The Crisis of 1810.

The Report of the Bullion Committee was ordered printed in June, 1810, and was before the public in August of the same year. Meantime, in July, 1810, the bubble burst. The accounts of the Bank were not published at this time and the amount of the discounts was not known. A motion of Mr. Huskisson on April 5th, 1811, to call on the Bank for such a return, was negatived. The Bullion Committee had called for a statement of discounts, and had received a paper under promise of secrecy. It leaked out in some way, and a set of figures were circulated, but their correctness seems always to have been in doubt. Macleod stated that the discounts in 1795 were £2,946,500; in 1809, £15,475,700; and in 1810, £20,070,600.

A report was made in 1832 of the state of the Bank from 1778 to 1831. It is given in Tooke's “Prices.” vol. II. There is a similar table (Feb. reports) in McCulloch's Adam Smith, p. 508, and Dickt, of Commerce, art. “Banks.” The two are combined in the diagram opposite p. 310, which presents the movements of the note circulation and bullion for each six months during the period 1790 to 1830.

Mr. Baring, in his evidence before the Bullion Committee, and Mr. Huskisson in his speech on the motion above referred to, bear ample testimony to the repetition of the old phenonemon of speculation under inflated paper issues. The enterprises undertaken were indeed of the most extravagant kind. For instance, speculations in South America took ludicrous shapes, being in no way adapted to the circumstances of that country. A company was formed to send out Scotch milkmaids to make butter in Buenos Ayres. But when the milkmaids saw the beasts they had to deal with they shrank from the encounter. A corps of laborers was required to secure the animals at milking time, and when the butter was made it was found that the people preferred oil.

The question of prices during this period leads to difficult and controverted questions which lie beyond the limits set for the present undertaking. The standard work on the subject is Tooke's “Prices,” in which a certain view is very ably defended. Mr. Tooke combated the popular notion, which seeks the explanation of all price fluctuations in the fluctuations of the amount of currency. It is permitted to doubt, however, especially in view of American experience, whether he made sufficient allowance for the radical differences between a convertible and an inconvertible currency, when he discussed the period of the Restriction on the same principles which he applied with so much justice to the convertible system. The popular metaphor of “floating,” although it is not well analyzed, is very apt. On a system of even nominal convertibility the motives of speculation and of price fluctuations lie outside of the currency in industrial and commercial circumstances. Speculation in the widest and best sense controls the amount of the currency. On an inconvertible system the amount of the currency controls speculation. If it is not redundant its effect is slight; if it is very excessive, it “floats” everything, and becomes the controlling consideration. No one believes that an inconvertible currency suspends the operation of any of the economic laws which govern prices, but, if it is redundant, it decides whether the fluctuations in price of a unit of a given commodity shall be above and below $1 or above and below $2. Every contraction or expansion alters this general level.

It is certainly erroneous to believe that redundant inconvertible paper increases all prices equally. It is one of its hardships that it increases prices of merchandise more than wages; of luxuries and comforts more than of staple articles; that is, it lessens the command of laborer, artisan, and farmer over comforts. The articles taken into account by Tooke are all staple articles, and he shows that these had not increased in price up to 1810. As a test of his argument, which cannot be regarded as conclusive, since it only shows in general that there were, ordinary economic causes to account for the direction up or down of every fluctuation of each article, but never measures the exact force of such causes, I have combined the prices given by him in his tables at periods corresponding to those for which the state of the currency is given in the diagram, (opposite p. 310) and inserted a line of prices. This balances off incidental causes, and ought to show whether the average of prices underwent any influence from the amount of the currency or not. There is no accord with the amount of the Bank of England circulation, but there is an unknown factor of country-bank circulation of which we have no estimate, save for the years 1810–1818. (See p. 284) The uppermost line in the diagram represents the total circulation during these years. The parallelism of the price line with it is evident. Also the general parallelism of the price line with the “price of gold” line is apparent, and, if the latter may be taken to indicate the fluctuation of the total amount of paper, then an influence of the amount of paper on the general average of prices seems undeniable. It is to be remembered that the English paper was never recklessly inflated, and that, up to 1810, it was managed very conservatively; secondly, that the control of the amount of currency over prices is more immediate and complete the more redundant it is (it seems that, up to 1810, at least, there had been no such inflation as to float prices); and thirdly, that political and military events were at this time exerting great and sudden effects on prices. The fluctuation of five hundred shillings on the price line in the first six months of 1817, was due to one article—oil. In the next six months, hops advanced two hundred shillings. The downfall in 1818 was due to the crisis.

The warehouse system had been introduced during the last four or five years, and large stocks of colonial produce were being carried by means of the expanded discounts above indicated. Manufactured goods found no market save as they could be smuggled to the continent. The raw materials on which speculation had fastened consequently fell in price. Commerce was almost at a stand-still. The goods exported to South America found no market, for the South Americans had nothing with which to buy, and the foolish enterprises in that direction could, of course, bring in nothing but shame and loss. British goods in the Baltic towns were confiscated, and the climax was reached when a period of fine weather restored hopes of the harvest, and ruined those who had been led by the bad weather early in the season to speculate for high prices in grain. “The crash began in July with the failure of some great commercial houses. In August a London bank stopped; and several country banks were brought down by its fall. Wild fluctuations in prices followed, and in November, the number of bankruptcies in England, which had usually been under one hundred, had risen to two hundred and seventy-three, ‘besides stoppages and compositions’ as the Commercial Report declared, ‘equal in number to half the traders in the kingdom.’ Manufacturers no longer trusted the merchants nor employed the operatives. In Manchester, ‘houses were stopping not only every day but every hour.’

“The commissions of bankruptcy for the year now amounted to two thousand three hundred and fourteen, of which twenty-six were against bankers. The hunger of the operative classes, and the outcry against machinery as the main cause, prepared the events of the succeeding dark years.”