In Malachi's first letter, Walter Scott laid out the strengths of the Scottish banking system, how the system of paper credit (backed by landed estates) had fostered economic growth through the circulation of small bank notes. He also protested the illegality of the English adopting measures that did not lead to Scotland's "evident utility"; a phrasing from the 1707 Treaty of Union. Malachi's second letter played to nationalistic feeling, both in Scotland and in Ireland to oppose, by peaceable means, measures that would prove harmful to the poorer countries in the United Kingdom. In Malichi's third letter, Scott tackles the issue of the gold standard, as England's proposed banking reform included the replacement of paper bank notes with circulating specie.
Scott introduces a character, Christopher Chrysal, who takes the side of the gold standard, admonishing Malagrowther: ``Why, Mr. Malachi Malagrowther,'' said my friend, in wrath, ``I pronounce you ignorant of the most ordinary principles of Political Economy." The argument for gold is laid out by a standard analogy: "Gold, therefore, like all other commodities, will flow to the place where there is a demand for it. It will be found, assure yourself, wherever it is most wanted; just as, if you dig a well, water will percolate into it from all the neighbourhood."
Malachi's (Scott's) counter argument considers how Scotland, a country with little specie, but a flourishing economy might fare if it was forced suddenly to obtain gold, a scarce commodity, for use in both everyday circulation and to remit to England. He answer's this question by turning the flowing water analogy around:
"Mr. Chrysal's proposition should not then run, that gold will come when it is most needed, but should have been expressed thus,---that in countries where the presence of gold is rendered indispensable, it must be obtained, whatever price is given for it, while the means of paying such a price remain...Scotland, sir, is not beneath the level to which gold flows naturally. She is above that level, and she may perish for want of it ere she sees a guinea, without she, or the State for her, be at the perpetual expense of maintaining, by constant expenditure of a large per centage, that metallic currency which has a natural tendency to escape from a poor country back to a rich one..." In Malagrowther's view, the English would benefit at the expense of the Scots.
Scott's Malachi makes an interesting observation as he draws toward the conclusion of his third and final letter that touches on the human aspects of the free trade issue, wherein people are treated merely as commodities. This issue is at the heart of the economic rationale for the Highland Clearances. "Mountainous countries inspire peculiarly strong attachments into the natives, showing, perhaps, if we argue up to the Final Great Cause, that while it was the pleasure of God that men should exist in all parts of the world, which His pleasure called into being, the Beneficence of the Common Father annexed circumstances of consolation, which should compensate the mountaineers for want of the fertility and fine climate enjoyed by the inhabitants of the plain...A Scottish gentleman, in the wilder districts, is seldom severe in excluding his poor neighbours from his grounds; and I have known many that have voluntarily thrown them open to all quiet and decent persons who wish to enjoy them. The game of such liberal proprietors, their plantations, their fences, and all that is apt to suffer from intruders, have, I have observed, been better protected than where severer measures of general seclusion were adopted...Above all, the peasant lives and dies as his fathers did, in the cot where he was born, without ever experiencing the horrors of a workhouse. This may compensate for the want of much beef, beer, and pudding, in those to whom habit has not made this diet indispensable..."
This observation echoes that of the English Sir Thomas More (and others) three centuries earlier, who noticed that workers were better off on farms than when they tried to find work in towns. So often, More noted, workers ended up impoverished, and ultimately, in trouble with the law. While Scott may not have extended his argument against specie for Scotland to the English economy, he is in essence questioning the viability of that system for all.
Scott's delving into the banking system was precipitated by a personal financial crisis, which had been triggered by ruinous speculation on the part of English banks; the Panic of 1825/26. Scott learned from this calamity, and transcended his personal issue to effectively defend the Scottish banking system from a change that would have been injurious to it and Scotland. For this reason, Sir Walter Scott is pictured on Scottish £5 notes.