Currency and Finance

the consideration of currency – money and other representations of value that did not themselves establish that value – constituted one of the most perplexing and convoluted aspects of romantic-era finance, and one which preoccupied the Edinburgh under Jeffrey’s editorship.

MONEY exists, broadly, in two particular formations, commodity money in which the value of the money derives from the material – usually a metal – from which it is made, and fiat money, whose value is determined by the support of the government. In practice, economies contain complex blends of these forms, along with an intermediate form of paper money that is exchangeable, at least in principle, for a specific commodity, such as a quantity of gold.  Money is in general issued by governments, but various mediums of exchange that serve similar purposes can be produced by banks and other financial institutions. The organization of money, its rates of circulation, and structures of loaning that convert money into a commodity in itself, all contribute to the financial industry as it develops from the founding of the Bank of England in 1694. As international trade increases, the exchange of values between nations using distinct currencies required both legal regulation and increased public comprehension of prices. The regulation of money, such as fixing wages to the price of bread in the Speenhamland Acts of 1795, simultaneously shaped and regulated markets.  Because of mounting governmental debts and decreasing stores of gold, in the midst of a run on the banking system, the government in 1797 enacted a Banking Restriction that suspended the government’s obligation to exchange paper money for gold. The result was a transformation of the monetary system – and the rhetoric of it – into one in which financial stability was located in the solidity of the merchant class and the government. For the founders of the Edinburgh, especially Jeffrey and Horner, the Bank Restriction Act served to demonstrate the effectiveness of public discourse in regulating economic activity. Yet the effects, both local and international, both immediate and long-term, were subject to intricate debates, and from 1797 to 1821, when the Restriction was lifted, the ‘Bullionist’ controversy raged throughout the pamphlet and periodical presses on the effects of the Restriction Act and a variety of other measures that shaped monetary policies. Bullionists believed that the convertability of paper money into gold was a necessary check on inflation, and that the increasing circulation of paper money would drive gold out of England – and worse, into France, where it could be reshaped into military might. This complexity meant that the Napoleonic wars had distinct economic components, with opponents seeking to destabilize the currencies of their enemies.

The Edinburgh repeatedly returned to discussions of currency and its effect on trade, financial institutions, and government; more than 600 articles from 1803-1830 mention ‘money’ (about the same rate as the Quarterly, but notably less frequently than many periodicals, including, in the 1820s, Blackwood’s Edinburgh Magazine). In its first issue, it offered a distinctly positive and measured review (written by Horner) of Henry Thornton’s Paper Credit, a cautious endorsement of the Restriction Act. Eventually, Horner and Thornton would team up as principal authors of the Bullion Report of 1810-1.

In 1808, responding to Thomas Smith’s ‘Essay on the Theory of Money and Exchange’ and the vagueness with which both Smith and his predecessors have defined money mistakenly as a ‘measure of value’, and insisting this failure leads their analyses astray, the Edinburgh declared that to call money a ‘measure’, is to use that metaphorically; where a ‘pint’ is a ‘measure of water’, it is only metaphorically that ‘a shilling measures a quarter loaf’. This metaphor conceals a most crucial quality of money, namely that – unlike standards of measures such as the pint and the yard – ‘it is itself perpetually subject to variations’ (ER 13:4, 39). After demonstrating the absurdity of considering money as an ‘abstract idea’ (43), the Edinburgh demonstrates, with an amusing narrative, that the inconvenience of barter exchange occurs because of the specificity of commodities: a man with a sheep desires a hatchet, but a sheep is worth 6 hatchets, and he cannot give only a sixth of the sheep, and in any case, the man selling the hatchet ‘does not want to purchase a sheep, but a cloak’. The Edinburgh rehearses a historical imagining by which precious metals are simply a common object of barter and, by social practice, are shaped into recognizable forms – coins – in which the stamp indicates an established quantity of the metal. The conclusion drawn is that ‘coins are mere commodities, subject to the laws which regulate the purchase and sale of all other commodities’ (49).

Yet this understanding of money became complicated as money entered the discourse of contracts, where money was both ‘the standard, by a comparison with which the relative values of commodities is ascertained’ and ‘also the equivalent, by the delivery of a fixed amount of which, the stipulations, in almost all contracts and agreements, may be discharged’. Considering three books that concerned the ‘Pernicious Effects of Degrading the Standard of Money’, the Edinburgh, declaring that making ‘any direct alteration in the terms of a contract’ by the government would be a ‘tyrannical interference with the rights of property that could not be tolerated’, decried a substitute strategy of ‘altering the standard’ and consequently and simultaneously altering the purchase power – the actual determinate by which one agrees to a price – that is ultimately delivered. Demonstrating a strategy of devaluing currency in order to reduce national and royal debt, the Edinburgh notes that the result – the fact that the government and monarchy now must also use the degraded money for purchasing – means that no long-term gain is achieved by resolving debt in this fashion (ER 35:2, 474) and the government’s ability to borrow is curtailed. Thus, the prolonged restriction on paper money meant that the quantity in circulation, held steady by the discipline of the government and the watchful accounting of the public press for the first decade of the Back Restriction Act, gave way to a dramatic rise in the amount of paper money and a corresponding depreciation of its value, thus effectively transforming contracts in favor of debtors as against creditors (478).

The Edinburgh, however, goes on to argue that the return to a gold standard is similarly damaging, although in the opposite direction, forcing debtors to pay a higher value than their loan stipulated. In 1826, the Edinburgh continued to warn against that ‘sudden change in the quantity, and, consequently, in the value of money’ (ER 44:1, 71). A vital component of its promulgation of political economy, the Edinburgh under Jeffrey continued to chart the increasing rise in international money markets as well as to insist on an empirical basis for its understanding of the importance of the rate of monetary circulation as an indicator of economic health.

Mark Schoenfield, Vanderbilt University

Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our Time. 1944. (New York: Beacon Press, 1957).

Laidler, David, ‘The Bullionist Controversy’, in Money, Eds, John Eatwell, Murrey Milgate and Peter Newman. (New York: Macmillan Press, 1989).

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