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National Progress (continued) page 2


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There has been a great deal of mystery connected with the subject of money and currency, and serious mistakes about the purpose which a currency is to serve. This is simply to supply cash enough for carrying on the business of society. Any amount of coined money beyond the necessary reserve to meet the public demand in this respect is waste. The rationale of a currency has been briefly and very clearly expressed by a recent writer, who says: - " All the fundamental laws of currency have now been established by the examination of a purely metallic currency. We have seen, first, that one commodity is selected to supersede barter in effecting exchanges, and to measure the value of all other commodities. Secondly, that this commodity possesses an intrinsic value of its own, determined in the same manner as the value of all other commodities, and subject to the same general laws with them. Thirdly, that there exists in society a certain demand for the use of this commodity, a certain work to be performed by it as an instrument of exchange; and that the quantity of this currency in circulation, as of any other commodity, may be deficient, full, or in excess, compared with this work or demand. Fourthly, that when the currency is full, every addition made to it by importation of the metal of which it is composed, finds no demand for its use, and must go into store, useless and inoperative, among other articles with which the market may be glutted; and that the only use to which this surplus can be put is to export it abroad for the purchase of commodities which can pass into actual consumption. It has been thus shown that a so-called drain of gold is a beneficial operation, and a retention of the gold a pure and uncompensated waste. Fifthly, that whilst a real commodity in the form of coin is the sole measure of value, promises or pledges to pay that coin, by the side of and supplementing coin, perform the full work of currency as instruments of exchange; and that the amount of coin practically required in any country depends, in a very great measure, on the extent and efficiency of the subsidiary currency - on the use, that is, of bills, cheques, book-credits, and the like."

The condition of the country in regard to the coined money in circulation during the early years of the present century was exceedingly unsatisfactory. The shillings and sixpences, tenpences and fivepences, that passed from hand to hand by common consent, were almost all of them blank pieces of silver, intrinsically worth less than half the sums at which they were current. Guineas, half-guineas, and gold pieces of the value of seven shillings were occasionally seen; but the rapid advance in the market price of gold withdrew them from circulation. There were also Spanish dollars, stamped with a diminutive impress of the king's head, at the rate of 4s. 6d. each. Then the Bank of England was authorised to issue tokens value Is. 6d., 3s., and 5s. There was not any silver coinage by the state until 1816, except small coins to be distributed in alms by the king. Between 1806 and 1810 grants amounting to 162,000 were made by parliament for the erection of the present Mint, which was completed in 1813. The new constitution of the Mint was founded on the report of the Honourable Wellesley Pole, who held the office of master of the Mint, in which he was succeeded by some of our most distinguished statesmen - namely, Mr. George Tierney, Mr. J. C. Herries, Lord Auckland, Mr. J. Abercrombie, Mr. A. Baring, Mr. Henry Labouchere, Mr. W. E. Gladstone, Sir George Clarke, Mr. R. L. Sheil, &c. From a return made by the Company of Moneyers to a committee of the House of Commons, in the year 1837, it appears that the amount of gold coined from 155S to 1830 was 154,000,000; and of silver, 39,000,000. In 1817 the gold coinage amounted to 4,500,000, and the silver to about 4,500,000. From 1816 till 1853 the total coinage at the royal Mint was - gold, 121,000,000, and silver nearly 15,000,000. In the last year mentioned the quantity of gold coined was nearly 12,000,000.

It soon became evident that a metallic currency, though the best that could be adopted as a standard, was wholly inadequate to meet the requirements of the commercial world and of daily life. It was therefore necessary to have recourse to bills of exchange and paper money. Hence the establishment of banks, and the issue of bank notes, which are not, like bills of exchange, mere securities or documents for debts, but, as Lord Mansfield says, " are treated as money in the ordinary course and transactions of business by the general consent of mankind; and on payment of them whenever a receipt is required, the receipts are always given as for money, not as for securities of notes. But unless the issue of such notes be very carefully regulated, and security be taken that there shall be the capability of redeeming them with the precious metals, they may be found to be quite worthless, as they have been to the cost of multitudes, when joint stock banks have broken down. To guard against this danger, while at the same time having a sufficient paper currency for the purposes of commerce, has been the object of legislation in this country, and the best means of effecting this object has been the constant subject of keen discussion among writers on currency and banking. Several of these, namely, Mr. D. Ricardo, Mr. Clay, Colonel Torrens, and Mr. S. Ricardo, have advocated the establishment of a national bank a under the management of competent functionaries, qualified by the possession, not of Bank stock, but of economical science; appointed, not by the holders of Bank stock, but by the government; responsible, not to their co-proprietors, but to parliament; and having for their first object and primary duty the protection, not of their own corporate property, but of the general interests of the nation." The want of such a body as this seemed to arise from the failure of the Bank of England to regulate its issues and its rates of discount in such a manner as to prevent over-trading and panics, and from the ineffectual character of the cheques upon private banks of issue in the provinces. These matters have been already treated in the course of this history; but, as indicative of national progress, we may advert now to the amount of paper money in circulation at different, epochs during the period under review. The value of the coin and bullion in the Bank of England in the last weeks of February, May, August, and November, 1825, respectively, was 2,300,000, 4,300,000, 6,600,000, and 8,900,000; and in February following it amounted to 10,000,000. The notes of the Bank in circulation in the same weeks amounted to 24,900,000, 21,900,000, 21,300,000, and 19,900,000.

About this time provision was made by parliament for the establishment of joint stock banks of issue, but they were not permitted to carry on their business nearer to London than sixty-five miles. In 1834 the Bank of England notes in circulation amounted in round numbers to 18,000,000, the country bank-notes in circulation to 10,000,000, and the amount of bullion held by the Bank of England was 10,000,000. In 1837 the Bank of England issued 17,000,000, and had 4,000,000 of bullion; while the joint stock banks issued 12,000,000. The Bank of England was authorised to issue 14,000,000 beyond the value of bullion in its coffers. This was made up of 11,000,000, the amount of its capital, which was lent permanently to government at 3 per cent, interest, and 3,000,000 of public securities, bearing interest, which the bank of issue was empowered to hold for that purpose. " Under this system the Bank must be always provided with the means of discharging on demand all its notes in excess of 14,000,000, for which remaining sum the public holds, in the hands of the government, the best possible security, that of the property of the Bank. No question as to the solvency of the establishment can therefore ever arise, while it is hardly possible to conceive that a drain upon the treasure of the Bank should ever be carried so far as to reduce its outstanding notes to so low a level as 14,000,000." With regard to the issues of private and joint stock banks, it was provided by the act of 1844, which renewed for ten years the charter of the Bank of England, that " no person other than a banker who on the 6th of May, 1844, was lawfully issuing his own notes, shall make or issue bank-notes in any part of the United Kingdom." The privilege of such issue was continued to them, but the amount in each case was restricted to what constituted their actual issues, upon the average, of the two preceding years, while security was provided that the amount should not be exceeded, by requiring a weekly publication of the issues in the Gazette.

The best financial system is one which imposes taxes only for the purposes of revenue, and in such a manner as to press least heavily upon the springs of industry, and to create the fewest possible impediments to social progress; while the revenue should be only what is necessary for carrying on the government of the country, maintaining its dignity, and protecting it from invasion. In this way the national resources are most freely developed, at the same time that the public wealth is rapidly increased, and a vast fund is accumulated, on which the chancellor of the exchequer can draw whenever danger threatens, or a war becomes inevitable. Our financial system is far from being perfect, but we have got upon the right path, and our legislature is by degrees unlearning the errors of the past, and making better provision for the future, though it has still much to learn in the way of economy. In 1820 the amount of revenue paid into the exchequer as the produce of taxation was 54,000,000. The interest upon the National Debt was 31,000,000, and the sums applied to the redemption of public debt were about 2,000,000. At the same time the current annual expenditure was 21,000,000. The revenue increased to 59,000,000 in 1824, after which it declined to 50,000,000 in 1830, when the annual expenditure was reduced to 18,000,000. In 1840 the revenue was 47,000,000, and the interest on the public debt 29,000,000; the total amount paid and expended being 49,000,000.

The state of the unredeemed public debt on the 5th of January, 1816, was 816,311,939 of capital, and 30,458,204 of annual charge. The surplus revenue that has been applied to the redemption of the National Debt between that date and January, 1849, amounted to 45,779,000 and the amount of terminable annuities was increased from 1,888,835 to 3,755,000. The tables first adopted for the creation of terminable annuities in 1808 were incorrect, and entailed a loss of 10,000 upon the public, besides leaving the annual sum of 23,000 to pay for an indefinite time. Mr. Finlayson estimated the loss to the public through miscalculation in 1827 as proceeding at the rate of 8,000 per week, and that during the three previous months it had exceeded 95,000. "It is quite impossible," says Mr. Porter, " that any similar series of blunders could have been committed by any private persons, or association of individuals, whose vigilance would have been sufficiently preserved by their private interest; and it is disgraceful that the government, which could have at all times commanded the assistance of the most accomplished actuaries, should have fallen into them. It is yet more disgraceful, that after the evil had been discovered, and pressed upon its notice, so many years were suffered to elapse before any step was taken to put a stop to the waste of the public money." In the fourth report of the select committee on "Public Income and Expenditure," printed by order of the House of Commons in 1828, we have statements of the public income and expenditure for three periods, and similar statements have been given down to the year 1850, from which it appears that the expenditure for ten years ending January, 1802, was nearly 448,000,000, the income being less than 259,000,000; so that the amount of expenditure more than income was about 190,000,000 - a formidable accumulation of debt in the course of ten years. During that period the sum of 381,000,000 was raised by the creation of debt. But these were small sums compared with the accounts of the fourteen years ending the 5th of January, 1816. The expenditure during those fourteen years reached the almost fabulous amount of one billion and nearly sixty millions sterling; the income during the same time being something over 800,000,000. The amount raised by the creation of debt during the period was 900,000,000, and the expenditure exceeded the income by 236,000,000. Again, in the period of twelve years, which ended on the 5th of January, 1828, the income was 670,000,000, and the expenditure 640,000,000. During that period we raised by the creation of debt 540,000,000; the income having exceeded the expenditure by 29,000,000. Lastly, during the twenty-two years that ended January 5th, 1850, the income amounted to one billion and ninety-two thousand sterling, and the expenditure to one billion and seventy- five thousand sterling; the income exceeding the expenditure by 16,000,000. It appears from these statements that during the thirty-five years of peace between 1816 and 1850, the excess of income over expenditure had been 45,779,000. "At this rate," says Mr. Porter, "it would require 316 years of peace to cancel the debt incurred during twenty- four years of war, or thirteen years for one. But the comparison is even more unfavourable than this, because at the time of borrowing the rate of interest was high, and the value of public securities low; whereas, at the time of liquidation the reverse of these circumstances is experienced; so that, on the most favorable supposition, it requires fifteen years of saving in peace to repair the evil consequences of one year of war expenditure; at which rate our successors who may be living about the close of the twenty-second century might, if during all that time the nation should remain at peace, find themselves relieved from that portion of the public debt which was contracted since 1792. On the other hand, this period would be somewhat hastened by the extinction of that part of our public debt which consists of terminable and life annuities."

The national defences during the first half of the present century cost the country more than 1,200,000,000, of which 52½ per cent, was spent during the fourteen years of war, and the remaining 47½ per cent, during thirty-five years of peace. During the whole period of forty-nine years, the army cost 628,000,000; the navy, 458,000,000; the ordnance, 119,000,000. During the last ten years of the war we advanced, in loans and subsidies to foreign powers, more than 30,000,000. Since 1817 a deduction has been made of about 90,000,000 from the principal of the National Debt, and about 6,500,000 from the interest on its account. This reduction has been effected chiefly by taking advantage of the fall in the rate of interest since the peace, and offering to pay off the holders of the different stocks, unless they consented to accept of a reduced payment; and had it not been for the practice of funding large capitals at a low rate of interest, the saving in this way would have been far greater.

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Pictures for National Progress (continued) page 2


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