The Sun.
London, England, 1858-01-09 00:00:00

THE CURRENCY.

Comments on the Currency Fallacies of Lord Over-
stone, given by him in his evidence before the
Bank Committee of the House of Commons of
1857, as the principles on which the Bank Charter
Act of 1844 was founded.
The time will come when the nation will be
astounded to find that its mcnetary system is based
" on principles not only not true, but in every case
nearly the reverse of the truth," betraying a mar-
vellous ignorance of the true nature of money.
These principles are defended by Lord Overstone,
their acknowledged originator, with such ability
and daring dogmatism, as to leave the impression
still with the public that he is a great authority on
currency. This can only be accounted for by sup-
posing that his great power as a special pleader,
and his surprising command of words, in conjunc-
tion with his position as a banker, a millionaire, and
a peer, have confounded and blinded the public on
an abstruse subject, to which few of them have
given any attention. 'Verily, may we exclaim with
Oxenstern, " See, my son, with what little wisdom
the world is governed." The misery inflicted on
the country by Lord Overstone's erroneous views
no language can convey ; and as he still persists in
maintaining them, coute coute, notwithstand-
ing their failure, by the suspension of the Act of
1844 twice in 10 years, we are justified in
throwing upon him, as a public man, the moral
responsibility of the consequences. His evi-
dence shows him to be self-opiniated to
a degree almost criminal, and when he says
"that a relaxation of the Act ought only to take
place in the last extremity and when the danger of
general confusion shall have become imminent," ho
is evidently labouring under the delusion of a fixed
idea, which makes him dangerous to the com-
munity.
Let us extract some of his currency principles
from the extremely verbose explanation of them in
his evidence, and put their soundness to the test.
In answer to question 3,646 he says, "I understand
the great principle of the Act of 1844 to be this—
to make the amount of paper money in the country
conform in its variations to what would be the
variations in the amount of metallic currency, and
that all other provisions of the Act are ancillary
to the carrying out of that great principle." Here,
he includes in the amount of paper money in the
country, only bank notes, ignoring all other kinds
of paper money, and this misconception of what
constitutes money is the root of all his subsequent
fallacies. Are not cheques as much ready money
as bank notes, and are not bills, which are engage-
ments to pay money at some future period, the
principal money we have as a circulating medium
for superseding barter ? Bills and cheques are
constantly floating for hundreds of millions, and
yet he ignores them as paper money, and confines
thisierm to thirty eight millions of bank notes.
This great principle is directly antagonistic to
the principle on which we have chosen gold as our
standard of value. Gold was selected as the
standard from its being supposed to be the least
fluctuative material in value—it was chosen for the
sake of its qualities. The act of 1844 disturbs this
foundation and makes the value of our money de-
pend, not upon the quality, but upon the quantity
of the standard, creates fluctuations in value, and
counteracts the steadiness sought to be obtained by
adopting gold as a standard. The act makes the
value of money to depend not upon the demand
and supply of money, but on the decrease and
supply of gold. Apply this principle to the African
tribes using cowrie shells for money, who, finding
, their traffic increasing and the quantity of shells
inadequate to effect their interchange of commodi-
, ties, should introduce paper tickets to supply the
deficiency. They pass a law, we will suppose, to
make these paper tickets convertible on demand
into cowrie shells, in order to keep them up
to the value of cowrie shells, which is their
standard of value ; but where would be the
wisdom of arranging that these paper tickets, so
necessary for carrying on their increasing trade,
should diminish in quantity just in the same
ratio as cowrie shells should leave the country.
The very object of introducing paper tickets was
to make up for the deficiency of cowrie shells as a
medium of circulation; this deficiency was an evil
which this were intended to counteract, but which
Lord Overstone's principle would perpetuate.
Money is not gold, but gold is money when coined.
Is LordOverstone then correct when he says, "Gold
is the money of England, and when he ignores all
other kind of paper money but bank notes ? A.
more baneful principle for the foundation of a mone-
tary system could not have been devised than this
boasted great principle of the Act of 1844—sub-
jecting this country to fluctuations in the rate of
discount on every important ebb and flow of gold.
It may be traced to the same narrow view enter-
tained by Lord Overstone of the nature of money,
considering bank notes and gold only entitled to
be classed as such. That this fallacy pervades the
Act of 1844 is evident from restrictions being im-
posed on the quantity of bank notes issued, but
none on bank post-bills which are equally money,
securities for obtaining their equivalent value in
capital. The only difference between them is, that
bank notes are payable on demand, and bank post-
bills payable seven days after date. Neither does
the Act impose any restriction whatever ou
bills, however unsound their foundation
may be, and yet to the enormous degree to.
which the issue of these has been abused,
and to the reckless way in which joint-stock banks
have lent their money, the present crash is in a
great measure to be attributed.
The problem to be solved is, how to maintain the
principle of convertibility into gold, and yet avoid
the disturbance of our monetary system incidental
to drains of gold. This may be done, either by
adopting tilr. Tooke's recommendation of requiring
the Bank of England to keep constantly a much
larger stock of gold, so that a drain of a few mil-
lions would not be felt—or, by empowering the
Bank of England to increase its stock of gold by
issuing one pound notes as substitutes for sove-
reigns whenever their minimum rate of discount is
five per cent., retaining one-third of the sovereigns
as a guarantee for the convertibility of the notes,
and on paying four per cent. for the two-thirds of
the notes of which they /MVO the use. In this way
the sovereigns would be abstracted from the retail
trade and transferred to the wholesale trade (each
trade possessing and requiring a distinct stock),
when an efflux of gold took place, and would be re-
tarned to the retail trade during an influx. The
only objection to Mr. Tooke's recommendation is
the extra expense which the nation would incur by
keeping unemployed so much gold—involving a ses
rious loss.
Whereas by the institution of one pound notes
for sovereigns there would be a considerable gain to
the revenue. If in addition to this safety-valve all
restriction on the quantity of Bank notes issued
were removed, the Bank minimum rate of discount
need never exceed 5 per cent. In the
panic of
1825, when the Bank was unrestricted inits issues,
its minimum rate of discount did not exceed 4 per
cent., and had the Bank during the present panic
been equally unrestricted in its power of supplying
money, with the additional power of add_ ngsto its gold
some 20,000,0001. by the substitution of one pound
notes for sovereigns, the rate of 5 per cent. need
never have been exceeded, and all the evils arising
from the extra charge for money (which has gone
into the pockets of the moneyocracy, of which class
Lord Overstone iN the head), and foremost amongst
them the disemployment of labour would have been
avoided.
In time of general discredit and panic au increase
in the quantity of ready money, be it of specie, or
paper money as good as specie, is the one thing
needful ; and not a decrease as the boasted " great
principle" of the Act of 1844, absurdly provides.
All experience bears testimony to the soundness
of this principle.
Iu 1793, the panic was allayed by a loan of Ex-
chequer Bills—and in allusion to it, the Bullion
Committee of 1810, in their report give e the
i fol-
lowing opinion—" your committee think t an
important illustration of the principle that an en
larged accommodation is the true remedy for the
occasional failure of confidence in the country
districts, to which our system of paper credit is
unavoidably exposed."
In 1797, " The circumstances,"
id
the Bul-
lion, Committee, "which occurred d the beginning
of the year 1797, were very similar to those of
1793, an alarm of invasion, a run upon the country
banks for gold, the failure of some of them,. and a
run upon the Bank of England, forcing a crisis like
that of 1793, for which, perhaps, ma effectual
remedy might have been found if the Bank of
England bad had the courage to extend instead of re-
stricting its accommodation and issue of notes ; and
the late Governor and Deputy-Governor stated to
your committee that they and many of the Direc-
tors are now satisfied from the experience in 1797,
that the diminution of their notes in that emergency
increased the public distress, an opinion in the cor-
rectness of which your committee entirely concur."
The panic was stopped by the Bank stopping to pay
in specie, and being at liberty to issue an unlimited
quantity of inconvertible notes—they were not a
legal tender, and became so first in 1833. The
Bank of England informed the Committee of
Lyndon Bankers who applied to them for
specie to pay the fractional parts of the
cheques drawn on them—"that they could not
spare the specie, but that the cashiers of the Bank
were employed nisht and day, by rotation, in pre-
paring one and two pound notes, which they hoped
would b 3 ready by the following Monday."
In 1825 the panic was stopped by an issue of one
pound notes by the Bat k of England, found acci-
dentally in a box stowed away, and by advance-
made on the securities of goods, which they were

-
Authorised to make to the extent of 3,000,0001. by
Lord Liverpool, the Premier, and Mr. Robinson,
the Chancellor of the Exchequer.
In 1847 and 1857 the panics were ended by the
Act being suspended, which dimiuished instead of
increasing the quantity of ready money during an
efflux of gold, and (its natural accompaniment) a
state of general discredit.
Can stronger evidence be given of the impolicy
of the great principle of the Act of 1844 cf dimi-
nishing the issue of ready money in times of panic
Bank notes are, then, wanted not as currency, for
trade being pat alysed less currency is required, but
as a means of satisfying debts already incurred.
Ten years ago we placed in the title-page of a
pamphlet, entitled " A Remedy for Monetary
Panics," this significant sentence :—" A deficiency
of the legal tender, to meet the credit liabilities of
the country in times of general disorder, and not a
deficiency of the currency, the cause of monetary
panics ; and an increase of the legal tender, but
not of the currency, the remedy,"—and all subse-
quent experience has confirmed the correctness of
the opinion.

In Prance, where truly they manage these things
better, the proper remedy of an expansion of sound
paper money, instead of a contraction has been
acted upon ; in ordinary times the Bank of France
is unlimited in its issue of notes of 201. and Up-
wards, and by a recent enactment they are em-
powered to issue notes of 2 . and 41. In America,
the Government has been compelled, from having
no specie to pay its servants, to follow the same
course cf expansion by using Treasury notes to the
amount of 4,000,0001. The rate of discount in
France and America has returned to what it was
before the panic, whilst Great Britain is still strug-
gling under the pressure of the Act of 1844. The
minimum rate of the Bank of England being yet 6
per cent. This state of monetary affairs, acting on
a stagnant trade, will cause the gold set at liberty
in France and America to flow here, and lead to
the most violent fluctuation and reaction in the
value of money ever known. Merchants should
open their eyes, and no longer be bamboozled and
outwitted by the Lord of Moueyocracy on a subject
so vital to their interests as money.
(To be continued.)