Operation of Peels Act of 1819.

A great fall of prices took place in 1819 as a sequel to the operations of 1818. Tooke denies strenuously that the operation of the act caused this fall. There was no run upon the Bank for gold, partly because the people did not care for it, partly because the plan of ingot redemption did not tempt them to do so, but chiefly because the fall in prices turned the exchanges and there was no profit on exportation. The Bank steadily contracted its issues, and the country banks were forced to do the same. The issues and the price of gold were as follows:

The Bank resumed payment, by its own wish and the permission of Parliament, on May 1, 1821.

Peel's act would, under any circumstances of trade, have enforced contraction and accomplished resumption, but under the series of events of the following years, it is certain that it had no direct effect whatever. The revulsion and fall of prices, and shock to credit of 1819 repeated the opportunity of 1817. The exchanges became favorable, more currency was needed, as always in a time of crisis, and the Bank contraction which did not begin until late in 1819 (the circulation was higher in August than in February) took place easily, as confidence was restored and notes, becoming abundant, flowed to the Bank, without exerting any pressure on the market, unless it might be the negative one of restraining speculation. Peel's act had only the indirect effect of setting a time for resumption which was understood to be in earnest, whereas former dates fixed had been practically indefinite adjournments. England is the only country which, after falling into the use of inconvertible depreciated paper, has returned to specie payments save through bankruptcy. It did so by taking advantage of the revulsion following a commercial crisis to reduce the amount of the paper.

On issuing from the era of redundant and depreciated paper, it is necessary to turn to prices as the test and indication of economic circumstances. (See p. 253.) The inquiry into prices, however, is the most difficult and delicate which the economist is called upon to undertake, and one of the most perilous, whenever undertaken piecemeal, or without skill, or to support a theory.

Tooke investigated prices during this period with a skill which is universally acknowledged, and proved conclusively that the fall which took place was not due to contraction. Gold was continually coming into circulation and filling up guy vacuum caused by the contraction.

The years 1819–1822 were years of abundant harvests and low prices for grain, and the agricultural interest was accordingly in distress. There were, however, additional causes for this distress. During the war, the high prices had led the farmers to increase their expenditures and raise their style of living. Poor lands had also been hired at high prices and brought under cultivation. These injudicious ventures could not be sustained in times of peace and plenty, and those who had embarked in them found themselves ruined. In 1822 Mr. Western led an assault upon Peel's bill as the cause of the distress, and the resumption then went through its last and severest peril. It is true that the proposition of Mr. Western for a committtee of inquiry into the action of the bill was negatived by a heavy vote, out it appeared that there were some active and influential men who wanted to return to paper, and others who thought a great mistake had been made in not accepting the depreciation and reducing the standard, and they were supported by a clamorous party suffering under distress. They did at last secure the concession that the notes under £5 were allowed to circulate until 1832, instead of being withdrawn in 1824 as the law then provided.

Meanwhile manufactures were steadily recovering, and wages were advancing in purchasing power by the fall of grain and imported commodities.