Monetary Policy and the Supply of Trade Credit, 1830-1844

Abstract

The 1830s were years of instability for the English and Welsh money markets. The tremendous expansion of joint stock banking facilities, the rapid development of the London money market, the monetary crises of 1836-1837 and 1839, and the commercial rivalry among the established private banks, the new banking companies and the Bank of England all created great uncertainty. The problems provoked widespread comment and provided opportunities for government-inspired regulation and reform. Controversy centred on the importance of money in determining fluctuations in the rest of the economy: there was much debate but little consensus.' Nevertheless, government seemed convinced by one group of theorists, the Currency School, and in 1844 took steps to regulate both the note circulation and the formation of banking companies.2 The main purpose of this paper is to examine the nature of the money supply and the consequences for Bank of England policy during the decade or so immediately preceding the implementation of these regulations. The flexibility of particular components of the stock of quasi-money and their relationship to changes in Bank of England3 liabilities are examined. Most attention is directed towards the performance of trade credit, as this played such a prominent role in contemporary economic debate.