Exchequer bills

One ancient device short of lending money to a firm in trouble was
to issue marketable securities to the firm against appropriate collateral.
(Of course, as the first part of this chapter indicated, when markets break
down, even the most liquid securities may not be sold readily.) The secu-
rities have been private and public; both types were part of the complex

package put together by Hamburg in 1857. In 1763 and 1799, in an

equally complex and jerry-built system of support, admiralty bills were

an integral feature.60 The widest development, however, concerned the

Exchequer bills issued in Britain in 1793, 1799, and (without enthusi-

asm) 1811, but sternly rejected in 1825.

The Exchequer bill was widely thought to have been the idea of Sir

John Sinclair, although it may have originated with the Bank of England.

On April 22, 1793, City leaders met with the Prime Minister, William

Pitt, to devise means to combat the crisis that arose from the failure of

100 of the 300 country banks and the calamitous decline in commodity

prices. The next day, eleven of their number met at the Mansion House

to formulate a scheme for state assistance. According to Clapham, there

was no clear guide to what ought to be done. In due course, the idea

emerged of having the government issue £3 million in Exchequer bills,

a total that was later raised by parliament to £5 million, to be issued to

merchants on the collateral of goods that they would deposit in the cus-

toms houses. An additional feature of the plan was to issue £5 notes—the

previous minimum was £10—to economize on the use of gold and silver

coin. The Exchequer bills were issued by special commissioners rather

than the Bank of England. Some £70,000 worth of these bills was imme-

diately sent to Manchester and an equal amount to Glasgow. The device

worked like a charm, according to MacPherson. Three hundred thirty-

eight firms applied for only £3 million of the total amount. A total of

£2.2 million was granted to 228 firms, only two of which subsequently

went bankrupt. Applications for more than £1.2 million were withdrawn

after the panic abated.61

In 1799 the panic in Hamburg had an echo in Liverpool, and Exche-

quer bills again were used. Parliament provided £500,000 in Exchequer

bills, used solely in Liverpool, against £2 million of goods stored in

warehouses.62

In 1811 the question arose again. A Select Committee on the State

of Commercial Credit was appointed. Among its members were Henry

Thornton, Sir John Sinclair, Sir Thomas Baring, and Alexander Baring.

The committee’s report, completed in a week, recorded the distress of

exporters to and importers from the West Indies and South America,

as well as the piles of goods bound for the Baltic that had been cut off

and stored in London warehouses, and recommended a new issue of

£6 million of Exchequer bills. Support was moderate in the House of

Commons because of the overtrading in Latin America; the opposition,

while sympathetic to the distress, doubted the wisdom of bailing out the

speculators. Huskisson, who later made his mark as the president of the

Board of Trade, claimed that the evil came from too easy credit:

Did gentlemen not see that the race of old English merchants, who

never could persuade themselves to go beyond their capital, was super-

seded by a set of mad and extravagant speculators, who never stopped

so long as they could get credit, and that persons of notoriously small

capital had now eclipsed those of the greatest consequence; so that

speculations now took place even in the lowest articles of commerce

. . . If the relief given was used for further speculation, it would only

aggravate the evil—and he feared that this might be done—in which

case the present measure would go only to add six million to the

circulation and to raise the prices of all our commodities.63

Smart gave the fullest account of the debate and noted that many criti-

cized the measure, though few were bold enough to deny it. In the end

the proposal passed, but few applications were made and only £2 million

was advanced. ‘Not many of those who were in embarrassed circum-

stances were able to furnish the desired security, and it is difficult to see

what remedy there was in being enabled, by advances, to produce more

goods when the radical evil was that there was no market for them.’64