Our Money Problem: In the Light of the Experience of England With an Inconvertible Paper Currency

FROM 1797 to 1821, a period of twenty-four years, the use of coined money and of its representatives was lost in England, through causes much the same as those which produced a like result in this country eight years ago, and an inconvertible paper currency became the medium of domestic exchanges. In the monetary phenomena of that interesting period, and in the history of events connected with them, there is much to be found that runs closely parallel with our own passing experience, and from which more light upon the currency problem at present perplexing us is to be derived than we can look for from any other source. No doubt the lessons of the English era of inflated paper, in their bearing upon the questions now testing American statesmanship, have been carefully studied by many persons, and have contributed to the formation of intelligent opinions in many individual cases ; but, strangely enough, there seems to have been no attempt, so far in the progress of the discussion of our monetary derangement, to place the facts of the two experiences in comparison before the public. Even an inadequate presentation of such a comparison is better than its neglect, and some errors may be corrected by the view in which the subject is here presented.

The suspension of cash payments in 1797 by the Bank of England, and, as a consequence, by all other banking institutions throughout the British kingdom, was permitted, or ostensibly commanded, by an act of Parliament, which became necessary by reason of an alarming stricture in the money market, resulting from the heavy expenditures of a costly war. That long conflict in which England had involved herself, first with revolutionary France, and afterwards with Napoleon, had then been four years in progress. The like causes which, in our more desperate internecine struggle, produced the same effects with rapidity, were slow in their operation. Even after the restriction of cash payments, gold retired tardily from the field of circulation, and several years passed before the depreciation of paper currency made itself observably manifest. The first clear symptom— for a long time misunderstood — of some departure in British trade from the general measurement of values appeared in the turning of the rates of foreign exchange against England. Exchange on Hamburg, for example, which had ruled low for several years, rose in 1801 to fourteen per cent, or seven per cent above the cost of transmitting gold, — a state of things for which no adverse balance of trade would account; although few economists of the day were prepared to look elsewhere for its explanation. When it had been found, however, and convincingly shown, that trade at the time was actually in favor of England, there seemed to be no escape from the conclusion that foreign bills were selling at a premium considerably above the cost of shipping gold, simply because the currency with which they were bought had lost something from its nominal value. Another token of the fact appeared about the same time in the advancement of the market price of gold bullion above the mint price. The “mint price ” is that defined rate at which bullion is received at the Mint and returned in coin, -—not so much a price, in fact, as a definition, by which the denominational terms of the money of barter and account are given an exact meaning, in fractions of an ounce of standard gold. At the period in question, the mint price of standard gold bullion in England was fixed at £3 17 s. 10 ½ d. per ounce. The market price, or the price of bullion purchased with bank-notes, had risen in 1804 to £4, in 1810 to £ 4 5 s., and in 1813, by a more rapid advance, to £ 5 10 s., — the highest quotation that I find recorded during the period of depreciated paper. When it sold at £ 4 5 s. in bank-notes, the ounce of bullion, which would exchange for only £3 17 s. 10 ½d. in coined gold, showed what, in the wrong parlance of our day, we should call a “premium on gold” of 9 1/10 per cent. At a market quotation of £3 10s. the “ premium ” became 41 per cent, and the bank-note, which purported to be of the value of one pound sterling, or twenty shillings, exchanged for no more than fourteen shillings and two pence in gold.

It must be understood that no direct measurement of the market value of paper money against gold coin was allowed to be made at any time during the period of the suspension of cash payments, and that absolutely no such thing found opportunity to grow up as that gambling speculation in gold by which all the natural symptoms of the disease of paper depreciation have been so violently exaggerated in our own corresponding case. Under an old statute of Edward VI. it was held to be a penal offence to sell guineas of good weight for more than twenty-one shillings, or their par, in paper, although clipped and light-weight guineas, which might be lawfully melted for exportation, were freely sold at twenty-five and twenty-six shillings. As late as 1810 three men were at one time lying under conviction of the crime of dealing speculatively in gold coin ; and although the verdict against them, and the law on which it rested, were ultimately set aside by the Court of Common Pleas, the idea of unlawfulness in that kind of speculation was so effectually impressed upon the mind of a public for whom penal law had more terrors than belong to it in these days and on this side of the Atlantic, that no quotable dealing in gold money as a commodity of the market ever took place. The sale and purchase of bullion for shipment abroad alone furnished occasion or opportunity for bringing the value of the now incontrovertible bank - note into comparison with the ancient standard from which it had departed. Of the dealing in bullion, there was just so much as the transactions of foreign commerce gave rise to, and no more. The notes of the Bank of England being receivable by the government for all taxes, no demand for gold, such as that created here by the exaction of customs dues in coin, existed, to keep at an active strain and in powerful tension, as it does with us, the divergency of the paper and the metallic currency from each other. Although the notes of the Bank of England were not formally declared legal tender until several years after their specie basis had been restored, they were practically made so, first by the supposed operation of the ancient statute before referred to, and later by a new enactment which took its place in 1810, whereby any attempt to make a difference, either in payment or prices, between guineas and bank-notes, was declared to be a misdemeanor, punishable by imprisonment and fine. Compared with this vigorous legislation, the Legal-Tender Act of Congress in 1862 was but a mild measure for forcing the credit of an irredeemable paper currency.

It is easy to see, from the circumstances, that the maximum “ premium ” of forty-one per cent, to which gold bullion rose in the English market during the reign of paper values there, is no fair index of the real depreciation or debasement of the paper currency of that period, as compared with the extreme price of $2.85 ½ at which the dollar of gold coin was bought and sold among the brokers of Wall Street in the midsummer of 1864. In the one case, all the conditions attending, and most of the influences bearing upon, the inflation of paper were calculated to suppress or keep down those more immediate and palpable manifestations of its excess which the free and active marketing of gold as a commodity develops ; while, in the other case, a wild and madly excited spirit of speculation has all the time been stimulating them to gross exaggeration. Mr. Fessenden said in his report as Secretary of the Treasury, in 1864, referring to the extraordinary fluctuations that had taken place that year in the gold market, or, more strictly speaking, in the arena of gold gambling: “In the course of a few days the price of this article rose from about $ 1.50 to $2.85 for $1.00 in specie, and subsequently fell in as short a period to $ 1.87, and then again rose as rapidly to $ 2.50 ; and all without any assignable cause traceable to an increase or decrease in the circulation of paper money, or an expansion or contraction of credit, or other similar influence on the market tending to occasion a fluctuation so violent. It is quite apparent that the solution of the problem may be found in the unpatriotic and criminal efforts of speculators, and probably of secret enemies, to raise the price of coin, regardless of the injury inflicted upon the country, or desiring to inflict it.” So transparently true is this observation, not only of the extraordinary price to which gold was carried in 1864, but more or less, also, of the fluctuating quotations of the whole period since it became a commodity of the market in 1862, that it is impossible to say of any quoted “premium,” at any time, how much represents actual dilution of the purchasing currency, how much represents doubt of the national stability or credit, and how much is the purely artificial product of conspiracy and speculation. Very certain it appears, that with us the price of gold, as a supposed measure of the depreciation of currency, has all the time grossly exaggerated it, while it is equally certain that in England the market price of gold bullion never indicated fully the real decline in relative value of the paper money for which it was exchanged. Had a “gold room” been in operation at London, from 1812, say, to 1819 ; had lines of telegraph been transmitting hourly reports of hourly fluctuating quotations to every corner of the kingdom ; had every importing merchant been a necessary purchaser of gold to the average amount of fifty per cent of his foreign invoices, for payments at the custom-house ; and had no penalties of law restrained the sale or exportation of guineas, — it is hardly to be doubted that under such circumstances a mark very far above forty-one per cent would have been touched in the “ premium ” of gold during that period.

If we wish to ascertain the actual degree of the inflation and depreciation of English currency in the period under review, for the purpose of comparing that experience of monetary derangement with the similar one which we are now suffering ourselves, we must look (I) at the volume of currency brought into circulation in the two cases, relatively to the population and trade existing in each ; and (2) at the state of prices produced in the one instance and in the other. Before entering upon these examinations, however, it is best to mention some facts descriptive of the banking system under which the note currency of England from 1797 to 1819 — and several years later, indeed — was created.

The Bank of England acquired in 1709, by act of Parliament, an exclusive monopoly in England and Wales of the privilege of issuing bills or notes, payable on demand, to circulate from hand to hand, except as such bills might be issued by private individuals on their single credit, or by a limited number of persons associated in mere partnership. The act in question prohibited any company of persons exceeding six in number from “ borrowing, owing, or taking up money on their bills or notes payable to bearer on demand.” At the period of this legislation, and until long afterwards, when the modern system of drawing checks upon deposits was introduced, the privilege so monopolized constituted the essential privilege of all banking business. The effect, therefore, of the act, renewed at every extension of the charter of the bank, was to forbid the existence, anywhere within England or Wales, of joint-stock banks, or of any considerable aggregations of capital in banking, to interfere with the gains or dispute the controlling monetary power of the great corporation at London, which bribed government by frequent heavy advances and by taking upon itself the management of the public debt. And this exclusive monopoly the Bank of England maintained until 1826, when it was so far modified as to permit the organization of joint-stock banks at points not within sixty-five miles of London. During the period under notice it was in full effect, and it gave birth, by necessary consequence, to a system, or no system, of private banking throughout England, which rivalled the loose and reckless "wild-cat” banking of a somewhat later day in the United States. The Bank of England established no branches, even in the larger cities outside of London, for the accommodation of the business of the country, nor could any other responsible organization of capital be formed for its accommodation. A swarm of private banks, of course, came into existence under these circumstances, multiplying thick and fast after the restriction of cash payments was enacted and the inflation of paper money began ; banks without regulation by law, without public provision for the security of their obligations, without public question as to their management or the state of their affairs. "All sorts of petty tradesmen,” as one historian of the time writes, “became bankers, each one the issuer of promissory notes not payable in gold, and finding abundant room for their circulation.” In 1798 there were only about 270 of these banks in existence. Ten years later they had multiplied to 600 ; in 1810, to 782; in 1812, to 825 ; in 1813, to 922; and in 1814, the culminating year of inflation, and just before its first collapse, they numbered no less than 940. So entirely without surveillance of law was the management of these private banks, that no means ever existed for ascertaining, or even estimating by any nearer approximation than the merest guess-work, the amount of their notes in circulation. One witness examined before Mr. Peel’s Bank Committee in 1819, — a prominent London banker, Mr. Lloyd,—testified his belief that the issues of the country banks amounted to £40,000,000 or £ 50,000,000, and that was after the crash of 1815 - 16 had swept over one hundred of them out of existence. The committee, however, in their report, — evidently disposed to make the facts appear as favorable as possible to the plan of resumption which they recommended, —declared that this country bank circulation had never exceeded £25,000,000. Mr. McLeod, in his “ History of Banking,” thinks it a very low estimate to calculate an average issue of £ 30,000 by each bank. Fairly judging from all that can be gathered upon the subject, it seems to be safe to assume that the paper currency set afloat by the private bankers in England amounted, at the period of greatest inflation, — say in the summer of 1814, — to not less than £ 35,000,000. The issues of the Bank of England at the same time had risen to £24,801,080, by stages which appear in the following table, taken from the report of the Committee on the Bank Charter in 1832. It shows the average circulation of the Bank in each year from 1792 to 1815: —

1792

£ 11,307,380

1793

11,888,910

1794

10,744,020

1795

14,017,510

1796

10,729,520

1797

9,674,780

1798

13,095,830

1799

12,959,800

1800

16,344,470

1801

16,313,280

1802

15,186,880

1803

15,319,930

1804

£ 17,077,830

1805

17,871,170

1506

17,730,020

1507

16,950,680

1803

18,188,160

1809

18,542,860

1810

21,019,600

1811

23,360,220

1812

23,408,320

1813

23,210,930

1814

24,801,080

1815

27,261,650

27,261,650

1860

January

$407,152,032

1861

“

390,255,977

1862

“

418,938,945

1863

June

550,000,000

1864

October

606,000,000

1865

“

595,000,000

1866

June

580,000,000

1867

“

522,197,930

1868

“

553,866,033

1869

September

592,316,644

The aggregate of currency set afloat in England and Wales (both Scotland and Ireland having distinct banking systems) by the Bank of England and the private bankers appears, therefore, to have been in 1814 not less than £ 60,000,000, against probably not more than £ 30,000,000 to £ 35,000,000 at the beginning of the century. Something more must be added for the circulation of the notes of the Scotch joint-stock banks in the English counties on the border, where they were in high credit and extensively used ; and something more still for the silver coin that necessarily remained in circulation when the smallest bank-note permitted was for £ 1 (five dollars), and no such creation as “ fractional currency ” was dreamed of. Altogether, we can hardly err widely if we estimate the total of currency in use in England about the time mentioned at £ 70,000,000, or $350,000,000.

To state the amount of currency in use in the United States within the past eight years, for the comparison to be instituted, is no easy matter, and cannot be done with accuracy. The elements in the computation are,

(1) the specie in circulation in 186o-61 ;

(2) State bank circulation from 1860 to 1865 ; (3) national bank-note circulation from 1864; (4) United States legal-tender notes issued and outstanding since 1862, less amount held in treasury and amount held in national bank reserve ; (5) fractional currency. Using all the data I have been able to obtain from official and other sources,

the following is perhaps about as close an approximation as can be made to a correct statement of the currency actually in circulation in the United States each year from 1860 to 1869 : —

The increase here shown in 1868 and 1869 over 1867 is mainly due to a reduction of the amount of currency held in the treasury, and to the substitution of three-per-cent certificates for legal tenders in the bank reserves. The three-per-cent certificates are no doubt properly to be included in a statement of the volume of currency; but I have omitted them, as well as the compoundinterest notes, for the reason that whatever function they may perform in connection with our currency is no doubt fully offset on the English side by a corresponding use of exchequer bills, which were extensively afloat during the period with which our comparisons are drawn. It is equally safe to leave gold coin out of the account on both sides, because, being wholly retired from ordinary circulation in each instance, its uses and influences in trade were probably about the same in each.

We have, then, as the maximum of inflation in England, a circulation of about $ 350,000,000, and as the maximum in the United States a circulating currency of $ 606,000,000. But the population (England and Wales in 1814) using the former amount of currency was scarcely 11,000,000, while the population in the United States (excluding that of the eleven States in rebellion) employing the latter sum was not less than 24,000,000, and more probably 25,000,000. The ratio of currency to population in England was nearly $32 per head; in the United States it has been from $25 to $26. Population, however, as was forcibly argued by the Hon. George Walker in his instructive letter appended to the report of Commissioner Wells for 1868, is no proper measure of the relative requirements of currency in any two countries, except as one element in a comparison which takes account also of their wealth, of the magnitude and activity of their trade, and of the facility of transportation with which it is carried on. England, to-day, in a natural condition of things, requires no doubt a larger circulation of money than the United States, proportionate to the population employing it. But the England of fifty-odd years ago, with a total foreign trade, imports, domestic exports, and re-exports aggregating only $256,000,000 (against $ 1,955,000,000 in 1867), without railroads or steam-carriage, on the other hand, to accelerate the exchanges within her compact territory, can hardly be supposed to have had healthy use for a larger circulation per head than the United States in 1864. The necessary conclusion seems to be that the excess to which the volume of currency swelled in England, under the long restriction of cash payments after 1797 was least as great as we have known at any time in this country since specie payments were suspended, in 1862.

If we look at the indication of general prices, comparing their advance in the two periods, above prices previously prevailing, we shall find reason to conclude that the depreciation of the value of currency in the English case, resulting from inconvertibility and excessive quantity, was fully equal to that we have experienced in our own. A remarkably valuable exhibit of the course of prices in England from 1784 to 1837, prepared for the Commons Committee on Commercial Distress in 1848, is quoted by Doubleday in his Life of Peel. It shows in centesimal proportions the comparative prices of ninety articles of commerce, averaged for successive periods of six years each, the price given in every case being without duty. We select from the table a few leading articles for citation. The price attached to each article at the beginning is taken as the standard, equal to 100 : —

The Course of Prices in England from 1784 to 1837.

It is to be noted that the period in which an advance of prices is first shown — that from 1791 to 1797 — was anterior to the suspension of cash payments. Within that period, therefore.

the average advance of twenty per cent is solely attributable to the disturbance of production and trade by war. After that, the two causes operated together, very much as in our own case, although to us the disturbing effects of war were, no doubt, brought nearer home, and were somewhat more violently felt.

From a lately published statement of the prices of breadstuff’s and provisions in the New York market on the 1st day of January each year since i860, I have prepared the following centesimal table similar to the above, for comparison with it. So far as may be judged from the comparison of these two tables, the average range of prices in England, during the twenty-one years from 1798 to 1819, must have been fully as high, relatively to prices prevailing before war commenced, as the range of prices in this country has been since 1863, when their advance began. It is true that in the latter of the two tables the year 1865 shows an upward bound to a height very far transcending the highest mark made in the former ; but the prices given in the English table, it must be remembered, represent each the average of a period of six years, and it is more than probable that in some single years—within the interval from 1812 to 1818, for example — the extraordinary level of 1865 must have been closely approached. Indeed, I learn from another table, in which the prices of wheat, rye, barley, and oats are given for each year from 1797 to 1815, that in 1812 the prices of those grains were at an average nearly throe times greater than their prices before the war. For the whole period from 1798 (the year following the first restriction of cash payments) until 1825 (four years after resumption took place), the average of the prices of the ninety articles embraced in the English table was 56 per cent greater than their antewar prices. For the whole period from the beginning of 1863 until 1870 the average of the prices of the eleven articles embraced in the New York table was 57 per cent greater than their prices in 1860.

The Course of Prices at New York from 1860 to 1870.

By the comparison of prices, then, as well as by a comparison of the relative volumes of inconvertible paper money afloat in the two instances, we seem to be led to the conclusion that the state of monetary derangement in England which followed the suspension of specie payments in 1797 bore a very close resemblance, in seriousness of extent, as well as otherwise, to that which has prevailed in the United States since 1862. The Parliamentary statesmen of England at that period had to deal with almost identically the same problem that our own legislators are now attempting to master, and these latter, it is plain, can look nowhere for surer instruction than is to be gathered from the operation of the measures that were tried by the former.

As before noted, it was not until several years after the restriction of cash payments in England, that the phenomena of the resulting monetary derangement began to be observed. They were developed rapidly after 1806 by the growth of speculation, incited, first, by the “paper blockades ” which Napoleon’s Berlin Decree and the English retaliating Orders in Council had established, and then further inflamed by the occurrences which opened to British enterprise those Spanish American colonies that were still supposed to be inexhaustible depositories of mineral wealth. Under the influence of a speculative mania, for the stimulation of which all the conditions were prepared, the effects delineated, of an inflated and depreciated currency, were quickly produced. It was long, however, before their real significance and nature were discerned by more than a very few men of advanced intelligence. The whole banking and commercial world persisted for many years in attributing the rise of prices wholly “ to the effect of the war,” and in considering the so-called “ premium ” upon bullion as absolutely an advance in the value of gold, induced by scarcity resulting from unfavorable exchanges. The famous report of the Bullion Committee of 1810 found very few prepared to accept its incontrovertible principles. In that remarkable report, chiefly the work of Francis Horner, the now accepted principles of monetary science were first fairly defined. It erred unquestionably in taking the market price of bullion as an exact measure of the depreciation of paper currency, and in concluding that a summary restoration of the lost standard, by resumption of cash payments within two years, was at that period practicable; but it made thoroughly and with scientific precision a diagnosis, so to speak, of fhe disease of the time. Supported only by a small party in Parliament, who became known as the “ Economists,” its views encountered overwhelming opposition, and it was rejected by a large majority. More effectually to condemn and extinguish its heretical doctrine, that the currency of the country had undergone depreciation, and that values had lost all definiteness of measurement, a defiantly contradicting resolution was carried by the Ministry of the day, and Parliament reposed upon its work. Nine years later the doctrines of the Bullion Report had become the prevailing creed, and Sir Robert Peel, who voted against them in i8ro, became the instrument of their practical application.

The next four years after 1S10 were marked by a prodigious extension of enterprise in all directions, and particularly in agricultural improvement. What railroad building became at a later time, and what the mania of oil production, under similar circumstances, became in this country a few years ago, the reclaiming of waste lands and the fertilizing of unproductive soils was in England in 1812, Men lost all sense, apparently, of the natural limits within which capital could profitably invest itself in farming. It was believed that permanence had been given to the high price of wheat, by the Corn Law of 1804, establishing a minimum price of sixty-three shillings per quarter, below which importation was prohibited by a duty of twenty-four shillings and three pence per quarter. Money was abundant. The banks, checked by no thought of a “pay-day ” for their obligations, put no limit upon their discounts. Men with small means, or with no means, found themselves able to command and to handle the boundless capital of credit. Of course they were venturesome with it. Of course they were enterprising, and, as we have seen in our own country, under like circumstances, within these seven years last past, a wondrous unsubstantial and illusive show of prosperous activity grew out of the opening of a wide opportunity for risking really little to gain possibly much.

Toward the close of 1814 the crash came. Peace had been temporarily attained with Napoleon in exile at Elba, and the act restraining cash payments required their resumption within six months after a declaration of peace. At the first movement of preparation for resuming, the bubble began to fall to pieces, and, notwithstanding a prompt re-enactment of the restriction, the following year found the whole fabric of overgrown enterprise and speculation totally prostrate. Eighty-nine country banks went into bankruptcy at once, and those that did struggle through the crisis so curtailed their issues that the currency from that source which had been in circulation is believed to have been diminished in amount nearly one half. The Bank of England, as a measure of relief to business, increased its issues about £3,000,000; but still there must have been a suddenly created vacuum left of £ 8,000,000 or £ 10,000,000.

This destructive catastrophe of“ contraction ” in 1814-1816 is one of the most important facts of the history to which we are reverting. It explains the possibility of the measure of resumption adopted three years later, and teaches by what a disastrous method the heroic cure of these monetary diseases is of necessity accomplished.

Two years of half-paralyzed trade and stagnant enterprise caused an accumulation of bullion in the vaults of the Bank of England, and lowered its market price from £ 5 8 s. per ounce in February, 1814, to £ 3 18 S. 6d. in October, 1816. At the latter quotation the market price of bullion iiad dropped to within seven pence halfpenny per ounce, or about four fifths of one per cent of the par of the Mint. Under these circumstances, the Bank felt itself able to undertake a partial resumption of cash payments, and was permitted in the autumn of 1816 to issue notices, offering the redemption of all its notes dated prior to January 1, 1812. Early in the following year another step in the same direction was taken by notice of the redemption of all notes of the Bank of England dated prior to January 1, 1816; and in October, 1817, the notice was still further extended to all notes except the issues of that year. When these steps were first taken, had prudent measures been adopted for restraining the general volume of currency within the limit to which it had been reduced by the collapse of 181415, there seems to be no reason for doubling that resumption might at that time have been made complete very easily, and with little if any addition to the effects of the existing prostration. The business of the country was nearly flat; general prices had sunk enormously, and, in fact, everything had tumbled almost to the specie bottom, as it was. But, fatuously enough, a new expansion of the currency was begun simultaneously with the undertaking of the experiment of partial resumption. The Bank of England had increased its issues from £ 26,000,000 in the summer of 1816 to £ 29,000,000 in the autumn of 1817. The country banks, as they recovered their footing, threw out an increasing volume of paper again ; and so, very soon, depreciation began to manifest itself anew. At the first offering of redemption by the Bank of England, the demand for gold seems to have been remarkably slight. But it steadily increased, and almost every ounce drawn from the Bank by the presentation of its notes was got by speculators for shipment abroad. Mr. Peel, in a subsequent speech, estimated the drain at £ 6,000,000, and as the market price of bullion rose above £4 per ounce, it became evident before the close of 1817 that the experiment of resumption must cease. An act of Parliament was accordingly passed, releasing the Bank from the fulfilment of its notices, and once more the suspension of specie payments was complete.

Three or four years of the state of things which thus recurred would unquestionably have brought affairs again to as bad a pass as they were in four years before. Speculation revived ; prices readvanced ; an enormous importation of foreign goods took place, and the old bursted bubble was refilling itself as fast as it well could. But those who apprehended the meaning of these symptoms were now more numerous than in 1810, and Parliament took alarm. A committee to report upon the state of the Bank, with Sir Robert Peel for its chairman, was appointed during the winter of 1819, and from that committee came the plan of resumption by a sliding scale,” which we often hear referred to nowadays, but very seldom intelligently discussed. The provisions of the bill in which this plan was submitted to Parliament may be briefly recapitulated as follows : —

The acts restraining cash payments were to continue in force until May 1, 1823 ; but

After February 1, 1820, and until October 1, 1820, the Bank should be required to pay its notes on demand, in amounts not less than of the value or price of sixty ounces, at £4 1 s. per ounce, in standard gold bullion, stamped and assayed at the Mint.

After October 1, 1820, and until May 1, 1821, it should be required to pay its notes in the same manner at the rate of £3 19 s. 6d. per ounce of standard bullion.

After May 1, 1821, and until May 1, 1823, the rate of payment should be £3 17 s. 10 1/2d. per ounce, or the mint price of bullion, giving two years during which the notes of the Bank should be maintained at par in bullion, before payments in cash or coin should be undertaken. After May 1, 1823, the Bank must redeem in coin.

Within the first period mentioned, the Bank might pay, if it chose, at a rate less than £4 1 s., but not less than £3 19 s. 6 d. on giving three days’notice ; and in the second period it might pay at a rate not less than £3 17 s. 10 1/2 d. If it once lowered the rate, however, it had no permission to raise it again.

The payments of the Bank were to be made in bars or ingots of sixty ounces each, and fractional sums of less than the value of forty ounces in silver coin.

All former restrictions upon trade in bullion and coin were totally repealed.

Such were the essential details of the law known as “ Peel’s sliding scale,” under which the resumption of specie payments was accomplished in England. It encountered considerable resistance, both in Parliament and out, its chief opponents being a party which maintained ideas corresponding with those now inculcated in this country by Mr. Pendleton and his disciples. These persons objected to the restoration of the ancient metallic standard of value, upon the ground that the vast debt of the nation, and the great amount of private obligations incurred during the previous twenty-two years, had been contracted in a depreciated currency, and could only with justice be paid by the same measure ; that the restoration of the old standard after twenty-two years of suspension, became a public and private fraud. They contended that the Bank should regulate the payment of its notes, not by a fixed standard, but by the price of gold, whatever it might be. Then, as now, however, these specious arguments were powerless to corrupt the better sense of public honesty which prevailed, or to confuse in the minds of the majority a shrewd perception of the folly of attempting to carry on a successful foreign commerce with a currency not conformed to the common standard of exchangeable value. Mr. Peel in his speech said : “ It is in vain to think that foreign nations can be imposed upon by such a deception, or that in their dealings with us they will not calculate upon the depreciation.” To that consideration, at least, there was no answer to be made.

The bill passed Parliament without a division in May, 1819. At the time of its passage, the difference to be overcome between value in paper money and in gold was asserted by Mr. Ricardo and other economists to be no more than five per cent. They were betrayed into a great mistake, however, by accepting the market price of bullion as a true index of that difference. Had it really been so, the transition to cash payments would have been easily and safely accomplished. Within three months after the passage of the act, the market price of bullion had fallen to the mint price, and the accumulation of gold by the Bank was so rapid that early in 1821 — two years in advance of the time fixed by law — it asked and obtained permission to resume payments in cash. But meantime mischievous consequences had been wrought, in which the real length of the leap taken to solid ground was disclosed. A ruinous fall of prices set in simultaneously with the passage of the Bank Act, and failures in every department of business followed thick and fast throughout the year. Whether these were consequences or coincidences remains to this day a question in dispute between different writers in England. But there can hardly be a reasonable doubt that, although the general fall of prices may have been considerably helped by the occurrence of a heavy harvest, and although the results of excessive importation may have been inevitable in any event, the commercial disasters of 1819 were mainly, nevertheless, the immediate consequence of the anticipation of diminished nominal values, produced by the passage of the Bank Act.

Six years afterwards, when the operation of the act was made a subject of Parliamentary investigation, the Directors of the Bank of England asserted that no contraction of currency took place under it, and that it had no practical effect upon resumption. Mr. Tooke also claims, I believe, that the circulation of notes and coin in 1822 was actually greater than the circulation of notes in 1819. But if it, be true that no contraction of currency took place, then all the more marked do we see the moral effect of the apprehension of it, and the practical mischief of the sudden preparation of every business man for a new system of things ordered and fixed in time by an act of legislation. The contrivance of the sliding scale of resumption obviously worked with no appreciable effect in the manner intended, and failed utterly to distribute the strain of the transition from one measure of values to another over a protracted period of time. So far as can be discovered, the passage was accomplished no less by one perilous leap than if the act had omitted altogether its careful scale, and had commanded resumption absolute to take place on the first day of January following. If the whole shock of transition was not felt in 1819, the little that was spared must have gone into the tremendous revulsion of 1825, only six years afterwards, which is remembered as one of the most destructive financial catastrophes that England ever knew. It is claimed that Mr. Ricardo, before he died, acknowledged that he had been entirely mistaken in supposing that the return to cash payments would make no more than five per cent difference in the value of the currency, confessing that the fall of prices had shown it to have been not less than twenty-five.

And now that we have reviewed the history of the long experience through which England passed with an inconvertible and depreciated paper currency, what conclusions can we deduce from it that will apply to the treatment of our own corresponding case ? Can they be sucli as will favor the plans of those who would arbitrarily cdmpel the restoration of specie payments, either by an act of Congress fixing some certain date on and after which the banks and the government shall pay their obligations in coin, or by an act of Congress establishing a graduated scale of rates at which notes shall be exchanged for coin, diminishing from month to month until all difference between the two is extinguished ? I think not, and for several reasons: —

1. The operation of the restoring act of 1819 in England was preceded by one great collapse of the bubble of inflation, and yet, after that, was accompanied by a repetition of disaster throughout the kingdom.

2. Although the actual transposition of values to be made in our case, as we now stand, seems, by the comparison of general prices, to be not far from the same that it was in England in 1819, yet the apparent difference in value between coin and paper currency is far greater, and the practical difficulties of an enforced resumption are complicated with us by that speculative or gambling employment of gold in the market for which no opportunity was allowed in England.

3. It is plain that after 1815 the resumption of specie payments would have naturally followed in no long course of time, without other interference by Parliament than the repeal of its restriction, if the issues of the English banks had been restrained within any limit, and had not been free to reexpand themselves at will. In our case the currency has that limitation, and every inch we have gained in the return toward substantial values we have held by reason of it.

4. The effect of contraction which for England was to be produced in no other way than by the disastrous operation of a great commercial catastrophe, we have had more fortunately prepared for us. The restored South since 1865 has been gradually absorbing millions of the currency which before that found its circulation in the Northern States alone. The new system of free labor now fairly established in that section requires, for the payment of wages and for the more complicated modes of dealing introduced, a far more considerable use of circulating money than was needed in the old slaveholding era; so that, month by month, as the development of a prosperous industry goes on, the South is acting like a thirsty sponge upon our currency, drinking up the excess. The same process goes on in the expanding West, and in those great mid-Terri tories into which trade has been carried by the opening of the transcontinental line of rail. Nevada and California, too, on the farther slope, monetarily isolated from us hitherto, are preparing themselves for some use, at least, of the lawful currency of the nation, as the necessary consequence of a closer commercial intimacy. More than the effectual contraction of currency produced in this natural way by a steadily expanding need the country cannot bear without disaster.

If there is, then, a lesson to be drawn from the history that we have reviewed, in its comparison with the circumstances of our own monetary situation, I should write it thus : Let the currency alone, and wait a little for the needs of the country to grow until they have stretched this shrunken paper out to the full dimensions of the ancient standard ot value. It will be but a year or two, — America grows fast,— and we can better afford to wait than to risk the production of a ruinous catastrophe by impatient force.