The Bank Charter Act
Jonathan Duncan
CHAPTER IV.
Rise of Prices under the Bank Restriction Act. The rise caused by increased taxation not be an increase of Bank Notes. Mr. Huskisson’s Pamphlet on the “Depreciation of the Pound,” answered by Mr. John Taylor. Definition of the terms DEBASEMENT, DETERIORATION, and DEPRECIATION. The effect of Indirect Taxation on Money considered. Debates in the House of Commons on the Report of the Bullion Committee in 1811. Speeches of Lord Castlereagh and Mr. Canning. John Law’s Bank. The French Assignants. The Continental Money of the American Colonies. David Hume. Benjamin Franklin. View of a “Depreciated Pound,” taken by Mr. Ricardo Mr. Tooke, and other Economists. Answered by Mr. Matthias Attwood. The Balance of Trade and the Foreign Exchanges.
PRIOR to the suspension of Cash Payments, it was with extreme difficulty that Mr. Pitt raised a revenue of £20,000,000. This pressure on the industrial class was most severe, provoking discontent and threatening rebellion; but, in 1798, the very year after the Bank of England was exempted from the obligation of redeeming its notes in gold, the revenue was raised to £30,000,000, and collected without a murmur. During the whole period in which the Bank Restriction Act was in force, the prices of all commodities rose prodigiously as compared with the rate of prices that were obtained previously to 1797, the rise being caused by the vast increase of taxation necessary to sustain the war, and permitted by the paper expansion of the circulating medium. — Of this we have complete evidence in Tables of Taxation, Currency and Prices, ranging over a period of fifty-four years, commencing in the year 1783, and ending in 1837, compiled by the London Chamber of Commerce. In these tables eighty-eight principal articles are enumerated. All those articles are given free of any special duty; the rise or fall of prices, therefore, is independent of particular taxation, and can only be explained by the altered amount of general taxation, or by some alteration in the principle of the currency. Every article is placed in succession, according to its rise and fall, in comparison with its first price. By this arrangement it is seen at a glance what articles have risen or declined most, compared with prices obtained before, during and after the war. Some of the principal are here enumerated, as a specimen of the whole catalogue : malt, hops, beer, wine, spirits, sugar, tea, coffee, tobacco, snuff, corn, butter, cheese, cotton, wool, silk, printed goods, hides, skins, paper, soap, candles, tallow, coals, glass, timber, bricks. The prices are classified in centesimal proportions, thus :
1784 to 1790......... £100 1701 to 1797.......... 121 1798 to 1804.......... 149 1805 to 1811.......... 175 1812 to 1818.......... 180 1810 to 1825 ......... 126 1826 to 1832.......... 105 1833 to 1837.......... 105
While the Bank Restriction Act was in force during the earlier series of these septennial periods, taxation increased and prices rose in proportion. In the interval from 1797 to 1818, the national debt and the annual taxation were more than doubled, thus fully accounting for the rise in prices; but these were not excessive, but proportionate to the augmentation of fiscal burdens imposed by the government on the productive classes; and since it is admitted by all writers that indirect taxation, be it light or heavy, ought to fall ultimately on the consumer, the producers who received £180 in the years running from 1811 to 1818, were not better paid than the producers who received only £100 in the period included between 1784 and 1790. The difference between the varying scales of prices was caused by the enormous war expenditure, for which the government was solely responsible. True it is, that the issue of Bank notes increased, but that was also the act of the government, who first gave their Exchequer Bills to the Bank as security for advances, and received the notes of the Bank in exchange for them; and it will presently be shown that those notes were not excessive as Mr. Huskisson most erroneously declared them to have been in his celebrated pamphlet. Our immediate purpose is to remove a popular fallacy which insists that an increase of paper pounds causes a rise of prices; it merely permits a rise. This distinction is most important, and has been ingeniously and clearly explained by Mr. Edward Capps, from whom the following extract is taken :
“ It is a well known fact, that by the pressure of the atmosphere, water will rise in a vacuum (the barrel of a pump for instance) to about 33 feet. Now, suppose that the water in a certain vacuum had always been prevented by the interposition of a plug, from rising higher than ten feet, it would follow that when this plug was raised one, two, or ten feet higher, the, water would immediately rush up and fill the additional vacuum created. Had the plug never been entirely withdrawn, and people had not known what was the cause which produced the rise of the water, they might have concluded that the water would rise ad infinitum, and that it was necessary to interpose a limiting power, to prevent it overflowing and deluging everything around. But it is obvious that the removal of the plug was not the cause of the rise of the water, but was only that which permitted it to rise; the cause was the weight of the atmosphere, and ceased to act when the equilibrium was gained. So, in like manner, the extension of the currency is not the cause of the rise of prices, as many think, but is only that which permits it; the cause is the weight of taxation, and the rise will cease whenever a price, which will form an equilibrium with the weight of taxation, is obtained. Competition will infallibly prevent prices rising higher than this.”[1]
This fallacy assumes another form. It originated with the bullionists during the continuance of the Bank Restriction Act, and maintains its ground to the present day. The assertion is, that notes would become redundant if they were not made convertible into gold at the Mint price. The fallacy proceeds on the false assumption that currency calls mercantile transactions into existence, but the truth is just the reverse, since mercantile transactions call currency into existence. No banker can force his notes into circulation. If a rich and safe customer applies for a loan of £1000, the banker might urge him to borrow double that sum; but the prudence of the customer would decline the additional credit, for why should he pay interest on money he does not want and cannot use? If the customer were speculative, but poor and unsafe, the banker would not discount his bill on any terms, so that in this second case the prudence of the banker limits his own issues. It is demand that creates supply, not supply that creates demand. Notes not demanded remain in the till; therefore they never can be in excess. If a certain quantity of salt be poured into a vessel containing water, the salt will be held in solution; if an indefinite quantity be added, the excess will be precipitated to the bottom of the vessel. So with paper money; whatever amount is not absorbed by commerce and held in active circulation, is returned to the Bank.
In the year 1810, Mr. Huskisson wrote his celebrated pamphlet, entitled “The Question of Depreciation Stated and Examined,” in which he affirmed that the Bank of England had designedly, with a view to the exclusive benefit of its own proprietary, depreciated the pound of account by an excessive issue of its notes. The doctrines of this pamphlet were adopted by the Bullion Committee, and the arguments, or rather fallacies, that it contained, mainly contributed to the enactment of the law of 1819 for the resumption of cash payments. Ever since its publication, the economists of this school have been devising schemes for “regulating” the currency, and restricting the amount of legal tenders, in the face of an increasing population and an increasing trade, their grand policy being to guard against the bugbear of an excess of money. Mr. John Taylor answered Mr. Huskisson in a pamphlet entitled “The Minister Mistaken,” and from the two we shall embody the spirit of the controversy.
Mr. Huskisson admits (p. 8) that from the establishment of the Bank in 1694 to 1797 “there had been no interruption to the convertibility of the notes into money, nor any interference on the part of the State, in anything that concerned the issue and circulation of those notes;” and he makes this further admission; “It is but justice to them (the Bank Directors) to remark that they did not resort to this measure till they had tried, and found unavailing, all those means of checking the drain of cash which had been effectual on former occasions.”
According, then, to the clear admission of their accuser, the Bank had not committed any fault, and had not been guilty of any excess in their issues, which is the specific charge, up to 1797. The reader will now please to observe that in 1795, or two years before the Bank Restriction Act was passed, the Governor of the Bank wrote to Mr. Pitt, and informed him that gold in the market was £4 4s. per ounce, though the returns of prices paid by the Bank were not above £3 17s 10½d per ounce; and Mr. Huskisson admits (p. 88) that it did not rise above that level for the next 10 years. These are his words :— “For some years to prior 1808, the price of standard gold was pretty steady at £4 per ounce, and this was the buying price at the Bank.”
The question to be determined is simply one of fact, and the fact rests on figures. If the Bank, as changed, did wilfully and designedly extend its issues for the purpose of increasing its own dividends by depreciating the pound of account, the evidence must be found in statistical returns. To this kind of testimony, then, the appeal will be made; but it is of the utmost importance to an inquiry of this nature, to bear in mind that the Bank of England never issued its notes except on the deposit of Exchequer Bills, handed over to it by the First Lord of the Treasury and the Chancellor of the Exchequer; the amount of those deposits regulated the amount of the notes; the Government, therefore, always took the initiative in those monetary operations as a borrower, and its necessities created and governed the issues. If Mr. Huskisson could have proved that the Bank exceeded the amount of Exchequer Bills, he would have made out his case; but the facts are just the reverse, as the following figures will demonstrate :—
From this table it appears that while the proportion of notes to the unfunded debt was 84 per cent. prior to the Restriction Act, that proportion, during its continuance, gradually fell, and averaged for the whole period only 57 per cent., or one-third less than the proportion maintained during the period when the Bank Directors, according to Mr. Huskisson’s admission, conducted their affairs with unimpeachable integrity and discretion. The evidence, therefore, conclusively refutes the charge of the Directors having issued their own notes in excess to swell the profits of their shareholders.
There is another mode of testing the truthfulness of Mr. Huskisson’s accusation.
Here then we have evidence that the Bank, so far from increasing its notes, actually reduced them in proportion to taxation immediately the war broke out; the reduction was from 60 to 57 per cent. before the Restriction Act was passed, and from 57 to 50 per cent. after that time; or reckoning the whole 21 years from 1798 to 1818, the proportion was brought down to 47 per cent., being a reduction of one-fifth. Mr. Huskisson’s charge is again refuted by this evidence, which is too cogent to be evaded. Nevertheless, the fact remains indisputably true, that the price of gold in 1808 did rise from £4 to £4 10s. per ounce, and it must be accounted for in some manner. It is clearly to be attributed to the sole act of the government in exporting gold to subsidise its continental allies. The proof will be found in the following table.
At page 366 of Mr. Porter’s “Progress of the Nation,” 2nd vol., it is stated that, in 1808, England sent to Spain, Sweden, and Sicily, an aggregate sum of £2,897,873, as subsidies, and this remittance was made in gold. Now this was effected through the agency of the Bank to accommodate the government. By referring to the preceding tabular statement, it will be perceived that the difference in the bullion held by the Bank on 31st August, 1808, and 28th February, 1809, amounted to a reduction of £1,527,240; while in the same period, the deposits were reduced by £3,029,560. It further appears, if we compare the amount of Bank Notes in circulation at the same dates, that the amount on the 28th February, 1809, exceeded the amount on the 31st August, 1808, by £1,431,570. If we add this excess to the £1,527,240, which last represents the reduction of bullion in the periods compared, we shall have £2,958,810; and the loan in the year, as cited from Mr. Porter, were £2,897,873. There is an approximation within a fraction to arithmetical identity, and it proves that the imputed excess in the issues was caused by the Bank lending its bullion to the government, which compelled it to bring an equivalency of its deposits into active circulation. Be it noted, that in 1808, we remitted as loans and subsidies to foreign powers more than we had done in the preceding seven years, in proof of which we refer to the statement of Mr. Porter, same page and volume already quoted, where it appears that from 1801 to 1807, both included, the aggregate amount was only £2,781,533, being about £100,000 less than we remitted in the single year 1808. Is it then surprising that this sudden and large export of the precious metals raised their price ? What other result could have been expected under the law of supply and demand ? The unprejudiced reader ought now to be convinced that the charge brought by Mr. Huskisson against the Bank is utterly without foundation. No doubt that gentleman possessed a large and discriminating intellect, and is a deservedly eminent authority in many matters of commerce and finance; but not suffering his mind to dwell long enough on the principles of monetary science, he hastily drew deductions from illogical premises; when he asserted that it was the essence of money to possess intrinsic value, he simply put forth an hypothesis as baseless as the vortices of Des Cartes; and his charges against the Bank of England were as silly as they were unjust.
But this subject cannot be dismissed without some additional remarks. There are three words which the most accredited writers employ in a vague sense, as if indeed they were synonymous; the words are DEBASEMENT, DETERIORATION, and DEPRECIATION, and unless we affix a clear significancy to language, we are almost certain to fall into a verbal dispute. No public man committed the error here alluded to more frequently than the late Sir Robert Peel, or with more pernicious effect.
Debasement means the fraudulent admixture of an inferior with a superior metal, as copper with silver, or silver with gold; in such a case the weight of the coin is preserved, but its parity is lost. This is Debasement.
Deterioration results from fair wear and tear, or from illegal clipping or sweating. In this case the genuine weight of the coin is reduced below the standard, though what remains of the metal is pure. Now, it is plain, in the very nature of things, that a Bank note can neither be debased nor deteriorated, for it does not admit of being blended with substances foreign to its character, which is paper; and, however worn, or torn, or dirty it may be, it loses none of its purchasing power from those circumstances.
It remains, then, only to consider the true import of the term “depreciation.” Mr. Huskisson and the Bullion Committee after him, affirmed that the Bank of England note was depreciated in the year 1810. This was true in one sense, but false in another sense; so that we must carefully discriminate between those senses. The argument of Mr. Hushisson was to this effect :— Previously to the Bank Restriction Act, a pound note and a shilling would purchase a gold guinea, but during the war it required a pound note and six or seven shillings to purchase a golden guinea. The inference was that the note was depreciated, or, as some American writers phrase it, pejorated; that is, become worse through an enfeeblement of its purchasing power. Let it be remembered, in reply to this mode of stating the case, that during the Restriction Act, guineas ceased to be legal tender coin of the realm, the Bank being exonerated from redeeming its notes in gold; guineas, therefore, during this period, were reduced to mere bits of bullion, and were treated strictly as commodities, and in common with all other commodities their price rose and fell in Bank notes under the law of supply and demand. Instead, therefore, of speaking of guineas, let its speak of bits of bullion weighing, each, 129 grains. This quantity of the metal rose in price, as did the quantity of all other articles under the pressure of increased taxation, which has already been shown on the authority of the tables compiled by the London Chamber of Commerce. Under this view, the answer to the Bullionists is, that they confound the appreciation of gold with the depretiation of notes, just as the uninstructed peasant confounds the apparent movement of the sun round the earth with the real movement of the earth round the sun.
But the argument against bullionism is far from exhausted. We have to take into account the effect of taxation on money, as the instrument of exchange. Let us first assume that the tax is direct on property and income, and, for the sake of illustration, fix it at five per cent. On these terms, every person having an income of £1000, would have to pay £50 to the receiver of taxes. This is equivalent to one shilling in one pound. Is this a depreciated pound ? In one sense it certainly is, since the effect of the tax is to leave only nineteen shillings where, had the tax not been imposed, twenty shillings would have been left. But no government can exist without taxes of some kind; and in this sense the pound, though fiscally excised, cannot be said to be depreciated; or, if a captious objector insists that it is, he must admit that it arises, not from any inherent vice or defect in the pound, be it gold or paper, but from the obvious act of the government, which certainly has no right to complain of its own act. It is indeed a grave error to suppose a paper currency alone is susceptive of this kind of depreciation, if the term be insisted on. Any currency, of whatever material formed, depreciates in the sense we are now considering, when prices generally rise in it, for these are convertible terms. If we say that goods have become dearer, it is just the same thing as saying that currency has become cheaper; for in proportion as commodities are dearer in relation to currency, currency is cheaper in relation to commodities.
Let us now consider the case of indirect taxation. It does not take effect on property in its first incidence, but on commodities, in consequence of which every thing rises in price, or rather ought to rise in price. Everything ought to be dearer in proportion to the tax, and therefore money ought to be cheaper in proportion to the tax. When the tax was direct, we have seen the purchasing power of the pound fall to nineteen shillings, when the rate was five per cent.; if it were ten per cent., the pound ought to fall to eighteen shillings. Now, if this were right and inevitable when a direct tax was levied, it ought to be right and inevitable when an indirect tax was levied; for when the form of taxation is changed, it is manifestly unjust, on that account, to throw fiscal burdens on labour by removing them from property. A proper legal tender should, therefore, be fluxional in its nature, because it has not only to represent intrinsic values, but taxation. This afforded protection to industry during the war, and enabled the government to raise loans and additional taxes. The pound was enfeebled in its purchasing power; more pounds had, in consequence, to be given than formerly were given for commodities; hence, profits and wages rose, and they who had advanced the indirect tax to government, levied on food and clothing, raw materials and manufactured articles, recovered that tax from the consumers of the products of their labour. Thus, with a fluxional pound, such as we had during the Bank Restriction Act, the real action of indirect taxation was precisely the same as direct taxation would have been.
But it may be urged, surely some fallacy lurks in this reasoning, since, if prices rose, all things must have become as much dearer to the productive classes, as they became to the unproductive classes. This is true, so far as the former classes were consumers, but not true so far as they were producers. It needs no proof that a working man always produces more than he consumes, or else there could be no interest on money, and no profit on capital. How much he produces more than he consumes, depends on his particular trade; but it is sufficient for our argument that he does produce more than he consumes. Let him produce five, whatever that may be, and consume one out of the five; on the one he pays the tax as a consumer, but on the four, as a producer, he recovers the indirect tax from the purchaser. But they who consume without producing, pay the whole tax without recovery, since they have nothing to sell as the result of their labour. The rise of prices, therefore, in a paper money, which permits such a rise, is a boon to the working man, as it throws the tax from labour to property, except so far as the working man is himself a consumer, and to that extent he ought in justice to be taxed.
When a man is asked—What is the height of the barometer ? he requires to know, before answering the question, what is the pressure of the atmosphere. In a similar way, when he is asked—What is a pound ? he requires to know what is the pressure of taxation. As the weight of the atmosphere varies the height of the mercury in the barometrical tube, so does, or so ought, taxation to affect the weight of metal contained in the gold pound. If it required a tax of twenty per cent. on all property to raise the revenue, the gold pound would be fiscally excised of one-fifth of its weight; or, in other words, the gold pound would be coined out of four penny-weights of that metal instead of out of five, and this depreciation, if men will insist upon the term, would exactly measure the national indebtedness. He who receives an income of £1,000, considers himself worth £1,000 a-year; but this is an illusion, as it depends on the forbearance of the public creditor; should the latter demand payment of the debt, and have the power to enforce the payment; and if the payment required a contribution of 20 per cent. on all property for its liquidation, it is plain that the income of £1,000 would be reduced to £800, since one-fifth would have to be cut off the principal yielding the rent or interest of £1,000 a year. This would not be depreciation, but the payment of a just debt, however long the payment may have been postponed. We are aware that the national debt is treated as a mere transferrable annuity, as the government can only redeem £100 stock by £100 sterling; but this arrangement between debtor and creditor does not invalidate the preceding argument, or its illustration of the fluxional character of a pound.
Mr. Huskisson and the bullionists are in error when they claim invariability for their pound. This is easily shown by comparing the rate of interest at various periods. It is known to have fluctuated since Peel’s Bills came into operation, though never before, from 2½ to 6, 8, and 10 per cent. If at one time the use of £100 for twelve months can be obtained by the payment of 3 per cent., while at another time 9 per cent. is demanded for a similar commodation, what becomes of the invariability of the purchasing power of the pound ? Again; if at one time it requires two sovereigns to purchase a quarter of wheat, and at another time four sovereigns, what becomes of the invariability of the pound as a pretended immutable standard of value ? These remarks are designed to apply to the vexed question of “depreciation,” but the subject will be more fully discussed, because more conveniently, when we arrive at the Act of 1816. We now proceed in the chronological order of this historical retrospect to some of the leading debates in 1811 on the Report of the Bullion Committee.
Mr. Vansittart, Chancellor of the Exchequer, obstinately denied the depreciation of the pound in any sense whatever, although its purchasing power had notoriously fallen during the war, since it then required a pound note and six or seven shillings to buy a guinea. We shall presently see that Mr. Canning alluded to this obstinacy in caustic terms.—Lord Castlereagh put the case of the government in the following point of view, which deserves a most careful perusal.
“ The law is clear. No person can deface or melt down the current coin of the realm being standard weight. It cannot, therefore, be converted into the shape of standard bullion to be sold, without a violation of that law, with reference to which the obligation of payment in gold by the Bank must be interpreted to have been contracted. Gold, obtained from coin not of standard weight may be melted down, but it cannot be sent abroad without fraud or perjury, or both combined. The person receiving the guinea ought, therefore, in strictness of law and good faith, to apply it to purposes of internal circulation only, and, so used, there is no reason to presume that it passes at a value, in Great Britain, superior to a Bank note. If the note commands the same value in commodities and performs all the same functions, so far as relates to internal circulation, as the coin, there is no just reason to consider the note as depreciated. Both the note and the coin were intended for internal circulation and for internal circulation alone. The contingent but illegal profit derived from diverting the coin from its legitimate purpose, is a species of value, which the bank paper never was in equity, or in fact, intended to represent. It is only through the operation of causes destructive of the established system of our standard coinage that this advantage can attach to coin over bank paper. To derive such an illicit benefit is an abuse, and, so far as it may operate at this moment, to occasion a disparity of value between coin and notes, the difference is very incorrectly stated under the term ‘Depreciation of Bank Paper.’
“ The Bank of England,” continued his lordship, “is not, in its constitution, simply a Bank of Deposit, as the Bank of Amsterdam, where no other value is received than deposits of silver; and for the return of which silver, on demand, to the person holding the note, or receipt of the Bank, there can be no justifiable excuse. But the Bank of England is a Bank of discount, as well as of deposit. It is obvious that the law which makes the standard coin the only legal tender on the part of the Bank of England in discharge of their notes, proceeds on the supposition of a natural state of things. It never could have been intended, under extraordinary circumstances, to enforce impossibilities; and the rights of persons, under that law, must be considered as circumscribed within certain practicable limits. It cannot be the right of a portion of the community, holding such security to press forward for payment, to take a benefit which cannot be partaken of by others similarly entitled. We should never forget that this measure (the restriction of cash payment) by supplying the country with a circulating medium of undoubted credit, proportioned to its wants, has, for the first time, solved the problem of reconciling national prosperity with a state of war. In former contests, the country invariably declined in its commerce, in its revenue, and even in its industry. In this war, whilst our exertions both by land and sea have in extent surpassed all former efforts, the country has risen in manufactures, internal improvement, revenue and commerce, with a velocity which has never been experienced in a period of profound peace. In the American war, its inevitable termination might be calculated from the decline of our resources; in this war we feel that our resources are augmenting, and that there is no necessary limit to our exertions in point of time, so long as the injustice of the enemy shall leave us no other choice but perseverance in the contest.”
Powerful as this reasoning was at the time it was used, and under the peculiar circumstances of the period, it must be admitted that Lord Castlereagh did not perceive that no conventional act of coinage can alter the natural character of gold as a commodity. Foreigners who come into our market never treat our coin as money, but as a commodity, though it sustains both characters among ourselves; and these must ever be in antagonism, so long as we make a distinction between the mint price and the market price of bullion.—The impress of the Queen’s head or of the figure of Britannia on the sovereign adds nothing to its intrinsic value, the whole of which it derives simply and solely from the quantity of labour it condenses. The ornamental devices and the mint mark merely certify the weight and purity of the coin, thus rendering unnecessary the trouble of weighing and assaying the metal when it passes from debtor to creditor. The conventional character of coined gold, therefore, in no respect supersedes or changes the native character of bullion; it still remains a commodity, merchantable by its own inherent qualities. If the London Goldsmiths’ Company were empowered to fabricate sovereigns they could discharge the duty as effectually and as satisfactorily both to ourselves and foreigners as the mint; and their mark would be as authentic a certificate of the weight and fineness of the coin as the mint mark. It is, therefore, plain, that whatever monied denomination may be put upon gold coin by authority, it will always retain its character as a bit of bullion, and in that character its market price will always have a tendency to depart from the mint price.
John Law.
During the debates, now under review, the bullionists attempted to strengthen their arguments in favour of depreciation, by citing the failure of John Law’s paper money, and of the revolutionary assignats of France. Those fallacies are not yet worn out, but are repeated with an air of authority by persons least conversant with even the rudiments of monetary science. It is proper, therefore, to give them a refutation.
John Law, of Lawriston, a Scotchman by birth, established a Bank in Paris, in 1716; in 1717, by an order in Council, the Western or Mississippi Company was created, and, by Command of the Duke of Orleans, Regent of France, during the minority of Louis XV., the Company and the Bank were incorporated. This was an act of power which Law could not resist, and he ought not to be held responsible for the results. They who took shares in the united undertaking were allowed to pay a part of their subscriptions in State paper, which was then at a depreciation of 54 to 60 per cent. A grant was made to the Company, and then to the Bank conjointly, of all Louisiana, then a province utterly uncultivated, and of course of no real value, but it was forced upon Law as the basis of the Company’s credit. In 1718 the subscriptions were declared Royal, and thus the government stretched its hands over the whole concern, and John Law at once became a subordinate. The Regent now became the sole proprietor of the shares. Law was made Director, under the Regent and the minor king, and from that time a stroke of the Regent’s pen was all sufficient for whatever was to be done. At the end of that year, Banks, dependent on the one described, were established in several great towns. In 1719 the interest of money was reduced to 3½ and 2½ per cent., and at last to 2 per cent., thus keeping the value of money in a constant state of fluctuation by contradictory edicts. In 1720, a new edict was issued, commanding that no corporation or individual should keep more than 500 livres (francs) in specie, on pain of heavy fine and confiscation of cash discovered; and the officers of justice were ordered to make all the inquisitorial visits and searches required of them by the Directors of the Bank.
At an assembly of stockholders, the Regent being present, a profit of 120 millions of livres, and 40 per cent. as the next year’s dividend on the subscribed capital, was held out. Then followed a prohibition to all persons in France, corporate bodies included, to keep any gold whatever after the 1st of May, 1721, on pain of confiscation. By that date every louis d’or was to be deposited in the bank. On the 21st of May a reduction of one-half of the shares was ordered, and on the 27th an edict was passed to restore the paper to its full value; but all payments at the Bank were suspended. Of course it was not long before the scheme, founded on so shameless a fraud, and which had not any basis, exploded. The premium which the shares at one time bore was so excessive that the value of the whole mass was calculated by M. Neckar, at six milliards of francs, or the gigantic sum of £230,000,000 sterling.
Such is a brief but accurate account of John Law’s Bank. Having begun, he was obliged to continue, or a lettre de cachet would have immured him in the Bastille, perhaps for life. Every one who knows the history of France at that period, is aware that the Duke of Orleans was one of the vilest of men, and his courtiers the most depraved of parasites and flatterers. They would have raked money from the filthiest kennels. Their Bank was started, after its junction with the Mississippi Company, for the single purpose of swindling, and their paper was no more than the symbol of a lie. It had no representative character whatever, not being backed by any reality.
We now turn to the assignats of revolutionary France. These were first issued on the proposition of Mirabeau, when the Church property of France was confiscated to national uses. At that time fear had either exported the bulk of the gold and silver coin and plate, or concealed it in secret places. The government, thus pressed, issued assignats in which the public service was paid, but agreed to take them back at the same nominal value at which they were issued from the holders, in payment for purchases of the confiscated Church lands. Thus provision was made for their gradual redemption and extinction. They were the bona fide representative of an equivalent reality, and were called assignats, because he who possessed them, on surrendering them to the treasury, had land assigned to him in exchange. They may be in some sense compared to English Exchequer Bills, and on their first emission bore a premium of two and three per cent.
But when the king and queen were murdered, and the reign of terror prevailed—when the scaffold daily demanded fresh victims, and the streets ran red with human blood—when ruffianly governments succeeded each other month by month, and all credit and security were annihilated—when assignats were forced into circulation at the point of the bayonet, when no provision was made for their redemption, and when they represented nothing but the worthless signatures of regicides and assassins—then those instruments were not only depreciated, but became utterly valueless.
The rise and fall of assignats is thus summed up by Henry Storch, the Russian political economist :—
“ Assignats were first issued by the National or Constituent Assembly, in 1790, to the extent of £48,000,000, the government receiving them back in taxes, and in payment of confiscated estates sold by auction. In 1795, the Convention, being at war with the whole of Europe, issued them to the extent of £787,980,000, by which the value of 100 francs, in paper, fell to about 100 pence, in copper. In 1796, the issue of assignats under the Directory reached the almost incredible amount of £1,823,160,000. Then an assignat of 100 francs currently exchanged for six sous, or 3d.”
In 1790, the assignat was truly and honestly what it pretended to be, the representative of a reality. In 1795 and 1796, it was a fiction and a fraud, representing nothing but the scaffold and the dungeon. It was no longer a monetary instrument, for there was no provision made for its periodical redemption. Every issue was cumulative, and the inevitable result was that the bloated mass burst. A bullionist who argues against the safety of paper money, redeemable from day to day by its conversion into taxes, because the notes of John Law and the assignats were NOT redeemable, is as illogical as he is dishonest.
David Hume and Dr. Franklin
Let us now listen to high authorities who have advocated the principle of paper money, properly regulated and secured, though not convertible into gold at a fixed price. David Hume, in a letter to the Abbe Morellet, makes the following remarks :—
“ In our colony of Pennsylvania, the land itself, which is the chief commodity, is coined and passes into circulation. A planter, immediately after he purchases any land, can go to a public office and receive notes to the amount of half the value of his land, which notes he employs in all payments, and they circulate through the colony by convention. To prevent the public being overwhelmed by this representative money, there are two means employed; first, the notes issued to any one planter must not exceed a certain sum, whatever may be the value of the land; secondly, every planter is obliged to pay back into the public office, every year, one-tenth of his notes. The whole, of course, is annihilated in ten years; after which it is again allowed him to take out new notes to half the value of his land.”
In 1764, before the Stamp Act was proposed in Parliament (which was passed in the next year, and repealed in the year following), Dr. Benjamin Franklin, writing in England in defence of paper money, expressed himself in the following terms :—
“ On the whole no method has hitherto been found to establish a medium of trade in lieu of money, equal in all its advantages, to bills of credit, founded on sufficient taxes for discharging them, or on land security of double the value for repaying them at the end of the term, and in the meantime made a general legal tender ? The experience of now near half a century in the middle colonies (New York, New Jersey, and Pennsylvania), has convinced them of it among themselves, by the great increase of their settlements, numbers, buildings, improvements, agriculture, shipping, and commerce. And the same experience has satisfied the British merchants who trade thither, that it has been greatly useful to them, and not in any single instance prejudicial.”
It has already been remarked that “had it been a law of nature that legal tender should possess intrinsic value, the earliest inhabitants of the earth would never have been permitted to apply primitive industry to agriculture, but would have been forced to discover gold and silver before they began to raise food;” and this applies to the state of the American colonies when they were dependencies on Great Britain. They must all have perished before California was discovered. We have seen how they flourished with paper money, on the testimony of Dr. Franklin. The celebrated Edmund Burke, in his speech on American taxation, delivered in the House of Commons, 19th April, 1774, corroborates that testimony :—
“ Nothing in the history of the world,” said that consummate orator, “is like their progress. For my part, I never cast an eye on their flourishing commerce, and their cultivated and commodious life, but they seem to me rather nations grown to perfection through a long series of fortunate events, and a train of successful industry, accumulating wealth in many centuries, than the colonies of yesterday; than a set of miserable outcasts, a few years ago not so much sent as thrown out on the bleak and barren shore of a desolate wilderness, three thousand miles from all civilised intercourse.”
Had modern bullionism prevailed in those times, Burke never would have pronounced this panegyric. The desolate wilderness would never have been converted into the cultivated garden.
During the bullion debates Mr. Canning made an able speech, though he opposed the government, and sided with the opponents of the paper money; but the speech is meritorious and memorable in this sense, that Mr. Canning distinguished between the mint and market price of gold. The following passages are important :—
“ If he (Mr. Vansittart, Chancellor of the Exchequer) will consent to let guineas go for what they are worth in the market, he will have a gold currency; he will prevent the exportation of our coin; he will get rid of fraud and perjury; and all this benefit he will purchase at no greater expense than that of being one argument out of pocket. It will then, to be sure, be vain for him to contend against the daily evidence of men’s senses, that Bank paper and guineas are, at their present respective denominations, equivalent to each other; but at least we shall have them both, and they may circulate amicably together.—That by no other possible means the coin of the country can be retained in circulation, so long as the precious metal of which it is composed is intrinsically of a value so much higher than the rate at which it is estimated in our currency—is a proposition of which all experience, as well as reason, establishes the truth. The present state of our law, in the present state of our currency, operates, in fact, as a bounty upon the exportation of our coin. ....... Independently, however, of these causes, the difference between the real value of the precious metals and that at which it is rated in our currency, would be itself sufficient to ensure us against the continuance of a guinea in circulation. Demand on the continent might be counteracted by demand here; and gold would cease to be a preferable article for transmission abroad from the moment at which it, like other articles, could be sold for its real value at home. But, imprisoned in the coin, and degraded by its imprisonment, gold has an unconquerable tendency to escape from a situation so unnatural, and it would make its escape from such a situation, even although you did not owe the continent anything, and although there were no more demand on the continent for gold than for any other merchandize. .......... The foreigner knows nothing of the value of the currency of any other country, except that a portion of that currency represents, and will procure, in his own country, a certain quantity of the precious metals.”
In this speech Mr. Canning rightly treated gold, whether coined or uncoined, as merchandize in the eye of the foreigner, who cares nothing about the different nomenclatures employed by different countries, as pounds, francs, florins, thalers, roubles, rix-dollars, piastres, &c. To the foreigner, gold is always a mere merchantable metal, neither more no less. He busies himself with nothing more than its relation to silver as bullion, which he knows to be in the relation of fifteen to one. The late Mr. James Mill thus clearly shows that metallic money is nothing more than a mere bullion commodity :—
“ When British goods, sold abroad, are paid for in money, it is not the denomination of the foreign coin which the merchant regards; it is the quantity of gold and silver it is its value as bullion merely that he estimates in the exchange; and it is in the form of bullion, not of foreign coin, that the gold and silver, when it is in gold and silver that he receives his payment, is imported. The importation of gold and silver, therefore, differs in no respect, from the importation of platinum, zinc, copper, or any other metal. A certain part of it being taken occasionally to be stamped as money, makes not an atom of difference between the cases.”[2]
There is another view of depreciation taken up by Mr. Tooke, Mr. Ricardo, and others, which must not be passed over without notice. With those writers the depreciation of paper means an advance in bullion beyond £3 17s. 10½d. per ounce, and they contend that the rate of advance is the measure of depreciation. But it should always be remembered that during the Restriction Act, the Mint neither gave a price nor paid a price; there was, in the most absolute sense, no Mint price at all. The notes of the Bank were not demandable in gold; guineas became a mere merchantable metal, although the government most foolishly made it penal to give more than a one pound note and a shilling for a guinea, and it was for this that Mr. Canning justly reproved Mr. Vansittart. The fact, however, remains indisputable, that there was no mint price. The government itself had secret agents who daily bought guineas for the market price of bullion, and sent those guineas to the peninsular army. Now, in all the reasonings of Messrs. Tooke, Ricardo, and others of the same school, they illogically referred to an open state of the mint; to a state of things in which bullion and money increased and diminished in quantity and value together; and attempted to measure by bullion the value of a money, no more depending on bullion for its increase or its limitation, than upon iron or calico; and of the value of which the one no more formed a measure than either of the two others. The money of the Restriction Act had no connection whatever with the Mint, for we had departed entirely from the metallic standard. The whole reasoning of Messrs. Tooke and Ricardo, therefore, proceeds upon false premises. As already observed, depreciated money, in the honest interpretation of the word, means money lowered in purchasing power, in reference to all things against which money exchanges; consequently, to estimate any alteration in the value of money by a scale drawn from the market price of a particular commodity, such as bullion, is false in its principle. During the Restriction Act, the prices of all commodities advanced owing to taxation, just as bullion advanced. Wheat at one period trebled in price, but it was never said on that account, that the one pound note had fallen to 6s. 8d. Gold alone was arbitrarily and falsely selected to test the measure of depreciation, and the miserable delusion has continued to the present hour.
This section of our inquiries affords a convenient opportunity for speaking of the Balance of Trade and the doctrine of the Foreign Exchanges, on both of which subjects much deplorable ignorance has been spoken and printed. Our ancestors, in common with the people of other countries, imagined that gold and silver alone constituted wealth. Hence the export of those commodities was rigidly prohibited under severe penalties. Neighbouring nations adopted the same error, so that there was a constant struggle to obtain and keep permanent possession of what were, and still stupidly are, called the precious metals, for in point of usefulness, and as agents of civilization and social happiness, gold and silver are dross compared with coal and iron. The gradual decline of Spain, which at one time commanded all the gold and silver of South America, and the industrial rise of Holland, which possessed neither in any large amount, were practical proofs of the current mistake, and induced reflecting men to examine into the verities of a doctrine transmitted by their ancestors. The result was, that the old law was repealed, and the free export of raw bullion was permitted, though that of coin was still prohibited. Then arose the dogma of the BALANCE of TRADE, which was based on the supposition that the excess of exports over imports was always paid to the exporting country in the two metals, or in one of them; from which it was inferred that the annual wealth of a nation, derived from foreign trade, was measured by the excess of its exports over its imports.
“ In consequence of these popular notions,” says Adam Smith, “all the different nations of Europe have studied, though to little purpose, every possible means of accumulating gold and silver. Spain, and Portugal, the proprietors of the principal mines which supply Europe with those metals, have either prohibited their exportation under the severest penalties, or subjected them to a considerable duty. The like prohibition seems anciently to have made a part of the policy of most other European nations. It is even to be found where we should least expect it, in some old Scottish Acts of Parliament, which forbid, under heavy penalties, the carrying gold and silver forth of the kingdom. The like policy also took place both in France and England.”
Although Adam Smith and David Hume demonstrated the fallacy of these silly and pernicious prejudices, they still pervade the minds even of men in authority, and influence the decisions of Parliament. Chancellors of the Exchequer congratulate the country in proportion as our exports exceed our imports; and unless this cause of rejoicing is to be referred to the old doctrine of the BALANCE of TRADE, which taught that the excess was paid in gold, it is extremely difficult to understand in what source those felicitations originate. Let us examine the soundness of this theory.
Common sense concludes that the aggregate of commodities in general constitute riches; that gold is only one of the forms of riches; and that riches accumulate when the incomings exceed the outgoings. If, in a given time, more water escapes from a tank than enters it, we have only to prolong the time to empty the tank. But if a merchant exhort produce worth £20,000, and imports produce in exchange worth £25,000 in his own country, he justly considers that he has gained £5,000 by the operation. Now, as a nation is but an aggregation of individuals, it might be presumed that what is true of an individual was true of a nation; but this conclusion is denied by the theory of the Balance of Trade, which affirms that the excess of exports over imports contributes to the riches of a nation and measures the profits of foreign trade.
This dogma was established when gold and wealth were used as synonymous terms, and when the riches of a country were computed by the accumulation of bullion. In those days people reasoned thus :— If, in the course of a year, or any other given period, England sells to France goods worth £100,000, and France sells to England goods worth only £90,000, this excess of £10,000 is remitted to England in bullion, and forms a permanent addition to English wealth. Now, assuming that this balance was always discharged in gold or silver, it would not prove the slightest acquisition of gain, since it is clear that, a full equivalent was given for the bullion in commodities, as we exported goods worth £10,000 more than the value of the goods we imported. A nation, therefore, is not enriched a solitary farthing by such an operation as we have described. The error originated in the assumption that riches consisted exclusively of gold and silver—no other commodity being accounted riches.
The theory involves another absurdity. It proceeds on the principle of accumulation; but, to render that principle sound, it should be shown that bullion is permanently detained in the country into which it is imported. If a country adds to the number of its houses, bridges, railways, or docks, these become enduring accessions to its REAL WEALTH; but the possession of bullion is transitory. “’Twas mine, ’tis his, and may be slave to thousands.” It is exported as merchandize whenever it is dearer abroad than at home; and when thus re-appropriated to the purposes of trade, the country reverts to the very same position in which it stood previously to the receipt of the metallic balance.
The theory, then, is groundless; first, because it exhibits no mercantile balance of profit; secondly, because it is based on the false assumption that the two metals alone constitute wealth, while it denies that wheat, coals, iron, and all other commodities are wealth, but affirms that they are merely subordinate instruments by which gold may be secured; thirdly, because it implies that imported bullion may be detained as a permanent deposit.
“ Had the apparent excess of exports over imports,” observes Mr. McCulloch, “as indicated by the Custom House books for the last hundred years, been always paid in bullion, as the supporters of the old theory contend is the case, there ought at this moment to be about £450,000,000 or £500,000,000 of bullion in the country instead of £50,000,000 to £60,000,000, to which it is supposed to amount.”
The fact is, that the exports and imparts must always practically balance each other, there ever being a tendency to equalization, however momentarily deranged by passing fluctuations; and it should be remembered, that though between merchant and merchant an account may be closed within the year, yet between nation and nation the accounts are never closed, so that it is impossible, in the aggregate, to discriminate between the adjustments and renewals of business.
Balance of Trade and Foreign Exchanges.
The theory of the Balance of Trade has led to a mischievous abuse of the word “Capital.” When the commodity gold leaves the country to purchase the commodity wheat, we are told by the bullionists school of economists that we have become poorer, because we have parted with our capital; but surely we have received an equivalent for the gold in the wheat; and having merely exchanged one capital for another, our real riches have not undergone any diminution by the mutation of form. We are congratulated on the briskness of trade, when we export large quantities of coal or iron, cotton or calico—how, then, does it happen that large exports of gold, for which we receive a full equivalent, are always attended with mercantile convulsions, and an enormous loss of property ? Because we perpetrate the folly of making gold our legal tender in the home trade, and command that home trade to be suspended, or carried on to the loss of the producer, whenever gold is exported. If we really become poorer, as the bullionists contend, by such an operation, common sense would put industry to work with increased activity to repair the loss with as little delay as possible; but the bullionists remedy is to keep our operatives in idleness, as though we could recover our position by closing the factories, blowing out the furnaces, and bringing the steam engine to repose.
Another fallacy, involved in the balance of trade doctrine, arises from an assumption that the profits of foreign trade are paid by foreign nations. When an English merchant buys from the inhabitants of England, a quantity of the surplus productions of their soil and industry, and exports those productions to foreign parts, he receives from the inhabitants of those foreign parts, by the intervention of their merchants, some for the surplus productions of their soil and industry in exchange. These he imports into England, and sells to her inhabitants, and receives from them more for these imports than he gave them for the goods which he previously purchased from them, and exported; and the difference between what he receives for the imports and what he gave for the exports (after deducting from that difference the expenses of the freight, insurance, &c., both of the imports and exports,) constitute his profit. His profit, therefore, is clearly paid, not by the inhabitants of the foreign country, but by the inhabitants of England. The inhabitants of the foreign country have lost nothing by the exchange, otherwise they would not have made it, for all honest and legitimate trade resolves itself into an exchange of equivalents; and the foreign custom house accounts may be, and probably are, so composed as to show a balance of trade, upon the same commodities, in what is called their favour. For example, when a merchant sits down to calculate a speculation, he reasons thus : If I send to Jamaica 10,000 yards of broadcloth, which I can buy in London and send to Jamaica for £10,000, and if that cloth will sell in Jamaica for such a quantity of the money of the island as will purchase a quantity of sugar that will sell in England for £12,000, I will do the business. By such an operation the merchant gains £2,000; but who has been his pay-master ? Who but the inhabitants of Yorkshire who made the cloth, and the same inhabitants (perhaps the very same,) or their neighbours in the counties of Lincoln or Norfolk, who consumed the sugar. The merchant in Jamaica who sold the sugar, gave less for it to the inhabitants of Jamaica than those inhabitants paid him for the broadcloth. Who furnished his profit but the inhabitants of Jamaica ?
The Bullionists, in urging the doctrine of depreciation during the war, complained that in consequence of that depreciation the foreign exchanges had become unfavourable to England. There is no subject on which more confused idea exist, than on that of foreign exchanges. In reality this mysterious operation resolves itself into the simple operation of buying of foreigners and selling to foreigners. When the exchange is favourable to England, other countries owe to England more than England owes to other countries. When the exchange is unfavourable to England, she owes to other countries more than other countries owe to her. In the first state of things, English exports are checked, foreigners being unwilling to increase their debt, while imports are promoted that the debt may be liquidated in commodities. In the second state of things, English exports are stimulated, while imports are restricted. If the debt of one country to another is not liquidated in goods, it is discharged in bullion. All these fluctuations have a necessary tendency to correct themselves. They never can, for any lengthened period, exceed the expense of transmitting bullion from the debtor to the creditor country. The true par of exchange forms the centre of these oscillations; and although the thousand circumstances which are daily and hourly affecting the state of debt and credit prevent the ordinary course of exchange from being almost at any time precisely at par, the fluctuations, whether on one side or the other, are confined within certain limits, and have a constant tendency to disappear. What the ebb tide takes away, the flood returns, and this efflux and reflux is incessant.
Thus much being premised on the general character of what is termed the Foreign Exchanges, it is desirable to impress on the reader a passage already cited from the speech of Mr. Canning :—
“ The foreigner knows nothing of the value of the currency of any other country except that a certain portion of that currency represents and will procure, in his own country, a certain quantity of precious metal.”
In this passage the whole philosophy of the foreign exchanges, so far as the doctrine of depreciation is concerned, is involved. If we choose to enact that our pound note shall only pass for sixteen shillings, or that our gold sovereign shall henceforth contain four dwts of that metal, instead of five dwts, the matter is one of perfect indifference to the foreigner. If he wanted an ounce of gold for his goods, he would price them at five of our pounds, instead of at four of our pounds. It is quite immaterial to him how we deal with each other; we may say that our pound shall only be current at home for ten shillings; he would protect himself by charging us two pounds where he formerly charged us only one pound, and the relation between us and him would relatively be unchanged.
The exchanges are mere simple calculations of the value of our own money denomination, the pound, in the money of other countries. — For instance, the English sovereign is found, on comparing it with the French denomination of money, the franc, to be worth intrinsically 25 francs 20 centimes; or, in other words, 25 francs 20 centime will purchase 123 grains of gold, which is the weight of the English sovereign; while 123 grains of gold will purchase 25 francs 20 centimes. They are, therefore, equivalents—and this relation constitutes the par of exchange between London and, Paris. In like manner compared with the money of Amsterdam, the sovereign is found to be worth eleven florins. Now, during the war against revolutionary and imperial France, our paper pound, sinking in purchasing power through taxation, ceased to be worth 25 francs 20 centimes, and gradually fell, till at last it would only purchase seventeen francs, or thereabouts. Did that injure us in our dealings with foreigners ? Quite the reverse. It was our protection. Prices rose in our markets, say from four nominal pounds to six nominal pounds, owing to taxation, because paper money permitted that rise. Had the foreigner who sold us goods at that time, received six gold pounds for that for which he formerly received only four gold pounds, he would have obtained six times 25 francs, or 150 francs, for what was only worth 100 francs. But our pound was only worth a little less than 17 francs, and six times that amount was 100 francs. That was our protection, and the foreigner was not injured.—We will put the same problem in another form.
Take a given quantity of wheat, and let its intrinsic value be equivalent to one ounce of gold, or four pounds in a metallic currency; let the wheat, through taxation, rise to six pounds in that metallic currency; in these circumstances let the foreigner import wheat; he would sell it in our market for six gold pounds, because though by the hypothesis it is intrinsically worth only four gold pounds, he has the advantage of selling it at our taxation price. He then calculates what he shall take back to his own country as a return cargo. He finds, on inquiry, that as taxation raised wheat from four gold pounds to six gold pounds, so, in like proportion, it has raised the price of all other commodities fifty per cent. Why, then, should he buy our iron, for example, at £12 per ton, when he can buy an equally good article in Sweden for £8. Why should he purchase our cottons or calicoes, if he can purchase the same goods at a cheaper rate in Saxony or Prussia ? He clearly will not. He is content to sell at our high prices, but is too wary to buy at our high prices. He ascertains that taxation does not take effect on our gold coin, which is fettered down to its invariable natural price by certain acts of parliament; the consequence is that he leaves our dear goods in our warehouses, and takes away our cheap gold. By this operation he gets one ounce and a half of gold for his wheat, which is only intrinsically worth one ounce of gold, as in the terms of the hypothesis, for the other half ounce is due to taxation, which adds to the cost of production, but adds nothing to the value of the product; and of this taxation the foreigner pays not one farthing. Now, the reader is requested to watch the progress of such an operation. The foreigner has six pounds in our bank notes; he presents four for conversion into the yellow metal, and receives for them one ounce of gold, which was the assumed value of his wheat; but he has two other pounds remaining; he presents them for conversion, and receives another half ounce of gold. Thus he gives us four pounds estimated in wheat, and takes from us six pounds estimated in gold; so that by this operation we lose half an ounce of gold on every quarter of wheat we purchase. This is precisely what would have happened during the war, had it not been for the enfeeblement which took place in the purchasing power of the Bank note. From so ruinous a loss we were only saved by what is stigmatized as depreciation; the unfavourable state of the Exchange, as it was foolishly called, was our protection.[3]
We will now present the problem under the different aspect. As we have seen, during the Restriction Act, the price of wheat advanced from four paper pounds to six paper pounds, owing to taxation. The foreigner sold his wheat, intrinsically worth one ounce of gold, for six paper pounds; he exchanged them for gold at the market price of that metal, not at the mint price, for the mint price no longer existed. The paper pound expressed taxation, and both the wheat and the gold had advanced from 4 to 6, which of course is the same as an advance from 2 to 3. Therefore the fluxional paper pound, fluxional because it rose or fell in purchasing power, as taxation rose or fell, receded from 3 to 2; that is to say, while nominally passing among ourselves for twenty shillings, its real value measured in bullion, had sunk to 13s. 4d. Six of such depreciated notes, therefore, would not purchase an ounce and half of gold but only one ounce; the foreign wheat, however, by the hypothesis, was only intrinsically worth one ounce of gold, and to that, but to no more, was the foreigner entitled. On receiving it he was not wronged; in paying it we were not injured; we did not really give six for four, but only nominally; really we gave four for four; and thus, by paper money expressing taxation, our foreign trade, during the restriction act, resolved itself into a fair exchange of equivalents.
Under such a system the foreigner had no inducement to take away our gold; he had every motive to buy our goods, instead of leaving them in our warehouses, thus practically realising what we have quoted from Xenophon : “Hence merchants are obliged to barter their wares for other wares.” How bullionism enables the foreigner periodically to ruin our home trade, we reserve till we examine the theory of Mr. Samuel Jones Loyd, now Lord Overstone.
1 The Currency Question in a Nut Shell. By Edward Capps, Esq.
2 Commerce Defended. By James Mill.
3 See Mr. Capps’ Lecture on the Act of 1844, delivered at the British Hotel.