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Friedrich Hayek rediscovers the importance of Henry Thornton’s early 19th century work on “paper credit” and its role in financing the British Empire (1802)

Friedrich Hayek considered Henry Thornton’s Enquiry into the Paper Credit of Great Britain (1802) to be one of the most important works on money and banking in the 19thC. It was written when Britain suspended cash payments in a financial crisis brought on by the war against France. Hayek observes that:

To most of the contemporaries of Henry Thornton his authorship of the book which is now reprinted after one hundred and thirty-six years would by no means have been regarded as his major title to fame. To them the fact that he was a successful banker and a great expert on finance probably appeared as the indispensable but comparatively uninteresting background which put him in the position to be a great philanthropist and the effective advocate of every good cause; certainly it enabled him to provide at his comfortable Clapham home the meeting place for the active and influential group of Evangelicals, who, quite apart from the great rôle they played in their own time, were probably one of the most profound influences which fashioned the outlook and character that was typical of the English upper middle class of the nineteenth century… It was not until just before, and particularly since, the Great War, that, with the great interest which a number of American economists (particularly Professors Hollander and Viner) have shown in the history of English monetary policy and monetary doctrines, his importance came again to be fully recognized.

To most of the contemporaries of Henry Thornton his authorship of the book which is now reprinted after one hundred and thirty-six years would by no means have been regarded as his major title to fame. To them the fact that he was a successful banker and a great expert on finance probably appeared as the indispensable but comparatively uninteresting background which put him in the position to be a great philanthropist and the effective advocate of every good cause; certainly it enabled him to provide at his comfortable Clapham home the meeting place for the active and influential group of Evangelicals, who, quite apart from the great rôle they played in their own time, were probably one of the most profound influences which fashioned the outlook and character that was typical of the English upper middle class of the nineteenth century. It would be an interesting and instructive task to attempt a full-length Life of Henry Thornton, and, considering how many minor figures of the circle of which he and William Wilberforce were the centre have been honoured with biographies, it is surprising that it has never been accomplished. But the men who became the historians of the late eighteenth and early nineteenth century were on the whole not too sympathetic towards that austere view of life, which in many instances must have overshadowed their own youth, and which perhaps found its most perfect embodiment in the person of Henry Thornton. It may well be, however, that a more detached future historian will recognize that in their immediate influence the “party of saints” of which Thornton may be regarded as the prototype, at least rival their better-known contemporaries, the philosophical radicals. But even if such a complete biography of Henry Thornton would, as seems likely, contribute a great deal to our understanding of the social and economic views, the Wirtschaftsgesinnung, that dominated the nineteenth century, it can certainly not be attempted here. In this essay we can do no more than give an outline of those sides of Henry Thornton’s life which throw light on the circumstances in which the Paper Credit of Great Britain was written, and on the influence which the views of its author exerted on contemporary thought…

With these two speeches Thornton’s known contributions to monetary theory come to an end. If, in the remaining three years of his life, he took any active part in the discussion which continued, nothing has been preserved in print. But although in Parliament his views had been defeated, largely for reasons of high policy, he lived long enough to see them widely accepted. And among those of his contemporaries who took an interest in these matters there existed little doubt that the new body of thought was mainly his creation. Even a comparative outsider, like Dr. Miller in his Philosophy of History, did justice to his contribution by describing his book, in 1816, as “forming an epoch in the history of the Science to which it belongs.” If some of his fellow-economists, and particularly Ricardo, do not appear to have given him full credit and to have mentioned him only to criticize him, we can be sure that this was only due to the fact that among the public for which they wrote they could take a thorough acquaintance with Thornton’s work for granted. But the effect was that in the course of time his fame faded before that of men whose contributions covered a much greater part of political economy, and then even the distinct contribution, which was undoubtedly his, began to be credited to his successors. For a long time John Stuart Mill, who in 1848, in his Principles of Political Economy, described the Paper Credit as even at his time “the clearest exposition that I am acquainted with, in the English language, of the modes in which credit is given and taken in a mercantile community,” was the last author to do anything like justice to Henry Thornton. And even Mill does not appear to have been quite aware that in his exposition of the mechanism of international gold movements he followed Thornton more than Ricardo. It was not until just before, and particularly since, the Great War, that, with the great interest which a number of American economists (particularly Professors Hollander and Viner) have shown in the history of English monetary policy and monetary doctrines, his importance came again to be fully recognized.

About this Quotation:

In 1939 Friedrich Hayek, the Nobel Prize winning Austrian economist, rediscovered the importance of Henry Thornton’s work on the paper credit system of Great Britain published during the Napoleonic Wars in 1802. Hayek was reflecting on the causes of the Great Depression which had devastated the economies of Europe and North America in the 1930s and he could see a number of affinities between current economic and banking policy and the issues that concerned Thornton. Of most interest to us is Thornton’s analysis of the suspension of gold specie payments by Britain as a result of its budgetary difficulties brought on by massive expenditure in the war against Napoleon. Also of interest is Hayek’s comment about the group of individuals who were organised around Thornton into an intellectual movement known as the “Clapham sect”. In Hayek’s view they were as important intellectually and politically as the “philosophic radicals”, the Bentham-inspired intellectuals around James and John Stuart Mill in the 1820s and 1830s.

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