The Debate in the House.

Mr. Horner opened the debate on his Report on the 6th May, 1811, in a very able speech, giving an elucidation of the principles of the report. He had entered upon the investigation with no prejudices and no special knowledge of the subject, but he brought to bear upon it the resources of a well-trained mind, and a single determination to accept such results as might appear upon a full and careful investigation.

The propositions he advocated had, therefore, the character of scientific results, and the man who could so undertake an important inquiry in the face of popular clamor and prejudice, gave promise of the highest statesmanship. “He died,” in 1817, “at the age of thirty-eight, possessed of greater public influence than any other private man.”

I know of no more instructive documents for the student of finance than the debates of 1811 and 1819. They do not cover the more abstruse questions in regard to the regulation of a convertible currency, questions which yet require attentive study and a definite solution, but they avail to establish those fundamental propositions in regard to the meaning and function of money, which, if a man once thoroughly grasps them, guarantee him against the most flagrant fallacies which obscure the subject of currency, and enable him to perceive these fallacies whenever they recur in the thousand and one “schemes” which are now daily set afloat.

Of the three questions involved in the report, as stated above: Is the paper depreciated? Why are the exchanges adverse? How ought the bank to regulate its issues?—the first and third have no great importance for us. No one denies that our paper is depreciated, unless it be those who think that we have “grown up” to the currency, though that notion seems to have gone out of fashion again. The question of regulating an inconvertible bank paper is not our question, because our paper is fixed in amount. But the second question of the Bullion Committee has great importance. It is the one in regard to which doctrines opposed to those of the Bullion Report are most frequently affirmed and most profoundly believed amongst us, and there is no hope of any exit from our circumstances until we get to understand the laws which govern the distribution of the precious metals and those laws of currency which are connected therewith. It will be remembered, as stated above, that the question about the exchanges is really this question: If the exchanges are adverse to such a degree as to produce a serious and prolonged outflow of the precious metals, where must we look for the cause? Is it due to the balance of payments or to some deterioration of the currency? Or, to put the same question in another form: If we desire to produce an influx of gold, to what force must we look to cause it? Must we look to the “balance of trade,” or can we do anything in the matter save sit still and wait for the balance of trade to turn? Can we bring it about by correcting some error in the currency?

The answer to these questions given in the report and by those who supported it is, that the balance of imports and exports never can move the exchanges either above or below par more than just enough to start a movement of bullion. On a specie system, any outflow of bullion would bring down prices and immediately make a remittance of goods more profitable than one of bullion, and, if the exportation of bullion was artificially continued (as, for instance, to pay the expenses of a foreign war), it would reduce prices until a counter-current would set in and restore the former relative distribution all the world over. If all nations used specie, or even paper and specie, in only due proportion, it would be as impossible for one nation to be drained of specie as for New York harbor to be drained of water by the tide, and, on the same supposition, it would be as absurd for the Secretary of the Treasury or a committee of Congress to regulate the currency as for the same powers to see to it that New York harbor gets its fair share of water on every tide. If a country produces gold, its surplus product goes out as a commodity, without an unfavorable exchange, and does not here come into account. If therefore, there is an outflow of gold, serious and long-continued, accompanied by an unfavorable exchange, it is a sign that there is an inferior currency behind the gold, which is displacing it. The surplus of imports of goods above the exports of goods is nothing but the return payment for this export of gold, and is not a cause, but a consequence. If, finally, we want to turn this tide and produce an influx, there is only one way to do it, and that is simply to remove the inferior currency. As for waiting for the balance of trade to turn and bring gold into a country which has a depreciated paper currency, one might as well take his stand at the foot of a hill and wait for it to change into a declivity before climbing it.

The authorities of the Bank strenuously denied that their issues, so long as they were made at 5 per cent, on bills representing real transactions, at three months' date, could become excessive, or that the bank issues could affect the exchanges. The committee and their supporters held that this rule would not be a guarantee against inflation, but that, if the exchanges were adverse and bullion was being exported, it was a sign that the paper was excessive, and that the Bank should check its issues. The Bank maintained that it had nothing to do with the exchanges, and could not govern its issues by any reference to them. The bullionists maintained that while the paper was inconvertible, the adverse exchange and the premium on gold were the only signs by which the Bank could judge when its issues were excessive. Thus the real issue was, whether, in case of a drain of specie, we must look at the ratio of imports to exports, or at the ratio of paper currency to requirement, for the explanation of it, and the means of checking it.

In reviewing the debate briefly, I confine attention mainly to those parts which bear on this question of the exchange.

Mr. Horner offered sixteen resolutions, of which the most important may be condensed as follows:

That the legal tender in England is gold and silver only.

That a shilling is 1/62 of a troy pound of silver, 925/1000 fine.

That a “guinea” is 2/89 of a troy pound of gold, 11/12 fine.

That Bank of England notes promise to pay pounds sterling, a pound being 20/21 of a guinea as above.

That Bank of England notes are depreciated—are not worth what they stipulate to pay.

That the reason of this is an excessive is sue.

That the exchanges have been greatly depressed (or, as we should say, very high), for a long time, partly owing to heavy payments abroad, but chiefly to the depreciation of the notes.

That the Bank ought to regulate its issues by the price of bullion and the exchanges.

That the remedy is to return to convertibility.

That the law extending the Restriction be amended so as to resume in two years.

Mr. Rose criticised the report paragraph by paragraph, showing that it was contradictory to the evidence offered to the committee. This was perfectly true; the committee took the facts of their witnesses, but interpreted them in the sense diametrically opposed.

Mr. Thornton (member of the committee) cited the experience of the Bank of Paris. In 1805 it advanced indirectly on government anticipations. “The consequence of this transaction was an augmentation of the paper of the Bank of Paris. A drain of their cash followed; the diligences were found to be carrying off silver into the departments, which the bank, with a view to its own safety, had continually to bring back, with much expense and trouble. The circulating medium of the metropolis had now become evidently excessive. Greater facilities were afforded for borrowing in that quarter than in other places, and the country wished to partake in those opportunities of extending purchases which the metropolis enjoyed. But the paper of the bank would not circulate in the departments. It was therefore necessary first to exchange it for coin, and the coin being then carried away from Paris, the plenty of circulating medium would equalize itself through the French territory.... There arose a premium on silver at Paris, and an unfavorable exchange between Paris and the departments of France, and this was proportionate to the expense and trouble of bringing back the silver from the departments.... The Bank of Paris at length stopped payment. The government was consulted. The bank was directed to reduce its paper, and in the course of three months, having pursued this principle, it opened without difficulty. The discount on its paper, or, in other words, the premium on coin, had varied from 1 to 10 or 12 per cent., but after the reduction of paper it ceased. The exchanges of France with foreign countries had also turned about 10 per cent against that country.”

Mr. Vansittart opposed the resolutions. He argued that the committee ought to have recommended the repeal of the restriction on the exportation of the metals, in order to carry out their own principles. This was true; but he argued that it was illegal to export, therefore the committee were in the position of recommending by implication what was illegal. He denied that there was any “standard” in England, or ever had been, consisting of any weight of metal of a certain fineness, but asserted that it was the prerogative of the Crown to regulate the value of money. The proof of this was that silver was legal tender by tale up to £25, but everybody knew that the current shillings were worn below weight; therefore, because a man might put off smooth shillings on his creditor for a debt under £25, there was no standard of what a shilling ought to be in England. Also the law allowed guineas to be legal tender until worn 1 grain and a fraction below weight, therefore there was no fixed weight from and below which this grain and a fraction was to be reckoned.

He also made a great point of demanding to know whether “depreciation” meant depreciation relatively to bullion or to commodities, or referred to the credit of the issuer. No one took the trouble to reply that it made no difference with the fact.

He became the hero of the occasion by proposing counter-resolutions, that the pound sterling has no relation to any weight of metal of a given fineness, and that bank-notes “have hitherto been, and are at this time, held in public estimation to br equivalent to the legal coin of the realm, and generally accepted as such, in all pecuniary transactions to which such coin is lawfully applicable.” Guineas were at the time at 15 or 20 per cent premium, and members of both houses testified in the debate that, although specie had disappeared, and all prices were set in paper, yet there were two prices everywhere, when metal was offered.

This gentleman afterwards became Chancellor of the Exchequer and champion of the Sinking Fund, which was kept up by borrowing at a higher rate than it yielded. He ended life as Lord Bexley.

Mr. Huskisson (one of the committee) pointed to the fact that Spanish dollars, which had been imported for use as “change,” and which were worth 4s. 6d. in English coinage, had been rated at 5s., and then, as the depreciation went on, that it had been necessary to rate them at 5s. 6d. to keep them in circulation. He asked whether the believers in “abstract currency” ever heard of an abstract payment or an abstract dinner. Adverting to the notion that £1 was 3 per cent, of £33 6s. 8d., he asked, pertinently enough, whether this would not fit any conceivable depreciation. The conception of £1 was necessary to define £33 6s. 8d., which again was necessary to the definition of £1.

Mr. Morris stated a case which occurred in 1801, in which a creditor had refused tender of notes, and the court unanimously sustained him in his position that gold only was legal tender.

Mr. Parnell (one of the committee) took more clear and decided ground in some respects than any one else. All parties generally agreed in sparing the Bank. He refused to join them. “If, instead of one bank having been established with so immense a capital, and such great exclusive powers, the trade of banking had been left free, and several banks had been allowed to grow up with the improving wealth of the country, the public would have derived equal accomodation, without any of the risk or any of the evils to which it has been exposed by the enormous power that has been given to this one establishment.” He declared that the paper was in an unsound state before 1797. He stated the fundamental doctrine that “a country will always have as much coin as it wants, provided no impolitic act of legislation interferes to force it out of circulation.” He attacked the small notes, declaring that the notes under, £5 displaced coin equal to their amount.

Mr. Manning, who spoke for the Bank, declared himself “one of those old-fashioned, practical men who thought the balance of payments an article of great importance in the regulation of the exchanges.” Showing that the foreign remittances had been £26,000,000 the last year, he argued that the price of gold must have advanced.

Mr. A. Baring, who had been on the committee, and enjoyed high authority, gave more weight to the balance of payments than the committee, but joined them to a certain extent in attributing the unfavorable exchange to the paper. He thought the true cause for anxiety was the debt and not the paper issue.

Mr. Sharp (of the committee) showed that at Hamburg and Amsterdam, where there was no suspension, but where military oppression was at its harshest, the exchanges were favorable, and that at Paris, the only other place on the continent where inconvertible paper had not been issued, but where war expenditures were highest, exchanges were favorable and there was no drain of the metals.

The Chancellor of the Exchequer, Mr. Perceval, did not enter very deeply into the question. His point was, that no excess of circulation had been proved. He said that gold was not the standard, nor silver, but gold and silver bound down by law to a certain relation to each other. Unfortunately for this notion, no law can possibly bind them together.

Mr. Canning made by far the most eloquent speech on the subject. He advocated the resolutions of Mr. Horner, but thought it inexpedient to resume at that time. He wanted the resolutions passed, except the one for resuming in two years, in order to place the House on the record for sound financial ideas. Referring to the Chancellor's assertion that the excess had not been proved, he said that it was impossible to prove any such thing. No relation exists between the aggregate transactions and the requirements for currency, nor, if there did, would it be possible to ascertain the aggregate transactions. The rise in prices is a symptom, but only a symptom. There is no excess unless there is depreciation, and if there is depreciation there is excess. The only pertinent question is, therefore, whether there is depreciation.

“The noble lord (Castlereagh) has indeed devised a singular definition of this measure [of value]. He defines it to be a ‘sense of value in reference to currency as compared with commodities.’... ‘A sense of value!’ but whose sense? With whom is it to originate? and how is it to be communicated to others? Who is to promulgate, who is to acknowledge, or who is to enforce it? How is it to be defined? and how is it to be regulated? What ingenuity shall calculate, or what authority control its fluctuations? Is the sense of to-day the same as that of yesterday, and will it be unchanged tomorrow? It does fill me with astonishment that any man of an accurate and reasoning mind should not perceive that this wild and dangerous principle (if principle it may be called) would throw loose all the transactions of private life, all contracts and pecuniary bargains, by leaving them to be measured from day to day, and from hour to hour, by no other rule than that of the fancies and interests of each individual, conflicting with the fancies and interests of his neighbor.”

“No dream, it must be owned, could be more extravagant than the visions of those practical men who have undertaken to refine away the standard of the currency of the realm into a pure abstraction. There is indeed something perfectly ludicrous in the inconsistency and injustice with which they impute a love of abstraction to their opponents, while they are themselves indulging in the most wanton departures from substance and reality. ‘Beware of abstractions,’ say they to the Bullion Committee when they find fact and law laid down as the foundation of its report. ‘Beware of abstractions’ say they, to the honorable and learned chairman of the committee, when they find in his first seven resolutions nothing like theory or imagination, but a clear, concise,—a dry and faithful recapitulation of those rules which the statutes of the country have established for the weight and fineness of its coin.... And this admonition comes from whom?—from the inventors and champions of ‘abstract currency’—from those who, after exhausting in vain every attempt to find an earthly substitute for the legal and ancient standard of our money, have divested the pound sterling of all the properties of matter, and pursued it, under the name of the ‘ideal unit,’ into the regions of nonentity and nonsense!”

“In addition to the motives of policy, there are, as I have heard this night, not without astonishment and dismay, considerations of justice which preclude any systematic reduction of the amount of our paper currency. Such a reduction, it is argued, would change the value of existing contracts and throw into confusion every species of pecuniary transactions, from the rent of the great landed proprietor down to the wages of the peasant and the artisan. Good God! what is this but to say that the system of irredeemable paper currency must continue forever! What is it but to say that the debts incurred, and the contracts entered into, under the old established legal standard of the currency, including the debts and contracts of the state itself, are now to be lopped and squared to a new measure, set up originally as a temporary expedient?”

Referring to Mr. Vansittart's resolution about paper and gold being equal, he said:

“Speaking impartially, I must say that if I had seen this proposition anywhere but where it is, fairly printed and numbered in the right honorable gentleman's series, I should have thought it an invention of his antagonists, calculated to place the fallacy of his doctrine in the most glaring and ridiculous point of view, but carrying the license of exaggeration beyond pardonable limits, and defeating its purpose by the grossness of the caricature.”

“Suppose, for instance, ten millions sufficient to carry on all the transactions of the country, fabricate fifteen millions of paper instead of ten, the whole fifteen will circulate. The only consequence will be that the commodities for which it is exchanged will rise fifty per cent, in their nominal price. Make those fifteen millions twenty— the addition will, in like manner, be absorbed into the enhanced prices of commodities. Excess of currency cannot be proved to the conviction of those who will not admit depreciation to be the proof of it.”

Mr. Horner's resolutions were defeated by a vote, on the first, of 151 to 75, and the one for resumption in two years by 180 to 45.

Mr. Vansittart's counter-resolutions were passed on the fifteenth of May, the one declaring gold and paper equal by 151 to 75; and so the House put upon its records that a guinea was equal to a one-pound note and a shilling, when £100 paper would buy only £86 in gold.

In this debate the “theorists” and the “practical” men found themselves in sharp contrast. The Bullion Committee took the evidence of their witnesses as to fact but gave their own explanation of the facts. They carried the best thinkers in the House with them, but found the practical bankers and city men, and the great mass who did not understand the matter, and who had an invincible dislike to admitting that bank-notes were depreciated, against them. In this case, as always, theory and practice are inseparable. The city men had a theory of their facts. It was really one theory against another; the one drawn from a narrow routine: the other a philosophical and scientific generalization from a broad range of facts. The theorists were beaten, and the nation went on for eight years' further experiment of the paper. We have now to pursue the verdict of history and experience as between the two parties.