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OF AN ENTIRE REPEAL
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SUGGESTED FOR OBVIATING THEM.
By JOHN WRAY, Esq.
The establishment of an efficient paper currency maintaining an unimpaired value, during a period of more than twenty years, exhibits to the political economist the important fact, not previously supposed to be possible, that the intervention of a metallic currency for the circulation of every species of exchangeable commodities, may be safely and conveniently dispensed with.
A paper currency, guarded in its issue by the very principles on which the Bank of England is conducted, cannot be exposed to depreciation, because that issue is governed by the demand, beyond which it has, in no one instance, been carried. Bank paper represents and is a true sign of property—hence, it has ever commanded the public confidence, and for all objects of traffic within the realm, it has been found to possess the powers of bullion.
In several of the continental states, in which the government has sought relief from financial difficulties, by the issue of paper, that paper did not command the public confidence, and therefore fell to a discount. It represented nothing, and its increase produced the uniform effect of a proportionate depreciation. Such paper is obviously of a nature bearing no similarity to bank paper. They possess no one faculty in common, and cannot therefore in their operation be productive of similar consequences. The cause assigned, sufficiently accounts for the fatal mischiefs, which have attended the arbitrary and uncontroled issue of the one—but that cause, cannot be applicable to the other. The one is a baseless fabric
the other rests on the substantial foundation of the property
which it represents.
The public opinion on this subject is steady and has been strongly pronounced, on each and every occasion, when the recurrence to cash payments has been contemplated. Bank, paper has the decided preference—no inconvenience is felt—whilst even a remote prospect of a repeal of the Bank Restriction Act, already fills the commercial world with alarm.
The effects of a diminished circulating medium are anticipated, though obscurely seen—for no one can estimate the magnitude of the evil, on its nearer approach. That it will be tremendous, many sound politicians think, and are prepared to demonstrate. But, were it otherwise, and their opinion, not founded as it seems to be, in the nature of things, the very circumstance of its almost universal prevalence, would generate infinite calamity—affect public credit, and derange the relative value of exchangeable commodities.
In the ruder ages of society, various and successive were the conventional emblems of property, until the precious metals received that distinction by the general assent of the civilised world, and thence were vulgarly considered, as constituting the riches of the state. Experience however and reflection, have gradually led to a very different opinion, and have finally detected the gross, yet venial error, by establishing the distinction between property and its sign. In the infancy of society, shells or other emblems have performed the office, which we now assign to the precious metals. Their functions at the respective periods were similar—and their intrinsic value equal. For each answered the intended purpose-that of facilitating the interchange of commodities.
It may be proper to call to our recollection, that the supply of gold within the last thirty years at least has proved inconsiderable, whilst the money value of property, in every part of Europe, and in the United Kingdom in particular, has risen in a ratio infinitely beyond the proportion, which that supply bears to the previously existing amount.
When it was asserted by an eminent writer at an early period, that one hundred millions of public debt, would cause a national bankruptcy, he might be correct—at the then estimated money value of all the property in the kingdom, the pressure of such a debt n i3ht be intolerable, and the interest be equal to, or perhaps exceed the utmost extent to which taxation could be carried—the utmost amount, which the country could be competent to bear. But the money value of all property having advanced with the progress of taxation and of wealth, the crisis anticipated has passed without convulsion; and a debt greatly exceeding six times the amount in question not only exists and is borne without affecting the national prosperity,but a sinking fund is also provided for, which increases the weight of taxation nearly 50 per cent, on the produce required for the payment of the interest. So that in effect, the same pressure is experienced, the same burthen supported, as if the capital debt were 50 per cent, greater than its actual amount, and the whole sum now applied to the payment of the interest and of the sinking fund, were required exclusively for the payment of interest alone.
Hence the conclusion, that the United Kingdom, in its present state of property, and the present money value of that property, is competent to bear a permanent debt, one half beyond its present amount. The revenue necessary to provide for it is actually levied —the difference consists in the application—in the pressure there is no difference.
Suppose a country burlhened with taxes, bearing any given proportion to the aggregate amount of the money value of its whole produce of land, labor, mines, fisheries, colonies, &e.—that proportion will be clearly affected by any degree of further taxation: nor is it less obvious to reflecting men, that a diminution in the money value of the whole produce, leads to the same inevitable consequences, although no addition be made to the taxes.
The truth is, either process destroys the previously existing proportion. The same powers to bear an additional burthen, or
diminished powers to bear the same burthen, present the same result. The equilibrium is deranged, and the scale kicks the beam. The weight of taxes will be found in either case, oppressive if not intolerable.
But if on the other hand, taxation remain unchanged, and the money value of produce be not deteriorated—that equilibrium, so indispensable to the prosperity of the state will be preserved. To preserve it therefore, and to protect the money value of produce from deterioration is clearly the duty of the statesman.
Let us examine, whether that duty will be performed by a repeal of the Bank Restriction Act and by a recurrence to cash payments.
And first, as to the practicability of obtaining an adequate amount of gold; we must then consider the means of effectually applying it, if obtained, to the intended purpose—to the maintenance of a metallic circulation. With this view, we will
assume—that previously to the war, there existed in circulation and in the coffers of the bank an amount sufficient, together with a moderate addition of bank notes, and of country bank notes, for the purpose of carrying on the internal commerce of the country, and of making adequate provision against a run.
The amount of this compound circulating medium, it will doubtless be admitted, bore a certain, necessary, though unascertainable proportion to the aggregate money value of every description of property.
It will also be admitted, that since that period, the progress of taxation and other causes, have operated upon such money value, and that the same extent of property, and the same, or a similar quantity of exchangeable commodities then supposed to exist, bear at this moment, and have borne for some time past, a largely encreased money value.
Now, as there did exist a certain, necessary, though unascertainable proportion between the aggregate of the circulating medium and of the money value of property—it follows that that proportion must be maintained; and the circulating medium be increased up to the level of that indefinite proportion, which is silently determined and regulated by the demand—that is, by the amount or money value of commodities requiring to be exchanged, and by the degree of activity which in commercial transactions, may happen to prevail. Hence a diminished circulating medium tends to check public prosperity—to embarrass the operations of commerce,—and most materially to affect the revenue of the state.
Vast additions have also been made to this mass of property, and for some years past the demand for bank paper has required and maintained, a circulation of about 27 millions, in addition to 18 or 20 millions of country bank notes;—an amount immensely beyond the circulation which existed previous to the war.
If then the Restriction Act be suffered to expire in July next, the bank and the country bankers must be provided with a stock of gold, not such as they thought sufficient for their former limited scale of circulation,—but such a stock as shall be considered adequate to the present extended circulation, and to the precautions which a paper medium payable on demand in cash, shall dictate to the prudence and discretion both of the bank directors and of country bankers.
Whence is this stock of gold to be obtained? The continental states requiring gold for their own circulation, cannot afford any large amount to be withdrawn, and the poverty of the South American mines precludes the expectation of supply,—whilst occasional remittances of bullion from other quarters are too insignificant to claim attention.