Innovations upon Adam Smith's system - The Bullion Committee and its opinions - Mr. Ricardo's principles and publications - Preliminaries for a resumption of cash payments - Gold bars substituted for coin - Failure of that specific - Mr. Samuel Jones Loyd and the rule of regulating the currency by the foreign exchanges.

Having thus far dwelt upon Adam Smith's views of Banking and currency, we have now to take notice of a series of innovations made upon his system, and to point out some of the leading characteristics of the various experiments in Banking and currency we have of late years been trying with such indifferent skill and success. These choppings and changes have generally been expressed by the softened term of fluctuations in the circulating medium. Fortunately for our thesis, a name here is of the very smallest conceivable importance; the reality being so very marked and impressive, that few persons can mistake its true nature and decided bearings.

It is rather curious that Adam Smith's theory was not found fault with until the circumstances to which it applied had been materially changed. He dealt, it is to be observed, with a legal standard of silver and gold, both unlimited in amount. The first Lord Liverpool was the first who broke from that ancient rule: he began by making silver a legal payment for sums at and under 251., and the restriction has been reduced by degrees to one pound sterling. Another opportunity will present itself for considering the fitness of that departure from the long established usage of the country. I pass on, therefore, to the Bank Restriction Act of 1797, the great sweeping innovation which cut our whole monetary system up root and branch, and gave rise to convulsions, vicissitudes, and losses, of which it is now impossible to convey even a faint idea by any description, however graphic or forcible. It must suffice to say, that the state of our currency for twenty successive years, during which the means and energies of the country were strained by the mightiest of foreign wars in which we had ever been engaged, to their utmost capacities of exertion and extension, was this: every one who pleased set up as a Banker, and issued 1l notes. Mr. Everybody, who often turned out in the end to be Nobody, when pressed to meet his engagements, was required to pay in Bank of England notes or fail; and in nine cases out of ten, he preferred the latter alternative as the more opportune one, while the Bank of England was not obliged to pay at all. Banking, it is hardly necessary to add, upon such terms, was rather a tempting game, and gamblers in proportion flocked around to play at it. Curious facts abound to illustrate the monetary condition of England during this interval, of which the most striking are, the increase in the number of Bankers, and the host of them that failed. In eight years the total number of private Bankers in England rose from 230 to 517; and they went on increasing by hundreds until 1819, when there were as many as 940. From this point they began to fall rapidly away, no fewer than 240 disappearing in the short space of two years.

It must not be supposed, however, that these and other ruinous consequences of the suspension of specie payments were of sudden origin. On the contrary, they were of rather a slow growth. At the beginning the Banks and Bankers either knew not the extent of the power they possessed, or feared it might prove, as it ultimately did, too formidable for their control if freely exercised. They let loose, however, by degrees, and when they did, critics were not wanting to scrutinize their conduct and dispute its propriety. Amongst the first persons who opened this abundant mine of controversy were Messrs. Boyd and Thornton, Lord King, Mr. Huskisson, and Mr. Ricardo. A tribe of minor pamphleteers and commentators followed whose names and reputations quickly sunk into obscurity. Lord King by his position no less than by his talents, and Mr. Ricardo, by the variety and ability of his publications, took the lead of the party; and after much speaking and writing, the celebrated Bullion Committee sat in 1810, and by adopting Mr. Ricardo's principles, made that gentleman for a time the highest monetary authority amongst us.

The part taken by Lord King, father of the present Earl Lovelace, on this question, gave rise to much discussion and peculiar legislation. An able and determined member of the opposition, he published a pamphlet on the currency, which obtained considerable praise as a happy specimen of literary composition and argumentative power. Soon after, as the Bank Restriction Act only exempted the Bank from paying in gold, without making Bank of England notes a legal tender, he gave his tenants notice to pay their rents in gold, and having sued one of them to enforce this demand, he drove ministers to the necessity of passing two Acts of Parliament, the first declaring a one-pound bank-note and a shilling equal to a guinea, although it was notorious a guinea had been for years at a much higher price, as high at times as 26s.; and the other Act making Bank of England notes a legal tender for the payment of all debts. This continued to be the law until specie payments were restored. Bank-notes then ceased for an interval to be a legal tender, but were again made one by Lord Althorpe upon the renewal of the Bank Charter in 1833.

It was about the year 1810 that some of Adam Smith's doctrines were for the first time formally controverted, and ruled to be erroneous upon the solemn judgment of Lords and Commons. Of those impugned, the principal was that which maintained the safety with which a merchant's bills of exchange for bond fide business done, might always be discounted.

The rule in the Wealth of Nations, book ii. chap. ii. is this: "If the paper money which the Bank advances never exceeds the value of that capital which a merchant or undertaker of any kind would otherwise be obliged to keep by him in ready money for answering occasional demands, it never can exceed the value of the gold and silver which would necessarily circulate in the country if there was no paper money; it can never exceed the quantity which the circulation of the country can easily absorb and employ;" therefore "when a Bank discounts to a merchant a real bill of exchange, drawn by a real creditor upon a real debtor, and which, as soon as it becomes due, is really paid by that debtor, it only advances to him a part of the value which he would otherwise be obliged to keep by him in ready money for answering occasional demands."