6. Monetary and banking thought, II: the bullion Report and the return to gold

6.1 Ricardo enters the fray

6.2 The storm over the bullion Report

6.3 Deflation and the return to gold

6.4 Questioning fractional-reserve banking: Britain and the US

6.5 Monetary and banking thought on the Continent

6.6 Notes

6.1 Ricardo enters the fray

The bullionist controversy sank into oblivion for five years after 1804, largely because a cautious policy on the part of the Banks of England and Ireland temporarily abated the monetary inflation and its unwelcome consequences. Then, during 1809, the heating up of the war with Napoleon rekindled the inflation, bank note circulation increasing from £17.5 million in November 1808 to £19.8 million the following August. Consequently, the pound rapidly depreciated by the Summer, to a discount of 20 per cent on foreign exchange at Hamburg, and to a 20 per cent rise in the market price of gold (at 93 shillings/ounce) over the official mint par of 77s. 10¹/₂d. per ounce. It was time for the bullionist controversy to heat up again.

David Ricardo was first and foremost a monetary economist, and, as Professor Peake has reminded us, his focus on money remained a key to the entire body of his economic thought.¹ Ricardo had come upon The Wealth of Nations in 1799, and had steeped himself in political economy ever since, his practical life as a wealthy young stock- and bond-broker naturally leading him to emphasize monetary affairs. The rapidly growing depreciation of the pound in 1809 led Ricardo to his first published works on economics, beginning with a letter on the ‘Price of Gold’ in the Morning Chronicle (29 August).

Ricardo's letter made a great impact, particularly by his unique blend of hard-core theorizing and impressive command of the empirical and institutional facts of the monetary scene. His first letter to the Morning Chronicle was followed by two more, with the letters being shortly expanded into a renowned and highly influential work – Ricardo's first book – The High Price of Bullion, a Proof of the Depreciation of Banknotes (the point is summarized in the title), published at the beginning of 1810. The High Price went into no less than four editions by the following year.

The various positions in the bullionist controversy had been set during the first phase of the debate (1800–4). It was Ricardo's intention to revive and establish the bullionist position, not only against the anti-bullionists, but more importantly against the more respected and influential moderate anti-bullionist doctrine of Henry Thornton. Thornton was the most important theoretical opponent of bullionism, and so Ricardo set out to take up the cudgels for Lord King, although, in doing so, he unfortunately – as we shall see – reverted to and elaborated the rigid and mechanistic approach of John Wheatley.

It was Thornton, however, who was his leading opponent, and Ricardo set out to convert him; as he wrote in High Price:

Mr. Thornton must, therefore, according to his own principles, attribute it [the premium on gold bullion] to some more permanent cause than an unfavourable balance of trade, and will, I doubt not, whatever his opinion may formerly have been, now agree that it is to be accounted for only by the depreciation of the circulating medium.

In the course of the High Price, Ricardo set forth clearly the important point that there is no such thing as a shortage of specie or a great need for more of it: that, in effect, any level of the money supply is optimal:

If the quantity of gold or silver in the world employed as money were exceedingly small, or abundantly great... the variation in their quantity would have produced no other effect than to make the commodities for which they were exchanged comparatively dear or cheap. The smaller quantity of money would perform the functions of circulating medium as well as the larger.

As soon as the High Price was published in January 1810, Ricardo, hitting on the right tactic to spread his views, sent a copy to that leading moderate and influential MP, on monetary questions, Francis Horner. The effect on Horner was electric, and he was moved, the following month, to introduce -and get passed – a resolution in the House of Commons setting up a select committee to enquire into the cause of the high price of bullion. The justly famed ‘bullion committee’ of 22 illustrious MPs, chaired by Horner, issued its report in June 1810, recommending the bullionist policy of a return to the gold standard in two years' time. The bullion committee Report touched off an intense controversy, within Parliament and in the general pamphlet literature over the following year.

David Ricardo had partially accomplished his objective of converting Henry Thornton, who was perhaps the most influential member of the bullion committee and who co-wrote its Report, along with Horner and William Huskisson. Characteristically, it was not Ricardo's bullionist theory that had swayed Thornton, but the impressive marshalling of evidence that convinced him at long last that this particular inflation and depreciation were being caused by over-issue of Bank of England notes. Thornton, in short, had joined his disciple Horner before him in remaining a moderate, but in being converted from anti-bullionist to bullionist on empirical grounds.² In the parliamentary debate on the bullion Report in May 1811, Thornton conceded that the idea of poor harvests and subsidies to foreigners being the cause of the depreciation ‘was an error to which he himself had once inclined, but he stood corrected after a fuller consideration of the subject’.

Thornton's conversion was all the more remarkable because his own bank was financially tied to the fiat expansion of bank credit; and the mere issuance of the Report, even though it did not carry the day in Parliament, was enough to cause a minor run on Thornton's bank. Furthermore, a period of difficulties that were never fully overcome now set in for the bank until it finally failed in 1825, ten years after Thornton's death. Thornton's conversion, however, was only empirical. Thus, in the course of the debates on the bullion Report, he still brought up the bogy of deflation, and suggested that the pound be devalued to its existing market levels in order to ward off a deflation when resumption finally arrived.

Since Ricardo's main focus was combating the views of Henry Thornton, it is not surprising that he overreacted, and, instead of adopting the complete, sophisticated bullionism of Lord King, went on to the rigid and mechanistic doctrines of John Wheatley. In particular, in order to rebut Thornton completely, Ricardo believed that the dispute had to be elevated totally to the theoretical plane, so that he felt forced to maintain that only monetary factors, even in the short run, could ever have any influence whatever on prices or exchange rates. Money, Ricardo felt obliged to maintain, is ever and always, even in the short run, totally neutral to the rest of the economy, to everything, that is, except overall prices. As Professor Peake puts it:

In large part, Ricardo's early works represented a reaction to Henry Thornton's non-neutral monetary economics, and in challenging Thornton's views, Ricardo committed himself to an explanation of output, value, and distribution in real terms consistent with neutral money.³

To accomplish his impressive if unbalanced task, David Ricardo had to concentrate exclusively on long-run equilibrium states, and to ignore the market processes towards them. In that way, Ricardo set the stage for his later approach to all economic questions.⁴ Ricardo summarized his methodology in the course of his famous correspondence with Thomas Robert Malthus on monetary questions from 1811 to 1813: ‘You always have in mind the immediate and temporary effects...[I] fix my whole attention on the permanent state of things which will result from them’.⁵

For money to be strictly neutral to everything except a general level of prices, Ricardo had to assert a strict, radical dichotomization between the monetary and the real worlds, with values, relative prices, production and incomes determined only in the ‘real’ sphere, while overall prices were set exclusively in the monetary sphere. And never the two spheres could meet. And here began the fateful and all-pervasive modern fallacy of a severe split between two hermetically sealed worlds: the ‘micro’ and the ‘macro’, each with its own determinants and laws. Furthermore, as Salerno writes, ‘it was Ricardo's strong affirmation of the neutral-money doctrine in his bullionist writings that was to serve as the source of the classical conception of money as merely a “veil” hiding the “real” phenomena and processes of the economy’.⁶ In particular, if money is neutral, then value, or relative prices, had to have only ‘real’ determinants, which Ricardo discovered in embodied quantities of labour.

In the macro area, in contrast, Ricardo set forth a mechanistic, strictly proportional causal relation between the quantity of money and the level of prices, a strictly proportionate ‘quantity theory of money’. Again, Peake summed it up very well:

Theoretically, Ricardo challenged Thornton by developing a strict quantity-theory, neutral-money analysis which resulted in his well-known dichotomization of the economy into goods and money sectors, with no role for money other than to determine the general level of prices. Analytically, this required him to convert Thornton's model into a dichotimized model... by demonstrating real-market equilibrium independent of the money market. A fundamental theme linking all of Ricardo's later works is the continuing search for neutral money.⁷

Thus Ricardo writes that

The value of the circulating medium of every country bears some proportion to the value of the commodities which it circulates... No increase or decrease of its quantity, whether consisting of gold, silver, of paper-money, can increase or decrease its value above or below this proportion. If the mines cease to supply the annual consumption of the precious metals, money will become more valuable, and a smaller quantity will be employed as a circulating medium. The diminution in the quantity will be proportioned to the increase of its value.

The value of inconvertible paper money, declared Ricardo, becomes determined in the same way. Hence, under any restriction of specie payment,

any excess of [Bank]... notes would depreciate the value of the circulating medium in proportion to the excess. If twenty millions had been the circulation of England before the restriction... and if the bank were successively to increase it to fifty, or a hundred millions, the increased quantity would be all absorbed in the circulation of England, but would be in all cases, depreciated to the value of the twenty millions.

Under inconvertible currency, furthermore, strict proportionality then gets carried over to the determination of exchange rates. Like Wheatley, Ricardo concluded that only monetary factors ever determine the exchange rate and hence that the depreciation of the exchange rate must precisely measure the extent of monetary inflation and of the over-issue of paper money. In the same way, and to the same precise proportion, the rise in the price of bullion, and the rise in prices of commodities, will also reflect the selfsame over-issue and depreciation.

David Ricardo's arrival on the monetary scene brought him into the first rank of bullionist champions, not because of anything original he had to say, but because of his empirical knowledge of money, his grasp of the literature, and his willingness to refute in detail the arguments of the numerous distinguished men of the anti-bullionist Establishment ranks. Thus, in the course of the storm over the bullion Report (see below), Charles Bosanquet (1769–1850), a London merchant governor of the South Seas Company, as well as a son of a former governor of the Bank of England, wrote a pamphlet attacking the Report, sneering at it from the point of view of a ‘practical man’ scoffing at wild and irrelevant theorists (in his Practical Observations on the Report of the Bullion Committee, two editions in 1810). Bosanquet's pamphlet drew a famous Reply to Mr. Bosanquet's Practical Observations (1811) by Ricardo the following year. Ricardo's pamphlet was a brilliant and effective polemic, in which he marshalled an impressive array of empirical data in the course of a lofty defence of high (and mechanistic) theory as against the dim-wittedness of self-proclaimed ‘practical men’. The Reply was particularly effective because Ricardo could match Bosanquet in realistic, practical knowledge, a ploy which led many people to overlook the strident unrealism of his theoretical apparatus.

In sum, Jacob Hollander rightly explained Ricardo's influence on behalf of bullionism, not as the result of any original contributions, but

because, not content with restating a positive theory, Ricardo set up in succession and demolished in turn, sometimes completely, always plausibly, every opposed argument in a written criticism or current opinion... A theory which had a dignified parentage was refurbished, defended from doctrinal attacks, justified by contemporary events, vitalized by urgent timeliness, and vindicated against current criticism. A standard was planted, the field cleared, and an alert and resourceful champion held the lists.⁸

But even at this early date, the hard-money champion was beginning to buckle and if not abandon at least to flounder in the cause. For in his reply to Malthus's review of The High Price in the Edinburgh Review, reprinted as an appendix to the fourth edition, Ricardo advanced a plan for ending the restriction that abandoned the heart of the gold standard. Specifically, he proposed that the pound sterling be redeemable in gold bullion rather than in coin. But a gold bullion standard means that the average person cannot redeem paper money in a commodity medium of payment, and that gold redemption is confined to a handful of wealthy international financiers. Ricardo's desertion of the gold coin standard was motivated, first, by a Smithian desire to ‘economize’ on the gold metal, and more prominently, by a fear of deflation that was conspicuously inconsistent with his dismissal of all non-price-level effects of changes in the supply of money. In this phobia about deflation, and in this inconsistency, Ricardo followed his mentor in mechanistic bullionism, John Wheatley.

In addition to Francis Horner, another person inspired by Ricardo's reawakening of the bullion controversy was Robert Mushet (1782–1818). A Scotsman born near Edinburgh, young Mushet had entered the service of the Royal Mint in 1804, and by the time of the new controversy, had risen to the post of first clerk to the master of the Mint. Mushet's An Enquiry into the Effects Produced on the National Currency and Rates of Exchange, by the Bank Restriction Bill, came out early in 1810, before the appointment of the bullion committee, and went quickly into three editions. Mushet was able to add his expertise at the Royal Mint to the hard-core bullionist cause.

6.2 The storm over the bullion Report

Although Francis Horner, who formed and chaired the famed bullion committee, was a Whig, the committee itself was scarcely stacked against the Tory government. On the contrary, the committee's 22 members included seven Whigs, seven clear-cut Tories, including even the prime minister and chancellor of the exchequer Spencer Perceval,⁹ and eight, including Thornton and Alexander Baring of the renowned banking family, who were independents friendly to the Tory administration. Of the co-authors of the Report, Thornton was still considered at the time of appointment of the committee perhaps the leading defender of bank restriction, and William Huskisson (1770–1830) was a leading Tory MP of the Canning wing of the party, who had been a member of the Tory government for several years until 1809.¹⁰ The modal committee member may be summed up as a thoughtful Tory, a supporter of the restriction now troubled by the developing inflation and depreciation of the pound. While David Ricardo was acquainted with Thornton –both had been co-founders of the London Institution and its library in 1805 –his only close friend on the bullion committee was another London Institution co-founder Richard Sharp (1759–1835), a Whig and West Indies merchant.¹¹ The only member of the committee who shared Ricardo's bullionist hostility to the Bank of England was Henry Brooke Parnell. Indeed, Thornton's presence on the committee and support for the Report in Parliament shocked the anti-bullionists and led his wife to offer embarrassed explanations to their friends.¹² Frank W. Fetter summed it up clearly when he wrote that

The position of Thornton and Huskisson in the Bullion Committee and in their subsequent defence of its Report was taken more in sorrow than in partisanship. It was the outgrowth of their increasing concern over the apathy of the Government and the Bank about the condition of the foreign exchanges and the bullion market, and over the support by the Bank and the Government spokesmen for the ‘real bills’ doctrine in its most extreme form, i.e., that as long as the Bank's advances were made only on sound commercial assets the amount of the advances could have no effect on prices or the foreign exchanges.¹³

Most important, the bullion Report itself was neither Kingian nor Ricardian, but squarely in the Thornton-Horner moderate bullionist camp. Its support for bullionism, in short, was empirical rather than theoretical, concluding reluctantly but firmly that the facts were such that the bank restriction and the bank's monetary inflation had played a large role in the existing inflation and depreciation of the pound sterling. Thornton himself only supported the committee's call for resumption of specie payment in protest at the failure of the bank and government to be chastised and to agree to restricting further issuance of money. As for Ricardo, he only became the leading champion of the committee after the policy conclusions of its Report supported his call for resumption of payment in specie.¹⁴ Indeed, Malthus, in his defence of the Report, hailed the committee for taking his own moderate stance rather than adopting the Ricardian ‘error’ of holding a solely monetary explanation of the depreciation.¹⁵

The Report was approved in the full bullion committee by a vote of 13 to 6, and was submitted to Parliament on 8 June 1810.¹⁶ While Prime Minister Perceval was one of the six voting nay – along with his paymaster-general and deputy governor of the bank – there was at first no indication of deep hostility on the part of the administration. Indeed, the Tory press commented favourably on the Report when it was first issued. In a few months, however, the administration reversed its course. The best evidence suggests that a command decision was made by the government and the Bank of England in late August or early September to launch an all-out assault upon the bullion Report. Leading the battle in Parliament for the government was Nicholas Vansittart (1766–1851), many times secretary to the treasury and soon to be chancellor of the exchequer.¹⁷ In the 1809 debate on resumption of specie payment, Vansittart had coined the patriotic if irrelevant and absurd argument that the ‘national resources’ of the country sufficed for backing the currency so that there was no need for gold. In the bullion Report debate, Vansittart pushed a spectrum of anti-bullionist arguments: first, that immediate resumption was, as usual, inexpedient: second, that the restriction had nothing whatsoever to do with the depreciation of the pound; and third, that Bank of England notes were esteemed every bit as highly as gold coin – an assertion so preposterous and so out of tune with the facts as to bring down upon him open ridicule by George Canning, the leader of a Tory faction out of power.

Masterminding and orchestrating the campaign against the bullion Report for Perceval and Vansittart were four shadowy aides and advisers. One was John Charles Herries (1778–1855), son of a London merchant and long-time treasury official, at this time private secretary to the chancellor of the exchequer, and a past and future top financial adviser of Tory leaders. He was himself to be a chancellor of the exchequer in later years. A second figure was Henry Beeke, professor of modern history at Oxford, friend of Vansittart, and prominent advisor of Tory politicians. A particularly mysterious but influential colleague was Jasper Atkinson (1761–1844), about whom little is known except that he was for a quarter-century an official adviser to the government and to the bank, and wrote 13 pamphlets from 1802 to the late 1820s in support of governmental and bank policy. It seems that he was a country banker and active in trade with Holland. He of course published a pamphlet in opposition to the bullion Report. Atkinson prepared the pamphlet at the instigation of Herries, and was assisted by his old friend and advisor Henry Beeke.

Perhaps even more curious was the leading role of a Genevan refugee, Sir Francis D'lvernois, friend of Vansittart, who had been a British secret agent in Europe, and had been a confidential advisor to the British government on relations with France. It was D'lvernois who first waved the bloody shirt against the bullion Report by dragging into the debate the palpably false charge that the Report had given aid and comfort to the Napoleonic enemy, had stimulated Napoleon to strengthen his embargo measures against Great Britain, and had emboldened the United States to take a nasty turn toward England. This effective if mendacious red herring was taken up in Parliament by Vansittart and by a leader of the Anglo-Irish Establishment, Robert Stewart, Viscount Castlereagh, the marquis of Londonderry (1769–1822).

Indeed, the major parliamentary motif of the critics of the Report was that the restriction was vital for pursuing the war effort against France. Prime Minister Perceval charged that adopting the Report ‘would be tantamount to a declaration that they would no longer continue those foreign exertions which they had hitherto considered indispensable to the security of the country...’. If Parliament should adopt the Report and its policies, Perceval thundered, they ‘would disgrace themselves forever, by becoming the voluntary instruments of their country's ruin’. Ringing changes on this wartime necessity, stab-in-the-back theme were Viscount Castlereagh; the High Tory foreign secretary and war secretary Robert Banks Jenkinson, the earl of Liverpool (1770–1828); and the treasurer of the navy and former secretary to the treasury, George Rose (1744–1818), who also contributed two pamphlets to the controversy. Rose was the highest of High Tories, a friend of King George III, an opponent of parliamentary reform, an extreme pro-war advocate, a supporter of the Corn Laws, and an adversary of the abolition of slavery.

In late 1810 and early 1811, a host of pamphlets were published attacking the bullion Report, and many of them, both signed and anonymous, were products of the behind-the-scenes campaign of the governmental and bank circles. In addition to Atkinson's pamphlet, Herries weighed in with an anonymous tract, A Review of the Controversy Respecting the High Price of Bullion, and the State of our Currency. Charles Bosanquet's Practical Observations, rebutted by Ricardo, was another product of this campaign. Particularly important in this effort was the publication of a speech by a prominent attorney, Randle Jackson (1757–1837), which purported to be the views of a concerned bank stockholder.¹⁸ In reality, Jackson was apparently hired by the bank to present its case sub rosa against the Report. Jackson presented the state-of-the-art critiques by the government: the Report had greatly injured commercial credit, the committee was dominated by chronic oppositionists to the government, and it is impossible for bank notes ever to be excessive or to have higher prices than par because they were issued only against ‘value received’ – a non sequitur if there ever was one.

Indeed, the main economic arguments of bank spokesman before the bullion committee and in the parliamentary debates, by men such as Governor John Whitmore and Deputy Governor John Pearse, were an extreme, almost absurd, version of the real bills doctrine: namely, that if bank loans were issued on short-term ‘bills of real value, representing real transactions’, then bank note issue can never be excessive, and never have any inflationary or depreciating effect on the pound. Walter Bagehot was later to call these arguments ‘almost classical by their nonsense’.

Perhaps the acme of this nonsense was the pamphlet of the Tory commissioner of audit, Francis Perceval Eliot (c. 1756–1818), who went so far as to maintain that the problem with Huskisson's argument was that he considered the gold guinea to be the standard of value, whereas it is actually the pound sterling. According to Eliot, the pound, precisely because it is fiat money, is the ideal money of account because it is by definition ‘invariable’ in value. On the other hand, Eliot opined, gold or silver, being made of a substantial commodity, must be variable in value.

Meanwhile, a different kind of critic of the Report appeared prominently in the pamphlet literature and in Parliament. The eccentric Sir John Sinclair (1754–1835), first and also current president of the board of agriculture, was born to a Scottish noble family and was educated at the universities of Edinburgh and Glasgow, graduating from Trinity College, Oxford in 1775. An MP from 1780 until 1811, Sinclair was a man of great energy and enthusiasm, and a prolific writer in the causes he held dear. In his lifetime, Sinclair published no less than 367 tracts and pamphlets. An advocate of parliamentary reform, Sinclair championed the cause of peace and wrote several pamphlets attacking Pitt's war policy, and calling for peace with England's enemies. He even went so far as to publish a booklet calling for Britain's surrender of Gibraltar to Spain during the American revolutionary war. Sinclair's prime enthusiasm was for agriculture, an art he learned from managing his Scottish estates. Not only was he the first president of the board of agriculture, but he also founded the British Wool Society.

Sinclair was also engrossed in statistical and monetary and fiscal questions. An indefatigable collector of statistics, Sinclair actually introduced the words ‘statistics’ and ‘statistical’ into the English language, and during the decade of the 1790s, he collected and published, in 21 volumes, a Statistical Account of Scotland. More relevant to our concerns, Sinclair had published, from 1785–90, a three-volume History of the Public Revenues of the British Empire. In this work, Sinclair had displayed a determined and all-out zeal for monetary inflation and government spending. As soon as the bullion Report was issued, Sinclair wrote to Prime Minister Perceval, asking help for reprinting his work, as part of the task of rebutting the bullion committee. ‘You know my sentiments regarding the importance of paper Circulation’, he wrote to Perceval, ‘which is in fact the basis of our prosperity’. In fact, Sinclair's Observations on the Report of the Bullion Committee, published in September 1810, was the very first of many pamphlet attacks on the bullion Report.

A storm of pamphlets raged over the bullion Report, hoping to influence the parliamentary decision as well as the tides of public opinion. David Ricardo was a host unto himself; in the month of September 1810 alone Ricardo, in the Morning Chronicle, defended the conclusions of the Report, taking of course the hard-core Ricardian line, attacked the pamphlet of Sir John Sinclair, and also denounced the speech of Randle Jackson, which Ricardo, as a bank stockholder, had heard delivered in person. Malthus wrote two effective articles in the Edinburgh Review the following year, taking the Thornton-Horner moderate bullionist position.

Particularly effective defending the Report was the Canning-Huskisson faction of Tories, centred in their journal the Quarterly Review. As firm Tories, the support of this faction shielded the bullion committee from charges of Whig partisanship. The most widely circulated and one of the most influential pamphlets supporting the Report was written by its eminent co-author, William Huskisson. Huskisson's The Question Concerning the Depreciation of our Currency Stated and Examined was published in late October 1810 and went into no less than eight editions in rapid succession – the ninth appearing in 1819. The Quarterly Review carried on a coordinated campaign on behalf of the Report, with contributions by high Tory George Ellis (1753— 1815)¹⁹, Huskisson, and even the great George Canning himself. It is not without charm that William Huskisson contributed some passages to Ellis's laudatory review of Huskisson's own pamphlet in the Quarterly Review.

All in all, about 90 pamphlets were published in a short period on both sides of the great Bullion controversy. The climax came in May 1811, when Parliament finally got around to debating the Report. After four days of debate, all Francis Horner's resolutions incorporating the essence of the Report went down to a ringing defeat. The most important resolutions were his first and his last. The first outlined the responsibility of the bank's over-issue for the price inflation and the depreciation of the pound; this resolution was defeated by a vote of 151–75. Horner's final resolution, providing for resumption of the gold standard in two years, lost by a far wider margin, 180–45. Nicholas Vansittart then rubbed it in for the government, getting Parliament to pass resolutions defending the government's and the bank's view of the controversy. Most characteristic was Vansittart's third resolution, restating the ‘classic nonsense’ in a declaration almost as fatuous as King Canute's command to the tides or a state legislature's redefinition of pi. Parliament declared that ‘the promissory notes of the said Company [the Bank of England] have hitherto been, and are at this time held in public estimation to be equivalent to the legal coin of the realm and generally accepted as such in all pecuniary transactions...’.

Even though the inflation and the depreciation proceeded apace, the monetary controversy died out for the duration of the Napoleonic wars. In despair, and perhaps to reveal the absurdity of Vansittart's case, the great Peter Lord King now decided to take direct, personal action in protest against the depreciating paper pound. While the pound was not officially legal tender, it was treated as such by government and public alike. To dramatize the true situation, Lord King, in 1811, proclaimed that henceforth he would only accept rent from his tenants either in gold coin, or in bank notes at their market discount – in short, he would insist on the gold equivalent in pounds. King's heroic action forced the government to impose legal tender for payment of rent, at the official par of 21 shillings to the gold guinea. And the following year, Parliament completed the coup by extending legal tender coercion to all payments of every type.

6.3 Deflation and the return to gold

Needless to say, the selfsame Establishment politicians who had used war as their supreme excuse for continuing the restriction, failed to jump with alacrity to go back to the gold standard when the war finally ended in 1815. And yet, conditions were certainly ripe. In a pattern that would set the tone for over a century, the inflationary credit boom of wartime was quickly succeeded by a postwar deflation of money, credit and prices. The wartime inflation was succeeded by a postwar deflationary recession. There is no evidence whatever that the Bank of England deliberately contracted the money supply to pave the way for a return to gold at the prewar par. It was simply the beginning of the classic pattern of fractional-reserve banking powered by a central bank: the creation of boom and bust. Total Bank of England credit fell from £44.9 million on 31 August 1815 to £34.4 million a year later, a drop of 24 per cent. Bank deposits fell by about 15 per cent in the same period, while bank notes fell by 11 per cent.

The bank contraction exerted a powerful leverage effect on the country banks; many country banks failed from 1814 to 1816 and country bank note circulation fell from £22.7 million in 1814 to £19.0 million in 1815 and then to £15.1 million in 1816. In short, country bank notes outstanding fell by 33.5 per cent over the two-year period, and by 20.5 per cent from 1815 to 1816. We may now arrive at a rough estimate of the total contraction of the money supply from August 1815 to August 1816. Total money supply (bank notes + bank deposits + country bank notes) amounted to approximately £60.7 million in 1815; it fell to £50.4 million the following year, a drop of 17 per cent in one year.

The monetary contraction, combined with general public expectations of a return to gold, drove the market gold premium over the official par down nearly to the par price. The monetary inflation had driven the market gold price up to £5.10 at the end of 1813, which was 145 per cent of the old official pre-restriction par of £3 17s. 10¹/₂d. After Napoleon's retirement to Elba, the gold price fell to £4 5s. 0d., a premium of only 8 per cent; then, on Napoleon's return to France, the gold price of the pound shot up nearly to its 1813 peak. After Waterloo, once again, the gold price fell sharply and steadily, reaching £3 18s. 6d. in October 1816, a premium of less than 1 per cent. Similarly the market price of silver fell from a peak premium of 38 per cent in 1813 to a premium of only a little over 2 per cent in the first postwar year of 1816. And the price of foreign exchange at Hamburg fell from a premium of 44 per cent in 1813 down to par in 1816. Price deflation accompanied the monetary contraction, British prices falling from a peak of 198 in 1814 (1790 being equal to 100), to 135 in 1816.

Conditions were now perfect to return to gold, and immediate resumption could have been achieved with no further transition problems. But the British Establishment dithered, its only constructive step in 1816 being Parliament's dropping of the formal bimetallic standard, which had only resulted in a de facto gold standard in the eighteenth century, and the adoption of a formal gold standard. Silver, from then on, would only be subsidiary coin. But apart from stating that when Britain did go back to a specie standard it would be going back to gold, nothing else was done.

The problem was a pervasive desire in the Establishment to resume cheap credit and inflation, as well as an even more widespread phobia about deflation that marred the analysis and policy conclusions of even the most influential champions of a return to gold payments. The bulk of anti-bullionists displayed their hypocrisy and intellectual bankruptcy by reversing their supposed analytical stance. In short, those who stoutly denied, all during the era of inflation, that over-issue of bank notes had any impact on domestic prices or foreign exchange rates, now reversed their course and blamed the fall in prices, as well as the postwar depression, squarely on the contraction of the money supply and the eventual resumption of specie payments. What they wanted, therefore, was easy money and inflation, and they were willing to use any arguments at hand, however inconsistent, to achieve their goal. What they seemed unwilling to realize is that any inflationary boom, especially that of a lengthy and major war, will collapse at war's end into depression and deflation. Much of the deflation was the result of the postwar depression and bankruptcies, for the initial postwar deflation occurred years before the actual return to gold or even the passage of the Resumption Act. The postwar depression was the market's way of readjusting the economy to the enormous distortions of production and investment brought about by the skewed demands of wartime and the inflationary credit boom. In short, the postwar depression was the painful but necessary process of liquidating the distortions of the wartime inflation and of returning to a healthy peacetime economy efficiently serving the consumers.

Another cause of the deflation was industrial and economic progress. The end of the war liberated England to launch one of the greatest periods of economic growth in its history. The Industrial Revolution could at last develop freely and raise the standard of living of the mass of Englishmen -something it could not do when the industrial engine had been diverted to the unproductive waste of war. As a result of the great increase of production, prices kept falling in Britain throughout the 1820s – long past the time when this welcome drop in the cost of living, this ‘deflation’, could plausibly be blamed on the return to gold in 1821.

The anti-deflation hysteria and the desire to keep inflating delayed the return to gold for five years after 1816. When it became clear that there would be no immediate resumption, the pound began to depreciate again, the price of silver bullion rising from 2 per cent above par in 1816 to 12 per cent premium on 1818. Similarly, the foreign exchange rate at Hamburg rose from par to 5 per cent above. And domestic prices rose from 135 in 1816 to 150 two years later. The weakening of the pound by disappointed expectations of immediate resumption was also greatly compounded by an expansion of bank advances and note issues.

When the restriction came up for one of its periodic renewals in the Spring of 1816, Chancellor of the Exchequer Vansittart pleaded for two more years of renewal so that business could acquire more needed cheap credit. Vansittart was easily able to defeat Francis Horner's resolution for resumption of specie payment in two years. Agriculturists, as usual, had overexpanded and went heavily into debt during the wartime inflation, and then complained heavily when the bubble burst and turned to the government to inflate or expand spending on their behalf. The Quarterly Review, reflecting Tory devotion to the interests of aristocratic large landlords, shifted gears from favouring the bullion Report to bitterly denouncing deflation.

The most extreme of the inflationists now emerged in the form of two banker brothers from Birmingham, Thomas (1783–1856) and Matthias Attwood (1779–1851), who also served as the spokesmen for the iron and brass industry of the city. Birmingham, as the centre of armaments manufacture, had been a major beneficiary of the war boom. Thomas Robert Malthus, as we have seen, for a few years urged the government to increase deficits to cure the alleged ills of underconsumption, but abandoned this line of thought as soon as the postwar agricultural and economic depression was over. But the prolific Attwoods were to make inflation and permanent incovertible fiat paper money a lifelong crusade. Nothing, for example, could be more starkly opposed to Say's crucial law of markets than the unabashed assertion of Thomas Attwood, in an 1817 open letter to Vansittart, that ‘It is the chief purpose of this letter to show that the issue of money will create markets, and that it is upon the abundance or scarcity of money that the extent of all markets principally depends...’.

Along with fiat money and monetary inflation, the Attwoods and their counterparts in the northern industrial city of Liverpool were able to persuade the government to embark on a large-scale programme of deficits, relief and public works to try to generate another inflationary boom. James Mill warned Ricardo in the Autumn of 1816 that ‘some villainous schemes of finance’ were afoot, and sure enough, the government proposed a deficit bond issue to finance public works, and also loaned out three-quarters of a million pounds during 1817. The temporary resurgence of inflation and prosperity in 1818 was the result, according to the fiery, erratic hard-money radical journalist William Cobbett, of the prodding by Matthias Attwood upon Vansittart, who ‘caused bales of paper money to be poured out...’, via Bank of England loans to the government.

Indeed, it was undoubtedly the weakening of the pound in 1817–18 that tipped the scales and led to Parliament's passing the act of resuming payments in gold in May, 1819. Resumption in gold coin was supposed to begin four years hence, but actually gold coin payments were launched on the banner day of 8 May 1821. Even though the resultant gold coin standard served as the cornerstone of Britain's economic growth and prosperity for nearly a century, the fierce opposition, confusion, and vacillating of the government made arriving at the proper result seem almost a miracle. The bank opposed resumption down to the very passage of the law in 1819, and it was the government's temporarily cooling relations with the bank that allowed room for the resumption law. Yet, even though a determined effort was launched by men such as Alexander Baring (1774–1848), the Attwoods and the Birmingham manufacturing interests, and the landed aristocrats to overturn resumption, the gold standard held and was even resumed earlier than scheduled, in 1821.²⁰ Thus the earl of Carnarvon, in mid-1821, denouncing the resumption act for lowering agricultural prices, and calling for monetary expansion and greater government expenditures, openly raised the standard of the landed aristocracy as against the cosmopolitan money men and financiers:

He called upon the House to consider the consequences... of destroying by its means the aristocracy of the country – the gentlemen and the yeomanry of England, on whose existence our institutions alone could rest. The monied interest had been formed by the calls of our finances; they could be removed: they were inhabitants of this or of any other country; but the stability of our institutions, and the safety of the throne itself, depended on our agricultural population...

And yet the gold coin standard held. It held even though two of the most influential champions of resumption were weak reeds when it came to resisting the anti-deflation hysteria. At the end of the war, Ricardo, in his Proposals for an Economical and Secure Currency (1816), reverted to his 1811 gold bullion proposal, in which resumption would take place not in coin but in large ingots or gold bars, thereby limiting the gold standard to a few wealthy traders. Gold would not then be the true standard currency of the realm, and would be but a flimsy check against the propensity of government and the banking system to inflate money and credit.

After the publication of his Principles of Political Economy in 1817, David Ricardo was the most celebrated economist in England, and his views on currency as well as other economic problems carried great weight. At the urging of his mentor James Mill, Ricardo then entered Parliament in 1819 to battle for his economic views until his death in 1823. He particularly lent his great prestige to urging resumption of gold payments, and somehow his bullion plan lost out rapidly to the more consistent and thoroughgoing gold coin standard.

The most important single politician responsible for the return to gold was the remarkable Tory statesman Robert Peel the Younger (1788–1859), who gave his name (‘Peel's Act’) to the resumption law. Peel was later, as prime minister, to be responsible, during the mid-1840s, for the repeal of the notorious Corn Laws, as well as the attempt to establish the currency principle into law in Peel's Act of 1844. Peel's accomplishments were particularly remarkable for being bred to the political purple by his distinguished High Tory father. Peel was the eldest son of Sir Robert Peel the Elder, a leading Lancashire cotton manufacturer, whose own father had established the first calico-cotton factory in Lancashire. Sir Robert was a dyed-in-the-wool Tory statist, a fervent supporter of William Pitt, who had written a pamphlet in 1780 praising the National Debt Productive of National Prosperity. As an MP the elder Peel had ardently backed the war against France, had put through the first Factory Act, and had opposed the bullion Report in 1811.

When young Robert was born, Sir Robert dedicated his first-born son to the world of politics. The brilliant youth went to Harrow, where he was a friend and classmate of Lord Byron, and entered Christ Church College in Oxford, in 1805. In 1808, Peel graduated with high honours, and his doting father promptly purchased him a seat in Parliament the following year. The precocious 21-year-old MP soon became under secretary for war and the colonies, whose ministry conducted the war against France, and in 1812 he became for six years the chief secretary for Ireland. There he followed his father's High Tory principles by fiercely repressing the Irish and taking the lead in opposing the emancipation of Catholics in Great Britain. In 1811, young Peel joined his father in bitter opposition to the bullion Report.

In 1819, when the House of Commons named a committee to study the resumption of specie payments, young Robert Peel was chosen chairman over far more experienced members such as Huskisson, Canning, and the ardent bullionist and member of the bullion committee, the Whig George Tierney. Yet Robert Peel orchestrated the report favourable to resumption, and it was Peel who shepherded the resumption law through Parliament. Peel thereby displayed the beginning of his memorable life-long series of shifts away from High Tory statism and towards classical liberalism. Towards, in short, hard money, free trade, and emancipation of the Roman Catholics of Britain. George Canning was in awe at Peel's achievement in attaining the gold coin standard, calling this feat ‘the greatest wonder he had witnessed in the political world’. It was particularly piquant that, in effecting this notable change of heart, the younger Peel had to break with his father, who not only opposed resumption, but also signed the petition of several hundred ‘Merchants, Bankers, Traders and others’ of the City of London, warning of great distress should the committee's recommendation ever become law.

A crucial question, then, is how Robert Peel came to change his mind. Professor Rashid has performed the service of unearthing as the likely instrument of Peel's conversion his former tutor at Oriel College, Oxford, the Rev. Edward Copleston (1776–1849).²¹ Copleston was the son of a rector in Devonshire, and was descended from an ancient landed Devon family. Graduating from Corpus Christi College, Oxford in 1795, Copleston became a fellow at Oriel College, getting his MA from there in 1797, and becoming a tutor at Oriel, and professor of poetry at Oxford. Copleston later became dean at Oriel, and by 1814 had risen to provost of Oriel College. He was highly influential at Oxford, and one of the main persons responsible for the raising of academic standards and the subsequent rise of Oxford to its once high estate. Although a staunch Tory and an influential clerical counsellor to the Tory leadership, Copleston was a moderate liberal in the Anglican church and an advocate of Catholic emancipation.

As early as 1811, Copleston had become a determined opponent of inflation and depreciation, especially criticizing its destructive effect on creditors and holders of fixed incomes. In 1819, he decided to intervene in the new bullionist struggle by publishing two pamphlets directed to his former pupil. The first Letter to the Rt. Hon. Robert Peel... On the Pernicious Effects of a Variable Standard of Value was published on 19 January 1819, and it was quickly recommended on the floor of the House of Commons by the fiery Whig and proponent of immediate resumption, George Tierney. The pamphlet was also praised in an editorial in the Times. The first edition of the Letter was sold out immediately, and within a month, three editions had been printed. In March, Copleston published a Second Letter... elaborating on the arguments of the first, particularly on the ill effects that inflation and a depreciating pound had on the poor. The large printing of the Second Letter was quickly sold out, and a second edition was issued in May.

Evidence of Copleston's influence on Peel comes from the latter's correspondence with his favourite tutor at Oxford, his close friend, the Rev. Charles Lloyd. Lloyd, who was indeed a rival Anglo-Catholic force to Copleston at Oxford, wrote to Peel recommending Copleston's Letter at the same time that Peel was recommending it to him. Peel notes that the pamphlet ‘has made a great impression’ in Parliament, including among its admirers Canning and Huskisson. In fact, it seems likely from Peel's remarks that Copleston's clear-cut restatement of bullionist principle was the first pamphlet he had ever read on the subject.

Matthias Attwood, indeed, went so far as to claim that Peel and Huskisson were followers of Copleston's ideas. If Copleston was crucially influential, then his violent attack in the pamphlet on what Peel referred to as the ‘imbecility’ of Nicholas Vansittart might have played a large role in reducing Vansittart's influence and getting government policy on resumption changed.

Yet, in the post-resumption debate, even Copleston floundered, claiming in the Quarterly Review in 1821 that, while he had upheld the principle of specie payments, he had been opposed to immediate resumption. Complaining about the agricultural distress, he blamed the immediate resumption on the influence of Ricardo, ignoring the latter's own phobia about deflation. Thus the two most influential writers pushing Parliament into resumption, Ricardo and Edward Copelston, each was uncertain about the gold coin standard in the face of deflation. Robert Peel's achievement appears, then, all the more miraculous.

Of particular interest is Copleston's brilliance and possible originality in his challenge to Ricardo by reviving, perhaps unwittingly, the ‘complete bullionist’ or ‘pre-Austrian’ monetary tradition of Cantillon and Lord King. Copleston, in the first place, attacked Ricardo's mechanistic assertion that exchange rates measure the degree of depreciation, this doctrine resting on the equally mechanistic view that ‘a variation in price caused by an altered value of money is common at once to all commodities’. (Emphasis Ricardo's.) Copleston countered that it was precisely because prices do not adjust smoothly, instantly, and uniformly to inflation that the inflation process is so painful and destructive:

The fact undoubtedly is, that the altered value of money does not affect all prices at the same time: but that wide intervals occur, during which one class is compelled to buy dear while they sell cheap, and others have no prospect whatever of indemnity, or of regaining the relative position they once occupied.

In short, Copleston pointed out the profound truth that in a transition period to a new monetary equilibrium there are always gains by those whose selling prices rise faster than their buying prices, and losses by those whose costs rise faster than selling prices, and who are late in receiving the new money. But, even further, Copleston points out that some of these changes in relative income and wealth will be permanent. In short, changes in the money supply are never neutral to the economy, and their effects are never confined to the ‘level’ of prices.

Taking issue with David Hume's famous assertion that an increase of the quantity of money in a country generates prosperity, Copleston pointed to the impoverishment of the Spanish and English peasantry from the monetary and price inflation of the sixteenth century. He noted shrewdly, in a lesson that could well be heeded today, that while ‘pure theory inculcates the neutral and necessary tendency towards an equitable adjustment’, it also ‘leaves the intermediate difficulties and delays out of the question, as frictions in a mechanical problem

On the other hand, Copleston was perceptive enough to point out that the path toward equilibrium is faster in monetary than in real matters. In monetary affairs, he noted,

the level is found almost immediately. Other commodities require some time to produce them – and the fortunate holder of large quantities may make great profits before an adequate competition can grow up: but in these [money] the time and labour required for the production count for nothing. The commodity is always afloat, waiting only the impulse of profit to determine its direction to the best market.

6.4 Questioning fractional-reserve banking: Britain and the US

Great Britain had now experienced the pain and deprivation of what would become a classic ‘business cycle’, i.e. the expansion of money, the rise in prices, the euphoric boom, all fuelled by the monetary inflation of a fractional-reserve banking system, succeeded by a monetary contraction, with attendant depression, fall in prices, bankruptcies, unemployment and dislocations. And behind this boom and bust, guiding, organizing, centralizing, and directing the monetary expansion and contraction, was the powerful central bank created and privileged by the central government. In short, it was forcefully impressed upon the public that fractional-reserve banks, especially when organized under a central bank, can and do create and then destroy money, distorting and impoverishing the public and the economy in their wake. It is no wonder that severe critics of fractional-reserve banking quickly arose, indicting the banks' actions and the system itself, and noting their responsibility for the boom-bust cycle.

Professor Frank W. Fetter notes the ‘groundswell of criticism of all banks’, but he describes the ‘invective’ against banks as ‘exploiters’ of the common people with an air of bemusement at the public's irrationality. But surely this ‘populist’ invective was well justified: the banks were indeed privileged by the government, enabled to inflate, and thus to set in motion a two-fold great injury upon the public: an inflationary boom dislocating production and investment and wiping out the savings of the thrifty, followed by a painful contractionary bust necessary to correcting the distortions of the boom. All of this could properly be laid to the door of the privileged, central bank-run, fractional-reserve banking system. Looked at in that light, the radical denunciations of banks ‘without benefit of economic analysis’ look more like a deeper level of analysis than Fetter realizes. Fetter describes these opponents of banking as follows:

The idea appeared increasingly that banks deprived the public of its natural metallic money and had created paper money as an instrument of oppression... Men who were far apart on most points were in agreement that somebody was making too much money from the paper money system: the restrained criticism of Ricardo, under James Mill's urgings, of the Bank's profits; the strictures of obscure pamphleteers that bankers ‘appear to be infinitely more mischievous than the coiners of base money [i.e. counterfeiters of coin]’, and that both the Bank of England and the country banks had made ‘unfair gains from the restriction measure’; the wholesale invective of Cobbett against bankers as a class; and the denunciations in Jonathan Wooler's Black Dwarf, in Leigh Hunt's Examiner, and in Sherwin ‘s Political Register, where without benefit of economic analysis these radical journals reiterated that the paper money system was one of the oppressors of the people. In 1819, when Parliament was considering resumption, Sherwin's Political Register offered this advice: ‘Let our tyrants turn their infamous paper into coin of the same weight and fineness, as that of which the people have been deprived...,’.²²

Fetter indicts the radical hard-money journalist William Cobbett²³ for alleged inconsistency in bitterly denouncing the restriction and the bank's inflation, and then attacking the bank for deflating after the war and causing further distress. Yet there is no real inconsistency in attacking the central bank and the fractional-reserve banks for first inflating and then contracting, for that is precisely what they had done, and the entire distress of the boom-bust cycle can thus be laid at their doors.

Knowingly or not, these radical critics of fractional-reserve banking were simply revising and applying the great tradition of hostility to fractional-reserve banking and devotion to 100 per cent reserve in eighteenth century Britain (e.g. Hume, Harris, Vanderlint), a tradition that had been unfortunately derailed by Adam Smith's apologetics for bank paper. In France, the100 per cent reserve anti-bank tradition had already been revived, as we have seen, by J.B. Say and Destutt de Tracy.

In the United States, meanwhile, similar conditions were bringing about similar results. The United States, too, had entered the Napoleonic Wars in 1812, and subsequently experienced wartime boom, inconvertible bank notes, and comparable grievous inflation. The difference was that the United States had managed to get rid of its central bank (the First Bank of the United States) in 1811, so it achieved inflationary results by the federal government's permitting the private banks to suspend specie payments in August 1814, allowing them to continue in operation and expand credit without having to redeem their notes or deposits. This intolerable situation was allowed to continue for two years after the end of the war, until February 1817, at which point the Madison administration made an inflationary compact with the nation's banks. The compact provided that the US would re-establish a privileged Second Bank of the United States, which would then proceed to inflate credit by at least an agreed-upon amount, in return for the banks graciously consenting to resume meeting their contractual obligations to pay their debts in specie. An inflationary boom, fuelled by an expanding Second Bank ensued, to be followed by the catastrophic panic of 1819, in which the Second Bank was forced to contract suddenly in order to save itself.

The panic of 1819 confirmed Thomas Jefferson's hostility to fractional-reserve banking, and we have seen how he and his friend and old opponent John Adams both declared their enthusiasm for Destutt de Tracy's ultra hard-money treatise on economics. Jefferson was moved by the panic to draw up a remedial ‘Plan for Reducing the Circulating Medium’, which he asked his friend William Cabell Rives to introduce into the Virginia legislature without disclosing his authorship. The goal of the plan was bluntly stated as ‘the eternal suppression of bank paper’. The method was to reduce the circulating medium to the level of specie proportionately over a five-year period, until paper money was withdrawn completely and totally redeemed in specie. After that, the money in circulation would consist solely of specie.

John Adams agreed wholeheartedly. In a letter to his old opponent, the great libertarian Jeffersonian anti-bank and anti-tariff theoretician John Taylor of Caroline, Adams blamed the banks for the 1819–20 depression. He attacked any issue of paper money beyond specie in the bank as ‘theft’, a position he had elaborated years earlier: ‘Every dollar of a bank bill that is issued beyond the quantity of gold and silver in the vaults represents nothing, and is therefore a cheat upon somebody.’²⁴

Jefferson's close friend and son-in-law, Governor Thomas Randolph of Virginia, summed up in his inaugural address of December 1820 the predominant Virginia attitude towards banks. Randolph pointed out that specie, in universal demand, had a relatively stable value, whereas banks caused great fluctuations in the supply and value of paper money, with attendant distress. Randolph endorsed not only the collection of all taxes in specie (which later, on the federal level, became the ‘Independent Treasury’ plan) but also envisioned a currency backed 100 per cent in specie.

But the most important impact of the panic of 1819 on American thought was not simply to reconfirm the hard-money advocates of the older generation. It was to generate and stimulate a new, mighty ultra-hard-money movement, which would later become the Jacksonian movement of the 1830s and 1840s. The goal of the great Jacksonian movement was a monetary system consisting wholly of gold or of 100 per cent gold-backed notes or deposits. Its first goal, achieved after great struggle in the 1830s, was to eliminate the Second Bank of the United States; its second, largely achieved a decade later, was to separate the federal government totally from the banking system by confining its receipts and monetary transactions solely to specie (the ‘Independent Treasury’). Its final goal, only partially achieved, was to outlaw fractional-reserve banking altogether, a goal that might well have succeeded if the Democratic Party had not been fatally sundered by the slavery issue.²⁵

A remarkably large number of future Jacksonian leaders learned their anti-bank hard-money views from experiencing the panic of 1819. General Andrew Jackson (1767–1845) himself, a wealthy Nashville, Tennessee cotton planter, adopted his lifelong anti-bank views as a result of the panic: indeed, he quickly became the fervent leader of the opposition to inconvertible state paper in Tennessee, as well as to laws for relief of debtors. Top Jacksonian Senator Thomas Hart Benton (1782–1858) of Missouri, affectionately termed ‘Old Bullion’ for his devotion to gold and hard money, and who was slated to be Martin van Buren's Jacksonian successor in the presidency, was converted from his previous inflationist views by the panic of 1819.²⁶ And young future Jacksonian and eventual president, James K. Polk (1795–1849), a wealthy cotton planter, began his political career in the Tennessee legislature in 1820 by advocating a speedy return to specie payments.

Historians have had great difficulty interpreting the essential nature of the Jacksonian movement, or for that matter, the economic views of Thomas Jefferson and the Jeffersonians. Jefferson, for example, has been generally perceived as a devoted ‘agrarian’, opposed to commerce and manufacturing, and Jeffersonian John Taylor of Caroline has been labelled in the same way. In reality, it is hard to see how any ‘agrarian’ can be opposed to a commerce essential to exporting farm products as well as importing manufactured and other goods to the farmers. It is true that Jefferson, Taylor and others were devoted farmers and personally disliked cities. But they were not opposed to either commerce or industry. What they were opposed to was governmental subsidy and artificial force-feeding of industrial or urban growth. The Jeffersonians favoured laissez-faire, private property rights, and the free market, and were therefore opposed to governmental subsidies, protective tariffs, and cheap, inflationary bank credit.

The Jacksonians, too, had strict laissez-faire views, except that there were naturally proportionately more who lived in cities or worked in industry. Jacksonians have been variously and even chaotically interpreted by historians as being (a) wild-eyed agrarian hillbillies opposed to commerce and capitalism (historians at the turn of the twentieth century); (b) pre-New Dealers interested in forging a worker-farmer uprising against National Republican-Whig capitalism (Arthur Schlesinger, Jr): and (c) spokesmen for rising entrepreneurs and private, state-chartered banks, trying to throw off central bank shackles upon state bank inflation (Bray Hammond). The wild inconsistencies of these interpretations stem from most historians conflating the free market and state capitalism. The Jeffersonians and Jacksonians were not anti-capitalist but ardently in favour, but to them, in contrast to their enemies the federalists and Whigs, genuine capitalism occurs only when commerce and manufacturing are free, free of both subsidies and constricting controls. Whereas federalists and Whigs were mercantilists who favoured state capitalism, cheap credit, protective tariff, a national debt, and Big Government, the Jeffersonians and Jacksonians were free market or laissez-faire capitalists who wanted capitalism and economic growth to develop only under freedom and free markets, i.e. under a system of free trade, free enterprise, ultra-minimal government, and ultra-hard money.

Neither was Jefferson or Jacksonian leadership in any way ignorant or hillbilly. Jefferson himself, as well as most of the other leaders, was thoroughly familiar with the literature of the bullionist controversy, as well as the economic classics. And most of the younger generation of bright economic thinkers and writers were in the Jacksonian camp.

Thus Amos Kendall, influential editor of the Frankfort (Ky) Argus, and later to be one of the leading brain-trusters in President Jackson's kitchen cabinet, and his main adviser in the bank war, became a bitter opponent of the banking system as a result of the panic of 1819. The very thought of banks he now found ‘disgusting’. The best method of rendering them harmless, he concluded, was simply to prohibit them by constitutional amendment. If this were not feasible, then the banks should be required to post security with the courts enabling them to redeem all their paper.

One of America's first economists, Condy Raguet (1784–1842), found his economic outlook totally transformed by the Panic of 1819. A Philadelphia merchant and attorney of French descent, Raguet had published, in 1815, an inflationist and protectionist tract, an Inquiry into the Causes of the Present State of the Circulating Medium. But, in the midst of the panic, Raguet, as state senator from Philadelphia, headed a committee in 1820–21 that looked closely into the causes of and possible remedies for the unprecedented economic depression. Raguet concluded that the depression had been caused by bank credit expansion in the boom, followed by a subsequent contraction when the boom caused specie to drain out of the bank vaults. As a result, Raguet emerged from the depression a dedicated opponent of fractional-reserve banking, and a convinced partisan of free trade. He was impressed that, out of the leading citizens and legislators of 19 counties to whom the Raguet committee sent a questionnaire, 16 counties replied flatly that ‘the advantages of the banking system’ did not ‘outweigh its evils’. From then on, Raguet favoured 100 per cent reserve banking to specie, and, while not a Jacksonian politically, staunchly supported the Jacksonian ‘Independent Treasury’ plan that divorced the treasury from banks or bank paper. Raguet later expanded his views in his Of the Principles of Banking (1830), A Treatise on Currency and Banking (1839, 1840), Principles of Free Trade (1835), and in a series of journals which he launched in the late 1830s, which included a documentary history of the current commercial crisis as well as reprints of Ricardo and other monetary theorists, and of the bullion Report.

Raguet explained, in his Treatise on Money and Banking, how expansion of bank credit brought about a boom, higher prices, a demand to export specie and a consequent call upon the banks for specie contraction and crisis. Remarkably, he also anticipated James Wilson of The Economist by almost a decade in demonstrating, in a pre-Austrian treatment of the business cycle, how the boom brought about overinvestment in fixed capital goods. Thus Raguet wrote:

At the winding up of the catastrophe, it is discovered that during the whole of this operation consumption has been increasing faster than production – that the community is poorer in the end than when it began – that instead of food and clothing it has railroads and canals adequate for the transportation of double the quantity of produce and merchandise than there is to be transported – and that the whole of the appearance of prosperity which was exhibited while the currency was gradually increasing in quantity was like the appearance of wealth and affluence which the spendthrift exhibits while running through his estate, and like it, destined to be followed by a period of distress and inactivity.²⁷

The difference is that the more celebrated Wilson, a leader of the so-called banking school of Britain, never realized that the overinvestment was caused by monetary and credit expansion. In short, he never caught up with Raguet and the Jacksonians in the US.

The panic of 1819 also inspired the publication of the first systematic treatise on political economy in the United States, Thoughts on Political Economy (1820), by the Baltimore lawyer, Daniel Raymond (1786–1849).²⁸ Raymond was born into a conservative Connecticut federalist family, and his book was a paean to protective tariffs, and to the nationalist Alexander Hamilton, whom Raymond considered the only truly sound political economist. But even Hamilton nodded, according to Raymond, on the bank question, and Raymond, too, came out in opposition to bank credit expansion and in favour of 100 per cent specie banking. Criticizing Hamilton's, and Adam Smith's, assertion that bank notes add to the national capital by economizing on specie, Raymond cited David Hume's statement that ‘in proportion as money is increased in quantity, it must be depreciated in value’. Bank credit also promotes extravagant speculation, raises prices of domestic goods in export markets, and brings about a deficit in the balance of trade. To Raymond, the issuing of any bank notes beyond specie was, quite simply, a ‘stupendous fraud’. Ideally, he believed that the federal government should eliminate bank paper entirely, and supply the country with a national paper backed 100 per cent by specie.

As can be seen from the case of Raymond, it was not only the Jacksonians who came to a staunch anti-fractional-reserve bank position during the 1819— 21 depression. Young frontier state representative from western Tennessee, Davy Crockett (1786–1836), future Whig leader and enemy of the Jacksonians, stated that he ‘considered the whole Banking system a species of swindling on a large scale’. Protectionist and future Whig president, General William Henry Harrison (1773–1841), ran successfully for the Ohio state senate in the Autumn of 1819. When attacked at a local pre-election citizens' meeting for being a director of a local branch of the Bank of the United States, Harrison, in a lengthy reply, insisted that he was a sworn enemy of all banks, and especially of the Bank of the United States, and that he was unalterably opposed to its establishment and continuation. And, finally, at least at this time, secretary of state and future president John Quincy Adams fully shared his father's hostility to all fractional-reserve banking. To a Frenchman who had sent him a plan for federal government paper money, Adams commended the famous Bank of Amsterdam, where paper ‘was always a representative and nothing more’, of specie in its vaults.

6.5 Monetary and banking thought on the Continent

Monetary thought on the European continent often paralleled the richer and more developed controversy in Great Britain. In Sweden, notably enough, a ‘bullionist’ controversy developed a half-century before the more famous one in Great Britain. Since few Britons were versed in the Swedish language, the controversy and its significance went unremarked outside Sweden.

In the mid-eighteenth century, Sweden experienced four decades (specifically, 1739–72) of roughly democratic government, with political power in the hands of the parliament, or Riksdag, and with representatives chosen from four estates (nobility, clergy, middle class and peasants). Two political parties battling for power in this era, in the nomenclature reminiscent of Gulliver's Travels, were the ‘Hats’ and the ‘Caps’. The Hats, who were in power from the beginning of the grandiloquently named ‘Age of Freedom’ until 1765, were mercantilists who believed in using inflation for economic development. Export subsidies, direct subsidies, cheap loans, and high protective tariffs were all used to build internal improvements and to foster favoured industries, especially textile manufacturing (a favourite motto of the Hats was ‘Swedish men in Swedish clothing’).

The choice method of financing these lavish expenditures was inflationary credit expansion by the central Bank of Sweden. The convenient proto-Keynesian Hat theory was that an increased money supply would all go into increased development and output rather than higher prices. As for the nagging thought that deficits might ensue in the balance of payments, there was no need to worry, since imports would be held down by direct government controls, while increased national income would, in some odd way, promote increased exports.

After several years of inflationary bank credit expansion, the Swedish government went off the silver standard in 1745, and from then on was free to inflate, ad libitum. Thus, total inconvertible bank notes in circulation in 1745 were 6.9 million daler, doubling until 1754, when total circulation was 13.7 million daler. Monetary inflation accelerated after that, more than doubling in the next four years, reaching 33.1 million daler in 1758. Finally, the supply of bank notes reached a peak in 1762 at 44.5 million daler, a 545 per cent increase over 1745, or an average of 32.1 per cent per year.

In response to the monetary expansion, prices remained stable for a few years and then rose from 1749 to 1756, the general price index rising 23 per cent in the seven years. After that, as usually happens, the price rise accelerated, doubling in the next eight years, and reaching a peak in 1764. The biggest concern was the foreign exchange rate, which rose even more precipitately. Thus, after remaining only 5 or 6 per cent above par from 1752 to 1755, the rate of Hamburg mark bancos in terms of dalers rose to 247 per cent above par in 1765.

The fall in the foreign exchange value of the daler led the Hat government to attempt direct control of foreign exchange rates. A foreign exchange office was established in 1747 to try to push rates down, using massive French government subsidies to prop up dalers in the foreign exchange market. The exchange office succeeded for a few years, bringing the price of Hamburg mark bancos down, for example, from 24 per cent above par in 1748 to 5 or 6 per cent above par from 1752 to 1755. But an artificially falling foreign exchange rate combined with rising domestic prices amounted to an enormous subsidy of imports into Sweden. The resulting huge deficit in the balance of payments raised the increasing problem of how a country on inconvertible paper is going to finance the deficits. Finally, loans and subsidies from abroad ceased, the house of cards collapsed, and foreign exchange rates spiralled upward.

It is interesting to see how the Hat theoreticians, led by one Edward Runeberg, explained the mounting crisis. Like the anti-bullionists and the later banking school theorists in Britain, they – even more starkly – reversed the causal chain. The problem, the Hats declared, originated in the deficit in the balance of payments. Where the deficit came from was far more murky; presumably it was a wilful act of greedy consumers and importers. The deficit then caused the price of foreign exchange to rise, which in turn raised the prices of domestic goods in export markets, which in turn pulled up all the prices of domestic goods. Hence the entire domestic inflation was really due to the mysterious deficit in the balance of payments. The policy conclusion was clear to the Hats: restrict imports by coercion.

Not once did the Hat theoreticians admit that there could be a causal chain running from increased bank note issue to prices and exchange rates. On the contrary, the Hats advocated further issues in bank money to raise domestic production, which would in turn somehow increase exports, and thereby increase foreign exchange earnings and, along with a coerced restriction of imports, cure the deficit.

In addition to massive private credits, the inflation of money and credit by the Bank of Sweden financed government deficits, many of which were used for heavy Swedish military expenses to fight in the multinational Seven Years' War (1756–63).

As the inflation began to accelerate in 1756, Cap political strength grew steadily, in reaction not only to the inflationary spiral, but also to participation in a widely unpopular war. The Caps, who found their constituency among small merchants and civil servants injured by inflation, were in favour of free trade and laissez-faire, and opposed to mercantilism and government controls. As the inflation proceeded, the Caps were able to show how the government-engineered inflation aided privileged manufacturers with cheap bank loans. They also demonstrated how Hat privileges and subsidies aided certain privileged commercial capitalists, especially iron exporters. Smaller industrialists, merchants, and importers opposed to special privilege, were the backbone of the Cap party.

Worried by rising Cap power, the Hats finally stopped the monetary inflation in 1762, but prices and exchange rates continued to rise as expectations of further inflation still held sway. Finally, the Caps toppled the Hats in 1765, and promptly ended the inflation by a heroic policy of monetary deflation, lowering the total supply of bank notes to 33.5 million daler in 1768, or a 25 per cent drop in seven years, most of it since 1765. The result was, of course, a sharp deflation in prices and foreign exchange, the marc banco rate falling from 247 per cent of par in 1765 to 117 per cent of par three years later. Output and unemployment declined sharply as well.

Throughout this boom-bust cycle, the Caps firmly took what would later be called the bullionist position. The excess issue of bank notes, especially with an inconvertible currency, brought about rises in price and in foreign exchange rates. As we have indicated, the Caps were wisely not content with simply pointing out the economic flaws in the Hats' reasoning. They also attacked the special privileges enjoyed by the Hats, and showed how the Hat constituency benefited by inflation and mercantilism.

The deflationary course taken by the Caps in power may be economically justified by pointing out that drastic measures were necessary to reverse inflationary expectations. But the Caps stressed another attractive political argument: retribution. Why shouldn't the wealthy Hat merchants and industrialist profiteers from inflation pay the major price for a return to the silver standard and sound money? In this way, deflation would reward those who had suffered from inflation, and the profiteers from the previous inflation would, in a sense, pay reparations to compensate the previous victims of inflation. This was far from an absurd programme. And so the Caps set out, quite frankly, to deflate prices and exchange rates down to the pre-1745 Hat inflation and to the old silver par with the daler.

Economically, too, the Caps had an important argument: since bank notes received their true value from their silver reserves, the daler should always designate the same quantity, or weight, of specie.

Two of the leading Cap economists, however, argued against the deflation and instead suggested going back to silver at the existing rate of twice the old par. One was the Rev. Anders Chydenius (1729–1803), a Lutheran pastor from a small city on the western coast of Finland. Coming from a coastal city in a Finland colonized by Sweden (the Kingdom of Sweden and Finland), and whose trade suffered from state privileges to Stockholm and other Swedish interests, Chydenius early spoke and wrote numerous pamphlets against mercantilism and in favour of free trade. He also propounded a philosophy of natural law and natural rights of every individual. In 1766, as a representative of the Finnish clergy in the Riksdag, Chydenius was censured and removed from Parliament for the flagrant crime (in the ‘Age of Freedom’) of writing a tract, The Succour of the Realm by a Natural Finance System, attacking the policy of deflation to the old par after he had voted for it. Apparently changing one's mind after a vote was not permissible. In the pamphlet, Chydenius, without benefit of having read or heard of Adam Smith, worked out some ‘real bills’ notions of permissible banking in a convertible monetary system.

The other Cap opponent of deflation was a teacher of economics at the University of Uppsala, Pehr Niclas Christiernin. Chirstiernin began at Uppsala as an adjunct in law and economics in 1761, then rose to professor in the same field, then held a chair in philosophy, and finally ended as chancellor of the university. In contrast to the poorly read Chydenius, Chistiernin was steeped in such foreign economic literature as Cantillon, Hume, Justi, Locke and Malynes. In a pamphlet published in 1761 (Summary of Lectures on the High Price of Foreign Exchange in Sweden), Christiernin presented a theory of flexible exchange rates as an equilibrating mechanism in inconvertible currency that anticipated the bullionists and was superior to anything written up to that time. Unfortunately, Christiernin remained untranslated into English, and therefore unread there, until 1971. Christiernin pointed out that the continuing increase in the supply of bank notes led to the fall in value of the daler, both in raising foreign exchange rates as well as prices of goods at home. The increase in the issue of bank notes, in turn, stemmed from the bank's more liberal lending policy, which lowered the rate of interest sharply by the mid-1750s, and also increased inflation by creating money to redeem all extant government bonds.

Christiernin, however, was far from a hard-core hard-money man. He defended bank notes as useful, increasing activity and employment, and opposed deflation because, he pointed out, prices and wages were sticky downward. It is doubtful, however, that downward stickiness could last for long in the eighteenth century. But Christiernin's main objection to deflation was that his ideal was not sound, metallic money but a pre-Friedmanite desire to stabilize the value of the daler and make the price level constant. In pursuit of that goal, he urged open market operations by the central bank. Furthermore, again in anticipation of the monetarists, he admittedly preferred inflation to deflation, if that was the choice.

Unfortunately, the heroic deflationary measures led to temporary Cap reverses. The Hats came back to power in 1769, but although they promptly re-inflated, they began to prepare seriously for restoration of the silver standard. When the Caps returned in 1772, however, the powerful merchant capitalists of the Hat party collaborated with the Crown and the nobility to seize power; in a coup d'état, overthrowing parliamentary democracy, and installing King Gustav III as absolute monarch. King Gustav returned Sweden to the silver standard in 1777 at the existing market price.

Later, British bullionist views spread to more intellectually accessible parts of the Continent. Thus, in 1816, Johann Georg Busch (1728–1800), a mathematics teacher at the Hamburg Gymnasium, economist and founder of the Academy of Commerce at Hamburg, denounced inflationary banking propelled by government. Busch noted that, as a result,

The customary abuse has been that too many paper symbols have been produced measured against the needs of the citizens. As a consequence there are too many who want to change back their paper money into the commodity which is and can be the true symbol of value. Since the bank cannot produce this commodity [gold or silver] out of nature like the paper with letters and figures on it, and since she must then confess that she cannot fulfill her promise [to convert to specie], the deceived citizen must become reluctant to take one [the paper] for the other [specie] money.²⁹

Busch identified the financing of war as the main reason for the emergency of governmental bank credit inflation since the beginning of the eighteenth century.

Meanwhile, in Russia, the Baltic German professor of political economy, the Smithian Heinrich Friedrich Freiherr von Storch, denounced government instigation of bank credit and paper money in a lengthy monetary appendix to the 1823 edition of his Cours d'économie politique. Storch, like Busch, zeroed in on war as the main reason for continuing inflation:

the principal motive for introducing this calamitous invention [of paper money] in early all states of Europe, have been [sic] the financial disorders caused by wars, which have been sometimes just and necessary but mostly useless... How many wars could have been prevented without this unhappy expedient? How many tears and how much blood could have been saved.

The best remedy for this evil, declared Storch, would be return to a pure, 100 per cent gold or silver standard in all nations. Failing that, however, Storch was willing to settle for free private, competing banks which, he was perhaps the first to point out, would be much less inflationary than govern-mentally privileged banking. As Storch put it:

private banks are those presenting most advantages and least dangers... Great Britain is the only country in Europe where private banks exist; in all other states banking business is concentrated in one institution, if not founded then at least approved and privileged by government. Nevertheless, public banks are much more prone to degenerate than are private banks. As long as banking companies exist in isolation their operations seem to be insignificant: as soon as they form one sole and great institution they excite the attention of the government, their profits being more considerable; and because of this the special protection they enjoy or the privileges which they solicit have to be bought by favours which change their nature and subtly undermine their credit.³⁰

6.6 Notes

1. Charles F. Peake, ‘Henry Thornton and the Development of Ricardo's Economic Thought’, History of Political Economy, 10 (Summer 1978), pp. 193–212.

2. Homer's starting point, as we have seen, was a bit different: he had been converted from a moderate neutral to moderate bullionist by Lord King's booklet in 1804.

3. Peake, op. cit, note 1, p. 193.

4. As Peake writes, ‘Ricardo's total productive output was dominated by monetary questions, and a full understanding of Ricardo requires an interpretation that includes his monetary works’. Ibid.

5. Malthus, formerly a moderate anti-bullionist, had now become a Thorntonian, and ex pressed his views in two articles on the bullion controversy in 1811 in the Edinburgh Review. See the critique of Malthus in Frank W. Fetter, Development of British Monetary Orthodoxy, 1797–1875 (Cambridge, Mass.: Harvard University Press, 1965), p. 48.

On Ricardo's exclusive emphasis on long-run equilibrium in his monetary analysis, see J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), pp. 494–5, and Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros, 1937), pp. 139–40.

6. Joseph Salerno, ‘The Doctrinal Antecedents of the Monetary Approach to the Balance of Payments’ (doctoral dissertation, Rutgers University, 1980), p. 447. Salerno goes on to point out that Ricardo's strict, mechanistic split between the money and the real, leading to the doctrine that money is a ‘veil’, led also to the seeming paradox of Ricardo, in his Principles, flip-flopping to a highly misleading purely real, non-monetary, ‘barter’ analysis of the balance of payments. The paradox is only seeming, for a severe split enables someone to leap back and forth between the purely monetary and the purely real. It was the barter analysis of Ricardo's Principles, Salerno notes, ‘which served as the foundation for the classical theory of the balance of payments’. Ibid., p. 449.

7. Peake, op. cit., note 1, p. 203.

8. Jacob H. Hollander, The Development of the Theory of Money from Adam Smith to David Ricardo’, Quarterly Journal of Economics, 25 (May 1911), p. 470.

9. Spencer Perceval (1762–1812), the son of the earl of Egmont, received an MA from Trinity College, Cambridge in 1781, then became an attorney and king's counsel. An MP from 1796 on, Perceval was an ardent war hawk, and a defender of Pitt's repressive crackdown on anti-war dissidents at home. Rising to solicitor-general and attorney-general, Perceval, as a leading follower of Pitt, became chancellor of the exchequer in 1807, and then added the post of prime minister in 1809. He was assassinated in 1812.

10. Huskisson, though a respected and leading Tory, was all his life a classical liberal and devoted to freedom of trade. Raised by a great-uncle who was a well-known physician to the British embassy at Paris, Huskisson lived with leading French liberals as a youth, and knew Franklin and Jefferson. After the fall of the Bastille, at which he was present, Huskisson joined the Club of 1789 (a group of eminent constitutional monarchist classical liberals). At the age of 20, Huskisson read before the club in 1790, and then printed, a much applauded discourse on the currency.

Huskisson became a close friend and private secretary to the British ambassador, Lord Gower, and returned with him to England when recalled in 1792. Three years later, he gained a key post as Secretary to the administration in 1795, and became an MP the following year. As a young Pittite, Huskisson rose as secretary to the treasury from 1804 until 1809, and in 1808 played a large share in arranging relations between the Treasury and the Bank of England.

11. Sharp, a great conversationalist known as ‘Conversation Sharp’, was the son of an English officer, born in Newfoundland, who rose to become a leading West Indies merchant in London as well as head of the hat manufacturing firm of Richard Sharp & Co. This wealthy businessman became a leading Whig, devoted to parliamentary and other liberal reforms. Sharp was a member of many leading London clubs, and was a friend of John Adams, Ricardo and James Mill. He long wanted to write a history of the attainment of American independence. Sharp was also a poet very interested in literature, and a friend of Byron, Coleridge and Wordsworth. He was an MP intermittently from 1806 to 1827.

12. A decade later, Huskisson, during a parliamentary debate on monetary policy, mentioned his ‘misfortune’ in 1810, ‘to differ from some distinguished members of this House to whom 1 was personally attached, and in whose political views I had generally concurred’. See Frank W. Fetter, ‘The Politics of the Bullion Report’, Economica, n.s. 26 (May 1959), pp. 106–7.

13. Ibid., p. 106.

14. As Frank W. Fetter put it, ‘Only after the Bullion Committee had issued a Report... that differed substantially from Ricardo in its analysis of the causes of depreciation but agreed in part with Ricardo's criticisms of the Bank of England and with his view that the Restriction should stop, regardless of the war, did Ricardo become the champion of the doctrines of the Bullion Report. Its conclusions as to policy were close enough to his so that he, as a pamphleteer and a propagandist, became their defender, thereby achieving a wide reputation’. Frank W. Fetter, ‘The Bullion Report Reexamined’, (1942) in T.S. Ashton and R.S. Sayers (eds.), Papers in English Monetary History (Oxford: The Clarendon Press, 1953), p. 67.

15. Ibid., p. 67.

16. Here we should note the courage of Pascoe Grenfell (1761–1838), Whig merchant and mine promoter, who voted for the bullion Report even though a large stockholder in the Bank of England, as well as the timorousness of Alexander Baring, who spoke for the doctrines of the Report, but who voted against out of reluctance to return to the gold standard during the war. Grenfell was a Cornishman, whose father was a leading London merchant, and large dealer in tin and copper. Grenfell joined his father's firm, and then became principal managing partner of firms connected with Thomas Williams, the largest manufacturer in Cornwall and Anglesey. Grenfell was an MP from 1802 to 1826.

17. Vansittart, son of Henry Vansittart, a governor of Bengal, received a BA from Christ Church, Oxford, in 1781 and an MA four years later. Vansittart became an attorney and frequent pamphleteer, dedicated to the pro-war and the pro-restriction policies of William Pitt. An MP from 1796 on, Vansittart became a co-secretary to the treasury, the secretary for Ireland, and again secretary to the treasury in various Tory governments. In 1809, Vansittart had led the debate for extending the restriction. He became chancellor of the exchequer in 1812, and remained in that post for ten years.

18. Jackson, who had received an MA from Exeter College, Oxford, in 1793, was a prominent parliamentary counsel, also parliamentary counsel to the East India Co., and counsel to the Corporation of London.

19. George Ellis, whose father was a member of the House of Assembly of St George in the West Indies, had briefly been an MP in the 1790s, but was even more a poet, historian and litterateur. A clever poet, who edited and published an anthology of poetry, and the author of a history of the Dutch Revolution of the mid-1780s, George Ellis had been a diplomat, and then became a frequent contributor to the Anti-Jacobin Review. He was a close friend of George Canning and of the Scottish Tory writer Sir Walter Scott.

20. Alexander Baring, son of Sir Francis of the great banking family, had been a member of the bullion committee of 1810 who voted against the Report. Trained from early life to work in his father's banking house, he married the daughter of the wealthy federalist associate of Robert Morris of Philadelphia, US Senator William Bingham. Baring became head of his family bank in 1810, and was an MP for 30 years from 1806 on.

21. Salim Rashid, ‘Edward Copleston. Robert Peel, and Cash Payments’, History of Political Economy, 15 (Summer 1983), pp. 249–59.

22. Frank W. Fetter, Development of British Monetary Orthodoxy 1797–1875 (Cambridge, Mass.: Harvard University Press, 1965), pp. 69–70.

23. Cobbett (1762–1835) was one of the few political writers to come from a lower-class background. Son of a peasant family in Surrey, Cobbett became a copying clerk to a lawyer in London, enlisted in the ranks of the army, becoming an NCO in Nova Scotia in 1791, and married a soldier's daughter. Wandering to France and thence to the United States, Cobbett became an English teacher to French refugees and a translator in Philadelphia, where he made his mark in the mid-1790s as a virulently pro-English Tory and federalist and opponent of Jacobinism. He became a newspaper writer, editor, and publisher in Philadelphia in the late 1790s.

Returning to England in 1800, Cobbett began his highly influential Cobbett's Weekly Political Register in 1802, continuing its publication until his death. He also published the parliamentary debates and a multi-volume parliamentary history of England. In 1804, Cobbett shifted sharply and permanently to an all-out radical position, praising parliamentary reform, denouncing paper money, and repeatedly being charged with sedition.

24. Cited in Mark Skousen, The 100% Gold Standard: Economics of a Pure Money Commodity (Washington, DC: University Press of America, 1977), p. 45.

25. The corollary goals of the Jacksonian movement were all consistent with the aim of achieving a free market, laissez-faire economy and polity: free trade (accomplished in the 1840s), repayment of the entire national debt (achieved in the 1830s), no federal and precious little state ‘internal improvements’ (public works), and generally, an ultra-minimal budget or governmental power, certainly on the federal and even on the state and local levels.

26. The plan was two terms of Benton as president, to follow two terms of Van Buren, Jackson's selected heir. But Van Buren never gained his second term, the great split amongst the Jacksonians, symbolically including a split between Van Buren and Jackson himself, coming in 1844 over the crucial question of whether or not the Republic of Texas should be admitted to the Union as a slave state.

27. Condy Raguet, Treatise on Money and Banking (1839), p. 137, quoted in Vera Smith, The Rationale of Central Banking (1936, Indianapolis, Ind.: Liberty Press, 1990), p. 84.

28. The second, more widely known, edition of this book was published as The Elements of Political Economy (2 vols, 1823, 1836, 1840).

29. Quoted in Peter Bernholz, ‘Inflation and Monetary Constitutions in Historical Perspective’, Kyklos, 36, no. 3 (1983), pp. 407–8.

30. Ibid., pp. 408–9.