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t«Mtfl|it>'
THE
CAUSES AND CONSEQUENCES
OF THE
I.:.-:::'' ■-■'■■■''■>
PRESSURE UPON THE MONEY-MARKET;
WITH A
STATEMENT OF THE ACTION
OF THB-
'^■
BANK OF ENGLAND
\ '
FROM
\9t October, 1833, to the 21th December, 1836.
By J. HORSLEY PALMER, ESQ.
I
/
I
I
!4
LONDON :
PELHAM RICHARDSON, 23, CORNHILL.
1837.
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LONDON :
PRtNTEt) BT W. MARCHANT, INOn AM-OOVRT,
rBNCIIUROH'BTRKBT.
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• '>'f.''.i :
THE CAUSES,
ETC, ETC.
I
'.>. I
There is no subject of inquiry more interesting
and important to the whole community than that
which relates to the due regulation of our monetary
system, which has been for many years past in a
continued state of fluctuation. The principle main-
tained during the war ending in 1815 has been
long since exploded, and we are not likely to see
a second resolution of the House of Commons,
declaring that a one-pound note and a shilling are
equal in real value to a guinea of full weight, at a
time when the paper-money of the country is de-
preciated 12 or 13 per cent. So far have we ad-
vanced in knowledge ; but some remarkable errors
A 2
If
have pervaded and still continue to influence the
public mind as to the mode of maintaining the
value of paper-money. Whether the period be
now arrived for getting rid of these it may be diffi-
cult to state ; the subject, however, is one of so
much interest that the writer of the present obser-
vations trusts he may stand excused in thus tres-
passing upon public attention while he attempts to
develope the principal facts bearing upon the sub-
ject now under inquiry, that have occurred within
his observation during the last three years. Some
good may, perhaps, arise from their promulgation.
He hopes that it may tend to the amendment of a
system, which, if persisted in, can hardly fail of
multiplying all the evils resulting from those varia-
tions of the curreacy to which we have latterly
been exposed.
The conduct of the Bank of England from the
year 1819 to the present time is before the public.
The events which seemed to have led to the panic
of 1825 were attempted to be explained, by the
author of this tract, in evidence given before the
Committee of the House of Commons upon the
renewal of the Bank Charter in 1832 ; when he fur-
ther endeavoured to shew that the almost total drain
<it
5
<ft«
of coin from the Bank in December 1825, which
endangered the credit of that establishment, was
occasioned solely by the discredit of private paper-
money, particularly of that part below the deno-
mination of £5. It was also shewn in that evidence
that the policy pursued by the Bank subsequent
to the withdrawal of the £1 and £2 notes in Eng-
land and Wales, had been to maintain their securi-
ties as nearly as possible at a fixed amount, and to
allow the contraction of the currency, effected by
the return of bank-notes for bullion, gradually to
proceed until the value of the paper-money remain-
ing in circulation was so far increased as to occasion
the return of that specie to the Bank which might
have been exported, and thus to replace the cur-
rency upon a level with that of other countries.
That system had appeared to work satisfactorily and
without any forced action c ; the part of the
Bank in contracting its circulation. It was tried
upon the change of government in France in
July, 1830, when credit throughout that king-
dom was shaken to its foundation. At that period
the Bank of England was possessed of about
twelve millions of bullion. Immediately upon the
events referred to taking place, the currency of
England exhibited an excess compared with that of
France and other parts of Europe. The conse-
quence of that derangement between the currencies
of this and other countries was a continued dimi-
nution of the bullion held by the Bank from July,
1830, to February or March, 1832, when the
increased value of money in England and the gra-
dual restoration of credit upon the Continent gave
a favourable turn to the foreign exchanges ; which
continued in our favour till the autumn of 1833, at
which time the bullion in deposit at the Bank
amounted to nearly eleven millions. At this period
an exportation of the precious metals again com-
menced, from causes that will hereafter be explained,
as well as the reason why that system which ap-
peared to adjust itself so satisfactorily from 1 830 to
1832 failed from 1833 to 1836; for, although during
the former period the bullion in the Bank was dimi-
nished from twelve millions to five millions, yet in
the progress of this reduction, as there was no excite-
ment, and no undue credit given by the banks in the
interior of the country, the interest of money gradu-
ally rose from 2^ to 4 per cent, per annum for first-
rate commercial paper ; and then, without discredit
or distrust of any kind, the bullion returned into the
coffers of the Bank, and money nearly resumed its
former value, the rate of interest having gradually
fallen from 4 to 2 J per cent, in July, 1833.
But before proceeding further, it is necessary
to allude to the rise and progress of Joint-
Stock Banks in England, Wales, and Ireland.
Scotland having, fortunately for that part of the
empire, kept itself free from the mania for the
extension of these companies, it is unnecessary
particularly to allude to the proceedings of its
banks.
Immediately subsequent to the panic of 1825,
which affected almost every banking establishment
in London as well as the country, the Government
of that day was unfortunately induced to call upon
the Bank of England to relinquish, beyond sixty-
five miles from London, its exclusive privilege as
to the number of partners authorized by law to
be associated for the formation of Banks, in order
to enable Ministers to frame regulations authorizing
the establishment of Joint-Stock Banks throughout
all parts of the country beyond the limit above
specified, thereby virtually declaring that the exist-
ing" private banks were unworthy of credit. The
term "unfortunately" is used; for perhaps there
;>'.
never was a measure more uncalled for by the wants
of the community. The existing system was
intimately connected with the prosperity of the
country, and was good in all its parts, excepting
the power of issuing paper-money ad libitum.
The change in question laid the foundation of a
new system to be brought into the field by com-
petition in the issue of paper-money, the most
prejudicial means that could be devised. A reluc-
tant concession was obtained from the Bank ; and
in order to place the whole subject before the
public, the correspondence which then took place
between the Government and the Bank is annexed
to the present statement. Very little progress was
made in the formation of those projected institutions
prior to the year 1830, when a further application
was made by Government to the Bank for conces-
sions intended to have formed part of the con-
ditions at that time for the renewal of the Charter.
The opinion of the Bank remained unchanged as
to the danger to be apprehended from the exten-
sion of the system of Joint-Stock Banks, and
this opinion was pressed upon the Government
at that period. The Ministry under the Duke of
Wellington having soon after been dissolved, no
further discussion of the subject took place until
the negotiation under the Government of Earl
Grey, which terminated in the renewal of the
Charter of the Bank in 1833. Pending the
discussions which then took place the strongest
representations were verbally made to Earl
Spencer (then Chancellor of the Exchequer),
of the necessity of placing Joint-Stock Banks of
Issue under some regulations to be proposed by
His Majesty's Government, which might tend to a
prevention of excess in their issues of ppper-money.
It is well known that that noble Lord was desirous
of submitting such regulations for the considera-
tion of Parliament ; but these he was prevented
from carrying into effect. The system of Joint-
Stock banking was further facilitated by permitting
the formation of direct agencies in London ; and a
declaratory clause was inserted in the Bank Char-
ter Act authorizing the establishment of those
bodies in the metropolis. It is conceived that the
Bank had the more reason to complain of the
Ministers' proceeding upon that occasion, it having
been distinctly understood during the negotiation,
that the law affecting the formation of Banks within
sixty miles of London should remain untouched, and
upon the faith of that understanding Earl Spencer
- * ■ , •
10
undertook to bring the Bill into the House of Com-
mons for the renewal of the Charter of the Bank.
Having thus briefly stated the proceedings which
have occurred in the establishment of Joint-Stock
Banks prior to the renewal of the Charter of the
Bank of England, it may, perhaps, be proper to
state the periods of the increase of those of Issue
from the year 1826 : they are as follow, taken
from returns furnished by the Stamp-Office.
IN ENGLAND AND WALES,
1 826, were established 3
1827, „ 4
1828, „ nil
1829, „ 7
1830, „ 1
1831, „ 8
1832, „ 7
1833, „ 10
1834, „ 11
1835, „ 9
1836, from 1st January to 26th November • • 42
Total 102
IN IRELAND
There were formed prior to 1 834 3
In 1835 2
1836 8
Total 13
Until the year 1833 the action of the Banks, as
already stated, appears to have been perfectly
regular. From that period the increase in the
11
number of Joint-Stock Banks, in England and
Wales, to the 26th November last, has been seventy-
two, and in Ireland ten, making an aggregate of
eiglity-two, exclusive of their innumerable branches
formed in almost every town in the two kingdoms,
which are, in fact, equivalent to so many additional
banks.
It next remains to be shewn what was the amount
of paper-money in circulation in England and
Wales, and Ireland, other than that issued by the
Banks of England and Ireland. The average in
England and Wales on the 29th March, 1834,
was £10,200,000, and in June, 1836, £12,200,000.
In Ireland the average in June, 1834, was £1,300,000,
and in June, 1836, £2,300,000. In both cases
the greatest extension took place within the last
year. It thus appears that there was a total increase
in this portion of the paper-money of the two king-
doms, in 1836, over 1834, of no less than three
miilionsj or more than 25 per cent.
There was no material fluctuation in the circulation
of the Bank of Ireland ; it therefore is only requisite
to state the particulars of the issues of the Bank
of England at the two periods referred to.
The liabilities and assets of the Bank on the
'#^
■-m*
12
1st October, 1833, upon an average of the three
preceding months were, —
Circulation • •
£19,800,000 I Securities £24,200,000
1 3,000,000 I Bullion 1 0,900,000
On the 27th December, 1836, the bullion upon a
similar average was £4,300,000, shewing a re-
duction of £6,600,000. The circulation was then
£17,300,000, and the deposits, excluding those
of a temporary character (4| millions), were
£9,200,000; the diminution of the two, taken
together, having been £6,300,000, the difference
between this amount and the loss of bullion being
found in the increase of securities held by the
Bank.
In every quarter succeeding the 1st October,
1833, with two very trifling exceptions not worth
notice, the reduction in the circulation and deposits
was larger than the progressive diminution of bullion
required.
It may here perhaps be as well to explain the
nature of what are termed extra deposits, in order
to shew that they are independent of the regular
working of the Bank. They have consisted of
money belonging either to Government or the
East India Company, altogether independent of
■»^
13
their ordinary transactions. The first arose out
of the contract for the West India Loan, upon
which a discount was allowed for prompt payment
higher than the market rate of interest; and as
the prompt payments thus made were not required
for issue to the West India claimants for several
months afterwards, it became necessary, in order
to preserve the currency in the same state as if
the payments for the loan had not taken place,
and to prevent its undue contraction, to re-issue the
money to the public. This was done by contract
with the money -dealers, so as to ensure its return to
the Bank at the time of the adjustment being made
with the claimants by the Commissioners. It ought
further to be borne in mind, that during the whole
period of those loans the foreign exchanges were
high, increasing the quantity of gold in the coffers
of the Bank to a considerable extent — a circum-
stance which would have rendered it quite unjusti-
fiable for the Bank to have permitted a contraction
of the currency by the prompt payments on account
of the Loan, and an advance in the rate of interest
to have been thus unnecessarily and forcibly effected
to the detriment of the commerce of the country.
The second case was that of the East-India
14
Company realizing their commercial assets to an
extent far exceeding their ordinary wants for pay-
ment. Upon the commencement of the accumula-
tion, to the extent of £600,000 or £700,000 above
their ordinary balances, an application was made to
the Bank to ascertain whether it would undertake the
risk of lending the money, paying to the Company
a given rate of interest ; if declined, the Company
were prepared to lend it themselves, having re-
ceived offers from some of the principal money-
dealers to take it. The question, therefore, simply
was, whether the notes should be paid away by the
East-India Company or the Bank ? It never could
be expected that the Bank should be required to pay
a rate of interest for notes or bullion belonging to
others, merely for the sake of keeping them unem-
ployed : having at the same time no excess beyond
the 241 millions of securities, which the ordinary
working deposits and circulation entitled that body
to hold. Hence it is evident, that in the first case
the Bank was, for the benefit of commerce, re-
quired to reissue the monies received on account of
the West-India Loan, and that in the second, if the
Bank had not consented to advance the money, the
East-India Company would have lent it themselves.
The only point, therefore, was one of management,
viz. to keep the currency from undue fluctuation,
and to insure the return of the notes from the
market at the periods when the Government and
the Company required them for issue in the same
direction, which was effected to the letter.
The contraction of Bank-notes, exhibited in the
comparative statement, between October, 1833, and
December, 1836, applies to the aggregate circu-
lation of the Bank, both in London and the country ^
whereas that of London alone ought to be brought
under review. It will appear, from the following
account, that the contraction has been in London
three millions from the amount in circulation in
October, 1 833, which with the deposits makes the
actual reduction of the London liabilities £200,000
more than the diminution of Bullion exhibited
in the quarter ending December last. The sub-
joined statement embraces the separate issues in
London and the Branch Banks every quarter, from
October, 1833, to December, 1836, each return
being calculated upon the average of the thirteen
preceding weeks. It will be thus seen that the
increase of the Branch Bank issues was virtually so
much withdrawn from London, the Bank not having
A <■•-:■■
s*^
increased its amount of securities previously exist-
ing until the quarter ending 27th September last,
when the pressure was commencing consequent
upon the advance in the rate of interest. The
object of this account is to shew that every means
were taken by the Bank to prevent its being charge-
able with an over-issue. On the contrary, the
increase of issue by the Branch Banks having been
occasioned by agreements, substituting their notes
for those of Country Banks withdrawn, shews, that
to that extent an earlier contraction was effected in
London than would otherwise have taken place.
It further shews that the amount of Country Bank
issues withdrawn, places the excess of the other
issuing bodies in a still more unfavourable light by
very nearly half a million.
ISSUES OF THE BANK OF ENGLAND.
1833.
Oct. 1. London 16,500,000
Branch Banks 3,300,000
19,800,000
Dec.31. London 15,000,000
Branch Banks 3,200,000
18,200,000
1834. '
Apr. 1. London 15,800,000
Branch Banks 3,200,000
19,000,000
July 1.
Sept. 30.
Dec. 30.
1835.
Mar. 31.
June 30.
Sept 29.
Dec. 29.
1836.
Mar. 29.
June 28.
Sept 27.
Dec. 27.
17
London 15,700,000
Branch Banks 3,200,000
London 15,800,000
Branch Banks 3,300,000
London 14,800,000
Branch Banks 3,300,000
London 15,200,000
Bnmch Banks 3,300,000
London 15,000,000
Branch Banks 3,300,000
London 14,900,000
Branch Banks 3,300,000
London 13,800,000
Branch Banks 3,400,000
London 14,400,000
Branch Banks 3,600,000
London 14,200,000
Branch Banks 3,700,000
London 14,500,000
Branch Banks 3,600,000
London 13,500,000
Branch Banks 3,800,000
18,900,000
19.100,000
18,100,000
18,500,000
18,300,000
18,200,000
17,200,000
18,000,000
17,900,000
18,100,000
17,300.000
B
sjn^f^'-
.,**?•*'*''
Nl
Having thus stated the action of the different bodies
through which the extension and contraction of the
paper money of England and Ireland have been
effected from the year 1833 to the present time, it
may be now expedient to shew the causes which
appear to have occasioned the reduction in the cir-
culation of the Bank of England. It is the more
important to submit these causes to the notice of
the public, as they seem in no degree to have arisen
from overtrading or any undue speculative advance
in commercial prices : oocurrenoes of that nature
tend to produce an unfavourable foreign exchange,
an evil only to be remedied by that contraction of
the circulation which eventually restores prices and
currency to a level with those existing in foreign
countries. If, therefore, upon reference being
made to the state of the foreign exchanges during
the period to which the inquiry relates, it be
found that no material derangement existed, our
attention is naturally directed to the consideration
of the other causes that have occasioned the
demand upon our metallic currency. In order to
establish the position that the commercial exchanges
were not against England, it may be right to
refer to the increase or decrease of gold at the
I
t a
19
Bank, from which alone any correct inferences are
to be drawn as to the state of our currency in com-
parison with that of foreign countries.
The first period may be taken from October 1 833,
to April 1835, during almost the whole of which
time there was a continued purchase of gold by
the Bank, at £3 : 17 :9 per oz. ; the exchange on
Paris never fell below 25.35 for short paper, and the
premium upon gold remained in Paris at about
9 per mille, thus shewing that during that period
there was no demand upon the Bank for bar-gold,
and no profit upon the export of that metal or the
gold coin of the realm.
The second period was from April 1835 to
April 1836, during the whole of which time the
foreign exchanges were considerably higher than
during the preceding eighteen months, and conse-
quently the influx of gold correspondingly in-
creased at the Bank.
The third and last period is that from April to
December of the past y';ar, during the whole
of which time the foreign exchange on Paris was
seldom under 25.35 ; the premium upon gold,
however, was for a short time as high as 13 and
14 per mille, which occasioned a loss of about
B 2
20
M.
£100,000 of the Bank's stock of gold bullion, an
amount too trifling to establish the fact of an unfa-
vourable commercial rate of exchange.
With this statement of the actual bearing of the
foreign exchanges upon the gold currency of the
country, it may perhaps excite some surprise as to
the mode in which the large reduction in the
bullion held by the Bank was effected, and which
in its consequences, from that body having been
governed by the principle laid down in the evidence
of 1832, ought to have had the same effect upon
the general currency of the empire, as if the reduc-
tion had been occasioned by any cause other than
that from which it is believed to have arisen. The
principle referred to was stated to be the retention,
so far as practicable, of a fixed amount of secu-
rities ; and in proof of such having been the course
pursued, the following account will shew that the
securities which stood at about twenty-four millions
and a quarter in October 1833, upon an average of
the three preceding months, did not subsequently
exceed that amount until the recent pressure com-
menced upon the money-market, which was further
increased by the discredit in Ireland causing a
demand upon the Bank, direct and indirect, for
nearly a million of sovereigns.
/,
21 .
The securities in possession of the Bank, ex-
cluding those held temporarily with the extra
deposits, were upon the average of the quarters
ending
1833.— let October ...- £24,200,000
,, 31st December 23,600,000
1834.— l8t April 23,500,000
„ IstJuly 22,600,000
„ 30th September 24,900,000*
„ 30th December 23,400,000
1835.— 3l8t March 25,100,000*
„ 30th June 23,800,000
„ 29th September 22,900,000
„ 29th December 22,000,000
1 836. -29th March 24,000,000
„ 28th June 22,600,000
„ 27th September 24,800,000
,, 27th December 25,000,000
The publication of the liabilities and assets of
the Bank in January, and those which will follow
in February, will shew a further increase of secu-
rities (excluding those appertaining to the extra
deposits), and according to the principle laid down
in the evidence referred to, the rate of interest
• The excess in these two quarters was occasioned by an in-
crease in the deficiency Bills.
#■
. Z?"^.
^.f^:
ougiit <o hnve been advanced by the Dank in order
to throw buck that excess upon the market. It is
submitted, however, that we have n(«t been placed
in ordinary circumstances since the discredit which
occurred in Ireland. In consequence of that event
there was in the first instance an undue return of
Bank of England notes for coin, and secondly, ■;
is believed that in this country, from apprehciifop
of consequences, a much larger amount I lank-
notes has been and still is retained in reserve by
bankers generally, than they are ordinarily in the
habit of holding. At any rate it is evident that
the additional issue by the Bank has not caused
any fore.gr. demand for gold,* and unless that be
exhibited, the Bank ought not, under circumstances
of an unnatural pressure, strictly to enforce the
principle laid down. In thus offering an individual
opinion, the writer does not presume to say what
course the Bank may either now or hereafter feel it to
be a matter of obligation t^ adopt. We must keep in
mind that England is th : .?tn/... v»f the /* ole com-
merce of Europe and America, if not the world,
* No foreign demand or export of gold, deserving of notice,
his <;aken place since Ist September last.
23
and ariv hasty or unnecessary step taken, will not
only ; flPoct tjjr credit and prices of tlim country,
but to a certain degree those of all parts of th«
Continent, from whence we are to obtain that
bullion whicli we have lost. The causes of that
loss, so seriously afi'ecting the credit and com-
mercial transactions of the country, demands the
closest investigation. The fail in price of a.'
most all the leading articles of raw produci
(sugar, coffee, tea, silk, cotton, piece goods, nietals,
drugs, &c.) from the 1st July last, when the rate
of interest was Brst advanced, has not been less
than from 20 to 30 per cent.
The securities published in the Gazette read
higher than the amounts stated in the preceding
paragraph, in consequence of the extra deposits
placed temporarily with the Bank e ther by Govern-
ment or the East-India Company but these, as
already explained, were advanced, under peculiar
circumstances, in a way to insure ^heir return at
such times as the Government or t he East-India
Company might require the money.*
notice,
* The average extra deposits in possession of the Bank on
the 27th December last were about 4^ miUioAS, which wem
24
Allusion has already been made to the effect
upon the currency from a deranged state of
commercial prices between this and foreign coun-
tries. It must be evident to every one reflecting
upon the subject, that similar effects may be pro-
duced by employing capital in speculative loans to
foreign powers or investing it abroad at a higher
rate of interest than the securities of this country
may afford. This, it is obvious, may occasion large
and sudden foreign payments without any reference
to the exchanges. And it is to payments of that
character that we may attribute the loss of bullion
vjrhich took place from October 1833, to April
1835, and to which the public attention should
be directed, that remedies may be devised for
mitigating the evil, which must otherwise attend
similar transactions hereafter.
Notwithstanding the cry of distress which has
from time to time prevailed for some years past, it is
notorious that the capital of individuals, at least in
every manufacturing and commercial department,
lent upon securities redeemable in January of this year, when the
East-India Company required their funds to meet the bills drawn
from India then falling due.
:-#.
25
has been and still is steadily upon the increase.
The evidence of that advance is seen not only in
every town throughout the kingdom, but we are
also daily witnessing the extension of every branch
of commerce and manufactures, which can only be
attributed to the constantly growing capital of the
country. Without meaning to impugn the state-
ments, which have been put forward, or doubt-
ing the severe pressure, which has existed, and
in some cases may still exist in adjusting the rela-
tive position between landlord and tenant, or the
heavy depreciation which has taken place, since
the close of the last war, in the value of all pro-
perty vested in shipping, it is extremely question-
able whether in both those cases, hard as it may
have been upon the parties directly interested in
them, the pressure has not been wholly irreme-
diable. It originated in the altered circumstances
of the country subsequently to the peace of 1815,
and could not be prevented by any legislative mea-
sures.
Assuming, therefore, that a great increase of
capital is continually going forward, it is but
reasonable to expect that a po tion of that accu-
mulation should seek investment in foreign secu-
^'M^^
•■■■<J9»:
26
'I
rities from the higher rate of interest tliat they
afford over those of our own country. The facili-
ties of making such investments began with the
peace of 1815, when the system of foreign loans
contracted and made negociable in London com-
menoed. That system has been extended to almost
every state both of Europe and America, nor does
it appear to have been attended by any prejudicial
effects when not subject to excessive speculation.
On the contrary, looking to the constant accumu*
lation of capital, such contracts as offer opportuni-
ties for gradual and moderate investments have
proved beneficial to the commerce of the country,
the amounts having in such cases been generally
transmitted either in colonial produce or manu-
factures. It is not therefore the ordinary invest-
ments in foreign securities which are open to ob-
jection, but that speculative action so greatly facili-
tated by our foreign stock-market in the establish-
ment of a system of gambling ten times more pre-
judicial to the interests of the country, than that
which has for years past existed in the dealings in
our own funded debt. In the first the receipt or
payment becomes, not unfrcquently, one of foreign
settlement, thereby directly acting upon our currency.
27
The second almost exclusively attaches to English
residents, and the balance is consequently finally
adjusted at the clearing- house in Lombard-street.
The speculative action here alluded to, and
pertaining to the present enquiry, originated in
the loans to Don Pedro upon his first attempt
to recover the throne of Portugal. The money
advanced effected the overthrow of Don Miguel,
and upon that overthrow followed the speculative
mania in the foreign stock-market. More loans were
contracted in aid of Donna Maria, and provided the
contractors could only secure their agency and com-
mission, the public were left to take care of them-
selves. The rage for speculation being further
excited by the popular idea of overthrowing
absolutism and establishing liberal Governments
throughout the Peninsula, Spain came in for her
share of the plunder obtained through English cre-
dulity. These loans were going forward from
July, 1833, until towards the end of 1834, when the
profit realized upon the daily extending engagements
in the Foreign Stock-market engendered a further
spirit of speculation in almost every kind of previ-
ously neglected South American, Spanish, and
Portuguese bonds, causing an enormous advance
,ijLia», xii6Mi^i^.'-i;j-.'iiikitL-,^'
.A. '
38
in all, and in some nearly 100 per cent. In short,
until the spring of 1835 hardly a packet arrived
from the continent which did not come loaded
with every sort of foreign securities for reali-
zation upon our Foreign Stock-Exchange. During
that period, and through the means here re-
ferred to, the bullion and coin held by the Bank
in October, 1833, was reduced by the sum of
£5,100,000, effected by £2,900,000 silver sold,
and £2,200,000 sovereigns exported. It may
perhaps be maintained that the sale of silver
by the Bank was the means of preventing a
further export of gold, that otherwise would
have taken place, and that there is no proof of
the export of bullion having been occasioned by
the operations upon the Foreign Stock-market. In
reply it may be stated that not only the demand for
the silver and export of the sovereigns originated
and continued during the mania alluded to, but
further, that that demand ceased the moment the
reaction took place in May, 1835, when a panic
seized the dealers in foreign securities, causing
their prices to fall with far greater rapidity than
they had risen. In the progress of the con-
traction, which ensued upon the diminution of the
Ai
Dr
29
bullion held by the Bank, the market rate of interest
gradually advanced for first-rate commercial paper
from 2J to 31 per cent, per annum, which may be
quoted as having been its value in May, 1835; at
that time there was no material increase in the
paper-money circulation of the interior, conse-
quently, immediately upon the discredit taking
place, the export of gold ceased and the foreign
exchanges further advanced, bringing back the
major part of the gold which had been exported in
the preceding eighteen months, thereby clearly
shewing that the currency was not redundant.
The reduction which took place in the bullion of
the Bank from April to September last is that to
which it is now necessary to advert. The dimi-
nution amounted to £2,600,000, and was effected in
the following manner ; —
£200,000 amount of Silver sold.
100,000 „ Gold do.
2,300,000 „ Sovereigns, supposed to
have been exported to America.
In order to explain the cause and origin of the
American demand, it may be proper to advert to the
proceedings in America for the two preceding y^ars.
4,
30
The avowed hostility of the President, Jackson, to
the renewal of the Charter of the Bank of the United
States terminated, after a violent struggle, in com-
pelling that Institution to prepare for closing all its
transactions in 1836, and for repaying that portion
of its capital that belonged to Government. In
order, however, to increase the embarrassment of
the Bank, measures were taken for removing from
its custody the deposits of public money, and for
placing them in the hands of various States' Banks,
under condition that they should be prepared to
pay a given portion of all demands upon them in
gold coin. To facilitate this object, Congress passed
a law reducing the quantity of fine gold in the
Eagle, the equivalent of ten dollars, from 246 to
232 grains. This depreciation of the American
gold coin had the effect of raising the current
value of the English sovereign from 4.44 dollars to
4.874^, or 8| per cent, above its previous current
value. Simultaneously with and in aid of these
measures several of the States were persuaded to pro-
hibit the circulation of notes of less amount than
five dollars. In taking these measures it was
an avowed object on the part of the President to
endeavour to establish a gold currency in conjunction
with silver throughout the Union. The hostility
31
evinced towards the Bank of the United States, and
the refusal to renew its Charter caused an immedi-
ate contraction of the usual accommodation granted
at the numerous branches of that Establishment, and
further, entailed upon the favoured States' Banks the
necessity of procuring an additional supply of gold
to enable them to fulfil the conditions under which
they received the deposits of Government money.
This combination of circumstances, having no re-
lation to the ordinary commercial transactions exist-
ing between this country and America, materially
reduced the rate of exchanges with Europe, so
much so as to afford a profit upon the importation
both of gold and silver from England and other
parts of Europe. The President, too, in order further
to aid his favourite project of increasing the metal-
lic currency throughout the States, directed, in the
early part of last year, his agents in Europe to
remit in gold to America the whole of the indem-
nity money to be received from France and Naples.
About the time of that remittance having been
made, a loan for a million or twelve hundred thou-
sand pounds was negociated in London on account of
the United States' Bank to facilitate the settlements
upon the expiration of the Charter. The effect of
^i
m
that loan upon the currency of this country was
further increased by a much larger amount than
usual of American securities, or of States' stock,
bank and canal stock, &c. having been sent to
Europe for sale, and upon which credit had been
given by some of the principal houses in England
in anticipation of the sums they were expected to
realize, thus throwing an inordinate amount of
American paper upon our markets. If all these
circumstances be adverted to, together with the very
large amount of produce imported from America,
the surprize will be, not that some, but that so
small a portion of bullion should have been ab-
stracted from England as that already stated.
Since the 1st September last the demand has
entirely ceased, and notwithstanding the desire of
the American President to retain the bullion
acquired from this country, it is not improbable
that we may soon see it return from that quarter
of the world.
Having thus endeavoured to explain the causes
which have operated to reduce the bullion of the
Bank during the last three years, ^t becomes
desirable to shew why it is that the contraction of
the circulation of the Bank has affected private
33
ihe
of
ite
credit more than in 1832, whe^ i similar loss of
bullion and contraction of the Bank's engagements
were exhibited. The difference between the two
periods appears to have been occasioned by the
altered state^^of private banking in the interior of
the country. In the first, there was no particular
excitement either in England or Ireland, nor any
excess in the issues of provincial paper. In the
second, both countries teemed with competition
created by the additional establishment, as previ-
ously stated, within the short space of two years, of
not less than seventy-two Joint-Stock Banks in Eng-
land and Wales, and ten in Ireland, with their innu-
merable branches in almost every town throughout
the two kingdoms. It is needless to attempt to de-
scribe the competition that grew out of this exces-
sive multiplication of banks : its effects were exhi-
bited in a great and undue, and even rash extension
of paper-money and credits, accompanied by an un-
usual reduction in the rate of interest in the interior
of both countries, but particularly in Ireland : the
commonest observer must have seen the gathering
clouds, and dreaded the consequences.
• These circumstances at length attracted the atten-
tion of Parliament. The volume of evidence, taken
/i
u
before a Committee of the House of Commons, and
published since the close of the last session, must
satisfy every unprejudiced mind of the danger attend-
ing the continuance of such a system. Suffice it here
to say, that the influence which should have attend-
ed the contraction of Bank of England paper arising
from the export of bullion, was counteracted by the
imprudent facilities of credit and cheapness of money
occasioned by the proceedings of the Issuing Banks
in the interior of England and Ireiand. Upon the
publication in the Gazette of the issues of the Joint-
Stock and private banks of England and Wales in
the early part of last July, an increase of 25 per
cent, of their issues was exhibited, above the amount
existing in March 1834, while the circulation of
the Bank of England had been diminished nearly to
the same extent. The increase in the issues of the
Joint-Stock Banks of Ireland, though not published,
has since been ascertained to have greatly exceeded
in proportion that exhibited in this country.
In order more clearly to explain the nature of
the reduction in the circulation of the Bank of
England, it should be stated that a considerable
proportion of what are termed deposits in the Bank
accounts ought to be considered as part of the
35
Bank-notes issued, being no otlier than > iea
waiting a demand for employment, and belongiug
to London bankers and others. Whether, there-
fore, these notes remain for a time in the posses-
sion of the Bank, or whether they remain in the
possession of the parties to whom they belong, is
really the same thing, the only difference being in
the mode of stating the account. As nearly as can
be ascertained the amount of deposits coming under
the description here alluded to, may vary from three
to four millions. But we are not, as has some-
times been done, to confound this portion of the
deposits with the other and much larger portion
that is lodged with the Bank for security only, and
without being intended to be speedily withdrawn
or to be operated on by checks or otherwise. To
contend that this portion of the deposits should be
considered as currency is equivalent to contending
that the bills and bonds belonging to individuals
and locked up in their strong box are part and
parcel of the circulation. They may be money in
possCf but they are not money in esse, and have no
more influence over the currency than the gold or
silver buried in the bowels of Mexico. But to
return : —
3G
Adverting to the excess ol' the country
issues, and looking to the race running with in-
creased violence in Ireland as well as England,
. the Bank was fully justified in attempting to arrest
the evil which might attend a continuance of the
export of bullion from the redundancy of money, by
making an advance in the rate of interest in London
and at the Branch Banks. In fact, the only ques-
tion about which there can be any real difficulty is
whether she ought not to have taken this step
somewhat earlier. To have acted, however, in
anticipation of events likely to occur, would have
been in direct violation of that principle upon which
the Bank professed to be guided, and which Parlia-
ment had tacitly sanctioned. It would moreover
have established a precedent and imposed future
responsibilities upon the Directors, which it is
questionable whether they should ever incur,
either upon their own account or that of the pub-
lic. The Bank acted precisely as any Board of
Commissioners empowered solely to issue notes for
bullion would have done, ana can in no way be
chargeable with the consequences.
The large amount of money deposited at interest
with the Bank by tlie East-India Company for a
37
limited period, and which was lent to the money-dea-
lers in London, afforded considerable facilities for
rendering the rise in the rate of interest immediately
effective ; the object was not one of profit to the
Bank, but to enforce that contraction and to esta-
blish that general rate of interest, which, but for the
undue increase of the issues of the Joint-Stock
Banks and others in England and Ireland, should
have followed the export of bullion. The course thus
taken by the Bank was, in the first instance, coun-
teracted by the other issuers of paper-money in Eng-
land, Ireland, and Scotland. The demand for bul-
lion continuing, the Bank further advanced the rate
of interest in August to £5 per cent, per annum,
which forced additional securities upon many of
those country-banks that adhered to a lower rate.
Their surplus funds in London being soon absorbed,
they all eventually adopted the rate of interest
established in London. There was, however, an
effect created by this act on the part of the Bank
far more powerful than the actual advance in the
value of money. It was a moral apprehension in all
prudent minds that there was mischief abroad ; and
those who had been promoting and applauding the
action of the Joint-Stock Banks began to doubt
38
the solidity of the system. The feeling so created
was probably further extended by the publication
of the evidence already alluded to. The conse-
quence of this altered state of confidence was first
shewn in Ireland, where the competition had assumed
a more violent character than in England ; a run
upon all the Joint-Stock Banks in that part of the
Empire ensued, which terminated in the stoppage
of the Agricultural. The direct effect of that dis-
credit upon the Irish banks was an immediate drain
upon the Bank of England and its branches of
nearly one million of sovereigns, obtained by the
return of notes to that amount. None of these
banks having been previously provided with coin
or the direct means of obtaining it, the only mode
of getting possession of it was by forced sales of
securities in London. A moment's reflection will
shew the derangement in the London circulation,
necessarily consequent on such proceedings, as well
as the difficulty under which the Bank is placed
by the total want of coin or bank-notes on the part
of issuing banks, to uphold the credit of their circula-
tion. It may be assumed as a fact that profit is
their only object, and that not a single issuing
bank in England, Ireland, or even Scotland has ever
♦ *
39
been provided with bank-notes or coin adequate to
meet a demand upon their respective liabilities.
Their assets beyond the ordinary wants of their
customers are all vested in securities bearing
interest, trusting to the realization of those securi-
ties in bank-notes in case of need, which, thus
abstracted from the public market, either inflicts a
most inconvenient pressure upon London, or, in
order to prevent that pressure, the Bank is required
to re-issue the amount of notes, so cancelled, with-
out reference to the bullion in its possession. It is
perfectly immaterial whether banks of issue retain
their just proportion of reserves in Bank of Eng-
land notes or coin, but one or the other it is sub-
mitted that they ought to be compelled to retain
with reference to their liabilities, or to abandon the
issue of notes, the upholding of which, under dis-
credit, becomes a source of difficulty and danger
to the public at large, as well as to the Bank of
England. In the late instance the discredit fortu-
nately extended no farther than Ireland, but the
apprehension of what might ensue in England
occasioned a considerable abstraction of bank paper
from London by the issuing banks of the country,
which to that extent so far encreased the pressure
S« -
X.
Ct
40
of contraction — and was the principal cause of
the pressure upon the money-market, which is
the first head of the present enquiry. In such
times it is not only the contraction of money
which constitutes the evil, but the consequence
which invariably ensues of timidity on the part of
bankers generally, to grant their customary accom-
modation, and of those situated in the more distant
parts of the country accumulating and locking up
reserves three or four times greater than they retain
under ordinary circumstances.
Much has been said and written by parties con-
nected with a portion of the daily press as to the
impossibility of maintaining a paper-money circu-
lation convertible into gold coin of a given standard.
There is no intention of entering at present upon the
discussion as to whether silver or gold would origi-
nally have been the better metal to adopt as our
standard of value. Gold was determined upon,
and that is the only question we have now to deal
with. It may be true, though there is no evidence
of the fact, that gold fluctuates more in value than
silver ; but there does not appear to be any diffi-
culty in maintaining it as our standard, subject
at times to some temporary inconvenience in rela-
■m
41
iffi-
ect
ela-
tion to the currencies of other countries, pro-
vided the issue of paper-money be duly regu-
lated. Under the system which now exists, em-
bracing a total amount of bank-paper circulation
in Great Britain and Ireland of about forty-five mil-
lions, the half of which may be assumed to be un-
protected by an adequate reserve of either Bank of
England notes or coin, it certainly is impossible to
insure the convertibility of paper even for foreign
payment; nothing can guard against the effects of
mismanagement and consequent excess by such a
numerous mass of issuing bodies as overspread the
empire. If, however, the amount of paper-money be
limited, and it be issued by one body, with an ade-
quate reserve of bullion expanding and contracting
as the currency may fluctuate in value with refe-
rence to foreign countries, there could be no difficulty
in preserving it against depreciation for all pur-
poses of foreign payment. If paper-money ever
become discredited by any internal political convul-
sion, it can then only be upheld by the power of
Government — and in such times it becomes the
duty of the Ministers of the Crown to undertake
the responsibility of upholding public credit. For
relief against commercial discredit the issuing body
42
should be so formed as to be able to afford
protection. . . > -> .m
With reference to the past action of the Bank
there is no reason to doubt that the value of the
currency would have been maintained without oc-
casioning any severe pressure upon the money-
market had the countervailing issues by other bodies
not occurred ; still if there exist any well-founded
reasons for supposing that the principle explained in
the evidence of 1832, and acted upon by the Bank,
is not sound — or that the proportion of one- third of
bullion with reference to the liabilities of the Bank
at the period of a full currency be not sufficient, it
merely remains for Parliament to express an opinion
upon either of those points, and there can be no
question but that the Bank will immediately regulate
its course accordingly. The principle referred to was
never intended to apply under any extraordinary
events that might arise. In such times it would be-
come the duty of the Bank to reduce their securities
without delay, and thus to increase the relative
proportion of bullion to their liabilities prior to the
commencement of a foreign demand, which in such
altered state of circumstances might be expected
to occur.
48
Having thus endeavoured to show the rise and
progress of the contraction in the circulation of the
Bank of England, which has terminated in the
pressure upon the money-market, it remains to be
considered what are the consequences likely here-
after to ensue from a continuance of the present
system.
Assuming that the main cause of the pressure
was occasioned by the counteracting effect of the
issues by other bodies, promoted in no common
degree by the inordinate multiplication and compe-
tition of the Joint-Stock Banks throughout England
and Ireland, it may be worth while to allude to what
may be supposed to have led to the opinions
formed in 1825 by the Government of that day
in favour of those institutions.
The consideration of the Joint-Stock system had
been, for some time prior lo the year 1825, forced
upon public attention by the many failures which
had taken place subsequently to 1810 in private
banking establishments, amounting to more than
one hundred and fifty : and as about eighty private
banks suspended their payments in 1825, the
Government thought themselves then called upon
44
without further delay to endeavour to change the
system altogether — a sound system of banking being
an object of the highest imoortance to the whole
community. The view taken by Government was
strengthened by observing the little comparative
derangement sustained by Scotland under the Joiat-
Stock Banks, by which the monetary concerns of
that part of the kingdom have been almost exclu-
sively conducted. Looking to that country as an
example, it was perhaps natural to conclude that
what afforded evidence of advantag ^ in one part of
the kingdom would be equally good for all the rest.
There is no intention to criticize the Scotch system of
banking, but were it narrowly examined, it might
not appear so perfect in all its parts as its many
warm advocates are inclined to believe. Suffice
it to say, that it has produced great benefit to
Scotland, which is a sufficient reason for leaving
it untouched so long as it commands public
confidence.
In precipitating a change in England Ministers
seem not to have given sufficient attention to
the real causes which occasioned the failures in
this country, or the peculiar origin aud state of the
of
45
lie
irs
to
in
the
banking interest in Scotland. — Tlie evil of the
system in England had grown up during the period
of the restriction upon cash payments, and espe-
cially during the depreciation of the currency
from 1810 to 1819, when the issues of paper-
money were governed solely by the extent of
the demand upon approved securities; and as
every bank not having more than six part-
ners had the privilege of issuing notes without
limit, it is not to be wondered, while such an
unsound principle of issue was generally approved,
that ^Snking establishments should have multiplied
in all parts of the country merely for the profit to
be obtained from their respective paper mints,
without paying much, if any, regard to security for
the eventual payment of their notes either in paper
of the Bank of England or coin. As the period
of return to cash payments approached, these
ephemeral establishments began to disappear, and
the banking business of the interior assumed a more
substantial character; the principal evil suffered
to remain was the continuance of the privilege to
the country banks of issuing one and two-pound
notes after they had been withdrawn by the Bank
of England. This rendered coin the only means of
4G
upholding that description of circulation ; and this
coin, in the event of discredit, could only be
obtained from the Bank in London. . <
Such was the state of the provincial banking
interest when overtaken by the universal panic
of 1825. During that eventful period it is true,
as already stated, that nearly eighty private banks
suspended their payments ; but it is equally true,
and perhaps no stronger proof could be afforded of
the really substantial state of the country banks at
that time, that a very small portion (il is believed
not ten) proceeded to bankruptcy. If, therefore,
due attention had been given by Lord Liverpool's
administration to the causes which occasioned the
insolvencies prior to the resumption of cash pay-
ments, and a little more time had been taken to
inquire into the real state of the country banks
in 1825, it is probable that the discredit so
unjustly thrown upon the system of private
banking in the annexed correspondence would
never have been heard of. So far as the opinions
then expressed were based upon the example
.of Scotland, it is maintained that they were
founded in error. The two systems were different
in origin and principle. That of England had
47
been formed upon the Bank of England and
private establishments precluded by Parliament
frrt»" embracing more than six partners, while the
system of joint- stock banks had ever been the
main support of the circulation of ScotlanH. Both
systems existed with equal advantage to the several
districts where established — a change in either
could only be accomplished by competition endan-
gering the credit and currency of the country.
In making these observations upon what appears
to have been an injudicious encouragement given
to the formation of Joint-Stock Banks in England,
where adequate banking institutions already existed,
there is no intention of questioning the propriety of
sanctioning such establishments in a country dif-
ferently situated. Banking is one of the principal
means for promoting the prosperity of a nation,
and it must consequently always command the
vigilant attention of a Government anxious to for-
ward the welfare of the various branches of the
community. As a general principle, it may be
stated that Joint-Stock Societies are only deserving
of encouragement when individual capital and en^
terprise are found deficient. They are peculiarly
applicable to banking business in an early stage of
48
accumulation of property, and before private credit
is extensively created. Such was the case in Scot-
land at the time when Joint-Stock Banks began to
be established in it ; such was also the situation of
America, and such, too, is now the situation of
the Canadas. In the interior of Ireland the first
attempt was made to conduct banking business
by private capital, supported by the Bank of Ire-
land, in the same way as in England. The situa-
tion of the two countries was, however, widely
different, and consequently the private banks of
Ireland almost totally failed ; which, leaving the
field open to other agency, occasioned the formation
of Joint-Stock Banks in their place. In all the
instances here alluded to, those institutions, if their
issues of paper and credits be duly regulated, with-
out which their respective currencies cannot fail to
be in a frequent state of inconvenient and even dan-
gerous fluctuation, will continue to prosper; and with
their own prosperity will tend to promote the public
and private interests dependent upon them.
Adverting, therefore, to the mischief which ap-
pears to have attended the uncalled-for encourage-
ment given to Joint-Stock Banks in England, while
the advantage of those bodies is admitted in coun-
iredit
Scot-
;an to
on of
on of
» first
siness
f Ire-
sit ua-
ividely
iks of
ig the
mation
ill the
their
with-
'ail to
n dan-
id with
jublic
;h ap-
urage-
while
coun-
)
49
tries differently situated, it !)ecomes the duty of
Government to bring the subject under the
consideration of Parliament, and ti- propose such
regulations as may check the unlimited formation
of such institutions hereafter, in places where
banks already exist, affording every security and
accommodation which the district may require.
And further, to regulate the future management
of those now in existence, in order to guard against
a recurrence of that excess in the circulating me-
dium, which on the late occasion neutralized the
influence of the contraction of the circulation of
the Bank of England, and occasioned a serious,
it may be said ruinous, pressure upon the money-
market. Unless measures, having those objects in
view, be adopted with firmness on the part of
the Government, i. repetition of the pressure will
no doubt recur with increased violence. Earl Spen-
cer, when Chancellor of the Exchequer, was fully
aware of the danger to be apprehended from the
present system ; and the attempt made by his Lord-
ship at the time of the renewal of the Bank Charter
to establish regulations for the conduct of Joint-
Sto^k Banks of Issue, sufficiently proves that at least
one member of Government was convinced of the
D
50
necessity of protection bcin^ afforded to the public
njjfainst its abuse. So 'dangerous docs the system
appear, as it now stands, that it becomes question-
able whether the Bank of England and the bodies
in (juestion can permanentli/ c.vist together. , <
If Ministers be disposed to bring forward reme-
dial measures, the state of the foreign stock-market
should not be overlooked. It may perhaps be diffi-
cult to put any effectual check upon speculative
and time-bargains in foreign securities, but there
can be no reason why they should not be declared
illegal, and penalties imposed upon such transactions.
And further, while the transfer of almost every spe-
cies of property in Great Britain (with the exception
of the public debt) is subject to a duty, it is but
equitable that every contract or bargain made for
passing foreign securities should be chargeable with
a stamp-duty, and be liable to heavy penalties for
evasion. The Government of France were long
since apprised of the dangerous consequences of
the time-bargains upon the Bourse at Paris, and
have avoided them by regulations which tend
almost effectually to put them down.
In submitting the foregoing facts and obser-
vations for public consideration, the writer, though
intimately connected with tlic manngomcnt of the
Bank of England, has no intention to claim any
undue portion of credit or to evade his fair share
of the responsibility for the proceedings of that
body. The Bank has endeavoured to pursue, in
difficult times and amid conflicting interests, a
steady course, regardless of the abuse put forth by
certain writers in the daily press, whose ignorance
or wilful misrepresentation would be unworthy of
notice, except for its influence over a portion of the
public unacquainted with such subjects. Whether
the Bank of England, as now constituted, be the
establishment most capable of upholding public
and private credit, or whether its spher? of action
should be extended or contracted, are public ques-
tions. The interest of the public only is to be con-
sidered ; and decisions taken in that view, and with
a full knowledge of all the facts and principles
bearing upon such complicated and diffi ult sub
jects, will be sure to meet with the concurrence of
every individual coniuv led with the Bank, as they
ought to do with that of every well-wisher to his
country.
P.S. — Since the foregoing was written, a Letter
!) 2
has been published, addressed by Colonel Torrens to
Lord Melbourne. The conclusions having been
drawn from erroneous premises, they are not deser-
ving of much notice. It may be sufficient to state that
the average amount of the circulation of the Bank on
the 28th December, 1833, was £18,200,000, and not
£17,469,000, as stated in the Letter; and further,
that the conclusions ought to have had reference
to the period when the drain of bullion com-
menced — the 1st October, 1833, when the average
circulation was £19,800,000, and the bullion
£10,900,000. With respect to the observations
made upon the deposits of the Bank, it is evident
that Colonel Torrens does not understand the
nature of that portion of them which bears the
character of Circulation. Having already said
every thing which appears requisite by way of
explanation upon that subject in the present tract>
it is unnecessary to offer any further observations
upon it.
Copy of the communications from the Treasury to
the Bank of England in the year 1826, and of the
Answer of the Bank thereto, relating to the provi-
sions of the LHlj then in progress through Parlia-
ment^ for the Regulation of Banking Companies in
England,
At a Court of Directors at the Bank, Friday, 20th Janu-
ary, 1826.
The Governor laid before the Court the following Letter from
the First Lord of the Treasury and the Chancellor of the Ex-
chequer, with the Paper therein referred to, viz. : —
** Fife- House f
« \Zth January, 1826,
" Gentlemen,
" We have the honor of transmitting to you herewith a
paper containing our views upon the present state of the
Banking system of this Country, with our suggestions there-
upon, which we request you will lay before the Court of
Directors of the Bank of England for their consideration.
" We have the honor, &c.
(Signed) " Liverpool,
" Fred. John Robinson."
To the Governor and Deputy -Governor
" of the Bank oj Emjiand,"
" The Panic in the money-market having subsided, and the
pecuniary transactions of the country having reverted to their
accustomed course, it becomes important to lose no time in
considering* whether any measures can be adopted to prevent the
recurrence in future of such evils as we have recently expe-
rienced.
*• However much the recent distress may have been aggravated
in the judgment of some by incidental circumslances and parti-
cular measures, there can be no doubt that the principal source
of it is to be found in the rash spirit of speculation which has
pervaded the country for some time, supported, fostered, and
encouraged by the Country Banks.
** The remedy therefore for this evil in future must be found
in an improvement in the circulation of country-paper ; and the
first measure which has suggested itself to most of those who
have considered the subject, is a recurrence to a gold circulati.;
throughout the country, as well as in the metropolis and its nei" o
bourbood, by a repeal of the Act which permits Country Banks
to issue One and Two Pound notes until the year 1833, and by
the immediate enactment of a prohibition of any such issues at
the expiration of two or three years from the present period.
" It appears to us to be quite clear that such a measure would
be productive of much good ; that it would operate as some
check upon the spirit of speculation and upon the issues of
Country Banks ; and whilst, on the one hand, it would diminish
the pressure upon the Bank and the metropolis, incident to an
unfavourable state of the exchnnges, by spreading it over a wider
surface, on the other hand it would cause such pressure to be
earlier felt, and thereby insure an earlier and more general adop-
tion of the precautionary measures necessary for counteracting
the inconveniences incident to an export of the precious metals.
But though a recurrence to a gold circulation in the country, for
the reasons already stated, niiglit be productive of some good,
it would by no means go to tiic root of the evil.
m
" Wc have abundant proof of the truth of this position in the
events which took place in the spring of 1793, when a convul-
sion occurred in the money-transactions and circulation of the coun-
try more extensive than that which we have recently experienced.
At that period nearly a hundred Country Banks were obliged to
stop payment, and Parliament was induced to grant an issue of
Exchequer-Bills to relieve the distress; yet in the year 1793
there were no One or Two Pound notes in circulation in England
either by Country Banks or by the Bank of England.
'* We have a further proof of the truth of what has been
advanced in the experience of Scotland, which has escaped all
the convulsions which have occurred in the money-market of
England for the last thirty-five years, though Scotland during the
whole of that time has had a circulation of One Pound notes ;
and the small pecuniary transactions of that part of the United
Kingdom have been carried on exclusively by the means of such
notes.
** The issue of small notes, though it be an aggravation, cannot
therefore be the sole, or even the main cause of the evil in
England.
" The failures which have occurred in England, unaccompanied
as they have been by the same occurrences in Scotland, tend to
prove that there must have been an unsolid and delusive system of
banking in one part of Great Britain, and a solid and substantial
one in the other.
•* It would be entirely at variance with our deliberate opinion,
not to do full justice to the Bank of England as the great centre
of circulation and commercial credit.
" We believe that much of the prosperity of the country for the
last century is to be ascribed to the general wisdom, justice, and
fairness of all its deaHngs ; — and we further think that during a
great part of that time it may have been in itself and by itself
fully equal to all the important duties and operations confided to
'JS.
56
it ; but the progress of the country during the last thirty or forty
years in every branch of industry, in agriculture, manufacture"
commerce, and navigation, has been so rapid and extensive, as to
make it no reflection upon the Bank of England to say that the
instrument which hy itself whb fully adequate to former transac-
tions, is no longer sufficient without new aids to meet the de-
mands of the present times.
** We have to a considerable degree, the proof of this position
in the very establishment of so many Country Banks.
'* Within the memory of many living, and even of some of
those now engaged in public affairs, there were no Country
Banks except in a few of the great commercial towns.
** The money iransacticus of the country were carried on by
supplies of coin and bank-notes from London.
" The extent of the business of the country and the improve-
ment made from time to time in the mode of conducting our
increased commercial transactions, founded on pecuniary credit,
rendered such a system no longer adequate, and Country Banks
must liave arisen, as in fact they did arise, from the increased
wealth and new wants of the country.
" The matter of regret is, not that Country Banks have been
suffered to exist, but that they have been suffered so long to
exist without controul or limitation, or without the adoption of
provisions calculated to counteract the evils resulting from their
improvidence or excels.
" It would be vain to suppose that we could now by any act of
the Legislature extinguish the existing Country Banks, even if
it were desirable, but it may be within our power gradually at
least to establish a sound system of banking throughout the coun-
try, and if such a system could be formed, there can be little
doubt that it would ultimately extinguish and absorb all that is
objectionable and dangerous in the present banking establishments.
'* There appear to be two modes of attaining this object.
57
of
leir
*< First — That the Bank of England should establish branches
of its own body in di£ferent parts of the country.
** Secondly — That the Bank of England should give up its
exclusive privilege as to the number of partners engaged in
banking, except within a certain distance of the metropolis.
'* It has always appeared to us, that it would have been very
desirable that the Bank should liave tried the first of these plans
— that of establishing Branch Banks upon a limited scale.
" But we are not insensible to the difficulties which would have
attended such an experiment, and we are quite satisfied that it
would be impossible for the Bank under present circumstances to
carry into execution such a system to the extent necessary for
providing for the wants of the country.
'* There remains therefore only the other plan — the surrender
by the Bank of their exclusive privilege as to the number of
partners beyond a certain distance from the metropolis.
'* The effect of such a measure would be the gradual establish-
ment of extensive and respectable banks in different parts of the
country, some perhaps with charters from the Crown, under
certain qualifications, and some without.
" Here we ha\e again the advantage of the experience of Scot-
land.
** In England there are said to be between eight and nine hun-
dred Country-Banks, and it is no exaggeration to suppose that a
great proportion of them have not been conducted with a due
attention to those precautions which are necessary for the safety
of all banking establishments, even where their property is more
ample. When such banks stop, their creditors may ultimately
be paid the whole of their demands, but the delay and shock to
credit may in the meantime involve them in the same difficulty,
and is always attended with the greater! injury and suffering in
the districts where such stoppages occur. If this be the case
5D
" In point of profit, would they io8e anything by it for which
tliey are entit^ '1 to demand compenimtion ? !► «i v v^tl ^r. - •' <
" It is notorious that at the present time their Notes circulate
in no part of England beyond the metropolis and its neighbour-
hood, except in Lancashire, and perhaps for that district some
special provision might be made. i ;;
" But as it is the interest, so it has been and ever will be the
endeavour of the Country Banks to keep the Bank of England
Notes out of circulation in those parts of the kingdom where
their o\,.i circulation prevails. In this they must always be suc-
cessful whilst public credit continues in its ordinary state and the
exchanges not unfavourable to this country. The consequences
are, that in such times the Bank of England becomes in a man-
ner the sole depositary for gold, and in times of an opposite
tendency the sole resort for obtaining it : that at one period their
legitimate profit is curtailed by an accumulation of treasure be-
yond what would be required by a due attention to their own and
private safety as a Banking Establishment ; and at another period
they are exposed to demands which endanger that safety and
baffle all the ordinary calculations of foresight and prudence.
'* If then the Bank of England has no country circulation,
except in the county above-named, the only question for them
to consider is, whether on the ground of profit as well as security
to themselves, the existing country circulation shall or shall not
be improved.
•* With respect to the extension of the term of their exclusive
privileges in the metropolis and its neighbourhood, it is obvious
from what passed before, that Parliament will never agree to it.
" Such privileges are out of fashion, and what expectation can
the Bank under present circumstances entertain that theirs will
be renewed. But there is no reason why the Bank of England
should look at this consequence with dismay. They will remain
a chartered corporation for carrying on the business of banking.
58
where the solidity of the bank is unquestionable, what must it be,
as too often happens, when they rest on no solid foundation ?
" In Scotland there are not more than thirty banks, and these
banits have stood firm amidst all the convulsions in the money-
market in England, i 1 amidst all the distresses to which the
manufacturing and agricultural interests in Scotland as well as in
England have occasionally been subject. ■ . . ^ ■
** Banks of this description must necessarily be conducted
upon the general, understood, and approved principles of banking.
" Individuals are from the nature of the institutions pre-
cluded from speculating in the manner in which persons engaged
in Country and even London Banks speculate in England.
" If the concerns of the country could be carried on without
any other bank than the Bank of England, there might be somo
reason for not interfering with their exclusive privileges ; but the
effect of the law at present is to permit every description of bank-
ing, except that which is solid and secure.
•" Let the Bank of England reflect on the dangers to which it
has been recently subject, and let its Directors and Proprietors
then say, whether for their own interest such an improvement as
is suggested in the banking system is not desirable and even
necessary.
" The Bank of England may, perhaps, propose, as they did
upon a former occasion, the extension of the term of their ex-
clusive privileges as to the metropolis and its neighbourhood
beyond the year 1833, as the price of their concession.
" It would be very much to be regretted that they should re-
quire any such condition.
•' It is clear that in point of security, they would gain by the
concession proposed to them, inasmuch as their own safety is now
necessarily endangered by all such convulsions in the country
circulation as we have lately and formerly witnessed.
#.
GO
#
In that character they will, we trust, always continue to be the
sole Bankers of the State ; and with these advantfiges, so long as
they conduct their affairs wisely and prudently, they always must
be the great centre of banking and circulation.
** Theirs is the only establishment at which the dividends due
to the public creditor can by law be paid.
" It is to be hoped, therefore, that the Bank will make no
difficulty in giving up their exclusive privileges, in respect to the
number of partners engaged in banking as to any district
miles from the metropolis.
*' Should the Bank be disposed to consent to a measure of this
nature in tintn to enable the Government to announce such a
concession at the opening of Parliament, it would afford great
facilities to the arrangement which they may have to propose for
insuring the stability of private credit on which the support of
public credit and the maintenance of public prosperity is ma-
terially and closely involved."
The Court having taken into consideration the important paper
received from the First Lord of the Treasury and the Chancellor
of the Exchequer,
Resolved,
That, however essentially they may differ on certain views
and sentiments therein laid down and expressed, it is not for the
Court, at the present moment, to offer any opinions of their own,
the paper appearing to be intended as declaratory of the grounds
on which His Majesty's Ministers have come to the determination
to require the Bank to give up its exclusive privilege as to the
61
number of partners engaged in banking, except within a certain
distance of the metropolis.
It cannot, however, be considered inconsistent with this for-
bearance to state the apprehensions of the G>urt of Directors,
that confidence is not so fully restored as Lord Liverpool and the
Chancellor of the Exchequer seem to imagine.
Though the Panic has subsided, credit, both public and private,
remains in a very uncertain and anxious state.
That the country circulation is in many parts extremely de-
fective cannot be controverted, and the Bank would very reluc-
tantly oppose Htself to any measures tending to ameliorate it,
but would be glad to promote that object either by fresh exertions
on their part, should such be founc' applicable, or by any reason-
able sacrifice.
Under the uncertainty in which the Court of Directors find
th'^mselves with respect to the details of the plans of Govern-
ment, and the effect which they may have on the interests of the
Bank, this Tourt cannot feel themselves justified in recom-
mending to their proprietors to give up the privilege which they
now enjoy, sanctioned and confirmed as it is by the solemn Acts
of the Legislature.
At a Court of Directors at the Bank, on Wednesday,
25th January, 1826.
The Governor laid before the Court the following paper from
the First Lord of the Treasury and the Chancellor of the Exche-
quer, viz. : —
'* The First Lord of the Treasury and the Chancellor of the
3
G2
" Excliequor Iinvo duly considorod the nntwor of tho Bnnk, of
" tho 20th inst. , .,, .
'* They cannot but regret that the Court of Directors should
" have declined to recommend to the Ck)urt of Proprietors, the
" consideration of the paper delivered by tho First Lord of the
" Treasury and the Chancellor of the Exchequer to the Governor
" and Deputy Governor of tho Bank, on the 1 3th inst.
" The statement contained in that paper appears to the First
" Lord of the Treasury and the Chancellor of the Exchequer so
" full and explicit on all the points to which it relates, that they
" have nothing further to add —although they would have been, as
'* they still arc, ready to answer, as far as possible, any specific
" questions whicn might be put for the purpose of removing
" ' the uncertainty in which the Court of Directors
" ' state themselves to be with respect to the details of
" ' the plan suggested in that paper.'
" After all, the simple question for the Bank to consider is,
" whether they are willing to relinquish their exclusive privilege
" as to the number of partners engaged in banking, at a certain
'* distance from the metropolis.
" The First Lord of the Treasury and the Chancellor of the
" Excho'^uer are satisfied that the profits of the Bank would in
" no degree be affected by their consenting to such a proposal.
*' Convinced of this, and that its adoption by the Bank is as im-
" portant to their own security as to that of the public, it does not
" appear that the Bank can be equitably entitled to claim any
" compensation for the surrender of this privilege of their
** Charter.
" Against any proposition for such compensation the First Lord
'* of the Treasury and the Chancellor of the Exchequer formally
" protest, but if the Bank should be of opinion that this conces-
' sion should be accompanied with other conditions, and that it
•t
G3
" ought not to be mailo without them, it id for the Bank to bring
" forward such conditions.
** Fife House, i - . . ,
. / «' 23rrf7anMary, 1826." , t
I
Thursday, 26<A January, 1826.
The Governor laid before the Court the following minutes of
the Committee of Treasury, viz :
((
** Committee of Treasury ^
" 25th January, 1826.
" The Committee of Treasury having taken into consideration
the paper received from the Firot Lord of the Treasury and the
Chancellor of the Exchequer dated 23rd January, 1826, and
finding that His Majesty's Ministers persevere in tlieir desire to
propose to restrict immediately the exclusive privilege of the
Dank as to the number of partners engaged in banking to a
certain distance from the metropolis, and also, continue to be
of opinion that Parliament would not consent to renew the pri-
vilege at the expiration of the period of their present charter ;
finding also that the proposal by the Bank of establishing branch
banks is deemed by His Majesty's Ministers inadequate to the
wants of the country, — are of opinion that it would be desirable
for this Corporation to propose as a basis the Act of the 6 Geo.
IV. cap. 42, which states the conditions on which the Bank of
Ireland relinquished its exclusive privilege, this Corporation
waiving the question of a prolongation of time, although the
Committee cannot agree in the opinion of the First Lord of the
Treasury and the Chancellor of the Exchequer that they are
not making a considerable sacrifice, adverting especially to the
Bank of Ireland remaining in possession of that privilege five
years longer than the Bank of England."
e4
Rehot.vrd, ' • '*
That the forogoing recommondation of the Gimmitteo of Trea-
sury be agreed to, and that the Qovornor and Deputy Governor
be requested to lay it before the First I/)rd of the Treasury and
the Chancellor of the Exchequer.
Tuesday y 31 s< of January, 1826.
The Governor laid before the Court the following paper from
the First Lord of the Treasury and the Chancellor of the Exche-
quer, viz :
• " The First Lord of the Treasury and the Chancellor of the
*' Exchequer have taken into consideration the paper delivered to
" them by the Governor and Deputy Governor of the Bank, on
" the 27th inst.
" They think it right to lose no time in expressing their con-
" currence in the proposition which has been sanctioned by the
" Court of Directors as to the exclusive privilege of the Bank
" of England, and are willing to agree tlmt the two clauses in-
" sorted in the Irish Act of last year, and referred to in the paper
" communicated by the Governor and Deputy Governor on the
'* 27th instant, shall be inserted in the Bill which will be neces-
" sary to give effect to the new arrangement.
" The First Lord of the Treasury and the Chancellor of the
'* Exchequer cannot conclude without adverting to that part of
" the paper of the Bank which respects branches of the Bank of
" England.
" In their paper of the 13th of January, the First Lord of the
" Treasury and the Chancellor of the Exchequer have (stated the
" reasons why they are of opinion that under all the present
" circumstances the establishment of branches of the Bank of
<* England would not of itself be sufficient to meet all the exigen-
«'>
65
««
cies of the country, but they are so far from wUhinsr to dis-
" courage the establishment of such branches that they are
" decidedly of opinion that the formation of them under proper
" regulations would be highly advantageous both to the Bank and
" to the community.
" Fife House,
" 29th of January, 1826."
Resolved,
That this Court is of opinion, after the fullest considera*
tion, that it is advisable to accede to the proposition contained in
the papers laid before the Court on the 25th and 26th instant, and
this day, and now read, in case the san>:' shall meet with the
approbation of the Court of Proprietors.
THE END.
MABCHANT, PUINTER, INGRAM-COURT, FENCUURCH-STnEET.
*l»!
.#y