commissioners, the supply or quantity in market was diminished; and therefore, if no new supply had been brought in, the stocks must have risen, the demand continuing the same; but this new supply was brought in, in the form of the stock created, to pay those who advanced the loan.

We have deemed it necessary and proper to go rather minutely into this subject, because, in fact, ninety-nine people in a hundred are very vague and ill informed in their notions respecting everything that is connected with finance, and especially respecting the nature and operations of the funds, and the paying off of the national debt.

Having thus explained the several principles on which the stocks rise and fall, it will be proper to consider in what mode the sinking fund operated on them at a period when there was no loan. The revenue was by no means equal to the expenditure in the year 1817; this deficiency the chancellor of the exchequer might supply, either, as in the time of war, by a loan, or by the issue of exchequer bills: he preferred the latter; apparently, for two reasons. In the first place, he issued them on more advantageous terms than those on which he could have obtained a loan. We have said there was a large accumulation of unemployed capital in the country; and this capital, those who held it were more willing to vest in exchequer bills than in a loan, which in fact would have been in the funds; because, in exchequer bills, it was more readily got back, if they wished to employ it in trade: hence the chancellor of the exchequer borrowed money on those bills at a much lower rate of interest than he could have done by way of loan-but secondly, he thus

also avoided the necessity of fund.. ing; for when the exchequer bills became due, the holders of them were paid by new bills, or the bank of England took them up. Thus, the necessity of funding being avoided, the quantity of stock was not increased; and the sinking fund, having fair play, operated on the stocks, without any counteraction from a creation of new stock.

Hence the stocks rose to a great height. In November 1817, the 3 per cent. consolidated stock was rather above 84. It is supposed, however, that other causes, besides the operation of the sinking fund, or the quantity of stock bought regularly by the commissioners for the reduction of the national debt, operated to raise the funds. There always are men of great capital who have great influence on the stocks. A few years ago, the Gold. smids, a Jewish family, by their connexions could bring such demands for, or such supplies of stock into the market, as greatly to affect the price of the funds. A few years after the death of the principal person of this house, the house of Rothschild, (who are also Jews,) by the extent of their money dealings began to affect the funds; and there can be no doubt that they and their connexions co-operated with the sinking fund in raising the price of stocks. There was, however, another cause which contributed to the effect of raising the funds to the height which they attained in November and December 1817. By an act passed last session, for the consolidation of the exchequer, it was enacted, that in order to make the period at which the finance accounts and the ac counts of the commissioners for the reduction of the national debt were made up correspond; the money available

available by the commissioners for the reduction of the debt, between November and February, should all be laid cut between November and the 5th of January,-one of the quarters to which the finance accounts are made up. Now, it is evident that the demand for stock, by the commissioners, between November 1817 and January 1818, being greater than usual, in so much as in this period of two months was laid out by them the sum always before laid out in three months-the price of stocks would rise.

Having thus explained the causes which produced the rise in the funds, it will be necessary to revert to the observation we made,-that this rise was not advantageous to the nation, so far as the reduction of the national debt was concerned; for it is plain, that when the 3 per cents, are at 60, a greater quantity of them may be purchased by a given sum than when they are higher; the reduction of the national debt, therefore, must go on at a slower rate, and require more money to accomplish it, when the stocks are high, than when they are low.

The chancellor of the exchequer was in some measure compensated for this disadvantage by the demand for the exchequer bills: it was supposed he looked forward to another benefit from the rise in the funds. All the different species of stock are redeemable at par; but as the 3 per cent, stock originally bore an interest of 5 per cent. (and the same is true of the 4 per cent.); and as their par, or the price at which they are redeemable, was not changed when the interest was lowered, it is evident that neither the 3 nor the 4 per cents, can be redeemed under 100-a price to

which the former, at least, are not likely to rise. It is different, however, with the 5 per cents.; they have risen to 100, and hence. probably might be paid off: hence they never are proportionally so high as the 3 and 4 per cents. Now, it was supposed to be the intention of the chancellor of the exchequer to pay off the 5 per cents.> if he could have raised the 3 per cents. to 90 or upwards; for the holders of the former stock, it was imagined, would gladly take 100 in the 3 per cents., for every 100 they held in the 5 per cents. and a small sum in money, rather than receive the whole in money, at a period when it was scarcely possible to employ capital at all. If this measure could have been carried into effect, the interest of that part of the national debt, which constitutes the 5 per cent. stock, and which amounts to about 140 millions, would have been reduced from 5 to 3 per cent.; and thus a great saving would have been made to the public. But towards the end of the year 18:7 the funds fell; and as they fell still more in the begining of 1818 (from causes which in our next volume we shall investigate), there was no opportunity of carrying this plan into execution.

We do not think that in writing the annals of such a country as Britain, any excuse is necessary for thus going into the details of its finance: it is indeed a topic which the annalist and historian in gene, ral pass over in silence:-but unless it is entered upon pretty fully, how can the state of the country be explained or understood? And as it is a subject on which, as we have before remarked, very few indeed have clear ideas, it seems the more proper and necessary to illustrate it. The two leading topics respect

Q3

ing

ing what may be called the money transactions of the nation, which we proposed to discuss in this chapter, were the finances and the circulating medium:-the former, we trust, we have explained with sufficient minuteness; but before we proceed to the latter, there is an intermediate topic to be noticed, also connected with what we have called the money transactions of the country.

It might have been supposed that at a time when there was so great an accumulation of unemployed capital in the country, and when, for this capital, a rate of interest much lower than the usual and legal rate, could only be obtained in the funds or other public securities, -the price of land would have risen, and that mortgages on land might have been procured easily, and to almost any amount. This, however, was not the case;-when the price of stock affords 5 per cent. for money, land generally sells at such a rate as to bring in about 34 per cent.: when, therefore, money in the funds brought in only about 4 per cent., it might have been supposed that 34 per cent, derived from land would have been preferred; but the fact was the reverse, In the midst of this great accumulation of capital, and at a period when the funds were at their highest rate, it was scarcely possible to raise money on the mortgage of land, and extremely difficult to sell landed estates. The former is easily explained;-the difficulties and obstacles which by the laws of England lie in the way of recovering money vested in mortgages on land, are so great, that few persons wish so to vest it, except those who have no prospect of otherwise employing their capital. With regard to the purchase of

land, a similar cause seems to have operated against employing money for that purpose: so long as it was in the funds or in exchequer bills, it was speedily and easily available for any other purpose which promised better returns; but if locked up in land, this was not the case. There were, however, two other causes operating to the same effect: in the first place, mo nied men were apprehensive of investing their capital in land, after the dreadful losses agriculture had sustained by the bad harvest of the year 1816; and in the second place, though the funds afforded a lower rate of interest than usual-lower than what mortgages gave, and very little higher than what could be secured by the purchase of land,

yet capital might be increased in the funds; if the 3 per cents. were at 70, the holder did not get 5 per cent. for his money; but the chance of their rising to 80, and of his increasing his capital one seventh by this rise, induced him to rest content with a smaller rate of interest; and in fact, if he had bought in at 60 he still secured 5 per cent, for his original capital, notwithstanding the rise in the funds. The case therefore stood thus: If a holder of stock sold out at 70, he might procure 5 per cent. on mortgage for his money; but on the other hand, if he permitted his money to remain in the funds, it was more easily and readily avail able, and in case of rise, he increased his capital.

Hence, notwithstanding the ac cumulation of capital, and the high price of the funds, it was extremely difficult in 1817,-especially in the early part of the year,-to sell land, or to raise money on mortgage; and hence the agriculture of the country was little benefited from

the

the accumulation of capital. As soon, however, as those who held money in the funds began to realize, as it is called; that is, as soon as, from a belief that the funds had reached their highest point, they began to sell out,-money flowed towards land and agriculture; mortgages could be procured at 41 per cent., and land sold at a higher

rate.

We come now to the consideration of the circulating medium of the country, a most important but difficult topic. It is well known that prior to the year 1797, the bank of England notes were payable in specie on demand. In consequence of a run upon the bank at that time, an act of parliament was passed restraining them from paying their notes in coin, till a certain period: this restriction was af terwards continued; and in 1811, a committee of the house of commons was appointed to inquire into its effects, and the propriety of taking it off. The ministers contended that it could not be safely taken off during the war; and accordingly it was ultimately determined that it should continue till June 1818.

All political economists, as well as practical men, agreed that the return to cash payments would be attended with great difficulty. So far they agreed: but they differed with respect to the benefit and the effect of this measure. By many it was concluded, that paper money not convertible into cash on demand served all the purposes of cash; and not being of intrinsic value, was a much more cheap medium of exchange: they therefore doubted the necessity or the advantage of resuming cash-payments. Besides, they also doubted whether the immense commercial transactions of this

country could be carried on, and the interest of the national debt, or rather the taxes, could be paid by a circulating medium of coin. In this latter opinion they were joined by those who maintained that the resumption of cash-payments would be a national blessing, but who denied that they could be resumed, and the taxes paid to their present amount; at the same time the arguments by which they supported this opinion were certainly ingenious. They assumed that low prices and heavy taxes were incompatible; that if the farmer sells his wheat at 31. per quarter, and his beef and mutton at 3s. Ed. per stone, he is not nearly so well able to pay the taxes, as if he sold the former at 4/. or 51. and the latter at 4s 6d. or 5s. 6d. : and they further maintained, that high prices and a circulating medium consisting entirely of coin were incompatible; because a circulating medium in coin could not be nearly so great in amount as a circulating medium in paper; and consequently, as price must depend on the demand, or, in other words, on the quantity of money in the country, if coin were substituted for paper, prices would fall. The whole of this argument went on the idea that, if the bank of England resumed cash-p -payments, only coin would circulate; or at least, that the amount of coin and paper in circulation would not be equal to the amount of paper, while the restriction continued; and it likewise supposed, that as soon as coin could be obtained for bank notes, the latter would no longer be taken.

Notwithstanding the real, as well as the imaginary and theoretical difficulties in the way of the resump. tion of cash-payments by the bank of England, the chancellor of the exchequer declared that they Q4

would

would be resumed in June 1818; and the bank itself declared that they were not only prepared, but anxious to resume them. Before this, however, could take place, there were two preliminary and preparatory measures necessary: the diminishing of the amount of the issues of paper money by the bank of England, and the preparation of a new coinage.

Towards the end of the year 1815, and during the whole course of 1816, circumstances had occurred which had diminished the paper circulation, not only of the bank of England, but also of the country banks. It is evident that this circulation will be greatest when agriculture, trade, manufactures, and commerce flourish most, and when commercial confidence stands firmest; but at the period alluded to, agriculture, manufacture, and commerce were in a very depressed state, and confidence was much shaken, On the one hand, therefore, less circulating medium was required to carry on a diminished agriculture and trade; and on the other hand, the bank of England and the country banks were much more cautious in the loan of their paper money, Besides, a great number of the country banks failed; this necessarily diminished the amount of paper-money, both directly, and indirectly by lessening the confidence that was placed in the banks that stood the shock.

The number of country banks in

1797, when the restriction was first imposed, is not exactly known. According to Mr, Thornton, in his Essay on Paper Credit, there were 353; but other accounts reduce the number to 230: probably there were 300. In the year 1800 they amounted to 386; in January 1810 to 721; and in subsequent years to between 800 and 900. After this they declined in number.-The following remarks offer a very probable conjecture of the amount of the circulating medium of the country in 1797, when the restriction act was passed, and in 1812, when the system of paper money had attained its summit.

It is certain, that the circulation of all the old established country banks has greatly increased since the restriction, and may be held to be at least doubled. Assuming the issues of the 300 private banks existing in 1797 to have averaged 50,000. each in 1812, and supposing their issues in 1797 to have amounted to 30,000, which allows only 20,0002. of increase, that will give an addition of six millions to the circulation from this source.

Supposing the issues of the 500 private banks established since 1797 to have each averaged 40,0007. in 1812, that would constitute a further addition to the currency of twenty millions *.

Now, if we could ascertain the quantity of specie in circulation in 1797 and 1812, we would be able to make a pretty accurate estima