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APPENDIX. - David Ricardo, The Works of David Ricardo (McCulloch ed.) 
The Works of David Ricardo. With a Notice of the Life and Writings of the Author, by J.R. McCulloch (London: John Murray, 1888).
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After the preceding sheets were sent to the press. I read the supplementary observations of Mr Bosanquet, annexed to the second edition of his pamphlet. I shall have but few remarks to make on them.
1st, From what I have already said, it may be seen that I deny the accuracy of all Mr Bosanquet's calculations concerning the exchange with Hamburgh. Those calculations are made on the assumption of a fixed invariable par, whilst the true par on which they should have been made, is subject to all the variations to which the relative value of gold and silver is exposed. These two metals having varied no less since the year 1801 than from 6½ per cent., under the Mint proportions, to 9 per cent. above those proportions; calculations made on such a principle may involve errors to no less an amount than 15½ per cent. 2dly, The argument attempted to be founded on the fact of the increase or diminution in the amount of bank notes not having invariably been accompanied by a fall or rise in the exchange, or by a rise or fall in the price of bullion, is of no avail against a theory which admits that the demand for circulating medium is subject to continual fluctuations, proceeding from an increase or decrease in the amount of capital and commerce, from a greater or less facility which at one period may be afforded to payments by a varying degree of confidence and credit, and, in short, which supposes that the same commerce and payments may require very different amounts of circulating medium. An amount of bank notes, which at one time may be excessive, in the sense in which I use that term, and which may therefore be depreciated, may, at another, be barely sufficient for the payments which it may have to perform, barring the effect of a temporary increase in its value above that of the bullion which it represents. It will therefore be useless to admit or to deny the correctness of the grounds on which Mr Bosanquet's calculation of the amount of country paper in circulation is founded. Those facts do not, in my opinion, bear upon the subject in dispute. Whether the paper currency be 25 or 100 millions, I consider it equally certain that it is excessive, because I am not aware of any causes but excess, or a want of confidence in the issues of the paper (which I am sure does not now exist), which could produce such effects as we have for a considerable time∗ witnessed.
Mr Bosanquet has thrown the inferences which he wishes to be drawn from the facts he has newly brought forward into the shape of four problems; the solution of which, upon the principles of the Committee, he presumes to be impossible. I hope I have already shown that his facts fall abundantly short of proving the points which he makes to rest upon them, and I think the difficulty will not be great in giving him even a solution of his problems in perfect conformity with the principles of the Committee.
The first problem is, “The fall of the exchange, from an average of 6 per cent. in favour from 1790 to 1795, to 3 per cent. below par in 1795 and 1796, with an equal circulation of 11 millions of Bank paper, convertible into specie on demand, and the advance of the exchange to 11 per cent. above par, on average in 1797 and 1798, the circulation being increased to 13 millions, and not so convertible.”
The reader will perceive that this problem has already received its solution in the body of the work. The exchanges are not correctly stated, and no one denies that the exchanges may rise and fall from many causes.
It has been proved that the demand for gold for the Mint, and for silver for the East Indies, in the years 1797 and 1798, had its natural effect on the exchange, and was not counteracted by an extravagant issue of paper currency. The gold was required to fill up the exhausted coffers of the Bank; it was therefore not sent into circulation; and the addition of 2 millions in bank notes served only to supply the vacuum which the hoarding of money had occasioned; so that there was no real increase to the circulation of those years.
The second problem is, “The fall of the exchange to 6 per cent. below par, and gold 9 per cent. above the Mint price in 1800 and 1801, the Bank circulation rather above 15 millions, and the advance to 3 per cent. above par, on average of six years, from 1803 to 1808, and gold nearly at the Mint price, with an augmented circulation of 17 to 18 millions.”
Besides the effects from a varying degree of commerce and credit, it should be recollected that whilst our circulation consisted partly of gold and partly of paper, the effect of an increased issue of paper, both on the exchanges and the price of bullion, was corrected, after a sufficient interval, by the exportation of the coin. That resource has been for some time lost to us.
The third problem, viz. “The fall of the exchange, from 5 per cent. above par, in July 1808, to 10 per cent. below par, in June 1809, the Bank circulation being the same in both instances;” is of easy solution. I cannot find the document from which Mr Bosanquet has stated that the amount of bank notes was the same in July 1808 as in June 1809; but, admitting its correctness, are they fair subjects of comparison? One period is immediately after the payment of the dividends, the other immediately before. In January and July 1809 there was no less an increase in the amount of bank notes, after the payment of the dividends, than 2,450,000l., and in the January following, 1,878,000l.
I am not disposed to contend that the issues of one day, or of one month, can produce any effect on the foreign exchanges; it may possibly require a period of more permanent duration; an interval is absolutely necessary before such effects would follow. This is never considered by those who oppose the principles of the Committee. They conclude that those principles are defective, because their operation is not immediately perceived. But what are the facts respecting the circulation of bank notes in the years 1808 and 1809? There are only three returns of their amount in the year 1808 made to the Bullion Committee. Let us compare them with the returns for the same periods in 1809, and I think my readers will agree with me, that these facts will rather confirm than appear to be at variance with the principles of the Committee.
As for the fourth problem, viz. “The gradually increasing price of commodities, during the American war, when the circulation was gold, and during the six years from 1803 to 1808, when the exchange was in favour,” where has it been disputed that there are not other causes besides the depreciation of money which may account for a rise in the prices of commodities? The point for which I contend is, that when such rise is accompanied by a permanent rise in the price of that bullion which is the standard of currency, then to the amount of that rise is the currency depreciated. During the American war the rise in the prices of commodities was not attended with any rise in the price of bullion, and was therefore not occasioned by a depreciation of the currency.
We are now, for the first time, left to doubt whether the principles of the Committee, against which Mr Bosanquet in the body of his work had so strongly contended, are really at variance with his own. We are now told, not that the theory is erroneous, but “that the facts must be established before they can be reasoned upon;” “and that the importance of those facts would in no degree be lessened even by an unreserved admission of the accuracy of the principles assumed.” Does this declaration accord with Mr Bosanquet's conclusions? Certain principles are brought forward by the Bullion Committee, and which, if true, prove the fact of the depreciation of the currency. Your principles are plausible, and reason appears to sanction them, says Mr Bosanquet; but here are facts to prove that they are inconsistent with past experience; and he further observes from Paley, “that when a theorem is proposed to a mathematician the first thing he does with it is to try it on a simple case; if it produce a false result, he is sure there must be some error in the demonstration.” “The public must proceed in this way with the Report, and submit its theories to the test of fact.” Can, then, Mr Bosanquet be consistent in contending “that the importance of what, in his preceding pages, he had offered to the public would be in no degree lessened even by an unreserved admission of the accuracy of the principles assumed?”
If the theory of the Committee is allowed to be accurate on the one hand, and Mr Bosanquet's facts are accurate on the other, what follows? Either that Mr Bosanquet agrees with the Committee, or that his facts are totally inapplicable to the question. One other conclusion there is, but one which I have no intention to ascribe to Mr Bosanquet,—that there may be a theory on the one side, and facts on the other; both true, and yet inconsistent.
As for Dr Paley's test of trying the Committee's theory by a simple case, Mr Bosanquet might have tried it by a thousand, and would have found it accurately to correspond. Had he employed his leisure and ingenuity in tracing its application to the thousands of cases with which it accords, instead of hunting for two or three cases seemingly contradictory, and adopting them with fond credulity, he would have probably arrived at more just conclusions.
Mr Bosanquet calls in question the accuracy of the following proposition of Mr Huskisson, “that if one part of the currency of a country (provided such currency be made either directly or virtually legal tender according to its denomination) be depreciated, the whole of that currency, whether paper or coin, must be equally depreciated.”
The fact brought forward by Mr Bosanquet, that the “extraordinary depreciation of the silver coin in the reign of King William did not depreciate the gold; that, on the contrary, the guinea, worth 21 perfect shillings, passed currently for 30s.,” does not prove the principle advanced by Mr Huskisson to be at variance with experience, because gold was not then the current coin; it was not, either directly or virtually legal tender; nor was it estimated at a fixed value by public authority: it passed in all payments as a piece of bullion of known weight and fineness. If by law it could not have passed for more than 21s. of the debased silver currency, it would, whilst in the state of coin, have been equally debased with the 21s. for which it would have exchanged. If guineas were now to be considered as a commodity, and were not by law prohibited from being exported or melted, they might pass in all payments at 24s. or 25s., whilst the bank note continued of its present value.
Neither is the following principle of Mr Huskisson, from which Mr Bosanquet dissents, contrary to authority, “that if the quantity of gold, in a country whose currency consists of gold, should be increased in any given proportion, the quantity of other articles and the demand for them remaining the same, the value of any given commodity measured in the coin of that country would be increased in the same proportion.” Mr Huskisson does not question, as Mr Bosanquet supposes, the truth of the principle advanced by Dr Adam Smith, “that the increase in the quantity of the precious metals, which arises in any country from an increase of wealth, has no tendency to diminish their value;” but says, that if the quantity of the precious metals increases in any country, whilst its wealth does not increase, or whilst its commodities remain the same in quantity, then will the value of the gold coin of such country diminish, or, in other words, goods will rise in price. Mr Bosanquet himself, in the argument relating to the mine, has admitted that such would be the effect. To this passage from Mr Huskisson's book, however, I have an objection to offer, because he adds, that an increase in the prices of commodities would take place (page 5) under the circumstances supposed, “although no addition should actually be made to the coin of the country.” I hold it as a conclusion which will not admit of dispute, that if neither commodities, nor the demand for them, nor the money which circulates them, suffer either increase or diminution, prices must continue unaltered whatever quantity of gold or silver may exist in the state of bullion in such country.∗ It is hardly necessary to remark, that the case is wholly hypothetical, and is, indeed, impossible. There can be no great addition to the bullion of a country, the currency of which is of its standard value, without causing an increase in the quantity of money.
I confess I was not a little surprised by the next point brought forward by Mr Bosanquet, and I have no doubt it must have excited equal astonishment in many of his readers. Having contended throughout his work that bank notes were not depreciated as compared with gold coin, that the same rise in the price of gold might have taken place, and actually had, on some occasions, taken place, whilst our currency consisted partly of gold, and partly of paper convertible into gold, at the will of the holder; after denying that there was any point of contact between gold for exportation and gold in coin, and that it was for want of such contact that its price had risen, we are now seriously told by Mr Bosanquet that, “applying to this subject the most approved theories, he inclines to the belief that gold, since the new system of the Bank of England payments has been fully established, has not, in truth, continued to be the measure of value. Bank notes,” he maintains, “have, since 1797, unquestionably become the measure of commerce, and the money of account, and it is on these grounds that he considers the proposition respecting the price of gold, on which so much reliance is placed, as one of those which, though he admits the principle, he hesitates at the application.” Whether the Bank Directors, or others who have so confidently asserted that, admitting gold to be the standard, its high price did not prove the depreciation of the currency, will be pleased with a defence on such principles, which yields all for which the Committee contend, it is not for me to inquire. That gold is no longer in practice the standard by which our currency is regulated is a truth. It is the ground of the complaint of the Committee (and of all who have written on the same side) against the present system.
The holder of money has been injured, inasmuch as there is no standard reference by which his property can be protected. He has suffered a loss of 16 per cent. since 1797, and there is no security for him that it may not shortly be 25, 30, or even 50 per cent. more. Who will consent to hold money or securities, the interest on which is payable in money, on such terms? There is no sacrifice which a man holding such property should not make, to secure to himself some provision for the future whilst such a system is avowed. Mr Bosanquet has, in these few words, said as much in favour of the repeal of the restriction bill as all the writers, all the theorists, have advanced since the discussion of this subject commenced. What, then, does Mr Bosanquet admit that we have no standard because it is no longer gold? Let us hear what he says: “If a pound note be the denomination, it will, of course, be asked what is the standard?
“The question is not easy of solution. But, considering the high proportion which the dealings between Government and the public bear to the general circulation, it is probable the standard may be found in those transactions; and it seems not more difficult to imagine that the standard value of a one pound note may be the interest of 33l. 6s. 8d.—3 per cent. stock, than that such standard has reference to a metal, of which none remains in circulation, and of which the annual supply, even as a commodity, does not amount to one-twentieth part of the foreign expenses of Government in one year.”
So then we have a standard for a pound bank note; it is the interest of 33l. 6s. 8d.—3 per cent. stock. Now, in what medium is this interest paid? because that must be the standard. The holder of 33l. 6s. 8d. stock receives at the bank a one pound note. Bank notes are, therefore, according to the theory of a practical man, the standard by which alone the depreciation of bank notes can be estimated!
A puncheon of rum has 16 per cent. of its contents taken out, and water poured in for it. What is the standard by which Mr Bosanquet attempts to detect the adulteration? A sample of the adulterated liquor taken out of the same cask.
We are next told, that “if the Bank really possess a large stock of gold. or only to the extent of 6 or 7 millions, the best use they can make of it is to call in all the notes under 5l., and not re-issue any of this description.”
How could bankers and manufacturers be enabled to effect their small payments if the gold, thus partially issued, were at the present exchange and price of bullion to be either exported or melted? If the Bank did not issue small notes, and they could not procure guineas for large ones, they would be obliged to cease such payments altogether. The more I have reflected on this subject, the more convinced I am that the evil admits of no other safe remedy but a reduction in the amount of bank notes.
AN ESSAY ON THE INFLUENCE OF A LOW PRICE OF CORN ON THE PROFITS OF STOCK
INEXPEDIENCY OF RESTRICTIONS ON IMPORTATION:
REMARKS ON MR MALTHUSS TWO LAST PUBLICATIONS;
“AN INQUIRY INTO THE NATURE AND PROGRESS OF RENT;” AND “THE GROUNDS OF AN OPINIONS ON THE POLICY OF RESTRICTING THE IMPORTATION OF FOREIGN CORN.”
In treating on the subject of the profits of capital, it is necessary to consider the principles which regulate the rise and fall of rent, as rent and profits, it will be seen, have a very intimate connexion with each other. The principles which regulate rent are briefly stated in the following pages, and differ in a very slight degree from those which have been so fully and so ably developed by Mr Malthus in his late excellent publication, to which I am very much indebted. The consideration of those principles, together with those which regulate the profit of stock, have convinced me of the policy of leaving the importation of corn unrestricted by law. From the general principle set forth in all Mr Malthus's publications, I am persuaded that he holds the same opinion, as far as profit and wealth are concerned with the question; but, viewing, as he does, the danger as formidable of depending on foreign supply for a large portion of our food, he considers it wise, on the whole, to restrict importation. Not participating with him in those fears, and perhaps estimating the advantages of a cheap price of corn at a higher value, I have come to a different conclusion. Some of the objections urged in his last publication—“Grounds of an Opinion,” &c., I have endeavoured to answer; they appear to me to be unconnected with the political danger he apprehends, and to be inconsistent with the general doctrines of the advantages of a free trade, which he has himself, by his writings, so ably contributed to establish.
ESSAY ON THE INFLUENCE OF A LOW PRICE OF CORN ON THE PROFITS OF STOCK.
Mr malthus very correctly defines “the rent of land to be that portion of the value of the whole produce which remains to the owner, after all the outgoings belonging to its cultivation, of whatever kind, have been paid, including the profits of the capital employed, estimated according to the usual and ordinary rate of the profits of agricultural stock at the time being.”
Whenever, then, the usual and ordinary rate of the profits of agricultural stock, and all the outgoings belonging to the cultivation of land, are together equal to the value of the whole produce, there can be no rent.
And, when the whole produce is only equal in value to the outgoings necessary to cultivation, there can neither be rent nor profit.
In the first settling of a country rich in fertile land, and which may be had by any one who chooses to take it, the whole produce, after deducting the outgoings belonging to cultivation, will be the profits of capital, and will belong to the owner of such capital, without any deduction whatever for rent.
Thus, if the capital employed by an individual on such land were of the value of 200 quarters of wheat, of which half consisted of fixed capital, such as buildings, implements, &c., and the other half of circulating capital,—if, after replacing the fixed and circulating capital, the value of the remaining produce were 100 quarters of wheat, or of equal value with 100 quarters of wheat, the neat profit to the owner of capital would be 50 per cent., or 100 profit on 200 capital.
For a period of some duration the profits of agricultural stock might continue at the same rate, because land equally fertile and equally well situated might be abundant, and, therefore, might be cultivated on the same advantageous terms, in proportion as the capital of the first and subsequent settlers augmented.
Profits might even increase, because, the population increasing at a more rapid rate than capital, wages might fall; and, instead of the value of 100 quarters of wheat being necessary for the circulating capital, 90 only might be required, in which case the profits of stock would rise from 50 to 57 per cent.
Profits might also increase, because improvements might take place in agriculture, or in the implements of husbandry, which would augment the produce with the same cost of production.
If wages rose, or a worse system of agriculture were practised, profits would again fall.
These are circumstances which are more or less at all times in operation—they may retard or accelerate the natural effects of the progress of wealth, by raising or lowering profits—by increasing or diminishing the supply of food, with the employment of the same capital on the land.∗
We will, however, suppose that no improvements take place in agriculture, and that capital and population advance in the proper proportion, so that the real wages of labour continue uniformly the same;—that we may know what peculiar effects are to be ascribed to the growth of capital, the increase of population, and the extension of cultivation, to the more remote and less fertile land.
In this state of society, when the profits on agricultural stock, by the supposition, are 50 per cent., the profits on all other capital, employed either in the rude manufactures common to such a stage of society, or in foreign commerce, as the means of procuring in exchange for raw produce those commodities which may be in demand, will be also 50 per cent.†
If the profits on capital employed in trade were more than 50 per cent., capital would be withdrawn from the land to be employed in trade. If they were less, capital would be taken from trade to agriculture.
After all the fertile land in the immediate neighbourhood of the first settlers were cultivated, if capital and population increased, more food would be required, and it could only be procured from land not so advantageously situated. Supposing, then, the land to be equally fertile, the necessity of employing more labourers, horses, &c., to carry the produce from the place where it was grown to the place where it was to be consumed, although no alteration were to take place in the wages of labour, would make it necessary that more capital should be permanently employed to obtain the same produce. Suppose this addition to be of the value of 10 quarters of wheat, the whole capital employed on the new land would be 210, to obtain the same return as on the old; and, consequently, the profits of stock would fall from 50 to 43 per cent., or 90 on 210.∗
On the land first cultivated, the return would be the same as before, namely 50 per cent., or 100 quarters of wheat; but the general profits of stock being regulated by the profits made on the least profitable employment of capital on agriculture, a division of the 100 quarters would take place, 43 per cent., or 86 quarters, would constitute the profit of stock, and 7 per cent., or 14 quarters, would constitute rent. And that such a division must take place is evident, when we consider that the owner of the capital of the value of 210 quarters of wheat would obtain precisely the same profit, whether he cultivated the distant land, or paid the first settler 14 quarters for rent.
In this stage, the profits in all capital employed in trade would fall to 43 per cent.
If, in the further progress of population and wealth, the produce of more land were required to obtain the same return, it might be necessary to employ, either on account of distance, or the worse quality of land, the value of 220 quarters of wheat, the profits of stock would then fall to 36 per cent., or 80 on 220, and the rent of the first land would rise to 28 quarters of wheat, and on the second portion of land cultivated, rent would now commence, and would amount to 14 quarters.
The profits on all trading capital would also fall to 36 per cent.
Thus, by bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated, and precisely in the same degree would profits fall; and if the smallness of profits do not check accumulation, there are hardly any limits to the rise of rent, and the fall of profit.
If instead of employing capital at a distance on new land, an additional capital of the value of 210 quarters of wheat be employed on the first land cultivated, and its return were in like manner 43 per cent. or 90 on 210; the produce of 50 per cent. on the first capital, would be divided in the same manner as before,—43 per cent. or 86 quarters would constitute profit, and 14 quarters rent.
If 220 quarters were employed in addition with the same result as before, the first capital would afford a rent of 28; and the second of 14 quarters, and the profits on the whole capital of 630 quarters would be equal, and would amount to 36 per cent.
Supposing that the nature of man was so altered, that he required double the quantity of food that is now necessary for his subsistence, and consequently, that the expenses of cultivation were very greatly increased. Under such circumstances, the knowledge and capital of an old society employed on fresh and fertile land in a new country would leave a much less surplus produce; consequently, the profits of stock could never be so high. But accumulation, though slower in its progress, might still go on, and rent would begin just as before, when more distant or less fertile land were cultivated.
The natural limit to population would of course be much earlier, and rent could never rise to the height to which it may now do; because, in the nature of things, land of the same poor quality would never be brought into cultivation;—nor could the same amount of capital be employed on the better land with any adequate return of profit.∗
The following table is constructed on the supposition, that the first portion of land yields 100 quarters profit on a capital of 200 quarters; the second portion, 90 quarters on 210, according to the foregoing calculations.† It will be seen that, during the progress of a country, the whole produce raised on its land, will increase, and for a certain time that part of the produce which belongs to the profits of stock, as well as that part which belongs to rent, will increase; but that, at a later period, every accumulation of capital will be attended with an absolute, as well as a proportionate diminution of profits,—though rents will uniformly increase. A less revenue, it will be seen, will be enjoyed by the owner of stock, when 1,350 quarters are employed on the different qualities of land, than when 1,100 were employed. In the former case the whole profits will be only 270, in the latter 275; and when 1,610 are employed, profits will fall to 241½.∗
This is a view of the effects of accumulation which is exceedingly curious, and has, I believe, never before been noticed.
It will be seen by the table, that, in a progressive country, rent is not only absolutely increasing, but that it is also increasing in its ratio to the capital employed on the land; thus, when 410 was the whole capital employed, the landlord obtained 3½ per cent.; when 1,100, 13¼ per cent.; and when 1,880, 16½ per cent. The landlord not only obtains a greater produce, but a larger share.—(See Table on next page.)
Rent,† then, is in all cases a portion of the profits previously obtained on the land. It is never a new creation of revenue, but always part of a revenue already created.
Profits of stock fall only, because land equally well adapted to produce food cannot be procured; and the degree of the fall of profits, and the rise of rents, depends wholly on the increased expense of production.
If, therefore, in the progress of countries in wealth and population, new portions of fertile land could be added to such countries, with every increase of capital, profits would never fall, nor rents rise.‡
If the money price of corn, and the wages of labour, did not vary in price in the least degree, during the progress of the country in wealth and population, still profits would fall and rents would rise; because more labourers would be employed on the more distant or less fertile land, in order to obtain the same supply of raw produce; and therefore the cost of production would have increased, whilst the value of the produce continued the same.
But the price of corn, and of all other raw produce, has been invariably observed to rise as a nation became wealthy, and was obliged to have recourse to poorer lands for the production of part
of its food; and very little consideration will convince us, that such is the effect which would naturally be expected to take place under such circumstances.
The exchangeable value of all commodities rises as the difficulties of their production increase. If, then, new difficulties occur in the production of corn, from more labour being necessary, whilst no more labour is required to produce gold, silver, cloth, linen, &c., the exchangeable value of corn will necessarily rise, as compared with those things. On the contrary, facilities in the production of corn, or of any other commodity of whatever kind, which shall afford the same produce with less labour, will lower its exchangeable value.∗ Thus we see that improvements in agriculture, or in the implements of husbandry, lower the exchangeable value of corn;† improvements in the machinery connected with the manufacture of cotton, lower the exchangeable value of cotton goods; and improvements in mining, or the discovery of new and more abundant mines of the precious metals, lower the value of gold and silver, or, which is the same thing, raise the price of all other commodities. Wherever competition can have its full effect, and the production of the commodity be not limited by nature, as is the case with some wines, the difficulty or facility of their production will ultimately regulate their exchangeable value.‡ The sole effect, then, of the progress of wealth on prices, independently of all improvements, either in agriculture or manufactures, appears to be to raise the price of raw produce and of labour, leaving all other commodities at their original prices, and to lower general profits in consequence of the general rise of wages.
This fact is of more importance than at first sight appears, as it relates to the interest of the landlord, and the other parts of the community. Not only is the situation of the landlord improved (by the increasing difficulty of procuring food, in consequence of accumulation,) by obtaining an increased quantity of the produce of the land, but also by the increased exchangeable value of that quantity. If his rent be increased from 14 to 28 quarters, it would be more than doubled, because he would be able to command more than double the quantity of commodities, in exchange for the 28 quarters. As rents are agreed for, and paid in money, he would, under the circumstances supposed, receive more than double of his former money rent.
In like manner, if rent fell, the landlord would suffer two losses; he would be a loser of that portion of the raw produce which constituted his additional rent; and further, he would be a loser by the depreciation in the real or exchangeable value of the raw produce in which, or in the value of which, his remaining rent would be paid.∗
As the revenue of the farmer is realized in raw produce, or in the value of raw produce, he is interested, as well as the landlord, in its high exchangeable value, but a low price of produce may be compensated to him by a great additional quantity.
It follows, then, that the interest of the landlord is always opposed to the interest of every other class in the community. His situation is never so prosperous, as when food is scarce and dear: whereas, all other persons are greatly benefited by procuring food cheap, High rent and low profits, for they invariably accompany each other, ought never to be the subject of complaint, if they are the effect of the natural course of things.
They are the most unequivocal proofs of wealth and prosperity, and of an abundant population, compared with the fertility of the soil. The general profits of stock depend wholly on the profits of the last portion of capital employed on the land; if, therefore, landlords were to relinquish the whole of their rents, they would neither raise the general profits of stock, nor lower the price of corn to the consumer. It would have no other effect, as Mr Malthus has observed, than to enable those farmers, whose lands now pay a rent, to live like gentlemen, and they would have to expend that portion of the general revenue which now falls to the share of the landlord.
A nation is rich, not according to the abundance of its money, nor to the high money value at which its commodities circulate, but according to the abundance of its commodities, contributing to its comforts and enjoyments. Although this is a proposition, from which few would dissent, many look with the greatest alarm at the prospect of the diminution of their money revenue, though such reduced revenue should have so improved in exchangeable value, as to procure considerably more of all the necessaries and luxuries of life.
If, then, the principles here stated as governing rent and profit be correct, general profits on capital can only be raised by a fall in the exchangeable value of food, and which fall can only arise from three causes:—
1st. The fall of the real wages of labour, which shall enable the farmer to bring a greater excess of produce to market.
2d. Improvements in agriculture, or in the implements of husbandry, which shall also increase the excess of produce.
3dly. The discovery of new markets, from whence corn may be imported at a cheaper price than it can be grown for at home.
The first of these causes is more or less permanent, according as the price from which wages fall, is more or less near that remuneration for labour which is necessary to the actual subsistence of the labourer.
The rise or fall of wages is common to all states of society, whether it be the stationary, the advancing, or the retrograde state. In the stationary state, it is regulated wholly by the increase or falling off of the population. In the advancing state, it depends on whether the capital or the population advance, at the more rapid course. In the retrograde state, it depends on whether population or capital decrease with the greater rapidity.
As experience demonstrates that capital and population alternately take the lead, and wages in consequence are liberal or scanty, nothing can be positively laid down, respecting profits, as far as wages are concerned.
But I think it may be most satisfactorily proved, that in every society advancing in wealth and population, independently of the effect produced by liberal or scanty wages, general profits must fall, unless there be improvements in agriculture, or corn can be imported at a cheaper price.
It seems the necessary result of the principles which have been stated to regulate the progress of rent.
This principle will, however, not be readily admitted by those who ascribe to the extension of commerce, and discovery of new markets, where our commodities can be sold dearer, and foreign commodities can be bought cheaper, the progress of profits, without any reference whatever to the state of the land, and the rate of profit obtained on the last portions of capital employed upon it. Nothing is more common than to hear it asserted, that profits on agriculture no more regulate the profits of commerce, than that the profits of commerce regulate the profits on agriculture. It is contended that they alternately take the lead; and, if the profits of commerce rise, which it is said they do, when new markets are discovered, the profits of agriculture will also rise; for it is admitted, that if they did not do so, capital would be withdrawn from the land to be employed in the more profitable trade. But if the principles respecting the progress of rent be correct, it is evident, that, with the same population and capital, whilst none of the agricultural capital is withdrawn from the cultivation of the land, agricultural profits cannot rise, nor can rent fall: either then it must be contended, which is at variance with all the principles of political economy, that the profits on commercial capital will rise considerably, whilst the profits on agricultural capital suffer no alteration, or that, under such circumstances, the profits on commerce will not rise.∗
It is this latter opinion which I consider as the true one. I do not deny that the first discoverer of a new and better market may, for a time, before competition operates, obtain unusual profits. He may either sell the commodities he exports at a higher price than those who are ignorant of the new market, or he may purchase the commodities imported at a cheaper price. Whilst he, or a few more exclusively follow this trade, their profits will be above the level of general profits. But it is of the general rate of profit that we are speaking, and not of the profits of a few individuals; and I cannot doubt that, in proportion as such trade shall be generally known and followed, there will be such a fall in the price of the foreign commodity in the importing country, in consequence of its increased abundance, and the greater facility with which it is procured, that its sale will afford only the common rate of profits—that so far from the high profits obtained by the few who first engaged in the new trade elevating the general rate of profits—those profits will themselves sink to the ordinary level.
The effects are precisely similar to those which follow from the use of improved machinery at home.
Whilst the use of the machine is confined to one, or a very few manufacturers, they may obtain unusual profits, because they are enabled to sell their commodities at a price much above the cost of production—but as soon as the machine becomes general to the whole trade, the price of the commodities will sink to the actual cost of production, leaving only the usual and ordinary profits.
During the period of capital moving from one employment to another, the profits on that to which capital is flowing will be relatively high, but will continue so no longer than till the requisite capital is obtained.
There are two ways in which a country may be benefited by trade—one by the increase of the general rate of profits, which, according to my opinion, can never take place but in consequence of cheap food, which is beneficial only to those who derive a revenue from the employment of their capital, either as farmers, manufacturers, facturers, merchants, or capitalists, lending their money at interest—the other by the abundance of commodities, and by a fall in their exchangeable value, in which the whole community participate. In the first case, the revenue of the country is augmented—in the second, the same revenue becomes efficient in procuring a greater amount of the necessaries and luxuries of life.
It is in this latter mode only∗ that nations are benefited by the extension of commerce, by the division of labour in manufactures, and by the discovery of machinery,—they all augment the amount of commodities, and contribute very much to the ease and happiness of mankind; but they have no effect on the rate of profits, because they do not augment the produce compared with the cost of production on the land, and it is impossible that all other profits should rise whilst the profits on land are either stationary, or retrograde.
Profits, then, depend on the price, or rather on the value of food. Every thing which gives facility to the production of food, however scarce, or however abundant commodities may become, will raise the rate of profits, whilst on the contrary, every thing which shall augment the cost of production without augmenting the quantity of food,‡ will, under every circumstance, lower the general rate of profits. The facilities of obtaining food are beneficial in two ways to the owners of capital; it at the same time raises profits and increases the amount of consumable commodities. The facilities in obtaining all other things only increase the amount of commodities.
If, then, the power of purchasing cheap food be of such great importance, and if the importation of corn will tend to reduce its price, arguments almost unanswerable respecting the danger of dependence on foreign countries for a portion of our food—for in no other view will the question bear an argument—ought to be brought forward to induce us to restrict importation, and thereby forcibly to detain capital in an employment which it would otherwise leave for one much more advantageous.
If the legislature were at once to adopt a decisive policy with regard to the trade in corn—if it were to allow a permanently free trade, and did not, with every variation of price, alternately restrict and encourage importation, we should undoubtedly be a regularly importing country. We should be so in consequence of the superiority of our wealth and population, compared to the fertility of our soil over our neighbours. It is only when a country is comparatively wealthy, when all its fertile land is in a state of high cultivation, and that it is obliged to have recourse to its inferior lands to obtain the food necessary for its population; or when it is originally without the advantages of a fertile soil, that it can become profitable to import corn.∗
It is, then, the dangers of dependence on foreign supply for any considerable quantity of our food, which can alone be opposed to the many advantages which, circumstanced as we are, would attend the importation of corn.
These dangers do not admit of being very correctly estimated; they are in some degree matters of opinion, and cannot, like the advantages on the other side, be reduced to accurate calculation. They are generally stated to be two—1st, That in the case of war a combination of the Continental powers, or the influence of our principal enemy, might deprive us of our accustomed supply—2dly, That when bad seasons occurred abroad, the exporting countries would have, and would exercise, the power of withholding the quantity usually exported to make up for their own deficient supply.‡
If we became a regularly importing country, and foreigners could confidently rely on the demand of our market, much more land would be cultivated in the corn countries with a view to exportation. When we consider the value of even a few weeks' consumption of corn in England, no interrruption could be given to the export trade, if the Continent supplied us with any considerable quantity of corn, without the most extensively ruinous commercial distress—distress which no sovereign, or combination of sovereigns, would be willing to inflict on their people; and, if willing, it would be a measure to which probably no people would submit. It was the endeavour of Buonaparte to prevent the exportation of the raw produce of Russia, more than any other cause, which produced the astonishing efforts of the people of that country against the most powerful force perhaps ever assembled to subjugate a nation.
The immense capital which would be employed on the land, could not be withdrawn suddenly, and under such circumstances, without immense loss; besides which, the glut of corn in their markets, which would affect their whole supply, and lower its value beyond calculation; the failure of those returns, which are essential in all commercial adventures, would occasion a scene of wide-spreading ruin, which, if a country would patiently endure, would render it unfit to wage war with any prospect of success. We have all witnessed the distress in this country, and we have all heard of the still greater distress in Ireland, from a fall in the price of corn, at a time, too, when it is acknowledged that our own crop has been deficient; when importation has been regulated by price, and when we have not experienced any of the effects of a glut. Of what nature would that distress have been if the price of corn had fallen to a half a quarter, or an eighth part of the present price? For the effects of plenty or scarcity, on the price of corn, are incalculably greater than in proportion to the increase or deficiency of quantity. These, then, are the inconveniences which the exporting countries would have to endure.
Ours would not be light. A great diminution in our usual supply, amounting probably to one-eighth of our whole consumption, it must be confessed, would be an evil of considerable magnitude; but we have obtained a supply equal to this, even when the growth of foreign countries was not regulated by the constant demand of our market. We all know the prodigious effects of a high price in procuring a supply. It cannot, I think, be doubted, that we should obtain a considerable quantity from those countries with which we were not at war; which, with the most economical use of our own produce, and the quantity in store,∗ would enable us to subsist till we had bestowed the necessary capital and labour on our own land, with a view to future production. That this would be a most afflicting change, I certainly allow; but I am fully persuaded that we should not be driven to such an alternative, and that, notwithstanding the war, we should be freely supplied with the corn, expressly grown in foreign countries for our consumption. Buonaparte, when he was most hostile to us, permitted the exportation of corn to England by licenses, when our prices were high from a bad harvest, even when all other commerce was prohibited. Such a state of things could not come upon us suddenly; a danger of this nature would be partly foreseen, and due precautions would be taken. Would it be wise, then, to legislate with the view of preventing an evil which might never occur; and, to ward off a most improbable danger, sacrifice annually a revenue of some millions?
In contemplating a trade in corn, unshackled by restrictions on importation, and a consequent supply from France, and other countries, where it can be brought to market at a price not much above half that at which we can ourselves produce it on some of our poorer lands, Mr Malthus does not sufficiently allow for the greater quantity of corn which would be grown abroad, if importation was to become the settled policy of this country. There cannot be the least doubt that if the corn countries could depend on the markets of England for a regular demand, if they could be perfectly secure that our laws respecting the corn trade would not be repeatedly vacillating between bounties, restrictions, and prohibitions, a much larger supply would be grown, and the danger of a greatly diminished exportation, in consequence of bad seasons, would be less likely to occur. Countries which have never yet supplied us might, if our policy was fixed, afford us a considerable quantity.
It is at such times that it would be particularly the interest of foreign countries to supply our wants, as the exchangeable value of corn does not rise in proportion only to the deficiency of supply, but two, three, four times as much, according to the amount of the deficiency.
If the consumption of England is 10 million quarters, which, in an average year, would sell for 40 millions of money; and, if the supply should be deficient one-fourth, the 7,500,000 quarters would not sell for 40 millions only, but probably for fifty millions or more. Under the circumstances, then, of bad seasons, the exporting country would content itself with the smallest possible quantity necessary for their own consumption, and would take advantage of the high price in England to sell all they could spare, as not only would corn be high, as compared with money, but as compared with all other things; and if the growers of corn adopted any other rule, they would be in a worse situation, as far as regarded wealth, than if they had constantly limited the growth of corn to the wants of their own people.
If 100 millions of capital were employed on the land to obtain the quantity necessary to their own subsistence, and 20 millions more that they might export the produce, they would lose the whole return of the 20 millions in the scarce year, which they would not have done had they not been an exporting country. At whatever price exportation might be restricted by foreign countries, the chance of corn rising to that price would be diminished by the greater quantity produced in consequence of our demand.
With respect to the supply of corn, it has been remarked, in reference to a single country, that if the crops are bad in one district they are generally productive in another; that if the weather is injurious to one soil, or to one situation, it is beneficial to a different soil and different situation; and, by this compensating power, Providence has bountifully secured us from the frequent recurrence of dearths. If this remark be just as applied to one country, how much more strongly may it be applied to all the countries together which compose our world? Will not the deficiency of one country be made up by the plenty of another? and, after the experience which we have had of the power of high prices to procure a supply, can we have any just reason to fear that we shall be exposed to any particular danger from depending on importation for so much corn as may be necessary for a few weeks of our consumption.
From all that I can learn, the price of corn in Holland, which country depends almost wholly on foreign supply, has been remarkably steady, even during the convulsed times which Europe has lately experienced,—a convincing proof, notwithstanding the smallness of the country, that the effects of bad seasons are not exclusively borne by importing countries.
That great improvements have been made in agriculture, and that much capital has been expended on the land, it is not attempted to deny; but, with all those improvements, we have not overcome the natural impediments resulting from our increasing wealth and prosperity, which obliges us to cultivate at a disadvantage our poor lands if the importation of corn is restricted or prohibited. If we were left to ourselves, unfettered by legislative enactments, we should gradually withdraw our capital from the cultivation of such lands, and import the produce which is at present raised upon them. The capital withdrawn would be employed in the manufacture of such commodities as would be exported in return for the corn.∗ Such a distribution of part of the capital of the country would be more advantageous or it would not be adopted. This principle is one of the best established in the science of political economy, and by no one is more readily admitted than by Mr Malthus. It is the foundation of all his arguments, in his comparison of the advantages and disadvantages attending an unrestricted trade in corn, in his “Observations on the Corn Laws.”
In his last publication, however, in one part of it, he dwells with much stress on the losses of agricultural capital, which the country would sustain, by allowing an unrestricted importation. He laments the loss of that which by the course of events has become of no use to us, and by the employment of which we actually lose. We might just as fairly have been told, when the steam-engine, or Mr Arkwright's cotton machine was brought to perfection, that it would be wrong to adopt the use of them, because the value of the old clumsy machinery would be lost to us. That the farmers of the poorer lands would be losers, there can be no doubt, but the public would gain many times the amount of their losses; and, after the exchange of capital from land to manufactures had been effected, the farmers themselves, as well as every other class of the community, except the landholders, would very considerably increase their profits.
It might, however, be desirable, that the farmers, during their current leases, should be protected against the losses which they would undoubtedly suffer from the new value of money, which would result from a cheap price of corn, under their existing money engagements with their landlords.
Although the nation would sacrifice much more than the farmers would save even by a temporary high price of corn, it might be just to lay restrictive duties on importation for three or four years, and to declare that, after that period, the trade in corn should be free, and that imported corn should be subject to no other duty than such as we might find it expedient to impose on corn of our own growth.∗
Mr Malthus is, no doubt, correct, when he says, “If merely the best modes of cultivation now in use, in some parts of Great Britain, were generally extended, and the whole country was brought to a level, in proportion to its natural advantages, of soil and situation, by the further accumulation and more equable distribution of capital and skill, the quantity of additional produce would be immense, and would afford the means of subsistence to a very great increase of population.‡
This reflection is true, and is highly pleasing—it shows that we are yet at a great distance from the end of our resources, and that we may contemplate an increase of prosperity and wealth far exceeding that of any country which has preceded us. This may take place under either system, that of importation or restriction, though not with an equally accelerated pace, and is no argument why we should not, at every period of our improvement, avail ourselves of the full extent of the advantages offered to our acceptance—it is no reason why we should not make the very best disposition of our capital, so as to ensure the most abundant return. The land has, as I before said, been compared by Mr Malthus, to a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers. Would it be wise at a great expense to use some of the worst of these machines, when at a less expense we could hire the very best from our neighbours.
Mr Malthus thinks that a low money price of corn would not be favourable to the lower classes of society, because the real exchangeable value of labour, that is, its power of commanding the necessaries, conveniences, and luxuries of life, would not be augmented, but diminished by a low money price. Some of his observations on this subject are certainly of great weight, but he does not sufficiently allow for the effects of a better distribution of the national capital on the situation of the lower classes. It would be beneficial to them, because the same capital would employ more hands; besides, that the greater profits would lead to further accumulation; and thus would a stimulus be given to population by really high wages, which could not fail for a long time to ameliorate the condition of the labouring classes.
The effects on the interests of this class, would be nearly the same as the effects of improved machinery, which, it is now no longer questioned, has a decided tendency to raise the real wages of labour.
Mr Malthus also observes, “that of the commercial and manufacturing classes, only those who are directly engaged in foreign trade will feel the benefit of the importing system.”
If the view which has been taken of rent be correct,—if it rise as general profits fall, and fall as general profits rise,—and if the effect of importing corn is to lower rent, which has been admitted, and ably exemplified by Mr Malthus himself,—all who are concerned in trade,—all capitalists whatever, whether they be farmers, manufacturers, or merchants, will have a great augmentation of profits. A fall in the price of corn, in consequence of improvements in agriculture or of importation, will lower the exchangeable value of corn only,—the price of no other commodity will be affected. If, then, the price of labour falls, which it must do when the price of corn is lowered, the real profits of all descriptions must rise; and no person will be so materially benefited as the manufacturing and commercial part of society.
If the demand for home commodities should be diminished, because of the fall of rent on the part of the landlords, it will be increased in a far greater degree by the increased opulence of the commercial classes.
If restrictions on the importation of corn should take place, I do not apprehend that we shall lose any part of our foreign trade; on this point I agree with Mr Malthus. In the case of a free trade in corn, it would be considerably augmented; but the question is not, whether we can retain the same foreign trade—but, whether, in both cases, it will be equally profitable.
Our commodities would not sell abroad for more or less in consequence of a free trade, and a cheap price of corn; but the cost of production to our manufacturers would be very different if the price of corn was eighty, or was sixty shillings per quarter; and consequently profits would be augmented by all the cost saved in the production of the exported commodities.
Mr Malthus notices an observation, which was first made by Hume, that a rise of prices has a magic effect on industry: he states the effects of a fall to be proportionally depressing.∗ A rise of prices has been stated to be one of the advantages, to counter-balance the many evils attendant on a depreciation of money, from a real fall in the value of the precious metals, from raising the denomination of the coin, or from the over-issue of paper-money.
It is said to be beneficial, because it betters the situation of the commercial classes at the expense of those enjoying fixed incomes;—and that it is chiefly in those classes, that the great accumulations are made, and productive industry encouraged.
A recurrence to a better monetary system, it is said, though highly desirable, tends to give a temporary discouragement to accumulation and industry, by depressing the commercial part of the community, and is the effect of a fall of prices: Mr Malthus supposes that such an effect will be produced by the fall of the price of corn. If the observation made by Hume were well founded, still it would not apply to the present instance:—for every thing that the manufacturer would have to sell, would be as dear as ever: it is only what he would buy that would be cheap, namely, corn and labour, by which his gains would be increased. I must again observe, that a rise in the value of money lowers all things; whereas a fall in the price of corn, only lowers the wages of labour, and therefore raises profits.
If, then, the prosperity of the commercial classes will most certainly lead to accumulation of capital, and the encouragement of productive industry; these can by no means be so surely obtained as by a fall in the price of corn.
I cannot agree with Mr Malthus in his approbation of the opinion of Adam Smith, “that no equal quantity of productive labour employed in manufactures, can ever occasion so great a re-production as in agriculture.” I suppose that he must have overlooked the term ever in this passage, otherwise the opinion is more consistent with the doctrine of the Economist, than with those which he has maintained; as he has stated, and I think correctly, that in the first settling of a new country, and in every stage of its improvement, there is a portion of its capital employed on the land, for the profits of stock merely, and which yields no rent whatever. Productive labour employed on such land never does in fact afford so great a reproduction, as the same productive labour employed in manufactures.
The difference is not indeed great, and is voluntarily relinquished, on account of the security and respectability which attends the employment of capital on land. In the infancy of society, when no rent is paid, is not the re-production of value in the coarse manufactures, and in the implements of husbandry with a given capital, at least as great as the value which the same capital would afford if employed on the land?
This opinion indeed is at variance with all the general doctrines of Mr Malthus, which he has so ably maintained in this as well as in all his other publications. In the “Inquiry,” speaking of what I consider a similar opinion of Adam Smith, he observes, “I cannot, however, agree with him in thinking that all land which yields food must necessarily yield rent. The land which is successively taken into cultivation in improving countries, may only pay profits and labour. A fair profit on the stock employed, including, of course, the payment of labour, will always be a sufficient inducement to cultivate.” The same motives will also induce some to manufacture goods, and the profits of both, in the same stages of society, will be nearly the same.
In the course of these observations, I have often had occasion to insist, that rent never falls without the profits of stock rising. If it suit us to-day to import corn rather than grow it, we are solely influenced by the cheaper price. If we import, the portion of capital last employed on the land, and which yielded no rent, will be withdrawn; rent will fall and profits rise, and another portion of capital employed on the land will come under the same description of only yielding the usual profits of stock.
If corn can be imported cheaper than it can be grown on this rather better land, rent will again fall and profits rise, and another and better description of land will now be cultivated, for profits only. In every step of our progress, profits of stock increase and rents fall, and more land is abandoned; besides which, the country saves all the difference between the price at which corn can be grown, and the price at which it can be imported, on the quantity we receive from abroad.
Mr Malthus has considered, with the greatest ability, the effect of a cheap price of corn on those who contribute to the interest of our enormous debt. I most fully concur in many of his conclusions on this part of the subject. The wealth of England would, I am persuaded, be considerably augmented by a great reduction in the price of corn, but the whole money value of that wealth would be diminished. It would be diminished by the whole difference of the money value of the corn consumed,—it would be augmented by the increased exchangeable value of all those commodities which would be exported in exchange for the corn imported. The latter would, however, be very unequal to the former; therefore the money value of the commodities of England would, undoubtedly, be considerably lowered.
But, though it is true, that the money value of the mass of our commodities would be diminished, it by no means follows that our annual revenue would fall in the same degree. The advocates for importation ground their opinion of the advantages of it on the conviction that the revenue would not so fall. And, as it is from our revenue that taxes are paid, the burthen might not be really augmented.
Suppose the revenue of a country to fall from 10 to 9 millions, whilst the value of money altered in the proportion of 10 to 8, such country would have a larger neat revenue, after paying a million from the smaller, than it would have after paying it from the larger sum.
That the stockholder would receive more in real value than what he contracted for, in the loans of the late years, is also true; but, as the stockholders themselves contribute very largely to the public burthens, and therefore to the payment of the interest which they receive, no inconsiderable proportion of the taxes would fall on them; and, if we estimate at its true value the additional profits made by the commercial class, they would still be great gainers, notwithstanding their really augmented contributions.
The landlord would be the only sufferer by paying really more, not only without any adequate compensation, but with lowered rents.
It may, indeed, be urged, on the part of the stockholder, and those who live on fixed incomes, that they have been by far the greatest sufferers by the war. The value of their revenue has been diminished by the rise in the price of corn, and by the depreciation in the value of paper-money, whilst, at the same time, the value of their capital has been very much diminished from the lower price of the funds. They have suffered, too, from the inroads lately made on the sinking fund, and which, it is supposed, will be still further extended,—a measure of the greatest injustice,—in direct violation of solemn contracts; for the sinking fund is as much a part of the contract as the dividend, and, as a source of revenue, utterly at variance with all sound principles. It is to the growth of that fund that we ought to look for the means of carrying on future wars, unless we are prepared to relinquish the funding system altogether. To meddle with the sinking fund, is to obtain a little temporary aid at the sacrifice of a great future advantage. It is reversing the whole system of Mr Pitt, in the creation of that fund: he proceeded on the conviction that, for a small present burthen, an immense future advantage would be obtained; and, after witnessing, as we have done, the benefits which have already resulted from his inflexible determination to leave that fund untouched, even when he was pressed by the greatest financial distress, when 3 per cents. were so low as 48, we cannot, I think, hesitate in pronouncing that he would not have countenanced, had he still lived, the measures which have been adopted.
To recur, however, to the subject before me, I shall only further observe, that I shall greatly regret that considerations for any particular class are allowed to check the progress of the wealth and population of the country. If the interests of the landlord be of sufficient consequence, to determine us not to avail ourselves of all the benefits which would follow from importing corn at a cheap price, they should also influence us in rejecting all improvements in agriculture, and in the implements of husbandry; for it is as certain that corn is rendered cheap, rents are lowered, and the ability of the landlord to pay taxes is, for a time at least, as much impaired by such improvements as by the importation of corn. To be consistent, then, let us by the same act arrest improvement, and prohibit importation.
PROPOSALS FOR AN ECONOMICAL AND SECURE CURRENCY; WITH OBSERVATIONS ON THE PROFITS OF THE BANK OF ENGLAND
|During the same time, the public have received the following compensation:—the difference between 3 per cent. and 5 per cent. interest, or 2 per cent. per annum on 3,000,000l. for eight years, or. . . . . .||£480,000|
|From 1808 to 1816, the public will have had the advantage of a loan of 3,000,000l. without interest, which at 5 per cent. per annum would amount in eight years to. . . . . .||1,200,000|
|Balance gained by the Bank,||£3,820,000|
3,820,000l. will have been gained by the Bank in ten years, or 382,000l. per annum, for acting as bankers to the public, when, perhaps, the whole expense attending this department of their business does not exceed 10,000l. per annum.
In 1807, when these advantages were first noticed by a committee of the House of Commons, it was contended by many persons, in favour of the Bank, and by Mr Thornton, one of the directors, who had been governor, that the gains of the Bank were in proportion to the amount of their notes in circulation, and that no advantage was derived from the public deposits further than as they enabled the Bank to maintain a larger amount of notes in circulation. This fallacy was completely exposed by the committee.
If Mr Thornton's argument were correct, no advantage whatever would have resulted to the Bank from the deposits of the public money—for those deposits do not enable them to maintain a larger amount of notes in circulation.
Suppose that, before the Bank had any of the public deposits, the amount of their notes in circulation were 25 millions, and that they derived a profit by such circulation. Suppose, now, that Government received 10 millions for taxes in bank notes, and deposited them permanently with the Bank. The circulation would be immediately reduced to 15 millions, but the profits of the Bank would be precisely the same as before; though 15 millions only were then in circulation, the Bank would obtain a profit on 25 millions. If, now, they again raise the circulation to 25 millions by employing the 10 millions in discounting bills, purchasing exchequer bills, or advancing the payments on the loan for the year for the holders of scrip receipts, will they not have added the interest of 10 millions to their usual profits, although they should at no time have raised their circulation above the original sum of 25 millions.
That the increase in the amount of public deposits should enable the Bank to add to the amount of their notes in circulation, is neither supported by theory nor experience. If we attend to the progress of these deposits we shall observe, that at no time did they increase so much as from 1800 to 1806, during which time there was no increase in the circulation of notes of 5l. and upwards; but, from 1807 to 1815, when there was no increase whatever in the amount of public deposits, the amount of notes of 5l. and upwards had increased 5 millions.
Nothing can be more satisfactory on the subject of the profits of the Bank, from the public deposits, than the report of the committee on public expenditure, in 1807. It is as follows:—
“In the evidence upon this part of the subject, it is admitted that the notes of the Bank are productive of profit; but it appears to be assumed that the Government balances are only so in proportion as they tend to augment the amount of notes; whereas your committee are fully persuaded that both balances and notes are and must necessarily be productive.
The funds of the Bank, which are the sources of profit, and which constitute the measure of the sum which they have to lend (subject only to a deduction on account of cash and bullion) may be classed under three heads.
First, The sum received from their proprietors as capital, together with the savings which have been added to it.
Secondly, The sum received from persons keeping cash at the Bank. This sum consists of the balances of the deposit accounts, both of Government and of individuals. In 1797, this fund, including all the balances of individuals, was only 5,130,140l. The present Government balances alone have been stated already at between 11 and 12 millions, including bank notes deposited in the Exchequer.∗
Thirdly, The sum received in return for notes put into circulation. A correspondent value for every note must originally have been given, and the value thus given for notes constitutes one part of the general fund to be lent at interest. A note-holder, indeed, does not differ essentially from a person to whom a balance is due. Both are creditors of the Bank; the one holding a note, which is the evidence of the debt due to him, the other having the evidence of an entry in the ledger of the Bank. The sum at all times running at interest will be in exact proportion to the amount of these three funds combined, deduction being made for the value of cash and bullion. “∗
Every word of this statement appears to me unanswerable, and the principle laid down by the committee would afford us an infallible clue to ascertain the net profits of the Bank, if we knew the amount of their savings,—their cash and bullion, and their annual expenses, as well as the other particulars, are known to us.
It will be seen by the above extract, that in 1807 the amount of the public deposits was between 11 and 12 millions, whereas, in 1797 the amount of public and private deposits were, together, only equal to 5,130,140l. In consequence of this report Mr Perceval applied to the Bank, on the part of the public, for a participation in their additional profits from this source, either in the way of an annual payment or as a loan of money without interest; and, after some negociation, a loan of 3 millions was obtained without interest, payable six months after a definitive treaty of peace.
The same report also notices the exorbitant allowance which was made to the Bank for the management of the national debt. The public paid the Bank at that time at the rate of 450l. per million for management; and it was stated by the committee, that the additional allowance for management in the ten years ending in 1807, in consequence of the increase of the debt, was more than 155,000l., whilst the “whole increase of the officers who actually transact the business, in the last eleven years, is only 137, whose annual expense may be from 18,449l. to 23,290l., the addition to the other permanent charges being probably about one-half or two-thirds of that sum.”
After this report, a new agreement was made with the Bank for the management of the public debt.
450l. per million was to be paid if the unredeemed capital exceeded 300 millions, but fell below 400 millions.
340l. per million if the capital exceeded 400 millions, but fell below 600 millions.
300l. per million on such part of the public debt as exceeded 600 millions.
Besides these allowances, the Bank are paid 800l. per million for receiving contributions on loans; 1000l. on each contract for lotteries; and 1250l. per million, or 1/8th per cent., for receiving contributions on the profits arising from property, professions, and trades. This agreement has been in force ever since.
As the period is now approaching when the affairs of the Bank will undergo the consideration of Parliament, and when the agreement which regards the public deposits will expire, by the payment of the 3 millions borrowed of the Bank without interest, in 1808; no time can be more proper than the present to point out the undue advantages which were given to the Bank in the terms settled between them and Mr Perceval in 1808. This, I apprehend, was the chief object of Mr Grenfell, for it is not alone to the additional advantages which the Bank have obtained since the agreement in 1808 that he wishes to call the attention of Parliament, but also to that agreement itself, under which the public are now paying, and have long paid, in one shape or another, enormous sums for very inadequate services.
Mr Grenfell probably thinks, and if he does I most heartily concur with him, that a profit of 382,000l. per annum, which is the sum at which the advantages of the public deposits to the Bank, for a period of ten years, may be calculated, as will be seen, page 412, very far exceeds the just compensation which the public ought to pay to the Bank for doing the mere business of bankers; particularly when, in addition to this sum, 300,000l. per annum is now also paid for the management of the national debt, loans, &c.; when, moreover, the Bank have been enjoying, ever since the renewal of their charter, immense additional profits, from the substitution of paper money in lieu of a currency consisting partly of metallic and partly of paper money, which additional profits were not in contemplation, either of Parliament which granted, or of the Bank which obtained that charter, when the bargain was made in 1800, and of which they might be in a great measure deprived by the repeal of the bill which restricts them from paying their notes in specie. Under these circumstances it must, I think, be allowed, that in 1808 Mr Perceval by no means obtained for the public what they had a right to expect; and it is to be hoped that, with the known sentiments of the Chancellor of the Exchequer as to the right of the public to participate in the additional advantages of the Bank arising from public deposits, terms more consonant with the public interest will now be insisted on.
It is true that the above sums, though paid by the public, are not the net profits of the Bank; from them a deduction must be made for the expenses of that part of the Bank establishment which is exclusively appropriated to the public business; but those expenses do not probably exceed 150,000l. per annum.
The committee on public expenditure stated in their report to the House of Commons in 1807, “that the number of clerks employed by the Bank exclusively or principally in the public business, was
|In, 1786. .||243. .|
whose salaries, it is presumed, may be calculated at an average of between 120l. and 170l. for each clerk: taking them at 135l., which exceeds the average of those employed in the South Sea
|House, the sum is . . .||£60,750|
|At 150l., the sum is. . . .||67,500|
|At 170l., the sum is. . . .||76,500|
Either of which two last sums would be sufficient to provide a superannuation fund.
|“The very moderate salaries,” the report continues, “received by the governor, deputy governor, and directors, amount to||£8000|
|Incidental expenses may be estimated at about .||15,000|
|Building additional and repairs, at about . .||10,000|
|Law expenses and loss by frauds, forgeries, at about||10,000|
|Add the largest estimate for clerks,||76,500|
Allowing, then, the very highest computation of the committee, the expense of managing the public business in 1807, including the whole of the salaries of the directors, incidental expenses, additional buildings and repairs, together with law expenses and loss by frauds and forgeries, amounted to 119,500l.
The committee also stated, that the increased expenses of the Bank for managing the public business, after a period of eleven years, from 1796 to 1807, were about 35,000l. per annum, on an increased debt of 278 millions, being at the rate of 126l. per million. From 1807 to the present time the unredeemed debt managed by the Bank has increased from about 550 millions to about 830 millions, or about 280 millions,—little more than from 1796 to 1807, and therefore at the same rate of 126l. per million, would be attended with a similar expense of 35,000l.: but, “as the rate of expense diminishes as the scale of business enlarges,” I shall estimate it at 30,500l., which, added to 119,500l., the expenses of 1807, will make the whole expense of managing the public business amount to 150,000l. The auditors of public accounts in 1786 estimated that 187l. 10s. per million was sufficient to pay the expenses of managing a debt of 224 millions. The estimate which I have just made is about 180l. per million, on a debt of 830 millions, which will appear an ample allowance when it is considered in what different proportions the debt itself increases, compared with the work which it occasions.
Supposing, then, the expenses to be about 150,000l., the net profits obtained by the Bank by all its transactions with the public this year will be as follows:—
|∗This charge is calculated on the debt as it stood in February 1815: more than 75 millions have been added since. See Appendix.|
|†See page 412.|
|Charge for managing the national debt for one year, ending the 1st February 1816,∗||£254,000|
|For receiving contributions on loans, at 800l. per million, on 36 millions,||28,800|
|Average profits on public deposits,†||382,000|
|Allowance for receiving property tax,||3,480|
|Expenses attending the management of public business,||150,000|
|Net profits of the Bank paid by the public,||£520,280|
Of this vast sum, 372,000l. probably arises from the deposits alone, an expense which might almost wholly be saved to the nation, if Government were to take the management of that concern into their own hands, by having a common treasury, on which each department should draw, in the same manner as they now do on the Bank of England, investing the 11 millions, which appears to be the average deposits in exchequer bills, a part of which might be sold in the market, if any unforeseen circumstances should reduce the deposits below that sum.
The resolutions,‡ proposed by Mr Grenfell, and on which Parliament will decide the next session, after briefly recapitulating the facts contained in the documents which his motions have produced, conclude thus:—“That this House will take into early consideration the advantages derived by the Bank, as well from the management of the national debt, as from the amount of balances of public money remaining in their hands, with the view to the adoption of such an arrangement, when the engagements now subsisting shall have expired, as may be consistent with what is due to the interest of the public, and the rights, credit, and stability of the Bank of England.”
Mr Mellish, the governor of the Bank, has also proposed resolutions to be submitted to Parliament next session. These resolutions§ admit all the facts stated by Mr Grenfell's; they mention also one or two trifling services which the Bank perform for the public, one without charge,∥ and another at a less charge than is incurred by employing the ordinary collector of taxes. But the 8th and 9th resolutions advance an extraordinary pretension,—they appear to question whether on the expiration of the loan of 3,000,000l.in 1816, Government will be at liberty before 1833, the time when the charter will expire, to demand any compensation whatever from the Bank for the advantages they derive from the public deposits, or to make any new arrangement respecting the charge for management of the national debt. These resolutions are as follows:
8th. “That by the 39 and 40 Geo. 3. c. 28. s. 13, it is enacted, ‘That during the continuance of the charter, the Bank shall enjoy all privileges, profits, emoluments, benefits, and advantages whatsoever, which they now possess and enjoy by virtue of any employment by or on behalf of the public.
That previously to such renewal of their charter, the Bank was employed as the public banker, in keeping the cash of all the principal departments in the receipt of the public revenue, and in issuing and conducting the public expenditure, &c.
9th. That whenever the engagements now subsisting between the public and the Bank shall expire, it may be proper to consider the advantages derived by the Bank from its transactions with the public, with a view to the adoption of such arrangements as may be consistent with those principles of equity and good faith, which ought to prevail in all transactions between the public and the Bank of England.’∗
That the Bank should now for the first time intimate that their charter precludes the public from making any demand on the Bank for a participation in the advantages arising from the public deposits, after all that has passed since 1800 on that subject, does indeed appear surprising.
The charter of the Bank was renewed in 1800 for twenty-one years, from its expiration in 1812; consequently it will not now terminate till 1833. But since 1800, so far from the Bank asserting any such claim of right to the whole advantages of the public deposits, they in 1806 lent Government 3,000,000l. till 1814, at 3 per cent. interest, and in 1808 they lent 3,000,000l. more till the termination of the war, without interest, and in the last session of Parliament the loan of 3,000,000l. was continued without interest till April 1816. These loans were expressly granted, in consideration of the increase in the amount of the public deposits.
The committee on public expenditure, in their report (1807), to which I have already referred, speaking of the loan of 3,000,000l. to the public in 1806, at 3 per cent. interest, observe, “But the transaction is most material in another view, as it evinces that the agreement made in 1800 was not considered either by those who acted on the part of the public, or by the Bank Directors themselves, as a bar against further participation, whenever the increase of their profits derived from the public, and the circumstances of public affairs, might, upon similar principles, make such a claim reasonable and expedient. “And what is Mr Perceval's language at the same period, when, in consequence of this report, he applied for and obtained a loan of 3,000,000l. till the end of the war? In his letter to the governor and deputy governor of the Bank, dated the 11th of January 1808, he says, “I think it necessary to observe, that the proposal to confine the duration of the advance, by way of loan, or of the annual payment into the Exchequer, to the period of the present war, and twelve months after the termination of it, is by no means to be understood as an admission on my part that, at the expiration of such period, the public will no longer be entitled to look to any advantage from the continuance of such deposits: but simply as a provision by which the Government and the Bank may be respectively enabled, under the change in the state of affairs which will then have taken place, probably affecting the amount of public balances in the hands of the latter, to consider of a new arrangement.” On the 19th of January, Mr Perceval's proposals were submitted to the Court of Directors in a more official form,—they conclude thus: “And it is understood that during the continuance of this advance by the Bank, no alteration is to be proposed in the general course of business between the Bank and the Exchequer, nor any regulation introduced by which the accounts, now by law directed to be kept at the Bank, shall be withdrawn from thence.” These proposals were recommended for acceptance by the Court of Directors to the Court of Proprietors, and were, without comment, agreed to on the 21st of January.
Mr Vansittart, in his application to the Bank in November 1814, relative to continuing the loan of 3,000,000l., which would have become due on the 17th of December following, till April 1816, uses these words: “But I beg to be distinctly understood as not departing from the reservation made by the late Mr Perceval, in his letter to the governor and deputy governor of the Bank, of the 11th January 1808, by which he guarded against the possibility of any misconstruction which could preclude the public, after the expiration of the period of the loan then agreed upon, from asserting its title to future advantage from the continuance or increase of such deposits,—and as adhering generally to the principles maintained by Mr Perceval, in the discussion which then took place.”
No comment whatever appears to have been made by the Bank on these observations: a General Court of Proprietors was called, and the loan of 3 millions was continued till April 1816.
It surely will not come with a very good grace now from the Bank, to insist that the agreement of 1800 precludes the public from demanding any compensation for the advantages which the Bank have derived from the increase of the public deposits since that period, when, on so many occasions, the right of participation has been so expressly claimed on the part of Government, and acceded to by the Court of Directors.
In addition to these strong facts, by a reference to the basis on which the agreement for the renewal of the charter was founded, as detailed by Mr Thornton in his evidence before the committee of public expenditure in 1807,∗ it will still further appear that the Bank have no claim whatever to shelter themselves under their charter, in refusing to let the public participate in the profits which have accrued from the augmentation of the public deposits.
It must be recollected that Mr Thornton was, in 1800, the governor of the Bank,—that he was the negotiator, on the part of the Bank, with Mr Pitt, for the renewal of the charter,—and that, in fact, the idea of renewing the charter so long before its expiration originated with him. Mr Thornton told the committee, that the only sums of public money on which the Bank derived profit, and which were referred to by him and Mr Pitt, with a view to settle the compensation which the public should receive for prolonging the exclusive privileges of the Bank, were those lodged at the Bank for the payment of the growing dividends, and for the quarterly issues to the commissioners for the redemption of the national debt.
|∗By an account laid before Parliament last session it appears, that the amount of exchequer bills and bank notes deposited with the Exchequer as cash, amounted, on an average of the year ending March 1800, to 3,690,000l.|
|The first of these sums Mr Thornton estimates to be on an average . . . . .||£2,500,000∗|
|And it appears by an account lately produced that the second amounted to . . .||615,842|
Mr Thornton expressly states, that all other public accounts were of trifling amount, and “the probable augmentation of the balances of public money from the various departments of Government was not taken into the account,”—“that such augmentation was neither adverted to nor provided for.”
If, then, it is acknowledged by the very negotiator on the part of the Bank that the probable augmentation of the public balances formed no part of the consideration in settling the pecuniary remuneration which was given to the public for continuing to the Bank their exclusive privileges, how can it now, with any justice, be contended by the Bank, that the profits derived from those augmented balances, which were “neither adverted to nor provided for,” belong of right exclusively to the Bank, and that the public have no claim either to participate in them, or to withdraw the balances to any use to which they may think proper to apply them.
It is to be observed that Mr Thornton, in his evidence before alluded to, represented all the other public accounts, excepting the two before mentioned, as of trifling amount; but, by accounts which were last session presented to Parliament, it appears that in 1800, the year to which Mr Thornton's evidence refers, when the charter was renewed, the public balances of all descriptions deposited with the Bank amounted to 6,200,000l., exceeding the aggregate amount stated by Mr Thornton by 3 millions, which he would, if he had been aware of this fact, hardly have called “a trifling amount.”
If, then, the fact of this large additional deposit did not come under the consideration of Mr Thornton and Mr Pitt, at the time of renewing the charter,—if no part of the remuneration which the public then received was founded on this fact, the large amount of public deposits in 1800, so far from entitling the Bank to retain the whole profits arising from the still larger deposits at the present period, binds them in justice to be particularly liberal in any new engagement they may now make with the public, as affording a remuneration for a profit so long enjoyed, which, it is to be presumed, they would not have been allowed to enjoy, if the facts had been clearly known and considered at the time of settling the terms on which the charter was renewed.
But, whether known or not known, must have been of little consequence in Mr Thornton's estimation, whose opinion, that the profits of the Bank were not increased by the augmentation of the public balances, otherwise than as they contributed to increase the amount of bank notes in circulation, is so emphatically given.
Is it not lamentable to view a great and opulent body like the Bank of England exhibiting a wish to augment their boards by undue gains wrested from the hands of an overburthened people? Ought it not rather to have been expected that gratitude for their charter, and the unlooked-for advantages with which it has been attended,—for the bonuses and increased dividends which they have already shared, and for the great undivided treasure which it has further enabled them to accumulate, would have induced the Bank voluntarily to relinquish to the State the whole benefit which is derived from the employment of 11 millions of the public money, instead of manifesting a wish to deprive them of the small portion of it which they have for a few years enjoyed?
When the rate of charge for the management of the national debt was under discussion, in 1807, Mr Thornton said “that, in a matter between the public and the Bank, he was sure nothing but a fair compensation for trouble, risk, and actual losses, and the great responsibility that attaches to the office, would be required.”
How comes it that the language of the Directors of the present day is so much changed? Instead of expecting only a fair compensation for trouble, risk, and actual losses, they endeavour to deprive the public even of the inadequate compensation which they have hitherto received, and appeal now, for the first time, to their charter for their right to hold the public money, and to enjoy all the profit which can be derived from its use, without allowing the least remuneration to the public.
If the charter were as binding as the Bank contend for, a great public company, possessing so advantageous a monopoly, and so intimately connected with the State, might be expected to act on a more liberal policy towards its generous benefactors.
Till the last session of Parliament, the Bank were also particularly favoured in the composition which they paid for stamp duties. In 1791, they paid a composition of 12,000l. per annum, in lieu of all stamps either on bills or notes. In 1799, on an increase of the stamp-duty, this composition was advanced to 20,000l., and an addition of 4,000l., raising the whole to 24,000l., was made for the duty on notes under 5l., which the Bank had then begun to circulate. In 1804, an addition of not less than 50 per cent. was made to the stamp-duty imposed by the act of 1799 on notes under 5l., and a considerable increase on the notes of a higher value; and, although the Bank circulation of notes under 5l. had increased from one and a half to four and a half millions, and the amount of notes of a higher description had also increased, yet the whole composition of the Bank was only raised from 24,000l. to 32,000l. In 1808, there was a further increase of 33 per cent. to the stamp-duty, at which time the composition was raised from 32,000l. to 42,000l. In both these instances the increase was not in proportion even to the increase of duty, and no allowance whatever was made for the increase in the amount of the Bank circulation.
In the last session of Parliament, on a further increase of the stamp-duty, the principle was for the first time established, that the Bank should pay a composition, in some proportion to the amount of their circulation. It is now fixed as follows. Upon the average circulation of the three preceding years, the Bank is to pay at the rate of 3500l. per million, without reference to the classes or value of the notes of which the aggregate circulation may consist.
The average of the Bank circulation for three years, ending 5th April 1815, was 25,102,600l., and upon this average they will pay this year about 87,500l.
Next year the average will be taken upon the three years ending in April 1816, and if it differs from the last, the duty will vary accordingly.
If the same course had been followed now as in 1804 and 1808, the Bank would have had to pay, even with the additional duty, only 52,500l., so that 35,000l. per annum has been saved to the public, by Parliament having at last recognised the principle which should have been adopted in 1799, and by the neglect of which the public have probably been losers, and the Bank consequently gainers, of a sum little less than 500,000l.
Bank Profits and Savings—Misapplication—Proposed Remedy.
I have hitherto been considering the profits of the Bank as they regard the public, and have endeavoured to show that they have greatly exceeded what a just consideration for their rights and interests could warrant.—I propose now to consider them in relation to the interests of the proprietors of Bank stock, for which purpose I shall endeavour to state a basis on which the profits of the Bank may be calculated, with a view to ascertain what the accumulated savings of the Bank now are. If we knew accurately the expenses of the Bank, and the amount of cash and bullion which they may at different times have had in their hands, we should have the means of making a calculation on this subject which would be a very near approximation to the truth.
The profits of the Bank are derived from sources which are well known. They arise, as has been already stated, from the interest on public and private deposits,—the interest on the amount of their notes in circulation, after deducting the amount of cash and bullion,—the interest on their capital and savings,—the allowance paid them for the management of the public debt,—the profits from their dealings in bullion, and from the destruction of their notes.—All these form the gross profits of the Bank, from which must be deducted only their expenses, the stamp-duty, and the property tax, in order to ascertain their net profits.
Under the head of expenses must be included all the charges attending the management of the national debt, as well as those incurred by the proper business of the Bank. In estimating the former of these charges, I have already stated my grounds for believing that it could not exceed 150,000l. In the management of the public business, it was stated by the committee on public expenditure, that 450 clerks were employed in 1807, and it is probable that the number may now be increased to between 500 and 600.
It has also, I understand, been stated from the best authority in Parliament, that the Bank employed in the whole of their establishment about 1000 clerks; consequently, if 500 are employed exclusively on the public business, 500 more must be engaged in the business of the Bank. Supposing now the expenses to bear some regular proportion to the number of clerks employed, as 150,000l. has been calculated to be the expense attending the employment of 500 clerks in the public business, we may estimate a like expense to be incurred by the employment of the other 500, and therefore the whole expenses of the Bank to be at the present time about 300,000l., including all charges whatsoever.∗
But although this large sum is now expended, it must have been of gradual growth since 1797; when, probably, the whole expenses of the establishment were not more than one-half the present amount. In the first place, since 1797, the amount of bank notes in circulation has increased from about 12 millions to 28 millions, but the expenses of their circulation, instead of increasing in the same proportion only, have at least, increased as one to ten.
The amount of notes of 5l. and upwards has been raised from 12 to 18 millions, and if the average value of notes, of all descriptions above 5l., be even so low as 15l., a circulation of 12 millions would consist of 800,000 notes, and a circulation of 18 millions of 1,200,000 notes, an increase in the proportion, as one to one and one-half; but the 9 millions of notes under 5l., which are now in circulation, have been wholly created since 1797, and if they consist of 5 millions of notes of 1l., and 2 millions of notes of 2l., a number of 7 millions of notes has been further added to the circulation, and the whole number of notes has been raised since 1797, from 800,000 to 8,200,000, or as one to ten, and at an expense ten times greater than was incurred at that time, the expense being in proportion to the number, and not to the amount of notes. It is probable, too, that the notes of 1l. and 2l., which are so constantly used in the circulation, are more often renewed than notes of a higher value.
The public debt, too, under the management of the Bank, is more than doubled since 1797, and must have added considerably to the expenses of that department. These expenses have been already calculated to have risen since 1796, from 84,500l. to 150,000l. or 65,500l.∗
The public deposits, too, are at least double what they were in 1797, from all which I have a right to infer, that the expenses of the Bank in 1797, could not have exceeded 150,000l., and that they have been gradually increasing since that period; perhaps at the rate of 7000l. or 8000l. per annum.
The next subject for consideration, is the amount of cash and bullion in the Bank, which at no time has been laid before the public;—that, and the amount of their discounts, were the only material facts which the Bank concealed from the public in the eventful year 1797. They stated in the account laid before Parliament, that their cash and bullion, and their bills and notes discounted, amounted together to 4,176,080l. on the 26th of February 1797. They gave also a scale of discounts from 1782 to 1797, and a scale of the cash and bullion in the Bank for the same period. By comparing these tables with each other, and with some parts of the evidence delivered before the Parliamentary Committees, an ingenious calculator discovered the whole secret which the Bank wished to conceal. According to his table the cash and bullion in the Bank, on the 26th of February 1797, was reduced as low as 1,227,000l., and 4 millions was about the sum which the Bank considered as fair cash; to which it never attained after December 1795, though previously to that year it was on some occasions more than double that amount.
For the first year or two after the suspension of cash payments, the Bank must have made great efforts to replenish their coffers with cash and bullion, as they were then by no means sure that they should not be again required to pay their notes in specie. We find, accordingly, by accounts returned to Parliament by the Mint, that the amount of gold coined in 1797 and 1798, was very little less in value than 5,000,000l.†
Whatever might have been the amount of cash and bullion, which the Bank had acquired in the first two years after the suspension of cash payments, it is probable that their stock has been decreasing since that period, as they could have no motive for keeping a large amount of such unproductive capital, when they must have been quite secure that no call could be made on them by the holders of their notes for guineas, and that before they were again required to pay in specie, they would have ample notice to prepare a due store of the precious metals.—It does not appear possible, then, under all the circumstances of the case, that the Bank can have added to their stock of bullion, since the great coinages of 1797 and 1798; but it is highly probable that they have considerably reduced it.
In estimating the profits of the Bank, as far as those profits are influenced by their stock of cash and bullion, I shall be justified in considering them greater since 1797 and 1798, as since those years they would naturally keep a less part of their capital in that unproductive shape, and, consequently, more in exchequer bills, or in merchants' acceptances, securities which pay interest, and are productive of profit.—On an average of the whole eighteen years, from 1797 to 1815, the cash and bullion of the Bank cannot be estimated as amounting to more than 3 millions, though, probably, for the first year or two, it amounted to 4 or 5 millions.
These circumstances being premised, it will not be difficult to calculate the profits of the Bank, from 1797 to the present time, all the facts necessary to such calculation being known to us excepting the two I have just stated, viz. the amount of expenses and of cash and bullion, but which cannot differ much from that at which I have calculated them.
Proceeding, then, on this basis, it appears, as will be seen by the accounts in the Appendix, that the profits and surplus capital of the Bank for a series of years, after paying all dividends and bonuses, have been as follows:—[For Table see next page.]
If in the accounts referred to, it should be thought that I have estimated the expenses of the Bank too low, it may on the other hand be remarked that I have not allowed for any profit from the deposits of individuals. Those deposits may not be very large, as the Bank do not afford the same accommodation to individuals as given by other bankers. Some profit must, however, be made from this source, as well as from the loss and destruction of notes, which it may be presumed, after a time, are not included in the amount stated to be in circulation. By the purchase of silver, and coinage of tokens, the Bank must, on the whole, have been gainers; for the value of the token has been generally lower in the market, than it has passed for in circulation at the time of its issue.
|Surplus capital.||Profits after paying|
dividend and bonuses,
|Dividend and bonos|
|∗There was this year a loss of 509,155l.|
7 per cent.
In point of fact, too, the Bank receives more than five per cent. interest for their money; for exchequer bills paying 3½d. per day, pay 5l. 6s. 5½d. per cent. per annum; and in discounting bills, the interest being immediately deducted, is employed as capital, and is instantly productive of profit; at the same time it must be observed that during a part of the time for which these calculations are made, exchequer bills bore an interest of only 3¼d. per day, which amounts to 4l. 18s. 0¼d. per cent. per annum, rather less than five per cent.
In March 1801, when a bonus of 5 per cent., in navy 5 per cents., was divided amongst the proprietors of Bank stock, Mr Tierney said in the House of Commons, “that when the affairs of the Bank of England were investigated by the House of Commons in 1797, the surplus profits were considered by some as a security for the engagements of the Bank to the public.” To which Mr Samuel Thornton, then governor of the Bank, replied, that “he could assure the honourable member, that the security of the public would not be lessened from what it was in 1797, by the division of the sum of 582,120l. voted at the general court, on the 19th instant, as exclusive of that sum, the surplus profits of the Bank were more now than they were in 1797.”∗
On an inspection of the account in the Appendix, it will be seen, that, after paying all the dividends and bonuses to the proprietors, the Bank had accumulated in April 1801 savings to the amount of 3,945,109l., exceeding the savings of 1797 by 118,219l., an increase not inconsistent with the declaration of Mr Thornton, and therefore tending to confirm the correctness of the basis on which these calculations are made.∗
It will appear on an examination of the accounts in the Appendix for the subsequent years, that the profits of the Bank for every year since 1801 have exceeded the annual dividend paid to the proprietors, and that in 1815, the surplus for that year only must have amounted to 1,066,625l, so that the Bank could have paid a dividend for that year of 19 per cent. instead of 10 per cent.
It will appear, too, that if the Bank affairs have been only mode-rately well managed, they must now have an accumulated fund of no less than 13 millions, which, in defiance of the clearest language of an act of Parliament, the Directors have hitherto withheld from the proprietors.
With such an accumulated fund, the Bank could make a division of 100 per cent. bonus without infringing on their permanent capital; and if they could maintain their present profits, with a deduction only of 523,908l. per annum, the interest (less income tax) on the surplus capital proposed to be divided, they would still have an unappropriated income of 542,000l., which would enable them to increase their permanent dividend from 10 to 14½ per cent in addition to the bonus of 100 per cent.
If they divided only a bonus of 75 per cent., they would retain a surplus capital exceeding that of 1797, and might, on the above supposition, have an unappropriated income of 673,000l., —they might therefore raise their permanent dividend from 10 to 15½ per cent. in addition to the bonus of 75 per cent.
But it cannot be expected that the Bank will, during peace, have the same opportunities of making profit as during war, and the proprietors must prepare themselves for a considerable reduction in their annual income. What that reduction may be will depend on the new agreement now to be entered into with Government, on the future amount of public deposits, and on the conditions on which the restoration of metallic payments may be enforced. It is evident that if the plan which I have recommended in the fourth section of this work be adopted, the Bank profits from this last item will not be materially reduced.
Supposing, however, that the reduction of the annual income of the Bank should, from the falling off of their profits in all these departments, be as much as 500,000l., the profits of the Bank would nevertheless be equal to the payment of the present permanent dividend of 10 per cent., even after a division of 100 per cent. bonus to the proprietors of Bank stock; for, if my calculations be correct, the profits of the Bank, after the payment of the annual dividend of 10 per cent. to the proprietors, were, for the year ending January 1, 1816, . . . . . £1,066,625
|Deduct then the interest now made on 11,642,400l. proposed to be divided, less property tax,||523,908|
|Loss by a peace arrangement,||500,000|
|Leaving a surplus of, per annum,||42,717|
If, instead of 100 per cent., 50 per cent. bonus only were paid to the proprietors, the annual surplus profit of the Bank, after paying 10 per cent. dividend, would be 304,671l., a sum equal to a permanent increase of dividend of 2½ per cent.
And if no bonus whatever were paid, but the savings were considered as part of the Bank capital, the annual surplus profit of the Bank, after paying 10 per cent. dividend, would be 566,625l., very nearly equal to a permanent increase of dividend of 5 per cent.
These estimates are made on a supposition, too, that the property tax should permanently continue, which is calculated to be an annual charge of more than 200,000l., to the Bank, and consequently more than equal to a dividend of 1¾ per cent.
But the Directors are bound, in my opinion, under every case, to divide the surplus profits amongst the proprietors, the law imperatively enjoining such a division, and policy being no wise opposed to it.
Well was it urged by the Hon. Mr Bouverie, who moved in the last Bank court that an account of the surplus capital of the Bank be laid before the proprietors, that this law respecting the division of profits was probably enacted by the legislature, on a consideration of the powers of accumulation at compound interest, and the dangers which might arise to the constitution or the country, from any corporation becoming possessed of millions of treasure. If the profits of the Bank were to continue at the present rate, and no addition were to be made to the dividend now paid of 10 per cent., the accumulation of the surplus profits in forty years would give to the Bank a disposable fund of more than 120 millions. Wisely, then, did the legislature enact, that “All the profits, benefits, and advantage from time to time arising out of the management of the said corporation, shall (the charges of managing the business of the said governor and company only excepted) be applied from time to time to the uses of all the members of the said corporation for the time being, rateably and in proportion to each member's part, share, and interest, in the common capital, and principal stock, of the said governor and company of the Bank of England.”
Those who vindicated the Directors at the last general court for their departure from the line of conduct prescribed by the law, recommended the increase of the capital of the Bank,—and they thought that the accumulated savings might be advantageously employed for such purpose.
It is said that the Bank Directors are favourable to such a plan.
If the measure should be a good one, the sum of capital to be added should be at once defined,—the proprietors should have accounts laid before them of the amount of their accumulated fund, and should be consulted on the expediency of such a disposition of it,—and lastly, the sanction of Parliament should be obtained.
The Bank, however, have waited for none of these conditions,—they have been, in fact, for years adding the annual surplus profits to their capital, without defining the amount added, or to be added; they do it without laying any accounts before the proprietors—without consulting them; and not only without the sanction of Parliament, but in defiance of an express law on the subject.
But if the Bank complied with all these conditions, would the measure itself be expedient, and are the reasons given in support of it, namely the enlarged business of the Bank, and that it would tend to the security both of the Bank and the public, of sufficient weight to justify its adoption?
The business and income of the Bank depend, as before stated, on the amount of the aggregate fund which they have to employ, and this fund is derived from the three following sources: The amount of bank notes in circulation, deducting only the cash and bullion: The amount of public and private deposits: And the amount of that part of the capital of the Bank which is not lent to Government. But it is only the two former of these funds which contribute to the real profit of the Bank; for the interest received for surplus capital, being only 5 per cent., might be made with as much facility by each individual proprietor, on his share of such capital, if under his own management, as by combining the whole into one fund. If the proprietors were to add from their own individual property 10 millions to the capital of the Bank, the income of the Bank would indeed be increased 500,000l. or 5 per cent. on 10 millions; but the proprietors would not be gainers by such an arrangement. If, however, 10 millions were added to the amount of notes, and could be permanently maintained in circulation,—or if the public and private deposits were to be increased 10 millions, the income of the Bank would not only be increased 500,000l but their real profits also, and this advantage would arise wholly from their acting as a joint company, and could not be otherwise obtained.
There is this material difference between a bank and all other trades: A bank would never be established, if it obtained no other profits but those from the employment of its own capital; its real advantage commences only when it employs the capital of others. Other trades, on the contrary, often make enormous profits by the employment of their own capital only.
But if this argument be correct, with respect to an additional capital to be actually raised from amongst the proprietors, it is equally so to one withheld from them.
To increase the profits of the Bank proprietors, then, an increase of capital would be neither necessary nor desirable.
Neither would such an addition contribute towards the security of the Bank; for the Bank can never be called upon for more than the payment of their notes, and the public and private deposits; these constituting, at all times, the whole of their debts. After paying away their cash and bullion, their remaining securities, consisting of merchants' acceptances and Exchequer bills, must be at least equal to the value of their debts; and in no case can these securities be deficient, even without any surplus capital, excepting the Bank should lose all that which constitutes their growing dividend; and even then they could not be distressed, unless we suppose that at the same time payment were demanded for every note in circulation, and for the whole of their deposits, both public and private.
Is it against such a contingency that the proprietors are called upon to provide; when even under these, almost impossible circumstances, the Bank would have an untouched fund of 11,686,000l. which Government owe them?
Would the security of the public be increased? In one respect it would. If the Bank have no other capital but that which they lend to Government, they must lose all that capital by their trade, or more than 11½ millions, before the public can be sufferers; but if the capital of the Bank were doubled, the Bank might lose 23 millions, before any creditor of theirs could suffer loss. Are the friends to an increase of the capital of the Bank prepared to say, that it is against the consequences of the loss of the whole Bank capital that they are desirous of protecting the public?
It remains to be considered, whether the ability of the Bank to pay their notes in specie would be increased by an increase of their capital. The ability of the Bank, to pay their notes in specie, must depend upon the proportion of specie which they may keep, to meet the probable demand for payment of their notes; and in this respect their power cannot be increased, for they may now, if they please, have a stock of specie, not only equal to all their notes in circulation, but to the whole of the public and private deposits, and under no possible circumstances can more be demanded of them. But the profits of the Bank essentially depend on the smallness of the stock of cash and bullion; and the whole dexterity of the business consists in maintaining the largest possible circulation, with the least possible amount of their funds in the unprofitable shape of cash and bullion. The amount of notes in circulation depends in no degree on the amount of capital possessed by the issuers of notes, but on the amount required for the circulation of the country; which is regulated, as I have before attempted to show, by the value of the standard, the amount of payments, and the economy practised in effecting them.
The only effect, then, of the increase of the capital of the Bank would be to enable them to lend to Government or to merchants those funds, which would otherwise have been lent by individuals of the community. The Bank would have more business to do—they would accumulate more merchants' acceptances and exchequer bills: they would even increase the income of the Bank; but the profits of the proprietors would be neither more nor less, if the market rate of interest for money were at 5 per cent., and the business of the Bank were carried on with the same economy. The proprietors would be positive losers, if they could individually have employed their shares of this capital in trade, or otherwise, at a greater profit.
But not only do the Bank refuse, in direct contradiction to an act of Parliament, to make a division of their accumulated profits, but they are equally determined not to communicate to the proprietors what those profits are, notwithstanding their bye-law enjoins, “that twice in every year a general court shall be called, and held for considering the general state and condition of this corporation, and for the making of dividends, out of all and singular the produce and profit of the capital stock and fund of this corporation and the trade thereof, amongst the several owners and proprietors therein, according to their several shares and proportions.”
If the law had been silent on the subject, the Bank Directors would, I think, be bound to show some specific evil which would result from publicity, before they refused to show a statement of their affairs to the proprietors.
It is in fact the only security which the proprietors have, against the abuse of the trust reposed in the Directors.
The affairs of the Bank may not always be managed by such men as are now in the direction, against whom not a shadow of suspicion any where exists.
Without accounts; without a division of profits; and without any other proof of the accumulated fund of the Bank, but the notoriety of the increase of the sources from which the Bank profits are made—and that for a period of more than ten years; what security have the proprietors against a corrupt administration of their affairs. It is not consistent with the delicacy of the situation of those who are entrusted with the management of millions to demand such unbounded confidence—so much reliance on their own personal character, without stating some grounds for such a demand. Yet the only answer which the Directors made to a motion for a statement of profits, in the last general court, was, that they should consider the passing of such a resolution as betraying a want of confidence in them, and as a censure on their proceedings.
On all sides, such an intention was disclaimed; yet, strange to say, no other reply could be obtained from the Directors.
The publication of accounts, besides being necessary as a check against the corrupt administration of the Directors, is also necessary to give assurance to the proprietors, that their affairs are ably administered. Since 1797, no statement has been made of the condition of the Bank; and, even in that year, it was made to Parliament, on a particular exigence, and not to the proprietors of bank stock. How, then, can the proprietors know whether, in the favourable circumstances in which the Bank have been placed, the Directors have availed themselves of all the opportunities which have offered, of employing the funds entrusted to their charge to the best advantage? Would it not be desirable, that from time to time the proprietors should be able to ascertain whether their just expectations had been realised, and whether their affairs had been ably as well as honourably administered? If the practice of laying all accounts before the proprietors had been always followed, perhaps the Directors of 1793, 1794, and 1795, might have been admonished for so badly managing the affairs of the Bank, as to keep permanently in their coffers a sum of cash and bullion, generally more than three-fourths, and seldom less than one-half the whole amount of their notes in circulation. They might possibly have been told, that such a waste of the resources of the Bank showed a very limited knowledge of the principles by which a paper currency should be regulated.∗
These irregularities in the proceedings of the Bank excited the attention of an independent proprietor, Mr Allardyce, in 1797 and 1801. In his excellent publication on Bank affairs, he has pointed out with great force and ability the illegal conduct of the Bank. His opinion was confirmed by Mr, now Sir James Mansfield, who was consulted by him, as to the course necessary to be pursued, to compel the Directors to lay an account before the proprietors of the state of the Company. Sir James Mansfield's opinion was given as follows:—
“I am of opinion, that every proprietor, at a general half yearly court, has a right to require from the Directors, and it is the duty of the latter to produce all such accounts, books and papers, as are necessary to enable the proprietors to judge of the state and condition of the corporation and its funds, and to determine what dividend ought to be paid. The proper method to be pursued by those who consult me in order to obtain such a production is, that a number of respectable proprietors should immediately give notice to the Governor and other Directors, that they shall require at the next general court a production of all the necessary books, accounts and papers; and at the general court, when it shall be held, to attend and require such a production. If it shall not be obtained, I then advise them immediately, or within a few days after the holding of the general court, to make an application to the Governor to call a general court, which application must be made by nine members at least, having each 500l. stock. If the Governor shall refuse to call such general court, then the nine members who shall have applied to him to have a court called, may themselves call one in the manner prescribed by the charter; and whether the Governor calls such court, or it is called by the nine members, I advise them, as soon as it is called, to apply to the Court of King's Bench for a mandamus to the Governor and Directors, to produce at such court all the necessary books, accounts and papers.
Temple, March 9, 1801.”
In consequence of this opinion, Mr Allardyce delivered a demand in writing at the next general court, held the 19th March 1801, that the accounts should be produced, and no doubt intended to follow up this proceeding in the way recommended by Sir James Mansfield,—but he soon after died; and since that time no proprietor has made any demand for accounts, till at the last general court in December. It is remarkable that, very unexpectedly to the proprietors, a bonus of 5 per cent., in navy 5 per cents., was voted in the general court of the 19th March 1801, the day on which Mr Allardyce's demand was made and refused. The first motion for accounts made by Mr Allardyce was in the general court, held 14th December 1797; and in March 1799, there was a bonus of 10 per cent. in 5 per cents. 1797. Mr Allardyce did not, I believe, make any motion in the Bank court between December 1797 and March 1801.
Since 1797, then, the proprietors have remained in utter ignorance of the affairs of the Bank. During eighteen years the Directors have been silently enjoying their lucrative trade, and may now possibly think that the same course is best adapted to the interests of the Bank, particularly as negociations are about to take place with Government, when it might be as well that the amount of their accumulated fund should not be known. But the public attention has been lately called to the affairs of the Bank; and the subject of their profits is generally canvassed and understood. Publicity would now probably be more beneficial than hurtful to the Bank; for exaggerated accounts of their profits have been published which may raise extravagant expectations, and which may be best corrected by official statements. Besides which, the Bank are secure of their charter for seventeen years to come; and the public cannot, during that time, deprive them of the most profitable part of their trade. If, indeed, the charter were about to expire, the public might question the policy of permitting a company of merchants to enjoy all the advantages which attend the supplying of a great country with paper money; and although they would naturally look with jealousy, after the experience furnished by other states, to allowing that power to be in the hands of Government, they might probably think that in a free country means might be found by which so considerable an advantage might be obtained for the State, independently of all control of ministers. Paper money may be considered as affording a seignorage equal to its whole exchangeable value,—but seignorage in all countries belongs to the State, and with the security of convertibility as proposed in the former part of this work, and the appointment of commissioners responsible to Parliament only, the State, by becoming the sole issuer of paper money, in town as well as in the country, might secure a net revenue to the public of no less than 2 millions sterling. Against this danger, however, the Bank is secure till 1833, and therefore on every ground publicity is expedient.
|Year commencing 5th January.|
|Year commencing Michaelmas.|
|†This table is taken from an an account laid before Parliament, on the 19th cf June 1815.|
|Year commencing 5th January.|
|The total Amount of the Unredeemed Funded Debt of Great Britain and Ireland, including Loans to the Emperor of Germany and Prince Regent of Portgual, payable in Great Britain, was on the 1st of February 1815, according to accounts laid before Parliament,||L.727,767,421||2||5ξ|
|Do. for East India Company,||3,929,561||0||0|
|Debt contracted from Feb. 1 to Aug. 1, 1815,||L.87,448,402||16||0|
|Redeemed from Feb. 1 to Aug. 1 1815. .||11,099,166||0||0|
|Total of unredeemed funded debt on Aug. 1, 1815,||L.808,046,216||18||5ξ|
The charge for management on which is as follows:-
Avrage amount of Bank of England Notes including Bank Post Bills in circulation in each of the following years.
|Years.||Notes of five pounds|
and upwards, including
Bank post bills.
|Notes under five|
AN ESTIMATE OF THE PROFITS OF THE BANK OF ENGLAND FOR THE YEAR COMMENCING JANUARY 5 1797
|Bank notes in circulation,||L.11,191,720|
|Surplus above permanent capital,†||3,826,890|
|Deduct cash and bullion,||5,000,000|
|Funds yielding interest,||L.15,018,610 at 5 percent.||L.750,930|
|Charge for management of national debt,||143,800|
|Interest on 11,686,000l. lint to Government at 3 per cent.||350,604|
|Dividend; percent. on 11,642,400l||814.968|
|Surplus before 1797 .||L.3,826,890|
|Do. of 1797,||. 89,872|
|Bank notes in circulation,||13,334,752|
|Deduct cash and bullion,||4,000,000|
|Funds yieding interest,||L.18,951,514||at 5 percent.,||L.947,575|
|Interest on 11,686,800l. capital at 3 percent.,||350,604|
|Seven per dividend.||814,968|
|Do, for 1798,||533,621|
|Deduct cash and bullion,||3,000,000|
|Funds yielding interest,||L.21,912,683 5 percent,||L.1,095.634|
|Charge for management of national debt,||L.196,700|
|Interest on 11,686,800l||350,604|
|Dividend 7 percent.,||814,968|
|Bonus 10 percent.,||1,164,240|
|Loss of 1799,||509,155|
|Deduct cash and bullion||L.3,000,000|
|Loan to Government,||3,000,000†|
|Funds yielding interest,||L.20,883,126||at 5 percent.,||1,044,156|
|Management of national debt,||L.216,700|
|Interest on 11,686,800l,||350,604|
|Dividend 7 percent,||814,968|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Funds yielding interest,||L.22,522,709||at percent,||L.1,126,135|
|Charge for manngement of national debt,||L.215,200|
|Interest on capital,||350,604|
|Dividend 7 percent.,||L.814,968|
|Bonus 5 per cent.,||582,120|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Funds yielding interest,||1,24,319,247||at 5 per cent.,||1,125,962|
|Charge for management of national debt,||L.241,600|
|Interest on capital,||350,604|
|Dividend 7 percent,||814,968|
|Bonus 2⅓ per cent,||291,060|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.266,000|
|Interest on capital,||350,604|
|Dividend 7 per cent.,||814,968|
|Property-tax on net profit, 5 per cent,||40,308|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Funds yielding interest,||L.27,240,635||5 per cent.||1,362,000|
|Charge for management of national debt,||L.246,700|
|Interest of capital,||350,604|
|Dividend 7 per cent.||814,968|
|Bonus 5 per cent.||582,120|
|Property tax 6μ per cent,||20,452|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Charge for management of national debt,||L.254,400|
|Interest on capital,||350,604|
|Dividend 7 per cent.||814,968|
|Bonus 5 per cent.,||582,120|
|Property tax 10 per cent.||38,481|
|Loan to Government,||L.3,000,000||at 3 per cent.∗||L.90,000|
|Cash and bullion,||3,000,000|
|L.28,684,144||at 5 per cent.||1,434,207|
|Charge for management of national debt,||L.275,000|
|Interest on capital,||350,604|
|Dividend 7 per cent.||814,968|
|Bonus 5 per cent.||582,120|
|Property tax 10 per cent. on surplus,||L.51,885|
|† Do. do. on bonus and October dividend,||98,960|
|Loan to Government,||L.3,000,000||at 3 per cent.||90,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.280,500|
|Commission for receiving property tax,||3,154|
|Interest of capital,||350,604|
|Dividend 10 per cent.||L.1,164,240|
|Loan to Government,||L.3,000,000||at 3 per cent.||1,90,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.193,300|
|Commission for receiving property duty,||3,154|
|Interest of capital,||350,604|
|Dividend, 10 per cent.||L.1,164,240|
|Property tax, do.||172,233|
|Loan to Government,||L.3,000,000||at 3 per cent.||L.90,000|
|Ditto without interest,||3,000,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.205,500|
|Commission for receiving property duty,||3,154|
|Interest of capital,||350,604|
|Dividend, 10 per cent.,||L.1,164,240|
|Loan to Government,||L.3,000,000||at 3 per cent.||L.90,000|
|Ditto without interest,||3,000,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.200,800|
|Commission for receiving property duty,||3,154|
|Interest of capital,||350,604|
|Dividend, 10 per cent.,||L.1,164,240|
|Loan to Government,||L. 3,000,000||at 3 per cent||L.90,000|
|Ditto, without interest,||3,000,000|
|Cash and bullion,||3,000,000|
|Manegement of national debt.||L. 211,300|
|Commission for receiving property duty,||3,454|
|Interest on capital||350,604|
|Devidend, 10 per cent.,||L.1,164,240|
|Loan to Government,||L.3,000,000||at 3 per cent,||L.90,000|
|Ditto, without interest,||3,000,000|
|Cash and bullion||L.3,000,000|
|Management of national debt,||L.208,000|
|Commission for receiving propety duty,||3,154|
|Intrest on capital||350,604|
|Dividend, 10 per cent,||L.1,164,240|
|Loan to Government,||L.3,000,000||at 3 per cent||L.90,000|
|Ditto, without interest,||3,000,000|
|Cash and bullion,||3,000,000|
|Management of national debt.,||L.223,100|
|Commission for receiving propety duty,||3,154|
|Intrest on capital,||350,604|
|Dividend, 10 per cent||L.1,164,240|
|Commisson for receiving property duty,||219,333|
|Loan to Government without interest,||L.3,000,000|
|Cash and billion,||3,000,000|
|Management of national debt,||L.227,000|
|Commission for receiving property dut,||3,154|
|Interest of capital,||350,604|
|Dividend, 10 per cent||L.1,164,240|
|Loan to Government,||L.3,000,000|
|Cash and bullion,||3,000,000|
|Management of national debt,||L.250,000|
|Commission for receiving property tex,||3,154|
|Interest of capital,||350,604|
|Dividend, 10 per cent||L.1,164,240|
RESOLUTIONS PROPOSED CONCERNING THE BANK OF ENGLAND, BY MR GRENFELL.
1. That it appears, that there was paid by the public to the Bank of England, for managing the national debt, including the charge for contributions on loans and lotteries, in the year ending 5th of July 1792, the sum of 99,803l. 12s. 5d.; and that there was paid for the like service, in the year ending 5th April 1815, the sum of 281,568l. 6s. 11¼d.; being an increase of 181,764l. 14s. 6¼d. In addition to which, the Bank of England have charged at the rate of 1,250l. per million on the amount of property duty received at the Bank on profits arising from professions, trades, and offices.
2. That the total amount of bank notes and bank post bills, in circulation in the years 1795 and 1796 (the latter being the year previous to the restriction on cash payments), and in the year 1814, was as follows:—
|1795,||1st Feb.||L.12,735,520;||and||1st Aug.||L.11,214,000|
|1796,||1st Feb.||10,784,740;||and||1st Aug.||9,836,110|
|1814,||1st Feb.||25,154,950;||and||1st Aug.||28,802,450|
3. That at present, and during many years past, more particularly since the year 1806, considerable sums of public money, forming together an average stationary balance amounting to many millions, have been deposited with, or otherwise placed in the custody of the Bank of England, acting in this respect as the bankers of the public.
4. That it appears, from a report ordered to be printed 10th of August 1807, from “the Committee on the Public Expenditure of the United Kingdom,” that the aggregate amount of balances and deposits of public money in the hands of the Bank of England, including bank notes deposited in the Exchequer, made up in four different periods of the quarter ending 5th January 1807, fluctuated betwixt the sums
5. That the aggregate amount of such deposits, together with the exchequer bills and bank notes deposited in the chests of the four tellers of the Exchequer, was, on an average, in the year 1814,
L.11,966,371; including bank notes deposited at the Exchequer, amounting to 642,264 or 11,324,107; excluding bank notes deposited at the Exchequer.
6. That it appears, that this aggregate amount of deposits, together with such portions of the amount of bank notes and bank post bills in circulation as may have been invested by the Bank in securities bearing interest, was productive, during the same period, of interest and profit to the Bank of England.
7. That the only participation hitherto enjoyed by the public, since the year 1806, in the profits thus made on such deposits by the Bank, has consisted in a loan of 3 millions, advanced to the public by the Bank, by the 46 Geo. III. cap. 41, bearing 3 per cent. interest; which loan was discharged in December 1814: And in another loan of 3 millions, advanced to the public by the Bank, by the 48 Geo. III. cap. 3, free of any charge of interest; which loan became payable in December 1814, but has, by an Act of the present session of Parliament, cap. 16, been continued to the 5th of April 1816.
8. That this house will take into early consideration the advantages derived by the Bank, as well from the management of the national debt, as from the amount of balances of public money remaining in their hands, with the view to the adoption of such an arrangement, when the engagements now subsisting shall have expired, as may be consistent with what is due to the interests of the public, and to the rights, credit and stability, of the Bank of England.
13th June 1815.
RESOLUTIONS PROPOSED CONCERNING THE BANK OF ENGLAND BY MR MELLISH.
1. That by the Act of 31 Geo. III. cap. 33, there was allowed to the Bank of England, for the management of the public debt, 450l. per million on the capital stock transferable at the Bank, amounting in the year ending 5th July 1792, to 98,803l. 12s. 5d. on about 219,596,000l. then so transferable; and that by the Act 48 Geo. III. cap. 4, the said allowance was reduced to the rate of 340l. per million on all sums not exceeding 600 millions, and to 300l. per million on all sums exceeding that amount, whereby the Bank was entitled, in the year ending 5th April 1815, to the sum of 241,971l. 4s. 2¼d. on about 726,570,700l. capital stock, and 798l. 3s. 7d. on 2,347,588l., 3 per cents. transferred for life annuities, being an increase of 143,965l. 15s. 4¼d. for management, and an increase of about 509,322,000l. capital stock: Also the Bank was allowed 1000l. for taking in contributions, amounting to 812,500l. on a lottery in the year ending 5th July 1792; and 38,798l. 19s. 2d. for taking in contributions, amounting to 46,585,533l. 6s. 8d. on loans and lotteries in the year ending 5th April 1815.
2. That it appears, that the Bank, in pursuance of the Act 46 Geo. III. cap. 65, has, from the year 1806 to the present time, made the assessments of the duty on profits arising from property, on the proprietors of the which of the funded debt, transferable at the Bank of England, and has deducted the said duty from each of the several dividend warrants, which in one year, ending 5th April 1815, amounted it number to 563,600; and that this part of the business has been done without any expense to, or charge on, the public.
That in pursuance of the above-mentioned Act, the duties so deducted have from time to time been placed to the “account of the commissioners of the treasury, on account of the said duties,” together with other sums received from the public by virtue of the said Act: part of this money is applied to the payment of certificates of allowances, and the remainder is paid into the Exchequer.
That by virtue of the said Act, the Lords Commissioners of the Treasury have made annual allowances, at the rate of 1,250l. per million, upon the amount so placed to the account of the Commissioners of the Treasury at the Bank of England, as a compensation for receiving, paying, and accounting for the same; which allowances, however, have not in any one year exceeded the sum of 3,480l., and upon an average of eight years have amounted annually to 3,154l. only.
The amount of duties received for the year ending 5th April 1814, was 2,784,343l., which, if it had been collected in the usual manner, at an allowance of 5d. per pound, would have cost the public 58,007l.; and the cost for collecting 20,188,293l., being the whole of the duty received from 1806 to 1814, on which allowances have been made, would at the same rate have amounted to 420,589l.
That all monies received by the Bank on account of duties on property are paid into the Exchequer immediately after the receipt thereof: when this circumstance is contrasted with the ordinary progress of monies into the Exchequer, the advantage resulting to the public may be fairly estimated at 2 per cent., which, on the amount of duties for the year ending 5th April 1814, would be 55,686l., and, on the total amount from 1806 to 1814, would be 403,765l.
3. That the total amount of bank notes and bank post bills in circulation in the years 1795 and 1796 (the latter being the year previous to the restriction on cash payments), and in the year 1814, was as follows:—
|1795,||1st Feb.||L.12,735,520;||and||1st Aug.||L.11,214,000|
|1796,||1st Feb.||10,784,740;||and||1st Aug.||9,856,110|
|1814,||1st Feb.||20,154,950;||and||1st Aug.||28,802,450|
4. That at present, and during many years past, both before and since the renewal of the charter of the Bank, considerable sums of the public money have been deposited with or otherwise placed in the custody of the Governor and Company of the Bank of England, who act in this respect as the banker of the public. The average balances of these deposits, both before and after the renewal of the charter, were as follows:—
|Public balances on an average of one year ending the 15th January 1800,||L.1,724,747|
|Unclaimed dividends for the average of one year ending 1st January 1800,||837,966|
|Public balances on an average of eight years, from 1807 to 1815,||L.4,375,405|
|Unclaimed dividends, do, do,||634,614|
5. That it appears from a report ordered to be printed 10th August 1807, from “the Committee on Public Expenditure of the United Kingdom,” that the aggregate amount of balances and deposits of public money in the Bank of England, including bank notes deposited in the Exchequer, made up in four different periods of the quarter ending 5th January 1807, fluctuated between the sums of 11,461,200l. and 12,198,236l.; or, excluding bank notes deposited at the Exchequer, the amount fluctuated between 8,178,536l. and 9,948,400l., the reason for which exclusion is not obvious, as by the Act of 48 Geo. III. cap. 3, the tellers of the Exchequer are authorised to take as securities on monies lodged, either exchequer bills or notes of the Governor and Company of the Bank of England. And it also appears, according to accounts laid before this house in the present session of Parliament, that the aggregate amount of such deposits, together with the exchequer bills and bank notes deposited in the chests of the four tellers of the Exchequer, was, on an average, in the year 1814—
L.11,966,371: including bank notes deposited at the Exchequer, amounting to 642,264l, 11,324,107; excluding bank notes deposited at the Exchequer.
6. That it appears, according to accounts before this house, that the average of the aggregate amount of balances of public money in the hands of the Bank of England, from February 1807 to February 1815, was 5,010,019l.; and that the average of bills and bank notes deposited in the chests of the four tellers of the Exchequer, from August 1807 to April 1815, was 5,968,793l., making together 10,978,812l., being 850,906l. less than the average of the said accounts for one year ending 5th January 1807, as stated in the report of the Committee on the Public Expenditure.
7. That by the 39 and 40 Geo. III. cap. 28, extending the charter of the Bank for twenty-one years, the Bank advanced to the public 3,000,000l. for six years without interest, and extended the loan of 11,686,800l. for twenty-one years at an interest of 3 per cent. per annum, as a consideration for the privileges, profits, emoluments, benefits, and advantages granted to the Bank by such extension of its charter.
|That the interest of 3,000,000l. for six years, at 5 per cent. per annum, is||L.900,000|
|That the difference between 3 per cent. and 5 per cent. on 11,686,800l. is 233,736l., which in twenty-one years amounts to . .||4,908,456|
|That the above loan of 3,000,000l. was continued to the public from 1806, when it became payable, until 1814, at an interest of 3 per cent., making an advantage in favour of the public of 2 per cent., or 60,000l. per annum, which in eight years and eight months amounts to . . . . . . . .||520,000|
|That in 1808, the Bank advanced to the public 3,000,000l. without interest, which, by an Act of the present session, is to remain without interest until the 5th of April 1816; the interest on this advance, at 5 per cent., will, for eight years, amount to .||1,200,000|
8. That by the 39 and 40 Geo. III. cap. 28, see. 13, it is enacted, that during the continuance of the charter, the Bank shall enjoy all privileges, profits, emoluments, benefits, and advantages whatsoever, which they now possess and enjoy by virtue of any employment by or on behalf of the public.
That, previously to such renewal of their charter, the Bank was employed as the public banker, in keeping the cash of all the principal departments in the receipt of the public revenue, and in issuing and conducting the public expenditure.
|That the average amount of the public balances in the hands of the Bank, between the 1st February 1814 and the 15th January 1815. upon accounts opened at the Bank previously to the renewal of the charter on the 28th March 1800, was||L.4,337,025|
|Unclaimed dividends for the average of one year ending 1st January 1815,||779,794|
|That the average public balances in the hands of the Bank during the same period, upon accounts opened at the Bank between the 28th March 1800 and the 27th February 1808, was||L.370,018|
|That the average public balances in the hands of the Bank during the same period, upon accounts opened at the Bank subsequent to the 27th February 1808, was . . . . . .||L.261,162|
9. That whenever the engagements now subsisting between the public and the Bank shall expire, it may be proper to consider the advantages derived by the Bank from its transactions with the public with a view to the adoption of such arrangements as may be consistent with those principles of equity and good faith which ought to prevail in all transactions between the public and the Bank of England
June 26, 1815
ON PROTECTION TO AGRICULTURE.
It cannot, I think, be denied, that, within these few years, great progress has been made in diffusing correct opinions on the impolicy of imposing restrictions on the importation of foreign corn; but, unhappily, much prejudice yet exists on this subject, and it is to be feared that the generally prevailing errors in the minds of those who are suffering from the distressed state of our agriculture, may lead to measures of increased restriction, rather than to the only effectual remedy for those distresses, the gradual approach to a system of free trade. It is to the present corn-law that much of the distress is to be attributed, and I hope to make it appear, that the occupation of a farmer will be exposed to continual hazard, and will be placed under peculiar disadvantages, as compared with all other occupations, while any system of restriction on the importation of foreign corn is continued, which shall have the effect of keeping the price of corn in this country habitually and considerably above the prices of other countries.
Before I proceed, however, to this, which is the main object that I have in view, I wish to notice some of the prevailing opinions which are daily advanced on the subject of the causes of the present distress; on the doctrine of remunerating price; on taxation; on currency, &c.: after disposing of these, we shall be better able to examine the important question of what ought to be the permanent regulations of this country, respecting the trade in corn, in order to afford the greatest security to the people, for a cheap and steady price, with an abundant supply of that essential article.
ON PROTECTION TO AGRICULTURE.
On Remunerating Price.
The words Remunerative Price are meant to denote the price at which corn can be raised, paying all charges, including rent, and leaving to the grower a fair profit on his capital. It follows from this definition, that in proportion as a country is driven to the cultivation of poorer lands for the support of an increasing population, the price of corn, to be remunerative, must rise: for even if no rent is paid for such poorer land—as the charges on its cultivation must, for the same quantity of produce, be greater than on any other land previously cultivated, those charges can only be returned to the grower by an increase of price. “I know districts of the country,”∗ says Mr Iveson, “taking the very best qualities in them, that will produce from four to five quarters by the acre. I know there are farms that have averaged in the wheat crop, four quarters to the acre, or 32 bushels.” “In what part of the kingdom?—In Wiltshire.” “What would you estimate the second quality of land at?—I think the middling, or second, what I should call the middling quality of lands under good cultivation, may be taken at two quarters and a half.” “And the inferior lands?—From 12 to 15 bushels an acre.” Mr Harvey was asked, “What is the lowest rent you have ever known to be paid for the worst land on which corn is raised?—Eighteen-pence an acre.” Mr Harvey further stated, that on an average of the last ten years he had obtained 30 bushels of wheat per acre from his land. Mr Wakefield's evidence was to the same effect as Mr Iveson's; but the difference according to him between the produce of wheat per acre on the best and worst land in cultivation was as much as 32 bushels; for he said “that on the sea coast of Norfolk, Suffolk, Essex, and Kent, the crop is thought a bad one, if it be not 40 bushels per acre;” and he added, “I do not believe that the very poor lands produce above eight bushels per acre.”
Suppose now, that the population of England had only been onehalf its present amount, and that it had not been necessary to take any other quality of land into cultivation than that which yielded 32 bushels of wheat per acre; what would have been the remunerative price? Can any one doubt of its being so low that, if the prices on the Continent had been at the same average at which they have been for the last five or ten years, we should have been an exporting instead of an importing country? It is true, that this land now yields 32 bushels, and would have yielded no more on the supposition that I have made; but is it not true, that the value of the 32 bushels now raised is regulated by the cost of producing the 12 or 15 bushels on the inferior lands of which Mr Iveson speaks? If the cost of raising 15 bushels of wheat is as great now as the cost was of raising 30 bushels formerly, the price must be doubled to be remunerative, for the degree in which the price must rise to compensate the producer for the charges which he has to pay does not depend on the quantity produced, nor on the quantity consumed, but on the cost of its production. The difference in the value of the quantity raised on the good land, and on the inferior land, will always constitute rent; so that the profits of the occupiers of the good and bad land will be the same, but the rent of the best land will exceed the rent of the worst by the difference in the quantity of produce, which, with the same expense, it can be made to yield. It is now universally admitted, that rent is the effect of the rise in the price of corn, and not the cause; it is also admitted, that the only permanent cause of rise in the value of corn, is an increased charge on its production, caused by the necessity of cultivating poorer lands; on which, by the expenditure of the same quantity of labour, the same quantity of produce cannot be obtained.
Is it not true that the rent on the better land is regulated by the lesser quantity of 15 bushels, with which we are now obliged to be contented on our poorer lands? The rent which is now a charge on cultivating the land which yields the 32 bushels, and which is equal to the value of 17 bushels, the difference between 15 and 32 bushels, could not have existed if no land was cultivated but such as yielded 32 bushels. If, then, with the charge of rent, the cost of raising 15 bushels on the rich land—and without the payment of rent, the cost of raising the same quantity on the poor land, is now as great as the cost of raising 30 bushels was formerly on the rich land, when no rent was paid, the price must be doubled.
It appears, then, that, in the progress of society, when no importation takes place, we are obliged constantly to have recourse to worse soils to feed an augmenting population, and with every step of our progress the price of corn must rise, and with such rise, the rent of the better land which had been previously cultivated, will necessarily be increased. A higher price becomes necessary to compensate for the smaller quantity which is obtained; but this higher price must never be considered as a good—it would not have existed if the same return had been obtained with less labour—it would not have existed if, by the application of labour to manufactures, we had indirectly obtained the corn by the exportation of those manufactures in exchange for corn. A high price, if the effect of a high cost, is an evil, and not a good; the price is high, because a great deal of labour is bestowed in obtaining the corn. If only a little labour was bestowed upon it, more of the labour of the country, which constitutes its only real source of wealth, would have been at its disposal to procure other enjoyments which are desirable.
On the Influence of a Rise of Wages on the Price of Corn.
Much of what has been said in the foregoing section, would probably be allowed by some of those who are the advocates for a restricted trade in corn; they would, however, add, that though it could be shown that no protecting duties on the importation of corn could be justifiable, merely on account of the increased expenditure of labour necessary to obtain a given quantity in this country; yet such duties were necessary to protect the farmer against the effects of high wages in this country, caused by the taxation which falls on the labouring classes, and which must be repaid to them by their employers, by means of high wages. This argument proceeds on the assumption, that high wages tend to raise the price of the commodities on which labour is bestowed. If the farmer, they say, could, before taxation, and the high wages which are the effect of it, compete with the foreign grower of corn, he can no longer do so now he is exposed to a burthen from which his competitor is free.
This whole argument is fallacious,—the farmer is placed under no comparative disadvantage in consequence of a rise of wages. If, in consequence of taxes paid by the labouring class, wages should rise, which they in all probability would do, they would equally affect all classes of producers. If it be deemed necessary that corn should rise in order to remunerate the growers, it is also necessary that cloth, hats, shoes, and every other commodity should rise, in order to remunerate the producers of those articles. Either, then, corn ought not to rise, or all other commodities should rise along with it.
If neither corn, nor any other commodity, rise, they will of course be all of the same relative value as before; and if they do all rise, the same will be true. All must require protecting duties, or none. To impose protecting duties on all commodities would be absurd, because nothing would be gained by it—it would in no way alter the relative value of commodities; and it is only by altering the relative value of commodities that any particular trade is protected, not merely by an alteration of price. If England gave a yard of superfine cloth to Germany for a quarter of wheat, she would neither be more nor less disposed to carry on this trade, if both cloth and corn were raised 20 per cent. in price. All foreign trade finally resolves itself into an interchange of commodities; money is but the measure by which the respective quantities are ascertained. No commodity can be imported unless another commodity is exported; and the exported commodity must be equally raised in price by the rise of wages. It is essential that a drawback should be allowed on the exported article, if the one imported be protected by a duty. But it comes to the same thing, if no drawback be allowed on the one, nor protection granted to the other, because, in either case, precisely the same quantity of the foreign commodity will be obtained for a given quantity of the home-made commodity.
If a quarter of corn be raised from 60s. to 75s., or 25 per cent. by a rise of wages, and a certain quantity of hats or cloth be raised in the same proportion by the same cause, the importer of corn into England would lose just as much by the commodity which he exports as he would gain by the corn which he imports. If trade were left free, corn would not rise from 60s. to 75s., notwithstanding the rise of wages; nor would cloth, or hats, or shoes, rise from this cause. But, if I should allow that they would rise, it would make no difference to my argument; we should then export money in exchange for corn, because no commodity could be so profitably employed in paying for it; for, by the supposition, every other commodity is raised in price. The exportation of money would gradually lessen the quantity, and raise its value in this country, while the importation of it into other countries would have a contrary effect in them; it would increase the quantity, and sink its value, and thus the price of corn, of cloth, of hats, and of all other things in England, would bear the same relation to the prices of the same commodities in other countries as they bore before wages were raised. In all cases, the rise of wages, when general, diminishes profits, and does not raise the prices of commodities. If the prices of commodities rose, no producer would be benefited; for of what consequence could it be to him to sell his commodity at an advance of 25 per cent., if he, in his turn, were obliged to give 25 per cent. more for every commodity which he purchased? He would be precisely in the same condition, whether he sold his corn for 25 per cent. advance, and gave an additional 25 per cent. in the price of his hats, shoes, clothes, &c., &c., as if he sold his corn at the usual price, and bought all the commodities which he consumed at the prices which he had before given for them. No one class of producers, then, is entitled to protection on account of a rise of wages, because a rise of wages equally affects all producers; it does not raise the prices of commodities because it diminishes profits; and, if it did raise the price of commodities, it would raise them all in the same proportion, and would not, therefore, alter their exchangeable value. It is only when commodities are altered in relative value, by the interference of Government, that any tax, which shall act as a protection against the importation of a foreign commodity, can be justifiable.
It is by many supposed, that a rise in the price of corn will raise the price of all other things; this opinion is founded on the erroneous view which they take of the effect of a general rise of wages. Corn rises because it is more difficult to produce, and its cost is raised; it would be no rise at all if all other things rose with it. It is a real rise to the hatter and clothier, if they are obliged, one to give more hats, the other more cloth, for their corn; it would be no rise at all to them, and it would be impossible to show who paid for the increased cost, if their commodities also rose, and exchanged for the same quantity of corn.
It may be laid down as a principle, that any cause which operates in a country to affect equally all commodities, does not alter their relative value, and can give no advantage to foreign competitors, but that any cause which operates partially on one does alter its value to others, if not countervailed by an adequate duty; it will give advantage to the foreign competitor, and tend to deprive us of a beneficial branch of trade.
On the Effects of Taxes imposed on a particular Commodity.
For the same reasons that protecting duties are not justifiable on account of the rise of wages generally, from whatever cause it may proceed, it is evident that they are not to be defended when taxation is general, and equally affects all classes of producers. An income tax is of this description; it affects equally all who employ capital, and it has never yet been suggested by those most favourable to protecting duties that any would be necessary on account of an income tax. But a tax affecting equally all productions is precisely of the same description as an income tax, because it leaves them, after the tax, of the same relative value to each other as before it was imposed. The rise of wages, a tax on income, or a proportional tax on all commodities, all operate in the same way; they do not alter the relative value of goods, and therefore they do not subject us to any disadvantage in our commerce with foreign countries. We suffer indeed the inconvenience of paying the tax, but from that burthen we have no means of freeing ourselves.
A tax, however, which falls exclusively on the producers of a particular commodity tends to raise the price of that commodity, and if it did not so raise it the producer would be under a disadvantage as compared with all other producers; he would no longer gain the general and ordinary profits by his trade. By rising in price, the value of this commodity is altered as compared with other commodities. If no protecting duty is imposed on the importation of a similar commodity from other countries, injustice is done to the producer at home, and not only to the producer but to the country to which he belongs. It is for the interest of the public that he should not be driven from a trade which, under a system of free competition, he would have chosen, and to which he would adhere if every other commodity were taxed equally with that which he produces. A tax affecting him exclusively is, in fact, a bounty to that amount on the importation of the same commodity from abroad; and to restore competition to its just level, it would be necessary not only to subject the imported commodity to an equal tax, but to allow a drawback of equal amount, on the exportation of the home-made commodity.
The growers of corn are subject to some of these peculiar taxes, such as tithes, a portion of the poor's rate, and perhaps, one or two other taxes, all of which tend to raise the price of corn, and other raw produce, equal to these peculiar burthens. In the degree, then, in which these taxes raise the price of corn, a duty should be imposed on its importation. If from this cause it be raised 10s. per quarter, a duty of 10s. should be imposed on the importation of foreign corn, and a drawback of the same amount should be allowed on the exportation of corn. By means of this duty and this drawback, the trade would be placed on the same footing as if it had never been taxed, and we should be quite sure that capital would neither be injuriously for the interests of the country, attracted towards, nor repelled from it.
The greatest benefit results to a country when its Government forbears to give encouragement, or oppose obstacles, to any disposition of capital which the proprietor may think most advantageous to him. By imposing tithes, &c. on the farmer exclusively, no obstacle would be opposed to him, if there were no foreign competition, because he would be able to raise the price of his produce, and if he could not do so he would quit a trade which no longer afforded him the usual and ordinary profits of all other trades. But if importation was allowed, an undue encouragement would be given to the importation of foreign corn, unless the foreign commodity were subject to a duty, equal to tithes or any other exclusive tax imposed on the home grower.
But the home grower would still have to complain, if he was refused a drawback on exportation, because he might then say, “Before your duty, and before the price of my produce was raised in consequence of it, I could compete with the foreign grower in foreign markets; by making the remunerating price of my corn higher, you have deprived me of that advantage, therefore give me a drawback equal to the duty, and you, in every respect, restore me to the position, as it regards both my own countrymen, as producers of other commodities, and foreign growers of raw produce, in which I was before placed.” On every principle of justice, and consistently with the best interests of the country, his demand should be acceded to.
On the Effect of Abundant Crops on the Price of Corn.
In a former section I have endeavoured to show, that the price of corn, to be remunerative, must pay all the charges of its production, including in those charges the ordinary profits of the stock employed. It is, in fact, by these conditions being fulfilled, that the supply, on an average of years, is regulated. If the price obtained be less than remunerative, profits will be depressed, or will entirely disappear. If it be more than remunerative, profits will be high. In the first case, capital will be withdrawn from the land, and the supply will gradually conform to the demand. In the second case, capital will be attracted to the land, and the supply will be increased. But, notwithstanding this tendency of the supply of corn to conform itself to the demand, at prices which shall be remunerative, it is impossible to calculate accurately on the effects of the seasons. Sometimes, for a few years successively, crops will be abundant; at other times they will, for an equal period, be scanty and insufficient. When the quantity of corn at market, from a succession of good crops, is abundant, it falls in price, not in the same proportion as the quantity exceeds the ordinary demand, but very considerably more. The demand for corn, with a given population, must necessarily be limited; and, although it may be, and undoubtedly is, true, that when it is abundant and cheap, the quantity consumed will be increased, yet it is equally certain, that its aggregate value will be diminished. Suppose 14 millions of quarters of wheat to be the ordinary demand of England, and that, from a very abundant season, 21 millions are produced. If the remunerative price were 3l. per quarter, and the value of the 14 millions of quarters 42,000,000l., there cannot be the least doubt, that the 21 millions of quarters would be of very considerably less value than 42,000,000l. No principle can be better established, than that a small excess of quantity operates very powerfully on price. This is true of all commodities; but of none can it be so certainly asserted as of corn, which forms the principal article of the food of the people. The principle, I believe, has never been denied by those who have turned their attention to this subject. Some, indeed, have attempted to estimate the fall of price which would take place, under the supposition of the surplus bearing different proportions to the average quantity. Such calculations, however, must be very deceptious, as no general rule can be laid down for the variations of price in proportion to quantity. It would be different in different countries; it must essentially depend on the wealth or poverty of the country, and on its means of holding over the superfluous quantity to a future season. It must depend, too, on the opinions formed of the probability of the future supply being adequate or otherwise to the future demand. This, however, is, I think, certain, that the aggregate value of an abundant crop will always be considerably less than the aggregate value of an average one; and that the aggregate value of a very limited crop will be considerably greater than that of an average crop. If 100,000 loaves were sold every day in London, and the supply should all at once be reduced to 50,000 per day, can any one doubt but that the price of each loaf would be considerably more than doubled? The rich would continue to consume precisely the same number of loaves, although the price was tripled or quadrupled. If, on the other hand, 200,000 loaves, instead of 100,000, were daily exposed for sale, could they be disposed of without a fall of price, far exceeding the proportion of the excess of quantity? Why is water without value, but because of its abundance? If corn were equally plenty, it would have no greater value, whatever quantity of labour might have been bestowed on its production.
In proof of the correctness of this view, I may refer to the prices of wheat in this country in different seasons of plenty, when it will be seen that, notwithstanding we were in a degree relieved by exportation, yet, from the abundance of crops, corn has been known to fall 50 per cent in three years. Now, to what can this be imputed but to excess of quantity? The document which follows is copied from Mr Tooke's evidence before the committee of 1821.
Because it has been said, that abundance may be prejudicial to the interests of the producers, it has been objected that the new doctrine on this subject is, that the bounty of Providence may become a curse to a country; but this is essentially changing the proposition. No one has said that abundance is injurious to a country, but that it frequently is so to the producers of the abundant commodity. If what they raised was all destined for their own consumption, abundance never could be hurtful to them; but if, in consequence of the plenty of corn, the quantity with which they go to market to furnish themselves with other things is very much reduced in value, they are deprived of the means of obtaining their usual enjoyments; they have, in fact, an abundance of a commodity of little exchangeable value. If we lived in one of Mr Owen's parallelograms, and enjoyed all our productions in common, then no one could suffer in consequence of abundance; but as long as society is constituted as it now is, abundance will often be injurious to producers, and scarcity beneficial to them.
On the Effect produced on the Price of Corn by Mr Peel's Bill for restoring the Ancient Standard.
Much difference of opinion prevails on the effect produced on the price of corn by Mr Peel's bill for restoring the ancient standard. On this subject there is a great want of candour in one of the disputing parties; and I believe it will be found, that many of those who contended, during the war, that our money was not depreciated at all, now endeavour to show that the depreciation was then enormous, and that all the distresses which we are now suffering have arisen from restoring our currency from a depreciated state to par.
It is also forgotten that, from 1797 to 1819, we had no standard whatever by which to regulate the quantity or value of our money. Its quantity and its value depended entirely on the Bank of England, the Directors of which establishment, however desirous they might have been to act with fairness and justice to the public, avowed that they were guided in their issues by principles which, it is no longer disputed, exposed the country to the greatest embarrassment. Accordingly, we find that the currency varied in value considerably during the period of twenty-two years, when there was no other rule for regulating its quantity and value but the will of the Bank.
In 1813 and 1814 the depreciation of our currency was probably at its highest point, gold being then 5l. 10s. and 5l. 8s. per ounce; but, in 1819, the value of paper was only 5 per cent. below its ancient standard, gold being then 4l. 2s. or 4l. 3s. per ounce. It was in 1819 that Mr Peel's bill passed into a law. At the time of passing that bill, Parliament had to deal with the question as it then presented itself. It was thought expedient that an end should be put to a state of things which allowed a company of merchants to regulate the value of money as they might think proper; and the only point which could then come under consideration was, whether the standard should be fixed at 4l. 2s., which was the price of gold, not only at the time when Parliament was legislating, but its price for nearly the whole of the four preceding years; or the ancient standard of 3l. 17s. 10½d. should be restored. Between these two prices Parliament was constrained to determine, and, I think, in choosing to go back to the ancient standard, it pursued a wise course. But when it is now said that money has been forcibly raised in value,—25 per cent., according to some; 50, and even 60 per cent., according to others,—they do not refer to 1819, the period at which that bill passed, but to the period of the greatest depression; and they charge the whole increase in the value of the currency to Mr Peel's bill. Now, it is to the system which allowed of such variations in the value of money that Mr Peel's bill put an end. If, indeed, in 1819, or immediately preceding 1819, gold had been at 5l. 10s. an ounce, no measure could have been more inexpedient than to make so violent a change in all subsisting engagements, as would have been made by restoring the ancient standard; but the price of gold, as I have already said, was then, and had been for four years, about 4l. 2s., never above, and frequently rather under, that price; and no measure could have been so monstrous as that which some reproach the House of Commons for not having adopted, namely, of fixing the standard at 5l. 10s.; that is, in other words, after the currency had regained its value within 5 per cent. of gold, under the operation of the bad system, again to have degraded it to 30 per cent. below the value of gold.
It will be remembered, that a plan was by me submitted to the country for the restoration of a fixed standard, which would have rendered the employment of any greater quantity of gold than the Bank then possessed wholly unnecessary.
That plan was to make the Bank liable to the payment of a certain large and fixed amount of their notes in gold bullion at the Mint price of 3l. 17s. 10½d. an ounce, instead of payment in gold coin. If that plan had been adopted, not a particle of gold would have been used in the circulation,—all our money must have consisted of paper, excepting the silver coin necessary for payments under the value of a pound. In that case it is demonstrable, that the value of money could only have been raised 5 per cent. by reverting to the fixed ancient standard, for that was the whole difference between the value of gold and paper. There was nothing in the plan which could cause a rise in the value of gold, for no additional quantity of gold would have been required, and therefore 5 per cent. would have been the full extent of the rise in the value of money.∗ Mr Peel's bill adopted this plan for four years, after which payments in coin were to be established. If for the time specified by the bill the Bank Directors had managed their affairs with the skill which the public interest required, they would have been satisfied with so regulating their issues, after Mr Peel's bill passed, that the exchange should continue at par, and consequently no importation of gold could have taken place; but the Bank, who always expressed a decided aversion to the plan of bullion payments, immediately commenced preparations for specie payments. Their issues were so regulated, that the exchange became extremely favourable to this country; gold flowed into it in a continued stream, and all that came the Bank eagerly purchased at 3l. 17s. 10½d. per ounce. Such a demand for gold could not fail to elevate its value compared with the value of all commodities. Not only, then, had we to elevate the value of our currency 5 per cent., the amount of the difference between the value of paper and of gold before these operations commenced, but we had still farther to elevate it to the new value to which gold itself was raised by the injudicious purchases which the Bank made of that metal. It cannot, I think, be doubted, that if bullion payments had been fairly tried for three out of the four years between 1819 and 1823, and had been found fully to answer all the objects of a currency regulated by gold at a fixed value, the same system would have been continued, and we should have escaped the further pressure which the country has undoubtedly undergone from the effects of the great demand for gold which specie payments have entailed upon us.
The Bank Directors urge in defence of the measures which they have pursued the complaints which were made against them on account of the frequent executions for forgery, which rendered it indispensable that they should withdraw the one-pound notes from circulation for the purpose of replacing them with coin. If they could not substitute a note better calculated to prevent forgery than the one which they have hitherto used, this plea is a valid one, for the sacrifice of a small pecuniary interest could not be thought too great if it took away the temptation to the crime of forgery, for which so many unfortunate persons were annually executed; but this excuse comes with a bad grace from the Bank of England, who did not discover the importance of preventing forgery by the issue of coin till 1821, after they had made such large purchases of gold that they were under the necessity of applying to Parliament for a bill to enable them to issue coin in payment of their notes, which, by Mr Peel's bill, they were prevented from doing till 1823. How comes it that they did not make this discovery in 1819, when the committees of the Lords and Commons were sitting on bank payments? Instead of being eager at that period to commence specie payments, they remonstrated, in a manner which many thought unbecoming, against any plan of metallic payments which did not leave the uncontrolled power of increasing or diminishing the amount of the currency in their hands. It surely is not forgotten, that, on an application by the Lords' Committee to the Bank, dated the 24th March 1819, asking if “the Bank had any and what objections to urge against the passing a law to require it should pay its notes in bullion on demand, but in sums not less in amount than 100l., 200l., or 300l., at 3l. 17s. 10½d., and to buy gold bullion at 3l. 17s. 6d. by an issue of its notes, the said plan to commence after a period to be fixed for that purpose;” the Directors answered, “the Bank has taken into consideration the question sent by the Committee of the House of Lords, under date of the 24th March, and is not aware of any difficulty in exchanging, for a fixed amount of bank notes, gold bullion of a certain weight, provided it be melted, assayed, and stamped by his Majesty's Mint.
“The attainment of bullion by the Bank at 3l. 17s. 6d. is, in the estimation of the Court, so uncertain, that the Directors, in duty to their proprietors, do not feel themselves competent to engage to issue bullion at the price of 3l. 17s. 10½d.; but the Court beg leave to suggest, as an alternative, the expediency of its furnishing bullion of a fixed weight to the extent stated at the market price as taken on the preceding foreign post-day, in exchange for its notes, provided a reasonable time be allowed for the Bank to prepare itself to try the effect of such a measure.”
If this proposal had been acceded to, the Bank would itself have determined the price at which it should have sold gold from time to time to the public, because by extending or curtailing their issues, they had the power to make the price of gold just what they pleased, 4l. or 10l. an ounce, and at that price to which they might choose to elevate it, they graciously proposed to sell it, “provided a reasonable time be allowed to prepare itself to try the effect of such a measure.”
After this proposal, after the representation made to the Chancellor of the Exchequer by the Directors of the Bank of England on the 20th May 1819,∗ it will not be said that the question of forgery appeared so urgent to the Directors that they were eager to substitute coin for their small notes in 1819, however important the question became in their view in 1820.
It is a question exceedingly difficult to determine what the effect has been on the value of gold, and consequently on the value of money produced by the purchases of bullion made by the Bank. When two commodities vary, it is impossible to be certain whether one has risen, or the other fallen. There are no means of even approximating to the knowledge of this fact, but by a careful comparison of the value of the two commodities, during the period of their variation, with the value of many other commodities.
Even this comparison does not afford a certain test, because one-half of the commodities to which they are compared, may have varied in one direction, while the other half may have varied in another: by which half shall the variation of gold be tried? If by one it appears to have risen, if by the other to have fallen. From observations, however, on the price of silver, and of various other commodities, making due allowance for the particular causes which may have specially operated on the value of each, Mr Tooke, one of the most intelligent witnesses examined by the Agricultural Committee, came to the conclusion that the eager demand for gold made by the Bank in order to substitute coin for their small notes, had raised the value of currency about 5 per cent. In this conclusion, I quite concur with Mr Tooke. If it be well founded, the whole increased value of our currency since the passing of Mr Peel's bill in 1819, may be estimated at about 10 per cent. To that amount, taxation has been increased by the measure for restoring specie payment; to that amount the fall of grain, and with it of all other commodities, has taken place as far as this cause alone has operated on them; but all above that amount, all the further depression which the price of corn has sustained, must be accounted for by the supply having exceeded the demand; a depression, which would have equally occurred, if no alteration whatever had been made in the value of the currency.
It is, indeed, alleged by many of the landed interest, that to one cause alone, all the distress in agriculture is to be ascribed. They go so far as to say, that there is now no surplus produce on the land, but what is paid to the Government for taxes; that there is nothing whatever left for rent or profit; that whatever rent is paid, is derived from the capital of the farmer, and all these effects they charge on the alteration in the value of the currency.
It is evident that those who advance this most extravagant proposition, do not know how the alteration in the value of the currency affects the different interests of a country. If it injures the debtor, it in the same degree benefits the creditor; if its pressure is felt by the tenant, it must be advantageous to the landlord, and to the receivers of taxes. They, then, who maintain this doctrine, must be prepared to contend that all that fund, which formerly constituted the rent of the landlord, and the profits of the farmer, are, by the alteration in the value of money, transferred to the State, and are now paid to the receivers of taxes, and, among them, the stock-holders. That the situation of the stock-holder is improved, by his dividends being paid in a currency increased in value, there can be no doubt; but what evidence is there to show that his situation is so much improved, that he has now at his disposal, in addition to his former means of enjoyment, all those which were before at the disposal of the whole of the tenantry, and of the landlords of the country? So wild an assertion cannot be for a moment entertained; we have not heard of splendid equipages and superb mansions having been built by the stock-holders since, and in consequence of, the bill of 1819. Besides, if this were true, how comes it that the profits of the merchant and manufacturer have escaped the fund-holder, this devouring monster, as he has been called? Are not their profits governed by the same principle, and by the same law, as the profits of the farmer? How have they contrived to exempt themselves from this desolating storm? The answer is plain, there is no truth in the allegation. Agriculture has been depressed by causes of which the currency forms only a little part. The peculiar hardships which the landed interest are suffering, are of a temporary character, and will continue only while the supply of produce exceeds the demand. A remunerative price is impossible while this cause of low value continues; but the situation of things which we now witness cannot have any permanence.
Is it not quite certain, that if the pressure on the farmers, from the alteration in the value of currency, and the increased taxation consequent upon it, has been so great as to take from them all the profits of their capital, it must also have taken away the profits of all other persons employing capital? for it is quite impossible that one set of capitalists should be permanently without any profit at all, whilst others are making reasonable profits.
On the part of the landlords it may be said, that they are encumbered with fixed charges on their estates, such as dowers, provision for daughters, and younger children, mortgages, &c. It cannot be denied that an alteration in the value of currency must greatly affect such engagements, and must be very burdensome to landlords; but they should remember that they or their fathers benefited by the depreciation of the value of the currency. All their fixed engagements, their taxes included, were for many years paid in the depreciated medium. If they suffer injustice now, they profited by injustice at a former period; and if the account were fairly made up, it would, I believe, be found that, as far as alteration in the value of currency is concerned, they have little just cause for complaint.
But, on the score of money engagements, which are now affected by the increased value of currency, have the commercial interest no cause for complaint? Are they not debtors in as large an amount as the landed interest? How many persons have retired from business, whose capitals are, directly or indirectly, still employed by their successors? What vast sums are employed by bankers and others in discounting bills? For the whole of this value there must be debtors, and the increased value of money could not have failed very much to aggravate the pressure of their debts.
I mention these circumstances to show that if the real efficient cause of the distress of the landed gentlemen was the increased value of money, it ought to have produced similar distress in other quarters;—it has not done so, and therefore I have a right to infer, that the cause of the distress has been mistaken.
The profits of the farmer must bear some uniform proportion to the profits of the other classes of capitalists; they are subject to temporary fluctuations, perhaps, in a greater degree than the profits of others; but the circumstances of which they complain, though severe and aggravated at the present time by other causes, yet are by no means new or uncommon.
Mr Tooke, in his evidence before the Agricultural Committee, in pages 230 and 231, has furnished us with extracts from publications in the last century, in which the ruin of the landed interest was foretold in terms not very unlike those used in the present day. Those difficulties have passed, and the present ones will, with a little good legislation, soon only be matter of history.
At a late Court of proprietors of Bank Stock, the Directors said that, so far from having reduced the amount of the circulation since 1819, they had considerably increased it, and that it was this year actually more by 3,000,000l. than the amount of the circulation at the same period last year or the year preceding. If the Directors were quite correct in this statement, it is no answer to the charge of their having kept the circulation too low, and thereby caused the great influx of gold. My question to them is, “Was your circulation so high as to keep the exchange at par?” To this they must answer in the negative; and therefore I say, that if in consequence of the importation of gold, that metal is enhanced in value, and the pressure on the country is thereby increased, it is because the Bank did not issue a sufficient quantity of notes to keep the exchange at par. This charge is of the same force whether the amount of bank notes has, in point of fact, been stationary, increasing, or diminishing.
But I dispute the fact of the circulation having been even half a million higher in amount in 1822 than in 1821 and 1820. The mode of proving the proposition adopted by the Bank is not satisfactory; they say, in 1821 we had 23,800,000l. in circulation, and now the notes in circulation, with the sovereigns we have since issued, amount to 3,000,000l. more. But as sovereigns are circulated in Ireland, and in other districts of the United Kingdom, how can they affirm, that in the same channel in which 23,800,000l. bank notes circulated in 1821, 26,800,000 bank notes and sovereigns together, are now in circulation? I believe the contrary to be the fact, for I find that the amount of notes of five pounds and above, which have been in circulation for several years past, in the month of February, is as follows:—
And as the notes of five pounds and upwards have not increased 400,000l. since 1820, I find it impossible to believe that the circulation of a smaller denomination can have increased in any much larger proportion.
Before I conclude this section I must observe, that the complaints made against the Bank for refusing to lend money on discount at 4 per cent. are without any good foundation. The reason for such complaints is, that by lending at 4 per cent. they would lower the rate of interest generally, and the landed interest would be benefited by being able to raise money on mortgage on cheaper terms than they now pay for it. I believe, however, that no amount of loans which the Bank might make, and no degree of lowness of interest at which they might choose to lend, would alter the permanent rate of interest in the market. Interest is regulated chiefly by the profits that may be made by the use of capital; it cannot be controlled by any bank, nor by any assemblage of banks. During the last war the market rate of interest for money was, for years together, fluctuating between 7 and 10 per cent.: yet the Bank never lent at a rate above 5 per cent. In Ireland, the Bank, by its charter, is obliged to lend at a rate of interest not exceeding 5 per cent., yet all other persons lend at 6 per cent.
A Bank has fulfilled all its useful functions when it has substituted paper in the circulation for gold; when it has enabled us to carry on our commerce with a cheap currency, and to employ the valuable one which it supplants productively: provided it fulfils this object, it is of little importance at what rate of interest it lends its money.
One argument used by a very enlightened member of Parliament, during a late discussion on the rate of interest charged by the Bank, was rather a singular one: he said that the Bank of France, and other banks on the Continent, lent at a low rate, and therefore the Bank of England should do so. I can see no connexion between his premises and conclusion. The Bank of France ought to be governed by the market rate of interest and the rate of profits in France; the Bank of England by the market rate of interest and the rate of profit in England. One may be very different from the other. From the whole of his argument, I should infer that he considered a low rate of interest, in itself, beneficial to a country. The very contrary, I imagine, is the truth. A low rate of interest is a symptom of a great accumulation of capital; but it is also a symptom of a low rate of profits, and of an advancement to a stationary state; at which the wealth and resources of a country will not admit of increase. As all savings are made from profits, as a country is most happy when it is in a rapidly progressive state, profits and interest cannot be too high. It would be a poor consolation, indeed, to a country for low profits and low interest, that landlords were enabled to raise money on mortgage with diminished sacrifices. Nothing contributes so much to the prosperity and happiness of a country as high profits.
This complaint against the Bank, which comes, I think, with an ill grace from a member of Parliament, as representing the public interest, might be consistently urged by a Bank proprietor at a general meeting of their body, for it is difficult to account on what principle of advantage to the concern which they manage the Directors can think it right to lend their proprietors' money at 3 per cent. to Government∗ when they could obtain 4 per cent. from other borrowers; but with this the public have no concern, and they and their proprietors should be left to settle this matter as they please.
On the Effects of a Low Value of Corn on the Rate of Profits.
When I use the term—a low value of corn, I wish to be clearly understood. I consider the value of corn to be low, when a large quantity is the result of a moderate quantity of labour. In proportion, as for a given quantity of labour a smaller quantity of corn is obtained, corn will rise in value. In the progress of society there are two opposite causes operating on the value of corn; one, the increase of population, and the necessity of cultivating, at an increased charge, land of an inferior quality, which always occasions a rise in the value of corn; the other, improvements in agriculture, or the discovery of new and abundant foreign markets, which always tend to lower the value. Sometimes one predominates, sometimes the other, and the value of corn rises or falls accordingly.
In speaking of the value of corn, I mean something rather different from its price—when its value rises, its price generally rises, and would always do so, if money, in which price is uniformly estimated, were invariable in value. But corn may not vary as compared with all other things—it may not be the result of either more or less labour, and yet it may rise or fall in price, because money may become more plentiful and cheap, or more scarce and dear. Nothing is of so little importance to the community collectively, as an alteration in the price of corn, caused by an alteration in the value of money merely; nothing of greater importance, as far as its profits and its wealth are concerned, than a rise or fall in the price of corn, when money continues of a fixed and invariable value. We will suppose money to continue at a fixed and invariable value, that we may ascertain the effects of a rise or fall in the value of corn; which, on this supposition, will be synonymous with a rise or fall in its price.
Corn being one of the chief articles on which the wages of labour are expended, its value to a great degree, regulates wages. Labour itself is subject to a fluctuation of value in the same manner as every thing which is the subject of demand and supply, but it is also particularly affected by the price of the necessaries of the labourer; and corn, as I have already observed, is amongst the principal of those necessaries. In a former section I have endeavoured to show, that a general rise of wages will not raise the prices of commodities on which labour is expended. If wages rose in one trade, the commodity produced in that trade must rise, to place the producer of it on a par with all other trades; but when wages affect all producers alike, a rise in the value of all their commodities must, as I have on a former occasion remarked, be a matter of great indifference to them, as whether they were all at a high price or all at a low price, their relative values would be the same, and it is the alteration of their relative values only which gives to the holders of them a greater or less command of goods. Every man exchanges his goods, finally, for other goods, or for labour, and he cares little whether he sells his own goods at a high price, if he is obliged to give a high price for the goods he purchases, or sells them at a low price, if, at the same time, he can also procure the goods he wants at a low price. In either case his enjoyments are the same.
With a permanently high price of corn, caused by increased labour on the land, wages would be high; and, as commodities would not rise on account of the rise of wages, profits would necessarily fall. If goods worth 1000l. require at one time labour which cost 800l., and at another the price of the same quantity of labour is raised to 900l., profits will fall from 200l. to 100l. Profits would not fall in one trade only, but in all. High wages, when general, equally affect the profits of the farmer, the manufacturer, and the merchant. There is no other way of keeping profits up but by keeping wages down. In this view of the law of profits, it will at once be seen how important it is that so essential a necessary as corn, which so powerfully affects wages, should be at a low price; and how injurious it must be to the community generally, that, by prohibitions against importation, we should be driven to the cultivation of our poorer lands to feed our augmenting population.
Besides the impolicy of devoting a greater portion of our labour to the production of food than would otherwise be necessary, thereby diminishing the sum of our enjoyments and the power of saving, by lowering profits, we offer an irresistible temptation to capitalists to quit this country, that they may take their capitals to places where wages are low and profits high. If landlords could be sure of the prices of corn remaining steadily high, which happily they cannot be, they would have an interest opposed to every other class in the community; for a high price, proceeding from difficulty of production, is the main cause of the rise of rent: not that the rise of rent, the advantage gained by the landlord, is an equivalent for the disadvantage imposed on the other classes of the community, in being prevented from importing cheap corn we have not that consolation: for to give a moderate advantage to one class, a most oppressive burthen must be laid on all the other classes.
This advantage to the landlords themselves would be more apparent than real; for, to complete the advantage, they should be able to calculate on steady as well as high prices. Nothing is so injurious to tenants as constantly fluctuating prices, and under a system of protection to the landlord, and prohibition against the importation of foreign corn, tenants must be exposed to the most injurious fluctuations of profits, as I shall attempt to show in the next section. When the profits of a farmer are high, he is induced to live more profusely, and to make his arrangements as if his good fortune were always to continue; but a reverse is sure to come: he has then to suffer from his former improvidence, and he finds himself entangled in expenses, which render him utterly unable to fulfil his engagements with his landlord.
The landlord's rent is, indeed, nominally high, but he is frequently in the situation of not being able to realize it; and little doubt can exist, that a more moderate and steady price of corn, with regular profits to the tenant, would afford to the landlord the best security for his happiness and comfort, if not for the receipt of the largest amount of rent.
It appears, then, that a high but steady price of corn is most advantageous to the landlord; but, as steadiness in a country situated as ours, is nearly incompatible with a price high in this country, as compared with other countries, a more moderate price is really for his interest. Nothing can be more clearly established, than that low prices of corn are for the interest of the farmer, and of every other class of society; high prices are incompatible with low wages, and high wages cannot exist with high profits.
I must here notice an error, which has been supported by one of those, whose talents give them great authority in the place where the opinion was delivered; it is, that though the manufacturer has it in his power to raise the price of his commodity when it is taxed, and even, on some occasions, to profit by its being taxed, yet the farmer cannot so indemnify himself, and that, consequently, at the end of his lease, if not before, the whole weight of the tax must fall on his landlord. This is an error of long standing, for it is supported by no less an authority than Adam Smith. The subject of rent, and the laws by which its fall and rise are regulated, have been explained since the time of Adam Smith; and all those men who are acquainted with this explanation, are incapable of falling into the error. I am not now going into the question of rent; that subject has been well elucidated by several able writers. But I would ask those who still adhere to Adam Smith's doctrine, on whom the tax on land could fall when it was equal to 3s. per acre, if the land cultivated were of the description mentioned by Mr Harvey in his evidence, and to which I have already referred land for which 1s. 6d. only is paid as rent? The farmer must either get lower profits than other farmers who pay higher rents, or he must be able to transfer this charge to the consumer. But why should he remain in an occupation in which his profits are below the profits of all other capitalists in the community? He might require time to remove himself from an unprofitable employment; but he would not perseveringly continue in it, more than any other person similarly circumstanced in other occupations.
I have taken the instance mentioned by Mr Harvey, because, as he is a practical man, weight will be given to his information; but I am myself fully persuaded that a large quantity of corn is raised in every country, for the privilege of raising which, no rent whatever is paid. Every farmer is at liberty to employ an additional portion of capital on his land after all that which is necessary for affording his rent, has already been employed. The corn raised with this capital, can only afford the usual profits if no rent is paid out of it. Impose a tax on producing it, without admitting a compensation by a rise of price, and that moment you offer an inducement to the withdrawing of that portion of capital from the land, thereby diminishing the supply. No point is more satisfactorily established in my opinion, than that every tax imposed on the production of raw produce falls ultimately on the consumer, in the same way as taxes on the production of manufactured commodities fall on the consumers of those articles.
Under a System of Protecting Duties established with a view to give the Monopoly of the Home Market to the Home Grower of Corn, Prices cannot be otherwise than fluctuating.
Protecting duties on the importation of corn must always be imposed on the supposition that corn is cheaper in foreign countries, by the amount of such duties; and that if they were not imposed, foreign corn would be imported. If foreign corn were not cheaper, no protecting duty would be necessary, for, under a system of free trade, it would not be imported. To the amount, then, of the protecting duty, the ordinary and average price of corn must be supposed to be higher in the country imposing it than in others, and when abundant harvests occur, before any corn can be exported from a country so circumstanced, corn must fall from its usual and average price, not only by the amount of the duty, but also by the further amount of the expenses of exporting the corn. Under a system of free trade, the price of corn in two countries could not materially differ more than the expenses attending the exportation of it from one country to the other: and therefore, if an abundant harvest occurred in either, and was not common to both, after an inconsiderable fall of price, a vent for the superfluous produce would be immediately found in exportation. But under a system of protecting duties, or of prohibitory laws, the fall in the price of corn from an abundant crop, or from a succession of abundant crops, must be ruinous to the grower, before he can relieve himself by exportation. If we could listen to Mr Webb Hall's recommendation of a fixed duty of 40s. on the importation of foreign corn; and if he be right in supposing that 40s. is the difference of the natural price of corn in England and in the corn countries, on every occasion of abundant harvests, corn must actually fall 40s., before it can be the interest of any party to export it to the Continent; a fall so great that, if the farmers were subjected to it, they would be totally unable to pay their rents in abundant seasons, without a great sacrifice of capital.
The same observation is applicable to the present corn law, which prohibits importation till the price rises to 80s. The effect of this law is to make the price of corn in this country habitually and considerably above the price in other countries; and, therefore, on occasion of abundant crops, it must fall below the price of those other countries, before any relief can be afforded to the grower by exportation. Its effect, indeed, in this view, is precisely the same as that of the high fixed duty which we have been already considering.
But the present law has another capital defect, from which the system of fixed duties is free. When the average price of wheat reaches 80s. per quarter, the ports are now open for three months, for an unlimited importation of foreign wheat, duty free. With prices somewhat about 40s. per quarter on the Continent, in average years, the temptation to import into this country, during the three months that the ports are open, must operate to the introduction of an enormous quantity.
During these three months, and for a very considerable time afterwards, for the effect cannot cease with the shutting of the ports, the home grower and the foreign grower are placed in a state of free competition, to the ruin of the former. By prohibitory duties he is encouraged to employ his capital on the poorer lands of this country, which require a great expense for a small produce; and when he has an unusually short crop, and most stands in need of a high price, he is all at once exposed to the free competition of the grower of corn on the Continent, to whom a price of 40s. would be amply sufficient to compensate him for the whole cost of production. A system of fixed duties protects the farmer against this particular danger, but it leaves him exposed, in the same degree as on the present system, to all the evils which arise from abundant crops, and which can never fail to accompany every plan of a corn law, which shall elevate the price of corn in the country in which they prevail, considerably above the level of the prices of other countries.
It must not be supposed, however, that to obviate this difficulty, the importation of corn should be at all times allowed without the payment of any duty whatever; that is not, under our circumstances, the course which I should recommend. I have already shown in Section III., that with a view to the real interest of the consumer, in which the interests of the whole community are, and ever must be, included, whenever any peculiar tax falls on the produce of any one commodity, from the effects of which all other producers are exempted, a countervailing duty to that amount, but no more, should on every just principle be imposed on the importation of such commodity; and, further, that a drawback should be allowed, to the same amount also on the exportation of the like commodity. If, before any taxation, the remunerating price of wheat was 60s. per quarter, both in England and on the Continent, and in consequence of the imposition of a tax, such as tithes, falling exclusively on the farmer, and not on any other producer, wheat was raised in England to 70s., a duty of 10s. should be also imposed on the importation of foreign corn. This tax on foreign corn, and on home corn also, should be drawn back on exportation. However large the aggregate amount might be of the drawback given to the exporter, it would only be returning to him a tax which he had before paid, and which he must have to place him in a fair state of competition in the foreign markets, not only with the foreign producer, but with his own countrymen who are producing other commodities. It is essentially different from a bounty on exportation, in the sense that the word bounty is usually understood; for by a bounty is generally meant a tax levied on the people for the purpose of rendering corn unnaturally cheap to the foreign consumer, whereas, what I propose, is to sell our corn at the price at which we can really afford to produce it, and not to add to its price a tax which shall induce the foreigner rather to purchase it from some other country, and deprive us of a trade, which, under a system of free competition, we might have selected.
The duty which I have here proposed is the only legitimate countervailing duty, which neither offers inducements to capital to quit a trade, in which for us it is the most beneficially employed, nor holds out any temptations to employ an undue proportion of capital in a trade to which it would not otherwise have been destined. The course of trade would be left precisely on the same footing as if we were wholly an untaxed country, and every person was at liberty to employ his capital and skill in the way he should think most beneficial to himself. We cannot now help living under a system of heavy taxation, but to make our industry as productive to us as possible, we should offer no temptations to capitalists, to employ their funds and their skill in any other way than they would have employed them if we had had the good fortune to be untaxed, and had been permitted to give the greatest development to our talents and industry.
The Report of the Committee on Agricultural Distress in 1821, contains some excellent statements and reasonings on this subject.
To that important document I can with confidence refer, in support of the principles which I am endeavouring to lay down on the impolicy of protecting corn laws. The arguments in it in favour of freedom of trade appear to me unanswerable; but it must be confessed, that in that same Report, recommendations are made utterly inconsistent with those principles.
After condemning restrictions on trade, it recommends measures of permanent restriction; after showing the evils resulting from prematurely taking poor lands into cultivation, it countenances a system which, at all sacrifices, is to keep them in tillage. In principle, nothing so odious as monopoly and restriction; in practice, nothing so salutary and desirable.
The Committee on Agriculture this year avoid taking any notice of the sound doctrines entertained by the last Committee, but have founded their whole Report on the erroneous ones; and conclude their recommendations to the House in the following words:—“If the circumstances of this country should hereafter allow the trade in corn to be permanently settled upon a footing constantly open to all the world, but subject to such a fixed and uniform duty as might compensate to the British grower the difference of expense at which his corn can be raised and brought to market, together with the fuir rate of profit upon the capital employed, compared with the expense of production, and other charges attending corn grown and imported from abroad, such a system would, in many respects, be preferable to any modification of regulations depending upon average prices, with an ascending and descending scale of duties; because it would prevent the effects of combination and speculation, in endeavouring to raise or depress those averages, and render immaterial those inaccuracies which, from management or negligence, have occasionally produced, and may again produce such mischievous effects upon our market; but your Committee rather look forward to such a system as fit to be kept in view for the ultimate tendency of our law, than as practicable within any short or definite period.”
The system which we are to keep in view for the ultimate tendency of our law, we are told, is one of a fixed duty; but on what principle is the fixed duty to be calculated? not on that which I have endeavoured to show is the only sound one, namely, that the duty should accurately countervail the peculiar burthens to which the grower of corn is subject, but a fixed duty which should compensate to the British grower the difference of expense at which his corn can be raised and brought to market, compared with the expense of production, and other charges attending corn grown and imported from abroad. Instead of holding out any hope to the consumer that we shall at any future time legislate on a principle which shall enable him to purchase corn at as cheap a price as British industry shall be enabled to obtain it for him,—instead of giving any security to the British capitalist that wages shall not be unnaturally raised in this country, by obliging the labourer to purchase corn at a dear, and not at a cheap rate—a security so essential to the keeping up the rate of profits,—instead of bidding the farmer look forward to a time when he will be spared from the fluctuations in the price of the commodity which he raises, and which are so destructive to his interests, we are told that the present mode in which the price of corn is kept in this country habitually and considerably above its price in other countries, is not, perhaps, the best mode of effecting that object, as it may be more conveniently done by means of a fixed duty instead of a varying duty; but, at any rate, corn is to be rendered habitually and considerably dearer in this country than in others. A duty calculated upon the principle of the Committee cannot fail to perpetuate a difference of price between this and other countries, equal to the difference of expense of growing corn in this country beyond the expense of growing it in others. If we had not already pushed the endeavour of providing food for ourselves too far,—if we had not, by our own acts, made the expense of growing corn in this country greater than in others, such a law would be nugatory, because no difference of expense would exist. Is it not, then, in the highest degree absurd first to pass a law, under the operation of which the necessity is created of cultivating poor lands, and then, having so cultivated them at a great expense, make that additional expense the ground for refusing ever to purchase corn from those who can afford to produce it at a cheaper price? I can produce a quantity of cloth which affords me a remunerating price at 60l., which I can sell to a foreign country, if I will lay out the proceeds in the purchase of thirty quarters of wheat at 2l. per quarter; but I am refused permission to do so, and am obliged, by the operation of a law, to employ the capital which yielded me 60l. in cloth, in raising fifteen quarters of wheat at 4l. per quarter.
The exchange of the cloth for wheat,—the production of the cloth is wholly prevented by the countervailing duty of 2l. per quarter on the importation of wheat, which obliges me to raise the corn, and prevents me from employing my capital in the making of cloth for the purpose of exchanging it for wheat.
It is true, indeed, that in both cases I raise a commodity worth 60l., and to those who look only at money, and not money's worth, either of these employments of my capital appears equally productive; but a moment's reflection will convince us that there is the greatest difference imaginable between obtaining (with the same quantity of labour, mind) thirty quarters of wheat, and fifteen quarters, although either should, under the circumstances supposed, be worth 60l.
If the principle recommended by the Committee were consistently followed, there is no commodity whatever which we can raise at home which we should ever import from abroad; we should cultivate beet-root, and make our own sugar, and impose a duty on the importation of sugar equal to the difference of expense of growing sugar here, and growing it in the East or West Indies. We should erect hot-houses, and raise our own grapes for the purpose of making wine, and protect the maker of wine by the same course of policy. Either the doctrine is untenable in the case of corn, or it is to be justified in all other cases. Does the purchaser of a commodity ever inquire concerning the terms on which the producer can afford to raise or make it? His only consideration is the price at which he can purchase it. When he knows that, he knows the cheapest mode of obtaining it; if he can himself produce it cheaper than he can purchase it, he will devote himself to its production rather than to the production of the commodity with which he, in fact, must otherwise purchase it.
But there are persons, and of the number of those, too, who are considered of authority on these matters, who say this reasoning would be correct if we were about to employ capital on the land with a view to obtain more corn; that then it would undoubtedly be wise to consider whether we could purchase it from abroad cheaper than we could grow it at home, and govern our proceedings accordingly; but that, when capital has been expended on the land, it is quite another question, since much of that capital would be lost, if we then resolved rather to import cheap corn from abroad than grow it at a dear price at home. That some capital would be lost cannot be disputed, but is the possession or preservation of capital the end, or the means? The means, undoubtedly. What we want is an abundance of commodities, and if it could be proved that, by the sacrifice of a part of our capital, we should augment the annual produce of those objects which contribute to our enjoyment and happiness, we ought not, I should think, to repine at the loss of a part of our capital.
Mr Leslie has invented an ingenious apparatus, by the use of which we might fill our ice-houses with ice. Suppose a capital of half a million were expended on these machines, would it not nevertheless, be wise in us to get our ice, without any expense, from the frozen ponds in our neighbourhoods, rather than employ the labour, and waste the acid or other ingredients in the manufacture of ice, although, by so doing, we should for ever sacrifice the 500,000l. which we had expended on air-pumps?
In this recommendation, which must have the effect of perpetuating the difference between the price of corn here and its price in other countries, we should naturally conclude that the Committee did not admit the evils which from time to time must thence inevitably arise in this country. Quite the contrary; they admit them to the fullest extent, and they refer to the statements made on that subject in a former report, for the purpose of expressing their approbation of the reasoning which is founded on them. They say, “The excessive inconvenience and impolicy of our present system have been so fully treated and so satisfactorily exposed in the report already alluded to (pp. 10 and 12,) that it is unnecessary to do more than to refer to it, adding only, that every thing which has happened subsequent to the presentation of that report, as well as all our experience since 1815, has more and more tended to demonstrate how little reliance can be placed upon a regulation which contains an absolute prohibition up to a certain price, and an unlimited competition beyond that price; which, so far from affording steadiness to our market, may at one time reduce prices, already too low, still lower than they might have been even under a free trade; and at another, unnecessarily enhance the prices already too high, which tends to aggravate the evils of scarcity, and render more severe the depression of profits from abundance. “
Here the two evils of our corn law are very fairly stated; and against one of them, that of unlimited competition beyond the price of 80s., a remedy, though by no means the best which might have been temporarily established, is recommended; but, instead of suggesting any means of alleviating or remedying the other evil, proceeding from abundance, which is so fully acknowledged, measures are recommended for immediate and temporary adoption; and others are suggested as desirable to be at a future time permanently adopted, which cannot fail to perpetuate this evil, because they cannot fail to make the price of corn constantly and considerably higher in this than in any other neighbouring country.
One of the grounds advanced for high duties on the importation of corn is, that the manufacturer is protected by high duties against the competition of the foreign manufacturer, and that the cultivator of the soil should have a similar protection against the foreign grower of corn. To this it is impossible to give an answer in language more satisfactory than has been done by Lord Grenville.
“If the measures which had formerly been adopted for the protection of trade and manufactures were right, let them be continued; if wrong, let them be abrogated; not suddenly, but with that caution with which all policy, however erroneous, so engrafted into our usage by time, should be changed; but let it be consecrated as a principle of legislation, that in no case should the grounds for advising the Legislature to afford any particular protection, rest on the protection which might have been afforded in any other quarter. In fact, he could not well conceive how the noble earl could argue, that measures which he admitted to have been wrong with respect to manufactures, would nevertheless be right with respect to agriculture.
It would be an extraordinary mode of doing justice, thus to declare that, because a large, the largest, part of the community were already oppressed by favours shown to one particular class, they should be still farther oppressed by favours shown to another particular class.”—Speech, March 15, 1815.
If any thing more is required against this pretension of protection for the land, it is furnished in the following passage of the Report of the Agricultural Committee of last year:—
“They (the Committee) observe, that one of the witnesses, in order to illustrate his ideas and the wishes of the petitioners, has furnished a table of the duties payable on foreign manufactured articles, of which several are subject to duties of excise in this country; and upon which the importation duty, as, for instance, upon the article of glass, is imposed in a great measure to countervail the duty upon that article manufactured in this kingdom.
But the main ground upon which your Committee are disposed to think that the House will look with some mistrust to the soundness of this principle, is—first, that it may be well doubted whether (with the exception of silk) any of our considerable manufactures derive benefit from this assumed protection in the markets of this country: for how could the foreign manufactures of cotton, of woollens, of hardware, compete with our own in this country, when it is notorious that we can afford to undersell them in the products of those great branches of our manufacturing industry, even in their own markets, notwithstanding that cotton and wool are subject to a direct duty on importation, not drawn back upon their export in a manufactured state, as well as to all the indirect taxation, which affects capital in these branches, in common with that capital which is employed in raising the productions of the soil?”
This is followed by other passages which are excellent, and all tend to show, that the protection which manufactures are said to possess, is not really afforded them; though, if it were, Lord Grenville's argument is conclusive against that being a ground for extending protection to agriculture.
It is to be hoped that we shall, even in the present session of Parliament, get rid of many of these injurious laws; a better spirit of legislation appears likely to prevail in the present day; and that absurd jealousy which influenced our forefathers, will give way to the pleasing conviction, that we can never, by freedom of commerce, promote the welfare of other countries without also promoting our own.
The passage from the Report is useful in another respect: it shows us that the writer of it understood well what a countervailing duty is, and should be; for he states that the duty on the importation of glass “is imposed in a great measure to countervail the duty upon that article manufactured in this kingdom.” How is this passage to be reconciled with the recommendation in both Reports, that, in imposing a duty on the importation of corn, “it should be calculated fairly to countervail the difference of expense, including the ordinary rate of profit, at which corn, in the present state of this country, can be grown and brought to market within the United Kingdom, compared with the expense, including also the ordinary rate of profit, of producing it in any of those countries from whence our principal supplies of foreign corn have usually been drawn, joined to the ordinary charge of conveying it from thence to our markets?”
On the Project of advancing Money on Loan, to Speculators in Corn, at a low Interest.
It is allowed by the Report, that “the universal rule of allowing all articles, as much as possible, to find their own natural level, by leaving the supply to adjust itself to the demand,” discouraged the Committee from recommending that Government should employ money, in making purchases of corn, with a view to sell it when the price rose; but the Committee do not appear to have seen that the same universal rule, of which they speak with approbation, ought to have discouraged them also from recommending that Government should advance money, at a low rate of interest, to persons who should purchase wheat, to deposit it in the King's warehouses, while it was under 60s. per quarter.
Will not such an advance of money at a low rate of interest, and for twelve months certain, if the parties desire it, prevent the article from “finding its own level,” and “will the supply be left to adjust itself to the demand?”
If the cause of the low price of corn be owing to an abundant quantity in the country, and not to an abundant quantity hurried prematurely to market by the distress of the farmers, the proposed remedy will be really mischievous, as in that case we must go through the ordeal of low prices, and increased consumption, which is always in a degree consequent on low price, before the supply will adjust itself to the demand, and prices become again remunerative. By the encouragement thus given to storing corn for a twelvemonth, the period of glut may be retarded, but it must come at last. On the other supposition, that from alarm or distress more than a due portion of corn is prematurely sent to market, and that before the next harvest the whole supply will, in consequence, prove deficient, and the price will rise; I must observe, that sharp-sighted individuals, prompted by a regard to their interest, can discover this, if it be so, with more certainty than Government. Money is not wanted to purchase the wheat thus unduly brought to market; nothing is required but a conviction of the probability of a diminished supply, or an increased demand, and a probable rise of price, to awaken the spirit of speculation. If there were any well-founded opinion of such a rise, we should soon witness a more than usual activity among the corn-dealers. When there was a prospect of continued wet weather, just before the harvest of last year, did we not see an immediate spring in the price of corn? On what was such rise founded, but on an anticipation of probable scarcity, and an increased price? If, then, there be any good foundation for a probable deficiency before the wheat of the next harvest comes into use, individuals will be found to speculate without any encouragement from Government; the difference between a rate of interest of 3 per cent. and of 5 per cent. must be of little importance in such a transaction, and as far as the public is concerned may be wholly neglected, when we are considering the advantages of such a measure.
It has been said that similar advances have been made to the commercial interest on more than one occasion, why then should the agricultural interest be excluded from a similar benefit? In the first place, I doubt whether the measure be justifiable in any case whatever; but it cannot be disputed that the commercial class made their application for this indulgence under very different circumstances from the agricultural class.
The commercial class are liable to stagnation of business; a market for which they have prepared their goods may, during war (and it is only during war that such advances have been made) be shut against them. On the probability of selling their goods, they have given bills which are becoming due, and their character and fortune depend on fulfilling their engagements. All they want is time; by forbearing to produce more of the commodity for which there is a diminished demand, they are sure, though probably with great loss, to dispose of their articles. Is the situation of the farmer any thing like this? Has he any bills becoming due? Do all his future transactions depend on his momentarily sustaining his credit? Are markets ever wholly shut against him? Is it a mere supply of money to meet his bills that he requires? The cases are most widely different, and the analogy which is attempted to be set up between them fails in every particular.
Can the present State of Agricultural Distress be attributed to Taxation.
The present distress is caused by an insufficient price for the produce of the land, which it appears impossible, with any degree of fairness, to ascribe to taxation. Taxation is of two kinds, it either falls on the producer of a commodity in his character of producer, or it falls on him as a consumer. When a farmer has to pay an agricultural horse-tax, tithes, land-tax, he is taxed as a producer, and he seeks to repay himself, as all other producers do, by imposing an additional price, equivalent to the tax, on the commodity which he produces. It is the consumer, then, that finally pays the tax, and not the producer, as nothing can prevent the latter from transferring the tax to the consumer, but the production of too great a quantity of the commodity for the demand. Whenever the price of a commodity does not repay to the producer all the charges of every description which he is obliged to incur, it fails to give him a remunerating price; it places him under a disadvantage, as compared with the producers of other commodities; he no longer gets the usual and ordinary profits of capital, and there are only two remedies by which he can be relieved: one, the diminution of the quantity of the commodity, which will not fail to raise its price, if the demand do not at the same time diminish; the other, the relieving him from the taxes which he pays as a producer. The first remedy is certain and efficacious; the second is of a more doubtful description, because, if the price of the commodity did once remunerate the producer, after the tax was imposed, it could only fall afterwards from increased supply, or diminished demand.
The repeal of the tax will not diminish quantity; and if it does not further lower the price, it will not increase demand. If the price falls still lower, then the repeal of the tax will not afford relief to the producer. It is only in the case of the commodity falling no lower, although the producer is relieved from one of the charges of production, that he can be said to be benefited by the repeal of a tax on production; and a very reasonable doubt may be entertained, whether the competition of the sellers may not further diminish the price of the commodity in consequence of the repeal of the tax. That taxes on production may be the cause of an excess of the supply above the demand, is true, when the tax is a new one, and when the consumers are unwilling to re-pay, in the additional price, the additional charge imposed on the producer. But this is not the case in this country at the present moment; the taxes are not new ones; the prices of raw produce were sufficiently high, notwithstanding the taxes, to afford a remunerating price to the producer; and no doubt can exist, that if there had been no such taxes, raw produce would have been considerably lower than it now is. The same cause which made wheat fall from 80s. to 60s., or 25 per cent., would have made it fall from 60s. to 45s., if, in consequence of fewer taxes on the land, 60s. and not 80s. had been the ordinary average price. Some of the charges of production have actually been diminished, while there is every reason to conclude, that the quantity consumed by the people has been increasing.
The alteration in the value of money has been generally supposed to be favourable to the working classes, as their money wages are said not to have fallen in proportion to the increased value of money, and the fall in the price of necessaries. Their condition is then bettered, and their power of consuming increased; but prices can never stand against a great augmentation of quantity, and therefore there is no other rational solution of the cause of the fall of agricultural produce but abundance.
Taxes on consumers affect consumers generally, and will in no way account for the distress of a particular class, or for an insufficient price of the commodity which they grow or manufacture. The taxes on candles, soap, salt, &c., &c., are not only paid by farmers, but by all persons who consume those commodities. The repeal of those taxes would afford relief to all, and not to the agricultural class particularly.
Those who maintain, that on no reasonable grounds can it be shown, that taxation is the cause of agricultural distress and of the low price of corn, are sometimes represented as maintaining that a repeal of taxes will afford no relief; such a conclusion show a want of candour or of intelligence, for it is perfectly consistent to maintain, that taxation is not the cause of some particular distress, and at the same time insist that a repeal of taxes would afford relief. When Lord John Russell's horse falls because he trips over a stone, and is enabled to get up again when relieved from the burthen of his harness, it would surely be incorrect to say that the horse fell because he was burthened with harness; though it would be right to assert that the tripping over the stone threw him down, while the relief from the confinement of the harness enabled him to get up again.
For my own part, then, being of opinion that almost all taxes on production fall finally on the consumer, I think that no repeal of taxes could take place which would have any other effect than to relieve consumers generally of a part of the burthens which they now bear. Although I am at all times a friend to the most rigid economy in the public expenditure, yet I am also convinced, that there are causes of distress, to the producers of a particular commodity, arising from abundant quantity, from which no practicable repeal of taxes could materially relieve, particularly if the commodity be agricultural produce, and if its ordinary price be kept above the level of the prices of other countries by restrictions on importation.
Against such distress no country, and more particularly no country having a bad system of corn laws, is exempted. If we were absolutely without any taxes whatever; if the public expenditure was the most economical possible, and was supported by a revenue drawn from lands appropriated for that purpose; if we had no national debt, no sinking fund, we yet should be exposed to a destructive fall of price from occasional abundance. It is impossible to read Mr Tooke's able evidence before the Agricultural Committee of 1821, without being struck with the surprising effects which an excess of supply produces on price, and for which there is, in fact, no effectual remedy but a reduction of quantity. If there be any other remedy, why do not those who complain of the distress, and who have been in situations so favourable to make themselves heard, state it? With the exception of a reduction of taxation, new and additional protection against the competition of foreigners for every description of agricultural produce, direct purchases to be made by Government, or encouragements to others to make them, I have heard no remedies suggested: and as to the efficacy of these remedies, I must leave that to the reader's judgment; my own opinion of them having been already most decidedly expressed.
On the causes which have produced the degree of abundance to which I attribute all that part of the fall of raw produce since 1819, which cannot fairly be ascribed to the alteration in the value of the currency,∗ it will not be necessary for me to say much; we are, I think, justified in ascribing it to a succession of good crops, to an increasing importation from Ireland, and to the increase of tillage which the high prices and the obstacles opposed to importation during the war occasioned. Many of the gentlemen who gave evidence before the Committee concurred in describing the harvests of 1819 and 1820 as unusually abundant. Mr Wakefield said on the 5th April 1821, “I think there is a wonderful quantity of corn in the country; I now think that there is as much corn left in the country, as generally, in common years, there is after harvest.” “I think, that if you were to have for the next two or three years, fair average crops, it would leave you with a great stock in hand.”
Mr Iveson.—“I think the last crop was abundant; the crop of 1820 was considerably beyond an average.”—P. 338.
Mr J. Brodie.—“The crop in Scotland was very abundant last year.”
“The crop of the year before was above an average crop too.”—P. 327.
Besides this abundant crop at home, the importations from Ireland were unusually great, as will be seen by the following account of the importation of oats, wheat, and wheat-flour, the production of Ireland, imported into Great Britain, which was laid before the Agricultural Committee of 1821.
|Years ending 5th Jan.||Oats—Qrs.||Wheat—Qrs.||Wheat flour—Cwt.|
|5th Jan. 1818||594,337||50,842||16,238|
|. . . 1819||1,001,247||95,677||33,258|
|. . . 1820||759,608||127,308||92,893|
|. . . 1821||892,605||351,871||180,375|
It will be seen by the above account how greatly the importation from Ireland has increased, which, coming in addition to the abundant quantity yielded by the harvests of 1819 and 1820, will, I think, sufficiently account for the depression of price.
To trace this abundance to its source is not, however, necessary in this case; it is sufficient to show that the low price cannot have arisen from any other cause but an increased supply, or a diminished demand, to be convinced that the evil admits of no other effectual remedy but a reduction of quantity, or an increased demand.
That an abundant quantity has been exposed to sale will be shown by the account of the sales in Mark Lane.∗ It will be found, too, that an unusually large quantity has arrived in the port of London from ports in Great Britain and Ireland.
It must, indeed, not be forgotten that the fall of price is attributed to the abundant quantity actually in the market, and the reasoning founded on the doctrine of abundance being the cause of low price would in no degree be invalidated if, before the next harvest, our supply should be found to be below the demand, and there should be a great increase of price. We can have no unequivocal proof of abundance but by its effects. I believe in the existence of an abundant quantity, but I should not think my argument in the least weakened if corn should, before next harvest, rise to 80s. per quarter.
Having disposed of most of the subjects which are intimately connected with the question of the policy which it would be wise for this country to adopt, respecting the trade in corn, I shall briefly recapitulate the opinions which will be found more at large in various parts of this inquiry.
The cause of the present low price of agricultural produce is partly the alteration in the value of the currency, and mainly, an excess of supply above the demand. To Mr Peel's bill, even in conjunction with the operation of the Bank, no greater effect on the price of corn can, with any fairness, be attributed than 10 per cent., and to that amount the far greatest part of the taxation of the country has been increased; but this increased taxation does not fall on the landed interest only; it falls equally on the funded interest, and every other interest in the country. Suppose the land to pay one half of the whole taxation of the country, after deducting that part of the expenditure which depends on the value of money, and which would therefore be augmented in proportion as money fell in value, the whole increase of taxation which, since 1819, has fallen upon the landed interest, taking tenants and landlords together, cannot have exceeded 2 millions; but, suppose it 4 millions per annum,∗ is 4 millions per annum the amount of the whole loss sustained by landlords and tenants together by the fall in the price of agricultural produce? Impossible; because, by the allegations of the landed interest, all rent is now paid from capital, leaving nothing for profit; and, therefore, if the only cause of distress be the alteration in the value of the currency, 4 millions must have constituted all the net income both of landlords and tenants before such alteration—a proposition which no man would venture to sustain. To what other cause, then, is the distress to be attributed? To what other cause are we to ascribe the extreme depression of all agricultural produce? The answer is, I think, plain, intelligible, and satisfactory;—to the general prevalence of abundance, arising from good crops, and large importations from Ireland.
This fall has been increased by the operation of the present corn laws, which have had the effect of driving capital to the cultivation of poor lands, and of making the price of corn in average years in this country greatly to exceed the price in other countries. The price, under such circumstances, must be high, but in proportion as it is raised, so is it liable to a greater fall; for, in abundant seasons, the whole increased quantity gluts our own market, and if it be above the quantity which we can consume, rapidly depresses the price, without our having any vent from exportation, till the fall of price is ruinous to the interests of farmers, who are never so secure as when the resource of exportation can be easily had recourse to.
To obviate, as far as is practicable, this enormous evil, all undue protection to agriculture should be gradually withdrawn. The policy which we ought at this moment of distress to adopt, is to give the monopoly of the home market to the British grower till corn reaches 70s. per quarter. When it has reached 70s., all fixed price and system of averages should be got rid of, and a duty of 20s. per quarter on the importation of wheat, and other grain in proportion, might be imposed.
This change would do but little in protecting us from the effects of abundant crops, but it would be greatly beneficial in preventing an unlimited importation of corn when the ports were opened. Under the payment of a fixed duty, corn would be imported only in such quantities as it might be required, and as no one would fear the shutting of the ports, no one would hurry corn to this country till we really wanted it. Against the effects of glut, caused by an unlimited supply from abroad, we should be then amply protected.
This measure, however, although a great improvement on the present corn law, would be very deficient if we proceeded no farther. To establish measures which should at once drive capital from the land would, under the present circumstances of the country, be rash and hazardous, and, therefore, I should propose that the duty of 20s. should every year be reduced 1s. until it reached 10s. We should also allow a drawback of 7s. per quarter on the exportation of wheat; and these should be considered as permanent measures.
A duty of 10s. per quarter on importation, to which I wish to approach, is, I am sure, rather too high as a countervailing duty for the peculiar taxes which are imposed on the corn grower, over and above those which are imposed on the other classes of producers in the country; but I would rather err on the side of a liberal allowance than of a scanty one, and it is for this reason that I do not propose to allow a drawback quite equal to the duty. As far as the producer of corn was concerned, when the duty had fallen to 10s., the trade would to him have all the advantages of a free trade, within the trifling amount of 3s. per quarter. Whenever his crops were abundant, he could be relieved by exportation, after a very moderate fall of price, unless, indeed, the abundance and fall were general in all countries; but, at any rate, the price of his corn would be nearer the general rate of prices of the rest of the world by 20s. or 25s. than it is under the existing regulations, and this alteration would be invaluable to him.
Before I conclude, it will be proper to notice an objection which is frequently made against freedom of trade in corn, viz. the dependence in which it would place us for an essential article of subsistence on foreign countries. This objection is founded on the supposition that we should be importers of a considerable portion of the quantity which we annually consume.
In the first place, I differ with those who think that the quantity which we should import would be immense; and, in the second, if it were as large as the objection requires, I can see no danger as likely to arise from it.
From all the evidence given to the Agricultural Committee, it appears that no very great quantity could be obtained from abroad, without causing a considerable increase in the remunerating price of corn in foreign countries. In proportion as the quantity required came from the interior of Poland and Germany, the cost would be greatly increased by the expenses of land carriage. To raise a larger supply, too, those countries would be obliged to have recourse to an inferior quality of land, and, as it is the cost of raising corn on the worst soils in cultivation, requiring the heaviest charges, which regulates the price of all the corn of a country, there could not be a great additional quantity produced without a rise in the price necessary to remunerate the foreign grower. In proportion as the price rose abroad, it would become advantageous to cultivate poorer lands at home; and therefore, here is every probability that, under the freest state of demand, we should not be importers of any very large quantity.
But suppose the case to be otherwise, what danger should we incur from our dependence, as it is called, on foreign countries for a considerable portion of our food? If our demand was constant and uniform, which, under such a system, it would undoubtedly be, a considerable quantity of corn must be grown abroad expressly for our market. It would be more the interest, if possible, of the countries so growing corn for our use, to oppose no obstacles to its reaching us, than it would be ours to receive it.
Let us look attentively at what is passing in this country before our eyes. Do we not see the effects of a small excess of quantity on the price of corn? What would be the glut if England habitually raised a considerable additional quantity for foreign consumption? Should we be willing to expose our farmers and landlords to the ruin which would overwhelm them if we voluntarily deprived them of the foreign market, even in case of war? I am sure we should not. Whatever allowance we may make for the feelings of enmity, and for the desire which we might have to inflict suffering on our foe by depriving him of part of his usual supply of food, I am sure that at such a price as it must be inflicted, in the case which I am supposing, we should forbear to exercise such a power. If such would be our policy, so would it also be that of other countries in the same circumstances; and I am fully persuaded that we should never suffer from being deprived of the quantity of food for which we uniformly depended on importation.
All our reasoning on this subject leads to the same conclusion, that we should, with as little delay as possible, consistently with a due regard to temporary interests, establish what may be called a substantially free trade in corn. The interests of the farmer, consumer, and capitalist, would all be promoted by such a measure; and, as far as steady prices and the regular receipt of rents is more advantageous to the landlord than fluctuating prices and irregular receipt of rents, I am sure his interest well understood would lead to the same conclusion; although I am willing to admit, that the average money rents, to which he would be entitled if his tenants could fulfil their contracts, would be higher under a system of restricted trade.
REPRESENTATION, AGREED UPON THE 20TH DAY OF MAY 1819, BY THE DIRECTORS OF THE BANK OF ENGLAND, AND LAID BEFORE THE CHANCELLOR OF THE EXCHEQUER.
Ordered by the House of Commons to be Printed, 21st May 1819.
At a Court of Directors at the Bank, on Thursday, 20th May 1819.
The directors of the Bank of England, having taken into their most serious consideration the Reports of the Secret Committees of the two Houses of Parliament, appointed to inquire into the state of the Bank of England with reference to the expediency of the resumption of cash payments at the period now fixed, have thought it their duty to lay before His Majesty's Ministers, as early as possible, their sentiments with regard to the measures suggested by these Committees, for the approbation of Parliament.
In the first place, it appears that, in the view of the Committees, the measure of the Bank recommencing cash payments on the 5th of July next, the time prescribed by the existing law, “is utterly impracticable, and would be entirely inefficient, if not ruinous.”
Secondly, It appears that the two Committees have come to their conclusion at a period when the outstanding notes of the Bank of England do not much exceed 25,000,000l.; when the price of gold is about 4l. 1s. per ounce; and when there is great distress from the stagnation of commerce, and the fall of prices of imported articles.
It must be obvious to His Majesty's Ministers, that as long as such a state of things shall last, or one in any degree similar, without either considerable improvement on one side, or growing worse on the other, the Bank, acting as it does at present, and keeping its issues nearly at the present level, could not venture to return to cash payments with any probability of benefit to the public, or safety to the establishment.
The two Committees of Parliament, apparently actuated by this consideration, have advised that the Bank shall not open payments in coin for a period of four years, but shall be obliged, from the 1st of May 1821, to discharge their notes in standard gold bullion, at Mint price, when demanded in sums not amounting to less than thirty ounces. And, as it appears to the Committees expedient that this return to payments at Mint price should be made gradually, they propose that, on the first day of February next, the Bank should pay their notes in bullion, if demanded in sums not less than sixty ounces, at the rate of 4l. 1s. an ounce, and from the 1st of October 1820 to the 1st of May following, at 3l. 19s. 6d. an ounce.
If the Directors of the Bank have a true comprehension of the views of the Committees in submitting this scheme to Parliament, they are obliged to infer, that the object of the Committees is, to secure, at every hazard, and under every possible variation of circumstances, the return of payments in gold, at Mint price, for bank notes, at the expiration of two years; and that this measure is so to be managed, that the Mint price denominations shall ever afterwards be preserved, leaving the market or exchange price of gold to be controlled by the Bank, solely by the amount of their issue of notes.
It further appears to the Directors, with regard to the final execution of this plan, and the payment of bank notes in gold at Mint price, that discretionary power is to be taken away from the Bank; and that it is merely to regulate its issues, and make purchases of gold, so as to be enabled to answer all possible demands, whenever its treasury shall be again open for the payment of its notes.
Under these impressions, the Directors of the Bank think it right to observe to His Majesty's Ministers, that being engaged to pay on demand their notes in statutable coin. at the Mint price of 3l. 17s. 10½d. an ounce, they ought to be the last persons who should object to any measure calculated to effect that end; but as it is incumbent on them to consider the effect of any measure to be adopted, as operating upon the general issue of their notes, by which all the private banks are regulated, and of which the whole currency, exclusive of the notes of private bankers, is composed, they feel themselves obliged, by the new situation in which they have been placed by the restriction act of 1797, to bear in mind not less their duties to the community at large, whose interests, in a pecuniary and commercial relation, have in a great degree been confided to their discretion.
The Directors being thus obliged to extend their views, and embrace the interests of the whole community in their consideration of this measure, cannot but feel a repugnance, however involuntary, to pledge themselves in approbation of a system which, in their opinion, in all its great tendencies and operations, concerns the country in general more than the immediate interests of the Bank alone.
It is not certainly a part of the regular duty of the Bank, under its original institution, to enter into the general views of policy by which this great empire is to be governed in all its commercial and pecuniary transactions, which exclusively belong to the administration, to Parliament, and to the community at large; nor is it the province of the Bank to expound the principles by which these views ought to be regulated. Its peculiar and appropriate duty is the management of the concerns of the banking establishment, as connected with the payment of the interest of the national debt, the lodgments consigned to its care, and the ordinary advances it has been accustomed to make to Government.
But when the Directors are now to be called upon, in the new situation in which they are placed by the restriction act, to procure a fund for supporting the whole national currency, either in bullion or in coin, and when it is proposed that they should effect this measure within a given period, by regulating the market price of gold by a limitation of the amount of the issue of bank notes, with whatever distress such limitation may be attended to individuals or the community at large, they feel it their bounden and imperious duty to state their sentiments thus explicitly, in the first instance to his Majesty's Ministers, on this subject, that a tacit consent and concurrence at this juncture may not, at some future period, be construed into a previous implied sanction on their part, of a system which they cannot but consider fraught with very great uncertainty and risk.
It is impossible for them to decide beforehand what shall be the course of events for the next two, much less for the next four, years; they have no right to hazard a flattering conjecture, for which they have not real grounds, in which they may be disappointed, and for which they may be considered responsible. They cannot venture to advise an unrelenting continuance of pecuniary pressures upon the commercial world, of which it is impossible for them either to foresee or estimate the consequences.
The Directors have already submitted to the House of Lords the expediency of the Bank paying its notes in bullion at the market price of the day, with a view of seeing how far favourable commercial balances may operate in restoring the former order of things, of which they might take advantage: and, with a similar view, they have proposed that Government should repay the Bank a considerable part of the sums that have been advanced upon exchequer bills.
These two measures would allow time for a correct judgment to be formed upon the state of the bullion market, and upon the real result of those changes which the late war may have produced in all its consequences, of increased public debt, increased taxes, increased prices, and altered relations as to interest, capital, and commercial dealings with the Continent: and how far the alterations thus produced are temporary or permanent; and to what extent, and in what degree, they operate.
It was the design of the Directors, in pursuance of the before-mentioned two measures, to take advantage of every circumstance which could enable the Bank to extend its purchases of bullion, as far as a legitimate consideration of the ordinary wants of the nation for a sufficient currency could possibly warrant. Beyond this point, they do not consider themselves justified in going, upon any opinion, conjecture, or speculation, merely their own; and when a system is recommended which seems to take away from the Bank anything like a discretionary consideration of the necessities and distresses of the commercial world, if the Directors withhold their previous consent, it is not from a want of deference to his Majesty's Government, or to the opinions of the Committees of the two Houses of Parliament, but solely from a serious feeling that they have no right whatever to invest themselves, of their own accord, with the responsibility of countenancing a measure in which the whole community is so deeply involved, and possibly to compromise the universal interests of the empire, in all the relations of agriculture, manufacture, commerce, and revenue, by a seeming acquiescence or declared approbation on the part of the Directors of the Bank of England.
The consideration of these great questions, and of the degree in which all these leading and commanding interests may be affected by the measure proposed, rests with the legislature; and it is for them, after solemn deliberation, and not for the Bank, to determine and decide upon the course to be adopted.
Whatever reflections may have from time to time been east upon the Bank, whatever invidious representations of its conduct may have been made, the cautious conduct it adopted, in so measuring the amount of currency as to make it adequate to the wants both of the nation and of the Government, at the same time keeping it within reasonable bounds when compared with what existed before the war, as is shown in the Lords' reports, pages 10, 11, 12, and 13; the recent effort to return to a system of cash payments, which commenced with the fairest prospects (but which was afterwards frustrated by events that could not be foreseen nor controlled by the Bank), are of themselves a sufficient refutation of all the obloquy which has been so undeservedly heaped upon the establishment.
The Directors of the Bank of England, in submitting these considerations to his Majesty's Ministers, request that they may be allowed to assure them, that it is always their anxious desire, as far as spends upon them, to aid, by every consistent means, the measures of the legislature for furthering the prosperity of the empire.
PLAN FOR THE ESTABLISHMENT OF A NATIONAL BANK.
It was the intention of Mr Ricardo, on retiring into the country after the last session of Parliament, to employ part of his leisure in committing to paper, with a view to publication, a scheme by which, in his opinion, the profit derived from the supply of Paper Currency might be afforded to the public without any diminution of security against the inconveniences to which such a currency is liable. It was known, previous to his last illness, that he had carried his design into execution; and the following pages were found among his papers after his decease. It is not known that Mr Ricardo thought any alteration or addition necessary, unless it be in one point. Having communicated his MS. to a member of his own family, who was near him at the time of its completion; and it being suggested to him that difficulty might be experienced in the country, as the notes of one district were not to be payable in another, in obtaining currency for the purposes of travelling; he admitted that something to obviate this inconvenience might be required, but thought that some very simple arrangement would answer the end. It does not appear that he had committed to writing any expedient which might have occurred to him for that purpose; and his friends have deemed it most proper to commit his manuscript to the press, with this explanation, in the state precisely in which it was found.
PLAN FOR THE ESTABLISHMENT OF A NATIONAL BANK.
The Bank of England performs two operations of banking, which are quite distinct, and have no necessary connexion with each other: it issues a paper currency as a substitute for a metallic one; and it advances money in the way of loan, to merchants and others.
That these two operations of banking have no necessary connexion, will appear obvious from this,—that they might be carried on by two separate bodies, without the slightest loss of advantage, either to the country, or to the merchants who receive accommodation from such loans.
Suppose the privilege of issuing paper money were taken away from the Bank, and were in future to be exercised by the State only, subject to the same regulation to which the Bank is now liable, of paying its notes, on demand, in specie; in what way would the national wealth be in the least impaired? We should then, as now, carry on all the traffic and commerce of the country, with the cheap medium, paper money, instead of the dear medium, metallic money; and all the advantages which now flow from making this part of the national capital productive, in the form of raw material, food, clothing, machinery, and implements, instead of retaining it useless, in the form of metallic money, would be equally secured.
The public, or the Government on behalf of the public, is indebted to the Bank in a sum of money larger than the whole amount of bank notes in circulation; for the Government not only owes the Bank 15 millions, its original capital, which is lent at 3 per cent. interest, but also many more millions, which are advanced on exchequer bills, on half-pay and pension annuities, and on other securities. It is evident, therefore, that if the Government itself were to be the sole issuer of paper money, instead of borrowing it of the Bank, the only difference would be with respect to the interest:—the Bank would no longer receive interest, and the Government would no longer pay it: but all other classes in the community would be exactly in the same position in which they now stand. It is evident, too, that there would be just as much money in circulation; for it could make no difference, in that respect, whether the 16 millions of paper money now circulating in London, were issued by Government, or by a banking corporation. The merchants could suffer no inconvenience from any want of facility in getting the usual advances made to them in the way of discount or in any other manner; for, first, the amount of those advances must essentially depend upon the amount of money in circulation, and that would be just the same as before: and, secondly, of the amount in circulation, the Bank would have precisely the same proportion, neither less nor more, to lend to the merchants.
If it be true, as I think I have clearly proved, that the advances made by the Bank to the Government exceed the whole amount of the notes of the Bank in circulation, it is evident that part of its advances to Government, as well as the whole of its loans to other persons, must be made from other funds, possessed, or at the disposal of the Bank, and which it would continue to possess after Government had discharged its debt to it, and after all its notes were withdrawn from circulation. Let it not then be said that the Bank charter, as far as regards the issuing of paper money, ought to be renewed, for this reason, that if it be not, the merchants will suffer inconvenience, from being deprived of the usual facilities of borrowing; as I trust I have shown that their means of borrowing would be just as ample as before.
It may, however, be said that, if the Bank were deprived of that part of its business which consists in issuing paper money, it would have no motive to continue a joint stock company, and would agree on a dissolution of its partnership. I believe no such thing; it would still have profitable means of employing its own funds; but suppose I am wrong, and that the company were dissolved, what inconvenience would commerce sustain from it? If the joint stock of the company be managed by a few directors, chosen by the general body of proprietors, or, if it be divided amongst the proprietors themselves, and each share be managed by the individual to whom it belongs, will that make any difference in its real amount, or in the efficacy with which it may be employed for commercial purposes? It is probable that in no case would it be managed by the individual proprietors, but that it would be collected in a mass or masses, and managed with much more economy and skill than it is now managed by the Bank. A great deal too much stress has always been laid on the benefits which commerce derives from the accommodation afforded to merchants by the Bank. I believe it to be quite insignificant compared with that which is afforded by the private funds of individuals. We know that at the present moment the advances by the Bank to merchants, on discount, are of a very trifling amount; and we have abundant evidence to prove that at no time have they been great. The whole fund at the disposal of the Bank for the last thirty years is well known. It consisted of its own capital and savings—of the amount of deposits left with it by Government and by individuals, who employed it as a banker. From this aggregate fund must be deducted the amount of cash and bullion in the coffers of the Bank, the amount of advances to the holders of receipts for the loans contracted for during each year, and the amount of advances to Government in every way. After making these deductions, the remainder only could have been devoted to commercial objects, and if it were ascertained, would, I am sure, be comparatively of a small amount.
From papers laid before Parliament in 1797, in which the Bank gave a number as unit, and a scale of its discounts for different years, it was calculated by some ingenious individual, after comparing this scale with other documents also laid before Parliament, that the amount of money advanced in the way of discount to the merchants, for a period of three years and a half previous to 1797, varied from 2 millions to 3,700,000l.. These are trifling amounts in such a country as this, and must bear a small proportion to the sum lent by individuals for similar purposes. In 1797, the advances to Government alone by the Bank, exclusive of its capital, which was also lent to Government, were more than three times the amount of the advances to the whole body of merchants.
A Committee of the House of Commons was appointed last session of Parliament to inquire into the law of pledges, and into the relation of consignors of goods from abroad to consignees. This committee called before it Mr Richardson, of the house of Richardson, Overend and Co., eminent discount brokers in the city. This gentleman was asked—
“Q. Are you not in the habit occasionally of discounting to a large extent bills of brokers and other persons, given upon the security of goods deposited in their hands?
A. Very large.
Q. Have you not carried on the business of a bill broker and money agent to a very large extent, much beyond that of any other individual in this town?
A. I should think very much beyond.
Q. To the extent of some millions annually?
A. A great many; about 20 millions annually,—sometimes more.”
The evidence of Mr Richardson satisfactorily proves, I think, the extent of transactions of this kind, in which the Bank has no kind of concern. Can any one doubt that, if the Bank were to break up its establishment, and divide its funds among the individual proprietors, the business of Mr Richardson, and of others who are in the same line, would considerably increase? On the one hand, they would have more applications made to them for money on discount on the other, many who would have money to dispose of would apply to them to obtain employment for it. The same amount of money, and no more, would be employed in this branch of business; and if not employed by the Bank, or by the individual proprietors, if they had the management of their own funds, it would inevitably find its way, either by a direct or circuitous channel, to Mr Richardson, or to some other money agent, to be employed by him in promoting the commerce and upholding the trade of the country; for in no other way could these funds be made so productive to the parties to whom they would belong.
If the view which I have taken of this subject be a correct one, it appears that the commerce of the country would not be in the least impeded by depriving the Bank of England of the power of issuing paper money, provided an amount of such money, equal to the Bank circulation, was issued by Government; and that the sole effect of depriving the Bank of this privilege would be to transfer the profit which accrues from the interest of the money so issued from the Bank to Government.
There remains, however, one other objection to which the reader's attention is requested.
It is said that Government could not be safely entrusted with the power of issuing paper money; that it would most certainly abuse it; and that, on any occasion when it was pressed for money to carry on a war, it would cease to pay coin, on demand, for its notes; and from that moment the currency would become a forced Government paper. There would, I confess, be great danger of this, if Government—that is to say, the Ministers—were themselves to be entrusted with the power of issuing paper money. But I propose to place this trust in the hands of Commissioners, not removable from their official situation but by a vote of one or both Houses of Parliament. I propose also to prevent all intercourse between these Commissioners and Ministers, by forbidding every species of money transaction between them. The Commissioners should never, on any pretence, lend money to Government, nor be in the slightest degree under its control or influence. Over Commissioners so entirely independent of them, the Ministers would have much less power than they now possess over the Bank Directors. Experience shows how little this latter body have been able to withstand the cajolings of Ministers; and how frequently they have been induced to increase their advances on exchequer bills and treasury bills, at the very moment they were themselves declaring that it would be attended with the greatest risk to the stability of their establishment, and to the public interest. From a perusal of the correspondence between Government and the Bank, previous to the stoppage of Bank payments, in 1797, it will be seen, that the Bank attributes the necessity of that measure (erroneously in this instance, I think), to the frequent and urgent demands for an increase of advances on the part of Government. I ask, then, whether the country would not possess a greater security against all such influence, over the minds of the issuers of paper, as would induce them to swerve from the strict line of their duty, if the paper money of the country were issued by Commissioners, on the plan I have proposed, rather than by the Bank of England, as at present constituted? If Government wanted money, it should be obliged to raise it in the legitimate way; by taxing the people; by the issue and sale of exchequer bills, by funded loans, or by borrowing from any of the numerous banks which might exist in the country; but in no case should it be allowed to borrow from those who have the power of creating money.
If the funds of the Commissioners became so ample as to leave them a surplus which might be advantageously disposed of, let them go into the market and purchase publicly Government securities with it. If on the contrary it should become necessary for them to contract their issues, without diminishing their stock of gold, let them sell their securities, in the same way, in the open market. By this regulation a trifling sacrifice would be made, amounting to the turn of the market, which may be supposed to be gained by those whose business it is to employ their capital and skill in dealing in these securities; but in a question of this importance such a sacrifice is not worth considering. It must be recollected that, from the great competition in this particular business, the turn of the market is reduced to a very small fraction, and that the amount of such transactions could never be great, as the circulation would be kept at its just level, by allowing for a small contraction or extension of the treasure in coin and bullion, in the coffers of the Commissioners. It would be only when, from the increasing wealth and prosperity of the country, the country required a permanently increased amount of circulation, that it would be expedient to invest money in the purchase of securities paying interest, and only in a contrary case, that a part of such securities would be required to be sold. Thus, then, we see that the most complete security could be obtained against the influence, which, on a first and superficial view, it might be supposed Government would have over the issues of a National Bank; and that, by organising such an establishment, all the interest, which is now annually paid by Government to the Bank, would become a part of the national resources.
I would propose, then, some such plan as the following, for the establishment of a National Bank:—
- 1.Five Commissioners shall be appointed, in whom the full power of issuing all the paper money of the country shall be exclusively vested.
- 2.On the expiration of the charter of the Bank of England, in 1833, the Commissioners shall issue 15 millions of paper money, the amount of the capital of the Bank lent to Government, with which that debt shall be discharged. From that time the annual interest of 3 per cent. shall cease and determine.
- 3.On the same day 10 millions of paper money shall be employed by the Commissioners in the following manner:—With such parts of that sum as they may think expedient, they shall purchase gold bullion of the Bank, or of other persons; and with the remainder, within six months from the day above mentioned, they shall redeem a part of the Government debt to the Bank on exchequer bills. The exchequer bills so redeemed shall thereafter remain at the disposal of the Commissioners.
- 4.The Bank shall be obliged, with as little delay as convenient, after the expiration of its charter, to redeem all its notes in circulation, by the payment of them in the new notes issued by Government. It shall not pay them in gold, but shall be obliged to keep always a reserve of the new notes, equal in amount to its own notes which may remain in circulation.
- 5.The notes of the Bank of England shall be current for six months after the expiration of the Bank charter, after which they shall no longer be received by Government in payment of the revenue.
- 7.Within six months after the expiration of the Bank charter, the notes of the country banks shall cease to circulate, and the different banks which shall have issued them shall be under the same obligation as the Bank of England, to pay them in Government notes. They shall have the privilege of paying their notes in gold coin, if they prefer so to do.
- 8.For the greater security of the holders of Government notes, residing in the country, there shall be agents in the different towns, who shall be obliged, on demand, to verify the genuineness of the notes, by affixing their signatures to them, after which such notes shall be exchangeable only in the district where they are so signed.
- 9.Notes issued in one district, or bearing the signature of an agent in one district, shall not be payable in any other; but on the deposit of any number of notes, in the office of the district where they were originally issued, or where they were signed, agreeably to the last regulation, a bill may be obtained on any other district, payable in the notes of that district.
- 10.Notes issued in the country shall not be payable in coin in the country; but for such notes a bill may be obtained on London, which will be paid in coin, or in London notes, at the option of the party presenting the bill in London.
- 11.Any one depositing coin, or London notes, in the London office, may obtain a bill payable in the notes of any other district, to be named at the time of obtaining the bill. And any one depositing coin in the London office may obtain London notes to an equal amount.
- 12.The Commissioners in London shall be obliged to buy any quantity of gold of standard fineness, and exceeding one hundred ounces in weight, that may be offered them, at a price not less than 3l. 17s. 6d. per ounce.
- 13.From the moment of the establishment of the National Bank, the Commissioners shall be obliged to pay their notes and bills, on demand, in gold coin.
- 14.Notes of one pound shall be issued at the first establishment of the National Bank, and shall be given to any one requiring them in exchange for notes of a larger amount, if the person presenting them prefer such notes to coin. This regulation to continue in force only for one year, as far as regards London, but to be a permanent one in all the country districts.
- 15.It must be well understood, that in country districts the agents will neither be liable to give notes for coin, nor coin for notes.
- 16.The Commissioners shall act as the general banker to all the public departments, in the same manner as the Bank of England now acts; but they shall be precluded from fulfilling the same office, either to any corporation, or to any individual whatever.
On the subject of the first regulation I have already spoken. The Commissioners should be, I think, five in number—they should have an adequate salary for the business which they would have to perform and superintend—they should be appointed by Government, but not removable by Government.
The second regulation refers to the mode in which the new paper circulation should be substituted for the old. By the provision here made, 25 millions of paper money will be issued; that sum will not be too large for the circulation of the whole country, but if it should be, the excess may be exchanged for gold coin, or the Commissioners may sell a portion of their exchequer bills, and thus diminish the amount of the paper circulation. There are other modes by which the substitution of the new notes for the old might be made, if the Bank of England co-operated with the Commissioners: but the one here proposed would be effectual. It might be desirable that Government should purchase from the Bank, at a fair valuation, the whole of its buildings, if the Bank were willing to part with them; and also take all its clerks and servants into pay. It would be but just to the clerks and servants of the Bank to provide employment and support for them, and would be useful to the public to have the services of so many tried and experienced officers to conduct their affairs. It is a part of my plan, too, that the payment to the Bank for the management of the national debt should wholly cease at the expiration of the Bank charter; and that this department of the public business should be put under the superintendence and control of the Commissioners.
The third regulation provides for a proper deposit of gold coin and bullion, without which the new establishment could not act. In fact, there would be 14 millions instead of 10, at the disposal of the Commissioners. It has been seen, by one of the subsequent regulations, that the Commissioners would act as banker to the public departments; and as it is found by experience, that, on the average, these departments have 4 millions in their banker's hands, the Commissioners would have these 4 millions in addition to the 10 millions. If 5 millions were devoted to the purchase of coin and bullion, 9 millions would be invested in floating securities. If 8 millions were invested in gold, 6 millions would remain for the purchase of exchequer bills. Whatever debt remained due to the Bank, after this second payment made by the Commissioners, must be provided for by loan, or made the subject of a special agreement between the Government and the Bank of England.
The fourth and fifth regulations provide for the substitution of the new paper money for the old, and protect the Bank from the payment in specie of the notes which it may have outstanding. This cannot be attended with any inconvenience to the holders of those notes, because the Bank is bound to give them Government notes, which are exchangeable on demand for gold coin.
The seventh regulation provides for the substitution of the new notes for the old country bank notes. The country banks could have no difficulty in providing themselves with the new notes for that purpose. All their transactions finally settle in London, and their circulation is raised upon securities deposited there. By disposing of these securities, they would furnish themselves with the requisite quantity of money to provide for the payment of their notes; consequently the country would at no time be in want of an adequate circulation. The circulation of the country banks is estimated at about 10 millions.
The eighth regulation provides against fraud and forgery. In the first instance, paper money cannot be issued from each district, but must all be sent from London. It is just, therefore, that some public agent should, in as many places as convenient, be prepared to verify the genuineness of the notes. After a time, the circulation of each district would be carried on by notes issued in that district, in forms sent for that purpose from London.
The ninth regulation provides every possible facility for making remittances and payments to any district in the country. If a man at York wishes to make a payment of 1000l. to a person at Canterbury, by the payment of 1000l. in notes issued at York to the agent in that town, he may receive a bill for 1000l., payable at Canterbury in the notes of that district.
The tenth regulation provides for the payment of the notes of every district in coin in London. If a man in York wants 1000l. in coin, Government should not be at the expense of sending it to him: he ought to be at that expense himself. This is a sacrifice that must be made for the use of paper money; and if the inhabitants of the country are not contented to submit to it, they may use gold instead of paper; they must, nevertheless, be at the expense of procuring it.
The eleventh regulation, as well as the ninth, provides for making remittances and payments to all parts of the country.
The twelfth regulation provides against the amount of the paper currency being too much limited in quantity, by obliging the Commissioners to issue it at all times in exchange for gold at the price of 3l. 17s. 6d. per ounce. Regulating their issues by the price of gold, the Commissioners could never err. It might be expedient to oblige them to sell gold bullion at 3l. 17s. 9d., in which case the coin would probably never be exported, because that can never be obtained under 3l. 17s. 10½d. per ounce. Under such a system, the only variations that could take place in the price of gold, would be between the prices of 3l. 17s. 6d. and 3l. 17s. 9d.; and by watching the market price, and increasing their issues of paper when the price inclined to 3l. 17s. 6d. or under, and limiting them, or withdrawing a small portion, when the price inclined to 3l. 17s. 9d. or more, there would not probably be a dozen transactions in the year by the Commissioners in the purchase and sale of gold; and if there were, they would always be advantageous, and leave a small profit to the establishment. As it is, however, desirable to be on the safe side in managing the important business of a paper money in a great country, it would be proper to make a liberal provision of gold, as suggested in a former regulation, in case it should be thought expedient occasionally to correct the exchanges with foreign countries, by the exportation of gold as well as by the reduction of the amount of paper.
The thirteenth regulation obliges the Commissioners to pay their notes on demand in gold coin.
The fourteenth regulation provides for a supply of one-pound notes for the country circulation. On the first establishment of the National Bank, but not afterwards, these are to be issued in London, to be subsequently countersigned in the country. As a check on the country agents, every description of note might be sent to them from London, numbered and signed. After receiving them, the agent should countersign them before they were issued to the public; and he should be held strictly responsible for the whole amount sent to him, in the same manner as the distributors of stamps are responsible for the whole amount of stamps sent to them. It is hardly necessary to observe, that the country agents ought to be in constant correspondence with the London district, for the purpose of giving information of all their proceedings. Suppose a country agent has given 100 notes of 1l. for a note of 100l., he must give information of that fact, sending at the same time the larger note for which he has given them. His account in London would be credited and debited accordingly. If he receive 100l. in notes, and give a bill on another district, he must give advice, both to the London district and to the district on which the bill is given, sending up the note as in the former instance. His account will be credited for this 100l., and the agent of the other district will be charged with it. It is not requisite to go any farther into details; I may already have said too much; but my object has been to show that the security for the detection of fraud is nearly perfect, as vouchers for every transaction would all be originally issued in London, and must be returned to London, or be in the possession of the country agent.
The fifteenth regulation is only explanatory of some of the former regulations.
The sixteenth regulation directs that the Commissioners shall act as banker to the public departments, and to the public departments only.
If the plan now proposed should be adopted, the country would probably, on the most moderate computation, save 750,000l. per annum. Suppose the circulation of paper money to amount to 25 millions, and the Government deposits to 4 millions, these together make 29 millions. On all this sum interest would be saved, with the exception of 6 millions, perhaps, which it might be thought necessary to retain as deposits, in gold coin and bullion, and which would consequently be unproductive. Reckoning interest, then, at 3 per cent. only on 23 millions, the public would be gainers of 690,000l. To this must be added 248,000l. which is now paid for the management of the public debt, making together 938,000l. Now, supposing the expenses to amount to 188,000l., there would remain for the public an annual saving or gain of 750,000l.
It will be remarked that the plan provides against any party but the Commissioners in London making an original issue of notes. Agents in other districts in the country, connected with the Commissioners, may give one description of notes for another; they may give bills for notes, or notes for bills drawn on them; but, in the first instance, every one of these notes must be issued by the Commissioners in London, and consequently the whole is strictly under their cognizance. If from any circumstances the circulation in any particular district should become redundant, provision is made for the transfer of such redundancy to London; and if it should be deficient, a fresh supply is obtained from London. If the circulation of London should be redundant, it will show itself by the increased price of bullion and the fall in the foreign exchanges, precisely as a redundancy is now shown; and the remedy is also the same as that now in operation, viz. a reduction of circulation, which is brought about by a reduction of the paper circulation. That reduction may take place two ways; either by the sale of exchequer bills in the market, and the cancelling of the paper money which is obtained for them,—or by giving gold in exchange for the paper, cancelling the paper as before, and exporting the gold. The exporting the gold will not be done by the Commissioners; that will be effected by the commercial operation of the merchants, who never fail to find gold the most profitable remittance when the paper money is redundant and excessive. If, on the contrary, the circulation of London were too low, there would be two ways of increasing it,—by the purchase of Government securities in the market, and the creation of new paper money for the purpose; or by the importation and purchase, by the Commissioners, of gold bullion, for the purchase of which new paper money would be created. The importation would take place through commercial operations, as gold never fails to be a profitable article of import when the amount of currency is deficient.
ESSAY ON THE FUNDING SYSTEM,
WRITTEN FOR THE
SUPPLEMENT TO THE SIXTH EDITION OF THE “ENCYCLOPÆDIA BRITANNICA.”
ESSAY ON THE FUNDING SYSTEM,
Under this head we propose, first, to give an account of the rise, progress, and modifications of the SINKING FUND, accompanied with some observations as to the probability of its accomplishing the object for which it was instituted; and next, briefly to consider the best mode of providing for our annual expenditure both in war and peace,—an inquiry necessarily involving the policy of that SYSTEM OF FUNDING of which the sinking fund was long considered as one of the principal recommendations and props.
I. On the subject of the sinking fund, we shall have frequent occasion to refer to the statements of Professor Hamilton, in his very valuable publication entitled “An Inquiry concerning the Rise and Progress, the Redemption, and Present State of the National Debt of Great Britain.” “The first plan for the discharge of the national debt, formed on a regular system, and conducted with a considerable degree of firmness,” says this able writer, “was that of the sinking fund, established in 1716. The author of this plan was the Earl of Stanhope; but as it was adopted under the administration of Sir Robert Walpole, it is commonly denominated from him. The taxes which had before been laid on for limited periods, being rendered perpetual, and distributed among the South Sea, Aggregate, and General Funds, and the produce of these funds being greater than the charges upon them, the surplusses, together with such further surplusses as might afterwards accrue, were united under the name of the Sinking Fund, being appropriated for the discharge of the national debt, and expressly ordained to be applicable to no other purpose whatever. The legal interest had been reduced from 6 to 5 per cent. about two years before; and as that reduction was unfavourable to the commercial state of the country, Government was now able to obtain the same reduction on the interest of the public debt, and apply the savings in aid of the sinking fund. In 1727 a further reduction of the interest of the public debt, from 5 to 4 per cent. was obtained, by which nearly 400,000l. was added to the sinking fund. And, in the year 1749, the interest of part of the debt was again reduced to 3½ per cent. for seven years, and to 3 per cent. thereafter; and, in 1750, the interest of the remainder was reduced to 3½ per cent. for five years, and to 3 per cent, thereafter, by which a further saving of about 600,000l. was added to the sinking fund.”
This sinking fund was for some time regularly applied to the discharge of debt. The sums applied from 1716 to 1728 amounted to 6,648,000l., being nearly equal to the additional debt contracted in that time. From 1728 to 1733, 5,000,000l. more were paid. The interest of several loans, contracted between 1727 and 1732, was charged upon surplus duties, which, according to the original plan, ought to have been appropriated to the sinking fund.
“Soon after, the principle of preserving the sinking fund inviolable was abandoned. In 1733, 500,000l. was taken from that fund, and applied to the services of the year.” “In 1734, 1,200,000l. was taken from the sinking fund for current services; and in 1735 it was anticipated and mortgaged.” The produce of the sinking fund at its commencement in 1717, was 323,437l. In 1776, it was at its highest amount, being then 3,166,517l.; in 1780, it had sunk to 2,403,017l.
The sinking fund would have risen higher, had it not been depressed, especially in the latter period, by various encroachments. It was charged with the interest of several loans, for which no provision was made; and, in 1772, it was charged with an annuity of 100,000l., granted in addition to the civil list. During the three wars which were waged while it subsisted, the whole of its produce was applied to the expense of the war; and even in time of peace, large sums were abstracted from it for current services. According to Dr Price, the amount of public debt paid off by the sinking fund, since its first alienation in 1733, was only 3 millions, paid off in 1736 and 1737; 3 millions in the peace between 1748 and 1756; 2½ millions in the peace between 1763 and 1775; in all 8½ millions.
The additional debt discharged during these periods of peace was effected, not by the sinking fund, but from other sources.
“On the whole, this fund did little in time of peace, and nothing in time of war, to the discharge of the national debt. The purpose of its inviolable application was abandoned, and the hopes entertained of its powerful efficacy entirely disappointed. At this time, the nation had no other free revenue, except the land and malt-tax granted annually; and as the land-tax during peace was then granted at a low rate, their produce was inadequate to the expense of a peace establishment, on the most moderate scale. This gave occasion to encroachments on the sinking fund. Had the land-tax been always continued at 4s. in the pound, it would have gone far to keep the sinking fund, during peace, inviolate.”
This fund terminated in 1786, when Mr Pitt's sinking fund was established.
To constitute this new fund, 1 million per annum was appropriated to it by Parliament, the capital stock of the national debt then amounting to 238,231,248l.
This million was to be allowed to accumulate at compound interest, by the addition of the dividends on the stock which it purchased, till it amounted to 4 millions, from which time it was not further to increase. The four millions were then annually to be invested in the public funds as before, but the dividends arising from the stock purchased were no longer to be added to the sinking fund for the purpose of being invested in stock; they were to be applied to the diminution of taxes, or to any other object that Parliament might direct.
A further addition to this fund was proposed by Mr Pitt, and readily adopted in 1792, consisting of a grant of 400,000l. arising from the surplus of the revenue, and a further annual grant of 200,000l.; but it was expressly stipulated that no relief from taxation should be given to the public, as far as this fund was concerned, till the original million, with its accumulations, amounted to 4 millions. The addition made to the fund, by the grant of 400,000l., and of 200,000l. per annum, together with the interest on the stock these sums might purchase, were not to be taken or considered as forming any part of the 4 millions. At the same time (in 1792), a sinking fund of a new character was constituted. It was enacted, that besides a provision for the interest of any loan which should thenceforward be contracted, taxes should also be imposed for a 1 per cent. sinking fund on the capital stock created by it, which should be exclusively employed in the liquidation of such particular loan; and that no relief should be afforded to the public from the taxes which constituted the 1 per cent. sinking fund, until a sum of capital stock, equal in amount to that created by the loan, had been purchased by it. That being accomplished, both the interest and sinking fund were to be applicable to the public service. It was calculated, that, under the most unfavourable circumstances, each loan would be redeemed in forty-five years from the period of contracting it. If made in the 3 per cent., and the price of that stock should continue uniformly at 60. the redemption would be effected in twenty-nine years.
In the years 1798, 1799, and 1800, a deviation was made from Mr Pitt's plan of providing a sinking fund of 1 per cent. on the capital stock created by every loan; for the loans of those years had no sinking fund attached to them. The interest was charged on the war-taxes; and, in lieu of a 1 per cent. sinking fund, it was provided that the war-taxes should continue during peace, to be then employed in their redemption, till they were all redeemed.
In 1802, Lord Sidmouth, then Mr Addington, was chancellor of the exchequer. He being desirous of liberating the war-taxes from the charges with which they were encumbered, proposed to raise new annual permanent taxes for the interest of the loans of which we have just spoken, as well as for that which he was under the necessity of raising for the service of the year 1802; but he wished to avoid loading the public with additional taxes for a 1 per cent. sinking fund on the capitals created by those loans, and which capitals together amounted to 86,796,375l. To reconcile the stockholder to this arrangement, he proposed to rescind the provision which limited the fund of 1786 to 4 millions, and to consolidate the old and the new sinking funds, i. e. that which arose from the original million per annum, with the addition made to it of 200,000l. per annum subsequently granted, and that which arose from the 1 per cent. on the capital of every loan that had been contracted since 1792. These combined funds he proposed should, from that time, be applied to the redemption of the whole debt without distinction; that the dividends arising from the stock purchased by the commissioners for the reduction of the national debt should be applied in the same manner; and that this arrangement should not be interfered with till the redemption of the whole debt was effected.
In February 1803 the debt amounted to 480,572,470l., and the produce of the joint sinking fund to 6,311,626l. In 1786 the proportion of the sinking fund to the debt was as 1 to 238, in 1792 as 1 to 160, and in 1803 as 1 to 77.
This was the first deviation of importance from Mr Pitt's plan; and this alteration made by Lord Sidmouth was not, perhaps, on the whole, injurious to the stockholder. He lost, indeed, the immediate advantage of an additional sinking fund of 867,963l., the amount of 1 per cent. on the capitals created by the loans of 1798, 1799, 1800, and 1802; “but in lieu,” says Mr Huskisson, “of this sinking fund, a reversionary sinking fund was created, to commence, indeed, in about twelve to fifteen years from that time, but to be of such efficacy when it should commence, and to be so greatly accelerated by subsequent additions in its progress, as, under the most unfavourable supposition, to be certain of reducing the whole of this debt within forty-five years. This reversionary sinking fund was to arise in the following manner; by continuing the old sinking fund at compound interest, after it should have reached its maximum of 4 millions; and by continuing also the new sinking fund or aggregate of the 1 per cents. of the loans since 1792, after such 1 per cents. should have liquidated the several loans in respect of which they are originally issued. There is nothing, therefore, in the act of 1802 which is a departure from the spirit of the act of 1792.”∗
The next alteration that was proposed to be made in the sinking fund was in 1807, by Lord Henry Petty, then chancellor of the exchequer. His plan was extremely complicated, and had for its object, that which ministers are too much disposed at all times to view with complacency, namely, to lessen the burden of taxation at the present, with the certainty of aggravating its pressure at a future day.
It was estimated by Lord Henry Petty, that the expenses of the country during war would exceed its permanent annual revenue by 32 millions. For 21 millions of this deficiency provision was made by the war-taxes; the property-tax amounting to 11,500,000l., and the other war-taxes to 9,500,000l. The object then was to provide 11 millions per annum. If this sum had been raised by a loan in the 3 per cents., when their price was 60, provision must have been made by taxes for the interest and sinking fund, so that each year we should have required additional taxes to the amount of 733,333l. But Government wished to raise the money without imposing these additional taxes, or by the imposition of as few as circumstances would permit. For this purpose they proposed to raise the money required by loan, in the usual way, but to provide, out of the war-taxes, for the interest and redemption of the stock created. They proposed to increase the sinking fund of every such loan, by taking from the war-taxes 10 per cent. on its amount for interest and sinking fund, so that if the interest and management absorbed only 5 per cent., the sinking fund would also amount to 5 per cent.; if the interest amounted to 4 per cent. the sinking fund would be 6 per cent. The sums proposed to be borrowed in this manner were 12 millions for the first three years, 14 millions for the fourth, and 16 millions for each succeeding year; making together, in 14 years, 210 millions, for which, at the rate of 10 per cent., the whole of the war-taxes would be mortgaged. It was calculated, that, by the operation of the sinking fund, each loan would be paid off in fourteen years from the time of contracting it; and, therefore, the 1,200,000l. set apart for the interest and sinking fund of the first loan would be liberated and available for the loan of the fifteenth year. At the end of fifteen years a like sum would be set free, and so on each succeeding year; and thus loans might be continued, on this system, without any limitation of time.
But these successive sums could not be withdrawn from the war-taxes, for interest and sinking fund on loans, and be at the same time applied to expenditure; and, therefore, the deficiency of 11 millions, for which provision was to be made, would, from year to year, increase as the war-taxes became absorbed; and at the end of fourteen years, when the whole 21 millions of the war-taxes would be absorbed, instead of 11 millions the deficiency would be 32 millions.
To provide for this growing deficiency, it was proposed to raise supplementary loans, increasing in amount from year to year, and for the interest and sinking fund on such loans provision was to be made in the usual way, by annual permanent taxes; on these loans the sinking fund was not to be more than 1 per cent.
By the plan proposed, in fifteen years from its commencement, on the supposition of the war continuing so long, the regular loan would have been 12 millions, and the supplementary loan 20 millions.
If the expenses of the war should have exceeded the estimate then made, provision for such excess was to have been made by other means.
The ministry who proposed this plan not continuing in office, it was acted upon only for one year. “In comparing the merit of different systems,” says Dr Hamilton, “the only points necessary to be attended to are the amount of the loans contracted—the part of these loans redeemed—the interest incurred—and the sums raised by taxes. The arrangements of the loan under different branches, and the appropriation of particular funds for payment of their respective interests, are matters of official regulation; and the state of the public finance is neither the better nor the worse, whether they be conducted one way or other. A complicated system may perplex and mislead, but it can never ameliorate.” Accordingly, Dr Hamilton has shown, that the whole amount of taxes that would have been paid in twenty years, for an annual loan of 11 millions on the old plan of a sinking fund of 1 per cent., would be 154 millions. On Lord Henry Petty's plan, these taxes would, in the same time, have been 93 millions,—a difference in favour of Lord Henry Petty's plan of 51 millions; but to obtain this exemption we should have been encumbered with an additional debt of 119,489,788l. of money capital, which, if raised in a 3 per cent. stock at 60, would be equal to a nominal capital of 199,149,646l.
The sinking fund was established with a view to diminish the national debt during peace, and to prevent its rapid increase during war. The only wise and good object of war-taxes is also to prevent the accumulation of debt. A sinking fund and war-taxes are only useful while they are strictly applied to the objects for which they are raised; they become instruments of mischief and delusion when they are made use of for the purpose of providing the interest on a new debt.
In 1809 Mr Perceval, who was then chancellor of the exchequer, mortgaged 1,040,000l. of the war-taxes for the interest and sinking fund of the stock he funded in that year.
By taking more than a million from the war-taxes, not for the annual expenditure, but for the interest of a loan, Mr Perceval rendered it necessary to add 1 million to the loan of the next and all following years; so that the real effect of this measure differed in no respect from one which should have taken the same sum annually from the sinking fund.
In 1813, the next and most important alteration was made in the sinking fund. Mr Vansittart was then chancellor of the exchequer. It has been already observed, that the national debt amounted to 238,231,248l. in 1786, when Mr Pitt established his sinking fund of 1 million. By the act of 1786, as soon as the sum of 1 million amounted, by the aid of the dividends on the stock which was to be purchased by it, to 4 millions, its accumulation was to cease, and the dividends on the stock purchased were to be available for the public service. If the 3 per cents. were at 60 when this million had accumulated to 4 millions, the public would have had a disposable fund of 20,000l. per annum; if at 80, of 15,000l. per annum; and no other relief was to be given to the public till the 4 millions had purchased the whole sum of 238 millions, the then amount of the debt. In 1792 Mr Pitt added 200,000l. per annum to the sinking fund, and accompanied it by the following observations:—“When the sum of 4 millions was originally fixed as the limit for the sinking fund, it was not in contemplation to issue more annually from the surplus revenue than 1 million, consequently the fund would not rise to 4 millions till a proportion of debt was paid off, the interest of which, together with the annuities which might fall in in the interval, should amount to 3 millions. But as, on the present supposition, additional sums beyond the original million are to be annually issued from the revenue, and applied to the aid of the sinking fund, the consequence would be, that if that fund, with these additions carried to it, were still to be limited to 4 millions, it would reach that amount, and cease to accumulate, before as great a portion of the debt is reduced as was originally in contemplation.” “In order to avoid this consequence, which would, as far as it went, be a relaxation in our system, I should propose, that whatever may be the additional annual sums applied to the reduction of debt, the fund should not cease to accumulate till the interest of the capital discharged, and the amount of the expired annuities should, together with the annual million only, and exclusive of any additional sums, amount to 4 millions.”∗
It will be recollected, that in 1792 a provision was made for attaching a sinking fund of 1 per cent. to each loan separately, which was to be exclusively employed in the discharge of the debt contracted by that loan; but no part of these 1 per cents. were to be employed in the reduction of the original debt of 238,000,000l. The act of 1802 consolidated all these sinking funds, and the public were not to be exempted from the payment of the sinking fund itself, nor of the dividends on the stock to be purchased by the commissioners, till the whole debt existing in 1802 was paid off. Mr Vansittart proposed to repeal the act of 1802, and to restore the spirit of Mr Pitt's act of 1792. He acknowledged that it would be a breach of faith to the national creditor, if the fair construction of that act, the act of 1792, were not adhered to. It was, in Mr Vansittart's opinion, no breach of faith to do away the conditions of the act 1802. Supposing, however, that the act of 1802 had been really more favourable to the stockholder than that of 1792, it is not easy to comprehend by what arguments it can be proved not to be a breach of faith to repeal the one and enact the other. Were not all the loans from 1802 to 1813 negotiated on the faith of that act? Were not all bargains made between the buyer and seller of stock made on the same understanding? Government had no more right to repeal the act of 1802, and substitute another less favourable to the stockholder, and acknowledged to be so by the minister himself, than it would have had to get rid of the sinking fund altogether. But what we are at present to inquire into is, whether Mr Vansittart did as he professed to do? Did he restore the stockholder to all the advantages of the act of 1792? In the first place, it was declared by the new act, that as the sinking fund consolidated in 1802, had redeemed 238,350,143l. 18s. 1d, exceeding the amount of the debt in 1786 by 118,895l. 12s. 10½d., a sum of capital stock equal to the total capital of the public debt existing on the 5th January 1786, viz. 238,231,248l. 5s. 2¾d. had been satisfied and discharged; “and that in like manner an amount of public debt equal to the capital and charge of every loan contracted since the said 5th January 1786, shall successively, and in its proper order, be deemed and declared to be wholly satisfied and discharged, when and as soon as a further amount of capital stock, not less than the capital of such loan, and producing an interest equal to the dividends thereupon, shall be so redeemed or transferred.”
It was also resolved, “that after such declaration as aforesaid, the capital stock purchased by the commissioners for the reduction of the national debt shall from time to time be cancelled; at such times, and in such proportions, as shall be directed by any act of Parliament to be passed for such purpose, in order to make provision for the charge of any loan or loans thereafter to be contracted.”
It was further resolved, that in order to carry into effect the provisions of the acts of the 32d and 42d of the King, for redeeming every part of the national debt within the period of forty-five years from the time of its creation, it is expedient that in future, whenever the amount of the sum to be raised by loan, or by any other addition to the public funded debt, shall in any year exceed the sum estimated to be applicable in the same year to the reduction of the public debt, an annual sum equal to one half of the interest of the excess of the said loan, or other addition, beyond the sum so estimated to be applicable, shall be set apart out of the monies composing the consolidated fund of Great Britain, and shall be issued at the receipt of the exchequer to the Governor and Company of the Bank of England, to be by them placed to the account of the commissioners for the reduction of the national debt;∗ and upon the remainder of such loan or other addition, the annual sum of 1 per cent. on the capital thereof, according to the provisions of the said act.
A provision was also made, for the first time, for 1 per cent. sinking fund on the unfunded debt then existing, or which might thereafter be contracted.
In 1802, it has been already observed, it was deemed expedient that no provision should be made for a sinking fund of 1 per cent. on a capital of 86,796,300l.; and as it was considered by the proposer of the new regulation in 1813, that he was reverting to the principle of Mr Pitt's act of 1792, he provided that 867,963l. should be added to the sinking fund for the 1 per cent. on the capital stock created, and which was omitted to be provided for in 1802.†
This was the substance of Mr Vansittart's new plan, and which, he contended, was not injurious to the stockholder, as it strictly conformed to the spirit of Mr Pitt's act of 1792.
1st, By Mr Pitt's act, no relief could be afforded to the public from the burdens of taxation, till the stock redeemed by the original sinking fund of 1 million amounted to such a sum as that the dividends on the capital stock redeemed should amount to 3 millions, making the whole sinking fund 4 millions; from thenceforth the 4 millions were to discharge debt as before, but the interest of debt so discharged was to be available for the public service, and the public was not to be relieved from the charge on the remainder of the debt of 238 millions till the 4 millions at simple interest, and the further sinking fund which might arise from the falling in of terminable annuities, together with the additional sum of 200,000l. per annum, voted in 1792, with their accumulations, had redeemed the capital of 238 millions. The sinking fund arising from the 1 per cent. on each loan was directed, by the act of 1792, to be applied to each separate loan for which it was raised. Mr Vansittart thought himself justified, and free from any breach of faith to the stockholder, in taking for the public service, not the interest of 4 millions, which is all that Mr Pitt's bill would allow him to take, but the interest on 238 millions; and on what plea? because the whole consolidated sinking funds, comprising the 1 per cent. on every loan raised since 1793, had purchased 238 millions of stock. On Mr Pitt's plan he might have taken 20,000l. per annum from the sinking fund; on his own construction of that act, he took from it more than 7 millions per annum.
2dly, Mr Vansittart acknowledged that the stockholder, in 1802, was deprived of the advantage of 1 per cent. sinking fund on a capital of 86,796,300l.; and therefore, to be very just, he gives in 1813 1 per cent. on that capital; but should he not have added the accumulation which would have been made in the eleven years from 1802 to 1813, on 867,963l., at compound interest, and which would have given a further addition to the sinking fund of more than 360,000l. per annum?
3dly, On Mr Pitt's plan, every loan was to be redeemed by its sinking fund, under the most unfavourable circumstances, in forty-five years. If the loan was raised in a 3 per cent. fund at 60, and the stock was uniformly to continue at that price, a 1 per cent. sinking fund would redeem the loan to which it was attached in twenty-nine years; but then no relief would be given to the public from taxation till the end of twenty-nine years; and if there had been loans of 10 millions every year for that period, when the first loan was paid off, the second would require only one year for its final liquidation; the third two years, and so on. On Mr Vansittart's plan, under the same circumstances, the sinking fund of each and every loan was to be applied, in the first instance, to the redemption of the first loan; and when that was redeemed and cancelled, the whole of the sinking funds were to be applied to the payment of the second, and so on successively. The first loan of 10 millions would be cancelled in less than thirteen years, the second in less than six years after the first, the third in a less time, and so on. At the end of the thirteenth year, the public would be relieved from the interest on the first loan, or, which is the same thing, from the necessity of finding fresh taxes for a new loan at the end of thirteen years, for two new loans at the end of nineteen years; but what would be the state of its debt at either of these periods, or at the end of twenty-nine years? Could this advantage be obtained without a corresponding disadvantage? No: the excess of debt on Mr Vansittart's plan would be exactly equal to these various sums, thus prematurely released by cancelled stock, accumulated at compound interest. How could it be otherwise? Is it possible that we could obtain a present relief from the charge of debt without either directly or indirectly borrowing the fund necessary to provide that relief at compound interest? “By this means,” says Mr Vansittart, “the loan first contracted would be discharged at an earlier period, and the funds charged with the payment of its interest would become applicable to the public service. Thus, in the event of a long war, a considerable resource might accrue during the course of the war itself, as every successive loan would contribute to accelerate the redemption of those previously existing; and the total amount of charge to be borne by the public, in respect of the public debt, would be reduced to a narrower compass than in the other mode, in which a greater number of loans would be co-existing. At the same time the ultimate discharge of the whole debt would be rather accelerated than retarded.”—“It is now only necessary to declare that an amount of stock equal to the whole of the debt existing in 1786 has been redeemed; and that, in like manner, whenever an amount of stock equal to the capital and charge of any loan raised since 1792 shall be redeemed, in its proper order of succession, such loan shall be deemed and taken to be redeemed and satisfied. Every part of the system will then fall at once into its proper place; and we shall proceed with the future redemption with all the advantages which would have been derived from the original adoption of the mode of successive instead of simultaneous redemption. Instead of waiting till the purchase of the whole of the debt consolidated in 1802 shall be completed, that part of it which existed previously to 1792 will be considered as already redeemed, and the subsequent loans will follow in succession, whenever equal portions of stock shall have been purchased. It is satisfactory to observe, that by a gradual and equal progress, we shall have the power of effecting the complete repayment of the debt more speedily than by the present course.” Is it possible that Mr Vansittart could so deceive himself as to believe that, by taking 5 millions from the sinking fund, which would not have been taken by the provisions of the act of 1802, which would not have been taken by the act of 1792, and other sums successively, in shorter times than could have been effected by the provisions of those two acts, he would be enabled to complete the repayment of the debt more speedily? Is it possible that he could believe that, by diminishing the sinking fund, that is, the amount of revenue as compared with expenditure, he would effect the payment of our debt more speedily? It is impossible to believe this. How, then, are his words to be accounted for? In one way he might have a meaning. It might be this,—I know we shall be more in debt in ten, twenty, and thirty years, on my plan, than we should have been on that of Lord Sidmouth or on that of Mr Pitt; but we shall have effected a greater payment in that time of the stock now existing, as the sinking funds attached to future loans will be employed in paying our present debt. On Mr Pitt's plan, those sinking funds would be used for the payment of the new debt to be created; that is to say, of the loans to which they are respectively attached. We shall be more in debt at every subsequent period, it is true; but as our debt may be divided into old stock and new stock, I am correct when I say that we shall have the power of completing the repayment of the debt, meaning by the debt the stock now existing, sooner than by the present course.
This plan of Mr Vansittart was opposed with great ability, both by Mr Huskisson and Mr Tierney. The former gentleman said, “The very foundation of the assumption that the old debt has been paid off, is laid in the circumstance of our having incurred a new debt of a much larger amount; and even allowing that assumption, Mr Vansittart would not have been able to erect his present scheme upon it, if the credit of the country had not been, for the last twenty years, materially impaired by the pressure of that new debt. On the one hand, had the sinking fund been operating at 3 per cent. during that period, he would not have touched it, even under his own construction of the act of 1792. On the other hand, had the price of the stocks been still lower than it has been, he would have taken from that sinking fund still more largely than he is now, according to his own rule, enabled to take. This, then, is the new doctrine of the sinking fund;—that, having been originally established ‘to prevent the inconvenient and dangerous accumulation of debt hereafter’ (to borrow the very words of the act), and for the support and improvement of public credit, it is in the accumulation of new debt that Mr Vansittart found at once the means and the pretence for invading that sinking fund; and the degree of depression of public credit was, with him, the measure of the extent to which that invasion might be carried. And this is the system of which it is gravely predicated that it is no departure from the letter, and no violation of the spirit, of the act of 1792; and of which we are desired seriously to believe, that it is only the following up and improving upon the original measure of Mr Pitt!—of which measure the clear and governing intention was, that every future loan should, from the moment of its creation, carry with it the seeds of its destruction; and that the course of its reimbursement should that moment be placed beyond the discretion and control of Parliament.”—(Mr Huskisson's Speech, 25th March 1813.)
This is the last alteration that has taken place in the machinery of the sinking fund. Inroads more fatal than this which we have just recorded have been made on the fund itself; but they have been made silently and indirectly, while the machinery has been left unaltered.
It has been shown by Dr Hamilton, that no fund can be efficient for the reduction of debt but such as arises from an excess of revenue above expenditure.
Suppose a country at peace, and its expenditure, including the interest of its debt, to be 40 millions, its revenue to be 41 millions, it would possess 1 million of sinking fund. This million would accumulate at compound interest, for stock would be purchased with it in the market, and placed in the names of the Commissioners for paying off the debt. These Commissioners would be entitled to the dividends before received by private stockholders, which would be added to the capital of the sinking fund. The fund thus increased would make additional purchases the following year, and would be entitled to a larger amount of dividends, and thus would go on accumulating, till in time the whole debt would be discharged.
Suppose such a country to increase its expenditure 1 million, without adding to its taxes, and to keep up the machinery of the sinking fund, it is evident that it would make no progress in the reduction of its debt; for though it would accumulate a fund in the same manner as before, in the hands of the Commissioners, it would, by means of adding to its funded or unfunded debt, and by constantly borrowing, in the same way, the sum necessary to pay the interest on such loans, accumulate its million of debt annually at compound interest, in the same manner as it accumulated its million annually of sinking fund.
But suppose that it continued its operations of investing the sinking fund in the purchase of stock, and made a loan for the million which it was deficient in its expenditure, and that, in order to defray the interest and sinking fund of such loan, it imposed new taxes on the people to the amount of 60,000l., the real and efficient sinking fund would, in that case, be 60,000l. per annum, and no more; for there would be 1,060,000l., and no more, to invest in the purchase of stock, while 1 million was raised by the sale of stock, or, in other words, the revenue would exceed the expenditure by 60,000l.
Suppose a war to take place, and the expenditure to be increased to 60 millions, while its revenue continued, as before, 41 millions, still keeping on the operation of the Commissioners with respect to the investment of 1 million. If it were to raise war-taxes for the payment of the 20 millions additional expense, the million of sinking fund would operate to the reduction of the national debt at compound interest as it did before. If it raised 20 millions by loan in the stocks or in exchequer bills, and did not provide for the interest by new taxes, but obtained it by an addition to the loan of the following year, it would be accumulating a debt of 20 millions at compound interest; and while the war lasted, and the same expenditure continued, it would not only be accumulating a debt of 20 millions at compound interest, but a debt of 20 millions per annum and consequently the real increase of its debt, after allowing for the operation of the million of sinking fund, would be at the rate of 19 millions per annum at compound interest. But if it provided by new taxes 5 per cent. interest for this annual loan of 20 millions, it would, on the one hand, simply increase the debt 20 millions per annum; on the other, it would diminish it by 1 million per annum, with its compound interest. If we suppose that, in addition to the 5 per cent. interest, it raised also by annual taxes 200,000l. per annum as a sinking fund for each loan of 20 millions, it would, the first year of the war, add 200,000l. to the sinking fund, the second year 400,000l., the third year 600,000l., and so on, 200,000l. for every loan of 20 millions. Every year it would add, by means of the additional taxes, to its annual revenue, without increasing its expenditure. Every year, too, that part of this revenue which was devoted to the purpose of purchasing debt, would increase by the amount of the dividends on the stock purchased, and thus would its revenue still further increase, till at last the revenue would overtake the expenditure, and then once again it would have an efficient sinking fund for the reduction of debt.
It is evident that the result of these operations would be the same, the rate of interest being supposed to be always at 5 per cent., or any other rate, if, during the excess of expenditure above revenue, the operation of the Commissioners in the purchase of stock were to cease. The real increase of the national debt must depend upon the excess of expenditure above revenue, and that would be noways altered by a different arrangement. Suppose that, instead of raising 20 millions the first year, and paying off 1 million, only 19 millions had been raised by loan, and the same taxes had been raised, namely, 1,200,000l. As 5 per cent, would be paid on 19 millions only, instead of on 20 millions, or 950,000l. for interest instead of 1 million, there would remain, in addition to the original million, 250,000l. towards the loan of the following year, consequently the loan of the second year would be only for 18,750,000l.; but as 1,200,000l. would be again raised by additional taxes, or 2,400,000l. in the whole the second year, besides the original million, there would be a surplus, after paying the interest of both loans, of 1,512,500l., and therefore the loan of the third year would be for 18,487,500l. The progress during five years is shown in the following table:—
|Loan each Year.||Amount of Loans.||Amount Debt Redeemed.||Amount of Taxes.||Surplus.|
If, instead of thus diminishing the loan each year, the same amount of taxes precisely had been raised, and the sinking fund had been applied in the usual manner, the amount of debt would have been exactly the same at any one of these periods. In the third column of the above table it will be seen, that in the fifth year the debt had increased to 92,371,844l. On the supposition that 200,000l. per annum had each year been added to the sinking fund, and invested in stock by the Commissioners, the amount of unredeemed debt would have been the same sum of 92,371,844l., as will be seen by the last column of the following table:—
|Loan each Year.||Amount of Loans.||Debt Redeemed each Year.||Amount Debt Redeemed.||Interest on Debt Redeemed.||Debt remaining Unredeemed.|
A full consideration of this subject, in all its details, has led Dr Hamilton to the conclusion, that this first mode of raising the supplies during war, viz. by diminishing the amount of the annual loans, and stopping the purchases of the Commissioners in the market, would be more economical, and that it ought therefore to be adopted. In the first place, all the expenses of agency would be saved; in the second, the premium usually obtained by the contractor for the loan would be saved on that part of it which is repurchased by the Commissioners in the open market. It is true that the stocks may fall as well as rise between the time of contracting for the loan and the time of the purchases made by the Commissioners, and therefore, in some cases, the public may gain by the present arrangement; but as these chances are equal, and a certain advantage is given to the loan contractor, to induce him to advance his money, independently of all contingency of future price, the public now give this advantage on the larger sum instead of on the smaller. On an average of years this cannot fail to amount to a very considerable sum. But both these objections would be obviated, if the clause in the original sinking fund bill, authorising the Commissioners to subscribe to any loan for the public service, to the amount of the annual fund which they have to invest, were uniformly complied with. This is the mode which was for several years strongly urged by Mr Grenfell, and it is far preferable to that which Dr Hamilton recommends. Dr Hamilton and Mr Grenfell both agree, that in time of war, when the expenditure exceeds the revenue, and when therefore we are annually increasing our debt, it is a useless operation to buy a comparatively small quantity of stock in the market, while we are at the same time under the necessity of making large sales: but Dr Hamilton would not keep the sinking fund as a separate fund; Mr Grenfell would, and would have it increased with our debt by some known and fixed rules. We agree with Mr Grenfell. If a loan of 20 millions is to be raised annually, while there is in the hands of the Commissioners 10 millions which they annually receive, the obvious and simple operation should be really to raise only 10 millions by loan; but there is a convenience in calling it 20 millions, and allowing the Commissioners to subscribe 10 millions. All the objections of Dr Hamilton are by these means removed; there will be no expense for agency; there will be no loss on account of any difference of price at which the public sell and buy. By calling the loan 20 millions the public will be induced more easily to bear the taxes which are necessary for the interest and sinking fund of 20 millions. Call the loan only 10 millions, abolish during the war the very name of the sinking fund in all your public accounts, and it would be difficult to show to the people the expediency of providing 1,200,000l. per annum by additional taxation, for the interest of a loan of 10 millions. The sinking fund is therefore useful as an engine of taxation, and if the country could depend on ministers, that it would be faithfully devoted to the purposes for which it was established, namely, to afford at the termination of war a clear additional surplus revenue beyond expenditure, in proportion to the addition made to the debt, it would be wise and expedient to keep it as a separate fund, subject to fixed rules and regulations.
We shall presently inquire whether there can be any such dependence, and therefore whether the sinking fund is not an instrument of mischief and delusion, and really tending rather to increase our debt and burdens than to diminish them.
It is objected both to Dr Hamilton's and Mr Grenfell's projects, that the disadvantages which they mention are trifling in degree, and are more than compensated by the steadiness which is given to the market by the daily purchases of the Commissioners; that the money which those purchases throw into the market is a resource on which bankers and others, who may suddenly want money, with certainty rely.
Those who make this objection forget, that if, by the adoption of this plan, a daily purchaser is withdrawn from the market, so also is a daily seller. The minister gives now to one party 10 millions of money to invest in stock, and to another party as much stock as 10 millions costs to sell, and as the instalments on the loan are paid monthly, it may fairly be said that the supply is as regular as the demand. It cannot be doubted too, that a loan of 20 millions is negotiated on worse terms than one of 10. It is true that no more stock will remain in the market at the end of the year, whether the one or the other sum be raised by loan, but for a time the contractor must make a large purchase, and be must wait before he can make his sale of 10 millions to the Commissioners. He is induced then to sell much more largely before the contract, which cannot fail to affect the market price, and it must be recollected, that it is the market price on the day of bidding for the loan which governs the terms on which the loan is negotiated. It is looked to both by the minister who sells and the contractor who purchases. The experiment on Mr Grenfell's suggestion was tried for the first time in 1819; the sum required by Government was 24 millions, to which the Commissioners subscribed 12 millions. In lieu of a loan of 24 millions from the contractor, there was one only of 12 millions, and as soon as this arrangement was known, previous to the contract, the stocks rose to 4 or 5 per cent., and influenced the terms of the loan in that degree. The reason was, that a preparation had been made for 24 or 30 millions loan, and as soon as it was known that it would be for 12 millions only a part of the stock sold was repurchased. Another advantage attending the smaller loan is, that 800l. per million, which is paid to the Bank for management of the loan, is saved on the sum subscribed by the Commissioners.
Dr Hamilton, in another part of his work, observes, “If the sinking fund could be conducted without loss to the public, or even if it were attended with a moderate loss, it would not be wise to propose an alteration of a system which has gained the confidence of the public, and which points out a rule of taxation that has the advantage at least of being steady. If that rule be laid aside, our measures of taxation might become entirely loose.”
“The means, and the only means, of restraining the progress of national debt, are saving of expenditure and increase of revenue. Neither of these has a necessary connexion with a sinking fund. But if they have an eventual connexion, and if the nation, impressed with a conviction of the importance of a system established by a popular minister has, in order to adhere to it, adopted measures either of frugality in expenditure, or exertion in raising taxes, which it would not otherwise have done, the sinking fund ought not to be considered as inefficient, and its effects may be of great importance.”
It will not, we think, admit of a doubt, that if Mr Pitt's sinking fund, as established in 1792, had been always fairly acted upon—if, for every loan, in addition to the war-taxes, the interest, and a 1 per cent. sinking fund had been invariably supplied by annual taxes—we should have made rapid progress in the extinction of debt. The alteration in principle which was made in the sinking fund by the act of 1802 was, in our opinion, a judicious one: it provided that no part of the sinking fund, neither that which arose from the original million, with its addition of 200,000l. per annum, nor that which arose from the 1 per cent. raised for the loans since 1792, should be applicable to the public service till the whole of the debt then existing was redeemed. We should have been disposed to extend this principle further, and to make a provision, that no part of the sinking fund should be applicable to the public service until the whole of the debt then existing, and subsequently to be created, should be redeemed. We do not think that there is much weight in the objection to this clause, which was made to it by Lord Henry Petty in 1807, and referred to and more strongly urged by Mr Vansittart in 1813. The noble Lord said, “I need hardly press upon the consideration of the committee all the evils likely to result from allowing the sinking fund to accumulate without any limit, for the nation would be exposed by that accumulation to the mischief of having a large portion of capital taken at once out of the market, without any adequate means of applying it, which would of course be deprived of its value.
“This evil must appear so serious to any man who contemplates its character, that I have no doubt it will be felt, however paradoxical it may seem, that the redemption of the whole national debt at once would be productive of something like national bankruptcy; for the capital would be equivalent almost to nothing, while the interest he had before derived from it would be altogether extinguished. The other evils which would arise from, and which must serve to demonstrate the mischievous consequence of a prompt discharge of the national debt, I will show presently. Different arrangements were adopted in the further provisions made on the subject of the sinking fund in 1792 and in 1802. By the first the sinking fund of 1 per cent., which was thenceforward to be provided for every new loan, was made to accumulate at compound interest, until the whole of the debt created by such new loan should be extinguished. And by the second arrangement, all the various sinking funds existing in 1802 were consolidated, and the whole were appropriated to accumulate at compound interest until the discharge of the whole of the debt also existing in 1802. But the debt created since 1802, amounting to about 100 millions of nominal capital, is still left subject to the act of 1792, which provides for each separate loan a sinking fund of only 1 per cent. on the nominal capital. The plan of 1802, engrafted on the former acts of 1786 and 1792, provided for the still more speedy extinction of the debt to which it applied; but it would postpone all relief from the public burdens to a very distant period (computed in 1802 to be from 1834 to 1844); and it would throw such large and disproportionate sums into the money market in the latter years of its operation, as might produce a very dangerous depreciation of the value of money. Many inconveniences might also arise from the sudden stop which would be put to the application of those sums when the whole debt should have been redeemed, and from the no less sudden change in the price of all commodities, which must follow from taking off at one and the same moment taxes to an extent probably then much exceeding 30 millions. The fate of merchants, manufacturers, mechanics, and every description of dealers, in such an event, must be contemplated by every thinking man with alarm; and this applies to my observation respecting a national bankruptey; for, should the national debt be discharged, and such a weight of taxation taken off at once, all the goods remaining on hand would be, comparatively speaking, of no value to the holders, because, having been purchased or manufactured while such taxation prevailed, they must be undersold by all those who might manufacture the same kind of goods after such taxation had ceased. These objections were foreseen, and to a certain degree acknowledged, at the time when the act of 1802 was passed, and it was then answered, that whenever the danger approached it might be obviated by subsequent arrangements.” A great many of these objections appear to us to be chimerical, but, if well founded, we agree with the latter part of the extract, “whenever the danger approached it might be obviated by subsequent arrangements.” It was not necessary to legislate in 1807 or in 1813 for a danger which could not happen till between 1834 and 1844. It was not necessary to provide against the evils which would arise from a plethora of wealth at a remote period, when our real difficulty was how to supply our immediate and pressing wants.
What are the evils apprehended from the extravagant growth of the sinking fund towards the latter years of its existence? Not that taxation will be increased, because the growth of the sinking fund is occasioned by dividends on stock purchased, but, first, that capital will be returned too suddenly into the hands of the stockholder, without his having any means of deriving a revenue from it; and, secondly, that the remission of taxes, to the amount probably of 30 millions, will have a great effect on the prices of particular commodities, and will be very pernicious to the interest of those who may deal in or manufacture such commodities.
It is obvious that the Commissioners have no capital. They receive quarterly or daily certain sums, arising from the taxes, which they employ in the redemption of debt. One portion of the people pay what another portion receive. If the payers employed the sums paid as capital, that is to say, in the production of raw produce, or manufactured commodities, and the receivers, when they received it, employed it in the same manner, there would be little variation in the annual produce. A part of that produce might be produced by A instead of by B: not that even this is a necessary consequence; for A, when he received the money for his debt, might lend it to B, and might receive from him a portion of the produce for interest, in which case B would continue to employ the capital as before. On the supposition, then, that the sinking fund is furnished by capital and not by revenue, no injury would result to the community, however large that fund might be; there might or might not be a transfer of employments, but the annual produce, the real wealth of the country, would undergo no deterioration, and the actual amount of capital employed would neither be increased nor diminished. But if the payers of taxes, for the interest and sinking fund of the national debt, paid them from revenue, then they would retain the same capital as before in active employment; and as this revenue, when received by the stockholder, would be by him employed as capital, there would be, in consequence of this operation, a great increase of capital; every year an additional portion of revenue would be turned into capital, which could be employed only in furnishing new commodities to the market. Now, the doubts of those who speak of the mischievous effects of the great accumulation of the sinking fund, proceed from an opinion they entertain, that a country may possess more capital than it can beneficially employ, and that there may be such a glut of commodities that it would be impossible to dispose of them on such terms as to secure to the producers any profits on their capitals. The error of this reasoning has been made manifest by M. Say, in his able work, Economic Politique, and afterwards by Mr Mill, in his excellent reply to Mr Spence, the advocate of the doctrine of the Economistes. They show that demand is only limited by production; whoever can produce has a right to consume, and he will exercise his privilege to the greatest extent. They do not deny that the demand for particular commodities is limited, and therefore they say there may be a glut of such commodities; but in a great and civilized country, wants, either for objects of necessity or of luxury, are unlimited, and the employment of capital is of equal extent with our ability of supplying food and necessaries for the increasing population, which a continually augmenting capital would employ. With every increased difficulty of producing additional supplies of raw produce from the land, corn, and other necessaries of the labourer, would rise; hence wages would rise. A real rise of wages is necessarily followed by a real fall of profits, and therefore when the land of a country is brought to the highest state of cultivation, when more labour employed upon it will not yield in return more food than what is necessary to support the labourer so employed, that country is come to the limit of its increase both of capital and population.
The richest country in Europe is yet far distant from that degree of improvement; but if any had arrived at it, by the aid of foreign commerce, even such a country could go on for an indefinite time increasing in wealth and population; for the only obstacle to this increase would be the scarcity, and consequent high value, of food and other raw produce. Let these be supplied from abroad in exchange for manufactured goods, and it is difficult to say where the limit is at which you would cease to accumulate wealth, and to derive profit from its employment. This is a question of the utmost importance in political economy. We hope that the little we have said on the subject will be sufficient to induce those who wish clearly to understand the principle, to consult the works of the able authors whom we have named, to which we acknowledge ourselves so much indebted. If these views are correct, there is then no danger that the accumulated capital which a sinking fund under particular circumstances might occasion, would not find employment, or that the commodities which it might be made to produce would not be beneficially sold, so as to afford an adequate profit to the producers. On this part of the subject it is only necessary to add, that there would be no necessity for stock-holders to become farmers or manufacturers. There is always to be found in a great country a sufficient number of responsible persons, with the requisite skill, ready to employ the accumulated capital of others, and to pay to them a share of the profits, and which in all countries is known by the name of interest for borrowed money.
The second objection to the indefinite increase of the sinking fund remains now to be noticed. By the remission of taxes suddenly to the amount probably of 30 millions per annum, a great effect would be produced on the price of goods. “The fate of merchants, manufacturers, mechanics, and every description of dealers, in such an event, must be contemplated by every thinking man with alarm; for should the national debt be discharged, and such a weight of taxation taken off at once, all the goods remaining on hand would be, comparatively speaking, of no value to the holders, because, having been purchased or manufactured while such taxation prevailed, they must be undersold by all those who might manufacture the same kind of goods after such taxation had ceased.” It is only, then, on the supposition that merchants, manufactures, and dealers, would be affected as above described, that any evil would result from the largest remission of taxes. It would not of course be said, that by remitting a tax of 5l. to A, 10l. to B, 100l. to C, and so on, any injury would be done to them. If they added these different sums to their respective capitals, they would augment their permanent annual revenue, and would be contributing to the increase of the mass of commodities, thereby adding to the general abundance. We have already, we hope, successfully, shown that an augmentation of capital is neither injurious to the individual by whom it is saved, nor to the community at large; its tendency is to increase the demand for labour, and consequently the population, and to add to the power and strength of the country. But they will not add these respective sums to their capitals; they will expend them as revenue! The measure cannot be said to be either injurious to themselves or to the community on that account. They annually contributed a portion of their produce to the stockholder in payment of debt, who immediately employed it as capital; that portion of produce is now at their own disposal; they may consume it themselves if they please. A farmer who used to sell a portion of his corn for the particular purpose of furnishing this tax, may consume this corn himself; he may get the distiller to make gin of it, or the brewer to turn it into beer, or he may exchange it for a portion of the cloth which the clothier, who is now released from the tax as well as the farmer, is at liberty to dispose of for any commodity which he may desire. It may indeed be said, where is all this cloth, beer, gin, &c., to come from; there was no more than necessary for the general demand before this remission of taxes; if every man is now to consume more, from whence is this supply to be obtained? This is an objection of quite an opposite nature to that which was before urged. Now, it is said there would be too much demand and no additional supply; before, it was contended that the supply would be so great that no demand would exist for the quantity supplied. One objection is no better founded than the other. The stockholders, by previously receiving the payment of their debt, and employing the funds they received productively, or lending them to some other persons who would so employ them, would produce the very additional commodities which the society at large would have it in their power to consume. There would be a general augmentation of revenue, and a general augmentation of enjoyment; and it must not for a moment be supposed that the increased consumption of one part of the people would be at the expense of another part. The good would be unmixed, and without alloy. It remains, then, only to consider the injury to traders from the fall in the price of goods; and the remedy against this appears to be so very simple, that it surprises us that it should ever have been urged as an objection. In laying on a new tax, the stock in hand of the article taxed is commonly ascertained; and, as a measure of justice, the dealer in such article is required to pay the imposed tax on his stock. Why may not the reverse of this be done? Why may not the tax be returned to each individual on his stock in hand, whenever it shall be thought expedient to take off the tax from the article which he manufactures, or in which he deals? It would only be necessary to continue the taxes for a very short time for this purpose. On no view of this question can we see any validity in the arguments which we have quoted, and which were so particularly insisted on by Mr Vansittart.
There are some persons who think that a sinking fund, even when strictly applied to its object, is of no national benefit whatever. The money which is contributed, they say, would be more productively employed by the payers of the taxes than by the commissioners of the sinking fund. The latter purchase stock with it, which probably does not yield 5 per cent.; the former would obtain from the employment of the same capital much more than 5 per cent., consequently the country would be enriched by the difference. There would be in the latter case a larger nett supply of the produce of our land and labour, and that is the fund from which ultimately all our expenditure must be drawn. Those who maintain this opinion do not see that the commissioners merely receive money from one class of the community, and pay it to another class, and that the real question is, Which of these two classes will employ it most productively? Forty millions per annum are raised by taxes, of which 20 millions, we will suppose, is paid for sinking fund, and 20 millions for interest of debt. After a year's purchase is made by the commissioners, this 40 millions will be divided differently; 19 millions will be paid for interest, and 21 millions for sinking fund; and so from year to year, though 40 millions is always paid on the whole, a less and less portion of it will be paid for interest, and a larger portion for sinking fund, till the commissioners have purchased the whole amount of stock, and then the whole 40 millions will be in the hands of the commissioners. The sole question, then, with regard to profit is, whether those who pay this 40 millions, or those who receive it, will employ it most productively; the commissioners, in fact, never employing it all, their business being to transfer it to those who will employ it. Now, of this we are quite certain, that all the money received by the stockholder in return for his stock must be employed as capital; for if it were not so employed, he would be deprived of his revenue, on which he had habitually depended. If, then, the taxes which are paid towards the sinking fund be derived from the revenue of the country, and not from its capital, by this operation a portion of revenue is yearly realised into capital, and consequently the whole revenue of the society is increased; but it might have been realised into capital by the payer of the tax if there had been no sinking fund, and he had been allowed to retain the money to his own use. It might so, and if it had been so disposed of, there can be no advantage in respect to the accumulation of the wealth of the whole society by the establishment of the sinking fund; but it is not so probable that the payer of the tax would make this use of it as the receiver. The receiver, when he gets paid for his stock, only substitutes one capital for another; and he is accustomed to look to his capital for all his yearly income. The payer will have all that he paid in addition to his former revenue; if the sinking fund be discontinued he may indeed realise it into capital, but he may also use it as revenue, increasing his expenditure on wine, houses, horses, clothes, &c. The payer might, too, have paid it from his capital; and therefore the employment of one capital might be substituted for another. In this case, too, no advantage arises from the sinking fund, as the national wealth would accumulate as rapidly without it as with it; but if any portion of the taxes paid expressly for the sinking fund be paid from revenue, and which, if not so paid, would have been expended as revenue, then there is a manifest advantage in the sinking fund, as it tends to increase the annual produce of our land and labour; and as we cannot but think that this would be its operation, we are clearly of opinion that a sinking fund, honestly applied, is favourable to the accumulation of wealth.
Dr Hamilton has followed Dr Price in insisting much on the disadvantage of raising loans during war in a 3 per cent. stock, and not in a 5 per cent. stock. In the former, a great addition is made to the nominal capital, which is generally redeemed during peace at a greatly advanced price. Three per cents. which were sold at 60 will probably be repurchased at 80, and may come to be bought at 100; whereas in 5 per cents. there would be little or no increase of nominal capital, and as all the stocks are redeemable at par, they would be paid off with very little loss. The correctness of this observation must depend on the relative prices of these two stocks. During the war in 1798, the 3 per cents. were at 50, while the 5 per cents. were at 73; and at all times the 5 per cents. bear a very low relative price to the 3 per cents. Here, then, is one disadvantage to be put against another, and it must depend upon the degree in which the prices of the 3 per cents. and 5 per cents. differ, whether it be more desirable to raise the loan in the one or in the other. We have little doubt, that during many periods of the war, there would have been a decided disadvantage in making the loan in 5 per cent. stock in preference to 3 per cent. stock. The market in 5 per cent. stock, too, is limited; a sale cannot be forced in it without causing a considerable fall, a circumstance known to the contractors, and against which they would naturally take some security in the price which they bid for a large loan if in that stock. A premium of 2 per cent. on the market price may appear to them sufficient to compensate them for their risk in a loan in 3 per cent. stock; they may require one of 5 per cent. to protect them against the dangers they apprehend from taking the same loan in a 5 per cent. stock.
II. After having duly considered the operation of a sinking fund derived from annual taxes, we come now to the consideration of the best mode of providing for our annual expenditure, both in war and peace; and further, to examine whether a country can have any security that a fund raised for the purpose of paying debt will not be misapplied by ministers, and be really made the instrument for creating new debt, so as never to afford a rational hope that any progress whatever will permanently be made in the reduction of debt.
Suppose a country to be free from debt, and a war to take place which should involve it in an annual additional expenditure of 20 millions—there are three modes by which this expenditure may be provided; first, taxes may be raised to the amount of 20 millions per annum, from which the country would be totally freed on the return of peace; or, secondly, the money might be annually borrowed and funded, in which case, if the interest agreed upon was 5 per cent., a perpetual charge of 1 million per annum taxes would be incurred for the first year's expense, from which there would be no relief during peace, or in any future war,—of an additional million for the second year's expense, and so on for every year that the war might last. At the end of twenty years, if the war lasted so long, the country would be perpetually encumbered with taxes of 20 millions per annum, and would have to repeat the same course on the recurrence of any new war. The third mode of providing for the expenses of the war would be to borrow annually the 20 millions required as before, but to provide by taxes a fund, in addition to the interest, which, accumulating at compound interest, should finally be equal to the debt. In the case supposed, if money was raised at 5 per cent., and a sum of 200,000l. per annum in addition to the million for interest were provided, it would accumulate to 20 millions in forty-five years; and by consenting to raise 1,200,000l. per annum by taxes for every loan of 20 millions, each loan would be paid off in forty-five years from the time of its creation; and in forty-five years from the termination of the war, if no new debt were created, the whole would be redeemed, and the whole of the taxes would be repealed.
Of these three modes we are decidedly of opinion that the preference should be given to the first. The burdens of the war are undoubtedly great during its continuance, but at its termination they cease altogether. When the pressure of the war is felt at once, without mitigation, we shall be less disposed wantonly to engage in an expensive contest, and if engaged in it, we shall be sooner disposed to get out of it, unless it be a contest for some great national interest. In point of economy there is no real difference in either of the modes, for 20 millions in one payment, 1 million per annum for ever, or 1,200,000l. for forty-five years, are precisely of the same value; but the people who pay the taxes never so estimate them, and therefore do not manage their private affairs accordingly. We are too apt to think that the war is burdensome only in proportion to what we are at the moment called to pay for it in taxes, without reflecting on the probable duration of such taxes. It would be difficult to convince a man possessed of 20,000l., or any other sum, that a perpetual payment of 50l. per annum was equally burdensome with a single tax of 1000l. He would have some vague notion that the 50l. per annum would be paid by posterity, and would not be paid by him; but if he leaves his fortune to his son, and leaves it charged with this perpetual tax, where is the difference whether he leaves him 20,000l. with the tax, or 19,000l. without it? This argument of charging posterity with the interest of our debt, or of relieving them from a portion of such interest, is often used by otherwise well informed people, but we confess we see no weight in it. It may indeed be said that the wealth of the country may increase, and as a portion of the increased wealth will have to contribute to the taxes, the proportion falling on the present amount of wealth will be less, and thus posterity will contribute to our present expenditure. That this may be so is true, but it may also be otherwise; the wealth of the country may diminish, individuals may withdraw from a country heavily taxed, and therefore the property retained in the country may pay more than the just equivalent which would at the present time be received from it. That an annual tax of 50l. is not deemed the same in amount as 1000l. ready money, must have been observed by every body. If an individual were called upon to pay 1000l. to the income-tax, he would probably endeavour to save the whole of it from his income; he would do no more if, in lieu of this war-tax, a loan had been raised, for the interest of which he would have been called upon to pay only 50l. income-tax. The war-taxes, then, are more economical, for when they are paid an effort is made to save to the amount of the whole expenditure of the war, leaving the national capital undiminished. In the other case, an effort is only made to save to the amount of the interest of such expenditure, and therefore the national capital is diminished in amount. The usual objection made to the payment of the larger tax is, that it could not be conveniently paid by manufacturers and landholders, for they have not large sums of money at their command. We think that great efforts would be made to save the tax out of their income, in which case they could obtain the money from this source; but suppose they could not, what should hinder them from selling a part of their property for money, or of borrowing it at interest? That there are persons disposed to lend is evident from the facility with which Government raises its loans. Withdraw this great borrower from the market, and private borrowers would be readily accommodated. By wise regulations and good laws the greatest facilities and security might be afforded to individuals in such transactions. In the case of a loan A advances the money, and B pays the interest, and every thing else remains as before. In the case of war-taxes A would still advance the money and B pay the interest, only with this difference, he would pay it directly to A; now he pays it to Government, and Government pays it to A.
These large taxes, it may be said, must fall on property, which the smaller taxes now do not exclusively do. Those who are in professions, as well as those who live from salaries and wages, and who now contribute annually to the taxes, could not make a large ready money payment, and they would therefore be benefited at the expense of the capitalist and landholder. We believe that they would be very little, if at all benefited by the system of war-taxes. Fees to professional men, salaries, and wages, are regulated by the prices of commodities, and by the relative situation of those who pay and of those who receive them. A tax of the nature proposed, if it did not disturb prices, would, however, change the relation between these classes, and a new arrangement of fees, salaries, and wages would take place, so that the usual level would be restored.
The reward that is paid to professors, &c., is regulated, like every thing else, by demand and supply. What produces the supply of men, with certain qualifications, is not any particular sum of money, but a certain relative position in society. If you diminish, by additional taxes, the incomes of landlords and capitalists, leaving the pay of professions the same, the relative position of professions would be raised—an additional number of persons would therefore be enticed into those lines, and the competition would reduce the pay.
The greatest advantage that would attend war-taxes would be the little permanent derangement that they would cause to the industry of the country. The prices of our commodities would not be disturbed by taxation, or if they were, they would only be so during a period when every thing is disturbed by other causes during war. At the commencement of peace every thing would be at its natural price again, and no inducement would be afforded to us by the direct effect, and still less by the indirect effect of taxes on various commodities, to desert employments in which we have peculiar skill and facilities, and engage in others in which the same skill and facilities are wanting. In a state of freedom every man naturally engages himself in that employment for which he is best fitted, and the greatest abundance of products is the result. An injudicious tax may induce us to import what we should otherwise have produced at home, or to export what we should otherwise have received from abroad; and in both cases we shall receive, besides the inconvenience of paying the tax, a less return for a given quantity of our labour than what that labour would, if unfettered, have produced. Under a complicated system of taxation it is impossible for the wisest legislature to discover all the effects, direct and indirect, of its taxes; and if it cannot do this, the industry of the country will not be exerted to the greatest advantage. By war-taxes we should save many millions in the collection of taxes. We might get rid of at least some of the expensive establishments, and the army of officers which they employ would be dispensed with. There would be no charges for the management of debt. Loans would not be raised at the rate of 50l. or 60l. for a nominal capital of 100l., to be repaid at 70l., 80l., or possibly at 100l.; and, perhaps, what is of more importance than all these together, we might get rid of those great sources of the demoralization of the people, the Customs and Excise. In every view of this question we come to the same conclusion, that it would be a great improvement in our system for ever to get rid of the practice of funding. Let us meet our difficulties as they arise, and keep our estates free from permanent encumbrances, of the weight of which we are never truly sensible till we are involved in them past remedy.
We are now to compare the other two modes of defraying the expenses of a war, one by borrowing the capital expended, and providing annual taxes permanently for the payment of the interest; the other by borrowing the capital expended, and, besides providing the interest by annual taxes, raising by the same mode, an additional revenue (and which is called the sinking fund), with a view, within a certain determinate time, to redeem the original debt, and get rid entirely of the taxes.
Under the firm conviction that nations will at last adopt the plan of defraying their expenses, ordinary and extraordinary, at the time they are incurred, we are favourable to every plan which shall soonest redeem us from debt; but then we must be convinced that the plan is effective for the object. This, then, is the place to examine whether we have or can have any security for the due application of the sinking fund to the payment of debt.
When Mr Pitt, in 1786, established the sinking fund, he was aware of the danger of entrusting it to ministers and Parliament; and therefore provided that the sums applicable to the sinking fund should be paid by the Exchequer into the hands of commissioners, by quarterly payments, who should be required to invest equal sums of money in the purchase of stock, on four days in each week, or about fifty days in each quarter. The commissioners named were, the Speaker of the House of Commons, the Chancellor of the Exchequer, the Master of the Rolls, the Accountant-General of the Court of Chancery, and the Governor and Deputy-Governor of the Bank. He thought that, under such management, there could be no misapplication of the funds, and he thought correctly, for the commissioners have faithfully fulfilled the trust reposed in them. In proposing the establishment of a sinking fund to Parliament in 1786, Mr Pitt said, “With regard to preserving the fund to be invariably applied to the diminution of the debt inalienable, it was the essence of his plan to keep that sacred, and most effectually so in time of war. He must contend, that to suffer the fund at any time, or on any pretence, to be diverted from its proper object, would be to ruin, defeat, and overturn his plan. He hoped, therefore, when the bill he should introduce should pass into a law, that house would hold itself solemnly pledged not to listen to a proposal for its repeal on any pretence whatever.”
“If this million, to be so applied, is laid out with its growing interest, it will amount to a very great sum in a period that is not very long in the life of an individual, and but an hour in the existence of a great nation; and this will diminish the debt of this country so much as to prevent the exigencies of war from raising it to the enormous height it has hitherto done. In the period of twenty-eight years, the sum of a million, annually improved, would amount to 4 millions per annum; but care must be taken that this fund be not broken in upon: this has hitherto been the bane of this country: for if the original sinking fund had been properly preserved, it is easy to be proved that our debts, at this moment, would not have been very burdensome: this has hitherto been in vain endeavoured to be prevented by acts of Parliament: the minister has uniformly, when it suited his convenience, gotten hold of this sum, which ought to have been regarded as most sacred. What, then, is the way of preventing this? The plan I mean to propose is this, that this sum be vested in certain commissioners, to be by them applied quarterly to buy up stock; by this means, no sum so great will ever be ready to be seized upon on any occasion, and the fund will go on without interruption. Long and very long has this country struggled under its heavy load, without any prospect of being relieved; but it may now look forward to an object upon which the existence of this country depends; it is therefore proper it should be fortified as much as possible against alienation. By this manner of paying 250,000l. quarterly into the hands of commissioners, it would make it impossible to take it by stealth; and the advantage would be too well felt ever to suffer a public act for that purpose. A minister could not have the confidence to come to this house and desire the repeal of so beneficial a law, which tended so directly to relieve the people from burden.”
Mr Pitt flattered himself most strangely, that he had found a remedy for the difficulty which “had hitherto been the bane of this country:” he thought he had discovered means for preventing “ministers, when it suited their convenience, from getting hold of this sum, which ought to be regarded as most sacred.” With the knowledge of Parliament which he had, it is surprising that he should have relied so firmly on the resistance which the House of Commons would offer to any plan of ministers for violating the sinking fund. Ministers have never desired the partial repeal of this law, without obtaining a ready compliance from Parliament.
We have already shown, that in 1807, one Chancellor of the Exchequer proposed to relieve the country from taxation, with a very slight exception, for several years together, while we were, during war, keeping up, if not increasing, our expenditure, and supplying it by means of annual loans. What is this but disposing of a fund which ought to have been regarded as most sacred?
In 1809 another Chancellor of the Exchequer raised a loan, without raising any additional taxes to pay the interest of it, but pledged a portion of the war-taxes for that purpose, thereby rendering an addition to that amount necessary to the loan of the following and every succeeding year. Was not this disposing of the sinking fund by stealth, and accumulating debt at compound interest? Another Chancellor of the Exchequer, in 1813, proposed a partial repeal of the law, by which 7 millions per annum of the sinking fund was placed at his disposal, and which he has employed in providing for the interest of new debt. This was done with the sanction of Parliament, and, as we apprehend, in direct violation of all the laws which had before been passed regarding the sinking fund. But what has become of the remainder of this fund, after deducting the 7 millions taken from it by the act of 1813?∗ It should now be 16 millions, and at that amount it was returned in the annual finance accounts last laid before Parliament. The finance committee appointed by the House of Commons did not fail to see that nothing can be deemed an efficient fund for the redemption of debt in time of peace, but such as arises from an excess of revenue above expenditure; and as that excess, under the most favourable view, was not quite 2 millions, they considered that sum as the real efficient sinking fund, which was now applicable to the discharge of debt. If the act of 1802 had been complied with, if the intentions of Mr Pitt had been fulfilled, we should now have had a clear excess of revenue of above 20 millions, applicable to the payment of the debt; as it is, we have 2 millions only, and if we ask ministers what has become of the remaining 18 millions, they show us an expensive peace establishment, which they have no other means of defraying but by drafts on this fund, or several hundred millions of 3 per cents., on which it is employed in discharging the interest. If ministers had not had such an amount of taxes to depend on, would they have ventured, year after year, to encounter a deficiency of revenue below expenditure, for several years together, of more than 12 millions? It is true that the measures of Mr Pitt locked it up from their immediate seizure, but they knew it was in the hands of the Commissioners, and presumed as much upon it, and justly, with the knowledge they had of Parliament, as if it had been in their own. They considered the Commissioners as their trustees, accumulating money for their benefit, and of which they knew that they might dispose whenever they should consider that the urgency of the case required it. They seem to have made a tacit agreement with the Commissioners, that they should accumulate 12 millions per annum at compound interest, while they themselves accumulated an equal amount of debt, also at compound interest. The facts are indeed no longer denied. In the last session of Parliament, for the first time, the delusion was acknowledged by ministers, after it had become manifest to every other person, but yet it is avowed to be their intention to go on with this nominal sinking fund, raising a loan every year for the difference between its real and nominal amount, and letting the Commissioners subscribe to it. On what principle this can be done it would be difficult to give any rational account. Perhaps it may be said that it would be a breach of faith to the stockholder to take away the sinking fund, but is it not equally a breach of faith if the Government itself sells to the Commissioners the greatest part of the stock which they buy? The stockholder wants something substantial and real to be done for him, and not any thing deceitful and delusive. Disguise it as you will, if of 14 millions to be invested by the Commissioners in time of peace, the stock which 12 millions will purchase is sold by the Government itself, which creates it for the very purpose of obtaining these 12 millions, and only stock for 2 millions is purchased in the market, and no taxes for sinking fund or interest are provided for the 12 millions which Government takes; the result is precisely the same to the stockholder, and to every one concerned, as if the sinking fund was reduced to 2 millions. It is utterly unworthy of a great country to countenance such pitiful shifts and evasions.
The sinking fund, then, has, instead of diminishing the debt, greatly increased it. The sinking fund has encouraged expenditure. If, during war, a country spends 20 millions per annum, in addition to its ordinary expenditure, and raises taxes only for the interest, it will in twenty years accumulate a debt of 400 millions, and its taxes will increase to 20 millions per annum. If, in addition to the million per annum, taxes of 200,000l. were raised for a sinking fund, and regularly applied to the purchase of stock, the taxes, at the end of twenty years, would be 24 millions, and its debt only 342 millions; for 58 millions will have been paid off by the sinking fund; but if at the end of this period new debt shall be contracted, and the sinking fund itself, with all its accumulations, amounting to 6,940,000l., be absorbed in the payment of interest on such debt, the whole amount of debt will be 538 millions, exceeding that which would have existed if there had been no sinking fund by 138 millions. If such an additional expenditure were necessary, provision should be made for it without any interference with the sinking fund. If, at the end of the war, there is not a clear surplus of revenue above expenditure of 6,940,000l. on the above supposition, there is no use whatever in persevering in a system which is so little adequate to its object. After all our experience, however, we are again toiling to raise a sinking fund; and in the last session of Parliament 3 millions of new taxes were voted, with the avowed object of raising the remnant of our sinking fund, now reduced to 2 millions, to 5 millions. Is it rash to prognosticate that this sinking fund will share the fate of all those which have preceded it? Probably it will accumulate for a few years, till we are engaged in some new contest, when ministers, finding it difficult to raise taxes for the interest of loans, will silently encroach on this fund; and we shall be fortunate if, in their next arrangement, we shall be able to preserve out of its wreck an amount so large as 2 millions.
It is, we think, sufficiently proved that no securities can be given by ministers that the sinking fund shall be faithfully devoted to the payment of debt, and without such securities we should be much better without such a fund. To pay off the whole, or a great portion of our debt, is, in our estimation, a most desirable object, if, at the same time, we acknowledged the evils of the funding system, and resolutely determined to carry on our future contests without having recourse to it. This cannot, or rather will not, be done by a sinking fund as at present constituted, nor by any other that we can suggest; but if, without raising any fund, the debt were paid by a tax on property, once for all it would effect its object. Its operation might be completed in two or three years during peace, and if we mean honestly to discharge the debt, we do not see any other mode of accomplishing it. The objections to this plan are the same as those which we have already attempted to answer in speaking of war-taxes. The stockholders, being paid off, would have a large mass of property, for which they would be eagerly seeking employment. Manufacturers and landholders would want large sums for their payments into the Exchequer. These two parties would not fail to make an arrangement with each other, by which one party would employ their money, and the other raise it. They might do this by loan, or by sale and purchase, as they might think it most conducive to their respective interests; with this the State would have nothing to do. Thus, by one great effort, we should get rid of one of the most terrible scourges which was ever invented to afflict a nation; and our commerce would be extended without being subject to all the vexatious delays and interruptions which our present artificial system imposes upon it.
There cannot be a greater security for the continuance of peace, than the imposing on ministers the necessity of applying to the people for taxes to support a war. Suffer this sinking fund to accumulate during peace to any considerable sum, and very little provocation would induce them to enter into a new contest. They would know that, by a little management, they could make the sinking fund available to the raising of a new supply, instead of being available to the payment of the debt. The argument is now common in the mouths of ministers, when they wish to lay on new taxes, for the purpose of creating a new sinking fund, in lieu of one which they have just spent, to say, “It will make foreign countries respect us; they will be afraid to insult or provoke us, when they know that we are possessed of so powerful a resource.” What do they mean by this argument, if the sinking fund be not considered by them as a war fund, on which they can draw in support of the contest? It cannot, at one and the same time, be employed in the annoyance of an enemy, and in the payment of debt. If taxes are, as they ought to be, raised for the expenses of a war, what facility will a sinking fund give to the raising of them? none whatever. It is not because the possession of a sinking fund will enable them to raise new and additional taxes that ministers prize it; for they know it will have no such effect; but because they know that they will be enabled to substitute the sinking fund in lieu of taxes, and employ it, as they have always done, in war, and providing interest for fresh debt. Their argument means this, or it means nothing, for a sinking fund does not necessarily add to the wealth and prosperity of a country; and it is on that wealth and prosperity that it must depend, whether new burdens can be borne by the people. What did Mr Vansittart mean in 1813, when he said that “the advantage which his new plan of finance would hereafter give, in furnishing a hundred millions in time of peace, as a fund against the return of hostilities, was one of great moment. This would place an instrument of force in the hands of Parliament, which might lead to the most important results.” “It might be objected by some, that keeping in reserve a large fund to meet the expenses of a new war, might be likely to make the Government of this country arrogant and ambitious, and therefore have a tendency unnecessarily to plunge us in new contests;” not a very unreasonable objection, we should think. How does Mr Vansittart answer it? “On this subject he would say, from long experience and observation, that it would be better for our neighbours to depend on the moderation of this country, than for this country to depend on them. He should not think the plan objectionable on this account. If the sums treasured up were misapplied by the arrogant or ambitious conduct of our Government, the blame must fall on the heads of those who misused it, not on those who put it into their hands for purposes of defence. They did their duty in furnishing the means of preserving the greatness and glory of the country, though those means might be used for the purposes of ambition, rapine, and desolation.” These are very natural observations from the mouth of a minister; but we are of opinion that such a treasure would be more safe in the custody of the people, and that Parliament have something more to do than to furnish ministers with the means of preserving the greatness and glory of the country. It is their duty to take every security that the resources of the country are not misapplied “by the arrogant and ambitious conduct of our Government,” or “used for the purposes of ambition, rapine, and desolation.”
On the extraordinary assumption that there was any thing in Mr Vansittart's plan that would more effectually than the old plan allow 100 millions hereafter to be appropriated to the public service, Dr Hamilton has the following observations:—
“We are altogether at a loss to form a distinct conception of the valuable treasure here held forth. So soon as any stock is purchased by the commissioners, and stands invested in their name, a like amount of the public debt is in fact discharged. Whether a parliamentary declaration to the effect be made or not is only a matter of form. If the money remain invested in the name of the commissioners, no doubt it may be transferred again to purchasers in the stock exchange when war broke out anew; and money may be raised for the public in this manner. It is an application to the public to invest their capital in the purchase of this dormant stock.” “It is true, that if the taxes imposed during war for the purpose of a sinking fund be continued after peace is restored, till a large sum (suppose 100,000,000l.) be vested in the hands of the Commissioners, the public, upon the renewal of the war, may spend to that amount without imposing fresh taxes,—an advantage,” observes Mr Huskisson, “not only not exclusively belonging to this plan, but unavoidable under any plan of a sinking fund in time of peace.” Mr Vansittart ought to have said, “If our sinking fund should accumulate in time of peace to so large a sum that I can take 5 millions per annum from it, I can spend 100,000,000l. in a new war without coming to you for fresh taxes; the disadvantages of my plan are, that by now taking 7,000,000l. per annum from it, and making a provision for speedily, and at regular intervals, appropriating more of this fund to present objects, the sinking fund will be so much diminished that I cannot so soon, by a great many years, avail myself of the 5 millions for the purpose which I have stated.”
OBSERVATIONS ON PARLIAMENTARY REFORM.
The manuscript of the following Essay on Parliamentary Reform was given by Mr Ricardo, a short time before his death, to Mr M'Culloch. The latter, not thinking it right that so important a paper should be withheld from the public, printed it in the Scotsman of the 24th of April 1824.
OBSERVATIONS ON PARLIAMENTARY REFORM.
A monarch, or any other ruler, wishes to have no other check on his actions but his own will, and would, if he could, reign despotically, uncontrolled by any other power. In every country of the world, some check, more or less strong, exists on the will of the Sovereign, even in those Governments which are supposed to be the most despotic. In Turkey, and at Algiers, the people or the army rise up in insurrection, and frequently depose and strangle one tyrant, and elevate another in his place, who is checked in his career by a dread of the same species of violence.
The only difference, in this point, between the Governments of countries which are called free and those which are called arbitrary, is in the organization of this check, and in the facility and efficacy with which it is brought to bear upon the will of the Sovereign. In England, the monarch's authority is checked by the fear of resistance, and the power of organizing and calling forth this resistance is said to be in the aristocracy and the people, through the medium of the two Houses of Parliament.
It is undoubtedly true that the monarch would not long venture to oppose the opinion decidedly expressed by the House of Commons, and therefore he may be said to be checked and controlled by those who appoint the House of Commons. All great questions are decided in the House of Commons; the House of Lords seldom gives any opposition to important measures to which the other House has given its sanction. Nor, when the constitution of that House is considered, is such opposition necessary, for the House of Commons is not appointed by the people, but by the Peers and the wealthy aristocracy of the country. The really efficient power of Government is, then, in the hands of the wealthy aristocracy, subject, indeed, to an irregular influence which I shall presently explain. What is the consequence of this?—A compromise between the aristocracy and the monarchy; and all the power and influence which Government gives are divided between them. The monarch has the appointment to all places of trust and profit— to the ministry—to the army and navy—to the courts of law; he has also the power of appointing to many other lucrative situations, such as ambassadors, heads and subordinates of public offices, &c., &c. Notwithstanding this great power, his measures can be controlled by the House of Commons, and therefore, it is of importance to Government to get a majority in that House.
This is easily obtained by giving a portion of these lucrative places to those who have the choice of the majority of the House of Commons; accordingly, it is well known that no means are so effectual for obtaining situations of trust and profit from the Crown as the possession of parliamentary influence; and, as the appetite for lucrative places is insatiable, both in ministers and their followers, and the oligarchy and theirs, places are often created for the men, and others are frequently continued after they have become unnecessary, for the advantage solely of these favoured individuals. If, then, there were no other check on both these bodies, England would not have to boast of a better Government than what exists in those countries in which it is called despotic. But, happily, there is another check, and that a tolerably efficient one, which is with the people, and would not, without a violent struggle, be wrested from them. The check on this Government, which operates on behalf of the people, is the good sense and information of the people themselves, operating through the means of a free press, which controls not only the Sovereign and his ministers, but the aristocracy and the House of Commons, which is under its influence. This is the great safeguard of our liberties. Every transaction of the great functionaries of the State is, by means of the press, conveyed in two days to the extremities of the kingdom, and the alarm is sounded if any measure is adopted, or even proposed, which might in its tendency be hurtful to the community. This check, then, like others that we have been speaking of, resolves itself into the fear which Government and the aristocracy have of an insurrection of the people, by which their power might be overturned, and which alone keeps them within the bounds which now appear to arrest them. The press, amongst an enlightened and well-informed people, is a powerful instrument to prevent misrule, because it can quickly organise a formidable opposition to any encroachment on the people's rights, and, in the present state of information, perhaps there would not be found a minister who would be sufficiently daring to attempt to deprive us of it. This power, however, is irregular in its operation. It is not always easy to rouse the people to an active opposition to minor measures, which may be shown to be detrimental to their interests; neither is it powerful, on ordinary occasions, in getting a repeal of those laws, which, however detrimental, have been long in force; and therefore it is in a certain degree braved. In spite of the thunders of the press, men continue to be placed in Parliament, whose interests are often at direct variance with the interest of the people. The offices of State, and the lucrative situations under Government, are not bestowed according to merit; bad laws continue to disgrace our statute-book, and good ones are rejected because they would interfere with particular interests; wars are entered into for the sake of private advantage, and the nation is borne down with great and unnecessary expenses. Experience proves that the liberty of the press is insufficient to correct or prevent these abuses, and that nothing can be effectual to that purpose but placing the check in a more regular manner in the people by making the House of Commons really and truly the representatives of the people. Of all the classes in the community the people only are interested in being well governed; on this point there can be no dispute or mistake. Good government may be contrary to the interests of the aristocracy, or to those of the monarch, as it may prevent them from having the same emoluments, advantage, or power, which they would have if Government was not busied about the happiness of the many, but chiefly concerned itself about the happiness of the few; but it can never be prejudicial to the general happiness.
If, then, we could get a House of Commons chosen by the people, excluding all those, whether high or low, who had interests separate and distinct from the general interest, we should have a controlling body whose sole business and duty it would be to obtain good government. It is not denied that, in innumerable instances, the interest of the aristocracy and that of the people will be the same, and therefore many good laws and regulations would be made if the aristocracy were to govern without control. The same may be said of the Monarch; but in many important instances they will also be opposed, and then it is that we shall look in vain for good laws and for good government. A reform in the House of Commons, then,—the extension of the elective franchise to all those against whom no plausible reason can be urged that they have, or suppose they have, interest contrary to the general interest, is the only measure which will secure liberty and good government on a solid and permanent foundation. This is so self-evident that one is surprised that an argument can be offered against it; but, to do the opponents of this measure justice, they do not advance any direct argument against it; their whole endeavour is to evade it.
A House of Commons such as you contend for, they say, would be a good, but how are you to obtain it? Has not the country flourished in spite of the imperfections you mention, and why would you wish to improve what is already demonstrated to be so good? The House of Commons is not chosen by the people generally, but it is chosen by men who have received a good and liberal education—whose characters are unimpeachable, and who are much better judges of what will conduce to the happiness of the people than they themselves are. By extending the franchise you open the door to anarchy, for the bulk of the people are interested, or think they are so, in the equal division of property, and they would choose only such demagogues as held out the hope to them that such division should take place. To which it may be answered, that although it be true that the country has flourished with a House of Commons constituted as ours has been, it must be shown that such a constitution of it is favourable to the prosperity of the country, before such an argument can be admitted for its continuance. It is not sufficient to say that we have been successful, and therefore we should go on in the same course. The question to be asked is, notwithstanding our success, has there been nothing in our institutions to retard our progress? A merchant may flourish although he is imposed upon by his clerk, but it would be a worthless argument to persuade him to keep this clerk because he had flourished while he was in his employ. Whilst any evil can be removed, or any improvement adopted, we should listen to no suggestions so inconclusive as that we have been doing well. Such an argument is a bar to all progress in human affairs.
Why have we adopted the use of steam-engines? It might have been demonstrated that our manufactures had flourished without them, and why not let well enough alone? Nothing is well enough whilst anything better is within our reach; this is a fallacy which can only be advanced by the ignorant or designing, and can no longer impose on us. What signifies, too, the unimpeachable characters and the good education of those who choose the members of the House of Commons? Let me know what the state of their interests is, and I will tell you what measures they will recommend.
If this argument were good for any thing, we might get rid of all the checks and restraints of law, as far at least as they regarded a part of the community. Why ask from ministers an account of the public income and expenditure annually? Are they not men of good character and education?
What need of a House of Commons or of a House of Lords? Are they to restrain the Sovereign? Why should you not place the fullest reliance in his virtue and integrity?
Why fetter the judges by rules, and burden them with juries? Is it possible that such enlightened and good men could decide unjustly or corruptly? To keep men good you must as much as possible withdraw from them all temptation to be otherwise. The sanctions of religion, of public opinion, and of law, all proceed on this principle, and that State is most perfect in which all these sanctions concur to make it the interest of all men to be virtuous, which is the same thing as to say, to use their best endeavour to promote the general happiness.
The last point for consideration is the supposed disposition of the people to interfere with the rights of property. So essential does it appear to me, to the cause of good government, that the rights of property should be held sacred, that I would agree to deprive those of the elective franchise against whom it could justly be alleged that they considered it their interest to invade them. But in fact it can be only amongst the most needy in the community that such an opinion can be entertained. The man of a small income must be aware how little his share would be if all the large fortunes in the kingdom were equally divided among the people. He must know that the little he would obtain by such a division could be no adequate compensation for the overturning of a principle which renders the produce of his industry secure. Whatever might be his gains after such a principle had been admitted, would be held by a very insecure tenure, and the chance of his making any future gains would be greatly diminished; for the quantity of employment in the country must depend, not only on the quantity of capital, but upon its advantageous distribution, and, above all, on the conviction of each capitalist that he will be allowed to enjoy unmolested the fruits of his capital, his skill, and his enterprise. To take from him this conviction is at once to annihilate half the productive industry of the country, and would be more fatal to the poor labourer than to the rich capitalist himself. This is so self-evident, that men very little advanced beyond the very lowest stations in the country cannot be ignorant of it; and it may be doubted whether any large number even of the lowest would, it they could, promote a division of property. It is the bugbear by which the corrupt always endeavour to rally those who have property to lose around them, and it is from this fear, or pretended fear, that so much jealousy is expressed of entrusting the least share of power to the people. But the objection, when urged against reform, is not an honest one, for, if it be allowed that those who have a sacred regard to the rights of property should have a voice in the choice of representatives, the principle is granted for which reformers contend. They profess to want only good government, and, as a means to such an end, they insist that the power of choosing members of Parliament should be given to those who cannot have an interest contrary to good government. If the objection made against reform were an honest one, the objectors would say how low in the scale of society they thought the rights of property were held sacred, and there they would make their stand. That class, and all above it, they would say, may fairly and advantageously be entrusted with the power which is wished to be given them, but the presumption of mistaken views of interest in all below that class would render it hazardous to entrust a similar power with them—it could not at least be safely done until we had more reason to be satisfied that, in their opinion, the interest of the community and that of themselves were identified on this important subject.
This concession would satisfy the reasonable part of the public. It is not universal suffrage as an end, but as a means, of good government, that the partisans of that measure ask it for. Give them the good government, or let them be convinced that you are really in earnest in procuring it for them, and they will be satisfied, although you should not advance with the rapid steps that they think would be most advantageously taken. My own opinion is in favour of caution, and therefore I lament that so much is said on the subject of Universal Suffrage. I am convinced that an extension of the suffrage, far short of making it universal, will substantially secure to the people the good government they wish for, and therefore I deprecate the demand for the universality of the elective franchise; at the same time, I feel confident that the effects of the measure which would satisfy me would have so beneficial an effect on the public mind—would be the means of so rapidly increasing the knowledge and intelligence of the public, that, in a limited space of time after this first measure of reform were granted, we might, with the utmost safety, extend the right of voting for members of Parliament to every class of the people.
But it is intolerable, because the House of Commons is not disposed to go the full length of what is perhaps indiscreetly asked of them, that therefore they should refuse to grant any reformation of abuses whatever, that, against the plainest conviction, they should assert that a House of Commons, constituted as this is, is best calculated to give to the people the advantages of good government, and that they should continue to maintain that the best interests of the people are attended to, when it is demonstrated that they not only are not, but cannot be, whenever they are opposed to the interests of those who are in full possession of power, namely, the King, and the Oligarchy, who are bribed to support his government.
SPEECH ON THE PLAN OF VOTING BY BALLOT
This speech appeared originally in the Scotsman of the 17th of July 1824, being introduced by the following paragraph:—
“The following report of one of Mr Ricardo's speeches in Parliament—most probably the one he delivered on the 24th April 1823, in the debate on Lord John Russell's motion —written in his own hand, was found among his manuscripts subsequently to his death. His friends have kindly communicated it to us, and we now publish it verbatim from the manuscript, without any alteration of any kind whatever. Mr Ricardo was always a decided supporter of the plan of election by ballot; and he has here stated, with that brevity, clearness, and comprehensiveness of view peculiar to himself, the grounds on which he approved of that plan. We will not presume to say that Mr Ricardo has obviated all the objections that have been urged against the ballot; but every one will readily allow that his defence of it is able and ingenious, and that he has said almost all that can be said in its behalf.”
Sir,—The general question of a reform in the representation of this House, has been so fully discussed, and so ably supported by many honourable gentlemen that have preceded me in the debate, that I shall not detain the House by offering any observations on it, but shall confine myself to the consideration of that part of the subject, which has been little noticed, but which, in my opinion, is of so much importance, that, without it, no substantial reform can be obtained:—I mean, Sir, the changing the present mode of open election for members of Parliament, and substituting in its room the secret mode, or ballot.
In order to appreciate the advantages which will result from the proposed change, it may not be improper to state, as briefly as possible, to the House, the inconveniences attending the present mode of election; that having the nature of the evil before them, they may be the better able to judge of the efficacy of the proposed remedy. By some, indeed, it may be thought a vain and useless occupation of the time of the House to recapitulate the evils of our present system, for it may with justice be asked, who amongst us is not acquainted with the bribery, the riots, the intoxication, and the immoralities of every description, which take place on the occasion of every general election? These disgusting facts are unfortunately too notorious, yet it may not be unuseful to submit them to the attention of the House.
The scenes which occur at such times, would disgrace a barbarous people. The reign of the law appears to cease, and impunity to be proclaimed for every species of violence. A rude and brutal populace, the offscourings of our population, surround the hustings, and heap every sort of insult and indignity on the candidate who happens not to enjoy their favour. Dirt, filth, and often stones, are thrown at him—the most unmanly attacks are made upon his person, and it is frequently a task of difficulty to his friends to protect him from the effects of their savage and brutal animosity.
Nor is it the candidate only that is thus exposed to their rage, but every elector is applauded or hissed, caressed or furiously attacked, as he may favour or oppose by his vote, the favourite of the mob. Idleness and the neglect of work always follow in the train of an election—they are succeeded by debauchery and intoxication, and for a period the country suffers under all the evils of anarchy. I know that these violences are in almost all cases committed by the lowest of the mob, that they are not to be imputed to the electors themselves, but to the assemblage of the idle and disorderly which every great town affords, but the evil is not less serious on that account, and does not less imperiously call on us for a remedy.
These, however, constitute but one portion, and indeed a very inferior portion of the evil which attends the present mode of election. Bad as it is, if even at this price we obtained a Parliament freely chosen by the people, we should have some consolation, although it would be our duty to endeavour to retain the good, and get rid of what was bad in the system. But this consolation is not afforded us, and, in addition to the evil which I have already mentioned, we have the far greater one to guard against, which arises from the influence exercised over the voters at elections. Of what use is it to mark with precision how low in the scale of rank the right of voting for members of parliament shall commence, if you take no steps to secure to the electors the right which you propose to accord to them? It is the most cruel mockery to tell a man he may vote for A or B, when you know that he is so much under the influence of A, or the friends of A, that his voting for B would be attended with destruction to him. He cannot justly be said to have a vote, unless he have the free exercise of it without prejudice to his fortune. Is this the case at present? Is it not a delusion to say that every freeholder of 40s. a year has a vote for a member of Parliament, when in most cases he cannot vote as he pleases without ruin to himself? It is not he who has the vote, really and substantially, but his landlord, for it is for his benefit and interest that it is exercised on the present system. Of what advantage would be the reform that is proposed, of extending the elective franchise to all householders, or, as others recommend, to all males of twenty-one years of age, if this increased number of electors were to be, as they now are, completely under the influence of the same men, or of men having precisely the same views and interests as those who play so grand a part in returning members to Parliament? The more extended the suffrage the more influence would be possessed by peers and the wealthy aristocracy of the country, and therefore the more certainly should we have a Parliament which would be their representatives, and the advocates of their particular interests, and not of the interests of the great mass of the people. In many populous cities householders are now said to have votes for the representatives of their city; but are not the cases numerous in which they dare not openly exercise the right? Is it to be expected that they will expose themselves to a resentment which will overwhelm them, whether it be from their best customers, the rich consumers, if they are shopkeepers,—the magistrates, if they are publicans,—their employers, if they are clerks, and in subordinate situations,—or any other class, who may be supposed to have an influence over their property? By extending the suffrage, an additional security is afforded against bribery, because the greater the number of electors the more difficult will it be to provide funds for the purpose of directly influencing votes by means of bribes. But it must not be forgotten that bribery is only one of the modes, and by no means the most efficacious mode, by which voters are influenced. Mr Bentham's sagacity did not fail to discover that terror was the great instrument of influence and corruption. Votes are more effectually secured by the fear of loss than by the hope of gain. Those whose characters afford security against the offering of bribes, and who would think themselves disgraced by a practice which is universally condemned, do not disdain to make use of the persuasive instrument of fear. In its operation it is silent—it is not necessary to proclaim to the voter the danger which he runs of disobliging his landlord, or patron; it is understood without explanation, and no one who hears me can doubt of its powerful effects on every occasion. Although, then, by extending the suffrage you weaken the corruptive effect of bribery, you increase that which is produced by alarm and fear, for in proportion as the fortunes of the voter are more humble, the more surely will he be under the influence of those who have the power to sway those fortunes. Happily a security can be found against this influence; but if it could not, I should deem that an improvement which should raise the qualification, and limit the number of voters; for the chance of finding an independent spirit in electors would be increased, if the qualification was raised to 100l. per annum, rather than if it continued as it is, or were lowered below 40s. These, then, are the evils against which we have to provide, and the House will readily perceive, that those which arise from riots, intoxication, and idleness, are of a different description from those which are the consequence of undue influence exercised over the minds, directly or indirectly, of the electors; and accordingly the bill before you offers two distinct remedies. To obviate the first evil, it is proposed to take the votes throughout the country on the same day, and, instead of the elections being for the whole of a country, and held in one single place, that votes be received in several districts at the same time. To obviate the second, it is proposed that the ballot, or the secret mode of election, be substituted for the open mode.
These two propositions are very distinct, and they should not be, as they often are, confounded; for one might be rejected, and the other adopted. Those, for example, who are of opinion that the public and noisy assemblage of the rabble about the hustings is attended with benefits outweighing the evils which have been stated, might reject that clause which proposes to take the votes by districts, but might, nevertheless, adopt the other which requires that the election should be by ballot. The people might assemble about the hustings as they now do; they might listen, or not listen, to the speeches of the candidates, as their humour might dictate; they might show all the usual marks of their sympathy or disapprobation, and yet the voting might be secret; and, on the contrary, those who are in favour of open voting, might approve of votes being given in districts, although they rejected the ballot.
According to the best judgment which I can form on this important subject, we ought to adopt both these clauses. That respecting time and place of voting will give us sufficient security against the disgusting exhibitions and riotous proceedings which have hitherto attended elections. Through the medium of the press, the candidate may make known his pretensions; through the same channel, objections may be made to his principles, or to his former conduct—the press is open to all—and the candidates would no longer be subjected to an ordeal which is not a test of merit, but of endurance. Because a man has the honest ambition of representing a populous city in Parliament, must he make up his mind to endure all the insults which can be heaped upon him by the lowest of the rabble? It is said, that it is fit his claims should be examined into,—that without preparation he should be called upon immediately to explain what has been ambiguous in his former conduct;—what are his principles on the grand questions which are likely to be submitted to him; and, that he should be called upon to speak on any other matters which may be proposed to him. This might be useful if he presented himself before an impartial tribunal; but those who make this objection are bound to show that candidates on both sides are fairly listened to, and that even the semblance of justice is extended to them. One of the arguments now offered in favour of the borough system, and it is one of considerable weight, is, that without such boroughs, many men of merit would never be in Parliament—and why? because they are troubled with modesty, and with the feelings of gentlemen, which makes it intolerable to them to submit to the injustice, the insolence, and the insults of the lowest of the rabble. That we may be sure of the services of these men, then, I demand that this clause be adopted. These public meetings, it has been said, are useful in giving a tone to public feeling, and raising the lowest of the community in his own estimation, by making him feel that he has a share in the government of his country. Can he be said to have this share if he is without a vote? Does he show his importance by spitting at the candidate, by throwing dirt and filth in his face? This is not calculated to raise him in his own estimation; and if it be right that he should have a voice in the government of his country, give him that voice, and allow him to exercise it legally, on the same terms with the first elector in the land, but do not delude us or him, by giving him the shadow, and calling it the substance of power!
The other clause, namely, that which establishes the ballot, appears to me to offer complete security against those evils which flow from the influence of power. If voting took place by ballot, all the influence now practised on voters would, in a great measure, cease; for, to what purpose would you threaten a man for the vote he should give, or how could you punish him for it when given, if, by the regulation, you were absolutely precluded from knowing for which candidate he voted? Establish the ballot, and every elector is from that moment in possession of a real, and not of an imaginary privilege. Of what use would it be to threaten a publican with the loss of his license, a farmer with the deprivation of his lease, a tradesman with the loss of your custom, when you can never know how he voted, unless he chose to communicate it to you? The elective franchise, if it should be thought expedient, might be extended. The very extension would secure you from direct bribery, for no fortune would be equal to bribe a nation of electors, and terror would cease to operate, for it would be in vain to endeavour to mark the victims. An honourable gentleman has said, that if the ballot were established, it would not prevent candidates, and the friends of candidates, from endeavouring to get the promise of votes; and then he observes that, if the electors keep their promises, there will be no advantage from the ballot, as they will vote then precisely as they do now; but if they do not keep their promises, they will be guilty of an immoral act, which may justly be charged on this law. It is the latter proposition only which I am called upon to answer, for if the voters give and keep their promises, no objection can be made to the ballot on that account; it may be said to be useless, but cannot be proved to be pernicious. And with respect to the immorality of not keeping promises, the guilt would lie with those who exacted such unlawful promises. To make a promise of a vote which could not be conscientiously given, would be a crime, but it would be a still greater crime to keep it. The promise is unnecessary upon any other supposition than that of its not being right to perform it. What occasion to exact a promise of any man to do that which his own interest will lead him to do? and, in giving his vote, he is called upon by duty to act in conformity with his own interest. It may be expedient to instruct such a man,—to enlighten him on the subject of his real interest, but here our efforts should cease, and we become criminal if we induce him to act contrary to the dictates of his own conscience; and, instead of condemning him for breaking a promise so criminally exacted and given, the most enlightened morality would teach and require that such promises should be violated. The law does not recommend or encourage any species of crime or immorality,—it is enacted with a view to correct an evil which is an insurmountable bar to good government; it requires that every man shall vote according to his conscience without any deceit or subterfuge; and shall such a law be given up, because the enemies of good government may take advantage of the respect with which men ought to regard their promises, in order to subvert it? If the end we have in view be good, we must not be diverted from our purpose by any partial evil which may attend the means by which we are to attain it. All punishment is an evil, but is justified by the good end which it is to accomplish. It might much more rationally be objected to the excise laws that they should not have been enacted, because they offer temptations to crimes which would not have been committed but for those laws. And what shall we say of the laws against usury, and against the exportation of the coin? The end of these laws is bad—they are binding only on the conscientious, and have opened a wide door to the commission of the crimes of fraud and perjury. With these laws on our statute-book, are we to be discouraged from making one, which has the happiness of the people for its object, because it would be immoral (as it is alleged) to break a promise unlawfully and immorally exacted. But, supposing that the breaking of such promises were immoral, would the practice be of long continuance? Would any man persevere in exacting promises, when he found by experience that the promisers did not consider them binding? He would not be tempted to continue an offence with great trouble to himself, as soon as he found that it was unattended with advantage. The immorality, then, to whomsoever it might attach, would soon be at an end, and the law would be efficacious without even this alloy.
One honourable gentleman has observed, that he is prepossessed in favour of open voting, without being able to give any reason why he prefers it. To that honourable gentleman I might answer, that I have a different prepossession from him, and the instinct of my mind would be just as good, as an argument, as the instinct of his. In fact, one mode of voting can be preferred to another only as means to an end; in themselves they are alike indifferent.
To conclude, Sir, the establishment of the ballot would make this House what it ought to be, the real representatives of the electors, and not the representatives of those whose situation gives them a commanding influence over the will of the electors. I am not now considering whether it would be desirable that the elective franchise should be extended, kept on its present footing, or contracted within narrower limits; for on any of these suppositions, the ballot appears to me to be equally expedient. Whoever may be the electors, the representatives should represent them and their interests, and not those whose interests may, on many occasions, be in direct opposition to theirs.
[∗]I hope I am not understood as undervaluing the importance of all sorts of improvements in agriculture to landlords—their immediate effect is to lower rent; but as they give a great stimulus to population, and at the same time enable us to cultivate poorer lands with less labour, they are ultimately of immense advantage to landlords. A period, however, must elapse, during which they are positively injurious to him.
[∗]Mr Bosanquet has remarked as incorrect my having used the words “length of time” in reference to a discount on bank notes, because Mr Mushet's tables did not indicate a very unfavourable exchange for more than a year before I wrote, in December 1809. We should once have thought a year a considerable time, when speaking of a discount on bank notes; but as I have constantly maintained that the high price of bullion was the test on which I most relied for the proof of depreciation, and as the price of gold has not been under the Mint price for about ten years, the correctness of my conclusion cannot, I think, on my principles, be questioned.
[∗]It is to be understood that I am supposing no increased or diminished confidence operating so as to give a diminished or increased value to the coin.
[∗]Mr Malthus considers, that the surplus of produce obtained in consequence of diminished wages, or of improvements in agriculture, to be one of the causes to raise rent. To me it appears that it will only augment profits.
“The accumulation of capital, beyond the means of employing it on land of the greatest natural fertility, and the greatest advantage of situation, must necessarily lower profits; while the tendency of population to increase beyond the means of subsistence must, after a certain time, lower the wages of labour.
The expense of production will thus be diminished, but the value of the produce, that is, the quantity of labour, and of the other products of labour besides corn, which it can command, instead of diminishing, will be increased.
There will be an increasing number of people demanding subsistence, and ready to offer their services in any way in which they can be useful. The exchangeable value of food will therefore be in excess above the cost of production, including in this cost the full profits of the stock employed upon the land, according to the actual rate of profits at the time being. And this excess is rent.”—An Inquiry into the Nature and Progress of Rent, page 18.
In page 19, speaking of Poland, one of the causes of rent is again attributed to cheapness of labour. In page 22 it is said that a fall in the wages of labour, or a reduction in the number of labourers necessary to produce a given effect, in consequence of agricultural improvements, will raise rent.
[†]It is not meant, that strictly the rate of profits on agriculture and manufactures will be the same, but that they will bear some proportion to each other. Adam Smith has explained why profits are somewhat less on some employments of capital than on others, according to their security, cleanliness, and respectability, &c., &c.
What the proportion may be, is of no importance to my argument, as I am only desirous of proving that the profits on agricultural capital cannot materially vary, without occasioning a similar variation in the profits on capital employed on manufactures and commerce.
[∗]Profits of stock fall, because land equally fertile cannot be obtained, and through the whole progress of society profits are regulated by the difficulty or facility of procuring food. This is a principle of great importance, and has been almost overlooked in the writings of Political Economists. They appear to think that profits of stock can be raised by commercial causes, independently of the supply of food.
[∗]In all that I have said concerning the origin and progress of rent, I have briefly repeated, and endeavoured to elucidate the principles which Mr Malthus has so ably laid down, on the same subject, in his “Inquiry into the Nature and Progress of Rent;” a work abounding in original ideas,—which are useful not only as they regard rent, but as connected with the question of taxation; perhaps, the most difficult and intricate of all the subjects on which Political Economy treats.
[†]It is scarcely necessary to observe, that the data on which this table is constructed are assumed, and are probably very far from the truth. They were fixed on as tending to illustrate the principle, which would be the same, whether the first profits were 50 per cent. or 5,—or, whether an additional capital of 10 quarters, or of 100, were required to obtain the same produce from the cultivation of new land. In proportion as the capital employed on the land, consisted more of fixed capital, and less of circulating capital, would rent advance, and property fall less rapidly.
[∗]This would be the effect of a constantly accumulating capital, in a country which refused to import foreign and cheaper corn. But after profits have very much fallen, accumulation will be checked, and capital will be exported to be employed in those countries where food is cheap and profits high. All European colonies have been established with the capital of the mother countries, and have thereby checked accumulation. That part of the population, too, which is employed in the foreign carrying trade, is fed with foreign corn. It cannot be doubted, that low profits, which are the inevitable effects of a really high price of corn, tend to draw capital abroad: this consideration ought therefore to be a powerful reason to prevent us from restricting importation.
[†]By rent I always mean the remuneration given to the landlord for the use of the original and inherent power of the land. If either the landlord expends capital on his own land, or the capital of a preceding tenant is left upon it at the expiration of his lease, he may obtain what is indeed called a larger rent, but a portion of this is evidently paid for the use of capital. The other portion only is paid for the use of the original power of the land.
[‡]Excepting, as has been before observed, the real wages of labour should rise, of a worse system of agriculture be practised.
[∗]The low price of corn, caused by improvements in agriculture, would give a stimulus to population, by increasing profits and encouraging accumulation, which would again raise the price of corn and lower profits. But a larger population could be maintained at the same price of corn, the same profits and the same rents. Improvements in agriculture may then be said to increase profits, and to lower for a time rents.
[†]The causes, which render the acquisition of an additional quantity of corn more difficult are, in progressive countries, in constant operation, whilst marked improvements in agriculture, or in the implements of husbandry, are of less frequent occurrence. If these opposite causes acted with equal effect, corn would be subject only to accidental variation of price, arising from bad seasons, from greater or less real wages of labour, or from an alteration in the value of the precious metals, proceeding from their abundance or scarcity.
[‡] Though the price of all commodities is ultimately regulated by, and is always tending to, the cost of their production, including the general profits of stock, they are all subject, and perhaps corn more than most others, to an accidental price proceeding from temporary causes.
[∗]It has been thought that the price of corn regulates the prices of all other things. This appears to me to be a mistake. If the price of corn is affected by the rise or fall of the value of the precious metals themselves, then indeed will the price of commodities be also affected, but they vary, because the value of money varies, not because the value of corn is altered. Commodities, I think, cannot materially rise or fall, whilst money and commodities continue in the same proportions, or rather whilst the cost of production of both estimated in corn continues the same. In the case of taxation, a part of the price is paid for the liberty of using the commodity, and does not constitute its real price.
[∗]Mr Malthus has supplied me with a happy illustration—he has correctly compared “the soil to a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers.” How, I would ask, can profits rise whilst we are obliged to make use of that machine which has the worst original qualities and powers? We cannot abandon the use of it; for it is the condition on which we obtain the food necessary for our population, and the demand for food is by the supposition not diminished; but who would consent to use it if he could make greater profits elsewhere?
[∗]Excepting when the extension of commerce enables us to obtain food at really cheaper prices.
[‡]If by foreign commerce, or the discovery of machinery, the commodities consumed by the labourer should become much cheaper, wages would fall; and this, as we have before observed, would raise the profits of the farmer, and therefore, all other profits.
[∗]This principle is most ably stated by Mr Malthus in page 42 of “An Inquiry,” &c.
[‡]It is this latter opinion which is chiefly insisted upon by Mr Malthus, in his late publication, “The Grounds of an Opinion,” &c.
[∗]As London is to be a depôt for foreign corn, this store might be very great.
[∗]If it be true, as Mr Malthus observes, that in Ireland there are no manufactures in which capital could be profitably employed, capital would not be withdrawn from the land, and then there would be no loss of agricultural capital. Ireland would in such case have the same surplus corn produce, although it would be of less exchangeable value. Her revenue might be diminished; but if she would not or could not manufacture goods, and would not cultivate the ground, she would have no revenue at all.
[∗]I by no means agree with Adam Smith, or with Mr Malthus, respecting the effects of taxation on the necessaries of life. The former can find no term too severe by which to characterise them. Mr Malthus is more lenient. They both think that such taxes, incalculably more than any other, tend to diminish capital and production. I do not say that they are the best of taxes, but they do not, I think, subject us to any of the disadvantages of which Adam Smith speaks in foreign trade; nor do they produce effects very different from other taxes. Adam Smith thought that such taxes fell exclusively on the landholder; Mr Malthus thinks they are divided between the land-holder and consumer. It appears to me that they are paid wholly by the consumer.
[‡]Page 22, “Grounds,” &c.
[∗]Grounds, &c. p. 32.
[∗]See Appendix, No. III.
[∗]The writings of Sir James Steuart on the subject of coin and money are full of instruction, and it appears surprising that he could have adopted the above opinion, which is so directly at variance with the general principles he endeavoured to establish.
[∗]The price of 3l. 17s. here mentioned, is, of course, an arbitrary price. There might be good reason, perhaps, for fixing it either a little above, or a little below. In naming 3l. 17s., I wish only to elucidate the principle. The price ought to be so fixed as to make it the interest of the seller of gold rather to sell it to the Bank than to carry it to the Mint to be coined.
The same remark applies to the specified quantity of twenty ounces. There might be good reason for making it ten or thirty.
[‡]I have already observed that silver appears to me to be best adapted for the standard of our money. If it were made so by law, the Bank should be obliged to buy or sell silver bullion only. If gold be exclusively the standard, the Bank should be required to buy or sell gold only; but if both metals be retained as the standard, as they now by law are, the Bank should have the option which of the two metals they would give in exchange for their notes, and a price should be fixed for silver rather under the standard, at which they should not be at liberty to refuse to purchase.
[∗]Economie Politique, livre i. chap. 17.
[∗]By some of my readers the words “including bank notes deposited in the Exchequer” may not be understood. They are bank notes never put into circulation; neither are they included in any return made by the Bank. They are called at the Exchequer special notes, and are mere vouchers (not having even the form of bank notes) of the payment to the Bank from the Exchequer of such monies as are daily received at the latter office. They are the record, therefore, of a part of the public deposits lodged with the Bank.
[∗]In 1797 the Bank stated their finances to be as follows:—
|Bank-notes in circulation,||£8,640,000|
|Public and private deposits,||5,132,140|
On the other side of the account they showed in what securities these funds were invested, and, with the exception of cash and bullion, and a small sum for stamps, they were all yielding interest and profit to the Bank.
[∥]The one without charge is the calculating the deduction from each dividend warrant for property tax.
The other is receiving contributions from those who pay their property tax into the Bank, for which the Bank receives 1,250l. per million, or one-eighth per cent.
If the collector had gone from house to house to receive this money, he would have had an allowance of five pence per pound, which would have cost the public 58,007l. instead of 3,480l. paid to the Bank.
Perhaps no part of the business of the Bank is more easily transacted than this which they have pointed out. Instead of being under-paid, it appears to me to be paid most liberally.
The saving to the public is really effected by the money being brought to one focus, instead of being collected from various quarters. The Bank appear to consider the rule, by which they are to measure the moderation of their charges, to be the saving which they effect to their employer, rather than the just compensation for their own trouble and expense. What would they think of an engineer, if in his charge for the construction of a steam-engine he should he guided by the value of the labour which the engine was calculated to save, and not by the value of the labour and materials necessary to its construction.
[∗]Since the first edition of this work was published, the first Lord of the Treasury, and the Chancellor of the Exchequer, have proposed to the Bank that they shall continue the advance of 3 millions, which would have been due in April next, for two years without interest:—and further, that the Bank shall advance the sum of 6 millions at 4 per cent. for two years certain, and shall continue the same for three years longer from such period, subject to repayment upon six months' notice, to be given at any time between the 10th October in any year and the 5th of April following, either by the Lords of the Treasury to the Bank, or by the Bank to their Lordships. This proposal was agreed to by a General Court of Proprietors of Bank Stock, held, on the 8th of February, for the purpose of considering the same.
At this general court, on asking for some explanation respecting the deposit of the public money at the end of the two years, I noticed with approbation the departure of the Bank from the claim which they had set up in the above resolutions, in which they appeared to me to assert the right of the Bank to the custody of the public money without paying any remuneration whatever; to which the governor of the Bank, Mr Mellish, replied, that I had totally misconceived the meaning of those resolutions, and he was sure if I read them again with attention, I should be convinced that no such construction could be put on them. I am glad the Bank disclaim having had the intention of depriving the public of the advantage which they have enjoyed since the report of the Committee on Public Expenditure; though I regret, that they have expressed themselves so obscurely, as to have given me and many others a different impression. The resolutions still appear to me to assert that the privilege of being public banker was for a valuable consideration secured to the Bank during the continuance of their charter, and that at the expiration of that engagement, and not before, it might be proper to consider of a new arrangement.
[∗]Report, page 104.
[∗]It has been remarked, that a sufficient allowance is not made in my calculations for the losses of the Bank by bad debts in consequence of the bad bills which they occasionally discount. Their losses from this source, I am told, are often very large. On the other hand, I have been informed that the profits of the Bank from private deposits, for which I have taken no credit, must be considerable, as the East India Company and many other public boards keep their cash at the Bank.
A deduction from the Bank profits should have been made for their loss by Aslett, and for the expenses attending their military corps. My argument will not be affected by their surplus capital being only 12 or 11 instead of 13 millions.—Note to Second Edition.
[∗]The Committee on public expenditure calculated these expenses at 119,500l. in 1807, and stated the increase from 1796 to 1807 at about 35,000l.
[†]The Committee of Secrecy reported to Parliament, that the cash and bullion in the Bank, in November 1797, had increased to an amount more than five times the value of that at which they stood on the 25th of February 1797. They stated, too, that the bankers and traders of London, who had a right, by the Act of Parliament, to demand three-fourths of any deposit in cash, which they had made in the Bank, of 500l. and upwards, after the 25th of February 1797, had only claimed in November 1797, about one-sixteenth.
[∗]Allardyce's Address to the proprietors of the Bank of England, Appendix, No. 11.
|The accounts in the Appendix are made up from January to January. The bonus in question was paid in April 1801. The net profits of the Bank for the whole year 1801 were 1,526,019l., consequently for the quarter ending in April they may be stated at . . . . . . . . .||£381,504|
|Which, added to the surplus capital of January 1801,||4,553,209|
|Gives the total of the surplus capital in April 1801, before paying the dividend and bonus,||£4,934,713|
|dividend 3 ½ per cent. for half a year....||£407,484|
|Bonus 5 per cent.,||582,120|
|Leaving a surplus capital in April 1801 of. . .||£3,945,109|
|And exceeding that in 1797 of....||3,826,890|
[∗]For the account of cash and bullion in the Bank in the above years I trust to the calculations to which I have already alluded, page 425. I can see no reason to doubt their general accuracy.
[∗]The particulars in the above table are taken from the annual finance book, printed by order of the House of Commons. They include not only what is paid to the bank, but to the Exchequer and South Sea Company. The annual charge of the South Sea Company is now about 14,5601. In 1797 it was 14,657l. Tim Exchequer charge was as high as 6760l.. 6s. 8d., m 1807 it fell gradually to 2485l. and has now I believe, ceased.
The Bank have also been paid for management of life annuities sinoe 1810,—and since 1812, about 1200l. or 1300l. per annum for management of a loan ot 2½ months, raised for the East India Company, which are not included in this table.
[∗]Till 1811, the above are extracted from the report of the bullion commitee; since that year from made to Parliament.
[†]This sum was returned by the Bank to Parliament at their surplus capital, February 26, 1797.
[∗]The composition for stamps was raised this year to 247000l.; in 1803-4, to 32000l; in 1806-7,to 42000l.; and in 1815-16,to b7,500l.
[†]The Bank lent to Government this year 3 millions, without interest for six year, and afterwa, nl continued the same loan for eight years at 3 per cent. interest.
[∗]The property tax was paid by the proprietors till 1806, when the Bank agreed to pal, on their whole profits to Goverment and not to make any deduction from the dividend warrant.
[∗]See note, p. 44,.
[∗]see note, p. 441.
[∗]Report, Agricultural Committee, 1821, page 338.
[∗]With 4l. 2s. in bank notes, any one could purchase precisely the same quantity of commodities as with the gold in 3l. 17s. 10½d.; the object of the plan was to make 3l. 17s 10½d. in bank notes, as valuable as 3l. 17s. 10½d. in gold. To effect this object, could it have been necessary, could it, indeed, have been possible, to lower the value of goods more than 5 per cent., if the value of gold had not been raised?
[∗]See Appendix A.
[∗]The Bank are now in advance many millions to the Government on exchequer bills at 3 per cent., besides the fixed advance of their capital, also at 3 per cent., which latter they are, by their charter, obliged to lend at that rate of interest.
[∗]To that cause it will have been seen I ascribe a fall of 10 per cent.
[∗]See Appendix B.
[∗]The whole amount of taxes paid to the public creditor and sinking fund, is 36 millions; suppose the other fixed charges to be 4 millions, then the whole taxation on which the altered value of money has operated, is 40 millions. I estimate the increase 10 per cent., or 4 millions, which falls on all classes—landlords, merchants, manufacturers, labourers, and, though last not least, stockholders.
[∗]Mr Huskisson's Speech on the State of the Finance and Sinking Fund, 25th March 1813.
[∗]Mr Pitt's Speech. 17th February 1792.
[∗]The effect of this clause was to give a sinking fund of 1½ instead of 1 per cent. on such excess of loan above the sinking fund if the loan were raised in a 3 per cent. stock, and of 2½ per cent. if raised in a 5 per cent. stock.
|Mr Vansittart's plan has added to the sinking fund 1 per cent. on a capital of 86,796,300l.,||L.867,936|
|On 56 millions of exchequer bills outstanding 5th January 1818, 1 per cent.,||560,000|
|By attaching a sinking fund of one half the interest, instead of 1 per cent. on a part of the capital created by loans, he has added to the sinking fund,||793,343|
|From stock cancelled and available for public service,||7,632,969|
|Total deduction from sinking fund on 5th January 1819,||L.5,411,658|
On the 3d of February 1819 the Commissioners certified that there had been transferred to them 378,519,969l. 5s. 3¾d. capital stock, the interest on which was 11,448,564l. 10s. 6¼d., and that the debt created prior to and by the 37th Geo. III. amounted to 348,684,197l. 1s. 5¾d., with a yearly interest of 11,446,736l. 3s. 4¾d.; and consequently the excess redeemed was 29,835,772l. 3s. 9¼d., with a yearly interest of 1828l. 7s. 1¼d.
[∗]Some of the following observations refer to the period when this article was originally composed.—ED.