11 AUGUST 1832, Page 13


"Experience shows, that neither a State nor a Bank ever have bail the unrestricted - power of issuing paper money without abusing that power ; in all states. therefore, the issue of paper money ought to be under some cheek and control ; and none seems so Proper for that purpose as that of subject hag the issuers of paper money to the ob- ligation of paying their notes either in gold coin or bullion." RICARDO ; Principles of Political Economy (last edition), p. 426.

Jr convertibility of paper money into gold coin or bullion is the only true basis of currency, it follows, that if this principle was at any time 'departed from, a return to it became necessary. And such a necessary return was effected by PEEL'S Bill of 1819. There is one general argument which would be conclusive in fa- vour of this measure, even though it had been attended with greater evils than have been ascribed to it. It was in fulfilment of express contracts with the national creditors. Every loan, during the period of the depreciated currency, was contracted under the express condition, contained in an act of Parliament, that the Bank of England was to be obliged to return to cash payments, at the old standard, six months after a definitive treaty of peace. Had this contract been literally fulfilled, the consequences would have been immeasurably room violent than they have been ; for, at the time of the peace, and during the following year, the depreciation was almost 17 per cent. By waiting till the depreciation was only 41 per cent., Mr. PEEL falfilled the contract when it could be done with the smallest amount of change. Had the old standard been then raised 4; per cent., no change (as we observed last week) would have taken place at all ; but the national creditors, by ex- press contract, were entitled to a return to the old standard.

It is contended, however, that, by this measure, the real burden of the national debt is enormously increased; and an "equitable adjustment" of the claims of both parties to the contract has been clamoured for. Let us see how the fact stands. The late Mr. MUSHET, an authority of the highest character, has shown that, if an "equitable adjustment" had taken place, the fundholders would have been gainers, and the country a loser, to a considerable amount.* The depreciation of the currency began in 1800; at which time the unredeemed debt amounted to 413,534,042/., the interest of which was 15,611,8641. Now, the fundholders, during about twenty years from that period, received their interest in a currency more or less depreciated ; and they thus lost, as appears by a series of exact calculations, 27,741,642/. But the interest of loans, made subsequent to 1800 in a depreciated curreticy, was paid for some time in a currency still further depreciated; and the fundholders thus lost an addi- tional sum Of 5,440,377/. These are the amounts of loss calcu lated only at simple interest: but as the amount annually lost might have been accumulated as capital, compound interest is justly calculated on it ; and the whole loss of the fundholders is thus shown to be 53,067,242/. On the other hand, the fond- holders have been gainers upon those loans, the interest of which has been paid in a more valuable currency than that in which • A series of Tables, exhibiting the Gain and LosstO the Fundbolders arising from the late Fluctuation& in the Value of the mummy, trein 1800 to 18th..

they were contracted; and the amount of their gains, also calcu- lated at compound interest, is 11,837;79a This amount of gain;

deducted from the loss, leaves a balance of 41,229,4461.; which,

at 5 T)er cent., would constitute a permanent annual loss of 2,061,472/. But, to be set against this, there is a permanent gain, in consequence of the interest being paid in future in the restored currency, of 1,988,7681. And the result of the whole is, that the fundholders have suffered a permanent annual loss of 72,7041.; being,

at twenty years' purchase, a capital of 1,454,060/. Had, therefore, an equitable adjustment taken place in 1821, the Government Avould have required to pay the fundholders nearly a million and a half; and, after eleven years, the balance due to them would be found to have nearly doubled. So much for those who say that an " equi- table adjustment" -would wipe away two or three hundred millions of the national debt.

• A correspondent (we believe we may say, Mr. G. PouLarr SCROPE, whose signature we observed attached to a similar letter in

the Morning Herald a few days ago), after concurring to a certain ex-

tent in the views stated in our last article on the "Money Laws," ascribes the whole evils of FEEL'S Bill (though without blaming the measure) to the rise in the value of gold caused by the demand for the

thirty millions of specie necessary for the cash payments. These thirty millions Mr. SCROPE supposes to have been the amount of gold necessary for this purpose, and he adds twenty millions of sil- ver. But this is an absurd exaggeration; for the official accounts

show that the total amount of silver coins of all denominations

coined between the 1st January 1816 and 1st January 1330, only amounted to 9,148,986/. Indeed, we are inclined to think that in

estimating the value of both the metals required for currency at

thirty millions, Mr. MACC ULLOCH is rather above than under the mark. Mr. SCROPE, and others, argue this matter as if the

Bank of England, on the return to cash payments, had been obliged all at once to procure the whole bullion necessary for that pur- pose. But the Bank had been gradually preparing itself for this

measure; and, when it took place, in 1819, had, as we are informed, at least ten millions of bullion in its repositories. The whole of this argument, derived from conjectures (for they are nothing more) as to the amount of gold in the markets of the world, rests on data by far too vague to afford any conclusions which can be relied on. It is said that the price of bullion may have risen beyond the proportion of these thirty millions to the general amount of bul- lion, in the same manner as the price of corn may rise to more than double, when the deficiency of the corn crops has net amounted to more than a sixth part of the average. This is an unhappy in- stance of the argument from analogy. Corn is necessary for sub- sistence; gold is not. When the crop is, or is supposed to be de- ficient, the price rises far above the proportion of such deficiency, all the poorer and most numerous class of consumers stinting their consumption of other things, that they may be the better able to obtain an adequate supply of so indispensable an article. But does any one pretend to say, that such is the case when the supply of gold is diminished ? The demand for every article continues as before; for, gold being the universal measure, a rise in its value affects them all equally. A deficient crop is, moreover, always a local evil; and owing to the operation of restrictive laws, and the real difficulty of transporting so bulky an article as corn, its price may, and frequently does, upon such occasions, rise far above the level of the surrounding countries. Such, however, is never the case with gold. No circumstance could, for a single month, raise the value of gold at London 1 per cent, above its value at Paris. The speculations of merchants have also a great influence on the price of corn. They buy at an increased price, when they believe the crop to be deficient, in anticipation of a further rise; but owing to the difficulty of obtaining accurate information on such points, and the diminution of consumption, the sup- ply is frequently greater at the end than at the begin- ning of the season. Not so with gold. When there is a dimi- nution in the supply, no rise in its price can be produced by any anticipation of the stock on hand being exhausted by con- sumption, as in the case of corn. Nobody will have any induce- ment to purchase it at a high price with the view of selling it at a still higher when the supply shall be more exhausted. There is nothing, therefore, which can make the price rise beyond the exact proportion between the diminished supply and the demand. If the supply is diminished by one-sixth, there is nothing that can cause an addition of more than one-sixth to the price.

The present depression in the prices of commodities is ascribed entirely to the scarcity of money, caused partly by the opera- tion of PEEL'S Bill, and partly by a diminution in the supply of the precious metals. This alleged diminution is founded on the statements of Mr. JACOB; the accuracy of which is more than doubtful. On this subject we have no space for de- tails; but those who wish to pursue the inquiry will find in the Edinburgh Review for April last, statements and calculations suf- ficient, we think, to justify the conclusion there come to, that "the supplies of the precious metals furnished to Europe, and ap- plicable to the purposes of coin and the arts, are as large at this moment as they have ever been at any former period." We agree with the writer of that article, that the depression in the price of commodities is occasioned by greater facilities of produc- tion, and the discovery of new and more abundant sources of supply, and in a few instances, perhaps, by the miscalculation of the producers forcing them upon the market at a loss. This is our proposition. Now, as a rise in the value of Money must pro- portsmally depress all commodities, those who contend that it has risen 20 or 30 per cent., or more, can surely have no difficulty, among the host of commodities offered for sale, to specify one, the history of' which is known, whose price has fallen, without that fall being clearly ascribable to circumstances connected with changes in its supply and demand. When such an instance is produced, we shall know how to deal with it; but till this be done, we shall consider the discussion on this point as terminated. Mr. SCROPE asks—" Where is the difference between an in- crease of goods relatively to gold and silver, and a deficiency of gold and silver relatively to goods?" The difference is plain. Sup- pose that goods continue to be produced in the same quantity,, but that there is no longer the same supply of gold, is this the same thing as if there were an increase in the production of goods, while the supply of gold was the same as before? The cases, we appre- hend, are widely different; though each of them is attended with a fall of prices. In the one, the value of gold rises, in consequence of a diminution in its supply ; in the other, the value of goods falls, in consequence of an increase in their supply; the demand, in each case, remaining unaltered. If the real value of commodities falls in this manner, it can never be raised by an increase in the quantity of the currency. It will remain the same, but the value of the currency will fall. All commodities will be exchanged for greater quantities of currency; but any commodity will be exchangeable for the same quantity of any other commodity as before. An increase in the quantity of the currency, therefore, will neither give the country collectively, nor individuals, the power of purchasing any additional quantity of commodities. What, then, will be its advantage? It is supposed it will furnish additional capital for the employment of productive labour. But capital consists of commodities ; and if the additional currency cannot command additional commodities, it cannot add either to national or individual capital. Capital employed in any manufacture cannot be increased unless the demand for the article is such as to replace the cost of its production, with a certain profit. If the manufacturer cannot find consumption sufficient to do this, he is over-producing; and the only remedy for the evil is, not to obtain the means of over-producing still more, but to find an en- larged consumption for his actual produce. Now, this remedy is to be found only in the introduction of such a system of trade as shall allow a free interchange of commodities all over the world. It is to be found only in the removal of those protections (as they are called), restrictions, and monopolies, which still deform the commercial code of every nation under heaven. The violent extension of the currency now called for, could not, as we have seen, have the expected effect of increasing our pro- ductive capital and affording additional employment for labour. But, while it could not do good, it would do abundance of evil. It would once more unsettle the standard of value, and allow the currency to begin a new and rumour cycle of degradation. It would violate the national faith with the public creditors, whom it would plunder of property which is as much their own as their houses and goods. It would derange every pecuniary transaction now subsisting, that has been entered into within the last fifteen years; giving to thousands of contracts effects as unjustly advan- tageous to the one party as ruinous to the other. It would rob every creditor in the kingdom, and throw the plunder into the hands of the debtors. Such a proceeding cannot be contemplated for a moment by any upright government or people.