The Peel Web
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On 6 May 1844 the House of Commons, on the motion of Sir Robert Peel, resolved itself into a committee on the Bank of England Charter Act. As a basis for this exposition of orthodox monetary theory Peel and his listeners could go back to the arrangement which existed between the nation and the Bank of England from the establishment of the bank in 1694. In the early part of the eighteenth century a law had forbidden any association having more than six partners to carry on banking but laws of the early nineteenth century had permitted creation of joint stock banks, such banks possessing the right to issue bank notes subject to legislative restrictions. Joint-stock banks increased tremendously in their own numbers and in the amount of paper money which they caused to circulate. Speculations in the form of new companies became rampant, fears were expressed on the part of economists concerning the stability of business, while export of gold for ventures in the United States assisted to effect a decline of bullion in the Bank of England; a resulting recession in England and a depression in America gave the opportunity to Peel to show patently his distrust of a system that allowed quantities of paper money to be issued on no adequate basis of bullion. His own plans are clearly expressed in the latter part of his speech.
Sir R. Peel rose, and addressing Mr. Greene, who was in the Chair, said - Sir, there are occasionally questions of such vast and manifest importance, and which prefer such a claim, I should rather say such a demand, on the attention of the House, that all rhetorical prefaces, dilating on their magnitude or enjoining the duty of patient consideration, are superfluous and impertinent. I shall, therefore, proceed at once to call the attention of this Committee to a matter which enters into every transaction of which money forms a part. There is no contract, public or private, - no engagement, national or individual, which is unaffected by it. The enterprises of commerce, the profits of trade, the arrangements made in all the domestic relations of society, the wages of labour, pecuniary transactions of the highest amount and of the lowest, the payment of the national debt, the provision for the national expenditure, the command which the coin of the smallest denomination has over the necessaries of life, are all affected by the decision to which we may come on that great question which I am about to submit to the consideration of the Committee. 
My immediate proposition relates to Banking Concerns, and to the issue of Promissory Notes; but, considering that ten years have now elapsed since this subject was brought under consideration, I hope I shall be excused, if I take a wider range than the immediate questions for decision might seem to justify, and if I advert at the outset to the great principles which govern, or ought to govern, the Measure of Value, and the Medium of Exchange. They lie, in truth, at the very foundation of our discussion. We cannot hope to agree on the Measure to be adopted with regard to Paper Currency, unless we are agreed on the principles which determine the value of that of which Paper is the representative, and on the nature of the obligation which is imposed upon the issuer of Promissory Notes. Now I fear there is not a general agreement on those fundamental principles - that there is still a very material difference of opinion as to the real nature and character of the Measure of Value in this country.
My first question, therefore, is, what constitutes this Measure of Value? What is the signification of that word "a Pound," with which we are all familiar? What is the engagement to pay a "Pound"? Unless we are agreed on the answer to these questions, it is in vain we attempt to legislate on the subject. If a "Pound" is a mere visionary abstraction, a something which does not exist either in law or in practice, in that case one class of measures relating to Paper Currency may be adopted; but if the word "Pound," the common denomination of value, signifies something more than a mere fiction - if a "Pound" means a quantity of the precious metals of certain weight and certain fineness - if that be the definition of a "Pound," in that case another class of measures relating to Paper Currency will be requisite. Now, the whole foundation of the proposal I am about to make rests upon the assumption that according to practice, according to law, according to the ancient monetary policy of this country, that which is implied by the word "Pound" is a certain definite quantity of gold with a mark upon it to determine its weight and fineness, and that the engagement to pay a Pound means nothing, and can mean nothing else, than the promise to pay to the holder, when he demands it that definite quantity of gold.
What is the meaning of the "Pound" according to the ancient monetary policy of this country? The origin of the term was this: - In the reign of William the Conqueror a pound weight of silver was also the pound of account. The "Pound" represented both the weight of metal and the denomination of money. By subsequent debasements of the currency a great alteration was made, not in the name, but in the intrinsic value of the Pound sterling, and it was not until a late period of the reign of Queen Elizabeth that silver, being then the standard of value, received that determinate weight which it retained without variation, with constant refusals to debase the standard of silver, until the year 1816, when gold became the exclusive standard of value. The standard of silver was fixed about 1567; but in 1717, the value of the guinea was determined to be 21s., and for a certain period, both gold and silver constituted the mixed standard of value. In the year 1774, it being then enacted that no legal contract should be discharged in silver for any sum of more than £25, gold became substantially the measure of value, and so it continued to be legally and practically until 1797, when that fatal measure for restricting cash payments by the Bank was passed, and parties were enabled to issue at their discretion Paper Money not convertible into coin at the will of the bearer. From 1797 to 1810 public attention was not much directed to this important subject; but in 1810 men of sagacity observed that the exchanges had been for a considerable period unfavourable to this country - more unfavourable than could be accounted for by the balance of trade or the monetary transactions of the country.
A Committee was appointed to inquire into the subject, and opinions, not really novel, but at that time very startling, were enounced, to the effect that the "Pound" meant, in fact, nothing else than a definite quantity of the precious metals, and that those who promised to pay a Pound ought to pay that quantity. That theory was very much contested at the time. The House of Commons was not convinced by the arguments used in favour of it. The public mind, confused by the practice that had prevailed since the issue of inconvertible paper, would not admit the doctrine of a metallic standard. Those who contested it were, however, called upon to give their definition of the Pound Sterling, and it must be admitted that they responded to the call. They did not evade the question, as is now the practice, by writing long and unintelligible pamphlets, but, confident in their own theories, gave, in brief and compendious forms, their definitions of the standard of value. One writer said "that a Pound might be defined to be a sense of value in reference to currency as compared with commodities." Another writer was dissatisfied with that definition, thinking the public had a right to something more definite and tangible, and that the meaning of "a reference to currency as compared with commodities", was not very obvious to enlightened minds. This writer said, "There is a standard and there is an unit which is the measure of value, and that unit is the interest of £33 6s. 8d. at 3 per cent, that being £1, and being paid in a Bank-note as money of account." The last definition of the standard of value which I shall quote is this: - "The standard is neither gold nor silver, but it is something set up in the imagination, to be regulated by public opinion."
Such were the absurdities into which ingenious men were betrayed, in the attempt to set up some other standard of value, more consistent with inconvertible paper than a metallic standard. It was supposed at that time that the doctrines propounded by the Bullion Committee were the visionary speculations of theorists, and were unknown in the former monetary history of this country. But that is not the case. Refer to every writer of eminence - to Mr. Locke, to Sir W. Petty, to any one who wrote before 1797, and who had not been familiar with inconvertible paper currency, and you will find they arrive at precisely the same conclusions with the Bullion Committee. Take the opinion of Mr. Harris, an officer of the Mint, and an eminent writer on the subject a century before the Bank Restriction Act: -
"In all countries (says Mr. Harris) there is established a certain standard both as to weight and fineness of the several species of those coins.
"In England, the silver monies are to contain 111 parts of fine silver, and 6 parts of alloy. That is, the pound troy with us contains 11 oz. 2 pennyweights of fine silver, and 18 pennyweights of alloy; and of a pound troy of this standard silver, our money pound contains 20/62 parts, that is to say a pound of this silver is coined into 62s. This standard has continued invariable ever since the 43rd Elizabeth .
"By the standard of money is always meant the quantity of pure or fine metal contained in a given sum. In England accounts are kept by the pound sterling, which is a certain quantity of fine silver appointed by law for a standard." (He was writing at a time when silver was the standard in England.) "All payments abroad are regulated by the course of exchange, and that is founded upon the intrinsic value, and not on the mere names of coins.
"We may break the public faith here, and curtail the long-established measure of property, but foreigners will make ample allowance for what we may do, and however we may rob and cheat one another, will secure themselves, and make an advantage of our discredit, by bringing the exchange against us beyond the part."
These are the true doctrines as to the measures of value, doctrines delivered one hundred years before the Report of the Bullion Committee was made, but in precise conformity with that Report. The truth of them is not, I fear, even now admitted. Publications daily issue from the press contesting it. Here is a volume published at Birmingham since the commencement of the present year, not the production, I presume, of a single author, for it professes to be written by Gemini. I have no wish to withhold justice from writers who gave that proof of their sincerity, which is implied by the publication of an octavo volume. And I admit at once, that I do not believe this work could have proceeded from any other town in the Queen's dominions than Birmingham, and that the efforts of no single writer are equal to the production of so much nonsense. This volume collects and repeats all the old exploded fallacies on the subject of the standard of value and the currency. Its authors bewail the darkness of the age which adheres to a standard which was adopted in the reign of Queen Elizabeth, and which they consider wholly unsuitable as a measure of value now, considering the extent of our commerce, and the increase of all pecuniary transactions in number and amount. They might with equal justice complain, that since travelling has been increased by the completion of railways, the foot measure is still adhered to. There is no better reason for making the sovereign pass for twenty-five shillings instead of twenty, than for making the foot consist of sixteen inches instead of twelve. They consider it absurd, that with the progress we have made in wealth and knowledge, we should still coin the ounce of gold into a sum represented by £3 17s. 10½d. "Coin the ounce of gold," say they, "into £5 and we shall then have relief from our burthens, and encouragement to industry and trade."
Now, let us consider what is meant by affixing to the ounce of gold a value, represented in coin by the sum of £3 17s. 10½d.? According to the regulations of the Mint, before the alteration of the silver coin in 1816, a pound weight of standard gold was coined into 44½ guineas; a pound weight of standard silver was coined into 62s.; and a guinea was made current for 21s. We are thus enabled to calculate the relative value of gold and silver according to the Mint regulations. The sum of 44½ guineas in gold, that is a pound of gold, was equivalent to 1,869 sixpences in silver, and the pound of silver being equal to 124 sixpences in coin, the value of gold was to that of silver, as 1,869 to 124, or as 159/124 to 1. The ounce of gold in coin was equivalent to the corresponding amount in silver, namely, the twelfth part of 1,869 sixpences, that is to say, to 155 sixpences and 9/12 of a shilling, or £3 17s. 10½d. There was, indeed, a small difference in the amount of alloy in a pound of coined gold and a pound of coined silver, for which it is necessary to make allowance, and that allowance being made,.the relative value of pure gold to pure silver in the coins of the two metals was as 152859/13460 to 1. Silver has ceased to be a standard of value, and the silver coin being now a mere token, the former relative value of gold coin to silver coin is not now preserved.
The above calculations explain our meaning when we say that the ounce of gold is coined into the sum of £3 17s. l0½d. These terms express the relation of gold and silver coin, according to the Mint regulations at the time that silver coin was made of standard silver. You may now enact, no doubt, that the ounce of gold shall be coined into £5 in money of account, that is to say, you may debase the standard to that extent. And what will be the effect of this? All debtors will no doubt gain by it. In the case of all unfulfilled contracts, he who has to receive payment will receive much less in point of real value than he stipulated for. The creditor will be defrauded - the debtor will have a corresponding advantage. But this will be the whole effect. No new transactions will be affected by your choosing to call an ounce of gold £5 As Mr. Harris says, you may cheat each other at home, but foreign countries will adjust their dealings with you, not on account of the name to be given to your coin, but according to its real value. All new contracts at home will be regulated by the same principle. The real and not the nominal value of that which is made by law the medium of exchange, will regulate prices and all future contracts. Even the relative value of gold and silver will not be adjusted by your laws. You may insist on coining the ounce of gold into £5 instead of £3 17s. 10½d., that is to say, into 200 sixpences instead of, as at present, into 155 sixpences; and fourpence halfpenny, but silver will disobey your law, and will insist on finding its own value in the market on principles which you cannot control. The Mint regulations do not, it is true, correctly express the present relative value of gold and silver in the bullion market. Silver is not worth 5s. 2d. an ounce, not more. I believe, than 5s. an ounce, and there would be an apparent present advantage to the debtor in taking silver rather than gold as the standard, since the relative value of gold to silver when standard-silver is 5s. per ounce, is 15.575 to 1, instead of 15285/1346 to 1.
But there is reason to doubt whether those who wish for a relaxation of the standard, and who, for the purpose of benefiting the debtor, recommend either a joint standard of silver and gold, or the substitution of silver for gold as the standard, would attain their object were either of those Measures adopted. There is reason to believe, adverting particularly to the rapid increase of the annual supply of gold from mines within the dominions of the Emperor of Russia, that the value of gold in the general markets of the world is on the decrease, and that the interest of the debtor would not be permanently advanced by the abandonment of gold for silver as the standard of value in the country.
But to revert to the errors of those who are the advocates of some measure of value other than the precious metals. They object to the selection of gold as the standard of value, because gold is an article of commerce, - because there is demand for it as bullion, affecting, therefore, its value as coin, and disqualifying it to be the measure of value. Now, no one contends that there is or can be an absolutely fixed and invariable standard of value. No one denies that the value of gold, with reference to all commodities, excepting gold itself, may be subject to slight variations. But what other substance is not more subject to variations in value than the precious metals? What other substance possessing intrinsic value will not also be in demand as an article of commerce? It is because gold is an article of commerce, because there are no restrictions upon its export or its import, that you can at all times depend upon such a supply of gold for the purposes of coin as may be sufficient for the wants of this country. The precious metals are distributed among the various countries of the world in proportion to their respective necessities, by laws of certain though not very obvious operation, which, without our interference, will allot to our share all that we require. Some entertain the apprehension that we may be drained of all our gold in consequence of a demand for gold from foreign countries, either for the payment of their armies in time of war, or in consequence of sudden and unforeseen demand for foreign corn for our own internal consumption. It is supposed that gold, being an article in universal demand, and having at all times and in all places an ascertained value, is more subject to exportation than anything else. But the export of gold, whether coin or bullion, is governed by precisely the same laws by which the export of any other article is governed. Gold will not leave this country unless gold be dearer in some other country than it is in this. It will not leave this country, merely because it is gold, nor while there is any article of our produce or manufacture which can be exported in exchange for foreign produce with a more profitable return, If gold coin be in any country the common medium of exchange; or if the promissory notes, which perform in part the functions of gold coin, are at all times and under all circumstances of equal value with gold, and are instantly convertible into gold; there are causes in operation which, without any interference on our part, will confine within known and just limits the extent to which gold can be exported. There may no doubt be temporary pressure from the export of gold, even when it is confined within those limits; but none for which you may not provide, none to which you would not be subject, in a higher degree probably, were any other standard of value adopted in preference to gold.
I have thus stated the grounds which justify the conclusion, that, according to the ancient monetary policy of the country, according to the law, according to the practice that prevailed at all times, excepting during the period of inconvertible paper currency, a certain quantity of the precious metals, definite in point of weight and fineness, has constituted, and ought to constitute, the measure of value. The minds of men, habituated during the Bank Restriction to a departure from that measure of value, were loath to admit those great elementary truths which are at the foundation of the whole system of currency, paper credit, and foreign exchange. Ingenious writers have from time to time laboured to prove the unsoundness of these doctrines, to show that a metallic standard was neither practically nor theoretically the measure of value in this country, and have cited various facts apparently irreconcilable with the theory. But when all the circumstances attending each fact have been fully stated, they have been sufficient to account for the seeming contradiction. When Sir Isaac Newton had established the planetary system on the principle of gravitation and attraction, there were phenomena apparently at variance with the theory. But succeeding philosophers, starting from the point which in the progress of science had been reached by Sir Isaac Newton, applying his principles with improved means of investigating truth, solved the doubts which he had not been able to solve, and showed that the apparent contradictions, when all the disturbing influences were taken into account, became in fact new demonstrations of the soundness of the original theory. And the same result has followed, and will follow, in the case of objections which have been, and will continue to be, urged against the principle of the metallic standard.
It must at the same time be admitted that it would be quite consistent with that principle to adopt some other measure of value than that which we have adopted. It would be consistent with that principle to select silver instead of gold as the standard, - to have a mixed standard of gold and silver, the relative values of the two metals being determined, - to dispense with gold coin altogether, and regulate the amount and value of paper currency by making it convertible only, according to the proposal of Mr. Ricardo, into gold bullion of a given minimum amount.
I trust, however, this House will adhere to the present standard, - will resolve on the maintenance of a single standard, and of gold as that standard. All the great writers on this subject, Sir William Petty, Mr. Locke, Mr. Harris, and Lord Liverpool, have been decidedly in favour of a single, in preference to a double standard. Mr. Locke, indeed, was of opinion that silver ought to be the standard; but there appears good ground to doubt the soundness of that opinion; and there are, at any rate, the most cogent reasons, since gold has been for a long course of years the standard in this country, for the continued maintenance of it. They are well stated in the admirable Treatise on Coins, (The Coins of the Realm was published in 1805), written by the first Lord Liverpool. In that treatise a system of coinage is recommended, which is in exact conformity, both in point of principle and detail, with the system which we have adopted. Lord Liverpool observes: -
"After full consideration of this extensive, abstruse, and intricate subject, I humbly offer to your Majesty, as the result of my opinion,
"First, That the coins of this Realm, which are to be the principal measure of property and instrument of commerce, should be made of one metal only.
"Secondly, That in this Kingdom the gold coins only have been for many years past, and are now, in the practice and opinion of the people, the principal measure of property and instrument of commerce.
" It has been shown that, in a country like Great Britain, so distinguished for its affluence and for the extent of its commercial connections, the gold coins are best adapted to be the principal measure of property; in this Kingdom, therefore, the gold coin is now the principal measure of property and standard coin, or, as it were, the sovereign archetype by which the weight and value of all other coins should be regulated.
"It is the measure of almost all contracts and bargains; and by it, as a measure, the price of all commodities bought and sold is adjusted and ascertained. For these reasons the gold coin should be made as perfect and kept as perfect as possible
"Thirdly. It is evident, that where the function of the gold coins as a measure of property ceases, there that of the silver coins should begin; and that where the function of the silver coins, in this respect, ceases, there that of copper should begin: it is clear, therefore, that so far only these silver and copper coins should be made legal tender and no further, at least not in any great degree; and it follows that the coins, both of silver and copper, are subordinate, subservient, and merely representative coins; and must take their value with reference to the gold coins according to the rate which the sovereign sets upon each of them."
These are, in fact, the principles which regulate our present coinage. We have a single standard, and that standard gold, - the metal which was practically the standard for many years previously to the suspension of cash payment. The silver coin is a mere token, auxiliary and subordinate to the gold coin; the ounce of silver being now coined into 66s. instead of 62s., and silver coin not being a legal tender for any greater sum than 40s. By the abolition, in this part of the United Kingdom, of the promissory notes below £5, you introduce the gold coin into general use for the purpose of effecting small payments; you enable the holder of the smallest note to demand payment in gold, and thus insure the maintenance of a very considerable quantity of gold as a part of the circulating medium. There is, no doubt, some expense in the maintenance of a metallic circulation, but none, in my opinion, sufficient to countervail the advantage of having gold coin generally distributed throughout the country, accessible to all, and the foundation of paper credit and currency. It is contended by some, that if you were to dispense with coin altogether, to adopt the principle of Mr. Ricardo's plan, (The noteworthy economist presented his plan in a pamphlet of 1816), and make bank notes not convertible into gold at the will of the holder, excepting when presented.to the amount of a very considerable sum (£300 or £400 for instance), and then convertible into bullion and not coin, you would provide a security against the effects of a panic connected with political causes, causing a sudden demand for gold. I very much doubt the policy of taking such precautions against such a contingency, and consider that the most effectual measure for promoting permanent confidence in the paper circulation of the country, is to require that the gold coin shall be in general use for small payments, and that the promissory note shall be of equal value with the coin which it professes to represent. I shall here close my observations on the measure of value and the coinage, and proceed to the more immediate subject for consideration, namely, the state of the paper circulation of the country, and the principles which ought to regulate it. ...
Permit me, before I conclude, briefly to recapitulate the outlines of the plan recommended by Her Majesty's servants. It is proposed that the Bank of England shall continue in possession of its present privileges - that it shall retain the exclusive right of issue, within a district of which sixty-five miles from London as a centre is the radius. The private banks within that district, which now actually issue notes, will of course be permitted to continue their issues to the amount of the average of the last two years. Two Departments of the Bank will be constituted: one for the issue of notes, the other for the transaction of the ordinary business of banking. The bullion now in the possession of the Bank will be transferred to the Issue Department. The issue of notes will be restricted to an issue of £14,000,000 upon securities - the remainder being issued upon bullion - and governed in amount by the fluctuations in the stock of bullion. If there be, under certain defined circumstances, an increase of the issues of securities, it can only take place with the knowledge and consent of the Government; and the profit derivable from such issue will belong to the public. Bankers now actually enjoying the privilege of issue, will be allowed to continue their issues, provided the maximum in the case of each bank does not exceed the average of a certain prescribed period. A weekly publication of issues will be required from every Bank of Issue. The names of shareholders and partners in all banks will be registered and published. No new Bank of Issue can be hereafter formed, and no Joint-stock Company for banking purposes can be established, except after application to the Government and compliance with various regulations which will be hereafter submitted to the consideration of Parliament.
I have now concluded the duty which I have to perform, and trust I have clearly explained to the House the principle and details of the plan which the Government proposes for the future regulation of the currency, and the grounds upon which it is founded. I ask for no vote tonight on the resolutions which I shall propose, pro forma, and, if I might give advice on such a subject, would recommend the postponement of discussion to a future day. Tomorrow the correspondence which has taken place with the Bank, explaining more in detail our communications with the Bank, and the nature of the pecuniary arrangements between the Bank and the Government, will be laid upon the Table. The knowledge of that correspondence is important as a preliminary to full and satisfactory discussion on the merits of our proposal. Considering the part which I took in the year 1819 in terminating the system of inconvertible paper currency, and in re-establishing the ancient standard of value, it will no doubt be a source of great personal satisfaction to me, if I shall now succeed, after the lapse of a quarter of a century since those measures were adopted, in obtaining the assent of the House to proposals which are, in fact, the complement of them, and which are calculated to guarantee their permanence, and to facilitate their practical operation.
But my gratification will be of a higher and purer nature than any connected with the satisfaction of personal feelings, if I may look forward to the mitigation or termination of evils, such as those which have at various times afflicted the country in consequence of rapid fluctuation in the amount and value of the medium of exchange. When I call to mind the danger to which the Bank of England has been exposed, the various effects of a sudden change from an overabundant to a contracted circulation, the reckless speculation of some of the Joint Stock Banks, the losses entailed on their shareholders, the insolvency of so many private banks, the miserable amount of the dividends which have in many cases been paid, the ruin inflicted on innocent creditors, the shock to public and private credit, then indeed I rejoice on public grounds in the hope, that the wisdom of Parliament will at length devise measures which shall inspire just confidence in the medium of exchange, shall put a check on improvident speculations, and shall ensure, so far as legislation can ensure, the just reward of industry, and the legitimate profit of commercial enterprise conducted with integrity and controlled by provident calculations. The right hon. Baronet concluded by moving -
"That it is expedient to continue to the Bank of England, for a time to be limited, certain of the privileges now by law rested in that Corporation, subject to such conditions as may be provided by any Act to be passed for that purpose."
 Peel explained that Parliament had the power, in terms of the Act of 1833, to reconsider the charter of the Bank of England, provided it did so within a few months. The state of the nation demanded, in his opinion, that Her Majesty's Government should accept this opportunity. He therefore asked members of the House to give consideration to the subject no matter what pressure should be applied to them by country bankers who feared curtailment of their existing privileges. [back]
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