I
The great practical question at issue, on Mr. Peel’s return from Ireland, was the currency.
The Bank, in 1797, declared, with the consent of the Government, that its notes would not be converted, on presentation, into gold.
At the time this was, perhaps, a necessary measure. It enabled the Bank to make large advances to the State, which it could not have made otherwise, and without which the Government would have found it difficult to maintain the struggle of life and death it was engaged in. We did, in fact, in our foreign war, what the United States lately did in their domestic war; but the commercial consequences of such a measure were inevitable.
If the Bank gave a note convertible into gold on presentation it gave gold: if it gave paper, which simply specified the obligation to pay gold for it some day or other, the value of the note depended on the credit attached to the promise. The promise to do a thing is never entirely equivalent to doing it; consequently, it was utterly impossible that a bank-note, not immediately convertible into gold, could have precisely the same value as gold. Gold, therefore, would have a value of its own, and a bank-note a value of its own. Moreover, as the value of the bank-note depended on the faith placed in it, if it had been merely required for home trade, the decrease in value would have been small; because the English people had confidence in the Bank of England and in the Government which sustained it; but in all foreign transactions the case was different. If an English merchant had to purchase goods on the Continent and he sent out bank-notes, the merchant at St. Petersburg would have less confidence in the English bank-note than the Manchester merchant, and he would therefore say, “No, pay me in gold; or if you want to pay me in bank-notes, I will only take them at the value I place on them.” In proportion, therefore, to the extent of purchases abroad was the natural abasement of paper money at home, and the increase in the value of gold as compared with paper. Besides, paper money, resting on credit, partook of the nature of the public funds, depending also on credit. As the one fell naturally, in a long and critical war, so the other fell from the same cause, though not in the same degree; all our dealings were thus carried on in a money which had one real value and one nominal one; and the real value depending, in a great measure, on matters beyond our control. Efforts on the part of our legislature to sustain it were useless. We forbade persons giving more for a guinea than twenty-one shillings in paper money, and we forbade persons exchanging a twenty-shilling bank-note for less than twenty shillings. We tried, in short, to prevent gold and silver getting the same price in England that they could get out of it.
The inevitable consequence was, that the precious metals, in spite of stupid prohibitions against their exportation, went to those countries in which it could obtain its real value. In this manner there was, first, the transmission of coin for the maintenance of our armies; secondly, its exportation for the purposes of our commerce; and, lastly, its escape from the laws which deteriorated its value, all operating to drain England of its gold and silver; and in proportion as they became scarcer, their comparative value with paper increased, insomuch that fifteen shillings in coin became at last equivalent to twenty shillings in paper bank-notes.
Much was said as to the over-issue of bank-notes. It may always be taken for granted that where there is an inconvertible paper, there is an over-issue of bank-notes; because the over facility of having or making money will naturally tend to the over-advance of it. But we must remember, that a currency must be in proportion to the transactions which require it; that our trade increased almost, if not quite, in proportion to the increased issue from the Bank; that the absence of coin necessitated a large employ of paper, and that there did not appear to be that multitude of bubble schemes which are the usual concomitants of a superabundant circulation. There were, in fact, quite sufficient reasons, without attributing indiscretion to the Bank, to account for the difference between its paper and the coin it was said to represent; nor is there any possibility of keeping paper money on an equality with metallic money, except by making the one immediately exchangeable for the other.
The inequality, then, between paper money and metallic money could only be remedied by re-establishing that immediate exchange. But this was not an easy matter.