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98. We are accustomed to smile at the famous decree of the Inquisition, which resolved that the motion of the earth was false, and sympathise with Galileo, who, when retiring from their rebuke, said "e pur si muove," "it moves for all that." But the famous resolution that guineas were equal in public estimation to Bank notes, when guineas were currently sold for a £1 note and seven shillings, and the dictum of Lord Stanhope that they were equal because the law declared them to be so, infinitely transcends it in absurdity; and, when we feel inclined to be merry at the expense of the worthy fathers of the Inquisition, we should think of Mr. Vansittart's resolution, and be grave.
99. The Bill was warmly contested in every stage of its progress through the House of Lords, but finally passed the third reading by a majority of 43 to 16. In the House of Commons the debates were equally warm and protracted, but it was finally passed by a majority of 95 to 20. The Act was originally limited to the 24th March, 1812, but it was subsequently continued during the continuance of the Bank Restriction Act.
100. We shall reserve some remarks regarding the effects of the great overtrading of 1809 and 1810, till the chapter in which we shall consider the theory of the Bank respecting the issues of its notes upon mercantile security,
101. Among other arguments alleged against the opening of the Bank, was the injustice of compelling it to buy gold at the increased market price. Now that we are enabled to take a more dispassionate view of the subject than those whose interests were so much involved in it at the time of the debate, we can see that there was no hardship in such a requirement. Every creditor who was paid in these depreciated notes was defrauded of 20 per cent. of his debt, and, considering the enormous gains made by the Bank at the expense of the holders of its notes, justice evidently demanded that the Bank should purchase whatever quantity of gold was sufficient to discharge its obligations, cost what it would. The injury to the holders of its notes, severe as it was, was only temporary, but a very much more serious injury was done to the nation, by adding an enormous
amount to the national debt, which was contracted in this depreciated currency.
102. The harvest of 1811 was extremely deficient, and that was the period, too, when the power of Napoleon was at its height, and the continental sources of supply were cut off. Towards the middle of 1811, the price of corn began to rise very rapidly, and continued doing so till August, 1812, when it reached its greatest height during the war. The average of wheat for England and Wales was then 155s., and some Dantzic wheat brought 180s., and, in one or two instances, oats were sold at 84s. The advocates of the rival theories attributed this extraordinary rise to different causes; one party almost entirely to the depreciation of the paper currency, the other party almost entirely to the great scarcity. Mr. Tooke is the most distinguished advocate of the latter view, and, in support of it, brings most forcible arguments from the corresponding rise which took place in France during the same period, where the currency was almost purely metallic. Admitting to the full extent the powerful arguments adduced by Mr. Tooke, which derive additional force from his being a cotemporary of the circumstances he describes, we can yet hardly think he can be correct in so entirely excluding the effect of the depreciation of the paper currency as he does. We have abundance of evidence that before the Gold Coin and Bank Note Bill, there were very generally two prices in the country, a gold price and a paper price after that Bill that was abolished, and there was nothing but a paper price, and gold totally disappeared from circulation; but can we doubt that if any price had been paid in gold, there would have been a very great difference between the two, fully as great as before that Act? If, then, it be granted that such would have been the case if payments had been made in gold, it seems to follow that, when prices were paid solely in paper, they must be considered to have been enhanced by just so much as the difference would have been if any payments had been made in gold. There does not appear to be the least reason to suppose that the scarcity was comparatively greater in 1812 than it was in 1800; in fact, the evidence seems to be entirely the other way, that the scarcity and distress was much greater in the former period, yet in 1812, the average rose to 155s.; in the former it
was only 133s. Whence this difference? We think the evidence points clearly to the depreciation of the paper in which payments were reckoned. Now, in May and June, 1812, the price of gold bullion was about £4 18s. per ounce, at which the real value of the note was 15s. 11d. Now, are we to suppose that the enhancement of prices, when paid in paper, which was quite notorious before Lord Stanhope's Bill, was actually annihilated by that Act?
103. The principles of the Bullion Report having been decisively rejected by Parliament, and pronounced to be fallacious, by the resolutions which declared 21 to be equal to 27, the Bank took no measures to bring their notes to a nearer conformity to their nominal value, and the market or paper price continued to rise till, in November, 1813, it stood at £5 10s., the greatest height it ever reached. The long continuance of high prices, partly caused by a continued series of deficient harvests, and partly by the depreciation of the paper in which they were paid, gave rise to the belief that they would continue permanent. Immense speculations began in land-jobbing, vast tracts of waste and fen land were reclaimed. It was at this time that the immense agricultural improvements in Lincolnshire were effected. Rents in most cases rose to treble what they were in 1792; all the new agricultural engagements entered into at this period were formed on the basis of these extravagant prices; landlords and tenants increased their expenditure in a like proportion, family settlements were made on a commensurate scale. As a natural consequence, country banks greatly multiplied. In 1811 they were 728, in 1813 they had risen to 940, and the amount of their issues were supposed, on the most moderate estimate, to be about £25,000,000. After the disasters of the French in the Russian Campaign of 1812, and the Battle of Leipsic, the ports of Russia and Northern Germany were thrown open to British commerce. This naturally gave rise to enormous speculative exports and overtrading.
104. The harvest of 1813 was prodigiously abundant, so that the price of corn, which in August, 1812, had been 155s., and had receded gradually from that point, till August, 1813, fell with great rapidity, and in July, 1814, was only 68s. The ex
porting speculations were at their height in the spring of 1814, and the prices of all such commodities rose to a very unusual height, in many cases to double and triple of what they had been before. Every branch of industry was by the preceding causes affected, and the natural and inevitable consequences soon followed: a violent revulsion and general depression of prices of all sorts of property, which entailed such general and universal losses and failures among the agricultural, commercial, manufacturing, mining, shipping, and building interests, as had never before been paralleled. As is always the case, the consequences of the wild speculations and engagements persons had entered into during the continuance of the fever continued to be felt for some years after. The disasters commenced in the Autumn of 1814, continued with increasing severity during 1815, and reached their height in 1816-17. During these years 89 country bankers became bankrupts, and the reduction of the issues of country paper was such, that in 1816 its amount was little more than half what it had been in 1814.
105. This general discredit of country bank paper, resembling what had previously occurred in 1793 and 1797, caused a demand for additional issues from the Bank of England, to help to maintain public credit; and, though this caused an extension of the Bank paper by upwards of three millions, so great was the abstraction of country Bank paper from circulation (to certainly three times the amount of the Bank of England issues), that the value of the whole currency rapidly rose, so that, while in May, 1815, the market or paper price of gold was £5 6s., the exchange on Hamburg 28.2, and that on Paris 19 in October, 1816, the paper price of gold had rapidly fallen to £3 18s. 6d., the exchange with Hamburg was 38, and that on Paris 26.10., and they remained with little variation at these prices till July, 1817.
106. Hence, at length, was manifested the most complete triumph of the principles of the Bullion Report. The great plethora of this worthless quantity of paper currency being removed, the value of the whole currency was raised almost to par, so near, in fact, that the smallest care and attention would have brought it quite to par; and if means could have been taken to prevent the growth of the rank luxuriance of country Bank
notes, cash payments would have been resumed at this period with the utmost possible facility, and, as a matter of course, without exciting the least comment.
107. We have seen that, on several previous occasions, the Bank had intimated to the Government their perfect readiness and ability to resume payments in cash, but had always been prevented from doing so for political reasons. In 1815, when peace was finally restored, they prepared in good faith to be ready to do so as soon as they should be required, and, during that year and 1816, they accumulated so much treasure that, in November, 1816, they gave notice of their intention to pay all their notes dated previously to the 1st January, 1812, and in April, 1817, all their notes dated before 1st January, 1816. When this was done, there was found to be scarcely any demand on them for gold. The nation had got so accustomed to a paper currency that they were most unwilling to receive gold for it. Mr. Stuckey, one of the largest bankers in the West of England, said, that during this partial resumption of cash payments it cost him nearly £100 to remit the surplus coin which accumulated upon him to London, as he could not get rid of it in the country, his customers all preferring his notes; many persons who had hoarded guineas requested as a favour to have notes in exchange.
108. In March, 1812, the restriction was prolonged to July, 1816. The bill was brought in and passed before the news of Napoleon's quitting Elba had reached England. The Act was scarcely passed when the new war broke out which ended at Waterloo, and the expenses of the campaign made the Ministers dread a monetary crisis, and the restriction was subsequently prolonged till July, 1818.
109. The partial resumption of cash payments was attended with perfect success; it caused no very great demand for gold, which continued to accumulate in the Bank till October, 1817, when it reached its maximum, being £11,914,000. In that month the Bank gave notice that it would pay off in cash all the notes dated before 1st January, 1817, or renew them at the option of the holders. In the course of 1817 a very large