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the preceding or accompanying circumstances, those which are most obvious and tangible are ever apt to be exclusively regarded. The casual eating of an unripe apple, for instance, is more likely, by the generality of persons, to be set down as the cause of a child's fever, than the subtle miasma that may have smote the boy at random in the streets, and been brooding in his veins for days before its manifestation. So also, it is recorded of the Duke of Wellington that he had been laboriously reading through a ponderous blue-book on Oxford University, and that he partook heartily of apple-pudding the day before his death; and we opine that if an ordinary jury had given vent to their unaided opinion, they would have been more likely to attribute the Great Duke's death to the blue-book and the apple-pudding than to the insensible influence of the cold sea-air upon his aged frame, to which the Faculty incline to attribute it.

from hot to cold,-and ever and anon culminating in a septennial crisis, severe enough to set every bone in our bodies a-shaking, and making Credit, the very life-spirit of the community, temporarily give up the ghost.

Nations, like individuals, when they are well-off, make ills for themselves. And thus Peace-the long blessed forty years' peace now vanished,-which might have been spent by us softly as a dream and happy as a holiday, was converted by our foolishness into a season of nightmare crisis. We could not rest and be thankful. If there was no enemy to spring mines against us, we could at least blow up ourselves. As ingenious as the Boy's own Book, which shows how to make artificial earthquakes and volcanoes by burying a certain fulminating mixture which in due time explodes of its own accord, Messrs. Horner and Ricardo tried their 'prentice hands in imparting to the currency a volcanic organ. ism, the expansions and contractions of which have since then periodically strewed the country with ruins. The country has barely been able to stand this rough treatment in times of peace,

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in war it will be impossible. A man may carry on a false regimen so long as he is surrounded by circumstances otherwise favourable, but subject his system to a strain, and the bad effects of the regimen become at once apparent and unbearable. So it is now with the British (and other nations, too, in a lesser degree) and their monetary laws. The war is demolishing the theories of the Bullionists by a reductio-ad-absurdum demonstration, and at the same time is compelling the trading community to give attention to a subject which they have too long neglected. "We all want to know why we are paying 8 per cent for our advances," said a first-class tradesman the other day; and others, who have less credit or longer bills, might name a rate even 3 or 4 per cent higher. We shall make an attempt to enlighten them.

Superficial judgments of this kind have done much to keep attention away from the defects of our Currency Laws. The various monetary crises which have convulsed this country have hitherto presented complicated phenomena. Over-trading and undue speculation have on these occasions been more or less rife; and as these are unhealthy symptoms which every one understands, the common mind goes no farther, and contents itself with attributing the whole disaster to these causes, irrespective of the others beyond its ken. It seldom raises its eyes to the fountain-head of the mischief. It does not see, on the one hand, that the existing currencylaws are themselves a provocative to over-speculation, when gold is plentiful; and on the other, that a restriction of the currency, which is made to accompany every efflux of gold, is itself a most potent agent for converting good speculations into bad ones, -thus, whenever a Crisis comes, producing a semblance of overspeculation, when in truth there may have been none. It is this unhappy Fortunately, the present crisis is contrivance of the Legislature that of a kind which serves to exhibit the has kept the trade of the country errors of our currency-system with for long years past in a state of more than ordinary clearness. intermittent ague, passing from stead of being complicated by real cold to hot, and then back again or imaginary over-trading, it is al




lowed on all hands that, in the pre- usually the case, by an efflux of gold sent instance, trade was never more to pay for goods in other countries sound or speculation more in abey- the bank-notes in circulation must be ance. In fact, the commercial classes likewise diminished. This the Bank -imbued, perhaps, with more than does by selling portions of its Govusual wariness from the prevalence ernment Stock, and cancelling the of war - have been found by the notes received in payment, crisis so firmly and securely planted, also by raising its rate of discount, that even the doubling of the rates of and, either directly or indirectly, rediscount, and the great contraction fusing to accommodate the tradingof credit, have hitherto failed to classes to the same extent as formerly. raise the number of bankruptcies The effect of these proceedings is, by much above the usual rate. Let us making money scarce and consemark the origin and progress of the quently more valuable, to lower Monetary Crisis of 1855,-the last of prices; whereupon it becomes proa dread series which, we trust, will fitable for foreigners to make large now at length be brought to a close. purchases of stocks and goods of all In the " merry month of May" kinds in this country, and so the last, all was sunshine in the world gold again returns to us in payment of trade and commerce; and people of these purchases thus made to our stood astonished to see the rate of loss. This took place in the course discount, which had risen so high of the winter of 1854-5. Foreigners in the previous year, falling again then preferred taking our goods to as rapidly as it had risen. War, it taking our gold; and accordingly, was thought, had changed its cha- last spring, the Bank found its coffers racter; and the fact of our commerce filling with gold, while its circulabeing little affected was held as a tion of notes, in consequence of its proof that a state of hostilities with previous pulling-in of them, was at a so isolated and semi-barbarous a comparatively low ebb.* Now, the Power as Russia would be attended greater the amount of gold in the Bank, by none of the aggravations expe- the greater the expenses of that rienced in former wars. And these establishment,-every million of gold inferences would have been well lying unproductive in its vaults, founded, but for one important being, at 5 per cent, a loss of £50,000 exception overlooked namely, the a-year. As this store of bullion operation of the GOLD-SCREW. Mounts up, therefore (and the Bank In that same month of May, the has no power to prevent the increase, final rupture of the negotiations being bound to give £3, 17s. 103d. at Vienna, and the contemporaneous the ounce for it, whether they want announcement of a loan to Turkey, were a sufficient warning of what was coming, to those who understood the workings of our currency-system. Such persons could foresee a coming rise of interest quite as easily as they understood the cause of the low rate then current. They knew that the recent fluctuations in the money-market had been due solely to the operations of the Bank, acting in accordance with the regulations imposed upon it by the Act of 1844. By that Act it is provided that in proportion as the stock of gold in the Bank diminishes-either by an internal panic, producing hoarding, or, what is

it or not), the Directors seek to reissue their notes in similar proportion, with the view of deriving that profit from their paper-money which they cannot get from their locked-up gold.

But here the Directors encounter a difficulty. By their previous contraction of the currency and high rates of discount, they have checked enterprise in the country, and when the gold comes back to them again, they usually find that the demand for monetary accommodation is not in proportion to the increase of their profitless bullion. This was visible all through last spring and the great part of summer,

* In the autumn of 1853 the circulation amounted to £24,500,000 sterling,-in the spring of 1855 it was under £21,000,000. By the renewed application of the Gold-screw, the circulation has now fallen to £18,142,000—not three-fourths of what it was three years ago!

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date; while bills that had longer to run had to submit to still higher rates, and, if not of first-class quality, could not be discounted at all!


in the large amount of reserve- first-class bills of two or three months' notes" in the hands of the Bank,these reserve-notes being the amount of paper-money which the amount of gold in their possession legalises the Directors to issue, but for which Examine for a moment the effects they have not got customers. In of this upon the property and trade this state of matters (that is to say, of the country. Trade was in a very being forced to get their notes into healthy state when this monetary circulation in order to compensate crisis commenced, and partly owing the loss of interest on the gold in to this circumstance, and still more their vaults, and at the same time to the general belief that the Govfinding little demand for them on ernment would suspend the Act of the part of the mercantile commu- 1844 if matters grew worse, nity) the Directors adopt the only general panic has arisen to destroy course left to them, namely, to re- credit throughout the kingdom. duce their rate of discount, in order Nevertheless, the injury experienced to create a demand for their notes. by the community has been very This process we saw going on great. Let us see, first, how the throughout the first half of last year; holders of money-investments have so that the rate of discount, which fared. On the 1st September, Constood at 5 per cent on the 1st of sols stood at 91; in seven weeks April, by successive reductions fell afterwards they had fallen below to 3 in the middle of June. 87-so that every one of the many thousand owners of the £800,000,000 of funded property who wished to sell out at that time, could only do so at a sacrifice of £40 on every £1000 of stock. The fall in the value of railway shares during the same period was, taking a low estimate, 8 per cent; so that the £300,000,000 worth of railway shares were depreciated by the money-crisis to the extent of £80 on every £1000, or £24,000,000 on the whole. Lastly, the capital invested in commerce and manufactures, estimated at £600,000,000, underwent a depreciation of at least 8 per cent; so that any one making sales of their property must have submitted to a dead loss of £80 on every £1000. And thus the movable property of the nation, amounting to about £1,600,000,000 became depreciated, in the space of a few weeks, to the extent of upwards of a hundred millions sterling. Of course, no one sold at such a time but those who feared a still greater fall, or whose circumstances compelled them to do so; but this latter class were more than usually numerous, especially among the holders of

All was then sunshine and golden expectations; and although words of warning were not unspoken, the public went complacently to sleep on the roses, and the Economist deliberately congratulated the community that, low as the rate of discount then was, there was good reason to anticipate that this pleasing state of things would be lasting. But scarce ly was the congratulation uttered, when all began to change. Midsummer-Day saw the reaction commence. The tide then turned, and the bullion began to flow out of the Bank twice as fast as it had flowed in. So rapid was the decrease, that the stock of gold in the Bank, which amounted to £18,200,000 on the 23d June, was reduced to £10,682,000 on the 26th October, being a diminution of £7,500,000 in four months, or at the rate of half a million per week all through that period. It was not till the 6th of September that the Bank Directors took the alarm, but then they began to "put on the screw" most energetically, so that, in six weeks' time, the rate of discount was raised from 3 to 6 and 7 per cent for

* "Looking to the immediate future, there is every probability, if not certainty, that the causes to which we have adverted as influencing the money market, will continue. . The whole tendency of the money market is to reduction, notwithstanding the prospects of the war, which however may now be considered to be effectually provided for, during the entire financial year before us." — Economist, May 19, 1855.

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the £600,000,000 of commercial and classes and general community still manufacturing capital. And who more at its mercy, and fearfully bought? Who were the parties aggravates that unequal distribution who purchased the property thus of wealth-that enrichment of the depreciated, and forced into the few at the expense of the manymarket by the temporary difficul- upon which we commented at length ties of its owners? The answer to in last Number,* and which conthis question deserves to be noted, stitutes one of the greatest perils of for it shows forth one of the worst old States. and most direct effects of the Act of 1844. The answer is, the Monied Class the great capitalists at home and abroad-the millionaires not only of our own, but of foreign countries. in fact, it is this class alone who benefit by the Act of 1844-and they do so steadily and systematically. A single word will show how this happens. When the exchanges are in favour of this country, and the Bank coffers are full of gold, a large issue of notes and corresponding increase of the circulation takes place, and the prices of stocks, shares, and commodities of all kinds rise. Thereupon the monied class-persons with large incomes, and never in want of ready money, so that in all speculations they can "bide their time" -sell out at a profit, because prices are then much above the average rate. By-and-by, however-generally in a year or two-the exchange turns against us, gold flows out of the country, the circulation thereupon is contracted, and prices sink as much as they formerly rose. Then the monied class reverse their tactics, and buy; and as prices are then low, they get great bargains. In a year or two, the gold again comes back, and once more they sell outonly to buy in again when gold once more flows out and prices fall. And so this process of buying and selling by turns goes on, in a cycle that will be endless, until the Act of 1844 be repealed. And thus the periodic crises and difficulties produced by this Act in the general community are turned to account by our capitalists, who thus grow rich by the losses of the producing classes. The influence of such an arrangement as this, is in the highest degree pernicious; for it adds to the enormous power of Capital an artificial advantage, which places the producing


But we have not yet seen the whole effects of the recent tightening of the money-market. The Act of 1844 is the great thwarter of all mercantile calculations, and the fertile parent of bankruptcies. This was strikingly exemplified in the crisis of 1847, but we may see the principle (though happily not all its dread effects) exemplified in the events of the past year. That year commences with considerable industrial depression; but as gold flowed into its coffers, the Bank began to lower its rate of discount, and trade revived. Up and up went the stock of bullion in the Bank, and down and down went its rate of lending the Directors striving to get off their fast-accumulating reservenotes, in order to compensate themselves for the non-interest-paying bullion in their coffers, (yet, be it observed, acting thus in perfect accordance with the Act of 1844-the principle of which is, the gold in the Bank, the more notes in the country). Thus tempted, the trading classes began to engage in enterprises which, but for the low rate of money-accommodation, they would not have engaged in. If such enterprises prove successful, it is obvious that not only the individuals who undertake them but the general community is benefited. And mercantile men are keen-sighted, and trained to calculate well a speculation before engaging in it, it ordinarily happens that in nineteen cases out of twenty these enterprises are successful, and benefit alike the individual merchants and the country. Suppose they only clear their exexpenses, still the speculators remain as solvent as ever, and, if prices and the rate of discount continue the same, can meet the demands of the Bank as well at the end of these speculations as when they commenced

"Our Rural Population and the War," see pp. 746-9.



them. But then, under the opera- to check mercantile enterprise. But it tion of our present currency-laws, does more than this: it not only prethere is always a risk that the rate vents new enterprises being undertaken, of discount and prices will be greatly but it will bring ruin upon many of the changed before the termination of speculations which are going on. enterprises which take long to com- speculations may be perfectly sound and plete; and as enterprises are under- justifiable; they may be such as, in ordinary circumstances, would have taken with greatest vivacity when returned a handsome profit to their prothe Bank tempts thereto by easy jectors; but the sudden and great rise terms of accommodation, it follows in the rate of discount will at once blast that any alteration which may occur them with disaster. It does so in two between the commencement and ways. Suppose that the speculation be completion of such speculations will a cargo of foreign goods for this country; be, in the terms of discount, from a and suppose that, before the ship conveylower rate to a higher, and in prices ing them reaches our shores, the scarcity from a higher to a lower. The un- of money produced by the Bank-regulafortunate merchant is thus caught tions has lowered the price of such goods in a double-horned dilemma; for he in the market; then it follows that the must pay more at the Bank to get enterprise may prove wholly abortive, in his bills discounted, while at the consequence of the price obtained by the same time his goods will bring less merchant falling far short of that which in the market. This has happened munerate him for the speculation. Or, in the present case; and we cannot tell the story better than in the warning and prescient words of a journal which, amid all the heyday and couleur de rose of last summer, clearly discerned the danger ahead. On the 17th of April last, the Edinburgh Advertiser, while commenting on the then "remarkably low rate of discount for times of war," wrote as follows:

"The recent reductions in the rate of discount have been made by the Directors of the Bank of England in order to get off their reserve-notes; and the process of reduction will be continued until they succeed in their object. Thus tempted, the mercantile class will come forward, and take off the notes of the Bank, for the sake of engaging in enterprises which, but for the low rate of money-accommodation, they would not have ventured upon.

he had calculated on as sufficient to re

suppose the merchant not a millionaire

(as comparatively few are), and suppose the Bank puts on the screw and urges him for repayment of its advances, or decline to discount his bills except at impossible rates, while his speculation is still in progress, then he may be forced into the bankrupt list, although, but for those proceedings, compulsory on the Bank, he would have remained perfectly solvent. A speculation cut short in tho midst, however good it may be, is necessarily unprofitable; and the proceedings of the Bank in such cases, in accordanco with the Act of 1844, is like setting men to sow and not allowing them to reap."

As we have seen, the rate of discount went on declining till the month of June; but thereafter in consequence of the drain of gold for abroad, it quickly rose again, from 34 per cent in the beginning of September But suppose that a bad harvest comes, to 6 and 7 per cent at the end of and we have to increase our imports by October; so that in seven weeks' large purchases of grain, which we have time, all commercial men found the to pay for in so many millions of bullion rate which they had to pay to the -or suppose we have to pay large sub- Bank for advances doubled. Any sidies to foreign Powers, or have to leave one can understand the difficulty the provisioning, &c., of our army to be caused to a merchant who finds that obtained by purchase in a foreign coun- he has to borrow money at 7 per cent try,—then, all those disbursements being to carry on a speculation which he made in gold, the amount of that metal began when money could be got at in the Bank of England will be greatly 3; for a speculation that would diminished. The Directors (in order to comply with the Act of 1844, which re- pay handsomely when the discount quires that the paper-circulation shall be is at the former rate, may utterly diminished as the gold diminishes) must fail when it rises 3 per cent higher. then put on the screw,' and draw in In truth, a much less rise than this their notes by imposing a high rate of may nowadays inflict ruin upon a merdiscount. The effect of this is, of course, chant. "The profits of trade," we

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