Richard Cobden

The Politics of “Free” Trade Agreements

[Editor's note: this article, by Carmen Elena Dorobat, first appeared at Mises.org]

Amidst news of the prolonged worldwide recession, new air strikes, secession attempts, and climate change, international trade — which in 2008 went through its largest crisis in history — has been mostly out of the public eye. Yet we’ve been told not to fear: the World Trade Organization, the foremost global body for promoting multilateral trade, remains watchful, and is optimistic that efforts for liberalization will bear fruit in the near future.

Sadly, the WTO’s hopes aren’t justified: the Doha Round of trade negotiations began in 2001, and even after thirteen years, success is nowhere in sight.

Seeking to address the liberalization concerns of WTO’s less-developed members, the Doha Development Round was supposed to culminate in 2005 with a new trade agreement. The envisioned deal concerned the reduction of trade barriers in commodities and services, as well as a new international framework for intellectual property rights. But soon after negotiations began, governments from developing countries — India, Brazil, China, and South Africa — and NGOs (non-governmental organization) began to worry that international negotiations were an obstacle to the governmental protection of developing sectors and regulation of financial services. After the failure of the Cancún proceedings in 2004, trade scholars worried that Doha might not be completed by its original deadline, but kept the hope that negotiations would continue. However, trade talks came to a deadlock in 2006, 2009, and 2011, mainly due to differences in agricultural policies. The US and the EU even backed out of previous agreements to reduce export support and agricultural subsidies, arguing that they did not want to weaken their bargaining positions too early in the Round.

Attempts to reconcile disagreements among countries since then have been largely in vain. But in December 2013, new tailwinds seemed to push the Doha Round to more favorable shores. The Bali Ministerial Conference, which concluded with the signing of a package deal on trade customs collection and a post-Bali development agenda, was touted to have “achieved what many believed was impossible”: bringing together the 160 WTO members for the first time in twelve years. But even though the Bali package does not have much to do with free trade — it facilitates the collection, but not the reduction, of custom duties — the agreement still wasn’t signed by all members in July 2014. This time, India vetoed the ratification to gain more bargaining power for Prime Minister Modi’s program of domestic food subsidies. Reuters reported that “trade diplomats in Geneva have said they are ‘flabbergasted,’ ‘astonished,’ and ‘dismayed,’ and described India’s position as ‘hostage-taking’ and ‘suicidal’.”

Perhaps commentators would have been less surprised if they had identified the negotiation deadlock as only the symptom of a more pervasive underlying cause: the national — read: political — interest of all countries at the negotiations table. The bread and butter of WTO member states is the extent to which they can encroach upon private enterprise, and control both product and financial markets. Under these circumstances, committing to open one’s borders to international trade is simply idle talk. Free exchange and competition would undermine the leverage of domestic interest groups, and cut through the structure of government intervention.

As Ludwig von Mises wrote to Friedrich Hoenig, one of his correspondents, in 1951:

U.S. representatives occasionally indulge in talk of free trade. This is pure illusion. American agricultural policies — parity prices, subsidies, limitation of crop surfaces … would collapse overnight if foreign imports were freely allowed into the country. Can you imagine a present-day England or present-day France with a regime of free trade? The more a country proceeds toward comprehensive control of all business activities, the more it must close itself to foreign countries.

Anyone reading modern day trade agreements would not be surprised to discover that they focus less and less on reducing import duties, and more on developing national industries, promoting exports, and ensuring domestic policy space. Their true purpose, a position of middle-of-the-road protectionism, is concealed under vague terms such as ‘freer, fair trade’, ‘gradual liberalization,’ ‘reciprocal concessions,’ or ‘development packages.’ However, the benefits of international trade do not lie in moderation and degree of reciprocity. True free trade is a policy of no trade barriers, to be pursued unilaterally by each and every country. If markets were released from the heavy hand of governments, international free trade would follow at one stroke.

The inherent incompatibility between free trade and increasing domestic government control will thus continue to hinder the dreams of WTO supporters, and the more distant ideal of free trade. Sadly, the golden days of Richard Cobden — who together with Michel Chevalier managed to sway the British Parliament and the French Emperor away from spending money on armaments and toward a free trade agreement — are long lost. All that is needed for flourishing international trade is a sound monetary system and the freedom of private enterprise. However, in a world where states have open-ended budgets for military campaigns and total control over the money supply, the bureaucratic structure in Geneva will only serve political interests.

Economics

World War One and the End of the Bourgeois Century

[Editor's Note: this first appeared on mises.org]

Last week marked the 100 Anniversary of the beginning of World War I. That war, which produced over 37 million casualties, not counting the related famines and epidemics that came in the war’s wake, also destroyed the political systems of numerous countries, setting the stage for fascism and communism in Europe. In the United States, and of course also throughout Europe, the war led to paranoia and political repression rarely seen during the previous century, and in the United States, the Wilson administration’s “anti-sedition” efforts led to a large-scale destruction of basic American liberties unmatched even by the Alien and Sedition acts of the eighteenth century.

For Americans especially, the war and the more than 100,000 American war dead gained nothing more than a post-war depression. While some Europeans could at least claim to be fighting against physical invasion, the Americans fought for nothing except to defend some authoritarian regimes from some other authoritarian regimes. The idea that the war had something to do with “democracy” was obviously untrue even at the time, and in retrospect, the claim is all the more ridiculous given the rise of totalitarianism, which was fostered by the Treaty of Versailles.

The deadly effects of the war, the repressive measures enacted by supposedly enlightened regimes, and how the war paved the way for its even bloodier sequel twenty-five years later, have been covered by a number of excellent historians and economists, including Ralph RaicoRobert Higgs, Hunt Tooley, and Murray Rothbard. The war led to revolutions in ideology, public administration, government, and war itself. Few of these changes improved the lives of ordinary people, and most of these changes led to the commodification and cheapening of human life and human freedom.

The revolutionary nature of the war is little disputed today, but rather than focus on the war itself or its aftermath, it may also be helpful to consider what the war relegated to the dustbin of history.

The Economics of the Bourgeois Century

What some historians now call “the bourgeois century” was the ninety-nine years between the Napoleonic Wars and the beginning of the First World War. From 1815 to 1914, there was no major war in Europe and the standard of living increased far beyond anything ever witnessed before as industrialization, mechanization, and the resulting increases in worker productivity spread throughout the continent.

During the middle of the century, free trade became more widespread than ever, with labor and capital enjoying never-before-seen freedom to move across national borders. Throughout much of central and western Europe, no passport was necessary to move between nation states. Indeed, passports and border checkpoints became associated with despotic and backward countries like Russia.

It was during this period that we saw the rise of the Cobdenites (also known as the Manchester liberals) in Britain who, beginning with the Anti-Corn Law League, slowly rolled back the mercantilist rule of the landed nobility who opposed free trade. The rise of the middle classes both economically and politically were buttressed by mass movements of classical liberalism Europe-wide that demanded greater economic freedoms for themselves and fewer tax-funded privileges for the ruling classes.

As free trade spread, and lessened the advantages of controlling foreign colonies, imperialism receded as well, and an international peace movement arose with John Cobden, dubbed “the international man” as one of its celebrities.

At the same time, many luxuries became available to the middle classes, and this was a time when much of what we now take for granted was quite novel. It was during this time that something that might be recognized as “the weekend” became known. For most people it was still just a one-day affair (Sunday), but it was the first time in human history that average people had the ability to not only stop work for a few hours, but to actually spend some money on recreation such as a short trip to the seaside, or shopping, organized sports, or a trip to a museum, play, or other cultural event.

The new economic realities led to major changes in families as well. For the first time, a large number of parents could afford to formally educate their children in schools or with books. More leisure and income also meant that parents could give children individual attention, play games in the home, read books as a family and more. Fewer and fewer children needed to work to help the family maintain a subsistence living. With the economic liberation of children also came much better conditions for women who became far better educated, and became valued for their ability to manage complex tasks such as the education of children, household hygiene (no small matter in a nineteenth century city) twice-a-day food shopping and more. Moreover, men and women began to engage in the odd practice of marrying for reasons of “sentiment and physical attraction” as marrying for financial reasons became less a matter of life and death. Just as leisure on Sundays allowed for more public recreation, leisure time within the family allowed for more “private” recreation as well, which was complimented by marriage manuals, such as those found in France, that reminded men to tend to women’s sexual needs.

The Rise of Imperialism and the Road to World War I

Naturally, sex, family, and an afternoon at the beach struck many conservative politicians and “deep thinkers” as frivolous wastes of time. Family time and leisure was wasted on mere ordinary people when far more “honorable” pursuits such as nation-building, colonial adventurism, and the art of war were being neglected.

Certainly Otto von Bismarck, a great enemy of the liberals, was expressing contempt for such domestic pursuits when he declared his disdain for the Manchester liberals as “Manchester moneybags” who were concerned not with the glory of the nation-state, but with making money.

By the late nineteenth century, bourgeois liberalism was in decline. Assaulted on one side by the Marxists and other socialists, and on the other side by conservatives, nationalists, and imperialists, the great powers of Europe began to sink back into mercantilism, nationalism, and imperialism. The Scramble for Africa was representative of the new imperialism as the European great powers looked ever more aggressively for new colonies. Meanwhile, the British tightened their grip on India while inventing the concentration camp in its efforts to starve the Boers into submission.

In the late nineteenth century, Bismarck was hard at work inventing the welfare state and hammering together Germany into one unified nation-state. By the turn of the century, one of the few remaining liberals, Vilfredo Pareto in Italy, was able to declare that socialism had finally triumphed in Europe.

In the decade before the First World War, The generation of European liberals such as Gustav de Molinari, Cobden, John Bright, Herbert Spencer, Eugen Richter, and others were dead or near death. There were few young, new liberal scholars to replace them.

At the same time, trade barriers abound throughout Europe as the great powers turned to the economics of imperialism characterized by mercantilism, tariffs, border controls, regulation, and militarism.

Conclusion

Europe during the bourgeois century was certainly no utopia. The new cities were filled with disease, pollution, and crime. Medical science had yet to achieve what it would in the twentieth century, and of course, standards of living remained low when compared to today. But even if we consider these problems, which plague many societies even today, the enormous gains made for ordinary people, thanks to industrialization and the rise of free trade, were fostered all the more by the rise of classical liberalism which actively sought to avoid war, political repression, and economic intervention as the means to a more prosperous society.

Indeed, historian Daniel Yergin would come to refer to this period as the time of “the first era of globalization” and to note that “the world economy experienced an era of peace and growth that, in the aftermath of the carnage of World War I, came to be remembered as a golden age.”

Liberalism was already deeply in decline by 1914, but the First World War was perhaps the final nail in the coffin. Following the war, depression followed, and for Europe, this was followed by hyperinflation in many places, political instability, a declining standard of living — and finally — fascism, communism, and war. In the United States, which managed to avoid most of the destruction of the war, prosperity was achieved during the 1920s, only to be lost and followed by fifteen years of depression and war.

One hundred years after the beginning of the end for bourgeois Europe, we are fortunate to be looking on a new classical liberalism, now known as libertarianism, which is not in decline, but instead is making great strides globally in the face of a still-ascendant ideology of interventionism, mercantilism, and war. We can hope that a third world war will not bring it all crashing down.

Economics

Matt Ridley on the values of Richard Cobden

Matt Ridley, in The Times [paywall restricted], considers the political relevance of the values of 19th century Liberals, including Richard Cobden.

Surely wanting government to stay out of the economy should go with wanting government to stay out of society too. They went together in the 19th century, after all. Radical liberals who campaigned against war, colonialism, slavery, politicial patronage and the established church were usually furiously free-market libertarians on economics: people such as Richard Cobden, Harriet Martineau, Herbert Spencer or WE Gladstone.

Cobden, said one of his biographers, “believed in individual liberty and enterprise, in free markets, freedom of opinion and freedom of trade.” But he also was an implacable pacifist and refused a barontcy from a monarch he disapproved of. Nobody would have dreamed of calling him a rightwinger.

Mr Ridley also suggests that these values would be useful for politicians to build a coalition around: people who want the government out of “the boardroom and the bedroom.” That is not a cause that the Cobden Centre has any business getting involved in. But it is nice to see someone noticing the relevance of Cobden’s ideas.

Economics

On the subject of free trade and world peace

Richard Cobden was renowned for his role in the Anti-Corn Law League, campaigning against import tariffs. He was also a champion of the idea that peace would be strengthened by more individual business contacts across national borders.

I think it’s fair to say that Cobden would support the European Commission’s plan to scrap trade barriers between the European Union and the Ukraine announced last week. The Ukraine is not threatening war against any European Union countries and such boost to trade as will happen between now and September would tend to help peace and democracy in the region.

But surely it would be counter-productive to re-introduce barriers to trade with the Ukraine when the six months are up? And couldn’t similar arrangements be offered to Russia if its government decided to stop its own mercantile approach?

Peace

Richard Cobden: activist for peace

On June 3, 1804, Richard Cobden was born. Nicknamed the “Apostle of Free Trade,” he spearheaded the campaign against the protectionist Corn Laws, leading to their repeal in 1846, which then spread to the liberalization of trade throughout much of Europe. His role was so great that it has been said the free market owes its existence to him.

Cobden saw that free trade was the key to material prosperity, as evidenced by England’s  economic growth and rise to world leadership in virtually all aspects of trade—finance, insurance, shipping, etc.—after the Corn Law repeal. But more than prosperity, Cobden emphasized the injustice of protectionism, by which one group used government power to harm all other groups, which, in contrast, showed the moral superiority of free trade.

Further, Cobden saw free trade as the basis of peace, rather than government controlled trade, which often led to war, and to the moral and economic harm of people. And, indeed, the period of liberalized trade coincided with one of the most peaceful periods in history.

Author Jim Powell describes the reasons for free trade leading to peace in that era:

Peace prevailed, in large part, because nonintervention became the hallmark of foreign policy. Nations seldom tried to bully one another, and economic policy was a major reason why. There was unprecedented freedom of movement for people, goods, and capital. By reducing intervention in economic affairs, governments reduced the risk that economic disputes would escalate into political disputes. There wasn’t much economic incentive for military conquest, because people on one side of a border could tap resources about as easily as people on the other side of a border. Trade expanded, strengthening the stake that nations had in the continued prosperity of one another as customers and suppliers. While free trade was never a guarantee of peace, it reduced the danger of war more than any public policy ever had.

In an era of occasional trade liberalization, seasoned with a great deal of protectionism for politically powerful groups, we can benefit from Richard Cobden’s insights today as much as was true a century and a half ago.

Consider some of what he said:

  • The progress of freedom depends more upon the maintenance of peace, the spread of trade, and the diffusion of education, than upon the labors of cabinets and foreign offices.
  • Look not to the politicians; look to yourselves.
  • You who shall liberate the land will do more for your country than we have done in the liberation of its trade.
  • England, by calmly directing her undivided energies to the purifying of her own internal institutions, to the emancipation of her commerce…would, by thus serving as it were for the beacon for other nations, aid more effectually the cause of political progression all over the continent, than she could possibly do by plunging herself into the strife of European wars…
  • The foreign customers who visit our markets are not brought hither through fears of the power of influence of British diplomats…It is solely from the promptings of self-interest…
  • The people of the two nations [France and England] must be brought into mutual dependence by the supply of each others’ wants. There is no other way of counteracting the antagonism of language and race. It is God’s own method of producing an entente cordiale, and no other plan is worth a farthing.
  • …protection…takes from one man’s pocket, and allows him to compensate himself by taking an equivalent from another man’s pocket, and if that goes on in a circle through the whole community, it is only a clumsy process of robbing all to enrich none, and simply has this effect, that it ties up the hands of industry in all directions.
  • Holding one of the principles of eternal justice to be the inalienable right of every man freely to exchange the result of his labor for the productions of other people, and maintaining the practice of protecting one part of the community at the expense of all other classes to be unsound and unjustifiable, your petitioners earnestly implore…carry out to the fullest extent…the true and peaceful principles of Free Trade, by removing all existing obstacles to the unrestricted employment of industry and capital.
  • It is labor improvements and discoveries that confer the greatest strength upon a people. By these alone and not by the sword of the conqueror, can nations in modern and all future times hope to rise to power and grandeur.
  • Warriors and despots are generally bad economists and they instinctively carry their ideas of force and violence into the civil politics of their governments. Free trade is a principle which recognizes the paramount importance of individual action.
  • Peace will come to earth when the people have more to do with each other and governments less.
  • The great rule of conduct for us in regard to foreign nations is—in extending our commercial relations—to have with them as little political connection as possible.
  • I yield to no one in sympathy for those who are struggling for freedom in any part of the world; but I will never sanction an interference which shall go to establish this or that nationality by force of arms, because that invades a principle which I wish to carry out in the other direction—the prevention of all foreign interference with nationalities for the sake of putting them down…
  • It appears to me, that a moral and even a religious spirit may be infused into that topic [free trade], and if agitated in the same manner that the question of slavery has been, it will be irresistible.
  • …throughout the long agitation for Free Trade, the most earnest men co-operated with us were those who constantly advocated Free Trade, not merely on account of the material which it would bring to the community, but for the far loftier motive of securing permanent peace between nations.
  • I have been accused of looking too much to material interests…I believe that the physical gain will be the smallest gain to humanity from the success of this principle. I look farther; I see in the Free-Trade principle that which shall act on the moral world as the principle of gravitation in the universe, drawing men together, thrusting aside the antagonism of race, and creed, and language, and uniting us in the bonds of eternal peace…I believe that the effect will be to change the face of the world, so as to introduce a system of government entirely distinct from that which now prevails. I believe that the desire and the motive for large and mighty empires; for gigantic armies and great navies…will die away; I believe that such things will cease to be necessary, or to be used when man becomes one family, and freely exchanges the fruits of one’s labor with his brother man. I believe that…the speculative philosopher of a thousand years hence will date the greatest revolution that ever happened in the world’s history from the triumph of the principle which we have met here to advocate.
  • I would not step across the street just now to increase our trade for the mere sake of commercial gain…But to improve moral and political relations of France and England, by bringing them into greater intercourse and greater dependence, I would walk barefoot from Calais to Paris.
  • …our principle, which if carried out, the Free-Traders believe would bring peace and harmony among the nations.
  • …whilst we are in a state of profound peace, it is for you, the taxpayers, to decide whether you will run the risk of war, and keep your money in your pockets, or allow an additional number of men in red coats to live in idleness under the pretense of protecting you.

Richard Cobden knew that at the center of free trade was freedom; freedom that required sharply limiting government, and which produced justice by preventing government sponsored theft by one group from others.

He knew that free trade broke down the powers of privilege and barriers against people’s progress, and replaced them with a system of mutually beneficial relations among all those who participated. In a world still far from that ideal, we should remember that wisdom from the “Apostle of Free Trade.”

This article was previously published at Mises.org.

Economics

Richard Cobden’s achievements

“We are on the eve of great changes” Richard Cobden told Parliament in February 1846. He was correct. Britain stood poised to embark on a period of growth unparalleled in its history, which would, in a few short years, bring it wealth and power not seen since ancient Rome. A major reason for this was Britain’s path breaking adoption of free trade, and the man behind that as much as any other was Richard Cobden.

By the late 1830s it was apparent that the Whig government led by Earl Grey and then Viscount Melbourne had exhausted itself in the passage of the Reform Act of 1832. This had given the vote to propertied males, enfranchising many of those made rich by the Industrial Revolution. The Radical faction within the Whig Party sought a new cause with which to restore the momentum which had carried the 1832 Act and settled on repeal of the Corn Laws.

The Corn Laws was a catch all name for the thicket of tariffs which had been erected to keep foreign wheat out of Britain. Justified on the deathless grounds of ‘food security’, these laws also had the handy effect of benefiting the landowning classes, many of whom sat in the Commons and Lords as Tories.

The Corn Laws, as with any tariff, had the effect of making the product in question and associated goods more expensive. The burden of this was borne disproportionately by the members of the emerging working class in burgeoning industrial centres such as Manchester and Leeds who spent a large percentage of their incomes on food. By extension, they raised labour costs. And blocking foreign producers from selling in Britain prevented them from earning the money to buy the output of the new industries.

Out of this shared interest between workers and bosses (and other factions such as dissenting churchmen) came the Anti-Corn Law League, established in Manchester in 1838. One of its founders and leading lights was Richard Cobden.

Cobden was born the son of a poor Sussex farmer in 1804 and started his own textile printing business in 1828. It quickly became a success and in 1832 Cobden moved to Manchester, the centre of the booming British textile industry.

Immersed in the city’s Radical politics Cobden quickly became active. He was instrumental in the shift from broad based reform agitation to a single issue focus which had led to the creation of the League, noting that “the English people cannot be made to take up more than one question at a time with enthusiasm”. Throughout the campaign Cobden would hold to the principle of single minded focus on full and immediate repeal of the Corn Laws.

He became a prolific writer, and in his work he revealed the broader purpose behind the activities of the League. In Cobden’s mind free trade and peace were linked, he wrote in 1842 that “Free Trade by perfecting the intercourse and securing the dependence of countries one upon another must inevitably snatch the power from the governments to plunge their people into wars”.

With the Corn Laws Cobden and the League faced a problem of concentrated interest. While the benefits of repeal were spread across society, the costs were concentrated. Each person in Britain might benefit by a few pounds a year from repeal (though that was no small sum to impoverished workers) but those relatively few people who would be adversely affected by repeal stood to lose far more. The landowners were incentivised to act more strenuously in fighting against repeal than individual consumers were in fighting for it.

Partly because of this the League was frustrated during its first two years. Copying the tactics of the campaign for the 1832 Reform Act and the contemporary Chartists, the League attempted a strategy of mass agitation with open meetings and lectures. These suffered from frequent attacks by Chartists who resented any reforming competition, after one meeting Cobden wrote: “The Chartist leaders attacked us on the platform at the head of their deluded followers. We were nearly the victims of physical force; I lost my hat, and all but had my head split open with the leg of a stool”. The failure of this strategy left the League short of money. Attempts to petition Parliament were heavily defeated and the League members were frequently tempted away into movements for wider reform.

In 1841 Cobden convinced the League to change strategy. He wrote to a fellow member “You will perhaps smile at my venturing thus summarily to set aside all your present formidable demonstrations as useless; but I found my conviction on the present construction of the House of Commons, which forbids us hoping for success. That House must be changed before we can get justice

From now on the League would seek to make Parliament its battleground, starting with a by election in Walsall in February 1841. The Tories allied with their Chartist arch enemies in an effort to defeat the League which still came a close second. Cobden’s strategy had been a success, the Morning Chronicle noting that “one consequence of the contest at Walsall is that the Corn Laws are, and must henceforth be, throughout England, a hustings question”. With a general election approaching the Whig leaders adopted a stronger free trade stance.

The election of summer 1841 saw the Whigs defeated by Robert Peel’s Conservatives, heirs to the Tories, and seemingly dashed hopes of Corn Law repeal for the foreseeable future. But the situation was brighter than it might have appeared. The election saw a number of League members returned to Parliament including Cobden, now widely recognised as the League’s leader, who was elected MP for Stockport. Also, by the end of the year, ‘operative’ associations attached to the League, mostly consisting of working class supporters, had organised to protect League meetings from the violence of the Chartists. But perhaps more importantly, in Peel, Britain now had as Prime Minister one of the most remarkable statesmen in her history.

With Britain in economic depression Peel deliberated before finally announcing his budget in February 1842. Despite his Tory lineage, Peel recognised that the Conservatives must learn to accommodate themselves to changing circumstances if the wilder, revolutionary wing of the Chartists was to be held at bay. Given the revolutions across Europe in 1848, this was no minor threat. Peel’s Tamworth Manifesto of 1834, as close to a foundational act as the modern Conservative Party has, had been an act of reconciliation with the passage of the 1832 Reform Act.

Peel’s fiscal proposals were in this tradition, proposing a drastic tariff reduction with revenues to be made up by a new income tax. The moves were warmly welcomed by liberals and, while it represented a significant vindication of the League’s arguments, it also brought danger. As Cobden predicted “The greatest evil that could befall us would be a bona fide concession – The middle classes are a compromising set”.

After some debate about strategy (during which Cobden squashed a move to declare a general strike by factory owners) the League stepped up its propaganda. Millions of leaflets, posters, handbills, and newspapers were distributed with the aim of reaching every voter in Britain, though that was only about 600,000 people at the time.

But despite all this activity the League found it needed an event, a shift in circumstances beyond its control, to provide proof of its arguments and swing opinion behind them. That came in 1845 when the potato crop failed. Particularly in Ireland, where much of the population depended on potatoes, this caused great suffering, culminating in a famine which killed an estimated one million people.

Cheap food was needed and quickly. Faced with this unfolding catastrophe, supporters of the Corn Laws were helpless. A further vital, final, factor was Peel’s reaction. Acting on humanitarian grounds and the perennial desire of Conservative Party leaders to pick fights with their backbenchers (in this case the land owning Tories) in order to prove they are ‘different’, Peel moved for full repeal in 1845. In May 1846 repeal was passed and the Anti-Corn Law League wound itself up.

The benefits for Britain were immense and immediate. The effects of famine receded and a wider program of free trade enacted. Between 1815 and 1842 Britain’s exports edged up from £47,250,000 to £50,000,000. By 1870 they had rocketed to £200,000,000.

How had Richard Cobden and the League managed to defeat the special interests in favour of keeping the Corn Laws?

First, and most importantly, they were right. Free trade became the orthodoxy to such an extent that we can forget that while the League was working its ideas were one strand of a lively discourse. There was a long tradition of bad economics arguing for protection and Friedrich List was giving these old doctrines a new outing even as the League was campaigning.

Second, their strategy of exclusive focus on Corn Law repeal was a success. Cobden refused to be, and refused to let the League become, distracted by any other reform or campaign. This ensured that while the Chartists got nothing from a long list of demands the League actually got more than its comparatively modest aims with Britain quickly embracing free trade generally.

Third, they were tactically flexible. There were three fronts to their activities. First, were the mass meetings. These were of limited success largely owing to the competition, both ideological and physical, of the rival Chartists. The second front was education. Here the League had more success, sending literally tons of propaganda out every week. They pitched to all sections of society, sending lurid drawings of emaciated families to lowbrow readers and helping found The Economist for the highbrow. Third, and most effective, was the Parliamentary front. It was arguably the fact that the League engaged here while the Chartists didn’t that guaranteed the success of the League relative to the Chartists.

The fourth factor was, as Harold Macmillan put it, events, or, more broadly, circumstance. Without Peel’s transformation of the Tory Party into the Conservative Party and its concomitant embrace of free trade, the League would have had to wait until at least 1848 and the possible election of the Whigs who, under Lord John Russell, had finally adopted full repeal as a policy. And without the famine in Ireland it is doubtful whether either party could have carried repeal in as full a form as eventually happened.

To a large extent however, this event is not so exogenous. It could be, and was, painted as the predicted outcome of the bad policies of the Corn Laws.

As a result, when circumstances combined in 1845-1846 in the advents of Peel and the potato blight, thanks to Cobden and the League the arguments for free trade were widely enough known to be accepted as a viable possibility. The lesson is to have rigorous, well tested arguments. Pick a definite, achievable aim then work hard to spread and publicise your views until they become the ‘white noise’ of the debate. Then position yourself to take advantage of changing circumstances and move quickly when circumstances change.

When Richard Cobden died in 1865 the French foreign minister wrote that he was “in our eyes the representative of those sentiments and those cosmopolitan principles before which national frontiers and rivalries disappear; whilst essentially of his country, he was still more of his time; he knew what mutual relations could accomplish in our day for the prosperity of peoples. Cobden, if I may be permitted to say so, was an international man”.

At the end of three successful years The Cobden Centre can continue to draw on its namesakes rich example as it looks forward to furthering his goals of peace and prosperity.

Politics

The letters of Richard Cobden

We are pleased to announce a special discount for Cobden Centre readers on The Letters of Richard Cobden from Oxford University Press:

In four volumes, The Letters of Richard Cobden, edited by Anthony Howe, provide a unique insight into the career of one of Britain’s leading nineteenth-century politicians. Oxford University Press is pleased to offer a special 20% discount on the series.

“Anthony Howe’s comprehensive, erudite and superbly annotated edition… [is] an indispensable resource for understanding the Victorians.” – Miles Taylor, London Review of Books.

Please see this page for details.

Peace

Is it Just to Bomb Libya?

The Prime Minster has justified his leading role in orchestrating a UN resolution to protect the citizens of Libya, particularly those in the east of the country, from the tyrannical oppression of their dictator, Col Gaddafi.  There seems to be an underlying moral urge on the part of our Prime Minster and his Deputy to stop the blatant outrage that is taking place just south of the Mediterranean. I sympathise.

Historically, we must also remember that Gaddafi part funded the war of aggression by the Irish Republican Army in Northern Ireland and in the mainland of Great Britain itself, and in some of our overseas territories, killing 3,000 civilians in the period known as the “Troubles”. Responsibility for the Lockerbie bombing also sits squarely at his feet. He is clearly a vile and demented individual who is capable of inflicting pain and destruction on not only his people, but those of many other nations. I will open a bottle of champagne upon the announcement of his death, and that of any of his henchmen associated with so much pain and destruction.

There are many murderous tyrants around the world, and plenty of morally indefensible states, but we are not on a crusade to bomb them all and liberate their people. The communist government in China unleashed untold brutality against their own people, notably in the Tiananmen Square uprisings in 1989. Despite moves toward capitalism, the Chinese people continue to be oppressed. Are we seeking to bomb them? Surely not. They have a population over a billion, and a standing army of over 2 million. Best leave them alone! More recently, in Sri Lanka, 20,000 Tamils were killed in May 2009. And what about the on-going treatment of the people of Zimbabwe? Here we have another tyrant-led country that has prosecuted a war of famine and pestilence against his own people. I am sure you get the picture.

I submit that our leadership shows a selective application of morals. Cameron is very much in the neo-Conservative tradition here.  I feel it would be better for him to be honest and practical, and simply say “with the support of the international community, we have an opportunity to depose a tyrant with a history of aggression towards the UK, with hopefully low costs to ourselves, amidst the chaos of a domestic rebellion”.

You either apply your moral standard universally, or it lacks validity. Why are we not bombing Bahrain? I wouldn’t advocate it, but Cameron should, if he is to be consistent.

Meanwhile, our Deputy Prime Minister, Nick Clegg, leader of the Liberal Democratic Party, says he has voiced his support for possible military intervention in Libya, saying that any action would be carried out in order to “uphold international law.”

So Clegg appeals to a higher moral sanction called International Law. This is where the nations of the world, some with very dubious track records, decide what we all should do. I wonder if the UN had passed resolutions saying Northern Ireland should be ceded with immediate effect to the Republic of Ireland against the wishes of the vast majority of the population of both parts of the island, he would unquestionably seek to obey this command from on high. That is hypothetical, but there have in fact been many resolutions against Israel. Should we be as vigorous in enforcing these as we are being with the latest resolution against Libya? I do not think Clegg would go that far.

Clegg is not a true Liberal. The great 19th century Liberals such as Cobden and Bright would have recommended arbitration and free trade for breaking down barriers and opening up countries. That should be the long term policy of all nations interested in freedom. The interdependence that results from global trade provides strong motivation for peace. There is no need for international law or global government.

For the short term, the moral yardstick a liberal must apply is to treat international relations as they treat interpersonal relations: to live and let live, and only use force in response to aggression. Now, Libya certainly has aggressed against us over the years, and a liberal could have supported the bombings of Libya undertaken by the USA with the support of the UK under the Thatcher government in April of 1986. What aggression have they dealt out to us today?

The deputy prime minister, whose Liberal Democrat Party opposed the war in Iraq, said: “this is not Iraq. We are not going to war”. Such cowardice, to hide behind semantics! If bombing the hell out of Libyan air defences, and shooting at tanks and other armoured units is not warfare, I do not know what is. In truth, I do not think Clegg has the stomach for this, and he’s trying to post-rationalise it with appeals to a higher moral authority, and to black out from his mind the uncomfortable reality that he is party to an act of aggression against another state. Bless his Liberal heart and soul; it is all too much for him. More than ever, he must be wondering whether he really wants to be in this Coalition?

Faced with overwhelming western air power, Gaddafi may well resort to guerilla warfare, and send his men into cities for protracted battles, street by street, house by house. The misery that this would inflict upon those cities has not been experienced in Western Europe since WWII.

I see no justification for this war.

However as it has started, I hope this act of aggression by the UK and its allies is swift and decisive. Having committed to intervention, I hope our fighting men have freedom of action to finish this conflict quickly as possible. Failing this, I hope we are brave enough to extract ourselves very quickly, if it turns out that the rebellion does not have the strength to overthrow the regime.

My thoughts are now with all the people involved in this conflict, and I pray for peace.

Richard Cobden

Bagehot’s obituary of Richard Cobden – 1865

Walter Bagehot’s 1865 obituary of Richard Cobden, from the Online Library of Liberty
(H/T Sean Corrigan).


Twenty-three years ago—and it is very strange that it should be so many years—when Mr. Cobden first began to hold Free-trade meetings in the agricultural districts, people there were much confused. They could not believe the Mr. Cobden they saw to be the “Mr. Cobden that was in the papers”. They expected a burly demagogue from the North, ignorant of rural matters, absorbed in manufacturing ideas, appealing to class-prejudices—hostile and exciting hostility. They saw “a sensitive and almost slender man, of shrinking nerve, full of rural ideas, who proclaimed himself the son of a farmer, who understood and could state the facts of agricultural life far better than most agriculturists, who was most anxious to convince every one of what he thought the truth, and who was almost more anxious not to offend any one”. The tradition is dying out, but Mr. Cobden acquired, even in those days of Free-trade agitation, a sort of agricultural popularity. He excited a personal interest, he left what may be called a sense of himself among his professed enemies. They were surprised at finding that he was not what they thought; they were charmed to find that he was not what they expected; they were fascinated to find what he was. The same feeling has been evident at his sudden death—a death at least which was to the mass of occupied men sudden. Over political Belgravia—the last part of English society Mr. Cobden ever cultivated—there was a sadness. Every one felt that England had lost an individuality which it could never have again, which was of the highest value, which was in its own kind altogether unequalled.

What used to strike the agricultural mind, as different from what they fancied, and most opposite to a Northern agitator, was a sort of playfulness. They could hardly believe that the lurking smile, the perfectly magical humour which they were so much struck by, could be that of a “Manchester man”. Mr. Cobden used to say, “I have as much right as any man to call myself the representative of the tenant farmer, for I am a farmer’s son,—I am the son of a Sussex farmer”. But agriculturists keenly felt that this was not the explanation of the man they saw. Perhaps they could not have thoroughly explained, but they perfectly knew that they were hearing a man of singular and most peculiar genius, fitted as if by “natural selection” for the work he had to do, and not wasting a word on any other work or anything else, least of all upon himself.

Mr. Cobden was very anomalous in two respects. He was a sensitive agitator. Generally, an agitator is a rough man of the O’Connell type, who says anything himself, and lets others say anything. You “peg into me and I will peg into you, and let us see which will win,” is his motto. But Mr. Cobden’s habit and feeling were utterly different. He never spoke ill of any one. He arraigned principles, but not persons. We fearlessly say that after a career of agitation of thirty years, not one single individual has—we do not say a valid charge, but a producible charge—a charge which he would wish to bring forward against Mr. Cobden. You cannot find the man who says, “Mr. Cobden said this of me, and it was not true”. This may seem trivial praise, and on paper it looks easy. But to those who know the great temptations of actual life it means very much. How would any other great agitator, O’Connell or Hunt or Cobbett look, if tried by such a test? Very rarely, if even ever in history, has a man achieved so much by his words—been victor in what was thought at the time to be a class-struggle—and yet spoken so little evil as Mr. Cobden. There is hardly a word to be found, perhaps, even now, which the recording angel would wish to blot out. We may on other grounds object to an agitator who lacerates no one, but no watchful man of the world will deny that such an agitator has vanquished one of life’s most imperious and difficult temptations.

Perhaps some of our readers may remember as vividly as we do a curious instance of Mr. Cobden’s sensitiveness. He said at Drury Lane Theatre, in tones of feeling, almost of passion, curiously contrasting with the ordinary coolness of his nature, “I could not serve with Sir Robert Peel”. After more than twenty years, the curiously thrilling tones of that phrase still live in our ears. Mr. Cobden alluded to the charge which Sir Robert Peel had made, or half made, that the Anti-Corn-Law League and Mr. Cobden had, by their action and agitation, conduced to the actual assassination of Mr. Drummond, his secretary, and the intended assassination of himself—Sir Robert Peel. No excuse or palliation could be made for such an assertion except the most important one, that Peel’s nerves were as susceptible and sensitive as Mr. Cobden’s. But the profound feeling with which Mr. Cobden spoke of it is certain. He felt it as a man feels an unjust calumny, an unfounded stain on his honour.

Mr. Disraeli said on Monday night [1] (and he has made many extraordinary assertions, but this is about the queerest), “Mr. Cobden had a profound reverence for tradition”. If there is any single quality which Mr. Cobden had not, it was traditional reverence. But probably Mr. Disraeli meant what was most true, that Mr. Cobden had a delicate dislike of offending other men’s opinions. He dealt with them tenderly. He did not like to have his own creed coarsely attacked, and he did—he could not help doing—as he would be done by; he never attacked any man’s creed coarsely or roughly, or in any way except by what he in his best conscience thought the fairest and justest argument. This sensitive nature is one marked peculiarity in Mr. Cobden’s career as an agitator, and another is, that he was an agitator for men of business.

Generally speaking, occupied men charged with the responsibilities and laden with the labour of grave affairs are jealous of agitation. They know how much may be said against any one who is responsible for anything. They know how unanswerable such charges nearly always are, and how false they easily may be. A capitalist can hardly help thinking, “Suppose a man was to make a speech against my mode of conducting my own business, how much would he have to say!” Now it is an exact description of Mr. Cobden, that by the personal magic of a single-minded practicability he made men of business abandon this objection. He made them rather like the new form of agitation. He made them say, “How business-like, how wise, just what it would have been right to do”.

Mr. Cobden of course was not the discoverer of the Free-trade principle. He did not first find out that the Corn-laws were bad laws. But he was the most effectual of those who discovered how the Corn-laws were to be repealed, how Free-trade was to change from a doctrine of The Wealth of Nations into a principle of tariffs and a fact of real life. If a thing was right, to Mr. Cobden’s mind it ought to be done; and as Adam Smith’s doctrines were admitted on theory, he could not believe that they ought to lie idle, that they ought to be “bedridden in the dormitory of the understanding”.

Lord Houghton once said, “In my time political economy books used to begin, ‘Suppose a man on an island’ ”. Mr. Cobden’s speeches never began so. He was altogether a man of business speaking to men of business. Some of us may remember the almost arch smile with which he said “the House of Commons does not seem quite to understand the difference between a cotton mill and a print work”. It was almost amusing to him to think that the first assembly of the first mercantile nation could be, as they were and are, very dim in their notions of the most material divisions of their largest industry. It was this evident and first-hand familiarity with real facts and actual life which enabled Mr. Cobden to inspire a curiously diffused confidence in all matter-of-fact men. He diffused a kind of “economic faith”. People in those days had only to say, “Mr. Cobden said so,” and other people went and “believed it”.

Mr. Cobden had nothing classical in the received sense about his oratory; but it is quite certain that Aristotle, the greatest teacher of the classical art of rhetoric, would very keenly have appreciated his oratory. This sort of economic faith is exactly what he would most have valued, what he most prescribed. He said: “A speaker should convince his audience that he was a likely person to know”. This was exactly what Mr. Cobden did. And the matter-of-fact philosopher would have much liked Mr. Cobden’s habit of “coming to the point”. It would have been thoroughly agreeable to his positive mind to see so much of clear, obvious argument. He would not, indeed, have been able to conceive a “League Meeting”. There has never, perhaps, been another time in the history of the world when excited masses of men and women hung on the words of one talking political economy. The excitement of these meetings was keener than any political excitement of the last twenty years, keener infinitely than any which there is now. It may be said, and truly, that the interest of the subject was Mr. Cobden’s felicity, not his mind, but it may be said with equal truth that the excitement was much greater when he was speaking than when any one else was speaking. By a kind of keenness of nerve, he said the exact word most fitted to touch, not the bare abstract understanding, but the quick individual perceptions of his hearers.

We do not wish to make this article a mere panegyric Mr. Cobden was far too manly to like such folly. His mind was very peculiar, and like all peculiar minds had its sharp limits. He had what we may call a supplementary understanding, that is, a bold, original intellect, acting on a special experience, and striking out views and principles not known to or neglected by ordinary men. He did not possess the traditional education of his country, and did not understand it. The solid heritage of transmitted knowledge has more value, we believe, than he would have accorded to it. There was too a defect in business faculty not identical, but perhaps not altogether without analogy. The late Mr. James Wilson used to say, “Cobden’s administrative power I do not think much of, but he is most valuable in counsel, always original, always shrewd, and not at all extreme”. He was not altogether equal to meaner men in some beaten tracks and pathways of life, though he was far their superior in all matters requiring an original stress of speculation, an innate energy of thought.

It may be said, and truly said, that he has been cut off before his time. A youth and manhood so spent as his, well deserved a green old age. But so it was not to be. He has left us, quite independently of his positive works, of the repeal of the Corn-laws, of the French treaty, a rare gift—the gift of a unique character. There has been nothing before Richard Cobden like him in English history, and perhaps there will not be anything like him. And his character is of the simple, emphatic, picturesque sort which most easily, when opportunities are given as they were to him, goes down to posterity. May posterity learn from him! Only last week we hoped to have learned something ourselves:—

  • “But what is before us we know not,
  • And we know not what shall succeed”.[2]

[1] The day after Cobden’s death.

[2] Matthew Arnold, “The Future”.

Economics

Mr. Cobden on banking

Bankers’ Magazine Vol I April-October 1844 – H/T Sean Corrigan


The author of an interesting work published a short time since, entitled “Sir Robert Peel and his Era,” in which a lively sketch is given of the chief peculiarities, external and intellectual, of the leading members of the Houses of Parliament; refers to the assertion sometimes made, that Mr. Cobden is a man of only one idea, in the following terms,—” It is a mistake; Cobden is really a man of great talent, energy, and tact, though, of course, it has been by means of his one idea at the critical time, that he has become in the compass of a year and a half, a noted public character.” Most persons know little of Mr. Cobden, except in connection with the Anti-Corn Law League, and may, therefore, feel some surprise at recognizing him in the character of a financier. But long before the Corn Law League commenced its operations, his very clever pamphlets, “England, Ireland, and America,” and “Russia, by a Manchester Manufacturer,” had shewn him fully capable of appreciating and discussing with ability, any of the intricate questions connected with our monetary system. We purpose in this paper to lay before the reader, his views on the currency, because we think it by no means improbable, that they may have considerable influence, when the subject comes under consideration in Parliament; and, further, because they are the opinions of a practical man of business who speaks to facts. We must beg to be understood as expressing no opinion ourselves, either for or against the views he advocates, by thus drawing attention to them. He gave his evidence before a select committee of the House of Commons in 1840, and it is not a little singular that he only once, and then incidentally, spoke of the Corn Laws, as interfering injuriously with our monetary system.

In order to present, in a concise form, the subjects connected with the theory and practice of Banking, which were referred to in the course of his evidence, we shall arrange them under separate headings, commencing with his own statement of the character of the evidence he proposed to give.

His Opinionsthose of a Practical Man.

I am here as a practical man, a merchant and manufacturer, and with a view to the scientific definitions of the terms to be used by bankers, I do not pretend to come here as an authority. It would very much prevent that confusion into which I fell at the close of my last examination, if I should clearly understand the practical bearing of every question, and it is only on practical subjects that I can afford any information. I make this explanation, because I find that in the attempt which I thought due to this Committee, to answer every question put to me on the last occasion, I have given some answers at the close of my examination which have been, by permission of the Committee, struck out, which are so unintelligible to me on reading them, that I think they must be incomprehensible to every living being. I do not understand the questions any more than I understand the answers at this moment, and I wish my examination to be of that practical nature, on which alone I can afford the Committee any information.

Evils produced by Fluctuations in the Currency.

My opinion is, that great evils have arisen to the trade and manufactures of the country from fluctuations in the currency; I believe great evils have been occasioned to the trade and manufactures of the country in 1836 and 1837, and the subsequent period, by fluctuations in the currency; greater evils, pecuniary, social, and moral, than by the direct failures of all the banks of issue since they were first established in this country.

I could adduce a fact derived from my own experience that would illustrate the heavy losses to which manufactures were exposed in their operations, by those fluctuations in the value of money. I am a calico printer; I purchase the cloth, which is my raw material, in the market, and have usually in warehouses three or four months supply of material. I must necessarily proceed in my operations, whatever change there may be, whether a rise or a fall in the market. I employ 600 hands, and those hands must be employed. I have fixed machinery and capital, which must also be kept going, and therefore whatever the prospects of a rise or fall of prices may be, I am constantly obliged to be purchasing the material, and contracting for the material on which I operate. In 1837, I lost by my stock in hand 20,000/., as compared with the stock-taking in 1835, 1836, and 1838; the average of those three years when compared with 1837, shews that I lost 20,000/. by my business in 1837, and what I wish to add is, that the whole of this loss arose from the depreciation in the value of my stock. My business was as prosperous; we stood as high as printers as we did previously; our business since that has been as good, and there was no other cause for the losses I then sustained, but the depreciation of the value of the articles in warehouse in my hands. What I wish particularly to shew is, the defenceless condition in which we manufacturers are placed, and how completely we are at the mercy of these unnatural fluctuations. Although I was aware that the losses were coming, it was impossible I could do otherwise than proceed onward, with the certainty of suffering a loss on the stock; to stop the work of 600 hands, and to fail to supply our customers would have been altogether ruinous; that is a fact drawn from my own experience. I wish to point to another example of a most striking kind, shewing the effect of those fluctuations on merchants. I hold in my hand a list of thirty-six articles which were imported in 1837, by the house of Butterworth and Brookes, of Manchester, a house very well known; Mr. Brookes is now boroughreeve of Manchester. Here is a list of thirty-six articles imported in the year 1837, in the regular way of business, and opposite to each article there is the rate of loss upon it as it arrived, and as it was sold. The average loss is 37 1/2 per cent, on those thirty-six articles, and they were imported from Canton, Trieste, Bombay, Bahia, Alexandria, Lima, and, in fact, all the intermediate places almost. This, I presume, is a fair guide to shew the losses which other merchants incurred on similar articles.

Conduct of the Bank of England.

The great instrument in the hands of the Bank, for effecting its changes in the value of commodities, is by creating a panic; it is a process the most disastrous to the trading community; it is the most profitable to the Bank proprietors; that process was resorted to at the end of 1836, in striking a blow at the American houses, in advancing the rate of interest, and by all those means which are resorted to in the London papers, through its organ’s of the press, for exciting apprehensions in the minds of merchants and traders, that a curtailment of its securities and credit generally was to take place. The Bank ought to have contracted its issues long before, at the commencement of the drain in 1836; there was a previous drain, which was but slightly interrupted, which began as early as 1834; in fact, the Bank appears to have departed from its principle, immediately it had obtained the renewal of its charter, of keeping one-third of its liabilities in gold. If the Bank had kept its securities at an even amount, and retained one-third of its liabilities in bullion, or about that (I do not complain of a million), I feel assured there would have been no panic; there could have been no panic if that had been the policy from the time of its obtaining its charter.

I consider the cause and effect in the contractions and expansions of the currency, and their influences on prices, are not to be measured in periods of six months, or even twelve months; the expansions of the Bank of England in 1835, and indeed its previous course of expansion (for I am of opinion that mischief was generating long before that), had given rise to an immense amount of speculation; and amongst other things, it had set in motion seventy or eighty joint-stock banks; forty-seven joint stock banks were established in 1836; those were in the course of formation at the very time when the Bank of England was, as it appears here, in the course of contraction, but it necessarily must have taken a considerable time to have checked the spirit which had been generated by the previous course of expansion on the part of the Bank of England.

Effects of an over Issue of Paper Money.

The conduct of the Bank, in inflating the currency, produces a rise of prices. The prices of all commodities gradually rise; that begets what is thought prosperity; it is in fact unhealthy excitement; this causes an extension of our commerce and manufactures; it causes an advance of prices abroad, in consequence of the advance in this market, which is the regulator of the prices abroad, and that begets a general system of over-trading. This overtrading inevitably leads in the end to discredit, and panic to a greater or less degree; it was through promoting this train of consequences by originally departing from its rule of keeping steadily to the amount of its securities, and keeping one-third of its liabilities in bullion, that the Bank, in my opinion, caused the over-trading; and the panic of 1836-7, which, I repeat, could not have happened had the Bank been true to its own principle of remaining passive, with the amount of one-third of its liabilities in bullion.

Bank of England can control Issues of Joint Stock Banks.

I believe it to be impossible for private and joint-stock Banks to expand the circulation, provided the Bank of England remained true to the principle it had laid down. We have had no instance of its having been so; even the Scotch Banks cannot inflate the currency, unless the Bank of England have previously set the example; that was the case from 1823 to 1825; the Scotch Banks increased their circulation from, I believe, 3,400,000/. to upwards of four millions and a half, up to the panic of 1825; I think that was about the increase of the circulation in Scotland; but the moment the screw (to use the common term) was placed upon the currency in London, that moment the Scotch Banks were compelled to restrict their issues, and the same operation went on with all the private banks of the kingdom. I have a pretty clear recollection of having seen that statement in Sir Henry Parnell’s work upon Banks. It is impossible to doubt that the Bank, having the entire circulation of the metropolis, having the privilege of a legal tender, its notes being alone receivable by the Government in payment of the revenue, and possessing altogether the prestige which the Bank of England possesses in the public estimation, and backed by the Government, it is impossible that an institution so circumstanced should be otherwise than in a position of absolute power over all other banks in the kingdom. I should not say that the country Banks contract their circulation instantaneously, on finding that the Bank of England is doing so; but the country Banks do what is of as much importance in the way of effecting a correction of the evils of expansion; they curtail their credits, they allow fewer facilities, they call up old debts, and take warning by the example of the Bank of England, to put a general restriction upon the operations of trade; I think it must be known to every one that the slightest movement on the part of the Bank of England, is watched with intense interest by every banker as well as merchant in the kingdom.

What Causes should regulate the Currency.

I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency, and managing the currency, I look upon to be an absurdity; the currency should regulate itself; it must be regulated by the trade and commerce of the world; I would neither allow the Bank of England nor any private banks, to have what is called the management of the currency.—Have you not stated that the Bank of England ought to regulate its circulation according to the amount of its bullion? I have stated that that is the principle laid down by the Bank of England, and that that principle has not been conformed to; I have no faith in any man or any body of men ever conforming to any such principles, and, therefore, I remarked I should never contemplate any remedial measure, which left it to the discretion of individuals to regulate the amount of the currency by any principle or standard whatever; but the Bank having laid down that principle, and having obtained its charter in consequence of Mr. Horsley Palmer’s evidence, as to the views and intentions of the Bank Directors, they have departed from that principle, and I make the complaint and charge against them of having violated a principle laid down by themselves.

Upon what principle, in your opinion, ought the circulation of this country to be regulated? If we are to have paper money at all—but in the abstract I should be sorry to commit myself to the principle that there should be any paper money at all—but if we are to have paper money, it must be restricted to that amount which the precious metals would be if they circulated alone. I would not put it into the power of individuals to depart from the principle, as the Bank Directors have done, which they have once laid down; and, therefore, my idea is, that if there be a circulation of paper, the maximum amount of that paper should be settled, and that there should be such an amount as to leave still such an amount of the precious metals circulating, as would allow the operations of the exchanges to work tranquilly upon the precious metals, without ever occasioning any shock to trade or commerce.— The object you would propose is, that the paper currency should vary exactly as the metallic currency would do? I have stated that the maximum of the paper should be settled; and it should be of such amount as would require gold and silver, in addition to such an extent as would meet all the demands for exportation in case of adverse exchanges, which I maintain would never amount, in the course of trade, to any thing at all of magnitude, unless, through the operation of bad laws, such as the present corn law. I wish to be understood that the whole of the currency in circulation should vary precisely as if it were all gold and silver, and that the exchanges should operate upon the bullion,—upon the specie.

Do you mean, by the maximum of the paper, a certain fixed amount to be issued on security, the remainder to be issued against gold, and vary with it? Precisely; I think there would be no harm done, if you issued a certain amount on securities beyond the amount required on bullion.—You do not mean by a maximum that a limit should be fixed, beyond which paper should not go, whatever gold might come in? By a maximum I mean, a maximum amount to be issued on securities, and any thing beyond that, issued on gold, would be represented by the gold.—Do you conceive that that object can be obtained by any regulations of the Banks as now constituted in this country? No, decidedly not.—How would you propose to attain that object? I think the details might be worked out with great ease, so far as the alteration of such a bank goes, inasmuch as it would require only a few men of probity to see that the principles laid down were not violated, and that the bullion of of the Bank was secure.—Would that not, so far as the Bank of England is concerned, be attained, by a strict adherence on their part to the rule of making their paper vary according to their bullion? I should be sorry to trust the Bank of England again, having violated their principle; for I never trust the same parties twice on an affair of such magnitude.—Suppose they were to adhere strictly to their principle, would not the object be obtained? The Committee must excuse my taking a hypothetical case, to give a favourable opinion. I object, moreover, to a national Bank being managed by merchants, those engaged in extensive mercantile transactions. It would be impossible, looking to the Directors of the Bank of England, to impute a want of probity; for we have had abundant proofs that the Bank of England has been conducted by men of strict personal honour; but it is quite clear that such a thing may arise as for such a bank to be under the direction of individuals as merchants, whose personal interests may be in direct hostility to their public duty. I would take, for instance, such a case as merchants having a large amount of produce coming home, previous to a glut, and previous to a panic, when it might become exceedingly important to those gentlemen that they should delay an action of the Bank, which produced a fall in prices, until they had realized on certain shipments. Such a thing is quite possible; but at the same time I should wish to be understood as not imputing any thing of the kind to such a body of men.

Advantages of One Bank of Issue.

Is it your opinion that nothing short of putting down all existing establishments, and establishing a Bank administered by Commissioners, will regulate the currency of the country? I repeat what I stated before, that the affairs of private banks cannot be so far wrong as to effect prices abroad, provided a bank having the power the Bank of England has had hitherto, remains steady to its principle, and, therefore, of course I must also think that a national bank having such a monopoly as the Bank of England has, if conducted on that principle, would prevent any mass of serious evils arising either from our country banks in England, or banks in Ireland and Scotland. All the evils we feel as merchants and manufacturers, arising from the fluctuations in the prices of commodities, originate, I believe, in London, with the Bank of England.—Would it answer the purpose, so far as the Bank of England is concerned, if a separation were made into two parts, the one to manage the currency, on the principle you have laid down, the other to manage the banking department in the same manner as the private Banks, not of issue, are managed? Mr. Loyd’s plan, to which reference is made, would have many advantages over the present system; but it is not a plan I should approve.—What are your objections to it? Mr. Loyd uses the term managing the currency, and regulating the currency, which I consider to be just as possible as the management of the tides, or the regulation of stars, or the winds. I have seen no plan which places the thing wholly beyond the power of a body of men to increase or diminish the quantity of money, which power is as intolerable, as that a body of men should have the power of regulating the length of the yard periodically; and it is as reasonable in the case of merchants who may manage a bank like the Bank of England, as if they should be privileged to sell by the short yard, and buy by the long one. I object entirely to such a bank being in the hands of a body of merchants; I object to any body of men having the power to increase or decrease the quantity’ of money.—Is not that power possessed to a small extent, and for perhaps short periods, by any bank of issue in the country? Not to an extent to influence the prices of commodities throughout the kingdom . I am not prepared to say whether slight perturbations might not arise in particular localities, owing to the indiscretions of individual banks; but no general derangement to the commerce of the country could arise from any such cause, in my opinion, provided an institution, possessing the important privileges of the Bank of England, were administered upon the principle I have pointed out.—Are not those derangements, to whatever extent they go, in direct contradiction to the principle on which, in your opinion, the currency ought to vary? I should consider them so trivial that they could not have any effect beyond the mere moment.—Not even if a great many banks pursued the same course at the same time? No; from the circumstance that I have already referred to, that if prices are raised generally in any particular quarter, commodities, stocks, railway shares, and other securities would flow to that quarter for sale; if they would fetch a higher price there than they would in London, they would be sold there, and a bill demanded on London, or gold demanded to be transmitted to London, and so the thing would be almost instantly corrected.—Do you find the contraction of the Bank of England, even when made, produces so speedy an effect on the circulation of private banks? No, not when made under the circumstances, to which I nave alluded in 1837; but under ordinary circumstances, it would have the power to correct, such as Mr. Samuel Jones Loyd has alluded to; but time must be taken, as a necessary ingredient, in all its operations; a time for expansion must be considered as having been necessary, and time for contraction must be given.

If from any causes a disposition to speculate arose, might not considerable facilities for it be given by the issues of country banks, and considerable derangement in consequence be produced? No; I consider that no great over-trading can take place unless the prices of foreign articles are influenced; that would not be the case under the circumstances to which reference is made; at present, the Bank of England, in its variations, not only effects this market, but it effects all the markets in the world. I happened to be travelling in Turkey and Greece in the spring of 1837, and I saw in the little island of Syra, the Greek merchants there, with their telescopes in their hands, looking out as anxiously for the arrival of a vessel from Trieste, giving an account of the proceedings of the Bank of England, as a merchant on the Exchange at Manchester, would watch for the arrival of the mail, to know what the next step to be taken by the Bank Directors would be; and we know, that in the message of the President of the United States in 1837, and in the Addresses of some of the Governors of the States, New York in particular, the Bank of England was not only mentioned by name, but a considerable space given to the discussion of its policy. The operations of the Bank of England, therefore, can never be compared with the operations of a small country bank, such as have been supposed to effect the changes in the value of commodities; the country bank forms a little instrument for raising up a few more houses in a town, or giving an impulse to a small line of railroad, but it could never influence the prices on staple manufactures, provided the great Central Bank was governed by a principle precisely the same as if we had a metallic currency.

In the case of a central bank administered on the principle you have mentioned, on what footing do you think country banks ought to be placed? I am as much opposed on principle to country banks of issue, as to the Bank of England; I know, in talking of remedial measures such as we wish in Manchester, such as men of business wish, in order to be saved from losses such as we have experienced, we must be practical, and rather look to what is expedient than what is wholly desirable; and, therefore, I confine myself chiefly to the removal of the great grievance, the power of influencing the prices in the hands of the Bank of England; but I should be as glad to see the power withdrawn from every other bank in England, and I believe that is a rapidly increasing opinion on the part of the trading community among whom I am accustomed to mix in Manchester.

Do you conceive it to be an increasing opinion that all power of issue should be confined to one bank, under the management of Commissioners? I believe it is.

Do you contemplate that a bank so constituted should perform any other functions than those of the issue of money? None whatever; to remain wholly passive, and not to dream of regulating the currency.

You do not contemplate its making advances to Government or other parties? Oh no, not at all; there is an end to its usefulness if that illicit intercourse is kept up; there is money raised without the advances of bank notes in America, by means of post notes; and if the Government were in great distress they might borrow, perhaps, upon post notes from merchants, without going to the Bank of England for advances.

Exchequer Bilk.

I have been extensively engaged in business for twenty years, and I never saw an Exchequer Bill in my life; it is a singular fact, that I once mentioned the same thing at our Chamber of Commerce, in the presence of a dozen individuals, all very largely engaged in business, and not one of them had ever seen an Exchequer Bill; there is an immense amount of this paper afloat, but they do not enter into commercial transactions; and the reason they do not enter into commercial transactions is, that they pay interest, and, therefore, it is profitable to the holders to keep them, instead of passing them away.


Bankers’ Magazine Vol I April-October 1844