must increase and decrease together. An increase of Currency without an increase of Capital, has no effect but to diminish the value of Currency. The same thing happens if, when Capital is destroyed, Currency be not destroyed with it. If a metallic currency increase faster than capital, the natural law provides a remedy; the metallic currency is immediately exported. But, with an inconvertible paper-currency, this cannot happen; and, when capital is destroyed, currency remains in circulation. When this goes on for any great length of time, or to any considerable extent, the inevitable result is, a depreciation of the paper-currency, which is shown by the rise of the market above, what is called, the Mint price of gold. This was eminently exemplified in England in the years subsequent to 1810. The extravagant speculations were followed by an enormous destruction of capital; but the currency which was issued to represent it remained in circulation, and soon manifested itself in a rapid fall in the value of paper. It was impossible that paper ever should right itself, unless this superfluous currency were destroyed, and this was brought about by the destruction of the issuers of it. Such are the principles which must regulate the money of all countries. If the money con sisted only of the precious metals, these principles would be perfectly simple and self-regulating. But, in most civilized countries, the money consists partly of the precious metals, and partly of paper, of no intrinsic value, but of an artificial value, dependent wholly on credit. To adapt this artificial and complex system to the natural and simple system, opens a great variety of questions, and although these are to be determined by analogy with natural principles, yet, if the same reasoning be followed out with the artificial system of a mixed currency, as with the natural system of a purely metallic currency, the conclusion will be erroneous, and the result confusion. This is the error of Lord Overstone, and of all those who advocate his theory of variation. And this is the great error of the Bank Charter Act of 1844. The principle, so clearly laid down and explained by Mr. Macleod in his work before referred to, has been here more particularly noticed for the purpose of expressing a distinct assent thereto, as a general principle, but also for the purpose of more distinctly dissenting to the application of this principle and the reasoning therefrom to the Bank of England, constituted as it is, under special circumstances, to carry out a system entirely artificial. # 50 CHAPTER V. MONEY PANICS. THERE are three kinds of Money-Panic. 1. Panic arising from a drain of Gold from the Bank of England. 2. From a contraction of Credit. 3. From the combined results of the contraction of Credit, and the diminished amount of Bullion in the Bank of England. These Money-Panics have been more frequent since the Bank Act of 1844, than before. Of these occurrences the following have been the most serious, and are said to have arisen from the following causes: 1793 and 1797. These panics arose from the drain of Gold sent Abroad, for subsidies and loans to our Allies. These Gold Panics were partially relieved by the advance of Exchequer Bills, on the deposit of merchandise, but ultimately by the Restriction Act of 1797, making the Bank of England Notes, in effect, a legal tender. This Act continued in force until Sir Robert Peel's Bill in 1819, enacting a return to Cash Payments. 1810. This Panic arose from over-trading in produce and excess of Exports, when the Bank of England raised its Discounts from 13 millions in 1808, to 20 millions in 1810, an increase of 53.8 per cent. This was a Credit Panic, as the Bank of England then had the power of issuing an unlimited amount of inconvertible notes. 1815. This Panic arose from the inflation of mercantile Credit, and vast speculations in Cotton and other produce, when eighty Banks suspended payment. This was a Credit Panic, as the Bank of England still continued to issue inconvertible notes. 1822. This Panic was caused by the Bank of England reducing its Discounts from 15 millions to 3 millions, in order to secure the convertibility of the Bank-Note; and by the contraction of Bank of England and Country BankNotes from 48 millions in 1818, to 26 millions in 1822. This was a Gold Panic, lowering the price of the British Funds, the stocks of goods held by the mercantile and trading interests, and agricultural products, to the extent, as estimated, of 200 millions; and, allowing that only one-fifth part of such investments was forced on the markets during the Panic, it may be assumed that, the total loss, including the failure of Banks and Mercantile Houses, the partial closing of Mills, and non-employment of workmen, was not less than £30,000,000. 1826. This Panic arose from excessive (i. e. unprofitable) speculations in foreign Mines, in Cotton and other products, called, over-trading, but really, unsuccessful trading; also from the increased issue of Notes, which gradually rose from 33 millions, in 1823, to 41 millions in 1826, an increase of 22.3 per cent. This Panic is estimated to have lowered the prices of funded and other property, the stock of goods held by the mercantile and trading interests, to the extent of 300 millions, and the assumed loss by the different parties is estimated at 45 millions. During this Panic the Gold in the Bank of England was reduced below a million, and the Credit of the Bank was saved only by the issue of about 2 millions of £1 Bank of England notes accidentally found in the Bank. 1832. This Panic lowered the price of Public Securities and other property, to the extent, as estimated, of 100 millions, causing a loss to the trading and other interests, estimated at 15 millions. |