Blackwood's Edinburgh Magazine, Volume 69, No. 423, January 1851

It is impossible to give a better picture of what this great Currency Extension Act of Nature will do for industry in all countries, and especially the commercial, than by saying that it will as nearly as possible reverse the effects which Mr Cobden, the great advocate for the cheapening system, said, in his evidence before the Committee on Bank Issues in 1840, he had experienced in the preceding years in his own business from the contraction of the currency consequent on the great importation of grain in 1838 and 1839: —

"I could adduce a fact derived from my own experience that would illustrate the heavy losses to which manufacturers were exposed in their operations, by those fluctuations (in 1837) in the value of money. I am a calico printer. I purchase the cloth, which is my raw material, in the market; and have usually in warehouse three or four months' supply of material. I must necessarily proceed in my operations, whatever change there may be – whether a rise or a fall in the market. I employ six hundred hands; and those hands must be employed. I have fixed machinery and capital which must also be kept going; and, therefore, whatever the prospects of a rise or fall in price may be, I am constantly obliged to be purchasing the material, and contracting for the material on which I operate. In 1837 I lost by my stock in hand L.20,000, as compared with the stock-taking in 1835, 1836, and 1838; the average of those three years, when compared with 1837, shows that I lost L.20,000 by my business in 1837; and what I wish to add is, that the whole of this loss arose from the depreciation in the value of my stock.

"My business was as prosperous; we stood as high as printers as we did previously; our business since that has been as good, and there was no other cause for the losses I then sustained, but the depreciation of the value of the articles in warehouse in my hands. What I wish particularly to show, is the defenceless condition in which we manufacturers are placed, and how completely we are at the mercy of these unnatural fluctuations. Although I was aware that the losses were coming, it was impossible I could do otherwise than proceed onward – with the certainty of suffering a loss on the stock; to stop the work of six hundred hands, and to fail to supply our customers, would have been altogether ruinous; that is a fact drawn from my own experience. I wish to point to another example of a most striking kind, showing the effect of these fluctuations on merchants. I hold in my hand a list of thirty-six articles which were imported in 1837, by the house of Butterworth and Brookes of Manchester, a house very well known; Mr Brookes is now borough-reeve of Manchester. Here is a list of thirty-six articles imported in the year 1837, in the regular way of business, and opposite to each article there is the rate of loss upon it as it arrived, and as it was sold. The average loss is 37½ per cent on those thirty-six articles, and they were imported from Canton, Trieste, Bombay, Bahia, Alexandria, Lima, and, in fact, all the intermediate places almost. This, I presume, is a fair guide to show the losses which other merchants incurred on similar articles."

It was these disastrous losses which made Mr Cobden a Free-trader. He wished to cheapen everything as his own produce had been cheapened. The contraction of the currency, and its being made dependent on the retention of gold, was the origin and root of the whole evil and all the disasters the nation has since undergone.

Such a change, however, the reverse of all this, like all those produced by nature, is so gradual as to the vast majority of men to be imperceptible. Like the gradual extension of the day in spring, or the change of temperature, the change is so slight from day to day that it eludes even the closest observation. From one month to another, however, the alteration is great and striking. The addition, first, of six or eight millions of gold, annually raised, rising by degrees to sixteen or eighteen millions – which doubles the annual supply of the precious metals for the use of the globe – being diffused over an immense surface, and finding its way more or less into the coffers of all nations, may not produce a great or even visible start of prices at any one time. But the change will be incessant; and before many years have elapsed, the result, if the increased supply continues, will be great and apparent. In the first instance, the effect will appear in arresting the fall of prices which has so long been going on, and which our legislative measures have all been calculated to increase. But after arresting the fall, it will speedily induce a rise; and this rise will for a long period be so steady and considerable as to produce a very great increase in the remuneration of the labouring classes, and immensely to benefit them. There is no speculation in this: it is only supposing that the increase of gold is to produce the same effect as the increase of silver, from the discovery of the South American mines, did three centuries ago.

The effect of the same change, by diminishing the weight of debt and taxes, will be still more signal and beneficial. Among the many and appalling evils of which a rise in the value of the circulating medium, and consequent fall in that of everything else, is productive, there is perhaps none so widespread and calamitous in its effects, as the adding to the weight of debts and taxes, and thus weighing down the energies of the productive classes, upon whose efforts the whole prosperity of society depends. It is that which has been the great cause of the long-continued depression and agony, interrupted only by fleeting gleams of prosperity, of the last thirty years, as the sudden expansion and contraction of the currency consequent on its being made dependent on the presence or absence of the precious metals, has been of its frightful oscillations. The taxes now paid by the nation, as measured by the price of wheat – the true measure – are, after, five-and-thirty years of peace, twice as heavy as they were in 1815, after twenty years of a costly war. This is what renders it so difficult for any government to maintain armaments, either at sea or land, at all commensurate to the public necessities; which has weakened our national influence, and degraded our national character, and exposed us to the deplorable state of weakness against foreign aggression, to the dangers of which, the Duke of Wellington has said he has found it impossible to awaken any Administration for thirty years. The Government see the public dangers, but they are disabled from guarding against them, because Parliament, stimulated by suffering constituencies whom the fall of prices has involved in constant difficulties, will not vote the necessary supplies. It is the same with the weight of mortgages, jointures, family provisions, bonds, bills, and debts of every description. They have all been doubled in weight since the bill of 1819 contracted the currency; and hence the inextricable embarrassments into which nearly all classes of the community have been precipitated, except the moneyed, whose fortunes have every day been increasing in real amount, from the same cause which has spread ruin so generally around them.

When it is said that the effect of Californian gold will be to reverse all this – to reduce gradually, and probably before twenty years have elapsed, half the weight of debt and taxes now felt as so grievous a burden by the community – it is affirmed that it will confer, perhaps, the greatest blessing which a beneficent Providence could confer on a suffering world. In England it will gradually and to a certain extent, so far as average prices are concerned, undo all that the Bullionists and Free-traders have been doing for the last thirty years. It will remove a large part of the frightful evils consequent on the monetary measures of Sir Robert Peel; and if seconded by a revision of our import duties, and a moderate tax for fiscal purposes on all foreign articles brought into the country, it would go far to repair the devastation produced by the selfish legislation of the last thirty years. In France it will arrest that dreadful fall of wages which, ever since the peace, has been felt to be increasing, from the constant reduction of prices arising from the destruction of the South American mines, and the simultaneous measures adopted for the contraction of the currency in Great Britain. The unjust monopoly of realised capital will be arrested, at least for a long period. The unjust depression of industry, by the continued fall of prices, will be gradually terminated. But so gradual will be the change, and so unseen the operation of the vivifying element thus let into society, that even the classes most benefited by it will, for the most part, be ignorant of the cause to which their improved circumstances have been owing. They will be blessed by the hand of Nature, they know not how or by whom, as, under the former system, they were cursed by the hand of man, they knew not how or by whom.

Already the beneficial effects of Californian gold have been felt over the whole world, and nowhere more strongly than in this country. It is well known that prices of all articles of commerce, except corn and sugar, have risen twenty or thirty per cent within the last year; and the Free-traders consider that as being entirely owing to their measures. If so, it is singular how corn and sugar, on which the inundation of Free Trade has been chiefly let in since 1846, should be the only exceptions to the general rise. It is singular what contradictory effects they ascribe to their system: at one time it is lauded to the skies, because it tends to lower prices, and cheapen every article of consumption; at another, because it is said to raise prices, and encourage every branch of industry. Both effects cannot be owing to the same system: to ascribe them both to it is to say that a certain combination of gases produces alternately fire and water. At all events, if Free Trade brings about a rise of prices, what comes of all the arguments which went to recommend it on the score of reducing them? The truth is, however, Free Trade has nothing whatever to do with the recent rise of prices of manufactured articles, nor with the extension of the national exports which has taken place. These happy results, the passing gleam of sunshine, have been entirely owing to other causes, among which Californian gold bears a prominent place. Free Trade has tended only to continue and perpetuate the misery and depression which attended its first introduction.

This argument of the increase of our exports last year (1850) having been owing to Free Trade, has been so admirably disposed of by that able and intrepid man to whom the nation is under such obligations for the light he has thrown on these subjects, and the courageous way in which he has everywhere asserted them, in a late public meeting at Rugby, that we cannot do better than quote his words: —

"The Free-traders had boasted much of their system as having increased the amount of our exports; and he (Mr Young) had been continually trying for a long period to get from them the names of the countries to which those increased imports went. At length he had the fact; and the result would be most startling as applied to the arguments and predictions of that party before the corn law was repealed. The countries he would take were Russia, Sweden, Norway, Denmark, Prussia, Germany, Holland, Belgium, and France; and he found that in the year 1845 the quantity of corn imported from all these countries, comprising, as they did, the whole of northern and central Europe, amounted to 1,741,730 quarters, whilst the declared value of British and Irish manufactures exported to those countries was L.17,504,417. But last year the corn imported from those countries had increased in quantity to 6,857,530 quarters, whilst our exports to them had decreased to L.15,274,639. These figures showed that from the whole of northern and central Europe we took last year no less than 5,115,800 quarters of corn more than in 1845, and that there was a decrease in the value of our exports of L.2,229,778. Again, last year the declared value of our gross exports amounted to L.63,596,025, but in 1845 it reached the sum of L.60,111,082; so that in the course of these four years the increase was only L.3,484,943. He found also that our exports in 1830 were L.35,842,623, and in 1835, L.47,372,270, being an increase on the five years of L.11,529,647, or 32 2-10ths per cent. That was an increase under the operation of protection. In 1840 the exports amounted to L.51,406,430, or an increase upon 1835 of L.4,634,160, or 8 5-10ths per cent. In 1845 they were L.60,111,082 – an increase on 1840 of L.8,704,652, or 16 9-10ths per cent. In 1849, L.63,596,025, an increase on 1845 of L.3,484,943; and in the present year, supposing the increase continued in the same ratio, he calculated that that increase would on the year 1845 be about L.4,350,000, or 7 2-10ths per cent. Would Free-traders boast of their exports after that? They talked upon this question as if the country had, under the system of protection, been in a perfectly dead and stagnant condition, and that the agriculturists were like the clods of the earth, and less capable of improvement. Why, it was under protection that our ships were employed to go to the island of Ichaboe, from which guano was first imported into this country; and it was under protection that that island had disappeared from the face of the ocean, and every cwt. of its guano had been brought here and spread upon the soil. He rejoiced and exulted in the march of science as much as any man; but it was an arrogant and an unfounded assumption on the part of the Free-traders to monopolise to themselves, as the result of their system, those improvements in agriculture which were going on under protection with railroad speed, and to which, in truth, their measures had only given a check, and not an impetus. But then he was asked, what have you to say to the United States? He would tell them. He found that the exports to the United States amounted to L.11,971,028 in 1849; but in 1836 they were not less than L.12,425,605; so that the exports in the former exceeded those in the latter year by L.454,577. Surely facts like these would dispose of a few of the Free-trade fallacies, and we should not hear them again repeated, at all events." —Morning Herald, Nov. 28, 1850.

The restoration of peace on the Continent was the principal cause which again raised the amount of our exports to the Old World. This appears decisively in the returns: the exports of Great Britain to Germany alone, which, in 1848, had sunk to less than £4,000,000, rose, in 1850, to £6,078,355. The cessation of purchases to the Continent, during the two preceding years, in consequence of the alarm consequent on the French and German revolutions, only made the rush for English manufactures greater when the restoration of tranquillity reopened the Continent to our industry. In America the change was equally great, and equally irrespective of Free Trade: our exports to the United States, in 1850, exceeded £12,000,000. This extension arose from the general rise of prices, and extension of credit, from the opening of the treasures of California. It not only created a new market for exports on the reverse of the Rocky Mountains, but so vivified and animated every part of the Union, as rendered them capable of purchasing a much larger quantity of the manufactured articles of this country than they had done for a great number of years.6

But by far the most important and beneficial effect of Californian gold hitherto experienced has been in the extension of credit and increase of accommodation at home. This effect is obvious and important. The notes of the Bank of England in circulation, have risen in the last year to L.20,000,000 or L.21,000,000 from L.16,500,000, which they had fallen to during the panic. The circulation of every other bank has, as a matter of course, been proportionably augmented. What produced this great increase in the circulating medium? The influx of bullion into the country, which augmented the treasure in the Bank of England to above L.16,000,000. There is the secret of the whole thing; of the activity in the manufacturing districts, and the general extension of credit and rise of prices through the districts. It is Californian gold which has done the whole; for it has at once filled to overflowing the vaults of the Bank of England, and relieved its officers, and those of all similar establishments, from all dread of a drain of specie setting in. Gold was abundant; the banks no longer feared a collapse: therefore notes were abundant also; the terrors of the holders of them were abated. Prices rose, and credit was extended. We are far from thinking that it is a wise and judicious system to make credit of every kind entirely dependent on the amount of metallic treasure in the vaults of the Bank of England: we only say, having done this by Sir R. Peel's monetary system, we have to thank California for having put at least a temporary stop to the evils with which it was pregnant. It is not surprising that the addition of even so small a sum to the metallic circulation of the commercial world should produce, in a single year, so great a result. The discovery of two millions of bank-notes, in an old chest of the Bank of England, stopped the panic of December 1825; the mere issuing of Lord J. Russell's letter, announcing the temporary repeal of the Bank Charter Act, put a period to the far severer crash of 1847. The addition of five millions to the metallic treasure of this country is quite sufficient to vivify every branch of industry, for it will probably put fifty millions, in bank-notes and private bills, into circulation.

As the influx of Californian gold, however, is an element of such immense importance thus let into the social world, it is material to observe what evils it is adequate to remedy, and to what social diseases it can be regarded as a panacea. This is the more necessary, because, while it tends by its beneficent influence to conceal for a time the pernicious effects of other measures, it is by no means a remedy for them; nor has it a tendency even, in the long run, to lessen their danger. It induces immediate prosperity, by the extension of credit and rise of prices with which it is attended; but it has no tendency to diminish the dreadful evils of Free-Trade and a currency mainly dependent on the retention of the precious metals at all times in the country.

On the contrary, it may, under many circumstances, materially aggravate them.

As the effect produced by a great addition of the metallic treasures of the earth is universal, it must affect prices equally in every part of the world. The largest part of the bullion, indeed, will be brought to the richest country, which is best able to buy it, and has most need of it to form the basis of its transactions. But still, some part will find its way into every country; prices will be everywhere raised, and the relative proportion between them in different countries will remain the same, or even be rendered more unfavourable to the richer state. That is the material circumstance; for it shows that it must leave the greatest and most lasting evils of Free Trade untouched. Supposing gold to become so plentiful that the sovereign is only worth ten shillings, and the effect on general prices to be such that the average price of the quarter of wheat is raised from forty to sixty shillings – which, in a course of years, is by no means improbable – still the relative position of the British with the Polish and American cultivator will remain the same. The price of the wheat may be raised from 15s. to 25s. a-quarter, on the banks of the Vistula or the Mississippi; but still the ability of their cultivators to undersell our farmers will remain the same, or rather be augmented. Prices will still be so much higher in the old rich and heavily-taxed country, which absorbs the largest part of the metallic circulation of the earth, than in the young poor and untaxed one, that in the production of the fruits of the earth, to which machinery can never be made applicable, the inability to carry on the competition will only be rendered the more apparent by the increasing, or at all events, permanent difference of the prices.

In the next place, how cheap soever gold, from its augmented plenty, may become, there will be no cessation, as long as our paper circulation remains on its present footing, of those dreadful monetary crises which now, at stated periods recurring every five or six years, spread such unheard-of ruin through the industrious classes. Let gold, from its greater plenty, become of only half its value, or a sovereign be only worth ten shillings, and prices, in consequence, rise to double their present amount, the danger of a monetary crisis, as long as our currency is based on its present footing, will remain the same. Still, any considerable drain of the metallic treasure of the country, such as it is – either from the necessities of foreign war, the adverse state of foreign exchanges, or a great importation, occasioned by a deficient home harvest – will send the specie headlong out, and, by suddenly contracting the currency, ruin half of the persons engaged in business undertakings. It is the inconceivable folly of making the paper circulation dependent on the retention of the metallic; the enormous error of enacting, that, for every five sovereigns that are drawn out of the country, a five-pound note shall be drawn in by the bankers; the infatuated self-immolation arising from the gratuitous negation of the greatest blessing of a paper circulation – that of supplying, during the temporary absence of the metallic currency, its want, and obviating all the evils thence arising – which is the real source of the evils under which we have suffered so severely since the disastrous epoch of 1819, when the system was introduced. The increased supply of gold, so far from tending to obviate this danger, has a directly opposite effect; for, by augmenting the metallic treasures of the country, and thus raising credit during periods of prosperity, it engages the nation in a vast variety of undertakings, the completion of which is rendered impossible when the wind of adversity blows, by the sudden contraction of its currency and credit. And to this danger the mercantile classes are exposed beyond any other; for as their undertakings are always far beyond their realised capital, and supported entirely by credit, every periodical contraction of the currency, recurring every five or six years, exposes one-half of them to inevitable ruin.

Let not the Free-traders, therefore, lay the flattering unction to their souls, that California is to get them out of all their difficulties, and that after having, by their ruinous measures, brought the nation to the very brink of ruin, and destroyed one-half of its wealth engaged in commerce, they are to escape the deserved execration of ages, by the effects of an accidental discovery of metallic treasures on the shores of the Pacific. Californian gold, a gift of Providence to a suffering world, will arrest the general and calamitous fall of prices which the Free-traders have laboured so assiduously to introduce, and thus diminish in a most material degree the weight of debts and taxes. So far it will undoubtedly tend to relieve the industrious classes, especially in the rural districts, from much of the misery induced on them by their oppressors; but it cannot work impossibilities. It will leave industry in all classes, and in none more than the manufacturing, exposed to the ruinous competition of foreigners, working, whatever the value of money may be, at a cheaper rate than we can ever do, because in poorer and comparatively untaxed countries. It will leave the commercial classes permanently exposed to the periodical recurrence of monetary storms, arising out of the very plenty of the currency when credit is high, and its sudden withdrawal from the effect of adverse exchanges, or the drain consequent on vast importations of food. It will leave the British navy, and with it the British colonial empire and our national independence, gradually sinking from the competition, in shipping, of poorer states. Nature will do much to counteract the disasters induced by human folly; but the punishment of guilty selfishness is as much a part of her system as the relief of innocent suffering; and to the end of the world those who seek to enrich themselves by the ruin of their neighbours will work out, in the very success of their measures, their own deserved and memorable punishment.