Chapter 6 traces the last years of Britain’s communal currency. From the chapter’s examination of the resumption debate, it emerges that the decision on resumption stemmed from loss of faith in inconvertible currency and the fractured state of British society, rather than from unanimous support for the theory or policy of the gold standard. This chapter reveals that the supporters of resumption were a mixed group of people, including those with metallist and non-metallist views alike. The anti-resumption campaign lacked coherence, but ultimately it was the fractured state of British society that made inconvertible currency unsustainable: Britain’s note users no longer saw themselves as a single community of money users but as competing groups with different economic interests. The rest of the chapter illustrates the process by which the remnants of communal currency were gradually chipped away in the following twelve years, which were punctuated by major events such as the financial crisis of 1825 and the political run on the Bank of England in 1832. This chapter closes in 1833, when the fate of currency voluntarism was finally sealed as the Bank note became legal tender.

Explains the relationship between industrial policy and international trade, specifically focusing on the theory of comparative advantage and the mechanics of trade deficits and currency misvaluation.

This final chapter discusses the role of the Bank within a selective history of central banking. “Exchange bank” institutions such as the Bank became obsolete by the end of the eighteenth century. The new model for central banks was the Bank of England, which incorporated features such as private equity capital, large holdings of sovereign debt, a discount window, and the issue of circulating banknotes. It is argued that the Bank of England nonetheless gravitated to a two-bank structure following the 1844 passage of Peel’s Act, with many similarities to the eighteenth-century Bank of Amsterdam. Peel’s Act split the Bank of England into two banks, a passive bank (“Issue Department”) that issued notes against gold deposits and paid out gold coins, and an active bank (“Banking Department”) used its ledger money to commercial paper and engage in various types of open market operations. A concluding section argues that the active—passive dichotomy bears some relevance for modern financial markets, with active liquidity arising from traditional central bank open market operations, and passive liquidity arising from arrangements such as repo transactions. It is argued that recent crisis events have revealed the interconnectedness of these two forms of liquidity.

Classical economic liberalism was the first perspective on political economy to achieve worldwide influence. Its most famous advocate was Adam Smith whose 1776 book The Wealth of Nations became a foundational text for economic liberals that was known around the world by the early twentieth century. In the nineteenth century, some other European political economists consolidated the international dimension of the classical liberal economic perspective by building on Smith’s ideas, including David Ricardo, Richard Cobden, John Stuart Mill and Walter Bagehot. These and other European classical economic liberals were united in the belief that free trade and free markets would foster global prosperity, international peace, and individual freedom. At the same time, they did not always concur about the precise ways that free trade would generate these benefits or about which of them was most important. They also disagreed about the universal relevance of economic liberalism, their willingness to accept exemptions from free trade, their interest in international specialization and economic integration beyond free trade in goods as well as about the place of force, imperialism, civilizational discourse, and intergovernmental cooperation in the economic liberal project. In short, there were many distinct versions of classical economic liberalism.

This chapter explores the formation of an early ‘constitutionalist’ liberal current, by concentrating on Greek political economy. It starts by discussing the diffusion in the Greek world of an economic idiom, inspired by J. B. Say and Saint-Simonism, that concentrated on values such as industriousness and frugality as the organising principles of economy and society. It shows how this idiom complemented that of ‘public economy’ that informed Bavarian policies. The chapter then turns to Ioannis Soutsos, discussing how, from the 1840s onwards, he raised concerns about the obsession with economic virtues and argued for the benefits of institutional change and political participation. Drawing on the republican thought of Simonde de Sismondi and Pellegrino Rossi, Soutsos related industrie to political rights, called for large-scale reforms (including land redistribution) and associated political economy with the science of government. These calls increasingly targeted the monarchy, as reforms ground to a halt and the issue of land took on explosive dimensions. The chapter shows that ideas about state intervention in the economy and the view of economics as a science of government remained in fashion long after 1848, when they had lost their appeal elsewhere.

The development of a scientific economic discourse and the expansion of the financial system and markets across the nineteenth century and through the British Empire proved to be rich sources of inspiration to novelists and poets. Fictional writers not only explored the themes of stock market crashes, imperial investments, industrial expansion, gambling and risk taking, fraudulent currencies, and bank failures, but also the failure of political economy to account properly for the inadequacies of the economic system and the people who fell victim to those failures. Examining the interplay, interaction, and coconstitution of literary and economic discourses in the nineteenth century, this chapter demonstrates the celebratory and critical ways economic writers, essayists, novelists, and poets represented and responded to political economy’s evolution. Reading the history of economic thought alongside the literary texts of the nineteenth century – this chapter argues – reveals their shared investments in value, representation, and human desires.

Thomas Roberts Malthus is typically considered a ‘classical’ economist together with Adam Smith and David Ricardo. However, in important respects his view differed fundamentally from theirs, as Keynes emphasised in his biographical essay on Malthus. Most importantly, Malthus vehemently opposed Ricardo’s doctrine that it was impossible for effective aggregate demand to be deficient. Keynes, who also insisted on the possibility of effective demand failures, therefore considered Malthus to have been a precursor of his own view. The chapter discusses the following themes. What was the classical conception of ‘Say’s law’ and what were the reasons why Ricardo endorsed and Malthus rejected it? What were the main lines of reasoning in the ‘general glut’ controversy between Malthus and Ricardo? Was Keynes justified in considering Malthus’s doctrine to foreshadow his own doctrine, and if not, why not? What are the reasons why according to Pasinetti the classical (Ricardo-Sraffa) approach to the theory of relative prices and income distribution is compatible with Keynes’s principle of effective demand?