Bank Charter — The Currency (original) (raw)

The above calculations explain our meaning when we say that the ounce of gold is coined into the sum of 3_l_. 17_s_. l0½_d_. These terms express the relation of gold and silver coin, according to the Mint regulations at the time that silver coin was made of standard silver. You may now enact, no doubt, that the ounce of gold shall be coined into 5_l_. in money of account, that is to say, you may debase the standard to that extent. And what will be the effect of this? All debtors will no doubt gain by it. In the case of all unfulfilled contracts, he who has to receive payment will receive much less in point of real value than he stipulated for. The creditor will be defrauded — the debtor will have a corresponding advantage. But this will be the whole effect. No new transactions will be affected by your choosing to call an ounce of gold 5_l_. As Mr. Harris says, you may cheat each other at home, but foreign countries will adjust their dealings with you, not on account of the name to be given to your coin, but according to its real value. All new contracts at home will be regulated by the same principle. The real and not the nominal value of that which is made by law the medium of exchange, will regulate prices and all future contracts. Even the relative value of gold and silver will not be adjusted by your laws. You may insist on coining the ounce of gold into 5_l_. instead of 3_l_. 17_s_. 10½_d_., that is to say, into 200 sixpences instead of, as at present, into 155 sixpences; and fourpence halfpenny, but silver will disobey your law, and will insist on finding its own value in the market on principles which you cannot control. The Mint regulations do not, it is true, correctly express the present relative value of gold and silver in the bullion market. Silver is not worth 5_s_. 2_d_. an ounce, not more. I believe, than 5s. an ounce, and there would be an apparent present advantage to the debtor in taking silver rather than gold as the standard, since the relative value of gold to silver when standard-silver is 5_s_. per ounce, is 15.575 to 1, instead of 15285/1346 to 1.

But there is reason to doubt whether those who wish for a relaxation of the standard, and who, for the purpose of benefiting the [110/111] debtor, recommend either a joint standard of silver and gold, or the substitution of silver for gold as the standard, would attain their object were either of those Measures adopted. There is reason to believe, adverting particularly to the rapid increase of the annual supply of gold from mines within the dominions of the Emperor of Russia, that the value of gold in the general markets of the world is on the decrease, and that the interest of the debtor would not be permanently advanced by the abandonment of gold for silver as the standard of value in the country.

But to revert to the errors of those who are the advocates of some measure of value other than the precious metals. They object to the selection of gold as the standard of value, because gold is an article of commerce, — because there is demand for it as bullion, affecting, therefore, its value as coin, and disqualifying it to be the measure of value. Now, no one contends that there is or can be an absolutely fixed and invariable standard of value. No one denies that the value of gold, with reference to all commodities, excepting gold itself, may be subject to slight variations. But what other substance is not more subject to variations in value than the precious metals? What other substance possessing intrinsic value will not also be in demand as an article of commerce? It is because gold is an article of commerce, because there are no restrictions upon its export or its import, that you can at all times depend upon such a supply of gold for the purposes of coin as may be sufficient for the wants of this country. The precious metals are distributed among the various countries of the world in proportion to their respective necessities, by laws of certain though not very obvious operation, which, without our interference, will allot to our share all that we require. Some entertain the apprehension that we may be drained of all our gold in consequence of a demand for gold from foreign countries, either for the payment of their armies in time of war, or in consequence of sudden and unforeseen demand for foreign corn for our own internal consumption. It is supposed that gold, being an article in universal demand, and having at all times and in all places an ascertained value, is more subject to exportation than anything else. But the export of gold, whether coin or bullion, is governed by precisely the same laws by which the export of any other article is governed. Gold will not leave this country unless gold be dearer in some other country than it is in this. It will not leave this country, merely because it is gold, nor while there is any article of our produce or manufacture which can be exported in exchange for foreign produce with a more profitable return, If gold coin be in any country the common medium of exchange; or if the promissory notes, which perform in part the functions of gold coin, are at [111/112] all times and under all circumstances of equal value with gold, and are instantly convertible into gold; there are causes in operation which, without any interference on our part, will confine within known and just limits the extent to which gold can be exported. There may no doubt be temporary pressure from the export of gold, even when it is confined within those limits; but none for which you may not provide, none to which you would not be subject, in a higher degree probably, were any other standard of value adopted in preference to gold.

I have thus stated the grounds which justify the conclusion, that, according to the ancient monetary policy of the country, according to the law, according to the practice that prevailed at all times, excepting during the period of inconvertible paper currency, a certain quantity of the precious metals, definite in point of weight and fineness, has constituted, and ought to constitute, the measure of value. The minds of men, habituated during the Bank Restriction to a departure from that measure of value, were loath to admit those great elementary truths which are at the foundation of the whole system of currency, paper credit, and foreign exchange. Ingenious writers have from time to time laboured to prove the unsoundness of these doctrines, to show that a metallic standard was neither practically nor theoretically the measure of value in this country, and have cited various facts apparently irreconcilable with the theory. But when all the circumstances attending each fact have been fully stated, they have been sufficient to account for the seeming contradiction. When Sir Isaac Newton had established the planetary system on the principle of gravitation and attraction, there were phenomena apparently at variance with the theory. But succeeding philosophers, starting from the point which in the progress of science had been reached by Sir Isaac Newton, applying his principles with improved means of investigating truth, solved the doubts which he had not been able to solve, and showed that the apparent contradictions, when all the disturbing influences were taken into account, became in fact new demonstrations of the soundness of the original theory. And the same result has followed, and will follow, in the case of objections which have been, and will continue to be, urged against the principle of the metallic standard.

It must at the same time be admitted that it would be quite consistent with that principle to adopt some other measure of value than that which we have adopted. It would be consistent with that principle to select silver instead of gold as the standard, — to have a mixed standard of gold and silver, the relative values of the two metals being determined, — to dispense with gold coin altogether, and regulate the amount and value of paper currency by making it [112/113] convertible only, according to the proposal of Mr. Ricardo, into gold bullion of a given minimum amount.

I trust, however, this House will adhere to the present standard, — will resolve on the maintenance of a single standard, and of gold as that standard. All the great writers on this subject, Sir William Petty, Mr. Locke, Mr. Harris, and Lord Liverpool, have been decidedly in favour of a single, in preference to a double standard. Mr. Locke, indeed, was of opinion that silver ought to be the standard; but there appears good ground to doubt the soundness of that opinion; and there are, at any rate, the most cogent reasons, since gold has been for a long course of years the standard in this country, for the continued maintenance of it. They are well stated in the admirable Treatise on Coins, (The Coins of the Realm was published in 1805), written. by the first Lord Liverpool. In that treatise a system of coinage is recommended, which is in exact conformity, both in point of principle and detail, with the system which we have adopted. Lord Liverpool observes: —

"After full consideration of this extensive, abstruse, and intricate subject, I humbly offer to your Majesty, as the result of my opinion,

"First, That the coins of this Realm, which are to be the principal measure of property and instrument of commerce, should be made of one metal only.

"Secondly, That in this Kingdom the gold coins only have been for many years past, and are now, in the practice and opinion of the people, the principal measure of property and instrument of commerce.

"It has been shown that, in a country like Great Britain, so distinguished for its affluence and for the extent of its commercial connections, the gold coins are best adapted to be the principal measure of property; in this Kingdom, therefore, the gold coin is now the principal measure of property and standard coin, or, as it were, the sovereign archetype by which the weight and value of all other coins should be regulated.
"It is the measure of almost all contracts and bargains; and by it, as a measure, the price of all commodities bought and sold is adjusted and ascertained. For these reasons the gold coin should be made as perfect and kept as perfect as possible.

"Thirdly. It is evident, that where the function of the gold coins as a measure of property ceases, there that of the silver coins should begin; and that where the function of the silver coins, in this respect, ceases, there that of copper should begin: it is clear, therefore, that so far only [113/114] these silver and copper coins should be made legal tender and no further, at least not in any great degree; and it follows that the coins, both of silver and copper, are subordinate, subservient, and merely representative coins; and must take their value with reference to the gold coins according to the rate which the sovereign sets upon each of them."

These are, in fact, the principles which regulate our present coinage. We have a single standard, and that standard gold, — the metal which was practically the standard for many years previously to the suspension of cash payment. The silver coin is a mere token, auxiliary and subordinate to the gold coin; the ounce of silver being now coined into 66_s_. instead of 62_s_., and silver coin not being a legal tender for any greater sum than 40_s_. By the abolition, in this part of the United Kingdom, of the promissory notes below 5_l_., you introduce the gold coin into general use for the purpose of effecting small payments; you enable the holder of the smallest note to demand payment in gold, and thus insure the maintenance of a very considerable quantity of gold as a part of the circulating medium. There is, no doubt, some expense in the maintenance of a metallic circulation, but none, in my opinion, sufficient to countervail the advantage of having gold coin generally distributed throughout the country, accessible to all, and the foundation of paper credit and currency. It is contended by some, that if you were to dispense with coin altogether, to adopt the principle of Mr. Ricardo's plan, (The noteworthy economist presented his plan in a pamphlet of 1816), and make bank notes not convertible into gold at the will of the holder, excepting when presented.to the amount of a very considerable sum (300_l_. or 400_l_. for instance), and then convertible into bullion and not coin, you would provide a security against the effects of a panic connected with political causes, causing a sudden demand for gold. I very much doubt the policy of taking such precautions against such a contingency, and consider that the most effectual measure for promoting permanent confidence in the paper circulation of the country, is to require that the gold coin shall be in general use for small payments, and that the promissory note shall be of equal value with the coin which it professes to represent. I shall here close my observations on the measure of value and the coinage, and proceed to the more immediate subject for consideration, namely, the state of the paper circulation of the country, and the principles which ought to regulate it. (The section of the speech dealing with this subject is omitted. )……

… Permit me, before I conclude, briefly to recapitulate the outlines of the plan recommended by Her Majesty's servants. It is proposed that the Bank of England shall continue in possession of its [114/115] present privileges — that it shall retain the exclusive right of issue, within a district of which sixty-five miles from London as a centre is the radius. The private banks within that district, which now actually issue notes, will of course be permitted to continue their issues to the amount of the average of the last two years. Two Departments of the Bank will be constituted: one for the issue of notes, the other for the transaction of the ordinary business of banking. The bullion now in the possession of the Bank will be transferred to the Issue Department. The issue of notes will be restricted to an issue of 14,000,000_l_. upon securities — the remainder being issued upon bullion — and governed in amount by the fluctuations in the stock of bullion. If there be, under certain defined circumstances, an increase of the issues of securities, it can only take place with the knowledge and consent of the Government; and the profit derivable from such issue will belong to the public. Bankers now actually enjoying the privilege of issue, will be allowed to continue their issues, provided the maximum in the case of each bank does not exceed the average of a certain prescribed period. A weekly publication of issues will be required from every Bank of Issue. The names of shareholders and partners in all banks will be registered and published. No new Bank of Issue can be hereafter formed, and no Joint-stock Company for banking purposes can be established, except after application to the Government and compliance with various regulations which will be hereafter submitted to the consideration of Parliament.

I have now concluded the duty which I have to perform, and trust I have clearly explained to the House the principle and details of the plan which the Government proposes for the future regulation of the currency, and the grounds upon which it is founded. I ask for no vote tonight on the resolutions which I shall propose,pro forma, and, if I might give advice on such a subject, would recommend the postponement of discussion to a future day. Tomorrow the correspondence which has taken place with the Bank, explaining more in detail our communications with the Bank, and the nature of the pecuniary arrangements between the Bank and the Government, will be laid upon the Table. The knowledge of that correspondence is important as a preliminary to full and satisfactory discussion on the merits of our proposal. Considering the part which I took in the year 1819 in terminating the system of inconvertible paper currency, and in re-establishing the ancient standard of value, it will no doubt be a source of great personal satisfaction to me, if I shall now succeed, after the lapse of a quarter of a century since those measures were adopted, in obtaining the assent of the House to proposals which are, in fact, the complement [115/116] of them, and which are calculated to guarantee their permanence, and to facilitate their practical operation.

But my gratification will be of a higher and purer nature than any connected with the satisfaction of personal feelings, if I may look forward to the mitigation or termination of evils, such as those which have at various times afflicted the country in consequence of rapid fluctuation in the amount and value of the medium of exchange. When I call to mind the danger to which the Bank of England has been exposed, the various effects of a sudden change from an overabundant to a contracted circulation, the reckless speculation of some of the Joint Stock Banks, the losses entailed on their shareholders, the insolvency of so many private banks, the miserable amount of the dividends which have in many cases been paid, the ruin inflicted on innocent creditors, the shock to public and private credit, then indeed I rejoice on public grounds in the hope, that the wisdom of Parliament will at length devise measures which shall inspire just confidence in the medium of exchange, shall put a check on improvident speculations, and shall ensure, so far as legislation can ensure, the just reward of industry, and the legitimate profit of commercial enterprise conducted with integrity and controlled by provident calculations. The right hon. Baronet concluded by moving —

"That it is expedient to continue to the Bank of England, for a time to be limited, certain of the privileges now by law rested in that Corporation, subject to such conditions as may be provided by any Act to be passed for that purpose."

Bibliography

Park, Joseph Hendershot.British Prime Ministers of the Nineteenth Century: Policies and Speeches. New York: New York University Press, 1916.

Last modified 26 June 2002