CHAP. I. Currency. debts of the two countries ever stood to each other in the The greatest exertions had necessarily been made to meet the enormous charges which the war had occasioned. The customs duties had been increased; the stamp duties had been increased; additions had been made to the excise; and a new tax of ten per cent. on income had been instituted. These additions to the taxation of the State had materially augmented the resources at the disposal of the Government, but they had, at the same time, proved exceptionally burdensome to the taxpayer. The country groaned under imposts, to which nothing but the continuance of the war would have reconciled it, and longed for peace as the season at which some alleviation from the burdens of the war could only be anticipated. Additional taxation, however, was not the only burden which the war had occasioned. The I. income-tax swept one tenth part of every man's income CHAP. into the coffers of the State, but another measure, of much more consequence than the income-tax, reduced almost indefinitely the purchasing value of the residue. If a man enjoyed an income of 1,000l. a year, he knew that he was bound to contribute 100l. to the State, though the 1,000l. was, in itself, a totally different thing to the 1,000l. which he had enjoyed when the war commenced. The purchasing value of each pound was less than it had been formerly, because the pound represented no longer a piece of solid gold of known, recognised, and comparatively immutable value, but a piece of paper, issued on the credit of the Bank of England, inconvertible into gold, and varying in value with every ebb and flow in the tide of war, every storm that threatened a bad harvest, or every sunny day that promised a good one. The Bank of England, the most important establishment not merely in England but in the world, owes its foundation to the ingenuity of a Mr. William. Paterson, and to the serious want of William III.'s Government for money. Paterson lent the Government 1,200,000l., and, in return for the loan, obtained a charter incorporating the Governor and Society of the Bank of England. The charter was renewed on various occasions. The debt of the Government to the Bank was simultaneously increased, and at the commencement of the revolutionary war the capital of the Bank amounted to 11,642,000l., while the debt due to it by the Government amounted to 11,686,000l. In the meanwhile the Bank had received some privileges, and had passed through many vicissitudes. In 1708 Parliament restrained every other body, consisting of six or a greater number of persons, from borrowing, owing, or taking up any sum or sums of money on their bills or notes payable on demand, or in any less time than six months from the borrowing thereof. The Act effectually prevented the competition of any The Bank of Eng land. I. CHAP. Company enjoying more than six partners. If, however, the Bank of England enjoyed great privileges, it was occasionally exposed to serious difficulties In 1696, while Montagu and Newton were busily engaged with the reform of the coin, the Bank of England was compelled to suspend payment of its notes! In 1745, while the Pretender was advancing on London, the Bank, in order to gain time, was obliged to pay in shillings and sixpences! In 1793 a severe run on many private banks occasioned a prolonged drain for bullion on the Bank of England; and in 1797, the demand for specie abroad, the fear of invasion, the failure of many provincial banks, and the panic which in consequence prevailed, compelled the Government to prohibit the directors of the Bank from paying their notes in cash, and induced Parliament to continue the restriction till six months after the signature of a definitive treaty of peace.1 The suspension of cash payments, which was thus sanctioned in 1797, and which was continued for more than twenty years, constituted one of the most important events in the financial history of England. One school of writers has regarded it as the source of the prosperity which England subsequently enjoyed: another school has reprobated it with every degree of violence. The immediate results of the suspension of cash payments were not, however, striking. The Bank of England did not find it necessary to increase its issues very materially. The credit of the Bank was unshaken; and the public readily consented to take its paper, and to regard it of at least equal value with gold. For some years before the suspension of cash payments, the circulation of banknotes had rarely been less than 10,000,000l., and had on at least one occasion exceeded 14,000,000l. During the three succeeding years, the issue of bank paper was not increased; and the paper in consequence still continued 1 McCulloch, ad verb. Bank of England, for this section of the work. to maintain its value. A very large issue of notes was made for the first time in 1800. Nearly 17,000,000/ were in circulation, and the paper of the Bank fell to a discount of 8 per cent. Peace, however, ensued; the Bank slightly contracted its issues; its notes recovered their former value, and the subject escaped attention. The renewal of the war in 1803 necessitated increased issues by the Bank. The circulation steadily increased, and the value of the paper simultaneously declined. In 1810, when the famous Bullion Committee was appointed, some 25,000,000l. of paper was in circulation, and every 100l. of paper was only worth 86/. 10s. in gold. The depreciation of the bank paper affected different people in very different ways. A hundred pounds of paper being only worth 867. 10s., would obviously only purchase as much as 867. 10s. in gold would have procured. As a matter of fact it seems to be admitted that the purchasing value of the paper fell rather more rapidly than its value compared with gold. The price of gold rose more than the price of all other commodities. The merchant, it is thought, concluded that, when paper had already fallen in value, it might fall still further; and in taking it, therefore, for the commodity in which he dealt, discounted the possibility of its further depreciation. Whether this be so or no, it is certain that the rise in the value of other articles (corn for example) was far more marked than the fall in the value of bank paper. The landed classes experienced no inconvenience from this state of things. Corn having risen in value in a greater ratio than paper had fallen, a greater number of persons were tempted to grow corn. All these persons required land. An increased competition arose accordingly for farms, and the rent of land rose, and rose largely. The full effects of this change on the landed interest will be scen in a subsequent chapter. It is sufficient at this point to СНАР. I. CHAP. I. observe that the landowners, as a class, not merely did. not lose, but gained largely from the effects of the paper currency. If, indeed, as was frequently the case, the country gentleman's estate was mortgaged, the gain was even more marked The interest on his mortgage was paid in a depreciated currency; but the effect of the depreciation in the currency was to raise his rent. His creditors suffered while he gained from the change. The gain which the landowner enjoyed was shared in a lesser degree by the manufacturing and the trading classes. They paid the foreigner more for the goods, which they bought of him, but they charged their customers much more for the commodities which they sold to them. Like the landowners, they experienced no inconvenience from the depreciation in the currency. But the comparatively few people, who lived on fixed incomes, and the great mass of the nation, who were dependent on daily labour, were in a very different position. The wages of labour did not rise with the fall in the value of the currency, and therefore every labourer was worse off than before the The annuitant with a thousand a year had to pay 1007. in income-tax, and his remaining 900l. was practically only worth 750l. The labourer with nine shillings a week had his wages, to all intents and purposes, reduced to seven shillings and sixpence. war. The landowners and the manufacturers, however, paid comparatively little attention to the sufferings of annuitants or day labourers. Rents had never been so high, profits had never been so large, as during the continuance of the war. The manufacturing industries of the country had never previously experienced so marvellous a development. The hum of the workshop was heard in places which had previously only been disturbed by the whirr of the grouse; and new forces, undreamed of a century before, were employed to assist the progress of production. The trade of the United Kingdom acquired |