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mark of distinction between the state made over-issues of notes to any conof our currency, and some of the desiderable extent, when the channel of preciated paper currencies on the con- circulation was already full, these tinent, such as the French assignats, notes, instead of being absorbed in the to which it has often been compared: circulation, must have returned as fast for in France, when the depreciation of as they were issued. But this did not the assignats had taken place, it was happen ; and the reason appears to be, customary, in the ordinary course of that the notes of the country bankers, buying and selling, to give a whole as well as those of the Bank of Enghandful of them for an article which land, were necessary for the purposes could be purchased for a few louis d' of the country. ors. In that case, the paper was cer

Had the increase in the issues from tainly depreciated, while the gold re- the Bank of England produced a de. mained stationary ; but the cases are preciation in its paper, the difference plainly quite different.-As to the between the value of paper and of other supposition, the over-abundance gold should have gradually increased of the circulating medium, this is plain- along with the amount of the issues. ly not to be inferred from the single But this was not the case. In the circumstance of the bank paper ha. year 1796, the amount of the cire ving been increased from ten to twen. culating paper of the bank was bety millions ; for, in order to establish tween nine and ten millions, and the this inference, it would be necessary to price of bullion was 31. 178. 6d. per shew, that the iocrease both of the in. ounce : in 1797, the amount of the ternal trade and foreign commerce of paper was about eight millions and a the country, did not require an increase half, and the price of bullion was 31. of the circulatiog medium, equal to 178. 104d. From this time to the year that which actually took place ; a 1808, the amount of bank paper graproposition of which the proof would, dually increased to above seventeen we apprehend, be no easy matter. millions, while the price of gold only That our paper currency, during the rose to 4l. per ounce. On the cessaperiod of its supposed depreciation, tion of hostilities in 1814, the price of was not more than sufficient to answer bullion suddenly fell from 5l. 10s. to the demand of the country, may be 46. 58., while the circulation of the concluded from the circumstance, that Bank of England notes increased from a considerable quantity of the paper of 23 to 27 millions. Here, therefore, country banks was in circulation. In there was no correspondence between the ordinary state of things, the issue the cause and its supposed effect. of paper is limited by its convertibility It was not till the year 1809 that a into specie. The objection to pay in considerable rise took place in the price specie is said, by those who maintain of bullion. In that year it rose very the depreciation of the currency, to suddenly; and in the course of the have kept down the issues of the bank year 1810, was at 41. 13s. From that previous to 1797 ; and the subsequent period it still continued to rise till the over issues, they say, have been occa- return of peace in 1814, at which pesioned by the removal of this restraint. riod it had risen so high as 5l. 10s., This, however, does not apply to coun. when it rapidly fell to an inconsidera. try banks, because the convertibility ble height above the standard. On of their notes into those of the Bank of the return of Buonaparte from Elba, England, must have operated as a the price of bullion rose to its former check upon over-issues on their part. height, and again fell after the battle Had, therefore, the country banks of Waterloo. These fluctuations were


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certainly attended by corresponding to be unsuccessful. If a person in varieties in the course of exchange, London bought a bill on Hamburgh, which was most against this country he was obliged to pay above 20 per when bullion was at the highest price. cent. of premium, if he purchased But these circumstances may be ac- with paper ; but if he bought the bill counted for without the necessity of with bullion, he paid a premium of only supposing a depreciation of our paper 6 or 7 per cent. The real difference of

exchange, therefore, it was argued, · In 1808, when we began to send was only 6 or 7 per cent. against this large armies to Spain, our foreign ex- country, and the additional difference penditure was increased beyond all was occasioned by the depreciation of proportion to what it had formerly our paper.t. It thus appears, that the been ; and this expenditure continued difference of the exchanges did not to be very great till the end of the war. arise solely from an unfavourable baLarge quantities of specie were con- lance of trade ; but it does not follow, tinually sent abroad, not only to an- as the only alternative, that it proceedswer our military expences, but to pay ed from the depreciation of our cur. subsidies to our norihern allies. T'he rency. It was admitted, that when the country was drained of its bullion, the apparent difference of exchange was want of which was supplied by increa- above twenty per cent., the real difsed issues of paper; and the natural ference of exchange was from five consequence of this was, that a local to eight per cent. against Great Briand temporary rise in the price of bul. tain. This difference, according to lion took place in this country, arising the common principles of exchange, from its scarcity. This simple view arose from this country being obliged of the matter accounts for the high to remit specie to Hamburgh, &c. Dumarket price of bullion, and for the ring the period of unfavourable excircumstance which has been held as change, remittances from London to the most unequivocal evidence of a de- Hamburgh must have been made by preciated currency, the exchange of a the actual transmission of specie. If, guinea for 25s. or 26s. And here, it therefore, a person in London, who will be observed, that the effect cor wished to make a remittance to Hamresponds with the cause assigned to it; burgh, had bullion in his possession, for the rapid rise in the price of bul with which to do sn, he, of course, lion did not take place till our large ex- had only to give it to a money-dealer, ports of specie commenced.

whose business it was to send money The great differences in the exchan. to Hamburgh, and that money dealer ges between Great Britain and the would send the money for him, on be. continent, during the period when the ing paid the charges of doing so; or, price of bullion was so high, have been in other words, the person who had to given as a conclusive proof of the de. make the remittance would, with the preciation of our paper currency. It bullion, buy from a banker a bill on his was attempted to explain this diffe- correspondent in Hamburgh, paying rence upon the principle of the balance a premium ; and the Hamburgh bankof trade being against this country ;* er would pay the bill to the person in but those attempts were shewn, by whose favour it was drawn, by means those who argued for the depreciation, 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 burgh ought to be attended with a cer: make a remittance to Hamburgh, was tain premium, received by the remit. not possessed of the gold necessary for ter. But, in the case under consideration, that purpose, it would be requisite for the reverse happened, and remittances him to purchase the gold from a mo- from Hamburgh to London, and from ney-dealer; and as gold, from the London to Hamburgh, continued to causes already mentioned, had become be made, as if the balance of trade were scarce, and consequently dear, the pere still in favour of Hamburgh. The son who bought the bill would have temporary high price of bullion in to pay the the high mar- Great Britain, however, occasioned by. ket price of the bullion, besides the the great demand for that commodity, usual premium for transmitting it. The will be found quite sufficient to acapparent rate of exchange, then, would count for this anomaly. When a mere be composed, partly of the high price chant at Hamburgh has occasion to which it was necessary to pay for bul- make a remittance to London, he pays lion, and partly of the usual premium a banker or money-broker in Ham. for its transmission, which, in ordinary burgh the amount of the sum in spe. cases, constitutes the whole rate of ex« cie, and receives a bill on the banker's change. But this additional difference correspondent in London. The bill is in the exchange would plainly arise as sent to London, and the amount of it naturally from a local and temporary paid to the holder by the London rise in the price of bullion in Great banker in Bank of England notes. Britain, as from a depression in the The holder of the bill thus receives value of the paper currency.

the full amount of his remittance in The preceding argument applies to British currency ; but let it be obserthe case of the course of exchange be- ved what becomes of the bullion oriing really against this country, though ginally paid by the remitter at Hamthe actual difference in the exchange burgh. In consequence of the state was much smaller than the nominal of the exchange, the Hamburgh bankone. But it has been said, that latterly er must send bullion to London to enthe course of exchange turned actually able his correspondent to meet the in favour of this country, while the draught upon him. If the Hamburgh rate of exchange still remained against banker send bullion equal to the full 23 ; * and this circumstance has been amount of the remittance, his correurged as a conclusive proof of the de- spondent in London will receive more preciation of our paper currency. But than enough, as the bullion, when he ihis difficulty will vanish, like the for- receives it, will be worth more than mer, on a close examination. When the Bank of England notes, with which the balance of trade between London he must pay the remittance. This and Hamburgh is in favour of Lon- state of things will influence the trans. don, this balance must be settled by action from the beginning. The remittances of specie from Hamburgh Hamburgh merchant, on buying his to London ; and therefore, upon the bill from

the banker, will obtain it for common principles of exchange, remit- a quantity of bullion somewhat less tances from Hamburgh to London than the amount of the remittance ; ought to be attended with a certain rate and this quantity will be exactly as ofexchange, paid bytheremitter; while much as, when it arrives in England, remittances from London to Ham- will be equivalent to the amount of

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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. appear to be at all inconsistent with This difference between the quantity this supposition, as the same cause of bullion paid at Hamburgh, and the which affected the foreign exchange amount of the sum contained in the must have produced this consequence. bill, may be so great as to overbalance On this subject it may be remarked, the amount of the exchange which, in that nothing but specie is employed on the ordinary case, must have been the continent in the usual course of paid on the remittance ; so that, in circulation. During the first years of place of paying an exchange, the peace all other media of exchange were Hamburgh merchant will receive a viewed with doubt and jealousy, and premium. Next, let the case be ta- notes were accepted only at a discount, ken of a remittance made by a mer- for the same reason that an ignorant chant in London to Hamburgh. He person would take a diamond in paybuys, with bank of England notes, from ment with some hesitation, because he a person who has money owing him in is uncertain as to its value. Hamburgh, a bill on the debtor in It is further denied, that such large Hamburgh. The bill is sent to Ham- exportations of specie took place as burgh, and the amount of it is paid in could have affected the price of bul. specie, by the Hamburgh debtor, to lion or the rate of exchange; and it is the person who presents it. The ef. said, that equally large exportations fect of this transaction is, that a quan- took place at former periods without tity of bullion, which, from the state these effects. It is admitted, however, of trade, must have otherwise been that in 1808 the exportation to Spain sent from Hamburgh to London, in and Portugal amounted to near three payment of a debt due to the person millions ; in 1809, 1810, and 1811, to who granted the bill, is detained at above half a million each year; and in Hamburgh, and paid there to the per- 1812 and 1813, to between three and son in whose favour the bill was drawn. four millions. Besides, it is certain, But the drawer of the bill, who gave that a great quantity of specie was it for the amount in Bank of England sent to the north of Europe in 1813 notes, prevents himself from receiving and 1814, in payment of subsidies : the amount in bullion, which would And it is necessary, farther, to take have been the case had his debtor in into account the exportation of specie Hamburgh paid the debt directly to occasioned by importations of corn, himself; and, before granting such a and other foreign commodities, for bill, therefore, he must receive the dif- which it was necessary to pay in specie. ference between the amount of the re. When all these things are considered, mittance in gold and in Bank of Eng- it will hardly be doubted, that an exland notes. This difference is what portation of specie took place suffimay constitute a nominal exchange cient to render it both scarce and dear against this country, even when the at home.* In support of the assertion, course of trade is in our favour. that large exportations took place at

Another circumstance, stated as in- former periods, without any effect on consistent with the idea of a local the exchanges, reference is made to rise in the price of bullion,--that the exportations of specie in 1790, Bank of England notes were exchan- 1791, and 1792. But, in the first ged at different places on the conti- place, these exportations were much nent for 13s. 14s. and 15s.,—does not smaller in amount than those in 1812,

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

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1813, and 1814, when the exchange the war and its foreign experiditure,
was most unfavourable ; and, in the the price of bullion again rose, while
next place, they were made very gra- the exchange turned against us ; and
dually, and with the greatest precau- that, finally, on the tranquillity of Eu.
tions, to prevent their affecting the rope being established, the price of
exchanges. No such precautions bullion fell almost to its mint price,
could be taken with regard to the ex. and the exchanges became at par. All
portations for the immediate wants of this while, the quantity of Bank of
our armies. The exportations of spe- England paper was increasing, instead
cie, however, which took place between of diminishing.
1793 and 1797 were attended with ef. The opinion, then, that the high
fects precisely similar to those in ques- price of corn was partly nominal, and
tion. In the course of that period our arose from the depreciation of the cur-
foreign expenditure amounted, in the rency, does not seem to be well found.
expence of maintaining troops abroad, ed. The high price of bullion, how.
and in subsidies to foreign powers, to ever, might have had some effect in
thirty-three millions and a half.* 'Of raising the price of corn, in conse.
this sum a considerable part was re- quence of our having been obliged to
mitted in specie, and a further exporta- import corn, paid for with bullion
tion took place, in consequence of the when it was scarce and dear in this
demand for foreign corn occasioned by country. But this is an effect totally
the deficiency of the harvest in 1795. different from the nominal rise ascribed
Now, during this period the price of to the depreciation of the currency : ;
bullion rose from 31. 17s.6d. to 41.8s.; and it seems an erroneous view of the
and the exchange with Hamburgh, matter to say, that when the price of
which had formerly been in favour of corn in our paper currency was 111s.,
this country, rose to from 4 to 6 per its real price was only 74s.
ceat. against us. On the cessation of Besides the causes already mention.
these exportations, the price of bullion ed, other causes contributed to raise
fell to its former standard, and the ex- the price of corn. The immense ex-
changes again became favourable.

penditure of government during the
It may, therefore, be concluded, war, by increasing the demand for
that the high price of bullion proceed- every article of necessary consumption,
ed solely from a rise in the value of must have operated as a great stimu-
that commodity in Great Britain, oc- lus to agriculture. And a similar ef-
casioned by its scarcity; and that fect must have been produced by the
there is no reason to believe that our

great accommodations given, not only paper currency was either in a state of to agriculturists, but to traders of discredit or of excess, the only causes every kind, by the bankers. These which could produce its depreciation. accommodations were, of course, giAnd this conclusion is strongly con- ven, in the first instance, in consequence firmed by the facts already mentioned, of the great spirit, both of agricultu. that immediately on the restoration of ral and commercial enterprize, which the Bourbons in 1814 the price of had already been excited; but they bullion fell, and the exchanges became produced a reaction, by stimulating more favourable ; that on Buonaparte's still further the spirit of enterprize return from Elba, and the renewal of which had originally given rise to theni.

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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. VOL. VIII. PART I,


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