Christopher Hollis
Two Nations



Chapter IX — Cheques and Notes

The frightful conditions of misery under the rule of Castlereagh, the savage suppression, the largely unsuccessful attempts to stir the poor into revolt by the use of agents provocateurs — all these are generally known and generally condemned.  One can read the story of them in such books as those of the Hammonds.  Their story is the most disgraceful story in the whole of English history.  After Castlereagh’s death things took a turn for the better.  In 1822 to relieve the distress, the Government with realistic statesmanship deliberately unbalanced the budget, borrowing the money required for the pensions fund scheme.  They also passed an Act permitting bank-notes for sums under £5 to continue in circulation until 5th January, 1833, instead of being withdrawn, as had previously been ordered, by 1st May, 1823.  They gave to some 530 country banks the right to issue unlimited £1 notes, convertible on demand into Bank of England notes or gold.

The increased monetary supply could easily be answered by an increase of productivity.  A boom resulted, and on the strength of it Huskisson was able to repeal the Navigation Act and to reform the tariff.  At the same time Peel, the Home Secretary, began the work of revising the barbarous criminal code.  Francis Place and Joseph Hume were also able in 1824 to obtain the repeal of the Combination Acts against Trades Unions.  It is true that, when people understood the power that they had conceded to the Trades Unions, an agitation arose against their own concession and the Act of 1824 was repealed in 1825.  It was however found impossible to withdraw the substance of the concession, and combinations of workmen for the purpose of shortening hours and raising wages remained legal, although an attempt to coerce employers was illegal.

In 1825 there befell exactly the catastrophe that had been foretold by Bishop Berkeley a century before.  The new money, which resulted from the Government’s concession to the country banks, had of course been issued in the form of loans — of investments largely in Central and South American enterprises.  The money was spent in England on the production of capital goods for export to those markets.  It was distributed in wages to the English producers of those goods.  Therefore the amount of purchasing power in English pockets was increased, unemployment was lessened, but the quantity of consumable goods in English markets was not increased.  There being more money to buy the same quantity of goods, prices rose somewhat.  But the primary industries in England were capable of a very great increase of productivity with the increase of effective demand, and with rising wages a further increase of productivity would have been possible.  The increased prosperity was in fact beginning to show its effect in slightly increased wages.

But higher wages meant increased demands for cash on the banks.  The banks had already lent to their full capacity to finance the boom.  The country banks’ note-issue, which from 1821-3 had been just over million, rose in 1824 to £6 million and in 1825 to more than £8 million.  On the other hand the very threat of higher wages in England had caused the owners of gold to withdraw their gold deposits from English banks and to lend them instead in low-wage countries where the dividends were higher.  The banks therefore could only satisfy the demands for increased cash by calling in loans and thus destroying the prosperity.  Messrs. Pole, Thornton and Co., a London central house, agent for 47 provincial banks, were unable to supply the demands for cash of their provincial clients.  On 12th December, 1825, they had to close their doors.  Catching the spirit of panic, depositors with other banks came clamouring for cash; the cash, needless to say, was not there.  Within three weeks 61 country banks and 6 London banks stopped payment.  The prosperity was dead — killed by prosperity.

The Bank of England itself fell into panic.  Its directors begged the Government either to issue exchequer bills to fill up the gap of gold or else to free the Bank from its obligation to pay its debts in gold.  The Government refused to do either the one or the other.  The situation was only saved by the chance discovery of a packet of old notes, dated 1818, which had never been issued.  With these notes the Bank was prepared to meet its obligations and to start lending again, though why the borrower should be expected to put more confidence in notes printed in 1818 than in notes printed in 1825 it might well puzzle the most curious to explain.  The fact that they did so was evidence of the complete fog into which the public mind had by now fallen.  At the same time the Bank increased its metallic reserve by purchasing gold from abroad at more than the mint-price.

Now it had been — and indeed it still is — argued that the beauty of the nineteenth century financial system was that it was quite automatic.  For the moment, it was said, the English happened not to have any goods to offer the French in exchange for their wine.  Therefore they pay in gold.  The English allow the loss of gold, the French the gain of gold, to have its full monetary effect.  So the monetary supply in England is decreased and prices fall, that in France is increased and prices rise.  As a result the English are able to sell more goods in France than the French sell in England, the gold flows back again from France to England and the balance is restored.

But in practice, as was proved in 1825 and has been proved a dozen times since, these changes in price-level cause so violent a dislocation of the nation’s life that the system has to be interfered with to prevent them.  The essence of the system was that gold has a fixed, unvarying price.  Once you start offering varying prices for gold, it is clear that the system has ceased in any sense to be automatic.  It must occur to the critic to say, “We were told that the one virtue of gold was that it had a fixed, unvarying and intrinsic value.  If we cannot always buy it for the same price, what earthly sense is there in buying it at all?” He cannot but ask, as Berkeley had asked [Query 450] a hundred years before, “Whether it be not evident that we may maintain a much greater inward and outward commerce and be five times richer than we are, nay, and our bills abroad be of far greater credit, though we had not one ounce of gold or silver in the whole island?”

It was generally felt — and indeed truly enough — that a system which permitted the privilege of issuing money to some 500 unco-ordinated authorities was a system inviting calamity.  Therefore in 1826 Lord Liverpool’s Government passed two Acts — one making illegal the issue of banknotes for sums less than £5, the second removing the restrictions by which banks, other than the Bank of England, had up till now been forbidden to have more than six partners.

The end of the 1820’s was filled with the controversy of Catholic Emancipation, and with the beginnings of the 1830’s and the fall of the Tories came the Reform Act.  There were both in Parliament and throughout the country a handful of genuine democratic reformers, but it was not they who influenced the Reform Act.  After their victory in the Election the Whigs were strong enough to be indifferent to radical support, and the Act that was passed was in no way democratic.  It only gave votes to some one in twenty-two of the population.  What it did was to register the transfer of political power from the old rich to the new rich.  Even there it rather recognized an altered balance of power than itself altered the balance of power.  As the quotations from Cobbett in previous chapters have illustrated, it was the Napoleonic Wars and their debt which in reality snatched the power out of the hands of the old landed classes.

The story of the passage of the Act was perhaps mainly interesting in the light which it threw upon the true virtue of the double-money system in the eyes of its masters.  Its virtue was not that it gave the country a stable monetary system but, on the contrary, that it put it within the power of a few determined men to plunge the country into chaos whenever they wanted to.  There was after Grey’s first resigiation a question of the Duke of Wellington forming a Tory Government.  The word went out among the reformers, “To stop the Duke, go for gold,” and before the threat of a run on the banks the Tory attempt collapsed and the Whigs returned to power.(97)

It would be foolish, in reaction against the drab philistinism of the middle-class Victorian, to indulge in sentimental regrets over the old landed classes who ruled England from 1688 until the Napoleonic Wars.  They had a long run for their money, and on the whole they used it without scruple.  Yet it was in no sort of way to the advantage of the poor, when power passed out of their hands into that of the masters of the financial system.  Where the old masters had robbed the poor out of unashamed greed, the new masters robbed them on philosophical principle.  As far as savagery of repression goes, the difference between our unreformed and reformed masters was the difference between Peterloo and Tolpuddle — that is to say, nothing at all.  Almost the only member of the unreformed Parliament, who challenged the whole philosophy of the economists and fought wholeheartedly the battle of the poor, was Sadler, a Tory.  In the election after the Reform Act he lost his seat, being beaten at Leeds by Macaulay, the historian.  It is noteworthy that one of the first acts passed by the reformed Parliament was the renewed Bank Charter Act of 1833, by which the Bank of England was exempted from the restrictions of the Usury Law in its discounting of bills.

But the most important act of this Parliament — one of the most important acts in English history — was the Poor Law Amendment Act of 1834.  In time of war it was necessary to provide for those who were producing the nation’s food a standard of living sufficient to keep them in health.  Therefore a system was adopted, known after the magistrates who first adopted it, as the Speenhamland system, according to which, when wages were deficient, they were made up to a subsistence level out of the poor rates.  When the war was over, there was no longer the same pressing necessity to keep the poor alive.  It was considered more important to reduce the poor rate.  Therefore, instead of doling out monetary relief in an easy way, it was determined to grant relief only in absolute necessity and under conditions as harsh as could be devised, and, in particular, wherever possible, to make entrance into a workhouse the condition of reception of relief.

That the Speenhamland system was altogether too casual and needed revision has hardly ever been denied.  And there would have been a certain justice, if a harsh justice, in the new system in a society of widely distributed property, in which a man could only be in poverty if through wanton idleness he had neglected to cultivate his own land.  But the society of the 1830’s was not such a society.  The poor had no property of their own.  They could only earn a livelihood if some master employed them, and the master in his turn could only offer employment if a financier financed him.  It was a regular principle of the system to see to it that there were always fewer jobs than there were candidates for jobs, so that the threat of unemployment might prevent attempts to raise wages above subsistence level.  Under such a system it was not justice to treat unemployment as a misdemeanour.

Again, the system was defended on the tacit assumption that the society was one of scarcity — that there was barely enough food to go round.  In such a society again there would have been a certain justice, if a harsh justice, in decreeing that he who did not work should receive only as little food as possible.  But again, as we have seen, England of the 1830’s was not such a society.  Wages were low not because the country’s productive capacity was small but because the object of statesmanship was to give the country as large a “favourable” balance of trade as possible and therefore, whatever the country’s productive capacity, it was necessary to keep wages as low as possible.

A Poor Law Commission was appointed in 1832 immediately after the passage of the Reform Act to report upon the whole working of the Poor Law.  It complained of many things, but principally that the food given in the workhouses compared unpleasantly favourably with that obtainable by the half-starved agricultural labourers outside.  This contrast was said to be largely responsible for the riots among the labourers which had just taken place and had been suppressed with stern savagery by the Home Secretary, Lord Melbourne.  No relief, therefore, said the Commissioners in the first place, should be given merely on account of poverty but only on account of destitution.  “The system of poor relief was contrary to the principles of political economy, which even prohibited the exercise of private charity,” explained Lord Althorp, the leader of the Government in the House of Commons.  In the second place the lot of the recipient of relief should be made definitely less pleasant than that of the worst paid worker.

The latter maxim was more easily enunciated than applied.  For, according to the calculation of Edwin Chadwick, the Secretary to the Commissioners, the agricultural labourer at that date only received 17 oz. of bread per day and ¼lb. of bacon per week.  He and his family together received, as will be remembered from Cobbett’s calculation, 1/15th part of that which he produced.  And, when the six labourers of Tolpuddle attempted to form an organization whose object was to obtain for themselves and for their starving children 1/14th, or perhaps 1/13th part, they were treated as dangerous revolutionaries and sentenced to seven years’ transportation.  How then could you treat the paupers worse, while at the same time not treating the labourers better ?  That was the nice dilemma with which the Government was faced.  If the pauper was to be given an allowance less than that of the labourer, it would be both less troublesome and less hypocritical to leave him frankly to starve.  However it was thought a solution to give him the same quantity of food but to serve it in some less appetising fashion.  But how ?  And so, for the first time in the history of mankind, the salaried servants of a government were turned to the strange research of discovering ways in which the inadequate food of the poor could be rendered artificially more nauseous.

The poor were in fact reduced to such a condition that it was not difficult for Calhoun, the great American champion of slavery, to produce facts to prove how enormously better was the material lot of the plantation slave to that of the English pauper.  “Compare,” he said,(98) “his condition with the tenants of the poor houses in the more civilized portions of Europe — look at the sick, and the old and infirm slave on the one hand, in the midst of his family and friends, under the kind superintending care of his master and mistress and compare it with the forlorn and wretched condition of paupers in the poor house.”

The purpose of the Commissioners was to reduce the poor rate.  In that they succeeded.  But, succeeding in making the lot of the pauper worse than that of the agricultural labourer, they made it also far worse than that of the criminal, who after Peel’s reform of the criminal code, had on the whole a better time than the greater number of the English poor.  Therefore, as Louisa Twining discovered in her interesting researches into the life of the poor at that date, it became a regular custom among the unemployed to commit crimes in order to go to prison rather than to the workhouse.  The poor rate gained, but whether the taxpayer gained on balance was more doubtful.  It is likely that, what he gained on the poor rate, he lost on the police rate.

On the other hand it is certain that the possession in the workhouses of pauper children was a convenience to the masters of the system, as they were able to use these children as a sort of army to introduce into any industry where organized labour seemed likely to win for itself some rise above the subsistence wage-level, as, for instance, into the cotton industry in Lancashire.  If employees became too particular, they could always be brought to reason by the threat that then their jobs would be given to pauper orphans, brought by the load from some distant workhouse and made to work without wages on the excuse that they were undergoing an apprenticeship.  With the assistance of this army the masters were able to prevent throughout the 1830’s that rise in wages which had looked dangerously probable after the repeal of the Combination Acts in 1824 and to see to it that the poor received no benefit whatsoever from the Reform Acts which they had so enthusiastically supported.

By its provision for the segregation of the sexes within the workhouse the poor law marked the first overt legislative attack on the most fundamental of all human institutions — the family — the beginning of the great campaign to dehumanize the poor.

In the 1830’s there was the usual boom, in which the poor were employed in producing capital goods for export, followed in 1839 by the breaking of country banks and the usual slump.  It was felt — and again truly — that there was not sufficient public control over the private issue of money.  Therefore by the Bank Charter Act of 1844 the issue of notes was strictly regulated.  The Bank of England was only allowed to issue notes to the value of its cash holdings plus a fiduciary issue of £14 million.  Other banks, which had notes in circulation on 6th May, 1844, were permitted to continue to issue up to the average amount of their notes in circulation throughout the twelve weeks prior to 27th April, 1844.  No new bank however could acquire the right to issue notes, and, in the event of the note-issue of any bank lapsing, the Bank of England might fill the gap by adding to its fiduciary issue further notes to the value of two-thirds of those that had been previously issued by the lapsed bank.  Thus it was hoped, in the course of time, to concentrate the entire business of note-issuing in the hands of the Bank of England, as has indeed happened.

But, though a bad system of issuing money is a calamity, yet the public must have money, and, if it cannot get it in a good way, it will get it in a bad.  Berkeley had seen this.  “Whether it be not a mighty privilege for a private person to be able to create a hundred pounds with a dash of his pen?” he had asked. [Query 490.]  But he had also asked, “Whether without private banks what little business and industry there is would not stagnate ?”  The folly of the Bank Charter Act of 1844 was that it was purely negative.  It restricted the power of private banks to issue money in the form of notes; it made no provision of any other way of issuing it.  Therefore the banks got round the Act by issuing cheque-money instead of note-money.  Where previously they had printed a note and lent it out as money to their client, now instead they made a book-entry, gave him a cheque-book and authority to write cheques to those with whom he did business up to the amount of the book-entry.

Thus at the time of the passage of the Act of 1844 the private bank-note circulation was £11 million, their deposits £50 million.  By 1846 the note-circulation had been reduced by £2¼ million to £7,750,000, but the deposits had risen by £5 million to £55 million.  By 1928, when the private bank-note was finally extinguished, bank-deposits had risen to £2,231,000,000.  The public quickly developed the habit of doing its business by cheque.  It had no alternative.  The only alternative was not to do business at all.  The Bank Charter Act of 1844, so far from checking the issue of money by private bankers, entrenched their privilege more firmly as an integral part of the country’s life.


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97. Memoirs of Francis Place, Graham Wallas.

98. Rise of American Civilization, Beard, i, 704.