The historical claim of this section is that the texts of the Restriction hold three different forms of end: the Minute of 1797 names only a procedure; the law, as the Bullion Committee describes it in 1810, names an event outside the government's control; and the committee argues for a fixed date instead, on grounds that read, to a modern eye, very like a theory of credibility. For the debate over the escape clause, the section adds that the order which began the suspension wrote no condition of return, and that the committee of 1810 argued that an indefinite end was itself a danger.
4.1The Minute of 26 February 1797
The minute is dated Sunday 26 February 1797. Its text, as the study's reading note gives the part the cut text lacks, records that unusual demands for specie had been made on the metropolis in consequence of ill-founded or exaggerated alarms. The surviving lines take up from there. They say that unless some measure were taken at once, there was reason to fear that the cash available would not be enough for the needs of the public service. On that ground, the Council gives its unanimous opinion that it is necessary for the public service that, in the words the rules allow to be quoted, "the directors of the Bank of England should forbear issuing any cash in payment, until the sense of parliament can be taken on that subject". The same sentence adds a second waiting point: the adoption of suitable measures to keep money circulating and to hold up the credit of the state and of trade at a critical moment. A copy of the minute is to be sent to the directors, who are required, because the case is urgent, to comply until Parliament's view can be had. There the cut text breaks off.
Three features of the Minute matter for the question of ending.
The first is that it names an end, and the end is a procedure. The suspension is to last "until the sense of parliament can be taken on that subject". That is not a date and not an event in the world; it is a step in government. Parliament might resume payment at once, or continue the suspension with or without a term; the Minute hands the question on.
The second is the ground it gives. The Minute's reason is the public service: the danger is that the government itself will lack cash. Those who made the unusual demands for coin appear only as the source of the alarm, which the Minute calls ill-founded or exaggerated. The credit of trade is named, beside that of the state, as something to be supported. No one in the excerpt is named as bearing the cost of the suspension. The Bank's creditors, who now could not obtain coin for their notes, are the people the order directly affects, and the excerpt is silent about them.
The third is its form. An executive council, acting on a Sunday and ahead of Parliament, directs a private corporation to stop performing its contracts, and makes the direction last until the legislature can act. In the vocabulary Gross and Ní Aoláin set out, the act sits at the edge between the model in which emergency lies outside ordinary law and the model in which it is accommodated within it (Gross and Ní Aoláin 2006): the excerpt cites no statute for the order, yet it names the legislature as the body that will decide what follows. Posner and Vermeule's picture of an executive that acts first while the other branches defer (Posner and Vermeule 2010) fits the sequence; it does not fit the text, which, in the excerpt, defers to Parliament in its own words.
For the escape-clause reading, the excerpt of the Minute is thin. It does not call the suspension temporary in so many words, though its structure, an order lasting until Parliament acts, implies a provisional measure. It names no parity, no condition of resumption and no date. If the public expected a return, the expectation did not come from the text at hand.
4.2Thornton's defence, 1802
Henry Thornton, banker and member of Parliament, defended the suspension in his book of 1802; his Chapter V speaks of the law suspending cash payments as having been renewed. The three excerpts at hand are read here in order, in this article's words.
The first excerpt, from Chapter IV, begins with the institution. Thornton holds that the risk of a failure in a country's means of making cash payments, against which no complete security is possible, is best met by having one principal bank. The public, he says, should not judge such a bank by the rules it applies to smaller banking and commercial houses, because the principal bank has in effect become the public's servant and must be judged by its peculiar position. He then turns to the Bank's conduct. If the Bank of England was at fault, he writes, its fault lay in restricting its notes too much in the recent seasons of alarm, not in issuing too many. He lists the reasons it may have done so: it followed what might have been Adam Smith's advice, it took the course that is natural for small banks, it followed its own directors' practice from earlier times, and it followed common opinion. He suggests, with deference, that by withdrawing too many notes in the period before the suspension the Bank may have increased rather than reduced the demand on itself for guineas, and that in 1793, when the failure of country banks caused an alarm, it might properly have made a larger temporary issue. At the least, he says, the reduction of notes in the more recent case did not cure the evil it was aimed at.
This article reads the passage as the part of the excerpts closest to the lender-of-last-resort function that later readers find in Thornton's book (Thornton 1802; Humphrey 1989). For the question of ending, it matters in a different way. Thornton ventures, with deference, a suspicion that the Bank's own withdrawal of notes before the suspension may in some measure have added to the demand for guineas. If that suspicion is right, the end of a suspension would depend on the Bank's conduct as well as on the war; Thornton offers it as a suspicion, not a finding.
The second excerpt takes up an objection. Some held, Thornton reports, that the government and Parliament should not have interfered, because the Bank ought to have gone on paying cash as long as it could. On this objection a bank note is a promise to pay, given in return for value, and Parliament should not, short of extreme need, prevent its performance. Thornton's answer is that the question concerns not one holder of one note but all holders of notes and everyone with a right to demand cash anywhere. Almost every creditor is also a debtor; bankers and traders owe more than other people but are owed more too; the Bank itself is owed far more than it owes, and part of what it is owed is due almost at once. A small share of those entitled to demand cash, moved by sudden alarm, press for guineas to a degree that would turn much of their capital into coin, of which only enough has been provided for ordinary payments. No quantity of coin in the world would satisfy such claims if everyone with a right to make them did so, and those who press hardest forget that their own creditors could press them for larger sums with equal right. The law that authorised the suspension, Thornton concludes, did no more than carry out what the country as a whole must have wanted in a new and unusual situation. Parties to a contract to pay money may be taken to agree, for their common interest, to relax its literal meaning, so that money means the value of money rather than particular pieces of metal; Parliament may be seen as stepping in to carry out that common wish.
The argument is a theory of who bears a suspension, and its answer is that, properly understood, nobody does, or rather everybody does equally, since the suspension protects each debtor from the creditor who would otherwise press. It also contains, by implication, a theory of the suspension's end. If the suspension carries out a shared willingness, during an alarm, to take payment in value rather than in coin, it should last as long as the alarm and no longer. Thornton does not say this in so many words; he comes closest in the third excerpt.
Before that, the second excerpt describes how the suspension was carried out. By authorising it while some guineas still remained in the Bank, Thornton writes, Parliament softened the shock and kept coin available for small current payments after that moment, as well as securing the credit of the notes. Parliament, in his account, set theory and some popular prejudice aside for the sake of public safety and real justice. The danger most feared in London was that ordinary people, no longer paid in coin and not knowing at first that the new small notes would buy everything gold would, might be stirred to disorder; it was also feared that the new small notes might fall to a discount among them. So it was important to go on paying labouring people in coin for a time, and to put the new small notes into circulation first through the higher classes. A small part of the coin remaining in the Bank was given to each banker after the suspension for the convenience of ordinary workmen, and a further sum was kept back for later needs. Immediately afterwards, Thornton reports, the Bank raised its issue almost to the usual amount of notes in circulation; credit revived, guineas became plentiful before long, the Bank was commonly thought to have been refilled with them, and, as he puts it, the exchange turned strongly in the country's favour, which proves that gold flowed in.
This passage names bearers, in a way the excerpt of the Minute does not. The people whose reaction was feared were the labouring poor, who were paid in coin and might not accept paper; they were shielded, for a time, by being paid in coin while the new notes went first to those better placed to take them. On Thornton's account, the new small notes went out first through the higher classes, while wage earners went on receiving coin, some of it handed to bankers for the convenience of workmen. Thornton gives no figure and no duration for this arrangement. He names who was protected and who carried the new paper.
The third excerpt, from Chapter V, is the one that speaks directly to the end. Thornton writes that it hardly needs arguing that repeal in the war's closing stage would have been unwise. Repeal then would have come at a moment much like the one in which Parliament first enacted it: gold had lately been drawn abroad by an unfavourable exchange, and the country again faced alarms of invasion. Opening the Bank would have exposed it not only to demand for gold on those two accounts but to extra calls from country banks anxious to provide more amply than they would permanently need for the first opening. The suspending law was renewed, Thornton concludes, because of the special conditions of that moment, and not on any principle that necessarily implied that the suspension would be permanent or even last long.
No text of the Restriction comes closer to an escape clause in words. The suspension is defended as bounded by circumstance: war, an unfavourable exchange, the threat of invasion. Permanence is denied, in the qualified form just given; a term is not offered. A reader of 1802 learns from him that the law was renewed because gold had been drawn abroad, invasion was feared and country banks would have made extra calls on a reopened Bank, but not what event would bring the suspension to an end.
Thornton's text supports the escape-clause reading in its premise and leaves it open in its mechanism. The premise is that suspension in war is legitimate and not a rejection of convertibility; the mechanism, an expected return on known terms, is absent. The same text raises, as a deferential suspicion, the possibility that the Bank's own contraction of notes beforehand made the demand for guineas worse, a point neither side of the rules debate needs to deny.
4.3The Bullion Report, 1810
In 1810, on the committee's own account, a law still suspended the Bank's cash payments, the price of gold was high and the exchanges had fallen. The House of Commons had appointed a select committee to find out why gold bullion cost so much, and to look into the currency and the exchanges with other countries. Its report opens with the facts it found and ends with a recommendation about the end of the suspension.
The opening, read in this article's words, describes a price of gold well above the Mint's price over several years and rising sharply from the end of 1808, with silver also above its Mint price, and the exchanges with Hamburg, Amsterdam and Paris depressed well below par through 1809 and into 1810, improving somewhat in March 1810 and then holding steady. The committee says that a rise in gold so large, joined to so steep a fall in the exchanges, led it early to suspect that both had their origin in the state of the currency at home. Before settling on that conclusion, it heard merchants. Most of the witnesses, it reports, blamed the dearness of gold entirely on a scarcity arising from unusual demand on the Continent, chiefly to supply the French armies, swollen by the alarm and loss of confidence that lead people to hoard. The excerpt ends there; the committee's long examination of that explanation lies in pages the text at hand does not include.
The conclusion takes up after the committee has made its judgement. Its opinion, in this article's words, is that the country's money should return, as quickly as prudence permits, to the old rule under which anyone holding a Bank note could demand coin for it. It considers and rejects other remedies, such as a compulsory limit on the Bank's advances and discounts while the suspension continued, or a limit on the Bank's profits and dividends with the surplus paid to the public: indirect schemes of that kind, it says, could never be set in the right proportion and would interfere improperly with commercial property. The only sufficient remedy for the present and security for the future, so far as the damaged margin of the page can be read, is the repeal of the law that suspends the Bank's cash payments.
Then comes the passage on timing, which is the heart of the matter for this article. The committee expects difficulties and some dangers to the Bank in so large a change, and proposes to meet them in two ways: by leaving the conduct of the operation to the Bank's own discretion, and by giving it a period long enough to complete it with room to spare. The particular manner of returning to cash payments, it says, should be left largely to the Bank; Parliament should do little more than settle, once and for all, the date from which the Bank must pay coin again. The period should be generous so that the directors can feel their way, watch the changing circumstances, use only favourable ones, and retrace their steps slowly.
It suggests that the restriction cannot safely be lifted earlier than two years from the time of the report, and that Parliament should provide in good time for the statutes that had imposed and prolonged the restriction to stop operating when those two years ran out. It then explains why it does not simply rely on the law as it stood. It has not overlooked, it says, that under the existing law "the Bank would be compelled to pay in cash at the end of six months after the ratification of a definitive Treaty of Peace", so that if peace came within two years its proposal might look like postponing resumption rather than hastening it. But if peace were ratified at once, the committee holds, compelling the Bank to pay in six months in the present state of the circulation would be most hazardous and wholly impracticable; peace would open new fields of enterprise and multiply the demands on the Bank for discount, and a sudden restriction of issue would distress the commercial world. Its conclusion is the passage the rules allow to be quoted in full: "Your Committee are therefore of opinion, that even if Peace should intervene, two years should be given to the Bank for resuming its payments ; but that even if the War should be prolonged, Cash payments should be resumed by the end of that period."
Two further paragraphs of the conclusion bear on the escape clause directly. In the first, the committee says it has considered that political circumstances might later be thought to argue for extending the period, or even for a new law of temporary restriction after the Bank had opened. It does not expect ever to need the existing arrangement again. But if a fresh restriction should one day be called for, it says, the reason could never be the exchanges, which it believes it has shown to lie broadly within the Bank's control; it could only be political events that cause, or are about to cause, panic within the country and a call for coin at home so unlimited that no bank could meet it. Going back to ordinary banking is, it adds, needed all the more because the exchanges have fallen and gold is dear; nothing else can bring back trust in what the currency is worth, and the firm prospect of it must force the Bank to reduce its paper beforehand.
In the second, the committee explains why the end must be dated. The prospect of a fixed time when the Bank will have to open, it says, may itself help the exchanges improve. By contrast, a postponement as indefinite as six months after the end of the war, especially if the exchange went on falling, might, if public affairs went badly, lead people, foreigners above all, to doubt whether Parliament really meant to bring payment back to the standard it claimed to keep; that doubt could speed the exchanges' decline and end in disgrace and disaster.
The report closes with practical provisions. The Bank might be allowed to go on issuing small notes for a time after it resumed payment in coin; the chartered banks of Scotland and Ireland and the country banks should be given a while after the Bank of England's resumption before they too had to pay in coin, and meanwhile go on redeeming their notes in Bank of England paper.
Read against the escape-clause debate, the committee's report does three things that neither the Minute nor Thornton did.
It distinguishes two kinds of written end and prefers one. The law as it stood ended the suspension six months after a definitive peace: an end tied to an event that no one in London controlled and no one could date. The committee wants an end tied to a date that Parliament would fix. Its objection to the event-based end is that it was indefinite, and that indefiniteness, combined with a falling exchange, could destroy confidence in the return.
It names the contingency that would justify a suspension, and excludes another. Political events that set off panic within the country, with a call for coin no bank could meet, are in the committee's account the only proper ground for restriction; a fall in the exchanges is not. That is a written specification of an escape clause's trigger, of the kind Bordo and Kydland's note says the gold-standard rule contained (Bordo and Kydland 1995). The committee wrote it after the fact, as a limit on any future restriction, and it was a recommendation of a committee, not a law.
It separates time from manner. Parliament is to settle the date for good; the Bank is to choose the manner as it judges best. In the vocabulary of Kydland and Prescott, this is a rule about the date and discretion about the path (Kydland and Prescott 1977). Their paper argues for rules in place of discretion in general; the committee's division of labour is a narrower thing, a rule where the public needs certainty and discretion where the operator needs room.
In this article's reading, the committee was arguing, in 1810 and in its own terms, that a suspension without a known end damages the credibility of the return, and that the remedy is to write the end down as a date. That is very close to the escape-clause reading's premise that a suspension stays credible so long as the public expects a return. It goes a step further by saying how the expectation should be secured. The report belongs to the bullion controversy that Fetter follows towards the Act of 1844 (Fetter 1965); his note does not say what became of its argument for a dated end, and the texts at hand do not either.
What the report cannot show is whether its argument prevailed. The text at hand ends with the committee's recommendations. It does not say whether Parliament fixed a date in 1810 or later, and the modern record does not say either.
4.4The modern record of the Restriction
Skeptron's record, The Bank Restriction, gives the act in two sentences, which appear in its scenario and again as the answer to its question of concrete fact.
The obligation to exchange banknotes for gold of equal value was temporarily suspended. The official chronology presents the Restriction Period as 1797–1821, and also explains the issuance of low-value notes and counterfeiting.
Its answer to the question whether the outcome can be written as the end of the notes or as a permanent abolition of convertibility separates the act from its sequel:
A temporary exchange restriction and the existence of a currency are different. The scope of the Restriction Period and its later resumption are distinguished, and the cause of every price movement is not reduced to a single measure.
The record keeps three things the documents support. It calls the suspension temporary, which Thornton argued and the committee assumed. It mentions low-value notes, which Thornton's account of the new small notes and the committee's provision on small notes both concern. And it refuses to put every movement of prices down to the suspension, which is consistent with the committee's opening, where the merchants offered a different explanation for the high price of gold.
It also does something the documents do not. It gives the period as 1797 to 1821, from the Bank's chronology. That is a retrospective boundary: the end year comes from a later account of what happened, not from anything the Minute, Thornton or the committee wrote. Nothing in the record says when the end year was fixed, by whom, or on what condition; nothing says whether the committee's two years were adopted, or whether the law's six months after peace governed; the record's end year lies well beyond two years from 1810. A reader who meets the Restriction through the record learns that it was temporary and when it ended, but not that the Minute named no end but a procedure, that the law the committee describes tied the end to peace, and that a committee of the Commons had argued for a date which, on the evidence at hand, cannot be shown to have been fixed.
Meridian's ledger, reading this summary, took the suspension as one given a term, with an end a reader could check, which ended as the term said; both of its readings pointed to the period of 1797 to 1821 and the mention of a later resumption (see the Appendix). As a reading of the summary that is correct. As a description of the suspension it reverses the order of knowledge: the summary states a term because it was written after the end.
The record's answer to its fifth question is Skeptron's own condition for a later comparison, not the actors' condition for an end:
What must be observed is the change in volume, price, and transaction possibility after the control. If quoted figures were replaced with actual executed prices, the revenue and cost-of-living computations are withdrawn.
It concerns how a modern comparison should be kept honest, and says nothing about what in 1797 or 1810 would end the suspension.
The record names no one who bore the cost of the suspension. Thornton names the labouring people, protected by coin for a time, and the higher classes, through whom the new notes went out first; the committee names the country banks and the chartered banks of Scotland and Ireland as needing a delay of their own when cash payments resumed. None of this reaches the summary.
4.5What the case adds
For the debate over the escape clause, the case adds several texts rather than one: a procedural end in the Minute of 1797, Thornton's guarded denial of permanence in 1802, an end tied in law to peace as the committee describes it in 1810, and the committee's argument that an undatable end endangered confidence in the return. Bordo and Kydland's reading needs an expected return; the order that began the suspension wrote no condition of return, and the committee argued for one on grounds of credibility. The modern record keeps the temporariness and supplies, with hindsight, an end year the authors did not write.