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)

Henry Thornton

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.

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.