Thomas Tooke

Thomas Tooke reviewing the napoleonic wars, and the supposed impact of Mr. Peel´s bill on the Currency.

In United Kingdom Bank restriction from February 27th 1797 to May 1st 1821 on September 29, 2012 at 11:47 pm

Thomas Tooke wrote a long phamplet to Lord Grenville and made a brilliant case against the common view that Mr Peel´s Bill had an impact in contracting the currency and fall in prices.

Many economists, including Ricardo got fooled in thinking that the bill was responsible for the fall in prices. Thomas Tooke´s position is very different:
He concludes

” That a contraction of the Currency was not a necessary consequence of, not, in point of fact, produced by, Mr. Peel´s Bill, or by any anterior preparation on the part of the Bank, with a view to cash payments: for that, according to the rules by which the Bank regulated the issues, there is every reason to believe that, without any reference whatever to that Bill, or that any anterior preparation, the circulation of the Bank of England notes and coin together, would have been neither more not less than it actually has been.”

“That the assumed contraction of the circulation did not occur in such order of time as to justify the assignment of such contraction as the originating of moving cause of the fall of prices, even supposing that there were no other adequate causes to account for it; but that the fall of prices does not admit of being explained by circumstances affecting the supply relatively to the demand, as regards commodities, independently of any alteration in the amount of the Bank circulation.”

First Thomas Tooke makes clear to everyone that Mr. Peel´s bill was not the restoration of paper currency to its mettalic standard. This was done back in 1816 – 1817.

Settting the Facts straight.

” Now, it does so happen, that the amount of Bank of England notes in circulation, on the 26th of August, 1819, was no less than 25,657,610l. ; and the price of gold had by that time actually fallen to 3l. 13s, or, in other words, to the Mint price, the difference not being worth mentioning. ”

“In that interval, viz., from February, 1819, to August, 1819, not only was there no further repayment by Government to the Bank, but an actual increase of the advances by the latter– ”  On the 26th of February 1819, the advances were P 22,628,900. On the 26th of August, 1819, the advances were P 24,528,900. ”

“Thus the restoration of the value of the paper had taken place without any reduction in the amount of Bank of England notes, and without any further repayment by the Government”.

COMMENT: It is to be noted that the Bank of England would issue notes against the advances it would provide for the government so that the a repayment by the Government, if not compensated would contract the currency in circulation.

Thomas Tooke continues:

” This was not a nominal fall in the price of gold, actual purchases having been made at the quotations. The exchange with Paris had risen rapidly from 23.50, which it had been in February, 1819, to 25.10 in August following. In the interval, not one of the ingots provided by the Bank, and which the holders of bank-notes were entitled to demand at the rate of 4l. 2s. per oz,  was called for a matter of business, although it is said that one or two were applied for a matter of curiosity. ”

COMMENT: Thomas Tooke explains that there was no pressure on foreign exchange which would coincide with pressure for bullion to exit the country. Some market participants wanted to check if the conversion was reestablished for real and ask for the bullion as a matter of test.

Thomas Tooke goes on.

” And as from the state of the exchanges, which had already reached par, and were still rising, there could be no doubt of a further influx of bullion in the actual state of circulation, it was perfectly clear that no reduction of the amount of bank-notes was necessary, at that time at least, to comply with the provisions of Mr. Peel´s Bill. No Part of those, provisions had influenced, in the slightest degree, the operations of the Bank since the passing of the Bill, or even since the appointment of the Committee — no repayments by Government in that interval, — no refusal or limitation of discounts, — no calls upon the Bank for gold at the prices scale fixed by Mr Peel´s Bill. In What conceivable way, then, can it be maintained that Mr. Peel´s Bill operated in obliging the Bank to curtail its issues, with a view to prepare for cash payments? And after the rise of the Paris exchange to an above par, with an influx, consequently, of Gold, what possible motive could the Bank of England have to reduce its issues? None, certainly. But a reduction of bank-notes did take place in the six months following August, 1819, and the average of February, 1820, was somewhat more than one million and a half below that of August, 1819.”

COMMENT: The source of this reduction is the object this fascinating pamphlet and Thomas Tooke is the unsung brilliant Sherlock Holmes about how the banking system and impact on prices really work, everyone today know Ricardo, yet Tooke time and again would debunk the theories and come up with the right predictions on prices. Ricardo is Lestrade and Tooke is Sherlock Holmes.

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