however great. From what the Committee bave already stated with respect to the par of exchange, it is manifest that the exchange between two countries is at its real par, when a given quantity of gold or silver in the one country is convertible at the market price into such an amount of the currency of that country, as will purchase a bill of exchange on the other country for such an amount of the currency of that other country, as will there be convertible at the market price into an equal quantity of gold or silver of the same fineness. In the same manner, the real exchange is in favor of a country having money transactions with another, when a given quantity of gold or silver in the former is convertible for such an amount in the currency of that latter country, as will there be convertible into a greater quantity of gold or silver of the same fineness.

Upon these principles, your Committee desired Mr. Greffulhe to make certain calculations, which appear in his answers to the following questions, viz.:

"Supposing you had a pound weight troy of gold of the English standard at Paris, and that you wished by means of that to procure a bill of exchange upon London, what would be the amount of the bill of exchange which you would procure in the present circumstances ?-I find that a pound of gold of the British standard at the present market price of 105 francs, and the exchange at 20 livres, would purchase a bill of exchange of 591. 88.

"At the present market price of gold in London, how much standard gold can you purchase for 591. Ss.?-At the price of 4l. 128. I find it will purchase 13 ounces of gold, with a very small fraction.

Then what is the difference per cent. in the quantity of standard gold which is equivalent to 597. 88. of our currency as at Paris and in London ?-About 81⁄2 per cent.

"Suppose you have a pound weight troy of our standard gold at Hamburgh, and that you wished to part with it for a bill of exchange upon London, what would be the amount of the bill of exchange, which, in the present circumstances, you would procure? -At the Hamburgh price of 101, and the exchange at 29, the amount of the bill purchased on London would be 587. 48.

What quantity of our standard gold, at the present price of 47. 128. do you purchase for 58 48. ?-About 12 ounces and 3 dwts.

Then what is the difference per cent. between the quantity of standard goid at Hamburgh and in London, which is equivalent to 587. 48. sterling ?-About 51⁄2 per cent. "Suppose you had a pound weight troy of our standard gold at Amsterdam, and wished to part with it for a bill of exchange upon London, what would be the amount sterling of the bill of exchange which you would procure ?-At the Amsterdam price of 11%, exchange 31.6, and Bank agio 1 per cent., the amount of the bill on London would be 58. 188.

"At the present price of 4l. 128. what quantity of our standard gold do you purchase in London for 58. 188. sterling ?-12 oz. 16 dwts.

"How much is that per cent ?-7 per cent."

Similar calculations, but made upon different assumed data, will be found in the evidence of Mr. Abraham Goldsmid. From these answers of Mr. Greffulhe, it appears, that when the computed exchange with Hamburg was 29, that is, from 16 to 17 per cent. below par, the real difference of exchange, resulting from the state of trade and balance of payments was no more than 5% per cent. against this country, that when the computed exchange with Amsterdam was 31.6, that is about 15 per cent. below par, the real exchange was no more than 7 per cent. against this country; that when the computed exchange with Paris was 20, that is 20 per cent. below par, the real exchange was no more than 82 per cent. against this country. After making these allowances, therefore, for the effect of the balance of trade and payments upon our exchanges with those places, there will still remain a fall of 11 per cent. in the exchange with Hamburgh, of above 8 per cent. in the exchange with Holland, and 111⁄2 per cent. in the exchange with Paris, to be explained in some other manner.

If the same mode of calculation be applied to the more recent statements of the exchange with the continent, it will perhaps appear that, though the computed exchange is at present against this country, the real exchange is in its favor.

From the foregoing reasons relative to the state of the exchanges, if they are considered apart, your Committee find it difficult to resist an inference, that a portion at least of the great fall which the exchanges lately suffered must have resulted not from the state of trade, but from a change in the relative value of our domestic currency. But, when this deduction is joined with that which your Committee have stated, respecting the change in the market price of gold, that inference appears to be demonstrated.

III.

EFFECT OF BANK OF ENGLAND QUASI LEGAL TENDER ISSUES ON GOLD EXPORTS AND PAPER DEPRECIATION,

In consequence of the opinion which your Committee entertained, that, in the present

artificial condition of the circulating medium of this country, it is most important to watch the foreign exchanges and the market price of gold, your Committee were desirous to learn whether the Directors of the Bank of England held the same opinion, and derived from it a practical rule for the control of their circulation; and particularly whether, in the course of the last year, the great depression of the exchanges, and the great rise in the price of gold, had suggested to the Directors any suspicion of the currency of the country being excessive.

PRACTICE OF THE BANK.

Mr. Whitmore, the late Governor of the Bank, stated to the Committee, that in regulating the general amount of the loans and discounts, he did not advert to the circumstance of the exchanges; it appearing upon a reference to the amount of our notes in circulation, and the course of exchange, that they frequently have no connection." He afterward said, "My opinion is, I do not know whether it is that of the Bank, that the amount of our paper circulation has no reference at all to the state of the exchange." And on a subsequent day Mr. Whitmore stated, that "the present unfavorable state of exchange has no influence upon the amount of their issues, the Bank having acted in precisely the same way as they did before." He was likewise asked, whether, in regulating the amount of their circulation, the Bank ever adverted to the difference between the market and Mint price of gold, and having desired to have time to consider that question, Mr. Whitmore, on a subsequent day, answered it in the following terms, which suggested these further questions:

"In taking into consideration the amount of your notes, out in circulation, and in limiting the extent of your discounts to merchants, do you advert to the difference, when such exists, between the market and the Mint price of gold ?-We do advert to that, inasmuch as we do not discount at any time for those persons who we know, or have good reason to suppose, export the gold."

"Do you not advert to it any farther than by refusing discounts to such persons ?We do advert to it, inasmuch as whenever any Director thinks it bears upon the question of our discounts, and presses to bring forward the discussion.

"The market price of gold having, in the course of the last year, risen as high as 4l. 108. or 4l. 128, has that circumstance been taken into consideration by you, so as to have had any effect in diminishing or enlarging the amount of the outstanding demands ?-It has not been taken into consideration by me in that view."

Mr. Pearse, now Governor of the Bank, agreed with Mr. Whitmore in this account of the practice of the Bank, and expressed his full concurrence in the same opinion.

Mr. Pearse." In considering this subject, with reference to the manner in which Bank notes are issued, resulting from the applications made for discounts to supply the necessary want of Bank notes, by which their issue in amount is so controlled that it can never amount to an excess, I cannot see how the amount of Bank notes issued can operate upon the price of Bullion, or the state of the exchanges, and therefore I am in. dividually of opinion that the price of Bullion, or the state of the exchanges, can never be a reason for lessening the amount of Bank notes to be issued, always understanding the control which I have already described.

Is the Governor of the Bank of the same opinion, which has now been expressed by the Deputy Governor ?

Mr. Whitmore." I am so much of the same opinion, that I never think it necessary to advert to the price of gold, or the state of the exchange, on the days on which we make our advances.

"Do you advert to these two circumstances with a view to regulate the general amount of your advances ?—I do not advert to it with a view to our general advances, conceiving it not to bear upon the question."

And Mr. Harman, another Bank Director, expressed his opinion in these terms-"I must very materially alter my opinions before I can suppose that the exchanges will be influenced by any modification of our paper currency.'

These gentlemen, as well as several of the merchants who appeared before the Committee, placed much reliance upon an argument which they drew from the want of correspondence in point of time, observable between the amount of Bank of England notes and the state of the Hamburgh exchange during several years; and Mr. Pearse presented a paper on this subject, which is inserted in the Appendix. Your Committee would feel no distrust in the general principles which they have stated, if the discordance had been greater; considering the variety of circumstances which have a temporary effect on exchange, and the uncertainty both of the time and the degree in which it may be influenced by any given quantity of paper. It may be added, that the numerical amount of notes (supposing 17. and 27. notes to be excluded from the statement) did not materially vary during the period of the comparison; and that in the last year, when the general exchanges with Europe have become much more unfavorable, the notes of the Bank of England, as well as those of the country Banks, have been very considerably increased. Your Committee, however, on the whole, are not of opinion

THE BULLION REPORT.

that a material depression of the exchanges has been manifestly to be traced in its amount and degree to an augmentation of notes corresponding in point of time. They conceive, that the more minute and ordinary fluctuations of exchange are generally referable to the course of our commerce; that political events, operating upon the state of trade, may often have contributed as well to the rise as to fall of the exchange; and in particular, that the first remarkable depression of it in the beginning of 1809, is to be ascribed, as has been stated in the evidence already quoted, to commercial events arising out of the occupation of the North of Germany by the troops of the French Emperor. The evil has been that the exchange, when fallen, has not had the full means of recovery under the subsisting system. And if those occasional depressions, which arise from commercial causes, are not after a time successively corrected by the remedy which used to apply itself before the suspension of the cash payments of the Bank, the consequences may ultimately be exactly similar to those which a sudden and extravagant issue of paper would produce. The restoration of the exchange used to be effected by the clandestine transmission of guineas, which improved it for the moment by serving as a remittance; and unquestionably also in part, probably much more extensively, by the reduction of the total quantity of the remaining circulating medium, to which reduction the banks were led to contribute by the caution which every drain of gold naturally excited. Under the present system, the former of these remedies must be expected more and more to fail, the guineas in circulation being even now apparently so few as to form no important remittance; and the reduction of paper seems therefore the chief, if not the sole corrective, to be resorted to. It is only after the Bank shall have for some time resumed its cash payments, that both can again operate, as they did on all former occasions prior to the restriction.

The Committee cannot refrain from expressing it to be their opinion, after a very deliberate consideration of this part of the subject, that it is a great practical error to suppose that the exchanges with foreign countries, and the price of Bullion, are not liable to be affected by the amount of a paper currency, which is issued without the condition of payment in specie at the will of the holder. That the exchanges will be lowered, and the price of Bullion raised, by an issue of such paper to excess, is not only established as a principle by the most eminent authorities upon commerce and finance; but its practical truth has been illustrated by the history of almost every state in modern times which has used a paper currency; and in all those countries this principle has finally been resorted to by their statesmen, as the best criterion to judge by, whether such currency was or was not excessive.

EARLIER VARIATIONS IN EXCHANGE.

In the instances which are most familiar in the history of foreign countries the excess of paper has been usually accompanied by another circumstance, which has no place in our situation at present, a want of confidence in the sufficiency of those funds Where these two circumstances, excess and upon which the paper had been issued. want of confidence, are conjoined, they will co-operate and produce their effect much more rapidly then when it is the result of the excess only of a paper of perfectly good credit; and in both cases an effect of the same sort will be produced upon the foreign exchanges, and upon the price of bullion. The most remarkable examples of the former kind are to be found in the history of the paper currencies of the British Colonies in North America in the early part of the last century and in that of the assignats of the French Republic; to which the Committee has been enabled to add another, scarcely less remarkable, from the money speculations of the Austrian Government in the last campaign, which will be found in the Appendix. The present state of the currency of Portugal affords, also, an instance of the same kind.

Examples of the other sort, in which the depreciation was produced by excess alone may be gathered from the experience of the United Kingdom at different times.

In Scotland, about the end of the seven years' war, banking was carried to a very great excess; and by a practice of inserting in their promissory notes an optional clause of paying at sight, or in six months after sight with interest, the convertibility of such notes into specie at the will of the holder was in effect suspended. These notes accordingly became depreciated in comparison with specie; and while this abuse lasted, the exchange between London and Dumfries, for example, was sometimes four per cent against Dumfries, while the exchange between London and Carlisle, which is not thirty The Edingburgh banks, when any of their miles distant from Dumfries, was at par. paper was brought in to be exchanged for bills on London, were accustomed to extend or contract the date of the bills they gave, according to the state of the exchange, diminishing in this manner the value of those bills, nearly in the same degree in which the excessive issue had caused their paper to be depreciated. This excess of paper was at last removed by granting bills on London at a fixed date; for the payment of which bills, or in other words, for the payment of which excess of paper, it was necessary in the first instance to provide by placing large pecuniary funds in the hands of their London correspondents. In aid of such precautionary measures on the part of the Edin

burgh banks, an act of Parliament prohibited the optional clauses, and suppressed ten and five shilling notes. The exchange between England and Scotland was speedily restored to its natura ate: and bills on London at a fixed date having ever since been given in exchange for the circulating notes of Scotland, all material excess of Scottish paper above Bank of England has been prevented, and the exchange has been stationary. The experience of the Bank of England itself, within a very short period after its first establishment, furnishes a very instructive illustration of all the foregoing principles and reasonings. In this instance, the effects of a depreciation of the coin, by wear and clipping, were coupled with the effect of an excessive issue of paper. The Directors of the Bank of England did not at once attain a very accurate knowledge of all the principles by which such an institution must be conducted. They lent money not only by discount, but upon real securities, mortgages, and even pledges of commodities not perishable; at the same time, the Bank contributed most materially to the service of goverment for the support of the army upon the Continent. By the liberality of these loans to private individuals, as well as by the large advances to government, the quantity of the notes of the Bink became excessive, their relative value was depreciated, and they fell to a discount of 17 per cent. At this time there appears to have been no failure of the public confidence in the funds of the Bank; for its stock sold for 110 per cent., though only 60 per cent. upon the subscriptions bad been paid in. By the conjoint effect of this depreciation of the paper of the Bank from excess, and of the depreciation of the silver coin from wear and clipping, the price of gold bullion was so much raised, that guineas were as high as 308.; all that had remained of good silver gradually disappeared from the circulation; and the exchange with Holland, which had been before a little affected by the remittances for the army, sunk as low as 25 per cent. under par, when the Bank notes were at a discount of 17 per cent. Several expedients were tried, both by Parliament and by the Bank, to force a better silver coin into circulation, and to reduce the price of guineas, but without effect. At length the true remedies were resorted to: first, by a new coinage of silver, which restored that part of the currency to its standard value, though the scarcity of money occasioned by calling in the old coin brought the Bank into straits, and even for a time affected its credit; secondly, by taking out of the circulation the excess of Bank notes. This last operation appears to have been effected very judiciously. Parliament consented to enlarge the capital stock of the Bank, but annexed a condition, directing that a certain proportion of the new subscriptions should be made good in Bank notes. In proportion to the amount of notes sunk in this manner, the value of those which remained in circulation began presently to rise; in a short time the notes were at par, and the foreign exchanges nearly so. These details are all very fully mentioned in authentic tracts published at the time, and the case appears to your Committee to afford much instruction upon the subject of their present inquiry.

.6

Your committee must next refer to the confirmation and sanction which all their reasonings receive from the labours of the Committee of this House, which was appointed in a former Parliament to examine into the causes of the great depreciation of the Irish exchange with England in 1804. Most of the mercantile persons who gave evidence before that Committee, including two Directors of the Bank of Ireland, were unwilling to admit that the fall of the exchange was in any degree to be ascribed to an excess of the paper currency arising out of the restriction of 1797; the whole fall in that case, as in the present, was referred to an unfavorable balance of trade or of payments; and it was also then affirmed, that notes issued only in proportion to the demand, in exchange for good and convertible securities, payable at specific periods, could not tend to any excess in the circulation, or to any depreciation." This doctrine, though more or lees qualified by some of the witnesses, pervades most of the evidence given before that Committee, with the remarkable exception of Mr. Mansfield, whose knowledge of the effects of that over-issue of Scotch paper, which has just been mentioned, led him to deliver a more just opinion on the subject. Many of the witnesses before the Committee, however unwilling to acknowledge the real nature of the evil made important concessions, which necessarily involved them in inconsistency. They could not, as practical men, controvert the truth of the general position, that the fluctuations of exchange between two countries are generally limited by the price at which any given quantity of bullion can be purchased in the circulating medium of the debtor country and converted into the circulating medium of the creditor country, together with the insurances and charges of transporting it from one to the other." It was at the same time admitted, that the expense of transporting gold from England to Ireland, including insurance, was then under one per cent.; that before the restriction, the fluctuations had never long and much exceeded this limit; and, moreover, at the exchange with Belfast, where guineas freely circulated at the time of the investigation by that Committee, was then 14 in favor of Ireland, while the exchange with Dublin, where only paper was in use, was 101. per cent. against that country. It also appeared from such imperfect documents as it was practicable to furnish, that the balance of trade was then favorable to Ireland. Stil, however, it was contended, that there was no depreciation of Irish paper, that there was a scarcity and consequent high price of gold, and that the diminution of Irish paper would not rectify the exchange. The depreciation of Bank paper in Ire

land" (it was said by one of the witnesses, a Director of the Bank of Ireland)" is entirely a relative term with respect to the man who buys and sells in Dublin by that common medium to him it is not depreciated at all; but to the purchaser of a bill on London, to him in that relation, and under that circumstance, there is a depreciation of ten per cent." By thus avoiding all comparison with a view to the point in issue between the value of their own paper and that of either the then circulating medium of this country or of gold bullion, or even of gold coin then passing at a premium in other parts of Ireland, they appear to have retained a confident opinion, that no depreciation of Irish paper had taken place.

It is further observab'e, that the value of a considerable quantity of dollars put into circulation by the Bank of Ireland at this period was raised to 58. a dollar, for the professed purpose of rendering the new silver coin conformable to the existing state of the exchange, a circumstance on which the Committee animadverted in their Report, and which serves to show that the Irish paper currency could not stand a comparison with the standard price of silver, any more than with that of gold bullion, with gold in coin, or with the then paper currency of this kingdom.

A fact was mentioned to that Committe on the evidence of Mr. Colville, a Director of the Bank of Ireland, which, though it carried no conviction to his mind of the tendency of a limitation of paper to lower exchanges, seems very decisive on this point. He stated that in 1753 and 1754, the Dublin exchange being remarkably unfavorable, and the notes of the Dublin Bank being suddenly withdrawn, the exchange became singularly favorable. The mercantile distress produced on that occasion was great, through the suddenness of the operation, for it was effected, not by the gradual and prudential measures of the several Banks, but through the violent pressure which their unguarded issues had brought upon them. The general result, however, is not the less observable. With a view to the further elucidation of the subject of the Irish exchanges, which so lately attracted the attention of Parliament, it may be proper to remark that Ireland has no dealings in exchange with foreign countries, except through London, and that the payments from Ireland to the Continent are consequently converted into English currency, and then into the currency of the countries to which Ireland is indebted. In the spring of 1804 the Exchange of England with the Continent was above par, and the Exchange of Ireland was in such a state that 1187. 108. of the notes of the Bank of Ireland would purchase only 100%. of those of the Bank of England. Therefore, if the notes of the Bank of Ireland were not depreciated, and it was so maintained, it followed that the notes of the Bank of England were at more than 10 per cent premium above the standard coin of the two countries.

The principles laid down by the Committee of 1804, had probably some weight with the Directors of the Bank of Ireland; for between the period of their Report (June, 1804 and January, 1806, the circulation of the notes of the Bank of Ireland was gradually (though with small occasional fluctuations) reduced from about three millions to 2,410,000, being a diminution of nearly one-fifth; at the same time, all the currency which had been issued under the name of silver tokens. was by law suppressed. The paper currency, both of the Bank of England and of the English country Banks, seems during the same period to have gradually increased. The combination of these two causes is likely to have had a material effect in restoring to par the Irish exchange with England.

The Bank of Ireland has again gradually enlarged its issues to about 3,100,000Z., being somewhat higher than they stood in 1804, an increase probably not disproportionate to that which has occurred in England within the same period. Perhaps, however, it ought not to be assumed, that the diminution of issues of the Bank of Ireland between 1804 and 1806, would produce a corresponding reduction in the issues of private Banks in Ireland, exactly in the same manner in which a diminution of Bank of England paper produces that effect on the country banks in Great Britain; because the Bank of Ireland does not possess the same exclusive power of supplying any part of that country with a paper currency, which the Bank of England enjoys in respect to the metropolis of the empire. The Bank of England, by restricting the quantity of this necessary article in that important quarter, can more effectually secure the improvement of its value; and every such improvement must necessarily lead, by a corresponding diminution in amount, to a similar augmentation of the value of country Bank paper exchangeable for it. That the same diminution of the circulation of private Banks took place in Ireland is more than probable, for the private Banks in Ireland are accustomed to give Bank of Ireland paper for their own circulating notes when required to do so, and therefore could not but feel the effect of any new limitation of that paper for which their own was exchangeable.

It is due, however, in justice to the present Directors of the Bank of England, to remind the House that the suspension of their cash payments, though it appears in some degree to have originated in a mistaken view taken by the Bank of the peculiar difficulties of that time was not a measure sought for by the Bank, but imposed upon it by the Legislature for what were held to be urgent reasons of state policy and public expediency. And it ought not to be urged as matter of charge against the Directors, if in this novel situation in which their commercial company was placed by the law, and entrusted