British Currency School: Difference between revisions

The Currency School emerged from the beliefs of the [[Bullionism|Bullionist]] group, which was prevalent in the early 1800s. When the French landed on English soil in 1797, financial panic arose in Britain. Due to the 18th century banking system, there was high concern of [[banking panic]], a financial crisis that occurs when many [[bank run]]s occur at the same time and people rush to withdraw paper money or transfer money to other assets.<ref>{{Cite book|title=Culture and currency: Cultural bias in monetary theory and policy|last=Houghton|first=John|publisher=Political Cultures series. Boulder and Oxford: Westview Press|year=1991|isbn=0-8133-1191-8|location=|pages=}}</ref> The British government intervened by allowing banks to suspend convertibility of the notes issued by the Bank of England.<ref name=":0" /> The Bullionist group, composed of mostly bankers and lawyers, formed after this potential crisis. They argued for convertibility, meaning paper money should be 100% backed by gold, in order to avoid inevitable inflation.<ref name=":0" /> [[Henry Thornton (reformer)|Henry Thorton]] and [[David Ricardo]] were two of the main figures which helped propel the Bullionist group. Ricardo published "The Price of Gold", and "The High Price of Bullion; a Proof of the Depreciation of Bank Notes", which made him well known as an economist.<ref name=":1">{{Cite book|title=Highlights of the Bullionist Controversy|last=Laidler|first=David|publisher=Department of Economics, University of Western Ontario|year=2000|isbn=|location=|pages=}}</ref> He, in turn, helped develop the [[Labor theory of value|Labor theory of Value]] which states "any commodity's natural value is determined by cost of production".<ref name=":1" /> Thorton was known for his opposition to the [[Real bills doctrine|Real Bills Doctrine]]. <ref name=":1" />

After a long period of deflation following the Napoleonic War, the [[Bank Charter Act 1844|Bank Charter Act of 1844]] was passed. This Act allowed only the Bank of England to print money and required all banks to hold a specific amount of reserve and currency. This act was passed under the [[Conservative Party (UK)|Conservative]] government of [[Robert Peel]]. The leading figure of the school was [[Samuel Jones-Loyd, Baron Overstone]], the British politician and banker. More than fifty years later his role in the debate was analyzed and criticized by [[Henry Meulen]], an opponent of the Act. See [http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=1414&chapter=45564&layout=html&Itemid=27 Viner's book] .