British Credit System (2)

The above largely supplies the answer to the question that still remains, namely, as to the importance of the Continental System in relation to the solidity of the British credit system. If it was considered that the credit of Great Britain stood and fell with the metallic reserves of the Bank of England, neither Napoleon's measures nor the depreciation of the currency would have prevented the preservation of the gold reserve, as has just been shown. It is true that the very conception of the importance of the metallic reserves for the credit of a country with a paper currency lacks support both in theory and in experience, although popular notions to this effect have been diligently nourished at all times; and it is difficult to see what inconveniences would have followed if the metallic reserves of the Bank of England when it did not redeem its notes, had had to sink to the same level as at the Bank Restriction of 1797 or even lower. But if it had been desired to avoid that state of things, then, as has been said, there would have been no insuperable difficulties, as is also shown by the experiences of the following years.

It is a quite different and far more searching question, to what extent the British credit system could have been thrown into disorder by the general difficulties and dislocations caused to British economic life by the Continental System in combination with a number of other factors. As regards the credit of the state, nothing of the kind occurred. The system of the national debt was so firmly founded that it resisted the strain without difficulty, though the cost of the revolutionary and Napoleonic wars certainly appears, for various reasons, to have been much greater than would have been the case if the borrowing had been effected in some other way. The private credit system, on the other hand, had not yet attained the same vital position in the economic life of the country as it has now. The new large-scale industry was to a predominant extent based on its own capital, and was mainly extended with the help of its own profits—a fact which is seldom properly emphasized. Consequently, the harm that could be involved by a dislocation of credit can probably be measured by the results of the crisis of 1810-11—that is to say, bankruptcies by the merchants with reaction on the manufacturers from whom they bought their goods. Besides, it is an open question whether the credit system of a country can be regarded as being so delicate as it has long been the fashion to make out. The experience of the recent war has largely suggested that our credit organization has a much more robust physique than anyone had previously suspected.