7.11 Notes

1. Frank W. Fetter, Development of British Monetary Orthodoxy 1797–1875 (Cambridge, Mass.: Harvard University Press, 1965), p. 122.

2. In ‘Currency Juggle’, Tait's Edinburgh Magazine (Jan. 1833). See Fetter, op. cit., note 1, pp. 14CM1.

3. Lionel Robbins, Robert Torrens and the Evolution of Classical Economics (London: Macmillan, 1958), pp. 245–6.

4. As we shall see below, the currency school was split on the issue of deposits as money: the simplistic insistence on notes as the only bank money being held by the majority led by George Warde Norman and Samuel J. Loyd (Lord Overstone), while the contrary and correct position was held by Sir William Clay and Colonel Robert Torrens.

5. William Gouge's main work was first published as A Short History of Paper Money and Banking (1833) in two separate parts, theoretical and historical. Most of the latter was reprinted in England, under the title The Curse of Paper Money and Banking, with an introduction, appropriately enough, by the great anti-bank radical, William Cobbett. Both parts were reprinted, virtually intact, in Gouge's own Journal of Banking (1841—42).

6 Henry Drummond was the eldest son of the banker Henry Drummond, and was born in Hampshire. He was raised by his maternal grandfather, Henry Dudas, Viscount Melville, and, during his childhood, became a favourite of William Pitt. Educated at Harrow and at Christ Church, Oxford, Drummond left college to become a partner at his father's bank in London. The aristocratic Drummond was a Member of Parliament from 1810 until he retired for ill health three years later. In the meanwhile, Drummond was able to put through Parliament an act outlawing the embezzlement by bankers of securities kept in their safe-keeping. Drummond founded the chair of political economy as Oxford in 1825, and at about the same time became the main leader, prophet and evangelist of the rising movement of pre-millennial millenarianism in Protestant Christianity. Drummond returned to Parliament from 1847 until the end of his life, there serving as a highly independent Tory, favouring war, government, and the ecclesiastical establishment. Drummond wrote many pamphlets on financial and on evangelical themes.

7 In his Letters to the Editor of the Times' Journal on the Affairs and Conduct of the Bank of England (1826), cited in Elmer Wood, English Theories of Central Banking Control 1819– 1858 (Cambridge Mass.: Harvard University Press, 1939), p. 110. Another hard-money writer in 1826 was the pseudonymous ‘Benjamin Bullion’, Letters on the Currency Question.

8 For an excellent discussion of the independent treasury programme and its two crucial parts, as well as of the Van Buren bankruptcy proposal, see Major L. Wilson, The Presidency of Martin Van Buren (Lawrence, Kan.: The University Press of Kansas, 1984), p. 73 and passim.

9. For Mushet, see Lawrence H. White, Free Banking in Britain: Theory, Experience, and Debate, 1800–1845 (Cambridge: Cambridge University Press, 1984), p. 62.

10. On Parnell, who has ben neglected by most historians, see ibid., pp. 62–3, and Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros., 1937), pp. 24–241.

11. George Poulett Scrope, An Examination of the Bank Charter Question (1833), p. 456. Also see Scrope, The Currency Question Freed from Money (1830), On Credit Currency (1830). The other articles in 1830 in the Quarterly Review were by Edward Edwards and H.A. Nilan. On Scrope, see Fetter, op. cit., note 1, pp. 137–8. White characteristically neglects the vital difference between Scrope's inflationism and hard-money writers in the free banking camp. White, op. cit., note 9, passim.

12. John Charles Spencer, Viscount Althorp (1782–1845), was born in London to an aristocratic family, the son of Earl Spencer. After studying at Harrow and Trinity College, Cambridge, Althorp received an MA from Trinity in 1802. Althorp was an MP for 30 years after 1804. First a supporter of Pitt, Althorp took a generally radical position in Parliament, battling against the leather tax and in favour of Catholic emancipation, and took his stand with the Whig opposition after 1815 in favour of reform, lower taxation, and cutting the budget. In 1830, Althorp refused the prime ministership, and took his place in the Grey ministry as chancellor of the Exchequer and leader of the House of Commons.

After his father's death in 1833, Althorp succeeded to his father's earldom as Lord Spencer, and withdrew from direct politics in the House of Commons. He continued to be influential, however, in favour of peace with France and repeal of the Corn Laws in the 1840s.

A Yorkshire landowner and cattleman, Althorp loved agriculture and hunting. He founded or helped to found the Yorkshire Agriculture Society, and the English Agricultural Society (1828), which later became the Royal Agricultural Society.

13. In Alexander Mundell, The Danger of the Resolutions Relative to the Bank Charter... (London, 1833). Cited in White, op. cit., note 9, pp. 67–8.

14. Robert Torrens, A Letter to the Right Honourable Lord Viscount Melbourne on the Causes of the Recent Derangement in the Money Market and on Bank Reform (London, 1837).

15. Cited in Lionel Robbins, Robert Torrens and the Evolution of Classical Economics (London: Macmillan, 1958), p. 89. Robbins, Torrens's biographer, admits his inability to explain Torrens's complete about-face on money and inflationism. Ibid., pp. 73–4.

16.The Causes and Consequences of the Pressure upon the Money-Market (London, 1837). Palmer (1779–1858), was the son of William Palmer of Essex, a London merchant, and mayor and high sheriff of Essex. An East India merchant and shipowner, John Horsley Palmer went into partnership with his brother in 1802. He was a director of the Bank of England from 1811 on.

17. In his Reflections Suggested by a Perusal of Mr. J. Horsley Palmer's Pamphlet (London, 1837). Loyd (1796–1883), later the first Baron Overstone, was the only son of a dissenting Welsh minister, the Rev. Lewis Loyd. Loyd's mother was a daughter of a Manchester banker, John Jones. Educated at Eton, and then receiving a BA at Trinity College, Cambridge, at the top of the list, in 1818, Loyd gained an MA from Trinity in 1822. By this time, the Rev. Loyd had left the ministry to become a partner in his father-in-law's bank, and then proceeded to found the London branch of Jones, Loyd & Co. In 1834, the bank merged into the new London & Westminster Bank. A successful banker, Samuel Loyd succeeded to his father's leadership in London & Westminster in 1844. Loyd died one of the richest men in England. He was made Lord Overstone in 1850.

18. Fetter, op. cit., note 1, p. 171.

19. Norman, Remarks Upon Some Prevalent Errors with Respect to Currency and Banking (London, 1838). Norman (1793–1882) was born in Kent; his father, George Norman, was a merchant in the Norway timber trade, and a sheriff of Kent. George Warde was educated at Eton, and joined his father in the Norway trade, spending many years in Norway. After his father's retirement in 1824, George Warde became sole owner of the business, until it was merged with another mercantile firm in 1830. George Warde Norman was a director of the Bank of England from 1821 until 1872, and was a member of the bank's treasury committee during the 1840s. Norman was founding member of the Political Economy Club, and was its last surviving original member.

Norman was a liberal devoted to free trade, and a close friend of the great philosophical radical, banker, and classicist George Grote. Norman was widely read in English, continental, Latin, and Norwegian literature.

20. The first two volumes were published in 1838, the third in 1840, and the fourth in 1848. Two later volumes appeared in 1857, near the end of Tooke's life, but they were largely written by his co-author William Newmarch.

21. John Fullarton, On the Regulation of Currencies (1844). Fullarton (1780–1849), son of a physician, went to India as a medical officer for the East India Company, and rose to become an assistant surgeon in Bengal for over a decade. While in India, he became a partner in the Calcutta banking house of Alexander and Co., and amassed a huge fortune, returning to London in the early 1820s. A founder of the Carlton Club, and author of several pro-Tory articles in the early 1830s, Fullarton, retired, now entered the fray on behalf of the banking school.

22. For Torrens's role in this and other economic discussions, including a full annotation of each one of his writings, see the delightful work by Lionel Robbins, Robert Torrens and the Evolution of Classical Economics (London: Macmillan, 1958), esp. Chapters IV, V, and the bibliographical appendix.

23. Oddly, Professor White chides Marion Daugherty for putting Smith in the ranks of the currency school rather than of the free bankers, even though White himself concedes four pages later that ‘The testimony of Manchesterites J.B. Smith and Richard Cobden [1840] revealed the developing tendency for adherents of laissez-faire, who wished to free the currency school from discretionary management, to look not to free banking but to restricting the right of issue to a rigidly rule-bound state bank as the solution’. White, op. cit., note 9, pp. 71, 75. See Marion R. Daugherty, ‘The Currency-Banking Controversy, Part I’, Southern Economic Journal, 9 (October 1942), p. 147. In particular, see Fetter, op. cit., note 1, pp. 175–6.

24. Years later, S.J. Loyd, the leader of the currency school, testified that he had never had any personal or political connection with Robert Peel. ‘I knew nothing whatever of the provisions of the Act until they were laid before the public. The Act is entirely so far as I know the Act of Sir Robert Peel.’ Torrens had no contact with Peel either, and indeed Peel turned down Torrens's request for office based on his leadership in the currency school. Only after Peel's death did Torrens receive a government pension ‘in consideration of his valuable contributions to the Science of Political Economy’. As for the veteran adviser James Pennington, his advice was only sought for technical details after the main provisions of Peel's Act had already been determined. Fetter, op. cit., note 1, p. 182n.

25. Boyd Hilton, ‘Peel: A Reappraisal’, Historical Journal, 22 (Sept. 1979), p. 614. Not that Hilton is sympathetic to Peel's determined role on the behalf of laissez-faire and hard money. On the contrary, he is appalled at Peel's ‘doctrinaire’ stance, an assessment unfortunately echoed by Professor White in his reference to Peel's ‘little-recognized dogmatism’. White, op. cit., note 9, p. 77n.

26. J.K. Horsefield, ‘The Origins of the Bank Charter Act, 1844’, in T.S. Ashton and R.S. Sayers (eds.), Papers in English Monetary History (Oxford: The Clarendon Press, 1953), pp. 110–11.

27. William Cotton (1786–1866) was the son of a naval captain, merchant, and director of the East India Company. At the age of 15, young William entered the counting house of his father's friend. By 1807, he had become partner in a London mercantile firm, and become general manager in that firm's cordage manufacturing plant. Cotton was a director of the Bank of England for 45 years, from 1821 until his death, and eventually became known as ‘the father of the Bank of England’. Cotton was governor of the bank from 1843 to 1845, and was succeeded by Heath. Cotton also invented a successful automatic machine for weighing gold sovereigns, and was a distinguished philanthropist in the Church of England. Cotton was born, and lived most of his life, in the county of Essex, where he became justice of the peace, judge and sheriff.

28. Morris Perlman has pointed out that James Mill, in a book review in 1808, developed an extreme version of the real bills banking school doctrine. In that case, James Mill was never a Ricardian in this area, and John Stuart may have been exercising his filio-pietism in bringing back his father's monetary views, as well as Ricardianism in the rest of economics. Morris Perlman, ‘Adam Smith and the Paternity of the Real Bills Doctrine’, History of Political Economy, 21 (Spring 1989), pp. 88–90.

29. See White, op. cit., note 9, pp. 122–6.

30. Ibid., p. 79.

31. So much for James Gilbart's alleged devotion to free banking, years before his surrender to Peel's Act.

32. See the interchange in Hilton, op. cit., note 25, pp. 593–4. It is characteristic of Professor Hilton's lack of insight into economic theory that he brands Peel's questioning as ‘inept’ and faults him for scoffing at the importance of Gilbart's ‘personal knowledge’ when judging inconvertible flat money.

33. Cited in Fetter, op. cit., note 1, p. 193.

34. White, op. cit., note 9, p. 80. Thus the Scottish devotion to their vaunted free banking system turned out to be mainly special pleading. Much of White's book is devoted to the thesis (a) that until Peel's Act of 1845, Scotland enjoyed a regime of free banking uncontrolled by the Bank of England, with liabilities convertible into gold; and (b) that this free system worked far better than England's central bank-dominated one.

But both parts of this thesis are deeply flawed. On (b) White confines his evidence of superiority to the lower bank failure rate in Scotland. But bank failure is a minor way to gauge the workings of a banking system. White presents no data whatever on whether Scotland suffered any less economic inflation or recession than England. One suspects, then, in the absence of data, that the economic record was about the same for the two parts of the United Kingdom. On (a), the problem is that Scottish banking was scarcely ‘free’. Most Scottish bank reserves were kept, not in gold, but in deposits at the Bank of England, or in its surrogate, bills on London. Scottish banks, then, far from being free and independent of the Bank of England, pyramided on top of bank liabilities. Furthermore, the bank habitually bailed Scottish banks out in time of trouble. To top off the argument, the realities were that it was very difficult, both socially and legally, for anyone to actually obtain gold from the Scottish banks in exchange for their liabilities – especially in times of trouble when the gold, of course, was in particularly great demand.

On Scottish banking in this era, see in particular the definitive work of Sydney G. Checkland, Scottish Banking: A History, 1695–1973 (Glasgow: Collins, 1975). Checkland writes that ‘Requests for specie met with disapproval and almost with charges of disloyalty’, and ‘the Scottish system was one of continuous partial suspension of specie payments. No one really expected to be able to enter a Scots bank... with a large holding of notes and receive the equivalent immediately in gold or silver. They expected, rather, an argument, or even a rebuff. At best they would get a little specie and perhaps bills on London. If they made serious trouble, the matter would be noted and they would find the obtaining of credit more difficult in the future’. And finally, ‘This legally impermissible limitation of convertibility, though never mentioned in public inquiries, contributed greatly to Scottish banking success’. Ibid., pp. 184–6. Also: ‘the principal and ultimate source of liquidity lay in London, and in particular in the Bank of England’. Ibid., p. 432. Also see Charles W. Munn, The Scottish Provincial Banking Companies 1747–1864 (Edinburgh: John Donald, 1981), and Charles A. Malcolm, The Bank of Scotland, 1695–1945 (Edinburgh: R. & R. Clark, n.d.). On the Scottish free banking question, see Murray N. Rothbard, ‘The Myth of Free Banking in Scotland’, The Review of Austrian Economics, 2 (1988), pp. 229–45; Larry J. Sechrest, ‘White's Free-Banking Thesis: A Case of Mistaken Identity’, Ibid., pp. 247–57.

35. Wilson, son of William Wilson, a prosperous woollen manufacturer, was educated in a Friends' school and, at the age of 16, was apprenticed to a hat manufacturer. Soon, his father bought the firm for James and his brother. In 1824, Wilson came to London, and became a partner in a mercantile firm which, after 1831, became James Wilson & Co. After losing a great deal of money in indigo speculation, Wilson retired from business in 1844. In the meanwhile, he had become interested in economics and free trade, and had published several tracts on commerce and the Corn Laws. Wilson's writings strongly influenced such later free trade stalwarts as Peel and Gladstone. Finally, Wilson founded The Economist in 1843, writing almost all of the copy himself, and forged it rapidly into a highly influential journal. Wilson became an MP from 1847 to 1859, and was also financial secretary to the Treasury during the 1850s. Under the Palmerston regime in 1859, Wilson became vice-president of the Board of Trade, paymaster-general, and a Privy Councillor, and then, just before his death, was sent to India as finance minister, where he proceeded, ironically enough, to increase taxes and to issue a great quantity of government paper.

36. Fetter asserts that Torrens ‘never could have said of Wilson's ideas, as he did of Tooke's, ‘that the flood-gates are opened, and the landmarks removed’.’ Fetter, op. cit., note 1, p. 200.

37. See Lloyd Mints, A History of Banking Theory in Great Britain and the United States (Chicago: University of Chicago Press, 1945), p. 90.

38. A few years later, in his Principles of Political Economy, Mill became sympathetic to freedom of bank note issue, but on general laissez-faire rather than specific monetary and banking grounds.

39. William Cotton, of the Bank of England, thought that the suspension came too soon, and John R. McCulloch thought it of doubtful value, but no currency man attacked the suspension, or even gave any sign of comprehending the significance of the suspension question.

40. These epigones included Charles Neate, a professor at Cambridge who published his lectures, Two Lectures on the Currency (1850); R.H. Mills, a professor at Trinity College, Dublin, in his The Principles of Currency and Banking, in the mid-1850s; John Inchbald's The Price of Money (1862), and the popular tract by George Combe, The Currency Question Considered (1856), which was hailed by the London Times and went through six editions within one year.

41. The book consisted of the nine 1845 articles on Peel's Act, plus later essays.

42.The Petition of the Merchants, Bankers and Traders of London Against the Bank Charter Act: with Comments on Each Clause (London, 1847).

43. Quoted in Fetter, op. cit., note 1, p. 208.

44. Ibid., p. 216. Fetter wittily describes the feelings of the Banking School and the other anti-Peel Act gold men vis-à-vis the threat from the Birmingham school: ‘The situation is suggestive of the attitude that tradition associates with the Duke of Wellington – he had no fear of the enemy, but the very thought of his allies filled him with terror’. Ibid.

45. Vera C. Smith, The Rationale of Central Banking (1936, Indianapolis: Liberty Press, 1990), p. 94.

46. Ibid., p. 108.

47. From Henri Cernuschi, Contre le Billet de Banque (1866), Cernuschi's testimony before the massive French government's bank inquiry of 1865–66. Translated by Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), p. 443.

48. Victor Modeste, ‘Le Billet Des Banques D'Emission Est-Il Fausse Monnaie?’ (‘Are Bank Notes False Money?’), Journal des Économistes, 4 (Oct. 1866), pp. 77–8. (Translation mine.)

49. Smith, op. cit., note 45, pp. 115–16.