HG UC-NRLF 357 CD CO GIFT OF REPLY TO THE REFLECTIONS, ETC. ETC. OF MR. SAMUEL JONES LOYD, ON THE PAMPHLET ENTITLED " CAUSES AND CONSEQUENCES OF THE PRESSURE UPON THE MONEY- MARKET." BY J. HORSLEY PALMER. II LONDON : PELHAM RICHARDSON, 23, CORNHILL. 1837. "f'7/ REPLY TO THE REFLECTIONS, ETC. ETC. THE appearance of the pamphlet entitled the " Causes and Consequences of the Pressure upon the Money-Market," has called forth various obser- vations from different writers, among whom are some whose opinions at all times claim the greatest consideration. In that number is more especially included Mr. Samuel Jones Loyd, and it is to the opinions put forth by that Gentleman that the writer of the " Causes," &c. deems it necessary particu- larly to advert. The objections raised by Mr. Loyd are : 1st. That the publication of the accounts of the Bank affords no accurate information for A 2 363500 tlie guidance of th* public as to its own real situation and the state of the currency. 2d. That the increase or decrease of the treasure of the Bank is not accompanied by a corresponding increase or decrease in its circulation. 3d. That the accounts of the Bank ought to have been given monthly, or even weekly, in the year 1836, in order to establish the blame of excess chargeable upon the Joint- Stock Banks, while the liabilities of the Bank were diminishing. 4th. That the comparison between December, 1835, and December, 1836, does not exhi- bit a reduction, but rather an increase, in the circulation of Bank-notes, and that con- sequently the Bank has no right to blame Country Issuers for not having reduced theirs. 5th. That the reasons given for the loss of bullion are questionable, and also, that there is no just reason for holding forth the expectation of a return of go!4 from America. These objections, it must be admitted, involve charges, which, if not disproved, would go far to overthrow the statements contained in the " Causes," &c. Attention shall, therefore, be given to them in the order in which they are stated above. To do this with effect, as the principle maintained respecting the deposits of the Bank is deemed to be erroneous, it will be necessary in the first instance to particularize the precise nature of those liabilities, as they existed in October, 1833. They consisted, 1st. Of the Government balances, which are affected only by an increase or decrease in the receipts of the revenue. 2d. Of the surplus money belonging to the East-India Company and the bankers of Lon- don temporarily deposited with the Bank. 3d. Of the general working accounts of the public passing their money -transactions through the Bank. In the Government balances there has been no diminution, but some excess. The second head embraced an amount of Bank-notes belonging to the East-India Company and Bankers of London to the extent of two millions and a half (above their ordi- 6 nary balances) temporarily placed in the Bank, awaiting a re-issue ; and whether they were in the Bank, or in the Treasury of the East-India-House, and the tills of the Bankers, was immaterial. They can only be deemed to have been part of the notes then in circulation. The third division contained the ordinary working deposits, liable, however, to a greater degree of fluctuation of increase and decrease upon the influx and efflux of bullion than attends the deposits in the possession of private bankers. These deposits were all governed by the same principle of management as the notes actually in circulation, and accordingly, on the 1st October, 1833, one-third of their amount was held in bullion. That principle had been tacitly approved by Par* liament and the public; it therefore merely remains to be shewn that as the bullion was reduced, so the joint liabilities of notes and deposits were dimi- nished to an equal or greater amount. In order to prove that such was the case, the quarterly state- ment is hereto annexed ; which, so long as the present system exists, is every thing which can be expected from the Bank. Nor is it conceived that, while the Bank fulfils the joint character of issuer and banker, any better mode of regulating the con- duct of that body can be suggested. It is hoped that this statement will satisfy Mr. Loyd of the erroneous impression which he seems to have entertained, that the Bank had not acted up to the principle declared in the year 1832 before the Committee upon the Bank Charter. It is further to be observed, that the principle by which the Bank is governed is entirely opposite to that of a London Banker. The latter augments and diminishes his securities as his customers' balances increase and decrease. The former holds a fixed amount of securities, notwithstanding the altered amount of deposits, except in particular and extraordinary circumstances. If the Bank be required to regulate its banking action as a private banker does, there can be no difficulty in taking that course ; the advantage, however, of such a system, while the Bank is the pivot of the circulation of the kingdom, is very doubtful. In order to eluci- date these two positions of the Bank, it may be pro- per to separate between the characters of Issuer and Banker, and to shew how the accounts would have stood on the 1st October, 1833, and 27th Decem- ber, 1836, had the accounts been kept under these 8 two heads. They are accordingly annexed, and constitute the best answer that can be given to the second objection referred to. It is admitted by Mr. Loyd that in the manage- ment of the circulation, the amount of securities should be invariable, while he contends that the same principle, if pursued in the management of its banking business, would be absurd. It is, therefore, to be considered, what would be the effect of the Bank adopting the practice of private bankers in using their deposits. Taking the amount at thirteen millions in October, 1833, which, exclusive of the Government deposits and the surplus money of the East-India Company and London Bankers already alluded to, had been accumulating for some months during the fall in the value of money by the con- tinued influx of bullion, the action of a private banker would have been to employ that growing amount of deposits in convertible securities, retain- ing his usual amount of reserve. The objection to such an action on the part of the Bank, so long as it is the depositary of the surplus or unemployed money of the capital, seems to be this : The value of money in London affects the value throughout the country, and any 9 measure which might tend unduly to reduce the rate of interest would so far be prejudicial, by increasing the oscillations in the Money-market. If the Bank were continually throwing back upon the public the surplus money deposited by the bankers of London and others in times of influx of bullion, such conduct would, it is submitted, unduly lower the rate of interest ; whereas, under the course hitherto pursued, such deposits being con- sidered purely as part of the circulation of notes and held as such in bullion, no disturbance arises, and the currency is left freely to find its level with reference to that of other countries. It is admitted that a change in the number or character of the customers' accounts, tending to a permanent altera- tion of the amount of the deposits, would neces- sarily occasion a corresponding change in the amount of securities, but so long as the former continue unchanged in character, there does not appear any necessity for varying the latter if there be one-third of their amount retained in bullion prior to the commencement of the drain. If Mr. Loyd's notion were adopted of forming two bodies one for issuing notes, and the other for managing the general banking business, the Bank of England 10 would be not unlikely to become merely a great Joint-Stock Bank. The ad vantages .expected from the separation seem to be 1st. That the circulation would fluctuate exactly as if purely metallic. 2d. That the knowledge on the part of the public of the fluctuation of the amount of paper- money would induce all parties to govern them- selves accordingly. That the first advantage would be obtained may be conceded. Respecting the second it is believed that ninety -nine persons out of a hundred will pay no attention to the information thus afforded them. The true guide for the public at present is the fluctuation in the stock of bullion held by the Bank, and if attention be not paid to that, we may be assured that all other statements will be useless. If therefore the present joint action can be main- tained under proper management, and the fluctua- tions of bullion be made known, it is questionable whether any advantage will be obtained by the change proposed by Mr. Loyd. Upon that point, however, the writer begs to be understood as offer- ing no decided opinion. The opinion thus expressed is intended to apply 11 to the working of the Bank in its joint character under ordinary circumstances. The real difficulty of conveying accurate information as to the issues under the existing form of publication in the Gazette is correctly stated by Mr. Loyd, and was repre- sented to the Government at the time of its being determined upon, while it was at the same time maintained, that there was no accurate conclusion to be drawn by the public, except from the increase or decrease of the stock of bullion : to a publica- tion of that simple nature the Government objected, and finally resolved upon adopting the plan now acted on with all its admitted defects. For these therefore the Bank is not blameable. The writer of the " Causes," &c. purposely ex- cluded from his statement of the amount of secu- rities those held with the deposits received from the West India Loan, and the money belonging to the East India Company. He is satisfied he did right in this, for these deposits interfered in no manner of way with the regular working of the Bank. They were lent on securities redeemable at stated periods to meet the West India Claimants, and East India bill-holders, the liquidation of which terminated those accounts. There is now in progress a further 12 realization of the same kind by the East India Company, though not to the same extent. Under the third head of omission, Mr. Loyd alludes to the necessity of furnishing the accounts of the Bank monthly, if not weekly, from December 1835. That would not really afford any better means of judging of the working of the Bank, but the reverse. Accounts rendered more frequently would afford no accurate information, from the uncer- tainty of redemption during each quarter by Govern- ment of the deficiency bills issued at the commence- ment, and redeemable by the revenue as received. In explanation of Mr. Loyd's remark relative to the increase in the Branch Bank circulation, it is merely necessary to observe that the increase to which he alludes was occasioned by the substitu- tion of Bank of England notes for those of Coun- try Banks withdrawn by agreement entered into for that object. Having admitted that the accounts as published in the Gazette do not give any accurate statement of the liabilities of the Bank, without a separation of the deposits and securities appertaining to the West India Loan and the East India Company's accumulating funds, it is unnecessary to say any 13 thing further upon that subject. It is believed that Mr. Loyd cannot intend to question, under the peculiar circumstances referred to in the " Causes," &c. the propriety of the Bank having re-issued the money so received ; and it is therefore to be hoped that he will admit, with the present expla- nation, the correctness of the statements which he appeared disposed to doubt. The cause of the in- crease in the securities since July has been already alluded to that increase must therefore stand, or fall, upon its own merit. Thus far it may be stated, that if there be any advantage more prominent than another in the establishment of the Bank of Eng- land, it is to uphold commercial credit (not prices) when that credit is seriously affected by panic or distrust. In such times the rule by which the Bank ought generally to be governed, may be safely laid aside without creating any superabundance of mo- ney, or affecting the foreign exchanges. The threatening aspect of things before Christmas last, and since, called for aid from the Bank ; and, instead of an excess having been occasioned by the assist- ance given, evidence has been afforded of a general advance in - the exchanges and of a probable early influx of bullion. The fourth objection refers to the two periods of 14 December, 1835, and December, 1836, when the notes in circulation appear nearly at the same amount, with a diminution of bullion at the latter time of upwards of two millions. If Mr. Loyd had adverted to the amount of the securities, as stated in December, 1835, he would have observed that the diminution of the circu- lation at that period was occasioned by those secu- rities having been then two millions and a quarter below the amount in October, 1833, owing to an anxiety on the part of the Bank to keep the circu- lation low, pending their use of the deposits received from the West-India Loan and the East-India Com- pany, notwithstanding bullion was at that time largely on the increase. That the course then fol- lowed by the Bank was against principle is true ; but the circumstances were novel, and required unusual care that the conduct of the Bank should not lead to excess, while it was at the same time felt a duty not to permit an undue contraction to take place through the operation of those deposits. The seventh division of Mr. Loyd's Reflections is one of considerable importance touching the causes of the late drain, and the measures taken by the Bank in consequence. If the facts bearing upon the diminution of bul- 15 lion from October, 1833, to April, 1835, and the immediate rise in the exchanges consequent upon the explosion in the Foreign Stock-market in May of the latter year, do not carry conviction of the cause, nothing more can be said. The export to America from Jane to September in last year seems to be equally accounted for \vithout any evidence having then existed of a derangement of prices. It was the apprehension occasioned by the mania for speculation of every kind, supported by the Joint-Stock Banks throughout England and Ire- land, when the bullion was so much reduced, that alarmed the Bank for the consequences of excess in the currency, which seemed to be inevitable, and which would in all probability have terminated in an unfavourable commercial exchange with the Continent. Whether the Bank acted with due con- sideration for its own safety, as well as the public good, by the steps taken in July, and subsequently, the public must decide. In answer to the fifth objection, it is to be stated that no expectation was intended to be held out that gold would return from America so long as it proved more advantageous to ship silver ; but the expectation meant to be conveyed was, that, not- 1C withstanding all the bombast of the American President, bullion would shortly return to Europe from the United States, and that belief is now in the course of being fulfilled by the daily expected arrivals of silver, with which gold is procurable in the markets of Europe. The writer of the " Causes," &c. is sorry that the statement made by him, of the action of the Bank from October, 1833, to December, 1836, should have appeared to Mr. Loyd deficient and unsatisfactory with reference to the evidence of 1832. That evidence was confined to a reduction of liabilities corresponding with the loss of bullion, and when the difficulties are considered of sub- mitting accounts to the Public, which would clearly shew the quarterly reduction of notes and deposits separately, and the causes of their variation, the writer had hoped that credit would have been given to the statement, that, extraneous action being excluded, the securities of the Bank had been kept within their prescribed limits ; and no contraction having occurred, either in the sphere of the circulation of Bank of England notes, or in the working deposit accounts of the Bank, he con- ceived that it must have been evident, without 17 further figures, to the commonest observer, that the liabilities of the Bank must have been reduced correspondingly with the diminution of bullion. The accounts now brought forward shew the quarterly results, but prove nothing more. It is hoped, however, that they may afford the informa- tion required by Mr. Loyd. There was no intention to allude to Foreign Stock operations upon bank-notes as being different from those upon coin : they are equally prejudicial to both, and nothing adduced by Mr. Loyd seems to exempt them from the notice of Government. The foregoing appear to be all the observations which are necessary in reply to Mr. Loyd's requisi- tion for further information. If the writer has omitted any facts, and can offer to him personally any further explanation touching them, prior to his again directing his attention to the subject, there can be no difficulty in his ob- taining it. Upon a subject so full of interest to the whole community there ought to be no mystery. In reply to a pamphlet put forth by Mr. Ricardo, and particularly to the note affixed to the early part, it may be sufficient to say that it was never intended to cast any stigma upon the contractors for the Fo- B 18 reign Loans ; the object was merely to state, that they were guided by the same principle, which governs every contractor, self-interest ; and if that were secured to them by the borrowers, the con- tract itself being morally unimpeachable, the public were naturally left to take care of themselves. With respect to the quality of the Spanish and Portuguese Loans, every person must be allowed to entertain his own opinion. It is immaterial through what channel bullion passes to the receiving country, whether direct from England to Spain and Portugal or to Paris, in payment of bills drawn from Madrid and Lisbon on London. The exportation for the services al- luded to was matter of common notoriety at the time, and it is not now worth discussing whether the bonds of the north or south originated the demand. Thus much is certain, that the demand ceased with the discredit upon the Foreign Stock Exchange in May, 1835. When Mr. Ricardo states that the dealings in the foreign funds are precisely similar to dealings in cotton, silk, or wool, he admits the whole case brought against the Foreign Stock-market in this country, governed as it is by speculation as extensive as that which 19 exists in our own funds. The doctrine is new that speculation in Foreign Stocks is necessarily con- nected with a redundant currency ; such may occur in periods of excess, but there generally are other latent causes operating upon foreign securities, which are more intimately connected with the poli- tical and financial condition of the debtors. It does not appear that Mr. Ricardo is borne out in his opinion as to the cheapness of money at the periods to which he has alluded. It may have been so upon the Stock-Exchange, but it was not so in Lombard-Street, when compared with 1833. That the mania for the formation of Railways, and for the creation of Joint-Stock Banks supporting those and other ephemeral speculations, was the cause of great mischief, is beyond doubt, and if, as Mr. Ricardo says, such speculations can be traced to the mismanagement of the Bank, then will the blame attach to the Directors of that establishment. The more detailed statement of the working of the Bank which has been called for by Mr. Loyd, and which is now given, is merely intended to shew that the Bank has not exceeded the principle laid down for its government in the evidence of 1832, and that there was little or no difference in 20 its action from October, 1833, to 1836, and the previous period from 1830 to 1832 : the reduction of liabilities and bullion was equally regular at both times. If that principle be unsound, then let it be changed, but until another course be submitted to and approved by Parliament, the Bank have no alternative but to continue the present. The main object of Mr. Ricardo seems to be To create doubts as to the Bank having been governed by any fixed principle To uphold the credit and usefulness of the Foreign Stock-market, and finally To advocate the propriety of forming a National Bank upon the plan submitted by the late Mr. David Ricardo, and published after his death. The talent of that Gentleman was of the highest order, and his loss greatly to be regretted : perhaps there never was an idea more deserving of consi- deration than his plan for a circulation of notes, convertible into ingots of gold or silver, and it would have been well for the country, had the Government of his day given the subject mature consideration prior to the issue of gold coin, and forming that metal as our standard of value. 21 An Account shewing the Average Quarterly Reduction of the Bullion and Liabilities of the Bank, from \st Oct. JS33, to 27th Dec. 1836, excluding in each Quarter the extraordinary or temporary Deposits, and the Secu- rities invested with those Liabilities. 1833. Oct. Liabilities of) Circulation * 32,880,000 Bullion .......... 10,905,000 and Deposits } Dec. 31. R eduction duction^ j 1>563j0 oo Loss of Ditto ...... 957,000 1834. April 1. Ditto ...... 2,164,000 Ditto ............ 1,474,000 July 1. Ditto 3,180,000 Ditto 2,246,000 Sept. 30. Ditto 3,745,000 Ditto 3,362,000 Dec. 30. Ditto 4,779,000 Ditto 4,1 79,000 1835. Mar. 31. Ditto 4,439,000 Ditto 4,527,000 June 30. Ditto ..... 5,014,000 Ditto 4,686,000 Sept. 29. Ditto 5,096,000 Ditto 4,670,000 Dec. 29. Ditto 6,365,000 Ditto 4,064,000 1836. Mar. 29. Ditto 5,284,000 Ditto 3,116,000 June 28. Ditto 5,026,000 Ditto 3,543,000 Sept. 27. Ditto 5,281,000 Ditto 5,314,000 Dec. 27. Ditto 6,307,000 Ditto 6,491,000 f ^ 6,307,000 Total Loss of Bullion 6,491,000 22 Supposing that the Bank Accounts had been separated, following would have been the State of the Issues Months. 1833. Oct. 1 . Issues with the public 19,800,000 Ditto the Banking Department for \ of the Deposits 4,300,000 Total Issue 24,100,000 1836. Dec. 27. Quarterly reduction of Bullion, as per statement annexed 6,500,000 17,600,000 Additional issue in support of credit 300,000 Issue remaining 1 7,900,000 17,300,000 with the Public. 600,000 with Banking Department. 17,900,000 The following would have been the State of the preceding Months, excluding the Deposits received Funds of the East-India Company. 1833. Oct. 1. Deposits 13,000,000 1836. Dec. 27. Reduction from 1st October, 1833 3,700,000 Deposits remaining 9,300,000 Consisting as under of 6,000,000 appertaining to the Government, E. I. Company, and Bankers of London. 3,300,000 Sundries, including the deposits of the Branch Banks. 9,300,000 v 23 as Mr. Loyd suggests, from \st October, 1833, the and Bullion on the Average of the Three preceding 1833. Oct. 1. Bullion 10,900,000 1836. Dec.27. Reduction 6,500,000 Remaining against the issues of 17,900,000 with the public and the Banking Department 4,400,000 Average fixed securities in this Depart- ment against the London and Branch Bank issues 13,700,000 Ditto convertible ditto received for tem- porary advance in aid of credit 300,000 14,000,000 Banking Department on the Average of the Three from the West- India Loan and the accumulating 1833. Oct. Reserve one-third 4,300,000 1836. Dec. 27. Reduction 3,700,000 Reserve remaining 600,000 Securities convertible in this Department invested with the Depo- sits, and with the surplus profit or rest appertaining to the Bank 11,000,000 24 The aggregate Assets and Liabilities of the Bank on an Average of Three Months ending on the 27th Dec. 1836, excluding the extraordinary or tempo- rary Deposits, were * Securities . . 25,000,000 Circulation . . 1 7,300,000 1 J^B^ks ' " 80(M)00 Bullion.... 4,400,000 Deposits.... 9,300,000 29,400,000 26,600,000 THE END. MARC11ANT, PRINTER, INOR AM-COURT, II \< III I:. II Ml. I I I THIS BOOK IS DUE < - YB UNIVERSITY OF CALIFORNIA LIBRARY