The Bank Charter Act
Jonathan Duncan
CHAPTER III.
Historical View of the Origin of Coin. Etymology of the words “Money” and “Capital.” Ancient British Money. Its Representative Character. The Exchequer Tallies of King Henry the First of England. Reduction of the Metallic Standard in Rome and England. Lord Liverpool’s Statement. Report of Mr. William Lowndes in 1695. Duties of the King’s Exchanger. Effect of the Discovery of the Silver Mines of South America on our Money. Statement of Dr. Davenant. The Monetary Act of 1774. Suspension of Cash Payments by the Bank of England in 1797.
Historical View of the Origin of Coin
AT the date of the Trojan war, the use of money was not known to the Greeks. Homer and Hesiod never speak of gold or silver coin. They express the value of things by saving that they are worth so many sheep or oxen, estimating the riches of a man by the number of his flocks and herds, and the wealth of a country by the abundance of its pastures. Homer values the golden armour of Glaucus at 100 oxen, and the brazen armour of Diomedes at nine oxen. Laertes bought the beautiful slave, Euryclea, for 100 oxen.
Each in exchange proportioned treasures gave,
Some brass or iron, some an ox or slave.
[ILIAD, Book vii., v. 466.—POPE
There was no coined gold in Egypt till the time of the Ptolemies.
Lucan attributes the invention of money to Itonus, king of Thessaly, and son of Deucalion, the hero of the mythological deluge, who re-peopled the earth. Others ascribe it to Ericthonius, king of Athens, the reputed son of Vulcan, who had been brought up by the daughters of Cecrops. Aglaosthenes gives the honour of the invention to the inhabitants of Naxos. However, the more received opinion is that Phidon, king of Argos, and contemporary with Lycurgus and Iphitus, first introduced the use of money at Ægina, to enable its inhabitants to earn a subsistence by commerce, their own island being too barren to yield a sufficient supply of cereals.
According to Herodotus, the first people who coined gold and silver were the Lydians. Some historians refer the fact to Demodice, the wife of Midas, king of Phrygia. Darius, the son of Hystapses, was the first sovereign who coined gold in Persia, and the coins which he struck were called, after his name, Darics, in the same manner as the gold coins of Philip of Macedon, father of Alexander the Great, were called Philips.
Rettulit acceptos, regele nomisma, Philippos.
[Hor. Epist., lib. ii., v. 23.
The Persian coins had so little alloy that they were nearly pure gold. The one in Lord Pembroke’s collection weighed 129 grains, the exact weight of an English guinea. While Persia was independent the Darics were largely in circulation, but after the Grecian conquest of the country it is supposed they were melted down, and re-coined with the effigies of Alexander. Dr. Prideaux says that in those parts of the Scripture which were written after the Babylonish captivity, the Darics are mentioned under the name of Adarkonim, and in the writings of the Talmudists, under the name of Darkoneth.[1]
The silver coins of Aryandes, who was appointed a prefect in Egypt by Cambyses, were of Persian mintage, and, like the Daric, had an indentation on one side, and the effigies of an archer on the other. The specimens of these silver coins in England weigh from 79 to 81 grains. No doubt, when minted, they were of uniform weight, and the difference is due to difference in wear and tear. They were called Aryandics.
The word “talent” in Homer is used to signify a balance, and, in general, it was applied either to a weight or a sum of money, differing in value according to the ages or countries in which it was used. Every talent consisted of sixty minæ, and every mina of one hundred drachmæ; but the talents differed in weight according to the mina and drachma of which they were composed. When Darius Hystapses became sovereign of Persia, he divided the whole country into Satrapies or provinces, each of which was assessed at a fixed tribute. The provinces that paid in silver were ordered to take the Babylonian talent for their standard. The Euboic talent was the standard appointed to those who paid in gold; according to Herodotus the Babylonian talent was equal to seventy Euboic minæ, and this estimate is confirmed by Julius Pollux and by Ælian.
The Euboic talent was so called from the island of Euboea; it is generally thought to be the same as the Attic talent, because Athens and Euboea used the same weight; the mina Euboica and the mina Attica consisted, each, of 100 drachmæ. In English money, the Babylonian talent amounted to £226; the Euboic or Attic talent to £193 15s.
It may be observed that the famous treasuries of Attalus and Croesus only contained gold and silver in the mass, as did those of Alyattes, father of Croesus. They obtained their wealth from mines in Lydia, situated between Atarna and Pergamos.
Neither gold nor silver was permitted at Lacedæmon. It was a capital offence for any one to have those metals in his house. Plato and Lycurgus thought that of all the metals iron and brass were sufficient for monetary purposes. Plutarch, in his life of Lysander, tells us of a man named Therax, who, though the friend and colleague of Lysander, was put to death by the Ephori, because some silver was found in his house. This sumptuary law took its origin from an oracle, which affirmed that avarice would cause the destruction of Lacedæmon. Even after Lysander had plundered Athens, and when the Lacedæmonians began to have large amounts of gold and silver, they were only allowed to use precious metals in cases of public emergency, under the penalty of death.
Among the ancients the relative proportion of gold and silver varied at different times.—In the reign of Darius, son of Hystapses, gold was thirteen times as valuable as silver; in the time of Plato, twelve; and in that of the comic poet Menander, it was only ten. In the epoch of Julius Cæsar, the value of gold to silver fell to nine to one. This arose from the prodigious quantity of gold which Cæsar had obtained from the plunder of cities and temples. It is generally supposed among learned numismatists, that in the gold coin of the ancients one fiftieth part was alloy. It merits attention that when the East was opened to commerce by means of the Persian war, and the great Macedonian expedition to further Asia, gold gradually accumulated among the Greeks, so that in the age of Demosthenes, the precious metals wore of nearly five times less value than in the time of Solon.[2] Such fluctuations warn us that the continued metallic supplies of gold from California and Australia may occasion its very serious depreciation.
The word “money” is derived from moneta, which itself is derived from the verb monere, to admonish or advise. The Anglo-Saxon word monige, the German muntz, the French monnoie, the Italian moneta, and the Spanish moneda, are all traceable to the same Latin root as our English word “money.” Our word “pecuniary” is derived from the Latin “pecunia,” and we learn from Cicero that “pecuniosus” denoted a man rich in flocks of sheep; for he says of such men, “A pecore pecuniosi appellati.”
We have borrowed our word “capital” from the Latin. In the language of the Romans, capitale, or captale, or catallum, all equivalents, denoted cattle. Du Cange, in his Glossary, gives the following explanation of these terms: “Catallum idem quod capitale. Bona omnia quæ in pecudibus sunt. Ex capitale enim formata vox captale; et ex captale, catallum. Gallico, chatel et catel.” In the progress of society, language loses its primitive acceptation ; thus we now confine “chattels” to such dead stock as is movable; but, originally, chattels and cattle had a common root, and expressed what we now understand by the term “capital.” They denoted real money in those times when bullionists were unknown.
When Britain was subjected to the Romans, no coined money was lawful unless stamped with the effigies of Caesar. It was tribute money, representing a tax to be paid, and was issued by the government in anticipation of such payment. It bought stores, &c., and, when the tax became due, it was taken from the holders in payment of the tax or tribute at the same nominal value at which it was issued. It was a token or symbol of the fiscal relations which existed between the rulers and the ruled. It enabled the former to make their purchases without waiting for the actual receipt of revenue; while it enabled the latter to discharge their taxes in an instrument which they had no cost or trouble in providing. This tribute money was not only impressed with the effigies of Caesar, but with certain inscriptions indicating real money represented by symbolic coins. Thus, for greater cattle, they were stamped with the figure of a horse; for less, with that of a hog; for cornfields, with an ear of corn; for a poll tax, with the head of a man.
The coins of the British Prince Cunoboline, were not only stamped with the figures of animals, but with the word tascio, which signified task, tax, or tribute. The payment of them into the exchequer acquitted the payer of duties on merchandise, and was a commutation for personal services. “I have thought,” says the learned Camden, “that in old time, there was a certain sort of money coined on purpose, for this use, seeing, in Scripture, it is called tribute money; and I am the more confirmed in this opinion, because, in some of the British pieces, there is the mint master stamping the money with tascio, which among the Britons signified tribute money.”
In these historical facts, we have evidence that ALL things of value, capable of being transferred from man to man, were accounted real money, and they were all represented by symbols or tokens, by which devise they were rendered movable in the shape of currency. The real money was the basis and security on which the tokens were issued, and whoever held a token was admonished by it that he was a creditor to its amount on the real money of the country. It may surprise some of our readers to be told that, from the reign of Henry the First down to the establishment of the Bank of England, the legal tender money of England was fabricated out of wood. This wooden instrument was called an exchange tally; but before explaining its nature and use, it is desirable to make some few remarks on the monetary system which prevailed anteriorly to its introduction.
In the earliest periods, all taxes or tribute due to the Crown, were paid in kind, excepting those which were discharged by personal services. He who delivered to the king’s receivers or purveyors an animal or a commodity, discharged his tax or tribute in kind, that is to say, in real money; it might be an ox or a war horse, or a measure of corn, or clean straw for the royal bed; but whatever the article, the fiscal obligation was liquidated by such tender. They who had no real money to offer, were acquitted of their obligations by the performance of personal services. To follow the king to battle, to plough his land, or thresh his corn, are instances of this mode of taxation. This primitive system was eminently just, and as little onerous as possible, since, with rare exceptions, every one had in his possession the instrument of tribute, amongst the endless varieties of real money; while they who had it not, could always perform some act of labour, or other personal service.
Henry the First, finding this system inconvenient, so far as payment in kind was concerned, introduced a token or symbol of real money, which received the name of an Exchange Tally. He knew it would have been most burdensome to compel the payment of taxes in gold and silver, because those metals were not found in England; he felt the injustice, when he changed the form of tribute, of aggravating its pressure, by exacting from the cultivator of the soil that which the soil was incapable of producing. He, accordingly, provided the instrument of taxation, with which he purchased all he wanted of his subjects, instead of their delivering in kind what he wanted to the royal purveyors and receivers. When taxes fell due, the king took back the fiscal wooden instrument as payment. He fixed the value of the instrument, which became the unit of account, and received it back at the same conventional value as that at which he issued it.
Mr. John Taylor, in his “Essay on Money,” has lucidly described the Exchange Tally, citing for his authority the Dialogus de Scaccario, written by Richard Fitz Nigel, Treasurer to King Henry the Second, and printed at the end of Madox’s History of the Exchequer.
“Under our Norman line of kings, tallies of wood were issued, by virtue of which the holder was entitled to receive from the crown the value inscribed thereon; if his claim was satisfied by another, the tally was surrendered to that person, who might sell it in like manner to a third, and so on, till the last holder pleaded it in the Exchequer, as an acquittance of debt to the crown to its nominal amount.—This tally was one half of a four sided rod or staff, on which, in its entire state, the sum it purported to represent was carved in transverse notches, varying in width for thousands, hundreds, scores, pounds, shillings and pence; £1000 was represented by a notch as broad as the palm of the hand; £100 by one the breadth of a thumb; £20 by the thickness of the little finger; £1 by that of a barleycorn; for a shilling the least piece possible was cut out; a penny was marked merely by an incision, no wood being taken away. These signs were for the unlearned. For others, as well as to guard against frauds, the sum was written in ink on two opposite sides of the staff, the notched side not being one; and, finally, with a knife and mallet, the staff was cleft in two lengthwise; one part, called the tally, staff, or cheque, bearing one inscription and half the notches, being given to the person for whose service it was intended; the other, called the counter tally, being laid up in a safe place, until its tally should be brought in by the person who had last given value for it.”
Such is Mr. Taylor’s account of this instrument, and from his description it is obvious that the tally was a symbol. Its intrinsic value was no more than the value of the wood out of which it was fabricated, but its representative value denoted large sums. It was a token of real money, and served to distribute real money from man to man by exchange. From this primitive tally was derived the Exchequer Bill, first issued in 1696, by Mr. Montague, then Chancellor of the Exchequer, afterwards Earl of Halifax.
It is curious to trace the etymology between the wooden and the paper instrument. — During the reigns of the Norman kings of England, Norman French was the official and legal language, and in that tongue BILLE means a staff, and BILLET still signifies a small piece of wood. In our times we have the Bill of Exchange and the Bank Post Bill, paper being used instead of wood, in the army a similar etymology may be recognised. Under strict feudalism there was no standing army; the chief tenants, or, as they were styled, the tenants in capite, furnished troops to the crown in lieu of rent; but if the king chose to take an officer into his own pay, that officer was said to be put on the STAFF, that is to say, he was paid with Exchequer Tallies; and, at this day, when a soldier is quartered temporarily on a licensed victualler, the Soldier is said to be billeted, because formerly he tendered to the victualler a wooden tally, with which tally the victualler paid his taxes to the extent of course of the value of the tally. The cheque books of modern bankers are so prepared that a part always remains with the drawer of the cheque, and it is usual to indent it like the teeth of a saw; so that in case of a fraud, the two parts may be brought together again to see if they tally.
In all countries which have had a protracted existence, it has been customary to lower, from time to time, the standard of coinage. In the palmy days of ancient Rome a gold coin about the size of an English guinea was the representative and equivalent of twenty silver coins, each silver coin being equal to twelve of copper or sixteen of bronze; from this money both the French and English derived their divisions and denominations of money. As the population increased and the power of the patricians became greater, enormous quantities of these coins were amassed by those who had the opportunity, and the great bulk of the people sunk into the most abject condition. It then became necessary to reduce the size of the coins. The copper unit sank from a pound weight to the seventy-second part of a pound; the gold coin, which was of later date in its institution, but which at its commencement appears, from specimens still preserved, to have been coined at the rate of thirty-five in the pound weight in the time of Sylla, was brought down, judging from actual coins in the absence of historical information, to forty in the pound weight in the time of Julius Caesar, to forty-five under Nero, to fifty under Aurelius Antoninus, to sixty under Gordian, and to seventy-five under Constantine, being a reduction of more than one half of its original value. The silver coins underwent a similar reduction. The Aes was a pound weight of bronze, and originally, that is in the time of Servius Tullius, was equal to one shilling of our money. In the year 322 B.C., it was reduced to twopence or one-sixth of its primitive value; from that time it constantly kept falling, and in the year 86 A.D., it did not exceed the twenty-fourth part of its original weight.[3]
In the time of William the Conqueror the English pound was a pound weight of silver, coined into twenty shillings; now a pound is worth less than four ounces of silver, and the pound is coined into sixty-six shillings. Here is the scale of reductions taken from Lord Liverpool’s Treatise on coin :—
28th Edward 1st., a pound weight of silver was coined into 20s. 3d. 18th Edward 3rd........................................... 22s. 0d. 20th Edward 3rd........................................... 22s. 6d. 27th Edward 3rd........................................... 25s. 0d. 13th Henry 4th............................................ 30s. 0d. 4th Edward 4th............................................ 37s. 6d. 18th Henry 8th............................................ 45s. 0d. 2nd Elizabeth............................................. 60s. 0d. 43rd Elizabeth............................................ 60s. 0d. 56th George 3rd........................................... 60s. 0d.
In 1695 Mr. William Loundes was ordered to draw up an historical account of practices adopted at the Mint, and from his report the following extracts are taken :—
“ That it has been a policy constantly practised in the mints of England (the like having been done in all foreign mints belonging to other governments) to raise the value of the coin in its intrinsic denomination from time to time as any exigence or occasion required; so that in the whole number of years from the 28th of Edward the First until this time (1695) by such variations, the intrinsic value or denomination of the silver is raised in about triple proportion; that is to say, in the reign of the said king Edward the First, a pound weight troy of silver was shorn at twenty shillings and three-pence, and consequently two hundred and forty-three pence or twenty shillings and one fourth of a shilling, or one pound and an eightieth part of a pound by tale, were then coined out of the said pound weight troy; whereas at this day, and for about ninety years past, a pound weight of troy of like silver is and hath been coined into seven hundred and forty-four pence, or sixty-two shillings, or three pounds and one-tenth of a pound by tale, the pound weight troy having then and now the same weight and fineness. And as to the gold coin I need only to observe from the foregoing induction, that in the Eighteenth of Edward the First, a pound weight fine, twenty-three carats, three grains and a-half, was coined into fifteen pounds, by tale; whereas, at this day (1695) a pound weight of gold of the fineness only of twenty-two carats, is coined into forty-four pounds ten shillings; and this method of raising the intrinsic value of the gold and silver in the denominations of the coins, as it has been constant in the reign of every king, so no inconvenience, disgrace, or mischief (as can be observed) has ever occurred by the doing thereof at any time, when a just, necessary, or reasonable cause gave occasion thereunto.”
These variations in the coinage are important, as they show that when the precious metals were scarce, an increasing population and an increasing trade compelled a lowering of the coin, or there would have been no adequacy of circulating medium; and they furnish a fitting answer to the puerile question “What is a Pound?” that answer being that it is a fixed quantity of gold or silver at the time a bargain is made, but not an immutable quantity at all times and under altered circumstances, which will be more fully dwelt upon when the monetary act for restoring cash payments in 1819 is discussed.
In the earlier period of English history, a public officer existed, called the King’s Exchanger. He appears not only to have exchanged the coins of one metal made at the royal mint for those made of another metal; but as the exportation of the coins of the realm was then prohibited, he furnished persons going out of the kingdom with foreign coins in exchange for English coins, and also merchants and strangers coming into the country with English in exchange for foreign coins. This officer had his deputies in many of the outports and principal cities of the kingdom. A considerable profit was made by this practice, of which the king is said to have had his share. When gold coins were exchanged for silver coins, a silver penny of that time was taken in exchange for each gold noble, being the largest gold coin then in currency, and in like proportion for smaller gold coins; and when silver coins were exchanged for gold coins, a silver penny was given for each gold noble received in exchange for then, and in like proportion for smaller coins; and the exchanger is said to have gained 1¼ per cent. When the officer exchanged foreign coins for English, or English for foreign, the exchange was regulated by a table hung up in each of his offices. The last person appointed to the office of King’s Exchanger was the Earl of Holland, in the third of Charles I. The head office was in the Mint. Mr. Mushet states that the office of the Exchanger was in the Mint. He certainly had an office in Old Change, a street leading out of Cheapside, which still retains its name.
The discovery of the silver mines of South America, particularly that of Potosi, necessarily affected the value of that metal in relation to gold; but it does not appear to have had any sensible effect on prices in England till after 1570, though the Potosi mine was known and worked in 1550. When the statesmen of England perceived that silver was falling in relation to gold, they prepared to legislate on the subject, and the first movement of this kind was undertaken in the time of Elizabeth, by Lord Burleigh, and it was continued in later years by Lord Bacon, Sir Edward Coke, Mr. Locke, and Sir Isaac Newton. What is called the standard of Elizabeth was established in 1601, by which the ounce of gold was coined into £2 15s. 11d., and the ounce of silver into 5s. 2d. In 1605, gold again advanced, as compared with silver, eleven per cent. Lord Bacon and Sir Edward Coke, then the principal advisers of the Crown, adhered to silver as the national standard, and dealt with gold in the manner presently described. The advance in seven years more was ten per cent. It continued to advance, and by the time of Charles the Second, the advance was thirty-two per cent. By King William’s time the advance was thirty-nine per cent. During all this period of derangement in gold, the course of the government was uniform. Silver money, as already stated, had been coined by the 43rd of Elizabeth at 5s. 2d. per ounce, and gold money at £2 15s. 11d. per ounce. By the 4th of James the First, gold money was lessened in weight by being coined at £3 2s. 1d. In the 9th of James the First, gold money was again altered ten per cent. by proclamation, which brought the ounce of gold to £3 7s. 7d. In the 13th of Charles the Second, gold was coined at £3 14s. 2d., and at that rate it continued, by the mint indentures, until the 3rd of George the First, when the ounce of gold was coined into £3 17s. 10½d. During all this period, silver money was held immutable; the same shilling, the same crown, possessing always the same weight and fineness. But the gold sovereign of the 43rd Elizabeth, coined for 20s as now, weighed 7 dwts. 4 grains, nearly 40 per cent. heavier than the present sovereign. The sovereign, in four wears, was reduced in weight eleven per cent., and called “An Unite;”—seven years elapsed and the unite was raised by proclamation to 22s. Then the Laurel was coined at 20s, but in weight having sixteen to seventeen per cent. more metal than the present sovereign. Charles the Second took away from eight to nine per cent. from the weight of the laurel, and called it a guinea; the guinea being fixed at 20s. By the mint indentures passed current among the people for 21s. and 22s. During all these mutations, silver money was never changed; the silver standard, the ancient predominant standard of the country, was retained. To this was entrusted the faith of contracts; on this standard rested the security of property, and gold was dealt with as convenience required.[4] It may render this statement clearer if the changes are placed in a tabular form.
By 43rd Elizabeth the ounce of gold was coined into £2 15 11 4th James 1st........................................3 2 1 9th James 1st........................................3 7 7 13th Charles 2nd.....................................3 14 2 3rd George 1st.......................................3 17 10½
This appears to be an appropriate place for asking and answering the question, what is understood by saying that an ounce of gold is worth £3 17s. 10½d ? When our ordinance of coinage was fixed in the 3rd of George the First, an ounce of gold was deemed to be the equivalent of fifteen ounces and a small fraction of an ounce of silver, both metals being referred to labour as their true standard of value. “Gold and silver,” says Mr. Ricardo, “like all other commodities, are valuable only in proportion to the quantity of labour necessary to produce them and bring them to market. Gold is about fifteen times dearer than silver, not because there is a greater demand for it, not because the supply is fifteen times greater than that of gold, but solely because fifteen times the labour is necessary to procure a given quantity of it.” As it has been shown, the ounce of silver was coined into 5s. 2d. by the 43rd Elizabeth, and remained so when the ordinance of George the First was passed. Now the object of the legislature was to retain in the denomination of coinage the same relation of values as existed in their state of bullion. But, as bullion, gold was fifteen times more valuable than silver, and something in excess; therefore, nothing more was required than to multiply 5s. 2d. by fifteen to determine the monied denomination of the ounce of gold, and it amounted to £3 17s 6d. The fraction beyond fifteen amounted to three pence; accordingly, the Bank of England, was bound to give £3 17s. 9d. for raw gold, and sell it coined for £3 17s, 10½d., the extra three half pence being in the nature of seignorage.
Establishment of the Bank of England
Before the establishment of the Bank of England, the currency consisted of gold and silver coins, Exchequer tallies, and the notes of the goldsmiths, who were indeed pawnbrokers, lending on the deposits of securities, chiefly plate, for determinate periods. In 1694, the Bank of England was founded, and soon possessed itself of the royal prerogative to issue money. Davenant, a financial writer of the period, contrasts the state of the currency before and after the hank was instituted.
“In 1698,” he says, “we had upwards of £14,000,000, in tallies, lottery tickets, bank stock, malt tickets and securities, which went from hand to hand, having their foundation in the public faith; and, in this currency, the landlord received his rent duly, and the farmer sold the product of his land at a high price. Wool, tin, leather, and lead bore a high price, and, which was of great consequence, the manufactures of the country went on cheerfully.”
Ten years after the commencement of the national debt, when it had reached twenty-one millions, he says :
“ Of late, when the coin grew so corrupted, gold and silver did, as it were, but minister in the market, while all great dealings were transacted by tallies, bank bills, and goldsmiths’ notes.—Paper credit did not only supply the place of running cash, but greatly multiplied the kingdom’s stock. For tallies and bank bills did, to many uses, serve as well as, and to some better, than gold and silver; and this artificial wealth, which necessity had introduced, did make us feel the less want of that real treasure which the war, and our losses at sea, had drawn out of the nation.”
At this time the Exchequer Tallies, the representatives of value, having no intrinsic value in themselves, sustained trade; but what happened when the tallies were nearly extinguished, and the monied prerogative of the Crown was transferred to the Bank of England ? Let us once more listen to Davenant :—
“ The government appeared like a distressed debtor, who was daily squeezed to death by the exorbitant greediness of the lender; the citizens began to decline trade, and to turn usurers; foreign commerce, attended with the hazards of war, had infinite discouragements; and people in general drew home their effects, to embrace the advantage of lending money to the Government. We are going headlong to destruction with carrying on losing trades with our neighbours. And what has brought us to this low ebb ? Certainly, our excises, customs, prohibitions, ill-judged laws, monopolies, and national debts; these are the causes; the effects are lost trades and decaying rents. When paper credit flourished, tallies, bank bills, and goldsmiths’ notes performed all the offices of money; the great payments for land, or rich good, were therefore easily made, the king’s duties paid, and all kinds of business easily transacted.”
We now have reached the period when the Bank of England, a Joint Stock Company of successful adventurers became, as it were, a co-partner with every succeeding government. Around this gigantic corporation clustered what is known as the “monied power.” The national debt assumed Titanic proportions, and with every augmentation labour became more and more subject to capital.
In 1774, it was ascertained that a considerable portion of the silver coin was deficient in weight, whereupon, in that year, an Act of Parliament was passed, decreeing that “no tender in the silver coin of this realm, for any sum exceeding £25 should be accounted a legal tender for more than the value by weight, at the rate of 5s. 2d. per ounce;” but this Act was purely exceptional, for if the silver was of full weight it was legal tender to any amount. This restraining law expired in 1783, and Mr. Vansittart, when Chancellor of the Exchequer, stated in the House of Commons that, prior to the Bank Restriction Act, “the interest of the public debt might have been paid in crooked sixpences.”
It is, then, an historical fact that from 1601 to 1797, our silver standard was never changed. During the whole of the same period gold was dealt with as public convenience required.—Both metals were a legal tender to any amount, with the exception of the nine years mentioned. It is also to be observed that in those two centuries, the exportation of coin was prohibited under severe penalties, and the usury laws were enforced. These two provisions were great protections to the standard; for though the coin was at times smuggled out of the country, the dread of detection operated to a check; and, at any rate, the legislature did all that it could do to keep the instruments of legal tender circulating within the realm.
We now approach the memorable epoch when cash payments at the Bank of England were suspended, and, in this historical sketch, it appears desirable to draw, at least, the outline of the main circumstances which led to that event. The prospects of the country, as Sir Archibald Alison remarks; were of the most gloomy description. Lord Malmesbury had returned an unsuccessful ambassador from France—party spirit was raging fiercely—petitions for a change of ministers, and for an organic change in the form of government, poured into both Houses of Parliament—Ireland was in a state of insurrection—commercial embarrassments were very severe—and an active and constant demand was made on the Bank of England for the precious metals, both for export and private hoarding—the three per cents had fallen from 98 in 1792 to 51 in 1796—in short, that general distrust and depression prevailed, which are at once the cause and effect of prolonged misfortune. So early as 1795, the Bank of England begged the ministers to raise advances required for the public service without its aid, and the difficulties of that corporation became so stringent in 1796, that they were compelled to gain breathing time by paying their notes in sixpences. Mr. Pitt had paid large subsidies to our Continental allies in bullion, which added to the previous drain on the Bank. In 1795, or two years before the Restriction Act was passed, the Governor of the Bank wrote to Mr. Pitt, informing him that the market price of gold was four guineas an ounce, at which rate the Bank was compelled to buy it; though it was obliged to redeem its notes in gold at the mint rate of £3 17s. 10½d. In 1794 we remitted as subsidies to our allies £2,550,245; in 1795, another sum of £5,724,961. These advances were made in specie; hence gold at home became scarce and dear. The credit of the country was now in jeopardy. Its real wealth, as the results proved, was immense; but its wealth in gold was small. A mode of escape from this dilemma was an imperious necessity; at length, on the 26th February, 1797 (remarkable as being a Sunday) the Privy Council issued an order forbidding the Bank to pay its notes in specie, which was communicated to both Houses of Parliament on the following day. The order in Council was posted on the walls of the Mansion House, and all the leading merchants in the city, publicly convened, declared their readiness to receive the notes of the Bank of England, inconvertible into coin at the mint price, in full payment of debts due to them. Five days afterwards, that is on the 3rd March, 1797, the statute permitting the issue of notes under five pounds, received the Royal Assent, being the 37th of George the Third, c. 28.
It is here necessary to observe that this statute did not make the Bank Note a legal tender, for it did not receive that sanction till the year 1833. It must also be noted that at this period the circulating medium of the country consisted of gold and silver coin, Bank of England notes of not less than £5 (promissory notes of a less amount being forbidden) payable an demand in gold at £3 17s. 10½d. per ounce, or in silver at 5s. 2d. per ounce, and also country bank notes payable on demand at the same rates.
The Bank Restriction Act of 1797 is entitled “An Act for removing doubts in respect to promissory notes of the Government and Company of the Bank of England, for payment of sums under £5,” and its preamble thus explains the object of it, namely, to provide for the deficiency of gold coin, thus :— “Whereas it is expedient for the public service, and for the convenience of public circulation, that the Governor and Company of the Bank of England should issue promissory notes, payable to bearer, for sums of money under £5,” and to avoid any doubt as to the validity thereof, it was enacted, that all promissory notes, payable to bearer for sums of money under £5, and other notes for the payment of money, which, since the 2nd of March, 1797, had been or thereafter should be issued by the Governor and Company of the Bank of England, should be as good and valid as if issued for sums over £5; all persons being declared exempt from the penalties to which they ought otherwise to be liable.
This short act was sufficient to relieve the Bank from its immediate necessities, but another was required to make the new issue beneficial to the public; and it is a fact worthy to be noted that the same facility was not accorded to the act for this purpose as to the other. While the first was hurried through the House in a few days, two months were consumed in the passage of the other, as it was not till the 3rd of May that the restrictive measure was completed by the Act 37 George 3, c. 45, entitled “An Act for continuing the restrictions contained in the Minutes of Council of the 25th February, 1797, on payments of cash by the Bank of England.”—The preamble of the act is so eminently deserving of attention that it ought not to be curtailed.
“ Whereas by a minute of his Majesty’s Privy Council of the 26th February, upon the representation of the Chancellor of the Exchequer, stating that from the results of the information which he had received, and the inquiries which it had been his duty to make, respecting the unusual demands for specie that have been made in the metropolis, in consequence of ill-founded or exaggerated alarms in different parts of the country, it appeared that unless some measure was immediately taken, there might be reason to apprehend a want of a sufficient supply of cash, to answer the exigencies of the public service, it was declared to be the unanimous opinion of the Board that it was indispensably necessary for the public service, that the Directors of the Bank of England should forbear issuing any cash in payment of their notes, until the sense of parliament could be taken on the subject, and the proper measures be adopted thereupon, for maintaining the means of circulation, and supporting the public and commercial credit of the kingdom, at this important conjuncture. And it was ordered that a copy of the said minute should be transmitted to the Bank of England; and they were thereby required, on the grounds of the exigency of the case, to conform thereto until the sense of parliament could be taken as aforesaid. And whereas, in pursuance of the said minute, the said Governor and Company have since forborne to issue cash in payment, except for purposes for which it was unavoidable; and it is necessary that the restriction contained in the minute, although not warranted by law, should be continued for a limited time by authority of parliament.”
The first section indemnified the Bank for every thing done in accordance with the Minute of Council ; the second enacted that the notes authorised by the Act of the 3rd March, should be received as money, by providing that it should not be lawful for the Bank to issue any cash in payment of any debt or demand during the continuance of the restriction, except under circumstances hereinafter mentioned, and conferring powers on the Courts of law to stay actions to recover payment in any other form until the removal of the restrictions, the costs being left to their discretion. The third section declared the restrictions not to extend to sums of money, or fractional parts less than twenty shillings which were to be paid in cash as usual. But the Bank was expressly authorized to issue cash for the service of the Army, Navy, and Ordnance, in pursuance of an order of the Privy Council, stating the special purposes for which such sums were required, and the necessity for it, a copy of this order being required to be laid before Parliament within three days.
Other sections forbade the Bank to advance more for the public service than £600,000 on the credit of Exchequer Bills, but allowed advances in cash to the amount of £100,000 to London Bankers, and £25,000 each to the Bank of Scotland, and the Royal Bank of Scotland. The Bank was permitted to receive cash from any person in sums not less than £500 on an engagement to return any portion on demand, not exceeding three-fourths in cash. A power was reserved, however, notwithstanding these enactments, to issue cash out of any cash coming into their hands subsequently to the 20th February following, in payment of any debts, on giving five days notice to the Speaker of the House of Commons, who was required to insert one copy of such notice in the London Gazette, and another to the Exchequer. The duration of this Act was limited to June 24th, 1797. Such is the substance of a statute which, though declared to be only in force for little more than a month, was actually in force for twenty-two years—a remarkable proof of the fallibility of human legislation, and of human foresight.
To make this narrative of the Restriction Act more complete, it may be observed that the short period of six weeks was probably fixed upon in deference to the fears and wishes of others, rather than on any hope entertained by the government that the bank would be able to meet its engagements in bullion at so early a date. Accordingly, before the time expired to which it was limited, another Act, the 37th Geo. 3rd, c. 91, renewed and repeated all its provisions but two,—that permitting an advance of cash for the public service, which the Bank was now forbidden to make during the restriction of cash payments—and that relating to the duration of the restriction which was now extended to one month after the commencement of the next session of Parliament.
Parliament again met on the 30th November of the same year, 1797, but so distant had the prospect become of the Bank resuming cash payments, that an act was immediately passed continuing the above acts, not to any specified date, but “to one month after the conclusion of the present war.” This last act, however, renewed the permission to the Bank to advance money for the public service; though only on the credit of duties to be laid on malt and land tax.
1 Beloe’s Notes to Herodotus Melpomene, the 4th edition.
2 An Essay on the Fluctuations in the Supplies of Gold, p. 6. By Alexander Von Humboldt. London, Simpkin & Co.
3 John Taylor
4 Speech of Mathias Attwood in the House of Commons, 8th June, 1830.