Os dois volumens são imensamente foda e INDISPENSÁVEIS.
Deflation and the return to gold
Needless to say, the selfsame Establishment politicians who had used war as
their supreme excuse for continuing the restriction, failed to jump with alacrity
to go back to the gold standard when the war finally ended in 1815. And
yet, conditions were certainly ripe. In a pattern that would set the tone for
over a century, the inflationary credit boom of wartime was quickly succeeded
by a postwar deflation of money, credit and prices. The wartime
inflation was succeeded by a postwar deflationary recession. There is no
evidence whatever that the Bank of England deliberately contracted the money
supply to pave the way for a return to gold at the prewar par. It was simply
the beginning of the classic pattern of fractional-reserve banking powered by
a central bank: the creation of boom and bust. Total Bank of England credit
fell from £44.9 million on 31 August 1815 to £34.4 million a year later, a
drop of 24 per cent. Bank deposits fell by about 15 per cent in the same
period, while bank notes fell by 11 per cent.
The bank contraction exerted a powerful leverage effect on the country
banks; many country banks failed from 1814 to 1816 and country bank note
circulation fell from £22.7 million in 1814 to £19.0 million in 1815 and then
to £15.1 million in 1816. In short, country bank notes outstanding fell by 33.5
per cent over the two-year period, and by 20.5 per cent from 1815 to 1816.
We may now arrive at a rough estimate of the total contraction of the money
supply from August 1815 to August 1816. Total money supply (bank notes +
bank deposits + country bank notes) amounted to approximately £60.7 million
in 1815; it fell to £50.4 million the following year, a drop of 17 per cent
in one year.
The monetary contraction, combined with general public expectations of a
return to gold, drove the market gold premium over the official par down
nearly to the par price. The monetary inflation had driven the market gold
price up to £5.10 at the end of 1813, which was 145 per cent of the old
official pre-restriction par of £3 17s. 101hd. After Napoleon's retirement to
Elba, the gold price fell to £4 5s. Od., a premium of only 8 per cent; then, on
Napoleon's return to France, the gold price of the pound shot up nearly to its
1813 peak. After Waterloo, once again, the gold price fell sharply and steadily,
reaching £3 18s. 6d. in October 1816, a premium of less than 1 per cent.Similarly the market price of silver fell from a peak premium of 38 per cent
in 1813 to a premium of only a little over 2 per cent in the first postwar year
of 1816. And the price of foreign exchange at Hamburg fell from a premium
of 44 per cent in 1813 down to par in 1816. Price deflation accompanied the
monetary contraction, British prices falling from a peak of 198 in 1814 (1790
being equal to 100), to 135 in 1816.
Conditions were now perfect to return to gold, and immediate resumption
could have been achieved with no further transition problems. But the British
Establishment dithered, its only constructive step in 1816 being Parliament's
dropping of the formal bimetallic standard, which had only resulted in a de
facto gold standard in the eighteenth century, and the adoption of a formal
gold standard. Silver, from then on, would only be subsidiary coin. But apart
from stating that when Britain did go back to a specie standard it would be
going back to gold, nothing else was done.
The problem was a pervasive desire in the Establishment to resume cheap
credit and inflation, as well as an even more widespread phobia about deflation
that marred the analysis and policy conclusions of even the most influential
champions of a return to gold payments. The bulk of anti-bullionists displayed
their hypocrisy and intellectual bankruptcy by reversing their supposed analytical
stance. In short, those who stoutly denied, all during the era of inflation, that
over-issue of bank notes had any impact on domestic prices or foreign exchange
rates, now reversed their course and blamed the fall in prices, as well as
the postwar depression, squarely on the contraction of the money supply and
the eventual resumption of specie payments. What they wanted, therefore, was
easy money and inflation, and they were willing to use any arguments at hand,
however inconsistent, to achieve their goal. What they seemed unwilling to realize is that any inflationary boom, especially that of a lengthy and major war,
will collapse at war's end into depression and deflation. Much of the deflation
was the result of the postwar depression and bankruptcies, for the initial postwar
deflation occurred years before the actual return to gold or even the
passage of the Resumption Act. The postwar depression was the market's way
of readjusting the economy to the enormous distortions of production and
investment brought about by the skewed demands of wartime and the inflationary
credit boom. In short, the postwar depression was the painful but necessary
process of liquidating the distortions of the wartime inflation and of returning
to a healthy peacetime economy efficiently serving the consumers.
Another cause of the deflation was industrial and economic progress. The
end of the war liberated England to launch one of the greatest periods of
economic growth in its history. The Industrial Revolution could at last· develop
freely and raise the standard of living of the mass of Englishmen something
it could not do when the industrial engine had been diverted to the
unproductive waste of war. As a result of the great increase of production,
prices kept falling in Britain throughout the 1820s - long past the time when
this welcome drop in the cost of living, this 'deflation', could plausibly be
blamed on the return to gold in 1821.
The anti-deflation hysteria and the desire to keep inflating delayed the
return to gold for five years after 1816. When it became clear that there
would be no immediate resumption, the pound began to depreciate again, the
price of silver bullion rising from 2 per cent above par in 1816 to 12 per cent
premium on 1818. Similarly, the foreign exchange rate at Hamburg rose from
par to 5 per cent above. And domestic prices rose from 135 in 1816 to 150
two years later. The weakening of the pound by disappointed expectations of
immediate resumption was also greatly compounded by an expansion of
bank advances and note issues.
When the restriction came up for one of its periodic renewals in the Spring
of 1816, Chancellor of the Exchequer Vansittart pleaded for two more years
of renewal so that business could acquire more needed cheap credit. Vansittart
was easily able to defeat Francis Horner's resolution for resumption of specie
payment in two years. Agriculturists, as usual, had overexpanded and went
heavily into debt during the wartime inflation, and then complained heavily
when the bubble burst and turned to the government to inflate or expand
spending on their behalf. The Quarterly Review, reflecting Tory devotion to
the interests of aristocratic large landlords, shifted gears from favouring the
bullion Report to bitterly denouncing deflation.
The most extreme of the inflationists now emerged in the form of two
banker brothers from Birmingham, Thomas (1783-1856) and Matthias
Attwood (1779-1851), who also served as the spokesmen for the iron and
brass industry of the city. Birmingham, as the centre of armaments manufacture, had been a major beneficiary of the war boom. Thomas Robert Malthus, as we have seen, for a few years urged the government to increase deficits to cure the alleged ills of underconsumption, but abandoned this line of thought as soon as the postwar agricultural and economic depression was over. But the prolific Attwoods were to make inflation and permanent incovertible fiat paper money a lifelong crusade. Nothing, for example, could be more starkly opposed to Say's crucial law of markets than the unabashed assertion of Thomas Attwood, in an 1817 open letter to Vansittart, that 'It is the chief purpose of this letter to show that the issue of money will create markets, and that it is upon the abundance or scarcity of money that the extent of all markets principally depends... ' .
Along with fiat money and monetary inflation, the Attwoods and their
counterparts in the northern industrial city of Liverpool were able to persuade
the government to embark on a large-scale programme of deficits, relief and
public works to try to generate another inflationary boom. James Mill warned
Ricardo in the Autumn of 1816 that 'some villainous schemes of finance'
were afoot, and sure enough, the government proposed a deficit bond issue to
finance public works, and also loaned out three-quarters of a million pounds
during 1817. The temporary resurgence of inflation and prosperity in 1818
was the result, according to the fiery, erratic hard-money radical journalist
William Cobbett, of the prodding by Matthias Attwood upon Vansittart, who
'caused bales of paper money to be poured out. .. " via Bank of England loans
to the government.
Indeed, it was undoubtedly the weakening of the pound in 1817-18 that
tipped the scales and led to Parliament's passing the act of resuming payments
in gold in May, 1819. Resumption in gold coin was supposed to begin
four years hence, but actually gold coin payments were launched on the
banner day of 8 May 1821. Even though the resultant gold coin standard
served as the cornerstone of Britain's economic growth and prosperity for
nearly a century, the fierce opposition, confusion, and vacillating of the
government made arriving at the proper result seem almost a miracle. The
bank opposed resumption down to the very passage of the law in 1819, and it
was the government's temporarily cooling relations with the bank that allowed
room for the resumption law. Yet, even though a determined effort was
launched by men such as Alexander Baring (1774-1848), the Attwoods and
the Birmingham manufacturing interests, and the landed aristocrats to overturn
resumption, the gold standard held and was even resumed earlier than
scheduled, in 1821.20 Thus the earl of Carnarvon, in mid-1821, denouncing
the resumption act for lowering agricultural prices, and calling for monetary
expansion and greater government expenditures, openly raised the standard
of the landed aristocracy as against the cosmopolitan money men and financiers:
He called upon the House to consider the consequences...of destroying by its
means the aristocracy of the country - the gentlemen and the yeomanry of England,
on whose existence our institutions alone could rest. The monied interest
had been formed by the calls of our finances; they could be removed: they were
inhabitants of this or of any other country; but the stability of our institutions, and
the safety of the throne itself, depended on our agricultural population...
And yet the gold coin standard held. It held even though two of the most
influential champions of resumption were weak reeds when it came to resisting
the anti-deflation hysteria. At the end of the war, Ricardo, in his Proposals
for an Economical and Secure Currency (1816), reverted to his 1811 gold
bullion proposal, in which resumption would take place not in coin but in
large ingots or gold bars, thereby limiting the gold standard to a few wealthy
traders. Gold would not then be the true standard currency of the realm, and
would be but a flimsy check against the propensity of government and the
banking system to inflate money and credit.
After the publication of his Principles ofPolitical Economy in 1817, David
Ricardo was the most celebrated economist in England, and his views on
currency as well as other economic problems carried great weight. At the
urging of his mentor James Mill, Ricardo then entered Parliament in 1819 to
battle for his economic views until his death in 1823. He particularly lent his
great prestige to urging resumption of gold payments, and somehow his
bullion plan lost out rapidly to the more consistent and thoroughgoing gold
coin standard.
The most important single politician responsible for the return to gold was
the remarkable Tory statesman Robert Peel the Younger (1788-1859), who
gave his name ('Peel's Act') to the resumption law. Peel was later, as prime
minister, to be responsible, during the mid-1840s, for the repeal of the notorious
Corn Laws, as well as the attempt to establish the currency principle into
law in Peel's Act of 1844. Peel's accomplishments were particularly remarkable
for being bred to the political purple by his distinguished High Tory
father. Peel was the eldest son of Sir Robert Peel the Elder, a leading Lancashire
cotton manufacturer, whose own father had established the first calicocotton
factory in Lancashire. Sir Robert was a dyed-in-the-wool Tory statist,
a fervent supporter of William Pitt, who had written a pamphlet in 1780
praising the National Debt Productive of National Prosperity. As an MP the
elder Peel had ardently backed the war against France, had put through the
first Factory Act, and had opposed the bullion Report in 1811.
When young Robert was born, Sir Robert dedicated his first-born son to
the world of politics. The brilliant youth went to Harrow, where he was a
friend and classmate of Lord Byron, and entered Christ Church College in
Oxford, in 1805. In 1808, Peel graduated with high honours, and his doting
father promptly purchased him a seat in Parliament the following year. The precocious 21-year-old MP soon became under secretary for war and the colonies, whose ministry conducted the war against France, and in 1812 he became for six years the chief secretary for Ireland. There he followed his
father's High Tory principles by fiercely repressing the Irish and taking the
lead in opposing the emancipation of Catholics in Great Britain. In 1811,
young Peel joined his father in bitter opposition to the bullion Report.
In 1819, when the House of Commons named a committee to study the
resumption of specie payments, young Robert Peel was chosen chairman
over far more experienced members such as Huskisson, Canning, and the
ardent bullionist and member of the bullion committee, the Whig George
Tierney. Yet Robert Peel orchestrated the report favourable to resumption,
and it was Peel who shepherded the resumption law through Parliament. Peel
thereby displayed the beginning of his memorable life-long series of shifts
away from High Tory statism and towards classical liberalism. Towards, in
short, hard money, free trade, and emancipation of the Roman Catholics of
Britain. George Canning was in awe at Peel's achievement in attaining the
gold coin standard, calling this feat 'the greatest wonder he had witnessed in
the political world'. It was particularly piquant that, in effecting this notable
change of heart, the younger Peel had to break with his father, who not only
opposed resumption, but also signed the petition of several hundred 'Merchants,
Bankers, Traders and others' of the City of London, warning of great
distress should the committee's recommendation ever become law.
A crucial question, then, is how Robert Peel came to change his mind.
Professor Rashid has performed the service of unearthing as the likely instrument
of Peel's conversion his former tutor at Oriel College, Oxford, the Rev.
Edward Copleston (1776-1849).21 Copleston was the son of a rector in Devonshire,
and was descended from an ancient landed Devon family. Graduating
from Corpus Christi College, Oxford in 1795, Copleston became a fellow
at Oriel College, getting his MA from there in 1797, and becoming a tutor at
Oriel, and professor of poetry at Oxford. Copleston later became dean at
Oriel, and by 1814 had risen to provost of Oriel College. He was highly
influential at Oxford, and one of the main persons responsible for the raising
of academic standards and the subsequent rise of Oxford to its once high
estate. Although a staunch Tory and an influential clerical counsellor to the
Tory leadership, ~opleston was a moderate liberal in the Anglican church and
an advocate of Catholic emancipation.
As early as 1811, Copleston had become a determined opponent of inflation
and depreciation, especially criticizing its destructive effect on creditors
and holders of fixed incomes. In 1819, he decided to intervene in the new
bullionist struggle by publishing two pamphlets directed to his former pupil.
The first Letter to the Rt. Hon. Robert Peel...On the Pernicious Effects of a
Variable Standard of Value was published on 19 January 1819, and it was quickly recommended on the floor of the House of Commons by the fiery
Whig and proponent of immediate resumption, George Tierney. The pamphlet
was also praised in an editorial in the Times. The first edition of the
Letter was sold out immediately, and within a month, three editions had been
printed. In March, Copleston published a Second Letter... elaborating on the
arguments of the first, particularly on the ill effects that inflation and a
depreciating pound had on the poor. The large printing of the Second Letter
was quickly sold out, and a second edition was issued in May.
Evidence of Copleston's influence on Peel comes from the latter's correspondence
with his favourite tutor at Oxford, his close friend, the Rev.
Charles Lloyd. Lloyd, who was indeed a rival Anglo-Catholic force to
Copleston at Oxford, wrote to Peel recommending Copleston's Letter at the
same time that Peel was recommending it to him. Peel notes that the pamphlet
'has made a great impression' in Parliament, including among its admirers
Canning and Huskisson. In fact, it seems likely from Peel's remarks
that Copleston's clear-cut restatement of bullionist principle was the first
pamphlet he had ever read on the subject.
Matthias Attwood, indeed, went so far as to claim that Peel and Huskisson
were followers of Copleston's ideas. If Copleston was crucially influential,
then his violent attack in the pamphlet on what Peel referred to as the
'imbecility' of Nicholas Vansittart might have played a large role in reducing
Vansittart's influence and getting government policy on resumption changed.
Yet, in the post-resumption debate, even Copleston floundered, claiming in
the Quarterly Review in 1821 that, while he had upheld the principle of
specie payments, he had been opposed to immediate resumption. Complaining
about the agricultural distress, he blamed the immediate resumption on
the influence of Ricardo, ignoring the latter's own phobia about deflation.
Thus the two most influential writers pushing Parliament into resumption,
Ricardo and Edward Copelston, each was uncertain about the gold coin
standard in the face of deflation. Robert Peel's achievement appears, then, all
the more miraculous.
Of particular interest is Copleston's brilliance and possible originality in
his challenge to Ricardo by reviving, perhaps unwittingly, the 'complete
bullionist' or 'pre-Austrian' monetary tradition of Cantillon and Lord King.
Copleston, in the first place, attacked Ricardo's mechanistic assertion that
exchange rates measure the degree of depreciation, this doctrine resting on
the equally mechanistic view that 'a variation in price caused by an altered
value of money is common at once to all commodities'. (Emphasis Ricardo's.)
Copleston countered that it was precisely because prices do not adjust
smoothly, instantly, and uniformly to inflation that the inflation process is so
painful and destructive:
The fact undoubtedly is, that the altered value of money does not affect all prices
at the same time: but that wide intervals occur, during which one class is compelled
to buy dear while they sell cheap, and others have no prospect whatever of
indemnity, or of regaining the relative position they once occupied.
In short, Copleston pointed out the profound truth that in a transition period
to a new monetary equilibrium there are always gains by those whose selling
prices rise faster than their buying prices, and losses by those whose costs
rise faster than selling prices, and who are late in receiving the new money.
But, even further, Copleston points out that some of these changes in relative
income and wealth will be permanent. In short, changes in the money supply
are never neutral to the economy, and their effects are never confined to the
'level' of prices.
Taking issue with David Hume's famous assertion that an increase of the
quantity of money in a country generates prosperity, Copleston pointed to the
impoverishment of the Spanish and English peasantry from the monetary and
price inflation of the sixteenth century. He noted shrewdly, in a lesson that
could well be heeded today, that while 'pure theory inculcates the neutral and
necessary tendency towards an equitable adjustment', it also 'leaves the
intermediate difficulties and delays out of the question, as frictions in a
mechanical problem... ' .
On the other hand, Copleston was perceptive enough to point out that the
path toward equilibrium is faster in monetary than in real matters. In monetary
affairs, he noted,
the level is found almost immediately. Other commodities require some time to
produce them - and the fortunate holder of large quantities may make great profits
before an adequate competition can grow up: but in these [money] the time and
labour required for the production count for nothing. The commodity is always
afloat, waiting only the impulse of profit to determine its direction to the best
market.
