BANK OF ENGLAND— RESUMPTION OF CASH PAYMENTS
24 May 1819
The reports of the secret committee on the resumption of cash payments were taken into consideration and Mr. Peel, the chairman of the secret committee, moved a series of resolutions embodying their recommendations. The resolutions were as follows:
1. —That it is expedient to continue the Restriction on payments in Cash by the Bank of England, beyond the time to which it is at present limited by law.
2. —That it is expedient that a definite period should be fixed for the termination of the Restriction on Cash Payments; and that preparatory measures should be taken, with a view to facilitate and ensure, on the arrival of that period, the payment of the Promissory Notes of the Bank of England in the legal Coin of the Realm.
3. —That in order to give to the Bank a greater control over the issues of their Notes than they at present possess, provision ought to be made, for the gradual repayment to the Bank of the sum of Ten Millions; being part of the sum due to the Bank, on account of Advances made by them for the public service, and on account of the purchase of Exchequer Bills under the authority of acts of the Legislature.
4. —That it is expedient to provide, by law, that from the 1st February 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, having been assayed and stamped at His Majesty’s mint, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes of the Bank as shall be equal to the value of the Gold so required, at the rate of Four pounds one shilling per ounce.
5. —That from the 1st October 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, assayed and stamped as before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal to the value of the Gold so required, at the rate of £.3. 19. 6. per ounce.
6. —That from the 1st May 1821, the Bank shall be liable to deliver, on demand, Gold of standard fineness, assayed and stamped as before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal in value to the Gold so required, at the rate of £.3. 17. 10½ . per ounce.
7. —That the Bank may at any period between the 1st February 1820 and the 1st May 1821 undertake to deliver Gold of standard fineness assayed and stamped as before mentioned, at any rate between the sums of Four pounds one shilling per ounce, and £.3. 17. 10½. per ounce; but that such intermediate rate having been once fixed by the Bank, that rate shall not be subsequently increased.
8. —That from the 1st May 1823, the Bank shall pay its Notes, on demand, in the legal Coin of the Realm.
9. —That it is expedient to repeal the Laws, prohibiting the melting and the exportation of the Coin of the Realm.
The first three resolutions were agreed to. To the fourth resolution Mr. Ellice proposed an amendment, namely, ‘That the Bank have it in its option to pay, after the 1st of May, 1821, either in legal coin, or in gold, at 3l. 17s. 10½ per oz.’ The amendment was supported by Mr. Tierney and opposed by the Chancellor of the Exchequer. Mr. Manning (a Bank director) objected to the fourth and subsequent resolutions because they ‘would have the effect of fettering the Bank so as to cause an inconvenient reduction of the currency.’
[The transcript of this speech prepared for Hansard by Ricardo partly with cuttings from the Morning Chronicle’s report, is reproduced in the plate facing p. 332 below. In the text Hansard’s capitalization and spelling are retained, but other deviations from the MS are corrected.]
Mr. Ricardo said, he was fully persuaded of the truth of the declaration of the hon. director, that the Bank wished to resume cash payments, but he was just as fully persuaded that they did not know how to set about it. When called before the committee, the directors individually admitted that the price of bullion and the rate of exchanges were affected by the amount of their issues; but when collected in their own court they resolved that “they conceive it to be their duty to declare, that they are unable to discover any solid foundation for such a sentiment.” And now, in the Remonstrance which they have made to the chancellor of the exchequer, they again admit that the exchanges are affected by their issues, for they condemn the measure recommended by the committee for restoring the exchange to par, on the ground of its being calculated to force them to contract the amount of their circulation, which they represent as fatal to the public interest. When they avowed such inconsistent opinions, and after the experience which the House had had of their conduct, it would be the highest indiscretion in parliament not to take out of their hands the preparations for the resumption of cash payments. He did not think this a question only between the Bank and ministers, as it had been argued by his right hon. friend (Mr. Tierney), but rather one between ministers and the Bank on one side, and the country on the other. He was therefore disposed to concur with his right hon. friend in any measure which might be devised to keep the ministers also under control. One principle was clear, and was of the utmost importance in the consideration of this subject,—it was this, that those who had the power of regulating the quantity of the circulating medium of the country, had the power of regulating the rate of the exchanges, and the price of every commodity. This power clearly resided in the hands of the directors of the Bank, and it was a most formidable one. It quite astonished him that Mr. Harman could imagine that it was in the power of an individual to influence the exchanges against the wish of the Bank; which was just as reasonable as to suppose that an individual could regulate the price of corn or any other commodity of general consumption. This question was one of immense importance in principle, but in the manner of bringing it about was trivial, and not deserving half an hour’s consideration of the House. The difficulty was only that of raising the currency 3 per cent in value [Hear, hear!]. And who could doubt that even in those states in which the currency was entirely metallic, it often suffered a variation equal to this, without inconvenience to the public [Hear!]. In this country we had nothing but paper in circulation, and therefore every variation in the value of our currency was shown by the price of gold, but where metal alone circulated, it could not be doubted that gold might, from various circumstances, become more or less valuable, and thus affect all contracts, though from there being no other standard to measure it by, its variations were less palpable. His particular reason for supporting the measure under consideration was this. By withdrawing paper, so as to restore the note to its bullion value (an alteration, by the bye, only of 3 per cent.), the House would have done all that was required [Hear, hear!]. But if the House adopted the proposition of the hon. gentleman (Mr. Ellice), another variation in the value of the currency would take place, which it was his (Mr. R.’s) wish to guard against. If that amendment were agreed to, an extraordinary demand would take place for gold, for the purpose of coinage which would enhance the value of the currency 3 or 4 per cent in addition to the first enhancement [Hear, hear!].—As to the plan under the consideration of the House, it was that which the Bank directors, if they were wise, should wish for [hear!]. They should wish to fill the circulation with paper, and so long as they had the privilege of giving gold bullion for their notes, there would be no coin in circulation—they would have the monopoly. They had no real interest in the depreciation of the currency; it would be rather their interest to raise it, even to double the value. They were in the situation of creditors, not of debtors; their whole capital being in money or other securities representing money [Hear, hear!]. As to the resolution which bore that the government should repay the Bank a certain sum, he could not agree with it. The House having taken a security that the currency should be of a certain value, they had done enough, and should not farther interfere with the proceedings of the directors, who should answer to their proprietors only for the management of their concerns. The Bank might, if this resolution were agreed to, feel some difficulty in putting forth the amount of currency which was required. For though what the directors thought a check, namely, the rate of interest on money, was no check at all as to the amount of issues, as Adam Smith, Mr. Hume, and others had satisfactorily proved; yet as the Bank directors were governed by certain traditional limits, or something like limits, in discounting to individual merchants, they might have difficulty in keeping up the requisite amount of currency. A director, in his evidence before the committee, had said, that the Bank did not confine themselves to this limit where the individual’s credit was undoubted; but it should be recollected that the Bank was a cautious and timid body, and if they had no other means of supplying the requisite amount of circulation but by discounting bills, he feared the public might suffer from a scarcity of currency. He was certainly for leaving them to conduct all such transactions according to their own discretion and pleasure, provided only that such a check was established as should guard against a redundancy. The proposed mode of resuming cash payments appeared to him the easiest that could be imagined. The Bank would be placed under no restraint at first, nor any sudden necessity of reducing its issues. An opportunity would be afforded of effecting the object in the most gradual manner; and even when bullion payments should be made at the Mint price, the inconvenience would be but inconsiderable. Till October 1820, the Bank need make no reduction, and then a slight one [hear!]; and he had no doubt that if they were cautious they might arrive at cash payments without giving out one guinea in gold. The Bank should reduce their issues cautiously; he only feared they would do it too rapidly [hear!]. If he might give them advice, he should recommend to them not to buy bullion, but even though they had but a few millions, if he had the management of their concerns, he should boldly sell. Every sale would improve the exchanges, and till gold fell to 3l. 17s. 6d. there would be no necessity for the Bank to make any purchases. He was only sorry that the Bank was not to be obliged by the resolutions to buy all the bullion offered to them at 3l. 17s. 6d. lest through excessive caution they might starve the circulation. The Mint, it was true, was to remain open to the public, who might coin the bullion which they obtained from the Bank. Mr. Mushett, whose evidence respecting the coinage was worthy of attention, from its accuracy and general ability, had stated, that with a capital of 300,000l. the Mint could supply the public with 12,000,000l. a year. Yet a year was a long time to wait for twelve millions, and it might easily happen, that in the interim between the reduction of the Bank issues and the supply afforded from the Mint, the country might seriously feel the deficiency. It was on that account that he should have wished a resolution inserted, to compel the Bank to give its notes for bullion (at 3l. 17s. 6d.) on demand. With the exception of this omission, the plan was, in his opinion, perfectly safe and gentle.— With regard to what had fallen from his right hon. friend (Mr. Tierney) respecting the graduated scale of payments not having been submitted to the directors, he referred him to the examination of Mr. Thornton before the Lords’ committee where he would see that that gentleman’s evidence was wholly in favour of the plan. He was quite astonished that such an alarm prevailed at a reduction of perhaps one million in four years, and could only ascribe it to the indiscreet language of the Bank [Hear, hear!]. The hon. director had that night told them not to withdraw confidence from the Bank. The House did not withdraw its confidence from the Bank from any doubt of its wealth, or integrity, but from a conviction of its total ignorance of the principles of political economy [hear, and a laugh]. The Bank had had ample time to reduce their issues, so as to lower the price of gold; yet, in spite of the times repeatedly fixed for the resumption of cash payments, they had never done so. It was not the business of the directors to consider the interest of the public. That was the business of his majesty’s ministers; and when the hon. director told them that the directors had lost so much on the purchase of gold, and so much on the issue of tokens, his question was, why had they done so? Their business was with the interest of the proprietors, for whom they were trustees, not with the interests of the public. The directors were answerable to the proprietors for these misapplications of their funds. He (Mr. R.) had been astonished that the undivided profits of the Bank had been so small, which he should have imagined, must have at least amounted to ten millions; but now, by the confession of the hon. gentleman, the matter was explained. The directors had scattered a million here and a million there according to their views of the wants of the ministry or the country, without any regard to the interest of the proprietors [Hear, hear!]. The hon. director had advised them not to cramp the currency, and had referred to their experience of 1797. But that was not a parallel case. It was a season of alarm and panic, when every man had wished to have gold in his house in fear of an invasion. His right hon. friend (Mr. Tierney) had asked, what, under the plan proposed was the holder of 10l. to do, for he could not get bullion at the Bank. According to the amendment, the right hon. gentleman was in no great hurry to give this poor man either bullion or specie. But were they doing nothing by the plan for the holders of notes of 10l.? The holder of a 10l. note would be improved in his condition; for by restoring the currency to its proper value, and by making 1,000l. worth what it purported to be, instead of what it now really was, worth only 970l., his note of 10l. would be proportionally increased in value. Although he could not go to the Bank for gold, he might resort to any goldsmith who would let him have the proportion of gold to which his note was entitled; and the difference to him would be so trifling, as not to be worthy of consideration in the decision of a great question.—It had been said, on the part of the Bank, that they were ready to pay, if repaid the advances which they had made to the government. But how came they to make those advances to government, if not assured of repayment at a certain time? The Bank had not been forced to make those advances, but the directors had such an extraordinary disposition to act as ministers [a laugh, and hear, hear!]. It would however, be better if those directors would rather attend to their own interests, and those of their constituents.—A most fearful and destructive depreciation had at one time taken place; but from that we had recovered, and he was happy to reflect that we had so far retraced our steps. We had nearly got home, and he hoped his right hon. friend would lend them his assistance to enable them to reach it in safety. He would venture to state that in a very few weeks all alarm would be forgotten, and at the end of the year, we should all be surprised to reflect that any alarm had ever prevailed at a prospect of a variation of 3 per cent in the value of the circulating medium. His own general opinion was, that an unfavourable state of exchange must always proceed from a redundant currency. If corn were imported and paid for in bullion it was a proof that bullion was the cheapest commodity. Suppose all the Bank-notes now in circulation to be withdrawn, and their place filled by gold coin, would not gold become infinitely cheaper? If our paper had been of any intrinsic value, it would, having become cheap from excess, have been exported also. He thought it right here to pay the tribute of his approbation to the late excellent regulations of the Mint. He entirely approved of making gold the standard, and of keeping silver as a token currency. It appeared to him to be a solid improvement in the system of our coinage. Nothing could be clearer than that government had the power, by limiting the quantity, to regulate the value of the silver; it was on that principle that the committee and all other persons recommended the reduction of paper currency. The hon. gentleman (Mr. J. P. Grant) indeed had observed, that the silver coin might be imitated abroad; supposing this to be the fact, the value of the silver coin might be lessened, but that of the gold would not therefore be raised. The silver was not a legal tender above 40s., and gold might always be demanded. It was true that 105l. might be offered in silver instead of 100l. in gold; but this could have no effect in altering the relation between gold and all other commodities. He should be happy to argue this question with the hon. member or with the noble “Old Merchant,” [a laugh!] on some occasion when it would be less irrelevant to the subject under consideration.—The hon. member sat down amidst loud and general cheering from all sides of the House.
Mr. Alderman Heygate then addressed the chair, but the impatience of the House produced a temporary confusion, in the midst of which, after one or two observations, the worthy alderman sat down.
Lord Castlereagh then suggested that the debate be adjourned till the following day and the House rose at two o’clock.
25 May 1819
Mr. Pearse (a Bank director) ‘denied the assertion of an hon. gentleman opposite, that they were not competent to the conduct of their own affairs’; and also denied ‘most solemnly’ the assertion which had been made ‘that the Bank Directors had no serious wish to return to cash payments.’
Mr. Ricardo, in explanation, denied his having said that the Bank were insincere in their declarations. He meant no personal hostility to them as individuals, or as a public body; but he was of opinion, that they had taken wrong steps, and that they did not understand the subject of the currency.
On 26 May the resolutions were agreed to; and a bill or bills were ordered to be brought in by Mr. Peel and the Chancellor of the Exchequer.