THE

MODERN ATHENIANS

THE EDINBURGH REVIEW

IN THE JEFFREY YEARS, 1802-1829

Tag Archives: finance

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).

Political economy

as it was clarified in the mid-18th century by Adam Smith and David Hume, was the systematic study of the structures of wealth, markets, and finance, especially as they informed individual interactions, social arrangements, governmental power, and international relations. For the Edinburgh, the dissemination of knowledge about economics and its political ramifications was one of its crucial missions.

DURING the early years of the 19th century, political economy had theoretical and applied aspects which transformed both legal and economic practices in the century following Adam Smith’s Wealth of Nations (1776). The causes and effects of inflation and national debt; the relationship between the economic aid, in the form of relief to the poor, and population increase (often called the Malthusian controversy); the legal structuring of loans, annuities, taxation, and insurance; and the development of infrastructures of consumer purchasing such as stores and restaurants in crowded cities, and the concomitant rise in elaborate advertisements and theories of desire represent only some of the more salient aspects of economics during the romantic period, which Karl Polanyi identified as the ‘Great Transformation’ when land, money, and labor were reconstituted as commodities. Throughout Jeffrey’s time as editor of the Edinburgh Review, Adam Smith’s The Wealth of Nations remained the touchstone text for Political Economy, but its implications were established not only by the text itself, but by the pamphlets, articles, and books that sought to clarify, modify, and extend it; on any given issue, Smith would be generally adduced by both proponent and opponent as an authority. In an 1820 review on the Evils of Public Ignorance’, the Edinburgh laments the misapplication of ‘laissez faire’ policies: ‘how many people have we heard thus disposing of all nice matters of national polity by crying out, “Adam Smith”’ (ER 34:222).

The Edinburgh understood the dissemination of economic knowledge as among its crucial missions, and further understood the dissemination of knowledge generally as deeply implicated in the production of national wealth and personal well-being. It recognized a dynamic loop between the belief in economic laws and the success of those laws. Thus, by circulating knowledge about economics, the Edinburgh increased the efficacy of its practical effects. Francis Horner, who eventually headed the committee that produced the Bullion Report (1810), realized that ‘knowledge may be considered in the light of a commodity, prepared by a separate profession, and consumed or enjoyed by the community as a luxury’ (Horner 1:96), and, as Jerome Christensen has observed, the Edinburgh ‘commodifies Horner’s epiphany’ and ‘aims to be the medium of exchange’ in the market Horner contemplates (116). Thus, the extension of economic knowledge was implicated in the construction of a market for knowledge itself. In its first issue, the Edinburgh acknowledged the ‘General Diffusion of Knowledge’ as ‘one great cause of the Prosperity of North Britain’ (ER, 1:92) and declared that the knowledge derived from economic disasters such as the South Seas Bubble partially compensated for that disaster.

From the founding of the Edinburgh until Jeffrey’s retirement as editor, more than 180 articles use the phrase ‘political economy’ – four in the first issue, of which three are written by Francis Horner. Horner reviewed Thornton’s book on paper credit in this first issue, John Ramsey McCulloch reviewed Ricardo on Political Economy and Taxation in 1818, and Richard Whately reviewed N.W. Senior’s Introductory Lectures on Political Economy in one of the final issues Jeffrey oversaw. The Edinburgh devoted considerable attention to the behavior of money within markets, and the various ways regulation could manipulate that behavior (see currency and finance). Discussing Senior’s Introductory Lectures, the Edinburgh acknowledges that there ‘are so many crude and mischievous theories afloat, which are dignified with the name of Political Economy, that the science is in no small danger of falling into disrepute’ (ER, 45:170). Under Jeffrey’s guidance, the Edinburgh saw that the way in which political economy was understood was integral to the way in which political economics would function, and that the reliance of markets on bad economic assumptions could have catastrophic results.

The Edinburgh contained two kinds of economic articles. First, there were those that specifically engaged economic theories, and these tended to emphasize monetary policy and the relations of markets, capital, wages, and consumption. Second, there were those articles that explored the specific conditions in which economics figured – considering the effects of a reduction of the duties on wine (July 1824) and coffee (January 1825), for example, and attending to the consequences of foreign trade on English wages. There were reviews of practical matters such as forgery and pauperism, but in these considerations, the reviewers sought to ground their reasoning in both statistical or historical knowledge and a theory of markets that implied a qualified notion of human rationality.

McCulloch, whose first review for the Edinburgh was on Ricardo’s Principle of Political Economy in 1818, became the Review’s primary economic theorist through the 1820s. He published reviews that espoused a hybrid political economy between Ricardo’s insistence on the comparative advantages of individual specialisation and relatively free trade among nations, on the one hand, and, on the other, the earlier position along ‘the lines of Smith’s cost-of-production approach’ (Fontana 76). Thomas Malthus, Jeffrey’s friend and an occasional contributor to the Edinburgh, wrote to a friend in 1821 that the Review ‘has so entirely adopted Mr. Ricardo’s system of Political Economy that it is probably neither you nor I shall be mentioned in it’ (quoted in Fetter 239). Although Malthus was exaggerating and many of the frequent references to him in the 1820s are laudatory, McCulloch was critical of a number of his positions, such as that on the way the accumulation of capital affects buying power and wages (Mar 1824). Although attentive to Malthus’s principle of population, the Edinburgh instituted into economics its theory of genius, noting that no ‘possible limits can be assigned to the powers and resources of genius, nor consequently to the improvement of machinery, and of the skill and industry of the labourer’ (ER 41:13). Thus a notion of intellectual progress, which the Edinburgh took as its own primary social function, was grafted onto Ricardo’s economics, to create a mechanism (or at least its illusion) of inevitable progress.

Mark Schoenfield, Vanderbilt University

 SOURCES

Christensen, Jerome, Romanticism at the End of History (Baltimore: Johns Hopkins University Press, 2000).

Horner, Francis Memoirs and Correspondence of Francis Horner, M. P. 1843. Ed. Leonard Horner. 2 vols, (London: Murray, 1853).

Fetter, FW, “The Authorship of Economic Articles in the Edinburgh Review, 1802-47” Journal of Political Economy, Vol. 61.3:(Jun., 1953) 232-259.

Fontana, Biancamaria. Rethinking the Politics of Commercial Society: The Edinburgh Review, 1802–1832 (New York: Cambridge University Press, 1985).