THE BANK
The miracle of money creation by a bank, as John Law showed in 1719, could stimulate industry and trade, give almost everyone a warm feeling of well-being. Parisians had never felt more prosperous than in that wonderful year. And, as Law also showed, the further result could be a terrible day of reckoning. Here, in the briefest form, was framed the problem that was to occupy men of financial genius or cupidity for the next two centuries: How to have the wonder without the reckoning?
Some did conclude that the one could not be had without the other. For a long time after Law, Frenchmen remained deeply suspicious of banks and bank notes, of any money that was not made of metal. That suspicion was reinforced during the Revolution by the experience with the assignats, of which there will be a later word. French peasants, in particular, developed a preference for having their wealth in hard coin, one that is not yet quite dead. In this they were not alone. In China and India silver and gold were also much preferred, and in India to this time it is thought prudent to have one’s savings in silver or gold around the wrists and the neck or on the ears of one’s wife. As a woman she is decently exempt from violence. So, therewith, is the family wealth. All jewelers have scales to reassure the investor as to the weight of the precious metal in the ornaments they sell. But the suspicion of banks and their money in their earliest manifestations was by no means confined to simple people alone. It was widely shared. Though he was willing to have banks for purposes of deposit, Thomas Jefferson strongly opposed their issue of notes. Writing to John Taylor in 1816, he agreed that banking establishments were more to be feared than standing armies. John Adams held that every bank bill issued in excess of the quantity of gold and silver in the vaults “represents nothing, and is therefore a cheat upon somebody.”1
Against these austere views stood the circumstance of overriding power already mentioned: Gold and silver, when deposited at the bank, could be loaned at interest, and borrowers could pay the interest out of what they made from having the loan. And if, as described in the last chapter, more could be loaned than was on deposit—given the unlikelihood that all depositors would come for their hard money at once—yet more borrowers could be accommodated, yet more interest earned. Alas, then, for John Adams. From the intrinsic charm of this reward and the resulting improvement in community well-being came an overriding pressure to make the loans that increased the outstanding notes and deposits beyond the amount of gold and silver in the vault. Thus, more precisely, the problem of banking: How should lending be limited and other precautions taken against the day when depositors and noteholders would come for the precious metal that, in the nature of banking, wasn’t there?
The solutions are three and, as regarded in retrospect, rather obvious. In practice, two or all three could be combined. Arrangements could be made to face bankers fairly systematically with their notes (or deposits) and require them to pay the supporting cash. Knowing that they would be so compelled, they would be cautious in their lending, would make sure that they always had reasonably ample reserves of metal on hand. Or the reserve of coin to be kept on hand could be specified by law, a solution favored later on in the United States. Or some special provision could be made against the day when everyone came for the metal that wasn’t sufficiently there. If some higher source stood ready to provide hard cash on those occasions, then, as was observed when the armies of Louis approached Amsterdam, the desire to have it would dissolve.
In the two centuries after Law all of these solutions came into use, together with the further one of prohibiting banks from having borrowers take out their loans in notes as distinct from receiving deposits. The right of note issue, with the hope that the notes might continue to pass from hand to hand and never be presented for payment in hard money, was thought, correctly, to be especially subject to abuse. These remedies were rarely the result of ratiocination; all were a response to bitter experience. At all times men were torn between the immediate rewards and costs of excess and the ultimate rewards of restraint. It was only after the first were experienced that the second were legislated.
The pioneering instrument of reform was the Bank of England, Of all institutions concerned with economics none has for so long enjoyed such prestige. It is, in all respects, to money as St. Peter’s is to the Faith. And the reputation is deserved, for most of the art as well as much of the mystery associated with the management of money originated there. The pride of other central banks has been either in their faithful imitation of the Bank of England or in the small variations from its method which were thought to show originality of mind or culture. In recent times central banking has become, as we shall see, a sadly pedestrian profession. Governments keep their central banks on the shortest of leashes. This is true, with all others, of the Federal Reserve System in the United States, which enjoys the liturgy but not the reality of independence. Most functions have long since been reduced to a routine; by tradition even the research of a central bank must be noncontroversial, which is to say it must avoid important issues, for it is on these that opinion is likely to be divided. The best conclusions are those that thoughtfully affirm the obvious: “The pervasive role of petroleum products in overall industrial production implies that fuel price increases may intensify the strong inflationary pressures already in prospect for the months ahead.”2 Recognizing the relative innocuousness of the Federal Reserve Board, Presidents from both parties have on occasion used it as a place of deposit not alone for public funds but also for men who could not reliably be trusted to balance their own check-books. Miss Margaret Truman, in her highly agreeable recollections of her father, has left doubt that one of his appointees, Mr. Jake Vardaman, a onetime naval aide, could add. In the modern Bank of England, if a decision is thought important, it is not communicated to the outside directors until after it has been taken. This cannot be thought to enhance their power. The glow nonetheless remains. Some of the glow is what comes from any association, however routine, with money—it is what leads young men who are otherwise very intelligent to become vice-presidents of Chase Manhattan or to join the Prudential. But more of the glow is the legacy of the Bank of England. No head of a central bank of any distinction, as he pursues his dreary round of discussion on decisions that are not his to make, fails to dream that his day will come. Then, as it once did for the Governor of the Bank of England, the whole financial world will wait on his word or gesture. Men will tremble at its impact even though they do not, in the slightest, know its meaning.
The origins of the Bank of England were not awesome. The founder, William Paterson, was a contemporary and fellow countryman from the Scottish Lowlands of John Law and with the same, possibly ethnic, instincts for fiduciary invention. While in America in the last years of the seventeenth century, Paterson became possessed of the idea of a great colony strategically situated on the Isthmus of Panama, which was then called Darien. Returning to Europe, he encountered initial difficulty in selling the idea, as did Law his land bank. But as Law later found the Regent in need of funds following Louis XIV, so Paterson found William of Orange in straits in consequence of his wars with the same monarch. Paterson likewise offered a solution: A banking company would be organized under a royal charter with a capital of £1,200,000. When subscribed, the whole sum would be lent to William; the government’s promise to pay would be the security for a note issue of the same amount. The notes so authorized would go out as loans to worthy private borrowers. Interest would be earned both on these loans and on the loans to the government. Again the wonder of banking.
In 1694, it was agreed, and the Bank of England was born. Financial need overcame all objections including that of Tories who held, with some passion, that banks were republican by nature. Against the double-interest return the expenses must have been small; the initial table of organization consisted of the Court of Directors, Governor, Deputy-Governor, seventeen clerks and two doorkeepers, the latter at £25 a year. Soon the Court did not include William Paterson, who had originally been retained at £2000. He quarreled with his colleagues after only a few months—recent writers suggest a conflict of interest. He was promoting a rival Orphans’ Fund Bank.3 In any case, he returned to Scotland and there now found an enthusiastic welcome for his Darien scheme. Frugal Scots rushed, as Frenchmen did later to the Banque Royale, to invest in the company that would develop Paterson’s fever-ridden shore. All the investors who remained faithful to the enterprise lost their money. Nearly all of the 1200 colonists who set sail in the five ships, including Paterson’s wife and child, lost their lives. Paterson narrowly survived. In later years his considerable contribution to financial history was recognized, and in reputation he was partly rehabilitated. He became an influential proponent of the union of England and Scotland.
In the fifteen years following the granting of the original charter the government continued in need, and more capital was subscribed by the Bank. In return, it was accorded a monopoly of joint-stock, i.e., corporate, banking under the Crown, one that lasted for nearly a century. In the beginning, the Bank saw itself merely as another, though privileged, banker. Similarly engaged in a less privileged way were the goldsmiths, who by then had emerged as receivers of deposits and sources of loans and whose operations depended rather more on the strength of their strongboxes than on the rectitude of their transactions. They strongly opposed the renewal of the Bank’s charter. Their objection was overcome, and the charter was renewed. Soon, however, a new rival appeared to challenge the Bank’s position as banker for the government. This was the South Sea Company. In 1720, after some years of more routine existence, it came forward with a proposal for taking over the government debt in return for various concessions, including, it was hoped, trading privileges to the Spanish colonies, which, though it was little noticed at the time, required a highly improbable treaty with Spain. The Bank of England bid strenuously against the South Sea Company for the public debt but was completely outdone by the latter’s generosity, as well as by the facilitating bribery by the South Sea Company of members of Parliament and the government. The rivalry between the two companies did not keep the Bank from being a generous source of loans for the South Sea venture. All in all, it was a narrow escape.4
For the enthusiasm following the success of the South Sea Company was extreme. In the same year that Law’s operations were coming to their climax across the Channel, a wild speculation developed in South Sea stock, along with that in numerous other company promotions, including one for a wheel for perpetual motion, one for “repairing and rebuilding parsonage and vicarage houses” and the immortal company “for carrying on an undertaking of great advantage, but nobody to know what it is.”5 All eventually passed into nothing or something very near. In consequence of its largely accidental escape, the reputation of the Bank for prudence was greatly enhanced. As Frenchmen were left suspicious of banks, Englishmen were left suspicious of joint-stock companies. The Bubble Acts (named for the South Sea Bubble) were enacted and for a century or more kept such enterprises under the closest interdict.
From 1720 to 1780, the Bank of England gradually emerged as the guardian of the money supply as well as of the financial concerns of the government, of England. Bank of England notes were readily and promptly redeemed in hard coin and, in consequence, were not presented for redemption. The notes of its smaller private competitors inspired no such confidence and were regularly cashed in or, on occasion, orphaned. By around 1770, the Bank of England had become the nearly sole source of paper money in London, although the note issues of country banks lasted well into the following century. The private banks became, instead, places of deposit. When they made loans, it was deposits, not note circulation, that expanded, and, as a convenient detail, checks now came into use.
The prestige of the Bank was by now very great. In 1780, when Lord George Gordon led his mob through London in protest against the Catholic Relief Acts, the Bank was a principal target. It signified the Establishment. For so long as the Catholic districts of London were being pillaged, the authorities were slow to react. When the siege of the Bank began, things were thought more serious. Troops intervened, and ever since soldiers have been sent to guard the Bank by night.
As noted, by the end of the eighteenth century the Bank of England had eliminated the notes of its smaller London rivals. Abuse from excessive issue of bank notes had thus been eliminated, at least in the City. But the other main tasks of a central bank had yet to be mastered. In times of optimism or speculative euphoria the lesser banks could expand their loans and deposits without restraint and thus invite the ensuing collapse and contraction of the supply of deposit, money. And there was still no protection against the day when, for whatever reason, depositors came for the hard cash that by nature was not there. There was also a further need—by no means peculiar to banks and money. That was for a mechanism to regulate the regulator. For the Bank itself, under pressure of optimism or public need, could succumb and expand too prodigiously its own loans, notes and deposits. This problem was the first to obtrude.
Over the end of the century Britain was at war alternately on two fronts—first with the American colonies (with which, incidentally, differences of view over issuing money were an important cause of friction), then with Napoleon and then again with the new Republic. War had its usual consequences. Money was needed for sustaining the armies in the field, for the fleet and for the subsidies to allies that reflected the (for Britain) humane policy of contributing from more abundant wealth as allies contributed from more abundant manpower. Pitt was relentless and many thought ruthless in his demands on the Bank for loans. Though taxes were increased, and an income tax, also called a property tax, was levied against heavy resistance, the need continued. In the closing years of the century Bank reserves dwindled, and there were occasional runs. Finally, in 1797, under conditions of great tension which included the thought that the French might soon be landing, the Bank suspended the right of redemption of its notes and deposits in gold and silver. The principal immediate consequence was the prompt disappearance of gold and silver coins and a shortage of coins for modest transactions. People passed on the notes and kept the metal. Gresham again. The Bank hurriedly printed one- and two-pound notes, and it also redeemed from its vaults a store of plundered Spanish pieces of eight. The head of George III was stamped over the head of the Spanish monarch, inspiring an anonymous but notably anti-Establishment poet to write:
The Bank, to make their Spanish dollars pass,
Stamped the head of a fool on the neck of an ass.6
The needs of the government continued to press. Loans and the resulting note issues continued to increase. And now so did prices and the price of gold. Wheat, which was six shillings, ninepence a bushel at Michaelmas in 1797 and at the same level a year later, went to above eleven shillings in 1799 and to sixteen shillings the following year.7 Bread went up accordingly. The price of uncoined gold bullion advanced substantially in the same period. In the next few years prices receded somewhat, only to rise sharply again. As this was a matter of much concern, and, in reflection of the distribution of power in the British polity of the day, the concern was focused not on the price of food but on the price of gold. In consequence, in 1810, the House of Commons impaneled a committee to inquire into the matter—the Select Committee on the High Price of Gold Bullion. Its principal task, which many would think involved a different phrasing of the same question, was to ascertain whether Bank of England notes, the basic money, had fallen or the price of gold had risen. The committee deliberated and duly found against the notes. Gold had increased in price because of an overissue of the still irredeemable Bank of England notes. The committee proposed that, after a two-year period, the Bank make its notes fully convertible into specie once more. Thus convertible, there could be no increase in the price of metal.
There followed in 1811 a famous debate on the nature of money and its management, the most famous indeed in all history. Parliamentarians took part, and monetary experts came forward to offer their views. Then, as since, it was uncertain what made a man a monetary expert. Thenceforth, however, they were to be a fixed feature of the monetary scene.
In the debate, indistinct but wholly recognizable, is a difference of opinion that continues to this day.8 Where does economic change originate? Does it begin with those who are responsible for money—in this case with those who made loans and thus caused the supply of notes and deposits to increase? (From this then comes the effect on prices and production, including the stimulating effect of rising prices on production and trade.) Or does change begin with the production? Does it originate in business activity and prices with consequent effect on the demand for loans and thence on the supply of notes and deposits, which is to say the supply of money? In short, does money influence the economy or does money respond to the economy? The question is still asked. “Monetary doctrine has wavered over time in its assessment of money as cause or effect of economic conditions.”9
The war years were ones of expanding business activity and, as noted, of rising prices. One party, including the great men of the Bank itself, held that business conditions (as affected by the war) were the decisive influence. The Bank and its loans and note issues were a response. The price of gold had gone up under pressure of active trade. The opposing party held that the Bank, by its generosity and weakness of will in resisting the government, had allowed out the notes that had caused the increase. The price of gold had not risen; it was the notes of the Bank that, most assuredly, had depreciated. And there should be no doubt; it was the responsibility of the Bank to ensure that its notes did not depreciate. This view reinforced that of the Bullion Committee.
By far the most memorable participant in this debate was a London stockbroker of Jewish provenance who, unknown to himself or anyone else, was, by this discussion, launching one of the most famous careers in economic thought. Some would later count him the greatest of all economists. This was David Ricardo, and he was an uncompromising supporter of the Bullion Committee and of what soon was to be known over the world as the gold standard. “During the late discussions on the bullion question, it was most justly contended, that a currency, to be perfect, should be absolutely invariable in value.”10 After conceding that precious metals could not be counted upon to be quite so invariable and perfect (“they are themselves subject to greater variations than it is desirable a standard should be subject to. They are, however, the best with which we are acquainted.”11), Ricardo went on to hold that, without such a standard, money “would be exposed to all the fluctuations to which the ignorance or the interests of the issuers might subject it.”12 He was not opposed to bank notes. He thought them economical and a great convenience. But let them always be fully convertible into the metal on demand.
Ricardo’s was in a great tradition of economic counsel—one that is superb in willing the ends, weak in willing the means. Or, as a recent historian has gently suggested, he was “as a theoretical economist, apt to be blind to what was happening under his nose—for example, the fact that the country was at war.”13 To this detail Pitt, however, could not be blind; whatever the effect on the price of bullion, he had the problem of Napoleon. He continued to come to the Bank for loans. Ricardo was triumphant in principle, failed only as a matter of practical necessity.
But in the end he won also in practice. Reputable opinion continued to be strongly on his side. In 1821, with the war well over, full convertibility was restored at the old rate of exchange between notes and gold. Ricardo, on this as on other matters, had conquered England “as completely as the Holy Inquisition conquered Spain.”14
Not that all was yet well. The Bank was still thought too compliant. In 1824, memories of the South Sea Bubble having sufficiently dimmed, there was another notable outbreak of company promotions and issues. Many of these again reflected the fatal attraction to South America, although there was an encouraging response to a company “to drain the Red Sea with a view to recovering the treasure abandoned by the Egyptians after the crossing of the Jews.”15 An easygoing policy by the Bank was thought, though only after the later collapse, to have encouraged the boom. A decade later there was another expansion of loans, another boom, then a heavy run on reserves. These approached exhaustion, and the Bank faced either a new suspension or bankruptcy. This time it was saved by a consortium of French bankers. They advanced gold to the Bank of England which they in turn drew from the Banque de France, the arrangement serving, among other things, somewhat to disguise the indignity of the rescue of the Bank of England by the Banque de France. In 1844, after an intense discussion of the respective roles of currency and banking in monetary management, Sir Robert Peel put the Bank firmly in a straitjacket—what Walter Bagehot, thirty years later, was to call the “cast-iron” system.16 The Bank Charter Act of that year fixed the note issue of the Bank of England at £14 million. This amount was to be secured by government bonds. Beyond that, more notes could be issued only as there was gold and silver (no more than one-fourth the latter) in the vault. The cast-iron system was much too rigorous for another of the previously mentioned functions that the Bank was by now acquiring—that of supplying funds when people came in distressing numbers for their deposits in the lesser banks. This fault was remedied by suspending the law whenever it proved unduly inconvenient.
In these years the Bank moved to bring the operations of the subordinate or commercial banks under its control. In doing so, it brought into use the two historic instruments of central bank policy—open-market operations and the bank rate.
A rapid expansion of commercial bank loans and resulting deposits and the spending of the latter would, as we have seen, cause prices to rise. The effect in England, exposed as it was to the full force of foreign competition, was to encourage purchases from abroad. And it made England a more costly market from which to buy. A signal of an unduly rapid expansion of bank lending, accordingly, was an outflow of gold for overseas purchases or for investment in supplying them. This the Bank now anticipated and forestalled by raising the bank rate—the rate at which, in one manner or another, it loaned funds to other banks or at which it accepted credit instruments from those seeking funds to finance commercial transactions. (This action had been facilitated in 1833 by legislation in effect exempting the Bank from the usury laws.) Such an increase in the bank rate now became a signal to the banks that they should restrict their lending. In case the signal was missed, the Bank of England could sell government securities in the open market and allow its other investments, including its commercial paper, to expire and be collected. So instead of an investment portfolio it now had cash. And this cash not being in the other banks, they had fewer reserves against their deposits and were thus forced to be more restrained in making new loans. They could replenish their cash by borrowing from the Bank of England. But here the bank rate entered. Having been increased, this discouraged such borrowing—and discouraged borrowing by ultimate customers when passed on to them. Thus did the Bank of England come to regulate the lending—and therewith the making of deposits and money—by the banking system as a whole.
Few phrases have ever been endowed with such mystery as open-market operations, the bank rate, the rediscount rate. This is because economists and bankers have been proud of their access to knowledge that even the most percipient of other citizens believe beyond their intelligence. Open-market operations are the sale of securities just mentioned by the central bank which removes the loanable cash or reserves from the commercial or ordinary banks. The bank rate and the rediscount rate are the same; they are what prevent the banks from too painlessly recouping their cash by borrowing from the central bank. This is it. Viewed in the context of their development in the last century, it is hard to regard these mysteries as anything but a simple, even obvious, accommodation to circumstance.
And so too was the final service of a central bank—the provision of a reliable supply of wholly acceptable money when, for whatever reason, people wished to turn their deposits in the commercial banks into the cash which, by the nature of deposit creation, was not there. In the crises of 1825 and 1833 there had been such a rush for gold. In the rest of the century it happened several times again. One of the more spectacular runs occurred in 1890 when the great banking house of Baring Brothers and Company suddenly found itself with £21 million in defaulted Argentine bonds on its hands and the prospect of bankruptcy ahead. (South America again.) For these emergencies there was also an established procedure. The Bank raised its rate high enough to discourage all unnecessary borrowing and to attract unattached investment funds from abroad. And then it met the needs of all solvent bankers who came for money. Their depositors were thus reassured. And so reassured, it was again as at Amsterdam. “The certainty that money could be got took away all desire to have it.”17 Beginning about 1825, the Bank of England recognized its responsibility to be “lender of last resort.” This phrase is also much used by the cognoscenti; from it too history strips the mystery to leave a rather simple accommodation to circumstance.
In 1800, the lingering suspicions of the French of such institutions had yielded to the financial needs of Napoleon. There had emerged the Banque de France which, in the ensuing century, developed in rough parallel with the Bank of England. In 1875, the former Bank of Prussia became the Reichsbank. Other countries had acquired similar institutions or soon did. In 1867, in a relatively uncelebrated conference in Paris the representatives of the leading industrial countries of Europe decided that henceforth payment in specie would mean payment in gold alone. There will be occasion for later mention of this reform.
Within each country bank notes and deposits were freely transferable into gold at a fixed rate. Anyone so taking gold could exchange it for the currency of any other mature industrial state at a fixed rate. It followed that there was a fixed rate of exchange between the significant currencies. Accordingly, it was immaterial, except for a minor arithmetic calculation, in which currency a price was quoted, a contract entered or a loan agreed. The central banks—and by common agreement the Bank of England in particular—policed and protected the convertibility of currency into gold, and the armory of instruments for doing this was now complete. It seemed a very solid structure. It was less accepted in the United States than in Europe, as ensuing chapters will tell. But this seemed only a matter of time and understanding; such matters were bound to be difficult for a raw new democracy, and farmers, where money was concerned, were especially retarded. The trend in the United States was also very much in the right direction.
And in all countries there was a reinforcing morality. Those who supported sound money and the gold standard were good men. Those who did not were not. If they knew what they were about, they were only marginally better than thieves. If they did not, they were cranks. In neither case could they be admitted into the company of reputable citizens. This was not alone the morality of conservatives; it was also the virtue of intelligent and sophisticated men of the left. Socialists and, later, Communists, while they wished to be revolutionists, did not wish to be knaves.
In fact, the monetary achievement of the nineteenth century was a fragile thing. Thoughtful or anxious men had always posited one danger—that gold might become abundant and commonplace and the resulting rise in prices appalling. Perhaps then it would have to be abandoned for something with larger value and smaller bulk. It was not a totally academic thought. In but one year, 1850, following the rush of the adventurers, fortune seekers and optimists of the world to the Mother Lode, the new state of California produced as much gold as the whole world had in an average year of the preceding decade. At the same time in the Australian diggings fortunate men were picking up huge chunks when they could lift them—one of two hundred pounds was found reposing only a few inches under the surface. Then toward the end of the century came the discoveries on the Klondike and the Rand. There was still much distant and unexplored terrain on the planet. Who could tell what it might yield?
It would have been interesting to see what plethora would have done. Freud held that man’s attachment to gold was deep in his subconscious. Accordingly, the prestige of the metal or some of it would have survived even had gold become like coal. The hypothesis was not tested, for the abundance did not develop. Enough gold was found to have an effect on prices. In the twenty-five years before 1848, when the specks were first seen in the race at John Augustus Sutter’s mill, prices in gold or its equivalent had been falling. In the next quarter-century they rose, although by modern standards the increase—by about 20 percent—was not very great. After South Africa, discoveries, on the whole, tapered off. Gold remained scarce. Keynes calculated in 1930 that an ocean liner could carry across the Atlantic all that had been mined, worked or dredged in the previous seven thousand years.18 A modern supertanker would still be vastly more than adequate.
A greater danger to gold was war. The gold standard in the last century owed much to the intelligent management of the Bank of England—for a brief moment, central banking was an art. It owed much more to the British peace. In the next century warring governments would, as did that of Pitt, turn to their central banks for the money that they could not raise in taxes. And no bank, whatever its pretense to independence, would even think of resisting.
Most dangerous of all would be democracy. The Bank of England was the instrument of a ruling class. Among the powers the Bank derived from that ruling class was that of inflicting hardship. It could lower prices and wages, increase unemployment. These were the correctives when gold was being lost; euphoria was excessive. Few or none foresaw that farmers and workers would one day have the power that would make governments unwilling to impose these hardships even in so righteous a cause as defense of the currency.
However, it was early seen that the interests of the rich in these matters could differ from those of others. Writing in 1810, Ricardo observed that
The depreciation of the circulating medium has been more injurious to monied men … It may be laid down as a principle of universal application, that every man is injured or benefited by the variation of the value of the circulating medium in proportion as his property consists of money, or as the fixed demands on him in money exceed those fixed demands which he may have on others.19
Farmers, by contrast, were helped:
He, [the farmer] more than any other class of the community is benefited by the depreciation of money, and injured by the increase of its value.20
In England the triumph of Ricardo’s monied class was complete or nearly so. In the United States, however, it was subject to the sharpest of challenges. In one form or another, this challenge was to dominate American politics for the first century and a half of the Republic. Only the politics of slavery would divide men more angrily than the politics of money.
1 Harry E. Miller, Banking Theories in the United States Before 1860, Harvard Economic Studies, Vol. XXX (Cambridge: Harvard University Press, 1927), p. 20.
2 “The Business Situation,” Federal Reserve Bank of New York Monthly Review Vol. 55, No. 12 (December 1973), p. 291.
3 John Giuseppi, The Bank of England (London: Evans Brothers, 1966), p. 26. Earlier writers thought he had been unfairly removed from his great design.
4 Details are in R. D. Richards, “The Bank of England and the South Sea Company,” Economic History (A Supplement of The Economic Journal), Vol. II, No. 7 (January 1932), p. 348 et seq.
5 Charles Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds (London: Richard Bentley, 1841; Boston: L. C. Page and Co., 1932), p. 55.
6 Giuseppi, p. 76.
7 T. S. Ashton, Economic Fluctuations in England, 1700—1800 (Oxford: Oxford University Press, 1959), p. 181.
8 As also in its recurrence a few years later in the discussion between the adherents of the so-called banking and currency principles of Bank policy.
9 Sidney Weintraub and Hamid Habibagahi, “Money Supplies and Price-Output Indeterminateness: The Friedman Puzzle,” Journal of Economic Issues, Vol. VI, Nos. 2 and 3 (June–September 1972), p. 1.
10 David Ricardo, The Works and Correspondence of David Ricardo, Vol. IV, Pamphlets 1815–1823, Piero Sraffa, ed. (Cambridge: Cambridge University Press, 1951), p. 58.
11 Ricardo, Pamphlets, p. 62.
12 Ricardo, Pamphlets, p. 59.
13 Giuseppi, p. 79.
14 John Maynard Keynes, The General Theory of Employment Interest and Money (New York: Harcourt, Brace & Co., 1936), p. 32.
15 A. Andreades, History of the Bank of England (London: P. S. King and Son, 1909), p. 250, citing Juglar, Les crises economiques, p. 334.
16 Walter Bagehot, Lombard Street (New York: Scribner, Armstrong and Co., 1876), p. 25.
17 Andreades, p. 336.
18 John Maynard Keynes, A Treatise on Money (New York: Harcourt, Brace & Co., 1930), Vol. II, p. 290. Keynes is also the source of Freud’s observation.
19 Ricardo, Vol. III, Pamphlets and Papers, 1809–1811, p. 136.
20 Ricardo, Pamphlets and Papers, pp. 136–137.