Thompson stated, in substance, that in 1811 he and his father, being wealthy merchants, purchased an estate in Hertfordshire for £62,000, and afterward laid out £10,000 more in improvements. That in 1812 they entered into a contract for another estate, whose price was £60,000, but, a question having arisen as to the title, a lawsuit intervened, and, before judgment, the petitioner and his father had experienced such losses that they could not pay the sum adjudged due by the court. Thereupon, to raise money, they mortgaged both estates for £65,000. In July, 1821, both estates were offered for sale, but they failed to bring the amount for which they were mortgaged. Estates in other counties which cost £33,166, had been sold for £12,000, and through the depression of trade the petitioners had become bankrupt. In 1822 the petitioner’s father died of a broken heart; and he himself remained a ruined man, with seven children of his own, ten of his brother’s, and seven of his sister’s all depending on him.352
The nation seemed upon the brink of some convulsion, for the gentry hardly cared to disguise their design of effecting a readjustment of both public and private debts. Passions ran high, and in June, 1822, a long debate followed upon a motion, made by Mr. Western, to inquire into the effects produced by the resumption of cash payments. The motion was indeed defeated, but defeated by a concession which entailed a catastrophe up to that time unequalled in the experience of Great Britain. To save the “Resumption Act” the ministry in July brought in a bill to respite the small notes until 1833, a measure which at once quieted the agitation, but which produced the most far-reaching and unexpected results.
According to Francis, the country banks augmented their issues fifty per cent between 1822 and 1825,353 nor was this increase of paper the only or the most serious form taken by the inflation. The great hoard of sovereigns, accumulated by the Bank to replace its small notes, was made superfluous; and, in a memorandum delivered by the directors to the House of Commons, no less than £14,200,000 were stated to have been thrown on their hands in 1824 by this change of policy.354 The effect was to create a veritable glut of gold in the United Kingdom; prices rose abnormally – fifteen per cent – between 1824 and 1825.
As values tended upward, a frenzy of speculation seized upon a people who had long suffered from the grinding of contraction, and meanwhile the Bank, adhering to its old policy, freely discounted all the sound bills brought them. In 1824 prices rose above the Continental level, and gold, being cheaper in London than in Paris, began to flow thither. The Bank reserve steadily fell. In March, 1825, the fever reached its height, and a decline set in, while the directors, anxious at the condition of their reserve in May, attempted to restrict their issues. The consequence was sharp contraction, and in November the crash came. Mr. Huskisson stated, in the House of Commons, that for forty-eight hours it was impossible to convert even government securities into cash. Exchequer bills, bank stock, and East India stock were alike unsalable, and many of the richest merchants of London walked the streets, not knowing whether on the morrow they might not be insolvent. “It is said” the Bank itself “must have stopped payment, and that we should have been reduced to a state of barter, but for a box full of old one and two-pound notes which was discovered by accident.”355 What happened in the Bank parlour during those days is unknown. Probably the pressure of the mercantile classes became too sharp to be withstood, perhaps even the strongest bankers were alarmed; but, at all events, the financial policy changed completely. Contraction was abandoned, the Bank reverted to the system of 1810, and in an instant relief came. “We lent by every possible means, and in modes we had never adopted before; … we not only discounted outright, but we made advances on deposit of bills of exchange to an immense amount.” The Bank emitted five millions in notes in four days, and “this audacious policy was crowned with the most complete success, the panic was stayed almost immediately.”356
With an expansion of the currency sufficient to furnish the means of paying debts, the panic passed away, but the disaster gave the bankers their opportunity; they seized it, and thenceforward their hold upon the community never, even for an instant, relaxed. The administration fell into discredit, and turned for assistance to the only men who promised to give them effective support: these were the capitalists of Lombard Street, whose first care was to obtain a statute prohibiting the small notes, which, they alleged, were the cause of the misfortune of 1825. The act they demanded passed in 1826, and about this time Samuel Loyd rose into prominence, who was, perhaps, the greatest financier of modern times. Cautious and sagacious, though resolute and bold, gifted with an amazing penetration into the complex causes which control the competition of modern life, he swayed successive administrations, and crushed down the fiercest opposition. Apparently he never faltered in his course, and down to the day of his death he sneered at the panic-stricken directors, who only saved themselves from bankruptcy by accidentally remembering and issuing a “parcel of old discarded one-pound notes … drawn forth from a refuse cellar in 1825.”357
Loyd’s father began life somewhat humbly as a dissenting minister in Wales, but, after his marriage, he entered a Manchester firm, and subsequently founded in London the house of Jones, Loyd and Co., afterward merged in the London and Westminster Bank, one of the largest concerns in the world. Samuel did not actually succeed his father until 1844, but much earlier he had grown to be the recognized chief of the monied interest, and Sir Robert Peel long served as his lieutenant. Loyd was the man who conceived the Bank Act of 1844, who succeeded in laying his grasp upon the currency of the kingdom, and in whose words, therefore, the policy of the new governing class is best stated: —
“A paper-circulation is the substitution of paper … in the place of the precious metals. The amount of it ought therefore to be equal to what would have been the amount of a metallic circulation; and of this the best measure is the influx or efflux of bullion.”358
“By the provisions of that Act [the Bank Act of 1844] it is permitted to issue notes to the amount of £14,000,000 as before – that is, with no security for the redemption of the notes on demand beyond the legal obligation so to redeem them. But all fluctuations in the amount of notes issued beyond this £14,000,000 must have direct reference to corresponding fluctuations in the amount of gold.”359
Thus Loyd’s principle, which he embodied in his statute, was the rigid limitation of the currency to the weight of gold available for money. “When … notes are permitted to be issued, the number in circulation should always be exactly equal to the coin which would be in circulation if they did not exist.”360 In 1845 the Bank Act was extended to Scotland, except that there small notes were still tolerated; the expansion of provincial paper was prohibited, and England reverted to the economic condition of Byzantium, – a condition of contraction in which the debtor class lies prostrate, for, the legal tender being absolutely limited, when creditors choose to withdraw their loans, payment becomes impossible.
Perhaps no financier has ever lived abler than Samuel Loyd. Certainly he understood as few men, even of later generations, have understood, the mighty engine of the single standard. He comprehended that, with expanding trade, an inelastic currency must rise in value; he saw that, with sufficient resources at command, his class might be able to establish such a rise, almost at pleasure; certainly that they could manipulate it when it came, by taking advantage of foreign exchanges. He perceived moreover that, once established, a contraction of the currency might be forced to an extreme, and that when money rose beyond price, as in 1825, debtors would have to surrender their property on such terms as creditors might dictate.
Furthermore, he reasoned that under pressure prices must fall to a point lower than in other nations, that then money would flow from abroad, and relief would ultimately be given, even if the government did not interfere; that this influx of gold would increase the quantity of money, by so doing would again raise prices, and that, when prices rose, pledges forfeited in the panic might be resold at an advance. He explained the principle of this rise and fall of values, with his usual lucidity, to a committee of the House of Lords, which investigated the panic of 1847: —
“Monetary distress tends to produce fall of prices; that fall of prices encourages exports and diminishes imports; consequently it tends to promote an influx of bullion. I can quote a fact of rather a striking character, which tends to show that a contracting operation upon the circulation tends to cheapen the cost of our manufactured productions, and therefore to increase our exports.” He then stated that during the panic he had received a letter “from a person of great importance in Lancashire,” begging him to use his influence with the ministry “to be firm in maintaining the act, – to be firm in resisting these applications for relaxation,” because in Lancashire the manufacturers were struggling to “resist the improperly high price of the raw material of cotton.” “That letter reached me the very morning that the letter of the government was issued [suspending the act], and almost immediately the raw cotton rose in price.”
Q. “The writer of that letter was probably a man of considerable substance, a very wealthy man, with abundant capital to carry on his business?
A. “He had recently retired from business. I can state another circumstance that occurred in London corroborative of the same results. Within half an hour of the time that the notes summoning the Court of Directors … were issued, parties, inferring probably … that a relaxation was about to take place, sent orders to withdraw goods from a sale which was then going on.”361
The history of half a century has justified the diagnosis of this eminent financier. As followed out by his successors, Loyd’s policy has not only forced down prices throughout the West, but has changed the aspect of civilization. In England the catastrophe began with the passage of the Bank Act.
No sooner had this statute taken effect than it necessarily caused a contraction of the currency at a time when gold was rising because of commercial expansion. Between 1839 and 1849 there was a fall in prices of twenty-eight per cent, and, severe as may have been the decline, it seems moderate considering the conditions which then prevailed. The yield of the mines was scanty, and of this yield India absorbed annually an average of £2,308,000, or somewhat more than one-sixth.
America was growing with unprecedented vigour, industrial competition sharpened as prices fell, and the year of the “Bank Act” was the year in which railway building began to take the form of a mania.
The peasantry are always the weakest part of every population, and therefore agricultural prices are the most sensitive. But the resources of a peasantry are seldom large, and, as the value of their crops shrinks, the margin of profit on which they live dwindles, until they are left with only a bare subsistence in good years, and with famine facing them in bad. The Irish peasants were the weakest portion of the population of Great Britain when Lord Overstone became supreme, and when the potato crop failed in 1845 they starved.
Although the landlords had lost their command over the nation in 1688, they yet, down to the last administration of Peel, had kept strength enough to secure protection from Parliament against foreign competition. By 1815 the yeomanry had almost disappeared, the soil belonged to a few rich families whose revenue depended on rents, and the value of rents turned on the price of the cereals. To sustain the market for wheat became therefore all-important to the aristocracy, and when, with the peace, prices collapsed, they obtained a statute which prohibited imports until the bushel should fetch ten shillings at home.
This statute, though frequently amended to make it more effective, partially failed of its purpose. A contracting currency did its resistless work, prices dropped, tenants went bankrupt, and, as the value of money rose, encumbered estates passed more frequently into the hands of creditors. Thus when Peel took office in 1841, the Corn Laws were regarded by the gentry as their only hope, and Peel as their chosen champion; but only a few years elapsed before it became evident that the policy of Lombard Street must precipitate a struggle for life between the manufacturers and the landlords. In the famine of 1846 the decisive moment came, and when Sir Robert sided, as was his wont, with the strongest, and abandoned his followers to their fate, he only yielded to the impulsion of a resistless force.
As a class both landlords and manufacturers were debtors, and, by 1844, cheap bread appeared to be as vital to the one as dear corn was to the other. With a steadily falling market the manufacturers saw their margin of profit shrink, and at last Manchester and Birmingham believed themselves to be confronted with ruin unless wages fell proportionately, or they could broaden the market for their wares by means of international exchanges. The Corn Laws closed both avenues of relief; therefore there was war to the death between the manufacturers and the aristocracy. The savageness of the attack can be judged by Cobden’s jeers at gentlemen who admitted that free corn meant insolvency: —
“Sir Edward Knatchbull could not have made a better speech for the League than that which he made lately, even if he were paid for it. I roared so with laughter that he called me specially to order, and I begged his pardon, for he is the last man in the world I would offend, we are all so much obliged to him. He said they could not do without this Corn Law, because, if it were repealed, they could not pay the jointures, charged on their estates. Lord Mountcashel, too (he’s not over-sharp) said that one half the land was mortgaged, and they could not pay the interest unless they had a tax upon bread. In Lancashire, when a man gets into debt and can’t pay, he goes into the Gazette, and what is good for a manufacturer is, I think, good for a landlord.”362
In such a contest the gentry were overmatched, for they were but nature’s first effort toward creating the economic type, and they were pitted against later forms which had long distanced them in the competition of life. Bright and Cobden, as well as Loyd and Peel, belonged to a race which had been driven into trade, by the loss of their freeholds to the fortunate ancestors of the men who lay at their mercy in 1846. Peel himself was the son of a cotton-spinner, and the grandson of a yeoman, who, only in middle life, had quitted his hand-loom to make his fortune in the “industrial revolution.”
In modern England, as in ancient Italy, the weakest sank first, and the landed gentry succumbed, almost without resistance, to the combination which Lombard Street made against them. Yet, though the manufacturers seemed to triumph, their exultation was short, for the fate impended over them, even in the hour of their victory, which always overhangs the debtor when the currency has been seized by the creditor class. By the “Bank Act” the usurers became supreme, and in 1846 the potato crop failed even more completely than in 1845. Credit always is more sensitive in England than in France, because it rests upon a narrower basis, and at that moment it happened to be strained by excessive railway loans. With free trade in corn, large imports of wheat were made, which were paid for with gold. A drain set in upon the Bank, the reserve was depleted, and by October 2, 1847, the directors denied all further advances. Within three years of the passage of his statute, the event Loyd had foreseen arrived. “Monetary distress” began to force down prices. The decision of the directors to refuse discounts created “a great excitement on the Stock Exchange. The town and country bankers hastened to sell their public securities, to convert them into money. The difference between the price of consols for ready money and for the account of the 14th of October showed a rate of interest equivalent to 50 per cent per annum. Exchequer bills were sold at 35s. discount.”… “A complete cessation of private discounts followed. No one would part with the money or notes in his possession. The most exorbitant sums were offered to and refused by merchants for their acceptances.”363
Additional gold could only be looked for from abroad, and as a considerable time must elapse before specie could arrive in sufficient quantity to give relief, the currency actually in use offered the only means of obtaining legal tender for the payment of debts. Consequently hoarding became general, and, as the chancellor of the exchequer afterward observed, “an amount of circulation which, under ordinary circumstances, would have been adequate, became insufficient for the wants of the community.” Boxes of gold and bank-notes in “thousands and tens of thousands of pounds” were “deposited with bankers.” The merchants, the chancellor said, begged for notes: “Let us have notes; … we don’t care what the rate of interest is… Only tell us that we can get them, and this will at once restore confidence.”364
But, after October 2, no notes were to be had, money was a commodity without price, and had the policy of the “Bank Act” been rigorously maintained, English debtors, whose obligations then matured, must have forfeited their property, since credit had ceased to exist and currency could not be obtained wherewith to redeem their pledges.
The instinct of the usurer has, however, never been to ruin suddenly the community in which he has lived: only by degrees does he exhaust human vitality. Therefore, when the great capitalists had satisfied their appetites, they gave relief. From the 2d to the 25th of October, contraction was allowed to do its work; then Overstone intervened, the government was instructed to suspend the “act,” and the community was promised all the currency it might require.
The effect was instantaneous. The letter from the cabinet, signed by Lord John Russell, which recommended the directors of the Bank to increase their discounts, “was made public about one o’clock on Monday, the 25th, and no sooner was it done so than the panic vanished like a dream! Mr. Gurney stated that it produced its effect in ten minutes! No sooner was it known that notes might be had, than the want of them ceased!”365 Large parcels of notes were “returned to the Bank of England cut into halves, as they had been sent down into the country.”
The story of this crisis demonstrates that, by 1844, the money-lenders had become autocratic in London. The ministry were naturally unwilling to suspend a statute which had just been enacted, and the blow to Sir Robert Peel was peculiarly severe; but the position of the government admitted of no alternative. At the time it was said that the private bankers of London intimated to the chancellor of the exchequer that, unless he interfered forthwith, they would withdraw their balances from the Bank of England. This meant insolvency, and to such an argument there was no reply. But whether matters actually went so far or not, there can be no question that the cabinet acted under the dictation of Lombard Street, for the chancellor of the exchequer defended his policy by declaring that the “act” had not been suspended until “those conversant with commercial affairs, and least likely to decide in favour of the course which we ultimately adopted,” unanimously advised that relief should be given to the mercantile community.366
There was extreme suffering throughout the country, which manifested itself in all the well-known ways. The revenue fell off, emigration increased, wheat brought but about five shillings the bushel, while in England and Wales alone there were upwards of nine hundred thousand paupers. Discontent took the form of Chartism, and a revolution seemed imminent. Nor was it Great Britain only which was convulsed: all Europe was shaken to its centre, and everything portended some dire convulsion, when nature intervened and poured upon the world a stream of treasure too bountiful to be at once controlled.
In 1849 the first Californian gold reached Liverpool. In four years the supply of the precious metals trebled, prices rose, crops sold again at a profit. As the farmers grew rich, the demand for manufactures quickened, wages advanced, discontent vanished, and though values never again reached the altitude of 1809, they at least attained that level of substantial prosperity which preceded the French Revolution. Nevertheless, the fall in the purchasing power of money, and the consequent ability of debtors to meet their obligations, did not excite that universal joy which had thrilled Europe at the discovery of Potosi, for a profound change had passed over society since the buccaneers laid the foundations of England’s fortune by the plunder of the Peruvian galleons.
To the type of mind which predominated after 1810, the permanent rise of commodities relatively to money was unwelcome, and, almost from the opening of the gold discoveries, a subtle but resistless force was working for contraction – a force which first showed itself in the movement for an uniform gold coinage, and afterwards in general gold monometallism. The great change came with the conquest of France by Germany. Until after the middle of the nineteenth century, Germany held only a secondary position in the economic system of Europe, because of her poverty. With few harbours, she had reaped little advantage from the plunder of America and India, exchanges had never centred within her borders, and her accumulated capital had not sufficed to stimulate high consolidation. The conquest of France suddenly transformed these conditions. In 1871 she acquired an enormous booty, and the effect upon her was akin to the effect on England of the confiscations in Bengal; the chief difference being that, unlike England, Germany passed almost immediately into the period of contraction.
The spoliation of India went on for twenty years, that of France was finished in a few months, and, while in England the “industrial revolution” intervened between Plassey and the adoption of the gold standard, in Germany the bankers dominated from the outset. The government belonged to the class which desired an appreciating currency, and in 1873 the new empire followed in the steps of Lombard Street, and demonetized silver.
Germany’s action was decisive. Restrictions were placed on the mints of the Latin Union and of the United States, and thus, by degrees, the whole stress of the trade of the West was transferred from the old composite currency to gold alone. In this way, not only was the basis of credit in the chief commercial states cut in half, but the annual supply of metal for coinage was diminished. In 1893 the gold mined fell nearly nine per cent short of the value of the gold and silver produced in 1865, and yet, during those twenty-eight years, the demand for money must have increased enormously, if it in any degree corresponded with the growth of trade.
The phenomena which followed the adoption of the gold standard by Western countries were precisely those which had been anticipated by Loyd. Lord Overstone had explained them to an earlier generation. In one of his letters on the “Bank Charter,” as early as 1855, he developed the whole policy of the usurers: —
“If a country increases in population, in wealth, in enterprise, and activity, more circulating medium will probably be required to conduct its extended transactions. This demand for increased circulation will raise the value of the existing circulation; it will become more scarce and more valuable, … in other words – gold will rise…”367
By the action of Germany, Overstone’s policy was extended to the whole Western world, with the results he had foreseen. Gold appreciated, until it acquired a purchasing power unequalled since the Middle Ages, and while in the silver-using countries prices remained substantially unchanged and the producers accordingly prospered, prostration supervened in Europe, the United States, and Australia. As usual the rural population suffered most, and the English aristocracy, who had been respited by the gold discoveries, were the first to succumb. They not only drew their revenues from farming land, but, standing at the focus of competition, they were exposed to the pressure of Asia and America alike. The harvest of 1879 was one of the worst of the century, land depreciated hopelessly, and that year may probably be taken as marking the downfall of a class which had maintained itself in opulence for nearly three hundred and fifty years.
This Tudor aristocracy, which sprang up at the Reformation, was one of the first effects of the quickened movement which transferred the centre of exchanges from Italy to the North Sea. They represented sharpening economic competition, and they prospered because of an intellectual gift, an aptitude they enjoyed, of absorbing the lands of the priests and soldiers amidst whom they dwelt. These soldiers were the yeomen who, when evicted, became pirates, slavers, commercial adventurers, religious colonists, and conquerors, and who together poured the flood of treasure into London which, transmuted into movement, made the “industrial revolution.” When by their efforts, toward the beginning of the nineteenth century, sufficiently vast reservoirs of energy in the shape of money had accumulated, a new race rose to prominence, fitted to give vent to this force – men like Nathan Rothschild and Samuel Loyd, probably endowed with a subtler intellect and a keener vision than any who had preceded them, financiers beside whom the usurers of Byzantium, or the nobles of Henry VIII., were pigmies.
These bankers conceived a policy unrivalled in brilliancy, which made them masters of all commerce, industry, and trade. They engrossed the gold of the world, and then, by legislation, made it the sole measure of values. What Samuel Loyd and his followers did to England, in 1847, became possible for his successors to do to all the gold standard nations, after 1873. When the mints had been closed to silver, the currency being inelastic, the value of money could be manipulated like that of any article limited in quantity, and thus the human race became the subjects of the new aristocracy, which represented the stored energy of mankind.
From the moment this aristocracy has determined on a policy, as, for example the “Bank Act” or monometallism, resistance by producers becomes most difficult. Being debtors, producers are destroyed when credit is withdrawn, and, at the first signs of insubordination, the bankers draw in their gold, contract their loans, and precipitate a panic. Then, to escape immediate ruin, the debtor yields.
Since 1873 prices have generally fallen, and the mortgage has tended to engulf the pledge; but, from time to time the creditor class feels the need of turning the property it has acquired from bankrupts into gold, and then the rise explained by Overstone takes place. The hoards are opened, credit is freely given, the quantity of currency is increased, values rise, sales are made, and new adventurers contract fresh obligations. Then this expansion is followed by a fresh contraction, and liquidation is repeated on an ever-descending scale.
For many years farming land has fallen throughout the West, as it fell in Italy in the time of Pliny. Everywhere, as under Trajan, the peasantry are distressed; everywhere they migrate to the cities, as they did when Rome repudiated the denarius. By the census of the United Kingdom taken in 1891, not only did it appear that over seventy-one per cent of the inhabitants of England and Wales lived in towns, but that, while the urban districts had increased above fifteen per cent since the last census, the population of the purely agricultural counties had diminished.368
Moreover, within a generation, there has been a marked loss of fecundity among the more costly races. The rate of increase of the population has diminished. In the United States it is generally believed that the old native American blood is hardly reproducing itself; but, in all social phenomena, France precedes other nations by at least a quarter of a century, and it is, therefore, in France that the failure of vitality is most plainly seen. In 1789 the average French family consisted of 4.2 children. In 1891 it had fallen to 2.1,369 and, since 1890, the deaths seem to have equalled the births.370 In 1889 legislation was attempted to encourage productiveness, and parents of seven children were exempted from certain classes of taxes, but the experiment failed. Levasseur, in his great work on the population of France, has expressed himself almost in the words of Tacitus: “It can be laid down as a general law that, if in such a social condition as that of the French of the nineteenth century, the number of children is small, it is because the majority of parents wish it should be small.”371
Such signs point to the climax of consolidation. And yet, even the rise of the bankers is not the only or the surest indication that centralization is culminating. The destruction, wrought by accelerated movement, of the less tenacious organisms, is more evident below than above, is more striking in the advance of cheap labour, than in the evolution of the financier.