7.6 The renewed threat to the gold standard

Thus a consensus was building rapidly after the crisis of 1839 on behalf of the currency principle. But perhaps the precipitating factor in bringing Sir Robert Peel and the Establishment to enact the principle was a renewed threat to the gold standard. The gold standard had been the agreed-upon consensus of all parties since the 1820s and since the return to gold the assaults of inveterate statists and inflationists like Birmingham's Attwood brothers had faded away. But now, under the stimulus of economic crisis, fiat paper agitation and other inflationist threats to the gold standard surfaced once again.

If Manchester was the home of laissez-faire and sound money, Birmingham, its sister manufacturing town in the North, had long been the home of state-sponsored inflationism. Economic recession struck the Birmingham area in 1841, and Birmingham moved once more to a powerful attack upon gold. Thomas Attwood himself had retired from Parliament two years before, but Birmingham's representatives were more than willing to take up the old cause. Attwood had been replaced by merchant and manufacturer George Frederick Muntz, who agreed with the former's currency views; and Richard Spooner, the Tory whom Muntz had defeated for the seat, was an inflationist and a banking partner of Attwood's.

The following year, the Birmingham Chamber of Commerce, presided over by Richard Spooner, launched a furious campaign pressuring the prime minister, Sir Robert Peel, into going off gold. Muntz put out a new edition of an old anti-gold tract and, roaring back to the wars, Thomas Attwood, as might be expected, published articles and wrote numerous letters on his currency nostrums.

The most influential of this outpouring of Birmingham inflationism was the Gemini Letters, published anonymously by Thomas B. Wright and John Harlow of Birmingham, first as 35 letters in a country newspaper during 1843, and then in book form the following year as The Currency Question: The Gemini Letters. The Gemini plea was straight, proto-Keynesian, inflationism: inconvertible paper money should be issued by the government, in sufficient amount to stimulate consumer purchasing power and ensure full employment. In addition, the public debt should be inflated away. Thus, as Wright and Harlow put it:

The proper plan, it appears to us, is to raise the capacity of the consumer, by securing high wages and ample profits, and by these means making light the fixed national obligations of the people... The only limit they would affix to the issue of paper money would be the degrees of prosperity which the different amount of issues would produce...

There is every reason to believe that the Gemini Letters and the Birmingham agitation were influential throughout the country. Henry Burgess and his committee of country bankers used the interchanges between the Birmingham Chamber and Robert Peel to denounce the gold standard. Both the Times and the new weekly Economist were forced to expend a great deal of energy in defending the gold standard from its ‘unsound’ enemies. At any rate, it is known that Peel owned a copy of The Currency Question and marked key passages in the book.

The threat to gold was reinforced by a renewed agitation to dump gold for a bimetallic gold-silver standard. Heedless of the fact that bimetallism never works in practice (since Gresham's law pushes the undervalued metal out of circulation and encourages the overvalued), the pro-silver forces found in bimetallism a way to support monetary inflation while remaining respectably in favour of precious metals as money. Silver supporters therefore began with a core from the fiat paper group, including Spooner, Matthias Attwood, George Muntz and Henry Burgess, and added numerous bankers and businessmen, such as Richard Page, Henry W. Hobhouse, chairman of the committee of country bankers, William D. Haggard, and the eminent banker Alexander Baring, now Lord Ashburton.