A treatise on coins, currency, and banking. With observations on the bank act of 1844 and on the reports of the committees on the House of lords and of the House of commons on the bank acts

Front matter

Hntt QJnlUge of Agriculture

Cornell University Library

The original of tiiis book is in tine Cornell University Library.

Chapter I. On Coins

Page

Money a commodity — different sorts of money — is a measure

of value --_-.. 1 The sovereign the only money in Great Britain, as a measure

of value --..-. 3 The interchange of coins determined by the rule of profit

and loss - - _ - . - 4

The integer, or legal tender coin, must be an equivalent - 5

Our present coinage perfect as a gold standard of value - 7

Mr. Haggard on the Price of Gold Coin, and of Gold - 7

M. de Montesquieu on Coins and Money - - - 8 Effect of the discovery of the American mines on the value

of gold and silver - - - - - 10

M. de Montesquieu on the African Macute - - - 1 1 Adam Smith on the most precious Metal regulating the Value

of the whole Coin - - - - - 13

On the limitation of silver coin as a legal tfnder - - '15

Acts of Parliament relating to the silver coinage - - 17

Prices of silver bullion, and their effect on the Coinage - 19

On the proportional value of gold apd silver - - 20

Chap. II. Coins And Currency

Opinions of French writers on the Coinage - - 22

Bishop Burnet's History of the Coinage in King William's

Lord Liverpool on the Coinage - - - - 24

Disappearance of the new silver coins - - - 26

Effects of Sir Isaac Newton's fixing the values of the guinea

Locke on the Coinage — Lord Liverpool on Locke — j-ule in

Lord Liverpool on the Coinage — his opinions examined - 34

A 2

XU CONTENTS.

Chap. III. On Seignorage

Page

Adam Smith's opinions examined - - . - 42

Adam Smith's illustration from the French Coinage examined 49 Mr. M'Culloch, Mr. Thornton, and Mr. Foster on Seignorage 54

Chap. V. On Changing The Standard

Mode suggested of changing the gold to a silver standard - 56 The opinion of Locke stated - - - - 57

The principle of the Coinage - - - - 65

Chap. VI. On The Foreign Exchanges

Adam Smith supposed we had a silver standard - - 66 Mr. Rothschild on the par of Exchange - - - 67 Statement of the Exchange in the " Times '' — calculation - 68 The par of Exchange in the language of the Bank of England ------- 69

Chap. VII. On The Bank Of Amsterdam

Sir W. Temple's Account of the Bank of Amsterdam - 70 Adam Smith's Account of the Bank of Amsterdam - 71 Mr. Hubbard's opinion respecting the par of Exchange - 73 Mr. Muntz's opinion respecting the par of Exchange 73 Adam Smith on the Bank of Amsterdam, and on an Exchange Bank - - - - - - 74

Proposal for a similar bank in London - - - 79 Suggestion that every commercial country should have an

exchange bank - - - - - 82

Adam Smith on International Money and the "Great

Mercantile Republic " - - - - 85

Adam Smith on the Bank of Amsterdam - - 87

The Bank of Amsterdam was established for the merchants 89

Supposed amount of deposits in the Bank of Amsterdam - 91 Ko bank should be sufficiently powerful to influence prices

generally - - - - - -91

CONTENTS. XIH CHAP. VIII.

ME. M'CULLOCH on THE BANK OP AMSTERDAM.

Page

Mr. M'CuUoch's opinions examined, - - - 93

Presumed error of Mr. M'Culloch - - . 98

Chap. IX. On The Mercantile System

Adam Smith on the Mercantile System - - 101

The Bank System has succeeded the Mercantile System - 103

On the application of the Bonding System to gold and silver 106

On the free influx and efflux of the precious metals - 106 President Polk on New York becoming the controlling

Commercial and Monetary Power ... 108 Anomalies from the gold and silver being deposited in the

Bank of England - - - - - 110 The foreign merchants should keep their own gold and

The foundation of the merchants' and bankers' credit ^ 111

On the Mercantile System and Balance of Trade - 113

Arguments in favour of an exchange bank - - - 1 14 On the application of the principle to all commercial

countries - - - - - - 117

The present period resembling the period when the Bank of

Amsterdam was established in Holland - - 119

Chap. X. On The Basis Op The Cdkeency

On the Moral Obligation of the Promise - - - 120 Adam Smith on Justice - - - - -121

Truth is the basis of the promissory note - . - 122 Adam Smith's Account of the Bank of England - 123 Before 1759 no Bank of England notes issued under 20Z. - 126 Memorandum of the Bank directors — their mode of providing gold - - - - - 127

No means of providing gold but by lowering prices - 128 A fall of prices of 20 or 30 per cent, by raising the rate of

The Bank of England gave no equivalent for the gold - 131

The international bullion a safety and corrective fund - 131 The bullion should be in the custody of the individuals of

the Great Mercantile Republic - - - 132

Management of the Bank before 1844 - - - 133

XIV CONTENTS.

rage Mr. Loyd's opinion of the Rule of the Bank - - 134

Tlie rule is found to be inapplicable - - - 135

Mr. Horsley Palmer on the Bank System before 1844 - 135

Chap. XI. On The Bank Act Op 1844

Sir Robert Peel's speech on introducing the Bill - - 137

Remarks on Sir Robert Peel's reasoning . - - 139 Sir Robert Peel on Mr. Ricardo's plan of resuming Cash

Sir Robert Peel and Lord Liverpool on Paper Currency - 142

Sir Robert Peel on Equivalency of Bank Notes to Coin - 143 Sir Robert Peel, Ricardo, and Adam Smith on Competition

Sir Robert Peel states the principle of his Bill - - 144

Remarks on the " Prorhise " and the " Pound " - - 145 The rivalship between the Great Mercantile Republic and

the National Bank . - - _ - 146 On the equilibrium between gold and paper — promise and

performance ------ 147

On the crisis of commerce — on gold demanded for exportation ------ 147

On governing the issues by the state of the exchanges —

country banks ------ 148

Sir Robert Peel on the Central Bank of the United States - 149

CHAP. XIL

ON BANKING IN THE UNITED STATES.

Mr. Albert Gallatin on the Bank of the United States - 150

The control was to be on banks, not on commerce - - 151

The President refuses to renew the charter of the United

States' Bank - - - - - - 152

General Jackson removed the government deposits from

the United States' Bank - - - - 153

General Jackson's Address to Congress on the United States'

The Bank of Pennsylvania — Mr. Biddle president — it failed 154 The States' banks constituted the fiscal agents of the

government - - - - - - 155

Communication from a correspondent in the " Times " newspaper ------- 155

President Polk's message to Congress — on a National Bank 156

Opinion of President Washington on National Banks - 157

President Polk on the " Constitutional Treasury " - - 158

President Polk on the Treasure being deposited in Banks - 161

Mr. Muntz's evidence on the Bank of Hamburgh - - 161

CONTENTS. XV

Chap. XIII. On Thk Controlling Powers Of The Bank Of England

Page Sir Robert Peel on the controlling Power of a Single Bank

On the issue department and the banking department - 163

The Bank of England notes issued, 16,000,000/. on bullion,

On the 11,000,000/. and 3,000,000/., and on the "Eest" - 164 The second section of the Bank Act on the transfer of bullion

and securities - - . _ . 155

Whose property was the gold transferred to the issue department ?- - - - - -166

Mr. Loyd on the Public having an Equivalent for the Gold in

Bank Notes - - - - - - 167

Commentary on Mr. Loyd's reasoning - - - 168

The question is, whether the bullion is placed in the right

Chap. XIV. On The Equivalency Of Bank Notes To Coin

Sir Robert Peel on cheap Promissory Paper - - 170

The present measure the fulfilment and complement of the

On metallic standard and metallic currency - - 171

The principle of the Bill — that promissory notes, when paid,

may be depreciated - - - - - 172

Statements to show the depreciation of Bank of England

notes — erroneous - - - - - 173

Sir Robert Peel on the Profit on Gold — the Profit is on Goods 1 74

A remedy suggested^Bank of England notes not money - 175 Adam Smith — that the profit is on the goods, not on the

gold 176

Chap. XV

ADAM SMITH ON BANKING — ON NATIONAL AND INTERNATIONAL BANKS, AND ESTTEENATIONAL TREASURIES.

Adam Smith on the Issue of 100,000/. in Notes, with a Reserve in Coin of 20,000/. - - - - 177

The notes of the larger denominations supply the place of bills

and cheques - - - - - -178

On the advantage of Discounting with Notes instead of Coin

— Adam Smith - - - - - 179

XVl CONTENTS.

Page

The private banker cannot safely issue notes on Coin — nor

the National Bank on Bullion . - - - 180

The exportation of bullion the remedy for high prices — and

should be free - - - - - - 181

Great advantage of the Bank of Amsterdam as an international treasury - - - - 182

Since Adam Smith wrote, the circumstances of the Bank of

England have changed . . - _ 183

The international treasury and the national bank should be

Chap. XVI. On The Over-issue Of Bank Notes. — The Bank Op Ate

Adam Smith on an Over-issue of Paper — his opinion

The demand for gold arose from the defective state of the

Adam Smith on the Bank of Ayr — his opinion examined - 189 The Bank of England does not increase the quantity of

money to be lent - - - - - 190

Whether many banks might not advantageously divide the

loan and circulation - - - - 190

Mr. Kinnear, Mr. Maefarlan, and Mr. Bell on Over-issue - 191

Chap. XVII. On Lessening The Circulation Of The Bank Of England

Adam Smith on the Policy of not depending too much on

Paper Money - - - - - - 192

Statement of the Bank of England circulation of different

notes, and periods of circulation ... 193

Plan suggested of reducing the circulation of the Bank of

Comparative small amount of the country circulation, and of

Scotland and Ireland - . - _ . 195

Sir Coutts Trotter, Mr. Gurney, and Mr. Norman on the

Bank Circulation .... jgg

Chap. XVIII. Weekly Statement Of The Bank Of England

Statement of the issue department and banking department - 199 Statements of Irish, Scotch, Private, and Joint-Stock Banks 200

CONTENTS. XVll

Page

The Bank of England supplies the coin for circulation and

the bullion for exportation - - - - 202

Adam Smith — his opinion that the superfluous paper would

be exchanged for gold examined - - . 203

Sir Robert Peel thinks the paper over-issued would remain

in circulation and depreciate the currency - - 204

Lord Ashburton's opinion examined : that gold is obtained without notes — he thinks the currepcy which is not wanted, cannot be kept in circulation - - - 205

James Morris, Esq., thinks the pressure in 1847 no more than necessary ; the same to be expected under similar circumstances — P. H. Muntz, Esq., thinks pressure needful — J. H. Palmer, Esq., would correct the exchanges by a fall in prices — their important evidence - 206

Chap. XIX

MR. M'CULLOCH on PAPER- MONET.

Mr. M'CuUoch on Paper-money — ^legal tender the only thing

His illustration from the Russian paper-money - - 209

Adam Smith on the Paper of the American Colonies - 209

Caution against adopting Mr. M'CuUoch's theory - - 210

Chap. XX

LORD ASHBURTON AND ME. HORSLEY PALMER.

Mr. Palmer's opinion on the system of the Bank of England, and on Joint-Stock Banks — thinks them, as constituted, incompatible - - - - - -212

Lord Ashburton disapproves of the Bank Act of 1844 - 213

Chap. XXI. On Credit

Adam Smith on Banks discounting real Bills of Exchange - 215 Adam Smith on Confidence in the " Fortune, Probity, and

Prudence" of Bankers — the same may be said of

Merchants - - - - - -216

The greater part of business carried on on credit — the nature

of credit - _ - - _ 217

Adam Smith : how capitals are increased by means of credit

—Lord Bacon on Usury and " bad Markets " - 219

a

XVm CONTENTS.

CHAP. XXIL

ON THE AMERICAN GOLD AND SILVER MINES.

On the effects produced on prices by the discovery of the gold and silver mines in America — effects of a control over prices by an irresponsible board of Directors — supposed case, as an illustration - - /ri u ' 099

On the reaction consequent upon the exportation of Gold - i^.1

Page

Chap. XXIII. On The Gold Discoveries In America, Australia, And California

Adam Smith on the Quantity imported from America— effect of the annual consumption equalling the annual importation — the same principle regulates their price as the price of other goods - - - _ - - 225

On the gold discoveries in Australia and California - 226

Chap. XXIV. Debate, Mat 10, 1847, On The Bank Act

Mr. Cardwell on reduced Prices : we must pay for what is imported — Mr. Disraeli on the Memorial from the London Bankers . _ - - - 228

Sir Robert Peel on the causes of commercial distress in 1 847 — his illustration from mechanism and law ; no alternative but a recurrence to the old order of things - 229

A new system suggested : that the members of the Great

Mercantile Kepublic should keep their own bullion - 23 1

Mr. Vansittart on the Value of the Bank Note in 1811 - 232

Locke on Paying Foreign Debts with Scrips of Paper, and

commentary ------ 233

On the new Nomenclature, Equivalency and Equilibrium —

Locke on Mysterious Language . - . 234

Chap. XXV

OBSERVATIONS ON SOME OPINIONS OF SIR ROBERT PEEL, SIR CHARLES WOOD, COLONEL TORRENS, MR. THOMAS BARING, SIR ARCHIBALD ALISON, MR. WBGUELIN, AND LORD OVERSTONE.

Sir Robert Peel on the Importance of the Definition of the

CONTENTS. Xix

Pago

Is not the Promise involved in more mystery than the

The elements of the promissory note are simple when based

upon moral obligation ----- 237

Sir Robert Peel and Adam Smith on Competition of Issue

by Bankers .-._._ 237

Sir Robert Peel and Adam Smith on Scarcity of Money - 238

Are not merchandise and manufactures substituted for

Sir Charles Wood, his definition of the standard of value and

of convertible paper (commentary) » . . 240

Mr. Thomas Baring — the country had exported 7,000,000?. in gold and the property of the country had been depreciated 100,000,000?. in value — commentary - 243

Colonel Torrens on the Value of Gold in the Home Market and in the Foreign Market — the Profit or Loss is on commodities, not on gold . - . - 245

Sir Archibald Alison, that the Pound is an Abstract Measure

Examples of the pernicious effects of inconvertible paper - 249

Sir Robert Peel on the Obligation of the Issuer of Promissory Notes — remarks — Mr. Weguelin, M.P. — his evidence on the Bank of England keeping the bullion - 251, 252

It is the Bullion that embarrasses the Bank — an alteration of system suggested — the Repeal of the Bank Act would not be a remedy . . - . . 253

Lord Overstone's evidence — -he approves of the Act; that the value of money is increased to any extent necessary to bring back the gold . . - . 254

That the natural effect of money being more stringent is to

lower the price of goods .... 255

Lord Overstone and Adam Smith on Money, Commodities,

and Barter .-.--- 256 Adam Smith on Paper Money — it rests upon a moral principle 257,258

CHAP. XXVL

A COMPENDIUM or THE REPORT OF THE SELECT COMMITTEE OF THE HOUSE OF LORDS, "WITH SOME OBSERVATIONS ON THE REPORT AND ON THE EVIDENCE.

Their Lordships' Report ----- 259 The evidence of Messrs. Morris and Prescott — causes of commercial distress . . - - - 261 Some remarks on the Commercial Distress, it was the concern of individuals and of the Bank of England, and not of the country — ^the Bank has two customers — supposed advantage of an Exchange Bank - - 262 a 2

XX. CONTENTS.

Page

Evidence of Mr. Horsley Palmer — his statement of the Causes of Distress — from the middle of April the foreign exchanges were in favour of this country - 265

Some remarks on Mr. Palmer's evidence — The Bank compelled to Contract under the Act of 1844— should not the position of the Bank be distinct from the position of the country ? — on the Demand for Notes and for Gold for Exportation ----- 267

Evidence of Mr. Samuel Gurney— the Bank, under the Act, obliged to withdraw their usual Accommodation — the evils much aggravated by the Bank Act - - 268

Evidence of Mr. G. C. Glyn, M.P. — his opinion of the causes of distress — great distress among the mercantile classes — distrust extending itself to the banking establishments — difference between the two periods of April and October — thinks the pressure was carried only to the extent required . - _ - - 269

Kemarks on the present system — a common interest established between the Bank of England, the exporting merchant, and the foreigner — the consequence of distress, increased exports, the funds high, and advantageous dividends for the proprietors of bank stock - - 271

Evidence of Mr. George Norman — his opinion of the distress in 1847 ----- 271, 273

Evidence of Mr. Morris and of Mr. Prescott — think the bank notes might have been in danger but for the Act — their opinion of the Act - - - 273, 274

Evidence of Mr. Jones Loyd — the pressure of 1847 compared

to that of former years - . - - 275

Statement of the different circumstances attending the former

Sect. 2. Treasury letter, 25th October, and its effects.

Some Account of the circumstances attending the pressure

and the relief by the letter of 25th October - - 279

Sect. 3. Efficiency of the circulation not identical with its money amount — report of the bullion committee, and some remarks ------ 282

Sect. 4. Inapplicability of the same rule to periods of favourable and of adverse foreign exchange - - . 284

Mr. Horsley Palmer's evidence — Mr. Huskisson's pamphlet -.---. 285, 286

Sect. 5. The Act of 1844 applies the same rule in cases of

an adverse and a favourable foreign exchange - 288

Evidence of the Governor of the Bank and Mr. Loyd, on a

drain of gold ---... 289

Some remarks of the Author - . - . 290

Sect. 6. The Bank left free from responsibility in the issuing department, and left free to manage the banking department on the principle of a private bank - 292

Mr. Loyd — Mr. Horsley Palmer — some remarks - - 293

CONTENTS. Xxi

Page Sect. 7. Unexampled fluctuation in the rate of discounts

since the Act of 1844.

From 1704 to 16th of May, 1839, the rate varied only from

4 to 5 per cent. — The Governor of the Bank and Mr.

Gurney's statements — remarks - - 293, 295

Sect. 8. Rates of discount of the Bank of England and the

Bank of France compared.

Lord Ashburton's evidence — remarks - - 296, 297

Sect. 9. Errors in the Bank management in 1846 and

1847.

Evidence of the Governor of the Bank, Mr. Gurney, and

Mr. Loyd — remarks - - - - - 297

Sect. 1 0. Question of advances on deficiency bills. Evidence of Mr. Loyd, Mr. Norman, &c. — their Lordships'

conclusion — remarks ----- 301 Sect. 11. Limitation of the amount of silver by the Act of

1844.

Evidence of the Governors of the Bank — remarks — Mr. G.

C. Glyn — remarks on silver coin being limited in

amount as legal tender - - - - 302

Sect. 12. Publication of the Bank Accounts, including the

reserve of notes in the banking department - - 304

Evidence of the Governor of the Bank — Mr. Tooke — remarks 306 Sect. 13. Remedial measures recommended by the witnesses 307 Opinions of the Committee and of the witnesses - 307 to 313 Sect. 14. Efifects of the Acts of 1844 and 1845 in Scotland

Some remarks on their Lordships' report - - - 314

CHAP. XXVIL

The reports from the Secret Committee of the House of Commons, with some observations on the reports and on the evidence . . - - . 320

First report. Proceedings of the Committee — after a careful review of all the evidence, the Committee are of opinion that it is not expedient to make any alteration in the Bank Act of 1844 - - - - - 320

Evidence of James Morris, Esq., — Governor of the Bank — James Prescott, Esq., and J. S. Loyd, Esq., given before the Committee ----- 323

Second report. Respecting the operation of the Act in Scotland and Ireland ----- 327

Evidence of Robert Bell, Esq., and J. F. Macfarlan, Esq., on

Evidence of James Bristow, Esq., with respect to Ireland 331

Some remarks on the reports and on the evidence - - 332

XXU CONTENTS.

Page

Commentary on the reports wherein they agree and wherein

they differ - . - - - 333

Commentary on the Bank Act of 1844— the loss from pressure unequally borne - - - - 334

The Bank is inconvenienced, and not the country impoverished, by the efflux of bullion . . - 335

If the circulation were entirely metallic, the same mischief

might result from the present system - - 335

The present system is consistent with the position of the

Bank in the absence of moral obligation - 337

The country would cheerfully bear to be taxed to escape

from the tampering with credit - - 338

Adam Smith : that the banking trade may be carried on successfully by a Joint Stock Company without an exclusive privilege .... - 339

CHAP. XXVIII.

FURTHEK CONSIDERATIONS CONCERNING- THE BANK ACT OF 1844.

Some observations on Lord Overstone's Evidence - - 340

Lord Overstone's evidence on the Bank of England Note being a Legal Tender except at the Issue Department ; and on the impossibility of the Bank being drained of Bullion ... - - 341

Lord Bacon on Usury — on the Bank at Genoa — on the Bank of Amsterdam ; and on the Bank of England ; with observations - . - . 342, 343

Eemedy suggested — Adam Smith on the needless solicitude of a government to increase the quantity of gold and silver in a country — Adam Smith on monopoly 344, 345

The principles advocated are of universal application — just

sentiments of the Emperor of the French - - 346

On the honourable position of the Merchants in Holland compared to the position of the Merchants and Manufacturers of Great Britain - . - _ 34.7 On the well-founded claims of both to honorary distinction - 348 Mr. Biddle's description of the Operation of Banking - 349 On the Advantages of an Exchange Bank - - - 351 The commercial system of the country is in harmony with freedom of commerce ; but the monetary system has succeeded to the mercantile system ... 352 Instead of watching the balance of trade, attention is now

directed to watching the exchanges - - . 353

CONTENTS. XXIU

CHAP. XXIX.

Page Lord Bacon on Truth — Adam Smith on Lowering the Value

of Money — on Evasion of Payment — Lord King on the

Bank Restriction Act in 1797 — some remarks- - 354

Mode of evading payment of the Bank of England Note at

the time of the Pretender's rebellion ... 355 Montesquieu's illustration of a despotic government - 356

Lord King on the Bank Restriction Act in 1797 - - 357

We have now the inconvenience of a periodical return to

cash payments instead of at a fixed period - 358

CHAP. XXX.

T. M. WEGUELIN, ESQ., ON THE EXCHANGES — ON THE BANK OF

ENGLAND HOLDING THE KESEEVES OF BULLION ON THE MORAL

EESPONSIBILITT OF THE BANK ON SCIENTIFIC AND MECHANICAL

PEINCIPLES LB BLANC AND BAZINGHEN ON THE FRENCH COIN- AGE — ON THE GOLD AND SILVER STAICDAED, AND ON BANK NOTES

AND COIN — ISSUES OF THE ENGLISH, SCOTCH, AND IRISH BANKS

REMEDIAL MEASURES SUGGESTED.

T. M. Weguelin, Esq , on the Exchanges, and on the Bank

holding the Reserves of the Country - - 359

Certain opinions assumed by Sir R. Peel's Bill — remarks - 360

The moral responsibilities of the Bank of England not duly

considered ---... 351

Lord Overstone's approval of the Bank Act because founded

on scientific principles - - _ . 362

On scientific and mechanical principles applied to the Bank

Comparison of the ancient double standard with the modern

theory of Coins and Promissory Notes being both money 36)

Neither Locke, nor Sir I. Newton, nor A. Smith, nor Lord Liverpool propounded the true principle of the circulation of gold and silver coins - - . 366

Locke and Adam Smith on the Payment of Bank Notes — were unacquainted with the present theory -

The Author disclaims any intention of imputing unworthy

motives to the supporters of the Bank Act - - 368

Sir R. Peel's panegyric on Adam Smith — on competition —

circulation of English, Scotch, and Irish Banks 369

Lord Liverpool on paper being issued to so great an excess only by corporate bodies, under the authority and protection of government, or directly by the government itself - 370

XXIV CONTENTS.

Page

The Bank Act implies a sarcasm on mercliants and bankers 370

Caution required in changing a system long established - 372 Statement of capitals and liabilities of Six Joint Stock Banks

Remedial measures suggested — conclusion - - ~ 374