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National presperity and the monetary system. page 3


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This happy state of things was the result of a legitimate expansion of trade. Manufacturers and merchants were at first guided by a spirit of sober calculation. The steady advance in the public securities, and in the value of property of all sorts, showed that the national wealth rested upon a solid basis. The extension of the currency kept pace with the development of trade and commerce, and the circulation of bankers' paper was enormously increased. But out of the national prosperity there arose a spirit of rash speculation and adventure, resulting in a monetary crisis. The issue of notes by country banks was under no restriction; no measures were taken to secure that their paper represented property, and could be redeemed if necessary. There were hundreds of bankers in the provinces who could issue any quantity of notes they pleased, and these passed as cash from hand to hand. The spirit of speculation and enterprise was stimulated to a feverish state of excitement by the recognition of the states of Columbia, Mexico, and Buenos Ayres, formally announced in the king's speech on the 3rd of February, which stated that treaties of commerce had been made with those new states. The rich districts of South America being thus thrown open, there was a rush of capitalists and adventurers to work its inexhaustible mines. A number of companies were formed for the purpose, and the gains of some of them in a few months amounted to fifteen hundred per cent. The result was a mania of speculation, which seized upon all classes, pervaded all ranks, and threw the most sober and quiet members of society into a state of tumultuous excitement.

Joint-stock companies, almost innumerable, were established, to accomplish all sorts of undertakings. There were thirty- three companies for making canals and docks,, forty-eight for making railroads, forty-two for gas, twenty insurance companies, twenty-three banking companies, twelve navigation packet companies, five indigo and sugar companies, thirty-four metal companies, and many others. The amount of capital subscribed in these various companies, which numbered two hundred and seventy-six, was upwards of 174,000,000. In connection with South America, there was the Anglo-Mexican company, the Brazilian, the Columbian, Real de Monte and the United Mexican. On the South American shares only ten pounds each had been paid, except the Real de Monte, on which 70 had been paid. We may judge of the extent to which gambling speculation was carried from the following statement of the market prices of the shares, in five of the principal mining companies, at two periods, December 10th, 1824, and January 11th, 1825: -

The sense of the house was so completely with the government, that Mr. Brougham, who led the opposition, declined to go to a division. A division having been called for, however, on the part of ministers, the whole assembly poured into the lobby, till it could hold no more; and then the remaining members who were shut in were compelled to pass for an opposition, though there were ministerialists among them. They amounted to twenty, in a house of 372.

In 1823 we behold the starting point of the liberal system of commercial policy, for which, not only England, but the world, is so much indebted - the rivulet, which gradually expanded into a mighty river, bearing incalculable blessings upon its bosom to every nation under heaven. The appointment of Mr. Huskisson as a member of the government was an immense advantage to the nation. He was a man of great abilities which he had perseveringly devoted to the study of political economy. He was a complete master of all subjects in which statistics were involved, and was universally looked up to as the highest authority on all financial and commercial questions. As president of the board of trade, he had ample opportunities of turning his knowledge to account, and to him is mainly due the initiation and direction of the course of commercial policy which a quarter of a century later issued in the complete triumph of free trade. Mr. Huskisson was not only intimately acquainted with the whole range of economic, financial, and mercantile subjects, in their details as well as in their principles, he was also a powerful debater, a sound reasoner, and was animated in all he did by a spirit of generous philanthropy.

In the course of this commercial madness our imports greatly exceeded our exports, and there was consequently a rapid drain of specie from this country. The drain of bullion from the bank of England was immense. In August, 1823, it had 12,658,240, which, in August, 1825, was reduced to 3,634,320, and before the end of the year it ran as low as 1,027,000. Between July, 1824, and August, 1825, twelve millions of cash were exported from this country, chiefly to South America. During the revolutionary war, which had lasted for fourteen years, the capital of the country had been completely exhausted, while all productive labour had been abandoned. The unworked mines were filled with water. They were accessible, it is true, to English speculators, but they were worked exclusively with English capital. The South American mining companies were so many conduits through which a rapid stream of gold flowed from this country. The catastrophe that followed took the commercial world by surprise; even the chancellor of the exchequer failed to anticipate the disaster. On the contrary, his budget of 1825 was based upon the most sanguine expectations for the future, and on the assurance that the public prosperity was the very reverse of what was ephemeral and peculiar, and that it arose from something inherent in the nation. Even at the prorogation of parliament in July, the royal speech referred to the " great and growing " prosperity on which his majesty had the happiness of congratulating the country at the beginning of the session. The commercial crisis, however, with wide-spread ruin in its train, was fast coming upon the country. Vast importations, intended to meet an undiminished demand at high prices, glutted all the markets, and caused prices to fall rapidly. Merchants sought accommodation from their bankers to meet pressing liabilities, that they might be enabled to hold over their goods till prices rallied. This accommodation the bankers were unable to afford, and sales were therefore effected at a ruinous loss. The South American mines, it was found, could not be worked at a profit, and they made no return for the twenty million pounds of British money which they had swallowed up. The effect was a sudden contraction of the currency, and a general stoppage of banking accommodation. The country banks, whose issues had risen to 14,000,000, were run upon till their specie was exhausted, and a number of them were obliged to stop payment. The Plymouth bank was the first to fail, and in the next three weeks seventy banks followed in rapid succession. The London houses were besieged from morning to night by clamorous crowds, all demanding gold for their notes. Consternation spread through all classes. There was a universal pressure of creditors upon debtors, the banks that survived being themselves upon the edge of the precipice; and the bank of England itself, pushed to the last extremity, peremptorily refused accommodation even to their best customers. Persons worth one hundred thousand pounds could not command one hundred pounds; money seemed to have taken to itself wings and fled away, producing a state of society in the highest degree artificial, almost to the condition of primitive barbarism, which led Mr. Huskisson to exclaim, " We were within twenty-four hours of barter."

It is impossible to conceive the extent of suffering and desolation inflicted upon society, almost every family being involved, more or less, in the general calamity. Flourishing firms bankrupt, opulent merchants impoverished, the masses of working people suddenly thrown out of employment, and reduced to destitution; and all from causes with which the majority had nothing to do - causes that could have been prevented by a proper monetary system. If bank of England notes had been a legal tender, to all intents and purposes supplying the place of gold as currency; if these notes had been supplied to the country banks in any quantities they required, ample security being taken to have assets equal to their respective issues, then the currency would have had an elastic, self-adjusting power, expanding or contracting according to the requirements of commerce. Inordinate speculation would not have been stimulated by a reckless system of credit, and business would have been conducted in a moderate and judicious manner, instead of rushing on at a high pressure, that rendered a crash inevitable. The government, after anxious and repeated deliberations, supplied a remedy on this principle. They determined to issue one pound and two pound notes of the bank of England, for country circulation, to any amount required. In the meantime, the Mint was set to work with all its resources in the coining of sovereigns, which, for the course of a week, were thrown off at the rate of 150,000 a-day. The notes could not be manufactured fast enough to meet the enormous demand for carrying on the business of the country. In this dilemma, the bank was relieved by a most fortunate discovery - a box containing 700,000, in one and two pound notes, that had been retired, which were at once put into circulation. The people having thus got notes with government security, the panic subsided, and the demand for gold gradually ceased. The restoration of confidence was aided by resolutions passed at a meeting of bankers and merchants in the city of London, declaring that the unprecedented embarrassments and difficulties under which the circulation of the country laboured were mainly to be ascribed to a general panic, for which there were no reasonable grounds; that they had the fullest confidence in the means and substance of the banking establishments of the capital and the country; that returning confidence would remove all the symptoms of distress caused by the alarms of the timid, so fatal to those who were forced to sacrifice their property to meet sudden and unexpected demands. The new measures, so promptly adopted, and so vigorously carried into effect, raised the circulation of the bank of England in three weeks from 17,477,290 to 25,611,800. Thus the regular and healthful action of the monetary system was restored by an adequate circulation of paper money, on government security, without specie to sustain it. There were at the time of the crash, 770 country bankers; 63 stopped payment, 23 of them having subsequently resumed business, and paid twenty shillings in the pound; and even those that were not able to resume, paid an average of seventeen shillings and sixpence in the pound. It was estimated that the total loss to the country by this panic was one hundred million pounds. There is truth in the following reflections of Sir Archibald Alison upon this crisis: - "From the first introduction of the metallic system in 1819, to the extension of the paper circulation in 1822, the history of the country is nothing but the narrative of the dreadful effects produced by the contraction of the currency to the extent of above a third of its former amount, and the social distress and political agitation consequent on the fall in the price of every article of commerce to little more than the half of its former level. Its annals, from the extension of the currency in July, 1822, to the dreadful crash of December, 1825, illustrate the opposite set of dangers with which the same system is fraught, when the precious metals flow in abundance, from the undue encouragement given to speculation of every kind, by the general rise of prices for a brief period. To make paper plentiful when gold is plentiful, and paper scarce when gold is scarce, is not only a dangerous system, at all times, and under all circumstances, but is precisely the reverse of what should be established. It alternately aggravates the dangers arising from over-speculation, and induces the distress consequent on over-contraction. The true system would be the very reverse, and it would prevent the whole of the evils which the preceding pages have unfolded. It would be based on the principle of making paper a supplement to the metallic currency, and a substitute for it when required, not a representative of it; and plentifully issued when the specie is withdrawn, it should be contracted when it returns. Thus, over-speculation at one time, and monetary distress at another, would be alike avoided; and an equal circulation would maintain the health of the social system, as it unquestionably does of animal life."

Such a tremendous crash in the commercial world could not have occurred without involving the working classes in the deepest distress. By comparing the conduct of the people in the manufacturing districts at that time with the conduct of the distressed operatives in Lancashire a few years ago, we see what wonderful progress has been made in popular intelligence, social order, and Christian civilisation. Now the severest destitution is borne with admirable patience, without a single instance of combination; without any violation of the rights of property, or breaking of machinery; without resentment against employers, or capitalists, or the government. The popular education, which the tory party predicted would lead to popular discontent, insubordination, and lawless violence, has had quite the opposite effect. It has enabled the working classes to comprehend the economic laws which regulate society, to respect the rights of property, to preserve the public peace, and to submit without murmuring to a calamity which neither their rulers nor their employers could have foreseen or prevented. In order fully to understand all that society has gained by the instruction of the people, by extending to them the blessings of education, and especially by the diffusion of useful knowledge through the medium of cheap literature, we have only to read the records of popular disturbance and destructive violence which occurred in 1825 and 1826. In the August of the following year there was a combination of seamen against the shipowners at Sunderland; and on one occasion there was a riot, when a mob of some hundreds flung the crew of a collier into the sea. They were rescued from drowning, but, the military having fired on the rioters, five persons were killed. Their funeral was made the occasion of a great popular demonstration. There was a procession with flags, and a band of singers, twelve hundred seamen walking hand in hand, each with crape round the left arm. In the Isle of Man the people rose against the tithing of their potatoes, and were quieted only by the assurance that the tithe would not be demanded of them, either that year or at any future time. In the spring of 1826 the operatives of Lancashire rose up in open war against the power-looms, the main cause of the marvellous prosperity that has since so largely contributed to the wealth of England. They believed that the power-looms were the cause of their distress, and in one day every power-loom in Blackburn, and within six miles of it, was smashed; the spinning machinery having been carefully preserved, though at one time the spinning jennies were as obnoxious as the power-looms. The work of destruction was not confined to one town or neighbourhood. The mob proceeded from town to town, wrecking mill after mill, seizing upon bread in the bakers' shops, and regaling themselves freely in public-houses. They paraded the streets in formidable numbers, armed with whatever weapons they could lay hands on - scythes, sledge-hammers, and long knives. They resisted the troops fiercely, showering upon them stones and other missiles. The troops, in their turn, fired upon the crowds, and when they were dispersed the streets were stained with blood, the mob carrying away their wounded into the fields. In one week no less than a thousand power-looms were destroyed, valued at thirty thousand pounds. In Manchester the mob broke the windows in the shops. At Carlisle, Norwich, Trowbridge, and other places in England, similar lawless proceedings occurred. Even in Glasgow the blame of the general distress was thrown upon the machinery, not only by the ignorant operatives, but by the gentry and the magistrates. In Dublin the silk-weavers marched through the streets, to exhibit their wretchedness. The distress was greatly aggravated, and spread over the whole country, by the extraordinary drought which prevailed in the summer of 1826. The richest meadows were burnt up. The stunted grain crops were only a few inches in height. The cattle, and even the deer in noblemen's parks, died from thirst. The people sat up all night to watch the springs, waiting for their turn to be supplied. Water was retailed in small quantities, and sold like beer. Those who occupied the more favoured districts sent jars of fresh water to their friends in other places, as most acceptable presents. In the midst of all this scarcity and suffering the corn laws stopped the supplies of provisions from abroad, which were ready to be poured in any quantities. Bills had been passed with great difficulty through parliament, to enable government to relax the restrictions of the corn laws, in order to meet the emergency. But so clogged were those enactments with conditions, that in autumn ministers were obliged to anticipate their operation by opening the ports, trusting to the legislature for an indemnity. It is melancholy to reflect upon the perplexities and miseries in which the country was involved through the mistaken views of the landed interest, then predominant in parliament. One important result of this terrible distress was to force on emigration to a large extent, and thus to people our American colonies. Emigration at that time was without any guidance, and the result was a vast amount of disappointment and suffering among the emigrants. Consequently, Mr. Wilmot Horton moved for a select committee to inquire into the expediency of encouraging emigration from the United Kingdom. The committee was appointed, and presented its report and evidence before the dissolution of parliament, with a recommendation that the subject should be pursued without loss of time. It is with societies as with individuals, latent energies are roused into action by disastrous vicissitudes; and the discipline of severe trials develops and trains the strength by which inevitable calamities can be borne, and the wisdom and providence by which avoidable evils can be foreseen and prevented. The lessons taught by the events of those years of public distress and social agony were turned to good account in our subsequent legislation, and much was done, as we shall have occasion to show, for the removal of the dams that impeded the flow of the bounties of Providence, and the popular ignorance which enormously aggravates the evils incident to all human societies.

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