Thomas Tooke (29 February 1774-26 February 1858) was one of the most influential political economists in Great Britain over the course of five decades.
Tooke was born in a village near St Petersburg, Russia, the eldest son of the Reverend William Tooke, the chaplain of the “English Factory” at St Petersburg. He received a general education and entered into mercantile endeavours at an early age, soon becoming a partner in one of the largest of London’s “Russian houses” engaged in the trade between Russia and Great Britain.
Early in his commercial career Tooke began gathering and evaluating price data on various commodities, an activity that led to the publication of seven books focusing on price data and four more publications focusing on the currency and on monetary policy.Over the course of his long life Tooke became a well-known figure in the world of political economy as a collector and publisher of price data, as a monetary theorist and as a social reformer.
Tooke developed a reputation as an expert on economic issues long before he began writing on the subject. In 1810 he was called to give evidence before the Select Committee on the High Price of Gold Bullion. In 1819 Tooke testified before the parliamentary committee considering the return to convertibility of the pound sterling. Later that same year he was also called to state his opinions before the Lords’ Committee investigating the state of the Bank of England as the return to convertibility neared. Over the next 13 years Tooke was involved with five other parliamentary committees. In 1833 Tooke was chosen as one of the 15 commissioners who were appointed to oversee the implementation of the Factory Act. He also served as one of three commissioners on the Central Board. Besides these duties, Tooke was one of the founders of the Political Economy Club in 1821, presided over the St Katherine’s Dock Company, was one of the founders of the Statistical Society, was one of the promoters of the Birmingham Railway and wrote the Merchants Petition in favour of free trade.
But Tooke’s greatest achievements as a political economist were in the area of monetary theory and policy.Tooke’s first book focusing primarily on monetary issues was Considerations on the State of the Currency (1826). At this point in his career, Tooke could be characterized as a moderate bullionist. While Tooke was a political ally of David Ricardo, he objected to Ricardo’s bullion plan, in which all gold coins would be withdrawn from circulation, while all international payments would be made in gold bars. Ricardo believed that the quantity of gold needed to accommodate the British economy could thereby be sharply reduced. Tooke disagreed with Ricardo on the grounds that David Hume’s price-specie- flow theory, upon which Ricardo based his bullion plan, depended upon “tight linkages,” while in the world of commerce actual linkages were “loose”. Tooke maintained that the price-specie flow mechanism did not, in the real world, work automatically and with the speed required to enable a great trading nation to make its payments without holding a large gold reserve with which to pay its international debts, as they often came due before the payment inflows from British exports were received. In many ways Tooke’s “early stage” monetary theory resembled Henry Thornton’s theory of money. However, over the course of the 1830s and early1840s Tooke radically revised his view of how the British monetary system actually worked, a shift that led him to rethink his approach to monetary theory.
Great Britain’s monetary system experienced significant problems in the 1820s, 1830s, and into the 1840s. During this period, the English banking system expanded greatly, to a large extent through the creation of joint-stock banks. In 1844 the British government took advantage of the legal opportunity to revise the Bank of England’s charter. The government followed the Currency School’s quantity theoretic approach in reshaping the Bank, following the theories of J. Horsley Palmer, Samuel Jones-Loyd (Lord Overstone), Robert Torrens and other monetary thinkers who subscribed to a quantity-theoretic approach to monetary policy.
The Bank was divided into two departments, the Issue Department, which issued more notes only as it acquired more gold to back those notes, and a Banking Department that operated as a commercial bank, free of obligations to the Issue Department.Tooke opposed the Bank Act primarily because he rejected the currency principle, which maintained, in his words, that “bank notes in circulation should be made to conform to the gold into which they are convertible not only in value but in amount” (1844: 2). The note issue should vary just as a fully metallic currency would. Tooke rejected this theory, arguing that the Bank lacked the ability to control the quantity of its own notes. Taking a Banking School approach, Tooke argued that credit conditions determined the quantity of notes in circulation, rather than the other way around. Tooke predicted that, if the currency principle were ensconced in law, financial crises would ensue. His prediction proved correct. While the convertibility of the pound sterling was maintained, the Bank Act, that is, the rule of issuing notes, was temporarily suspended three times within two decades, in 1847, 1857 and 1866.
Neil T. Skaggs
See also:
Banking and currency schools (II); Bullionist and anti-bullionist schools (II); Money and banking (III); David Ricardo (I); Henry Thornton (I).