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strong on their side as it had formerly been against them. What could be more triumphant than this? What could be more splendid testimony to their accuracy and soundness than the fact that they had converted the immense hostile majority of the commercial world?

113. In order to give some idea of this remarkable change in opinion, we must make some extracts from the evidence of the witnesses.

Mr. Dorrein, Governor of the Bank, said to the Lords' Committee, p. 31

"The advances of the Bank to Government upon Exchequer bills cannot be recalled at the pleasure of the Bank. But, when money is lent at short periods, the Bank has a control over an excess of circulation, so as to check any improper speculation, and the means of sending bullion out of the country; and thus the Bank would have an influence over the foreign exchanges."

"Are you, then, of opinion that the exchanges are affected by the increase or diminution of the number of Bank notes in circulation?"

"A scarcity of circulating medium, of whatever it may consist, will oblige merchants to draw in their funds from foreign countries, and the superabundance of it will send the precious metals out of the country."

"The consequences of a scarcity of money would be to force an export of merchandise and manufactures, which would render the exchanges favourable to this country."

(Before Commons' Committee, p. 32.)

"A lessened circulation will have an effect to render the exchange favourable ?"

"Because it would force an export of merchandise, and an export of merchandise would bring money into the country." "You have said that a contraction of the issues would lower all prices. Are the Committee not to understand that it must lower the prices of gold and silver, as well as of all other commodities?"

"I apprehend it would."

"Assuming the course of foreign exchanges to be 5 per cent. against this country, would not the effect of a diminution in the

price of commodities, clearly, consequent on a diminution of issues, be to restore the exchanges to par?

"The effect would be to force an export, and thereby raise the exchange."

114. Mr. Pole, Deputy-Governor to the Bank, said to the Lords' Committee, p. 35

"Whether the gold appearing to vanish, and going out of the country, does not proceed, in your judgment, from the unfavourable state of the exchanges?"


"Is it your opinion that the exchanges are affected by the increase or diminution of the circulation of Bank of England notes ? "

"Inasmuch as in that case the interest of money becomes so reduced in this country as to hold out a beneficial prospect to persons in sending their capital from this country, to be invested in foreign securities, where a larger interest is made, consequently, a debt is created from this country, payable to foreign countries."

(To Commons' Committee, p. 35.)

"Do you think a considerable reduction in the amount of your paper issues would affect the exchange?"

"I do."

"Is the answer you have given with respect to the effect upon the exchange of a reduction of the issues of the Bank founded on observation and experience of particular cases, or the result of reasoning only?"

"Entirely upon reasoning; and my reasons are, that I conceive it would compel persons to withdraw their capital from the continent to this country, on purpose to be able to support their own payments."

115. Mr. Haldimand, a director for ten years, but at that time out by rotation, said to the Lords' Committee, p. 40—

"Do you conceive that, by a considerable reduction on the part of the Bank of the amount of its issues, the Bank would be enabled to resume with safety its payments in cash?"

"Most decidedly."

"Are we to understand, then, that, in your judgment, the



effect of such a reduction of its issues would be to render the exchange favourable to this country?"

"I certainly have always considered the amount of the issues of the Bank of England to act as a powerful lever upon all our foreign exchanges, so as to regulate their rise and fall."

"I conceive the exchange to be affected by the aggregate amount of the issues of the country bank, and Bank of England paper."

"You have stated, on a former day, that you always considered the amount of issues of Bank notes to act as a powerful lever upon all foreign exchanges, so as to regulate their rise and fall; do you apply this to the price of gold?"

"I do."

"Do you ground this opinion upon reasoning, or upon what you have observed to take place?"

"I have grounded my opinion formerly upon reasoning, and my observation has since justified that opinion."

The witness produced a report of the Governor of the Bank of France, detailing a commercial crisis, and offering very strong and clear proof that an excess of paper circulation did affect both the exchanges and the price of bullion.

"It appearing from the accounts before us that the exchanges were very nearly par in the month of September last, and afterwards became more unfavourable than they had been since 1815, to what do you ascribe the great depression which has taken place since that time?"

"It would be difficult to point out the particular circumstances independent of the great principle of the depreciation of our paper currency, which affect our exchanges from time to time. I believe that the investments in foreign stocks did for a moment produce part of that fall, but I should attribute a very small part of it to that cause, and fall back upon my principle of an excess of currency. I most certainly believe that, had the Bank at that moment been paying its notes in specie, the depression alluded to would not have taken place. I ground my opinion on what I observe to be passing between other countries with regard to their exchange operations. France has at this minute nearly twenty millions sterling to pay to foreign powers; and although three payments have been already made, and the whole are to be completed within 27 months, no sensible effect has

been produced upon its exchanges with other countries equally paying their notes in specie, such as Holland and Hamburg; nor does it appear that any inconvenient diminution has yet taken, or is contemplated to take, place in the metallic currency of that country. My opinion is, that a very small portion of this large payment will be made in specie or bullion. When a certain amount of the circulating medium has left France, the remainder will rise in value, and goods fall in price, when, consequently, it will become more advantageous to France to remit the remainder in its produce and manufactures from time to time."

(Before Commons' Committee.)

"I look upon this forced reduction of the issues of the Bank of England as necessary in order to restore the rest of the paper in circulation to its ancient value in gold, and the exchanges to par. I have no hesitation in stating it to be my decided opinion, that the exchanges would be restored to par immediately the Bank resumed its payments. I think the depressed state of the exchanges arises entirely from the excessive issue of Bank of England notes. I have never heard of any country not paying its paper in specie on demand where such paper has not been depreciated."

"You are understood to say, it is your opinion that the foreign exchanges and the price of gold are principally affected by the amount of issues of paper currency?"

"That is my opinion."

"What reason have you for believing that the circulation for the last half-year bore a greater proportion to the supply required for the purposes of trade than the circulation of the last half-year of 1817?"

"Because the paper was more depreciated at one time than at the other; or, in other words, because the market price of gold was higher at the former than at the latter period."

"Do you consider the price of gold to be the chief criterion by which to judge of the excessive issue of Bank notes?"

"I do."

"I happened to be in Paris in October last, when the Bank of France reduced its issues upon discounts very considerably and suddenly. The issues of the Bank of France upon discounts at that period were 130 millions of francs, which was more than

double the highest amount that was ever previously known. This step on the part of the directors of the Bank of France was occasioned by the following circumstances. The metallic currency was leaving the country in all directions, owing, in all probability, to some trifling degree to the over-issue of paper, partly to some large financial operations in Russia, and partly to the enormous payments that France had engaged to make to foreign powers, which amounted to nearly 20 millions sterling. The Paris bankers, therefore, anticipating a great demand for bills upon all foreign countries, were remitting specie to meet the drafts which they intended to negotiate to the agents of all those foreign powers, with a small advantage upon their remittance. The sudden diminution, however, of the discounts of the Bank, caused the exchange to turn in favour of France, and immediately paralyzed all these operations; the metallic currency made a retrograde movement, and was restored to Paris and to those parts where the greatest distress had been felt."

"You have stated that you attribute the present high price of gold above the Mint price, and the unfavourable state of the exchange, to the excessive issues of the Bank of England, influencing thereby the general paper circulation of the country; have you any other reason for deeming the issues of the Bank of England to be excessive, except that indication which you collect from the price of gold and the state of the exchange?"

"I never saw these effects produced by any other cause in any country in the world."

"Is the Committee to understand your opinion to be, that a high price of gold and an unfavourable state of the exchange ought, in the discretion of the Bank of England, to lead to a reduction of their issues until that high price of gold or unfavourable state of exchange is reduced, if not to par, to that price above par which amounts to the expense of transfer of the precious metals from one country to the other."

"I am decidedly of that opinion."

"Is the Committee to understand you to be of opinion that that is the true criterion for the Bank to look to, whether the Bank be open or shut?"

"It is, in my conception, the only criterion."

"I consider the same doctrine to hold good in the case of war as well as of peace."

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