THE UNIVERSITY OF ILUNOIS LIBRARY ld and silver j and occasion a corresponding ad- 5 49 Vance of prices. But the effect Is not produced im- mediately upon the issuing of the notes ; and some time must elapse before the new currency can cir- culate through the community and aftect the prices of all commodities. It is this interval between the creation of the new paper and the rise of prices which may be a source of advantage to the persons who obtain loans from the Bank. The merchant, to whom the notes are immediately issued, employs them in the purchase of goods at the prices which they then bear, or is enabled by the payment of a former debt to obtain credit for them at those prices. But by the very effect of these notes, when they are afterwards circulated, the price of the goods is en- hanced; and the merchant has the advantage of this rise in addition to the ordinary profits of trade. If he is an exporting merchant, he will receive, besides the usual profit, the amount of the depreciation which will have taken place in the currency between the time of purchasing the goods and the arrival of the remit- tance in return. If, for example, a merchant had by discounting bills obtained Bank notes and purchased goods to be exported to Hamburgh in July 1 799, when the exchange on that place was near 3G, giving three months credit to his foreign correspon- 50 dent ; It would follow that in the month of October when his debt became due, his money would be re- mitted to England at a profit exceeding 9 per cent., in consequence of the exchange having then fallen to 32. In the instance which has been now given, it is not meant to be asserted that the whole of the effect on the exchange was occasioned by an excess of Bank notes ; but so far as it proceeded from that cause, it is probable that the merchants whose bills were discounted, derived not only a temporary ac- commodation, but an ultimate profit from the mis- conduct of the Bank. — The readers who are con- versant with this subject will recollect that Mr. Hume in his Essay on Money has ascribed simi- lar effects to the increase of gold and silver which took place on the discovery of the American mines*. The merchants of London and Dublin are probably little acquainted with the writings of this philosophi. cal writer, and have never perhaps very accurately traced the steps of the preceding argument. But their experience has undoubtedly led them to the same conclusions ; and there can be no doubt that since the period of the Restriction discounts have ^ Hume's Essa/s, vol. i. 257, 8vo. 51 been obtained from the Bank by commerdal men with less difficulty, and that these accommodations together with the profits derived from hence have given their minds a strong bias in favour of the mea- sure. The presumption that the currency of England has suffered a depreciation, which has been deduced in a former part of these pages from a permanently unfavourable course of exchange, must acquire great additional strength, if it should appear, for certain reasons, that a favourable exchange with Europe is in the natural order of things, and a necessary re- sult of the commercial relations of Great Britain. The importance of the subject may perhaps justify a more particular examination of this question than might in strictness be thought necessary for the pur- poses of the present Enquiry. There is no subject which has so much divided the followers of the old and new systems of political ceconomy as the question concerning the balance of n 2 52 trade. By the former, a conGtant reference is made to the state of exports and imports, and to the ex- cess of the one above the other ; the increase or di- minution of the stock of gold and silver being re- garded by them as the sole test of the profit or loss to the public which arises from any branch of com- merce. On the other hand, the ([Economists, toge- ther with Mr. Hume and Dr. Adam Smith, have as- serted that this manner of estimating commercial ad- vantages is entirely mistaken, and founded upon that popular error which regards gold and silver as alone constituting wealth. They have shewn that the de- mand of every country for these metals is limited, and that eveiy attempt to accumulate or detain a larger quantity is not only useless but impracticable. Upon these principles they have utterly denied the importance of a balance of trade, and the possibility of any permanent and uniform excess of the exports above the imports. The truth of this theory, as applied to commerce in general, has been established by the most satisfactory arguments. But the principle has perhaps been stated by these writers too universally; and sufficient allowance seems not to have been made for particular branches of commerce of great magnitude and importance, in which an attention to the balance of trade may still be useful and neces- sary. It is an obvious result of that theory, of which the principles have been thus shortly stated, that fo- reign commerce, however flourishing, does not in- troduce any new quantities of the precious metals, beyond that small portion which is necessary for ma- nufactures and annual consumption ; and the sup- porters of the system have accordingly been at great pains to invalidate the proofs which have constantly been adduced of a great and increasing balance of trade in favour of this countr)^ They appear to have failed altogether in this attempt : their oppo- nents have successfully appealed from theory to facts ; and these facts cannot be said to admit of any reasonable doubt. It seems impossible to deny the reality of a constant influx of the precious metals into this country from the continent of Europe. The probability of such an influx might perhaps be in- ferred from the greatness and extent of our manu- factures, the superiority of our skill and industry, and our means of supplying the nations of Europe with commodities of a greater value than those which S4> it is found necessary to receive in return. But, in- dependent of all probable reasoning, the fact of a favourable balance of trade seems to be established by the most decisive proofs of which the subject will admit. The accounts from the Custom-house books have for many years past constantly agreed in represent- ing a great superiority of the exports above the im- ports. Though the rates of valuation in these books are for several reasons very incorrect, yet there seems to be no doubt that the accounts have a certain rela- tive accuracy, and are a sufficient approximation to the truth to justify any general practical conclusion of this nature ; especially where such conclusions are supported by corresponding circumstances. The course of exchange, which from the re- coinage of 1772 has continued very steadily and constantly in favour of England with almost the whole of the Continent, niay be considered as a still more certain and, indeed, decisive criterion of the favourable balance of trade. During the ten years of peace, between the close of the former and the commencement of the late war, the course of ex- 55 change with Hamburgh, Paris, Cadiz, and Lisbon, and generally with all the great commercial markets of the Continent, was, in a greater or less degree, in favour of London ; and continued in the same state till the foreign subsidies and loans, the great expenditures for corn, and other causes not con- nected with the ordinary course of commerce, dis- turbed that uniformity. On considering the whole of that great commer- cial system which is carried on by Great Britain with every part of the globe, it will appear that there are chcumstances essential to the existence of that com- merce, which involve the necessity of maintaining a favourable balance with the continent of Europe. The great trade with the East Indies, enjoyed by this country almost to the exclusion of the rest of Europe, creates a vast annual demand for silver, which must be supplied by those countries where silver is pro- duced, or by those to which it is forced by colonial laws and restrictions. The exportation of silver is the most lucrative branch of the Indian commerce, because it is that commodity which, with the smallest cost in Europe, will purchase the greatest quantity of labour in China and the East Indies. It is the 1 56 extraordinary profit attending this branch of export trade which constitutes the principal advantage of a commercial intercourse with those countries, and which must have chiefly contributed to enrich those nations which have successively enjoyed this com- merce. It is therefore a necessary part of the system of that country which possesses the greatest share of this branch of trade, to draw from the rest of the western world that supply of the precious metals, which is annually consigned to the East. The direct commerce with Spain and Portugal, the countries immediately connected with the American mines, is inadequate to this purpose ; because those nations have not a sufficient demand for the manufactures of Great Britain : and recourse must therefore be had to the different nations of the Continent, among whom the annual produce of the mines is distributed by the commercial intercourse of Spain and Portu- gal with the other parts of Europe. It is the imme- diate consequence of this demand to produce a ba- lance of trade and a favourable exchange with the Continent ; which must necessarily continue till the tquilibrium of the precious metals is restored be- 'tween the East and West, and till silver shall no longer represent a greater quantity of exchangeable commodities in India than in Europe. So long as Great Britain continues to be the greatest manufacturing country in Europe, and to enjoy the monopoly of the Indian trade, the balance must continue in her favour with the Continent ; un* less some great revolution should remove the re* straints on the commerce of the Spanish colonies in America. If that event should ever take place, and a direct intercourse should be established by Great Britain with Peru and Mexico ; the balance of trade will be brought to a level> and the ave- rage state of the exchange v/ill be at par between England and the continent of Europe. But with the continent of America the exchange will then be as much in our favour as the whole amount of the expence of conveying the precious metals from thence to this country ; which expence of transport, as has already been observed, appears to be that which, in all cases of a decidedly uiifavourable balance, Hmits and regulates the rate of exchange. If wc omit the pecullaf circumstances resulting ^8 fmiii the possession of the Indian commerce, the Vinous facts relating to the state of foreign ex- changes and the balance of trade must appear alto- gether inexplicable. But when these circumstances are taken into consideration, the whole is harmoni- ous and consistent. It is the great and constant de- mand for silver produced by this branch of com- merce, without mines to supply that demand, which imposes upon Great Britain the necessity of pur- chasing by means of her manufactures from the continent of Europe a large surplus quantity of the precious metals, to be exported again with a profit to those countries where they are deficient. When the subject is considered in these different points of view, it will appear that in one quarter of the globe our exports must alv/ays exceed our imports, and that in another our imports must exceed our ex- ports; but that, in the aggregate amount of the commerce of this country with the whole of the world, the balance will be reduced on an average tQ the most perfect equality*. * If the accounts of the imports and exports between Great Britain and all other countries could be obtained, it is probable ikat notwithstanding- all the inaccuracy of tlxe Custora-hQUS^ 59 The conclusions which result from this examina- tion of the effects of the Indian commerce upon the state of the exchanges with Europe will be found to have an immediate connection with the subject of our present inquiry. If the above reasoning is well founded, it follows as a necessary inference that, as the real balance of trade in the commercial inter- course of Great Britain with the continent of Europe is necessarily in favour of the former, an apparent balance against Great Britain, or an unfavourable exchange, must proceed from some extraordinary- cause which disturbs the natural order of commerce. The necessity of great remittances or an unusual ex- penditure on the continent of Europe, will to a cer- tain degree produce this effect. But as such causes of irregularity are occasional and temporary, it may be safely affirmed as a general rule which must ever booksj the truth of this opinion would be sufficiently apparent. But the tables of exports and imports, which are printed for the use of Parliament, usually exclude the trade with the East In- ilies. Whate\'er may be the cause of this omission, it is highly favourable to the view^s of the pei'sons, for whose use these tables are framed, whose object it is, in conipliance with tlie principles of the mercantile theory, to represent a constant ex- cess of exports above imports. I 2 60 remain true during the existence of the present com- mercial system of Great Britain, that an unfavourable exchange long continued is alone a decisive proof bf a deranged and depreciated currency*. There are two remarkable exceptions to that unfa- yourable exchange which, since 1799, has gene- rally prevailed between London and those parts of Europe with which any commercial intercourse has been maintained. The course of exchange with Lisbon and Dublin has, within that period, been very much in favour of London, though it has at the same time been in a most unfavourable state with Ham- * In consequence of certain objections which have been urged against this theory respecting the Indian commerce, an attempt has been made to explain and enforce it by considering the subject more in detail, and by shewing the manner in which a constant demand for the precious metals affects tlie rate of exchange. But as these observ'ations have run to some length and are not immediately connected with tlie subject of tlie Work, it has been thought more conve- nient to insert them at the cud of the Appendix immediately before the Tables. 61 burgh and other parts of the Continent. It will be found, on considering the state of the currencies of those countries, that in both these instances the same cause has produced the same effect ; and that the ex- ceptions afford new proofs of the truth of the ge- neral principle. The currency of Lisbon has been for some time carried on by a paper circulation issued by the Por- tuguese Government during the late war. It has, at different times, been very greatly depreciated in con- sequence of excessive issues ; and the exchange has fluctuated according to the real, not the nominal, value of the currency. The currency of Dublin, consisting of notes of the Bank of Ireland, appears to have been depreciated in a much greater degree than the cuiTency of Eng- land, in consequence of a greatei' proportional in. crease of the notes of that Bank. It will be seen from the accounts which at different times have been presented to Parliament, that the actual amount of Bank of England notes in circulation in February 1803 exceeded the average quantity prior to 1797 by the addition of about one-half, being the differ- 62 ence between ten millions and a half and sixteen millions. During the same period the notes of the Bank of Ireland had increased to upwards cf four times the amount of the notes in circulation in February 1797. In the space of six years the amount of that currency had been augmented from 621,9171. to 2,633,8641. Since the time when the accounts of 1 803 were presented, the Bank of Ire* land have thought fit, notwithstanding an avowed and increasing depreciation and a highly aggravated exchange, to extend their issues to near three millions, being^L'e times the amount of notes in circulation at the time wlien the -^ct of Suspension luas passed*. This extraordinary Increase cf Bank of Ireland notes has produced a positive and acknowledged dis- count in the exchange of paper for gold; and guineas are regularly sold in Dublin for a premium. The decisive fact of a discount on Bank notes was di- stinctly admitted, in the debates of the- House of Lords, by those Peers who defended the conduct of the Irish Bank ; and this discount has lately been stated in the House of Commons by several persons -^ See the account of Irish Bank notes in tlae Appendix. 5 65 well acquainted with the internal state of Ireland, to be upwards of 10 per cent. The same cause, to which this depreciation is to be attributed, has also affected in a most remarkable degree the state of the exchange; having in 1801 produced a loss of 7 per cent, on all money remitted to London, and of 18 percent, on the remittances from Dublin through London to Hamburgh. The loss on money remit- ted to London has increased at different times in the last and present year to 10 and 1 1 per cent. The history of commerce does not afford a single instance of so great an irregularity in the exchange between any two countries, except in the case of a depreciated currency. The derangement of the Irish currency is felt even in the transactions of Dublin with some of the provincial towns. At Belfast and in its neighbour- hood Bank of Ireland notes have never acquired any general circulation. The currency is carried on either in specie or in the notes of private bankers payable in that manner. This difference between the currencies of Dublin and Belfast has produced an actual exchange between the two places in favour of the latter. Where payments arc made at Belfast in Irish Bank notes, an additional amount is paid proportioned to the discount. It appears also that in the commercial transactions between Great Britain and the different parts of Ireland the rate of exchange differs according to the different standards of cur- rency at Dublin and Belfast ; and that money is re- mi'ited from the latter place at the same average rate of exchange as before the Restriction*. Since the suspension of payments in specie at the * The manufacturers of the North of Ireland have lately held public meetings, at v/hich they entered into Resolutions ex- pressive of their determination to support the Irish Bank and the circulation of their notes. By these resolutions they exhorted the land oM^ers of that part of Ireland from patriotic motives to accept bank notes at par in payment of their rents. But the land- holders have very wisely refused to listen to advice, by which they would lose more than 10 per cent, upon all rents payable tinder existing contracts, and expose tliemselves to additional loss by further depreciation. They do not chuse to submit to an in- come tax, which is levied not for the benefit of Government, but of the proprietors of Irish Bank stock. The manufacturers who urged this request, have the means of indemnifying them- seh'es against the loss which may be sustained by their support of the Irish Bank, by an additional charge upon their goods j and it has been stated in the House of Commons tliat tliey have determined upon an advance of 10 per cent. Bank of Ireland, the exchange has, with the excep- tion of the first year, been in a greater or less degree uniformly unfavourable to that country. But it ap- pears that, under all the variety of circumstances af- fecting the commerce or the safety of Ireland during the course of the last twenty years, the balance of trade has never produced any considerable variation in the state of the exchange. There seems, upon the whole, to havje been a very great uniformity ; the exchange having in some cases been one and a half per cent, in favour of London, which has in other instances been compensated by an exchange in favour of Dublin. A due attention to the commercial relations of Ireland may satisfy us that this uniformly unfavour- able exchange against Dublin must be in a great measure nominal, and that it can upon no Intelligible principles have been produced by an actual balance of trade against Ireland. A rcal/i/ unfavourable exchange would imply that there had been, during all this period, a constant excess of imports above exports, and a constant remittance of bullion or specie to pay for the difference. Where a country iloes not possess considerable mines, such a conti- K «6 nued remittance of the precious metals can only be made in consequence of corresponding remit- tances from other countries ; and it therefore implies a constantly favourable exchange in some other quarter. But Ireland has no regular course of ex- change with any part of the world except through the intervention of England. Since the year 1798, tlie exchange, upon an ave- rage, has been more than 5 per cent, against Ire- land ; and to this the depreciation of the English currency also must be added, in order to estimate the total loss which the people of Ireland and the English possessors of Irish property have suffered from this unfavourable exchange ; because the ex- change refers to the standard of the British cur- rency, which, from the facts already adduced, ap- pears Itself to be in a degraded state. The rate of bullion is the only standard by which the degree of depreciation can be estimated under these circum- stances ; and it appears that the price of silver in Dublin has experienced a very great advance, having varied from 6s. 6d. to Vs. Irish currency ; an in- crease which, estimating the mint price at 5s. 7d., is from 14 to SO per cent« 67 Though no parliamentary Investigation has taken place respecting the capital or circumstances of the Irish Bank, yet no doubt has ever been entertained of their ability to perform their engagements ; and it seems quite certain that the circulation of their notes has not been injured nor their value lessened by any apprehension concerning their solvency. It is possible indeed that the dangerous situation of Ireland at different times since February 1797, may have occasioned an unwillingness to accept a cur- rency not possessing intrinsic value. It may be re- marked also that, in consequence of the more igno- rant and uncivilized state of Ireland, forgeries have been much more common in that country than in England j and indeed the Irish Bank do not appear to have paid sufficient attention to those improve- ments in the manufacture of their paper and en- graving of their notes, which have been adopted with some success and advantage by the Bank of Eng- land. These circumstances may have had a certain effect in reducing the value of Irish bank paper. But there is no reason to think that their influence has been considerable ; and it may be safely inferred, from the fact of the depression of the exchange having been po grjklual and so duly proportioned to K 2 (5S the Increasing issues of the Bank, that by far the greatest part of the depreciation, which has taken place, must be altogether attributed to an excess in the quantity of notes. There is so much difficulty in adjusting and regu- lating a paper currency, not limited by the power of conversion into specie, that slight mistakes, or a small excess above the quantity which would naturally cir- culate, ought not to be very severely censured in those who have the management of such a circula- tion. In the performance of so arduous a task they would have entitled themselves to considerable praise from their very errors, if these had been immediately corrected, and if an excessive and improvident issue of notes had been followed by measures of greater prudence and caution. But the evidence of mis- conduct ^ifforded by the transactions of the Irish Bank is too complete to admit of any reasonable doubt. The concurring circumstances of an ex- cessive price of silver, of a high and increasing ex- change against Ireland, and of an actual discount upon Bank notes, must have been felt and expe- rienced in the daily and ordinary transactions of commerce 5 and these facts, in the mind of every «9 man who was informed of the proceedings of the Irish Bank, must have immediately connected them- 'selves with the enormous increase of the paper cur- rency as the proper cause of the derangement. Yet, notwithstanding these proofs of a depreciiited cur- rency, the Directors of the Bank of Ireland have still persisted in maintaining the circulation of the present high and unprecedented amount of their notes. It is impossible, under such circumstances, to acquit them of the charge of gross misconduct, even upon the probable supposition of great ignorance and in- experience. An Important trust, which upon mis- taken principles of political necessity was committed to this corporate body by Parliament for the public benefit, appears to have been perverted to the private interest of the proprietors of their stock*. An un. * Since the Restriction of Febmaiy 1797 the Bank of Eng- land have declared several bonus's on the capital of tlieir stock j and notwithstanding a very considerable loss during last year occasioned by the fraud of one of their officers, tliey have ad- vanced tlie 5 per cent, property tax without diminishing the di- vidends of their proprietors. During the same period the Irish Bank have at dillerent times increased their dividends, and in the present year have declared a Louus of 5 per cent, in addition to an increase gf di\ideud from Oj^ to 7| per cent. dae advantage has been obtained by the Bank In the exact degree of the excess of their notes ; but the loss and injury to the public, as in all cases of depr&. dated currency, has been in a much greater propor- tion. An indirect tax is thus imposed upon the com- munity, not for the benefit of the public, but of in- dividuals. It is levied in the most pernicious man- ner ', and is of all taxes the least productive in pro- portion to the loss and inconvenience sustained. If the expressions which have been used concern* ing the Directors of the Irish Bank should be thought harsh and severe, when applied to men who are re- spectable as merchants, and who probably discharge with propriety the duties of their private stations in society ; it may be answered, that the observations appear to be warranted by facts, and that they relate to the conduct of the Directors as a corporate body, and not to their characters as individuals. An ap- peal has been made on the present, as on similar oc- casions, to the personal merits of those who are the subject of the charge ; but this defence, though in these cases perhaps the most frequent, is of all others the least satisfactory or conclusive. It is an unfor- tunate but most unquestionable fact, that the staa* 71 *IarJs of public and private morality are In many minds extremely different ; and that, when acting as members of public bodies, men are often found to acquiesce in measures, and even to avow principles, which they would acknowledge to be dishonourable in common life. The restraint of public opinion, one of the most effectual securities of human virtue, is much diminished on those occasions where we act in concert and conjunction with many others ; and as applied to the proceedings of corporate bodies, for which no individual member is responsible, it seems to be altogether without influence. If to these con- siderations we add, that the transactions of the Irish Bank have till the last year undergone no public in- quiry or examination, and that the account of their notes was then for the first time required by Par. liament, we shall be at no loss to explain the rea- sons why the public conduct of the Directors has been so contraiy to those principles of honour and good faith which they probably maintain in private life. " All men," says Mr. Burke, " possessed of ** an uncontrolled discretionary power, tending to *' the aggrandizement and profit of their own body, ** have alwayr. p.bu-^^cd it ; and I see no particular " sanctity in our own times that is likely by a mi^ •7* *^ raculous operation to Overrule tlie course of na«f " ture." Whatever may be our opinion respecting the pro- priety of continuing to the Directors of the Bank of England the unlimited powers vi^hich they now pos- sess under the Act of Suspension, yet experience has clearly shewn that the Directors of the Irish Bank are altogether unworthy of this confidence ; and that it is of the greatest importance to the com- mercial and monied interests of that part of the Em- pire, that the currency of that country should n9 longer be exposed to a continuance of the present abuses. The obvious and only true remedy of these dis- orders in the currency of Ireland is a return to the former system of payments in specie. But this re- medy cannot with any justice or propriety be applied while the restriction of the Bank of England con- tinues ; since it would be very difficult, or perhaps impracticable, for the Irish Bank during this period to provide the necessary supply of specie. The only temporary expedient which it remains for the Legis- lature U) ado})t, is to fix some positive and effectual limitation to the issue of notes by the Bank of Ire- land. But we have already seen, in the former part of this work, the great and insuperable difficulty of assigning any limit founded upon a supposed esti- mate or calculation of the quantity of circulating medium which the present state of Ireland would require. It seems therefore more safe and prudent to resort at once to a plain and practical rule, in the application of which there would be no difficulty or inconvenience. The measure which was proposed upon this occasion in Parliament was, an obligation upon the Irish Bank to pay, upon demand, in notes of the Bank of England, A regulation of this kind would impose upon the Irish Directors the ne- cessity of restraining the issue of their notes, and of bringing them to the standard of the English ' currency, which appears to be much less depreciated than that of Ireland. It could not reasonably be complained of as an act of injustice towards the Irish Bank, which prior to the restriction of 1797 was under the obligation of paying in the British currency of gold, and might now, with equal propriety, be called upon to liquidate its debts according to the present currency of this country. L 74 It was the object of the proposed regulation to restore the Irish currency to the level of that of Great Britain by placing the Bank of Ireland in the same situation with the chartered banks of Scotland; with respect to which no greater inconvenience has been suffered, nor has there been any greater depre- ciation of currency since the Restriction of 1797, than has been experienced in England during the same period. The reason of this is obvious; because the currency of every part of Great Britain may be re- solved at the will of the holder into one common me- dium. The power of converting the paper of the chartered banks into English Bank notes or English bills of exchange according to the convenience of the parties, prevents in the most simple and effec- tual manner any excess of the currency of Scot- land beyond that of London. The banks of Eng- land and Ireland, in consequence of the suspen- sion of payments in specie, have been made in- dependent of every controul over the issue of their notes, except their own discretion and for- bearance. If the same privilege had been extend- ed to the chartered banks of Scotland, It is im- possible to suppose that the currency of that coun^ try would not have undergone an alteration, and produced an unfavourable exchange between Edin- burgh and London. An unlimited paper currency cannot exist in any shape or under any circumstances with security or ad- vantage to the public ; but it is least in danger of being grossly abused when it is intrusted to some one experienced and responsible body. The esta,- blishment of independent banks in different parts of the empire has the necessaiy consequence of subjecting the value of the circulating medium to perpetual fluctuations in every district in which such banks are established. Under such a system the notes of the several banks, like the degraded coins of different countries, must vary in their relative values, and be depreciated in different proportions according to the various degrees of prudence and moderation with which the power of issuing the notes is exercised. The proposed regulation would not promote in any considerable degree the circulaticn of English Bank notes in Ireland, because they would for se- veral obvious reasons, and particularly on account of L 2 the danger of forgery, be a very inconvenient me- dium of exchange in that country. It is for the same reasons indeed that such notes circulate at pre- sent so little in the distant parts of England, or in Scotland. Like the gold coin prior to 1797, they are the standard of currency in those districts, but appear very httle in general circulation. It has been urged as an objection to the proposed obligation upon the Irish Bank to pay upon demand in English Bank notes, that it would compel the Directors to issue gold for the purchase of these notes, and thus defeat the purpose of the Act of Restriction. But it may be easily shevi^n that no such effect would take place. The notes of the Bank of England would be purchased in the same manner as every other English commodity, not with gold but with good bills of exchange on England, for which Irish notes would be paid. But if the Bank of Ireland continued to discount as largely as at present, and to maintain the same quantity of their notes in circulation, they would soon discover that they carried on a very disadvantageous trade, and that the loss in the exchange was much more than equivalent to the profit of discounting. The Direc- 77 tors would be convinced by a very short experience (if they can be supposed to be novi^ ignorant) that a reduction in the issue of their notes would produce a correspondent improvement in the exchange; till at length, when the amount of their notes was suffi- ciently diminished, they would no longer be called upon for Bank of England notes. The whole ef- fect of the regulation would be to keep down the redundant quantity of Irish notes, and raise their value to the level of the British currency ; and not in the least, as has been erroneously supposed, to extend the circulation of English notes to Ireland ; because a preference must always be given to Irish Bank notes, unless where the inferiority of value in the latter is more than sufficient to counterbalance the manifest inconveniences of employing foreign paper as the medium either of circulation or exchange. The obligation of paying in English Bank notes would unquestionably make it necessary for the Irish Bank Directors to narrow their discounts, and to limit the accommodations which they at present affi^rd to the merchants of Ireland ; and great com- mercial embarrassment would certainly ensue if tliis 78 assistance, in the extent in which it is now afforded, was very suddenly and abruptly withdrawn. This therefore has very properly been urged as one of the difficulties of the proposed measure. But the inconve- nience might, it is probable, be sufficiently obviated, and any sudden shock prevented, by allowing suffi- cient time to the Bank for a cautious and very gra- dual diminution of their notes. If it should still, however, appear that some inconvenience is un» avoidable, it could not reasonably be stated as an ob- jection of much weight or importance. An inconve- nience of the same nature, and of much greater extent, must at some time happen, and will be the inevitable consequence of the renewal of payments in specie, at whatever time that event shall take place. The regulation which is now proposed would be a first and preparatory step to that measure ; and, by making the change more gradual, would dimi- nish, or perhaps entirely prevent, the embarrassments which might result from a great and sudden diminu- tion in the quantity of the circulating medium. It would at the same time have the effect of establish- ing one common standard of currency for the two great divisions of the empire. 1 r9 In conformity to this opinion, a clause to com- pel the Bank of Ireland to pay upon demand in English notes was moved in the Committee of the House of Lords on the renewal of the Bill in 180S for the suspension of cash payments in Ireland ; and in order that the diminution of Irish notes might be as gradual and attended with as little inconvenience as possible, it was proposed that the operation of the clause should not com- mence till six months after the passing of the Act. But on further considering the probable amount of the excess of Irish notes and the great reducdon which will be necessary, it seems doubtful whether this time would be sufficient ; and whether a sdll longer period ought not to be allowed. Perhaps a regulation obliging the Irish Bank to reduce a given amount every month till the exchange is brought to par (if such a measure could be enforced) would be the best pracdcal expedient ; as it would leave very little to the discretion of the Directors, who may reasonably be suspected of being almost as defi- cient in skill and judgment as they evidently have been in a sense of their duty towards the public. The irregularities in the currency of Ireland ap- 80 pear for some time to have attracted the attention of persons connected with the government of that country, and to have produced a suspicion of some errors in the conduct, or some defect in the consti- tution, of the Irish Bank. In order to obviate the evils which have been experienced, a proposal is said to have been made for the consolidation of the two national Banks of England and Ireland. But, though this measure is supposed to have had the appro- bation of some distinguished characters, it is diffi- cult to understand In what its public advantage would consist ; or why it is more to be desired than an union of the chartered Banks of Scotland with the English national Bank. The proposal, and the fa- vour with which it has been received, can be attri- buted only to a certain predilection which exists in. some minds for great and splendid establishments abstracted from any consideration of their utility; but, like many other specious and imposing projects, it would probably disappoint the sanguine expectation of its admirers. The only plausible ground upon which such a measure could be recommended, would be Its supposed tendency to increase the credit of the Irish Bank notes, and to restore their value in cir- culation. But it does not appear that the solvency 81 of the Irish Bank has ever been suspected j and it has been clearly seen, in the course of these pages, that an unlimited paper currency cannot be preserved from depreciation by any degree of public confi- dence, unless there is also great prudence and cau- tion on the part of those who issue the notes. Upon the supposition of an union between the two Banks, the currency of that country must still remain under the management of the present Directors. But it would be difEcult to shew how the extension of a great establishment, and a more divided responsibility, could have any tendency to improve the principles or conduct of its individual members ; or in what re- spect an alliance with the Bank of England would produce in the Irish Directors a more judicious system of management, or a stronger sense of public duty. The countenance which the project of a con- solidation of the two national Banks is said to have obtained in certain quarters makes it necessary that this should be mentioned among other projected re- medies of the Irish currency ; though it is by no means probable that the measure will ever be carried into effect, or that the English Bank Directors will consent to such an union. 82 The great addition to the quantity of Irish Bank notes affords so clear and natural a solution of the unfavourable state of the exchange, and is so con- sistent with the acknowledged depreciation of the currency, that it may appear almost superfluous to advert to any of the various attempts which have been made by those who have controverted this opi- nion, to explain the facts upon different principles. But for the sake of illustrating a subject, which from the mistakes of the most experienced reasoners must be acknowledged to be somewhat obscure, it may be of great use to consider some of the most usual and popular objections. It was strongly insisted in the debates of the House of Peers, and has been repeated in several publications, that the number of absentees who draw their rents from Ireland, the Irish creditors re- sident in England who receive their interest and di- vidends frojn thence, together with the necessity of importing various articles of English produce of which the price has lately been much increased, must necessarily produce an unfavourable state of ex- change ; and that, whatever may be the proportion 83 of commercial exports and imports, the gr^at remit- tances for the purposes which have been mentioned must in all cases turn the balance veiy greatly to the disadvantage of Ireland. This effect was supposed to be much aggravated by the increase of remittances since the Union. Such an objection cannot be seriously urged, ex- cept by those who have taken a very slight and su- perficial view of the subject, and are little conversant with the nature of commercial exchanges. It must undoubtedly be admitted that very considerable pay- ments arising from Irish property are annually made to residents in England, and that these have pro- bably increased since the Union ; but it by no means follows that these payments have been made by an actual transfer of specie or bullion ; which transfer, it has already been observed, is always implied in a really unfavourable exchange. Such continued re- mittances cannot possibly be made by a nation, like Ireland, which has no means of providing a constant supply of the precious metals. A country, which is so circumstanced, does not export any part of its gold and siker except upon some sudden and unforeseen emergency not connected with the ordi- M 2 84 nary course of commerce*. Its constant and regu- lar foreign expences (those which form a part of its system of trade, or arise out of its established rela- tions with other countries) can only be provided for by exporting the annual produce of its land and la- bour. There is indeed no other mode of paying such remittances ; unless it could be imagined that specie or bullion was imported for the mere purpose of re-exportation ; an opinion which would be ma- nifestly contradictory and absurd f. In the case of * Such, for example, as the foreign subsidies and demands for corn, which have been often alluded to in tlie course of this Work 3 in which cases there being a sudden demand for bullion without the means of immediate supply, the price rises beyond its natural level, and forces out a part of the specie and of that average quantity of the precious metals which is required for commerce and manufactures. Yet even in these instances it is probable that tlie greater part of the remittances was paid by an increase of exports and diminutions of imports. The alarms for the safety of Ireland which prevailed in 1798 and 1803, by oc- casioning great and sudden remittances to this country, may be mentioned also among the causes which might force out a cer- tain quantity of specie and affect the rate of exchange. I Yet this is asserted in strong terms by an anonymous writer, ■who appears to have taken great pains upon this subject and t© 85 Ireland it is evident that the course of trade and the proportion of the exports and imports must adjust themselves to the nature of its connection with Great Britain. In proportion to the increased necessity of remittances to this countiy the exports of Irish pro- duce and manufactures must be increased, and the imports of English produce and manufactures dimi- nished, till the amount of foragn demands is paid by Irish exports and the balance of trade is restored. •write with very fair intentions, in an Enquiry into the Depreda- tion of Irish Bank Paper lately published at Dublin. The work contains many just opinions witli respect to the great evil and injustice of a depreciated currency ; but neither explains the cause nor proposes an adequate remedy. From the acknowledged sol- vency of the Irish Bank the writer argues that it is impossible their notes can be depreciated, not comprehending that this ef- fect may be produced by excess of quantity. He attributes tlie evil to what he calls the balance of remittances, which he distin- guishes from the balance of trade : but the distinction, for the reasons which are given in tlie text, is without a difference. The remedy which he proposes is the payment of dividends and all public debts in English Bank notes ; a measure of justice to the individuals to whom those sums were paid j but which leav- ing the Irish Bank at full liberty to extend tlieir issues, would not remove the existing evil, so long as Irish notes continue to be the standard of currency. 86 Tliis operation of commerce is much a£sisted by the fact itself which creates the demand for remittances. The residence of Irish proprietors in England has the necessary effect of diminishing the Irish imports, because the expenditure of revenue is transferred to another country ; and it also increases the export of that produce which is no longer consumed at home. If any doubt should remain as to the manner in which Irish remittances are made, the truth of the above opinion would be established by an appeal to facts. By a reference to the Custom-house books at Dublin for the year ending on the 5th of January 1 804 it appears that there has been an excess of the exports above the imports of 900,0CK:)i. The same, in different degrees, is probably true of preceding Tears. Another topic, of more general interest and im- portance, has been much insisted on, in the discus- sion of the present question, by the advocates of the Irish Dank. They have asserted that the disoi'der so visible in the circulation and state of exchange is in a great measure to be ascribed to the extended 87 system o£ country banks and the increased amount of that description of notes. As this supposed cause of a depreciated currency is not confined to Ireland, but exists at least in an equal degree in our own country, it is entitled to very particular considera- tion. The subject of country banks has been much discussed since paper credit has become so interest- ing a question ; and the general opinion, so far as it can be collected from speeches in Parliament and the language of popular writers, seems on many oc- casions to have been unfavourable to them. Llany of the supposed evils arising from paper circulation have been imputed altogether to these establish- ments ; and a hope has been frequently expressed that they should be made the subject of some species of legal restriction. The difficulty of framing any specific regulation upon this subject has been some- times stated as the only reason why such a measure has not yet been proposed to ihe consideration of the Legislature. As the nature and effects of country banks seem to have been much misrepresented, a few general remarks on their advantages may be permitted in a work on paper circulation, how- ever obvious some of these topics may appear to to persons who are conversant with these en- quiries*. It is wholly unnecessary upon this occasion to enter into any general defence of the principles of commercial freedom. Those principles have been repeatedly established by the most decisive argu- ments ; and their good effects are so conspicuous in the commerce and manufactures of this country, that they are usually admitted in theory even by those persons who contradict and desert them by their practice. It may in general be affirmed that the very existence of any particular employment and of any branch of trade in a state of freedom is alone a proof of its utility. The system of bank- ing, like every other improvement by which labour is abridged, divided or simplified, is the natural produce of a refined and civilized state of societ)^ It can arise only out of the public demand for such an employment of capital, and such a species of * The general advantages of country banks are candidly ad- mitted, and fully explained by Mr. Thornton in his EssaT/ on Paper Credit, chap. /. 89 skill and knowledge ; its success must depend alto- gether upon its utility ; and it is profitable to the un- dertaker in the exact degree in which it contributes to the advantage or convenience of the public. The proof of the beneficial effects of the banking system does not d'^pend solely upon general presump- tion, but is established by an appeal to experience and facts. It is an error to suppose that this branch of employment is of late or sudden growth ; it has gradually arisen in the natural course of commercial improvement. It is well known that long before the general establishment of regular banks, there were in most market towns of England responsible tradesmen, who gained a profit by drawing and dis- counting bills, and who found it their interest to esta- blish a regular correspondence in London for this purpose. An important part of the banking busi- ness existed and was practised in these cases ; but, being connected with some other branch of trade, the name of a banker was wanting. During late years, in consequence of the increase of wealth and extension of commerce, regular banks have been established in those places by persons who confine themselves to that branch of business. But it is a N 90 general maxim, confirmed by all experience, that skill is improved in proportion as labour is divided ; and there can be no doubt that commercial transac- tions have been much facilitated and promoted by these establishments. In a great commercial country, there Is indeed the most obvious necessity for such a particular branch of industry, in order to carry on the payments either between distant places, or between the capital and the remote provinces. The tradesman applies upon these occasions to the banker 5 because the latter by means of his various connections and correspondents can either make a remittance to a distant part, or procure a payment from thence, with much greater ease, expedition and cheapness than persons not en- gaged in that business ; and a considerable degree of risque, delay and inconvenience is thus saved to indi- viduals at a comparatively small expence. But the ease and expedition with which these pecuniary transactions are carried- on, must evidently tend to facilitate all commercial intercourse, and must con- tribute in a peculiar degree to the advantage of the internal trade of the country, of all different branches of commerce the most important and beneficial. In 91 this view of the subject, it must appear that the ad- vantage arising from the banking system is of the same kind, though produced by different means, as that which is derived from the formation of new roads or canals, or any other improvement by which communication is promoted or industry rendered more active. The general benefits of paper currency are as- sumed in the present discussion, and most assuredly will not be contested by the advocates of the Bank of England. But it is impossible that any extensive country can have the full advantage of a great paper circulation without the assistance of provincial banks. There are several reasons why a paper currency, which is issued by a national bank and is payable only in the capital, can never circulate with great advantage or to any considerable extent in the di- stant provinces. To the complete success of a paper circulation it is necessary that there should be no considerable danger or apprehension of forgery, and that there should be the means of ready and im- mediate payment. But this degree of convenience and security can be found only in notes which N 2 92 is issued and payable in the immediate neighbour- hood, or within a moderate distance. Forgeries are prevented by the care and vigilance which provincial banks by their local situation are enabled to exercise in their own immediate districts, within which their notes chiefly circulate. A na- tional bank can never exert the same degree of vi- gilance in distant provinces, even though its conduc- tors had the same strong interest in the detection which is felt by individual bankers, who sustain the whole loss and discredit occasioned by suspicions of forgery. Country banks are beneficial to the public in an- other respect, by affording a security against many of the evils which are inseparable from a great paper circulation. In consequence of the very general use of bills of exchange the credit of different traders, their cautious or improvident conduct, and the ge- neral course of commercial transactions in each par- ticular district, may be discovered with tolerable cer- tainty from the state of its negotiable securities. From the nature of their employment bankers have the 93 most effectual means of detecting the various prac- tices of accommodation bills, of drawmg and re- drawing, and other abuses to which the system of paper credit is exposed ; and it is their own parti- cular interest, as well as that of the public, that such transactions should be discouraged and pre- vented. The knowledge that such expedients for raising money are likely to be discovered, though it may not entirely prevent these practices, must evi- dently diminish their frequency. The multiplication of banks, as is observed by Dr. A. Smith*, instead of diminishing, greatly in- creases the security of the public. The circulation of notes being divided into a greater numbsr of parts, the failure of any one company becomes of less im- portance and occasions less embarrassment. The competition of rival banks produces in all of them greater caution, and more skilful and judicious ma- nagement. It is indeed by no means improbable that the counti7 banks have indirectly contributed to the success and security of the Bank of England, by rendering the Directors of that establishment more ■* WtMlth of Nations, i. 498. 94 cautious and circumspect than they might perhaps have been under other circumstances. A very numerous party have ascribed to the esta- blishment of provincial banks a great part among the causes which havei contributed to the late increase in the price of provisions. The charge appears to be founded upon the advantage which they afford to farmers and dealers, by assisting them with loans and credit, and enabling them to withhold their pro- duce from market. It is impossible on the present occasion to enter at large into this topic. A very long work would be necessary to convince such rea- soners of their error, since they are evidently unac- quainted with the first principles of that science upon which they presume to judge. It may now be con- sidered as one of the best established doctrines of political oeconomy, that the interests of the producer and the consumer do not really differ ; and that it is the tendency of all speculations in articles of sale to produce a regular and uniform supply, and to bring prices as nearly as possible to a state of equality. It will follow from hence that the interests of society must be promoted by increasing the means of pecu- niary accommodation, and by affording a judicious 1 95 credit, which may enable farmers and dealers to exercise their skill and judgment in the most mire- strained manner as to the time and mode of bring- ing their productions to sale with the greatest advan- tage. It is also to be observed, that every mode of employment by which time and labour are saved, and indeed all commercial improvements whatever, must contribute to general cheapness. That country banks have been often established upon insecure principles, and that they have some- times engaged in imprudent and improper specula- tions, are facts which no reasonable man will deny. But to lay great stress upon such instances would be like producing the w^eekly lists of bankruptcies in London as arguments against the general advantages of commerce. It must always be remembered that from necessaiy causes the great majority of mercan- tile speculations are useful and profitable. There are unquestionably in all rich and commercial coun- tries certain periods of enterprise and adventure, in which either from want of information or from some temporary circumstance, particular branches of trade are pursued too eagerly and carried too far. But as the error in such cases must soon be discovered, these irregularities can never be of any long continuance. The failures, to which eve/y course of over-trading gives rise, are the natural and only true remedies of such excesses. It has been strongly urged as a subject of charge against country banks that, by the occasional em- barrassments to which they are exposed, they are frequently obliged to have recourse to the Bank of England for large quantities of specie ; and that at different periods prior to February 1797 they occa- sioned very great inconvenience to that establish- ment by these sudden and unexpected demands. It seems indeed probable that the increased number of country banks made it necessary for the Bank of England to increase its deposits of specie. But this is an inconvenience which must unavoidably re- sult from a great extension of paper currency, and from the monopoly which is given to the Bank of England by the Legislature. In consequence of this monopoly -the Bank is the only great deposit of gold .in the kingdom ; and It has undertaken the task of supplying the demands of the public for specie In re- turn for the benefits enjoyed by means of its exclu- sive privileges. The real extent of this grievance 97 has never been distinctly explained by the advocates of the Bank ; and it has probably been much exag- gerated. But it cannot with any justice be stated as an argument why either the Bank of England should be released from the obligation of performing its con- tracts, or country banks should on this account be made subject to legal restrictions. The sudden de- mands which were made upon the Bank during the late war appear to have arisen from political circum- stances, and must have happened though no country banks had existed. When the causes which produced the stoppage of the Bank were investigated in Parlia- ment during the session of 1797, it appeared from the evidence, and was distinctly stated by the Reports of the Committees, that the Imperial loans and other circumstances producing a great expenditure on the Continent had diminished the usual quantity of bul- lion at the Bank, and disabled the Directors from meeting a temporary alarm*. No material part of the * Mr. Thornton in his Essay on Paper Credit has discussed at considerable length the causes of the embarrassment of the Bank, which he attributes in a great degree to the limitation of discounts and the consequent restricted issue of Bank paper. He compares the crisis of 1797 to the difficulties experienced in 1793, in which it is well known tliat the issue of commercial O 98 embarrassment was then attributed to country banks, nor were they much the subjects of discussion in Par- liament. It is indeed difficult to discover from what cause the present complaints and prejudices against them have originated, except from their supposed in- fluence on the prices of provisions, of all the charges which have been made against them the most ground- less and unreasonable. Having considered generally the beneficial effects Exchequer bills to tlie amount of about two millions and a half put an immediate end to the difficulties which were then ex- perienced. But the two cases will appear on consideration to differ in some important respects. In 1793 a state of extraor- dinary commercial prosperity and confidence was suddenly checked by the war, and a violent shock was given to the paper circulation of the country. Several great failures took place in different parts of England : an universal panic ensued ; and a great demand for cash or Bank notes was made upon the me- tropolis. But the Bank was compelled to restrain its accommo- dations, and limit its discounts by the general insecurity of the times. At this juncture Commissioners under the authority of Parliament gave a credit to responsible persons in want of im- mediate pecuniary assistance, which individuals or a commercial body could not prudently have given ; and tlie guarantee of Go- vernment enabled those who held it, to apply to the Bank for an extension of their discounts, which might then be safely granted 99 of country banks and the principal charges which have been urged against them by their opponents, it will be proper to advert to the particular objection which is more immediately connected with the sub- ject of the present Enquiry. It has been frequently asserted by those, who have defended the cause of the Bank of England, that the excessive issue of country bank notes has produced a general depreciation of cur- rency. Mr. Thornton indeed, the most able and judi- cious of their advocates, has candidly acknowledged on the security of the new Exchequer bills. In the beginning of the year 1/97 there were no great failures^ nor any general apprehension of insolvency among commercial persons. A sud- den alarm of invasion^ and apprehension of insecurity, appear to have been the causes which at that time produced a dis- credit of Bank notes. In this state of opinion the public were not satisfied with any currency except gold and silver; and it is most probable that any new issue of notes would have been immediately returned upon the Bank to be exchanged for cash, and would have contributed to increase the embar- rassment. The real nature of the grievance appears to have been fully understood at the time. No person then thought of proposing an issue of commercial Exchequer bills, notwith- stinding the experience of their good effects in 1793. Yet if tlic diminution of Bank notes in 1797 had been occasioned by commercial insecurity, and not by a demand for specie, this was an obvious remedy, O 2 100 that this popular opinion is entirely unfounded. He admits, what may in truth be asserted as an universal rule, that the circulLition of all banks is limited by the extent of their capital and the public demand for their notes. They can in no case transgress these limits without considerable danger. The contrary suppo- sition will be found to involve the greatest absurdi- ties. If country bankers really possessed this power, it must necessarily follow that there would be great partial depreciations ; and that the value of the cur- rency and prices of commodities would vary accord- ing to the different degrees, in which the due quan- tity of notes for circulation was exceeded by the bankers of different districts. But no such irregu- larities are, in fact, ever experienced. An exces- sive issue of notes by any particular banker is soon detected, if not by the public, at least by the in- terested vigilance of his rivals ; an alarm is excited ; and he is immediately called upon to exchange a very large portion of his notes in circulation for that currency in which they are payable. Such a de- mand is always attended with great loss and often wdth total ruin ; and the knowledge that such con- sequences-may be expected will deter bankers in ge- neral from making these experiments. 101 Though this argument In favour of provlnclai banks is merely negative it ought to satisfy every rea- sonable mind, since it completely proves the existence of a practical limit to notes of that description, though it does not shew the precise manner in which the limitation takes place. But the contrary doc- trine is so prevalent, and the whole subject is of so much importance, that it may be proper to attempt a more direct proof of the truth of this opinion. Many persons who admit the impolicy and injurious effects of the Bank restriction, have at the same time great prejudices against country banks, and are persuaded that the increased amount of their notes has added to the evil and contributed to aggravate the general depreciation. On the first view of the subject it might seem probable that every addition of paper currency, of whatever description, would have a tendency to depreciate the value of the whole by increasing that excess which is itself the cause of the evil. But it will appear, on further considera- tion, that the paper of private banks immediately convertible into Bank of England notes has no ef- fect on the value of general currency ; the notes of private bankers being at present regulated by the standard of Bank notes in the same manner as paper 3 102 currency of every description was formerly regu- lated by the gold coin. This opinion is by no means inconsistent with what is often alleged and what must be admitted as an undoubted fact ; that there has been a great increase of the notes of private banks since the Act of Restriction of 1797. It may be easily shewn that this increase is an imme- diate consequence of that measure, and that the ad- ditions to the amount of Bank of England notes since that time have had the necessary effect of in- creasing in an equal proportion the paper of private banks. The system of paper credit in this country owes its existence and its whole form and structure to the natural course of commercial improvement opera- ting under an entire freedom from legislative re- straint. The same principle of public convenience, which originally suggested the use of paper cur- rency, occasions also the adoption of notes of va- rious descriptions, adapts them to certain districts, and adjusts and determines the limits within which they circulate. The paper of the Bank of England, though it is the standard of currency and may oc- casionally be used for remittances through every 103 part of the kingdom, does not circulate generally and for common and daily payments, except in London and within a certain distance from thence. The notes of the chartered banks of Scotland are confined to Edinburgh and its district. Those of the several provincial banks circulate in their immediate neigh- bourhood, or within what may be termed the natural districts of the banks which issue them. This prac- tice prevails so universally, and the exceptions are so rare, that it may be considered as a general rule on the subject of paper credit, that the circulation of any description of notes cannot be extended (at least for the ordinary purposes of exchange) to any con- siderable distance from the banks which issue them without great public inconvenience ; and that such an extended circulation never in fact takes place un- der ordinary circumstances and in a state of com- mercial freedom. The danger of forgeries, the dif- ficulty of detection, the trouble of converting the notes into specie or into other notes when too much worn, are all considerably increased by a very wide and distant circulation. These circumstances, to- gether with the efforts of rival bankers, confine the paper of each bank within its particular district or sphere of circulation. All attempts to extend this 104 sphere are effectually resisted ; and every note, which is accidentally carried beyond its proper limits, is transmitted to the bank from which it issues for im- mediate payment. As the public convenience determines the limits of the various districts of circulation, so it ascertains the quantity of notes within each district. It must always be remembered that currency, whether con- sisting of specie or paper, is in itself wholly unpro- ductive, and that every superfluous quantity in the hands of individuals is attended with a positive loss to the holder. There is therefore a constant eflbrt on the part of each individual to reduce this quan- tity as much as possible ; and from hence have arisen the various inventions of banks and paper credit and all the other expedients for osconomizing currency which have been mentioned in a former part of this Work. "Where the currency of a country consists entirely of the precious metals, it has never been doubted that, if the quantity of specie is improperly increased, whether by Government or from other causes, it will immediately be reduced within its due limits by the care and attention of individuals, which \wll always prevent any permanent excess of the cir- 105 culating medium. But the same inducement to di- minish the quantity and prevent the excess of cur- rency must operate with equal force in all given cases, and whether the medium of exchange consists of coin or paper. The notes of private banks are avS much the representatives of value as any other spe- cies of currency, and their circulation is regulated by the same principles. So far as they are ne- cessary for effecting the payments and circulating the wealth of the district, they merely supply the place of the specie which would othenvise be employed, and cannot therefore affect the general value of money. If they exceed the quantity which is requisite for these purposes, the excess will be returned upon the Bank, to be exchanged for the currency in which they are payable. The experience of private bankers enables them to discover the average amount of this requisite quantity, and their profits and success altogether depend upon their adapting the supply of notes as nearly as possible to the demand. It is thus that the medium of exchange, what- ever it may be, which constitutes the standard of value and is the clement into which all other curren- cies may uldmately be resolved, must determine the P 10^ quantity and value of every Inferior currency. Ifl a mixed circulation of coin and notes there can be no permanent superfluity of the latter, because they would in that case be exchanged for gold. Since Bank notes have become the standard, the circu- lating paper of private banks is in like manner guarded against excess within their particular di- stricts by the power of conversion into Bank notes. Where the amount of the former exceeds the just proportion, they are immediately changed for Bank paper, which is transmitted to London in payments, and the currency of the district is relieved from the burden which has been thus occasioned. There are therefore necessaiy causes which pre- vent the notes of private bankers from being de- pressed in their value below that of Bank notes. The same reasons also prove they must always be brought down to the level of the latter, and cannot be of any higher value ; and that in every case where that portion of the currency which constitutes the ge- neral measure of exchange is degraded, there must be a corresponding depreciation of the ivhole of the circulating medium, however variously it may be composed. This will be evident from considering 107 die instance of a mixed currency of coin and paper ; in which if the value of the coin is by any means suddenly reduced, the nominal rise of prices will require a corresponding addition to the circulating medium. If, for example, one million sterling of good coin and of full weight and pu- rity is found by experience to be necessary for the circulation of any country, and this coin should be degraded 10 per cent. ; the price of all commo- dities will rise in the same proportion, and the no- minal million of base coin will be insufficient for the circulation of the same wealth, because it would contain only 900,0001. of intrinsic value. There must consequently be an addition of 10 per cent, to the degraded coin in order to contain the same value as before the depreciation. If, in the case v/hich is here supposed, a certain part of the currency consists of paper, the latter portion also must be depreciated in the same degree as the coin of which it is the representative, and will re- quire a similar increase. But an excess of Bank notes not convertible into specie has been shewn to be the same in its effects as a debasement of the coin ; and when such notes are become the standard of value, and are depreciated by excess of quantity, ? 2 108 they must have the same influence in all respects oA the notes of provincial banks and on the general mass of circulating paper. It is a necessary consequence of this reasoning that the notes of private banks have increased since the Restriction of 1797 in the same proportion as the is- sues of the Bank of England during that period. The average amount of the latter at that time con- sisted of about eleven millions, and there has since been an increase of one half the original sum. The amount of country bank notes in February 1797 is not known ; but assuming an arbitrary sum, and sup- posing them to be double the amount of Banknotes, there must have been an addition of twelve millions to that description of paper. This is stated upon the supposition that the districts of circulation of the public and private banks have remained the same. But if from a preference given to their notes, or any other reason of public convenience, the country banks have since 1797 encroached in any degree upon the district of the Bank of England, there must have been a still greater increase of their paper; If, on the contraiy. Bank notes have acquired a wider cir- culation since 1797, the increase of country bai;ik J 09 jiotes has been proportionally smaller. As the profit of every bank arises from the amount of its notes, the channel of circulation in each di- strict will be fully supplied, and the increase of private paper must at all times keep pace with that of the Bank of England. If the latter only had been depreciated, and if there was not a corresponding excess of country bank notes, the re- lative proportion of pricco would be altered beLWeeu London and those parts of the country where the currency was carried on in some more valuable me- dium, and an exchange would take place between London and the several districts of the provincial banks in favour of the latter and against the me- tropolis. The truth of this theory, and the explanation which has been given, perhaps at too great length, of the manner in which all paper currency is influenced by that medium, which is the local standard of value, is pracdcally illustrated by the instance which has for- merly been mentioned of the exchange between Dub- lin and Belfast. It is manifest from this example that if the people of Scotland, like the landholders of the North of Ireland, had not acquiesced in the Act of tin Restriction, but had insisted upon receiving gold iti payment of their notes, the value of their currency would have been maintained and would now be of the standard of gold coin, while that of England has undergone a silent depreciation j and this advantage would be marked by an exchange in favour of Edin- burgh, and a certain deduction on the amount of English Bank notes when circulated in Scotland. The superior value of the cunencyof the North of Ire- land, consisting principally of the notes of private banks, which is now universally acknowledged, is a decisive proof not only of the abuses of the Irish Bank but of a fact which is far more interesting and important — that provincial banks are limited in their issues by the demands and convenience of the pub- lic, and that they have no power of reducing the value of general currency. A due comparison of the advantages of country banks, which arise from the nature of the system, with their inconveniences, which depend entirely upon partial and accidental circumstances, may per- haps lead us to the conclusion that these establish- ments are, upon the whole, highly beneficial to the Public, and entitled to the protection of the Legis- 3 Ill lature ; and that to suppress the circulation of their notes, or to restrict them in any manner tending to give an exclusive privilege to the Bank of England, Would be as unjust and impolitic as to grant a mo- nopoly of any other branch of skill and industry to any private merchant or company. When we con- sider the nature of the banking system, of all other branches of trade the most complex and delicate, and deriving its very essence and existence from the confidence of the Public, it will appear that there is no subject upon which legislative interference V^ould be more improper or more pernicious. As THE COURSE of thls dlscussIon has been in- terrupted by the consideration of several subordi- nate topics of great importance, it may be necessary to recall the attention of the reader to the principal points which have been attempted to be established. This recapitulation of the general argument, toge- ther with a view of the injurious effects of the pre- sent system, and some remarks on the conduct vhich it may be proper for the Legislature to adept 112 for the removal of the existing evils, will naturally close the present Enquiiy. The whole of the preceding argument rests upon a few great and undeniable principles : — that the indispensable requisite and only true foundation of every just medium of exchange is intrinsic value ; — that the precious metals have been selected for this purpose, as possessing this quality at all times and places in the greatest degree and with the fewest va- riations ; — and that the establishment of a medium of exchange, either not really possessing, or not truly representing intrinsic value, is contrary to the first principles of justice. The advantages of a paper currency have In the course of this discussion been most fully admitted ; but it has been shewn that these advantages alto- gether depend upon its being a just medium of ex- change, that is, upon its being exactly equivalent to that quantity of the precious metals which would .otherwise be employed for that purpose. In order that it may possess this value, it is necessary that a currency of this description should be immediately and unconditionally convertible into f^pccie. The 113 power of this conversion is the only quality which can give it any just title to be considered as the re- presentative of value, and the only security against the abuses to which such a currency is exposed. Without such a power it is in constant danger of being depreciated both by want of credit and excess of quantity. The operation of the former cause is uncertain and irregular, being dependent upon pub- lic opinion and the credit of the Government or Bank by which the notes are issued. But the latter cause is constant and uniform in its effects. Excess of quantity must depreciate the currency in propor- tion to the excess. It has been stated that eveiy depreciation of the circulating medium, by whatever means occasioned, must necessarily produce a corresponding effect upoa all exchanges, and upon all prices. But as these are subject to great variations from other causes, the mar- ket price of bullion and the state of foreign exchanges have been selected, as furnishing in conjunction the most accurate criterion of the pure or depreciated state of a currency. If the depreciation is suffi- ciently considerable, it must in all cases be clearly discovered by these tests. 114 These general positions do not rest upon mere probability. They are consequences which ne- cessarily result from the nature of the subjects to which they relate ; and they have all the force and effect of demonstration. The application of these principles to the particular cases, which have been here considered, depends altogether upon reasoning of a different nature ; and, as the conclusion is drawn from a long deduction of facts, there may be room for doubt as to pardcular inferences. Yet there ap- pears on the whole to be such a concurrence of cir- cumstances as to afford us all the assurance of which a subject, not capable of positive proof, will admit. The principal steps and final result of this part of the argument may be thus shortly stated. — Since February 1797 the currency of Great Britain and Ireland has been carried on by a medium of exchange not possessing, and not truly representing, Intrinsic value, and therefore capable of being depreciated by an excess of quantity. During the greater part of that time there have been the same variations in the market price of bullion, and in the state of the ex- change, which ought, according to the above rea- soning, to have taken place upon the §upposidon of 115 a depreciated currency. Upon a reference to the several accounts of the amount of Bank notes in circulation, it is found that precisely those circum- stances which our theory would lead us to expect, have in reality happened ; and that there has within the same period been a great and corresponding in- crease in the quantity of that currency. It is a fact which tends very strongly to illustrate and confirm the truth of this reasoning, that upon comparing the state of the exchange and of bullion with the amount of Bank notes, it appears that the effects have been proportioned in a most remarkable degree to the supposed cause ; — that every successive addition to the notes in circulation has increased those unfavour- able appearances in the exchange and price of silver from whence a depreciation was inferred ; and, on the other hand, that the occasional diminutions in the quantity of notes have had an evident tendency to restore the value of the currency by improving the exchange and depressing the high price of bul- lion. From these circumstances and, above all, from the permanent effects which appear to have been produced upon the price of silver and the state of the exchange, notwithstanding all occasional causes of fluctuation, it has been inferred, upon strong g 2 116 grounds of probability, that since the restriction of payments in specie in February 1797, and in con- sequence of that measiu-e, the paper circulation both of Great Britain and Ireland has exceeded its pro- per limits, and that the currencies of both those countries have undergone a certain degree of depre- ciation ; a fact which, with regard to the currency of the latter, is proved by evidence still more deci- sive, and which is now acknowledged to be an evil that calls for parliamentary interference. Though the depreciation of the English currency is not sufficient to produce an actual difference in value between gold coin and bank notes in the or- dinary transactions of commerce; yet its effect, though less perceptible, is not the less real or cer- tain ; and it must have contributed, together with other causes, to that general increase of prices and that diminution in the value of money which have taken place within a few years. The inconveniences which have resulted from hence are universally felt and experienced. The public creditors and that numerous class of society, who subsist upon limited or stipulated incomes, are injured in their property ; the faith of contracts is indirectly violated, and those 5 117 alone escape loss who have the means of augment- ing their revenue in the degree in which the value of money is reduced. Yet these evils are to a cer- tain degree unavoidable, even in those cases where the currency remains in a state of the utmost pu- rity. The precious metals themselves, though the best practical standards of value, are far short of perfect truth and accuracy. In process of time, and during a course of years, they are subject to great variations. From the necessary effect of additional taxes, and the greater expence of subsistence, all v^^ges are gradually increased, and the same quantity of coin no longer represents the same portion of labour or commodities. That a great effect upon prices has been produced in this manner it is impos- sible to doubt. It is a fact much less certain, but by no means improbable, that a still further deprecia- tion is imperceptibly taking place in consequence of an actual addition to the precious metals by an in- creased supply from the American mines*. What- ^ The supposition of an increase in the general quantity of tlie precious metals is proposed only as a probable conjecture, founded upon the acknowledged fact of a great advance of price« throughout every part of Europe in veiy modern times. For- 118 ever may be the true mode of accounting for this evil, the fact itself is certain, and it has been expe- rienced in a most remarkable degree in our own time and country -, yet, so long as it arose from na- tural and necessary causes, however it might be la- mented, it was an inconvenience not admitting of any practical remedy. But the effect of the present restriction of payments in specie is to aggravate this great and unavoidable evil by direct legislative inter- ference. There may be some difference of opinion with re- spect to the force of this reasoning, as applied to the cases in question, or the degree of practical incon- venience which has been experienced in consequence of the restriction of cash payments ; but it seems im- possible, after a full consideration of the facts which have been adduced in the course of this enquiry, to haps the increased use of paper currency in different countries where it was till lately unknown, and other modes of oecono- mizing specie, may have contributed to the same effect. It is to be recollected however that Dr. A. 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