Thomas Tooke

The contraction following August 1819: passivity from the Bank of England

In United Kingdom Bank restriction from February 27th 1797 to May 1st 1821 on October 5, 2012 at 12:31 am

As Thomas Tooke mentioned, while it can not be reasonable to ascribe to Mr. Peel’s bill, there are certain factors to consider.

Here is what Thomas Tooke wrote:

“The average of February, 1820, was somewhat more than one million and a half below that of August, 1819. Whether this reduction of bank-notes was compensated by an equal issue of sovereigns, or whether the issue of sovereigns, to which the Governor of the Bank alluded in his speech at a Court of Proprietors, of 21st March, 1822, did not take place till after February, 1820, is immaterial to my present argument, viz., — that the reduction was not rendered necessary by the provisions of Mr. Peel´s Bill.”

The state of the exchanges in August, 1819, and the influx of gold which they insured, proved that no reduction of circulation was required for the eventual resumption of cash payments. The reduction, therefore, can only be accounted for on one of two suppositions: either that the Directors designedly and forcibly contracted the circulation with a view to prepare for paying in gold; in which case, as for the reasons stated, such contraction was unnecessary, and would involve the charge of mismanagement which Mr. Ricardo made against them* on that specific ground; or the Directors were simply passive in the regulation of their issues, following the routine by which they were guided previously to 1819. The latter was the fact.”

COMMENT: Ricardo once again lost an occasion to shut-up. While many are against the current printing of the Fed, they should consider seriously the impact of the Fed not printing currrently.That being said, the best idea would probably to have prudential regulation on deposits levels, and on loan to values as well as on the curbing total debt to GDP at a certain ratio. The impediment to that are political. In Singapore and Hong-Kong those prudential measures exist, and the paper currencies of those city-states are of utmost quality.  Now given that harm already done by the lack of regulations in the US, I think we would probably have something in the order of the price plunge which was witnessed post 1819 and which was very severe and disruptive.

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