The Automatism of the Currency School

As we saw in the preceding chapters, the 1821 Resumption, contrary to the expectations of the Bullionists at the time, did not bring an end to the monetary fluctuations or to the debates about the role of the monetary system and the responsibility, if any, of the Bank for these fragilities. The agricultural crises of the early 1820s, the severe crises of 1825, and then the downturn of 1836 forced the continuation of public discussions of monetary issues. As we shall see in this chapter, new proposals for reform based on Humean and Ricardian principles were again put at the center of the debate. The supporters of the new reform were known as the Currency School. This chapter will follow their major theoretical arguments and their policy proposals.

The Currency School, typically represented by Samuel Jones Loyd, Robert Torrens, and George Warde Norman, successfully promoted the 1844 Bank Act. The background to the Act was the continued instability and recurring financial crises in the British economy. The banking sector was particularly fragile, and the rise of joint-stock banking after the Resumption caused much alarm. In times of instability, the system relied on the Bank of England, as those who were well informed about the banking system recognized; although by its charter, the Bank had no legal obligation to support the financial system. The recognition that the system was not well secured led in the late 1830s to an old-new idea: Make the money supply – the quantity of coins and notes – behave as would a “pure,” coins-only currency.