The quantity of country bank notes is stated by the committee to be greatly dependent on the quantity of bank of England notes in which they are payable. One of the witnesses estimates these country notes at twenty millions ; but they are probably worth more than thirty millions, as the gold coin in circulation used to be esti mated at that sum when there were only ten millions of bank of England notes, making the then circulation forty millions, besides country notes, at that time perhaps five millions. Forty-five millions must have been augment ed to fifty-four millions, to produce a depreciation of 20 per cent. as at present, whereby the country bank notes appear to amount to about thirty-four millions, the bank of England notes being twenty millions in circulation ; herein supposing the augmented rapidity of pecuniary transactions to balance the greater quantity of them, and that the same amount of circulating medium is now as necessary as in 1797.
In the report of the committee it is stated, that the only true and effectual protection to the public against an excess of paper currency, is the obligation on the parties who issue it to pay it in specie at the will of the holder ; that, since the year 1797, when that protection was taken away by the bank-restriction bill, the bank have extended the circulation of their notes from ten to twenty-one millions; that the country banks have also very considerably extended the circulation of their notes ; that this increase of the circulating medium en hances the price of every commodity, raises the market price above the mint price of bullion, and occasions the present unfavourable state of the foreign exchanges.
While these views of the bullion committee were supported in numerous publications, and became an ob ject of general interest, the directors of the bank, and the advocates for the new system, contended, in opposite pamphlets, that the increased quantity of the circulating medium is no proof of its excess ; that the increase of the circulating medium is a stimulus to the whole com mercial world, and extends our capital ; that the amount of the circulating medium is not greater than the public necessities require ; that the amount of bank notes is sued cannot operate upon the price of bullion, or on the foreign exchanges ; and therefore, that all the evils complained of must be traced to other causes.
That the value of money in these kingdoms has de creased, or, in other words, that the price of every ar ticle has increased to an unprecedented degree within these few years, is a fact of general notoriety; and cou piing this rapid change in the relative value of money and commodities, with the increased circulation of paper currency that has followed the bank-restriction bill, it will be difficult to consider them as having no bearing on each other. In the present state of things, the ex
cess of bank notes cannot, as the governor of that incor poration asserted before the bullion committee, receive any check ; for the directors will give the holder of a note nothing for it, except, indeed, a new note for an old one; and the demand for discounts furnishes them with the opportunity of replacing those that are paid in, by a constant succession of fresh ones. An excess of paper currency cannot be exported, and employed in foreign commerce like specie, and therefore it is necessarily employed in the purchase of commodities at home. The greater amount of notes there is in the market to pur chase these commodities, the price of them will gra dually rise till the increased value of the things to be purchased absorbs all the notes in circulation. Nor is this evil confined to articles of our own growth and ma nufacture, but extends to our foreign commerce, by its influence on the foreign exchanges; for, when the cur rency of a country is depreciated, it will no longer pur chase the same amount of foreign money as More, to be invested in foreign commodities; but such an in creased amount of the depreciated currency must be given as will counterbalance the extent of the deprecia tion. Or, to put the case in the opposite way,—if a mer chant on the Continent is offered a bill of exchange upon London, for which he is to receive bank notes not con vertible into specie, those notes can only be invested in commodities here at an advanced price, and therefore he will only take a bill of exchange at such a depre ciated rate as indemnifies him for the advanced price of the commodities. Thus, in consequence of this over issue of paper currency not convertible into specie, in dividuals pay a higher price for articles both foreign and domestic ; a heavy loss is sustained by government in every purchase made for the public service, and in the expenditure of the army and navy on foreign stations, all of which must be made good by additional taxes im posed at home. Hence, too, arises the temptation to melt down and to export specie ; for gold, while circu lated here as current coin, passes only at the mint price of .3/. 17s. 102d. per ounce, but, melted down into bul lion, sells for 4/. 12s. per ounce. In proportion as the exchange falls, the value of bullion rises ; for the greater the loss on making remittances of bills is, the higher price will the merchant give for bullion as a substitute for bills of exchange.