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It should seem, if these views be correct, that a supply of gold sufficient to support a circulating medium of the present indispensable extent, is wholly impracticable. To the effect of a diminished or inadequate circulation the country will therefore be exposed, by any attempt to withdraw from the bank the protection of the Restriction Act.
Let us, however, assume for a moment, the practicability of collecting the mass of gold required,—we have then to consider the means of securing its permanent application to the intended purpose.
The perfect confidence of the public in bank paper is certainly calculated to relieve the directors in ordinary cases, from the apprehension of a run; but it is against extraordinary cases, that prudence and duty require them to be at all times prepared. Such may occur, and notes pour in to be exchanged for gold, although that
confidence shall not have abated an unfavorable state of the
exchanges may induce the export of gold—bullion will then rise above the mint price, and cannot therefore be purchased so cheaply as coined gold; which is, by conversion of bank notes, obtainable from the bank, at the rate of 3l. 17*. 10\d. per oz.—the mint price. —The bank is therefore the cheaper market, and to that every dealer will have recourse ; for it cannot be imagined, that any one will go to the open bullion market and pay an advanced price, so long as a supply can be obtained from the bank.
Such was the demand for exportation, arising from the depressed course of exchange, that we have recently seen bullion 15 to 20, per cent, above the mint price.
At this moment the course is considerably under par, and still admits of the advantageous export of gold. And had the recent harvest been as unproductive in wheat, as it has proved in other species of grain, it is more than probable, that the importation would have caused by its extent, a further and very serious depression. In such case, the large profit on exportation would inevitably induce demands on the bank to an incalculable amount.
Other similar instances might be noticed, which in the very nature of commerce must frequently occur. It is ever fluctuating, and the balance of trade will occasionally change sides.
In these or similar circumstances, it is manifest that the bank would be exposed to a run of indefinite extent, and the coin of the realm be speedily found more current in Paris and Amsterdam, than in London.
This anticipation of the future, is borne out by the experience of the past—and the recent cash payments of the bank, have had the effect of partially supplying the French, rather than the British capital, with a metallic currency!
Against the temptation of enormous profits, the penalties of law have ever proved a feeble barrier : and whilst, at the risk of confiscation, the hardy adventurer will export coin in its own shape— the more timid will previously disguise it by the operation of the crucible. By either process, the law is violated.—Both are therefore criminal,—but the one being completed by "Swearing off," frequently involves the deeper guilt of wilful perjury.
By these means, gold coin rapidly disappears, and the object of giving to the United Kingdom a permanent metallic currency, is defeated.
It may be said, and truly said, that with a change in commercial relations, gold will again return. No doubt':—reverse the circumstances assumed—and a course of exchange unfavorable to Paris or Amsterdam, will induce the remittance to London, as a course unfavorable to London, had previously induced its remittance to Paris or Amsterdam. A new supply of gold is thus obtained; but since the part of it converted into bullion furnishes only the material for coinage, the labors of the mint are again in requisition, and the good citizens are once more gratified with a probably transient, though somewhat costly glimpse of St. George and the Dragon.
"Urnasque frustra Danaides plenas ferunt."
And surely the wisdom of that policy may be considered questionable, which prefers the certainty of an immediate evil, and of the greater magnitude, to the chance of one that is remote; to a contingency which cannot become formidable, or take us by surprise.—Its approach, if ever realised, will be gradual, and its progress easily checked. But at this moment, when the circulation appears in a healthy state, why apply to the doctor? Is it not more rational to decline his interference, until at least, some slight symptoms of disease shall have required and have furnished data for the exercise of his skill? Why not wait until we shall discover that there is something to be cured,—something of a really morbid character existing, ere we tamper with the body politic, or expose it to hazard, by a measure of imaginary precaution? Delay will not diminish the efficacy of the projected nostrum ; and to it recourse may be had at any time, if nothing better can be found.
Since then, in the ever fluctuating relations of commerce between this and other countries, dangers and difficulties may attend the repeal of the Bank Restriction Act—let us consider the practicability of establishing a currency of such a nature and so effectually guarded, that it shall not be liable to depreciation.
Those who contend for the necessity of subjecting the bank to take up its notes in gold on demand, conceive that regulation to
VOL. XIIL Pam. NO. XXVI. Z
be the only test of value, and the only means of preventing an excessive issue of paper. This opinion carries with it an air of
truth; and if internal circulation were the sole object, it might be really true. Gold might then be received as an immutable standard, and a pound note be held as immutably to represent such proportion of an ounce of gold, as twenty shillings bear to 3l. 17s. ICUct., the mint price.
But our foreign commerce, and connexions with foreign states, materially alter the case—since both affect the value of gold, and subject it to fluctuation. Thence the irresistible inference, that it cannot, in such circumstances, constitute an immutable standard.
Yet, in denying this faculty to gold, it is not intended to deny also the existence of any power to adjust or regulate a paper medium. On the contrary, it is considered, under certain modifications, to be susceptible of that application.
Whenever bullion is at the mint price, the bank may safely engage to pay in gold all the demands which shall be made in exchange for its notes. One hundred sovereigns, weighing about 25oz. .682, would be given for one hundred pound-notes: but if the market price of bullion, instead of 3/. 17*- 10*d., be 4/. per oz.—is it reasonable to subject the bank to the payment of an equal weight
at the advanced as at the standard price? The bank would cer
taiuly refuse in such case, to sell bullion at less than 4l.—Why then should it be compelled to accept 3/. 17s. \0^d. for coin of the same standard?
The price of gold is affected, in common with every other article of merchandize, by supply and demand. When the demand exceeds the supply, less gold will be given in exchange,—and if that demand should have raised the price to 4l. per oz., the bank, in delivering twenty-five ounces of gold for one hundred pound-notes, will have given their value, or money's worth, as it will give no more, when the price is 3/. 17s. lO^rf. peroz.in delivering the greater weight of 25oz. .682, for the same amount of notes.
An agio table, calculated for each intermediate price of gold, from 3/. 17s. 10^d. per.oz. too/, or upwards, instantly showing the agio for any given sum, would facilitate the despatch of business. It is indeed in transactions of a certain magnitude only, that such reference could be necessary, minor demands being payable in silver, at the option of the bank.' Were silver as abundant as bank paper, and to be made the stan
'Should this arrangement be objected to, as holding out to the bank a new source of profit—it may, if it so prove, furnish a proper subject for discussion on the renewal of the charter; or admit of some other modifications advantageous to the public. It must however be observed, that the encrease of the dead capital must operate against the chance of any material ultimate gain.
dard currency,—gold would still fluctuate in price, and would command a greater than the fixed proportionate value, whenever wanted for exportation. Comprising a greater value in a smaller weight and compass, the carriage is less expensive than that of an equal value in silver. Gold will then be at a premium in exchange for silver, as it will also in exchange for paper, whenever preferable as a medium of foreign payment.
On the ordinary retail transactions of trade, these fluctuations would have no influence, and a sovereign be invariably exchanged for twenty shillings or for a pound-note, until the demand for exportation should have raised gold so considerably above the mint price, as to offer an inducement for collecting coin at a premium.1
Were the bank authorized by the legislature to regulate its cash payments on the principle suggested, the speculators in exchanges and dealers in bullion, being prevented from drawing specie from its coffers at an under value, or at less than the price current in the market, could have no motive for exclusively purchasing at the bank, what they might obtain elsewhere on equal terms.
Hence, the danger of a run would be mainly obviated,—for the bank, possessing the confidence of the public, cannot have cause to apprehend any extraordinary demand for gold, for purposes of domestic circulation. An extraordinary demand can only be caused by a fall in the exchange and the profits of exportation, and that demand would be checked by an advance of the price.
The bank would however be enabled, from time to time, to replenish its coffers at or about the mint price, and be prepared for every exigency, whilst the occasional profit on the sale, would probably yield reasonable compensation for the loss attendant on an extra amount of dead capital.
The demand could not, certainly, under any imaginable cir- ♦cumstances, be so great as may be supposed to be possible, in the event of an unqualified repeal of the Bank Restriction Act; and the bank may thus collect an amount of treasure adequate to its security,—and maintain at the same time, a circulation sufficient for the purposes of commerce and the public convenience. Whereas, to attain the like security, under the unqualified liability to pay in cash, would require an unattainable amount of treasure, or compel the directors to seek that security by withdrawing a large portion of their notes. The effect of that measure would, as already sta
1 In Hamburgh, various gold coins, such as Louis-d'ors, Dutch and Danish Ducats, as well as the Ducats of the city, are current. Their prices fluctuate, without producing inconvenience; as in the ordinary course of retail transactions, they generally pass at the nominal value of silver, re*r spectively affixed to them. It is when they assume the character of merchandize, and are purchased with a view to payments at a distant fair, that they bear an agio against silver.
ted, be pregnant with infinite mischief. The exportation of gold, in an unfavorable state of the exchange, tends to correct that state, aud to restore the equilibrium,—in the mean time the exporter pays his foreign creditors at a cheaper rate than by bills.—Gold by this application of it becomes really valuable, by being rendered really useful.
The export of coin, if permitted by law, would effect with equal or greater facility than bullion, the payment of a foreign claim, and afterwards return to circulate again at home.—The expense of a new coinage would thus less frequently occur.
In case of any sudden emergency, demanding an immediate paymenU abroad, government would also be enabled, by the aid of the bank, to transmit coin or bullion, and thus avert the consequence of a ruinous exchange.—This consideration will appear important to those, who know that the loss by exchange enhanced the expense of the late contest, to the amount of many millions.
Thence, in the event of war, the policy of again recurring to an unqualified Bank Restriction Act, is obvious. After an experiment which has proved incalculably beneficial, not only to this country but to Europe—a different course were to prefer danger to security, by deviating from that path, which has conducted us to honor and prosperity.
These suggestions are submitted to the public, with the anxious wish that they may lead to the means of conciliating, by a middle course, the conflicting opinions of those, who insist on the necessity of a metallic currency, or of a metallic test of paper currency, by an unqualified repeal of the Bank Restriction Act; and of those, on the other hand, who advocate the safe efficiency of a paper currency without such test. •
Many persons of sound judgment do not hesitate to pronounce the dangers attributed to the latter to be wholly visionary, and, it must be confessed, with much appearance of reason; since that opinion is countenanced by the experience of more than twenty years, during which period, agriculture and commerce have prospered beyond all former example. As these facts, however, are not received as conclusive, in the estimation of many others, whose sentiments, from their rank, their talents, and their influence, claim the utmost deference and consideration, every one will feel a just anxiety to allay their apprehensions, and hail with satisfaction, any safe and practicable system, which shall obtain the concurrence and support of both parties.
To that object do these pages owe their origin, and not to any apparent necessity for a change of system.
It is hoped, that the principles which they promulgate, may remove the objections of the scrupulous theorist—and prepare