CH. 13
whether he is paying 5 per cent, or 6 per cent, for theaccommodation he obtains from his banker influencesthe min d of the dealer very little more than it influ-ences the mind of the manufacturer, as compared withthe current and prospective rate of off-take for thegoods he deals in and his expectations as to theirprospective price-movements.
I have not quoted this passage, however, in orderto criticise Mr. Hawtrey. I doubt if he would expresshimself to-day exactly in these words. I quote itbecause it gives in a form so clear that it can beconfuted one of the elements which underlies somecurrent opinion on this matter.
The classical refutation of Mr. Hawtrey’s theory wasgiven by Tooke 1 in his examination of an argumentvery similar to Mr. Hawtrey’s, put forward nearly ahundred years ago by Joseph Hume. Before the crisisof 1836-37 the partisans of the “ currency theory ”—according to Tooke—considered that the influence ofthe Bank of England on the price-level only operatedthrough the amount of its circulation ; but in 1839 thenew-fangled notion was invented that Bank-rate alsohad an independent influence through its effect on“ speculation ”. Tooke was not concerned to deny theassociation of an excessive issue of paper with an inju-dicious cheapening of money or the effect of a decliningrate of interest in stimulating investment of all kinds.But Hume had laid chief emphasis on the effect ofcheap money in stimulating speculation in commodi-ties, e.g. cotton and corn, to which Tooke retorts in apassage which deserves to be quoted : 2
“There are, doubtless, persons who, upon imperfectinformation, and upon insufficient grounds, or with toosanguine a view of contingencies in their favour, speculateimprovidently; but their motive or inducement so to
1 Tooke, History of Prices, 1838-39, pp. 120 et seq. Hume ’s theory waspropounded in a famous speech on the Management of the Bank of England delivered in the House of Commons on July 8, 1839.
2 Op. cit. pp. 153-54.