Creature From Jekyll Island by G. Edward полностью

F o r so long as the Catholic districts of London were being pillaged, the authorities were slow to react. W h e n the siege of the Bank began, things w e r e thought m o r e serious. T r o o p s intervened, a n d ever since soldiers h a v e been sent to g u a r d the Bank by night.1

198 THE CREATURE FROM JEKYLL ISLAND

BOOMS AND BUSTS NOW GUARANTEED

Once the Bank of England had been legally protected from (lie consequences of converting debt into money, the British economy was doomed to a nauseating roller-coaster ride of inflation, booms, and busts The natural and immediate result was the granting of massive loans for just about any wild scheme imaginable. Why not?

The money cost nothing to make, and the potential profits could be enormous. So the Bank of England, and the country banks which pyramided their own money supply on top of the Bank s supply, pumped a steady stream of new money into the economy. Great s t o c k companies were formed and financed by this money. One was for the purpose of draining the Red Sea to recover the gold supposedly lost by the Egyptians when pursuing the Isrealites.

£150,000,000 were siphoned into vague and fruitless ventures in South America and Mexico.

The result of this flood of new money—how many times must history repeat it?-was even more inflation. In 1810, the House of C o m m o n s created a special committee, called the Select Committee on the High Price of Gold Bullion, to explore the problem and to find a solution. The verdict handed down in the final report was a model of clarity. Prices were not going up, it said. The value of the currency was going down, and that was due to the fact that it was being created at a faster rate than the creation of goods to be purchased with it. The solution? The committee recommended that the notes of the Bank of England be made fully convertible into gold coin, thus putting a brake on the supply of money that could be created.

IN DEFENSE OF THE GOLD STANDARD

One of the most outspoken proponents of a true gold standard was a Jewish London stockbroker by the name of David Ricardo.

Ricardo argued that an ideal currency "should be absolutely invariable in value."1 He conceded that precious metals were not perfect in this regard because they do shift in purchasing power to a small degree. Then he said: "They are, however, the best with which we are acquainted."

1 D a v i d Ricardo, The Works and Correspondence of David Ricardo: Pamphlets 1825-1823, P i e r o Sraffa, ed . ( C a m b r i d g e : C a m b r i d g e U n i v e r s i t y Press, 1951), Vol . IV, p. 58.

2. Ibid., p. 62.

THE SECRET SCIENCE

181

Almost everyone in government agreed with Ricardo's assessment, but, as is often the case, theoretical truth was fighting a losing battle against practical necessity. Men's opinions on the best form of money were one thing. The war with Napoleon was another, and it demanded a constant inflow of funding. England continued to use the central-bank mechanism to extract that revenue from the populace.

DEPRESSION AND REFORM

By 1815, prices had doubled again and then fell sharply. The Corn Act was passed that year to protect local growers from lower-priced imports. Then, when corn and wheat prices began to climb once more in spite of the fact that wages and other prices were falling, there was widespread discontent and rebellion. "By 1816," notes Roy Jastram, "England was in deep depression. There was stagnation of industry and trade generally; the iron and coal industries were paralyzed.... Riots occurred spasmodically from May through December."1

In 1821, after the war had ended and there was no longer a need to fund military campaigns, the political pressure for a gold standard became too strong to resist, and the Bank of England returned to a convertibility of its notes into gold coin. The basic central-bank mechanism was not dismantled, however. It was merely limited by a new formula regarding the allowable fraction of reserves. The Bank continued to create money out of nothing for the purpose of lending and, within a year, the flower of a new business boom unfolded. Then, in November of 1825, the flower matured into its predestined fruit. The crisis began with the collapse of Sir Peter Cole and Company and was soon followed by the failure of sixty-three other banks. Fortunes were wiped out and the economy plunged back into depression.

When a similar crisis with still more bank failures struck again in 1839, Parliament attempted to come to grips with the problem.