The Irish Currency Report of 1804

1 THE IRISH CURRENCY REPORT OF 18041 G.E. BOYLE AND P.T. GEARY DEPARTMENT OF ECONOMICS, NATIONAL UNIVERSITY OF IRELAND, MAYNOOTH 1 A e sion o his pape was deli e ed as a special se ies o lec u e s o ma k he bicen ena y o he es ablishmen o Sain Pa ick’s College, Maynoo h, 1995. 2 THE IRISH CURRENCY REPORT OF 1804 In oduc ion May 2004 ma ks he 200-yea anni e sa y o he publica ion o he House o Commons epo o "The Commi ee on he Ci cula ing Pape , he Specie, and he Cu en Coin o I eland"2. The epo o his commi ee – he 1804 Repo – has igh ly been hailed by economic his o ians as "... a miles one in he his o y o mone a y heo y"3. The signi icance o his epo has, howe e , been o e shadowed by he Bullion Repo o 1810. I add essed essen ially simila issues, and indeed ci es wi h app o al signi ican ac s o he I ish Repo and was p oduced by a commi ee which con ained some o he mos in luen ial membe s o he I ish Cu ency Commi ee o 18044. The Bullion epo p obably assumed iconic s a us o he mode n equi alen o bullionis s, namely, mone a is s, by he pi o al in ol emen o he g ea economis Da id Rica do in i s delibe a ions. The decade p eceding he publica ion o he I ish Repo was an e en ul one, bo h o I eland and B i ain. Wi ness B i ain's decla a ion o wa on F ance in 1793, he esul ing ala ms abou a F ench in asion, he g owing p essu e o poli ical and social igh s, he insu ec ion o 1798 in I eland and inally he mo e o he union o I eland and B i ain. I was also an e en ul decade o he I ish economy. The in eg a ion o he I ish and B i ish economies had p oceeded h ough he eigh een h cen u y; by 1800, o e 80% o I eland's ade was wi h B i ain and I eland accoun ed o o e 10% o B i ain's ade5. A pe iod in which I ish go e nmen e enue and expendi u e we e in balance and he na ional deb unde con ol was ollowed by one in which, om 1793 onwa ds, he de ici and he deb expanded a an unp eceden ed a e. I eland had i s own cu ency, 2 Fe e , F.W., 1955, The I ish Pound, 1797-1826, Allen and Unwin, London. 3O' G ada, C., 1991, "Reassessing he I ish Pound Repo o 1804", Ox o d Bulle in o Economic Resea ch, 43,(1): 5-19, p. 17. 4Fe e , ibid., p. 5. 5 The in o ma ion on ade is aken om L.M. Cullen Anglo-I ish T ade 1660-1800, Manches e , 1968, Chap e s 3 and 4. 3 whose exchange a e wi h espec o he English cu ency was ixed a a discoun o 8.33% o much o he eigh een h cen u y. Howe e , he inal yea s o he 1790s we e he s a o a pe iod o o e wen y i e yea s in which he I ish pound e ec i ely loa ed agains S e ling. F om 1797, he I ish cu ency en e ed a pe iod o unusual ola ili y and by he end o 1803 i had dep ecia ed by 10%, o be a a discoun o o e 18% agains S e ling. This episode is e e ed o by his o ians as he Res ic ion Pe iod because i coincides wi h he Bank Res ic ion O de s o Feb ua y and Ma ch 1797 which es ic ed bo h he Bank o England and I eland om paying “specie” ( ha is, gold and sil e ) on demand o hei pape cu ency6. The p oxima e easons o he enac men o hese o de s can b ie ly be old. In Augus 1795, F ance e u ned o he gold s anda d, causing a majo ou low om London. As i managed o do in ea lie u bulen episodes in he 1790's, he Bank o England su i ed. Al hough gold lowed back o London in 1796, inc easing poli ical ension and ea o a F ench in asion e en ually, ea ly in 1797, igge ed a inancial panic in B i ain. To in ensi y i , he F ench ac ually landed a small numbe o oops in Wales on Feb ua y 25, 1797; hey didn' a emp o igh and we e aken p isone immedia ely, bu he damage was done. Gold paymen s we e suspended on Feb ua y 26, 1797. The pe iod o “Bank Res ic ion” hus commenced. The issues which a ose om his episode we e o ha e p o ound implica ions o he unde s anding o a numbe o economic phenomena which s ill ha e a esonance o he p esen day. The ocus o he deba e ha ensued was he ac o s which we e behind he dep ecia ion o he I ish cu ency in he yea s immedia ely a e he Res ic ion and his issue was he chie conce n o he pa liamen a y commi ee which was es ablished in Ma ch 1804. The lessons o he Res ic ion Pe iod and he endu ing legacy o he 1804 Repo a e o be ound no so much in he e en s hemsel es as in he insigh s which delibe a ion on hese e en s ga e, and con inues o gi e, o wo in e ela ed 6The B i ish Res ic ion became law on May 3 1797 and he I ish Res ic ion was enac ed by he I ish Pa liamen on July 3 1797 (Fe e , ibid., p. 5). 4 mone a y ques ions:  he p ocess o pape money c ea ion and cons ain s on his p ocess; and  he ela ionship be ween ela i e money g ow h be ween wo coun ies and he cou se o he exchange a e be ween he same coun ies. The pape is o ganised as ollows. We i s examine he iscal policy con ex and especially he I ish Go e nmen ’s demand o unds in he yea s p eceding and o e lapping he Res ic ion. The ela ionship be ween he Go e nmen and i s Banke , he Bank o I eland is nex discussed. We hen p oceed o conside no e issues in I eland p io o 1797. We hen examine no e issues du ing he Res ic ion pe iod and he ole o he Bank o I eland in he o e all expansion o no es ha occu ed. The ela ionship be ween he ela i e expansion o no es and he dep ecia ion o he I ish Pound ela i e o S e ling is nex conside ed. We conclude he pape by looking a he pe o mance o he cu ency in he yea s ollowing he publica ion o he Repo . The Public Finances and he Na ional Deb 7 Th oughou he eigh een h cen u y, bo h B i ish and I ish go e nmen s aised loans by means o con en ional go e nmen ixed in e es deben u es and annui ies, bu also h ough “lo e y loans”. These loans in ol ed a combina ion o con en ional loan and a lo e y, in which subsc ibe s ecei ed lo e y icke s. Lo e y p izes we e o en paid in deben u es. In he ea ly 1780's, du ing he yea s o he wa wi h he Uni ed S a es, he I ish go e nmen an de ici s: he de ici in 1782/3 was almos 16% o o al expendi u e and in he ollowing wo yea s i a e aged 12% o expendi u e. Re enchmen ollowed; in ac , in 1787, wi h a iew o educing he in e es cos o he na ional deb , he go e nmen se ou o aise £500,000 by he ollowing means: £200,000 in 3.25% Deben u es (2,000 a £100 each); £100,000 in T easu y Bills a 2.5d pe day (1,000 a £100); £200,000 by he sale o 40,000 lo e y icke s a £5 each, in espec o which a 7 The pe manen deb o I eland began in 1716, wi h a £50,000 loan a 8%. I was added o in subsequen yea s, bu a pe iod o deb epaymen s educed i o £5,300 (£4,892-6-1 s e ling) by 1760. I hen esumed i s g ow h. 5 special se ies o £200,000 deben u es would be issued as p izes8. The icke s could only be sold a licensed lo e y o ices. A licence cos £100; o ob ain one, he licensee also had o ake up a leas 100 lo e y icke s a a cos £500 and subsc ibe o a co esponding p opo ion o he deben u es and easu y bills. The cos was hus £1250 plus he cos o he licence, £1350 in all. These lo e y icke s could be sold in B i ain, excep wi hin he Uni e si ies o Ox o d and Camb idge. The scheme was, o quo e Hall9, "an ou s anding success ... In ac , his lo e y appealed so s ongly o he spo ing ins inc s o he people ha he icke s we e sold a £6-10-0 each".10 The inances we e much mo e unde con ol up o 1793; he inancial yea 1792-3 wi nessed a small su plus. A he end o ha yea he na ional deb s ood a £2,252,577, sligh ly less han i had been six yea s ea lie . Deb cha ges we e less han 10% o o al expendi u e. In gene al, in he second hal o he eigh een h cen u y bo h I ish and B i ish go e nmen s expe ienced li le di icul y aising unds. A e 1793, howe e , mo e han he spo ing ins inc s o he people we e equi ed o aise he la ge sums he I ish go e nmen needed. B i ain's decla a ion o wa on F ance was o change he s a e o he public inances and he le el o he deb beyond ecogni ion. In he nex se en yea s, expendi u e ose by a ac o o mo e han i e, mainly due o mili a y and na al expendi u e, bu e enue ose by a ac o o only 2.25. Figu e 111 shows how he public inances de e io a ed, exac ly in andem wi h he ise o mili a y and na al expendi u e. The esul was a apidly g owing na ional deb , as shown in Figu e 212. [Figu es 1 and 2 abou he e] 8. See Hall, The Bank o I eland 1783-1946, Hodges Figgis, Dublin and Blackwell, Ox o d, 1949, p.60. 9. Hall, op.ci . 10 The e is ample e idence o he popula i y o lo e ies in his pe iod among people o all income le els. Lo e y icke s we e expensi e; o mee demand o pa icipa ion by he less weal hy, lo e ies we e un on he esul s o he S a e Lo e y - an ea ly example o a inancial de i a i e. In ac , he e we e wholesale b eaches o he Lo e y Ac s whose main pu pose was o e ec a s a e monopoly o lo e ies. In e es in lo e ies wen e en u he , i con empo a y accoun s a e o be belie ed; a ew examples om a London w i e in 1772 illus a es he poin : “... lo e y ailo s,...,lo e y ea me chan s, lo e y ba be s (whe e a man o being sha ed and paying 3d s ood a chance o ecei ing £10),...,lo e y ea ing houses (whe e o sixpence a pla e o mea and a chance o six y guineas was gi en),...and, o comple e a ca alogue which speaks olumes, a a sausage s all in a na ow alley was he impo an in ima ion w i en up ha o one a hing's wo h o sausages he o una e pu chase migh ealise a o une o i e shillings”. 11 Royal Commission on Financial Rela ions Be ween G ea B i ain and I eland, Minu es o E idence o 28 h Ma ch 1895, London, 1895, C-7220-I, Appendix I, B, Tables II, IV, pp.369-372. 12 Royal Commission, op. ci ., Appendix I, C, Table II, p.380. 6 Be ween Ma ch 1793 and Ma ch 1796, he deb had isen o £5.577 million; by Ma ch 1798 i exceeded £10.135 million; wo yea s la e i had mo e han doubled o £23.101 million, mo e han en imes i s le el se en yea s p e iously. By he beginning o 1804, i was £38.65 million and con inuing o inc ease apidly. The ob ious ques ion aised by his deb explosion is ha o unding: how and whe e did he go e nmen aise he money? The Go e nmen and he Bank o I eland I was a e 1793 ha ela ions be ween he go e nmen and he Bank o I eland mo ed o cen e s age. The Bank o I eland was es ablished in 1783 as he i s inco po a ed bank in he coun y. The Bank's cha e was simila in many espec s o he Bank o England's, which had been ounded in 1694, bu he e we e c ucial di e ences, especially in ela ion o he powe o issue o no es, which a e discussed below. A his poin i 's use ul o p esen a b ie accoun o he mone a y backg ound o he e en s o he la e 1790's. As al eady men ioned, he exchange a e be ween he I ish and B i ish pounds was ha he IR£ was a 8.33% discoun o S e ling. Thus an exchange quo e o 8.33 ep esen ed pa ; a a e o , say, 6 implied app ecia ion o IR£, 12 ep esen ed dep ecia ion o IR£. Bank no es we e con e ible in o gold a he Bank o I eland and he Bank o England. The ansac ions cos s o gold ans e s be ween Dublin and London we e £1 1s.8d. pe £100, app oxima ely 1.08%. In he 1780's he e was a s ong demand o gold in I eland hough i s p ecise cause is no clea . Fu he , he e was a seasonal ac o in gold demand; i peaked be ween Ma ch 25 and June 25 i.e. in he second qua e . The Bank o I eland held 20% o i s cu en liabili ies in gold in second qua e and 16.67% o es o yea . These compa e o 10% in pu ely comme cial banks and 40% (la e educed o 33.33%) in he Bank o England. The gold a ios we e adjus ed h ough he yea by selling T easu y Bills when demand o specie was high and buying hem when demand o specie was lowe , ha is, by open ma ke ope a ions. The consequence o he big inc ease in gold in ci cula ion was a big inc ease in quan i y o “ligh coins” - due o he clipping and swea ing o coins. “By 1787 he quan i y o ligh coins in ci cula ion had become so ex ensi e as o cons i u e a 7 na ional p oblem”13. (p74). The Bank o I eland e used o accep ligh coins a ull alue om Re enue Collec o s despi e s ong Go e nmen eques s, an ea ly example o go e nmen p essu ing he Bank o do i s bidding. Hall ci es a case in which 996 guineas we e sen o he Bank by he Re enue Collec o s o New y and D ogheda; 832 we e ound o be o s anda d weigh and accep ed bu 164 (16%) we e ligh and e u ned. Coppe coinage was se iously debased; he e was ex ensi e coun e ei ing. The eason was an inadequa e supply o coins. The e was a lull in he impo a ion o gold om London o Dublin om No embe 1786 o 1788. Impo a ion esumed in May 1789 and i s olume was in luenced by how he I ish pound s ood on he exchange. When he exchange was a 7, ha is, he IR£ a a p emium, bullion was impo ed o Dublin. In Sep embe 1789 he exchange was a 7.25, which was e ec i e pa gi en ansac ions cos s o 1.083%; bullion ansac ions we e no longe p o i able a his a e and d ied up. This episode shows he abili y and willingness o he inancial ins i u ions o he ime o engage in a bi age whe e he oppo uni y a ose. F om 1793, as go e nmen bo owing began o moun , he public's willingness o lend o he go e nmen declined. In 1794, he go e nmen was able o sell 5% Deben u es a pa bu g adually i was o ced o o e 5% deb a a discoun and o add annui ies o he in e es al eady payable. In 1795, annui ies we e added o he in e es ; by 1798, 5% deben u es we e being issued a 63 and in 1799 hey we e issued a 61. I had become e y expensi e o bo ow. No su p isingly, as i s epu a ion wi h he public de e io a ed, he go e nmen i s u ned o he Bank o I eland. The ques ion o he go e nmen bo owing om he Bank o I eland began o be add essed in 1793, when a egula ion appa en ly p ohibi ing he Bank om lending o go e nmen wi hou pa liamen a y app o al was encoun e ed. Legal ad ice was sough which clea ed he obs acle and in July 1793 he Bank made a loan o £350,000 in exchange o a mix u e o deben u es and easu y bills. In Augus a u he £170,000 was ad anced unde simila e ms. The Go e nmen was back in June 1794 and go £700,000 epayable in wo mon hs; in Decembe 1795, howe e , he go e nmen asked o a loan o £1 million, which appa en ly shocked he Bank and i e used o comply. Ins ead i ag eed o he escheduling o deb epaymen s ha we e 13. See Hall, op. ci ., p. 74. 8 due ea ly in 1796. Go e nmen p essu e on he Bank emained h ough he yea ; he Bank's esol e o esis he p essu e showed eal signs o s eng hening when on 26 Feb ua y 1797, he Bank o England was elie ed om he obliga ion o edeeming i s no es in specie h ough he enac men o he Bank Res ic ion O de s o Feb ua y and Ma ch, 1797. The I ish Go e nmen eac ion was in e es ing; o quo e Hall14, “The I ish Go e nmen did no ealise he dange s o he new si ua ion and appea ed o ega d he inciden as an oppo uni y o elie ing he public inances by in la iona y bo owing”. Al e na i ely, i unde s ood he si ua ion only oo well! Immedia ely he Bank o I eland was in i ed o issue £1 million in no es o he go e nmen in e u n o go e nmen pape ; he Bank e used. The o he sou ce o unds emb aced by he I ish go e nmen was he London ma ke . In 1798, he I ish Go e nmen began o aise loans in London. Almos immedia ely London became i s dominan sou ce o bo owed unds. By he end o 1800, hal o I eland's ou s anding Na ional Deb had been unded in B i ain, when h ee yea s ea lie none o i had been (Figu e 2). The idea o o eign bo owing ook oo quickly. The combina ion o p essu e on he Bank o I eland o issue no es o he go e nmen and he amoun o o eign bo owing being unde aken in London made almos ine i able a signi ican expansion o he Bank's no e issue. This is examined in de ail below. Banking and Pape No es in I eland be o e 1797 I eland e ol ed om a p edominan ly ba e economy o a “specie”-based sys em o exchange in he wake o he English in asions. Bu o some unclea eason he I ish pound was adi ionally less aluable han he B i ish pound and i equi ed, as we’ e no ed ea lie , 13 I ish pounds o exchange o 12 B i ish pounds. This p emium o abou 8.33% o he B i ish pound was appa en ly es ablished by a p oclama ion o 17371516. 14. See Hall, op. ci ., pp. 64-5. 15Fe e , ibid., p. 10. 16O'B ien, G. 1927, "The las yea s o he I ish cu ency", The Economic Jou nal, 1(2): 249-258, p. 250. 9 Money c ea ion is synonymous wi h he eme gence o pape money. The sou h o I eland en husias ically ook o he banking business and he p in ing o pape money. Louis Cullen has sugges ed ha I eland and Sco land we e he wo leading cen es in he de elopmen o banking in he ea ly eigh een h cen u y17. Cullen also poin s ou ha I eland p o ided a leading inno a i e hinke on banking and mone a y ma e s in he pe son o Richa d Can illon - he colou ul banke om Ballyheigue in Co. Ke y - who was o make such a ma k in he banking wo ld o Louis XIV's F ance18. By he 1720s no es we e in widesp ead use no jus in Dublin bu h oughou he sou h o I eland. A w i e o he pe iod ema ked ha “ ... we e i no o banke s' no es which we ha e been passing in good plen y, i would be impossible o manage ou domes ic a ai s hal as well as we do”19. By 1752 I ish no e ci cula ion was double o p obably eble he le el o he 1720s20. A ound his pe iod Cullen eckons ha he alue o no e ci cula ion was abou equal o ha o p ecious me als. This was he heyday o he in ol emen o me chan s in banking and a pe iod o apid expansion in ade and comme ce. Up o his pe iod banking was he p ese e o he landed classes whose en s p o ided a bu geoning capi al base o he p opaga ion o pape money. Following an ac o 1756 me chan s we e e ec i ely shu ou om banking ac i i y and we e no o appea p ominen ly again un il he Res ic ion Pe iod. Wi h he gen y-backed banks now in he ascendancy again hei mo e conse a i e disposi ion pu a b ake on he c ea ion o pape money so much so ha by 1797, he yea o he Res ic ion, no es we e only abou one ou h o he ci cula ion o p ecious me als. Cu iously enough he no he n pa o I eland exhibi ed a dis inc dis as e o pape money and i was no un il 1808 ha a bank was se up in Bel as and no es eme ged. Cullen sugges s ha he p e e ence o no he n landlo ds o be paid hei en s in gold 17Cullen, L., 1984, "Landlo ds, banke s and me chan s: he ea ly I ish banking wo ld, 1700-1820" in A.E. Mu pky (ed.) Economis s and he I ish Economy, I ish Academic P ess, Dublin. 18Mu phy, A.E., 1984, "Richa d Can illon - an I ish Banke in Pa is" in A.E. Mu phy (ed.), Economis s and he I ish Economy, I ish Academic P ess, Dublin. 19Ci ed by Cullen, ibid., p. 28. 20Cullen, ibid., p. 29. 16 o se any change in he no e issue o he Bank o I eland41! Un o una ely he e is no ha d e idence a ailable on he o al money supply o enable clea conclusions o be d awn. I he Bank did pe o m a ese e unc ion o he p i a e banks hen he change in he no e issue o he la e would be p opo ional o he Bank's. In he absence o a ese e ole, and gi en he ci cums ances o he Res ic ion, ou hunch is ha he inc ease in he no e issue o he p i a e banks was p opo iona ely much g ea e han he g ow h in he pape c ea ions o he Bank o I eland. The Money Supply and he Exchange Ra e The ounda ions o much o ou mode n unde s anding o exchange a e luc ua ions can a guably be aced o he I ish Cu ency Repo o 1804. Since he ea ly pa o he eigh een h cen u y he I ish pound exchanged a a ai ly cons an discoun o 8.33% agains he B i ish pound. Then when w i e s e e ed o he exchange a e being a “pa ” hey did no imply a one- o -one ela ionship as was he case om 1826 o 1979. We should also no e ha since I eland and G ea B i ain ope a ed unde a common ju isdic ion i was na u al o e e o he exchange a e quo ed in Dublin as he uni s o I ish cu ency pe uni o B i ish cu ency. Thus a ise in he exchange a e abo e i s “pa ” alue implied a dep ecia ion and a all an app ecia ion. In passing, we migh no e ha nowadays we usually quo e he exchange a e in Dublin as uni s o B i ish pounds pe uni I ish and hus a dep ecia ion is, pe haps mo e na u ally, ep esen ed as a all in he exchange a e and an app ecia ion as a ise in i s alue. Fo una ely he e a e ex ensi e da a on he exchange a e du ing he Res ic ion Pe iod. Da a o qua e ly eadings a e plo ed in Figu e 442. Recalling ha a ise in he alue implies a dep ecia ion and a all an app ecia ion, we can di ide he expe ience o he Res ic ion in o h ee pe iods. The pe iod 1797 o 1803 wi nessed a subs an ial dep ecia ion o he I ish pound o almos 10% and i was his e en which lead o he es ablishmen o he pa liamen a y commi ee. The pe iod 1804 o 1815 was a pe iod o ela i ely s abili y when he exchange a e ho e ed a ound i s p e-Res ic ion “pa ” le el. The inal pe iod, up o he assimila ion o he wo pounds, was again ma ked by a dep ecia ion o he I ish pound bu on a somewha lowe scale han he ea lie 41Fe e , ibid., p. 39. 42 Cou se o he Exchange, Goldsmi h Lib a y, Uni e si y o London Lib a y. 1 7 dep ecia ion. Fo he pe iod as a whole he ading ange was om 91.4 pence B i ish o 104 pence B i ish when we calcula e he “pa ” o he exchange a uni y. [Figu e 4 abou he e] An in e es ing oo no e o he cou se o he exchange a e quo ed in Dublin was ha he a e quo ed in Bel as and New y did no dep ecia e is-a- is he B i ish pound43. In ac in New y, only 60 miles om Dublin, wo exchange a es we e quo ed; one o pape - basically Dublin pape - and one o “specie” and na u ally pape was a a subs an ial discoun o “specie”44. As no ed ea lie , pape e ec i ely did no ci cula e in he No h o he coun y and i s dep ecia ion ela i e o “specie” was p oo o many ha a mone a y explana ion lay a he oo o he dep ecia ion. The main pu pose in se ing up he I ish Cu ency Commi ee was o inqui e in o he causes o he luc ua ions in he exchange a e up o 1804. Li le in e es was shown in he beha iou o he a e up un il his yea . This may simply ha e been due o he ac ha such an e en would only be o in e es o a iny mino i y o he popula ion a he ime. We ha e no ed ha he small coin si ua ion caused mo e widesp ead conce n. Mo eo e he e we e gaine s and lose s om he dep ecia ion and his, as now, modula ed he poli ical esponse. Those e ec ed we e i s ly absen ee landlo ds who had o con e hei I ish pound denomina ed en s in o B i ish pounds upon emission o London. Also me chan impo e s om G ea B i ain would su e compe i i eness' losses. We migh add ha esiden landlo ds, especially hose who we e high consume s o wine, we e ha dly much wo se o as a consequence o he dep ecia ion han he absen ees! Howe e , expo e s and he eby a me s na u ally bene i ed om he ise in he exchange. An in e es ing oo no e o he saga o gaine s and lose s was 43O'B ien, ibid., p. 254. 44Fo 1803 and he i s qua e o 1804 he quo es we e as ollows: Exchange a es in New y (% abo e pa i y) Highes Lowes 1803 Specie 9 5 Pape 17.5 12.75 1804(Q.1) Specie 8 5.25 Pape 17.5 14.75 Sou ce: I ish Cu ency Repo as ci ed by Hall, ibid., p. 85. 18 ha I ish easu y o icials, whose sala ies we e denomina ed in I ish pounds, ecei ed paymen in B i ish pounds a he p e-Res ic ion exchange a e. The e ela ion o his ac in he House o Commons caused some emba assmen o he go e nmen and may ha e p o ided he inal poli ical push o he es ablishmen o he Commi ee45. The ques ion which exe cised he Commi ee was o cou se why he dep ecia ion o he cu ency? The mode n iew on he ac o s which de e mine he medium- e m e olu ion o he exchange a e is a use ul lens wi h which o examine he delibe a ions o he 1804 Commi ee. A change in he exchange a e is no mo e han a change in a p ice a io be ween na ional monies. To unde s and exchange a e mo emen s we hus need o unde s and wha causes ela i e mo emen s in na ional p ices. Changes in ela i e money supplies clea ly a ec ela i e p ice mo emen s since, no mo e han o o he commodi ies, he g ea e he supply, o he hings equal, he less aluable he commodi y. Thus a coun y whose money supply is g owing as e han ano he 's will end o ind i s o e all p ice le el also ising as e which o cou se sugges s ha i s exchange a e will be dep ecia ing in a loa ing sys em. This migh be e med he mone a y app oach o exchange a e de e mina ion which was championed as he main cause o he dep ecia ion o he I ish pound by he 1804 Repo . Bu he mode n heo y would also emphasise o he ac o s as ha ing a ole in de e mining he cou se o he exchange a e. A coun y whose money supply is g owing ela i ely as e han ano he 's need no expe ience ela i ely highe in la ion i he g ow h a e in he goods and se ices i p oduces ela i e o he pa ne coun y is su icien ly high. By he same oken also, a dep ecia ion could be in pa caused by a ela i ely highe money supply and a ela i ely lowe ou pu g ow h. Economis s end o emphasise ela i e money g ow h as being he chie culp i in high in la ions and dep ecia ions in he medium e m. Bu in he sho e m ac o s like poo ha es s, o ins ance, would cause p ice hikes and a dep ecia ing exchange a e. Mo eo e , a poo ha es will aise impo s abo e wha hey o he wise would be, implying a wo sening balance o paymen s de ici which in u n will u he weaken he exchange a e. Fac o s like hese can be e med eal explana ions o exchange a e luc ua ions. Mode n heo is s would also emphasise he ole o unce ain y and specula ion in de e mining sho - un mo emen s in he exchange a e. 45Fe e , ibid., pp. 27-28. 19 Agains he backg ound o his e y b ie ske ch o he mode n iew o exchange a e de e mina ion i is in e es ing o conside he delibe a ions o he 1804 Commi ee. Wha is s iking abou he Repo is he pola isa ion be ween he iews o he Commi ee i sel and he posi ion adop ed by he as majo i y o wi nesses who appea ed be o e i . The Commi ee espoused he iew “[ ]ha his dep ecia ion in I eland a ises almos en i ely, i no solely, om an excess o Pape , appea s highly p obable ... ”46. The ce ain y and con ic ion wi h which his iew was a icula ed, no jus in he body o he epo i sel bu in he ques ioning o he Commi ee's wi nesses, sugges s a zealousness cha ac e is ic o ecen con e s. The Commi ee membe s we e e y much he “Young Tu ks” o he Pa liamen 47. They we e e y much a new gene a ion o pa liamen a ians ecep i e o he heo ies o he ela i ely new discipline o economics and con e san wi h he w i ings o Adam Smi h, Richa d Can illon, and especially Da id Hume’s “specie- low mechansim”. As F ancis Ho ne , who was o be he u u e chai man o he 1810 Bullion Commi ee, ema ked o some o he membe s o he 1804 Commi ee: “I is a cu ious p oo o he deg ee in which Adam Smi h's specula ions and o he s o he kind a e s udied by he Young men in Pa liamen , beyond he a en ion ha was paid o such opics by he poli icians who we e educa ed a an ea lie pe iod o he las cen u y ... ”48 I he membe s o he Commi ee could be accused o being oo eady o emb ace he mone a y explana ion o he dep ecia ion, hen mos o he wi nesses, wi h he excep ion o Robe Ma shall, he Inspec o Gene al o Impo s and Expo s o I eland, displayed ei he a o al ejec ion o igno ance o any possible ole o a mone a y explana ion. This was pe haps mos appa en in he e idence o he Bank o I eland ep esen a i es, Je emiah D'Olie and William Col ille. In his hey we e in ag eemen wi h he iews o he I ish T easu y. The posi ion o he la e , p io o he se ing up o he Commi ee, was ha he dep ecia ion could be explained by eal phenomena. P incipally hey sugges ed a empo a y balance o paymen s di icul y caused in pa by a ise in impo s a e he dis up ion o he ebellion o 1798 and by bad ha es s which checked expo s a he u n o he cen u y. When, p io o he Commi ee's 46Fe e , ibid., p. 45. 47O'G ada, 1991, p. 6. 48Ci ed by Fe e , ibid., p. 30. 20 es ablishmen , he Bank o I eland we e accused in he House o Commons o causing he dep ecia ion by an excessi e issue o pape ela i e o ha o he Bank o England, hey p i a ely esponded o que ies om he I ish T easu y ha ou ac o s could accoun o he dep ecia ion: 1. he numbe o absen ee landlo ds and hence hei le el o en emi ances had wo sened since he 1798 Rebellion; 2. poo ha es s in 1800 and 1801 had made I eland a ne impo e o g ain; 3. loans aised by he I ish T easu y in London caused a d ain in in e es paymen s; and 4. he p ice o coal had ecen ly inc eased49. In o he wo ds he cause o he dep ecia ion lay solely in ad e se de elopmen s in he balance o paymen s. These iews we e ai ed again in he hea ings o he Commi ee. Col ille o he Bank wen as a as s a ing ha a mone a y expansion could ac ually cause he cu ency o app ecia e!: “ ... as a as he ci cula ion o Pape wen in I eland, i had he objec o keeping down he Exchange, and no aising i ; he high exchange agains I eland being clea ly and decidedly o be accoun ed o independen o he ci cula ion o Pape a all”50. The s ong ejec ion o he mone a y explana ion by he Bank was no doub in luenced by hei belie ha I eland had expe ienced balance o paymen s di icul ies since he in oduc ion o he Res ic ion in 1797. Howe e , his iew was comple ely o e - u ned by he e idence p esen ed by Robe Ma shall, who i will be ecalled was he Inspec o Gene al o Impo s and Expo s o I eland, and his e idence sugges ed ha , wi h he excep ion o he yea s 1799 and 1800, I eland's balance o paymen s was in ac in su plus51. To be ai o he Bank's wi nesses, howe e , he de ici s eco ded in he wo excep ional yea s we e subs an ial and i would ha e aken se e al yea s o he ade balance o u n in a su plus as g ea as i s 1797 le el52. 49Mc Ca e y, ibid., p. 326. 50Ci ed by Fe e , ibid., p. 106. 51O'G ada, ibid., p. 8. 52O'G ada, 1991, ibid., p. 9. 21 In a emp ing o d aw oge he he s ands on he deba e on he cu ency's dep ecia ion se ou in he 1804 Repo , a numbe o poin s a e wo h making. The Commi ee's iew ha he dep ecia ion was due in some la ge measu e o an excessi e o al issue o pape money ela i e o G ea B i ain seems highly plausible. Howe e , he claim ha he cause o his excessi e expansion o he I ish money supply was he Bank o I eland's own expansion o pape money “ ... es ed upon gene al analysis a he han upon s a is ical e idence”53. The employmen o mode n s a is ical echniques in an a emp o disce n he causes o he dep ecia ion is no helped by he absence o sepa a e p ice da a o I eland o in o ma ion on B i ish and I ish ou pu pe o mance. Bu Figu e 5 appea s o sugges a posi i e co ela ion be ween he a io o he Bank o I eland's no e issue o he Bank o England’s and he exchange a e as sugges ed by he Commi ee, a leas o he i s hal o he Res ic ion Pe iod54. E en i his e idence is accep ed, he Bank o I eland can o a la ge ex en be exculpa ed by he in ense p essu e hey we e unde o p o ide unding o he go e nmen - a poin ha he Commi ee appea ed o igno e. [Figu e 5 abou he e] Finally, he Commi ee laid insu icien s ess on eal explana ions o he dep ecia ion in hei zeal o champion he mone a y explana ion. I is unlikely, howe e , ha balance o paymen s conside a ions would ha e o e u ned hei cen al hypo hesis. The Exchange Ra e A e 1804 The a e o he 1804 Repo was no oo unlike i s ilk oday. Once comple ed i ga he ed dus wi h li le public esponse by he au ho i ies. O he ma e s we e pe haps mo e p essing a he ime! And wi h he dep ecia ion o he B i ish pound on he Hambu g exchange he ocus swi ched om he I ish cu ency. The Bullion Commi ee o 1810 now ook cen e s age in mone a y and exchange a e a ai s. I will also be ecalled om ou cha o he exchange a e ha he a e s abilised o a subs an ial ex en be ween 1804 and 1812 and in ac ho e ed a ound he p e- es ic ion “pa ” o 8.33%. 53Fe e , ibid., p. 45. 54Mo e sophis ica ed analysis by O'G ada, 1993, ibid., is less suppo i e o he Commi ee's posi ion. 22 This si ua ion would o i sel ha e been su icien o p e en any ad e se public commen . I would be a mis ake, howe e , o suppose ha his ou come was o ui ous. Fac o s which undoub edly helped we e he less libe al c edi policy o he Bank o I eland a e 1803 and he ou lawing o he issue o no es unde £1 by he p i a e banks in May o 1805. Also he spa e o bank ailu es in he ea ly yea s o he Res ic ion may ha e ale ed he public o he ad e se consequences o he Res ic ion. Howe e , he e is also e idence ha he I ish T easu y pu sued wha we migh e m oday a “managed loa ” s a egy a e 180455. Basically he T easu y we e pu suing an exchange a e a ge which hey belie ed was in he bes in e es s o ade. When he ma ke a e mo ed ou side o he a ge a ea s abilisa ion measu es we e adop ed by he au ho i ies. Such a s abilisa ion s a egy had in ac been ad oca ed by he 1804 Commi ee. This s a egy was based on he s abilisa ion scheme adop ed by he Bank o Sco land o keep hei pound ied o he London pound56. The cu ency dep ecia ed signi ican ly again be ween 1815 and 1819 bu on his occasion he e was no p essu e o ac ion unlike he ea lie episode. The dep ecia ing exchange mus ha e seen like a godsend in he ligh o he collapse o ag icul u al p ices a he ime and his is p obably he main eason o he absence o any public conce n. The saga o he Res ic ion inally ended in June o 1821, a mon h a e he esump ion o “specie” paymen s by he Bank o England. The las chap e o I eland's i s li a ion wi h a loa ing exchange a e was closed in Janua y o 1826 wi h he assimila ion o he I ish and B i ish cu encies. F om hen un il Ma ch 1979 “ ... I eland, as pa o he Uni ed Kingdom, as a membe o he B i ish Commonweal h o na ions, and as an independen Republic, ... main ained i s cu ency a pa wi h he B i ish pound h ough he edemp ion in London exchange and sale o London exchange, in line wi h he ecommenda ions o he Commi ee o 1804”57. 55Mc Ca e y, ibid., pp. 333-380. 56Fe e , ibid., pp. 42-44. 57Fe e , ibid., p. 62. Figu e 1: I eland, To al Expendi u e, De ense Expendi u e and he De ici , 1790-1807 -1,000,000 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 1790 1791 1792 1793 1794 1795 1796 1797 1798 1799 1800 1801 1802 1803 1804 1805 1806 1807 No e: yea ended Ma ch 25; om 1801, yea ended Janua y 5. £ TOTAL EXPENDITURE ARMY DEFICIT 23 Figu e 2: I eland, To al Deb and Deb Funded in G ea B i ain, 1792/93 - 1806/07 £0 £10,000,000 £20,000,000 £30,000,000 £40,000,000 £50,000,000 £60,000,000 1793 1794 1795 1796 1797 1798 1799 1800 1801 1802 1803 1804 1805 1806 1807 Yea Ende d £ s e lin g TOTAL DEBT GREAT BRITAIN FUNDED 24 Figu e 3: I ish and B i ish No e Ci cula ion 1793-1822, Ma ch 1793=10 0 0.00 100.00 200.00 300.00 400.00 500.00 600.00 700.00 800.00 17 93 17 94 17 95 17 96 17 97 17 98 17 99 18 00 18 01 18 02 18 03 18 04 18 05 18 06 18 07 18 08 18 09 181 0 181 1 181 2 181 3 181 4 181 5 181 6 181 7 181 8 181 9 18 20 18 21 18 22 Qua e ly Value s Index alues Ma ch 1793=100 IRISH BRITISH 25