Satan’s 19th-Century Bank Note

In the early 19th century ‘filthy rags’ – or banknotes – became a common form of currency. A surge in forgery followed, accompanied by a surge in harsh prosecutions. How did we get from gold to paper?

A view of the Bank of England, after a drawing by Thomas Hosmer Shepherd, 1816. Rijksmuseum. Public Domain. In 1820 a satirical pamphlet called ‘Satan’s Bank Note’ appeared on the streets of London. Accompanied by a woodcut engraving of five men being executed with the devil sitting on the gallows, the pamphlet offered a biting commentary on the epidemic of forgery trials that had broken out in Britain in the years following the end of the Napoleonic Wars. The anonymous author lays the blame entirely at the door of the Bank of England and its biggest debtor, the government of the day: Near London’s ’Change there is a house,(To name it I’m unwilling)Where RAGS are sold, and for each PoundJohn Bull gives twenty shillings.

The anonymity of the author, and their unwillingness to explicitly name the Bank of England, stemmed, no doubt, from fear of being prosecuted for libel or sedition. Ever since William Pitt’s government had effectively suspended the gold standard in 1797, ‘poor’ John Bull had been forced to accept paper in place of gold and silver. For the first time, but by no means the last, the nation was left wondering: what exactly is money? The recent introduction of new banknotes and coins has seen the return of this question. Does it matter what it is made of? When did money just become a convenient medium of exchange as opposed to representing intrinsic value? Or, put another way, how did we get from gold to paper? Dismissed by some as Monopoly or plastic money, the new £5 and £10 notes in particular have come in for heavy criticism. The Bank of England claims that the choice of material, polymer, along with a number of other security features, makes the new notes harder than ever to counterfeit. Staying one step ahead of the forgers is, of course, the Bank of England’s objective.

Midas, Transmuting all into Paper, James Gillray, 9 March 1797. New York Public Library. Public Domain.

Two hundred years ago, in 1817, the Bank of England was anything but one step ahead of the forgers. The number of forged notes and coins in circulation reached record highs amid similar debates about the nature and purpose of money. The Bank’s determination to punish those convicted of forgery led to public outcry after a series of high profile trials at the Old Bailey. An unprecedented number of people were convicted of forgery and sentenced to death. Technically a form of treason, the crime of counterfeiting was a capital one. The vast majority of those convicted were poor and in many cases women. Their crime was often not the manufacture of forged notes but ‘uttering’: being in possession of or putting into circulation forged notes. ‘The mind sickens to disgust at the hideous measures taken to sustain the blood-cemented fabric of paper currency’, the radical journalist T.J. Wooler exclaimed at the height of the controversy in October 1818. The leading critic of the government’s monetary policy at this time was William Cobbett (1763-1835), a soldier-tory turned radical journalist. For Cobbett and the thousands of impoverished working people who supported him, paper money was not money at all. In their view, only specie – predominantly gold – was proper money. Unlike paper, precious metal had intrinsic value. This was one of the pillars of the ‘gold standard’, which brought stability. The basic tenet of the gold standard was that the number of bank notes in circulation had to be backed by a fixed quantity of gold held by the Bank of England. The ‘filthy rags’, as Cobbett termed the banknotes, were merely paper promises. As the radical Thomas Paine pointed out in the 1790s, a system of pure paper money was entirely dependent on confidence, which could vanish in a moment. Not for nothing did Paine describe paper money as ‘suspicion asleep’. Drawing on a long line of currency theory, Paine and Cobbett argued that a currency had to be based on precious metal. This did not rule out the use of paper notes, as long as they could be exchanged for specie.

It was this guarantee which gave the currency, and by extension the financial system, stability. The guarantee, which still appears on banknotes to this very day, of the promise to pay the bearer on demand the requisite sum in hard cash, was a lie after 1797. Few of us stop these days to think about what this statement actually means. Today, it is little more than a symbolic survival; but during the 18th century it had meant that paper notes could be taken to a bank and exchanged for the equivalent value in specie. They were, in other words, like cheques. This changed during the Napoleonic Wars when Pitt’s government, to stop a run on the pound when fears of a French invasion were growing, suspended convertibility in 1797. This suspension of cash payments lasted until 1821. Poor John Bull was forced to subsist on a diet of paper money and reissued Spanish dollars seized from Spanish vessels after Spain joined with France against the British and their allies. The government was accused of hoarding gold. What went into the coffers was real money; what came out was worthless paper.

Bank-Notes, Paper-Money, James Gillray, 1 March 1797. Art Institute of Chicago. Public Domain.

It did not take long for critics, led by Paine and later Cobbett, to read into these apparent ‘safeguards’ sinister designs by bankers and city politicians. Free of the obligation to redeem in gold debts contracted in paper, the Bank of England could in theory print as much paper money as it liked. This enabled the government to run up huge debts to finance the war against the French. While printing more money might sound like a good thing, its effect was inflation, increasing the cost of living during a period of scarcity, poor harvests and rising unemployment. As a popular journalist, Cobbett was one of the first to link the poverty of the people to the ‘money-mongering’ juggle. Week after week in his Political Register, Cobbett attacked the system of paper money and public finance. The articles were collected and published as a book in 1815, Paper against Gold. By July 1817, he claimed to have sold 150,000 copies.

The people were poor, Cobbett reasoned, because they had to pay crippling levels of indirect taxation on everyday items to pay down the exorbitant interest on the debt. Worse still, the many wars waged by the British in the 18th century had created a class of idle creditors who were able to enrich themselves by charging high levels of interest which the government was forced to to agree to finance its costly wars. But the real scandal in Cobbett’s view was that these debts, contracted in paper money and thus hugely inflated in value, would have to be settled at some point in specie. In other words, theoretical debt would have to be paid off in real money, thus further inflating the value of the debt. It was deeply unfair, so the reasoning went, that a debt contracted in paper at, say the value of £10,000, would now be worth £100,000 because of the higher value of gold. Whose pockets would this hit? The taxpayer. Why was the government determined to resume cash payments given the potential damage it was likely to inflict? Virtually all the experts agreed that convertibility would have to be restored to bring back sound finance and stability. This was the view taken by Lord Liverpool’s government in the 1810s, with the future Tory PM Sir Robert Peel taking charge of the legislation to resume cash payments. But how was this to be achieved without plunging the nation into financial meltdown? The amount of money in circulation would have to be reduced to bring it in line with the amount of gold held in reserve by the Bank of England. In Cobbett’s view what made this all the more unfair was that the necessary ‘belt tightening’ would fall disproportionately on the poor. Those on fixed incomes, dividends and interest payments – i.e. the creditors who had lent the money – would see no drop in the value of their investment. But ordinary people would see a fall in their wages and rising prices. For Cobbett there was only one solution: the partial repudiation of the debt through a scaling down of its value to bring it in line with the deflated economy. This demand was regularly echoed by radicals up and down the country. Cobbett taunted the government of Lord Liverpool saying that it simply would not be able to restore convertibility without scaling down the debt.

So confident was Cobbett of this that if the government achieved this he would consent to be ‘broiled alive’ on a gridiron. The gridiron became a ready-made symbol that he and his many followers adopted.

The Great Hall, Bank of England, 1 February 1808. Metropolitan Museum of Art. Public Domain.

As it happens, the government did manage the feat but only, Cobbett was quick to allege, by cheating. The government empowered the Bank of England to print large quantities of small value paper notes. This was to ward off financial collapse due to money becoming scarcer as its value increased. Cobbett was proven wrong in that cash payments were eventually resumed (in May 1821), but he was correct that there was nowhere near enough gold in reserve for the Bank to redeem all of its notes in specie, just as there is not today. Cobbett refused to believe that confidence was sufficient to keep a nation’s finances afloat. To make matters worse, this belt-tightening occurred during a period when the nation’s coinage was in serious disarray and short supply. Debasing, counterfeiting, the semi-legal use of tokens and even the use of foreign coins were all widely practised in the 1810s as a strategy of simply making do. This was the context for the dramatic rise in forgery. While forgery was not exclusive to London – Birmingham seems to have been another centre – the problem was much worse in the capital than elsewhere. This was partly due to London’s size, the sheer amount of money circulating there and the ready supply of materials and skills. But it was also because it was much easier and more profitable to forge notes in London than in the provinces. In the latter, country banks, which were independent of the Bank of England, issued their own notes and circulation was largely limited to a local and regional orbit. In this close-knit environment it was more difficult to utter forged bank notes as people were more suspicious of strangers bearing bank notes. In London forgers faced fewer obstacles. The Bank of England seemed powerless, even though each year saw more convictions for forgery. By 1817 more than one in twenty £2 or £1 Bank of England notes were forged – and these were just the ones the Bank knew about.