819*, with an injunction against publica- 
 tion similar to that which had been imposed in 1797. 
 The particulars of the scales delivered to the Com- 
 mittee of 1797 transpired very soon after they had 
 been communicated, and appeared, first, in the 
 Monthly Magazine^ for October of that year ; sub- 
 sequently in Mr. AUardyce's book on the Affairs of 
 the Bank in 1802 ; and, more recently, in a work 
 which I published in 1826, on the State of the 
 Currency. 
 
 The Committee of 1819 have more strictly observed 
 the injunction. A copy of the scale delivered was, 
 indeed, communicated to me some* time since, but 
 confidentially, and although I was in possession of it 
 at the time of my last publication, I was not at liberty 
 to avail myself of it, as I could have wished, for the 
 purpose of that discussion. The restriction, how- 
 ever, from my making full use of the information in 
 question is now removed, and it is high time that it 
 should be so ; ten years having elapsed since the 
 last of the dates to which it refers. It is now matter 
 of remote history ; and whatever may have been the 
 
 * The scales delivered to the Committees of 1819 were stated by 
 the Governor of the Bank in his evidence {p. 152, Commons Report), 
 to be a continuation of, and founded upon the same principles with, 
 those scales that were delivered to the Committee in the year ] 797.
 
 44 
 
 motives which induced the Bank Directors at that 
 period to withhold it from the public, there cannot 
 at this distance of time be even the shadow of a 
 ground for apprehending- any sinister influence on 
 their affairs by the publication of it. 
 
 What reason they can have had against making 
 it public in 1819, along with the other information 
 which they supplied to the Committee of Inquiry, I 
 am at a loss to conceive. So far, indeed, am I from 
 thinking that any detriment can arise to the Bank 
 from this disclosure, that I consider it a matter of 
 regret, not only on the part of the public, but on the 
 part of the Bank of England, that it had not long 
 since been made, not in its cabalistical form of a 
 scale only, but in a distinct statement of actual 
 amounts. 
 
 The public would, in that case, have been better 
 informed on a topic of vital importance to it ; and the 
 Bank Directors might, by a reference to such a state- 
 ment, have offered a much better justification of some 
 parts of their management during the restriction, 
 than they did by their evidence before the Bullion 
 Committees of 1810 and 1819. And I may here in- 
 cidentally add, that the information now about to be 
 given is likely to have the further advantage of fur- 
 nishing better materials for judging of the mechanism 
 of the Bank of England, with a view to the discus-
 
 45 
 
 sions which must soon take place on the question of 
 the renewal of the charter. 
 
 Of the correctness of the scales of cash and bul- 
 lion and of discounts, in the following- Table, I can 
 speak with the utmost confidence ; but I cannot 
 vouch for the perfect accuracy of the sums supposed 
 to be represented by the figures of the scale. These 
 sums are the result of a computation made out ac^ 
 cording to a key derived from certain data, for the 
 state of the Bank circulation from 1783 to 1797, ex- 
 plained in a table of a similar kind inserted in the 
 Appendix to my last work on the Currency. But 
 although I do not engage for the perfect accuracy 
 of these sums, I have reason to believe that they 
 are near the truth^ and quite sufficiently so for all 
 purposes of argument. And it must be obvious, that 
 in reasoning upon a comparative view of the amount 
 of the circulation through different channels, the in- 
 ference is likely to be much more clear and satis- 
 factory by a reference to positive sums than to a 
 mere scale of proportions. In the following Table are 
 comprised, likewise, the amount of advances by the 
 Bank to Government, and the amount of bank-notes 
 in circulation.
 
 Table I.— showing the Scale ami Amount of Cash and Bullion in the Bank; of 
 Bills discounted ; and the Amount of Advances to Government ; and of Bank 
 Notes in circulation ; from 1797 to 1819. 
 
 
 
 Cash and 
 
 
 Bills 
 
 Advances 
 
 Bank Notes 
 
 Date. 
 
 Scale. 
 
 BiiUiou. 
 
 Scale. 
 
 discounted. 
 
 Date. to Govern- 
 
 iu cir- 
 
 
 
 
 
 1 nient. 1 culation. | 
 
 
 
 Computation 
 
 
 
 
 
 
 
 
 on the 
 
 
 Computed 
 
 
 
 
 
 
 assumption of 
 
 
 at 90, equal 
 
 
 
 
 
 
 660 denoting 
 
 
 to 2 millions 
 
 
 
 
 
 
 4 millions. 
 
 
 
 
 
 
 1797. Jan. 7 
 
 
 
 185 
 
 4,]1],000 
 
 
 
 
 Apr. 1 
 
 182 
 
 1,103,000 
 
 256 
 
 .5,089,000 
 
 Feb. 25 
 
 9,805,123 
 
 8,601,964 
 
 July 1 
 
 632 
 
 3,830,000 
 
 2.53 
 
 5,022,000 
 
 Aug. 26 
 
 6,768,395 
 
 10.568,216 
 
 Oct. 7 
 
 942 
 
 5,709,000 
 
 299 
 
 0,044,000 
 
 
 
 
 1798. Apr. 7 
 
 1200 
 
 7,273,000 
 
 157 
 
 3,489,000 
 
 Feb. 26 
 
 9,431,075 
 
 12,850,085 
 
 Oct. C 
 
 1312 
 
 7,951,000 
 
 199 
 
 4,422,000 
 
 Aug. 25 
 
 9,068,237 
 
 12,191,025 
 
 1799. Feb. 1 
 Apr. C 
 
 1.508 
 1474 
 
 9,139,0001 
 8,933,000/ 
 
 216 
 
 4,800,000 
 
 Feb. 26 
 
 9,706,000 
 
 12,036,145 
 
 Oct. 5 
 
 1374 
 
 8,327,000 
 
 313 
 
 0,956,000 
 
 Aug. 20 
 
 8,009,700 
 
 13,259,873 
 
 1800. Apr. 6 
 
 1230 
 
 7,4.55,000 
 
 273 
 
 6,067,000 
 
 Feb. 25 
 
 12,824,900 
 
 15,230,676 
 
 Oct. 4 
 
 1000 
 
 6,060,000 
 
 283 
 
 0,289,000 
 
 Aug. 20 
 
 12,522,500 
 
 14,735,378 
 
 1801. Apr. 4 
 
 920 
 
 5,576,000 
 
 413 
 
 9,178,000 
 
 Feb. 20 
 
 14,912,700 
 
 16,577,'''14 
 
 Oct. 3 
 
 886 
 
 5,309.000 
 
 345 
 
 7,067,000 
 
 Aug. 20 
 
 11,571,800 
 
 14,970,321 
 
 1802. Apr. 3 
 
 822 
 
 4,982,000 
 
 357 
 
 7,933,000 
 
 Feb. 20 
 
 13,907,500 
 
 15,458,876 
 
 Oct. 2 
 
 774 
 
 4,691,000 
 
 358 
 
 7,950,000 
 
 Aug. 26 
 
 13,175,800 
 
 16,887,113 
 
 1803. Apr. 2 
 
 760 
 
 4,606,000 
 
 534 
 
 11,867,000 
 
 Feb. 26 
 
 9,219,200 
 
 15,576,932 
 
 Oct. 1 
 
 710 
 
 4,303,000 
 
 505 
 
 11,222,000 
 
 Aug. 20 
 
 13,2.58,.500 
 
 17,035,9.59 
 
 1804. Apr. 7 
 
 698 
 
 4,230,000 
 
 489 
 
 10,807,000 
 
 Feb. 25 
 
 14,338,500 
 
 17,577,352 
 
 Oct. 
 
 1198 
 
 7,261,000 
 
 446 
 
 9.911,000 
 
 Aug. 25 
 
 14,-927,700 
 
 17,323,994 
 
 1805. Apr. 6 
 
 1220 
 
 7,394,000 
 
 490 
 
 10,889,000 
 
 Feb. 26 
 
 16,826,000 
 
 17.234,400 
 
 Oct. 5 
 
 1452 
 
 8,800,000 
 
 557 
 
 12,378,000 
 
 Aug. 26 
 
 11,368,600 
 
 16,296,178 
 
 1806. Apr. 5 
 
 1102 
 
 6,679,000 
 
 615 
 
 13,007,000 
 
 Feb. 25 
 
 14,286.600 
 
 17,148,440 
 
 Oct. 4 
 
 1346 
 
 8,158,000 
 
 577 
 
 12,822,000 
 
 Aug. 26 
 
 14,068,600 
 
 17,072.893 
 
 1807. Apr. 4 
 
 1228 
 
 7,442,000 
 
 647 
 
 14,378,000 
 
 Feb. 26 
 
 13,380,800 
 
 17,205,344 
 
 Oct. 3 
 
 1302 
 
 7,891,000 
 
 636 
 
 14,133,000 
 
 Aug. 26 
 
 13,288,600 
 
 17,034,112 
 
 1808. Apr. 2 
 
 1.504 
 
 9,115,000 
 
 019 
 
 13,750,000 
 
 Feb. 26 
 
 13,988,200 
 
 16,843,0-54 
 
 Oct. I 
 
 1134 
 
 6,873,000 
 
 015 
 
 13,067,000 
 
 Aug. 26 
 
 14,800,800 
 
 17,365,260 
 
 1809. Mar. 4 
 
 894 
 
 5,4ls,000 
 
 Oil 
 
 13,578,000 
 
 Feb. 25 
 
 14,.523,400 
 
 18,014,677 
 
 Sept. 1 
 
 728 
 
 4,412,000 
 
 070 
 
 15,022,000 
 
 Aug. 26 
 
 15,132,000 
 
 19,357,241 
 
 1810. Mar. 3 
 
 696 
 
 4,218,000 
 
 891 
 
 19,800,000 
 
 Feb. 26 
 
 14,141,100 
 
 20,429,281 
 
 Sept. 1 
 
 030 
 
 3,855,000 
 
 925 
 
 20,650,000 
 
 Aug. 25 
 
 16,813,000 24,446,1751 
 
 1811. Mar. 2 
 
 666 
 
 4,034,000 
 
 701 
 
 15,578,000 
 
 Feb. 26 
 
 17,191,700 
 
 23,384,833 
 
 Sept. 7 
 
 036 
 
 3,855,000 
 
 531 
 
 11,809,000 
 
 Aug. 26 
 
 21,819,500 
 
 23,793,115 
 
 1812. Mar. 7 
 
 594 
 
 3,600,000 
 
 581 
 
 12,911.000 
 
 Feb. 20 
 
 21,675,000 
 
 22,998,197 
 
 Sept. 5 
 
 614 
 
 3,721,000 
 
 070 
 
 14,889,000 
 
 Aug. 26 
 
 21,080,900 
 
 23,482,910 
 
 1813. Mar. f. 
 
 544 
 
 3,297,000 
 
 488 
 
 10,844,000 
 
 Feb. 26 
 
 25,017.200 
 
 23,307.471 
 
 Sept. 4 
 
 542 
 
 3,285,000 
 
 543 
 
 12,067,000 
 
 Aug. 26 
 
 24,854,500 
 
 24,024,869 
 
 1814. Mar. 5 
 
 456 
 
 2,704,000 
 
 008 
 
 13,511,000 
 
 Feb. 26 
 
 23,607,300 
 
 25,095,415 
 
 Sept. 3 
 
 418 
 
 2,.533,000 
 
 482 
 
 10,711,000 
 
 Aug. 26 
 
 34,937,800 
 
 28,979,870 
 
 1815. Mar. 4 
 
 406 
 
 2,461,000 
 
 015 
 
 13,607,000 
 
 Feb. 25 
 
 27,156,000 
 
 20,673,370 
 
 Sept. 2 
 
 076 
 
 4,097,000 
 
 707 
 
 17,044,000 
 
 Aug. 20 
 
 24,079,000 
 
 27.024,049 
 
 1816. Mar. 2 
 
 934 
 
 5,061,000 
 
 010 
 
 13,-550,000 
 
 Feb. 20 
 
 18,988,300 
 
 25,680,069 
 
 Sept. 7 
 
 1.532 
 
 9,285,000 
 
 394 
 
 8,750,000 
 
 Aug. 26 
 
 26,062,600 
 
 27,07-5,854 
 
 Dec. 7 
 
 1972 
 
 11,951,000 
 
 267 
 
 5,933,000 
 
 
 
 
 1817. Mar. 1 
 Oct. 4 
 Dec. 6 
 
 1934 
 2378 
 2346 
 
 11,721,000 
 14,412,000 
 14,218,000 
 
 215 
 
 133 
 
 99 
 
 4,778,000 
 2,950,000 
 2,200,000 
 
 1 Feb. 20 
 [Aug. 20 
 
 25,399,500 
 27,320,718 
 
 27,058,578 
 30,099,908 
 
 1818. Mar. 7 
 
 2014 
 
 12,206,000 
 
 109 
 
 2,422,000 
 
 Feb. 20 
 
 27,002,000 
 
 28,279,048 
 
 Sept. 5 
 
 1260 
 
 7,636,000 
 
 213 
 
 4,733,000 
 
 Aug. 20 
 
 27,000.900 
 
 20,602,837 
 
 1819. Jan. 2 
 
 974 
 
 5,903,000 
 
 400 
 
 10,222,000 
 
 Feb. 20 
 
 22,628,900 
 
 25,246,700 
 
 Feb. C 
 
 900 
 
 5,458,000 
 
 357 
 
 7,933,000 
 
 Aug. 26 
 
 24,-528,900 
 
 2.5,6.57,610 
 
 The materials for filling up the columns, showing the amount of bank-notes in 
 circulation, are taken from a Paper, dated 24 March, 1821, laid before Parliament 
 by the Bank ; and the Advances to Government, from the Appendix to the Second 
 Report of the Secret Committees in 1819, on the Expediency of the Bank resuming 
 Cash Payments, with the exception of the amount in August 1819, which is taken 
 from a Parliamentary Paper.
 
 47 
 
 I proceed to observe upon each of the heads 
 comprised in this Table. 
 
 Cash and Bullion. 
 
 Under this head the following important remarks 
 are suggested : — 
 
 1. That the Bank was in a condition to resume 
 cash payments in 1798, when the Directors an- 
 nounced in the prescribed form their competence 
 and readiness to do so. (And it is greatly to be 
 regretted that cash payments were not^ at that time, 
 restored.) If the Bank had then resumed its pay- 
 ments in specie, there can hardly be a doubt, after 
 an inspection of the table, that little, if any, effort, 
 by which I mean, little, if any, contraction of paper 
 would, except for a very short interval in 1800 and 
 1801, have been requisite for continuing its con- 
 vertibility during the ten or eleven years following. 
 The magnitude of the amount of cash and bullion on 
 the average of the period from 1798 to 1808, is 
 particularly observable, having been nearly 7-16ths 
 of the amount of Bank notes in circulation. 
 
 Cash and bullion — 
 
 April 1798 to April 1808, both inclusive £0,892,500 
 Bank-notes — 
 
 February 1798 to February 1808, „ £10,008,626 
 
 2. That the Bank Directors did, consequently, 
 during that long interval, regulate their issues with a
 
 48 
 
 pretty constant reference to their eventual liability to 
 pay in specie ; for what other possible motive could 
 they have for keeping so large a part of their capital 
 in an unproductive state * ? 
 
 3. That a considerable influx of the metals into 
 the coffers of the Bank took place in the four years 
 following January, 1804, and, consequently, that the 
 price of gold during that interval, viz. 4/. per oz., 
 indicated the utmost depreciation of the value of the 
 currency f. 
 
 * They might, indeed, and I believe they did, consider themselves 
 bound to preserve, at all events, such a stock of bullion as might 
 enable them to assist Government with a supply upon any sudden 
 emergency requiring extended foreign payments ; but less than one 
 half of the amount which they actually did hold, would have been 
 sufficient for the purpose. 
 
 f It is probable that if the Bank had not, as (I think inju- 
 diciously,) bought gold at that rate, the market price might have fallen 
 to the Mint price. The Bank might then indeed have had two or three 
 millions less of treasure, but there would have been no depreciation of 
 its paper. In fact, by those purchases, it actually established the 
 value of gold beyond that of its own paper : according to its own esti- 
 mation, the difference against its paper was that between 3^. 17*. lOJc?. 
 and 41. And the holder of bank-notes who wanted gold for them, 
 which they promised but did not pay, was obliged to make a sacrifice 
 of that difference ; in other words, they were to him of just so much 
 less value than the gold. The follov/ing are extracts from the minutes 
 of the Bank, (as inserted in the Appendix to the Lords' Committee on 
 Cash Payments in 1819, page 317,) relative to the purchase of gold. 
 
 At a Committee of Treasury, 28th of March, 1804. 
 Resolved, — That, in the opinion of this Committee, it will be ad- 
 visable to attempt an encouragement to the importation of gold, by 
 offering a higher price than the coinage price ; and that it will be 
 right for the Bank to give Al. an ounce, and to let it be known, that 
 it will continue to give this price for three months to come.
 
 49 
 
 4. That the hiflux of treasure between January, 
 1804^ and January, 1803^ being- coincident with^ 
 or rather preceded by an increase of bank-notes,, 
 compared with the amount which was in circuki- 
 tioii when the drain of the coffers of the Bank was 
 in progress^ affords a strong ground of presump- 
 tion that the efflux of the metals was not caused by 
 the issues of bank-notes^ however it might have been 
 in the power of the Bank to stop the drain by a 
 forced reduction of its paper. 
 
 5. That the argument which supposes a greater 
 diminution of the vahie of the currency, during the 
 
 At a Court of Directors, 7th of June, 1804. 
 Resolved, — That tlie Bank do continue to purchase gold at 4/. 
 per ounce, until the 30th of September next. 
 
 At a Court of Directors, 20th of September, 1804. 
 Resolved, — That the Bank do continue to purchase gold at 4L 
 per ounce, untirthe 1st of January next. 
 
 At a Court of Directors, Gth of December, 1804. 
 Resolved, — That the Bank do continue to purchase gold at 4/. 
 per ounce, until the 31st of March, 1805. 
 
 At a Court of Directors, 7 th of March, 1805. 
 Resolved, — That the Bank do continue to purchase gold at 4/. 
 per ounce, for three months, from the 3 1st inst. 
 
 At a Court of Directors, 27th of June, 1805. 
 Resolved, — That the 'Bank do continue to purchase gold at 4/. 
 per ounce, for three months, from the 30th inst. 
 
 At a Court of Directors, 26th of March, 1807. At the recommenda- 
 tion of the Committee of Treasury. 
 Resolved, — That the Governor be authorized to continue to give 
 Al. per ounce for such standard gold as shall be offered to the Bank 
 within the period of twelve months from the present time. 
 
 E
 
 50 
 
 restriction, than is indicated by the difference between 
 paper and gold, in consequence of the large quan- 
 tity of the metals assumed to have been let loose 
 from this country and added to the circulation of the 
 rest of the worlds if it were applicable^ (which^ in my 
 opinion^ it is not,) to any period of the restriction, 
 cannot for a moment be admitted, in reference to 
 the ten or twelve years immediately following the 
 suspension. The reserve of the Bank being so much 
 larger than was commonly imagined, and the amount 
 of gold in the hands of individuals being still con- 
 siderable, the sum left to swell the circulation of 
 the rest of the world must have been the most 
 insignificant conceivable in its effect on the general 
 value of the metals; even supposing that effect 
 had not been more than counter-balanced, as I 
 believe it was, by the absorption of a large amount 
 of specie by the military chests of the numerous 
 armies which were on foot during the whole inter- 
 val, and, for the most part, engaged in actual hos- 
 tilities over a great portion of the continent of Eu- 
 rope. But the question of the effect which the dis- 
 engagement of the metals from the circulation of 
 this country had on the bullion prices of the rest of 
 the world will come more properly under discus- 
 sion hereafter. 
 
 6. That the phenomenon of a very low amount of
 
 51 
 
 treasure, with a greatly increased amount of bank- 
 notes, is confined to the interval of the five years 
 from the close of 1809 to that of 1814, — the small- 
 est amount of treasure^ and the largest issues of 
 paper, in that interval, being observable in 1814. 
 
 7. That in the three years following 1814^ the 
 cash and bullion in the coffers of the Bank expe- 
 rienced a most rapid augmentation, and reached an 
 amount, at the close of 1817, larger than was ever 
 before in possession of the Bank*. 
 
 8. That this vast influx of the metals was com- 
 patible with a larger amount of Bank of England 
 paper, than had ever before been in circulation : thus 
 affording a ground of presumption that the low state 
 of treasure in the five years preceding 1815 had not 
 originated in the increased issues of the Bank : al- 
 though it may be admitted that a forced reduction 
 of the issues of paper would have prevented so great 
 a diminution of the treasure as occurred in those five 
 years. 
 
 9. That the great reduction of the cash and bul- 
 lion in the coffers of the Bank, in the interval from 
 December 18 17 to February 1819, (being nearly nine 
 millions,) was accompanied by a reduction of less than 
 half that amount of paper : leaving the amount of 
 
 * See Mr. Harman's evidence, Lords' Report, 1819, p. 37. 
 
 E 2
 
 52 
 
 tieasure, and the amount of bank-notes, in Febru- 
 ary 1819, as nearly as possible the same, both posi- 
 tively and relatively, as they had been in February 
 1816; — the whole intermediate increase and dimi- 
 nution of the circulation of bank-notes being less 
 by about four millions than the intermediate fluc- 
 tuation of treasure. 
 
 The causes of the great fluctuations of treasure, 
 or, in other words, the circumstances operating upon 
 the exchanges, through the medium of which the 
 efflux or influx of the metals is determined, will be 
 adverted to when the column of the preceding Table, 
 exhibiting the amount of bank-notes in circulation, 
 comes under consideration, in connexion with the 
 exchanges and the price of gold. 
 
 Discounts. 
 
 The generally received opinion respecting this 
 channel for the issue of bank-notes, as compared 
 with that of advances to Government, is, that it 
 is not only the most beneficial in extending the 
 means of commercial enterprise, but that it is the 
 most manageable, because, the bills having only a
 
 53 
 
 short time to run^ afford to the Directors the means 
 of constant control over the amount of their issues ; 
 whereas, in the case of advances to Government_, 
 they possess no such control. 
 
 On the comparison of the advantage of these 
 two channels for the issue of bank-notes I will not 
 now enter. The immediate question is, how far, 
 according to the system adopted by the Bank, the 
 amount of the circulation was influenced by them ; 
 and whether the issues, through the medium of 
 discounts, were, in point of fact, so regulated as to 
 afford to the Directors the control over the amount 
 of their paper, and to admit of their preserving it at 
 an uniform value, either with reference to the price 
 of gold, or to any other criterion. 
 
 According to the theory which the Directors 
 avowed in their evidence before the BuUion Com- 
 mittees of 1810 and 1819, and upon which they 
 appear to have acted throughout the period of the 
 restriction, they considered that the demand for dis- 
 counts, at the rate of five per cent, per annunr on 
 good mercantile bills, founded on real commercial 
 transactions, and payable at short and fixed periods, 
 was the criterion of the real wants of the circulation ; 
 and that they could not issue their notes to excess under 
 this rule. There were, however, regulations respect- 
 ing the form and nature of the bills, and the sums
 
 54 . 
 
 allowed to be running' with and upon any particular 
 firm, which had practically some effect in modifying 
 the application of that theory. They did not, there 
 fore, in point of fact, act fully up to the principle 
 which they broadly asserted ; but the rule, subject 
 only to the modification alluded to, seems to have 
 been adhered to, in determining the amount of the 
 issues under this head ; and, as might be expected, 
 the circulation tended, so far as this source of issue 
 was concerned, to overflow, or run dry, according as 
 the market rate of interest exceeded or fell short, in 
 any marked degree, of the rate prescribed by the 
 Bank. 
 
 On reference to the preceding Table, it is impos- 
 sible not to be struck by the great fluctuation in the 
 issues through this channel. From four millions, 
 at the commencement of 1798, they rose, with few 
 retrograde movements, till 1810, when they reached 
 their greatest height of 20^ * millions in Septem- 
 ber, 1810. From this point they fell rapidly below 
 twelve millions in September, 1811, and fluctuated 
 between ten and seventeen millions till March, 1816 ; 
 after which, in the short space of a year and a half, 
 viz., by the end of 1817, they fell to little more than 
 
 * The great increase of the amount of applications for discount in 
 1810 was connected with the violent revulsion of commercial credit in 
 that year, originating in the extravagant speculation which had occurred 
 'in 1808.
 
 55 
 
 two millions. By January, 1819, they rose again to 
 ten millions ; and there is reason to suppose^ that 
 in no long" interval after the passing of Mr. Peel's 
 Bill, (for the scale does not extend beyond the 
 beginning of 1819^) they again fell to or below two 
 millions. 
 
 It appears, then, that the issues of the Bank 
 under this head, instead of being within the control 
 of the Directors, were, by the rule of an invariable 
 rate of discount, most unmanageable and irregular ; 
 and that if the amount of bank notes in circulation 
 had depended exclusively on this source, it would 
 have been liable to the most extraordinary and in- 
 convenient fluctuations. It is the more important to 
 dwell upon this point, because the Directors, in 
 urging Government to a repayment of a part of the 
 advances of the Bank, stated that such repayment 
 was essential to their possessing the full control 
 of their issues. They might, indeed, in strictness be 
 said to possess the power over the supply of paper 
 through the medium of discounts, but they made 
 a rule of not exercising it. 
 
 The rule, however, although unsound in princi 
 pie, did not, in point of fact, lead to great fluc- 
 tuations in the total amount of the circulation of 
 bank-notes from year to year, or to such perma- 
 nent excess from progressive increase as might have
 
 been apprehended^ or as, indeed^ might, and pro- 
 bably would,, have occurred under other circum- 
 stances. 
 
 If the market rate of interest for such bills as 
 came within the prescribed rules of the Bank had 
 fluctuated more than it did, and had likewise on 
 an average very materially exceeded the fixed rate 
 of discount, and more especially if it had risen pro- 
 gressively during the whole period of the war, or of 
 the restriction, not only would the fluctuations in 
 the amount of bank-notes have been greater, but 
 there would also have been such a constant ten- 
 dency to excess through this channel of issue, as 
 would not have admitted of compensation by di- 
 minished issues through other channels, and the 
 total increase of the circulation would have been 
 greater than it has proved to be. But it so hap- 
 pens, that the market rate of interest, for such bills 
 as came within the Bank rules, did not constantly 
 nor materially exceed five per cent. ; nor did it rise 
 progressively through the greater part of the inter- 
 val of the restriction. The rate of interest for such 
 bifls was at its highest long before the termination 
 of the war, as may be inferred from the circumstance 
 that, in the three last years of it, the applications for 
 discount at the Bank fell off", compared with what 
 they had been for some years before.
 
 57 
 
 The fact of a rate of interest in some degree steady 
 at about five per cent, on this description of se- 
 curities, is perfectly compatible with considerable 
 variations in the money market for other securities. 
 It is well known that^ within these few years past_, 
 such bills have occasionally been eagerly sought by 
 bankers and other capitalists at a rate as low as 
 two per cent, per annum^ while, on mortgages or other 
 securities not immediately or readily convertible, 
 advances were never to be had under four, and fre- 
 quently not under five per cent. On the other hand, 
 during the war, while bills of undoubted solidity, 
 and at short dates, were generally discountable at 
 about five cent., it was difficult to raise money on 
 mortgages or on securities imperfectly or distantly 
 convertible, on any terms but such as, by annuities, 
 premiums, or other evasions of the usury laws, were 
 equivalent to from six to ten per cent, per annum. 
 
 It was, therefore, the coincidence, through the 
 greater part of the interval of the restriction, between 
 the market and the Bank rate of interest, that pre- 
 vented the tendency to progressive increase and irre- 
 mediable excess of issues through this medium, which 
 might have been apprehended if the Bank rate had 
 been for any length of time much below the market 
 rate. 
 
 The principal causes of the fluctuations in the
 
 58 
 
 amount of discounts at the Bank down to 1816^ be- 
 sides those which are incidental to the growth and 
 varying exigencies of trade, the greater or less in- 
 ducement to speculation and occasional derangements 
 of commercial credit;, may be traced to the financial 
 operations of Government. 
 
 When considerable public loans were negociatedj 
 or when Exchequer Bills_, to a larger amount than 
 usual, were issued on the money market, the imme- 
 diate effect was to create a temporary absorption of 
 floating capital, and, consequently, to occasion a 
 temporary rise in the rate of interest. This would 
 naturally be followed by increased applications for 
 discount at the Bank. But in the interval of loans, 
 or when Exchequer Bills were in less amount than 
 usual, either by Government not issuing so many, 
 or by the Bank taking a portion of them off the 
 market, that is, making advances upon them, there 
 would be diminished applications for discount. 
 
 It was a fall in the rate of interest, hastened pro- 
 bably by the Bank taking a large proportion of Ex- 
 chequer Bills in 1816 and 1817, that occasioned an 
 almost total cessation of the demand for discounts in 
 the latter year. On the other hand, the repayment 
 by Government of five millions to the Bank, out 
 of the loan of 1818, tended, concurrently indeed 
 with other causes, to raise the market rate of in-
 
 59 
 
 terest, and accordingly it will be seen_, by re- 
 ference to the Table^ that there was an immediate 
 increase of the issues,, through the medium of dis- 
 counts, to a greater amount than the sum paid off by 
 Government. And if the repayment by Government 
 in 1818^ had been to the utmost extent stipulated, 
 there is every reason to believe that an increase^ to at 
 least the same extent^ would, as the money market 
 was then situated^ have taken place in the issue of 
 bank-notes through the medium of discounts^ to the 
 amount of which, upon bills coming within the 
 prescribed rules^ there was no limitation. 
 
 As long, therefore, as the Directors adhered to 
 their rule of not limiting their issues through the 
 medium of discounts, their call upon Government 
 for repayment of their advances, as a means of plac- 
 ing the amount of the circulation within their control, 
 involved an inconsistency, as such control could only 
 be exercised by a departure from that rule which 
 they had, throughout, held to be a sufficient limita- 
 tion. 
 
 If, however, the Directors, had, in 1818, in order 
 to prepare for cash payments, adopted a fresh prin- 
 ciple of limitation, so as forcibly to keep down the 
 amount of their issues, through that medium, to 
 the sum at which it stood in the commencement 
 of 1818, viz., to between two and three millions.
 
 60 
 
 while the government advances were reduced by 
 five millions^ then^ indeed^ might the preparation 
 for cash payments be said to be effective. Such 
 a reduction of the circulation would, in all pro- 
 bability^ have occasioned a rapid improvement of 
 the exchanges. This improvement might have 
 occurred in time to deter the Bank Directors from 
 preferring the alternative of a parliamentary in- 
 quiry to holding out the prospect of being able to 
 resume cash payments at any definite period, and 
 the resumption would then have taken place without 
 the intervention of Mr. Peel's Bill. 
 
 Such a limitation of discounts would, doubtless, 
 have aggravated the pressure which^ previous to any 
 repayment^ was felt in the commercial world *, and 
 would have hastened the fall of prices, which, from 
 other causes^ was inevitable. And in this case, a con- 
 traction of the circulation, and a consequent earlier fall 
 of prices^ might have been attributed to a preparation 
 in 1818, on the part of the Bank_, for cash payments. 
 But as it was_, the increase of discounts rendered in- 
 operative the repayment in 1818 by Government. 
 
 Subsequent to the commencement of 1819^ the fall 
 
 * The stagnation and partial derangement of commercial credit, in 
 this country, at the close of 1818, had been preceded by extensive 
 failures at Paris and Amsterdam, which, independently of other 
 causes, were calculated to produce a reaction from the facility of 
 credit which had just before prevailed.
 
 61 
 
 in the market rate of interest^ frOiii general causes^ di- 
 minished the demand for discounts, and, under the 
 system pursued by the Bank Directors, led to such 
 a diminution of their issues under this head, as, sup- 
 posing no other channel to have presented itself for 
 their paper, would have greatly contracted the circula- 
 tion. Such contraction would have been clearly the 
 effect of the ordinary rule pursued by the Bank, and not 
 of any preparation for cash payments. The contrac- 
 tion, however, as has been stated in the earlier part 
 of this argument, did not occur, because the amount 
 of paper issued in payment for the gold which then 
 came in rapidly compensated the diminution of dis- 
 counts. And it may be observed by the instance 
 of 1817, that an increase of circulation, by notes 
 issued against purchases of gold, is perfectly com- 
 patible with all the effects of high prices and appear- 
 ances of prosperity which have been so generally as- 
 cribed to an abundant supply of paper circulating t» 
 the exclusion of gold. 
 
 Advances to Government, 
 
 Statements of the advances by the Bank to govem- 
 ment have been periodically laid before Parliament^
 
 62 
 
 and have therefore always been known to such part 
 of the public as has taken any particular interest in 
 the subject. But in the innumerable discussions to 
 which the controversy respecting- the Bank restric- 
 tion has given rise, I am not aware of any in- 
 stance in which the amount of advances^ during the 
 whole interval of the restriction, was placed in juxta- 
 position with the amount of bank-notes in circu- 
 lation. It is however obvious, that a compari- 
 son of that kind is essential to a correct estimate of 
 the influence to be ascribed to this channel for the 
 issues of the Bank on the amount of the whole cir- 
 culation. In the Bullion Report of the House of 
 Commons in 1819 (p. 8.), there is, indeed_, the fol- 
 lowing passage : — 
 
 " From the year 1790 to the year 1797_, when the 
 Restriction Act passed, the amount of advances made 
 by the Bank to Government, and of the notes out- 
 standing on the 25th of February in each year, was 
 as follows : — 
 
 
 Bank notes. 
 
 Advances. 
 
 1790 . 
 
 . . 10,217,360 . 
 
 . . 7,908,968 
 
 1791 . 
 
 . . 11,699,140 . 
 
 . 9,603,978 
 
 1792 . 
 
 . . 11,349,810 . . 
 
 9,839,338 
 
 1793 . 
 
 . . 11,451,180 . 
 
 9,066,698 
 
 1794 . 
 
 . . 10,963,380 . 
 
 . 8,786,514 
 
 1795 . 
 
 . . 13,539,100 . 
 
 . . 11,114,230 
 
 1796 . 
 
 . . 11,030,110 . 
 
 . . 11,718,730 
 
 The amount, therefore, of advances to Government
 
 63 
 
 does not appear to have borne, for some time pre- 
 vious to the Restriction Act^ a much less proportion 
 to the total amount of notes outstanding-, than the 
 advances since 1814 have borne to the notes issued 
 in corresponding periods." 
 
 But the inference suggested by this statement 
 would have been greatly strengthened if the com- 
 parison during the restriction^ instead of being con- 
 fined to the interval from 1814 to 1819_, had em- 
 braced likewise the interval from 1797 to 1814*. 
 It would then have been^ as it now will be seen by a 
 reference to the preceding Table_, that the advances to 
 Government were, during the period from the first 
 suspension of cash payments to the termination of the 
 war^ (with the single exception of the last year of it,) 
 on a smaller scale (relatively to the amount of bank- 
 notes in circulation) than they had been, on an average 
 of several years preceding the restriction or than they 
 were during the period of peace from 1814 to 1819, 
 to which the Table extends. But still more striking 
 is the smallness of the advances to Government, if 
 the comparison be, in the first instance, confined to 
 the interval from 1797 till 1811, as in no instance 
 did they equal, and in most cases fell consider- 
 ably short of the amount of bank-notes in circulation. 
 
 * Average of advances to Government from 
 
 Feb., 1797, to Feb., 1814, both dates included . . £14,626,229 
 Bank-notes in circulation' do. do. 17,600,639
 
 G4 
 
 But moderate as is the scale of advances to Go- 
 vernment, as here exhibited, during the whole of the 
 war^ it would be reduced to absolute insignificance if 
 we were to deduct from it the balances in the hands 
 of the Bank belonoino- to Government — such balances 
 beino' allowed on all hands to be a leoitimate set-off 
 against so much of the advances, in their effects on 
 the issue of bank-notes*. 
 
 This comparative smallness of the advances to 
 Government completely negatives the supposition so 
 
 * From documents laid before Parliament, in consequence of the 
 attentiomcalled to the subject by the repeated motions of Mr. Gren- 
 fell, it appears that the amount of the Government deposits, or 
 balances in the hands of the Bank, was as follows :— « 
 In 1800, the aggi-egate average was . . £6,251,488 
 
 In 180G, ditto .... 12,197,303 
 
 From 1806 to 1817, the amount fluctuated between 11 & 12,000,000 
 Now the average of the advances by the Bank to Go- 
 vernment, from 1806 to 1810, both years included, 
 amounted to ... . . 14,492,970 
 
 Average of public money in the hands of the Bank, 
 about £11,500,000, from which are to be deducted 
 about £500,000] for unclaimed dividends, these 
 having been deducted from the amount of the 
 Bank advances ..... 11,000,000 
 
 Leaving the actual cash advance, and the amount there- 
 fore of bank-notes issued through this medium, only 
 fihout . . .... 3,500,000 
 
 Or little more than one-fourth of the amount issued through the 
 medium of discounts in the same intei-val. 
 
 Since the year 181C, the pul)lic balances have been diminished by 
 about five millions, and to this extent the effective advances by the 
 Bank, as a medium for the issue of its notes, should be considered 
 as having been increased.
 
 65 
 
 commonly entertained and reasoned upon as a point 
 beyond doubt, that the Bank was rendered by the 
 restriction a mere engine in the hands of Govern- 
 ment for facihtating its financial operations. And 
 whether this moderation in the amount of advances 
 resulted exclusively from the forbearance of Govern- 
 ment in not requiring", or from the firmness of the 
 Directors in refusing* such accommodation, it equally 
 tends (especially when combined with the considera- 
 tion of the large amount of treasure in possession of 
 the Bank during the greater part of the restriction) 
 to strengthen the presumption, that the Government 
 and the Directors of that period were sincere in the 
 declaration, that there constantly existed, on the part 
 of both, a reference to the eventual resumption of 
 cash payments. 
 
 In fact, the whole charge of an undue proportion 
 of the issues of the Bank in advances to Government 
 is confined to the two last years of the war, and the 
 five years following the peace. But it will be shown 
 hereafter, that, in the instance of by fl^r the largest 
 advance that was ever made, viz., in 1814, when, 
 for a short interval, the amount reached nearly 35 
 millions, the increase in the circulation which it oc- 
 casioned was not sufficient to check a fall in the 
 price of gold, which was then in progress. Indeed 
 the temporary increase of Bank paper at that precise 
 
 F
 
 66 
 
 period, was called for to make up for the sudden 
 deficiency in the general circulation occasioned by 
 the failure of several considerable country banks, 
 which occurred in July and August of 1814. And if 
 it had not been for the additional supply of bank- 
 notes through this channel, the whole difference 
 would, in all probability, have been made up by a 
 proportionate increase, through the medium of bills 
 discounted, as was the case in 1810, under circum- 
 stances somewhat similar, with regard to the dis- 
 credit of the country circulation*. 
 
 Every instance since 1814 of repayment by Go- 
 vernment to the Bank has, in most of the publica- 
 tions which have of late years appeared on the 
 subject of the Currency, been adduced as a proof, 
 or presumption of a preparation for the resumption 
 of cash payments. But how happens it, if such were 
 the only view of Government, that there should have 
 been instances of repayment of a large part of the 
 advances, when no such view can by possibility be 
 inferred ? Take, for example, the reduction between 
 February and August, 1805, from 16,826,000/. to 
 11,368,600/., besides other instances, although not 
 
 * See the evidence of Mr. Thornton, Lords' Report on Cash 
 Payments, 1819, p, 11 : — " In the latter part of the year 1814, de- 
 mands were made upon the Bank to supply the deficiency in the 
 country, particularly in Northumberland and Durham.'
 
 67 
 
 quite so striking, which the Table exhibits in the 
 interval between 1797 and 1811. 
 
 It has likewise been assumed, that the urgent appli- 
 cations made by the Bank to Government since 1814, 
 and especially in 1818, for a repayment of a part of its 
 advances, were the consequence of the near approach 
 of the terms fixed by the successive restriction acts for 
 the eventual resumption of cash payments. But it 
 will be seen by a statement in the Appendix, extracted 
 from the Report of the Lords' Committee, 1819, 
 p. 277, of the applications from the Chancellor of 
 the Exchequer to the Bank to purchase Exchequer 
 Bills, and of the answers of the Bank, that, upon 
 nearly every occasion when those advances exceeded 
 the usual amount, the applications were complied 
 with reluctantly, and stipulations made for repay- 
 ment at short intervals. It appears, therefore, 
 that it was not merely a matter of tacit understand- 
 ing, but of clear stipulation, that such repayments 
 should be made ; and it must be obvious, that they 
 would have been made without any reference what- 
 ever to the prospect of cash payments, as soon as it 
 suited the financial arrangements of Government to 
 make them*. In the only instance in which the re- 
 
 * There can be no doubt that the financial arrangements of Go- 
 vernment might and ought to have been so made, as to fulfil with 
 the utmost punctuality, the stipulations of repayment to the Bank 
 
 F 2
 
 68 
 
 payment seems to have been m the slightest degree 
 accelerated^ (for it is only a question of tirae^) viz._, of 
 the five millions in 181 8_, it has been seen that such 
 repayment was immediately neutralized in its effect 
 on the circulation ; and a similar consequence of a 
 compensation by discount would have followed, if a 
 further repayment had been made, in the state in 
 which the money market then was. The rate of in- 
 terest in 1818 was rising', or, to use the language of 
 the money market, money was in increased demand ; 
 partly in consequence of a commencing reaction, from 
 the spirit of general speculation which had just 
 before prevailed, but chiefly, as has been observed, 
 in consequence of the great financial operations 
 of the continental governments, especially of those 
 of France and Russia. Of course, such demand 
 would be temporarily/ further increased by a repay- 
 ment, to however small an amount, or however 
 effected, by our own Government, to the Bank. 
 Now, as the market rate of interest was already at. 
 
 Whatever occasional sacrifices were made for the preservation of 
 punctuality in repayment, would have been amply made up by the 
 greater solidity of the system of finance which such punctuality 
 supposes. Indeed it would be no difficult matter to show that a 
 positive loss was incurred in most of the instances in which the un- 
 funded debt had been suffered to accumulate. Thus the large loans 
 of 1812 and 1815 were made on much worse terms than if the sums 
 required for 1811 and 1814 had been at once provided for by funding. 
 And the same remark applies to the unfunded debt in 1817.
 
 69 
 
 or rather above five per cent., any additional repayment 
 by Government would inevitably have had the effect 
 of greatly increasing the inducement to discount at 
 the Bank ; and as there is necessarily in existence a 
 vast amount of Bills of Exchange^ (coming within the 
 prescribed rule of the Bank,) which are usually dis- 
 counted by bankers and other private channels, or 
 held ^for maturity by the payee, when money is in 
 no particular demand, it is perfectly conceivable, 
 that in the case supposed_, so large a proportion of 
 those bills might be sent into the Bank as would 
 actually enlarge the circulation in a greater degree 
 than that in which the repayment was calculated to 
 contract it. 
 
 If the circumstances tending to keep the market 
 rate of interest above five per cent, had been of a more 
 permanent description, every repayment by Govern- 
 ment, subsequently to 1818, would have been at- 
 tended with a counteracting effect on the circulation, 
 through the medium of increased discounts ; and if 
 it had then been found that the maintenance of the 
 amount of the circulation was incompatible with a 
 compliance with the provisions of Mr. Peel's Bill, the 
 Bank Directors must have been reduced to the alter- 
 native of hastening the repayments by Government ; 
 at the same time, forcibly keeping down the discounts 
 to the amount at which they were immediately before
 
 70 
 
 such repayment. Or^ failing of being able to obtain 
 such repayment^ they must have reduced the dis- 
 counts forcibly from their former amount, or (by a 
 deviation from the practice which they had before uni- 
 formly observed, but from which they have since, 
 I believe^ departed) have sold Exchequer Bills in 
 the market at a discount^ if the market rate of in- 
 terest had been, as here supposed, at or above five per 
 cent. Upon any of these suppositions, which were, 
 at the time of the passing of Mr. Peel's Bill, not at 
 all improbable, the provisions of that Bill would 
 have been operative in reducing the circulation below 
 what it would otherwise have been. Although, if as 
 has been before observed, the Bill had become 
 operative coincidently, as it might have done, with 
 a bad harvest, and a consequent rise in agricultural 
 produce, we should have had no complaints similar 
 to those which have been preferred against it. 
 
 But the circumstances which raised the rate of 
 interest in 1818 were not of a permanent cha- 
 racter. The loans to the French, and other con- 
 tinental governments, and the funding by our own 
 Government, did not cause an absorption of monied 
 capital, as in the case of a war ; they merely oc- 
 casioned an alteration in the direction of it, and it 
 was only while that alteration was in progress that 
 they could have any influence on the rate of interest.
 
 71 
 
 As soon, therefore, as the operations connected with 
 those loans were completed, the rate of interest tended 
 to its former level. Even in the autumn of 1819, the 
 state of the money market had become such as would 
 have entailed no great effort on the part of Govern- 
 ment to make a further repayment ; and there would, 
 in all probability, have been no consequent tem- 
 porary rise in the rate of interest ; its further, fall 
 only might have been a little retarded : and there 
 would not have been any increased application for 
 discounts in consequence. 
 
 But subsequently to the close of 1819, the market 
 rate of interest progressively declined during the 
 following three or four years, and the repayments, 
 which it then suited the financial views of Govern- 
 ment to make in the reduction of the unfunded 
 debt, were not attended by any counteracting effect 
 on the amount of the circulation, by applications for 
 increased discounts at the Bank. Mr. Peel's Bill 
 was consequently inoperative, as has already been 
 shown, in occasioning the repayments beyond those 
 which were made in 1818, and which were com- 
 pensated by increased discounts. But although thus 
 inoperative, yet having been accompanied by a fall 
 of prices, from causes totally distinct, (as will be 
 shown hereafter,) it has been fastened upon as the 
 exclusive cause of that fall.
 
 7^ 
 
 BanJc-Notes in Circulation. 
 
 In estimating- the influence to be ascribed^ either to 
 the fluctuations in the amount of bank notes within 
 short periods,, or to the increase which is observable 
 on the average in the later, as compared with the 
 earlier stages of the Bank restriction^ it is necessary 
 to premise that the circulation was contracted in 
 a very unusual degree in February^ 1797^ when 
 cash payments were suspended. The subsequent 
 increase of bank-notes^, therefore, supposed to be 
 occasioned by the restriction, should not be com- 
 pared with the amount in February, 1797, but with 
 the average of the five years preceding, viz. about 
 10,500,000/. It is likewise to be observed, that, 
 down to the period of the suspension of cash pay- 
 ments, there were no notes in circulation in England 
 under 51. The increase, therefore, as exhibited in 
 the preceding Table, which includes the whole 
 amount of bank-notes in circulation, should be sub- 
 ject to the deduction of the notes under 51. ; which 
 filled the place of the guineas that disappeared from 
 the circulation. 
 
 A statement will be found in the Appendix, dis- 
 tinguishing the notes of 5/., and upwards, from those 
 under 51.
 
 73 
 
 In the first instance^ however^ I shall refer to the 
 total amount of Bank of England notes in circu- 
 lation, as contained in the preceding Table, in juxta- 
 position with the three principal channels through 
 which it is issued. 
 
 If the heads of cash, discounts, and advances, 
 comprised all the channels through which bank-notes 
 were issued or cancelled, and if the dates in the 
 columns under each head coincided, it is obvious 
 that the variations in the amount of bank-notes would 
 correspond exactly with the variations in the aggre- 
 gate of the three columns. But there are no mate- 
 rials that I am aware of, out of the possession of the 
 Bank, for making the dates coincide ; and, more- 
 over, there are other channels, besides those enume- 
 rated in the Table, through which the paper of the 
 Bank finds its way into circulation. Of these, the 
 balances of public money in the hands of the Bank 
 form one ; and the balances of individuals, to whom 
 the Bank of England acts in the same capacity 
 as any of the London bankers, in receiving de- 
 posits, and answering cheques, form another. There 
 were likewise, during the restriction, advances by 
 the Bank upon the scrip receipts of the Government 
 loans. 
 
 The variation of the issues, through these chan- 
 nels alone, must occasionally have been consider-
 
 74 
 
 able: sometimes proceeding- in conjunction, and 
 sometimes in compensation. Thus they will, inde- 
 pendently of the difference caused by difference of 
 dates, account for a great part of the discrepancies 
 observable between the variations of the total of 
 bank-notes in circulation, and those of the ag- 
 gregate amounts under the three before-mentioned 
 heads. 
 
 Upon an inspection of the Table, it is obvious to 
 remark how small, from year to year, during the 
 whole period of the restriction, were the variations 
 of the amount of bank-notes in circulation *, com- 
 pared with those under the three principal heads of 
 issue. It follows, therefore, that these heads of 
 issue, combined with the issues against Government 
 and individual deposits, must have generally been 
 under the influence of a principle of compensation. 
 
 It might, indeed, at first sight be supposed, that 
 the Directors, having neglected the consideration of 
 the exchanges in the regulation of their issues, had 
 substituted for their guide a reference to the amount 
 of their notes in circulation ; and had controlled 
 their circulation, through each of its several chan- 
 nels, so as to preserve a considerable degree of uni- 
 
 * The instances of the greatest sudden increase occurred in 1810 
 and 1814, when the enlarged issue of Bank paper was made to supply 
 the chasm occasioned in the circulation by the failure of country banks 
 and the stagnation of credit.
 
 75 
 
 formity in the amount. But tliis was not really the 
 case. Tlie issues against deposits of the Government 
 and of individuals, were not at all under the con- 
 trol of the Bank. The variations in the amount of 
 treasure were dependent on the exchanges^, which the 
 Directors professedly disregarded,, and over which 
 they disclaimed the exercise of any influence. To the 
 amount of discounts, provided the bills came under 
 the prescribed regulations, and were offered at the 
 rate of five per cent, per annum, there was no effectual 
 limitation. And, with regard to the advances to 
 Government, (although their total amount was mode- 
 rate, to an exemplary degree, through the whole of 
 the war,) it is well known how little reliance was to 
 be placed upon the punctual fulfilment of the stipu- 
 lated conditions of repayment. The Bank, therefore, 
 having had so little direct control over the different 
 channels for the issue of its paper, the approximate 
 uniformity of the amount in circulation must have re- 
 sulted from some principle of compensation inherent 
 in the routine of the Bank, during the whole interval 
 of the restriction. 
 
 What this principle was, and the manner in which 
 it operated, cannot be fully explained without a more 
 complete knowledge of the internal working of the 
 machinery of the Bank, than the public possess, — 
 It certainly had, however, a close connexion with
 
 76 
 
 the state of the money market, or, in other words, 
 with the rate of interest_, as may be partly collected 
 from the following extracts of the evidence of Mr. 
 Thornton before the Lords' Committee on the Re- 
 sumption of Cash Payments in 1819. — Report, pp. 
 233, 234 :— 
 
 " Does not the Bank find by experience that an 
 abundant supply of its paper, whether issued for 
 the purchase of gold, for advances to Government, 
 or for purchases of Exchequer Bills, by enabling 
 bankers and merchants to discount commercial bills 
 at a lower interest than the Bank is in the habit of 
 discounting them, diminishes the demand upon the 
 Bank for discounts at five per cent., and of course 
 diminishes the amount of their profit on that part of 
 their transactions ? 
 
 *^ When the amount of circulation is abundant, the 
 general rate of interest of money is low, and the 
 demand on the Bank for discounts at five per cent, 
 is small. I have always held it to be more advan- 
 tageous to the Bank to maintain a reduced circula- 
 tion, as it brings them nearly an equal profit as an 
 extended circulation, for a great part is then advanced 
 on Government securities at a low rate of interest. 
 
 ^* Does not this circumstance give the Bank a 
 direct pecuniary interest in not making an over- 
 abundant issue of their notes ? 
 
 '* I think it does."
 
 7t 
 
 Leaving- the causes^ and recurring to the fact of the 
 absence of considerable variations in the amount of 
 the Bank circulation from year to year, in the period 
 under consideration, it is important to remark that it 
 negatives the supposition of violent changes in the 
 Currency having- been produced by the Bank restric- 
 tion*, and completely refutes the assertion, that 
 
 * As a specimen of the charge against the Bank restriction, of 
 having produced violent changes in the quantity of the paper circu- 
 lation, take the following extract from Sir James Graham on Corn 
 and Currency, &c., p. 28. 
 
 " Mr. Pitt, when he introduced his bold measure of the Bank re- 
 striction, which rendered the paper of the Bank of England no longer 
 convertible into cash on demand, and imposed no limit on its issues 
 beyond the will of the Government, or the caprice of the Directors, 
 declared, with prophelic warning % ' that if the country be once sur- 
 charged with paper, it would have as ruinous effects as would be 
 produced by lessening the quantity of the paper circulation ; a sudden 
 diminution of the paper currency would prove the most violent shock 
 which the trade and credit of this country could receive.' 
 
 " Notwithstanding this sound prediction from the author of the 
 measure, his successors, who profess to tread in his steps, and to 
 venerate his nanio, have despised the warning, have rejected the ad- 
 monition, and applied the power precisely in the two modes which 
 Mr. Pitt thought most dangerous. ' The country has been surcharged 
 with paper ;' — there has been a ' sudden diminution of the cur- 
 rency,' not once, but repeatedly ; and exactly as Mr. Pitt foretold, 
 each violent change, in either direction, has shaken to their founda- 
 tions ' the trade and credit of the country." " 
 
 Now, in as far as the quantity of Bank of England paper is con- 
 cerned, it is quite certain that the fluctuation was not so great during 
 the restriction as it was before the suspension, and has been since 
 the resumption of cash payments. And as to the amount of that 
 
 * HA^SABD's Parliamentary Debates, vol. xxxiii. p. 71.
 
 78 
 
 any great contraction was made^ in preparation for 
 cash payments^ prior to 1818, which year I shall 
 consider separately. But although the fluctuation 
 in the amount of the issues of the Bank of England, 
 from year to ytm\ was so small, the increase in the, 
 whole 'period, from 1798 to the, end of 1817, was 
 very considerable. In notes of five pounds and 
 upwards it was nearly doubled ; and in notes of all 
 descriptions nearly trebled. Yet at several intervals 
 of that period, the exchanges and the price of gold *, 
 after a great intermediate divergence from their 
 par, exhibited a tendency to revert to it coincidently 
 with a larger issue of bank-notes than were in circu- 
 lation when the exchanges were at their lowest, and 
 the price of bullion at its highest. And at the end 
 of that period, viz. in 1817, the amount of bank- 
 notes in circulation being then at its highest, the ex- 
 changes rose to par; gold fell to the Mint price, 
 and bullion flowed into the coffers of the Bank to a 
 greater amount than it had ever possessed since its 
 establishment. The Bank, therefore, was in a situa- 
 tion, as regarded the exchanges and the state of its 
 
 part of the circulation which is exclusive of the paper of the Bank of 
 England, it is but too well known, that the violent changes which it 
 has experienced have not been confined to the interval of the Bank 
 restriction. But if the uniformity of the circulation of the Bank had 
 been greater than it was, it would not have been a compensation for 
 the manifold evils attending an inconvertible paper currency. 
 * For the exchanges and price of gold, see the Appendix.
 
 79 
 
 treasure,, to resume cash payments^ which indeed it 
 had begun partially to do. 
 
 The fair presumption from the preceding con- 
 siderations is^ that if there had been no suspension 
 of cash payments^ the amount of the circulation 
 would, in the absence of the depressing causes^ or 
 at the termination of those intervals^ have been 
 nearly, if not quite, equal to what it actually 
 was. 
 
 This conclusion is so important^ and at the same 
 time may appear to many persons so startling, that 
 it will be necessary for me to enter, at somewhat 
 more length than I had intended, into the further 
 proof of it, as afforded by several striking facts at 
 different epochs of the Bank restriction. 
 
 In the two years immediately following the suspen- 
 sion of cash payments, the exchanges were so high, 
 and the influx of bullion so great, that the Bank would, 
 in a convertible state of the Currency, have been jus- 
 tified in issuing a greater amount of paper than it had 
 then in circulation. In February 1799, the amount 
 of bank-notes was only 12,636,145, (including about 
 1,450,000 of one and two pound notes,) while its 
 treasure was upwards of nine millions. The price 
 of gold was 3/. 175. 9f/., and the Hamburg ex- 
 change 37.7. The Bank might then, upon the 
 most correct principles, have increased its issues
 
 80 
 
 (in any way that would have preserved its control 
 over them) to fourteen or fifteen milHons. 
 
 But in the course of 1799^ and more especially 
 towards the close of that year, there arose a combi- 
 nation of circumstances which entailed the necessity 
 for the payment of uniisualli/ large sums abroad. The 
 violent commercial revulsion which took place at Ham- 
 burg in the autumn of 1799, in consequence of extra- 
 vagant speculations in colonial produce^ required,, on 
 the part of the merchants here^ an immediate trans- 
 mission of funds to a very large amount. Bills to a 
 sufficient extent to meet the exigency could not be pro- 
 cured^ and would not, if obtained, have been nego- 
 ciable at Hamburg at the moment of such a suspension 
 of credit. The only alternative was, to send bullion, 
 which was accordingly exported (chiefly silver) in 
 large quantities. 
 
 The harvest in this country had failed to such 
 an extent as to require an unusually large impor- 
 tation of corn, which, as it was scarce on the Con- 
 tinent of Europe and in America, could only be 
 obtained at very high prices. The war on the 
 Continent was resumed on such a scale as, of itself, 
 to create an absorption of gold and silver for the 
 military chests ; but it was, moreover, accompanied 
 by subsidies to foreign powers from this country, 
 which rendered our foreign expenditure unusually 
 large*
 
 81 
 
 Under these circumstances^ the exchanges fell, 
 without any previous enlargement of the paper 
 worth mentioning-, and with an actual amount of 
 circulation much below what, with reference to 
 the state of its treasure, the Bank would have been 
 justified in issuing, previous to these occurrences. 
 This fall of the exchanges should have warned 
 the Directors to contract their issues. On the con- 
 trary, however, they enlarged them, for, on the 
 2oth February, 1800, there was an increase of 
 2,000,000 compared with August, and of 2,600,000 
 compared with February preceding. An enlarge- 
 ment, however, to the same extent, would, in all pro- 
 bability, have taken place in a convertible state of the 
 Currency, (or, if it had been enlarged, as it might have 
 been in 1799, it would not have been contracted,) at 
 the commencement of 1800. The proportion of 
 treasure to the notes in circulation was still large, 
 and the applications for discount, and for further 
 advances to Government, were most urgent*. It 
 is not, therefore, improbable, that the amount of 
 bank-notes would, in February, 1800, have stood 
 
 * On similar grounds, and in circumstances in other respects 
 singularly analogous, in 1795, the Bank, while paying in specie, 
 extended its issues. It had likewise done so in 1781. More recently, 
 too, in 1824, under a convertible state of the Currency, the issues of 
 the Bank were increased in the face of a falling exchange, and a drain 
 of treasure. 
 
 G
 
 82 
 
 under a convertible state of the Currency, as it did 
 under the restriction^ at about fifteen milUons*. 
 
 The occurrence of a second bad harvest in succes- 
 sion, viz. in 1800, rendered importations of corn 
 necessary, through that year and 1801, on a larger 
 scale than ever ; and all the political causes tending 
 to depress the exchanges were in full, or rather 
 increased operation. Under such circumstances, a 
 limitation of issues, at least to the amount at which 
 they stood in the commencement of 1799, would have 
 been expedient. Instead of contracting, the Bank 
 was, by the restriction, enabled to keep up its cir- 
 culation at a nearly uniform amount of about fifteen 
 millions, (to which it had been increased in Febru- 
 ary 1800,) till the force of the disturbing causes 
 which had operated upon the exchanges reached its 
 maximumf . 
 
 The harvest of 1801 proved abundant, and 
 preliminaries of peace with France were signed 
 early in October of that year. The exchanges 
 
 * If the paper had then been convertible, so powerful were the cir- 
 cumstances operating upon the exchanges, that a considerable con- 
 traction of the circulation would have been necessary ; or, if no previous 
 enlargement had taken place, a forcible limitation to its original 
 amount, by the Bank refusing the increased applications for discounts, 
 and for advances to Government, in order to check the drain on its 
 treasure, and to preserve its power of paying its notes on demand. 
 
 t The lowest quotation was, in January 1801, 29.8 on Hamburg.
 
 83 
 
 thenceforward exhibited a tendency to improve- 
 ment, and rose in January^ 1804, to 36.4 on Ham- 
 burg, and to 25.10 on Paris, coincidentli/ with an 
 increase of the Bank circulation to somewhat more 
 than seventeen millions. In this state of the ex- 
 changes, and with a consequent tendency to an in- 
 flux of the metals, or, at any rate, with a total cessa- 
 tion of any inducement to the export of gold, if the 
 Bank had not thought proper (very injudiciously, 
 in my opinion) to give 4/. per ounce for gold, 
 and thereby to establish a depreciation of its own 
 paper to the extent of the difference between that 
 and the Mint price, there is little reason to doubt that 
 the price would have fallen to 3/. 17*. \0\d. The 
 price of dollars did fall, in 1804, to 5.5. per ounce. 
 It is quite clear, therefore, that the value of the Cur- 
 rency of this country had been restored to a par with 
 that of the continent. 
 
 In the interval, then, of five years, between the 
 beginning of 1799 and the beginning of 1804, there 
 had been an alteration in the value of the Currency 
 of this country, compared with that of the Continent, 
 as indicated by the exchanges, of upwards of twenty 
 per cent. ; and in the value of paper, compared 
 with gold, of about ten per cent*. 
 
 * There is no quotation of standard gold in this interval; but foreign 
 gold was quoted as high as 4/. 5^. per ounce. 
 
 g2
 
 84 
 
 But the value of our Currency had recovered^ 
 according to one test, completely to par, and, ac- 
 cording to the other, to within the merest trifle of 
 it ; not only without any coniraciion, but coin- 
 cidently with an incrtase of two millions of bank- 
 notes at the end, as compared with the beginning, 
 of that term. 
 
 Whatever, therefore, might have been the inttT- 
 mediate contraction necessary to counteract the de- 
 pression of the exchanges in 1800 and 1801, if the 
 paper had then been convertible, there inust have 
 been a subsequent increase of the Bank issues, till 
 1804, to the amount which they actually attained 
 by that time, viz. to about 17,000,000/*. 
 
 Between 1804 and 1807, the war between the 
 great powers of the Continent was again renewed, 
 and caused a further foreign expenditure by our Go- 
 vernment. There was, moreover, in 1805, a consi- 
 derable importation of corn, in consequence of the 
 deficiency of the harvest of 1804. The exchange on 
 
 * T should say to, at least, that amount ; because, in all probability, 
 the intermediate contraction would have been followed, when disturb- 
 ing causes had ceased to operate, by a greater and more rapid influx 
 of the metals, and the payment in bank-notes for the extra quantity, 
 would (other things being the same) have occasioned a temporary ex- 
 tension of the Bank issues beyond the amount which they actually 
 reached.
 
 85 
 
 Hamburg, from these causes, was depressed^ towards 
 the close of ISOo^ as low as 32.9*. 
 
 But as the depressing- causes were far less than 
 those before mentioned^ both in degree and duration, 
 the exchange gradually recovered to 34.10 in 1807. 
 
 This tendency to improvement continued, with 
 trifling fluctuations^, into the beginning of 1808^ 
 the exchange on Hamburg having reached 35,5 in 
 July of that year^ notwithstanding that the foreign 
 expenditure of Government had been considerably in- 
 creased, and that the issues of bank-notes had ex- 
 perienced no intermediate contraction worth men- 
 tioning. 
 
 From the cursory glance here taken at the 
 state of the circulation during the eleven years 
 ending in 1809, it appears that there were circum- 
 stances producing sudden and great fluctuations 
 (chiefly, however, in the interval from 1799 to 
 1804) in the balance of payments from and to this 
 country. But the Bank circulation, during the 
 greater part of this interval, exhibited a gradual 
 progress of increase ; during which the exchanges 
 
 * It seems doubtful, whethei*, if the paper had been convertible, any 
 material contraction would have been required on this occasion ; the 
 treasure of the Bank having been so considerable as to have ad- 
 mitted, without inconvenience, of an export of bullion to such an 
 amount as to counteract the causes operating on the exchange.
 
 86 
 
 and the price of gold showed a constant tendency to 
 revert to par^ whenever the force of the disturbing 
 causes abated. 
 
 A reference, therefore, to this interval_, not only 
 negatives the charge of sudden changes in the amount 
 of the Bank circulation, but confirms the conclusion, 
 that, under the system pursued by the Directors, 
 (however erroneous their theory) there was a constant 
 tendency to a restoration of the value of the paper, 
 without any visible effort for that purpose in the re- 
 gulation of their issues. 
 
 But the circumstances which were calculated to 
 disturb the Currency, in the relation between paper 
 and gold, in the interval which has here been briefly 
 sketched, between 1797 and 1808, were as nothing 
 in extent or duration compared with those which 
 operated between 1808 and 1814. 
 
 In the commencement of 1808, the exchanges 
 and the price of bullion were nearly at par; the 
 amount of bank-notes, in February, was 16,873,054/. : 
 the treasure being above 9,000,000/., or more 
 than one-half the amount of the paper. In this 
 state of the circulation great speculations arose, 
 on an actual and prospective scarcity of im- 
 ported commodities*. The effect of these specu- 
 
 * It is of importance to observe that these speculations, which 
 began at the close of 1807, were not preceded, nor, during the greater
 
 87 
 
 lations was to induce importations in the following 
 year on a scale of unprecedented magnitude, and 
 the payments for a considerable portion of them 
 were, of necessity, made in anticipation. The spe- 
 culations here alluded to were in progress,, and 
 had attained their greatest height, before any en- 
 
 part of their progress, accompanied by any increase in the amount of 
 Bank paper. But the extraordinary rise of prices of nearly all com- 
 modities, in some instances of 100 to 200 per cent., could not have 
 taken place without an expansion of country and London paper, and 
 credit, to supply the means of successive purchases at such greatly 
 advanced prices, while the amount of Bank of England paper re- 
 mained stationary. As the speculative rise of prices was, both as to 
 the extent of the articles it embraced, and the per centage of advance, 
 greater than that which occurred in 1824-5, I should apply to it a 
 computation somewhat similar to that which I had occasion to make 
 when referring to the latter period, estimating the increase of that 
 part of the circulation, which is exclusive of Bank of England paper 
 and coin, viz. of private credit, to have been upwards of 50 per cent. 
 The Bank did enlarge its circulation just before the termination of the 
 speculation, viz. in 1809, and, so far, may be considered as having 
 somewhat prolonged it. But if it is worthy of remark that this im- 
 mense speculation, accompanied by an enormous increase of Lon- 
 don and country paper and credit, began, and had rim nearly its 
 full career without any extension of Bank paper, it is no less so 
 that its termination was, not only, not occasioned nor even hastened 
 by any contraction of Bank paper, but that it was immediately pre- 
 ceded by an enlargement of issues of notes — the total increase of these, 
 between the beginning of 1809, when the speculative rise of prices 
 had reached its height, and the autumn of 1810, when the great re- 
 vulsion of credit occurred, being no less than six millions. This 
 increase, the greatest that occurred during the whole period of 
 the restriction within the same time, was upwards of 30 per cent, 
 upon the amount in February 1809, and upwards of 40 per cent, on 
 the amount as it stood in August 1808; and, great as was this in-
 
 88 
 
 largement took place in the issues of the Bank. 
 There was, indeed, an inconsiderable increase be- 
 tween February 1808 and February 1809. But 
 while the variation in the amount of bank-notes was 
 thus trifling, the exchange, towards the close of 
 1808^ fell considerably* ; in consequence, partly, of 
 the preparations by anticipated payment for the large 
 imports which were forthcoming in the following year, 
 and, partly, of an increased foreign expenditure by 
 Government. 
 
 In 1809, the causes tending to depress the ex- 
 crease, it was insufficient, for some time, to fill the chasm caused 
 by the discredit of private paper. The inference, therefore, is, 
 that the previous growth of the circulation had been more than 50 
 per cent. ; and this instance, if there were no other, would be decisive 
 in proof of the position to which I have so often had occasion to 
 refer, of the susceptibility of the country and London circulation 
 to expand and contract without any coiTesponding enlargement 
 or contraction of Bank of England paper. It proves, likewise, that, 
 as there was no peculiar facility or inducement arising out of the in- 
 convertibility of Bank paper to the origin of so great a speculation, 
 neither was there any security from that circumstance against its dis- 
 astrous termination. The only difference seems to be, that the catas- 
 trophe might have been somewhat hastened if the Bank had contracted 
 instead of extending its issues in 1809. 
 
 * Exchange on Hamburg, December 1808, 31.3. It may here be 
 remarked, that the speculations, and consequent great rise of prices, 
 had proceeded to a very considerable extent long before the slightest 
 indication was given by the exchanges of any excess in the circu- 
 lation ; thus furnishing another instance, in addition to those which I 
 had occasion to give in a former work, that an excess in the general 
 circulation may exist for some interval before it is indicated by the 
 exchanges.
 
 . 89 
 
 changes operated with increased force. An im- 
 port of corn, rendered necessary by the wet 
 harvest in this country, was now superadded to the 
 large imports,, in progress, of other commodities, and 
 the foreign expenditure of Government was further 
 extended. At the same time, increased obstructions 
 arose to the export of commodities, and to the ne- 
 gociation of bills on the Continent. The exchanges, 
 from these causes, continued to fall rapidly, and 
 that on Hamburg was quoted as low as 28.6 at 
 the close of that year. Foreign gold (there is no 
 quotation of standard gold in this year) rose to 
 4/. lis., and silver (dollars) to 5s. Id. Under cir- 
 cumstances operating so violently on the exchanges, 
 the Bank, if the paper had then been convertible, 
 must have contracted, or, at least, strictly limited 
 its issues. But it enlarged them, though not very 
 considerably, say by about one million at the close 
 of 1809, and by about one million more in Febru- 
 ary 1810, when the circulation stood at 20,429,281/. 
 Notwithstanding this increase of bank-notes, a 
 great commercial revulsion began in the summer 
 of 1810, as a consequence of the extravagant spe- 
 culations, connected with a great extension of credit, 
 which had occurred in the two preceding years. 
 Besides numerous and extensive mercantile failures.
 
 90 
 
 no fewer than twenty-six country banks failed. The 
 applications for discount at the Bank of England rose 
 to an unprecedented height, and an addition was 
 made of four millions to its circulation, making the 
 amount, in August 1810, 24,446,175/.— the greatest 
 amount which it reached before the termination of 
 the war. 
 
 But this addition to the Bank circulation of nearly 
 eight millions, compared with the amount in Febru- 
 ary 1808, and of six millions and a half compared 
 with the amount in February 1809, was hardly suffi- 
 cient to fill the void in the general circulation created 
 by the diminution of banking and mercantile credit. 
 For, notwithstanding a greatly increased import of 
 corn, and an increased foreign expenditure, with 
 greater obstructions than ever to exportation from 
 this country, the exchange on Hamburg, which in 
 1809 had been as low as 28.6, rose, in October 1810, 
 to 31.6 ; and the price of gold fell from 41. I2s. in 
 1809 to 41. 4s. Qd. in 1810. 
 
 It is highly probable, therefore, that although, in 
 1809, if the paper had then been convertible, a con- 
 traction or a coercive limitation of bank-notes mig-ht 
 have been necessary, a great enlargement would 
 have been required in 1810. 
 
 Between August 1810 and February 1812 a re-
 
 91 
 
 duction took place to the extent of one million and 
 a half, viz. — 
 
 from £24,446,175, August, 1810, 
 to . . £22,998,187, February, 1812, 
 
 (coincidently^ as will be seen hereafter, with a con- 
 siderable rise of prices). This reduction, how- 
 ever, was insufficient to check the fall of the ex- 
 changes;, and the consequent rise in the price of 
 bullion. The imports of corn, (of which the single 
 article of wheat reached, in 1810, to the extent of 
 1,500,000 quarters, and made an item of no less 
 than seven millions and a half; the average cost, 
 including the freight by foreign ships, being at 
 least lOOs. the quarter,) the enlarged scale of 
 our foreign expenditure, and the increased absorp- 
 tion of gold and silver by the military chests of the 
 vast armies whose sphere of operations extended 
 from Moscow to Cadiz, and the disposition which 
 existed among individuals to hoard the metals, as 
 the only means of security in the countries over 
 which the military operations extended — these, and 
 other circumstances, which it would be tedious to 
 enumerate, created a constant and increasing demand 
 for payments to the Continent, which could hardly, 
 even if no political obstructions had existed, have 
 been kept pace with by increased exports of com-
 
 92 
 
 modities. Accordingly, notwithstanding the reduc- 
 tion above-mentioned^ to the extent of a million and 
 a half of bank-notes, the exchange on Hamburg 
 fell rapidly,, and reached its lowest point of depres- 
 sion,, viz. 23.6. in 1811^ and the price of gold rose 
 to 41. 195. 
 
 Through 1812 and 1813 our importations of corn 
 were greatly reduced ; and in consequence of the 
 admission of British commodities into some of the 
 ports of the Continent from which we had before 
 been excluded^ there was an increased exportation 
 from this counti-y. But these circumstances, al- 
 though they were sufficient to prevent the further 
 fall in the exchanges, did not countervail the ten- 
 dency to a further rise in the price of gold. The 
 scale of the foreign expenditure of our Government 
 was extended, not only on the Continent of Europe, 
 but in America, in consequence of the war which 
 then broke out with the United States*. 
 
 At the same time the absorption of the metals by 
 the military chests, and by private hoarding, must 
 have gone on increasing to the close of the struggle 
 in the spring of 1814. Without any increase, ac- 
 
 * The foreign expenditure of government, in the twelve months 
 ending in the spring of 1814, has been stated to amount to about 
 twenty- six millions.
 
 93 
 
 cordingly, worth mentioning', in the amount of bank- 
 notes in circulation, viz. — 
 
 from £22,998,197 in February, 1812, 
 to . . £24,024,809 in August, 1813, 
 
 (and this increase, be it observed, did not quite raise 
 the amount to what it had been in August, 1810,) 
 the price of g-old rose to 5/. 10.y., its greatest height, 
 at the close of 1813 *, and during the first few weeks 
 of 1814. And this brings us to the consideration of 
 the most decisive feature of the whole history of 
 the Bank restriction. In February, 1814, the 
 amount of bank-notes was increased by one million^ 
 compared with August, 1813, and stood actually 
 higher, viz. 25,095,415/., than at any period of the 
 war. 
 
 Now it is perfectly clear that, under the circum- 
 stances which I have described, the amount of bank- 
 notes, in the interval between 1811 and 1814, must,, 
 if the paper had then been convertible, have beent 
 greatly reduced in order to counteract the pressurt^ 
 on the exchanges ; but it is equally clear that, upon 
 the removal or abatement of those disturbing causes, 
 
 * It will appear hereafter that this trifling increase of bank-notes, 
 and this great rise in the price of gold, were accompanied by a fall of 
 50 per cent, in the price of wheat.
 
 94 
 
 an enlargement of the circulation soon after the 
 commencement of 1814^ might and most probably 
 would have taken place if the Bank had then been 
 paying- in specie, to the same amount as that which 
 it actually did attain, viz. about twenty-five millions. 
 For it appears that, notwithstanding- a further in- 
 crease of Bank issues,, which took place after Febru- 
 ary 1814, the exchang-es rose rapidly and (with the 
 exception of their retrograde movement during the 
 short but violent operation of the circumstances con- 
 nected with the return of Napoleon from Elba, in 
 1815) progressively, till they reached their utmost 
 height in 1816, followed by an extraordinary influx 
 of gold. The influx of bullion continued till nearly 
 the close of 1817, accompanied by an increase of 
 bank-notes till the amount reached the highest point, 
 viz. 30,099,908/. in August 1817, being an increase 
 of about five millions since February 1814. 
 
 In this interval of four years, we have the converse 
 of the circumstances which operated on the exchanges 
 in the four years preceding. The greatest part of 
 our foreign expenditure had ceased by the summer 
 of 1814, renewed only for a short interval in 1815, 
 and it was at an end altogether at the close of the 
 latter year, by the peace with the United States. 
 At the same time there was a great diminution in the
 
 95 
 
 amount of imports, to the close of 1816^ so that the 
 payments from this country were greatly reduced, 
 while the payments to this country were larger than 
 usual, by the returns which were becoming due from 
 abroad for the increased exports, of which a great 
 part were speculative, and on long credits, in 1814. 
 And as it would have required a great effort on the 
 part of the Bank, and a departure from its rules by 
 a forced limitation of its discounts in the last few 
 years of the war, to counteract, by a sudden and 
 violent reduction of its issues, the circumstances 
 tending to depress the, exchanges — so it would 
 have required an effort and a departure from its 
 rules, by a great and sudden reduction in its rate of 
 discount, to counteract the tendency to a rise of the 
 exchange above par, and to a consequent rapid influx 
 of bullion in 1816*. 
 
 The exchanges reached their utmost height at the 
 close of 1816, but the influx of bullion continued 
 into 1817 ; and the increase of bank-notes between 
 August 1816 and August 1817, was only commen- 
 surate with, and consequently may be considered as 
 
 * This influx of bullion was not checked by the increase of ad- 
 vances to Government, which, by August, 181G, had reached seven 
 millions beyond the amount they stood at in February preceding. 
 The discounts, it may be observed, fell off in nearly the same pro- 
 portion.
 
 96 
 
 having been issued only in payment for, so much 
 gold which would otherwise have come through the 
 Mint into circulation*. 
 
 The position of the Bank, then, in 1817, as re- 
 garded the amount of its treasure, compared with 
 its notes, was such as it might, and in all probability 
 would have been, if it had then been paying in 
 specie, and if no intermediate suspension had 
 taken place. And this position was attained with- 
 out any deviation by the Directors from the rules 
 by which they had governed their issues throughout 
 the whole period of the restriction. 
 
 Nothing can be more destitute of, or rather con- 
 trary to, evidence, than the supposition that, upon 
 the conclusion of peace in 1814, the prospect of the 
 near termination of the Restriction Act induced the 
 Bank Directors to contract their issues, in prepa- 
 
 * The Bank, indeed, paid 31. 18s. Gd. per ounce for the gold, and 
 so far acted injudiciously ; it being utterly inconsistent with correct 
 principles that it should ever pay more than the Mint price : every 
 instance of its having so done is an imputation upon its manage- 
 ment ; but, in the present instance, the difference is hardly worth 
 mentioning, and there can be no doubt, from the state of the ex- 
 changes, that if the Bank had abstained from giving anything above 
 the Mint price, it would equally have succeeded in filling its coffers : 
 for it appears by the evidence of Mr. Goldsraid (Report of the 
 House of Commons on Cash Payments, 1819, page 4), that there 
 were no other buyers in the market at the price which was given by 
 the Bank.
 
 97 
 
 ration for cash payments. Their discounts,, till the 
 close of 1815, were as high as they had been at any 
 time during the war, excepting iu the single year of 
 1810 ; and their advances to Government were, on 
 the average, considerably higher than during any 
 period of the war. There was, indeed, a repayment 
 by Government, which reduced the advances, on the 
 26th of February, 1816, to about nineteen millions ; 
 but this repayment seems to have been compensated 
 in its effect on the circulation by other sources of 
 issue ; the reduction of bank-notes at that period being 
 the most trifling possible*. At the close of 1816 
 a sudden diminution of discounts took place ; but 
 this diminution was simply the effect of a fall of the 
 market rate of interest, and not of any refusal of 
 the Directors to discount. This diminution was 
 compensated in its effect on the amount of the cir- 
 culation by the issues of bank-notes against bullion 
 purchased. But it may be argued that the very 
 circumstance of the purchase of gold implies pre- 
 paration on the part of the Directors for cash pay- 
 
 * The Table exhibits a reduction to 25,680,069/. on the 26th of 
 February of that year ; the reduction was, however, confined to that 
 single week, for, in the week following, viz. on the 2nd of March, 181G, 
 although nearer the quarter, the amount was 27,724,150/, (Lords' 
 Report, p. 325), and had been at about the same amount in the week 
 preceding the 26th of Februaiy, 1816, being a difference of only 
 about 400,000/. compared with August 1815 or August 1816, when 
 the advances stood at a much higher amount. 
 
 H
 
 98 
 
 ments. Preparation^, as far as relates to pur- 
 chases of bullion by the Bank^ it has been no part 
 of my argument to deny ; and preparation, in this 
 sense, was made at several periods in the eleven 
 years following the suspension of cash payments in 
 1797. All that I have contended for is, the nega- 
 tive of preparation, as consisting in a designed con- 
 traction of the circulation, for the express pur- 
 pose of rendering the exchanges favourable, and 
 forcing an influx of gold. The Directors, to the 
 latest period of their examinations in 1819, denied 
 the influence of their issues upon the exchanges, 
 and made repeated declarations, both in and out 
 of Parliament, that they had proceeded in the 
 regulation of their issues according- to their usual 
 routine, without any designed reduction of the amount 
 of their circulation*. These declarations are fully 
 borne out by a reference both to the amount of the 
 circulation and to the channels through which it was 
 supplied ; and it has been shown that the circum- 
 
 * Of the inefficacy of any regulation of their issues upon the ex- 
 changes, they recorded their conviction as late as 1819, when, in a 
 resolution of the 25th of March, they state — " This Court cannot 
 refrain from adverting: to an opinion, strongly insisted on by some, 
 that the Bank has only to reduce its issues to obtain a favourable 
 turn in the exchanges, and a consequent influx of the precious metals. 
 The Court conceives it to be its duty to declare that it is unable to 
 discover any solid foundation for such a sentiment."
 
 99 
 
 stances operating* to raise the exchanges in 1815-16 
 were such as to render the influx of the metals irre- 
 sistible under the system which had been pursued 
 by the Bank during the whole period of the re- 
 striction. 
 
 That there was a great contraction of the g-eneral 
 circulation in 1815 and 1816, and that this contrac- 
 tion co-operated with the circumstances which have 
 been noticed, to raise the exchanges and to hasten 
 the influx of bullion_, I am quite ready to admit. 
 This contraction_, however, was not the effect of any 
 measures of the Bank, but simply of the recoil from 
 the great speculations which took place between 
 the close of 1812 and the spring of 1814. These 
 speculations had their origin in the extraordinary 
 political and commercial changes of that period, 
 without any immediately preceding enlargement 
 of Bank of England paper worth mentioning, 
 although their range was, doubtless, somewhat 
 extended by an increase of Bank paper during 
 their progress. But the termination of them, in 
 the autumn of 1814, which was followed by failures, 
 to the spring of 1816, was not occasioned by any 
 reduction of the Bank issues ; on the contrary, the 
 revulsion of credit commenced while the Bank of 
 Engfland was increasing- its circulation. A further 
 and very considerable enlargement of Bank paper 
 
 h2
 
 100 
 
 took place towards the close of 1814^ to supply the 
 chasm created by the failures of the country banks. 
 A small part of this enlarged issue was afterwards 
 withdrawn in 1815 and 1816. 
 
 In this and in other essential respects, the state 
 of the circulation and of credit in the interval 
 between 1810 and 1812 was so similar to that in 
 the interval under consideration, that it may be 
 worth while to notice the most striking- features 
 of resemblance. In both cases the speculations 
 of the two years preceding- the revulsion had ori- 
 ginated in the great political and commercial 
 changes which then occurred, without any coincident 
 enlargement of the Bank of England paper. In 
 both cases an increase of bank notes followed the 
 progress of the speculations, and a great enlarge- 
 ment of the Bank issues took place to supply the 
 sudden chasm in the circulation created by the 
 shock to general credit, from the failures conse- 
 quent upon the disastrous termination of those spe- 
 culations. In both cases, although the death-blow 
 had been struck by the first revulsion, the parties 
 lingered for many months after : thus the number 
 of bankrupts*, on the average of 1811 and 1812, 
 
 * See Lords' Report on Cash Paymsnts, 1819, Appendix, p. 426. 
 There were no fewer than twenty-nine country banks against whom 
 commissions of Bankruptcy were issued in 1814.
 
 101 
 
 was greater than it had been in 1810 ; as in 1815 
 and 1816 it was greater than in 1814. In both 
 cases, after the sudden enlargement of the Bank 
 issues which had been made to meet the first great 
 shock to credit;, a part of the enlarged issues was 
 withdrawn. 
 
 The average of Bank notes. 
 
 From July to December, 1810, was £24,188,605 
 July to December, 1811, £23,094,046 
 
 £1,094,559 
 
 July to December, 1814, was £28,291,832 
 July to December, 1815, £26,618,213 
 
 £1,673,619 
 
 being a reduction of four and a half per cent, in the 
 former, and of six per cent, in the latter case; or, if the 
 average of the first six months of 1816 betaken, viz. 
 26,468/283/., the reduction would still be somewhat 
 under six and a half per cent., or two percent, only 
 beyond that which had occurred under circumstances 
 singularly analogous in 1811. 
 
 From a comparison, therefore, of these two 
 periods, so strikingly similar in the most essential 
 particulars, it seems to be just as reasonable to 
 conclude that the great contraction of country 
 bank notes, and of the general circulation in 
 1811-12, was caused by the Bank of England and
 
 102 
 
 the country banks preparing for cash payments, as 
 that such preparation was the cause of the con- 
 traction of the general circulation in 1815-16. 
 
 It has been assumed that the reduction of is- 
 sues was designed on the part of the Bank of Eng- 
 land and of the country banks^ and that it preceded 
 the fall of prices and the failure of credit*. It 
 is however notorious,, that the fall of prices^ and 
 the failures^ and revulsion of credit^ began before 
 1815^ and necessarily entailed a great contraction 
 of the general circulation^ but more especially of 
 the country bank issues, independent of and pre- 
 ceding any reduction of the Bank of England paper. 
 To enter, however, on the question of the order of 
 time in which the contraction of the circulation is 
 alleged to have taken place, relatively to the fluc- 
 tuations of prices and the consequent distress or 
 
 * The total misconception which prevails regarding the state of the 
 Bank circulation, and the supposed preparations, by the Directors, in 
 collecting gold in 1815 and 1816, cannot be better illustrated than by 
 the following quotation from a recent publication, entitled " Free 
 Trade in Com, by a Cumberland Landowner, 1828," supposed to be 
 from the pen of Sir James Graham. " The matter to which we shall 
 next turn is the treasure kept in the coffers of the Bank of England. 
 This treasure, from 1806 to the close of 1814, could have little or no 
 influence upon the general currency. The Bank of England had none 
 throughout the period. In 1815 they, however, began to collect one. 
 In 1816, by reducing the amount of their notes in circulation, thereby 
 forcing the country bankers to do the same, and gold being no longer 
 in demand for the purposes of war, they were enabled to buy up a 
 considerable sum." p. 46.
 
 103 
 
 prosperity of the classes affected by themj would 
 be to anticipate the discussion which I propose 
 to reserve for another letter. For the present it 
 is sufficient to observe that there was no contrac- 
 tion of the Bank or country circulation, that can be 
 shown to have orig-inated in preparations for the 
 resumption of cash payments. 
 
 But those who argue in favour of a debasement 
 of the currency^ not satisfied with the assertion 
 of a contraction of the Bank circulation between 1814 
 and 1816, in preparation for cash payments, main- 
 tain that the enlargement of the issues of the Bank 
 in 1816^ arose from an abandonment on the part of 
 the Directors, in concert with the government^ of 
 such preparation. The Restriction Act having in 
 1816 been prolonged for two years^ the Directors 
 are supposed to have availed themselves of this 
 delay, to increase the supply of paper, with a view 
 to relieve the then existing agricultural and com- 
 mercial distress. And to an enlargement of Bank 
 of England issues hence arising, they ascribe an 
 increase of the country circulation, a great rise 
 of prices, and the return of prosperity*. How far 
 that increased issue, being, as already noticed, 
 against the purchase of an equivalent amount of 
 
 * See Mr. Attwood's speech, Parliamentary Debates, vol. vii, ; 
 also Sir James Graham's publication on Corn and Cun-ency, &c.
 
 104 
 
 gold^ produced the effects ascribed to it^ will be seen 
 further on. Here I have only to examine the grounds 
 which are alleged for the extension^ and which are 
 wholly without foundation. 
 
 It has already been seen that the Bank was, 
 in 1817, in a position, by the amount of its trea- 
 sure relatively to its circulation, extended as this 
 was, to resume cash payments. And the Direc- 
 tors, so far from taking advantage of the pro- 
 longed term of the restriction, were adopting mea- 
 sures for anticipating it : for in the months of 
 April and September, 1817, they actually undertook, 
 by public notice, to pay a large proportion of their 
 notes in coin. Instead, therefore, of their prepa- 
 ration for cash payments having been, as is stated, 
 the cause of their contracting their issues, the only 
 preparation which they did make in the interval 
 between 1814 and the termination of 1817, was 
 actually accompanied by an extension of the cir- 
 culation. 
 
 Seeing, then, that there is no foundation whatever 
 for the allegation of a contraction of the currency 
 in that interval, as a preparation for cash payments, 
 I shall proceed to examine whether there are any 
 better grounds for the supposition that a reduction 
 of the amount of the Bank issues in 1818, was 
 the effect of renewed preparations for cash payments.
 
 105 
 
 In February, 1819^ there appears to have been a 
 reduction of Bank notes to the extent of about four 
 millions, compared with the highest amount in 1817. 
 But, in the mean time, the Bank had, in pursuance 
 of the notices which it published in 1817_, pre- 
 paratory to its intended resumption of cash pay- 
 ments, issued coin against its paper to a still greater 
 amount. If the coin had remained in the country, 
 there would have been an increase rather than 
 a diminution of the amount of that part of the 
 circulation which constitutes its basis. But the 
 exchang-es havino- become adverse in the latter 
 part of 1817, and throughout 1818^ the gold 
 so issued was not likely to remain in circulation, 
 and it is well known that the greatest part^ if not 
 the whole, was sent abroad. The reduction,, then^ 
 in the circulation^ arose simply from the Bank can- 
 celling a part of its paper^ against the issue of so 
 much gold. The whole of the fluctuation^ then, in 
 the amount of the basis of the currency, whether 
 consisting of Bank of England notes only, or of Bank 
 of England notes and coin, may be thus explained. 
 
 It has been seen that the increase of Bank notes, 
 from 1815 to 1817, was not equal to the addition 
 made to the treasure of the Bank in that interval. 
 Supposing, therefore, that the Bank had refused to 
 purchase the bullion, and that the Mint had been
 
 106 
 
 open so as to have returned it immediately in coin, 
 the circulation would equally have been increased^ 
 and prices must equally have risen, and the previous 
 distress consequently have equally disappeared, al- 
 though the amount of Bank notes would have 
 been diminished rather than increased, as compared 
 with either 1815^ or the commencement of 1816, 
 And in this case the further effect deserves to be 
 remarked. The bullion which had flowed in between 
 1815 and 1817, would, by the turn of the exchanges, 
 have simply flowed out in 1818, and have left the 
 amount of Bank notes at the commencement of 1819 
 exactly what it was at its lowest in 1815, without 
 the intermediate enlargement of the paper. We 
 should not then have heard of the doctrine which 
 ascribes the whole rise of prices in 1817 to the in- 
 crease, and the whole subsequent fall to the con- 
 traction of paper in 1818, preparatory, as is alleged, 
 to cash payments. 
 
 That the whole of the contraction of Bank notes 
 in 1818 was only equivalent to the efflux between 
 December, 1817, and January, 1819, of a part of 
 the bullion which had come into the Bank between 
 June, 1816, and June, 1817, may be seen by a refer- 
 ence to the preceding Table. The position of the Bank 
 was in all other essential respects the same. The 
 advances to Government were increased in 1816 ;
 
 107 
 
 but the discounts fell off in the same proportion. 
 Government repaid five millions between August, 
 1818, and February, 1819 ; and the discounts in- 
 creased by upwards of six millions. The whole of 
 the fluctuation of the Bank issues between 1815 and 
 1819 being then resolvable into the variation of that 
 part only which, on the one hand, was paid for bullion 
 brought in, and, on the other hand, was cancelled 
 against coin or bullion demanded, there is no more 
 pretext for referring the difference of the Bank 
 paper in the latter case to a preparation for cash 
 payments, than there is for ascribing the increase in 
 the former case to the prolongation of the restriction. 
 Cash payments were, in truth, virtually, if not 
 formally, restored in 1817, without an effort, on 
 the part of the Bank, — that is, without any de- 
 parture from the rules by which its issues had 
 been governed during the war, and in the interval 
 after its termination. And as it appears that there 
 was no enlargement of Bank of England paper, 
 except in jicii/ment for bullion, in 1817, the fall of the 
 exchanges which occurred in that year (but which 
 did not become decided enough to occasion an export 
 of the metals till 1818) cannot, with a shadow of 
 reason, be ascribed to such enlargement of bank notes 
 as its originating cause ; the enlargement in 1817 
 having been merely the effect of the influx of gold.
 
 108 
 
 the whole of which, on the occurrence of the pecu- 
 liar circumstances^ financial and commercial, be- 
 tween the close of 1817 and the commencement of 
 181 9_, could not be retained*. 
 
 The amount of Bank notes, when the exchanges 
 were at their lowest point of depression in 1818, and 
 the drain on the Bank treasure was most rapid, was 
 as low as it had been when the exchanges were 
 rising, and when the influx of the metals had begun, 
 four years before ; and much lower than when the 
 exchanges had got above par, and when the influx 
 of the metals had reached its utmost height. 
 
 We must seek, then, in circumstances inde- 
 pendent of the Bank circulation, for the origin of the 
 fall of the exchanges in the latter part of 1817 and 
 
 * At the same time, although the increased issue in August, 
 1817, was so far justifiable, as it was merely made against pur- 
 chases of bullion, the Directors ought, at least, to have compen- 
 sated it by a reduction through some other channel, seeing that 
 the exchanges were looking down. They may plead that it was 
 not in their power to make such reduction, inasmuch as Govern- 
 ment would not repay any part of the advances in that year, 
 and the applications for discounts were at their minimum. But 
 they might, as they have since done, have sold Exchequer bills 
 in the market, and so have hastened the rise in the rate of interest, 
 and stopped or abated the spirit of speculation which was then 
 manifesting itself. By this earlier rise in the rate of interest and 
 abatement of the spirit of speculation, the further decline of the 
 exchanges might have been prevented, and a good deal of the over- 
 trading checked.
 
 109 
 
 throuo^h 1818 ; and there can be no difficulty in 
 tracing- them. Foremost among them was that of 
 the financial operations of the French and Russian 
 governments^ which were^ in those two years, of 
 unprecedented magnitude. The temporary rise 
 in the rate of interest, caused by the magnitude 
 of the loans, naturally occasioned the transmission 
 of capital to the continent : indeed, so powerful 
 was this single circumstance as a depressing cause, 
 that it might be considered as of itself sufficient to 
 account for the whole of the fall of the exchanges. 
 There were, however, other causes in operation 
 tending to the same effect. The importation of corn 
 continued to be on a large scale ; and at the same 
 time there was a great increase in the imports of 
 almost all other articles of raw produce in 1818*, 
 (in order to make up for the deficient imports of 1816 
 and 1817,) while a great part of the exports of 1817 
 and 1818 were speculative, and on long credits, the 
 returns for which were not forthcoming- till 1819, 
 Under these circumstances it is rather matter of 
 surprise that the exchanges were not more de- 
 pressed, than that they were so much depressed in 
 1818. At the same time there can be no doubt 
 
 * The imports of 1818 were increased in quantity, and purchasetl 
 at a higher cost, in consequence of the speculative rise of Ibat amd the 
 preceding year.
 
 no 
 
 that it was in the power of the Bank of England to 
 counteract this tendency to a depression of the 
 exchang-es and consequent efflux of bullion, by a 
 timely foi'ced reduction of its issues, whether through 
 a limitation of discounts, or a sale of Exchequer 
 bills. It did not adopt either measure*. It was satis- 
 fied with urging Government to a repayment of part 
 of its advances ; but so it had done on former occa- 
 sions ; and in this^ as in some former instances^ when 
 the market rate of interest was above five per cent.^ 
 the repayment made by Government was fully compen- 
 sated in its effects on the circulation, by an increase of 
 discounts. The Directors, as they have repeatedly 
 declared in and out of Parliament_, and as the facts 
 fully show, continued to regulate their issues exactly 
 as they had done throughout the Restriction ; and 
 in this instance (as likewise in the former ones which 
 I have pointed out), upon the cessation of the dis- 
 turbing causes in 1819, the exchanges rose, and the 
 tide of the metals set in again into this country. 
 
 * Mr. Harraan, in his evidence before the Lords' Committee on 
 Cash Payments, 1819, page 217, in answer to the question — "Did 
 the Bank, during any part of that period (1818), on perceiving that 
 these large demands were made vipon them of coin for exportation, 
 deem it necessary to make any effort for counteracting that drain of 
 their treasm*e, previously accumulated, by any reduction of the issues 
 of their paper ?" replied, " No ; we did not make any reduction with 
 a view of checking the export of gold and silver."
 
 Ill 
 
 without any diminution in the amount of Bank notes, 
 compared with what it had been at the lowest point 
 of the depression of the exchanges,, and at the highest 
 quotation of the price of gold*. 
 
 There is, therefore, no ground for imputing any 
 contraction of the issues of the Bank of England to 
 preparations, before 1819, for the resumption of cash 
 payments ; and it has already been shown that there 
 is as Uttle ground for ascribing any such effect to the 
 legislative measures in 1819. 
 
 * The argument, that our large foreign expenditure, combined 
 with the obstructions to exportation caused by the war, was sufficient 
 to account for the depression of the exchanges and the difference 
 between paper and gold, without ascribing these phenomena to an 
 alteration originating in the paper, has been urged with much force 
 and ingenuity by Mr. Blake. (" Observations on the Effects produced 
 by the Expenditure of Government during the Restriction of Cash 
 Payments. 1823.") Mr. Blake has arrived at the same conclusion 
 as that which I have been here contending for, viz. that the rise of the 
 exchanges, the fall in the price of gold, and the idtimate resumption 
 of cash payments, have been the natural consequence of the mere 
 cessation of the disturbing causes, without any alteration of the ordi- 
 nary routine of the Bank in regulating its issues, and that Mr. Peel's 
 Bill was, therefore, inoperative. But I cannot agree with Mr. Blake 
 when he maintains that, supposing the gold to have diverged from 
 the paper, and not the paper from the gold, the paper could not be 
 called depreciated. Depreciation is a term implying reference to a cer- 
 tain standard, and, in this case, the standard was the gold. "When the 
 paper, therefore, although it were perfectly unchanged in value with 
 reference to other commodities, had become less valuable with refer- 
 ence to gold, the coiTect use of language obliges us to say that it was 
 depreciated.
 
 112 
 
 If my conclusion be correct,, that the restoration of 
 cash payments was brought about without any contrac- 
 tion of the Bank issues for that purpose, it may be 
 asked how it can consist with the estimate of 
 Mr. Ricardo, that a difference between three per 
 cent, and ten per cent, in the value of the cur- 
 rency, was caused by that measure ? 
 
 Mr. RicardOj as far as I could collect his opinion on 
 this point, considered the alternatives, in the event of 
 Mr. Peel's Bill not being- passed, to be an alteration 
 of the standard to the market price of gold as it then 
 stood ; or such a reg-ulation of the issues of the Bank 
 as to maintain the price of gold at about the rate at 
 which it then was. The market price of gold had varied 
 during the agitation of the question, from £4 to 
 £4. 2^. peroz.; and according as one or other of 
 these quotations was taken, would the alternatives 
 above alluded to have made a difference of three 
 or five per cent, compared with the standard of 
 £S. I7s. lO^d. per oz. Mr. Ricardo afterwards 
 added, that the preparations of the Bank for supply- 
 ing itself with gold, might have the effect of raising 
 the value of that metal. Of the degree in which 
 the value of gold might be raised by the purchases 
 of the Bank, the relative price of silver would, he 
 supposed, form some criterion. 
 
 Now, as the price of silver had fallen in the in-
 
 113 
 
 terval between 1819 and 1831^ relatively to gold, 
 about five per cent. ; and as Mr. Ricardo continued, 
 I believe, to think that the Bank Directors had regu- 
 lated their issues subsequently to the passing of Mr. 
 Peel's Bill, in a manner different from that which 
 they would have pursued if the measure had not been 
 adopted, he was disposed to allow that the effect of 
 the resumption of cash payments on the value of the 
 currency might be estimated at about ten per cent. 
 But if the resumption of cash payments was, as I have 
 endeavoured to show, the necessary result of the 
 system by which the Directors of the Bank regu- 
 lated, and, according to their ordinary routine, would, 
 under the circumstances as they occurred, have con- 
 tinued to regulate their issues, if Mr. Peel's Bill 
 had not passed, there seems to be no reason to 
 allow the effect upon the value of the currency to 
 even the extent which Mr. Ricardo was disposed to 
 admit. 
 
 If it were granted, however, for the sake of argument, 
 that the utmost contraction contended for did take 
 place in the amount of the circulation subsequently to 
 the passing of Mr. Peel's Bill, whether as a conse- 
 quence or not of that measure, or of any anterior 
 preparation for cash payments, I shall, in another 
 Letter which I propose to address to your Lordship, 
 endeavour to show — that the assumed contraction of
 
 114 
 
 the circulation did not occur in such order of time as 
 to justify the assignment of such contraction as the 
 orig-inating" or moving cause of the fall of prices, 
 even supposing- that there were no other adequate 
 causes to account for it ; but that the fall of prices 
 does admit of being explained by circumstances 
 affecting the supply of commodities relatively to the 
 demand for them, independently of any alteration in 
 the amount of the Bank circulation. 
 
 I have the honour to be. 
 My Lord, 
 Your most obedient humble servant, 
 
 THOMAS TOOKE. 
 
 Richmond Terrace, W}iite?iall, 
 January 26, 1829. 
 
 To the Right Honourable Lord Grenville, 
 8)'c, S,-c. &^c.
 
 APPENDIX. 
 
 I 2
 
 APPENDIX. 
 
 No. I. 
 
 Paper communicated by Mr. Peimington. 
 
 Mr. Tooke lias shown that the fluctuations which 
 took place in the value of the currency, beyond the 
 degree indicated by the difference between paper and 
 gold, during the suspension, and those which have 
 occurred since the resumption of cash payments, were 
 the result of circumstances which it was not in the 
 power of the Bank of England to control or regulate. 
 In describing the effect of those circumstances upon that 
 portion of the currency which is not dispensed by the 
 Bank of England, it was sufficient for the jourpose of his 
 argument to show that country bank notes, private paper, 
 and credit, are susceptible of considerable increase or 
 diminution, without a corresponding enlargement or con- 
 traction of the basis on which they rest. He does not 
 appear to have thought it necessary to describe each par- 
 ticular mode in which credit, in its various forms, is sub- 
 stituted for currency, but has contented himself with 
 showing that it is much more extensively employed at one 
 period than at another. 
 
 There is, however, one modification of credit connected 
 with the private banking establishments of London, of
 
 118 
 
 which, although the explanation can add nothing to the 
 force and correctness of Mr. Tooke's argument, it may 
 possibly serve to place in a clearer view some of the cir- 
 cumstances and considerations to which he has adverted. 
 Those establishments are commonly regarded merely as 
 banks of deposit ; and it is supposed that they cannot, 
 under any circumstances, by enlarging or contracting the 
 currency, affect its value. 
 
 This notion, which has long been a prevailing, and is 
 apparently a very natural one, will be found, on exami- 
 nation, to be wholly incorrect. It may be shown that 
 they are essentially banks of circulation, differing from 
 the country banks chiefly in the mode in which their joro- 
 mises to pay are transferred from one person to another, 
 and not in any material circumstances connected with the 
 promises themselves. 
 
 In some respects, undoubtedly, they resemble the old 
 banks of deposit — they receive and pay money on account 
 of merchants and others, and they allow no interest upon 
 the money lodged with them. But there is this material 
 and important difference, that while the former are 
 allowed to make what use they please of the money in- 
 trusted to their care, upon the sole condition of being 
 able to discharge, with promptitude and regularity, the 
 fluctuating and occasional demands made upon them by 
 the depositors, the latter are not permitted to avail them- 
 selves of this advantage, but are bound to preserve, in 
 kind, the coins and bullion deposited with them. 
 
 Of the money placed in the hands of the London 
 bankers, the largest proportion is employed in discount- 
 ing bills of exchange, in the purchase of Exchequer Bills, 
 in advances upon stock, and on other readily convertible 
 securities. Now, as the money so employed, although
 
 119 
 
 drawn out of the hands of bankers by one set of persons, 
 is repaid to them by another, it is obvious that the aggre- 
 gate amount of money, in the hands of all the bankers 
 collectively, will always be the same ; and that their en- 
 gagements, or the balances due to the merchants, traders, 
 and others, for whom they act as bankers, will be in- 
 creased by the money so repaid to them. 
 
 In order to simplify the consideration of this subject, 
 let it be supposed that, instead of seventy London bankers, 
 there is only one, and that this single bank engrosses all 
 the business of the metropolis — let it be further supposed 
 that the Bank of England notes and gold lodged with it 
 amounted, on its first establishment, to ten millions, and 
 that, of these ten millions, five millions were employed in 
 the purchase of Exchequer Bills, — it is obvious that the 
 sellers of the bills, whether the State or private indivi- 
 duals, would not have parted with them unless they had 
 wanted money for the purpose of discharging a debt or 
 of effecting a purchase — in either case, the parties to 
 whom it was finally paid would, for their own conve- 
 nience, pay it into the hands of the Bank on their own 
 account ; and thus the Bank would become repossessed of 
 the identical five millions which it had previously lent, 
 and the balances which it owed to its various depositors 
 would, by this new deposit, be increased from ten to 
 fifteen millions, of which five millions would be repre- 
 sented by Exchequer Bills. 
 
 In whatever degree the Bank multiplied its transactions 
 of a similar kind, the result would be similar — every 
 additional loan or purchase would terminate in its having 
 the same amount of Bank of England notes and gold in 
 its possession as before, and in its liabilities to its depo- 
 sitors being increased.
 
 120 
 
 If we take the case of two or more bankers, instead of 
 one, the process above described will be found essentially 
 similar, and its effects the same. If A and B have each 
 five millions deposited with them, and A lend two millions 
 upon securities bearing interest, it is probable that one 
 of the two millions will be re-deposited with A, and that 
 the other million will be deposited with B ; A will then 
 owe six millions, and B will owe six millions. If, after- 
 wards, B lend two millions, it is probable that one of the 
 two millions will be re-deposited with B, and the other 
 million with A : they will then each owe seven millions ; 
 and thus the process will be continued until, together, 
 they owe fifteen millions, of which five millions will be 
 represented by Exchequer Bills. 
 
 Whether there are one, or two, or seventy banks, the 
 real state of the case is still the same, the money with- 
 drawn from one bank being always again lodged in that or 
 in some other bank ; the total amount of Bank of England 
 notes and coin in the hands of all the bankers, although 
 distributed in varying proportions amongst them, is 
 neither increased nor diminished. The more, however, 
 they enlarge their loans, the more are the balances due to 
 depositors augmented ; and as merchants, traders, and 
 others, rate their command of money by the amount for 
 which they are credited in the books of their respective 
 bankers, these credit balances transferred, in whole or in 
 part, from the account of one person to that of another, 
 in the books of the bankers, perform precisely the same 
 functions as the like amount of bankers' notes would do 
 circulating amongst the depositors. They are transfer- 
 able book-debts, convertible into the coin of the realm 
 at the pleasure of those to whom they are due ; the 
 notes of a country banker are essentially the same thing —
 
 121 
 
 the book credits of a London banker, and the notes of a 
 countiy banker, are but two different forms of the same 
 species of credit. 
 
 In the imaginary cases above stated, it is supposed that 
 the operations of the bankers, which produce an enlarge- 
 ment of the currency in the manner described, take place 
 suddenly and at once : in reality, however, they would be 
 slow and gradual ; each banker would be disposed to 
 extend his discounts and increase his purchases by little 
 and little, and a considerable time would probably elapse 
 before they became of considerable magnitude. 
 
 It will, perhaps, be said that, although such a process 
 as is here described may possibly take place when there 
 are only two banking establishments, yet when there are 
 so many as seventy they will operate as a check upon 
 each other ; and that, if any one of them should venture 
 unduly to extend its discounts or its purchases, it would 
 be warned of its imprudence by an inconvenient dimi- 
 nution of its cash reserve : all the cheques drawn upon 
 this bank, for the amount of its new investments, might 
 be paid into the hands of other bankers, and a regard to 
 its own safety would then be an inducement to re-discount 
 or re-sell them. 
 
 This consequence would undoubtedly ensue if the 
 advances were hastily and injudiciously made ; and it is 
 precisely this consideration which restrains country 
 bankers, whose circulation is in the same neighbourhood 
 or within the same sphere, from a sudden and improvident 
 extension of their issues. There are, in Edinburgh, five 
 or six circulating banks, of which the notes of each are 
 continually falling into the hands of the others. Twice 
 a week they exchange notes with each other, and liquidate 
 the balance arising therefrom by a payment of Bank of
 
 122 
 
 England notes, or by a short-dated bill upon London, 
 exactly ujion the same principle, and with the same 
 intention, as require the daily liquidation, at the clearing- 
 house, of the cheques upon each other by the London 
 bankers. If any one of the Edinburgh banks were unduly 
 to increase its issues, a greater number than usual of its 
 notes would fall into the hands of the neighbouring 
 banks, and that bank would have to pay a larger balance 
 than usual, in London money, at the period of weekly 
 liquidation. Each is thus a restraint upon the other ; 
 and they are all obliged to manage their business with 
 care and circumspection. 
 
 But neither the extension of the book credits of the 
 London bankers, nor an increased circulation of country 
 notes, ever takes place so suddenly or so largely as to 
 create the inconvenience here alluded to. It is slowly 
 and gradually, when credit is high and expectation on the 
 wing, and under circumstances which encourage extraor- 
 dinary speculation, that bankers are induced greatly to 
 extend their circulation ; each being persuaded that, at 
 such a period, his competitors will pursue the same course, 
 andj by so doing, prevent the inconvenient payment to 
 each other of large balances, at the period of mutual 
 liquidation. 
 
 On the other hand, during a period of distrust and 
 difficulty, the reverse of these operations takes place. 
 Each banker is anxious to increase his cash reserve, and 
 to lessen the amount of his outstanding engagements. 
 But if the amount of Bank of England notes and gold, in 
 the hands of the seventy London bankers, collectively, 
 remain the same, the aggregate amount of their outstand- 
 ing engagements can be lessened only by parting with a 
 portion of the productive securities in their possession.
 
 123 
 
 To part with any jjortion of their productive securities 
 will, upon the principle above explained, necessarily di- 
 minish the amount of the deposits. There will be less of 
 what is called money — of what is substituted for metallic 
 money — and the pressure and the obstruction, occasioned 
 by this contraction of the currency, will, in all proba- 
 bility, continue, until fallen prices, a rise of the foreign 
 exchange, and an influx of bullion, have restored the 
 currency to its former level. 
 
 It may, however, be said, that the money advanced 
 by the bankers may, very possibly, be withdrawn from 
 them in the shape of Bank of England notes and coin, 
 and that the notes and coin so withdrawn may be paid 
 into the hands of those, the nature of whose business and 
 pecuniary operations does not require the intervention of 
 a banker ; and that, whenever this happens, not only will 
 the bankers be dejDrlved of a portion of their cash re- 
 serves, but the aggregate amount of deposits will be 
 lessened. 
 
 This, no doubt, would frequently be the case, if 
 that class of persons, whose receipts and payments 
 are of such a nature as not to require the aid and 
 intervention of a banker, bore a large proportion, in 
 point of numbers, to those whose business cannot conve- 
 niently be carried on without one. But, in London, by 
 far the largest proportion of the ordinary receipts and 
 payments are effected through the medium of the private 
 bankers, and most of the cheques drawn upon them are, 
 therefore, liquidated at the clearing house; few, com- 
 paratively, being paid in gold and Bank of England 
 notes at the counter. 
 
 As this objection applies, with equal force, to the pro- 
 vincial and the London currency, it may be useful to 
 examine it more at large.
 
 124 
 
 Two things are necessary to the existence of a paper in 
 tlie place of a metallic currency, namely : — 
 
 1. A perfect willingness on the part of the people to 
 use paper instead of coin, as the instrument of circula- 
 tion, and its equal or greater convenience for that pur- 
 pose. 
 
 2. The charge of no higher a rate of interest than tlie 
 current rate, by the issuers of it. 
 
 With respect to the first condition, it may be observed, 
 that if the willingness and the convenience therein in- 
 volved, should extend only to a comparatively small 
 class of jjersons, no efforts of the bankers, no loans or 
 discounts at a low rate of interest, would enable them to 
 keep out their notes to a greater extent than the persons 
 of that class, collectively, deemed it necessary to keep by 
 them to answer current and occasional demands. If the 
 issues of the paper went beyond that limit, the redundant 
 notes would fall into the hands of the other classes of the 
 community, and immediately be brought to the Bank for 
 payment ; they would not remain out, for the channel in 
 which alone they can circulate is already full j they 
 would not lower the value of the rest of the currency, for, 
 to produce that effect, would require a considerable 
 time ; they would immediately recoil upon the bank that 
 issued them. 
 
 But when the habitual use of paper money obtains 
 amongst all classes of the community, and no preference, 
 arising from convenience, caprice, or habit, of paper to 
 coin, exists in any class — when its quantity far exceeds in 
 amount that of the coins which circulate alons with it — 
 there will exist, so far as the internal trade of the coun- 
 try is concerned, no motive for its conversion. It may 
 then be issued to excess, and continue in circulation suffi-
 
 125 
 
 ciently long to raise general prices and depress the 
 foreign exchange, the check arising from which will ulti- 
 mately bring it down to its natural level. 
 
 It should seem therefore, that in a country of which the 
 paper circulation is confined to the convenience of a few, 
 and of which a very large proportion of the currency is 
 metallic, a check, independent of the foreign exchange 
 and the rate of interest, exists, to prevent an excessive 
 issue ; and that when the liabitual use of paper money 
 obtains amongst all classes of the community, and the coins 
 bear buf a small proportion to the paper, the only checks 
 are the discretion of the bankers, the charge of a high 
 rate of interest, the depression of the exchange, and the 
 efflux of the metals. 
 
 If, in a country of which the currency is mainlv me- 
 tallic, a bank, similar in its plan to that of the private 
 banking-houses of London, were established, the ma- 
 nagers of that bank would lend at interest a large pro- 
 portion of their deposits, and, by that means, lower the 
 value of the currenc}', and force forth the country a sum 
 of money equal, or nearly equal, to the amount of their 
 loans. By this process the value of the currency would 
 be restored to its original level. If, for instance, pre- 
 viously to the establishment of the bank, the currency 
 amounted to sixty millions, and deposits were made to 
 the extent often millions, the bankers might think them- 
 selves safe in lending eight millions. Those eight mil- 
 lions would, in no long time, be forced out of the country, 
 and fifty-two millions (of which two millions would be the 
 dead reserve of the bank) would perform all the func- 
 tions which sixty millions had done before. It is pro- 
 bable that whenever it made advances in the way of 
 loan or discount, five-sixths of those advances would
 
 126 
 
 fall into the external circulation *, and one-sixth only be 
 re-deposited : it would, therefore, be acted upon by a 
 double check, namely, the external currency, and the 
 foreign exchange : the operation of the first would be 
 immediate — that of the latter slow. 
 
 But if the practice of depositing money in a bank so 
 constituted should prevail to such an extent as to in- 
 crease the deposits to fifty millions, and to reduce the 
 external currency to ten millions, the whole currency 
 would then consist of sixteen millions of coin (of which 
 six millions would be the dead reserve of the bank) and 
 fifty millions of book debts, or promises to pay. The 
 power of the Bank to alter the value of the currency 
 would, now, be very different from what it was in the 
 former case. Now, whenever it made advances, five- 
 sixths of those advances would, in all probability, be 
 re-deposited, and one-sixth only fall into the external cir- 
 culation. The check arising from the external currency 
 would be diminished in the proportion of five-sixths to 
 one-sixth ; that arising from the foreign exchange would 
 be the same as before ; the latter, however, would be 
 slow in its operation. 
 
 If the foregoing observations on the nature and instru- 
 mentality of the private banking establishments are cor- 
 rect, they may possibly serve to obviate, or, at least, to 
 lessen some of the difficulties with which the subject of 
 the currency has heretofore been surrounded. They will 
 show that' the money of the metropolis does not con- 
 sist only of Bank of England notes and coin, but that 
 by far the largest portion of it is formed of the trans- 
 
 * The phrase external circulation is here used to denote those pay- 
 ments which are made without the instrumentality and intervention 
 of a ])anlvpr.
 
 127 
 
 ferable book debts of about seventy private banking 
 establishments ; which book debts, although convertible 
 into Bank notes and coin at the pleasure of those to 
 whom they are due, are susceptible of considerable ex- 
 pansion and contraction, without a corresponding enlarge- 
 ment or diminution of the basis on which they rest. 
 
 This state of the London currency — this capability of 
 increase and diminution of the money created by the 
 London bankers — is productive of many important con- 
 sequences. The provincial circulation, as well that part 
 of it which consists of country bank notes, as that which 
 consists of bills drawn upon London, is mainly dependent 
 on it. Practically, indeed, and upon all ordinary occa- 
 sions, the book debts of the London bankers, and not 
 Bank of England notes, are the solvent of the country cir- 
 culation ; and as the London currency may increase or 
 diminislt without a corresponding alteration of the Bank 
 of England issues, so likewise may that of the country. 
 That the variations of the latter have not been conform- 
 able to the Bank issues, is a well known fact ; that the 
 book-credit money of the London bankers has as little 
 been conformable to them, may reasonably be conjec- 
 tured. Hence it has not unfrequently happened, that 
 general prices have risen, and been kept at a high range 
 for a considerable period of time, without any augmenta- 
 tion of the issues of the Bank of England ; and that they 
 have frequently fallen, and been for a long time de- 
 pressed, while those issues have continued uniform, or 
 been on the increase.
 
 128 
 
 No. II. 
 
 Applications from the Chancellor of the Exchequer to 
 the Bank to imrchase Exchequer Bills. 
 
 May 16, 1811. Application to purchase 2,000,000/. 
 
 Agreed to : on condition that the Bank be relieved 
 from a corresponding sum within three months ; 
 and that a reduction be made, by degrees, of the 
 amount of Exchequer bills at present held by the 
 Bank. 
 Aug. 29, 1811. Application to purchase 2,000,000/. 
 
 Agreed to : but the Governor and Deputy Governor 
 to communicate to the Chancellor of the Ex- 
 chequer the anxious wish of the Court that he will 
 not avail himself of any part of this credit whilst 
 Exchequer bills can be sold in the market. 
 Jan. 2, 1812. Application to jDurchase 1,000,000/. 
 
 Agreed to : in full reliance that the Chancellor of the 
 Exchequer will carry into effect the arrangement 
 referred to in his letter, for the reduction of Ex- 
 chequer bills held by the Bank. 
 May 19, 1812. Application to purchase 2,000,000/. 
 
 Agreed to : on condition that provision be made for 
 a further reduction of the amount of Exchequer 
 bills held by the Bank. 
 June 4, 1812. Application to purchase 1,000,000/. 
 
 Agreed to : on condition that this, as well as the two 
 
 former advances of 1,000,000/. and 500,000/., 
 
 should be repaid out of the loan for the service of 
 
 the year 1812. 
 
 April 1, 1813. Application to purchase, on account of 
 
 the East India Company, 2,000,000/. 
 
 Agreed to. The Governor and Deputy Governor
 
 129 
 
 to present a Statement of all Eschequei- bills held 
 by the Bayk, to the First Lord of the Treasury 
 and the Chancellor of the Exchequer, with a 
 renewed application, that the amount may be con- 
 siderably reduced out of the Ways and Means of 
 the year. 
 
 May 20, 1813. Application to purchase 2,000,000/. 
 
 Agreed to : on condition that it be reimbursed out of 
 the early instalments of the present loan ; and that 
 a further reduction in the amount of Exchequer 
 bills held by the Bank be made, agreeably to the 
 promise of the First Lord of the Treasury and the 
 Chancellor of the Exchequer. 
 
 Oct. 6, 1813. Application to purchase 2,000,000/. 
 
 Agreed to : on condition that such arrangements be 
 made soon after the meeting of Parliament, as will 
 enable the Chancellor of the Exchequer to repay 
 this sum. 
 
 May 5, 1814. Application to purchase 2,000,000/. 
 
 Agreed to. The Governor and Deputy Governor to 
 state to Lord Liverpool and the Chancellor of the 
 Exchequer the expectation of the Court, that the 
 present and former advances made by the Bank 
 be repaid out of the instalments of the next 
 ensuing loan. 
 
 June 16, 1814. Application to purchase 2,000,000/. 
 
 Agreed to : on account of the urgent necessity of 
 Government, under the peculiar circumstances of 
 the moment ; and also that so large a portion of 
 the said advances is settled to be paid off out of 
 the instalments of the present loan. 
 
 July 6, 1812. Application to purchase 2,000,000/. 
 
 Agreed to : but the Chairman to acquaint the First 
 
 K
 
 1.30 
 
 Lord of the Treasury and the Chancellor of tho 
 Exchequer, that the Court cannot grant any fur- 
 ther advances ; and expect such arrangements may 
 be made as shall tend to a very considerable reduc- 
 tion of the present enormous amount of these 
 advances. 
 
 July 28, 1814. Application to purchase 2,000,000/. 
 
 Reluctantly complied with : under the assurance 
 that every endeavour will be made to bring the 
 advances of the Court within reasonable bounds as 
 soon as possible. 
 
 March 19, 1815. Application to purchase 2,000,000/. 
 Agreed to: on the terms, that the repayment of the 
 2,000,000/. shall, as well as the sum specified in a 
 memorandum, be provided for in the ensuing finan- 
 cial arrangements. 
 
 April 13, 181,3. Application to purchase 2,000,000/. 
 
 Agreed to : on the terms that the 2,000,000/. now 
 applied for, as well as the sum specified in the 
 Minute of the 19th March, will be provided for 
 in the ensuing financial arrangements. 
 
 Aug. 24, 1815. Application to purchase 2,000,000/. 
 
 Agreed to : upon condition that the i-epayment be 
 made as soon as the public service will permit.
 
 131 
 
 No. III. — An Account of the Amount of Bank Notes in c"'culation 
 on the undermentioned Days ; distinafuishins; the Bank Post Bii's, 
 and the amount of Notes under Five Pounds, with the aggregate of 
 the whole. 
 
 
 
 Notes of £i. and 
 
 Bank Post 
 
 Bank Notes 
 
 
 
 
 upwards. 
 
 Bills. 
 
 under ^'5. 
 
 TOTAL. 
 
 
 
 ^\ 
 
 ^'. 
 
 £. 
 
 se. 
 
 1797 
 
 Feb. 2.5 
 
 8,167,949 
 
 474,615 
 
 — 
 
 8,001,964 
 
 
 Aug. 26 
 
 9,109,614 
 
 524,587 
 
 934,015 
 
 10,568,216 
 
 1798 
 
 Feb. 26 
 
 10,856,188 
 
 551,549 
 
 1,442,348 
 
 12,850,085 
 
 
 Aug. 25 
 
 9,997,958 
 
 553,236 
 
 1,639,831 
 
 12,191,025 
 
 1799 
 
 Feb. 26 
 
 10,576,510 
 
 607,907 
 
 1,451,728 
 
 12,636,145 
 
 
 Aug. 26 
 
 11,260,675 
 
 653,766 
 
 1,345,432 
 
 13,259,873 
 
 1800 
 
 Feb. 25 
 
 13,106,368 
 
 723,600 
 
 1,406,708 
 
 15,236,676 
 
 
 Aug. 26 
 
 12,221,451 
 
 823,366 
 
 1,690,561 
 
 14,735,378 
 
 1801 
 
 Feb. 26 
 
 12,975,006 
 
 9.)4,982 
 
 2,647,526 
 
 16,577,514 
 
 
 Aug. 26 
 
 11,715,665 
 
 759,270 
 
 2,495,386 
 
 14,970,321 
 
 1802 
 
 Feb. 26 
 
 12,038,970 
 
 803,499 
 
 2,616,407 
 
 15,458,876 
 
 
 Aug. 26 
 
 12,801,746 
 
 772,577 
 
 3,312,790 
 
 16,887,113 
 
 1803 
 
 Feb. 26 
 
 11,796,424 
 
 820,039 
 
 2,960,469 
 
 15,576,932 
 
 
 Aug. 26 
 
 12,413,924 
 
 776,030 
 
 3,846,005 
 
 17,035,959 
 
 1804 
 
 Feb. 25 
 
 12,054,943 
 
 848,894 
 
 4,673,515 
 
 17,577,352 
 
 
 Aug. 25 
 
 11,766,628 
 
 743,841 
 
 4,813,525 
 
 17,323,994 
 
 ISO 3 
 
 Feb. 26 
 
 11,403,290 
 
 1,029,580 
 
 4,801,596 
 
 17,234,466 
 
 
 Aug. 26 
 
 11,182,188 
 
 718,510 
 
 4,395,480 
 
 16,296,178 
 
 1806 
 
 Feb. 25 
 
 11,994,350 
 
 725,736 
 
 4,428,360 
 
 17,148,446 
 
 
 Aug. 26 
 
 14,141,510 
 
 702,425 
 
 4,228,958 
 
 17,072,893 
 
 1807 
 
 Feb. 26 
 
 12,274,629 
 
 724,485 
 
 4,206,230 
 
 17,205,344 
 
 
 Aug. 26 
 
 12,077,013 
 
 725,262 
 
 4,231,837 
 
 17,034,112 
 
 1808 
 
 Feb. 26 
 
 13,746,598 
 
 742,671 
 
 4,103,785 
 
 16,843,054 
 
 
 Aug. 26 
 
 12,440,930 
 
 795,102 
 
 4,129,234 
 
 17,365,266 
 
 1809 
 
 Feb. 25 
 
 12,730,999 
 
 944,727 
 
 4,338,951 
 
 18,014,677 
 
 
 Aug. 26 
 
 13,255,599 
 
 880,104 
 
 5,221,538 
 
 19,357,241 
 
 1810 
 
 Feb. 26 
 
 13,650,592 
 
 907,620 
 
 5,871,069 
 
 20,429,281 
 
 
 Aug. 25 
 
 16,078,390 
 
 1,145,832 
 
 7,221,953 
 
 24,446,175 
 
 1811 
 
 Feb. 26 
 
 15,110,688 
 
 1,133,419 
 
 7,140,726 
 
 23,384,833 
 
 
 Aug. 26 
 
 15,203,611 
 
 1,016,303 
 
 7,573,201 
 
 23,793,115 
 
 1812 
 
 Feb. 26 
 
 14,523,049 
 
 1,059,854 
 
 7,415,294 
 
 22,998,197 
 
 
 Aug. 26 
 
 14,873,705 
 
 987,880 
 
 7,621,325 
 
 23,482,910 
 
 181.3 
 
 Feb. 26 
 
 14,567,267 
 
 1,034,882 
 
 7,705,322 
 
 23,307,471 
 
 
 Aug. 26 
 
 14,975,479 
 
 1,015,616 
 
 8,033,774 
 
 24,024,869 
 
 1814 
 
 Feb. 26 
 
 15.632,250 
 
 1,091,242 
 
 8,371,923 
 
 25,095,415 
 
 
 Aug. 26 
 
 18,066,180 
 
 1,246,479 
 
 9,667,217 
 
 28,979,876 
 
 1815 
 
 Feb. 25 
 
 16,394,359 
 
 1,184,459 
 
 9,094,552 
 
 26,673,370 
 
 
 Aug. 26 
 
 16,332,275 
 
 1,115,079 
 
 9,576,695 
 
 27,024,049 
 
 1816 
 
 Feb. 26 
 
 15,307,228 
 
 1,336,467 
 
 9,036,374 
 
 25,680,069 
 
 
 Aug. 26 
 
 16,686,087 
 
 1,286,429 
 
 9,103,338 
 
 27,075,854 
 
 1817 
 
 Feb. 26 
 
 17,538,656 
 
 1,376,416 
 
 8,143,506 
 
 27,058,578 
 
 
 Aug. 26 
 
 20,388,502 
 
 1,712,807 
 
 7,998,599 
 
 30,099,908 
 
 1818 
 
 Feb. 26 
 
 19,077,951 
 
 1,818,600 
 
 7,362,492 
 
 28,279,043 
 
 
 Aug. 26 
 
 17,465,628 
 
 1,627,427 
 
 7,509,782 
 
 26,602,837 
 
 1819 
 
 Feb. 26 
 
 16,148,00 
 
 
 
 25,246,700 
 
 1820 
 
 Feb. 26 
 
 15,393,7-70 
 
 
 
 23,569,160 
 
 1821 
 
 Feb. 24 
 
 15,766,270 
 
 
 
 24,049,420 
 
 1822 
 
 Feb. 23 
 
 15,784,770 
 
 
 
 18,348,010
 
 13-2 
 
 No. IV. — Prices of Gold and SiLVEn, and Exch.'\ges on Ham- 
 burg and Paris, to February, 18)9, extracted from the Appendix 
 to the Second Report of the Secret Committee on the expediency 
 of the Bank resuming Cash Payments ; the quotations after Fe- 
 bruaiy, 1819, are from Lloyd's Lists, 
 
 
 Price 
 
 of Standard 
 
 Price of 
 
 Price of 
 
 Exclinnge on 
 
 Exchange 
 
 Date. 
 
 Gold in 
 
 Bars i 
 
 Standard 
 
 .Spanish 
 
 Hamburg. 
 
 on Paris. 
 
 
 
 per oz. 1 
 
 Silver per 
 
 Dollars per 
 
 2j usance. 
 
 1 day's date. 
 
 
 
 
 1 
 
 oz. 
 
 oz. 
 
 
 
 
 rf. 
 
 s. 
 
 rf. 
 
 s. d. 
 
 s, (I. 
 
 
 
 1797 Feb. 2-1 
 
 3 
 
 17 
 
 6 
 
 5 5 
 
 5 31 
 
 36, 
 
 — 
 
 Aug. 25 
 
 3 
 
 17 
 
 6 
 
 5 2, 
 
 5 
 
 37. 7 
 
 — 
 
 1798 Feb. 23 
 
 3 
 
 17 
 
 lOi 
 
 — 
 
 4 111 
 
 38. 
 
 — 
 
 Aug. 24 
 
 3 
 
 17 
 
 lol 
 
 5 1 
 
 5 
 
 3 7. 3 
 
 — 
 
 1799 Feb. 22 
 
 3 
 
 17 
 
 9 
 
 — 
 
 5 1 
 
 37, 7 
 
 — 
 
 Aug. 23 
 
 3 
 
 17 
 
 9 
 
 — 
 
 5 2| 
 
 34. 
 
 — 
 
 1800 Feb. 28 
 
 
 — 
 
 
 — 
 
 5 7 
 
 31. 4 
 
 — 
 
 Aug. 22 
 
 4 
 
 5 
 
 F 
 
 — 
 
 5 7 
 
 32, 2 
 
 — 
 
 1801 Feb. 27 
 
 4 
 
 4 
 
 F 
 
 — 
 
 5 10 
 
 31. 7 
 
 
 
 Aug. 25 
 
 
 — 
 
 
 — 
 
 5 10 
 
 31. 6 
 
 — 
 
 1802 Feb.2G 
 
 4 
 
 3 
 
 6 F 
 
 5 Hi 
 
 5 9 
 
 32, 2 
 
 — 
 
 Aug. 27 
 
 
 
 
 
 5 6 
 
 5 3| 
 
 33. 2 
 
 23.10 
 
 1803 Feb. 25 
 
 
 
 
 
 5 7A 
 
 5 5 
 
 34. 4 
 
 24. 8 
 
 Aug. 26 
 
 
 
 
 
 — 
 
 — 
 
 32,10 
 
 23.16 
 
 1804 Feb:^4 
 
 
 — 
 
 
 — 
 
 5 7 
 
 34. 8 
 
 24,14 
 
 Aug. 3 1 
 
 4 
 
 
 
 
 
 — 
 
 5 H 
 
 35.10 
 
 25. 4 
 
 Oct. 19 
 
 4 
 
 
 
 
 
 — 
 
 5 
 
 35. 8 
 
 25, 2 
 
 1805 Feb. 26 
 
 4 
 
 
 
 
 
 — 
 
 5 4 
 
 35. 8 
 
 25.12 
 
 Aug. 27 
 
 4 
 
 
 
 
 
 — 
 
 5 3| 
 
 35. 5 
 
 25,12 
 
 Nov. 26 
 
 
 
 
 
 5 n 
 
 5 7 
 
 32. 9 
 
 25. 4 
 
 1806 Feb. 25 
 
 
 
 
 
 — 
 
 — 
 
 34, 2 
 
 24.12 
 
 Aug, 26 
 
 
 
 
 
 — 
 
 — 
 
 34, 5 
 
 24. 7 
 
 1807 Feb. 27 
 
 
 
 
 
 5 8 
 
 — 
 
 34.10 
 
 24.10 
 
 Aug. 28 
 
 
 
 
 
 — 
 
 5 5 
 
 34. 2 
 
 24. 6 
 
 1808 Feb. 26 
 
 
 
 
 
 — 
 
 5 3 
 
 34, 6 
 
 23. 6 
 
 Aug. 26 
 
 
 
 
 
 — 
 
 5 5 
 
 35. 2 
 
 23.16 
 
 1809 Feb. 28 
 
 4 
 
 10 
 
 F 
 
 — 
 
 5 3 
 
 31. 
 
 20.19 
 
 Aug. 22 
 
 
 
 
 
 — 
 
 5 5| 
 
 29. 4 
 
 20. 1 
 
 1810 Feb. 27 
 
 
 
 
 
 — 
 
 5 6 
 
 29. 
 
 19.16 
 
 Aug. 28 
 
 
 — 
 
 
 — 
 
 5 8h 
 
 30, 9 
 
 21, 6 
 
 1811 Feb. 26 
 
 4 
 
 13 
 
 F 
 
 — 
 
 5 11 
 
 25. 
 
 17.16 
 
 Aue-. 30 
 
 4 
 
 17 
 
 F 
 
 6 2 
 
 6 
 
 25. 6 
 
 18. 2 
 
 1812 Feb. 28 
 
 4 
 
 15 
 
 
 
 — 
 
 6 1 
 
 28. 
 
 19.16 
 
 Aug, 2S 
 
 
 
 
 
 — 
 
 6 31 
 
 28, 9 
 
 19. 5 
 
 1813 Feb. 26 
 
 
 . 
 
 
 — 
 
 6 6 
 
 30. 
 
 20.80 
 
 Aug. 27 
 
 
 — 
 
 
 • — 
 
 7 
 
 26. 6 
 
 18.80 
 
 1814 Feb. 22 
 
 5 
 
 8 
 
 
 
 6 lU 
 
 — 
 
 29. 
 
 21. 
 
 Aug. 23 
 
 4 
 
 11 
 
 F 
 
 5 84 
 
 — 
 
 32. 
 
 22.80 
 
 1815 Feb. 28 
 
 4 
 
 9 
 
 
 
 5 lU 
 
 5 10 
 
 32, 2 
 
 22. 
 
 Aug. 25 
 
 
 
 
 
 — 
 
 - 5 7 
 
 32, 6 
 
 22. 
 
 1816 Feb. 27 
 
 ■4 
 
 2 
 
 
 
 5 4 
 
 5 3 
 
 34. 8 
 
 24 GO 
 
 Aug. 27 
 
 3 
 
 19 
 
 
 
 — 
 
 4 105 
 
 36. 9 
 
 25.80 
 
 1817 Feb. 28 
 
 3 
 
 18 
 
 6 
 
 5 1 
 
 4 11 
 
 36. 7 
 
 25.40 
 
 Aus:. 22 
 
 4 
 
 
 
 6 
 
 — 
 
 5 2 
 
 35. 
 
 24.30 
 
 1818 Feb. 27 
 
 
 — 
 
 
 5 4| 
 
 5 5 
 
 34.. 
 
 24. 
 
 Aug. 25 
 
 
 
 
 
 — 
 
 5 5 
 
 34. 6 
 
 24.35 
 
 1819 Feb. 19 
 
 4 
 
 1 
 
 (» 
 
 5 7 
 
 5 7 
 
 33,11 
 
 23.85 
 
 Aug. 3 
 
 3 
 
 18 
 
 
 5 2 
 
 — 
 
 35.11 
 
 25.10 
 
 1820 Mar. 3 
 
 3 
 
 17 
 
 10-^ 
 
 5 U 
 
 — 
 
 36. 4 
 
 25.20 
 
 Aug. 1 
 
 3 
 
 17 
 
 10^ 
 
 5 
 
 — 
 
 37. 6 
 
 25.80 
 
 London : Printed by William rr,y\\ i 
 
 ■■iainfMpl