This is a selection of articles concerning British national revenue. It is extracted from the main text to permit better examination. It is extraordinary that little England, with a population of under 10 millions at commencement of this period, was able to contend successfully with a country as large as France with a population of some 25 millions at that time. These articles indicate the method adopted.
Pitt mentioned to the House of Commons that a country should not use real money to fight a war. In fact he only withdrew value from the domestic economy, replacing it with credit notes of the Bank of England and the country banks. The British people should have been more attentive to this development but they were allured by the convenience of paper money and failed to recognise the dangers inherent in it. In the conditions of war, the domestic economy could be somewhat isolated from the rest of the World and the values placed on bank-notes settled rather arbitrarily.
Internationally, Pitt sought for the surplus bullion of Asia and South America to pay his way internationally. This was reflected in India in the growth of British exclusiveness, the end of fraternisation with the native rulers and the extension of the India Company’s territory over the sub-continent thus providing a larger base from which to raise a revenue. Every conquered native prince contributed financially to the British war effort in Europe via the Company. In South America a smuggling operation via the West Indies produced a flow of bullion back to London until the flight of the Portuguese House of Braganza to Brazil and the abdication of the Spanish Kings in the first decade of the 19th century whereupon Britain took over the government of Iberia and the flow became a torrent with support to the South American independence movements providing the necessary anarchic conditions. British dominion of the high seas permitted control of international trade, the carriage of bullion from Peru, Mexico and Asia to London and the receipt of wealth from prize-taking. Incrementally all European colonies were bought under British control and management and these likewise contributed.
By the end of the war the national debt approximated £1 billion and it’s a nice question where all the money had gone. The amount paid in subsidies to European allies was tiny in comparison – a few tens of millions. Some substantial part may be attributable to discounting of British bills globally but it could hardly have been a major part. The costs of supporting the guerrilla war in Spain and maintaining a British army there were later quantified at £265 millions or £45 millions a year. This figure is comparable with gross British annual revenue through the early years of war or over one third of the total outstanding debt at its conclusion. It appears that the preponderance of British future wealth flowed to the armed forces and a good part of it was disbursed in costs connected with the administration of the colonies of other European countries. Apart from these expenses, it seems the British Treasury was a leaky vessel in which to place the national wealth and that also contributed to significant costs.
Whilst Britain was incumbering its progeny with immense debts, France was able to use the wealth tied-up in the confiscated land-holdings of the church and aristocracy as a basis to paper money. Pitt actively sought to derange the French currency by counterfeiting and this no doubt contributed to the instability that characterised the early revolutionary governments but, once Napoleon had staged his coup d’Etat, he ended French reliance on paper and paid cash, at least until Tilsit (according to Del Mar – ‘Money and Civilisation’). This was Napoleon’s egregious crime. His revenue was largely based on Land Tax. The effect of these different approaches to war financing appear fundamental to an understanding of the Napoleonic War. France was relatively unencumbered with debt and able to quickly recover from war; England was hocked to the banks and, once peace occurred, would be obliged to continue paying some £40 millions annually to meet the interest charges on her loans. Even if England won the military war, she would certainly lose the peace. That was the economic background to the defence posture of 'eternal war,' as the French called it. An additional domestic difficulty related to printing too much money. There is an amusing discussion of the subject in the article datelined 8th September 1821 with Baring MP adopting the now familiar view of the moneymen.
Thus the Napoleonic War became a new form of total war in which it was insufficient to merely beat French armies – the country had to be occupied, its government brought under British control and reparations set so high that Paris would be obliged to follow the British lead into debt-based finance. With French independence thus compromised, there remained amongst the big economies only China and USA exercising fiscal prudence. America was brought into contribution by the War of 1812 and China joined after the Opium War(s).
These considerations are of course my personal views and another reader might reach different conclusions.
Sat 8th Aug 1807
Sir Robert Walpole is fondly remembered for this rustic comment on the House of Commons:
“the country gentlemen, poor meek souls, come up every year to be sheared; they lie mute and patient whilst their fleeces are taken off, but if I touch a single bristle of the commercial interest, the whole sty is in uproar. Shearing the hog produces a great cry and little wool.”
Sat 10th July 1802
England became a serious trading nation after the Dutch occupation. She has since raised merchants to a level of importance they have never enjoyed before. Their vast wealth enables them to rival hereditary aristocrats and landowners. Their capital is somewhat more exposed than the landowner yet they enjoy a measure of prestige in our society. They have recently become educated and the illiterate merchant is now rare, even amongst shopkeepers. The chief objection to the merchants is their propensity for gambling. They speculate endlessly and long-established Houses are unpredictably destroyed as a result. Trade is of course risky but there are prudent and imprudent risks and the merchant makes his choices.
There are two items of national finance that commenced in 18th century and have contributed to our commercial prosperity – the national debt and the public funds.
The national debt is the sum of all those loans that successive ministries have borrowed at times of national emergency when the regular revenue of the government was inadequate.
The public funds are comprised of capital lent to government by Englishmen and foreigners to pay interest on the national debt. These loans are divided into shares, each bearing a known interest rate. They are readily transferable and rise and fall in value dependant on the availability of money and the confidence that investors have in the domestic economy.
Our ministers now believe the national debt has become too great to be repaid. Instead of paying it off, government prefers to pay interest on it and raise new loans when old loans expire. This regular transfer of tax revenue to investors inspires their confidence in and loyalty to government.1 The price of government paper is generally predictable from the interest rate it pays, unless there is an increase or diminution in the national money supply. From a speculative viewpoint, the interest on government stock is paid certainly and timely; confidence is high and prices are firm, particularly in peace.
Formerly it was not so. Loans to government were made by groups of merchants who required both regular interest payments on the debt and special advantages. The monopolist East India Company, South Sea Company and Bank of England are of this type.
Sat 20th April 1793
Pitt’s Bill for Reduction of the National Debt completed its fourth quarter of operation on 1st August 1792. £9,441,850 has been redeemed by the Sinking Fund by the following purchases – 5% consols £3,286,800; reduced 5% consols £2,896,200; Old South Sea paper £1,626,550, New South Sea paper £1,250,300 and South Sea 1791 debt £382,000 = £9,441,850.
About £¾ million was redeemed from increased revenue without recourse to new taxation. Ministers are sensible to the needs of the poor and determined to cultivate the arts of peace. The London Press Editors expect further substantial relief from taxes and from debt.2
Sat 17th Aug 1793
The Commons has approved a loan of £2,850,000 for the present emergency. The public revenue exceeds expenditure and the flourishing state of our naval power and commerce assure the bankers of repayment.
The shipping has brought vague news to Bombay of a commercial crisis in England. Several mercantile houses have failed, their credit is suspended and the predictable knock-on effects will spread the problem. The cause is unidentified but may relate to the stoppage of trade with France.
Sat 21st Sept 1793
Thornton MP, the banker, has informed the Commons that the difficulty in converting goods into money has obliged many City merchants to stop payment. He says all these troubled parties have goods of greater value than their debts – they are not really insolvent, just short of cash. They must have cash advances on their goods to avoid a commercial crisis.
Another London merchant has identified 8 houses that he says are on the brink of failure.
Gilbert Innes of the Royal Bank of Scotland (RBS) says his country is in distress and if no assistance is forthcoming there will be several great failures in Scotland. At present there are 7,000 – 8,000 Scottish manufacturers without orders. The RBS has assisted them to the full extent of its capital and is no longer able to discount those Bills of long date that the London houses send to their correspondents in Scotland. Many manufacturers lent money on Bonds that will become payable at Whitsun but there is no cash available until then. The factories have large inventories of stock and all they need is an advance secured on their raw materials. The Scottish bankers have reduced the circulation of paper money which excess was a contributing cause of the crisis.
MacDowal, the MP for Glasgow, says both commercial houses and banks in that city are in distress due to the stagnation of credit and the absence of confidence. He also traced the problem to the provincial banks whose notes had been returned to them for gold in such quantities that they were no longer able to discount them. The manufacturers could not recover by selling goods because sale prices had fallen below cost. Their only recourse was to commence discharging employees. The Scottish workforce is composed of about 160,000 men, women and children.
The Select Committee reports that these difficulties result from speculation by individual merchants and by commercial houses. If the government is to assist them, it must have ample security. Relief would be given to deserving and solvent businesses. The Select Committee’s recommendations to the Commons are:
£5 million in Exchequer Bills be issued for relief of commerce (i.e. the substitution of British national credit for the credit of the country banks).
Interest to be 2½d per day per cent or £3 per annum.
The Bills to be in the amounts £20, £50 and £100 payable in August, November and May.
20 honorary Commissioners will constitute a Board and carry out the operation. They will employ officers to select the businesses suitable for relief. Merchants with goods in Liverpool, Hull, Bristol and Glasgow will qualify for relief as well as those with goods in London.
An immediate issue of £1.5 millions is available to commerce and the balance may be drawn-down as necessary. Should a merchant fail to pay, the goods that secure his receipt of Exchequer Bills will be sold at public auction to indemnify the government. All payments made before May and all merchant receipts from sales will be kept in the Bank of England and re-issued if expedient.
Sat 21st Sept 1793
In spite of recent commercial failures, the ministry says England is prosperous. Notwithstanding the minister’s view, a Commercial Credit Bill has been moved in the Commons to support mercantile credit. Our merchants have bought rather more than they can sell now the French market is closed to them. As their transactions are done with bank finance, they are paying interest on unsellable goods.
The Bill contains a proposal to issue Treasury Bills for a proportion of the value of goods pledged by the merchants as security for repayment of the Bills. The existence and value of pledged goods is to be checked by Commissioners appointed under the Bill.
All popular attempts to disturb the general tranquillity have been defeated by the ministry’s Declaration of War. It has stilled dissent and patriotism is pervading the country. The troublemakers have fallen back on political reform as their watchword.
A Bill has been introduced for the renewal of the India Company’s Charter on terms proposed by the Select Committee of the Commons which are satisfactory to the Company’s directors. No objections were raised in parliament.
Sat 12th Oct 1793
British politicians are endeavouring to succour commerce. It now appears the domestic financial crisis was primarily created by speculative excesses of the country banks and only partly due to the loss of market in France.
The ministry has drawn attention to the value of prizes being brought into the country’s ports since declaration of war. This windfall income enriches not only the brave seamen involved but percolates through the whole country to enrich us all.
The Commercial Credit Act is relieving businessmen of financial difficulty. The Commissioners have extended the protection of the Act to permit government loans to several Bills Agencies who have no goods as security.
These Agencies trade in paper on the Royal Exchange. They are invited to participate in the government loans provided they give bonds for repayment, up to £100,000, whereupon they get the funding necessary to meet their acceptances.
The Committee for Commercial Affairs in Manchester has reassured its members that paying by 90-day Bills is acceptable so long as they pay interest.
London papers: The late commercial failures are unconnected with the war with France but are - like the failures of 1773, 1784 and 1788 – due to excessive circulation of paper money.3 The stoppage of trade with France played only a minor part; mainly it was due to speculation.
Sat 12th July 1794
Chancellor Pitt has presented his budget. The votes and estimates have already been seen by MPs. He says the resources he requires are imperatively needed:
You have approved 85,000 men for the navy at last sessions and we are now within 10,000 men of that target.
Our army has been doubled from 30,000 to 60,000 men by the employment of 30,000 – 40,000 foreign mercenaries. We have increased the manpower of our Ordnance by 5,000 men. The whole amount of British force is now 250,000 men.
The effect on our expenditure has been considerable. It totals £19,940,000 of which £5,525,000 is for the navy, £6,340,000 for the army and £1,345,000 for the Ordnance.
We have also bought a large amount of foreign grain.
The
deficiency of revenue has increased. The land tax is short £474,000,
the malt tax is short £350,000 and the shortfall in reduction
of national debt is £200,000.
Having established his spending requirement, Pitt addressed the means of funding it:4
He proposed to borrow the shortfall by issue of £5½ millions in Exchequer Bills, same as last year, which will be exchanged with Bank of England for Bills of Exchange (bank-notes).
He is averse to raising funds through the usual City bankers, who have ringed the ministry’s attempts at loans and demanded a percentage ‘discount’ for their assistance in issuing and selling loan paper. This had made the sale of government bonds to secure loans more expensive.
The India Company is donating £½ million to government although its resources are circumscribed this year. With other income, this led him to assess necessary borrowing at £11 million.
Pitt had negotiated with five smaller bankers and concluded a deal whereby for every £100 loaned he would give £100 of the 3% consols, currently worth £67.10.0 at market; plus £25 of the 4% consols, currently worth £21.0.0 and a long annuity of 11/5d at 20 years (1/8th of a year’s purchase) worth £11.9.9. The three totalled £99.19.9 and thus enabled the country to make an instant 3d profit on every £100 borrowed, so he said.
He proposed to cancel the tax on gloves5 and the duties on births and burials. He proposed to increase taxes on alcohol. The French have prohibited the export of brandy and even smuggling is stopped. He proposed 1d on home distilled alcohol, 10d on brandy and 8d on rum. He expected this to produce £243,000. The second increase is on bricks 2/6d per mille and tiles at 6d per mille. The third increase is on stones 2/2d per ton and slate 10/- per ton. The next is on glass and paper. Then there is the tax on prospective lawyers - £100 for the Articles of Indenture.
The gross income from land and malt will be £2,750,000; from agriculture (sugar imports, etc) £2,697,000; from the loan £11,000,000 and from Exchequer Bills £3,500,000 (nett). Interest on the loan would be £650,000 pa which would be met by the tax increases.
Fox objected to the tax on sugar but generally approved. Passed.
Sat 20th Sept 1794
London news:
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Saturday, 13th June 1795
George III has commended the legislature that war be prosecuted with greater vigour. The ministry has secured a war loan of £24 millions. Pitt proposes to pay Prussia and Austria £6 millions each for a quota of troops for the coming season.
Extraordinary edition, Tues 16th June 1795
A £24 million loan was approved in the Commons and was immediately fully subscribed by 12th Dec by several City bankers on terms satisfactory to the ministry.
Extraordinary edition, Tues 16th June 1795
The War Loan, 16th Dec 1794:
It is formally £18 millions for Britain (including £6 millions for Prussia if she can be persuaded to continue the fight) plus another £6 millions for the Austrian Emperor, totally £24 millions. The dividends on the Emperor’s share and the annuities are to be guaranteed by parliament but not the Prussian subsidy in view of the loan history.
For each £400 subscribed the bankers get 3% consols worth £300 at market; 4% consols with a market value of £100 and £1.5s.6d in long annuities. For the Imperial subscription, the bankers get 3% consols worth £83.6.8d plus £5 annually for 25 years.
If MPs do not approve the Austrian loan, only £18 millions will be borrowed, for every £300 of which the bankers get 3% Consols on £100, 4%s on $33.6.8d and 12/6d in long annuities (the published figures are incorrect). The bankers making this agreement with Pitt are:
M/s B & A Goldsmid, Boyd Benfield & Co, Abraham Robarts & Co, Peter Thelluson, Thelluson Brothers Co, George Ward, E P Solomons, Rawson Aislabie. These eight preferred bankers have many of the famous banking names in their lists of sub-contractors – Smith Payne Smith & Co, Sir Richard Carr Glynn, Joseph Dennison and others.6
Sat 27th June 1795
The Commons have debated the supplies required by the King for war. Pitt was absent from the chamber. Sheridan criticised Pitt for his absence and for negotiating the £6 million loan for Austria without parliamentary approval. Steele said the loan was in the form of a subsidiary treaty which Pitt had agreed but would not be ratified until the Commons has approved it. Fox thought it bad. Francis said the loan had not been raised by competitive bid; Pitt had intentionally kept the public away from it.7 Sheridan insisted Pitt come to the House and explain his acts. The loans history with Prussia required any new loan be rigorously examined. Pitt soon arrived.
He recalled the House had agreed to grant the supply to the King but the amount had not been fixed. He had offered the Emperor a loan sufficient to pay the troops he would contribute to the joint effort. He expected to get the Emperor’s agreement and he had no doubt that the Emperor would perform. Discussions with the money-men were tentative and provisional and only a conditional agreement had been reached. Parliament is not yet bound by such an agreement.
Fox was not satisfied. Some MPs are corruptly involved in the loan, he said. He feared that the stock price of the Consols securing the loan would fluctuate and injure those patriotic members of the public who invested in government paper. He suspected the price of the funds might vary between the time of the loan agreement and the time of parliamentary approval,8 and he suspected impropriety.
Pitt said he wished to separate the guarantee that the country would have to give under the Austrian loan from the budget he was shortly to present. He would be ready to debate the loan on 21st once he had assured himself that the services being purchased from Austria were appropriate to the war aims of England. This was why he had started negotiations earlier this year. Pitt was confident that the stock price would be firm and the investors’ return better than if the loan were raised under a peace at this time. Peace normally enhances stock values but a peace today would distress them, he thought.
Pitt would not make peace with France under its present government. He would watch and see how they performed. The best option would be a restoration of the French monarchy – he could make peace with a Bourbon King.
Fox thought that any operations with the Austrians would not be compatible with the vigorous prosecution of the war that had been agreed. He proposed instead an increased navy. Many agreed. The motion was put, the supply approved and the amendments negatived.
Sat 25th July 1795
The Commons has continued to debate the loan to Austria. Fox said the Emperor’s credit is bad. He came to the City for funds, offered his hereditary lands and 7½% premium and got no takers. The bankers of the City are prudent men. Why had he not sought to raise funds through his own Bank of Vienna? Now Pitt says ‘the City did not accept, but I will’. Not only that, but he is giving Austria better terms - a discount of 2½% on the cost of funds.9
Fox thought all Europe would come for our money. Prussia we might query but Spain would be interested and would soon be queuing ‘cap in hand’.
He recalled Prussian soldiers had mutinied in Belgium rather than serve under British officers. He thought the Austrians might be the same. The Duke of York is convinced that no impression can be made on the French by land forces.
Fox reiterated that if the money was spent on the navy it would give a much better return. The Emperor’s request for a loan is suspicious and doubtful. He is involving us in his future problems not us involving him in our present one.
Sat 11th July 1795
Pitt’s budget proposals for 1795 contain an imaginative item – a tax of one guinea a year on powdered heads, male or female.
Sat 11th June 1796
Monday 7th Dec 1795 - George III has advised the House of Commons that he intends to apply his share of the nett proceeds of the sale of Dutch prizes to the British public service (the fleet which the Stadtholder brought with him to England which is considered as a droit of the crown). Pitt has drafted a ‘thankyou note’ to the King for House of Commons approval.10
Pitt presented his financial forecasts to the House of Commons the same day. He said it was difficult to make estimates early in the session that are sufficiently clear to enable members to apprise their constituents of the amount of tax we require from them. However he did not want to delay as prospective French bankruptcy allowed for the possibility of peace. He thought if Britain could fight for another year, we would prevail.
The ordinary expenses of the navy are £3.7 millions a year; repairs are £1.3 millions; 10,000 extra seamen this year costs £757,000 = £7 millions.
The army costs £6.1 millions. Last year we allowed £1 million too much for foreign troops. The émigrés only cost us £427,000. Extraordinary items totalled £2.6 millions. Money (promised subsidies of £350,000) for the treaty with Sardinia had not yet been voted. The army will cost £6 millions this year and will be a saving of £1.3 millions on last year.
The ordnance costs £1.7 millions. Miscellaneous expenses (money given to the French clergy, costs of the prosecutors at Warren Hasting’s trial, secret service money) were £360,000 which exceeded the estimate by £150,000 due to increased amount of douceurs payable.
Government replaced £3.5 millions of the total of £6 millions in Exchequer Bills. An additional £200,000 was earmarked for reduction of the National Debt.
Last year he asked for a loan of £18 millions. The figure was increased because the repayment of a loan due from the Company was known to be less than expected. Taxes produced £19 millions. £400,000 should have been paid to the Emperor’s General in the Low Countries but actually £550,000 was required. This formed part of the deficiencies which totalled £2.3 millions.
The funds available for next year will be £27.7 millions excluding £2 millions of Exchequer Bills. The land and malt taxes will provide £2.5 millions; Exchequer Bills £200,000; annual interest receivable on the Consolidated Fund is £220,000. The revenue at beginning of last year was £14 millions which is more than we actually raised during the year. Permanent charges are £11 millions.
The Dutch prizes had been taken before war was declared against the Netherlands. The seizures were therefore not prizes but droits of the Crown. The King kindly permits the nett value to be applied to the public service. Nevertheless, it is government’s intention to reward the prize-takers. There should be a balance of about £1 million which will increase the Sinking Fund to £3.595 millions.
£1 million was voted last year for this year’s expenses. Interest payable on loans was £1.8 millions. This interest secured a fund to fight the war for a whole year if necessary. The navy debt had greatly increased due primarily to increased cost of transports hired for troop movements.11 It exceeded the estimate last year by £1.5 millions. Chartering the Company’s ships for King’s service on the West Indian expedition had cost £2.5 millions in 1795 but would not occur again.
Extraordinaries connected with the campaigns in the low country would not be repeated. This year extraordinaries will be about £2 millions. Bounties payable to merchants for the import of grain would be about £1 million. Thus extraordinaries would be less than £5 millions this year.
The lottery produced a profit of £300,000 a year. British colonists in America (the loyalists) had formerly received some part of the lottery profits but they would get no more.
In sum the estimated expenses (in £ millions) for the coming year are:
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Navy Army Army extraordinaries Ordnance Exchequer Bills Deficiency of grants Émigré army Sardinian subsidy Debt to Austrian General Grain bounty Miscellaneous Sinking Fund Unexplained Total |
7.8 6.1 2.6 1.7 3.5 2.3 0.3 0.2 0.55 1.0 0.4 0.2 0.4 27.0512 |
Sat 11th June 1796
Pitt has negotiated a £18 million loan at 4-2/3rds% interest. He reserves one percent to the Sinking Fund. That will produce £1.1 millions to the Sinking Fund annually.
A new tax will be applied to Estates on death of the owner; rates assessments are increased 10%; a new tax on all horses and a double tax on horses kept solely for recreation; increased tax on tobacco, salt and printed cottons; the grain bounties would be reduced as would the allowed drawback on re-export of sugar.
The Estate duty is copied from Holland. It will start at 1 - 2% on all legacies depending on the nature of the relationship between the parties. Residuary legacies will be between 2-4% between first cousins or 4-6% between strangers – it all depends on the relationship.
Pitt’s calculated value of British landed property is £25 millions; its annual rental value at 28 years purchase is £760 millions;13 personal property is valued at £600 millions; the total is £1.3 billion. The value of legacies should be £32.5 millions on which the tax collected will be £300,000.
A general 10% increase in rates will produce £140,000.
Horses for fun are already taxed 10/- each a year. In future anyone with six or more will pay double. Owners of the 1,000,000 working horses will pay 2/- per annum on each. Farmers have had a very profitable year and can well afford it. Together with the double tax, this will produce over £300,000.
Tobacco tax will be increased 4d per pound producing £170,000. Tax on printed cottons will rise from 3½d per yard to 6d producing £135,000. The salt tax is worth £32,000 (NB - this should probably be £320,000). A cut in the drawback allowed on sugar exports will save £180,000. The total of new taxes will be over £1 million.
Sat 11th June 1796
Morgan, the banker, has petitioned parliament for access to government loans business. Pitt said he has not yet paid-off last year’s loan and could not expose those lenders to unqualified competition. He declined to open the market.
Sat 20th Aug 1796
A Legacy Bill has been introduced by Pitt. Every bequest of £20+ is subject to a tax of 2% - 6% depending on the relationship between the parties.
Sat 3rd Sept 1796
London, 29th March - The shortage of money for commerce and industry in London that became apparent in mid February has been attributed to activities on the Stock Exchange. A group of speculators stimulated prices by repeated daily purchases and the funds were driven up substantially. These speculators are all involved in foreign trade and operate on its security. They pay interest equivalent to annual rates of 20 – 30% on the loans they raise for stock investment. The banks are delighted at the good returns and prefer to loan to the speculators than to the real producers of wealth who offer only the market rate of interest. The money available to genuine business is consequently reduced as banks increasingly divert their surplus funds into the Royal Exchange. The distress of mercantile credit has consequently extended through the economy. These speculators seem to know a secret - whether there is really a prospect of early peace.
A committee of London merchants met at the London Tavern on 5th April to discuss this funding difficulty. They agreed to interview Pitt. The committee comprises Alderman Lushington, Alderman Anderson, the merchants Inglis and Saunderson, and the bankers Boyd and Angerstein. The subsequent interview with Pitt lasted 90 minutes.
They say the greatly extended national trade and the reduced availability of bank paper has made all normal business more difficult. They attribute the present constriction of the money-go-round to the daily limit the Bank of England has placed on the amount of money it sets aside for discounting Bills. It has narrowed its discounts generally to the proportion of 5% of the Bills sent in, even when the security underlying the Bills is unquestionable.14
The committee suggested a paper currency, like the French, should be issued for a limited time (less than one year), under the sanction of parliament and controlled by 25 Commissioners. The paper money should be payable at sight or bear interest as the holder prefers. They think this will relieve the Bank of its temporary shortage. Having made their proposal, the meeting was mainly spent discussing the state of the public credit (which was secret and not reported) and we only know that Pitt said he would consider their request. The committee told Pitt it was high time he interfered to accommodate trade.
Extraordinary, Sun 7th Aug 1796
London 12th April – Money has been very plentiful until this last two months when it became scarce. Our experience has been that each time the continuance of war is in doubt, money becomes scarce.
The French government has determined not to make peace without retaining her new defensible frontiers.
Wheat in London has fallen from 120/- to 66/- per quarter. This will cause the speculative suppliers of wheat and rice from India to lose hugely.
Sat 10th Sept 1796
Pitt has agreed another loan with the City bankers for £7½ millions.
Sat 24th Sept 1796
London – The complaints of the merchants against Pitt’s tax on calicoes have been heard. He has abandoned the proposed tax to preserve the merchants’ businesses. He will instead raise a tax on ownership of dogs and the use of carriages on turnpikes. These taxes both target the wealthy.
A parliamentary committee has been formed to check why money has become so scarce. The Bank of England has inadequate supply of bullion to instantly meet all the Bills being presented. The Committee has interviewed Pitt and agreed to call a general meeting of London merchants to glean their views. The tentative proposal is to issue paper money, à la France, redeemable at 6 months Sight with interest, or for cash instantly without interest. It will pay £1.18.0d per £100 in interest for the six months (3¾%). By setting the validity at 6 months, the new notes will not contravene the terms of the Bank Charter Act. If the merchants are agreeable, the new money could be issued very soon.
Sat 15th Oct 1796
Pitt said he had received advice on the present disposition of the French Directorate. The recent reductions of resources we apply to the war will hint at the nature of the opinions received. He would now reveal the true position of British finances to console our people and confound our enemies.
He had been obliged to cancel the proposed tax on cotton goods, which would have produced £135,000, as it entailed hardship on the merchants. The amount will be raised from an alternative tax on dogs which would produce £100,000 and by a tightening of enforcement of the tax on wearing hats which had initially produced £100,000 and now produced £6,000. This amendment will increase collections from wearers of hats to £40,000.
He also spoke of the increased costs of war and the means of funding it.
The extra ‘extraordinaries’ of the army this year were £1.3 millions. The House had already voted £2.5 millions for ‘extraordinaries’ and it should suffice.
Annual interest on the navy debt is £1.64 millions. The debt was £10.35 million at end 1795 and is reportedly £6.7 millions now. The big debt in 1795 was due to the costs of many East India Company ships that were chartered to the Royal Navy that year as transports for our expedition to West Indies. It will increase because extra expenses are foreseeable. The delay of the West Indian expedition cost £1.5 millions. These combined had added £4 millions to the navy debt to which interest would apply.
The City bankers required him to take some £3.5 millions of paper money out of the market to support public credit or they will add 2½% on the interest payments they require.
In the last budget, annual interest to service the national debt was estimated at £19 millions but only £18 millions had been needed. He would leave the extra million Pounds with the Bank of England for commercial use to mitigate any distress due to the deflationary requirements of government creditors.
The last budget contained £1 million for bounties payable to people bringing shipments of grain (paid largely to the India Company). Now there is plenty of grain in England and a good harvest is expected - the planned national reserve of one million quarters (1 Quarter = 290 Kg) of grain was no longer necessary; 300,000 quarters will be adequate. Most of it will come from the stores taken in prize during our recent acquisitions of Dutch Eastern colonies. Our commercial fortunes will be assured if we can retain these acquisitions in the peace. The bounty of £1 per quarter of grain imported actually might be totally withdrawn as the India Company would raise the necessary money from public participation in its revenues.15 He therefore retracted his request for the entire amount voted.
The Bank of England has £500,000 in Exchequer Bills. It would prefer to have cash. Government will provide the Bank with £500,000 in cash and £7 millions of Exchequer and other Bills for sale in the market.
Pitt noted this part of his budget was connected with the national cash shortage. The cause might relate to the large subsidies paid in specie to Europe. He explained to MPs the difference between funded and unfunded debt and their effects on general credit. He said funded debt was based on the inactive capital of the nation at large and its use had no deleterious effects whereas unfunded debt related solely to London and the capital market there. It was secured on a new asset - the value of ships and goods overseas and balances held by British merchants outside the country. This is exposed to fluctuations, speculation and general variations in credit. It was the excessive use of unfunded debt that had created the recent cash shortages by creating opportunities overseas to buy our gold/ silver on the cheap.16 This disabled the Bank from supplying credit at the usual rates of interest. By reducing unfunded and increasing funded debt by £7½ millions the difficulty would be overcome, he said. The additional interest payable on this arrangement would be £575,000 annually.
He expected £300,000 annual profits from the national lottery but he would need more to cover expenses. He suggested a further duty on wine of £20 per ton or 6d per bottle. A new tax usually causes a decrease in consumption of the article taxed but we made a similar increase in the wine tax last year and 30,000 tons were still imported which is an increase over prior years. It seems we can squeeze wine drinkers more. The additional tax will apply to new imports as well as wine already in stock.
Every £100 of the new loan will be comprised of:
|
£120 of 3% consols now valued at 67 £ 25 of 3% reduced consols now at 66 £ 9. 5s 6d of long annuities at 18½ years purchase Total |
£ 80. 8s 0d £ 16.10s 0d £ 9. 1s 9d £101.19s 9d |
A discount of £4.14.0 will be allowed as a further sweetener to the banks.
So without giving up the option of a £3 million loan to the Emperor, we can also, “at a time when popular hopes for peace have been dashed by France,” raise a loan at a bonus of only £3. 6s 9d per cent. This reveals the very high level of credit that England has with the bankers.
Another proof of our secure finances is the state of public taxes which since the war have been £2.8 millions annually.
He had not included the lottery profits or duties on public participation in the India Company’s investments which should produce £300,000 and £500,000 each.
Another expense was the increase of British exports. Loans for exports were ‘money in the bank’ but it took a little time for the profits to return to London. He noted that the interest rate on government borrowing was 1% less than in the previous war.
In forming a view of French prospects, Pitt thought that the French government had made two errors – they relied on the scarcity of food here which they assumed to be a permanent problem and they relied on the cash shortage which they confused with a shortage of credit. Pitt noted that the Mandats were already at an 82% discount to face value and he thought that better indicated the relative financial positions of the contending governments.
Earl Grey said the army was being paid in Exchequer Bills sent to the Colonels of regiments and they were incurring great losses on this mode of payment.
He noted that a new tax had been added in every year of Pitt’s ministry.
Fox said the mandats may have greatly depreciated but he had heard the minister saying not long ago that the assignats were an intolerable burden for France and the legislators had solved that problem, so he would keep his own counsel regarding the prospects of the mandats. The ministry repeatedly says France is on her last gasp but she continues to defeat us.
Fox noted Britain also had difficulties. The grain price is only now reducing but all other necessaries remain expensive. The war loan had not been raised competitively. Government is far in arrears on its day-to-day payments. The increase in our commerce which the minister mentioned, is a regular feature of all our recent wars, most particularly the American war.
Alderman Newnham complained that the new loan had been made by private treaty (he represents the City). He disliked Boyd getting a share when several respectable City gentlemen wanted a bit too.17
Pitt said he knew the people subscribing to the loan had particularly pressing reasons for doing so. It would have destroyed them if he had placed the loan elsewhere.
Sat 5th Nov 1796
The House of Commons debated the Dog Tax on 25th April:
The ministry itself uses dogs to maintain civil order. Now thousands of these animals will be killed by owners who cannot afford to pay. This Bill would disseminate violence amongst our people. Given the famine, surplus dogs will conceivably be eaten. What other ally would we treat in this way.
Pitt said a dog was a voluntary and luxurious expenditure, admirably suitable for taxing. It was not his intention to reduce the number of dogs but to increase the revenue. The annual tax would be 3/- on single dogs and 5/- on owners of more than one.
Sat 21st April 1798
British finances – All government loan stock is valued very lowly by the market and another public loan without capitalist support will depress prices further.
Nevertheless, Pitt has to meet the high cost of current services (although the reductions in our navy and army establishments will themselves cause a saving).
It is rumoured the ‘assessed’ taxes (on houses, horses, carriages, servants, watches and dogs) are to be increased to produce £7 millions of new income. New taxes producing another £1.0 – 1.2 millions will be introduced. These new taxes will continue for three years and provide government with sufficient income to pay interest on a new loan and satisfy the bankers.
Wed 2nd May 1798 Extraordinary
The Pearl (Spence) left Basra on 14th April and has arrived here with European news to Christmas 1797:
Pitt has produced a budget to the Committee of Ways and Means on 2nd Dec. He needs £24.5 millions for the year. He says we are fighting for our religion, our laws and our style of government – it is a struggle for existence not for indemnity. He called for uncommon sacrifices. To pay this immense cost he has £0.75 million in the Consolidated Fund, £2.75 million from the land and malt taxes (up £600,000 from last year), £3.0 million in Exchequer Bills,18 £12.0 million from the new loan and £7.0 million in increased taxation.
The opposition remains in secession and no debate is occurring - the minister simply proposes and the county and borough members give their assent.19
Pitt reiterated that his plan was to prevent a great accumulation of present debt overwhelming the country today by extending the funding system to burden posterity tomorrow. He noted France was attacking our funding system20 – this is not the time to hugely increase the national debt; it would play into French hands by reducing the value of British bonds causing bondholders to sustain losses. The most Pitt can raise in the capital market is £12 millions but he reminded the Committee “to not forget the ‘sinking fund’ which will return the country to as good a state as ever”.
He had considered an immediate call on the income of every individual but concluded it was improper and impracticable.
He had solved the cash shortfall by effectively doubling the assessed taxes which are paid by the heads of some 800,000 families responsible for about 4 million people. His arrangement excluded some 500,000 – 600,000 families (3 million poor people) from contribution – people paying 3/- or less per year in tax.
For the others a graduated approach is used. People who only paid tax on a house, windows, one dog and one watch would pay 50% more; those who paid other taxes on horses, carriages and servants would pay treble rate. The highest increase was for people formerly paying £50+ who would now pay £200+. By catching those whose incomes are higher, he is taxing the already rich and hopefully focusing tax on those who are profiting from the war.
Anyone earning less than £60 a year would be exempt. Higher incomes were placed on a graduated scale up to 10% of income. To deter evasion, the payer would make his declaration of assets on Oath before Commissioners and his statement might be investigated.
Recently the government had requisitioned horses for the militia cavalry and a great number of people had evaded the requisition. These were precisely the people he would be taxing more heavily now to induce their better toleration of the imposts. For the present he proposed to indulge their former evasion.
He concluded that all these onerous taxes were temporary until France was defeated. They would pay the interest on the loans as well as the annual contribution to the Sinking Fund - “£16 millions of the national debt will be redeemed in a few years” he said.
Nicholls said the taxes were unjust and Pitt’s supposed negotiation for peace had not been sincere. He said the Lords had acquired undue influence over MPs (through ownership of an increasing number of electoral districts by the newly elevated Lords). Tierney, Plommer and Hobhouse all agreed. Pierrepont suggested the Royal Family be asked to contribute. Col Wood suggested a 1% tax on property would produce £20 millions and was a better alternative to income tax. The Secretary at War and M/s Elliot and Mackworth both supported Pitt. The House then voted 214/15 in favour of the budget.21
Sat 5th May 1798
Pitt’s budget – I will introduce a novelty that has not been used for a century. The navy estimates were £3 millions short last year. Servicing this is costing the country £250,000 in extra interest. Half the shortfall will be borrowed next year; the other half will be left to float in the market in Sight Bills of 90 days. This should avoid a heavy discount. This year the navy will cost £12.7 million.
The army will cost £10 millions this year. Extraordinaries for 1797 were £1.3 million which he hoped to reduce as forces were incrementally trimmed in foreign settlements and at home. There will be great savings from having no allies to fund. Extraordinaries this year should be £2.5 million. The new barracks cost £400,000 which is included in the £10 millions for the army. The entire war effort – navy, army, ordnance and miscellaneous services – will cost £24.5 millions. This is £6.7 millions more than last year.
Sat 19th May 1798
The shareholders of the Bank of England held a meeting in November 1797. Mr Raikes the Governor said he and the Deputy Governor had held a meeting with Pitt. He wished to present a statement of account.
|
Cash, bullion and ‘other securities’ |
|
£17 millions |
|
Due from Government |
|
£ 4 millions |
|
Less : |
|
|
|
outstanding notes |
£7 millions |
|
|
other demands |
£6 millions |
£13 millions |
|
Nett balance, excluding Govt Stock |
|
£ 3.8 millions |
Raikes said Pitt agreed, due to ‘the urgency of politics’, to extend the exemption from making settlements in gold for a further period. Nevertheless, the Bank was ready to settle all demands in specie whenever called upon to do so.
It was unanimously agreed to advance the land and malt tax collections of £2.75 millions to government.
Shareholder Hoare complained of the inconvenience due to scarcity of silver. He was informed that a coinage was under consideration.
Another shareholder proposed the Directors’ salaries be increased. Raikes declined the proposal for the present.
Sat 26th May 1798
The shortage of specie in England which caused the Bank of England to cease payments is being addressed by the power centres close to government. As a part of its own contribution to mitigate national embarrassment, the India Company’s Public Department has issued the following declaration on 18th Oct 1797:
We wish to encourage people to send silver from India to China and buy Bills on us there. We have ordered the Select Committee at Canton to fix the exchange rate on one year Sight Bills at 5/6d per ‘old head’ (King Charles) Spanish dollar for the next two seasons. We prefer people to buy 2 year Bills and will pay 5/10½d per dollar for those investments.
This will reduce the amount of silver the Company itself has to pay to China for tea and stimulate Indian exporters to ship Indian goods to China and convert the proceeds of their sale into Company Bills.22
Sat 16th June 1798
The City bankers require Pitt to improve the security on the national loans – in spite of ‘Sinking Fund’ purchases, the fall in the market value of Consols has continued and triggered their concern. The bankers require more assets be pledged to continue their support. Pitt has come to the House with a proposal, apparently originating with the bankers, to sell the Land Tax proceeds to buy a portion of the 3% consols. In this way he will have both the Land Tax and the Sinking Fund underpinning the market for government paper. He will offer the tax to individual land-owners themselves first. If they choose not to redeem their tax liability, it will be offered publicly.23 The landowner will have a right of redemption after a certain term.
The Land Tax produces about £2 millions annually. Pitt proposes to sells the tax at 40 years purchase and receive 3% consols at market rate (now down to 50% of face value) from the buyers. The interest on £80 millions (£2 million x 40 years) invested in 3%s will produce £2.4 millions annually. That is a 20% gain. In addition, the value of the Consols underlying the bankers’ loans to the ministry will inevitably improve with the increased investment.
From the landowner’s perspective, suppose he has an estate that produces £2,000 in rent each year, the 5% Land Tax is £100 and his nett income is £1,900. The amount of 3% consols he must deliver at 40 years purchase is £4,000. If he buys now it is half price so, for a payment of £2,000 today, he redeems his tax liability in twenty years, assuming the price of consols remains the same.
If, in order to pay for the stock, he sold £100 of his income annually he would still have the balance of £1,900 and he would likely get 30 years purchase for the small portion of rents that he sells which would produce £3,000. As he has (for the time being) only paid £2,000 for the Consols he makes a profit of £1,000.
(A series of calculations are made by Pitt to show the House the effect of a rising market price for Consols on the landowner. They suggest that buying-in at a market price as high as 75 for the 3%s still provides the landowner with a profit). The government gets more, the landowner gets more – win win.
Pitt intends to withhold these £80 millions of Consols from the market in the sure expectation that the remainder will rise in value.
Sat 23rd June 1798
The shareholders of the Bank of England held a meeting on 7th Feb to consider the proposal of nine of their number for them, as a Corporation, to make donations to the public service. S Thornton MP, the Deputy Governor, chaired the meeting.
Shareholder Foster doubted the authority of the owners to vote any money for any purpose in their corporate capacity. He said the Bank owned nothing as a corporation – it was all client money except that proportion of the profits that was the property of individual shareholders. As the profits were regularly distributed to the shareholders, little remained to donate to government.
M/s Sansum and Durant agreed.
The Chairman said he had not foreseen this objection. The Legal Counsel of the Bank had not been called to attend but Solicitor Kaye was present and his view was sought. Kaye said the Bank possessed all its property in its corporate capacity which it could spend however it liked, just as the East India Company did. Kaye then read part of the Bank’s Charter which authorised the holding of quarterly courts upon the requisition of any nine shareholders. These courts were vested with power to manage the Bank’s affairs. He concluded that the present meeting, having been legally called, was empowered to dispose of the Bank’s property. He added his personal opinion that the present state of public affairs made it important that the Bank ‘do its bit’ for the country.
Director Bosanquet said that legal opinion supported a majority of the shareholders assembled in a General Court. They owned the Bank and might dispose of the Bank’s surplus as they thought fit. Any absentees would be bound by the majority decision.
H Smith said the state of the country required vigorous measures. The French intend the utter destruction of British commerce. We have seen the fate of the Netherlands – the loss of her independence and the destruction of her trade. Venice had been deprived of most of her hinterland and her commerce will indubitably shrink. This is the way France deals with her neighbours and she did not particularly dislike the Dutch or Venetians whilst she hates England. He said the question was not a mere matter of law – it was whether the shareholders should surrender part of their property to preserve the country. He thought that they should.
Alderman Lushington agreed with Bosanquet. He said we are not contending on whether this Constitution is better than that Constitution but whether in three month’s time we will have any Constitution at all. He conjured the other shareholders not to be misled by legal niceties but to recognise the imperative need for great exertions. The King has given a fine example in his personal contribution of £20,000 to the City Fund. This did not come from the Civil List but from his personal allowance of £60,000 a year which he disburses as rewards for national service - the King has donated 33% of his income to the cause.
Thornton said the Governor of the Bank had received instructions from the King concerning the donation of £20,000 and it was true that the King had only £60,000 a year as personal allowance but his donation had in fact come from the Civil List. He added that the Governor understood there was no other source of income to the King in this or any other country.
Hunter proposed a donation of £200,000 be made by the Bank. On hearing this other shareholders called ‘£300,000’ and ‘£500,000’. Kemble congratulated the shareholders on their patriotism and adduced examples of widespread popular support for a subscription.
Thornton proposed the motion be amended by deleting ‘corporate capacity’ (i.e. from the Shareholders directly) and it was passed unanimously. The owners then voted to empower the Governor and Deputy Governor to donate £200,000 as the Bank’s voluntary contribution to the war effort.
Sat 4th Aug 1798
Pitt has negotiated a £17 million loan with a consortium of bankers comprised of M/s Boyd, Curtis, Goldsmid, Solomons and Ward. He is offering £200 (face value) of the 3% consols and a few long annuities to a total market value of £99.10.9¼d for every £100 cash. The discount is not disclosed.
The bankers were enticed by the potential of the 3%s to increase in value in view of the plan to redeem the Land Tax with their purchase. The loan will be received in monthly tranches of 10 – 15% over the eight months commencing 30th April. 3% Consols were trading at date of the loan at 48½.
Sat 14th July 1798
London, 15th March - Pitt is wooing the merchants. He has proposed a tax of 2½% on all imports and exports. In return for their agreement, the government will provide frequent and regular convoys which will reduce their insurance costs to mere ‘perils of the sea’.
One clause in the proposed legislation is intended to prevent any single ship that separates from the convoy from discharging its cargo before the rest of the convoy arrives.
Sat 8th Sept 1798
House of Commons, 25th April – Pitt said the war supplies of £25 million he had sought four months ago had been inadequate and he now needed £28.5 millions. The extra money was for the navy which needed 10,000 more seamen costing a million and for the army which needed the rest for civil defence. He thought he might need a further £2 millions later in the year.
The extra ‘assessed taxes’ would only produce 1½ times their amount in former years (about half the expected product) but the voluntary contributions had produced £1.5 millions and that sum was increasing.24 He also expected his innovation of an export/import tax to fund convoying would be popular and productive. The costs of this would be passed on by the merchants mainly to foreigners as the recipients of British trade. He thought this could be worth £1.5 millions a year. Interest on war debt was £7.3 millions annually, he said.
The revenue for the year ended April 1798 was £18.6 millions. The increased ‘assessed taxes’ in 1798/99 would produce £2.9 millions for the full year. The tax imposed in 1796 on legacies would bring another £100,000. The new duties on wines had decreased consumption in that market but he thought it was in expectation of their removal which he informed the House was not in prospect. This year wine-drinkers should resume tippling bringing an extra £400,000 and making the revenue £23.2 millions. Pitt had not included money expected from the India Company or the national lottery. The latter was worth a nett £200,000.
He proposed a new loan of £17 millions (of which £2 millions is for the costs of subduing Ireland). The ‘assessed taxes’ were pledged for £8 millions and interest on the balance of £7 millions will be paid from new taxes (Ireland will fund its own garrison costs – the proportion 2/17ths becomes a standard Irish contribution). The Navy Debt of £6.5 millions remained unfunded (interest is added to principal year after year) and could not be diminished until the end of war.
British capitalists had been reassured by the sale of the Land Tax and the extent of voluntary contributions. They had agreed to 0.4% less interest on the new loan comparative to the last one. They continue to require that their loans be secured on all national assets.
The new taxes to fund interest on the balance of loan not covered by the ‘assessed taxes,’ would be found in 5/- a bushel extra tax on salt which would double the current take (£9.10.0d per ton) and bring another £½ million into the Treasury. The average family uses half a bushel of salt (4 gallons) a year – it was readily affordable.
The balance still required would be funded by an extra 5% duty on those India Company teas costing more than 2/6d per pound. He had discovered that small tax increases had a disproportionate effect on smuggling, which was already the fastest-growing industry in the country, but the bulk of the tea import is under the Company’s control and readily taxable. The extra tea tax would produce another £100,000.
Finally, he thought a tax on armorial bearings would be easy to collect. The principle to be applied was the same as the Game Certificates whereby hunters bought a licence to kill wild animals. Whoever puts Armorial Bearings on his house, carriage, seal or crockery etc., would pay 10/6d a year for the privilege. In 1660 there had been 9,000 families entitled to a coat of arms. Since then an extra 1,800 had obtained the right. Numerous families shared a coat of arms and each family would pay for each display. He thought about 60,000 heads of families would be caught. He estimated there were 12,000 carriages in the country that had coats of arms painted on them. Based on this and extending it to other common family artefacts, he assessed the product at £150,000. Altogether these new taxes would produce £760,000 and cover the extra interest on the balance of the new loan.
Sir M W Ridley complained that the extra salt tax equated with half the manufacturer’s profit. Pitt said ‘pass it on to the consumer’. Sir Wm Pulteney said salt is essential for life, it should not be taxed at all (everyone salts food for storage through the winter). Pitt said eventually he would substitute a commutation tax for the gabelle but he needed the money now.
Mr S Thornton said an import/export tax would fall disproportionately on the India Company which is also required to collect a proposed extra duty on tea. As the Company’s ships were armed and had shown themselves capable of self-defence, the impost was unreasonable. Pitt said ‘that’s unfortunate’.
Tierney thought Pitt’s expectations were optimistic – the salt tax would cause irritation. It would be better to tax coats of arms more heavily and make an extra charge on those affecting the use of coronets.
He wanted to know whether Pitt was proposing to continue to pay the dividends on the Imperial annuities (the money lent to Austria) as the Emperor had apparently never intended to perform his obligations under those subsidies – ‘are these to become a permanent tax on this country?’ He also queried the deficiency in grants of £680,000 and wondered what it was.
Pitt said the costs of the Imperial Annuities were under discussion with the Emperor. The deficiency in grants was partly arrears of Malt and Land taxes, and the rest was the balance of the sum given to the merchants of Grenada to alleviate commercial distress, which had not been drawn down.25
Jolliffe asked to see the amended army estimates which, after some discussion, were tabled.
Sat 15th Dec 1798
House of Commons, 25th June – wheeled carts are to taxed at the same rate as a one horse chaise (4 guineas a year). The only ground for exception is if they are solely used as farm carts.
Sat 23rd Feb 1799
Pitt has disclosed details of an Income Tax. It is a war tax and he says it will be taken off once peace resumes. It starts on incomes of £60 which pay 10/-. An income of £100 a year pays £2.10.0d; £200 pays 10%. It catches mainly merchants and professional men who will pay this tax based on their nett profits.
Mon 11th March 1799 Extraordinary
The London papers report that in late Oct/early Nov 1798, 1,100 new accounts in the 3% consols were opened at the Bank of England. The new account holders were farmers and other new investors of all descriptions. This was genuine new money, not the buying and selling of the difference that the jobbers engage in. The City capitalists construe the significance of these new accounts as evidence that Pitt’s sale of the Land Tax will be advantageous. By linking the security of land to the uncertainty of government debt, Pitt has improved our national credit with the bankers. On 8th Nov the price of the 3%s had risen to 58. Landowners are attracted by the ministry’s permission to use Consols to defray their liability for Land Tax.
Sat 16th March 1799
The committee collecting the voluntary contributions has, in the course of its duty, discovered and deplored the extent of tax evasion being practised by the people generally. They say that if the donors were acting lawfully they should not have all this surplus wealth. The committee has requested an immediate tax on all property, proportionate to the means of the owners. This is beyond its brief and it satisfied itself with sending a recommendation to that effect to Pitt.
The Commissioners for redeeming the National Debt commenced buying in the market on 2nd Nov. Their purchases of Consols will consolidate the advances in the prices of British loan stock that has followed the Land Tax redemption. They have £900,000 to spend. It is astonishing to see how well London has done financially compared to Paris.
Pitt will need to borrow only about £6 millions for this year’s expenses.
Sat 23rd March 1799
London news – Pitt is garnering support for the sale of all the tithes of the Ecclesiastical Benefices in the same way he sold the Land Tax (to invest the proceeds in the 3%s, drive up their market value and increase the value of national assets on which he borrows money). Pitt’s idea is to give the Anglican clergy a perpetual annual salary equivalent to the tithes. Tithes are deeply resented by tenant-farmers as they are assessed on both harvests and farm improvements. This has long been readily apparent from the better sale prices of land that is tithe-free.
The effect of Pitt’s plans is to increase British ownership of government debt by enabling the landowners, who are overwhelmingly British, to buy. The measures thus cushion our funds from direct interference by the French (although France can and does influence the Sterling exchange rate at Hamburg and elsewhere).
Sun 5th May 1799 Extraordinary
The total amount of national income (from rents on land and buildings, tythes, trade, professions, transport, etc) is estimated at £102 millions a year. Pitt needs over £29 millions for government expenditure in 1799 of which £28 millions is war supplies. He will borrow £11 million.
North borrowed £11 million in 1782 for the American war but he acted from a much smaller economic base. Britain Inc is now a bigger business.
Sat 11th May 1799
Repayment of the British National Debt:
The 49th quarterly repayment of nearly £1 million was made at end October 1798 by the Commissioners for the Sinking Fund and financed the purchase of £1.9 million of 3% consols.
Since the commencement of the program, the government has paid £26.6 million and received what is now £35.1 million face value of the 3%s.
Sat 11th May 1799
Pitt presented a mini-budget in early Dec 1798. He wants £29.3 millions for 1799, almost entirely for war expenses. He has made an approximate calculation of British annual income at £102 millions. Here is the breakdown:
|
Landlords Tenants Tythes Mines/Canals House rentals Professions Colonial goods Foreign trade Domestic trade Artisans Scotland Funds Total |
£ 20 million £ 6 million £ 4 million £ 3 million £ 5 million £ 2 million £ 5 million £ 12 million £ 18 million £ 10 million £ 5 million £ 12 million £102 million |
This calculation is preparatory to enacting an income tax to provide an extra £10 millions of revenue. He plans to tax any income over £60 pa. There is a sliding scale up to £200 and 10% flat-rate thereafter. It will apply to every Briton on all his world-wide income. No tax is proposed on the proceeds of prize-taking.
Sat 18th May 1799
Pit and the Governor & Deputy Governor of the Bank of England invited five separate groups of financiers to Downing Street on 3rd Dec to discuss the ministry’s loan requirements. M/s Giles, Angerstein, Boldero, Grote, Mills, Dorrein, Goldsmid, Currie, Ward, Shewell, Everett, Boyd, E P Solomons, Devaynes and some other City notables were amongst the groups.
They represented 1/ the Committee of Bankers, 2/ the owners of the Stock Exchange and three private groups - 3/ Robart, Goldsmid and E P Solomons; 4/ Giles and 5/ Boyd, Angerstein and Devaynes.
Pitt told them he would be seeking for £14 millions for Britain and £2 millions for Ireland in the course of 1799 (10% in Dec, 30% in Jan and 60% in Feb). In Feb 1799 he would seek another loan of £11 million for England and £2 millions for Ireland. He might additionally need £2½ millions by either Exchequer Bills or a funded loan for the public service. He also planned to renew ‘the customary quantity’ of £3½ millions in Exchequer Bills during the year.
Pitt told the capitalists he resented their concertedly lowering the market price of British stock before each new loan and noted that on this occasion the redemption of Land Tax to 3% consols had worked against them.
The bankers asked if he would want any other funds in the year. He mentioned the proposed Income Tax which had not yet been approved by parliament. If he did not get Commons approval, he would need to borrow more, or the balance of its expected product, from the bankers.
He said he also planned to allow delayed payment of import duty by permitting bonded warehouses where imports might be stored duty-free until either imported or re-exported. This would delay the usual extent of Customs receipts and might cause a temporary shortfall.
The capitalists made their proposals on 7th Dec. The Committee of Bankers (M/s Boldero, Grote, Mills and Dorrien) won the £13 millions loan. They will exchange £100 in specie for £100 (face value) of 3% Consols plus £87.9.6d of the 3% reduced Consols. Giles was the next cheapest; the Jewish bid was most expensive. The 3% consols were trading at 53 and the ‘Reduced 3%s’ at 53½ yesterday.
Sat 18th May 1799
An account of British taxes collected in 1798 in Pounds with a breakdown of the retrospective additions made each year since war commenced:
|
Customs, Excise and Stamps Others Additions
Total |
- - 1793 extra duties 1794 “ 1795 “ 1796 “ 1797 “ 1798 “
|
12,104,851 2,056,911 217,463 940,343 1,309,497 1,492,076 2,304,490 145,260 20,570,621 |
Sat 1st June 1799
House of Lords, 8th Jan - Lord Auckland’s speech (heavily edited) on the national revenue:
Suffolk has told you he believes the costs of war should be met during the course of war by a fair and equal tax. That tax is the Income Tax. We could not have introduced it earlier because the people actually supported French principles and might not have paid to crush them. We had to declare war and suppress their erroneous view with appeals to patriotism first. Only when that had been achieved and after a shocking and awful example of our determination had been given them in the vigorous suppression of the Irish, was it possible to make use of the peoples’ new respect for our power by requiring their income in contribution to its maintenance.
We knew the time was right because they commenced forming associations amongst themselves for the purpose of raising voluntary subscriptions for the war – obviously they had sufficient money and were willing to part with it. They were also aware of the contempt that France felt for us – they could not go back. Additionally, the increased pay for soldiers and sailors and the windfall profits from prize-taking and plundering were percolating through the economy. The ability of government to maintain its revenue was failing and smuggling has become the foremost occupation in the land. Overseas war had become fun and profitable. Everyone could see that Pitt was using domestic revenue to influence governments all over Europe – it was the style of the times and the people want theirs too. The £2 million collected from voluntary subscriptions indicated the way ahead for war financing.
People with land were particularly targeted under the old ‘assessed taxes’ – that is inter alia us Lords. We necessarily had to substitute a more equitable system so more of the population was brought into the net and the burden was shared.
We found our destruction of the trade of Europe led to our own assumption of it and all goods now come to London to be taxed before being shipped or smuggled off to Europe and America. This increased our Customs receipts in spite of widespread smuggling. For example, the Customs revenue in 1798 alone showed a 20% increase over 1797. This shows that war can be profitable.26
France on the other hand has to take the money and treasures of her neighbours to finance her quest for secure borders. That gives her a predatory reputation which we publish widely. If we had not opposed France, she would by now have reduced all Europe to a democracy.
The Income Tax will produce £10 millions; the convoy tax £2 millions. That compares with £7½ millions in war taxes last year. We have protected the value of our Bonds by applying the Land Tax to their purchase and this also ensures that Sterling maintains its value internationally.
If we did not tax incomes but raised another loan I am told the best rate we could have got, with 3% consols at 50% of face value, was 6% and there would have been 2% more for the redemption of the capital created – at least an 8% charge on whatever we could borrow. Instead we can now charge the people 10% and incur no extra debt at all – its a no brainer.
Sat 8th June 1799
British Trade (£ Mlns):
|
|
|
Imports |
Exports |
Re-exports |
|
|
1790 |
19.13 |
14.92 |
5.20 |
|
|
1791 |
19.67 |
16.81 |
5.92 |
|
|
1792 |
19.66 |
18.33 |
6.57 |
|
|
1793 |
18.70 |
13.89 |
6.50 |
|
|
1794 |
22.29 |
16.72 |
10.02 |
|
|
1795 |
21.86 |
16.53 |
10.79 |
|
|
1796 |
22.75 |
19.10 |
11.42 |
|
|
1797 |
21.01 |
17.27 |
11.95 |
Editions of the Bombay Courier for the second half of 1799 and all 1800 are missing from the British Library collection. This embraces the period of Napoleon’s Coup d’Etat and the end of the previous administration’s assignat and mandat printing scam. The French government was bankrupt, the army was unpaid, taxes were not collectible and it appeared that Pitt’s expectation of bringing France to her knees financially was about to be realised. Napoleon contrarily instituted a cash basis to government expenditure and advised his ministers that he would never return to a policy based on irredeemable paper.27
Sat 28th Feb 1801
The Commercial Commissioners for the City of London have asked the Attorney General Sir John Mitford about the Income Tax. If people have property and income in India, is it just the income remitted to London that is taxable. The AG says the global income of Englishmen is taxable, wherever they receive it.
The only exception is in Case No 17 of the Schedule to 39th George III, Cap 22 which has hitherto only applied to West Indian planters (whereby you can deduct debts due from income). The annual income from foreign securities (e.g. India Company Promissory Notes) is settled by Case No 19 which allows for ‘deeming’ based on last year’s income. This increases income to the prospective sum due, not necessarily the sum received.
The Commissioners asked how the Attorney General would deal with the person who did not reveal his foreign income or part of it. He said the Tax Commissioners use their discretion. They obtain the best information they can. The Attorney General said if it was generally supposed that a tax payer had foreign income, he would be questioned under Oath and taxed on it.28
Sat 13th June 1801
On 17th Feb Pitt asked the Commons for £42,197,000 for this year’s expenses. The next day he itemised the budget. The navy needs £15.8 million this year for increased ships and manning. The army needs £9.6 million plus £2.5 million for extraordinaries. The garrison in Ireland will cost £3.8 million. Ordnance needed £1.9 million and Miscellaneous Expenses would be £2.8 millions.
Now all of Europe is against us there will be no subsidies to pay. Pitt will get Ireland to pay 2/17th of the total (£4.2 million) as the cost of British protection, plus its share of the civil list at £¼ million. The debts Ireland incurred in her recent rebellion are not Britain’s concern.
Pitt regretted that the Income Tax which was expected to produce £7 millions per annum had only produced £6 millions in each of the first two years. He had thought the product would increase but people saw it as a war tax and resented the foreseeable need for it to continue after the peace. Nevertheless, the extra income had improved the security on our loans and procured better terms for us. There was also a deficiency in the malt tax (due to the activities of private breweries and distilleries). Altogether revenue was nearly £2 millions less than expected. He was still unable to pay the money promised to British residents on the islands of Grenada and St Vincent’s this year. He needed £6.6 million to fund a new issue of Exchequer Bills - that increased the total budget to £42.2 million.
Ways & Means – the good news is the huge increase in imports and exports which have brought in an extra £1.25 million in Customs receipts but otherwise things are not good. He will have to borrow £25.5 million to pay his way. He thanked the City capitalists for their continued support in difficult times and warned them that British defeat in war would cause the overturn of our property laws and diminish their fortunes. They had consequently agreed to accept government paper at the market price. They got no extraordinary profit except the discount of 3.6% on the loan. He said the other terms were equally attractive and Pitt averred that government had not borrowed so cheaply since the opening years of the American War.
Customs & Excise - An additional duty on tea was necessary. Our import is now 22 million pounds per annum, nearly a fourfold increase on the 6 million imported at the time of the Commutation Tax. I will only tax the higher qualities so the burden falls on those who can pay (no point in destroying the market as we did in America). The extra tax is a further 10% ad valorem on those teas costing more than 2/6d per pound. Other taxes on timber, paper and calicoes are proposed. The best quality pepper is now a monopoly of the Company by virtue of its conquest of Malabar. Pitt will tax pepper in and out of British ports. An extra tax on horses was mentioned. The stamp duty and postage will be increased. The overall revenue increase expected from all these sources is £1.8 millions.
He had thought to raise the balance within the country but it was a huge amount and few people would now support it so it had to be a loan.29
Sat 25th July 1801
The House of Commons resolved itself into a Committee of Ways and Means to consider the budget on 18th Feb.
M A Taylor disputed Pitt’s assertion that the country was prosperous. He referred to our formerly opulent manufacturing districts where the poor rates had become so substantial that everyone was distressed. He thought the Commons might vote whatever supplies it wished but the people were increasingly unable to pay. People are not invariably paying their national taxes as so many of them had a prior claim on their capital to pay Poor Rates. The Poor Rate never appeared in the budget. It had tripled since the start of the war and he provided the following indicative statistics:
|
District West Ardley, Yorks Guestbury Morpeth Wakefield Tewkesbury Stanley & Rentith |
1791 £ 176 £ 108 £ 273 £1,011 £ 166 £ 455 |
1800 £ 465 £ 334 £1,014 £2,688 £1,140 £2,168 |
He also gave examples showing Poor Rates in recent months had increased faster than appeared in the table. He had a considerable body of similar information from all over the country and he asked, if the war continues, how are these to be paid. At present the factory-owners and shopkeepers are barely able to keep up Poor Rate payments. They will soon be supplicants themselves and only the aristocracy and the City merchants will be left with capital to fund the government’s needs.
Pitt said Taylor’s argument was that an increase in Poor Rate payments was not compatible with an increase in national prosperity. He himself thought the enhancement of Poor Rates was connected with the failed harvest of last year. He reiterated that manufacturers are making handsome profits.
Hobhouse disagreed. He related the increased Poor Rates directly to war. He agreed that the increase of British exports in consequence of war appeared to suggest prosperity but thought, as all exports were shipped through ports far from the manufacturing districts (mainly London), that the profits were largely falling to intermediaries.30
Sir James Parnell, one of the new Irish members, noted that the contribution due from Ireland had decreased. “Last year Ireland paid £5.6 millions, this year we are asked to pay £4.334 millions. Are Pitt’s figures reliable,” he asked? Pitt reminded Parnell that Ireland also had to pay the interest on her National Debt and Sinking Fund as well as on a loan of £2.5 millions, all of which increased her contribution this year to £6.536 millions. The budget was then approved.31
Sat 25th July 1801
London capitalists waited on Pitt on 15th Feb to enquire if he had any news from Hamburg. When he said ‘no’, they submitted their bids for the latest government loan. The loan is for £28 millions and the stock created to fund it is £35 million of 3% consols and £14,105,000 of 3% reduced consols. The bids were:
|
Robarts Curtis, Goldsmid and Co Sir Francis Baring, Battye & Co Mark Sprott & Co Smith Payne & Co Newnham and the United Bankers |
£50.15.0d £50.15.0d £53. 0.0d £55. 0.0d £57. 0.0d |
The two lowest bids were accepted and the offerors made performance bonds, agreeing to pay a deposit of 10% into the Bank of England before 20th Feb.
The bankers get £175.15.0d of 3% stock for every £100 loaned, an effective rate of interest of 5¼%. The discount for prompt payment will be about £3. 7.6d per cent so, at today’s closing price of 3% consols, the market value to the bankers for every £100 invested will be:
|
£125. 0.0d of 3% consols at 56 £ 50.15.0d of 3% reduced at 56½ Total with Discount £3. 7.6d |
£ 70. 0.0 £ 28.13.6d £102. 1.0d |
Pitt says its not a bad deal for the country.
Sat 31st Oct 1801
House of Commons, 17th June:
Tierney proposed a motion concerning the national finances. He is concerned to know how much government income is locked-up in public debt. He said the funded national debt was now about £500 millions and the unfunded debt is about £21 millions (last year it was £9 millions). He thought the increase in unfunded debt, in a year when £45 millions was added to funded debt, was excessive. He said the new debt that the ministry had contracted in the war had added £16 millions to the national expenditure in annual interest payments. He noted that tax collections appeared to be falling - the product of the permanent taxes this year was £1.5 million less than last year.
He said the total value of imports and exports this year is £90 millions and that trade must maintain that level in order to produce the necessary customs receipts to fund the debt. The amount of expenditure over the coming year was expected to be £70 millions.
Recalling that the peacetime military establishment in 1791 had cost £16.8 millions, he estimated the future peacetime establishment would now cost £29 millions. He would not move the repeal of the income tax but he thought it was a dangerous and impolitic tax on the country gentlemen (whose assets are on public view and whose income could thus be easily estimated) whilst the merchants (whose accounts are confidential and shrouded in commercial obscurity) were hardly touched by it although their incomes and profits have increased many times. He supposed that commercial profits on £90 millions of international trade could not have been less than £9 millions on which the income tax was £900,000 but only £200,000 had been collected from merchants throughout the entire country (0.2% of turnover) - they have been able to evade at least 70% of their liabilities although they are the main beneficiaries of war (through increased trade, monopoly profits and the national loans business).
Lushington defended the merchants. Much of the trade is done by foreigners, he said, and most of our own merchants use bank capital to finance their activities for which they are already taxed for interest payments, commonly of about 5% a year, so their final profit on Tierney’s figures is shared half-half with the bankers.
Addington said the total funded public debt on 1st Feb 1801 was £484,365,474. The figure includes £27.2 millions due from the Austrian Emperor and Ireland. The total unfunded debt (demands unpaid, Navy Debt and Exchequer Bills unprovided for) is £21 million.
Imports in 1792 were worth £19.7 millions; in 1800 £29.9 millions. British exports in 1792 were £18.3 millions (the five prior years average £14.7 millions) and in 1800 £24.4 millions (five year average £20 millions). Re-exports in 1792 was £6.6 millions and in 1800 £17.2 millions.
British expenses for 1801 are £69 millions of which £29 millions is being borrowed. If we continue to borrow to meet current expenditure, it can only be on increasingly onerous terms but our procedure of selling the Land Tax and investing the proceeds in 3% Consols had raised the value of that stock from 47 to 60 and kept the City capitalists happy whilst concurrently cushioning landowners from the full effects of the Land Tax.
Tierney said Addington is right that traders are prospering but that is a temporary phenomenon caused by war. Once the neighbours stop fighting and start competing for trade, our share will diminish to its former size. Then the means we have to pay-off our immense debt will be reduced.
The bounties on grain (particularly rice, an occasional Company export from Asia to England) cost about £1.3 millions a year. That is an expense that Addington has not mentioned, he noted.
Tierney identified the Income Tax as the prime means whereby hawkish ministers had been enabled to continue the war.
Sat 14th Nov 1801
Addington’s new ministry has published the loans made by the United Kingdom to her continental allies in the war (in Pounds Sterling):
|
Prussia 1794 Sardinia 1793 – 96 Austria 1795 – 97 Portugal 1797 – 98 Russia 1799 Austria, Bavaria etc Austria Russia Bavaria Austria TOTAL |
1,223,892 500,000 6,920,000 367,218 825,000 500,000 1,066,666 545,494 501,017 150,000 12.6 millions |
The disclosed total is about 2½% of the British national debt. The list excludes funding provided to the Bourbons and the French clergy. It is a nice question where all the money has gone.
Sat 28th Nov 1801
A committee of the Commons has been investigating the high retail price of grain and has voluntarily (almost uniquely in British political history) grasped the nettle of speculation.
It has reported that the London Corn Exchange was established about 40-50 years ago to provide accommodation to grain factors. The corn factors are supposed to be distinct from corn merchants but in fact many of them trade in grain on their own accounts. The Corn Exchange Building belongs to the factors personally. They have divided its value into 80 shares which they own individually. The shareholders appoint a committee of three trustees to manage the market.
There are 72 stands in the Exchange, 64 of which are used by factors to exhibit their samples of grain. The other 8 stands are reserved for the Kentish hoy-men. The Committee of Three exercises no control over the market. The stands are not supposed to be leased but in fact huge payments are made to obtain their use. As a general rule, the possession of a stand is essential to make sales although there are occasional visitors to the Exchange Building with samples in their pockets which they display furtively in dark corners.
There is no requirement on traders to exhibit all their qualities of grain – they just display what they like. The factors who trade as merchants on their own accounts take advantage of the frequent ‘ups’ and ‘downs’ in the market. There is a species of jobber active on the Exchange who assists factors in buying and selling. The jobbers are particularly entrenched in the oats market. The Exchange Building is too small to accommodate all the factors. This permits a small number to monopolise the business. As the factors own the building themselves, although there is a cut-out in its management by the Committee of Three, there is clear evidence that this small group monopolises the grain trade.
The Parliamentary committee believes the marketing of grain needs independent regulation. The Corn Exchange does not have regular opening and closing hours on market days. British law naturally encourages the buying and selling of corn for profit. Our system supposedly stimulates competition to reduce prices whereas these factors have subverted competition. The market needs reliable newspaper reports of harvests, imports, exports and available quantities of each quality and type. We probably need to bond the factors as well.
The factors are an important element in the high prices of grains. It is not the poor harvest that is entirely to blame – they just adopt whatever excuse appears plausible to jointly indulge their manipulative habits.
Sat 13th Feb 1802
The British National Debt was £228 million in 1793; £248 million in 1794; £266 million in 1795; £310 million in 1796 and £376 million in 1797.
The Commissioners for Reducing the National Debt bought-in £32 millions by Feb 1800 and another £12 millions since, totally £45 millions. Pitt said in Feb 1801 that the debt bought-in was £56 millions, which seems on the high side. This buying-in is due to the Sinking Fund. It was invented in 1716 but given-up; it was revived in 1738 by Sir John Barnard. Voltaire described the Sinking Fund as “a means of borrowing the peoples’ money without becoming indebted.” It works because it provides liquidity to the market in government stock enabling investors to buy and sell whenever they wish. The prosperity of our commerce and our strong government revenue ensures that shareholders are more often buyers than sellers.
The Sinking Fund has provided £25 millions in 7 years of total war. We have added £100 millions to the national debt and subsidised our allies for years but we remain more prosperous than our allies at the end.
Sat 6th March 1802
The new liberal Whig ministry’s Plan of Finance (which has Pitt’s fingerprints all over it) is a means of avoiding a further loan to settle the arrears of government expenditure. It is intended to redeem the old and new 5% consols; to commence the gradual redemption of the 4% consols, and ultimately to concentrate government borrowing on the 3% and 3% reduced consols. Two main proposals are made:
The remaining part of the Land Tax, that has not already been sold,
is to be offered for sale by Commissioners appointed for that
purpose, who will assess values. Purchasers will have to pay a
deposit initially and settle the balance at fixed dates. A liberal
discount will be given for prompt payment. When full payment has
been received an abatement of what was due at first instalment will
be refunded.
The ministry values the balance of Land Tax on
offer at £40 millions of 3% consols (face value).
Landowners
must buy this offer as none would wish his Land Tax to fall under
the control of another. Additionally, every purchaser will receive
all the advantages of a freeholder.
A second element in the realisation of national assets is the sale
by lottery of all Crown Lands on which no individual claim has been
established. The lottery tickets will cost £100 each and two
out of three will win. Prizes will be between 5 - 500 acres. The
tickets will indicate only the district in which the land is to come
from. The good odds on acquiring a large tract of land for £100
will attract many investors. The longer term effects will
predictably ease the shortages of arable commodities as few winners
are likely to leave their land fallow.
The ministry expects the
sales to be well attended. When that is confirmed, it plans to
extend the concept to Ireland.
A third source from which government expects to obtain a greater revenue is in India, where Wellesley’s government has assumed an incontestable superiority over the Grand Mughal and his supporters.
There is general agreement amongst City bankers that the government will be successful in avoiding its need for loans this coming year.
Wed 10th March 1802 Extraordinary
The Committee of Holders of Exchequer Bills has met Pitt at Downing Street to notify their acceptance of the agreed terms for their loan of £8.5 millions. For each £100 of principal, the creditors receive:
|
25 3% consols @ 68½ 25 3% reduced consols @ 67½ 25 new 5%s @ 99 50 4%s @ 84¼ 18 long annuities @ 19½ Total |
£ 17. 1.10½ £ 16.16.10 £ 24.15. 0 £ 42. 7. 6 £ 1.14. 4 £102.15. 7 |
The creditors have the option of subscribing a further £50 per every £100 to redeem £2.4 millions of Exchequer Bills remaining unsold in the Bank of England. 25% of the loan is to be paid as deposit when leaving the Bills for payment at the Treasury, 25% on 18th Dec and the balance on 15th Jan.
The result of this deal is that £10.625 million of new stock is created. The interest payable on each £100 is totally £4.16. 9d and the long annuity for 59 years will cost £7,437.16. 0d per annum.
Sat 8th May 1802
Seven groups of City capitalists have approached the Chancellor of the Exchequer to indicate their wish to subscribe to the next national loan. It is expected to be for £20 millions.
Sat 12th June 1802
The House of Commons has debated the Income Tax and Pitt says government is still considering the matter and he cannot say anything just now but he thinks it will have to continue for a few years more. Britain has fought using future national income and the loans funding our efforts are secured on all national property inter alia the Income Tax. The capitalists therefore require it to continue.
It will be reduced as the expenses of government decrease with the peace. Pitt gave no pledge that the tax would be repealed and was merely providing sufficient information to avoid MPs proposing motions on the subject until government had made precise calculations.
Sat 7th Aug 1802
Income Tax receipts for 1800/01 were £4.7 millions from the Commissioners for General Purposes; £1.2 millions from the Commercial Commissioners on general trade and £400,000 from other commercial sources. Deduct the costs of collection at £163,000 (2.6% of gross) and refunds in respect of children at £371,000 and the nett product was £5.7 millions.
Sat 14th Aug 1802
Our national debt, according to Pitt’s budget, is much smaller than is generally believed. He says it is represented by:
|
Stock created for loans Funding of Exchequer Bills Loans for repeal of Income Tax Total |
30,351,435 11,138,002 56,445,000 97,934,437 |
Interest on these loans will be £3,163,161. He proposes to pay the interest by increasing the tax on beer and its ingredients. This will produce £2 millions and returns the price of a pot of porter to 4½d which is what is was before the recent unilateral reduction by the brewers. Another million will come from the repeal of the old Assessed Taxes and their replacement by similar taxes on a sliding scale which overall will be 30% more than hitherto. The fourth million will come from the tax introduced in the war to fund the costs of naval escorts (convoying the merchant ships). This has transmuted into a new additional duty on all imports and exports. The ad valorem basis is replaced by a schedule of 500 items on which a fixed duty irrespective of value will be payable. Overall the export duty will slightly decrease and the import duty will slightly increase from £3 to an average £3.12.0 per hundred Pounds. It should be well-tolerated as the cost of freight and insurance will decrease in peacetime to offset the increase. These £4 millions will pay the interest on a national debt of c. £100 million.
The objectionable tax on agricultural carts and horses is removed from the Assessed Taxes but a new impost is created – a 10/- annual charge on every shop assistant and journeyman residing in the house of his employer. This is to close a loophole in the tax on servants who have increasingly been represented as shop assistants and the like.
Sat 14th Aug 1802
Pitt’s budget requires a revenue of £24.6 millions. Most of it is accounted for by £7.7 millions each for the navy and army. It includes £600,000 for extraordinaries. The ordnance gets £1 million.
Corn bounties (the incentive for merchants importing grain - mainly the Company’s Indian rice) costs £1.6 millions. Exchequer Bills, as noted above, will cost £3 millions and interest on Exchequer Bills and the discount on the loan equals £1.6 millions. He also needs a million to pay-off the debt on the Civil List. Out of these £24.6 millions, £1.8 millions is for Ireland.
This budget will pay the army and navy for five months. Pitt wants to retrench the armed forces and is only waiting receipt of the ratified peace treaty with France to do so. He will estimate the costs of the forces for the remaining seven months once that document is to hand.
He has raised a loan of £25 millions (with a discount to the bankers of 4%).
The loan will provide government with £100 cash for every £135 of debt (£65 in 3% consols, £60 in other 3% stock and £10 in deferred stock) but the overall interest rate is only 3¾%. The loan includes the issue of some deferred stock on which interest payments will commence in 1808 (the total issue of new stock for the loan will total £30.3 millions face value). The loan agreement is based on a value of 75¾ for the 3% consols which is above the present market rate of 74. The deferred stock is expected to trade at 58½. Pitt described the package as auspicious and satisfactory. It shows the confidence of the City capitalists in the stability and credit of the British economy.
He expects to need approximately £12 millions more for the remaining 7 months.
As regards the repeal of the Income Tax it will be difficult to forego such a large source of revenue but it was introduced as a war tax and we are now nearly at peace. To replace it Pitt will increase the tax on malt, hops and beer producing an overall tax of 5/11d per barrel of beer. Pitt expects this to be well tolerated as the brewers reduced the price of a barrel at the beginning of the year from 40/- to 35/- and he is merely taking the amount the brewers no longer wanted. He is aware of the growing practice of the people to brew their own beer. The Malt and Land Taxes should produce £2.7 million. Altogether it should be just enough.
He wanted to abolish the salt tax as well but it is too big to forego.
3% consols at end March were c. 70. The American 8%s were 113, French Tiers Consolidé are 57 francs.
Sat 14th Aug 1802
Pitt has mentioned the Sinking Fund in his budget. This is the great national sheet anchor. He proposes to accelerate the reduction of debt.
In 1786 it was enacted that £1 million of revenue be annually invested in the Stock Exchange in reduction of the national debt. Commissioners were appointed to invest this fund and receive all interest. It was to continue until the value of the fund reached £4 millions when parliament was to consider if it should continue or be used to reduce annual taxation. The fund under the Commissioners is now £2.5 millions and the outstanding debt has risen to £199 millions.
In 1792 it was enacted that 1% of every loan be applied to the retirement of that specific loan and, once achieved, parliament was to consider to what use the 1% could be put in future. This second Sinking Fund is now worth £3.2 million and the outstanding loans to which it applies total £212 million.
Pitt wants to consolidate the two Sinking Funds which he thinks will allow quicker reduction of outstanding debt. He says he can pay-off £500 millions of debt in 45 years.32
Sat 4th Sept 1802
Pitt has asked the House of Commons to extend the suspension of payments by Bank of England. Addington said that after 4-5 years of difficulty, the restriction had been beneficial and people exchanged paper as though it was valuable. It is universally recognised as more convenient than specie. As a result the credit of the bank has remained unimpaired.
Sat 4th Sept 1802
House of Commons debate 16th April on the National Debt:
Pitt said he had not completed the accounts for the redemption of the National Debt but hoped to send them to MPs before the recess.
He was proud of the arrangement in 1786 to reduce and redeem the National Debt. That plan effectively consolidated the debt which facilitated its redemption – it put all national debt into one great fund, the 3% consols. The Act of 1792 required parliament to provide for repayment of each debt at the time each new loan was contracted. A new Sinking Fund was created to fund this debt. Both Sinking Funds together now total £5.667 million.
The legislation requires that the first Sinking Fund be allowed to increase to £4 millions before being put at the disposal of parliament whereupon the annual (2nd) 1% Sinking Fund will cease. Pitt estimated that the entire national debt secured on the 3% consols would be paid-off in 48 years and the new debt secured by the new Sinking Fund would be paid-off in 47 years.
The present annual produce of permanent taxes is £30 millions and the Debt stood at £488 millions.
Little debate ensued. Instead it was agreed to form a committee once Pitt had provided the accounts.
Sat 30th Oct 1802
Vansittart has published revenue figures for the 1st quarter of 1802 (with 1801 figures for comparison) to establish that British trade is growing and the need for new taxes has abated:
|
|
1801 |
1802 |
|
Imports |
2,027,726 |
1,977,517 |
|
Customs value of exports |
5,105,106 |
5,365,118 |
|
Declared* value of exports |
7,416,416 |
8,343,961 |
|
Re-exports |
1,109,608 |
1,782,067 |
* Declarations under the Convoy Act for assessment of the Navy’s fee.
On these figures, England imports approximate £2 millions per quarter whilst exports and re-exports in the same period are up to £10 millions. Pitt says they are not complete figures but illustrative of the trend. He notes the depression in prices of American and West Indian produce, and the great number of Bills in West Indian trade that have been protested, but overall he says he detects a rising demand for British goods.
There was an increase in merchant shipping tonnage too. 598 ships (159,275 tons) entered and cleared London in 1801 and 758 ships (167,933 tons) in 1802.
(In a later edition, the Bombay Courier Editor notes that the 2nd quarter of 1802 did not maintain the 10% increase noted in Vansittart’s chosen quarters.)
Sat 25th Dec 1802
The French Revolutionary War has been decidedly beneficial to England:
The Union with Ireland would not have occurred so quickly without the impetus of French interest in that colony;
We would not have invaded Mysore if France had not supported Tippoo.
Our commerce, unimpeded by European competition, has spread all over the globe.
The destruction of the Banks of Venice, Genoa, Amsterdam and the Monti in Rome has given London an exclusive role in European finance such as has never occurred before. It has made our government funds seem more attractive to investors than they really are.
The territorial acquisitions of France in Europe are described as dangerous by British hawks but Bonaparte appears intent on pacifying Europe rather than inflaming it.
Sat 18th June 1803
The suspension of payments by the Bank of England has been extended again. When it first started it was expected to depress the price of funds but actually it seems to have had no effect at all.
Sat 30th July 1803
The English people have well tolerated the substitution of paper for gold and silver money. Originally there were only £20 notes that were so valuable they were irrelevant to every day life and were only held by wholesale merchants. Then came £10 and £5 notes, still huge sums for the common people to be involved in, but now we have £1 and £2 notes and these are getting all around the country.
The issue of £5+ notes and £2 or lesser notes is shown below according to Bank of England figures. They are all ‘payable’ at 7 days Sight. They exclude the issue of the country banks:
|
Aug 1802 Feb 1803 |
£2 or less notes 3,292,520 3,234,530 |
£5 or more notes 14,386,640 12,874,030 |
Sat 6th August 1803
French funds continue to rise in value quite quickly. It is the prospect of the peace dividend that supports France. The French 5%s were 51½ a week ago but are now (12th April 1803) 55¼. Paris is giving a better return on investment than London – that has excited the capitalists at the Royal Exchange.33
Sat 14th Jan 1804
The Chancellor of the Exchequer met with the bankers on 11th June to discuss the loan that government requires. The attending capitalists represented the Committee of Bankers, the Committee of the Stock Exchange, Robarts Goldsmid & Co, Esdaile & Co and Sir Francis Baring Battye & Co.
The minister said he wanted a loan of £12 millions. He would raise £10 millions of war taxes within the year. Together they are sufficient for the first year of renewed fighting. He offered £80 of the 3% consols and £80 of the 3% reduced Consols for every £100 subscribed (at their closing price of 58½). The bankers have two days to make their proposals. The Chancellor of the Exchequer expects payment in tranches between now and Nov and offers the usual discount for prompt payment.
The security he offers to the bankers is as follows:
The first war tax is 5% on all income from all types of property.
This Income Tax will, for the first time, be applied to dividends
from the funds. It will also raise 5% on all income derived from
industry. A sliding scale for small incomes under £150,
similar to the previous Income Tax scale, will be used to obtain
contributions from small businessmen.
The interrogatory system
will be again used to establish income. People displaying
disproportionate wealth will be questioned on Oath by Commissioners
and required to reveal details of their income.
Landowners are to
pay 5% extra Land Tax; Land occupiers (tenants, who pay the tithes)
will pay 4% extra.
The second war tax is a surcharge on all the present revenue of the country – customs, excise, stamps and all luxuries (carriages, horses, servants, houses, windows, dogs, tea, coffee, sugar and all sorts of booze) - which will all pay an increased tax of c. 30% and will be applied from beginning of 1803. It will double the take under these heads.
The bankers actually bid on the long annuities which they agreed to receive at 6/5d. At 17 years purchase, that is £5.12.10d. Allowing for the discount, the total cost to the country will be £101.6.6d so the bonus they get is £1.6.6d and the interest the country pays to service the loan will be £5.2.2d%. No mention of the discount is published.
Pitt says the terms evidence the confidence that the capitalists have in our prospects. They are not only prepared to finance the country but at a very reasonable rate. The loan will create an additional £32 millions of stock upon which interest payments will amount to £4.8 million a year.
I propose to start a Receipt Tax. Every receipt will carry a stamp of between 2d – 5/0d and this will produce £220,000.
This system will convince France that she cannot ruin our finances by protracted war. It will convince the other European powers that there is no danger in associating themselves with us – our resources are solid and extensive.
The Chancellor of the Exchequer said the war justifies the taxes. We have been forced to war because we are not allowed to remain at peace. Whilst we are reluctant warriors we are vigorous borrowers. ‘Our people willingly make sacrifices for the honour and independence of our country’, he said.
Sat 4th Feb 1804
The bounties paid on grain shipments to England during the last shortage (largely paid to the Company for Indian rice) totalled £524,000.
Sat 4th Feb 1804
Discussions between the Board of Control and the India Company, concerning their accounts and the balance due to government, have resulted in agreement of the Company to pay £1 million full and final.
The navy, army and ordnance will cost £22 millions this year. The Civil List will cost £1,191,907. Ireland, now it is united with Britain, will pay its usual share of 2/17ths of both items.
Parliament has approved the issue of £4 millions of Exchequer Bills but the Bank’s brokers are able to sell these to the public only slowly.
Sugar is to be taxed heavily. Our colonists are thought to make huge profits and the sugar has become a necessary and a staple. Now we can assert a monopoly on colonial production, we will bring the World’s supply to London for domestic sale and re-export to Europe. The duty on sugar is raised by 4/- per cwt, that is an increase of 20% ad valorem. No draw back is available, indeed a further tax of 1% is added on re-exports to Europe (and 3% to America). It is the ministry’s intention to bring colonial production into substantial contribution to our war expenses.34
All other customs duties are raised 12½% ad valorem except raw cotton, tea and wine, which all fall to be taxed under the Excise. Tea smuggling is a problem but the Company’s control of the bulk of supply allows an additional tax of 15% ad valorem on coarse tea and 45% ad valorem on fine tea. This will produce an extra £1.3 millions.
For wine, Pitt recalls he added £10 per pipe (a barrel of nearly 600 bottles) to the tax in 1795 and consumption hardly changed. He will restore the 1795 tax rate of £40 per pipe, about 200% ad valorem. This will produce £0.5 millions.
Wine is the drink of the rich; beer of the poor. The brewers have been making good profits and an additional tax of 2/- per bushel on malt should be acceptable to them. This tax will then produce £2.7 millions (about 45% ad valorem).
The Income Tax was introduced in the Revolutionary War as a war tax and will again be collected in this war. The common complaint was the requirement to disclose all assets liable to the tax. To address this, we have divided that tax according to source. All capitalist endeavour (lands, rents, interest on money in the funds, etc) is distinguished from income derived from labour or industry. The rich will not be required to disclose their profits on capital as the levels of income from their holdings are easily ascertained whilst income from labour and industry must be investigated to ascertain its value. Commissioners will again be appointed to investigate people on Oath.
On land Pitt proposes a 5% tax on the landowner and 3¾% on the tenant (the discount recognises that the tenant has to pay the Poor Rates). The annual income from lands in England is about £80 millions as follows:
Lands and tythes produce £38 millions;
Money in the funds (Government, East India, Land, etc.) is £18 millions
Houses and buildings in England and Scotland produce nearly £10 millions.
Mortgages and loans are worth £7.5 millions.
Income earned abroad and remitted to England is £4 millions.
We will take nearly £4 millions annually in tax on these incomes.
Income of placemen, sinecure-holders, professional men (doctors & lawyers) and artisans should be about £0.6 million.
We understand the tax on income from investments in government paper is resented by commercial men who say it is a breach of public faith towards those people who support government with their capital. We appear to have promised x% income on the dividend, then actually pay x – tax%, but its a form of income and we do not wish to make exceptions.
This will produce £2 millions in Customs, £6 millions in excise and £4.5 millions in Income Tax. We therefore need a loan of £10 millions for the excess of spending over national income. I have actually borrowed £12 millions but £1 million is for Ireland.
Sat 15th Sept 1804
Addington has met with the City bankers. He wants £16 millions of which £14.5 millions is for England and the remainder for Ireland. For every £100 of loan he offers the bankers £100 market value of the reduced 3% consols. The bidding is to be in the 3% consols with a 5% discount for prompt payment. He guaranteed that the first half year dividend would be free of the new income tax on interest. He also said he would soon be asking parliament to approve a further loan of £2.5 millions.
This negotiation will feature a novel approach to finance. There will be no annuities issued and the bidding will be in the 3% consols and not in the 3% Reduced. It should improve the dividend on the 3% reduced to the level of the 3% consols and ensure holders of both get a better dividend when payment comes in April and October. The loan requires payments in tranches of 10 – 15% monthly from May 1804 – Jan 1805.
The bankers were not convinced of the advisability of Addington’s proposal and the eventual agreement was for government to pay £100 of 3% Reduced, worth £55.10.0d, and £82 of 3% consols, worth £45.18.5d which, adding the discount of £3.3.4d, produced £104.11.9d for every $100 of loan. Addington says this cheap money shows the confidence our bankers have in the economy.
Sat 15th Sept 1804
Addington has introduced his 1804 budget. He hopes to continue last year’s system whereby he tries to raise the required revenue without increasing the national debt. He estimated a need for £10 millions in war taxes last year to avoid increasing the debt and that turned out to be correct.
At the beginning of the Revolutionary War an abundance of colonial goods was caught in our warehouses and a stagnation of trade ensued. We gave financial aid to the merchants to help them over their temporary embarrassments.
There was some financial difficulty again last year on the commencement of the renewed war but it was insufficient to require our direct aid. Instead we used the large floating capital of public money from taxation for the relief of trade. We gave the merchants enhanced drawbacks on their re-exports that cost the country £500,000 over the year. Addington reminded merchants that they should act prudently in times of abundant profits so they may survive predictable economic downturns.
Our war taxes are estimated to produce £12.5 millions this year, the property tax £4 millions, Customs & Excise $8 millions. Parliament exempted incomes under £150 per annum from income tax and that has reduced Addington’s expected revenue by £1 million.
This year we need £35 millions for the army and navy. Ireland will pay her usual 2/17th share. We have paid £412,000 to America for its old shipping claims and that has restored relations to their former friendly level.35 Civil List extras are £883,000 and miscellaneous services £617,000. Altogether Addington needs £35 millions for the year.
Sat 1st Feb 1806
September 1805 – silver has increased 1½d per ounce in London in this few days. It appears to be due to speculative purchases. There is a market expectation of higher demand as England starts paying subsidies to its European allies. This suggests the Company will be required to bring more silver to England and more pressure will be put on India, China and the Spanish South American colonies to secure the necessary supply of the metal.
Sat 8th Feb 1806
The Directors of the Bank of England are having a good year. At their quarterly meeting in late Sept 1805 they added a 5% bonus to the standard half-yearly dividend of 3½% due for the half-year ending 2nd October which period had then not yet been concluded.
Sat 22nd Feb 1806
25th Sept – the Bank of England is making windfall profits. In addition to the 5% bonus granted a few weeks ago another 5% bonus is announced today to the holders of its capital of £11 millions. If there are no more bonuses this year, that will give them 17% return on their money. The price of bank shares on the exchange has risen suddenly to 185¾ ex the first half’s dividend.
Sat 28th June 1806
London newspapers have published a eulogy to Pitt who has died:
On 16th May 1784 Pitt entered power and in the ensuing nine years he established the commercial foundation to Britain’s rise to its unequalled position of prosperity in the World. He won the support of the majority of MPs by replacing Fox’s India Bill with another proposal that left the Company’s independence intact.36 This gave him a following of 50-60 MPs who represented the Company’s interests and were all the King’s friends.
After the American war his plan for paying-off the national debt was an eternal monument to his greatness. It commenced in 1785 when we had a surplus of £500,000. He doubled this with some special taxes and applied the million to reduction of debt. He reformed the Excise laws and introduced taxation of wine.
It was the loss of America that threw England into this new path. We had absurdly overspent ourselves in suppressing the colonists to the point that when we finally abandoned the attempt, the interest on our national debt consumed 60% of annual revenue. France, who was in much the same state, fell into Revolution but we avoided that by a dextrous mixture of carrot and stick. It was this national near-bankruptcy that horrified all his contemporaries and gave Pitt the entrée he needed to secure the respect and support of the power centres.
In 1787 he interfered in Dutch affairs to prevent French control of that country. The following year with Prussian help he frustrated the expansionist policies of Catherine of Russia against Sweden. At the end of 1786 the King fell ill but Pitt’s support never wavered during his illness.
He protected England against French principles when that country adopted democracy. During 1790-92 the English Press was awash with popular ideas of national administration that threatened monarchy, aristocracy and clergy. The consternation of the English ruling class allowed Pitt, as their instrument, to accede to a great concentration of power with which he suppressed the dissemination of democratic ideals by harsh legislation and violence.
By characterising the dissidents as traitors and severely punishing them (the Treason & Sedition Bill; the Aliens Bill, the Traitorous Correspondence Bill), he silenced criticism whilst maintaining our manufactories in production and increasing our foreign trade at the same time. This added the commercial men to his supporters.
When the Revolutionary War commenced, if our European allies had been as competent as Pitt, we would have got a far better peace treaty than was in fact the case.
By 1793 our economy was expanding faster than we had money to support. With the Dutch and French increasingly closed-out of their colonies by our Royal Navy, British capital flooded into their ex-colonies and we assumed a monopoly of colonial trade (shared with the Americans). This sudden spread of our merchants’ wealth all around the world left them with inadequate funds at home and Pitt refinanced them by assigning a value to their property overseas and in ships and allowing them to draw on it by issue of Exchequer Bills secured on the merchant’s documentary evidence of overseas assets. This injection of liquidity very quickly caused our trade to again flourish. Had it not been made available, a succession of businesses would have stopped payments and the money-go-round would have come to a standstill.
A second commercial difficulty at that time arose from the subsidies that we wished to pay our allies in Europe to keep them fighting. These payments left the home country with an inadequate circulating medium and induced a run on the Country Banks that spread to London and threatened to derail our whole capitalist system. Pitt allowed the Bank of England to cease payments. That delighted the City merchants who were the only people aware of the danger. Pitt incrementally issued paper money (then already in use by merchants in large Bills which had no application in ordinary day-to-day exchange). Utilising the value reportedly locked-up in British property abroad and afloat, he permitted the issue of £10 notes, then £5 notes and £1 notes and brought the whole country onto a system whereby real wealth stayed at the Bank of England whilst paper credit notes, representative of value, were held by the people and were notionally exchangeable for value at the Bank. Paper money was easily transportable, compared to gold and silver, and became very popular.37
These financial innovations were concurrent with the mutinies in the Royal Navy to which a contributing cause was late-payment of wages. They started at Spithead and spread first to the Nore (the Thames) and then to every naval port and required both concession and violence to put-down.
That year Pitt introduced the idea of raising the bulk of national funds within the year it was to be spent. The French had already widely published the extent of British debt along with their view that it would bankrupt the country. France had a role in disturbing the Sterling exchange rate at Hamburg which had exacerbated the Bank of England’s payments problem. Pitt needed to reassure national creditors that he would protect the value of the Pound. This led to Pitt’s adoption of the bankers’ idea of capitalising the Land Tax which did so much to support the value of British debt paper and thus reduce the costs of borrowing.
In 1797 the shortage of specie was a serious threat. A large part of the silver we might ordinarily use for trade had gone into Europe as subsidies. Some good part of it came back into British funds through our consular offices which issued Bills for silver and remitted the proceeds from time to time and there were nominee investments in British funds by continental officials and army officers.
By 1799 our foreign trade was double the 1792 figure and four times the value of the time when Lord North resigned. At the same time our debt to the City bankers had ballooned. Pitt converted the Sinking Fund from a tool to reduce debt to a means of funding war. He increased the Sinking Fund proportionately more than he increased the national debt. Had Pitt been in power when we fought the American colonists his financial policy would predictably have allowed England to win that war.
Pitt’s statesmanlike act was to risk the odium of the people by raising taxes rather than, like his contemporaries, slip a loan through an obedient Commons to burden posterity. One may compare the results with Neckar’s policy of fighting a war on loans which ultimately ruined France and contributed to the occurrence of the Revolution.
Pitt’s financial system has now been with us for twenty years. It is familiar to businessmen and is becoming familiar to others.
His terminal disease was characterised by an inability to sleep for weeks, by the recurrence of gout which spread up his leg and by an inability to retain food. At the moment of death he had not eaten for 48 hours.
Wed 30th July 1806 Extraordinary
After the new national loan was agreed, the 3% Consols were trading at 60½ on 4th April. The bankers interested in the new loan were Baring & Co, Goldsmid & Co and Curtis & Co but they combined to share the risks and rewards.
For every £100 given they receive £100 of 3% Consols and £68 of 3% reduced Consols. Effectively the government has obtained this loan on interest of slightly under 5%.
Last year we borrowed £25 millions; this year it is £20 millions (so far). Last year we sent £3 millions in subsidies to Europe; this year we have sent no subsidies.
Sat 16th Aug 1806
House of Commons – We have transferred £3 millions of the nation’s tax revenue to the Sinking Fund. This is applied to buy 3% consols which are thus maintained at about 60 - the value that the ministry has more or less guaranteed to the bankers. We then go to the bankers to borrow money and give them these inflated value 3%’s as security. As a result they give us loans at lower interest rates. It is a form of gearing - an investment-grade security is subvented by regular injections of revenue to maintain its value.
Huskisson said it was not just the Sinking Fund that facilitated the cheap loans. The principle of raising revenue within the year it was required was also important. In 1798 we started doing that after small loans in 1797 could not be had for less than £6.16. 6d per £100, although the Sinking Fund was operating throughout that period.
Over half the outstanding Exchequer Bills (unfunded government debt) are still held by the Bank of England which pays the property tax on them.
Sat 30th Aug 1806
London, 24th March – the funds are well supported although the government is on the cusp of agreeing a big loan. Usually government loan stock declines prior to each loan and recovers only afterwards.
One reason is the latest French peace proposal which, excepting the loss of Hanover to the King, is now rumoured to be actually conciliatory; the other is that the City is already awash with money, the proceeds from trade and from prudently cautious Europeans.
The loan amount is £20 millions but the Goldsmid Brothers say they have tenders for over £70 millions from their connections. Napoleon will be green with envy.
Sat 11th Oct 1806
Lord Henry Petty moved the 3rd reading of the Property Bill. Francis moved that the clause exempting foreigners from English taxes be omitted. He said applications for exemptions involve £40,000 in the funds and this year the amount is increasing daily. It appears the total for this year will probably exceed £100,000 and its likely to continue increasing. A good part of it was investments by resident foreigners (almost exclusively émigrés).
All British stocks are bought and sold by British stockbrokers. They control the process and say foreigners threaten to withdraw their money if it is taxed. It is rumoured that Englishmen own stock through foreign nominees to take advantage of the exemption. They are protected by the stock-brokers.
Several members of the present administration were also members of the Friends of the People which club has a view on this. They agree there should be no taxation without representation but investment in British stock is purely an economic decision by foreigners. Fox noted that foreign investment in British funds gave foreigners some influence over our economy but the basic rule was that we should not take what is not our own.
Sat 8th Nov 1806
Lord Henry Petty is disentangling the national accounts. The Committee enquiring into government receivables is one of the measures of Fox’s liberal Whigs during their brief administration of the country. Petty says the public accounts show arrears in collections of £534 million. It is so big that no politician likes to talk about it. He plans to unite the two Commissions of Audit, increase their staff and put the Treasury Board in control of them. This amalgamated body will review all old government accounts and try to collect whatever is still collectible.
George Rose, Pitt’s Treasury man and patronage manager, said Petty would get no more than about £8 millions maximum.
For the new national accounts, Petty proposes a Board of Audit be formed to monitor the dealings from year to year. The appointment of officers to both proposed Auditing units would be made by parliament. He proposes to enact a legal requirement compelling all departmental accountants to submit accounts annually.
He wants to hive-off the inscrutable army account altogether.
Sat 15th Nov 1806
The gross British revenue for y/e 5th Jan 1806 was £43,026,583. After collection charges, repayments etc the nett was £35,314,158. Add the war taxes – Property £4,337,583; Customs £2,622,147; Excise £6,360,229 = £51,339,045. Adding the loans of £25,130,404 paid into Exchequer gives a grand total of £76,469,450.
Sat 11th July 1807
The City bankers have been to the Treasury to offer terms for this year’s loan. The government wants £14.2 million and has an informal indication from the bankers that they are agreeable to pay £100 for every £70 of the 3%s and £70 of the 3%s reduced. Bidding is to be in the 5%s.
Before committing themselves, the bankers asked Grenville if he would grant any subsidies to Europe within the year. He said subsidies to allies, if any, would not exceed £2 millions.
The subscribing capitalists this year and their bids are M/s Barnes, Steeres & Ricardo £10.12.0d, M/s B & A Goldsmid £11. 1.0d, M/s Barings £11. 1.0d and Robarts & Co £11.17.6d. M/s Barnes, Steeres & Ricardo, representing the stockbrokers, got the business.
The 3% consols are down at 62½; India stock is off at 185½.
Sat 13th Feb 1808
The value of farm land appears to have tripled. Six arable farms around Paisley belonging to the Marquis of Abercorn and comprising some 496 acres have just been let at auction for £1,909 a year. Formerly they had rented for £653.
The Marquis also has Brownside farm, two miles south of Paisley, which is 72 acres of lowland and 200 acres of hill pasture, and it rented at the same time for £406 whereas formerly it was £150.
This doubling and tripling of rents does not reflect a doubling and tripling of agricultural production. We infer that the paper money we now use for exchange has inflated the economy by two to three times.
Sat 10th Sept 1808
The Chancellor of the Exchequer has called the City bankers to receive their proposals concerning the government requirement for an extra £4 million loan.
They consulted amongst themselves and made two proposals. For every £100 of Exchequer Bills they buy from the Bank of England they want either:
£65 of the 5% consols worth £97.10.0 plus £50 of the 4%s worth £50.15.0 ex div, or
£80 of the 4%s worth £80.15.0 plus £39 of the 5%s worth £57.10.0
On present prices this will be a windfall to the bankers. The offer was greatly over-subscribed. Coutts alone took £500,000. It may be indirect compensation for the lost Baltic convoy.38
Sat 21st Oct 1809
Colquhoun’s Tables for 1803 show total economy activity in England and Wales is about £222 millions per annum and government revenue (including war taxes and poor rates) on that activity is about £40 millions (18%).
The derivation of that part of government revenue that comes directly from the people is said to be 28% from the rich, 20% from the upper middle class, 16% from the lower middle class and 9% from manual workers.
Sat 6th Oct 1810
London, 10th May - Perceval interviewed a group of bankers and asked for a loan of £13½ million. He says £8 millions is for England, £4 millions for Ireland but raised in England and £1½ millions is to be raised and paid in Ireland.
£12 millions will be funded in the 3% consols and the 3% reduced stock. Perceval offers £130 of 3% reduced and will negotiate on the amount of 3%s. Payment is required between May 1810 and Jan 1811 in 9 monthly tranches.
He told the bankers that the India Company will need a £2 million loan before March 1811. It will be paid by an issue of £1½ million in Exchequer Bills and the balance found by postponing the Company’s payment of annual tea duties that it collects this year.
He also said a further issue of £3 million in Exchequer Bills will be needed.
The discount on offer is worth £1.16. 1d and property tax on the first half-year dividend of the stock will not be required of successful loan subscribers. The bankers asked for government terms for receipt of specie in payment (they now have the South America supply and there is an advantage) but Perceval has to ask the Bullion Committee. Government has announced no new taxes and it is supposed repayments will be funded from existing revenue (there has been considerable violence done recently to individual taxpayers in collecting the Assessed Taxes).
Sat 27th Oct 1810
The £12 millions national loan that Perceval sought from the bankers has been subscribed entirely by Sir Francis Baring and the Goldsmid Brothers at a rate that yields them interest of £3.15.9d per £100 exclusive of the exemption from payment of property tax. The bonds are already trading in the market at a premium of 1½%. The discount, if any, has not been published.
Sat 26th Jan 1811
The parliamentary Committee on the High Price of Bullion has reported that the excess of paper notes issued in Britain is the main cause of rising prices. A contributing cause is the low value of British securities on the Continental Exchanges (Hamburg et al). They say the suspension of cash payments removed the normal regulation of gold on banknote value and since then the Bank of England has printed too much money.
They say it should be notionally possible for all paper money to be converted into specie, otherwise the paper will lose value i.e. however much paper money is issued, it cannot in toto be worth much more than the specie backing it. The Committee regrets that the suspension of cash payments has been extended by parliament for so long. They fear it has become a permanent war measure.
The Committee deplores the effect of the Bank’s irrational exuberance. The prices of all goods sold for paper are augmented; annuities and all creditors are devalued whilst government and other debtors receive an advantage. Wages rise slowly and only as a result of hard bargaining - the working classes are paying disproportionately for this undisciplined financial policy. Once wages and salaries are increased, it will be difficult to reduce them when financial stringency is again reasserted. The Committee concludes that cash payments must be permitted on presentation, at the option of holders of Bank paper.
Government suggests a limit on Bank advances and discounts. Alternatively it suggests a limit on the Bank’s profits and dividends with that part exceeding the limit to be paid-back into the public revenue. The Committee believes these palliatives would be inadequate to meet the need. It commends parliament to fix a date for resumption of cash payments that will permit the Bank to schedule its acts to smoothly achieve the object. It should not be attempted too quickly and the Committee suggests a scheduled reduction of paper over two years. There is a law requiring the Bank to recommence cash payments within six months of a definitive peace with France – that will have to be amended as the excess paper currency cannot be withdrawn in six months without causing chaos. If peace breaks out there will be a foreseeable increase in commercial transactions and demands on the Bank for discounts would increase rather than reduce.
The Committee deplores the temptation to devalue the price of gold. Many governments, in the circumstances facing the present ministry, have resorted to such a legislative Act but it is a breach of public faith that rewards the spendthrift and punishes the prudent man. It would be an improper interference in the rights of commercial property.
There is only one course of action that can be recommended. We must restore the convertibility of gold. Only in that way can confidence in paper be re-established. If we do not do so, the stocks traded on the Exchange will continue to fall in value (whilst increasing in paper price), confidence will be lost and a crisis will evolve. We believe it would be wise for the Bank to continue to issue £5 notes concurrently with the resumption of gold payments. The Chartered banks of Scotland and Ireland and all the country banks should be permitted to continue paying in paper instead of specie until some time after the Bank of England itself resumes cash payments, but their own paper should be incrementally be replaced by Bank of England paper.
Sat 23rd Feb 1811
Cobbett’s Political Register, 11th Aug 1810 (written from his cell where he remains imprisoned for libel):
The pro-government London Morning Post has been railing against the credit notes (paper money) issued by the country banks, which it calls ‘destructive assignats’, by publishing a series of ‘letters to the Editor’ which all commend that the country banks’ note-issuing authority be abolished. It appears the minister wishes to make Bank of England paper the exclusive credit of this country.
In fact the government does not understand what credit is doing to the country. It seems to have determined that it must do without one or the other and only knows it has a closer friend in the Bank of England than the country banks.
The Morning Post says the country banks are under-capitalised and if any one of them failed, it could only pay 50% of its engagements. They say paper money has been over-issued and threatens to be increasingly discounted. They say the country banks collect whatever specie is in circulation but only pay-out their notes. No-one can get silver for bank notes and workers are effectively going without pay week after week because shopkeepers have become reluctant to exchange their paper money.
The problem is caused by the landowners and farmers. They are in a conspiracy with the country bankers. They keep back their grain from the market in the expectation that real prices will rise and in the interim they pay their way with these bits of paper. One of the Morning Post’s ‘letters to the Editor’ is from a reader in Salisbury where the banks have stopped payment. It reports widespread hardship. Another writer says he has an income of several hundred pounds each year which has been paid to him for many years in country bank notes and he has never, in all that time, been paid a guinea or a Bank of England note. It seems well-established that the country banks are selecting against their customers by paying-out their own notes but keeping-back more widely acceptable securities.
On the subject of remedies, one writer says only the government, or the Bank of England under government control, should be allowed to print money. Another wishes to link the face value of the paper money to the amount of capital of the issuer. Another suggestion is to have government banks in every county into which the local people would pay their taxes and deposit their savings. The London bankers routinely deplore the activities of country banks but they are known to wish for a monopoly of national banking services.
The great flow of paper from the country banks has increased the price of necessaries. Everyone on a fixed income is suffering. If we simply hand over the country bank business to government or the Bank of England it will make no difference. The landowners will still hold-back their grain – they don’t want paper of any sort, they want gold and silver. The problem is an excessive note issue which has to be reduced.
The French assignats were secured upon national land but they were ultimately over-issued and lost value. It was the same with the Congressional Notes in America. It seems very likely that it will always be the case, when a government issues money, that it will be incapable of restricting the issue to the amount of underlying value.
We tend to think of government as a safe debtor because it has so much power but is it easy to get payment from powerful debtors? These are the people who control the House of Commons and can make law at an instant. They often indemnify themselves from liability for their acts. These are the people who deduct Income Tax from all dividends on public stock making the stock less attractive as an investment. They are the people who relieved the Bank of England of liability to redeem its notes. The French and American governments pay their debts with a sponge and every other government may reliably be expected to do the same.
The propaganda campaign that government has initiated in the correspondence columns of the Morning Post is very likely its opening gambit in assuming control of the note issue of England. It may be a preparatory step to de-licensing the country banks. It is worse than giving the same power to the Company in Threadneedle Street.
The merchants of Carnarvon met in their Guild Hall on 3rd Aug and voted not to receive country bank notes in exchange as several banks had recently failed. It was a unanimous decision. In future they will only accept Bank of England notes. The resolution was signed by fifty merchants. How foolish they all are.
The Bullion Report has now been published. It appears to confirms everything I have been saying about the credit system. I need time to digest the Report but I shall certainly give you its prominent features soon.
Sat 2nd March 1811
The London ministry’s Bullion Report is widely reviewed in England. It contains a section dealing with exchange between England and Asia. The Bullion Committee has reviewed the India Company’s accounts for ten years up to 1808/09. They have also interviewed Charles Grant.
Two of the principal Agency Houses in London that inter alia discount India Bills say from 1800 – 1804 they exchanged the Bills at 2/6d per silver Rupee 6-month’s Sight; from 1805 – 1809 they paid 2/7d per Rupee, 12-month’s Sight and most recently they pay 2/6d or 2/5d per Sicca Rupee. All the London Agency Houses paid about the same.
These Bills represent our payment for goods from India and as those exports have decreased in the last two years, the London Agents are paying less for the Bills in order to maintain the overall profitability of the business line.
Grant says the relationship of value between silver and gold in China was 10:1 in 1730 but with the steady accumulation of silver in that country from foreign trade purchases, the rate deteriorated to 16:1 today. In China silver metal is used as the medium of exchange and is accordingly sought after.
Gold is nowhere used for exchange in Asia except on the Coromandel coast where they use Star Pagodas and in the British Presidential towns where there is a small circulation of Gold Mohurs.39 The currency of the rest of India is silver and silver coins are changing in value in comparison with gold coins.
For several years the Company has ceased exporting silver to China. We now send sufficient goods from India to make up the trade balance. Silver for China trade now comes from the Americans and somewhat from the Spanish at Manila.
Sat 16th March 1811
The Bullion Committee Report notes that there are some imports for which there is no corresponding export – the product of fisheries is one example and capital returned on investments in the East and West Indies is another. These together account for the following surplus income:
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1805 |
£ 6,616,000 |
|
|
1806 |
£10,437,000 |
|
|
1807 |
£ 5,806,000 |
|
|
1808 |
£12,184,000 |
|
|
1809 |
£14,834,000 |
This table was produced by Mr Irving and he admits it is defective in so far as it does not account for sums withdrawn from Britain by foreigners. We are presently paying huge sums to foreign shipowners to carry our goods to wherever our own ships are disallowed. On the other hand many British shipowners have re-registered their ships in foreign ports and chartered them to foreigners to carry this trade and the charter fees are a capital import just like the profits from the Indies. Nevertheless, this might affect the total apparent surplus.
Another adjustment should be made for interest on investments made by foreigners in England and by Englishmen in foreign countries. Again it should produce overall a continuing surplus to us. More difficult to quantify is the huge smuggling trade which is cash business and involves the receipt of silver and gold for our goods. Finally Irving’s table omits the Bills discounted by our navy and army overseas for their provisions etc. We asked the ministry for details of this last item but they say it is difficult to calculate.
As regards England’s balance of trade with Europe during the last 5 years, it was £5 millions in our favour for each of the three years 1805 – 1807; it was £6 millions to us in 1808 and that increased to £14 millions in 1809.
It is the belief of this Committee that the balance of trade is self-regulating. A favourable balance draws funds into the economy which raises the prices of goods in that country until exports are restrained and imports increase, whereupon the excess funds flow away to the trading partners.
As regards paper currency, we find it affects the price of bullion in the same way. When more paper currency is available, the price of bullion payable in that currency increases and the exchange rate of that paper with other currencies is simultaneously reduced. It is the exchange rate and the price of bullion that tells us whether our paper currency issue is excessive or deficient.
The Parliamentary Committee concludes that the financial difficulties being experienced throughout the country by the surfeit of paper money is proximately due to our success in international trade.
Sat 20th April 1811
Another of the Goldsmid brothers has killed himself, this time it is Abraham. He walked out of the back of his house in Morden into the woods and shot himself through the head. The suicide is rumoured to relate to alarm that the discount on Omnium 10% stock would increase. The City says the Goldsmid family is not really bankrupt, they just need a little time to recover. The family’s loss is said to be about £200,000 but that is only a couple of day’s dealing for their business.
Abraham’s problems started with the last government loan of £12 millions which he shared with Sir Francis Baring’s company. The price of 3% consols was at £65 per mille on Thursday and he has been unable to offload his half share although Baring got his sold in the market successfully. Abraham’s monied friends were deterred by the over-issue of paper and the inevitable consequent decline in the real value of government paper. Even his great family fortune was insufficient to overcome the difficulty.
The trigger for Abraham’s problem and proximate cause of his death was a loan he had previously taken from the East India Company for £500,000 which, although secured, was unexpectedly called-in when his difficulty with the government loan was first rumoured. The Company had demanded payment on the day he died. The India Company Directors have brought down a great Jewish banking family.
Once the news reached the City, Consols fell from 66½ to 63¾. Omnium declined from a discount of 6½ to a discount of 10¼. The prices remained steady at the new low rate for some time and then marginally recovered. Seventeen banking houses ceased payments in connection with this fall in value. In the last few weeks both Sir Francis and Abraham have died. They were long considered the two foundation-stones of the City’s financial system.
Sat 13th April 1811
The Chancellor of the Exchequer was obliged to buy back £8 million of Exchequer Bills between 20th – 27th March 1810 at the Exchequer Bill Office.
The management of this office is the responsibility of three paymasters – Sir John Peter, Mr Planta and Dr Cudlipp. Cudlipp’s job is a sinecure and he is never there; only Peter and Planta are actually involved. The operations of the Office have historically been characterised by favouritism and by an apparently willing acceptance of 2-3% of forged Bills.
Some Exchequer Bills in circulation today are endorsed to pay interest of 3¼d per diem and others 3½d per diem. The former were relegated to buy-back only after 22nd March. Discontent arose amongst some holders of 3½d Bills over preference in payment to some holders before others.
On 20th March, before the Exchequer Bill Office opened at 10am, Peter brought the bankers Goldsmid, Sutton and Gilman to the office and they got their 3½d Bills settled first.
By close of business on 21st March nearly £6 millions had been paid-out and there remained £2,188,700 of the original £8 millions available to disburse to the holders of 3¼d Bills. By that time widespread complaints had been made that sales were not ‘first come, first served’. Goldsmid, Sutton (& his partner Robarts) and Gilman gave their 3¼d Bills to Sir John Peter to negotiate on their behalf to avoid attending at the Office and attracting attention of other holders. These people thus again got their payments in full.
Peter says he was very busy at the time and has since forgotten all the details.
The accounts reveal that £311,000 more Bills (nearly 4%) were negotiated by the Exchequer Bill Office than were actually issued. Numerous people, who had queued since 10 am, had their Bills returned after the money ran out.
Sat 25th May 1811
Huskisson has published a paper on Money called ‘The Question Stated’.40
Paper money is supposedly representative of gold and silver. It provides a convenient medium in which the values of all other commodities can be stated. So long as paper money is readily convertible to gold and silver it retains popular confidence. The utility of paper money rests both on its convenience and on the confidence that people have in its ability to retain its face value.
In our domestic economy the price of goods increases or decreases with the supply of money. More money – more expensive goods; less money – cheaper goods. To an international observer it would appear that the value of gold rose and fell in our domestic economy depending on its supply.
The British guinea is 5dwts (pennyweights) plus 9.398 grains (c. 83.6 grammes), comprised of 11 parts pure gold and 1 part alloy. The Laws of England since the 39th year of George III’s reign make gold the only legal tender for transactions over £25. Since Charles II, one Troy Pound of gold (11 ounces gold + 1 ounce alloy) is equivalent to 44½ guineas, each worth 21 silver shillings and anyone may take gold to the Royal Mint and have it converted to coin at that rate without charge.41 Before 1797 everyone could expect to exchange 83.6 grammes of gold for every guinea. A Troy Pound of gold was exchangeable for £46.14.6d.
The merchants who bought the Charter of the Bank of England have been permitted for over a century to issue Promissory Notes in lieu of their gold holdings and these now constitute a large part of the circulating credit of England. These Chartered merchants act as the government’s banker and its Agent for payment of dividends due to public creditors. For a century there was no interruption of convertibility of the Bank’s Promissory Notes.
When the Bank was approaching bankruptcy, the Legislature enacted that legal provisions for protection of creditors should be suspended in its respect. This was an astute move by the MPs - had they tried to force the Bank’s paper onto the people in substitution for gold, and made it the legal tender of England, it would have caused an insurrection once the public gained an understanding of the real value of the circulating paper. Instead the House of Commons voted for a suspension of the Bank’s liability to its creditors and this slipped passed almost unnoticed. Since then the suspension has become permanent.
Today the overseas exchange value of £46.14.6d in paper is about 10 ounces of gold and it now requires £56 of paper Sterling to buy 1 Troy lb of gold. Clearly the value of the Bank’s paper has reduced in respect of gold and that reduction inevitably applies in respect of every other article of exchange. It is apparent that since 1797 gold has no longer been the criterion of value of our currency.
It is also apparent that the cause of this devaluation has been the over-issue of paper money. Had the Bank been able to maintain a stock of gold sufficient to discharge that small percentage of the total currency requisite to provide exchange on demand (that part of the Bills coming back for discount on a daily basis - perhaps 5% of the note issue), it should have remained solvent, but as the note issue increased, large capitalists recognised the risks inherent in paper and withdrew their gold from the Bank. That brought-on the suspension of payments.
Sat 15th June 1811
London news, 1st Jan 1811 – the public revenue for 1810, and the comparative figures for 1809, has been reported in Pounds Sterling as follows:
|
|
1809 |
1810 |
|
Consolidated Fund |
37,838,084 |
40,048,244 |
|
War Taxes |
20,798,444 |
23,027,442 |
|
Total Revenue |
58,636,528 |
63,075,686 |
The item for Excise receipts, which is an indicator of domestic prosperity, increased by £1,450,000
Sat 15th June 1811
There is an absurdly large accumulation of coffee in the West India and London Docks. We have 60 million pounds of the stuff in warehouses, there are very few domestic drinkers and we have no-one to sell it to. The owners will accept 6d per pound if the buyer will take a large amount – that would give them £1½ millions for the lot.
This is the commercial reality behind the Licensing system which the ministry has been operating. Too great a quantity of both colonial goods and British manufactures have piled-up in the warehouses and cannot be sold. We have ruined European mercantile competition but the surfeit of goods is asphyxiating our own traders. Effectively, the capital of English trade has gone into storage at the docks and cannot be re-cycled. Even smuggling, which has had every assistance that the ministry and the commercial sector can devise, is inadequate to move all this great mass of goods. Smuggling across the Channel is done using small waterproof packets that English manufacturers provide. If we put the coffee in similar packaging, it would require tens of millions of packets. Only the Licensing system has a prospect of success and the big merchants are desperate enough to pay government the immense Licence fees required. By Licensing sales to the enemy, we can rehabilitate European commerce – shop-keepers are the true friends of the English system.
Sat 15th June 1811
The Bank of England says the government owes it £18 millions. It is one of the reasons the Bank Directors privately adduce for continuing the suspension of payments. Huskisson, for the ministry, has replied robustly. He says he has the Bank’s prior agreement not to call for £6 millions of the debt until the war is over and he has their agreement not to demand the balance for twenty years.
He adds that the Bank’s loan to government is separate from the suspension of Bank payments. The loan was a payment to procure the extension of the Bank’s Charter under which the shareholders derive immense advantage – receiving all government revenue, printing money, marketing Exchequer Bills, paying the dividend on government stock – and if they resent having made the loan, they may petition parliament for leave to surrender the Charter.
Huskisson has no doubt that another group of capitalists could be found ‘within the hour’ to pay-off and replace the Bank’s shareholders. The new owners might agree even better terms with government that the present owners did.42
Sat 21st Sept 1811
The adverse circumstances of British trade together with our immense military costs abroad have contributed to make the Pound’s exchange rate weak. The Pound trades at Hamburg and other European financial centres at 25-30% less than the value it is accorded in London.43 This weakness has continued and increased since 1807. It is due to the depreciation of the Pound in comparison to other currencies.
Our paper money has been over-issued and the foreign exchanges have consequently marked Sterling’s value down. The Bank has long suspended payments. It is supposed to regulate currency value but this involves not only tracking the price of bullion, which it does, but also the exchange rate for our paper money abroad, which it does not.
There is only one security against a central Bank that over-issues its paper – that is the conversion of its paper into bullion, but this has been proscribed by parliament. The Bank suspension of payments punishes all Englishmen who cannot go abroad and all foreigners who choose in invest in English funds.
Sat 28th Sept 1811
A former Bombay resident, married with three sons, has written from London to notify his ex-colleagues of the recent great increase in cost of living in England. He regrets leaving India when he did as he expects to need more money than he has. A house in one of the new streets in the west-end of London costs £2,000 for a 99 year lease. The ground rent is £17 a year. Taxes, poor rates and interest on the house purchase loan equate with £200 a year. A house rental costs about the same. You can rent a place in Westminster for £40 a year less but all the ex-India nabobs live in the new West End streets and a Westminster address lacks style.
Furnishings will cost £1,100 assuming you brought your old table- and bed-linen from India. You will need some resident to help you shopping because the range of retail prices is enormous and you might easily be over-charged. To maintain appearances you will need a footman, housemaid and cook (and nursery maid if you have young children). These plus fuel will cost £1,400 minimum. To furnish a reasonable cellar will cost £250 a year. Port wine has become prohibitively expensive and Madeira has displaced it as the sweet wine of choice. On top of this is the household maintenance expenses, clothing for the family, education, medical costs and charitable donations. You should expect to spend £1,500 a year to maintain your establishment.
Bread, beef and mutton have doubled in price in the last 3-4 years. Fish, poultry and game are prohibitively priced and, in any event, seldom available. A carriage costs £200 a year. Every manufactured item with the exception of cotton cloth and garments has doubled in price in this few years.
Many people are leaving London to avoid the absurd rents. Bath has been popular but is now almost as expensive. People who brought their property in Bath a few years ago can now live on a quarter or a third of the costs required of new arrivals, solely due to escalating property prices.
I estimate that only 20-30% of returning India Company staff have the resources to live in England as they lived in India. The others will have to change the habits of a lifetime in order to survive here.
The problem derives from the excessive circulation of paper money. This is issued by both the Bank of England and some 700 county banks. These capitalists have between them created a paper circulation of £52 millions although they have hardly a guinea between them. The consequent devaluation has hit hardest the retirees and people who derive their income from the funds. The landowners are hardly affected at all - they just keep increasing their rents. Most people suppose that the ministry cannot find anything new to tax and that its revenue will remain the same.
The income tax is 10% of your nett income wherever it comes from. You cannot avoid this tax. Tax Commissioners are paid a commission on the revenue they collect – they are very diligent in enquiries and collections. If you invest your capital in British funds, income tax will be deducted from dividends before you even receive them.
Investments in land and mortgages pay 3-4% clear of tax but to make your money adequately productive like an Indian investment you need to enter the dodgy market of canal shares, dock shares and trading company shares which can pay 7+% but you would be foolish to place more than a small part of your income in such ventures.
Sat 9th Nov 1811
The commercial disruption of Europe is having serious effects on the continent as well as on London. Baron Roll, the Russian Imperial banker, has failed. So has Gros D’Avilliers & Co, the great French House. So has Hasselgreen & Co at Amsterdam. All these famous Houses were actively trading and the disruption in the money-go-round caused by their inability to honour their Bills will bring-on many more failures.
The French accuse England of delayed settlement of continental claims on London thus exacerbating the difficulty. To evade this aspect of our commercial war, a Decree has been published in Paris making it a capital offence to draw or negotiate a Bill on London.
Sat 2nd Nov 1811
The Court of Exchequer Chamber has been hearing arguments over the availability of guineas, i.e. gold. One case is King v Wright and another is King v de Jong. They involve the rental payment term in Lord King’s tenancy agreements. The Court seems unable to dispose of the cases. It has adjourned further argument to next season. The barristers King, Best and Marriott are involved along with the AG.
Sat 8th Feb 1812
Some cases are coming before the Courts concerning people refusing to accept bank notes at face value. King v de Jong is one of them. Ellenborough at King’s Bench at first refused to hear this case saying a similar case (Wright) had been before the Court of Common Pleas and was to be argued before the 12 Judges of King’s Bench whereafter he would deal with de Jong. When the 12 Judges ruled that the charge in the similar case did not come within the meaning of the statute, he ordered the de Jong trial further suspended.
Mon 13th Jan 1812 Extraordinary
Lord Stanhope’s Gold Coin & Bank Notes Bill to legislatively maintain the parity of value of paper money and gold has passed the Commons on 24th July and received the assent of the Prince Regent. It is now illegal to prefer gold to bank notes or to distinguish a difference of value between them. British gold coins in circulation are the guinea worth 21/- of paper, the half-guinea worth 10/6d and the 7/- coin.
Stanhope moved the Bill when he learned that a large landowner (Lord King) had notified his tenants that w.e.f. summer 1811 he would receive rents only in gold and, should they pay in bank notes, he would discount them at 80% face value. The ministry seemed unable to act, perhaps owing to the nobility of the landowner, and it fell to Stanhope to move the Bill. If everyone starts discounting bank notes, he said, England no longer has sufficient gold to settle accounts and we will be in serious trouble. In a credit economy, once paper stops circulating, exchange reverts to barter. The British legislature always threatens punishment and seldom stimulates social conscience, hence this Bill.
The Earl of Liverpool said Lord King was a friend and he doubted any bad effect from his act. He proposed the Bill be tabled and read again after three months. This was rejected.44
Sat 11th July 1812
The London Bank, Boldero Lushington & Co, has failed. The immediate consequence was the disability of those country banks that draw on Boldero to meet their commitments.
One of Boldero’s clients, the Wakefield bank of M/s Townshend & Rishworth, sustained a ‘run’ for a couple of days. Fortunately the local landowners and merchants rallied around and formed an Association in support of the bank. They all declared their confidence in the bank and their intention to support it to the utmost of their power. Notices were circulated that any drafts of Townshend & Rishworth on Boldero & Co would be honoured by Masterman, Peters, Mildred Masterman & Co, another London bank. This timely action combined with the relatively small amount of Townshend & Rishworth assets in Boldero’s possession reassured the customers.
M/s Fenton, Scott, Nicholson and Smith of Leeds (trading as the Leeds Commercial Bank) also ceased payments in consequence of Boldero’s failure. A group of local capitalists had advertised their confidence in the bank only the day before but they were not prepared to put their money where there mouths were. It seems the Leeds’ exposure to Boldero and Co was proportionately greater.
The practice of country banks for many years has been to place with their London bank a sum more or less equal to the anticipated value of Bills accepted on their account. This effectively means that all the country banks have large sums in London and are exposed to the fortunes and decisions of the correspondent London Bank. The Leeds Commercial Bank had Bills on it to £210,000 at the time of failure and £155,000 credited to its account with Boldero. It received a £20,000 payment from Scott & Co (one of the owners) just as it ceased payment but the government seized it as an asset of Boldero so they are now creditors of Boldero for £175,000. The Leeds Bank is said to have had few notes in circulation which should act to reduce public distress.
A Lincolnshire Bank has also stopped payment.
Sat 1st Aug 1812
House of Commons, 3rd March – Brougham has moved that the Orders-in-Council be rescinded:
We commenced our retaliatory style of war in 1806 and in Jan 1807 an Order-in-Council was issued promoting it. Since then our manufacturers and merchants have difficulty making profit. There are contending opinions about the cost of retaliation. We have permitted a slight relaxation in our policy in respect of America but it is resented by many. I suggest we go into Committee to discuss the effects of the Orders. The Orders are intended to counteract the Berlin and Milan Decrees whereby Napoleon abandoned Europe’s maritime trade intending to destroy ours. International commerce aids us more than it aids France, that is why he is willing to risk its destruction.
In Aug 1810 the revocation of the French Decrees drew American ships into French ports where they found a new duty of 60 sous per lb on cotton which was equivalent to prohibition. The merchants of Bordeaux and Hamburg protested and Napoleon told them he valued soldiers and farmers more than merchants. Talleyrand has published a book on agriculture. He says commerce attracts people to live in towns whereas agriculture disperses them. It seems that French policy is to discourage trade and encourage agriculture.
Our policy should be to encourage neutral American shipping. The Americans are without a navy, operating under a form of government which makes war difficult. Their products do not compete with ours. Instead we have adopted a policy of constant hostility to neutrals and repeatedly tried to force them into choosing one side or the other in this war. The negotiations between our two countries continue and perhaps an acceptable conclusion will be reached.
Brougham opposed the Orders when they were discussed four years ago.
The French arrangement for American trade welcomes US ships provided they have not visited England. France has little ability to check what ships visit British ports. We concluded that we could force all American ships into English ports to load our goods before they visited France and the French would never know. We issued our Orders-in-Council accordingly. The immediate effect of this was that our trade for 1808/9 (imports and exports) fell £15 millions from the previous year.
In April 1809 we rescinded that Order and issued another which is the only Order now in force. This enacts a blockade of the NW European coast and parts of Italy (between Pesaro and Orbitello). Thus the original intent of the Orders to retaliate against France’s Decrees was abandoned and the new scheme introduced ‘against which’, the minister said, ‘France could not succeed and would have to rescind her Decrees’. This new Order was a blockade of the NW European ports and of Toulon and Genoa, allowing trade anywhere else. We were no longer retaliating against Napoleon but acting to increase our exports. Naturally our trade statistics improved but during 1810 the value of British property confiscated in European ports was £9 – 10 millions.45 This approximates the value we have taken in Droits of Admiralty from friends and allies since the war began.
So far as the national account for 1810 is concerned, £10 millions was transferred from British account to French account. After that, in 1810, Napoleon ordered that British property found in his ports be burnt. It seems we are incapable of influencing him by commercial means and he has constantly maintained his exclusive policy against us. We thought, if we deprived France of Jesuit’s Bark, Napoleon would submit to our views.46 It was a mistake. The only people benefiting from our current regime are naval officers - the rest of the country is suffering. The Order is implicated in the high number of bankruptcies and in increased poverty in our ports and manufacturing towns. A year ago Liverpool had no-one receiving Poor Relief; just a few weeks ago there were 3,000 people, now there are 16,000. Irving says the Returns under Vansittart’s Act show our trade has increased. I do not care what the Customs House Returns purport to say. I do not want to hear that our imports and exports are flourishing. We have genuine distress in our ports and manufacturing towns. Last year 2,000 firms failed. Our prisons are overflowing with debtors. The poor houses of the Midlands are filled with paupers. Petitions are flooding into parliament. We should act before distress obliges the people to take the law into their own hands.
Brougham thought it implicit that the Customs House records were wrong and that they had been wrong at least since 1807. They constantly overstate the value of our trade when all the evidence on the street shows it has collapsed. In fact it appears to be very likely the case that a good part of our ‘flourishing exports’ have either been confiscated in Europe or remain in American and Channel Island warehouses unsold and unsellable. These unsold goods are ultimately returned to swell our import statistics. In any event the Customs House records for 1810 have a discrepancy of £12 millions. They are clearly unreliable - ignore them.
Brougham then considered the Licensing System that took-off in 1807 with the issue of 1,600 licences. In 1810 the ministry issued 18,000. One may readily estimate the percentage of this country’s trade that is carried-on under Licences. So far as France is concerned, Licences are the final abandonment of our retaliatory policy. Any Englishman who wishes to trade with the enemy may now buy a Licence to do so. Obviously our blockade must have been loosened when 18,000 voyages are being made to Europe in a year (50 per day). This is an abrogation of our posture. Licensed trade is open to France but closed to all neutrals unless they pay our fee. The Licensing System encourages neutrals like the Danes, Norwegians, Swedes and Dutch (all countries under French influence) to carry our trade with France as well as their own trade. We pay them silver or gold for freight and they get an advantage in training their seamen.
In 1806 and 1807 the amount of British tonnage engaged in trade equalled the amount of neutral tonnage. Since then neutral tonnage has continually increased whilst ours has continually declined. New shipbuilding in 1809 was half the building in 1806. By 1810 foreign shipping exceeded 1.1 million tons and the numbers of seamen employed on foreign-flag ships had doubled. We are creating a European navy for Napoleon to invade us. All this new tonnage is in the hands of potential enemies and is used at the expense of the American shipowners who are the very people with whom we should be nurturing friendship.
The Licensing System is controlled by the ministry. Our international trade is managed by the Board of Trade. We are no longer commercially hostile to France. We have the Trade Department spending their days considering what cargoes are for export and which ports they would be most welcome in – this is what Canning and Rose do. Formerly they knew little about trade, now they are the national experts for it.
Everyone knows that predators prowl the Foreign Office corridors listening for any tittle-tattle that may be commercially useful. The door-keepers and clerks all have their circles of friends. It does not require venal officials for the Licensing System to go drastically wrong, the information readily leaks out and the system is abused. The people one finds involved in this trade are not the usual suspects - Baring et al - but a group of Danes, Norwegians, Swedes and Dutch, all supposed neutrals but under French control and using mainly Jewish intermediaries. These are the Board of Trade’s new customers. No doubt the French government knows the direction and quantity of our trade on a daily basis, and what we need to export or import.
The effect of the Licensing System on business morality has been deplorable. A generation of British merchants are being taught to ‘dissimulate’, as the President of the Admiralty Court so quaintly puts it. It has been well said that Licensing begins with forgery, is continued by perjury and ends with fraud - and its our government that is promoting this. In these Licenses one finds phrases like ‘notwithstanding that all the documents represent that the ship and cargo are destined for …’ or ‘to whomsoever such property may appear to belong’. What HM’s Secretary of State is saying is that ‘notwithstanding that this trade is done by fraud and perjury, we permit the ship and cargo to pass through our naval blockade on payment of £n’. What the ministry does is provide an alternative set of papers to use whenever the real papers are inappropriate. Usually our fake papers carry the Duc de Cadore’s signature but I saw one set the other day that was signed by Napoleon. We have papers for every circumstance. This diminishes the morality of merchants but it is the ship captains and crews that are most deeply implicated in immorality – they have to swear to the truth of the forgeries. When they lie that the ship comes from Amsterdam, that is not the end of it. The inspectors will ask the state of the weather and wind at Amsterdam; what other ships were in port; what news was in the newspapers. The extent of lying that the ship’s officers and crew prepare for is enormous.
Brougham then read a promotional letter sent recently to a famous American merchant by a leading British document forger in Liverpool:
“We make simulated papers to the ample satisfaction of our customers. We have full sets of shipping documents for the following ports, (list of 20 ports). I, G B, and my brother J B have two year’s experience and understand all the common languages.”
A part of our commercial men have made a market in this business. Should we feel proud of them? Are they illustrating the superiority and justice of our cause? Napoleon says he will have soldiers and farmers but no traders. Who takes the high moral ground and who sacrifices national honour by a filthy commerce? Is this the triumph over the Continental System for which our fighting men made such great sacrifice. Perceval says if we do not provide the forgeries, others will and we will lose our ability to control the trade. That should sound familiar – it is the argument that kept the slave trade going so long.
We should not so readily dispose of our probity and honour. Only by preserving our character can we claim a right to participate in the privileges of humanity. We must have an Inquiry to ascertain the full extent of the disease before we can propose a remedy. I believe that process will result in our deciding to conciliate America and support her neutrality. If we force America into alliance with France we must make war on her.
Rose answered for the ministry:
The impoverished state of the midland workers was due to a reduction of wages (reduced purchasing power of paper money) and not to reduced business in the factories. Birmingham was particularly dependent on American trade and might form a special case. British trade in 1807 when the Orders were introduced was £34 millions, in 1808 the same, in 1809 £50 millions and in 1810 £45 millions. The apparent shortfall in 1810 was due to an exceptional cause. Napoleon had relaxed the Decrees in 1807 and our trade had advanced. In 1810 there was brief reversal of French policy which permitted the seizure of over £9 millions of British property (the convoy of 700 ships taken in Baltic ports). None of this trade was Licensed trade, he said. Trade with America has increased annually from 1807 to 1810 notwithstanding the Non-Intercourse Act of 1809. British tonnage did reduce from 1807 to 1809 but had recovered in 1810 and so had the number of seamen. Foreign shipping had of course increased for that was the main route by which our trade with Europe could be conducted. The problem has been how to distribute the huge stocks in our warehouses before they rot. We could not let our merchants be ruined. As a result of the ministry’s policy France is supplied with British goods instead of American.
As regards the Licensing System all the frauds it requires existed before the Orders-in-Council. The Licences have in fact reduced perjury from the high levels it attained in 1807. Members should recall the company in Emden that charged 2% of invoice value for a set of false documents in those days.
Rose agreed that many petitions had been received but they were full of false signatures and generally involved only the lowest classes.
Brougham thought today’s so-called neutral trade would be better done by the Americans alone.
Rose said people believe that our Orders should be repealed if France repeals her Decrees. That is not the case. The French object is to remove the blockades from her coasts. The Americans only want the Order of Jan 1807 repealed not the other Orders. If we end the Licensing System the trade of the world will become open to France and America and they will certainly exclude us, he forecast. Our opinion of the Orders is not frivolous - we called a deputation of City merchants to the Board of Trade and took their advice first.
Baring thought there was something fundamentally wrong with the British commercial system:
Whether the Orders or the Licences were factors he would not say although the way the Orders had stopped neutral trade was a major part of the problem. Our trade and neutral trade were both prospering but we wanted the neutral trade for ourselves, hence the Orders. We had successfully stopped neutral trade but had failed to resurrect it to our own advantage.
Baring suspected that Napoleon was hostile to trade - he can import cotton at Liege and Flanders if he chose to do so and the Orders cannot stop the Americans taking it to him but this trade is not exploited.
Baring thought the real danger to British prosperity was the manufacturers of Massachusetts rather than the French. The Orders have stimulated American domestic industry and they have just sent a cargo of their first manufacture (cotton twist) to the Baltic. He expected American trade in the Mediterranean to increase too. Baring thought the best policy was to repeal the Orders and give the neutral trade to America. America is a real neutral whilst today’s ‘neutrals’ are in fact our enemies. America will conduct the trade honourably.47
However the ministry has put it about that America has been insufficiently submissive in her relations with England. When France offered to repeal the Decrees on condition that we did likewise, the Americans demanded we repeal in a way that caused the ministry to withhold repeal. It is true that there have been no confiscations since the French repeal - captures yes, confiscations no. We asked America for evidence of the French repeal - its unprecedented. What if the roles were reversed and France had asked America for proof that the Orders were repealed; that she would not accept a copy of the legislation as evidence but only the safe arrival and departure of neutral ships at our ports? Then we would have had real grounds for protest.
The ministry has incited everyone with talk of America insulting our maritime rights. There are three strands to the difference between us – impressment, the Rule of 1756 and blockade. America submitted to our impressment of British citizens found on her ships; she thought the Rule was illegal but submitted to it, correctly assessing it is fundamental to our maritime power; she has no dispute over our blockade. So altogether there is nothing in our claimed maritime rights that should cause us any difficulty with America.
Philip Stephens MP is the Admiralty chap who drafted the Orders and is considered the ‘father’ of the system:
He said there are many Orders. We are talking about the Orders of Jan and Nov 1807 which were consolidated into and superseded by the Order of April 1809. There is another Order of Nov 1810 against French coastal trade but he thought we were all talking about the April 1809 Order.
He would never agree to repeal that Order because the French would get the European trade through American nominees. In Nov 1806 and Dec 1807 when the Berlin and Milan Decrees were promulgated, our trade shrunk and many ships relanded their cargoes because all the ports of Europe were closed to us. Then the Orders restored some balance and our trade recovered.
Far from ruining our trade, the Orders have saved it. The Orders only apply to a short length of coast in the Low Countries and Italy – they cannot be implicated in the loss of the Baltic convoy that has been mentioned.
The Licences are certainly immoral but they are relieving poverty in the manufacturing districts. They must continue. The trader must have a Licence for protection from both belligerents.
Canning said the Orders had been mitigated to encourage Spanish trade after those people revolted against their Francophile King. It was a flexible system that we could shape for all purposes.
Whitbread reminded the House that the army in Portugal and Spain was utterly dependent on American ships for provisions.
Brougham’s motion was then voted and defeated 216/144.
Sat 5th Sept 1812
The Bank of England held a quarterly Court on 21st March 1812 and agreed to pay shareholders a nett £5 dividend after tax in respect of the first half year’s business. Shareholders asked about the parliamentary debate on making the Bank’s paper legal tender in Ireland. Chairman Hoare said the Bank knew nothing about it – it is a ministerial initiative. We will be told when the time is right, he told shareholders.
A shareholder asked if the Bank was in a race with the Board of Trade. He explained as follows: The Board is issuing Licences for trade with the enemy. France has agents in every European port (as do we) to manage this Licensed trade. The ships taking the cargo require British exporters to pay freight in gold or silver. The shipowners bank this specie with French banks in London. This transfer of specie is proceeding at a rate of about £10 millions a year. When the goods are delivered in the Baltic, the cargo owner exchanges the bullion proceeds from sale of his goods for Bills on London which are returned via Paris to these same French banks in London.
Every week the French banks ship off bullion, as can be seen from the Customs House entries, in settlement of the Bills. Thus the bullion we pay here for freight becomes the bullion that pays there for some part of our goods. The Licensing system is a means of transferring bullion from England to Europe. The less bullion in the Bank of England, the less value there is to underwrite its note issue.48
Sat 31st Oct 1812
Frankfurt Journal: The British House of Commons debated the budget on 18th June. The Chancellor of the Exchequer said taxation is a heavy burden on the people that cannot be relieved.
Last year we spent £19.7 millions on the navy; £14.6 millions on the army; £5.3 millions on ordnance; £2.3 millions on army extraordinaries. Then there were subsidies - Sicily £100,000 and Portugal £2 millions; unforeseen costs £2.3 millions. England needed an extra £5 million and Ireland £2 million plus a loan £8 million making a total required revenue of £58 millions. Add interest on Exchequer Bills £1.7 million plus Exchequer Bills cancelled £2.4 millions, makes £62 millions.
The Chancellor said the country needed to borrow £23 millions to see its way for another year. He thought £6 millions might be available from ‘voluntary’ subscriptions but the rest would have to come from the capitalists who are less confident this year and likely to demand harsher terms.
Sat 7th Nov 1812
Frankfurt Journal - The British government enquiry into distress in the thirty principal manufacturing districts is receiving disturbing news. They have interviewed one hundred witnesses. Birmingham and its adjacent districts, formerly one great factory, is now in famine. Even the greatest manufacturers of Birmingham have discharged half their workforce. Warwickshire, Yorkshire, Sheffield and Rochdale are the same.
The ministry is in a desperate plight. Government debt paper keeps sinking in the market in spite of constant government buying through the Sinking Fund and Land Tax. The new loan for £22.5 millions for this year’s expenses has been contracted on onerous terms. Britain appears to have reached her credit limit.
Sat 24th April 1813
London – Canning has been able to assemble a ministry but a general election is called anyway.
Catholic emancipation is to be debated in the next parliament.
In the last parliament, the Chancellor of the Exchequer said “bank notes in the public estimation are equal in value to gold” and at the same time parliament passed a law making it criminal to exchange bank notes for less than their face value in gold. This was followed by a flight of gold out of the country to Hamburg and other cities where it is worth much more.
Sat 15th May 1813
Commons, 8th Dec – Manning answered the supposed drain of gold and silver from domestic circulation with a report from the Bank of England indicating that over the last fifteen months it had issued £2.5 millions in silver coins (3/- and 1/6d coins) and withdrawn a similar amount of notes. The actual silver content of these coins is less than other British silver coins as they are made from recycled Spanish dollars. The present note circulation (Bank of England only) was now £22.5 million.
On 9th Dec, the Chancellor of the Exchequer asked for and was permitted to raise £10.5 millions in new Exchequer Bills.
Sat 19th June 1813
The Gold Coin Bill establishes the perfect equality of bank notes to specie. Chancellor of the Exchequer Vansittart says the British people are confident about bank notes – they are convenient for carriage. The Bill is receiving its second reading. Huskisson said that by linking paper to gold in value, the paper currency cannot be inflated.
Whitbread had learned that a shipment of £80,000 Bank of England notes had been sent to the Governor-General of Canada to pay for his troops and war supplies in the tussle with America. He asked how is the value of this paper money secured. Chancellor Vansittart said he had sent the notes to Canada and they were traded at a 30% discount which made them attractive and acceptable to the Canadians. He said they were expected to settle at the same value as our commercial Bills of Exchange which are also traded in Canada.
Vansittart said the ministry understands the risk of paper depreciating and was liaising with the Bank of England to restrict the issue of its notes appropriately but the use of credit for public exchange is one of the greatest discoveries of modern times. It has tripled or quadrupled the resources of the country. We cannot return to a currency based on value. We must make paper money work and an important part of that is to criminalise any exchange that devalues it.
This Bill is forced on the ministry by Lord King. His tenancy agreements require tenants pay him rent in gold.
The important thing is to entirely remove value from the circulating medium. All the gold and silver coins should be replaced by paper so there is nothing to remind the people of an alternative.
Whitbread believes millions of guineas (a gold coin worth 21/-) had been exported on the approach of this piece of legislation. The capitalists believe gold is valuable and paper is not. Some are melting gold coins to escape the risk of its detention as coin at the Bank (export of coin is illegal).
Chancellor of the Exchequer said we have been here before. Early in William III’s reign silver coins were debased and sold at varying prices and more recently in Ireland guineas were exchanged for whatever value the parties could agree upon. At present our situation is the same as Portugal. We lack a law to enforce equality of paper and gold. This is the problem that daily affects Wellington’s ability to pay his way in the Peninsula – none of the merchants are willing to take his paper except at a huge discount. He gets 14/- per paper Pound (70%) at best.49
Portuguese statesmen and our own Bullion Committee say the value of paper can be maintained by precisely regulating its amount. Unfortunately, before we discovered that principle, we had overly printed and issued bank notes. We now need to create the mechanisms that will ensure paper maintains value and the confidence of the Portuguese merchants can be slowly restored.
The Bullion Committee also commends that bank payments in gold should be resumed in two years but the ministry says this will create confusion in the country. Britain does not have that amount of gold and silver to circulate and there is no prospect of importing it because the value here is artificially low - the mint price offered for gold (in paper Pounds) is less than the market price. The notes cannot be replaced by coins – they have to be accepted. The only way England can restore the domestic value of specie is to maintain an immense balance of trade in our favour. That will oblige our trading partners to discharge the balance in specie which will then be imported to the Bank for domestic circulation.
The problem only became acute in 1808 with the Berlin Decree. Then France not only stopped our goods from being imported to Europe but she stopped the payments (for those goods that evaded her import controls) from being repatriated.50 It was that later fact that caused gold to flow away from Britain. The rate had been about £24 millions annually since then (i.e. effectively the merchants are paying for their return cargoes in gold). Last year we also had to export £7 millions of gold for foreign grain purchases. It is these outflows of gold that have changed the exchange rate with our paper money and disturbed the merchants.
Protheroe said we intentionally removed value from the domestic economy and had a duty to protect people who were necessarily obliged to receive paper in lieu of value. He supported the Bill.
Whitbread said he had noted in Bath that potatoes sold by the sack for 3 guinea coins or £4. 7. 0d in paper money, a 40% devaluation of paper. Wheat and flour were the same and in fact few people were willing to tender gold coins as they expect the paper value to fall further. He knew of numerous instances of commercial contracts that had been unilaterally voided when payment was unavailable in gold.
Whitbread objected to the ministry blaming Lord King. He had always made his tenancy agreements with the express stipulation for payment in gold. Now his foresight is being rewarded, the ministry reproves him. It was not Lord King that created this different value – it was one of the ministry’s methods for increasing the country’s ability to raise loans that was the proximate cause.
The particular tenant who raised the ministerial ‘hue and cry’ against King was a Bank of England director who had made windfall profits from the excess issue of paper money whilst King and the other landowners had lost in the same proportion. This banker was precisely the sort of person who should be required to pay rent in gold and it was from this man alone that King demanded such payment. In fact King generally waived his contractual right to gold and nearly all his tenants pay in paper. That banker has circulated allegations of King’s sedition and oppression but it is a nice question ‘who oppresses who’.
Whitbread knew that guineas were sometimes sold in Liverpool at 27/- or 28/- each, but the majority are being hoarded precisely because of this Bill. The most damning thing is the cost of the British army in the Peninsula – it is increased 30-40% by forcing paper money and Bills of Exchange onto the unwilling Portuguese merchants who supply it.51
W Smith said the same Liverpool prices that Whitbread mentioned were paid for guineas in Norwich. Poverty was forcing people to exchange gold to get the advantage over paper and then use the paper to settle taxes, etc. Whether the ministry acknowledged it or not, there were two prices in the country – one for gold and another for paper.
The third reading is set for tomorrow (a Saturday). Whitbread objected it was too fast – many MPs needed time to consider its effects. Chancellor of the Exchequer said it cannot be helped. Appeals to the Speaker failed to get a reconsideration.
Sat 19th June 1813
House of Commons, 14th Dec – Parliament has voted £150,000 to people whom we have induced to leave their own countries to fight France with us. They are primarily French aristocrats, French clergy (now mostly in the Channel Islands) and Dutch merchants.
Palmerston at the same sitting obtained a vote of nearly £4 millions for a variety of unexpected military costs - support of foreign corps, the American loyalists and others. Whitbread complained the Chancellor of the Exchequer knew he had a cash shortfall this year (one of the war taxes was repealed last session) and should not be so profligate. The Chancellor of the Exchequer said he had been able to sell £6.5 millions of unfunded Exchequer Bills to the Bank of England to solve the cashflow problem.
Whitbread said it was the first he had heard of it but he had not been in the House last Saturday and supposed it was voted then. Chancellor of the Exchequer said the Bills were approved in the usual way.
Sat 10th July 1813
L’Ambigu, Commercial Bulletin, 10th Dec – The withdrawal of the French from the north of Europe has given an impetus to commerce in London. The best sorts of roasted coffee are quoted at 95/- per 100 lbs and green coffee is 80/-. Jamaica sugar has risen to 86/-. Speculators have bought the entire supply of foreign sugar.
The effect of these rises on British paper has been astonishing.
Omnium on the last close was up 8 – 8½%. The Franc exchange rate to the Pound Sterling has risen to 27 Francs 60 Cents at Hamburg whilst Paris is still trying to hold the old level at 18 Francs 75 Cents. The potential for windfall profits has so stimulated the markets that all the commercial misery of that last two years has evaporated.
Sat 14th Aug 1813
House of Commons, 12th Jan – Receipts from war taxes for the year ended 16th Oct 1812 were £21,823,000, whereas the comparative figure for 1811 is £22,649,000. This reduction of revenue is not reflected in the receipts of the Consolidated Fund which were £40,455,000 in 1811 and £41,177,000 in 1812.
We have lost £800,000 revenue from war taxes but obtained an extra £700,000 in the Consolidated Fund from somewhere else. It’s a mystery.
Sat 25th Sept 1813
The Bonne Citoyen (Green) has arrived Spithead from Buenos Aires with £1 million in silver. She was escorted as far as the Equator by HMS Montague. Lloyd’s had set the cargo premium, in event of a claim, at 60% and her safe arrival has reassured the City.
HMS Sir Francis Drake (Peachey) which is bringing $1 million in silver from Calcutta to London, has transferred half her cargo to HMS President (Warren) at St Helena for safety. HMS President has since arrived at Portsmouth.
Sat 9th Oct 1813
The reversal of France’s prospects in our ‘eternal war’ that has been caused by Napoleon’s retreat from Moscow has allowed the exchange rate for Sterling to recover. The appreciation of Sterling against the Franc in international markets since Moscow is 15% so far.
Castlereagh has told the Commons the appreciation of Sterling is due to the ministerial decision to end the Licensing System. He says the historical relationship between Sterling and gold is thereby restored. Actually, the value of Licences issued and not yet completed is so great they are expected to provide a further c. £8 millions in gold to France for her import duties.
Formerly the effect of the Licences was to devalue Sterling and revalue the Franc as the balance of our trade with Europe was against us. Now we no longer have to permit French imports on any terms and France has to allow our goods in without reciprocal provisions in the Licence. That means the balance of trade is now paid by France in shipments of specie to England. Castlereagh says that is the cause of Sterling revaluation.
It is just as well it happened now. The deficiency of British revenue this last year is about £2.4 millions. Fortunately, the moneymen now think we are a better bet that France.
Sat 16th Oct 1813
Vansittart is proposing to levy no new taxes in 1813 and make-up the shortfall in necessary revenue by borrowing from the Sinking Fund. Since 1786 this fund has been consistently applied by the Legislature to redeem the national debt. Vansittart’s proposal would be a departure from previous fixed practice.
Tierney and Huskisson in the Commons and Lords Lansdowne and Lauderdale in the Lords have united in reprobating the proposal. They say the Fund is ‘one of the fundamental institutions of the finance of the country, upon the efficacious operation of which depended the maintenance of public credit during the long and expensive wars in which we have been engaged.’
Sat 11th Dec 1813
The British are becoming familiar with the effects of a paper currency. The cost of living in that country (in terms of paper Pounds) has continued to increase faster than the increase in wages and the majority of the population are suffering.
An English couple who used to live in Bombay have written of their experiences since returning to live in London two years ago. They live in a large house in a fashionable part of town (York Place) with an establishment of servants commensurate to their need. They keep an open house for one or two friends every weekday at dinner time and they entertain 12-14 people on Saturday evening. The following costs are the average annual costs after two year’s expenses:
Their house cost £5,500 and the furniture cost £2,550. Interest on the house price at 5% and the furniture at 10% totals £530 per annum.
The ground rent, rates, income tax (on the rentable value of the house), window tax, water = $132 per annum.
They have ten servants costing £232 a year (a maid is £10 up to a butler at £45).
Four liveries (one on each door of two carriages) taxed at £120; fresh foods £1,040; groceries £90; heating coal £105; lighting candles £60; stationery £30 and wine £300.
Jobbing two carriage horses £126, carriage maintenance £50, maintaining two riding horses $70.
Men’s clothes £150, woman’s clothes £200.
Entertainment subscriptions £80. Pubs, clubs, charities £100. Rent etc of summer holiday house $200.
Average annual medical expenses £60
Other miscellaneous expenses £93.
Total = £3,847 per annum.
They exclude interest on their jewellery, silver plate, carriages etc (which cost over £3,000) although the government taxes income at 10% of the value of everything you own. Effectively this couple needed £4,500 a year in 1811/1812 to maintain themselves in the accustomed style of British India.
Sat 12th Feb 1814
The improvement of British fortunes in Europe is reflected in bullion prices in London. By late April 1813 fine gold and fine silver were trading at £5. 8.0d and 7/6d per ounce respectively.
Bank of England shares are at £220 and pay 10½% dividend plus occasional bonuses.
Sat 12th March 1814
The London Times of 16th July has a report on the national finances for the year ending 5th Jan 1813. Revenue including the loan was £95.7 million and expenditure was £104.4 million.
Servicing the public debt cost £36.6 million of which £13.5 million was passed to the Commissioners for Reduction of the Public Debt (they supervise the Sinking Fund and buy government stock)
Imports for the three years 1811 – 1813 were £36.4, £24.5 and 23.0 millions. These figures exclude imports from India which were £4.1 million in 1811.
Exports for the three years were officially £34.9, £34.1 and £31.2 millions but the Customs says the real value in 1813 was £43.7 million if one includes re-exports. Foreign goods re-exported were £10.9, £8.3 and 12.0 million respectively.52
Sat 26th March 1814
Lord Liverpool and Vansittart held a meeting at Downing Street with the bankers M/s Robarts, Curtis & Co in respect of a new loan. The expenses of the ministry in procuring the unexpected revival of allied fortunes have been considerable. 40% of the old loan remained to be repaid and any new loan would be expensive. For this reason Liverpool offered the new loan to the subscribers of the old one. If their proposals are unworkable, it would be offered generally. This loan is intended to last until Spring 1814.
HMS Voluntaire left Portsmouth on 25th Oct with £150,000 in specie as wages to the British forces in Spain.
Sat 2nd July 1814
House of Commons, 17th Dec 1813 – A Committee on Foreign Treaties has provided an interesting report to parliament. It says the world is indebted to England for freeing it from vassalage to France. The services we have provided to various states are almost endless:
The direct aid in money and stores to Spain was £2 millions; the subsidy to Portugal was £2 millions; to Sicily £400,000; to Sweden £5.4 million.
Finance to Sweden enabled that country to field an army of 50,000 men. This, together with the genius of Bernadotte and assistance of Moreau, enabled Sweden to beat the French.
We granted £2.5 million in subsidies to Russia and Prussia with which they were enabled to make their splendid contribution to the war effort. We rewarded Austria with £1 million and 100,000 muskets for her last Declaration of War against France. We have also guaranteed a further £2.5 millions to the European states generally for future war costs.
George III was, through his ownership of Hanover and control of trade into central Europe, Arch-Treasurer to the Holy Roman Empire. During this war he became Arch-Treasurer to all of Europe. We have resuscitated Spain and re-created Portugal. Our efforts have resulted in Holland and the German states recovering their independence. This is all due to our efforts and example. We are the deliverers of Europe and we may expect the applause of the world.
Sat 3rd Sept 1814
The market price for gold in London has fallen substantially. Since January there was a continuous influx of bullion from Europe which lasted for three months. More shipments are expected in coming weeks. Our army in Spain (now in France) has been paid in gold since the beginning of this year.
Sat 5th Nov 1814
Editorial - In most of the world one becomes enslaved as a result of superior force but in England slavery follows imprisonment for debt. Any creditor may imprison his debtor on his own allegation of non-payment. The House of Lords is discussing the state of these paupers in the prisons. Many of them dispute all or part of their alleged debts. They can spend up to a year in prison before the matters are cleared-up.
The creditor pays 6d a day for debtor’s own-maintenance provided the debtor makes Oath that he has no other assets. Making that Oath, knowing it to be untrue, is a capital offence, but they are mostly men of straw with no foreseeable possibility of paying-off their creditors. 6d a day is not quite enough to sustain existence - the inflationary effects of the paper money have devalued the currency for the past several years. As a result the debtors are reliant on friends and relatives for their food and continued existence.
There is improper treatment of these alleged debtors – some are charged large fees for care received in prison, some are not allowed to make Oath for weeks after requesting to do so, others wait weeks after making Oath before assistance is provided and any debtor who seeks for the protection of the Insolvents Act has his payments stopped from that instant until his release.
Stanhope said imprisonment by creditors is wrong. They ally with pettyfogging lawyers to abuse the protection of law and imprison their enemies for all sorts of non-debt reasons. He had just made a survey of the last 520 completed cases and found, in 468 of them, that the creditor(s) recovered neither the alleged debt nor the maintenance costs. This system does not work.
Sat 10th Dec 1814
Hector Campbell has published a table of comparative prices of bread over the last 125 years which well illustrates the collapsing value of the British paper Pound recently. It appears in an (unidentified) English paper:
|
Year Price of a loaf Loaves per £ Farm Worker’s weekly wage Wage in loaves Poor Rate (£ mlns) Nos of Paupers (000’s) |
1687 3d 30 6/- 24 .665 564 |
1776 6½d 37 8/- 15 1.323 695 |
1785 6d 40 8/- 16 1.943 814 |
1792 7d 34 9/- 15 2.645 955 |
1803 10d 24 10/- 12 4.113 1,040 |
1811 12d 20 12/- 12 5.922 1,247 |
1812 20d 12 15/- 9 10.452 2,071 |
In the last 20 years bread has tripled in price whilst wages have increased by two thirds. In the same period, the cost of the Poor Rate has quadrupled whilst the numbers of paupers receiving it have doubled (20% of the population). It has been a hard time for the majority of English people. The great increase in commercial crime and the astonishing numbers of people in the smuggling trade are the evidence of hardship – there is no alternative.
Sat 22nd April 1815
The Commissioners for the Reduction of the National Debt are now investing £75,000 every Transfer Day to support government paper in the market.
Sat 22nd April 1815
Talleyrand has introduced the French national budget. He notes the population of France in the last census was 28 millions and the previous year’s revenue from personal taxes was 600 million Francs producing an average payment per head of 22 Francs a year.
In America 7 million people paid $16 million in Federal tax during the years before the present war with England – the equivalent of 12 Francs each. Adding the State Taxes of an average of 11 Francs each totals 23 Francs per American. He concludes that French and American taxes are comparable.
He also examined British taxes but found them anomalous. Excluding Ireland, the product last year was £60 millions from a maximum of 12 million inhabitants i.e. £5 per head, equivalent to 120 Francs.
Talleyrand attributed the ability of the British ministry to maintain its great income to the Sinking Fund whereby part of the revenue was used to buy government loan stocks and maintain their price. This reassured the capitalists to subscribe to new loans at low rates of interest.
As the British have been manipulating their stock market for decades, they should raise no complaint if France emulates them which is Talleyrand’s main proposal for financial recovery in France.
Mon 1st May 1815 Extraordinary
Vansittart has agreed to reduce British Income Tax to 5% but says he will have to continue it for another ten years.
Mon 1st May 1815 Extraordinary
The Prince Regent re-opened parliament on 8th Nov. He told the legislators that arrears of government payments and the costs of the American War necessitated a continuation of the war taxes.
Sat 12th Aug 1815
The British ministry really needs money. The Treasury has issued £18 million in unfunded Exchequer Bills and asked the Bank of England to sell them. For every £100 received they offer £117 in Navy 5% Bills. The cost of money has become a clear indication of the state of the economy.
Thurs 21st Sept 1815 Extraordinary
The minister has got a new loan from the City for £42 million. He has got as much as he can in one huge bite because he is not sure they will contribute again. It is said to be all that will be required to conclude matters with France. The terms are naturally harsher than hitherto.
The deal was done with two tenderers – M/s Steers & Ricardo of the stockbroking cartel and M/s Barings representing the merchant bankers.
The precise loan requested was £27 million for England, £9 million for Ireland and a credit of £6 million. For every £100 cash received the Chancellor of the Exchequer will pay £130 of 3% consols plus £40 of 4%s plus a discount of 4% for prompt payment. The subscribers get their first dividends free of Income Tax.
Vansittart indicated he might need more money and he declined to undertake not to issue Exchequer Bills. The size and terms of the loan have shocked investors. 3% consols fell from 57 to 55 in the course of the day.
Sat 28th Oct 1815
The Treasury has published its account of subsidies paid by Britain to continental powers between 1793 and 1814. Its tiny – about £50 millions. The principal beneficiaries were:
|
Portugal |
£9,433,355 |
|
German Imperial Loans |
£8,636,666 |
|
Prussia |
£8,375,633 |
|
Russia |
£5,275,158 |
|
Spain |
£5,200,477 |
|
Sweden |
£3,878,411 |
|
Sicily |
£2,616,666 |
|
Austria |
£2,414,881 |
|
Hanover |
£2,290,107 |
|
Hesse Cassel |
£1,271,107 |
The beneficiaries of less than £1 million each are Sardinia, the House of Orange, Bavaria, Brunswick, France, Denmark, Baden and Morocco.
Sat 14th Feb 1818
House of Commons, 11th July – Greenfell MP asked the Chancellor of the Exchequer whether the twenty years of paper currency had produced more good or evil to the people. He recognised that the convenience of paper money had been important in its widespread acceptance but wondered, now the war was over, if the ministry had any plans to permit the people to share in the benefits of real value which is currently reserved to the Bank of England and the ministry. The Chancellor of the Exchequer left his place and no response was obtained.
Sat 14th Feb 1818
Robinson, the Minister for the Board of Trade, told the House of Commons on 11th July that he knows how to grow the British economy but as soon as he moves in that direction, in comes one or other of the shipping, commerce or manufacturing interests with vociferous complaints and accusations and all improvement is prevented. Merchants in iron and wool trades, in mining and manufacturing and shipping all had differing wants and the only thing they agreed upon was the maintenance of restrictive laws that protected their investments and sale prices.
He could make no progress with the national economy unless this was first addressed. He knew it was absurd – even the transit duty on foreign linen (a tax on re-export) could not be removed as our friends in Northern Ireland (big linen producers) instantly objected. He wants the House of Commons to take a lead. We are in the third year of peace and this House has not yet thought it fit to debate national economic policy.
As regards financial policy, the Chancellor of the Exchequer maintained that the onerous Customs duties that make smuggling so profitable must remain because he would not jeopardise his revenue to the speculative free-trade idea of growth. A government should preserve what it has got, he thought. The poverty of Europe has continued and our exports have not fully recovered their former extent. On the contrary, European countries were commencing their own manufacturing industries and would soon become our competitors. Cotton mills had been established at Vienna and Mulhausen which made cotton ‘twist’ of high quality.
British industrialists wish to prohibit the export of ‘twist’ and gain the added value of processing it into piecegoods themselves. A Petition had been received by the Regent to this effect.
Our relations with the Spanish colonies of South America was another point – we have commercial agents in some countries but not in others. We have a Consul in one Spanish colony who received his commission from King Ferdinand VII but dared not produce it as the place was verging on, and has since declared, independence.
In Trinidad our colonial government supports the Spanish and opposes the mainland residents. It provides services to Spain of inspecting letters to the mainland, preventing selected people from travelling to the mainland, charging others up to $200 fare for carriage to the mainland. As a result its trade with the mainland has collapsed, food prices have risen fifteen-fold and mules for carriage cost $40 each.
The King of Sardinia is one of the Kings for whom we fought to establish the present order. He was granted part of Liguria as an indemnity for something. On his island he was restricted to a small income and army. Now we have given him Genoa and its hinterland he is more powerful. The Vienna Congress declared Genoa would be a free port but the King first demanded a loan from the Genoa Chamber of Commerce to build himself a frigate. The Chamber passed on the costs to its members who form two groups – British on the one side and French and Piedmontese on the other. The continental merchants declined to complain because they want the British out and they support anything we dislike. Our chaps appealed to the British Consul at Turin but his help was ineffectual. They remonstrated with the Chamber with the result that a soldier was placed outside the house of every British merchant until they started paying the impost at the rate of 3 Francs a day. They complained again to the Consul but were rebuffed. Eventually someone got to Castlereagh who wrote to the Sardinian Court and was told they had done nothing illegal. The MP said he was ashamed when he learned of this degradation of ‘the British character’. English merchants abroad must be able to rely on the Foreign Office to get them the conditions they need. We are the foremost naval power but we submit to Sardinia whose King is our creature! Once the King had got his impost accepted, he introduced a tax on cloth that disadvantaged our merchants more than the French. If these insulting little Kings can do this, what will happen to our trade with big Kings like Russia and Austria etc?
Castlereagh talks of a balance of power but all the European countries are maintaining armies; the Holy Alliance looks more political than religious;53 the dispute between Portugal and Spain continues to grow. Where is the security and tranquillity that Castlereagh expects from his treaties?
Castlereagh replied that the funds are up, the factories have full orders, people have jobs – what more do you want from me.
Sat 28th Feb 1818
London 27th Sept - Now the war is over and Napoleon has been incarcerated, the British government is minting a new coinage of gold sovereigns and silver half-crowns, shillings and sixpences. They propose a further issue of gold half-sovereigns and silver crowns when more bullion becomes available. The crown will approximate the Spanish dollar, both in size and value. It is not intended to withdraw bank paper entirely – it is well-tolerated and is considered convenient.
Sat 13th June 1818
Bell’s Weekly Messenger, 4th Jan – the British government will mint 500,000 Crowns (5/- coins). The King’s head will be on one side and St George and the dragon on the other. They are expected to be received by Bank of England in about a month.
Sat 4th July 1818
London, 9th April – the Chancellor of the Exchequer has ordered private bankers in the City to issue no more banknotes of less than £5 wef 5th July. It is supposed that the Bank of England may resume cash payments at about that time.
If private bankers wish to continue issuing small notes after 5th July, they will have to deposit security by way of bullion, specie or government paper.
The objectionable features are twofold – firstly, the security required will be as extensive as the note issue and the country banks can get no gearing advantage from it; secondly, on depositing his valuable security in the Bank of England, the private banker gets Bank of England notes in return. He will no longer be allowed to print his own notes. This extinguishes the fundamental attraction of paper-currency to private banks.
Sat 11th July 1818
London, 13th Feb – the gold and silver coins put into circulation by the ministry last year (1817) total in Pounds Sterling:
|
Sovereigns |
3,224,025 |
|
Half-sovereigns |
1,037,295 |
|
Half crowns |
1,125,630 |
|
Shillings |
2,458,566 |
|
Sixpences |
657,162 |
Thurs 10th Sept 1818 Extraordinary
A rare application for a rule of Mandamus was made in the Court of King’s Bench in May 1818. It requests the Court to order the Governor and Directors of the Bank of England to distribute their profits. The Bank’s Charter does not permit the Directors to accumulate capital and one of the shareholders has averred that the Directors are in breach of this requirement. He is not named in the proceedings but Brougham is representing him.
Thurs 10th Sept 1818 Extraordinary
May 1818 - Gold is selling in London at £4. 2. 6d per ounce; silver dollars are 5/6d each.
Sat 12th Sept 1818
London, 21st May – The Commissioners for Reduction of the National Debt report they are daily buying £16,000 of the new 3½% stock. Its trading today at 89. The 3% consols are 78 and the 4% 98. India stock is 233.
Sat 19th Sept 1818
The British Exchequer has published a statement of the Consolidated Account for 1815 – 1818 in Pounds Sterling:
|
Year Ending |
Income |
Charge |
|
5th Apr 1815 |
45,097,526 |
41,450,489 |
|
5th Apr 1816 |
46,143.798 |
43,895,686 |
|
5th Apr 1817 |
42,213.418 |
44,763,389 |
|
5th Apr 1818 |
51,380,297 |
54,061,975 |
Sat 19th Sept 1818
A representative of the Bank of England Directors has told the Commons they think the counterfeiting of their bank notes is a matter for their own concern and does not involve parliament. The House of Commons disagrees – telling a politician there are things beyond his purview is intolerable. The MPs are wondering just how much money has actually been printed and issued.
Sir J Mackintosh says in the 12 years before suspension of payments there was one prosecution for forgery; in the last 7 years there had been a torrent of them (and 101 convicts were hanged for it last year). The incidence of prosecutions is increasing. He thinks there is a connection between circulating printed Bills for value and forgery. Executions for forgery are now more numerous that for murder, burglary or robbery. The costs of prosecuting these offences had risen to £30,000 last year (its higher than other offences because of the large rewards) – might we better spend this money improving the quality of the notes to make counterfeiting more difficult, he asked?
The Lord Chief Baron said at the end of the last Assizes that hanging was not deterring offenders. Some Liverpudlians had petitioned the House alleging the Bank is not doing enough to protect its shareholders. The cotton merchants of Lancashire now prefer to trade in country bank notes in spite of the failures of 1793 – they think country bank-notes are more dependable.
Capital awards are now handed down in one out of every eight cases of forgery tried. Between 1805 – 1811 the rate was 390 executions a year; from 1812 – 1818 it has averaged 580 executions a year (6,790 for the period).
Sir James Graham believes half the Bank of England notes circulating in northern England are counterfeit and the greatest sufferers are the shopkeepers and tradesmen. A cute young girl named Emma Connor went around some shops proffering forged Bills for goods and no-one suspected her. It costs more to bring on a prosecution than is entailed in the original crime.
We should copy American bankers and print more ingenious notes. They spend a bit more on printing but they have few prosecutions for forgery.
The Chancellor of the Exchequer said Mackintosh is alarmist. There have always been forgeries; they are not a recent phenomena. Not only that but the Chancellor’s statistics suggest the incidence of forgery is diminishing and hanging works.
If there is a problem, it is in counterfeit coins and he redirected debate to that subject. Between 1811 and 1813 there were 392 convictions for coins; In 1815 to 1817 there were 924.54 Obviously people were forging valuable things for profit and it did not matter how fancy the security precautions were – they would still do it.
S Thornton (one of the Bank of England’s MPs) said we always investigate these offences thoroughly and are lenient whenever possible.
The proposal to investigate into the causes of forgery was then voted down.
Sat 20th March 1819
We learned about national debt from William III but we did not really involve ourselves in it until the Seven Years War which cost £141 millions we did not have - that opened our eyes. We added £268 millions for the American War of Independence and that was where we were in 1793 when the Revolutionary War commenced. That struggle with democracy added £259 millions.
Then we had to deal with Napoleonic France, with its brief aftermath, which cost £1,288 millions. Our actual outstanding debt to the national creditors is now (1818) about £1,100 millions and debt servicing costs £45 millions a year in interest. We could never have sustained the cost of the French wars if it had not been for William Pitt’s magnificent Sinking Fund (comprised of 1% of all the loans) that maintained the market price of our debt paper.
Hail William Pitt. No wonder we have a paper currency – there is not enough gold and silver on the planet.
Sat 3rd April 1819
London, 18th Oct - There is too much money in the stock market and its driving up prices. It is expected that the ministry will sell-off the Omnium to create extra stock for the market. It is the inflow of silver from South America and the expectation of it by way of reparations from France that is mainly responsible. Another part of the problem is the Commissioners for the Sinking Fund. They are legislatively obliged to buy £120,000 of 3%s and £11,000 of 3½%s four times a week. In the quarter ended 5th Jan 1818 they bought nearly £6 millions. 3% Consols are trading at 76. Omnium is at 2½ discount.
Sat 22nd May 1819
London, 10th Dec - The Bank of England is expected to call-in its £1 and £2 notes, of which it has £5 millions in circulation, and replace them with silver coins. It has already minted £3 millions of silver coins and the remainder should be completed soon.
Sat 5th June 1819
In response to the Regent’s Address to parliament, Lansdowne said in the House of Lords that the revenue of UK was $54 millions last year whilst expenditure was £68 millions and we were at peace in Europe and America for the entire year (but paying, in the first instance, for the army of occupation in France). The deficiency for that one year (£14 millions) was equal to the entire sum in the Sinking Fund. He despaired of ever resuming cash payments at the Bank until expenditure is aligned with revenue.
In the House of Commons there was a complaint that the Regent’s Address did not contain a hint of any tax reductions. MPs also deplored the failure of the Congress at Aix-la-Chapelle to agree on the slave trade. We tried to get agreement for our maritime ‘stop & search’ of suspect neutral ships but the other powers were opposed.
Catholic emancipation was likewise overlooked in the Regent’s Address.
Sat 5th June 1819
House of Commons, 11th Feb - Castlereagh says commerce has never been so good but we keep having these contradictory business failures. Yesterday, two corn factors and a sugar importer failed to make payments on time.
The uncertainty is driving the stock market down and every speculator was concerned to discover that the big sellers of shares were all people close to the ministry. What do they know?55
Is the Sinking Fund to be applied to ordinary expenditure instead of propping-up government paper? Today’s prices - 3% consols 76; 3% reduced 77.
Sat 5th June 1819
The rumours about the end of Bank Restriction are destabilising stock prices. They have been the subject of a meeting between Castlereagh and the Bank Directors. The ministry now intends a Commons debate on the subject before further extending the restriction.
Tierney suspected the ministry was trifling with the House. Speculators are profiting from ministerial leaks. National policy is dictated by capitalists, he said.
Sat 19th June 1819
London, 25th Jan – Ministers tonight were shocked to discover that the House of Commons is no longer under their control. The Chancellor of the Exchequer told Tierney a couple of days ago that no debate on the Bank’s paper money would be permitted. Then today he discovered Tierney has adequate support for his enquiry. The ministry had lost its majority and can no longer dump every inconvenient motion into a Secret Committee.
Sir James MacIntosh likewise was sufficiently supported to get his amendment of the criminal law in respect of punishments - a Commission of Public Abuses appears likely to be formed.
The evidence of ministerial disarray is in the clever new faces (Peel et al) appearing on the government benches – the old hands do not know what to do but they are hoping these bright young lads can save them.
The country should be congratulated in returning government from cabinet cabals to the House of Commons.
Sat 26th June 1819
The Bank of England’s Pound-note has for several years been the official currency of Britain. When the value of gold increases relative to the Pound, we holders of Pounds are devalued. It indicates an over-issue of the Pound-note beyond the size of the national economy’s ability to justify.
Fortunately we Britons have another measure of value – the Guinea. It is always worth 129.42 Grains of gold and is stated to equate with 21/-. If the weight of the Guinea drops below 128 Grains it is no longer legal currency. From this benchmark, the Pound at 20/- is accordingly worth 123.27 Grains of gold and should never be less than c. 122 Grains of gold.
Before Britain became insolvent (the Bank Restriction Act), the Bank of England was obliged to pay £3.17.10½d for every Pound-note. This was the immutable value of a quarter of an ounce of gold which the Pound-note was supposed to represent (480 Grains avdp = 1 Troy Ounce). That was why it was called the Pound Sterling.
There have been occasions in recent memory when the Bank’s Pound-note has exchanged as low as 87 Grains (equivalent to £2.11.11d per quarter ounce of gold). Its fluctuating value reflects the caprice of the ministry and the Bank Directors whom they control. It is not representative of the Pound Sterling and can only be valued by daily calculating the cost of gold in bank-notes. So long as gold costs nearly £4 per quarter ounce, the Pound-note is worth what the ministry says its worth.
Effectively what the ministers and Bank Directors do when they cause the value of gold to increase relative to the Pound-note, is to clip off a percentage of gold. Its the old currency fraud of ‘clipping’ with which everyone is familiar but is obscured by the paper Pound continuing to appear unchanged. This uncertainty in the value of money underlies much of our crime and misery. People in the towns and villages assume a Pound-note is a Pound and do not know that its value has been incrementally decreased by over-supply.
We now have a Secret Committee (appointed by ministers) enquiring into the conduct of the Bank’s officers. Tierney has moved in the House of Commons that the committee members be capable and impartial men with full powers to investigate the money supply. They are supposed to devise a system that will restore the value of the Pound-note to a predictable level.
Editor - We should all have an opinion on this.
Sat 26th June 1819
House of Commons, 29th Jan – Grenfell said the price of silver had risen this week in paper money to 5/7½d an ounce while the price paid by the mint was fixed at 5/6d per ounce. He had visited the City and confirmed that ‘standard silver’ (not silver dollars) was then trading at 5/7d per ounce. He said this results from the continuance of the Bank’s suspension of cash payments.
Canning, the Chancellor of the Exchequer, says exporting or melting coins of the realm is illegal so there is nothing to worry about.
Grenfell thinks contrarily that if silver is more valuable overseas it will inevitably be exported (privately melted down, to avoid the legislative proscription on the export of coins). It appeared that the silver coin of the realm would follow our gold coins to other countries.
Wellesley Pole said that, when the ministry obtained House of Commons agreement to mint new gold and silver coins in the last parliament, it had been understood that only the gold coin would have a fixed value and the silver coins were merely tokens for domestic exchange. This was to allow the Mint to charge its 6% ad valorem seignorage for both types of coin entirely on the silver issue.56 A majority of MPs had agreed. It was too late to change our minds now. Was Grenfell asking for more seignorage?
Pole recalled the House had agreed to make silver coins legal tender for up to only 40/- and we agreed to control the import of silver bullion if it became cheap. It was enough, but if MPs think it is inadequate, the correct response is a revision of the law and not an intervention in the supply of bullion.
As regards the resumption of cash payments by the Bank, Pole was receiving conflicting advice from the Bank and the City and hence it had become a matter for the diligent study of the Secret Committee.
Tierney said the point to bear in mind was that all gold is exported whenever it appears in Britain and silver has now started to go the same way. The only chap who seems to understand what is going on is a fellow at the University of Oxford who has written a persuasive note to Peel on the subject. We should form a competent committee and try to get on top of this.
House of Commons, 2nd Feb 1819 – Tierney continued to debate the effects of Bank Restriction on cash payments. He requested a committee be formed to ascertain the effect on the domestic value of gold and silver of our exchange of those metals with foreign countries.
Restriction has continued for 21 years. During the war we knew little of its effects overseas; now in the peace we suspect something nasty. According to the last annual extension of the Restriction, it is said that ‘unpredictable circumstances’ made a restoration of cash payments inadvisable. He thought the question was ‘whether the circulation will ever return to exchange of real value’ and ‘whether it was fair to the people to keep the paper currency system’
He said it has become apparent over the years that paper does not retain its value like gold. This was not simply a matter of the ministry keeping the nation’s bullion supply for its own use. The ministry has forced a paper substitute on the people which is now seen to incrementally lose value relative to bullion.
The paper currency is only supported by those gamblers who use it to buy stocks and land (two great speculative investments that create new wealth by driving-up prices) with the sole object of maintaining and increasing the circulation of paper to ensure its value. Should the velocity of this inflated circulation slow, the value of paper will fall and all their speculations will lose value. The speculators use unreal security, secured on other unreal securities (usually government bonds), that increase in apparent value in relation to the speed of circulation.
Britain is now in the anomalous position of having merchants petitioning for the continuation of paper currency and against a return to the true values of exchange used in other countries. The merchants have been protected in this uniquely lucrative scam for two decades of war by punitive counterfeiting laws under which thousands of Englishmen have been executed. They want it to go on for ever.
The Chancellor of the Exchequer is either the puppet of these speculators or has been cowed into submission to them.57 His entire monetary system is built on paper. During the war we were told our fluctuating fortunes in battle prevented a return to value. Since the peace he says the Sinking Fund is preventing our debt increasing and offsets the Exchequer Bills he issues for payments, maintaining a sort of balance.
He raises new revenue not by new taxation or improved collection but by printing more Pound-notes. This became apparent in early 1817 when the quantity of paper in circulation seemed to decrease. In June 1817 the Chancellor of the Exchequer came to this House and triumphantly proclaimed the problem was solved, revenue was increasing, government debt paper had gone up in price on the stock exchange, and he expected to soon pay-off the 5% and 4% loans. At the time none of us understood but a few months later the accounts of the Bank were submitted and we discovered there had been a new issue of paper currency. This is the basis to our national prosperity.
To be Chancellor of the Exchequer of Britain is simple. You issue Exchequer Bills (at interest) for your operating costs and send them over to the Bank of England which issues the corresponding amount in Pound-notes. The public has been told a Pound is a Pound and feels no immediate effect. We are now in the fifth year of peace, trade has burgeoned but the people get no benefit from it. Indeed they have got poorer. If we have to fight another war we should use a paper army and save the costs of the real one we cannot afford.
This system is the cause of the endless fluctuations in stock prices and that is what a substantial body of capitalist speculators demand. If you are amongst that small coterie of insiders who are privy to the data and know which way the stocks must move, you make profits day after day, year after year, without the inconvenience of work. In early 1817 the 3% consols were trading at 63/64. The Bank’s issue of paper that Spring provided the liquidity to raise 3%s to 84. To be fair, increased trade contributed too but the major factor was the availability of Pound-notes which first went into the stock market before travelling around the country. The purpose of forcing-up stock prices can be established by its effect – it reduces the value of interest payable to holders. It looks like fraud.
I should say the Chancellor of the Exchequer was determined at that time to pay-off the 5% loan which he had been unable to do any other way – perhaps that is adequate justification. People who bought 5%s expected to be paid-off first on the return to peace. They had the Bank Restriction Act before them indicating cash payments would resume six months after peace was declared. How could they have known that Restriction was to continue and that the note issue was to increase (reducing the real value of interest payable whilst concurrently making the purchase of necessaries more expensive). We were then told that inflation in the economy was an inevitable result of the return to prosperity.
It is time to bring an end to temporary expedients and maturely consider some definite measures. We have accommodated speculators for too long. Those people who petition for continuance of Bank Restriction are not the people we should be helping. We want our property valued the same way it is done in every other country. We want to know what ‘unpredictable circumstances’ are preventing a return to cash payments. The gentlemen at Leeds who petitioned for continued Restriction say a resumption of cash payments is dangerous – why? It is rumoured they are concerned at the extent of our foreign loans, said (by Castlereagh) to be £12 millions payable in 27 months. We need details not rumours.
A group of insiders have been dealing secretly with the ministry. They knew last summer that the Chancellor of the Exchequer and Lord Liverpool were intent on returning to convertibility. The Bank’s Directors necessarily agreed with the ministry. The Chancellor of the Exchequer offered the Bank some Exchequer Bills to facilitate the resumption of payments. The Bank according commenced to withdraw its notes from circulation. The 3%s sank to 74 and the City of London immediately sent in a delegation to say they were starving. They continued to lobby ministers right up to the opening of this parliament.
Do you see how it works? Artful scheming men cause the fluctuations of stock values based on inside information. They do not risk real capital but paper capital – that is why the Bank does not want to resume payments – it would have to pay value and (initially) receive credit. The ministry and the speculators are mutually dependent – in return for subscribing to the ministerial game, the capitalists require a reward. Everyone jeopardising his capital in this country’s money markets is taxed by them or joins the predatory game. Its useless to rely on the public professions of ministers – caveat emptor is the rule.
We need an expert Committee of Inquiry. As it will be stuffed with speculators if it is a Secret Committee (selected by ballot), it should be a Select Committee.
Canning replied for the ministry. He was sorry Tierney had adopted a vulgar partisan attitude. Tierney’s application for an inquiry was too vague to be intelligible. The financial system of Britain is stable and judicious. This ministry has done more for the people than was ever done after any previous war. We have repealed the Property Tax and foregone an immense source of revenue. At the same time the national debt had been reduced by $25 millions. This speedy recovery is unique in British history. If the House insists on an Inquiry he hoped the members would be unbiased.
The decline in the rate of exchange for Sterling on the European exchanges was entirely due to the French loan, he said. The resources of France had been over-estimated and we had necessarily exported a huge amount of bullion to facilitate French payments of the indemnities. The markets had devalued Sterling in response to our export of bullion. That is why we must continue the suspension of cash payments. We also have loans out to Russia, Prussia, Austria and the Netherlands. The safety of British share-holdings in the Second Bank of the United States are another cause for concern. It would be unwise to resume cash payments now. We planned to resume payments in March 1820 but at commencement of this parliament the Bank of England said it did not want resumption unless there was an Inquiry and resumption legislatively ordered. We agreed to an Inquiry to avoid any improvident decision. This Inquiry must be secret because it will naturally inquire into the bank’s reserves and the adequacy of bullion holdings to underwrite full convertibility.
F Lewis said when Pitt instituted the suspension in 1797 he said it was required on public grounds. The Bank had informed the then ministry that it could not pay its way. Within a year of Pitt obtaining the restriction, the Bank advanced the ministry £10 millions. He asked ‘Is it the case that the ministry still requires advances and that is the reason that the suspension must continue?’
Lewis was also perplexed by Canning’s assertion that £25 million of debt had been paid-off since the war. According to the published accounts none had been paid-off and the only source for its repayment was the £3 millions of the last loan from the City capitalists that had not yet been expended.
Castlereagh said it is a complex subject but the Chancellor of the Exchequer has a lucid understanding of it and his propositions should be adopted. He would vote for a secret committee and hopefully the Bank will resume payments next March. This House should never hazard the commerce and industry of this country, he concluded.
Sat 3rd July 1819
London, 27th Feb – 3% consols are 74, 3% reduced are 73. Exchequer Bills are at 15/- discount. The funds are depressed and brokers say its due to a pending government loan. French funds are in freefall.
Eleven Manchester manufacturers failed and news of an American tobacco exporter in similar difficulties were all reported on 23rd Feb.
Sat 7th Aug 1819
Coventry Herald - The Tamworth Old Bank has failed. It was operated by M/s Harding, Oats & Wellington.
Worcester Journal 18th March – The Bank of Sir Paul Baghott & Sons at Cheltenham has failed.
Sat 28th Aug 1819
The only Bank in Sheerness has failed and the local people are inconvenienced.
Sat 28th Aug 1819
The Secret Committee investigating the resumption of cash payments by the Bank has called the stockbroker Ricardo to assist. He seems to know something of macro-economics. He says the Bank should mint quarter-ounce gold coins and offer them in exchange for paper Pounds at £4.1.0d each. After a couple of years of this, the price should have incrementally reduced to standard i.e. £3.17.10½d.
This will remove the Bank’s notes from circulation and lock the value of gold to the international standard but silver carries the mint seignorage for both metals (totally 8% ad valorem) and is thus worth less in London than Paris. The ministry will solve the problem of international value by limiting the use of silver to domestic transactions of less than 40/-. This permits us to use a gold standard, free of seignorage, for value.58
Sat 18th Sept 1819
London, 29th May - Grenville was right about the suspension of bank payments. Although the paper currency gave ministers greater facilities in the war with France, the advantage was counter-balanced by the derangement of our monetary system and the misery it caused to the people.
The most recent example of misery has been the activity of the speculators in fear of a return to value. In spite of their sales, the 3% consols rose 2½% yesterday. With prudence the ministry should be able to balance the books without resurrecting the hated Property Tax.
The resumption of payments is expected to occur in 1820 and gold and silver are already declining in the market. Gold is down to £4 and silver to 5/2d an ounce. On 1st June the 3% consols were 66.
Sat 18th Sept 1819
Tierney is concerned at the state of Britain. He has spoken in the House of Commons:
Europe is now directed by five powers. It had been four but we were so impressed with Richelieu we invited France to join us. Having done so the Bourbon government dismissed Richelieu and we don’t know who we are dealing with now. This is a measure of the uncertainty of the settlement of Europe – anything can go wrong.
In America Jackson has executed two Britons when our countries are at peace. In former times it would have caused a war. America has bought Florida from impoverished Spain. She now has control of the entire east coast and threatens the sea route to West Indies.
The two rocks on which British policy must be founded are our accumulation of wealth and our navy. With flourishing finances we can defy the world. We have made a series of treaties with foreign powers since ending the war but not one of them has been a commercial treaty. I except the American Treaty but note in passing that it has disappointed our Newfoundland fishing people.
There was a great commercial prospect in South America until the ministry identified an obscure duty to Spain and gave the development of South American markets to the merchants of New England.
The three years since Jan 1816 are a case study:
At the beginning of the period our national debt was £860 millions. The ministry said it would deal with the debt by continuing the Property Tax. Then the Property Tax was thrown-out by the representatives. The ministry did not resign. Instead it threw out the Malt Tax as well but took no remedial action on the debt. That year they borrowed £9 millions from the Bank and failed to repay £3 millions they had previously promised. To protect themselves, ministers enacted a continuation of Bank Restriction for two years.
In 1817 they spoke endlessly about prosperity – the stocks are at par, the 5%s will be paid-off or reduced – and only borrowed £12.5 millions by issues of Exchequer Bills.
Thus in 1818 they could still say the country is flourishing, stocks rising, etc. They then introduced £27 millions of 3½% paper, not, Heaven forbid, as a new loan but as an eventual receptacle for the 5%s that were to be reduced into 3½%s, so they said. Apart from the appearance of fraud on the 5% holders they did nothing else. The debt to the Bank was continued and, necessarily, suspension of payments was continued because of ‘unforeseen circumstances connected with foreign loans’ as Castlereagh put it.
It has since transpired that the Bank Directors categorically told ministers in 1817 that they could not resume payments.
In Jan 1819 the national debt (funded and unfunded) stood at £845 millions. In three years of peace we appear to have paid-off £14 millions but that is only the appearance. Actually, by June 1816 arrears of Property Tax of £8.5 millions was collected so the actual debt reduction has been £5 millions.
It has just become apparent that the ministry intends to borrow £22 millions this year, interest payments on which must presumably be funded by new taxation. It is beginning to appear that the ministry has neither the will nor the intention to reduce the national debt. Tierney requested MPs to vote no new tax until the ministry put the national finances on a firm foundation.
The 3% funds are permitted to fluctuate between 61 and 83 and every boom and bust creates mayhem for the people. Some make fortunes, others become bankrupt. Everyone’s property is subject to fluctuation and we have become a nation of gamblers which the ministry alone has made possible.
Castlereagh for the ministry categorised his parliamentary assailants as Marathas and said he would do something to dazzle them soon but it was too early to talk about it.
Sat 25th Sept 1819
The British government owes the Bank of England £10 millions in respect of Exchequer Bills it has issued and sent across for payment. This has to be repaid before the suspension on payments can be lifted.
Once that is done, Ricardo’s plan will be adopted. The steps he commends are:
When we start withdrawing the notes on 1st Feb 1820, we pay £4.1.0d for a quarter-ounce of gold and accept exchanges of not less than 60 ounces. The premium price will attract foreign holdings of gold to our market which we need to increase our stock in prospect of resumed cash payments.
On 1st Oct 1820 anyone with the equivalent of 60 ounces of gold in paper may demand exchange from the Bank at £3.19.6d per quarter-ounce.
On 1st May 1821 the Bank will pay the mint price (£3.17.10½d) per quarter-ounce but still for minimum quantities of 60 ounce equivalent in notes.
From 1st May 1823 the Bank will resume cash payments and the laws prohibiting the melting and export of gold and silver coins will be repealed.
Lauderdale says in 1816 and the first months of 1817 the exchange rates at Hamburg etc. were such that importing gold and silver to England was a profitable business.
In March 1819 a silver coinage of several million Pounds was released onto the country whereupon gold imports ceased and an export flow commenced but silver imports continued to be profitable and flowed into Britain from every part of the world. There was a concurrent minting of gold coins with the silver coins but the residue of these were very soon recalled when they were seen to flow away overseas.
Lauderdale thinks the Mint Regulations must be changed to allow it to buy and sell gold & silver at the standard rate. He thinks we only issued notes to get the country over a crisis which we could fund in no other way. Pitt’s acts in 1797 were a temporary departure from prudence. The temporary nature was apparent from the many Suspension Acts passed, all for relatively short durations and their preambles which generally specifically mentioned it was temporary.
The main thing is whether Britain needs a fixed value for its currency. Many experts thought the absence of a fixed standard was very useful. No country has ever divorced its currency from value before. There was a history in England and most other European countries of debasing the gold and silver currency to stretch it further but there was still some value exchanged. Our Bank-notes are worth nothing at all and we rely on the Directors of the Bank of England to act honestly and not make money on their own behalf.
Suppose the Bank issues £20 millions of notes based on the Bank’s holding of £20 millions of government debt paper. £1 million is payable to the Bank in annual interest on the Bonds (5% interest suggests the holdings in this example are Exchequer Bills). Issuing bank notes is clearly a nice little earner. If government issued its own notes, it would save the £1 million in annual interest. England is the most commercially developed and wealthy country in the world. What we do is likely to be emulated by other countries. We permit a body of merchants to regulate our currency and increase its quantity according to their own notions of what is appropriate. There is a principle for the House to address here – who should regulate the value and quantity of the currency?
Good faith and honesty requires we restore value to the circulation. On the other hand merchants have made engagements on paper notes and say they will have hardship if they receive paper and pay gold, but this has always been the case.
In 1811 there was a great depreciation in the value of the paper Pound. It was generally attributed to the costs of war in the Peninsula and of subsidies to our allies. The price of gold in London rose to £5. 4.0d an ounce and continued at about that level for three years. This revealed a depreciation of paper in the order of 25%. In 1814 peace was achieved and the cost of gold in London began to fall. There was an interruption during Napoleon’s return but by mid 1816 the value of our paper was again aligned to gold. Actually gold was selling at £3.15.0d in paper Pounds but the Bank paid excessively in order to ensure it obtained all available supply. It therefore seems that we have already successfully weathered a devaluation of our money without ill effects. Later on gold rose to a maximum of 6½% over the paper Pound but that is hardly significant. During the recent discussions about ending the suspension etc., the price of gold has remained at about £4.0.6d, a 3% premium on paper.
Changing back to exchange based on value is planned to start in Feb. It will be done gradually as only people with spare capital of £1,000 (60 ounces equivalent) will qualify and they are all our friends. Payments in gold and paper withdrawals will continue to be made for 18 months whereupon the whole of the Bank’s paper will be withdrawn and the gold/silver paid out. Everyone agrees that reducing the amount of paper will lower the value of gold but the speculators foresee inconvenience from what they call ‘a forced reduction’.
There is a question over the note issues of the country banks. If the price of gold increases or decreases, the paper Pound will increase/decrease along with it provided we have a goodly part of the circulation in gold. For example the Bank reduced its issue to £3 millions last year but there was no concurrent increase in the country bank issue and accordingly the total currency circulating in the country was overall reduced. The speculators say the exchange rates changed as the value of gold increased. This might have been due to increased commercial business in Europe which we learned in the war could effect our exchange rate. The Bank, in resuming convertibility, is thus assuming another risk apart from the domestic one – if the exchange rate is unfavourable, capitalists might prefer gold to paper and our stock of precious metals would flow overseas.
The Bullion Committee’s report says there is a way to prevent this but does not reveal it. The Bank Directors say they will definitely need a payment of about £10 millions from government to make the plan work (leaving a balance due to the Bank of £9 millions). This is what the City does not like. Any competition for the government’s available funds increases the risk of government defaulting on interest payments on its loans. The mercantile speculators also like paper and want it to continue. Sir Alexander Baring has given evidence of the attractions of paper (his final advice to the ministry is below in 8th September 1821 edition). He nevertheless recognised a need to have it firmly linked to gold to ensure the amount of money in circulation was not overly increased or decreased. Whilst paper was divorced from gold it was common for the Bank to accommodate the merchants which it could not have done if the accommodations were linked to value. Liverpool thought it one of the attractions of paper that the circulation could be increased or decreased to reduce public distress or embarrassment but the speculators had a difficulty in treating paper as valuable and it tended to increase their appetite for gambling. The arguments in favour of gold are stability of values (land & buildings, rents, salaries) and avoidance of panic.
The circulation of paper money before 1792 was very limited – just a few merchants used paper for their largest engagements. Our economy has completely changed since then. At that time government revenue was £20 millions a year, commerce and industry was half of today’s and agricultural production was smaller. The bank notes and coin circulating then was the same amount as the notes of the Bank and the country banks are now.
Before the American war (of Independence) there were few country banks and their business was restricted. People kept money at home to deal with expected demands. We dealt with this by the agency system whereby each country bank runs an account with its London bank and only receives or remits the outstanding balance from time to time. The Bullion Committee has an example of this in its report – daily transactions between London and country banks is about £4.7 millions but the actual sum exchanged daily averages only £220,000 (less than 5%).
The £1 and £2 notes circulate at a rate of £7 millions a year (there are £20 million issued) but transact $240 millions of business. £1 notes average 147 days in circulation before returning to the Bank; £5 notes take 70 days and £1,000 notes take 13 days. In 1792 the £1,000 note returned in 22 days and the £10 note in 136 days. The velocity of paper has greatly increased.
Today we have a circulation of about £50 millions – that’s £25 millions of Bank of England notes, £4 millions of silver and £21 millions of country bank notes – but it exchanges double the value of property that was exchanged in 1792. It appears that paper circulates property faster than gold by about four times.
Mr Lloyd, the Lancashire miller, told the Bullion Committee that the circulating medium amongst the businessmen in Lancashire is neither bank notes nor gold but Bills of Exchange.59
Grenville adduced the statistical record of bankruptcies and note issues to assert a connection between them. Every time the Bank inflated the currency there was an increase in commercial and private bankruptcies. The situation had become out of control in 1816. The Bank had lent money with one hand in 1815 whilst destroying confidence in existing contracts with the other. The effect had become apparent in 1816 from the frequent bankruptcies. Everyone suffered – landowners reliant on rents, farmers selling produce, manufacturers and traders – all had contracts to perform in depreciating currency.
We should link our currency to something of agreed global value. Historically the Pound under the Saxon Kings was a pound of silver; the French Livre under Charlemagne was a pound of silver, but there had followed a series of reductions in value usually associated with the cost of war and invariably representing a fraud on the people. When Edward VI sought to reduce the Pound to 4 ounces of silver he risked a national insurrection.
The question is whether parliament will legislate the value of money or by failing to do so leave it to the whims of the market. The speculators are opposed to fixed value because it denies them the booms and busts on which they rely for their profits. The late Mr Horner of the Bullion Committee had revealed how, when gold coins were added to the circulation without a reduction of the note issue, the price of gold increased in terms of notes. This implies that a certain amount of money in circulation will achieve a value for gold that is recognised globally and the value we wish to set is £3.17.10½d per ounce.
Sat 23rd Oct 1819
The latest British Government loan of £12 millions has been taken up by Rothschild, the Bank of England having declined to participate. It is predicated on the price of Omnium. The balance of the shortfall in revenue will come from utilising part of the Sinking Fund and the product of some new taxes on wines and tobacco. There is also a new duty on wool that should raise £500,000. Altogether the government will raise £15.5 millions
The first instalment of loan is £1.2 millions and has been paid. It is expected that Omnium will recover its price soon although those bankers who were cut-out of the government loan by Rothschild depressed the price of Omnium as a warning to the Chancellor. They resent the low rate Rothschild accepted to break-in to the business which might act as a precedent for future borrowings and make government loans business less profitable.
Their tactic is to sell Omnium, which secures the loan and induce fear amongst other Omnium holders by its declining price to get them to sell as well (they got it down to a discount of nearly 2). If enough people sell, the price will fall sufficiently for the bankers to buy back in and secure a share of the loan profits by this means.
Sat 30th Oct 1819
The great sell-off of British stocks is being attributed to Jewish financiers according to London newspapers of early June. They are said to have caused the recent drop by selling £20 millions of stock although they actually owned only £1 million. It is a mystery - they can apparently sell stock before they buy it. They seem to expect to buy-back soon at lower prices.60
Sat 4th Dec 1819
Asiatic Mirror of 10th November recites a London report of 28th June:
The Chancellor of the Exchequer has issued £16 millions of Exchequer Bills and £2½ millions of Irish Treasury Bills for conversion to bank-notes by the Bank of England. This issue of unsecured paper to obtain bank-notes is to roll-over the unfunded debt of both countries.
Sat 4th Dec 1819
London Courier, 7th July – the revenue for the quarter ending June 1819 is £2 millions more than for the corresponding quarter of 1818. The 3% consols however are now at 67 whereas they were 85 this time last year. The Editor is perplexed – how can the funds representing the national debt lose a third of their value in such favourable circumstances, he wonders.
Sat 1st Jan 1820
Economic comparisons during Bank Restriction:
|
- Circulating gold coin Bank of England bank-notes Outstanding Exchequer Bills Credits due to Bank of England Exports Imports Nett revenue Debt Interest |
Jan 1797 £30,000,000 £ 8,640,000 £13,219,000 £17,597,000 £30,518,000 £23,186,000 £18,738,000 £11,844,000 |
Jan 1819 Zero £25,957,000 £43,656,000 £39,097,000 £53,560,000 £36,901,000 £49,550,000 £29,068,000 |
Sun 6th Feb 1820 Extraordinary
Some fears for the stability of the British financial system have surfaced on the continent and orders for the sale of over £1 million of government debt paper have been received in the last few days. Dutch brokers are selling all the Omnium they hold. On the other hand, French 5% stock is in demand and is increasing in price notwithstanding it is ex-dividend.
Sun 6th Feb 1820 Extraordinary
London stocks, 11th Sept – Bank stock, the 3% reduced and 4% consols and the long annuities were all withdrawn from the market today. The 3% consols had previously closed at 70.
There is some Portuguese gold in the market at the standard price (£3.17.10½d) and some new doubloons at £2.14. 6d, but no other foreign gold is available. New Spanish dollars are 5/-.
Sat 19th Feb 1820
The Committee of Thirty Two, which operates the Stock Exchange, has been presented with a case. Many of the stock jobbers who do the legwork for the brokers, generally teenagers, have been making time bargains in their own names and for their own profit. At last settlement day they jointly owned £90,000 stocks. Fourteen lads have since been dismissed.
Sat 22nd April 1820
There has been a withdrawal of funds from the Royal Exchange (the stock exchange) and government buying is inadequate to affect it. 3% consols have been withdrawn from sale and bets are exchanging that when they reopen they will be at about 60. There is a great scarcity of money in circulation - silver holders require 10% interest on their metal.
Sat 6th May 1820
The Bank of England seems to be solvent again. Gold and silver are selling at the mint price and a large offering of bullion to the Bank was recently declined. The exchange rate for the Pound on foreign exchanges is stable.
The test will be the dividends payable on government paper in January. They far exceed the amount of dividends payable in April and October. The revenue for the last quarter has declined and the shortfall has been exacerbated by the Commissioners for Customs & Excise. They have paid their collected duties in highly discounted Exchequer Bills instead of bank-notes.
Cash payments have been made possible by our foremost capitalist (Rothschild) guaranteeing to redeem all the Exchequer Bills thus issued. It is hoped this will facilitate the dividend payments but the likelihood of government having to pay higher interest on its Exchequer Bills has increased. The City expects the new rate of interest to be 3d per pound per day if government wishes to avoid the discount. 3% consols ended the week at 67.
Sat 23rd Sept 1820
Exchequer Bills, which are normally renewed annually, now have some 20 months of interest owing on them.
Sat 30th Sept 1820
The funding of Exchequer Bills exceeded £30 millions by early May. The number of contractors is large but the main ones are Cohen & Co (acting for Rothschild) and Barnes & Co who each have £1½ million; Wooley & Co and Easthope each have £1 million; Hoare & Co and Aubert each have £½ million and the rest of the subscribers are led by Bailey & Co, Cooper & Co and Wyatt & Co.
Sat 7th Oct 1820
London Times, 1st June – Late on 30th May the Treasury announced it would sell 5% stock to fund its Exchequer Bills. The stock is currently trading above par and the government is believed to be offering £7 millions or thereabouts.
On 31st May a crowd of prospective investors commenced to assemble in front of the Bank of England at 2 am, waiting for admission to the Chief Cashier’s Office to arrange purchases. By the time the Bank opened for business this crowd had assumed the proportions of a democracy rally.
The Bank normally deals with popular issues by issuing numbered tickets to interested parties, the number indicating the holder’s position in the queue. The entire £7 million issue of 5%s was subscribed by the holders of the first ten numbers who acted for themselves and 50-odd new friends. In the course of the scramble, the stout doors of the Chief Cashier’s Office were broken from their hinges.
As soon as the sale was complete, Exchequer Bills, which had been trading at 11/- premium, fell to 2/- premium. The new 5% scrip closed yesterday at a premium of 1¼. Exchequer Bills remained at 2/- premium.
Sat 21st Oct 1820
Vansittart has written to the Bank of England on 5th June 1820 asking the Chairman to inform the Stock Exchange that the ministry wishes to borrow £5 millions. He permits conditional bids from the capitalists. The ministry proposes to offer Reduced Annuities for the money.
This request had been leaked earlier and had no effect on the funds - 3% consols remained firm at 70. There has been some selling by political insiders, motivated by the arrival of Queen Caroline, but it was insufficient to start a run.
Sat 4th Nov 1820
More bankers turned up at the Treasury to bid for the new loan than had ever done so previously. The loan is for £5 millions; 5% interest is offered; 3% discount is given on the Principal; bidding is in the 3% consols; 10% of the loan is required on 16th June and the balance in tranches of 10% monthly until 16th March 1821.
The Governor of the Bank of England was present and some bidders asked him if the repayments would be in Omnium (it pays 5%). He did not promise but he did not say it was impossible. Formerly all loans were repaid in Omnium but the last one was not.
The Chancellor of the Exchequer is reserving to himself the ability to take up to £12 millions from the Sinking Fund which, if fully taken, would leave £5 millions in that Fund of which £4.4 millions is for England and £600,000 for Ireland.61
Sat 4th Nov 1820
All the big financial houses of the City have petitioned the Gresham Committee to close the Exchange at 4.30 pm. They include Baring, Rothschild, Mellish, Goldschmid, Sir John Lubbock, etc., and they are such a powerful lot that there can be no doubt they will get full political co-operation.
The time for holding change presently extends from 3 pm to 5.30 pm but the bankers say all business can be easily completed in 90 minutes.
Sat 18th Nov 1820
The Bank of England is printing new bank-notes. At long last they will contain security features to deter forgery. They will be circulated in September.
Sat 26th May 1821
The domestic difficulties of the British ministry are focusing. The Counties of Durham and Stafford contain many liberally-minded men of property who are calling for the protection of the Constitution in a politically correct sort of way, i.e. both against sedition and ministerial abuse.62 The financial distress of the country has not alone been sufficient to really threaten the ministry’s power. They can always call out the army and people are inured to their doing so.
The real cause of the threat to the ministry has been Queen Caroline. It is a simple homely issue that everyone can comprehend and identify with. The Queen has had the support of the female half of the population all along. Now a sufficient number of the male half has taken her side as well. Everyone knows the duties of a husband.
The Press – Times, Traveller, Star, Globe, True Briton and Observer – have greatly increased their circulation and have consistently taken a pro-Queen line which has deepened the chasm between the King and his minister on the one hand and the rest of the country on the other. More than one million 6d and 1/- pamphlets containing all the distressing details about the investigation and prosecution of the Queen have been sold in the last three months. Her distress has become Press profit. This has made the country members of the Commons uncomfortable and has brought ministerial control of their representation into question.
All this has built upon nationwide financial distress and genuine hardship due to falling sales of manufactures and agricultural produce with the resultant unemployment in the fields and factories. Those falling sales are in turn due to the resumption of farming and manufacturing in war-ravaged Europe providing more competition to us and to some trade-protectionist policies intended by each country to get a bigger share of our profits from global trade.
British bankers have less interest in financing manufacturing now the market is unfavourable and repayment of advances both less certain and less profitable. They are focused on trade finance, South American and Asian silver and gold and speculative forays on the Exchange.
The bankers are particularly motivated to support the underlying source of their wealth – the paper currency. In war, the British economy was somewhat isolated from activities in Europe and everyone supported our measures to prevent Napoleon influencing the value of the paper Pound. In peace, our paper becomes subject to exchange rate fluctuations and needs some real measure of wealth to support it. That means a fixed parity with gold.
The Bank of England gets a huge gearing on its paper as only a small amount of it turns up daily for negotiation but even that advantage has been completely expended on servicing our national loans. Now the tax revenue is shrinking with the shrinking of commerce, the means of paying interest on the loans is threatened and the Sinking Fund may not be adequate to support our credit.63
Sat 2nd June 1821
One of those people with a statistical bent has reported that, during the 694 years of 31 reigns up to George III, Britain spent £795 millions administering itself. During the 59 years of George III’s reign, the country spent £2,327 millions. It equates with approximately three times the value of the kingdom. We also borrowed nearly £1,000 million in George’s reign as well.
If every acre of the country was sold at 25 years rental income (current valuation of agricultural land) it would still be less than the present national debt.
Sat 2nd June 1821
London, 17th Jan 1821 - The difficulties of the ministry have translated into a large amount of British debt being offered to the united stockbrokers for sale. Purchasers were unavailable at an eighth below the quoted rates. It is feared it will be difficult to control the decline. If this continues, the City will also be converted to the popular wish for a change of ministry.
Sun 10th June 1821 Extraordinary
London, mid-March - Against a background of reduced commerce and industry, government debt paper has appreciated in value and government revenue is also said to be improved. On 9th March 3% consols were 72. In November last they had dropped to 67 and stayed low until now.
Sat 30th June 1821
London, 17th Feb – The House of Commons has received an account of bank-notes and bank post-bills in weekly circulation between 18th July 1820 – 6th Feb 1821.
At the beginning of the period it was just over £26.4 millions; at the end it was just under £23.6 million, a diminution of nearly $2.9 million or well over 10% of the circulation. It will reduce prices.
Sat 8th Sept 1821
House of Commons, 9th April – Baring referred to the nationally deleterious effects on commerce of Peel’s Bill (authorising the reduction of the bank-note supply since 1819 preparatory to resumption of cash payments). Before debating the committal of the Cash Payments Bill (another loan), Baring wished to make a statement on the matter. He would then put a proposition to the House:
After 7 years of peace the country remains in abject poverty. The land owners are the most vociferous for a high price of grain which, if granted, would keep everyone else down.
The efficient cause of distress now is the attempt to make the currency convertible. The Chancellor of the Exchequer says that the reduction in notes issued is 5-6% whereas Baring himself thought it was more like 25 – 33%.
Some years ago this House declared that there was no description of the bank-note. From this had flowed the ruin of many farmers who invested their bank-notes in farm lands. Those were depreciated value bank-notes and the land was correspondingly highly priced. The present reduction of the note issue had made those land acquisitions too expensive. All our bank’s existing debtors have been affected equally. All the mortgages on land that we City bankers accepted have left us also exposed to bankruptcy. The cash deposits paid by farmers to obtain mortgages have been completely exhausted by the appreciation of the paper pound on its way to convertibility. Today’s valuation of land is always less than the outstanding amount on the mortgages we provided. Our security has become inadequate.
You need look no further than the apparent reduction in the price of precious metals, although all commodities are similarly affected. Most are a quarter cheaper, some a third or a half.
When the price of grain fell the farmers protested but grain retained it value comparative to other commodities. A bushel of grain today is worth the same amount of wool, cotton or hardware as it was at the height of its price. The only change that has really occurred is in the standard of value. The Pound was depreciated by over-printing and all production and contracts were stated at that depreciated value.
Our present standard of value is even higher than 1797. Before that year gold was worth £3.17.10½d and silver 5/2d an ounce. During subsequent years silver reduced to 4/10d an ounce and that was the only standard of value we used. The problem was slightly exacerbated by difficulty obtaining silver – at that time it was scarcer than gold. Looking at the record of the exchange value of the Pound it is clear it is now worth much more than formerly. The price of goods should fall with the reduced supply of Pounds but merchants have tried to maintain those prices they obtained at the height and therein lies the distress. That is why consumption has fallen so much.
Consider say, a stone-mason. He can earn all along about 30-40/- a week. Today his wages must decrease or he is unemployable. Discontent. On the other hand, the price of goods has continued high as merchants hold out for the former price level and the stone-mason’s standard of living necessarily declines.
The people are strident for parliamentary reform when what they really detest is the decreased availability of the pound and the consequent reduced purchasing power of their wages. Parliament can avert the political revolution that threatens the power-centres merely by addressing this.
The wealth of Britain is also flowing to those people who hold annuities and fixed-income jobs – they are receiving interest in higher value Pounds. These annuitants are idle consumers. The more we have of them, the greater the difficulties of industrious people.
We adjusted the standard of value in 1815 and 1816 by returning £10 millions of money to the Bank that had previously been withdrawn from circulation. We need to do the same again now. This might be thought a fraud on the fund-holder and annuitant whose investment values are protected by the Act of 1797 but nothing can justify the continuance of that Act. It is unnecessary to return to a gold & silver currency such as we had until 1797. That will simply over-state the enormous debts we have contracted since.64
Vansittart, Chancellor of the Exchequer, spoke for the ministry. He said the price of bullion had fluctuated endlessly since the peace of Amiens, sometimes daily. What was the value that the House wished to put on gold. Everyone hitherto agreed that we should return to cash payments. The paper pound depreciated after the repeal of the Property Tax. If we take the value at that time (1818) at £4. 2. 0d per ounce of gold it is 6% less than the 1797 value. Will that provide sufficient relief to make the breach of our undertaking not to devalue in the Act of 1819 an acceptable cost?
The country has now recovered the pound’s value in 1797. Its an achievement. We have already pledged our faith in the Act of 1819. We have worked for two years towards this result. Its too late to resile. Baring himself had recommended the 1819 Act.
Vansittart denied there was a connection between Peel’s Act of 1819 and the present distress in the country. The distress is Europe-wide. All prices are depreciated. The depreciation in America is even greater. The real cause has been the cessation of immense government expenditure in fighting the war, he thought. It was exacerbated by the good harvests everywhere which had produced a surplus of produce. These were the real causes of the lower prices.
There has been no reduction in the national revenue. Consumption of almost all exciseable goods had increased. What Baring is asking for is a return to fluctuating currency values.
Monck said comparing the paper pound to the gold value is misleading. One might conclude that at worst there was only a 4-6 percentage point difference in it. In 1819 that was said to be the difference but if one compared the pound with the 1819 cost of necessaries, the difference was 25-30%. The explanation is that every time there is a large issue of paper, it displaces gold from circulation. Liverpool estimated the value of currency circulating in Britain before the Bank Restriction Act at £25 millions. After restriction we issued lots of paper which displaced the gold which went overseas where it was more valuable.
France has a bi-metallic currency worth about £90 millions. If they indulged their merchants with a compulsory issue of paper of that extent, the inevitable result would be that the £90 millions of bullion would flow away to other countries and the domestic prices of necessaries would rise by perhaps 30+% before there was any effect on the bullion price. Domestically, paper and gold would fall in value together, until the discrepancy with overseas values became noticed on the return of foreign-trade Bills for discounting.
Monck evidenced his opinion by a comparison of the grain and gold prices in Britain. For the 4 years before 1797 grain was 62/- per quarter and gold was at its fixed price; in 1800 grain was 71/- and gold remained at the mint price; in 1804 grain was 75/- and gold still remained at the mint price; In 1808 grain was 79/- and gold moved to £4 an ounce; in 1812 (the highest price) grain was 105/- and gold was £5.5.6d. This suggests the gold price does not move in tandem with other commodities but is subject to a delayed response. Vansittart is wrong.
Another thing that must be considered is the note issue of the country banks. The volume can be obtained from the stamp duty paid. In 1818, before the ministry first started to withdraw paper from circulation, the stamp duty paid by country banks was £165,000. In 1819 it fell to £64,000 and in 1820 to £54,000. The country banks have reduced their paper issue in tandem with the Bank of England.
The thing to bear in mind, said Monck, is that there is a lag before there is any change in the price of gold against other commodities. Now we are reversing that process there will be some pain initially but we should endure it because it is temporary.
There are crucial differences between the state of the country in 1797 and now – principally these are the national debt, interest payable on that debt, and increased wages to both the military and the civil service.
In 1797 we could get along with a circulation of £25 millions; today we would need £40 millions to achieve the same standard. The Bank of England has issued £25 million in paper; the country banks £15 millions and the Scottish and Irish banks £6 millions each. The Bank of England might manage to make its issue convertible but what of the others? The country banks have no specie. If they are required to make their issues convertible they will sell their Exchequer Bills, stocks and convertible securities and they must get gold in payment. Selling all this paper will collapse stock values and the whole country will be available on the cheap to foreigners. At the same time our commodities would become cheap and our people the most lightly taxed in Europe which may sound fine but do not forget the interest payments on the national debt.
We have more capitalists in England than at any former time. In these new circumstances, they would find no trade so advantageous as possession of money. The ordinary people would show their disenchantment with paper by preferring gold. We have recently seen published proposals and actual attempts by the reformers to attack our financial system. We are at war with our people. Why should they fight against our soldiers when they can attack the Exchequer with impunity? It is foreseeable that the demand for gold would be enormous and probably much greater than appears likely from the balances at the banks.
Ellice noted that in 1817 the issue of Bank of England notes was raised to £30 millions and the country banks permitted a pro-rata increase (to £18 million). The committee in 1819 had accordingly misled the House that the depreciation in currency was only the difference between £3.17.10½ and the then gold price of £4. 2. 0. The overall effect of the Suspension had been to increase the influence of the monied class in the country at the expense of the others.
In 1815 (the last year of the Property Tax), prices were nearly as high as they ever got and the landed income was assessed for £37 millions, the income from funds and annuities was assessed very much lower than their present value. Under the new ‘fixed value’ system, the landed income will reduce spectacularly while the funded income and annuities would commensurately increase. There has been a silent revaluation of the country’s monied classes with the holders of funds and fixed annuities winning hands down.
Sat 22nd Sept 1821
London, 8th May – the Bank of England commenced offering to exchange sovereigns for large denomination bank-notes today in pursuit of Ricardo’s plan for convertibility. Only a few applications were made.
Sat 27th Oct 1821
House of Commons, 1st June – Ricardo complained of the management of the Sinking Fund. It is supposed to reduce the national debt. The proposal originated with Sir Robert Walpole and was resurrected by Pitt who, to keep the Fund from ministers, put its management in the hands of the Bank of England. Pitt’s proposal had been for £1 million of revenue a year to be accumulated in the Fund and set aside for purchase of government stock.
Pitt kept his hands off it and Sidmouth as Chancellor of the Exchequer was equally abstemious but now Vansittart has proposed to appropriate large sums in his budget. He first took £7.3 million ‘for the relief of stock-holders’ as he said, and this year there is another large deduction.
Ricardo thought it would be better to return this fund to the taxpayers and revive it only if the country should again go to war.
Sat 16th March 1822
The Duke of Northumberland has reduced the rents payable on his Estates by 20%. Several months ago, when agricultural produce was at its most expensive, he reduced the rents 25%. This additional 20% is a further abatement to restore rents to the affordable level that existed prior to the contraction of the money supply.65
James, MP for Carlyle, has lowered his rents 25-30% and the Governors of Christ’s Hospital have cut 20% off rents on all their farms.
Sat 20th April 1822
Statistical report from London:
A new census is being taken in Britain. The last one in 1811 revealed a population of 11.8 million exclusive of 500,000 then in the armed forces. Early returns from the new census suggest the increase in population over the last ten years has been 15% bringing the British total today to about 14 millions. Ireland has a population of 6.5 millions.
The population of Canada is 1.5 millions; Our West Indian colonies contain 90,000 Britons; in Africa there are another 130,000; around the Mediterranean are 150,000; our colonies and dependencies in Asia and Australia contain 2,040,000. In India there are 70 million British citizens under the government of the Company.
Shipping tonnage on the British registry is 2.64 millions employing 174,000 seamen. Our exports are worth £51 million (including £11 million re-exports of foreign and colonial produce); of those exports cotton manufactures account for £20 millions. Our imports are £86 millions. Government annual revenue is about £57 millions. Pitt calculated the value of landed property in Great Britain in 1797 at £1.6 billion.
Sat 20th April 1822
British currency – William the Conqueror introduced the Pound in 1073. It was a silver coin. Edward III introduced the gold Florin in 1345 which was worth 2/3rds of a Pound. In 1395 the gold Noble was coined. It had half the value of Edward’s Florin or a third of William’s Pound. In 1423 gold Reals were coined, each worth half a Pound. In 1510 a gold Sovereign was introduced worth 22/- which in 1550 was reminted at an exchange value of 20/-. In 1553 this coin was legislatively deemed to be worth 30/-.
In 1682 the guinea was introduced, valued at 26/- and in 1717, when Sir Isaac Newton was in charge of the Mint, this guinea was revalued at 21/-. To deter its being cut it was milled. In 1773 all gold coins were called-in, valued at £15,563,393 and re-minted at a cost of £700,000 (4½% seignorage). At that time the Bank of England’s note issue, in Bills of Exchange (almost exclusively for foreign trade), totalled £10.5 million, giving value and credit in circulation of £26 million.
On 2nd Dec 1797 a new gold coin worth 7/- was minted and a silver token was issued in Jan 1798.
Today the sovereigns lately issued by the Bank of England total about £8 millions whilst the note issue has been reduced to £22 millions. The circulation today is only £4 millions more than in 1773 but trade (exports and imports) has tripled whilst government revenue has quadrupled. Proportionately, we have about half the currency we had in 1778.
The difference during the war was attributable mainly to the issue of bank-notes by the country banks which was large for several years but has since declined. The practice today amongst country banks is to maintain balances with their London correspondent and settle accounts by cheque periodically. It has permitted them to earmark their available capital at the expected amount of daily turnover and has reduced the need for large cash reserves in the provinces.
Sat 8th June 1822
The landowners of Norfolk held a meeting in early January to discuss the state of agriculture. The Earl of Albemarle, Lord Suffield, Coke and Wodehouse (the county’s MPs), several retired army officers and other landowners attended.
The meeting regretted that, after 4 years of supposed economy and retrenchment, the expenses of government continued high. At the end of the war the King’s Address to parliament commended the ministry to reduce expenses to the ‘lowest standard compatible with national safety’. This had not been done. The ministry merely counter-complained that it was the landowners rents and the church’s tithes that kept prices high.
The landowners say the fact is that costs have increased. A labourer in 1792 could live on 10/- a week but today could not. The difference is no longer in the costs of necessaries but the burden of taxation.
In the 1821 session of parliament a Report of the Agricultural Committee was presented. This suggested that British grain should approximate continental grain in price. The British people pay far more tax than the Europeans. If we allow the price of British grain to fall to continental levels, wages to farm labourers will fall, agricultural rents will fall and the whole landed interest of Britain will be devalued.
The meeting agreed that one way of resolving the hardship was to restore bank-notes to the value they had prior to Peel’s Bill (the Act that reduced the volume of bank-notes). Prior to the Bill, grain had cost 20/-, now it was 30/-. The economic argument that there was too much grain or not enough people (due to emigration) was considered and dismissed – there had been no importation of grain for the prior 3 years. Nearly all existing contracts were made to the standard of value before Peel’s Bill. This legislative fiat that ‘a Pound is no longer a Pound’ will diminish landowners.
The responsible act required of the ministry is not to restore the currency but to reduce taxation. Unfortunately, the City banks will not permit a reduction in taxes as they secure the repayment of government loans. A majority of the 600+ MPs are returned by about 8,000 electors whose interests differ from the rest of society. Reforming the ministry will require a prior reform of the representation. It was agreed to petition both the House of Lords and House of Commons.
It was noted in the discussions that several individual landowners have unilaterally reduced rents by 20 - 40%.
Sat 15th June 1822
London Courier - Liverpool and Vansittart as Prime Minister and Chancellor of the Exchequer, have interviewed the major holders of government 5% paper at the Treasury.66 They propose to pay-off the 5% investments, which would likely cause their transfer to the 4%s. It would be a saving of over £1 million in interest payments that conceivably might permit some tax reductions and should lessen dissent in House of Commons and elsewhere in the country.
Liverpool opened the meeting by telling the investors ‘I am not here to discuss the proposal with you but to reveal the terms’ - that set the tone. A new 4% loan is open to 1829. Holders of 5%s may transfer into the new 4%s at an exchange of £105 new loan for every £100 of old loan. Dividends commence Jan 1822 and every 6 months thereafter. A register will be opened at Bank of England for 3 weeks in March for dissenting investors. Those not dissenting will have their investments automatically transferred. Dissenters will be paid-off in numerical order commencing July 1822 when the last payment of dividend on the 5% loans is due.67
An added advantage in the demise of 5% loans is the likelihood that the Bank, which charges 5% on loans and discounts, will be induced to reduce its charge to 4%. This should spread throughout the banking and broking industry.
An attempt was made by 2,600 holders of the 5%s to defeat the measure through their representative in the House of Lords by threatening to transfer their investments to France but on examination the dissenters were found to be holders of £2.6 millions out of a total issue of 5%s of £150 million (1½%). They also said they feared the 4%s would be ended in 7 years and only 3%s left.
Sat 22nd June 1822
In the year ended 5th Jan 1821 British government revenue was £54.5 million and expenditure £53.1 million. In the current year it was £56.0 and £53.3. Next year it is estimated to be £55.2 and £50.0.
The Bank of England note issue in mid February was:
|
Bank Notes of £5+ Bank Notes under £5 Bank Post Bills |
£15.8 millions £ 1.5 millions £ 1.7 millions |
Liverpool and Vansittart propose to apply the excess in the Sinking Fund over £5 million (about £1.5 million) to the relief of taxes paid by farmers; they propose to redeem the 5% stock thus saving £1.5 millions a year in dividends. They will apply this £3 millions to parishes by an issue of Exchequer Bills (which the Bank will discount at 3%) secured on the Rates.
Sat 7th Sept 1822
Bell’s Weekly Messenger, mid-April – At a shareholders’ meeting, the Directors of the Bank of England wished to contradict the current popular belief that their removal of bank-notes from circulation has contributed to the economic troubles of the country.
The shareholders were told that the issue of gold and paper in the year ending March 1822 was £4 millions more than the previous year. The issue of gold and paper in the prior year (ending March 1821) was £3.5 million more than the year before that.
There is a popular belief that the Bank’s reclamation of its £10 million debt from the government had reduced the circulating medium by that amount. The Governor denied it.
He noted that since the issue of specie, the number of prosecutions for forgery had fallen considerably. He declined to comment on what effect the reduction of government debt interest to 4% would have on the Bank’s discount rate.
He announced a 5% dividend for the half-year.
Sat 21st Sept 1822
The ministry introduced a plan to the Commons in early May for government to contract with private companies for the payment of the military annuities, pensions and half-pay. The plan was approved 135/56.
The Pensions List costs about £5 millions a year. The idea is to pay £2.8 millions to a private contractor annually for 45 years.68 He will pay-off the pensions year by year, initially incurring a loss, but reaping a fine profit in later years.
The £2+ millions ‘saved’ will enable government to remit some tax. It is said the salt tax is likely to be abandoned first.
On 7th May a meeting was held at Treasury Chambers which all the main City merchants attended. The ministry’s Schedule of Payments that are estimated to be required by the plan starts at £4.9 millions in the first year and decreases year by year to £300,000 in 45th year. A management fee of £300 per million is allowed the successful contractor. He must provide £5 millions in security which may be in holdings of government paper.
Sat 21st Sept 1822
The period for country banks to issue small bank-notes is extended to 1833. Those that are 65+ miles from London may form joint-stock companies like the Scottish banks. In return for its agreement to this measure, the Bank of England has won another ten years beyond 1833 on its Charter.
Sat 5th Oct 1822
The House of Commons has printed a return of British trade in £ millions:
|
- 1818 1819 1820 1821 |
Imports 40.1 33.6 36.6 35.8 |
Exports 44.6 35.6 40.2 43.1 |
Re-Exports 12.3 11.3 11.3 12.0 |
Balance 16.8 13.3 16.9 19.3 |
The re-exports are colonial produce imported and taxed to comply with the Navigation Act, then exported mainly to Europe. The considerable inflow of silver and gold into Britain, and the ability to resume gold payments, appears based on the huge balance of trade in Britain’s favour. This explains the ministry’s willingness to amend fundamental terms of the Navigation Act. Britain is edging towards the American position on free trade.
Sat 30th Nov 1822
The Bank of England has responded to the retirement of the three types of 5% government stock. It will discount all Bills of Exchange and approved drafts at 4% commencing 21st June 1822. This announcement caused government paper to rise. The 3% consols closed at 81.
Sat 30th Nov 1822
The favourable balance of trade has caused the price of gold in London to fall to £3.17.6d per Pound This is the first time the Pound has traded above its mint value since 1797 and a rare occurrence since record-keeping commenced.
Sat 14th Dec 1822
Bankers in the City suspect the ministry might be tempted by the easy success they had in transferring the 5% investors into 4%s, to do it again with the 4%s into 3%s. The bankers are talking about ‘an attack on the 4%s’.
Sat 14th Dec 1822
London, late June - The stock exchange is depressed due to extensive selling by Jewish investors. They have been selling ‘in dribs and drabs’ daily for a fortnight. The news of yet another insurrection in Spain helped keep prices down too. Spanish bonds fell 1% to 62. Monday is settlement day for Spanish bonds and they are expected to be marked down further. Other bonds were also down – Chile 69; Russia 82.
Sat 8th Feb 1823
London, 24th Aug – The interest shown in the new science of political economy is having its effect on commercial decisions. We have learned that increasing the availability of capital equates with decreasing the interest rate – they are different manifestations of the same thing.
Paper money is the same as any other commodity – the more you have, the less its worth. The India Company has resolved to reduce the interest payable on its London bonds from 4% to 3½% effective 28th Feb 1823. It has advertised its intention in the newspapers with the confident phrase - ‘those people wishing to sell-out may do so at any time.’
Sat 8th Feb 1823
London, 1st Sept - British funds continue to increase. The 3% consols are at 81 – 82. The cause is being attributed to the intention of the Directors of Bank of England to change the basis to their dividend. Formerly they have routinely paid 10+% annual interest to shareholders plus occasional cash bonuses. It is now proposed to reduce the percentage of interest on the dividend and substitute a cash payment to equate with the reduction.
Bank stock has a face value of £15 millions (the present share price is about £250) and the proposed cash payment is rumoured to be as much as 20-25% of issued capital a year.
This innovation would potentially throw £3+ millions of dividends into circulation annually which would almost certainly feed directly into other securities and provided even more support to our stock market. This is contributing to the speculative flows into the consols.69
Sat 15th March 1823
The Directors of the Bank of England have abandoned their plan to pay a cash bonus to shareholders in lieu of a percentage dividend. The share price has since risen to 251. It is the effect on the share value that dissuaded them - they would need a very large bonus to make the reduction in Bank share prices, and consequently government paper, workable. However the Directors have taken an Oath of Secrecy amongst themselves and we are unlikely to know what is afoot until it occurs.
It is well known that the Bank has a large amount of unused capital at its disposal and this will increase with the government repayments that are due for retirement of Exchequer Bills now the government is well-funded again.
The Directors are rumoured to intend a proposal to the Chancellor to purchase the army and navy pensions that were recently agreed to be privatised in the House of Commons – that scheme requires an investment up-front with the profits flowing-in later and fits nicely with the Bank’s cashflow position. The South Sea Company sought to win that contract but its capital was inadequate. The Bank and Stock Exchange were closed Sat 21st Sept but considerable private share dealing was done by insiders.
British loans to other governments are performing satisfactorily. The latest quotations are:
|
Prussia 1818 loan 5% Prussia 1822 loan 5% Danish loan 5% Russian loan 5% Neapolitan loan 5% Spanish 1820 loan 5% Spanish 1821 loan 5% Chilean loan 6% Columbian loan 6% |
90 88 89 87 77 70 65 85 86 |
Sat 5th April 1823
The Bank of England has agreed to fund the settlement of the dissenting holders of Navy 5% Bills on behalf of government. It will cost about £2.7 millions. The Bank also agreed only 3% interest on the loan until liquidated. In return the government will refund the money by quarterly payments of £300,000 each.
These payments are drawn from the Sinking Fund and will reduce government ability to buy its own securities. Recently the government has bought £15,000 daily. The present buoyant state of the financial market, underwritten by regular receipt of trading surpluses, has persuaded government that securities should maintain their price without support.
Sat 26th April 1823
London 5th Nov – 2nd Nov was settlement day at the Exchange. A famous loan contractor took £2 millions of stock to take advantage of a depression in the price due to widespread sales for cash by the public at large. These sales are in response to the plans of the ‘Unholy Alliance’, as it is called by the Press, for Iberia and the frightful 3% drop in French funds. The Alliance has published its belief it has a right to intervene in Spanish internal affairs.70
Another famous banker lent £1 million at 4½% for speculation in the funds. The Commissioners for the Sinking Fund have continued their operations. It has been solely due to the acts of Rothschild and this handful of great Jewish capitalists, acting both in London and Paris concertedly, that losses have not been very substantial.
These attempts to consolidate the market were not confined to London stock alone – purchases of French and other European loans were also made. As a result there were few large defaulters on 3rd Nov (payment day).
There has been a move amongst British capitalists in the last year from traditional commercial pursuits to stock speculations due to the greater profit potential of the market and the ease of trading. This in turn has drawn-in all sorts of more or less impecunious people who are willing to chance everything on a gamble. The Exchange has clipped their wings by proscribing time bargains temporarily. The legality of time bargains on foreign stock remains obscure and no doubt the litigation at King’s Bench that will predictably arise from the numerous failures in the current debacle will clarify the situation.
The new South American stock was initially unsupported. The Columbian loan opened yesterday at 77 and closed at 70. This morning it fell to 68 before the major holders staged a recovery which permitted it to close at 74.
Sat 17th May 1823
Vienna, early Dec - Several large capitalists have caused a run on Austrian Imperial funds here which fell 3% in one day. It appears they expect Austria, which is one of the two major forces in the Holy Alliance, to support war between France and Russia on the one side and Spain and Portugal on the other. The capitalists disapprove.
This loss of national wealth may be enough to dissuade the Hapsburgs. Autocratic Kings are only slowly becoming familiar with the ways capitalists can influence their policies now that paper money has been adopted and they are all in debt in an overt and undeniable way.
Meanwhile King Ferdinand of Spain and his sons Carlos and Francisco are all required to stay in their apartments in Madrid. The French Bourbon army that has been on the border for months is said to be moving into Spain.
Sat 14th June 1823
House of Lords, 4th February - Brougham spoke on the subject of paper money. Lord Stanhope’s Act of 1811 had ranked paper pari passu with gold and required all creditors to receive it at that value. A careful analysis of available statistics reveal that over-printing had caused the Pound to be worth 14/9d in gold value at the time that Act of Parliament was approved.
Sat 21st June 1823
Hume has objected in the Commons to the ‘farce’ of making the Sinking Fund up to £15 millions each year, then borrowing from it for other purposes. The Lord Mayor of London has said that the Sinking Fund is absolutely fundamental to the commercial well-being of England. Since Pitt introduced it, it has been copied in France, Russia and Prussia. Lushington said it was intended to simplify the accounting of the Sinking Fund very soon.
Baring said the continuance of the Sinking Fund was imperative (he is a big holder of government paper); Ricardo said it was useless (he is a free trader).
Sat 21st June 1823
The House of Commons has discussed the Bank of England. The amount of public money held by the Bank in 1815 was about £11 – £12 millions. That had progressively been reduced to £4 millions now. Grenfell asked why this capital was left unproductive in the Bank. The country pays the Bank £270,000 a year for management of transfers and payment of dividends on loan stock. All the merchant banks would be happy to take the job at £70,000 a year.
The Chancellor of the Exchequer (now Robinson) said he was new to the job and would have to check.
Baring told the Chancellor of the Exchequer that the balance with the Bank could not be reduced because government had agreed as a term of the Charter that it would always keep £4-5 millions in its account. Manning (a Bank Director) said the Bank of England provided great services for the £270,000.
Joseph Hume said the government could make an instant profit of £1.5 millions by acting as its own banker. On a revenue of about £60 millions and debt servicing of £20-30 millions a year, government would certainly manage its own funds far more cheaply, he thought.
Sat 28th June 1823
The people of Surrey have petitioned for relief. During the war they were encouraged by Pitt’s ministry and its successors to invest in government stock as a means of mitigating their liability for the Land Tax. It was held-out that the tax was perpetual and they would materially benefit from doing so. For many years they did.
Long after the end of the war the government acted to resume cash payments by removing a large part of the paper currency from circulation thus increasing the international value of the remainder until it reached a parity with its former gold value (before payments ceased).
The effect of this contraction of domestic money supply was to make everything in England less expensive. By 1819, the price of land and hence rents had dropped an estimated 30-40% due to the operation. This devalued those land-owners who were subject to the Land Tax and they wanted compensation.
The petition was read and tabled.
Sat 12th July 1823
An agreement between the ministry and the Bank of England for the latter to pay the army pensions and half-pay for 5 years in return for annuities for 45 years has been concluded and the Chancellor of the Exchequer was given leave in late March to bring in an enabling Bill.
Sat 19th July 1823
House of Lords, 21st March – Liverpool moved the committal of the National Debt Reduction Act and said this required the Sinking Fund to have £5 millions.
King and Ellenborough took the same line as Tierney in the Commons and said the real value of the Sinking Fund would be £3 millions. The army pensions/ annuity scheme whereby the other £2 millions was raised was simply a borrowing from future generations – it is directly opposed to the great principle of the Sinking Fund.
Parnell had suggested earlier that the National Debt might be paid-off by converting the loan stock to 45-year annuities paying 1% more. This would add £8 millions to our annual interest payments but would replace the Sinking Fund entirely. Ricardo was strongly in support.
Bennett said the only function of the Sinking Fund that ministers wished to preserve was its employment to maintain the price of loan stock - that benefits the tax-eaters at the cost of the tax-payers, he thought.
Hume worked an example to show the Sinking Fund was a cost on the people and had not reduced the debt. In the 6 years 1816 – 1821 the excess revenue over expenditure was £9.6 millions. If this had been used to pay-off debt, the annual interest payments now would be £500,000 less. Instead we opted for complexity by raising loans, issuing Exchequer Bills, transferring capital back and forth between government and the Bank of England (about £120 millions), and, although there had been a diminution of annual charge over the period (of £230,000 by expiry of annuities and £941,500 by reduction of interest rate payable on Exchequer Bills), the charge on the debt at 1821, both funded and unfunded, greatly exceeded all the preceding years.
This Sinking Fund ‘hocus-pocus’ costs us an extra £100,000 a year payable to the tax-eaters, Hume said. He recalled that Pitt introduced the Sinking Fund to pay-off our debts as we incurred them thus relieving posterity of the burden. This had since been reversed by successive ministries and we now relieved ourselves of debt by transfer to our children.
Ricardo asked the ministry to try the experiment with £50 millions of debt paper (permanent annuities) converted into long annuities (i.e. Parnell’s suggestion).
The ministry was able to garner the necessary support amongst the country members to defeat all the suggested amendments.71
Sat 16th August 1823
Just over 50% of British revenue in 1822 and 1823 came from Excise Duty (i.e. the domestic economy). Customs produced 20% and stamp duty over 10%. Taxes were 15% and the rest was from postage stamps and miscellaneous income.
Sat 13th Sept 1823
Letter to the Editor, 12th Sept:
The exchange rate between Britain and India fluctuates in accordance with the balance of trade. For some years the Company and the Agencies have been exporters of bullion to Britain. It gives a better return than Indian produce. This has masked a large reduction in the value of Indian commodity trade.
The intrinsic silver value of the Bombay Rupee is now 1/11d. Until recently it was exchanging at 2/6d. That better rate for Indian exporters of capital was due to four factors:
a relative shortage of silver in India before 1806.
(refuted by a commentator Amicus – the shortages were occasional and infrequent and merely evidenced a natural demand for capital, he said),
to the high interest rate on the Company’s loan paper.
(which interest was remittable to London at ±2/6d to the Rupee. Amicus says this was an effect of the high rate not a cause)
and to the Indian trade being a monopoly trade.
(also discountenanced by Amicus – the Company is a commercial organisation; it will not forego the profit on silver trade merely to maintain an unrealistic price in India, he says)
Subsequent to 1806 the rate was exacerbated by the depreciation of Sterling due to printing – that made an exchange of 2/6d about right.
(Amicus approves this as the prime, perhaps only, cause. He notes the balance of trade is always in favour of Britain and against India)
The British government repealed the suspension of cash payments when the Pound Sterling had appreciated by 25%, sufficient to return to its pre-war gold value. Once that occurred the possibility of a Rupee exchange at 2/6d ended.
Only if the Bank of England again depreciates the British currency or if the free trade is ended and monopoly restored, will the exchange rate again fall towards 2/6d.
These observations suggest that India has sustained a great apparent loss through no fault of her own. The Company charges a high price for its remittance service – we should seek for Company understanding of our diminished ability to remit to England for our pensions. The value of the remittance service is predicated on the alternative cost of sending silver instead – that is the freight cost to the frigate, minting and packaging. If the Company’s rate becomes unattractive commercially, people will send their own silver back. Sgd Verax
Sat 27th Sept 1823
The Bombay Courier correspondent Verax has returned to the subject of the loans. He says between 1800 – 1810 very few of the Company’s loans were closed and they offered advantageous terms to investors. They followed each other in quick succession which explains why they had no premium.
He believes it was the high profits of the Company’s exclusive monopoly trade that ensured capital was attracted to and retained in India. This is why there was a high rate of interest and exchange.72
Sat 11th Oct 1823
Letter to the Editor from Mercury (one of the leading Bombay merchants):
The gold Mohurs which are one of the gold coins of India are disappearing – it is because they afford the best remittance to London at present.
South American silver dollars, since the wars of independence commenced in 1810, have occasionally been impossible to bring to town for minting. At those times, capitalists have bought bar silver at 1-2% discount. To address this leakage of value, the Mexican government extended minting to several towns. This has both been expensive and unpredictable. The silver content of some provincially minted coins is less than advertised.73
British gold and silver coin is prohibited to export to satisfy parliamentary fears that its export might raise the money price of bullion.
The Spanish government has complex regulations for transfer of gold and silver that involve heavy deterrent duties. This gave rise to the extensive smuggling that has characterised South American trade. Smuggling fees have varied from 1 - 8% ad valorem. Recently at Vera Cruz, British government Bills could be negotiated at 4/2d per dollar whereas the formal rate at Jamaica was 4/8d.
An interesting aspect of economics is that the removal of restrictions has the same effect as their creation. This removal/creation may not occur in the place it is originated. So, for example, British Corn Laws and the new free trade with India have both had severe effects on the commerce of USA and their exchange rate with England.
Government loans are the usual concomitant of war. This extra demand for capital to meet war expenses tends to increase interest rates. The increased interest attracts more capital. The relative security (Sinking Fund, sequestration of gold and silver by government) of British war loans in the recent struggle with France, attracted many million Pounds of foreign capital to London. Today we see that every government that is intent on borrowing comes to London for its financial needs.
The Company’s loans in India are almost totally subscribed by residents which has the effect of stopping any inflow of capital here. The savings of the army and navy officers and the profits of the Agencies are invested in the Company’s loans and very little British capital from London could access this market. That was the cause of the demand for remittable interest which was probably doubled for European surplus income.
In 1813 the Company sent back as much silver as it could to London, not simply to help the country face its apparent defeat at that time but because the price of bullion in depreciated Sterling appeared advantageous.
From 1813 – 1819 the Company issued a series of loans that absorbed all the surplus capital of its employees and the Agency Houses – they allowed an exchange rate of 2/6d on the interest which was remitted to London. Ultimately, the Company had to remit bullion to settle these London expenses.
Throughout this period we had the beginning of free trade. It was characterised by an enormous increase in Indian cotton farming for shipment to England. These cotton speculators supported the exchange rate until the latter part of the period when it declined to the rate of bullion remittance. By 1820 cotton trade to Europe was impossible. Bullion had flowed into India in 1819 from Europe and America in a huge amount and the purchases of British manufactures locally was trebled. The Company necessarily changed its system. Instead of loans with remittable interest, it issued loans with interest payable here.
This caused a search for other means of remitting capital surpluses to London. Indigo reached its lowest price in Britain. Silk, sugar, spices, medicines – all were tried – but produced less than shipments of bullion. Once the exchange rate lost its artificial support, it fell rapidly to the same rate as a specie remittance, which is where it is at now. The time when we received 8% interest on our savings and 2/6d per Rupee on our remittances has passed.74
Vol 1 No 35 – Sat 20th September 1828
Gold and silver production in Guatemala:
1796 – 1810 283 ozs gold + 253,560 ozs silver = $2,193,832
1811 – 1825 1,524 ozs gold + 423,881 ozs silver = $3,810,382
It is said not 20% of this remains in Guatemala. The rest is exported as ore via Honduras despite severe punishments for smuggling.
Vol 7 No 4 – Tues 28th January 1834
The official figures for British foreign trade are available. In 1831 imports were £49,727,108 and exports £71,431,491. For 1832 they were £44,586,241 imports and £76,071,572 exports. These surpluses reveal a net inflow of funds to England. What happens to the surpluses of this and previous years?
Our greatest trading partner is USA to whom we export £12,596,173 and import £8,970,342. Our next is Germany then India, West Indies and China.
Vol 7 No 4 – Tues 28th January 1834
An account has been published in London in July 1833 showing the effects of our fiscal changes since the French war (1815). The gross annual value of taxes repealed since the war is £42,345,529. The product of the replacement taxes is £5,836,110. This huge reduction is comprised of £9 millions in Customs duty, £14 millions in excise and £18.5 millions in property and other assessed taxes. Nevertheless, last year the revenue increased by £½ million due to the increased product of the new taxes. Government expenditure has reduced quicker than the fall in revenue. The Chancellor’s promise to remit the worst of the remaining taxes appears capable of fulfilment.
Vol 10 No 47 – 21st November 1837
Penny Magazine on Bank Runs, May 1837:
The first run occurred in 1667, twenty-seven years before the formation of the Bank of England, when Admiral de Ruyter with a Dutch naval force took Sheerness and entered the Thames. The government responded with confusion and the citizens rushed to the goldsmiths and private bankers to withdraw their money.
The second run was in 1745 when the Pretender’s army was marching on London (there was no run when William of Orange invaded in 1688 - that was at the invitation of the nobles and merchants). At a public meeting, a thousand merchants patriotically agreed to accept bank promissory notes in lieu of specie. The Bank nevertheless had to issue all its gold and at one stage was settling cash demands in silver.
A more remarkable run occurred in 1797 when a French invasion was anticipated, confidence was low and the Bank had only £1,270,000 in bullion and coin (25th February 1797). The people queuing outside for their funds in gold were fobbed off with a government order to the bank to settle demands in notes rather than specie. Notes for as little as £1 were then issued and the restriction on bullion payments continued through the war. During 1817 – 1819 an attempt was made to return to convertibility but it was not until 1821 that payments in specie could be fully resumed. Since then, except for a short period in 1825, banknotes of less than £5 were withdrawn and are now prohibited.
Many readers will remember the Panic of 1825 when the run on the Bank was as great as the run in 1797. In Spring 1825 the Bank had £10 millions in bullion. By November it had £1.3 millions. The positive balances of British trade globally were being brought in from abroad as gold, sent to the mint for coining and the coins rushed to the bank for paying-out. The mint worked double shifts to meet the demand. Gold was handed out in £25 bags on demand. On the most active day the Bank discounted 4,200 Bills. On 8th December the discounts totalled £7.5 millions, on 15th they were £11.5 millions, on 22nd £14.5 millions and 29th £15 millions.
The annual average values of Bills discounted by the Bank was
|
1795 1800 1805 – 1816 1817 – 1826 |
£2,946,500; £6,401,900; between £11 - £20 millions annually and between £2 – £6 millions annually. |
By 1830 it was down to £900,000 and in 1831 £1.5 millions.
Vol 12 No 12 – 19th March 1839
British revenue in 1837 was £42,887,638. In 1838 it was £43,628,683. The chief increases are in Customs, Excise and Stamp Duty. There is a new head of income in 1838 being rents from Crown Lands.
Vol 14 No 30 – 27th July 1841
The British budget for 1841/42 is £51 millions (59% will pay interest on the bonds representing the national debt). Revenue is expected to be £22 millions from Customs, £14 millions from Excise, £7 millions from postage stamps and, with bits and bobs, should reach £48 millions. The Chancellor of the Exchequer hopes the shortfall will be met by increased consumption and a few duty increases. If Lord John Russel’s Corn Law is not adopted, he will increase direct taxation.
The funded public debt of Britain is £733 millions and of Ireland £34 millions. Annual interest runs at £29 millions, exclusive of everything. Exchequer Bills outstanding total about £21 millions.
Friend of China, 21st April 1842:
The US Government is bankrupt. Her capitalists declined to subscribe to a Federal government loan. The civil service and armed forces are not being paid. The deficiency is about $14 millions.
In South America every government is in debt and the total is estimated at $100 millions.
In Europe the value of government debt is believed to exceed $3,000 million. The only government in the world with fiscal prudence nowadays is China.75
Vol 15 No 25 - 21st June 1842
Sir Robert Peel has addressed the Commons on the deplorable state of England’s national finances. The previous government estimated income for y/e 5 Apr 1843 at £48,310,000 and expenditure was estimated at £50,731,000.
Customs receipts will be £22,500,000, excise £13,450,000, stamps £9,100,000, post office £500,000, crown lands £150,000, misc £250,000 totalling £48,350,000. The expected deficit is £2,569,000.
Peel says he cannot squeeze any more out of the ordinary people and a luxury tax would be resented. He accordingly proposes an income tax of 7d per pound on all incomes over £150. The income will include landed as well as funded property and apply to foreigners as well as Britons. It will raise £1,600,000 from workers direct. Occupiers of land will pay a further £120,000. Investments in funds will be taxed on the dividends which totalled £29,400,000 in 1841. He plans to deduct £1,000,000 from this in respect of notional income from savings banks which will be exempt. On other banks and foreign stocks the renewed Income Tax produces £1,500,000 making a total of nearly £50 millions revenue for the year.
The product of the income tax on trades and professions is estimated at £1,250,000; from civil servants £155,000 and, from both landed and funded property, totally £3,771,000.
The assessable value of land is £39,400,000. The assessable value of tithes, mines and shares in railway property is £8,400,000 making a total of £72,800,000 including dividends.
The income tax may have to be continued for five years but a return to commercial prosperity might reduce that period and, in the first instance, the proposal is for three years. Ireland will also contribute but only in war time.
The duty on charter-parties and Bills of Lading will be reduced to encourage trade.
“I am also considering a tax on exported coal which goes to the benefit of our commercial rivals. It would produce an estimated £200,000 and advantage our home industry.
“The new measures produce a surplus which I propose to apply in further reduction of the commercial tariff. Taxes on about 750 commodities will be reduced whilst another 450 will be unchanged. The process of concluding bilateral commercial treaties with several states is continuing and the articles affected by those arrangements are not included here but the expected diminution in revenue will be about £270,000. Sugar duties cannot be reduced until Cuba and Brazil forego slavery in its production. To reduce only the duty on British sugar would give our colonial producers a competitive advantage tending to monopoly without a corresponding advantage to consumers etc.
London Press comment on the budget – many errors but the underlying principle is to foster colonial trade at the expense of other foreign trade. The duties on live animals and preserved meats is a quarter of the duty on foreign meat. This will encourage the import of colonial cattle for fattening here, giving the English cattle farmer an advantage. As a generalisation this is a consumers’ budget and we should be pleased. Peel estimates a surplus of £500,000 annually
Friend of China, 6.4.43 edition
Journal of Commerce - England is dishonest about free trade. When the Americans, under their Compromise Act, offered to accept all English goods at 20% we refused a quid pro quo and finally the northern states became manufacturers in their own right.
We did the same in Europe. When the Prussian minister Baron Maltzsahn offered Mr Canning a commercial treaty in 1826 allowing British imports to Prussia at a moderate duty provided we would take their timber and corn on equal terms, Canning refused.
It was England that promoted a suicidal protective tariff until other nations were obliged to emulate her. Only then did she turn over a new leaf.
Friend of China, 6.4.43 edition
Commentary on gold and silver:
There has been an absurd variety of values placed on the gold and silver extracted from America and circulated in Europe over the last few centuries. Now Humboldt has finally settled the matter as well as may be:
|
1500 - 1545 1545 - 1600 1600 - 1700 1700 - 1750 1750 - 1803 |
3 million marks 11 million marks 16 million marks 22.5 million marks 35.3 million marks |
During the 311 years to 1803 the production came from
|
New Spain (Mexico) Peru/Buenos Aires New Grenada Chile Brazils |
2,928 million dollars 2,410 million dollars 275 million dollars 138 million dollars 835 million dollars |
According to the Mining Journal of Lima, the following production was achieved in the years between 1790 – 1830, in Pounds Sterling:
|
- Mexico Chile Buenos Aires Russia |
Gold 6,136,153 2,768,188 1,024,895 3,703,743 |
Silver 139,817,032 1,822,924 27,182,673 1,500,971 |
The total value of this mineral wealth equates with £1,880 million. This South American production permitted a growth in the world economy over the last forty years of £47 millions per annum at average.
The ratio of gold to silver production globally is 1 : 55 however this is not reflected in the ratio of the metals' values, which in Asia is 1 : 12.
Gold is sold in the Straits 7% cheaper than London. Dr Earle says gold dust imported to Singapore from the west coast of Borneo totals 3,800 ounces p a which he estimates at 10% of the Borneo production.
M. Chaptal says gold production in the Indian archipelago is 36 tons p a.
It is produced in China and Tibet and offered to the foreign Shroffs involved in the coast trade but they are reluctant to take it for fear it has been adulterated. (one lot of China gold was shipped to Calcutta and assayed at the mint. It was valued at barely the price of silver).
In about 1810 the contest that caused the separation of Spain from her South American colonies commenced. Want of security arose and the old Spanish families, who principally owned the mines, withdrew. A few fled to Spain, more to Cuba, Bordeaux and other parts of the south of France where the Spanish King was then residing. Several mines were abandoned and the supply diminished.
Mr Ward says coined metal in Mexico had risen to $26½ million silver dollars in 1810 but declined to an average $10 millions for the following 18 years due to the disruption caused by wars of independence and the withdrawal of the Spanish mine owners. From 1810 - 1830 the mines of Europe also declined in production but Russia increased. The overall effect, according to Humboldt, produced an annual deficit of $18 millions for each of the twenty years 1810 – 1830 compared to previous. The diminution of the gold supply was less than that of silver, as the decreased production in Chile, New Grenada and the Brazils was somewhat offset by new or increased production in Russia and the United States.
European population increased during the period from 190 millions in 1810 to 210 millions in 1830. Over that time the circulating medium also increased 10%. Storck says 1815 saw $1,320 millions circulating in Europe which by 1830 had increased to $1,600 millions mainly due to the governments of England, Russia, Austria, Norway, Sweden, Denmark and USA withdrawing paper money after the war and resuming cash payments. He notes the consumption of gold for jewellery and plate was augmented on resumption of peace in 1815.76
1 It provides a predictable basic income to large capitalists on which to found their other endeavours. Effectively tax-payers settle the interest required by the banks and government gets the use of the loans. The minister becomes dependent on his financiers e.g. Pitt’s later sale of the Land Tax and introduction of the Income Tax when the security underlying his loans was found inadequate to the creditors.
2 The 3% Consolidated Annuity and the 3% Reduced Annuity are the basic determinants of value of British debt. In this work they are promiscuously referred to as 3% Consols and 3% Reduced.
3 This is prior to the great expansion of paper currency for domestic exchange and refers to high-value mercantile Bills, used for trading at a distance but also employed in speculation. Banks can get 5% on their trade and real estate finance but considerably more from speculators gambling on the Stock Exchange. Those repayments are now exposed to risk.
4 This reversal of the normal procedure is characteristic of Pitt’s approach to revenue and has since become popular at many levels of society.
5 This swingeing tax had attracted mercantile attention. A thoughtful trader had shipped his right gloves to London and left gloves to Bristol and declined to pay Customs duty on either shipment whereupon their were put up for auction. His nominees were the only bidders.
6 This is a substantial change. The usual banking names are absent. Pitt based the deal on Benjamin Goldsmid, bringing him into government loans business in return for a 3% increase in funds produced. The Goldsmid Brothers had the continental connections to break the ring on government loans business in return for a bigger share. Note also Paul Benfield, the Madras financier, has involved himself with the Boyds, bankers of Paris and London. See the Asia Chapters for details of Madras loans.
7 By making the loan under treaty, Pitt avoids immediate parliamentary scrutiny. So far as Benfield is concerned, his inclusion appears to be a sweetener for political ‘services rendered’.
8 A feature of government loans secured on the market value of debt paper had been for the underlying stock prices to decrease in value during negotiations, recovering on agreement.
9 Pitt’s assessment, which may have originated with Benfield, is that Austria is key to continuing the war. If Austria fights, everyone fights; if she makes peace, everyone makes peace.
10 King George III, by this time, has accumulated about £6 million in droits from which he offered to give the people £1 million. The thanks of parliament solicited by Pitt effectively acts as an estoppel when MPs finally become aware of the extent of the droits fund that is available to the King independent of parliamentary control.
11 Next to wages, the cost of transports is the single largest item in overseas expeditions.
12 Some figures published in the newspaper do not cast correctly and should be considered indicative only.
13 Given life expectancy at that time, 28 years purchase appears on the high side.
14 The first public whiff of the Bank of England’s bankruptcy.
15 The Company invites subscriptions from the public to about £500,000 a year to finance its voyages East. These paid 10% and were always fully subscribed by the churches and other institutions.
16 The common arrangement is for the British exporter to receive specie for his goods sold in Europe. This is exchanged with the local British consul for Bills on the Treasury. When the Hanseatic towns marked down the value of the pound 30% due to domestic inflation, the exporters obtained only 70% of their expected receipts. To exchange this reduced income for Treasury Bills (paid in bank notes in London) compounded the losses and persuaded the merchants to keep their gold and silver offshore, mainly in Amsterdam where the financing of smuggling was centred. The result was a nett outflow of value from the British economy. It required Pitt to consider means of divorcing the domestic and international economy.
17 Boyd made his money in the French market. His partner Benfield is Paul Benfield, the master of the usurious loans business to Indian princes of the Coromandel Coast and Chinese Hong merchants. The City supposes Boyd Benfield’s funds are from French and Indian capitalists.
18 Comprised of short-term 90-day ‘paper’ loans from the Bank of England – Pitt told the House a central Bank should not spend real money in a war. He appears to be emulating Revolutionary France which issued assignats and mandats secured on national lands – a practice the French government continued until Napoleon’s coup.
19 See the main text for details of the Liberal Whig secession this year. Debate is now solely confined to motions of the 10+ independent MPs who continue to attend the House.
20 A reference to the run on Sterling in Hamburg that had required shipments of gold to Hamburg earlier in 1797 to avert and had caused the ministry to trawl the World for bullion. The major contributions came via the India Company from India and China and from South America via the West Indies and American traders.
21 Note the fifteen dissenters. This is the small group of patriotic independents continuing to attend debates. These independents should be better known. With the bankruptcy of the Bank of England, the City bankers re