Currency School

The Currency School was a group of nineteenth-century British economists, led by Samuel Jones-Loyd, later Baron Overstone, and including Robert Torrens, who argued in the 1840s that Britain's paper currency should be made to behave exactly as a purely metallic currency would. Building on the bullionist position associated with David Ricardo and Henry Thornton earlier in the century, the school held that excessive issue of banknotes beyond what gold reserves could support was the principal cause of price inflation and periodic financial crises, and that requiring note-issuing banks to hold gold reserves equal to any increase in their note circulation would automatically keep the currency, and prices, under control. This reasoning was the direct basis for the Bank Charter Act of 1844, which split the Bank of England into an Issue Department, required to back new note issue pound for pound with gold beyond a fixed allowance, and a Banking Department conducting ordinary banking business. The Currency School's rival, the Banking School, argued that the Act's rigid rule ignored the role of bank deposits and credit in the money supply, and the dispute between the two schools over the 1844 Act became one of the defining controversies of Victorian monetary economics. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/