Blackwood's Edinburgh Magazine, Volume 62, No. 386, December, 1847

Subsequent experience has shown us, that this very measure has become an engine of destruction to the trading community – that it has not defended the customer from loss by the failure of his banker – and that it has not discouraged speculation, whether that be unwholesome or not. It has certainly kept the circulation of the country within such bounds, that money is at a minimum rate of eight and a half per cent; and the measure is itself suspended and virtually abrogated by the Whig ministry, who, with an inconsistency and stupidity which appear absolutely miraculous, pin their faith, in the very document which removed it, to the soundness and integrity of its principle!

Now, it is here proper to remark, that the principle to which the ministry have so needlessly committed themselves is not, strictly speaking, that of the convertibility of paper into gold at a fixed rate, but that of permanent restriction of the issues. The bullion principle may or may not be justly assailable upon other grounds, but it does not necessarily enter as an ingredient into the question of the present difficulty, and we are anxious, therefore, to keep it separate. The great alteration which the Act of 1844 effected in the monetary system of England, was the positive limitation of the unrepresented paper issues of the government to fourteen millions, and the contraction of the currency of the provincial banks. It thus left the directors of the Bank of England no option or power to move to the assistance of the public in time of emergency, and besides restricting them, it made the provincial banks in England wholly dependent upon the leading establishment in London. The Acts of 1845 which were applicable to Scotland and Ireland, were in many respects a much greater innovation. The amount of paper circulation in these countries was calculated on the average of the preceding year, and the issue restricted accordingly. It was provided that every note which might be put out beyond that amount, should be represented by bullion, and we shall immediately show that this measure has proved in its operation most injurious to the interests of the English public, by causing a large drain of bullion to countries where it is neither asked for, nor employed as a circulating medium at all. We, therefore, drop for the present the convertibility question, and Sir Robert's reiterated disquisitions as to the nature and character of a pound; and shall apply ourselves solely to the point of restriction, which we hold to be the leading cause of the present monetary distress.

A vast change has taken place in our social condition since the year 1844. This alteration has been produced by both natural and artificial causes. In the first place, we have had a famine and a failure of the potato crop, which has borne very heavily upon the population of the British islands, and has caused a large export of bullion for the necessary supply of food. In the second place, we have had a multiplicity of gigantic works going on at home, which, while they have afforded high wages to an important section of the community, and so tended in a great measure to ward off and counteract the more disastrous effects of the famine, have nevertheless undeniably caused an unusual absorption of capital, which must remain unproductive until those works are completed. In the third place, we have altered altogether our relation to the foreigner, and have admitted him to competition with our own producers in the home market, without securing that reciprocity without which free trade is a phantom and a delusion. The first and the third of these causes have led to a steady drain of bullion from the country; and although the famine may now be considered as over, and that drain stopped for the present, the other still continues and must continue in full operation, and the adverse rate of exchange as against Britain can only be overcome by a general decline of prices, in consequence of which men of every class, but especially the manufacturer and the artisan, must be serious and permanent losers. But the railway system on the whole has effected the most important change upon our position, and it is now indisputably necessary to find out in what way it has acted upon the money market.

In 1844, the restriction year, the railway system was, so to speak, in its infancy. No doubt many works had been constructed and much surplus capital embarked, but the tide of enterprise or of speculation, if you so choose to term it, had not at that time set in nearly so vigorously as it did afterwards in the new channel. Still there were distinct indications of what was to come. Notice had been given of a multiplicity of works that were to be undertaken, involving in the aggregate an enormous expenditure of capital; and Parliament had pointedly constituted itself the censor and approver of these projects. It was not a period of private unguided speculation. Parties were not left as in former years to throw their capital rashly and without guarantee into American mining and canal adventures, for the purposes of foreign improvement and the employment of an alien population. Each railway bill was first considered by a ministerial body expressly constituted for that function: it then underwent the scrutiny of committees of both Houses of Parliament; and finally, when transformed into an act by receiving the royal assent, it bore within its preamble an express acknowledgment that it was a work of great advantage and benefit to the country at large. Nay more, by a notable act, authorising the government, whenever a railway should exhibit a certain amount of remunerative traffic, to purchase it at a statutory rate for the profit of the nation, the ministry were as deeply pledged as they could be to the maintenance, of the system; and if there has been in fact any excess in the number of works undertaken, the private promoters of these are far less chargeable with the blame than the ministry, who, with their eyes open, and the amount of pledged capital declared, yet suffered the system to go so far without interposing a decided and unsurmountable barrier to its progress.

Be that as it may – and we shall have a few words to say upon the point hereafter – it is impossible to suppose that Sir Robert Peel, or any other competent minister, can have failed to form the conclusion that altered circumstances must per force hereafter effect a vast change on the surface of our monetary transactions. Indeed Sir Robert now takes full credit for such prescience. He tells us that he foresaw what was about to happen, and that he framed his banking measures with a direct view to that result. A more humiliating confession, in our opinion, was never uttered by any man laying claim to the character of a statesman. It is in fact tantamount to an acknowledgment that he was then legislating for the prospective benefit of the moneyed interest exclusively, and not for that of the nation. For we hold it to be perfectly clear, upon every principle of honour and justice, that government, having allowed these railway bills to pass, and so far sanctioned their commencement, were bound to interpose no artificial impediment to their completion. Nay more – they were bound, before introducing any act for the future regulation of the currency, to take into consideration the changes which so vast an expenditure of capital at home was likely to cause in the adjustment of the different national interests, and the facilities which ought to be granted to each in the development of their several industry. But the Banking Acts of which we complain were framed upon a totally different principle.

Sir Robert Peel, in 1844, was, as it were, standing upon an elevation from which he could look backward upon the past condition of the country, and forward to the new state of things which was now certain to occur, and which he did not intend to prevent. On the one hand, he saw that, for a certain average of years, not distinguished by any great enterprise, nor shaken by any great convulsion, a certain quantity of currency had sufficed for the wants of the nation. This currency consisted of two things, gold and paper, for we drop the smaller change. The gold was principally, if not altogether, confined to England, where it circulated from hand to hand; and, issuing from the fountain of the Mint at a fixed rate of price, it was accessible to all parties, and always exchangeable for paper. Being exportable at fluctuating values abroad, the amount of gold at any time in the country could not be accurately ascertained, but it was acknowledged as the nominal basis of the circulation.

In Scotland and Ireland the system was different. Both of these were poorer countries than England, and had been unable either to dispense with the smaller one-pound note circulation, or to provide gold, the most expensive and cumbrous representative of property. The currency of these countries, therefore, was paper, based directly upon property; and, in Scotland at least, secured by an admirably-devised system of interchange amongst the native banks, which effectually prevented the possibility of any over-issue. In consequence the circulation was extremely regular and steady, save at the two great terms of the year, being settling days, when a large expansion of the currency was required, to be, however, again withdrawn on the succeeding week.

On the other hand lay the more dubious prospect for the future. Parliament had already recognised the railway system, and numerous projects were waiting for the imperial sanction. These necessarily and avowedly involved an enormous expenditure of capital, and the active and lucrative employment for several years to come of a large class of persons throughout the three kingdoms. The railway system might indeed be said to have created a new class, whose necessary share in the currency would fall to be calculated in any future monetary measure. Add to this, that the population of the empire was rapidly and steadily increasing.

It was in this position, and with these prospects, that Sir Robert Peel fabricated his restrictive acts, which have since wrought a total change on the financial dispositions of the country. We do not think, and nothing has been brought forward to prove, that there was any call whatever for a change at that particular juncture. Certain it is, that the change was generally unpalatable, but was yet peremptorily forced on and effected in spite of the ominous looks of those whose experience entitled them to a hearing. And no wonder that the veterans of commerce should have received these measures with disapprobation. For, according to all rules of reasoning, an increased trade, an increased demand, a new population, and a new channel of industry, were so many additions to our former state which required additional facilities. The same amount of currency which had sufficed in former years to carry on our domestic arrangements, could not surely be expected to exercise a double function, and to meet the demand occasioned by the novel element of accretion. The money that, in prosperous times, barely answered the calls of manufacture and commerce, could not be converted from those streams to flow into another, without occasioning, at the same time, the greatest pinching and inconvenience. Yet, strange to say, Sir Robert Peel, instead of basing his calculations upon the future imperative demand, legislated as if no new element at all had appeared in our social position. And he further committed, what we maintain to be a great and inexcusable error, even had the railways not then been in actual progress, by utterly destroying all possible expansion of the currency, so as to bar us from the power of obviating any temporary difficulty or accident to which commerce is constantly exposed.

Thirty-two millions, therefore, of paper, whereof fourteen was apportioned to the Bank of England, was the bountiful allowance counted out for the daily augmenting wants of the first commercial nation of the world. All paper issue beyond that had to be represented by unfructifying bullion, stored up in bank vaults and cellars, as far away from profitable employment as if it had been buried beneath the ruins of Nineveh, with some tutelary demon as its guard. And it is a fact, which we do not remember to have seen stated elsewhere, but which, nevertheless, is notorious to all commercial people, that a vast deal of gold is constantly forced into the Bank to represent and occupy the place of paper which is absent from the country. In the Continent and in America, Bank of England notes are an extremely common tender, and are often actually at a premium; and each of these so circulating withdraws, under Peel's system, an equivalent amount of gold from the national use.

We do not mean to assert, for the point is immaterial to our argument, that this thirty-two millions, plus the gold, might not at one time have sufficed for the country, and it may be that it shall again suffice. When we speak of expansion, we also give credit to the counter-state of contraction; and our experience of Scottish banking has gone far to prove, that a low rate of circulation is by no means incompatible with a healthy state of trade. But then, experience equally teaches us, that the low rate must be left to adjust itself. Expansion is not, as is commonly supposed, an inevitable sign of prosperity. On the contrary, it is too commonly a token of want of commercial confidence, and all indisposition to receive that far larger but uncalculated species of currency, by means of which the great transactions of the country are carried on, and to which the whole coinage and bank paper of the realm bears a mere fractional proportion – we mean the commercial bills of exchange. The ordinary currency of the country, the bank paper and all the gold which could possibly be imported, even were it all thrown into circulation, would be utterly insufficient to supply the place of that commercial paper which has for its basis nothing more than mutual confidence and credit; but then that paper must be realisable as it becomes due, and it is for that purpose that a large proportion of the ordinary currency is required.

Whenever a want of confidence is generated in the country, the merchant and manufacturer are immediately compelled to have recourse to the bank in order to have their bills discounted. The facility of these discounts, of course, depends upon the amount of money in circulation, and also very much upon the rapidity of its return in the shape of deposits or otherwise. A banker cannot, any more than a private person, discount without having money, and where no money is procurable, the ultimate result must be a stoppage. And so it is, as we know full well from the experience of the last two months, during which we have witnessed the unparalleled spectacle of houses suspending payment, and exhibiting at the same time a large excess of assets beyond all their liabilities. Want of confidence, therefore, however brought about, is the great evil against which, in this country, we ought especially to guard, since it seems almost apparent that, when it occurs, human ingenuity is not equal to provide a remedy.

Let us, however, look a little more closely into the present posture of affairs, and endeavour to ascertain whether the want of confidence which at present undoubtedly exists is the result of external and uncontrollable causes, or whether it is not in some way connected with, and occasioned by these restriction acts, which are just now affording so plentiful a harvest to the cautious and wary capitalist.

The monetary embarrassment may be said to have commenced with the famine of last year. That event not only caused an extra expenditure of public money at home, in the shape of subsidies to Ireland, but it occasioned a considerable drain of bullion to America. It so happened, that at that time America was in need of coin for her expenses in the Mexican war, and required less manufactures than we were usually in the habit of exporting. At least such was the statement commonly current in the commercial circles at the time; but we cannot, whilst calmly and dispassionately reviewing events, conceal our conviction, that the Americans were playing a deeper and more profitable game. A drain of gold from England must always, under our present laws, prove an enormous advantage to the foreigner, because, by retaining bullion for a time, and refusing manufactures in exchange, he can bring down prices in Britain in proportion to the scarcity of money. It was therefore clearly not the interest of the Transatlantic dealer to take commodities in exchange for his corn, until the depression had reached its lowest point. Be that as it may, the balance being decidedly against us, was liquidated in gold, – a mode of payment which this country can never refuse, since it has recognised the bullion principle, and laid down a fixed or inflexible standard. As the result of this, ten millions disappeared from the general circulation – that is, the bank, in order to maintain its full issues, was compelled to find gold from some other source, and the exchanges being palpably against us, by reason of the famine, and from another cause to which we shall afterwards allude, this could only be done by an increase of the rates of interest, in other words, by turning the screw, which had this immediate effect of causing a fall or depreciation of property. Consequently the funds began to decline, but after a little, some temporary relief was afforded by the appearance of a new and unexpected customer in the stock-exchange.

The Russian system of banking is rather remarkable. That country, which has lately become one of the greatest gold producers of the world, employs for its own internal use a paper circulation, but the basis upon which that circulation rests, is commonly reported to be a sum of from thirty to forty millions in gold, lodged in the hands and at the disposal of the Emperor. This large amount of bullion had hitherto remained unemployed, but Nicholas, observing that the French funds had, like our own, very much declined, and that bullion was the great desideratum in both countries, determined, with much apparent generosity, to step forward to their rescue. No one save the Czar had any control over the keys which could open this hidden hoard, and with a discernment which does credit to his abilities, he set at liberty "the imprisoned angels," and in return for his unprofitable gold, purchased at most advantageous rates, a deep interest in the national securities of England and of France. The immediate result of that measure is a large accretion of revenue to the Emperor, who is now one of our chief creditors, for whom the manufacturer is bound to toil: the ultimate tendency is yet in the womb of time, but no thinking man will contemplate without alarm the power, which so gigantic and ambitious a state as Russia has thereby gained within the very fortress of our strength.

If we continue in a blind and obstinate adherence to the system of the bullionist party, we shall give the Russian government such opportunities of enriching itself at our expense, as no foreign potentate has ever possessed before. It is quite well known that large purchases of national stock have already been made with the gold of the Muscovite; and therein the autocrat has acted wisely for himself – far more wisely than our enlightened rulers have thought proper to act for us – for he has put out the money to usury, and the basis of the Russian circulation, instead of being profitless gold, is now composed of British and French securities, bought in when the market was at its lowest ebb, and yielding a large return. If our monetary laws should still remain unaltered, and trade should notwithstanding revive, it will be the interest of the Russian, so soon as the funds have reached their culminating point, to sell out largely, and by forcing the gold from the Bank of England, create an artificial scarcity of the precious metal, which, followed as it must be by an immediate contraction of our paper currency, would cause a second panic, and a second prostration of the funds. By buying cheap and selling high – the favourite maxim of the free-traders – he would thus realise an exorbitant profit, and be enabled, should he choose it, to replace the bullion basis of the Russian circulation. But this, as a matter of course, he would not do. The low state of the funds would again offer an irresistible temptation. Fresh purchases of stock, this time made with our own money, would revive public confidence in Britain, and so things would go on, alternately rising and falling without any obvious external cause, but in reality according to the will of a huge foreign fundholder, who, with each successive movement, must be the gainer, whilst we deny ourselves the means of securing the equilibrium of our own monetary transactions at home. Under our present system, the sale or purchase of national securities to the extent of a few millions, has a wonderful effect upon the market. Add the further elements of gold exportation and paper contraction, or the reverse, and the effect becomes prodigious. The purchases already made on the Emperor's account, are reported to have been most heavy, and the process, at the moment when we write, is being again repeated.

This is, in reality, a subject of the gravest nature, and it should not be passed over by the legislature without remark. The Whigs, in all probability, hail such successive importation of Russian bullion, as so many pledges of returning prosperity, not seeing nor understanding the frightful price which we may hereafter be called upon to pay, nor the perils of that artificial fluctuation to which we may be exposed. We have put ourselves, as the experience of the last few months has shown, at the mercy of gold, and consequently at the mercy of any foreign power who can supply us with that coveted commodity; and so we must remain, if the plain sense of the nation does not rouse itself to sweep away the formula of our currency practitioners.

Our advantage from the Russian transaction was only temporary. Again the bullion decreased, and again the screw was tightened. Money was the universal demand, but money became scarcer every day, and the rates of interest increased. Hopeful people, notwithstanding, still adhered to the belief that the pressure was only temporary. The corn-law abolitionist pointed to the luxuriant harvest which was waving plentifully on the fields, and forgetting, with characteristic selfishness, the dogmas which he had so lately enunciated, prophesied a return of manufacturing prosperity from the well-being of that class, which, two years ago, he would ruthlessly have consigned to ruin. But when the plentiful harvest was gathered in, and all fear of another famine, and further bullion drain on that account, was removed, it appeared, to the disappointment of every one, that matters were not likely to mend. The screw was still revolving in the wrong way – prices went down, like the mercury in the barometer before a storm – the man who was rich even in April found himself worse than nothing in October – bills became stationary – the banks were besieged until they closed their doors in despair – and then came the Gazette, with its daily record of disaster.

In truth, we do not envy the situation of ministers during that period; and yet, we hardly know how to pity them. They alone, while the nation was writhing, around them, maintained an attitude of calm complacency. At first, Sir Charles Wood, the most singular optimist of his day, received the different deputations of pallid merchants with assurances that every thing was right. "There is not the slightest occasion for alarm," was the language of this sapient Solon. "Money never was more plentiful in the country – accommodation will readily be granted to every one who has property to show for it – the currency-machine is working remarkably well," – and the Cabinet went placidly to sleep.

But the cries of distress from without became so loud, and the storm of indignation so vehement, that the ministry were at last compelled to exhibit some symptoms of action and vitality. Cabinet councils were summoned – new deputations received – the tale of sorrow was again heard, and this then with decreased disdain. But the perplexity of our rulers was such, or their dissension so great, that they could not devise a plan, whereby even temporary ease might be afforded; and as there is safety in a multitude of councillors, they eagerly inquired into the remedy which each successive sufferer could suggest. These of course were varied and conflicting, but in one point all were agreed – that the restriction act should be suspended. Even then, nothing would force conviction upon the impotent Whigs. They clung to restriction as if it had been the palladium of British credit, nor would they relax their hold of it until they were threatened with force. The crisis was so imminent, that the London bankers were compelled to exhibit the power which they undoubtedly possessed, and to threaten its immediate enforcement. The deposits which they held were immeasurably greater in amount than the quantity of bullion which the Bank of England could give out; and the Lombard Street deputation accordingly intimated that, if government would not suspend the operation of the Act of 1844, they would exercise their statutory right of demanding payment in specie, and expose the whole fallacy of our monetary laws by rendering the Bank insolvent. That threat had more effect than any amount of argument. At the eleventh hour the Whigs yielded, not to remorse, but to necessity, and the Act was accordingly suspended, clogged, however, with a condition, which, instead of relieving the pressure, was infallibly calculated to increase it. The Bank of England alone – for both Peel and the Whigs contend for the monopoly of that establishment – was permitted to over-issue, but with a recommendation, which was in fact an order, that the minimum rate of interest on short bills should be eight per cent, a rate which no merchant or manufacturer can afford to pay. Surely the Bank of England might have been left in this crisis to use its own discretion. But there was another object in view. As the revenue had palpably fallen under the operation of the tariffs, which constitute the measure of free trade already dealt to us, the Whigs were desirous, even in extremis, to make a profit out of the national misery, and it was intimated that the additional gain was not to be appropriated by the Bank, who undertook the risk, but to be handed over hereafter to the government, who undertook the responsibility of suspending the operation of the Act. Under such circumstances, it is clear that real accommodation was almost as difficult to be obtained as before. The suspension, for which Ministry are entitled to no credit whatever, did little actual good, owing to this preposterous condition, beyond relieving the public mind from the apprehension of the frightful nightmare. In fact, the Bank of England did not avail itself of the liberty so granted. It merely raised the rate of discount, and therefore no indemnity is required. The only wise thing which the Cabinet has done, was the summoning together of Parliament at an early day, for assuredly there is need of wiser heads than those possessed either by Lord John Russell or by Chancellor Wood to help us out of the present dilemma.

But where, all this while, is the money? That is the question which every one is asking, and to which very few will venture to give a distinct reply. It is, however, a question which ought to be answered, and we think that there is no great mystery in the matter. The greater part of the money is still in the country, but it is not passing from hand to hand with its usual rapidity, nor in its ordinary equitable proportion. The portion of it which the banks do hold, is, of course, profitless in itself, but yet so far useful that it serves as a basis for paper; the portion which the public hold is fearfully checked in its circulation. This anomaly proceeds from the following causes: We have been forced to make that amount of money, which in ordinary times of unshaken credit was barely necessary to liquidate or balance the ordinary transactions of the community, embrace also the new operations rendered indispensable by the introduction and development of the railway system. We have called forth and created a new source of industry within ourselves, but we have omitted to provide the means by which that kind of industry can be maintained, without trenching upon and abstracting from the supply applicable, as formerly, to our other wants. This is not a question (and herein lies the fallacy of those who are waging such determined war against the railways) of absorption of capital, but of want of the circulating medium. We have been trying, under Peel's guidance, to make that amount of money which barely served eight persons before, suffice now for the extended wants of twelve; and we are perplexed at any scarcity, totally forgetting that we have advanced in the close of the year 1847, to a widely different position from that which we occupied at the commencement of 1844. Gold has become scarcer, altogether independent of the exportation, because there are more persons who require money; and when gold cannot be had, Sir Robert Peel forbids us to trade in paper. There is a minimum supply of money representing that portion of produce which is passing to consumption, without which no country can hope to prosper, and we have already passed that minimum. Hence, the sovereign, though it remains by statute of a fixed value, is of no use as a standard at all, because you cannot measure property by it. You cannot buy coin, except with coin, at any thing like a parity of exchange; and therefore, if the sovereign does not nominally rise, the same effect is produced by the depreciation of property, which, and not bullion or notes, constitutes the real capital of the country. It is a frightful consideration, but nevertheless it is true, that the whole property of this vast country, estimated at something like five thousand millions, is, to all intents and purposes, paralysed for the want of some few millions of extra circulation to supply the extra work we have engaged in, and the extra population we have employed. And it is still more startling to think, that for the want of that circulation, the value of this property is merely nominal and relative, and has been, and is, declining at the rate of many millions a day. In fact, we have at this moment no standard of property, and with such a prodigious decline it may very soon become a serious question, how the revenue of the country is to be raised.

In ordinary times the circulation is extremely rapid. Coin and notes shift from hand to hand without delay, and alternate between the public and the banks; and instances of hoarding are rare. This is well known to be the case both in manufactures and commerce, the business of which is transacted in towns where savings' banks afford the labourer a ready means of depositing his earnings, and so contributing to the passage of the currency. But the railway workman, who is now an important personage in the state, possesses no such facilities. He is essentially a wandering character, shifting his ground and place of abode to accommodate himself to the scene of his labour, and he either does not understand, or he will not avail himself of, the ordinary channels of deposit. Many of this class have undoubtedly saved money out of their ample and remunerative wages, but these savings are just so many hoards which in the aggregate have an injurious effect upon so contracted a currency as ours. So far from the immense expenditure of capital upon the railways being a necessary drain upon the currency, it would in truth, if the wages of labour were rapidly exchanged for produce, have greatly facilitated the circulation; but the wages being hoarded, and the gold and notes kept out for an absolutely indefinite time, a new element of confusion has been introduced. It is not merely difficult but absolutely impossible to calculate how much of the circulating medium has been in this way withdrawn. We are inclined, from the testimony of persons engaged in the construction of railways, and intimately acquainted with the habits of the workmen, to place it at a large figure. And when we recollect that the wages of nearly 600,000 men so employed have been for more than three years greatly higher than those of the common agriculturist, we might be justified in making an assumption which assuredly would startle the reader. The hoarding of small sums, when that practice becomes general, has a most extraordinary effect upon the currency, as every one who looks at the amount of surplus wages invested in the savings' banks must acknowledge: and as we cannot force any portion of our population to deposit, we are bound to take care that their ignorance, or erroneous ideas of security, shall not be allowed to operate banefully upon so important a matter as the circulation. The money thus hoarded is not lost, but it is temporarily suspended, and its hoarding becomes an evil of no common magnitude, which pleads strongly for an augmented issue.

The Scottish and Irish banking acts of 1845, which were introduced, and in spite of all national remonstrance, forcibly carried through by Sir Robert Peel, ostensibly for the sake of uniformity, have very much deranged the currency of England, by locking up a large portion of the coin. We need not repeat here, for the fact is notorious, that sovereigns, except to a merely fractional extent, are not current in Scotland, and are received with absolute distrust. Nobody wants them; and the note of a joint-stock bank is at all times a more acceptable tender. But the acts which forced the banks to retain an amount of bullion for all paper issued beyond their average circulation, were based upon a false principle, which, three years ago, when the first aggressive step was taken, we urged upon the consideration of government, but unfortunately without success. The average circulation of the banks over the year was not a fair calculation. Twice a-year, as we have already remarked, all of the banks in Scotland required to augment their issues in order to meet the term payments, and notwithstanding Sir Robert Peel's enactments, the same necessity exists. This will be better understood by comparing the amount of notes delivered and received by the Bank of Scotland in exchange with other banks on the term-days, with the like exchange during other periods of the same months.

There is also, we ought to remark, a considerable rise of the issue during the weeks which immediately precede and follow these terms. Now the same fluctuation occurs in every one of our banks, which about term-time are called upon to furnish accommodation to an extent of nearly three times their ordinary issue. No allowance was made in the act of 1845 for this inevitable expansion, and consequently the Scottish banker is forced to do one of two things. Either he must permanently hold during the whole year a much larger amount of gold than is necessary to satisfy the legal requirement for his ordinary over issue, or he must provide gold from London twice a-year, in boxes, which arrive sealed at his place of business, to be returned within a fortnight with the seals unbroken! Such is part of the absurd and ridiculous machinery, which it has been the study of Sir Robert Peel during half a lifetime to elaborate; and the practical result is, that nearly the whole of the gold required to balance the transactions of Scotland for the term weeks, is withdrawn from the ordinary circulation. Indeed, gold to the extent of the whole term payments would be required, save for the proviso in the act which allows the circulation to be calculated at the end of every week; but, as we have said already, the rise is gradual, not being limited to the term days, and for two weeks at least, the circulation, that is, the amount of the notes issued, is much larger than the ordinary average of the year. It thus follows that the bullion to represent the term issues, must either lie in the coffers of the Scottish banks, or in the hands of their correspondents in London, ready to be sent down whenever the appointed seasons shall arrive!

Here then is another drain, or rather suspension of a large proportion of our circulating medium, which has been most unnecessary. The Scottish public suffers from the want of accommodation; the Scottish banker suffers from the enormous expense which this juggle entails upon him; and the Englishman suffers by the gold which was formerly his currency, being kept in pawn at the period when he requires it most. Besides, it is well worthy of remark, and known to every banker here, that the circulation of Scotland during the year when the average was taken, had been reduced to its very lowest possible ebb. The frugality of the country, the extension of the branch banks, the efficient mode of interchange, and, above all, the interest allowed upon all deposits, were the causes which had led to this; and it seems now to be universally admitted by all writers on currency, that a more admirable and perfect system could not have been invented by the ingenuity of man. All this, however, has been overturned by Sir Robert Peel, to the great injury of Scotland, and the positive detriment of England; and had he succeeded in pushing his bullion theories further, and replaced the one pound note circulation in this country by the sovereign, a double amount of calamity would have been inflicted at the present moment. We entreat the attention of the English currency-reformers to this; for they may rely upon it, that the abolition and total repeal of the Scottish and Irish banking acts of 1845, without any new legislative enactment at all, would be an inestimable boon, not only to these countries, but to England, which is now compelled to furnish gold, which is neither used nor required, and so to cripple and impede materially her own circulation.

The hoarding, therefore, by the railway labourer, and the reserves nominally kept for the use of Scotland and Ireland, will account for the disappearance of a large proportion of the coinage from the circle. These are only primary causes of the scarcity, yet they are material elements in inducing that want of confidence, which, as we have already said, is the mighty evil that is now oppressing and bearing us to the ground. Whenever want of confidence is manifested, the circulation must farther contract. Joint-stock and private bankers, for their own security, maintain a large reserve of Bank of England paper and bullion, and there are always terrified persons enough to occasion a partial run for gold. We do not charge the bankers with impolicy in thus abetting the general contraction. Situated as they are, it becomes a matter of necessity to look to their own interests in preference to the accommodation of the public; but it is right that the public should be made aware of the mischief which is caused thereby. The results are surely patent to the apprehension of all. In proportion as circulation contracts, interest rises; and the wary capitalist, foreseeing the advent of the dark hour, realises while he can, in the knowledge that his money hereafter, when things are at the worst, will enable him to drive the most exorbitant and usurious bargains. This is the class of men for whom Peel has uniformly legislated, and it is they who, under our present miserable monetary system, must ultimately absorb the hard-won earnings of thousands of their fellow-creatures. They are not enemies of speculation – on the contrary, they fatten upon it. They strive for a time to stimulate industry to its utmost, and then use every exertion to depreciate the industrial result. Hard times are their harvest, and prosperous years their seed-time; and never, so long as they can hold it, will they relax their pressure of the screw.

The sacrifices of good solid property which have been made during the last few months, and which were occasioned solely by the baneful contraction of the currency, have been positively enormous. It is common to hear the capitalists remark with a sneer, that such is the inevitable result of over-trade and over-speculation. It needs no prophet to tell us, that the man who has not a farthing in the world can neither buy nor sell; and we admit that, in the present monetary convulsion, as in every other, much ripe fruit has fallen to the ground. But we deny that present prices have been the result of over-speculation. We maintain that, sooner or later, the country must have been brought to this unhappy condition, simply by the operation of these currency restriction laws; and if we are insane enough to allow them to continue, we shall inevitably be plunged into the same abyss, even though temporary measures should effect a temporary rally. It is calculated, and with great appearance of probability, that the depreciation which has already taken place, is larger than the whole amount of our national debt!

It is necessary that we should grapple boldly with the proposition, that over-speculation in our home works, that is, the expenditure upon the railways in progress, is the cause of our present embarrassment. In order to do this, we must have recourse to statistics, and we shall now lay before our readers tables exhibiting the state of our revenue and population, for two periods of five years each.

But, in addition to the taxes which were levied during the years 1811-15, there were loans contracted as follows:

We thus arrive at the following results. About thirty years ago, with a population of nineteen millions, we were able to raise an annual sum of ninety-four and a half millions of pounds, whereof more than one-half was expended abroad in subsidies and the maintenance of an army, and little or none of it was returned in the shape of capital to this country.

At present, with a population of twenty-seven millions and a half, we are said to be unable to lay out thirty-five millions annually in the construction of our railways, in addition, to a taxation of fifty millions, – in other words, we cannot raise eighty-five millions a-year without approaching to the verge of bankruptcy!

This, if true, is a very humiliating position, and shows symptoms of a decadence so marked, that we question whether any parallel case can be extracted from history. A population augmented by one-third, say the economists, cannot afford to expend a sum less by ten millions than that which was raised without inconvenience towards the end of the great continental war; and this sum, far from being swallowed up abroad, is usefully employed at home, and is daily assuming the shape of realised capital, yielding a profitable return!

It would follow, then, as a matter of necessity, that we must be infinitely poorer now than we were thirty years ago. Let us see how that matter stands. The net rental of the real property, in England alone, as we find from the assessment tables for the poor-rates, had risen from £51,898,423 in 1815, to £62,540,030, in 1841, and may be estimated at the present moment as augmented by fully one-fourth all over the united kingdom. The personal property, according to Mr Porter, whose accuracy will be unquestioned by free-traders, was estimated at twelve hundred millions in 1814, at two thousand millions in 1841, and has since continued to augment, so that we may fairly assume, that within thirty years, that species of property has been doubled.

Here, then, are grounds for a panic such as that which is now shaking the empire! Here are reasons for leaving the inchoate railways unfinished, dismissing the workmen, and closing our accounts in terror of a national bankruptcy! Really, with such facts before us, we cannot avoid coming to the conclusion that men who use such language as has been too commonly prevalent of late, are either shamefully ignorant, or have a motive for promulgating error.

The expenditure from 1811 to 1815 was, as we have already seen, wholly profitless, and yet it in no way whatever deranged the economy of the country. The vast outlay of capital, which took place at subsequent speculative periods, was a thorough drain upon the country, because it was consumed abroad without return, and gave no employment or stimulus to the home producer. But the railways are investments of a very different description. They do not affect the currency farther than we have noted above, and the remedy for that is simple. By their means the pressure of the famine has been lightened to the poorer classes, and they are not only remunerative to their owners, but of immense benefit to the districts through which they pass. Of three thousand one hundred miles of railway now open, the gross receipts may be taken, in round numbers, as at nine millions annually. Passengers are carried at one half the cost of the old conveyances – so are goods, and time is prodigiously economised. There is, therefore, a positive saving of other nine millions to the inhabitants of the country; and the completion of the works now in progress, will add immensely to, and more than double this. The cheapening of fuel, the transport of manure, and of building materials, and the opening up of mineral fields, hitherto unused and unprofitable, are vast boons to agriculture and trade, and there can be no doubt that the country is deeply interested in their progress.

If it be asked whether the public are able to spare the capital requisite for the completion of those lines without danger or embarrassment to other branches of industry, we think the calculations which we have already given will afford a satisfactory reply. There is no want of capital in Britain, and railway companies will always be able to obtain it at a certain rate of interest. But a currency contracted like ours, and totally incapable of expansion, must inevitably, upon the occurrence of any external accident, derange every branch of our social economy; and as interest rises, so, as a matter of course, will the value of realised property be depreciated. Money is at present the scarcest thing in the market: the capitalist may demand his own price of usance for it; and were this state of things to continue, the results would be far more ruinous than any one has yet anticipated. People are prepared to suffer almost any sacrifice for the maintenance of that credit which is the idol of the Englishman; but the sacrifice must be temporary, not prolonged, else a stoppage becomes inevitable. Neither the merchant nor the manufacturer, nor any other class of men, can afford to conduct their operations at a remunerative rate, while money is exorbitantly high; and all questions even of convertibility shrink into absolute insignificance before the fact, that were money to continue long at eight per cent., the mills and manufactories throughout the country must be shut up, and the public works discontinued. In other words, we would be plunged into a state of anarchy, the ultimate issue of which it would be very difficult to conceive.

No doubt, the railways have had their share in absorbing capital, but what we maintain is, that the capital is abundant and could not have been better employed. The mania of 1845, – for most assuredly enterprise at that time had assumed that extravagant form – was checked by the intervention of Parliament, and a host of crude and unnecessary schemes were at once consigned to oblivion. Should it be said that Parliament did not exercise with sufficient energy its undoubted controlling power, then we shall merely ask who the gentlemen were that, down to the end of the above year, lent their countenance to railway extension? On the 13th of November 1845, we find Sir Robert Peel near Tamworth, with electro-silver plated spade, and mahogany barrow, wheeling away the first sod raised on the line of the Trent Valley railway, and expatiating broadly upon the advantage of "a more direct and immediate communication between the metropolis on the one hand, and Dublin and a great part of Ireland on the other; between the metropolis and the west of Scotland; between the metropolis and that great commercial and manufacturing district of which Liverpool and Manchester are the capitals." Not a word of warning or reproach, or of indication of coming scarcity of money, fell then from the lips of the great author of the Restriction Acts, – measures which were still lying in abeyance to awake for the benefit of the capitalist, and the depression of every other class, long before the sod, so ostentatiously turned over, could be replaced by the permanent rail. What wonder, then, if Parliament, with such examples before their eyes, and such notable testimony in favour of the development of the railway system, should have been slow in foreseeing the danger of too hasty an internal development?

It is also self-evident that during the last few months the frequent and heavy railway calls have added much to our pecuniary embarrassment. In some instances these calls have been by far too recklessly urged; in others it is difficult to see what other course could have been adopted. For whilst, on the one hand, the extreme dearness of money, the utter stoppage of credit, and the impossibility of disposing of property at any thing like its real value, were elements which the directors were bound to consider before using their statutory power; yet, on the other, they were not entitled to overlook the influence which a discontinuance of these works would exercise over the value of the capital already expended, and the great amount of individual and aggregate suffering which would result from the arbitrary dismissal of their labourers. It was the duty of government, while it was yet time, to have stepped in with some precautionary measure. They might have compelled the directors to summon a general meeting of the shareholders previous to the announcement of a call, and have allowed the latter a veto if their interests should have required it; but although proposals to that effect were laid before the Chancellor of the Exchequer, nothing whatever was done, and the increasing panic was heightened by the prospect of peremptory demands.

So much for the railways; by far the most useful class of works which the country has ever undertaken – useful, because, however they may appear to suffer by temporary depreciation, they will, we firmly believe, in the long run, prove amply remunerative; because, in a year of famine, they have given ample employment and adequate wages to a class of men who must otherwise have suffered unexampled deprivation; and because they have opened, and are opening up new elements of wealth, economising time, and facilitating our trade and our commerce. If, under the influence of monetary laws, for which their undertakers were in no wise responsible, they have tended in some degree to increase the common difficulty, let us recollect that the same power which sanctioned them is answerable for the restrictive measures. We have already shown that this new class of works required an increase of the internal currency which was not vouchsafed to it, and the authors of the Banking Act of 1844 are the parties chargeable with that neglect.

In short, to use the words of one of the Rothschilds, who surely is a competent judge, the prosperity of Britain depends, to a great degree, upon the amount of its circulating medium. It is our interest to have money plentiful and to keep it so; and we ought to interpose as few checks as possible to the fair operation of credit. With plenty of money we may command the markets of the world; with a restricted and contracting issue like the present we are comparatively powerless. The great fault of Sir Robert Peel and his coadjutors is, that they seek to confine credit within absolutely intolerable bounds. We may ask, with perfect propriety, whether the colossal fortunes, either of the right honourable Baronet or of his adviser Mr Jones Loyd, could, by any possibility, have been erected without this important element of credit, which they have now combined to prostrate? We apprehend not; and yet in a certain, though not very creditable sense of the phrase, both gentlemen have been true to their order. The new capitalist has the smallest possible degree of sympathy for those who are struggling upwards.

But a fettered currency is not the only evil for which the country demands a remedy. Far more perilous influences have been at work – influences which must be thoroughly probed and exposed at whatever cost of mortification to the dupes, or loss of credit to the schemer. We are willing, even in this age of free trade, when new principles are applauded to the echo and adopted with unseemly precipitation, to incur the odium of maintaining that protection to native industry is the foundation of the prosperity of Great Britain, and that in departing from it we have adopted a wrong course, which, if wise, we shall speedily abandon. Fortunately there is yet time; for the measures to which we allude have been so rapidly productive of their effects, that very little demonstration is required to open the eyes of all men to their baneful nature. Glad indeed shall we be if experience can work conviction.

To prevent all misconception, we beg leave to premise, that we do not enter now into any discussion upon the subject of the repeal of the corn-laws. Our sentiments with regard to that measure have been stated in another place; and although we have seen no cause to alter them, they are unnecessary for our present argument. We have always maintained that the success or failure of that measure in so far as the interest of our agricultural population, no unimportant section of the community, was concerned, could not be immediately tested – that its effects would necessarily be slow, but not on that account the less insidious. Agriculture cannot decline in one day like commerce, and even were it otherwise, extraneous circumstances have since occurred to delay the period of trial. The operation of the tariffs introduced by Sir Robert Peel, with the full sanction of the free-trade party are far more open to comment, and, as we shall presently show, all classes have an interest in the national wager. It is, therefore, the nearer and more engrossing topic of free trade, as affecting commerce and the legitimate wages of the workman, with which we now propose to deal.

Burthened as he is with taxes, poor-rates, and every species of local impost, it would naturally be supposed, that the British manufacturer could hardly be able to compete with the foreigner even in an alien market. But we unquestionably possess great counterbalancing advantages in the abundance of our coal and iron, the skill and energy of our people, and above all, in our accumulated riches. These, if properly managed, are sufficient to enable us to maintain our old supremacy undiminished.

The whole manufactured produce of Great Britain may be estimated in round numbers, and on an average at two hundred millions yearly, whereof three-fourths are consumed at home, and about fifty-one millions or one-fourth of the whole are destined for exportation. The home market, therefore, being by far the most important, is the first province of the manufacturer: the foreign and lesser market, however, is to a certain extent the index of the nation's wealth, because we have a direct interest to see that our exports are larger than our imports, in other words, that we are not annually paying away a greater value than we receive. The home market is certain, or at all events we can render it so if we choose, and the field is constantly increasing. The foreign market, on the contrary, is fluctuating, and over it we have little control. Without an entire change in our colonial system, which, to say the least, would be attended with much difficulty and danger, we must continue to compete with the foreigner abroad on no other vantage ground than that of offering an article equal to or better than his at a smaller price and profit.

It has always been the policy of England, to enlarge this latter field as much as possible, and unquestionably the policy is sound. We give and take with foreign nations as freely as may be, sending out articles which we have produced, and bringing home cargoes for our own consumption. The balance of the two operations must be taken as the estimate of our increasing wealth.

We have paid in manufactures for the specie which constitutes great part of our currency, and which is no product of our own, certainly not less than forty millions. When any portion of that coinage is withdrawn from the country we become so much the poorer, because we are forced to replace the deficit by another exchange of manufactures and that at a diminished price.

The doctrines of the free-trade party may shortly be stated as follows: Sweep away, they say, all restrictions, and do every thing you can to encourage imports, that is, to swell the amount of consumption of foreign produce at home. The inevitable result of this policy will be an increased demand from abroad for the staple commodities which we produce, and an enlarged field for our operations. Therefore reduce the duties levied at the custom-house as much as possible, and let the revenue be raised either directly by income tax, or in some other mode which may not interfere with the progress of trade.

Sir Robert Peel, who has adopted these doctrines, has acted upon them to a certain extent, and the history of his financial proceedings since he last assumed the reins of office is curious and characteristic of the man. He commenced by laying on an income tax, which we were assured was not to last beyond the period of three years, and he promised the public not only to relieve them from the load at the expiry of that time, but to exhibit the national revenue in a more flourishing condition than ever. Proposals so confidently made were cheerfully and even gratefully accepted, for no one could have supposed that there lurked a deception concealed beneath so plausible a scheme.

To the amazement of many, the adoption of an income tax was shortly followed by a reduction of revenue duties, an experiment which has since been repeated. The effect of those reductions was as follows: – the ordinary revenue of the country, at the time when Sir Robert Peel came into power, was within a fraction of forty-eight millions. Ten millions and a half were derived from certain articles, which were subsequently dealt with on free trade principles. These articles under the reduced duty now yield only six millions, whilst the other sources, that have not been tampered with, contribute, as is shown by late returns, forty-one and a half, instead of thirty-seven and a half millions to the revenue. The gain therefore to the country on those items which were left under the operation of our former system was four millions, – the loss upon the articles reduced by Peel was four millions and a half, whereof the greater part has gone into the pocket of the foreigner; and, as Lord George Bentinck well remarked, it is material, with such facts before us, to consider "what would have been the situation of the country if Sir Robert Peel had tried his experimentary hand upon the whole of what are called the ordinary sources of revenue to the country?" There must then have been a huge mistake somewhere. If Sir Robert really believed that in three years he would be enabled to dispense with the income tax, he must have calculated that the reduction of the duties would have the effect of increasing the consumption of imports to such a degree that the revenue would be largely augmented – a result which, we are sorry to say, has by no means arrived. On the contrary, the revenue has fallen off, and the income tax, far from being removed, will, in all human probability, be extended.

The avowed object of these reductions, which have curtailed our revenue, and saddled us permanently with a war tax, was to increase the amount of our exportations in exchange. If this effect has not been produced, or if there is no likelihood of its being produced within a reasonable period of time, then we are entitled to conclude, from the arguments of the free-traders themselves, that the experiment has been a total failure. We must never lose sight of the fact, that the sure test of free-trade, for which object we have sacrificed our revenue, is augmented export. Let us see how far this branch of the scheme has succeeded. We shall take the exports and imports for the years 1845 and 1846, which will afford a sufficient indication of the manner in which the new tariff is likely to work.