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An Inquiry Into the Currency Principle: The Connection of the Currency with ...
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This work is in the public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work.
As a reproduction of a historical artifact, this work may contain missing or blurred pages, poor pictures, errant marks, etc. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
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First published January 1, 1844
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July 1, 2024
(1844) - Fullarton's Regulation of Currencies is a better book but it is based on Tooke's ideas. I'll read this again one day, I'd put lots of notes in the margins.
The rise of prices in 1835-6 was mainly the consequence of an extraordinary demand, arising from a spirit of speculation which had its origin in America, and to which an infatuated confidence of the houses here in that trade, ministered by unbounded credits. A collapse of credit, as the ultimate result of such a previous inflation of it, is so obviously an inevitable necessity, as to supersede any call for explanation.
But, in truth, both the currency theory, and the money market theory, that is, on the one hand, the theory which connects prices with bank notes, and, on the other hand, the theory which connects them with the rate of interest, are equally in error.
The phenomena of the great fluctuations of prices which they attempt, in the face of all facts and of all correct reasoning, to account for by the supposed in- fluence of bank notes, or of the rate of interest, are those of credit, too easily and extensively given in the first instance, and withdrawn of necessity in the end with more or less violence, according to the previous greater or less undue extension. The alternations of excessive extension of credit under the influence of exaggerated opinion, with the subsequent more or less violent contraction, are, by the convenient ambiguity and laxity of the phraseology which is in use in discussions on this subject, more, perhaps, than on any other, termed expansions and contractions of the currency or of the circulation.
Nothing, indeed, can be more convenient in argument than this ambiguous phraseology as a ground, whether of attack or defence of the management of the Bank of England, or of the country banks, or of the present system of banking generally (with a view to the substitution of some other system), in order to prove, according to the sense in which the term currency is used, that the mismanagement of one or other of these is the cause of all the mischief of which the public thinks itself entitled to complain.
There is one further remark before dismissing the question of the connection of the currency with prices which it occurs to me to make, and that is, that with the same laxity of language as is observable in all discussions on this topic, the term prices is often applied indiscriminately to commodities and to securities. Now it must be quite obvious, that these two descriptions of objects of purchase are acted upon by a low rate of interest in an exactly opposite direction. A low rate of interest is almost synonymous with a high price of securities; while, as I have shown, its necessary tendency is to reduce the prices of commodities by diminishing the cost of production. And in point of fact, the phenomena of the last three years have exhibited a rise in the prices of the public funds, and of shares and of securities generally, and a fall in the markets for commodities.
The rise of prices in 1835-6 was mainly the consequence of an extraordinary demand, arising from a spirit of speculation which had its origin in America, and to which an infatuated confidence of the houses here in that trade, ministered by unbounded credits. A collapse of credit, as the ultimate result of such a previous inflation of it, is so obviously an inevitable necessity, as to supersede any call for explanation.
But, in truth, both the currency theory, and the money market theory, that is, on the one hand, the theory which connects prices with bank notes, and, on the other hand, the theory which connects them with the rate of interest, are equally in error.
The phenomena of the great fluctuations of prices which they attempt, in the face of all facts and of all correct reasoning, to account for by the supposed in- fluence of bank notes, or of the rate of interest, are those of credit, too easily and extensively given in the first instance, and withdrawn of necessity in the end with more or less violence, according to the previous greater or less undue extension. The alternations of excessive extension of credit under the influence of exaggerated opinion, with the subsequent more or less violent contraction, are, by the convenient ambiguity and laxity of the phraseology which is in use in discussions on this subject, more, perhaps, than on any other, termed expansions and contractions of the currency or of the circulation.
Nothing, indeed, can be more convenient in argument than this ambiguous phraseology as a ground, whether of attack or defence of the management of the Bank of England, or of the country banks, or of the present system of banking generally (with a view to the substitution of some other system), in order to prove, according to the sense in which the term currency is used, that the mismanagement of one or other of these is the cause of all the mischief of which the public thinks itself entitled to complain.
There is one further remark before dismissing the question of the connection of the currency with prices which it occurs to me to make, and that is, that with the same laxity of language as is observable in all discussions on this topic, the term prices is often applied indiscriminately to commodities and to securities. Now it must be quite obvious, that these two descriptions of objects of purchase are acted upon by a low rate of interest in an exactly opposite direction. A low rate of interest is almost synonymous with a high price of securities; while, as I have shown, its necessary tendency is to reduce the prices of commodities by diminishing the cost of production. And in point of fact, the phenomena of the last three years have exhibited a rise in the prices of the public funds, and of shares and of securities generally, and a fall in the markets for commodities.
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