mark of distinction between the state of our currency, and some of the depreciated paper currencies on the continent, such as the French assignats, to which it has often been compared: for in France, when the depreciation of the assignats had taken place, it was customary, in the ordinary course of buying and selling, to give a whole handful of them for an article which could be purchased for a few louis d' ors. In that case, the paper was certainly depreciated, while the gold remained stationary; but the cases are plainly quite different.-As to the other supposition, the over-abundance of the circulating medium, this is plainly not to be inferred from the single circumstance of the bank paper having been increased from ten to twenty millions; for, in order to establish this inference, it would be necessary to shew, that the increase both of the internal trade and foreign commerce of the country, did not require an increase of the circulating medium, equal to that which actually took place; a proposition of which the proof would, we apprehend, be no easy matter. That our paper currency, during the period of its supposed depreciation, was not more than sufficient to answer the demand of the country, may be concluded from the circumstance, that a considerable quantity of the paper of country banks was in circulation. In the ordinary state of things, the issue of paper is limited by its convertibility into specie. The objection to pay in specie is said, by those who maintain the depreciation of the currency, to have kept down the issues of the bank previous to 1797; and the subsequent over issues, they say, have been occa sioned by the removal of this restraint. This, however, does not apply to country banks, because the convertibility of their notes into those of the Bank of England, must have operated as a check upon over-issues on their part. Had, therefore, the country banks

made over-issues of notes to any considerable extent, when the channel of circulation was already full, these notes, instead of being absorbed in the circulation, must have returned as fast as they were issued. But this did not happen; and the reason appears to be, that the notes of the country bankers, as well as those of the Bank of England, were necessary for the purposes of the country.

Had the increase in the issues from the Bank of England produced a depreciation in its paper, the difference between the value of paper and of gold should have gradually increased along with the amount of the issues. But this was not the case. In the year 1796, the amount of the cir culating paper of the bank was between nine and ten millions, and the price of bullion was 31. 17s. 6d. per ounce in 1797, the amount of the paper was about eight millions and a half, and the price of bullion was 31. 17s. 10d. From this time to the year 1808, the amount of bank paper gradually increased to above seventeen millions, while the price of gold only rose to 4. per ounce. On the cessation of hostilities in 1814, the price of bullion suddenly fell from 5l. 10s. to 4. 5s., while the circulation of the Bank of England notes increased from 23 to 27 millions. Here, therefore, there was no correspondence between the cause and its supposed effect.

It was not till the year 1809 that a considerable rise took place in the price of bullion. In that year it rose very suddenly; and in the course of the year 1810, was at 41. 13s. From that period it still continued to rise till the return of peace in 1814, at which period it had risen so high as 57. lỗs., when it rapidly fell to an inconsiderable height above the standard. On the return of Buonaparte from Elba, the price of bullion rose to its former height, and again fell after the battle of Waterloo. These fluctuations were

certainly attended by corresponding varieties in the course of exchange, which was most against this country when bullion was at the highest price. But these circumstances may be accounted for without the necessity of supposing a depreciation of our paper


In 1808, when we began to send large armies to Spain, our foreign expenditure was increased beyond all proportion to what it had formerly been; and this expenditure continued to be very great till the end of the war. Large quantities of specie were continually sent abroad, not only to answer our military expences, but to pay subsidies to our northern allies. The country was drained of its bullion, the want of which was supplied by increased issues of paper; and the natural consequence of this was, that a local and temporary rise in the price of bullion took place in this country, arising from its scarcity. This simple view of the matter accounts for the high market price of bullion, and for the circumstance which has been held as the most unequivocal evidence of a depreciated currency, the exchange of a guinea for 25s. or 26s. And here, it will be observed, that the effect cor. responds with the cause assigned to it; for the rapid rise in the price of bullion did not take place till our large exports of specie commenced.

The great differences in the exchanges between Great Britain and the continent, during the period when the price of bullion was so high, have been given as a conclusive proof of the depreciation of our paper currency. It was attempted to explain this difference upon the principle of the balance of trade being against this country ;* but those attempts were shewn, by those who argued for the depreciation,

to be unsuccessful. If a person in: London bought a bill on Hamburgh, he was obliged to pay above 20 per cent. of premium, if he purchased with paper; but if he bought the bill with bullion, he paid a premium of only 6 or 7 per cent. The real difference of exchange, therefore, it was argued, was only 6 or 7 per cent. against this country, and the additional difference was occasioned by the depreciation of our paper. It thus appears, that the difference of the exchanges did not arise solely from an unfavourable balance of trade; but it does not follow, as the only alternative, that it proceeded from the depreciation of our cur. rency. It was admitted, that when the apparent difference of exchange was above twenty per cent., the real difference of exchange was from five to eight per cent. against Great Britain. This difference, according to the common principles of exchange, arose from this country being obliged to remit specie to Hamburgh, &c. During the period of unfavourable exchange, remittances from London to Hamburgh must have been made by the actual transmission of specie. If, therefore, a person in London, who wished to make a remittance to Hamburgh, had bullion in his possession, with which to do so, he, of course, had only to give it to a money-dealer, whose business it was to send money to Hamburgh, and that money dealer would send the money for him, on being paid the charges of doing so; or, in other words, the person who had to make the remittance would, with the bullion, buy from a banker a bill on his correspondent in Hamburgh, paying a premium; and the Hamburgh banker would pay the bill to the person in whose favour it was drawn, by means of gold sent to him from London. If

Evidence before the Bullion Committee in 1810.

+ Wealth of Nations, (Buchanan's edition,) vol. iv. on Paper Currency. And Edin burgh Review, No. LI `p. 150.

a person in London, who wished to make a remittance to Hamburgh, was not possessed of the gold necessary for that purpose, it would be requisite for him to purchase the gold from a money-dealer; and as gold, from the causes already mentioned, had become scarce, and consequently dear, the person who bought the bill would have to pay the money-dealer the high market price of the bullion, besides the usual premium for transmitting it. The apparent rate of exchange, then, would be composed, partly of the high price which it was necessary to pay for bullion, and partly of the usual premium for its transmission, which, in ordinary cases, constitutes the whole rate of exchange. But this additional difference in the exchange would plainly arise as naturally from a local and temporary rise in the price of bullion in Great Britain, as from a depression in the value of the paper currency.

The preceding argument applies to the case of the course of exchange being really against this country, though the actual difference in the exchange was much smaller than the nominal one. But it has been said, that latterly the course of exchange turned actually in favour of this country, while the rate of exchange still remained against us; and this circumstance has been urged as a conclusive proof of the depreciation of our paper currency. But this difficulty will vanish, like the former, on a close examination. When the balance of trade between London and Hamburgh is in favour of London, this balance must be settled by remittances of specie from Hamburgh to London; and therefore, upon the common principles of exchange, remit tances from Hamburgh to London ought to be attended with a certain rate of exchange, paid by the remitter; while remittances from London to Ham

burgh ought to be attended with a cer tain premium, received by the remitter. But, in the case under consideration, the reverse happened, and remittances from Hamburgh to London, and from London to Hamburgh, continued to be made, as if the balance of trade were still in favour of Hamburgh. The temporary high price of bullion in Great Britain, however, occasioned by. the great demand for that commodity, will be found quite sufficient to account for this anomaly. When a merchant at Hamburgh has occasion to make a remittance to London, he pays a banker or money-broker in Ham. burgh the amount of the sum in spe. cie, and receives a bill on the banker's correspondent in London. The bill is sent to London, and the amount of it paid to the holder by the London banker in Bank of England notes. The holder of the bill thus receives the full amount of his remittance in British currency; but let it be observed what becomes of the bullion originally paid by the remitter at Hamburgh. In consequence of the state of the exchange, the Hamburgh bank er must send bullion to London to enable his correspondent to meet the draught upon him. If the Hamburgh banker send bullion equal to the full amount of the remittance, his correspondent in London will receive more than enough, as the bullion, when he receives it, will be worth more than the Bank of England notes, with which he must pay the remittance. This state of things will influence the transaction from the beginning. The Hamburgh merchant, on buying his bill from the banker, will obtain it for a quantity of bullion somewhat less than the amount of the remittance; and this quantity will be exactly as much as, when it arrives in England, will be equivalent to the amount of

*See Mr Horner's speech on the question as to the bank restrictions, page 24. of this volume.

the bill in Bank of England notes. This difference between the quantity of bullion paid at Hamburgh, and the amount of the sum contained in the bill, may be so great as to overbalance the amount of the exchange which, in the ordinary case, must have been paid on the remittance; so that, in place of paying an exchange, the Hamburgh merchant will, receive a premium. Next, let the case be taken of a remittance made by a merchant in London to Hamburgh. He buys, with bank of England notes, from a person who has money owing him in Hamburgh, a bill on the debtor in Hamburgh. The bill is sent to Hamburgh, and the amount of it is paid in specie, by the Hamburgh debtor, to the person who presents it. The effect of this transaction is, that a quantity of bullion, which, from the state of trade, must have otherwise been sent from Hamburgh to London, in payment of a debt due to the person who granted the bill, is detained at Hamburgh, and paid there to the person in whose favour the bill was drawn. But the drawer of the bill, who gave it for the amount in Bank of England notes, prevents himself from receiving the amount in bullion, which would have been the case had his debtor in Hamburgh paid the debt directly to himself; and, before granting such a bill, therefore, he must receive the difference between the amount of the remittance in gold and in Bank of England notes. This difference is what may constitute a nominal exchange against this country, even when the course of trade is in our favour.

Another circumstance, stated as inconsistent with the idea of a local rise in the price of bullion,-that Bank of England notes were exchanged at different places on the continent for 13s. 14s. and 15s.,-does not

appear to be at all inconsistent with this supposition, as the same cause which affected the foreign exchange must have produced this consequence. On this subject it may be remarked, that nothing but specie is employed on the continent in the usual course of circulation. During the first years of peace all other media of exchange were viewed with doubt and jealousy, and notes were accepted only at a discount, for the same reason that an ignorant person would take a diamond in payment with some hesitation, because he is uncertain as to its value.

It is further denied, that such large exportations of specie took place as could have affected the price of bullion or the rate of exchange; and it is said, that equally large exportations took place at former periods without these effects. It is admitted, however, that in 1808 the exportation to Spain and Portugal amounted to near three millions; in 1809, 1810, and 1811, to above half a million each year; and in 1812 and 1813, to between three and four millions. Besides, it is certain, that a great quantity of specie was sent to the north of Europe in 1813 and 1814, in payment of subsidies : And it is necessary, farther, to take into account the exportation of specie occasioned by importations of corn, and other foreign commodities, for which it was necessary to pay in specie. When all these things are considered, it will hardly be doubted, that an exportation of specie took place suffi cient to render it both scarce and dear at home. In support of the assertion, that large exportations took place at former periods, without any effect on the exchanges, reference is made to the exportations of specie in 1790, 1791, and 1792. But, in the first place, these exportations were much smaller in amount than those in 1812,

See the statement, by the Chancellor of the Exchequer, of the amount of our foreign expenditure in specie, during the period in question, p. 24 of this volume.

1813, and 1814, when the exchange was most unfavourable; and, in the next place, they were made very gradually, and with the greatest precautions, to prevent their affecting the exchanges. No such precautions could be taken with regard to the exportations for the immediate wants of our armies. The exportations of specie, however, which took place between 1793 and 1797 were attended with effects precisely similar to those in question. In the course of that period our foreign expenditure amounted, in the expence of maintaining troops abroad, and in subsidies to foreign powers, to thirty-three millions and a half. Of this sum a considerable part was remitted in specie, and a further exportation took place, in consequence of the demand for foreign corn occasioned by the deficiency of the harvest in 1795. Now, during this period the price of bullion rose from 31. 17s.6d. to 4l. 8s.; and the exchange with Hamburgh, which had formerly been in favour of this country, rose to from 4 to 6 per cent. against us. On the cessation of these exportations, the price of bullion fell to its former standard, and the exchanges again became favourable.

It may, therefore, be concluded, that the high price of bullion proceeded solely from a rise in the value of that commodity in Great Britain, occasioned by its scarcity; and that there is no reason to believe that our paper currency was either in a state of discredit or of excess, the only causes which could produce its depreciation. And this conclusion is strongly confirmed by the facts already mentioned, that immediately on the restoration of the Bourbons in 1814 the price of bullion fell, and the exchanges became more favourable; that on Buonaparte's return from Elba, and the renewal of

the war and its foreign expenditure, the price of bullion again rose, while the exchange turned against us; and that, finally, on the tranquillity of Europe being established, the price of bullion fell almost to its mint price, and the exchanges became at par. All this while, the quantity of Bank of England paper was increasing, instead of diminishing.

The opinion, then, that the high price of corn was partly nominal, and arose from the depreciation of the currency, does not seem to be well founded. The high price of bullion, however, might have had some effect in raising the price of corn, in conse. quence of our having been obliged to import corn, paid for with bullion when it was scarce and dear in this country. But this is an effect totally different from the nominal rise ascribed to the depreciation of the currency; and it seems an erroneous view of the matter to say, that when the price of corn in our paper currency was 111s., its real price was only 74s.

Besides the causes already mention. ed, other causes contributed to raise the price of corn. The immense expenditure of government during the war, by increasing the demand for every article of necessary consumption, must have operated as a great stimulus to agriculture. And a similar effect must have been produced by the great accommodations given, not only to agriculturists, but to traders of every kind, by the bankers. These accommodations were, of course, given, in the first instance, in consequence of the great spirit, both of agricultural and commercial enterprize, which had already been excited; but they produced a reaction, by stimulating still further the spirit of enterprize which had originally given rise to them.

* Wealth of Nations, (Buchanan's edit.) vol. iv. p. 104. + Wealth of Nations, (Buchanan's edit.) vol. iv. p. 106. Edin. Review, No. LI. p. 144.



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