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 THE UNIVERSITY 
 
 OF ILLINOIS 
 
 LIBRARY 
 
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 A PLAIN STATEMENT 
 
 1 
 
 POWER 
 
 BANK OF ENGLAND, 
 
 AND 
 
 OF THE USE IT HAS MADE OF IT; 
 
 REFUTATION OF THE OBJECTIONS MADE 
 
 TO THE 
 
 SCOTCH SYSTEM OF BANKING; 
 
 AND A REPLY TO THE 
 
 <* HISTORICAL SKETCH OF THE BANK OF ENGLAND." 
 
 LONDON: 
 JAMES RIDGWAY, PICCADILLY. 
 
 > 
 
 M.OCCC.XXXII.
 
 1 illiiiis.', I'diitei-jriielseo.
 
 CONTENTS. 
 
 Page. 
 
 Poxoer of the Bank 6 
 
 — over the Currency 6 
 
 — over Trade 8 
 
 — over the Funds 10 
 
 — over the Government 12 
 
 Abuse of the Power over Currency 14 
 
 Case of 1783 14 
 
 — 1793 HJ 
 
 — 1797 20 
 
 Depreciation of Paper 23 
 
 Case of 1816 30 
 
 — 1018 32 
 
 — 1825 35 
 
 Refutation of the Objections to the Scotch Systetn of 
 
 Bankiny CI 
 
 Reply to " The Historical Sketch of the Bank of 
 
 England" 77
 
 Extract from the Letter of Lord Liverpool and 
 Lord Goderich, to the Governor and Deputy 
 Governor of the Bank of England, dated Jan. 13, 
 1826. 
 
 " With respect to the extension of the term of their exclu- 
 sive privileges in the metropolis and its neighbourhood, it is 
 obvious, from what passed before, that Parliament vt^ill never 
 agree to it." 
 
 " Such privileges are out of fashion ; and what expectation 
 can the Bank, under present circumstauces, entertain, that 
 theirs will be renewed ?"
 
 PLAIN STATEMENT, 
 
 ifC. 
 
 An attempt will here be made to shew what tlie 
 oon(hict of the Bank of England has been since 
 the year 1780; to prove, that, on each occasion, 
 when great commercial and pecuniary embar- 
 rassments have taken place since that year, the 
 Bank of England, by the part it has taken, 
 either by improperly enlarging or contracting 
 the Currency, has been a chief cause of those 
 embarrassments. 
 
 Seeing what the power is of the Bank of Eng- 
 land over the Currency, such a course is exactly 
 that which might be expected. For as the 
 Directors of the Bank are chosen by the Pro- 
 prietors to take care of their interests, and as 
 this consists in securing the largest possible 
 profit on tlieir stock, there can Ixi no good 
 reason to imagine that the Directors do not nsc 
 their power over the Currency in that way whicli 
 
 n
 
 tljey see will best protluco a high dividend. So, 
 again, when it is taken into consideration who the 
 Directors of the Bank are, and what their means 
 are of making themselves either very useful, or 
 very formidable to the King's Ministers^ in this 
 case, no more than in the former one, can there 
 be any good reason to imagine that they do not 
 use their power over the Currency in that way 
 which is the most pleasing to Ministers; and, 
 more particularly so^ when the accommodating 
 of the Government with advances^ is the lea- 
 diest means of increasing the amount of the 
 dividend. 
 
 When^ therefore, the Directors and Conductors 
 of the Bank of England say their conduct is 
 guided by the most disinterested regard for the 
 public, and that they so exercise their great power 
 on all occasions over the Currency^ as never to 
 enlarge or contract it, without having for their 
 object the support of commercial and public cre- 
 dit, such statements contain no colour oi bona fide 
 reasons ; such reasons as any one can rest upon 
 for the truth of an opinion really held. These 
 allegations bear upon them the appearance of 
 pretexts, or pleas, invented and set up to defend 
 opinions which are adopted and maintained, from 
 other considerations from those of their truth or 
 falsehood. 
 
 As the renewal of the monopoly of the Bank 
 of England will be a departure from the estab- 
 lished rule of freedom of trade^ the Bank of
 
 England, in claiming- it, is bound lo make out a 
 case, to show that the public will be more bene- 
 fitted by the renewal of the monopoly, than by 
 trusting to the general principle ; firsts with re- 
 spect to the management of the Currency — 
 secondly^ with respect to accommodating trade — 
 and, thirdly, with respect to acting as the Bank 
 of Government. But so far from the Bank of 
 England being able to make out such a case, the 
 facts are, that, with respect to the first, it has been 
 mischievous in the highest degree ; with respect 
 to the secondj it has been almost useless ; and with 
 respect to the third, the Government would find 
 no difficulty, and incur no risk, in employing 
 another Bank, or other Banks, if the Bank of 
 England were to cease to exist. 
 
 In the following inquiry into the conduct of the . 
 Bank of England, we shall examine — what the 
 Bank is — the sources of its power — the extent of 
 its power — and the use it has made of its power — 
 and, lastly, what compensation the public has in 
 any way received, for vesting, by Act of Parlia- 
 ment, such power in its hands. 
 
 1. The Bank of England is a Joint Stock Com- 
 pany, consisting of individuals, being proprietors 
 of Bank Stock. 
 
 2. The sources of its power, are its being made 
 a Corporation by Act of Parliament, witli the 
 usual powers of Corporations ; its immense capi- 
 tal, consisting of more than twenty millions ; and 
 the exclusive privilege of issuing Bank Notes, in 
 
 n 2
 
 London, and within a distance of sixty-five miles 
 from it.* 
 
 The power thus acquired by the Bank of Eng- 
 land, gives it an unbounded influence ; — first, over 
 the Currency ; secondly, over Commercial Credit ; 
 thirdly, over the prices of the Funds ; and^ fourthly, 
 over the Government. 
 
 It is right to notice here, the time when the 
 Bank of England seems first to have begun to 
 exercise these various powers. Although incorpo- 
 rated in 1694, the circumstances of the country, as 
 to its currency, or trade, or as to the public ex- 
 penditure, do not seem to have placed it in a 
 situation to have been able to interfere with much 
 influence. Previously to 1759, the Bank had not 
 issued any Notes for less than £20. ; and pre- 
 viously to the end of the American war, very little 
 Country Bank Paper was in circulation ; and the 
 amount of paper issued by the Bank, was no more 
 than six or seven millions ; so that, in point of 
 fact, paper money formed but a small portion of 
 the whole circulation ; and, till about 1780, the 
 conduct of the Bank, as to increasing it, or con- 
 tracting it, seems to have had little or no effect in 
 altering the value of the whole currency of the 
 country, and in raising or depressing prices. So 
 
 * Although a Banking Company of six or fewer partners 
 may issue Notes in London, no such company exists, or could 
 exist in competition with the Bank of England, and doubts 
 are felt of the legality of any Bank being established with 
 more than six partners.
 
 with respect to trade^ and the money wanty of 
 Government, these were in so low a state, in 
 comparison with what they have of late years been, 
 that the Bank acted no conspicuous part^ and had 
 no opportunity of doing much mischief. Accord- 
 ing to what can be collected from the only source 
 of information on the affairs of the Bank, namely, 
 the evidence given by its Directors before Com- 
 mittees of Parliament, it would appear that the 
 first time a very imprudent interference with the 
 currency took place, was in 1781-2 ; when a pre- 
 vious over-issue, and subsequent sudden contrac- 
 tion, produced a drain on the Bank for gold, and 
 left only £473,000. in its coffers.* This case will 
 be fully explained hereafter. 
 
 From this period, (that is, from 1780,) it will be 
 made to appear very clearly, that, in no less than 
 seven instances, the Bank has caused, or greatly 
 contributed to cause, immense injury to the public 
 interests. What will be stated, will be stated 
 deliberately, and in every point, either with refe- 
 rence to, or in the very words of, some authority 
 of unquestioned validity — that is, of persons who 
 wrote some time ago, and whose statements, though 
 bearing directly against the Charter of the Bank 
 of England, have never been denied ; and whose 
 opinions, therefore, may be received as solemn 
 judgments pronounced against the Bank. 
 
 * Tooke on Currency, p. 92.
 
 I. Proof a of the Power of the Bank of E7iy- 
 land. 
 
 Although it is so notorious that the Bank |30ssesses 
 immense power, it is not possible that any one can 
 have a due conception of the real magnitude of it, 
 and of the evil it is capable of inflicting upon the 
 public, without looking at it in detail ; andj there- 
 fore, the description which has been given of it 
 by writers of the greatest information and accu- 
 racy, has been selected, to show what its power 
 really is. 
 
 Poiver of the Bank of England orer the Cur- 
 rency. 
 
 The pov.er which the Bank of England pos- 
 sesses of greatly and suddenly increasing or con- 
 tracting the amount of the currency, by buying or 
 selling Exchequer Bills, making advances to Go- 
 vernment, and discounting Commercial Bills, is 
 admitted on all sides. Every table of the amount 
 of its Notes in circulation for a succession of years, 
 shows, that it has been continually made use 
 of; and it has been by so making use of it, that 
 the Bank has done so much injury to the public. 
 
 Mr. Tooke says, *" Next to the administration 
 of the State, there is no administration of any office 
 so immediately and extensively affecting the in- 
 terests of the community, as that which is en- 
 trusted to the [)crsons (the Bank Directors) who
 
 are invested with the privilege of issuing Paper 
 Money ; and who, by the manner in which they 
 exercise that privilege, have it in their power to 
 produce great changes in the property and con- 
 dition of every individual in the kingdom. No 
 man, or set of men, ought, in my opinion, to be 
 entrusted with that privilege."* 
 
 Mr. ]Mushet says, '' Much has been stated to 
 prove how very powerful is the intiuence of the 
 Bank, and the very extensive and dangerous in- 
 fluence she possesses over the property, not only 
 of the Stockholder, but of every man throughout 
 the kingdom."f 
 
 The following passage is taken from Sir Henry 
 Parnell's Tract, entitled, " Observations on Paper 
 Money/' "■ The Bank, as it has been well de- 
 scribed, in point of fact, in place of being what it 
 was originally intended to be, namely, a Bank for 
 commercial purposes, is become a great engine 
 of the State. Now, that paper has so far sup- 
 planted coin, it possesses some of the functions of 
 sovereignty ; so that, while we call to mind that it 
 possesses the means of assisting commerce, and 
 financial affairs, it should not be forgotten, that, 
 in the same degree, it has the power of controlling 
 and distuibing them.'';{; 
 
 With respect to the effect of the power which 
 the Bank of England exercises over the circula- 
 tion of the paper of Country Banks, Mr. Henry 
 
 * On Currency, p. 124. t On Currency, p. 1(5. 
 
 X Page 9G. 
 
 B 4
 
 8 
 
 Thornton says, in his work on Public Credit, 
 •' The limitation of the supply of London Paper 
 is the means of both sustaining the value of London 
 Paper, and also of sustaining the vahie, and limit- 
 ing the quantity, of the whole Country Paper."* 
 Mr. Mushet says, " It is generally admitted, that 
 the extension of the circulation of the Country 
 Banks, was entirely dependant upon the extension 
 of the issues of the Bank of England." " I think," 
 he adds, " no increase, or excess of the country 
 circulation, can ever be produced, but by a pre- 
 vious extension of the issues of the Bank of 
 
 England. "t 
 
 These several authorities show, not only that the 
 
 Bank of England possesses the complete and 
 
 unlimited control over the currency, but that, in 
 
 their opinion, it is a power of so vast and important 
 
 a nature, that it ought not to be entrusted to such 
 
 a body as the Directors of a trading company. 
 
 In the sequel it will be made evident, that this 
 
 power has been exercised in such a way, on many 
 
 occasions, as to have been productive of the most 
 
 injurious consequences to the public interests. 
 
 1 1. The Power of the Bank of England on the 
 Commercial Affairs of the Country. 
 
 In regard to commerce, as the prosperity of it 
 throughout all its branches, from that carried on 
 
 * Page 220. t Page 27, 28.
 
 9 
 
 by the retail dealer, to that by the richest foreign 
 merchant, depends essentially on credit, the power 
 of the Bank is without limit; for if the Directors 
 think proper to send into circulation a large amount 
 of paper, when trade has a tendency to run into a 
 state of overtrading, they will directly encourage 
 the wildest and most ruinous speculations ; and if, 
 on the other hand, they should suddenly contract 
 the amount of paper in circulation, this will cause 
 even the soundest speculations to fail, and bring 
 about the ruin of all embarked in them. It is in 
 this way that commercial credit, which of all 
 things is the most delicate in its nature, and the 
 most difficult to be kept from running into de- 
 structive extremes, exists wholly at the will and 
 pleasure of the Bank Directors; and hence the 
 success or failure of every man in business, is 
 more or less dependant upon their movements. 
 This is a state of things so entirely repugnant with 
 every sound principle of trade, and with the great 
 principle of security of property, that it ought not 
 to be tolerated any longer. 
 
 On a careful examination into the causes of the 
 embarrassments of trade in the last fifty years, viz. 
 in 1783, 1793, 1797, 1816, 1818, and 1825; the 
 conduct of the Bank, in improvidently adding to, 
 and as iinprovidenty contracting the Currency, will 
 be found to have either directly occasioned these 
 embarrassments, or to have greatly aggravated 
 them ; the examination of this fact w ill be gone into, 
 when theabuses which have taken place of the power
 
 10 
 
 of the Bank come under consideration. But it is not 
 only on such occasions as those of great fluctuations 
 and convulsions, that the power of the Bank over 
 the Currency proves highly injurious to trade ; for 
 in every instance^ in which the Bank increases or 
 diminishes its circulation, an immediate effect is 
 produced on prices, and a derangement in the 
 regular course of trade. Scarcely a month passes 
 without some such interference with the circula- 
 tion ; and the consequence is, that a fluctuation 
 takes place in the market, and defeats the calcu- 
 lation of the best considered speculations. 
 
 ill. The Power of the Bank of England over 
 the price of the Funds. 
 
 In order to place the question of the power of 
 the Bank over the price of the funds, in a point of 
 view beyond all cavil, it will at once be referred to 
 high authority, by quoting the following passage 
 from the Pamphlet of Mr. Mushet. He says, 
 *' the power which the Bank of England appears 
 to possess over the funded property of the country, 
 and, indeed, over all other property, is of such 
 magnitude, as to require and deserve the greatest 
 attention of the legislature. They have it in their 
 power, by the extension of their issues, of fi^om one 
 to two millions, in the course of a few months, 
 unknown to the public, but from their effects, to 
 raise the price of consols from 20 to 30 per cent. ;
 
 11 
 
 and, by withdrawing them again, to cause as serious 
 a fall. This is a power which the combined power 
 of the King^ Lords, and Commons, does not pos- 
 sess ; and yet it is delegated to twenty-four indivi- 
 duals in the ordinary walks of life. Let us sup- 
 pose a very ordinary case in human affairs, that 
 the Directors of the Bank perfectly understand the 
 nature and extent of the power they possess, that 
 they conceived it their duty to the Bank proprietors 
 to become dealers in 3 per cent, consols, (they 
 are admitted dealers in Exchequer Bills, and, as 
 such, must influence the market and benefit, or 
 otherwise, the proprietors,) they determine, on an 
 extension of their issues, say to 5 or 8 per cent, 
 previous to which, they become larger holders of 
 consols to account ; the issues are made, and the 
 price rises, and they are certain it must rise, say 
 20 or 25 per cent. They may now sell progres- 
 sively, and realize some portion of the above profit 
 on their speculation. The matter may not stop 
 here ; for the Bank may, at the high price, sell 
 as much more to the account than they purchased. 
 They begin to contract their issues by the sale 
 of Exchequer Bills, or refusing discounts ; and 
 consols are forced down, in the coui-se of a few 
 weeks, to the level at which they were, previous to 
 the first extension. The account may then be 
 balanced by new purchases at the reduced price. In 
 such transactions there is no risk of failure to the 
 Bank : they have the exclusive means in their own 
 hands to prevcMit the slightest chance of disappoint-
 
 12 
 
 merit. Such arc tlie power of the Directors of 
 the Bank of England, and, in some such degree, 
 the power of each individual Director. It is most 
 important, that the powers of that establishment 
 should be thoroughly known to the public."* 
 
 This extract from Mr. Mushet's pamphlet, pre- 
 cludes the necessity of adding another word to 
 show the inexpediency of a system which gives to 
 a few individuals this unlimited power over the 
 property of the public. 
 
 IV. The power of the Bank of England over 
 the Government. 
 
 The power that the Bank possesses over the 
 Government, is in proportion to the wants of Go- 
 vernment of assistance in fulfilling its pecuniary 
 engagements. But these wants are of a very press- 
 ing kind, in consequence of the necessity of making 
 payments on fixed days being absolute, and the 
 receipts of the revenue being exposed to be in- 
 terrupted and delayed by numerous circumstances. 
 As, however, the Bank possesses, at all times, the 
 ready means of relieving these wants, by merely 
 making an issue of Bank Notes, it is clear that the 
 power the Directors hold over the Government is 
 unlimited, and constantly in operation. There is, 
 therefore, no imaginable object they can have to 
 obtain, which they may not secure, by withhold- 
 * On Currency, p. 144.
 
 13 
 
 ing* advances when urgently necessary to keep the 
 State machine on its way. The accuracy of this 
 description of the state of the case, is abundantly 
 demonstrated by the history of the renewals of the 
 Bank Charter ; of its addition to its capital ; of the 
 bargains made for receiving the revenue and the 
 instalments of loans, making transfers of stock, 
 paying the dividends, and, generally, transacting 
 the business of Government. 
 
 In point of fact, the Government, in all its finan- 
 cial operations, is wholly at the mercy of the Direc- 
 tors of the Bank of England ; and, surely, this is a 
 state of things which ought not longer to be conti- 
 nued. 
 
 But however evident the propriety is of relieving 
 the public from so much evil, the Government will 
 be the last, though in duty bound to be the first, 
 to protect the interests of the public, by proposing 
 or consenting to any change. They find the 
 convenience, cost what it may, to have a ready 
 instrument to keep the Treasury in cash; and 
 they naturally fear that a change would impose 
 upon them increased lal)our and difficulty to 
 manage the receipts and payments of the public 
 money. \\ hile, at the same time, they are certain 
 that it would be quite out of their power to do 
 those irregular things which constantly press upon 
 them, and the avoidance of which would pro- 
 duce great trouble and inconvenience.
 
 14 
 
 II. Abuses by the Bank nf England of its 
 poioers over the Cio'i'encj/. 
 
 The development of this part of the subject can 
 only be properly made by a close inquiry into, and 
 a detailed statement of figures and dates ; and 
 therefore it will require great attention in follow- 
 ing the tracing out of the particular facts of this 
 kind which are unavoidably indispensible. But as 
 the means of forming a correct judgment upon the 
 merits of the cjuestion of renewing the exclusive 
 privileges of the Bank, consist in the bearing of 
 these facts upon it, the trouble and pains which 
 are devoted to it will be requited, if, as it is in- 
 tendedj what is stated shall be rigorously exact, 
 and no more in quantity and extent than is really 
 fit to be stated to do justice to the subject. 
 
 The conduct of the Bank will be examined 
 with reference to the cases of commercial and pecu- 
 niary embarrassments which took place in 1783, 
 1793, 1797, 1816, 1818, and 1825. 
 
 1 . Case of 1783. The years of 1783 and 1784, 
 were years of great commercial distress.* The 
 question to be examined is, what was the cause of 
 this distress. This cause was said, by the Directors 
 of the Bank of England, to be a transition from 
 war to peace, and the demand for capital for com- 
 mercial and other enterprises. ■!• But this explana- 
 
 * Mushet on Currency, p. 7. 
 
 t Evidence of Mr. Bosanquet before the Lords Committee, 
 1797, p. 20.
 
 15 
 
 tion was given eitlier in ignorance of the true cause, 
 or to conceal the share of the Bank of England 
 in producing the distress. The facts which sustain 
 the lattei" inference are the following. 
 
 In the years 1779 and 1780, the exchange on 
 Hamburgh rated from 36s. to S4s., that is, at 
 about par ; and the price of standard gold had 
 been mostly at £3. 17 s. 6d., in no instance ex- 
 ceeding £3. 17s. lO^rf.* The amount of Bank of 
 England Notes in circulation in 1779, was 
 
 £6,000,000.t 
 
 The Bank of England thought proper, in the 
 following year^ greatly to increase its issues. In 
 March, 1782, they amounted to £9,160,000, and 
 then it suddenly diminished them, so as to bring 
 them, in December of the same year, to £5,994,000. J 
 In 1782, the Exchange on Hamburgh was 31s. 8f/.§ 
 Great commercial distress followed in 1783, and so 
 great a run on the Bank of England as to reduce 
 its treasure, in October 1783, to £473,000. || 
 
 Here we have an increase of the issues of the 
 Bank from £6,000,000. to £9,000,000. in three 
 years, and a reduction from £9,000,000. to about 
 £6,000,000. in nine months. That is, two facts 
 which aftbrd a much better mode of accounting 
 for the commercial distress of 1783, than the 
 
 * Tooke on Currency, p. 181. 
 
 t Evidence of Mr. S. Thornton, in the Lords Committee, 
 1819, p. 75. 
 
 X Muchet on Currency, p. 9. 
 
 § Tooke on Currency, p. IHl. || lb. p. 92.
 
 16 
 
 transition from war to peace, and ronimercial en- 
 terprise ; because it is evident, that the commer- 
 cial enterprise must have been, in a great measure, 
 occasioned by the great addition to the issues of 
 the Bank of England, from six millions in 1779, to 
 nine millions in 1782. This is Mr. Mushet's opi- 
 nion ; he says, with reference to the alleged cause 
 of transition from war to peace : "'I am more 
 inclined to attribute the great proportion of the 
 distress of 1783, to the contraction, to the too rapid 
 contraction of the Currency."* Mr. Tooke says, 
 " Here it is to be observed, that the drain of cash 
 (in 1783), was considered as the effect of extended 
 commerce in consequence of the peace. It might, 
 however, with more probability, be referred to two 
 circumstances unconnected with the peace ; the 
 one, a previously greatly enlarged issue of Bank 
 Notes, and the other, a considerable circulation in 
 
 Coin-t 
 
 More need not be said on this case of 1783, to 
 show, that the Bank of England, on that occasion, 
 abused its power of adding to and contracting the 
 Currency. 
 
 Case of 1793. Mr. M'Culloch describes, in a 
 Note on Money in his edition of the Wealth of 
 Nations, the progress of the establishing of Coun- 
 try Banks. He says, '' the commercial distress 
 and embarrassment that grew out of the American 
 war, proved exceedingly unfavourable to the for- 
 mation of Country Banks, or of any establishments 
 
 * On Currency, p. 8. t On Currency, p. 183.
 
 17 
 
 requiring an unusual portion of credit and confi- 
 dence. No sooner, however, had peace been con- 
 cluded, than every thing assumed a new face. The 
 agriculture and commerce, and still more the 
 manufactures of the country, into which Sir 
 Richard Arkwright's invention had been lately 
 introduced, immediately began to advance into a 
 rapidity unknown at any former period. In conse- 
 quence, that confidence which had either been 
 entirely destroyed, or, at all events, very much 
 weakened by the disastrous events of the war, was 
 fully re-established. The extended transactions of 
 the country required fresh facilities for carrying 
 them on ; and, in consequence, a Bank was erected 
 in every market town, and almost in every village. 
 All sorts of paper were thus forced into circu- 
 lation.* 
 
 The following Table will show that the amount 
 of Notes of the Bank of England in circulation, 
 was at the same time greatly increased. 
 
 Notes in circulation. 
 
 1787 8,688,000 
 
 1789 9,905,000 
 
 1791 11,699,000 
 
 1792 11,585,000 
 
 Mr. Tooke makes the following remarks on this 
 great increase in the issues of the Bank of Eng- 
 land. " Contemporaneously with_, or rather pre- 
 ceding, this addition to the circulation of the Bank 
 • M'CuIIocli's Wealth of Nations, v<»l. iv. p. 'll^tU. 
 C
 
 18 
 
 of England Notes, there was a great increase of the 
 issues of the Country Banks. This great factiti- 
 ous increase of nominal monied capital, coming 
 into competition with the pre-existing real monied 
 capitals seeking investments, operated in reducing 
 the rate of interest, and accordingly the market 
 rate of discount on good bills fell to 3 per cent. 
 The artificial incentives to speculation thus 
 afforded, coincided with circumstances which were 
 of themselves calculated to excite a spirit of mer- 
 cantile enterprise ; and, as invariably is the case in 
 times of speculation, the country was, both in and 
 out of Parliament, represented to be in a state of 
 unexampled prosperity.* 
 
 Mr. M'Culloch explains the result. " The Cur- 
 rency having become redundant, the exchanges 
 took an unfavourable turn in the early part of 
 1792 ; and the Bank of England having been, in 
 consequence, obliged to narrow her issues, a most 
 violent revolution took place in the latter part of 
 1792 and the beginning of 1793. The failure of 
 one or two great houses excited a panic which 
 proved fatal to myriads raore.-f 
 
 This panic, Mr. Macpherson says, led to a drain 
 of cash from the Bank of England, exceeding any 
 demand of the kind for about ten years back.:{: 
 
 The foregoing statement shows, that the conduct 
 of the Bank of England, in increasing its issue so 
 
 * On Currency, p. 83. 
 
 t Wealth of Nations, vol. iv. p. 160. 
 
 X Annals of Commerce, vol. iv. p. 267.
 
 t9 
 
 largely in 1791, was an error of the gravest descrip- 
 tion. The Directors could not but have known, 
 the extension of the circulation of the Country 
 Banks was entirely dependant upon an extension 
 of the issues of the Bank of England.* It is not 
 correct, therefore, to attribute the redundancy of 
 the Currency which was the cause of the convul- 
 sion in 1793, as commonly has been the case, to 
 the efforts of the Country Banks to force their 
 paper into circulation ;•]• for those efforts, it is evi- 
 dent, could not have been successful, had it not 
 been for the great previous increase in the issues 
 of the Bank of England. 
 
 But there is a circumstance connected with this 
 increase of issues by the Bank of England, which 
 fully exposes the misconduct of the Directors. In 
 1790, the Cash and Bullion in the coffers of the 
 Bank, amounting to £10,097,000., while their 
 Notes in circulation amounted to £10,217,000. J 
 This was a position in which it did not suit the 
 Bank to remain, seeing that its circulation of paper 
 was entirely unproductive, and accordingly the 
 expedient of increasing its issues was had recourse 
 to, by making advances to Government ; by \\ hich 
 the Currency l^ecame, with the corresponding in- 
 crease in the issues of the Country Banks, redun- 
 
 * See Sir H. Parnell's Observations on Paper Money, p. 32, 
 Muchet, p. 27, 28. Mr. Henry Tliornton on Public Credit. 
 p. 220. Mr. Ricardo's Reply to Boiingart, p. 97. 
 
 t Mr. M'Cullocb's Wealth of Nations, vol. iv. p. 261. 
 
 X Tooke on Currency, p. 82. 
 
 c 2
 
 20 
 
 dant ; and tliis led to a fall in the exchanges, and 
 finally to the desired object of a demand on the 
 Bank for a large portion of its treasure.* 
 
 Here, then, is a case, in which the Bank, deli- 
 berately for the sake of gain^ brought upon the 
 public the evils which accompanied the commer- 
 cial convulsion of 1793 ; a circumstance which 
 places, beyond all question, the impolicy of leaving 
 to the discretion of the Bank Directors the unli- 
 mited power of increasing and diminishing the 
 currency of the nation. 
 
 Case of 1797. The most important crisis in the 
 history of the Paper Currency of Great Britain, 
 took place in this year ; supposed to be owing, 
 commonly, to political causes. But a cause of 
 another kind may be stated, which will fully, and 
 more correctly account for it ; namely, the previ- 
 ous increased issue and contraction of the Notes 
 of the Bank of England. 
 
 Notes in circulation. 
 
 Feb. 1794 £10,963,000. 
 
 Feb. 1795 13,452,000. 
 
 Aug. 1796 8,881,000. 
 
 Mr. M'CuUoch says, (although he attributes the 
 ultimate crisis to political causes,) that the ori- 
 ginal cause was chiefly the large advances made to 
 Government, which prevented the Directors from 
 having sufficient control over their issues. On this 
 point, Mr. Tooke makes the following valuable 
 * Tooke on Currency, p. 82.
 
 21 
 
 observations. " In all cases of over-issue by the 
 Bank of England, from that of the year 1795, 
 (which may, 1 think, be clearly proved to have 
 been the remote cause of the inability of that 
 body to meet its engagements in 1797,) down to 
 the time of the passing of Mr. Peel's Bill ; one or 
 other of two pleas has always been studiously put 
 forth, not only as a justification, but as a claim of 
 merit. One of these pleas is, that the Bank has 
 aided the public service by advances to Govern- 
 ment, when the state of credit, or a pressure on 
 the Money Market, rendered a resort to open 
 loans for the whole of the Govermnent expendi- 
 ture inexpedient. The other is, that accommoda- 
 tion has been afibrded to trade by the liberality of 
 discount, when the mercantile interests had no 
 other resource to rely upon. On neither of these 
 grounds could any extension of issues, beyond the 
 amount which was consistent with the preserving 
 the conformity of the paper to its standard, be 
 justified."* 
 
 Mr. Mushet says, *' in February, 1796, the issues 
 of the Bank were £11,030,110., being less than the 
 amount in February, 1795, by £2,509,050. ;'' and 
 afterwards proceeds to say, " on a contraction of 
 the Currency, there is a fall in the price of Stocks, 
 much greater than the amount of the contraction 
 of the Currency, or in the price of silver, or the rise 
 in the foreign exchange. This, I think, may be 
 easily explained. \Vhen the circulation is full, or 
 to excess, commercial credit and confidence be- 
 
 * ()u Curioncy, p. 70.
 
 22 
 
 come general. A speculative rise in prices to a 
 greater or less degree, is the natural consequence. 
 Credit is easily obtained ; and every man in busi- 
 ness is apt to push his credit to the utmost limit of 
 his capital. Having done so, the Bank suddenly 
 withdraws 22 per cent, of her Notes, as in 1796 ; 
 the commercial community are totally unprepared 
 for this diminution of the means of carrying on 
 their respective trades, and the consequences must 
 be, that any sacrifice will be made by the sale of 
 stock, to maintain their credit. Many must sink 
 under the pressure ; and as it is not local, but gene- 
 ral, it ends in what is called a panic. '^* 
 
 Now, if this doctrine be correct, the Bank, by 
 increasing its issues, in making advances to Govern- 
 ment in 1795, from 10 millions to 14 millions,'|' 
 did what was not justifiable ; by so doing, it 
 placed itself in a situation which rendered it un- 
 able, in 1797, to meet its engagements. Had it 
 acted in a diflferent manner, and exercised its 
 power over the Currency according to a sound 
 discretion^ and refused to increase its issues in 
 making advances to Government in 1795, neither 
 the events of the war, the loans to the Emperor of 
 Germany, the Bills drawn on the Treasury by the 
 British agents abroad, nor any of the political cir- 
 cumstances to which the inability of the Bank, to 
 meet its engagements, has been attributed, would 
 have exposed the Bank to that drain for gold, 
 
 * On Currency, p. 14, 15. 
 
 t Mr. M'Culloch's Wealth of Nations, vol. iv. p. 315.
 
 23 
 
 which led to the suspension of Casli Payments ; 
 and, therefore, the right conclusion to be come to 
 is, that of Mr, Tooke's, namely, that the true 
 cause of the suspension of Cash Payments in 1797, 
 was the misconduct of the Bank of England in its 
 management of the currency. 
 
 Depreciation of Bank of England Paper subse- 
 quent to 1797. 
 
 " The first fall in the value of Bank Paper, as 
 compared with gold, began in the latter end of the 
 year 1800, The deficient harvest of that year caused 
 a considerable exportation of the precious metals; 
 but, instead of contracting their issues, as they 
 ought to have done, had they acted on sound prin- 
 ciples, and as they would have beeii obliged to do, 
 had they been paying in coin, the Diiectors of the 
 Bank of England added to the quantity of their 
 Notes afloatj and the consequence was, that they 
 fell to a discount of about 8 per cent, as compared 
 with gold bullion. But they soon after recovered 
 their value; and from 1803 to 1808, both inclu- 
 sive, they were only at a discount of ^'2. 135, 2d. 
 per cent. In 1809 and 1810, however, the Direc- 
 tors seem to have lost sight of every principle by 
 which their issues had previously been governed. 
 The average quantity of Bank Notes in circula- 
 tioU;, wliich had never exceeded 17^ millions, nor 
 fallen short of 16^ millions in any one year, from 
 1802 to 1808, both inclusive, was in 1809 raised to 
 £18,927,833., and in l8lO to £22,541,523. The 
 issues of the Country Bank I*a]>er uas increased in 
 
 c 4
 
 24 
 
 a still greater proportion ; and, us there was no 
 corresponding increase in the business of the 
 country, the discount on Bank Notes rose from 
 £2. ISs. 2d., in the early part of 1809, to 
 £13.95. 6d., in 1810.* In 1814, the quantity of 
 Bank Notes in circulation was raised to £28,763,200., 
 and the discount on them was £25. 2s. 6c?. per 
 cent.-f 
 
 According- to this statement^ the great depre- 
 ciation of the paper of the Bank of England was 
 produced by a palpable, and most unjustifiable 
 abuse of the power vested in the Directors of issu- 
 ing Notes without any control. All the loss, there- 
 fore, sustained by the public, while this deprecia- 
 tion continued, namely, from 1808 to 1820, both 
 inclusive, is to be set down to the misconduct of 
 the Directors. 
 
 If the Directors had not departed from the rule 
 
 * M'Culloch's Wealth of Nations, vol. iv. p. 265. 
 t Statement of the average depreciation per cent, of Bank 
 of England paper. 
 
 £. s. d. £. s. d. 
 
 1801 8 7 8 1812 20 14 9 
 
 1802 7 5 10 1813 22 18 
 
 1803 ...... 2 13 2 1814 25 2 6 
 
 1804 2 13 2 1815 19 14 3 
 
 1805 2 13 2 1816 16 14 3 
 
 1806 2 13 2 1817 2 13 2 
 
 1807 2 13 2 1818 2 13 2 
 
 1808 2 13 2 1819 4 9 
 
 1809 2 13 2 1820 2 12 
 
 1810 13 9 6 1821 Nil. 
 
 1811 7 16 1 
 
 M'Culloch's Wealth of Nation, p. 318.
 
 25 
 
 by which their predecessors had regulated the issues 
 of Bank Notes, namely, of taking* a fall in the 
 exchanges, and a rise in the price of bullion, as a 
 test of a redundancy ; they would have maintained 
 the value of them on an equality with that of coin ; 
 but they found it more calculated to promote their 
 object of securing a large dividend on Bank Stock, 
 to substitute another rule in its place, that is to 
 say, of discounting all bills which were, in their 
 opinion, ** legitimate mercantile paper/' Mr. 
 Pearce, the Governor of the Bank in 1810, said, 
 in giving evidence before *' the Bullion Com- 
 mittee," that there can be no excess of Bank of 
 England paper in circulation, so long as it is issued 
 only in the discount of bills of undoubted sohdity, 
 founded on real mercantile transactions, and pay- 
 able at fixed and not distant dates, (60 or 90 days 
 at the utmost,) or upon loan to Government for 
 public services.* 
 
 What tlie opinion was of the late Mr. Huskisson, 
 of the injurious effects of the conduct of the Bank of 
 England upon the public, may be seen in the follow- 
 ing passage taken from his Pamphlet, " on the Ques- 
 tion of Depreciation :" " If, in the year 1797, it had 
 been foreseen that this temporary expedient (the 
 Bank Restriction) would be attempted to be con- 
 verted into a system for an indefinite numl^er of 
 years, and that, under this system, in the year 
 1810, every creditor, public or private, subject or 
 
 * Evidence of Mr. Pearce's Report on Bullion ConiniiUce, 
 p. 21.
 
 26 
 
 alien, to whom the law, as it then stood, and as it 
 now stands, had secured the payment of a pound 
 weight of standard gold for every £46. 14s. 6g?. 
 of his just demand, would be obliged to accept, 
 in full satisfaction, about 10^ ounces, or not more 
 than seventeen shillings in the pounds with a 
 prospect of a still further reduction in ever sub- 
 sequent year, it is impossible to conceive that the 
 attention and feelings of Parliament would not 
 have been alive to all the individual injustice, and 
 ultimate public calamities^ incident to such a state 
 of things ; and that they would not have provided 
 for the termination of the restriction, before it 
 should have wrought so much mischief, and laid 
 the foundation of so much confusion in all the 
 dealings and transactions of the community.^** 
 
 Great as the evil was which the Bank of Eng- 
 land inflicted on the country directly by the de- 
 preciation of its paper, during its continuance for 
 twenty-one years, amounting, for a part of that 
 period, to 25 per cent., the further evil is to be 
 attributed to it, which was the result of restoring 
 its paper to its standard value. 
 
 If such misconduct could be traced to pure 
 error in managing the currency, a mitigated cen- 
 sure might be passed upon it ; but when it ap- 
 pears that the Bank derived enormous gain by the 
 use it made of the power it derived from the sus- 
 pension of cash payments, the censure can* be no 
 
 t Page 11,
 
 27 
 
 other than that which is due to an act of great 
 culpability. 
 
 The following extract from the Supplement of 
 the Encyclopedia Britannica, gives an accurate 
 description of the profits of the Bank, to the year 
 1816; and is well deserving of the attention of 
 those persons who see nothing in the conduct of 
 the Directors but unabated exertions for the pub- 
 lic good. 
 
 " From all these different causes, from the 
 increased circulation of its Notes^ and from the 
 vast accnmulation of public business, the profits 
 of the Bank appear to have been prodigiously 
 augmented in the course of the late war ; so that 
 its average dividend, including the bonus from time 
 to time added to it, will be found toamount, from 
 the year 1797, to nearly 10 per cent. :* and it is 
 calculated, besides, on data which admit of no 
 considerable error, that the sum of undivided 
 profit, must, in the mean time, have increased to 
 the enormous amount of £13,000,000. Out of this 
 
 * The usual dividend on Bank Stock was 7 per cent, prior 
 to 1797 : in April 1807, it was raised to 10 per. cent. Be- 
 tween 1799 and 1807, a bonus was paid in addition to the 
 dividend as follows : 
 
 June 1799, £10. on every £100 Stock. 
 
 May 1801, £ 5. Navy 5 per cent, ditto. 
 
 Nov. 1802, £ 2^ per cent, ditto, ditto. 
 
 Oct. 1804, £ 5 per cent. Cash, ditto. 
 
 Oct. 1805, £ 5. ditto ditto. 
 
 Oct. 1800, £ 5. ditto ditto. 
 
 Incjuiry, tVc. by K. Muchet, p. 54.
 
 28 
 
 fund, the Bank advanced to Government, for the 
 year 1816, a loan of £6,000,000. ; and, at a Court 
 of Proprietors, held in May, 1816, it was resolved 
 to make an addition to the capital of the Bank, 
 of £2,910,600., the effect of which was to raise the 
 capital of each proprietor of £100. stock, pro- 
 ducing £10. per annum, to j£125. ; and to increase 
 his interest proportionally, namely, to <£12. 10*. 
 per annum. The great profit realized by the Bank, 
 since the suspension of its cash payments, has 
 produced a corresponding rise in the value of its 
 stock. Throughout the year 1797, the average 
 price of Bank Stock was about £125. per cent. ; 
 since that period, it has been gradually improving 
 in value, and its market price now, (1816,) amounts 
 to about £262. per cent. The original capital of 
 the Bank has thus acquired, since the year 1797, 
 an additional value, equal to nearly £16,000,000. ; 
 which, added to the estimated increase in the sum 
 of its undivided profit, amounting, according to 
 Mr. Ricardo's calculation, to £9,599,359., makes a 
 sum of <;li25,599,359., the actual improved value 
 of the Bank capital, during the last nineteen 
 years."* 
 
 The following is an account of all distributions 
 made by the Bank of England amongst the pro- 
 prietors of Bank Stock, whether by money pay- 
 ments, transfer of 5 per cent, annuities, or otherwise, 
 under the heads of bonus, increase of dividend, 
 and increase of capital, betwixt the 25th of Fe- 
 • Supplement to the Encyclopedia Britannica, vol. ii. p. 7l>.
 
 29 
 
 biuary, 1797, and t!ie 31st of March, 1830; in 
 addition to the ordinary annual dividend of 7 per 
 cent, on the capital stock of that corporation, 
 existing- in 1797, including therein the whole divi- 
 dend paid since June, 1816, on their increased 
 capital ; stating the periods when such distributions 
 were made, and the aggregate amount of the 
 whole. 
 
 In June, 1799— 
 
 i'lO. per cent, bonus, in 5 per cents. 1797, on 
 
 £11,642,400, is 1,164,240 
 
 May, 1801— 
 
 of 5. percent, ditto, in N^avy 5 per cents, ditto. . 582,120 
 November, 1802 — 
 
 £2. 10«. per cent, ditto, ditto, ditto 291,060 
 
 October, 1804— 
 
 £5. per cent. Cash ditto, ditto S82,120 
 
 October, 1805— 
 
 £b. per cent, ditto, ditto, ditto 582,120 
 
 October, 1806 — 
 
 £5. per cent, ditto, ditto, ditto 582,120 
 
 From April, 1807, to Oct. 1822, both inclusive- 
 Increase of Dividend, at the rate of £3. per cent, 
 
 per annum, on £11,642,400. is, 16 years .. 5,588,352 
 From April, 1823, to Oct. 1829, both inclusive- 
 Increase of Dividend, at the rate of £1 . per cent. 
 
 per annum, on £1 1 ,642,400. is, 7 years 814,968 
 
 In June, 1816— 
 
 Increase of Capital, at 25 per cent, is 2,910,600 
 
 From Oct. 1816, to Oct. 1822, both inclusive- 
 Dividend, at the rate of £\i). per cent, per 
 annum, on £2,910,600. increased Capital, is, 
 
 7 years 1,891,890 
 
 From April, 1823, to Oct. 1829, both inclusive- 
 Dividend, at the rate of £Q. per cent, per annum, 
 
 on £2,910,600. increased Capital, is, 7 years 1,(529,936 
 
 Aggregate Amount of the whole ... 16,619,526
 
 30 
 
 Annual Dividend payable on Bank Stock, in 1797, 
 on a Capital of ^11,642,400., at the rate of 
 ^7. per cent, per annum 814,968 
 
 Annual Dividend payable since June, 1816, on a 
 Capital of £14,553,000., to October, 1822, in- 
 clusive, at the rate of £10. per cent, per annum . . 1 ,455,300 
 
 Annual Dividend payable from April, 1823, to the 
 31st of March, 1830, both inclusive, on a Capital 
 of £14,553,000., at the rate of £8. per cent, per 
 annum 1,164,240 
 
 WILLIAM SNEE, Dep. Ace. 
 
 Bank of England, 
 2Gth April, 1830.* 
 
 Case of 1816. — >The following extracts from 
 Mr. Musliet's Pamphlet on Currency, explain 
 how far the Bank of England was concerned in 
 the distress of this year. 
 
 " In 1813, the average amount of Bank of 
 England Notes in circulation from January to June, 
 was £23,939,693. In 1814, from July to De- 
 cember, £28,291,832. In November, 1815, the 
 average amount was £26,207,472. In this year, 
 there was a considerable diminution in the issues 
 of the Country Bankers.'' 
 
 " The commercial distress in 1816 was very 
 great, and was generally attributed to the transi- 
 tion from war to peace prices ; but the effect of such 
 a rapid and extensive diminution in the amount 
 
 * Taken from Mr. M'Culloch's Dictionary of Commerce, 
 page 82.
 
 31 
 
 of the currency, as here stated to have taken place, 
 is a far more satisfactory way of accounting for 
 the great and general distress, and fall that took 
 place in prices, in that year."* 
 
 " The undue speculations in 1815, I think, Mill 
 be found in the very great extension of the Bank 
 of England Paper, in 1813, and 1814 ; and the 
 general derangement of commercial credit, the 
 necessary result of the contraction of the currency, 
 to the extent of 23 per cent., in the years 1815, 
 and 1816. "t 
 
 Mr. M'CuUoch attributes the commercial con- 
 vulsion of 1816 wholly to the excessive issues of 
 Country Banks. He says, " A large proportion 
 of the Country Bankers had, in their eagerness to 
 push their Notes into circulation, left themselves 
 without the means of meeting any emergency ; 
 and their fall, by generating suspicions as to the 
 stability of others, had exactly the same effects as 
 were produced by the first failures in 1793, and as 
 we have since seen exemplified in the crisis of 
 1825-6."+ The late Mr. Horner stated, in his 
 place in the House of Commons, that the destruc- 
 tion of Country Bank Paper, in 1815 and 1816, 
 had given rise to an universality of wretchedness 
 and misery, which had never been equalled, ex- 
 cept, perhaps, by the breaking up of the Missis- 
 sippi scheme, in France.§ 
 
 But however true it may be, that the over-issue 
 
 ♦ P. 17, 20, 21. t Tb. p. 92. 
 
 X Weahh of Nations, vol. iv. p. 2G0. § lb. p. 268.
 
 32 
 
 of the Country Banks was the immediate cause of 
 the extensive ruin, as this was the natural conse- 
 quence of the previous great issues of the Bank of 
 England, in 1814, and the beginning of 1815, the 
 original and true cause of the evil was the miscon- 
 duct of the Bank of England in making these 
 great issues ; and, besides, it is to be observed, as 
 Mr. Mushet has remarked, that the sudden and 
 great contractions by the Bank of England of its 
 issues, at the end of 1815, must have contributed 
 mainly to the failures of the Country Banks. 
 
 Case of 1818. In this year great commercial 
 distress prevailed. 
 
 This distress can be proved to have been owing 
 to the conduct of the Bank of England. 
 
 Mr. Mushet states, that " if we compare the 
 Notes of the Bank in circulation on the 22d of 
 February, 1817, with those in circulation on the 
 30th of August, 1817, a period of six months, the 
 increase will be found to be £2,217,550."* 
 
 Mr. Tooke says, " down to July, 1817, the in- 
 crease of Bank of England Notes was very incon- 
 siderable, viz. about £700,000. above the average 
 of 1816." — " There is no doubt, however, that 
 this addition, small as it was, proved to be exces- 
 sive, because it coincided with circumstances cal- 
 culated to enlarge the circulation of private paper ; 
 and the exchanges, accordingly, as early as the 
 first six months of 1817, manifested a tendency 
 downwards, and the price of gold upwards ; and 
 * On Currency, p. 93.
 
 33 
 
 if Bank Directors had not, unfortunately upon 
 system, disregarded, in the regulation of their 
 issues, the indication by which their predecessors, 
 previous to 1797, professed to be guided, they 
 would have been earned to contract, instead of 
 enlarging their issues. But if the increase of 
 about £700,000. Bank Notes in the first six months 
 of 1817 was excessive, under the circumstances 
 described, what is to be said for the prudence or 
 propriety of the further increase which took place, 
 to the extent of near two milHons on the average 
 of the following six months, when all the circum- 
 stances tending to make the former amount exces- 
 sive, were in full operation ? Such an enlarge- 
 ment of the basis of the Currency, co-operating 
 with the causes favouring tiie extension of Coun- 
 try Bank Notes, and private j^aper generally, tended 
 certainly to accelerate the rise of prices of such 
 articles, as were in a relative state of scarcity, and 
 to promote the spirit of over-trading.''* 
 
 But the conduct of the Bank of England in 
 increasing its issues, in 1817, was not only cen- 
 surable for the injury done to trade, but more 
 particularly so, for the opportunity it threw away 
 of resuming cash payments. The reason given in 
 the preamble of the Act of 1816, for the further 
 postponement of cash payments till 1818, is, "^ in 
 order to afford time to the Directors of the Bank 
 to make such preparations, as to their discretion 
 and experience may appear most expedient, for 
 • Tookp on Prices, p. 110. 
 I>
 
 34 
 
 enabling them to resume cash payments." But, in- 
 stead of making any such preparations, they imme- 
 diately changed a state of things which was most 
 favourable to renewing cash payments, into a state 
 the most unfavourable. 
 
 In the years preceding 1816, the Directors, in 
 expectation that cash payments would be restored 
 in 1817, according to the then existing provision 
 of the law, had reduced the amount of their Notes 
 in circulation, from £28,039,690., as it stood in 
 1815, to £24,441, 430. on the 6th of April, 1816.* 
 
 The destruction of Country Banks in 1814, 1815, 
 and 1816, had the etfect of making a great deduc- 
 tion from the total amount of the Currency.'! The 
 consequence of this diminution of the circulation 
 was, that the exchange on Hamburgh had risen 
 from 32s. 2d, in 1815, to 34s. M. in April, 1816, 
 and in August, 1816, it rose to 36s. 9i. The price 
 of gold, also, had fallen from £4. 13s. 6c?. an oz. 
 to £4. in 1817, making the discount on Bank paper 
 £2. 13s. 2d., instead of £16. 14s. 3d These facts 
 show, that if the Directors had made but a small 
 additional reduction in their paper, the exchanges 
 being above par, that the price of gold would have 
 come down to the Mint price, and have enabled 
 them to resume cash payments without the slight- 
 est difficulty. Mr. Baring said in the House of 
 Commons, Feb. 10, 1826, "' There was, at the end 
 of the war, a facility of obtaining gold, and of re- 
 
 * Lords' Report, 1819, p. 324. 
 
 t Mr. M'CuUoch's Wealth of Nations, vol. iv. p. 269.
 
 3a 
 
 turning to a metallic currency.'' " He was very 
 sorry we had not, at that period, made an effort to 
 restore the currency to its true basis.'"* But, in- 
 stead of taking this course, the Directors increased 
 their issues from £25,987,720., in May, 1816, to 
 £27,169,440., in May, 1817, and to £29,543,770., 
 in August of that year; and thus produced all the 
 difficulty which was found to be in the way of 
 resuming cash payments, when the Committee 
 was appointed in 1819, and which, by its Report, 
 finally secured the termination of the Bank Re- 
 striction, 
 
 Case of 1825. — In order to see how far the 
 Bank of England contributed to the convulsion of 
 this year — first, there will be given a statement of 
 the amount of the Notes of the Bank in circula- 
 lation, in 1823, 1824, and 1825 ; and, secondly, 
 extracts from the writings of that period of persons 
 of the highest authority. 
 
 First — 
 
 Notes in Circulation. 
 
 1823, Feb. 15, 17,802,000. 
 
 May 15, 18,501,000. 
 
 Aug. 15, 19,892,000. 
 
 Nov. 15, 20,353,000. 
 
 1824, Feb. 15, 20,357,000. 
 
 May 15, 19,961,000. 
 
 Aug. 15, ...... 20,960,000. 
 
 Nov. 15, 21,184,000. 
 
 * Hansard's Debates, vol. xiv. p. 197-B. 
 D 2
 
 36 
 
 1825, Feb. 15, 21,307,000. 
 
 May 15, 20,046,000. 
 
 Aug. 15, 19,676,000. 
 
 Nov. 15, 17,980,620.* 
 
 Extracts from Mr. Tooke's Pamphlet on Cur- 
 rency : — 
 
 " Until nearly the close of 1823, speculations 
 were partial, of short duration, and mostly on a 
 moderate scale." (P. 41.) 
 
 " There was enough, however, of commercial 
 enterprise, bordering on speculation, to favour an 
 extended circulation of private paper and credit. 
 In this state of things, any addition to the issues of 
 the Bank of England was evidently beyond the 
 wants of the circulation." (P. 42.) 
 
 " At the commencement of 1824, two new 
 powerful incentives to speculation came into play — 
 the rapid fall in the rate of interest, and the 
 situation of the South American States. These 
 were sufficient to render the circulation excessive, 
 without any increase in the amount of Bank of 
 England issues. Indeed, the tendency to excess in 
 the circulating medium, and to an exportation of 
 the precious metals, was already indicated by the 
 shipments of bullion to South America, in the 
 Spring of 1824." (P. 43.) 
 
 " Unaccountable as it may seem, the Bank of 
 England, instead of taking warning from the pre- 
 
 * Table, No. II. Mr. M'CuUoch's Wealth of Nations, 
 vol. iv. p. 317.
 
 37 
 
 existing excess, actually increased its issues in July 
 of that year. 
 
 Jan. 1824, Notes in circulation, £19,800,000. 
 
 July, 1824, ditto, 21,660,000. 
 
 But it was reserved for the first three or four 
 months of 1825, to display to the fullest extent 
 the etfects of an increased issue of Bank of Eng- 
 land Notes, coinciding with circumstances favour- 
 able to speculation." (P. 44.) 
 
 Mr. Tooke next describes the speculative opera- 
 tions which were carried on in a number of com- 
 modities, and says, " they necessarily created a 
 large mass of paper, and of transactions on mere 
 credit, thus adding to a circulation already swelled 
 by an increase of Country Bank Notes. Such 
 were the circumstances under which the Bank of 
 England issued, and for some months maintained 
 in circulation, an increased amount of Notes. 
 
 " Although this increased issue by tlie Bank 
 did not alone cause the great additional excite- 
 ment of the spirit of speculation which followed it^ 
 yet it gave a fresh and powerful stimulant to that 
 spirit, and assisted in converting incipient delu- 
 sion into absolute insanity." (Page 47.) 
 
 '* Assuredly, that is a most vicious system of 
 currency, which, instead of mitigating, aggravates 
 the evils that attend all violent fluctuations. Such, 
 however, has been the system of our currency. We 
 have seen, that precisely at the time at which there 
 ought to have been a contraction, there was an ex- 
 tension of the Bank of England issues, increasing, 
 
 n t^
 
 38 
 
 both directly and indirectly, the mass of the cir- 
 culation, and promoting the extravagant specula- 
 tions which have so distinguished the period under 
 consideration." (P. 66.) 
 
 " In July, 1824, there was a considerable de- 
 cline of continental exchanges, and an evident 
 efflux of gold. Here then was a warning not to 
 be mistaken, even supposing the amount of the 
 circulation justifiable down to that time. But 
 instead of attending to this infallible criterion of 
 excess, the Directors made, at that precise time, 
 the greatest increase in their issues, compared with 
 the preceding January, when a drain upon their 
 treasure had actually begun.^' (P. 68.) 
 
 " But in the recent instance of the extended 
 issues in 1824, and down to the Spring of 1825, no 
 plea of State necessity, nor any pressing demands 
 for accommodation to the trade of the country, can 
 be urged in defence of the measure. ^^ (P. 70.) 
 
 " The true reason for the enlarged issues, I sus- 
 pect to have been, that the coffers of the Bank 
 were, at that time, (the beginning of 1823) sur- 
 charged with gold to an inconvenient amount, 
 greatly reducing the profits, and rendering doubt- 
 ful the permanence of the existing rate of Divi- 
 dend on Bank Stock. ^' (P. 73.) 
 
 On the means which presented themselves to 
 diminish the stock of gold, Mr. Tooke says, 
 that buying Exchequer Bills held out no sufficient 
 inducement. The reducing of the rate of discount 
 was tried, but was attended with little, if any ex-
 
 39 
 
 tension of application for discounts. Tlie ad- 
 vancing of money on mortgage was adopted, and 
 £1,400,000. lent; but this, Mr. Tooke says, was a 
 mode " altogether unjustifiable." The purchasing 
 of the dead weight, or pension annuities, was the 
 most essential means which the Bank then adopted 
 of accomplishing the object it had in view. This 
 plan, Mr. Tooke says, " combining the amount of 
 advance to which it pledged the Bank, with the 
 imperfect convertibility, was the most objectionable 
 of all the modes enumerated ; but as it appeared 
 to facilitate the attainment of the immediate 
 objects in view, it was tof) tempting to be re- 
 sisted : it enabled the Bank to extend its issue of 
 paper, and thus to get rid of its surplus gold." 
 (P. 75.) 
 
 The foregoing extracts establish the following 
 facts. 
 
 1. That at the commencement of 1824, unques- 
 tionable evidence openly existed of there being 
 an excess of currency. 
 
 2. That the Bank of England, instead of taking 
 warning from the pre-existing excess, actually in- 
 creased its issues in July, 1824. 
 
 3. That in the first three or four months the 
 evidence of an excess of currency became more 
 evident. 
 
 4. That notwithstanding this circumstance, the 
 Bank of England issued, and maintained in circu- 
 lation, an increased amount of notes. 
 
 5. That iio plea of State necessity, nor any 
 
 1) 4
 
 40 
 
 pressing demands for the accommodation of trade, 
 can be urged in defence of the Bank. 
 
 6. That the true reason for the enlarged issues of 
 the Bank were reduced profits, and a doubt of the 
 permanence of the existing rate of dividend on 
 Bank Stock. 
 
 7. That the Dead Weight Annuity was pur- 
 chased expressly with the view of producmg a 
 fall of exchanges, and a demand for gold, in order 
 to diminish the loss sustained by having too much 
 treasure at that time. 
 
 8. And, finally, that a great portion of the 
 bankruptcies and ruin which took place at the end 
 of 1825, is owing to the misconduct of the Bank, 
 in adopting a plan for increasing its profits, which 
 could not fail of being accompanied with public 
 injury. 
 
 Extracts from Mr. Mushet's Pamph et on Cur- 
 rency, published in 1826 : — 
 
 " I am inclined to attribute the whole of the em- 
 barrassment now existing in the commercial and 
 money market, to the increase of our paper cur- 
 rency. To that recent and rapid diminution in the 
 amount of the currency, that has been felt in almost 
 every counting and banking house in London, 
 and that has, more or less, been felt by every 
 Country Banker in England and Scotland. The 
 effect of a relative abundance, or scarcity of cur- 
 rency on commercial credit, is a subject of great 
 interest, and one that has not, to luy knowledge.
 
 41 
 
 received the attention whicli its importance de- 
 mands. That its influence is most extensive, and 
 attended witli the most distressing results, I think 
 I shall, from facts, be able to prove ; and, if satis- 
 factorily, the intelligent reader will at once see the 
 extent of the mischief, as well as the benefit that 
 may arise under the existence of the present esta- 
 blishment of the Bank of England." (P. 5.) 
 
 " In the state of the currency,, therefore, alone 
 shall we find the true explanation of the state of 
 public madness for speculations, that existed 
 throughout 1824, and the earlier part of the last 
 year. With the increase of money, affecting 
 generally, for the time, the rate of interest, the 
 madness began ; as the means of excitement were 
 supplied, it continued ; and when withdrawn, 
 suddenly, and, perhaps, unexpectedly at the foun- 
 tain head, the first cause, the Bank of England, we 
 see the nature and extent of the calamity that is 
 spread over the country. To the increased issues, 
 therefore, of the Bank of England, in 1824, I am 
 disposed to attribute the whole of the consequences 
 that have followed that measure.'' (P. 152.) 
 
 " On the 1st of January, 1824, the Bank were 
 in possession of about 15 millions of gold, besides ^ 
 silver, which must have amounted to about two 
 millions." " Tlie Bank found that discounting 
 would not enable her to reduce the amount of her 
 treasure and loosing interest, she began, I believe, 
 in 1821, to lend on mortg-.ige. To this measure, 
 alone, therefore, may ix' ascribed all (he calamities
 
 42 
 
 that have lately visited the commercial and trading 
 community/' (P. 157.) 
 
 "^ There is a remarkable coincidence between the 
 situation of the Bank in 1824, and what it was in 
 1791. In that year, the cash and bullion in the 
 Bank waSj £10,097,000., and her Notes in circu- 
 tion £10,217,360. The Bank lent to Govern- 
 ment £1,500,000. in this year, and by the end of 
 1792 she had parted with about seven millions of 
 her treasure. In 1793 we had a commercial crisis, 
 no doubt occasioned by the contraction of the 
 issues of the Bank, to diminish the drain for gold." 
 (P. 157.) 
 
 " I shall now proceed to state remedies. It is 
 necessary to begin with the Bank of England, as I 
 think the cause of the late failure in commercial 
 credit has, in a great measure, if not altogether, 
 been traced to her measures, for unnecessarily, 
 unless for her own interest, increasing the amount 
 of the currency. I would, therefore, take the 
 power from her of lending to Government, on 
 Exchequer Bills, on Mortgages, or on Stock ; 
 none of them are consistent with the legitimate 
 principles of Banking.'' (P. 185.) 
 
 Extracts from Mr. Henry Drummond's Pamph- 
 let on Currency, 1826. 
 
 " It is painful to speak of the Directors of the 
 Bank of England, because they are most amiable 
 and honourable men ; but it is indisputable, that 
 their conduct has been directly at variance with
 
 43 
 
 •r. 
 
 the principles developed in the following propo- 
 sitions ; and, consequently, that their practice has 
 been erroneous, and has aggravated the evil arising 
 from fluctuations in the value of the currency, 
 which have occurred." (P. II.) 
 
 " TTie convertibility of the paper into gold, 
 prevented the depreciation going farther than it did, 
 and caused the paper being again diminished in 
 quantity ; but the suddenness of the contraction 
 produced the ruin of thousands. It has been said 
 in the House of Commons, that the ignorance of 
 the Bank Directors of sound principles of cur- 
 rency, prevented their taking such steps as would 
 have obviated much of the evil ; but as there is no 
 reason to suppose that any mode of appointing 
 the Directors of the Bank would ensure the elec- 
 tion of more intelligent men than there are at 
 present, it ought not to be left in their power to 
 produce the ruin of any individual, far less of any 
 large class of the King's subjects." (P. 39.) 
 
 " The cause of the present distress is exactly 
 the same as that which was the cause of all former 
 similar distresses, namely, a return from a depre- 
 ciated to a sound currency. During the last, in 
 1815, it was attributed to a " transition from war 
 to peace;" now it is attributed to " over-trading 
 and a rash spirit of speculation ;" and men catch 
 at any sounds that are uttered, without even being 
 at the trouble of analyzing the ideas which they 
 are intended to convey." (P. 58.) 
 
 *' It is indispensably necessary to every plan
 
 44 
 
 that shall be adopted, that an immediate end 
 should be put to the connection which has sub- 
 sisted between the Government and the Bank. 
 Whosoever will be at the trouble of reading the 
 appalling facts detailed in Messrs. Tooke's_, Mu- 
 shet's, Daniel Hardcastle's, and Attwood's Pam- 
 phlets^ will be convinced that that connection has 
 been hitherto ])roductive of nothing but mischief 
 to the country. For whether the Directors know 
 it or not, no one can read these Pamphlets^ nor 
 have paid any attention to the nature of currency, 
 without being assured that that establishment pos- 
 sesses a formidable power over the properties of 
 all its fellow-subjects; which has been, and can 
 be again productive of the most ruinous effects, 
 without the possibility of conferring one redeeming 
 benefit.'' (P. 65.) 
 
 Extracts from Mr. M'Culloch's Note on Money, 
 in his edition of the Wealth of Nations. 
 
 '' The currency having become redundant, the 
 exchanges began to decline in the Summer of 1824. 
 But no contraction of the currency took place till 
 the Autumn of 1825, when the heavy and continued 
 drain for bullion on the Bank compelled her to 
 lessen her issues. This was a signal for the repe- 
 tition of the tragedy of 1793, but on a larger and 
 more magnificent scale, and with more destructive 
 consequences." (Vol. iv. p. 271.) 
 
 ♦' But although there can be no doubt that the 
 excessive issues of Country Bank Paper in 1823,
 
 45 
 
 4, and 5, were the principal cause of the redun- 
 dancy of the currency, it must at the same time be 
 admitted that the Directors of the Bank of England 
 were by no means free from blame. They must 
 have known how the Country Bankers were acting-, 
 and they ought to have made propositions for 
 guarding against the consequences that were sure 
 to result from their imprudence. It could not be 
 said that there were no previous signs or indica- 
 tions of the approaching storm. Early in the 
 Spring of 1824, an efflux of the metals to South 
 America was taking place; and in June and July, 
 1824, there was a decided fall in the continental 
 exchanges, and the exportation of gold coin and 
 bullion began to be carried on to a great extent. 
 Here, therefore, was a warning not to be mistaken, 
 that the currency had become redundant ; and the 
 Directors of the Bank of England ought instantly 
 to have set about contracting their issues. Had 
 they done this, all the subsequent over-issue of 
 the Country Banks, and the absurd speculations 
 that took place in the early part of 1825, would 
 have Ix?en effectually prevented, while the crisis 
 that would then have taken place would have been 
 comparatively gentle." (Vol. iv. p. 272.) 
 
 It is worthy to be here remarked, that this last 
 paragraph fixes upon the Directors of the Bank of 
 England the fact, that their misconduct was the 
 true cause of nearly all the ruinous events of the 
 latter end of the year 1825 ! ! ! 
 
 In an article of the 86th Number of the Edin-
 
 46 
 
 burgh Review, Mr. M'CuUoch blames the Direc- 
 tors of the Bank of England for having (in 1824) 
 extended the issues of their paper by reducing the 
 rate of interest on their discounts to 4 per cent. ; by 
 increasing their purchases of Exchequer Bills, 
 and by lending £1,400,000. on mortgages of 
 landed property. He says, " they fell into the 
 double error — first, in attempting to force the 
 issue of their Notes at the very period when they 
 ought to have foreseen that the increased issues of 
 the Country Banks, consequent upon the renewed 
 prosperity of the country, would have, themselves, 
 rendered the currency redundant, and occasioned 
 a drain of bullion ; and, secondly, in refusing to 
 reduce, or, indeed, in actually increasing, the num- 
 ber of their own Notes in circulation for upwards 
 of a twelvemonth after the drain of bullion had 
 began to operate on their coffers." (Ed. R.Vol. 63. 
 p. 275.) 
 
 Extracts from the Speech of Mr. Baring, in the 
 House of Commons^ on the 10th of Feb. 1826. 
 
 ** If he were asked his opinion on the subject, 
 (the cause of the difficulties) he would say, the 
 Bank of England had, in some degree, contri- 
 buted to the present difficulties.'' " They had, 
 at the beginning of 1823 and 1824, an im- 
 mense accumulation of gold. They had, at that 
 period, made large issues of paper; and, at the 
 same time, the country paper was issued to an 
 extent nearly in proportion. '^ '* The Bank saw
 
 47 
 
 that the system was drawing the gold out of them, 
 and they began to fear the consequences. They, 
 therefore, all at once, gave a sudden jerk to the 
 horse on whose neck they had before suffered the 
 reins to hang loose. They contracted their issues 
 to a considerable extent. The change was at once 
 felt throughout the country. A few days before 
 that, no one knew what to do with his money ; 
 now, no one knew where to get it." 
 
 " As soon as they could get rid of the present 
 system with perfect safety, he agreed that they 
 ought to do so." — " He could not help giving it as 
 his opinion, that of late the Bank had lost sight, 
 in a great degree, of that to which it ought in- 
 stantly to be recalled ; namely, a true sense of the 
 system on which its affairs ought to be conducted, 
 to entitle it to a charter of any kind whatever, and 
 without which it ought not to be permitted to en- 
 joy any privileges of an exclusive character." 
 
 " He had now shown, that of the Capital of the 
 Bank, 24 millions, were rendered utterly inappli- 
 cable to its general purposes, as a commercial 
 establishment ; the Bank was less able to meet 
 any casual demand that might be made upon it, in 
 consequence of its holding, what it was in the 
 essence of all banking estiiblishments to avoid, a 
 large number of inconvertible securities." 
 
 " The derangement which exists at present in 
 all the relations of commerce, had arisen from the 
 unsteady conduct of the Bank acting suddenly 
 upon the country bankers."
 
 4S 
 
 " If the Bank were conducted upon proper 
 principles- — if it would not drive such hard bar- 
 gains, and would be content with less profits than 
 it sought to obtain at present — if it would be satis- 
 fied with a profit of five, instead of eight per 
 cent., — and if, when the charter expired, it would 
 adopt some prudent and liberal measure to limit 
 the encroachments on its capital, he was con- 
 vinced the system would soon stand on a better 
 footing than it did now, and that some preventive 
 would be found against the recurrence of such 
 evils as had lately befallen the country." 
 
 The preceding extracts contain facts which 
 prove that, in each of the cases of 1783, 1793, 
 1797, 1816, 1818, and 1825, the Bank of Eng- 
 land has been the main cause of the commercial 
 and pecuniary difiiculties which took place in those 
 years ; and that it produced them in each case by 
 precisely the same means ; that is^ increasing its 
 issues under circumstances which justified no in- 
 crease. The consequence of so doing, it appears, 
 has been a greatly redundant currency ; and when 
 this has taken place, the Bank has, as uniformly, 
 not proceeded to cure the evil gradually, by begin- 
 ning in time to diminish its paper ; but has waited 
 till great commercial distress and panic have taken 
 place, and then suddenly contracted it, and thus 
 led to the most disastrous results. Such has been 
 the management of the currency of the nation by 
 the Bank during the last fifty years. This ma- 
 nagement may have had its source in ignorance —
 
 49 
 
 in a;iving' accommodation to Government^ or in 
 being' gnided by the single motive of realizing the 
 largest possible profit on the c;ipital of the Bank. 
 
 If it has had its source in ignoi'ance, the public 
 will have no security, should the Charter of the Bank 
 be renewed, against ignorance again leading to the 
 same results ; because there will be nothing to pre- 
 vent the election of future Directors as ignorant 
 as their predecessors, as Mr. Mushet well observes ; 
 and the circumstance of the present Board of 
 Directors having conducted the affairs of the Bank 
 on better principles, is, therefore, no reason for 
 placing greater confidence in the plan of monopoly. 
 
 If the source of the evil is the compliance of 
 the Bank to the applications of Government for 
 advances, this is no justification for their con- 
 duct; for it is impossible to gainsay the remarks 
 of Mr. Tooke, that no extension of issues can be 
 justified, if it be not consistent with preserving the 
 conformity of the paper with its standanl. (P. 71.) 
 
 A due attention to the particular condition in 
 which the Bank was placed in each of the above- 
 mentioned cases, will leave no room to doubt that 
 the real source of the misconduct of the Bank 
 was the motive of realizing the largest possible 
 profit on the Bank capital. The extracts show, 
 that in 1790, and 1824, it was a mere (jucstion of 
 profit, and that the increasing of the issues by the 
 Bank was a scheme to dinunish its treasure. The 
 immense gain which was the result of the ma- 
 nagement of the Bank durins: the period of the
 
 50 
 
 Bank Restriction, is evidence that it was planned 
 for the purpose of turning- that event to the best 
 account. It has been said,* " that the Directors 
 may be as honest and upright men, as every body 
 is ready to believe they are ; but they cannot avoid 
 feehng, from their situation, as the representatives 
 of the proprietors of Bank Stock, that it is their 
 first duty to protect their constituents from a loss 
 of property, by doing all in their power to prevent 
 any diminution in the established rate of dividend 
 on Bank Stock. The proprietors of Bank Stock 
 have no other object, when they purchase it^ than 
 to make the most of their money ; and when they 
 select Directors, they choose those persons whom 
 they believe will best promote this object. When- 
 ever, therefore, such a state of trade shall again 
 arrive, as that which existed in the beginning of 
 1824, is it consistent with common sense to sup- 
 pose that the Bank Directors could withstand the 
 temptation of making a large profit^ by discount- 
 ing extensively, and by other means of increasing 
 the issues of their paper ? Would they throw away 
 the opportunity of making good their dividend of 
 eight per cent., on being told that the appearance 
 of prosperity was del usivCj and that sound prin- 
 ciples required tliat a disposition to place confi- 
 dence in it should be checked ? They would, 
 assuredly, enlarge their issues, and thus do all 
 that lay in their way to promote speculation and 
 over-trading; and if they did, in what part of the 
 * Observations on Paper Money, by Sir H. Parnell, p. 145.
 
 51 
 
 Banking system do the means exist of controlling 
 them, and of protecting the public from their im- 
 prudence ? Surely, to leave matters in such a state, 
 and to suffer the country to be exposed to an evil 
 of this magnitude, is quite inconsistent with the 
 right course of conduct of a wise goveriunent.'' 
 
 In conclusion, it may be asked, what compensa- 
 tion has the public received for giving to the Bank 
 the full dominion over the currency ? It has not 
 managed the currency well, as fully appears from 
 the foregoing extracts. On the contrary, it has mis- 
 managed it J and produced great evil. The small 
 amount of its discounts show it has not been of 
 any great use to trade ; and its dealings in public 
 securities prevents any other result. It certainly 
 has been of use in transacting the Government bu- 
 siness, in receiving the Revenue, paying the divi- 
 dends, &c. &c. ; but it could do this business, al- 
 though it should not issue any Bank Notes, or 
 only to such an amount as the payments of Govern* 
 ment required. 
 
 In point of fact, therefore, it has not, nor can it 
 ever yield an adequate compensation to the public 
 for the right being vested under the direction of its 
 Directors, of doing what they please with the cur- 
 rency. If, therefore, the Bank should be any 
 longer kept up by the legislature as a chartered 
 corporation, the conclusion which all the facts of 
 the case point out as the right one, is, that the 
 power of regulating the amount of the currency 
 ought not to be entrusted to it. 
 
 E 2
 
 52 
 
 On the assistance afforded by the Bank of En- 
 gland to the industrious Classes. 
 
 The Bank of England has at all times been for- 
 ward to take to itself vast merit for having afford- 
 ed assistance to the industry of the nation ; and 
 it rests its claim, in a great measure, for a continu- 
 ance of those exclusive privileges which give it 
 virtually the monopoly of issuing Bank Notes in 
 the metropoHs, on the ground of having performed 
 that service to the public. 
 
 Too many persons have been entrapped into a 
 belief that this merit is due to it. Lord Liver- 
 pool, and Mr. Robinson, now Lord Goderich, said, 
 in their celebrated letter of 13th of January, 1826, 
 that they believed that much of the prosperity of 
 the country for the last century, was to be ascribed 
 to the general wisdom, justice, and fairness of the 
 dealing of the Bank of England ; but this opinion, 
 like most of the opinions on Banking, which these 
 Statesmen laid before the public on this occasion, 
 may easily be shown to be very incorrect. 
 
 The origin of the Bank cf England was not the 
 advancement of the industrious classes, but a mere 
 scheme of some projectors to form a Stock Joint 
 Company for their own benefit. The way they 
 accomplished their object, was taking advantage 
 of the necessities of Government, and getting a 
 number of subscribers to lend it £1,200,000., when 
 no one else was willing to trust it. Every succes- 
 sive renewal of the Charter has been wholly a
 
 53 
 
 matter of money arrangeaient between the Govern- 
 ment and the Bank^ without any consideration 
 whatever of the industry of the country, generally 
 speaking. The Bank having found the Govern- 
 ment under difficulty in obtaining money, on some 
 occasion, when the end of the term of its Charter 
 was approaching, has taken advantage of the cir- 
 cumstance, to secure the renewal of its monopoly. 
 The Minister of the day has treated the question 
 of renewal so entirely, as a mere matter of course, 
 that he has, in no instance, made any communica- 
 tion to Parliament on the subject, until the bar- 
 gain was closed ; and^ in this manner, the mono- 
 poly has been maintained for 136 years. The 
 Minister always took care to get something like a 
 plausible bargain in the way of a loan, or a tem- 
 porary advance ; but, with respect to serving the 
 industrious classes, or giving security to the sys- 
 tem by which paper money was issued, or keeping 
 the circulation in a steady and sound state, nothing 
 of the kind was ever made a matter of considera- 
 tion. 
 
 It thus appears, that the origin of the Promissory 
 Notes of the Bank of i'ngland, and of the system of 
 keeping them in circulation, was not in discount- 
 ing Commercial Bills, and giving accommodation 
 to trade, but in making advances to Government, 
 in paying its debts, or the interest of them, and 
 in dealing in public securities. All other sources 
 of issuing paper except these, have at all times 
 up to the present day, been insignificant, except 
 
 e3
 
 54 
 
 during the period when the; Bank Restriction 
 system was in full operation. 
 
 In a Pamphlet recently published, entitled, " A 
 View of the Banking Trade/' a very accurate 
 description is given of the connection which has 
 always subsisted between the Government and the 
 Bank of England ; and as that Pamphlet is from 
 the pen, according to report, of a person who has 
 had, professionally, the best opportunities of ac- 
 quiring a complete knowledge of the Banking 
 trade, the following quotation will serve to give 
 just notions on the subject. " Such being the 
 origin of the paper money circulation of the Bank, 
 and such the means of upholding and extending 
 it, there could be little immediate connection be-, 
 tween it and the productive powers of the coun- 
 try. The issues of the Bank were not drawn forth 
 to aid new enterprises of genius in the pursuits of 
 industry. The objects on which human labour 
 could be employed, were extended and multiplied 
 in infinite number and variety, without any direct 
 stimulation or assistance from the Bank of England. 
 Commerce, indeed, might receive support from it, 
 in temporary loans advanced for the discount of 
 bills ; but these were made to the brokers and 
 transmitters of productions, and not to the pro* 
 ducers ; not to the merchants and interchangers of 
 commodities, and not to the farmers, graziers, 
 miners, and manufacturers of the kingdom. In 
 the remarkably contracted range of its operations 
 with respect to industry, the Bank of England
 
 55 
 
 exercised hardly any direct influence in raising up 
 those important interests connected with the agri- 
 culture, the mines, the manufixctures, and the 
 commerce of the country. For more than a cen- 
 tury and a quarter after its establishment, the 
 Bank was almost purely an Engine of the State, 
 appointed to perform a part of the functions of 
 ' the King's Exchequer, and the King's Mint/ 
 These functions it performed in concurrence with 
 the King's executive Government, and not to sus- 
 tain and invigorate the expanding energies of ))ro- 
 duction. Having no immediate connection with 
 the application of capital to the sources of produc- 
 tion, and acting in general conformity with the 
 views of his Majesty's Government, almost as an 
 organ of the Executive, the Bank ought to be 
 regarded as being essentially like the ' Royal 
 Mint;' a convenient instrument for exercising the 
 King's prerogative, and not as an instrument of 
 connnerce.''* 
 
 The following are the opinions of the late Mr. 
 Ricardo upon the subject of tlie assistance which 
 the Bank of England has afforded to industry and 
 commerce; he says, " a great deal too much stress 
 has always been laid on the benefits which com- 
 merce derives from the accommodation afforded 
 to merchants by the Bank of Englaiul. It is (juite 
 insignificant compared with tliat which is aflbrdcd 
 by the private funds of indivi(bials. We know 
 that at the present moment, (1S23,) the advances 
 
 * PaRtO. 
 E 4
 
 by the Bank to merchants on discount, are of very 
 trifling amount, and we liave abundant evidence 
 to prove, that at no time have they been great. A 
 Committee of the House of Commons called before 
 it, Mr. Richardson, of the house of Richardson, 
 Overend, and Co., eminent discount brokers in the 
 city. This gentleman was asked. Q. Are you 
 not in the habit occasionally of discounting, to a 
 large extent, the Bills of Brokers and other per- 
 sons, given on the security of goods deposited in 
 your hands? A. Very large. Q. Have you not 
 carried on the business of a Bill Broker to a very 
 large extent, much beyond that of any other indi- 
 vidual in this town ? A.I should think very much 
 beyond, Q. To the extent of some millions an- 
 nually? A. A great many — about twenty mil- 
 lions ; sometimes more.''* This evidence of Mr. 
 Richardson's satisfactorily proves the extent of 
 transactions of this kind, in which the Bank of 
 England has but little concern ; and no one can 
 doubt, that if the Bank were to break up its esta- 
 blishment, and divide its funds among the indivi- 
 dual proprietors, the business of discounts would 
 be efFectnally carried on by such houses, as that 
 of Messrs. Richardson, Overend and Co., and still 
 more effectually by Banks issuing Bank Notes. 
 
 It may be true, tli«t, at some particular periods, 
 the Bank of England has given considerable aid 
 in discounts to commerce. On this point, Mr. 
 Hicardo further remarks, " The Bank was said to 
 
 * Plan of a \alional Bank, |). 7.
 
 57 
 
 have given great aid to commerce, particularly for 
 the twenty years preceding the peace, by assisting 
 merchants with money ; but the reason of this was, 
 that, during that whole period, it lent money below 
 the market rate of interest, below that rate at which 
 merchants could borrow elsewhere. But, I confess, 
 that to me this seems rather an objection to their 
 establishmentj than an argument in favour of it. 
 A rate of interest is fixed by law below that at 
 which money can be borrowed in the market, and 
 at this rate the Bank are required to lend^ or not 
 to lend at all. From the nature of their establish- 
 ment, they have always large funds which they 
 can dispose of in this way ; and a part of the tra- 
 ders of the country are unfairly, and for the coun- 
 try unprofitably, benefitted by being enabled to 
 supply themselves with an instrument of trading,, 
 at a less charge than those who must be influenced 
 only by the market price."* 
 
 In examining into the aid given by the Bank to 
 connnerce, it is necessary to keep in mind the very 
 small portion of the paper of the Bank which is 
 under the controul of the Directors, to lessen or 
 augment at their pleasure. When circumstances 
 arise to make it necessary to lessen the amount of 
 paper in circulation, the process by which it must 
 be effected, is by issuing a less amount in accom- 
 modating trade; for when the price of the funds 
 is greatly depressed, as is always the case when a 
 large contraction of paper is indispensable, the Di- 
 
 * Principles of IVditical Economy, [>. \'M.
 
 58 
 
 rectors cannot sell Exchequer Bills, or other secu- 
 rities, without incurring an increase of loss ; and 
 therefore the diminishing of the circulation will in- 
 evitably fall with serious injury on trade. The 
 effects of the contraction will press on those persons 
 who are accustomed to borrow money from the 
 Bank, by getting their bills discounted ; and al- 
 though the Directors may intend that the limiting 
 of discounts shall be general in its operation, it 
 will not be so. It will inevitably operate partially, 
 and in a manner injurious to productive industry. 
 The weakest, who are necessarily the most de- 
 pendent on the aid of the Bank for loans, will be 
 the victims ; and these will be the manufacturers 
 and traders who depend on the Bank for dis- 
 counts, to pay wages, and to purchase materials. 
 What has of late particularly contributed to make 
 the limiting of discounts partial in its operation, is 
 the change which has taken place in the character 
 of the persons who are appointed Directors of the 
 Bank. The most influential of the Board are not, 
 as formerly, commission merchants, who receive 
 consignments of goods from abroad, and purchase, 
 by order, manufactures and colonial produce for 
 exportation. They partake more of the character 
 of agents, employed to facilitate and give effect to 
 the credit and money transactions of Government^ 
 and some great public bodies ; and this leads 
 them to an intercourse with dealers in bullion and 
 exchanges, stock jobbers, low contractors, Lon- 
 don bankers^ and bill brokers ; those classes which
 
 59 
 
 constitute what is commonly the term, " the great 
 money interest of the city,'' and not to an inter- 
 course with the producing' classes of the United 
 Kingdom. The connections arising out of this 
 intercourse of business, are of the closest and most 
 binding character. The persons who compose the 
 " money interest'' are, in private life, the personal 
 acquaintances of the Bank Directors, with whom 
 they associate in the most confidential habits of 
 friendship ; and when money is solicited from the 
 Bank by the familiar friends and acquaintances of 
 the Directors, it is difficult to refuse compliance. 
 The influence of the London bankers, bill bro- 
 kers, and loan contractors, must so far prevail 
 with the Directors, as to make it nearly certain 
 that, in the event of any pressure which requires 
 the Directors to contract their accommodations to 
 the public, the effect of the contraction will not 
 be felt in the money market, until the principal 
 dealers in it have placed themselves in a condition 
 of safety, so that the efltect of the contracMon will 
 fall with sudden force upon the weaker customers 
 of the Bank, men engaged in giving activity to 
 capital and labour in the operations of productive 
 industry.* 
 
 This being the state of the case with respect to 
 the industrious classes of London, if the Charter of 
 the Bank shall be renewed on its present condi- 
 tions, as to Banking, a great anomaly will clearly 
 be established ; namely, of the industrious classes 
 * See '• Views of the Bankini> Trade."
 
 60 
 
 of London being placed in a vastly interior con- 
 dition, in regard to the use to be derived from 
 the Banking trade, to that of the industrious classes 
 in the country. While every principal city and 
 town of England will enjoy the full benefit of a li- 
 beral system of Banking accommodation, the em- 
 ployers of capital and labour in London will be 
 deprived of it. Every merchant, manufacturer, 
 and tradesman in Birmingham, Leeds, Manches- 
 ter, Sheffield, Bristol, &c., will have the advan- 
 tage of having an account with a Bank issuing 
 notes, and thereby interested in giving accommo- 
 dation ; while the London merchant, manufac- 
 turer, tradesman, and shopkeeper, will have to 
 go on as well as they can, with the help the Lon- 
 don Bankers can give with the notes of the Bank 
 of England. How different the case would be, if, 
 instead of twenty million of paper being issued by 
 the Bank of England, in the proportion of about 
 eighteen to two, on public securities, the whole 
 twenty millions were issued by several London 
 Bankers, wholly in giving accommodation to 
 trade ! ! ! 
 
 What has now been advanced with respect to the 
 usefulness of the Bank of England to productive 
 industry, is amply sufficient to show that all that 
 has been said by way of giviag merit to the Bank 
 for the great extent to which it has been carried, 
 has no real foundation, and, consequently, to 
 prove that the supplying of the paper circulation 
 of London must be placed in other hands, in order
 
 61 
 
 to secure to trade tlie full benefit of a sound sys- 
 tem of Banking. 
 
 It is but justice to the Country Bankers to say, 
 that to their dealings is almost entirely owing the 
 real merit of exercising a most beneficial influence, 
 in assisting the productive classes, in promoting 
 agricultuml, mining, manufacturing, and commer- 
 cial operations ; and although, in too many in- 
 stances, they have occasioned great disturbance 
 and loss^ the errors they have committed, it is fair 
 to admit, have not been committed without being, 
 in a great measure, preceded by still greater 
 errors on the part of the Bank of England. 
 
 Refutation of the Objections to the Scotch System 
 of Banking. 
 
 The success of the Banking system of Scotland 
 has made so many converts to the plan of intro- 
 ducing a freer system into London, that the Bank 
 of England, and its advocates, are employing all 
 the means in their power in endeavouring to show, 
 that if the Scotch system were adopted in London, 
 it would not be productive of the same beneficial 
 result as in Edinburgh. 
 
 Those who are the most vehement to set aside 
 the Scotch system, unreservedly admit the great 
 advantages it has conferred on Scotland. They 
 do not deny any of the statements describing what 
 these advantages are. The author of " The His- 
 torical Sketch of the Bank of England/^ says, that
 
 62 
 
 few things would redound more to the public ad- 
 vantage than the adoption, in London, of the 
 Scotch system, of giving interest on deposits, and 
 that it would be a very material improvement to 
 adopt the Scotch system of granting cash cre- 
 dits.* 
 
 The author of " A View of the Bank Trade/' 
 
 * The following is the explanation of Cash credits given in 
 the " Historical Sketch of the Bank of England." (P. 65.) 
 ** By a credit of this sort is meant an undertaking, on the part 
 of a Banker, to answer the drafts of an individual in whose 
 character they have confidence, and who has produced one or 
 two securities, provided their drafts do not exceed a specified 
 amount. This amount is not, however, advanced by way of 
 permanent loan. No one obtains a Cash credit unless he is 
 engaged in business, or has a certain extent of pecuniary deal- 
 ings. Those who have such credits, no sooner receive any 
 money, than they pay it to the Bank to their credit account, 
 being allowed a certain rate of interest on the balance, when it 
 is in their favour, and paying to the Bank about one per cent, 
 higher interest when it is against them. This is an exceedingly 
 convenient mode of accommodating the public ; it induces them 
 to send in the smallest sums to the Bank, at the same time that 
 it provides for the circulation of its notes, and renders all its 
 customers far more interested in its support than they would 
 be were they merely in the habit of discounting with it, or of 
 using it as a place for the custody of money. It is supposed 
 that the total amount of Cash credits granted by the Scotch 
 Bankers, amounts to about Jive millions, of which one third 
 may, on an avarage, be advanced by the Banks. This plan 
 of making advances, and the giving of interest on deposits, 
 constitute the peculiar excellencies of the Scotch system, and 
 have certainly been productive of great advantages,"
 
 03 
 
 who, also, maintains that the Scotch system is 
 unfit for England, says, " All writers, and all intel- 
 ligent witnesses who have been summoned to give 
 evidence before Parliamentary Committees, have 
 concurred in attesting the benelicial results of the 
 Cash Credit system of Scotland ; and with such 
 exceptions, as will be hereafter explained, it is, 
 we thinks impossible to estimate too highly the 
 salutary effects of that system on productive indus- 
 try. '^ In addition to this, it is proper to remark, 
 that the fact is not disputed, that all the public has 
 lost by Bank failures in Scotland, since Banks 
 were first established, amounts to £36,444. ; nor 
 these facts, — 1st, that no such thing ever occurs in 
 Scotland as a panic ; and 2dly, that coin is scarcely 
 ever used in Scotland. 
 
 One of the principal objections that is made to 
 introducing the Scotch system into London — or, 
 in other words, to repealing the Act of 1708, which 
 limits the number of partners in a Banking 
 Company for issuing Notes, (for this alone forms 
 the main difference between Edinburgh and 
 London Banking,) is, that a number of Banks 
 would be incapable of doing what is now doing 
 by the Bank of England, so far as the foreign ex- 
 changes are in question, for keeping the Na- 
 tional Currency in a sound state ; that is to say, 
 they would not understand the nature of foreign 
 exchanges, and how to deal with them so as to 
 prevent great commercial and pecuniary embar- 
 rassments. Now, this management, to which the
 
 64 
 
 Directors of the Bank of England attach such vast 
 importance, and for which they assume to them- 
 selves an inherent superiority, that no other twenty- 
 four trading gentlemen can by possibility acquire, 
 is as simple and intelligible a matter, as the most 
 common transaction in the business of Banking. 
 
 A writer of high authority on this subject may 
 be quoted, to show that the Bank of England is 
 not mfallible in the art of dealing with the foreign 
 exchanges. i\lr. M'CuUoch says, " The Directors 
 of the Bank of England have frequently involved 
 themselves and the country in difficulties, from 
 their not being sufficiently aware of the principle 
 that has now been stated ; (that it is not by the 
 absolute amount of the currency in circulation in 
 a country, that any correct judgment can be 
 formed whether it is in excess or not ;) observing 
 the exchanges to fall, and a drain of bullion to 
 operate on their coffers, when, perhaps, their issues 
 were not greater than usual, they have concluded 
 that this drain originated in circumstances that 
 had no connection with the amount of paper afloat, 
 and that it could not be stopped by its contraction. 
 In the supposed case, the currency has become 
 redundant ; not because it has been absolutely 
 increased, but because a less quantity of it has 
 become sufficient for the purpose to which it is 
 applied, and it has not been proportionally dimi- 
 nished.^'* Here, then, is direct testimony against 
 the infallibility of the Bank ; but the Directors 
 • Wealth of Nations, Mr. M'CuUoch's Edition, V. 4. p. 256.
 
 65 
 
 overlook this, and like all adroit conservators of 
 their own private interests, when those of the 
 public are in jeopardy. 
 
 When the removal of a great evil is in agita- 
 tion, and the hopes of honest men begin to rise^ 
 and those of their opponents proportionally to 
 quail ; at this precise time they throw in a mys- 
 tification of the cause. This is just what they 
 are doing at the present conjuncture on this ques- 
 tion of London Banking. The Bank Directors 
 seek to frighten away all meddling with their 
 monopoly, by raising up this phantom of foreign 
 exchanges. The management of the currency,, 
 with reference to the foreign exchanges, consists in 
 nothing else than making a gradual contraction 
 of it as soon as the exchanges fall ; or, as any 
 thing occurs which is an indication of a strong 
 probability that they will fall. Mr. Ricardo, 
 whose practical authority on a matter of this kind 
 cannot be disputed, in his plan for a Government 
 Bank, made his whole case depend upon what 
 he conceived to be the facility of dealing with 
 the currency with reference to the foreign ex- 
 changes. The way by which he proposed to 
 give steadiness of value to his circulation, to con- 
 sist wholly of paper, was, by contracting, or in- 
 creasing the amount, according to the fall or rise 
 in the foreign exchanges, and in the price of bul- 
 lion. He says, "If the circulation of London 
 
 f
 
 66 
 
 sliould be redundant, it will shew itself by the 
 increased price of bullion^ and the fall in the 
 foreign exchanges, precisely as a redundancy is 
 now shown. And the remedy is also the sanne as 
 that now (1823) in operation ; viz. a reduction of 
 circulation, which is brought about by a reduc- 
 tion of the paper circulation."* 
 
 The authority of Mr. Ricardo is supported by 
 that of Mr. M'CuUoch ; he says, " By attending 
 to the state of the exchanges, and lessening the 
 supply of currency when they become unfavour- 
 able, and increasing it when they become favour- 
 able, the value of paper money might be kept 
 very nearly equal to the value of the metallic 
 money that would circulate in its place, were it 
 withdrawn. The conduct here described, is, in 
 fact, that which is followed by every prudent 
 Banker, who is obliged to pay his notes on de- 
 mand. He does not defer contracting his issues, 
 until a heavy drain for bullion has set upon his 
 coffers ; but he begins to contract them the mo- 
 ment that he observes the price of bullion rising, 
 and the exchanges falling ; and he begins to en- 
 large them under the opposite circumstances." f 
 
 If the Banking trade of Ijondon were under the 
 management of several Banks, the Directors of 
 them would be not only as able, but more able and 
 
 * Plan of a National Bank, p. 32. 
 
 t Wealth of Nations, Mr. M'Culloch's Edition, vol. i v. p. 233.
 
 67 
 
 rompetent to keep the curi'ency in a sound state, 
 than the Directoi-s of the Bank of England. The 
 greater number of them would bring forward a 
 greater quantity of skill, experience, and fore- 
 thought. They would be free from all partial 
 inflnences, and, in consequence, all their issues 
 being made in discounts and loans to the trading 
 classes, they would always have the means in their 
 hands of readily contracting, or increasing the 
 currency. 
 
 It is by no means true that the Edinburgh Banks 
 have no concern in dealings in exchanges, and 
 that they issue their Notes free from all control 
 by them ; whenever there is a difference of cur- 
 rency in two countries, there must be what is 
 understood by the term " Exchanges.'' This 
 operation takes place in changing Scotch paper, 
 or currency, into English — or English into Scotch. 
 There is, in point of fact, a regular exchange be- 
 tween Edinburgh and London ; but no notice is 
 taken of it, because the established practice of 
 drawing bills at par by the Banks, prevents a fluc- 
 tuation in the rates of it. Before this practice 
 was introduced, rates of Exchange between Edin- 
 burgh and London were constantly fluctuating. 
 Mr. Mansfield, in giving evidence before the 
 Committee of the House of Commons, on the 
 Irish Exchanges, in 1804, says, that, previous to 
 3770, paper was in circulation to a greater extent 
 than the nature of the trade of the country re- 
 quired ; that the excess of paper was the cause of 
 
 v2
 
 68 
 
 an exchange of from 5 to 6 per cent, against Scot- 
 land ; that, with a view to bring; the exchange to 
 par, the two chartered Banks considerably reduced 
 their issnes, and reduced the rate of exchange, 
 gradually, by drawing at ^ per cent., and 1 per 
 cent less in London than the market rate ; and 
 that, by obliging the other Banks to follow their 
 example, in the course of about two or three years, 
 they brought down ihe exchange to par, in which 
 state it has remained ever since."* The Edin- 
 burgh Banks know very well, that, although the 
 exchange with London seems always to be at par, 
 it is continually fluctuating ; for, as sure as it 
 happens in Edinburgh, either from a change in 
 commercial and pecuniary transactions, or from 
 an excess of paper, that the currency becomes 
 redundant. Notes are poured in upon them, and 
 a demand takes place for bills in London. As, 
 however, funds for paying these bills must be 
 kept at all times by the Scotch Bankers in London, 
 and as this is a business which incurs great ex- 
 pense, the Edinburgh Bankers are kept under 
 control, as to the management of the currency of 
 Scotland, by the state of exchange between Edin- 
 burgh and London, just as the Bank of England is 
 kept under control, as to the management of the 
 currency of London, by the state of the exchanges 
 between London and foreign countries. 
 
 Another objection that is made to the Scotch 
 system, is, that speculation is more supported and 
 • Report of Committee, 1804, p. 33, 63, 55.
 
 09 
 
 encouraged bv it, than by tlie English system. 
 To this it may be replied, it would be very strange 
 if it were not so; because, it is clear, that, in pro- 
 portion to the accommodation civen, will be the 
 extent of speculation which takes place. What 
 ought to be proved, in order to support their ob- 
 jection, is, that the amount of wrong speculation 
 exceeds the amount of good speculation, (for every 
 dealing in trade is a speculation ;) that is, that the 
 evil produced by the accommodation, is greater 
 than the good. But the admissions that are made, 
 in the most unqualified manner, of the great ad- 
 vantages derived from cash credits, even by those 
 persons who make this objection, afford a com- 
 plete exposure of the futility of this objection. 
 However true it may be, that instances may be 
 adduced of very rash speculations, such as those 
 mentioned in support of this objection, namely, 
 some occurrences at Glasgow, the conduct of some 
 cattle and corn dealers, the case of the cloth trade 
 at Gallovv Shields, these instances prove nothing 
 conclusively against the Scotch system, as arising 
 from the extensive accommodation which it gives 
 to the industrious classes. 
 
 Another objection is quite novel, and rather a 
 curious one, namely, that the very stability of the 
 Banks is itself an evil,* The way in which this is 
 atten)pted to be made out, is by showing that the 
 measures necessary to secure their stability are in- 
 jurious to trade. But it is impossible but that 
 
 * View of Blinking 'I'rudc, p. J21. 
 
 . 3
 
 70 
 
 these measures should have, to a certain extent, 
 this effect; because the only means the Banks 
 have of saving themselves from immense injury, 
 in times of distress and discredit, is to act with 
 great precaution in managing their issues, in 
 order to avoid loss by giving accommodation to 
 individuals of doubtful solvency. It is said, 
 " when difficulties arise, and alarm seizes the 
 minds of the Directors of the Scotch Banks, cash 
 credits are contracted or closed, and money is 
 called in with as much unfeeling harshness and 
 promptitude, as by an Exchequer process/'* But 
 can it be maintained to be right, that when diffi- 
 culties do arise, alarm ought not to influence the 
 minds of the Directors ; or can it be justly made 
 a matter of complaint against the Directors, that 
 they have recourse to the only means in their 
 power to preserve their establishments from loss 
 and ruin ? Would not the injury done to the 
 public by the failure of a single Bank, be infi- 
 nitely greater than any injury which can happen 
 to trade by withholding accommodation from 
 those persons, who by imprudent speculations 
 have placed themselves in a state of question- 
 able solvency 'i It is obvious that the injury to 
 trade, which takes place in times of distrust and 
 discredit, in consequence of the prudential mea- 
 sures of the Scotch Banks, originates not in the 
 unfeeling harshness of the Banks, but in the mis- 
 conduct of those j)ersons who have abused the ac- 
 * View of Banking, p. 124.
 
 71 
 
 comniodation they have received ; who, instead of 
 having profited by it, in carrying on their trades in 
 a steady and safe manner, have taken the opposite 
 course of embarking in wild and improvident 
 specuhitions. 
 
 There is another objection to the introdncing of 
 the Scotch system of Banking into London, founded 
 on the supposed dissimilarity of the pecuniary 
 transactions of Edinburgh and London. " Were," 
 it is argued, " the pecuniary transactions of Lon- 
 don and Edinburgh similar, it might be fairly 
 predicted^ that a Banking system that answered in 
 one, would hardly fail of answering in the other. 
 But when, instead of being similar, the nature and 
 extent of the pecuniary transactions of the metro- 
 polis are as different from those of Edinburgh, or 
 of any principal town, as light from darkness, it 
 does, to say the least of it^ seem not a little in- 
 consequential to argue, that the same power of 
 issuing Notes, that has been advantageously con- 
 ceded to Scotch Bankers, may be, with equal ad- 
 vantage, conceded to those in London."* To this 
 argument one plain and short answer may be 
 given, which ought to be completely conclusive 
 as to the want of validity in this observation, 
 namely, the conceding of this power to the Baukei*s 
 of London, has never been required upon the 
 grounds of a similarity of pecuniary transactions, 
 but u[ ion the general grounds, that the principles 
 and rules, according to which paper money is 
 
 • Historical Skpfch, p. 44. 
 
 f4
 
 72 
 
 issued in Scotland, prevents^ first, the issuino- of it 
 by Bankers not furnished witli sufficient capitals ; 
 and, secondly, the issuing of it to an excessive 
 amount, so as to create a redundant currency, and 
 occasion the various evils wliich follow from 
 abuses in circulating paper money. 
 
 1. How it has become impossible, under the 
 Scotch system, to establish a Bank, not having a 
 sufficiency of capital to make it solvent and safe, 
 has been fully explained in the evidence given 
 before the Committee of the House of Commons, 
 in 1826, on Scotch Banking. It has there been 
 shewn, that when the trade in Banking is free from 
 restraint, as to the number of partners who may 
 form a Company, the opulent Banks have it in 
 their power to crush a weak Bank, if an attempt is 
 made to establish one. The evidence of Mr. 
 Roger Ayton, Manager of the Renfrewshire Bank- 
 ing Company, explains how this is effected. In 
 point of fact, when the tmde of Banking is so far 
 free that large Joint Stock Companies can be 
 formed, all the opulent and established Banks, 
 naturally, and even necessarily act in managing 
 the business of supplying the circulation in a 
 federative capacity. Each of them knows per- 
 fectly well to what injuries he is texposed, and what 
 ought to be done to avoid them ; but instead of 
 each Banker depending upon his own independant 
 power to protect himjself, they all combine to- 
 gether, and employ their united powers, to stop, 
 at once, the loss wliich they would all sustain, im-
 
 73 
 
 mediately, or remotely, by the failure of a single 
 Bank of mere speculation, and unprovided with a 
 proper amount of capital. 
 
 It is obvious that this most essential quality of 
 the Scotch system, of preventing the weak Banks 
 from imposing themselves on the public, has 
 nothing to say to the nature and extent of the 
 pecuniary transactions which the Banks carry on. 
 This quality is as valid for the purpose of prevent- 
 ing abuse in a large country as in a small one, 
 where there are a vast variety and extent of pecu- 
 niarv transactions, as well as where there is a 
 comparatively small amount of them. What has 
 been the cause of tlie failures of Country Banks in 
 England ? The facility with which every cobbler 
 and cheesemonger has been able to open a Bank, 
 in consequence of the limitation of the number 
 of partners having forbidden the existence of nume- 
 rous opulent Banks. What has been the cause of 
 so few failures in Scotland } The freedom of the 
 Banking Trade, and the establishment of opulent 
 Banks. Therefore, so far as confining the power 
 of issuing paper money in the hands of opulent 
 Banks is a public object, the Scotch system of 
 Banking is just as fit for London as it is for Edin- 
 burgh. The reasons here given to meet the ob- 
 jection, founded on a dissimilarity of previous 
 transactions, are equally applical)le to those ob- 
 jections which are founded on the hniited foreign 
 trade of Scotland, as <oinpared with that of Eng-
 
 74 
 
 land, and the smaller extent of the country, and of 
 the population of Scotland. 
 
 But the supposed unfitness of the Scotch sjstem 
 for England, is disproved by experience. The 
 repeal, in 1826;, of the restriction of the number of 
 partners in a Banking Company, in the country 
 parts of England, actually introduced the Scotch 
 system. The trade of the English Country 
 Bankers is now as free as the trade of the Scotch 
 Bankers, and the consequence has been a great 
 improvement. Several Joint Stock Companies 
 have been established, possessed of large and suffi- 
 cient capitals^ and several weak Banks have been 
 closed. The practice followed by all the Banks 
 is greatly reformed. The Bankers conduct their 
 aftairs with increased attention, and with greater 
 ability ; they have become more cautious, circum- 
 spect, and skilful ; the science of Banking is better 
 understood, and the general result is that the 
 Banking business has become more sound and 
 substantial. Only seven or eight Country Banks 
 have failed since 1826, and it is expected that the 
 public will sustain a loss only by one or two of 
 them. The following passage, taken from " the 
 View of the Banking Trade," shows that the opu- 
 lent Banks of England are now acting uj)on the 
 rule of the Scotch Banks with regard to weak 
 establishments : — 
 
 '' The practice of issuing notes, by miners and 
 traders, was, a tew years ago, r;(j>i(lly extending
 
 itselfin Cornwall : it became inconvenient and in- 
 jurious to the Bankers^ and full of risk to the pub- 
 lic. The respectable Bankers of Truro, conse- 
 quently, determined to put a stop to this practice, 
 and they effected it by this means. They sent a 
 man on horseback into the obscure recesses of the 
 hills, and into the villages^ daily, to different 
 places where these notes were issued, and de- 
 manded gold for such as they held. At firsts the 
 issuers endeavoured to evade the demand, and ten- 
 dered other Notes, or other Paper, in discharge 
 for them. " No — I demand gold," said the appli- 
 cant. " Then, you will take your own Notes, 
 which have been issued by your own employers ?^' 
 "^ No — I demand gold. Send our Notes to the 
 Bank where they are issued, and they shall be paid 
 in gold ; but I will not take them in exchange for 
 your Notes." This plan rendered the practice 
 difficult, and the trade unprofitable ; and it was 
 soon relinquished." 
 
 2. The other valuable quality of the Scotch sys- 
 tem, which renders it equally fit for every other 
 country, is, the control it provides against over- • 
 issues of paper, and, consequently, against all the 
 evils which flow from over-issues; namely, depre- 
 ciation, fall of exchanges, panics, runs, drains of 
 specie, and failures. It has been explained, in the 
 evidence given before the Committee on Scotch 
 Banking, how the various practices of paying inte- 
 rest on deposits, cash credits, exchanges of notey, 
 and settling the balances, have given to the Bank-
 
 76 
 
 ing' trade of Scotland the great virtue of containing 
 within itself a remedy against the abuses of issuing 
 paper money, and enabled Scotland to make use 
 of it in such a way as to combine together, to the 
 greatest possible extent, the two great objects of 
 utility and security. 
 
 Now, in order to understand how far this system 
 is fit for London, let us suppose that the twenty 
 millions of paper which are now issued by the Bank 
 of England, were issued by five opulent London 
 Banks, that they acted entirely on the Scotch sys- 
 tem, as to deposits, cash credits, exchanges of 
 notes, and the settling of balances. 1. These 
 Banks would have full power to prevent any Bank, 
 without capital, from establishing itself. 2. As 
 these Banks would all be injured by one or more of 
 them issuing paper in excess, they would, as in 
 Scotland, act in a federative capacity, in checking 
 every deviation from true Banking principles ; and 
 they would certainly have the means of keeping 
 the currency at all times at a proper amount ; for 
 with all this paper, issued to accommodate trade, a 
 moderate limiting of it, in a way to make it operate 
 generally and equally, would admit of a contrac- 
 tion being quietly and easily made, when the price 
 of bullion, or the state of the exchanges, indicated 
 that the circulation had become redundant. 
 
 With, therefore, such Banks as are here describ- 
 ed, the success of introducing the Scotch system into 
 London, would not at all depend upon the pecu- 
 niary transactions, or ihe foreign trade of London,
 
 77 
 
 hut on tlie principles of control and security, 
 which are inherent in the Scotch system. 
 
 Reply to the Histaincal Sketch of the Bank of 
 England. 
 
 No attempt has been publicly made to uphold 
 the policy of continuing the exclusive privileges of 
 the Bank of England, except in a Pamphlet under 
 the title of " An Historical Sketch of the Bank of 
 England, with an Examination of the Question, 
 as to the Prolongation of the Exclusive Privileges 
 of that Establishment.^' 
 
 As this History displays no lack of ingenuity in 
 making the most of the case, and as it is written 
 with an air of unhesitating confidence in the sound- 
 ness of the views which it presents, a most mis- 
 chievous impression might be produced, if the 
 contents of it were suffered to remain unnoticed. 
 The author having treated, with very little cere- 
 mony, every error that he maintains other authors 
 have committed, he will, no doubt, pardon the 
 same course of criticism, when applied with as lit- 
 tle mercy to himself. 
 
 Every careful and intelligent reader of this Pam- 
 phlet, will soon discover a largeness of assertion, 
 and an utter absence of evidence ; the same signs 
 of assumption of alleged facts; numerous prefaces 
 of proof of well stated propositions, end in mere 
 expressions of opinion ; and ordinary readers may, 
 therefore, receive an impression from the pro- 
 mises of conviction, failing to perceive that they
 
 78 
 
 are not borne out by any more substantial evi- 
 dence than the author's account of his own im- 
 pressions, all resolving itself into conclusions 
 founded on his own view of the subject, for the 
 value of which we are to accept his representation of 
 facts, although^ in truth, the real facts of the case 
 leave his opinions good for little. 
 
 The author has evidently adopted for his guide 
 the rules of rhetoric, and studiously avoided those 
 of strict logic ; although he has assumed the cha- 
 racter of proceeding most methodically according 
 to the latter rules, by commencing his defence of 
 the existing system of monopoly, with gravely 
 stating, " we are not, either in this, or any other 
 similar investigation, to neglect the lights fur- 
 nished by experience, which is, indeed, the only 
 guide to rely upon in such matters." This is all 
 very well for catching the unsuspecting reader, and 
 for giving a passport to the assertions and sophisms 
 which follow ; but when the reader shall have care- 
 fully examined the exposition of the facts which 
 the true history of the proceedings of the Bank of 
 England affords, he will not fail to see that these 
 facts establish a conclusion diametrically opposite 
 to that which the author endeavours to maintain. 
 In the first part of this Pamphlet no pains have 
 been spared to place the facts and circumstances 
 connected with the conduct of the Bank of En- 
 gland beyond all question, as to their bearing 
 against its monoply, by quoting what has been 
 said upon the errors committed by the Bank by
 
 79 
 
 the highest authorities ; namely, Mr. Tooke, Mr. 
 Dnimniond, Mr. M'Culloch, Mr. Mushet, and 
 Mr. Baring". I'he speeches in Parliament of Mr. 
 Huskisson, and other Members, and the reports of 
 various Committees of both Houses of Parhament, 
 might also have been referred to, in corroboration 
 of the opinions of these authorities, all concurring 
 in establishing a demonstration that the Bank of 
 England, in every instance of great commercial 
 and pecuniary distress and embarrassment^ have 
 mainly contributed to them. It would, therefore, 
 appear, on the first view of the question, that the 
 attempt of the author of this Pamphlet to substan- 
 tiate his opinion, by reference to experience, that 
 the exclusive privileges of the Bank of England 
 ought to be continued, is a complete failure. 
 
 In page 44, the author undertakes to give rea- 
 sons to prove, that the interests of the public can 
 only be safely protected, with respect to the cir- 
 culation of paper money, by entrusting the Bauk 
 of England with the privileges it now possesses. 
 But these reasons are founded on a pure as- 
 sumption that will appear, on a moment's reflec- 
 tion, to be utterly fallacious, *' So long," he says, 
 " as the Bank of England is subjected to the obliga- 
 tion of paying her Notes in specie on demand, so 
 long are her interests and those of the public 
 identified ;" and hence, he draws the conclusion, 
 that the public have nothing to apprehend from 
 the proceedings of the Bank, if it continue to be 
 the only Bank in London, in the abstract it may
 
 80 
 
 be true, that the interests of the Bank are identified 
 with those of the public ; but various circumstances 
 may occur to lead the Bank not to do what its 
 interests require to be done. The whole question 
 hinges on this — if the public have no security that 
 those persons who direct the affairs of the Bank 
 will always use a sound discretion, the mere fact 
 of an identity of interests, between the public and 
 the Bank, is worth nothing at all by way of proving 
 that the public will not suffer by continuing the 
 exclusive privileges of the Bank. But the public 
 have no such security ; so far is this from being 
 the case, that the main complaint against the con- 
 tinuing of these privileges is, that the Bank has not 
 exercised a sound discretion on several most try- 
 ing occasions, a fact established beyond all contra- 
 diction, and shewing the impolicy of entrusting 
 the national circulation to a body of men, such as 
 the twenty-four Directors of the Bank of England. 
 It is necessary to do no more than adopt the rule 
 laid down by our author, namely, that of taking 
 experience for our guide to establish this fact, 
 that the supposed identity of interests between the 
 Bank and the public has not protected the public 
 from great injury. The Bank of England was 
 subjected to the obligation of paying its Notes in 
 specie on demand, before and during the year 
 1824 and 1825 ; and, therefore, according to the 
 dogma of the author, the public interests were safe 
 in those years in its hands. But so far was this 
 from being the case, that all the authorities already
 
 81 
 
 quoted, and all other authorities ou the subject, 
 have agreed in giving judgment against the 
 Bank, for having powerfully contributed, by its 
 mismanagement of the circulation, to produce a 
 great portion of the embarrassment and ruin which 
 the public sustained in the latter part of the 
 last mentioned year. Even our author admits 
 this, by saying, " her conduct, in 1824, and 
 the greater part of 1825, was censurable, inas- 
 much as she did not make any reduction of her 
 issues. Notwithstanding the continued exporta- 
 tion of bullion, and the wild projects that were 
 thus unusually entertained, showed in the clearest 
 manner that the currency was redundant." More 
 than this cannot be said to establish the fact, that 
 the Bank did not, at that period, exercise a sound 
 discretion with respect to its own interests ; and it 
 is quite unnecessary to add another word to place 
 it beyond all question : that supposing it to be 
 true that the interests of the Bank and of the pub- 
 lic are identified, this circumstance ought not to be 
 considered as affording the slightest pretence for 
 saying that the public have nothing to apprehend 
 from renewing the exclusive privileges of the 
 Bank. In point of fact, all exj)erience shows, 
 that this supposed identity has not afforded security 
 to the public from injury, and, therefore, security 
 must be sought for by some other means. 
 
 The author of the Historical Sketch, after hav- 
 ing stated his opinion, that the best way of settling 
 the question with respect to the issues of paper 
 
 G
 
 82 
 
 money in London, is to continue the Bank mono- 
 poly, proceeds to assert, that if several Banks were 
 opened for issuing Notes, such a measure would 
 be followed by the most ruinous consequences. 
 But this assertion is not sustained by any thing 
 like proof, founded on a regular aro-ument. It is 
 left to rest wholly on an assumption, which is this, 
 namely, that a Bank^ because it makes profit in 
 proportion to the quantity of paper which it issues, 
 will find it its interest to employ all kinds of means 
 to force its paper into use ; and, consequently, to 
 issue more than it ought to issue, and thus create 
 an over-issue, and produce all the evils to the pub- 
 lic, attendant upon an over-issue. But the obliga- 
 tion to pay Bank Notes in gold, will not suffer 
 any of these things to take place. Mr. M'Cul- 
 loch says, *' It is easy to discover the manner in 
 which a check of this kind, convertibility into 
 coin, would limit the issue of paper, and sustain 
 its value. Whenever so much paper had been 
 issued, as to sink its value relatively to bullion, it 
 would begin to be returned upon the issuers, to be 
 exchanged for a higher value; and they would, m 
 consequence, be obliged, in order to prevent the 
 exhaustion of their coffers, to contract their issues, 
 and thus to raise the value of their paper to a level 
 with gold. An extremely small profit, or an ex- 
 tremely small depreciation of paper, as compared 
 with gold or silver, is sufficient to induce the hol- 
 ders of immediately convertible paper, to send it 
 to be exchanged for those metals ; and hence the
 
 83 
 
 value of paper convertible at pleasure, into a given 
 and unvarying quantity of gold or silver, can never 
 differ considerably from its value. The issues of 
 the Bank of England were, for more than a cen- 
 tury, limited by the very principle, and in the very 
 manner, I have now explained/'* As this obliga- 
 tion to pay in gold, would obviously have pre- 
 cisely the same effect on several Banks as on 
 one, there is no reason for presuming, that if 
 several were established in London, such a mea- 
 sure would be followed by any ruinous conse- 
 quences. In further refutation of the objection 
 here made, it may be remarked, that although it 
 be true, that a Bank makes profit in proportion to 
 its issues, it is only in proportion to those issues 
 which are confined within certain limits ; these 
 limits extending only to the point where the issues 
 cease to be consistent with fair trade, and begin to 
 create an over-issue. 
 
 Ihiless the author could show that a Bank would 
 continue to make profit on its issues, after they 
 were greater than they legitimately ought to be, 
 his conclusion will not be borne out by his pre- 
 mises. But he cannot show this ; because the 
 effects which necessarily follow from such issues, 
 always are of a nature immediately to increase the 
 expenses of a Bank in providing pa}ment for the 
 increased amount of Notes returned ; and, finally, 
 to bring upon it great lf)sses, freijuently accom- 
 
 • Wealth of Nations, Mr. M'Cullorh's Hdition, vol. iv. 
 p. 237. 
 
 g2
 
 84 
 
 panied by total failure. The error the author makes 
 in the argument he has thus raised upon what he 
 takes to be the interest of a Bank, consists in his 
 not using the term interest, in this case, in its 
 proper meaning. This word admits of a great 
 deal of ambiguity. It may be true that a Bank, 
 for a short time, might be able to derive a profit by 
 an over-issue of paper, and, therefore, in that 
 sense, it would be consonant to ordinary language 
 to say, its interest would induce it to over-issue. 
 But notwithstanding £1,000., or £5,000. might 
 be gained, the real interest of the Bank would in- 
 duce it not to attempt to make money in this way ; 
 meaning, here by its interest,, that all circumstances 
 considered, such as loss from a drain of specie^ and 
 the risk of being obliged to stop payment, arising 
 from an excessive drain, &c. it would conduce to 
 its welfare not to over-issue its paper. When we 
 speak correctly, and say that it is the conception a 
 man has of his own interest which governs his 
 conduct, we mean a conception of all his separate 
 interests, viewed conjunctively, and not of one 
 single isolated interest. 
 
 In order to form a correct notion of what would 
 take place, if there were more than one Bank in 
 London, let it be supposed, as before, that five 
 were opened, and that their capital amounted to 
 several millions. 
 
 Each Bank, in the course of trade, would daily 
 have payments made to it to a large amount in the 
 Notes of the other Banks. \Vhat Avould it do
 
 «5 
 
 with them ? It would not re-issue them, because 
 that would deprive it of the meaus of issuing', and 
 keeping in circulation its own Notes. No — it 
 would send to the other Banks the Notes which 
 belonged to thetn, and each of these would pay 
 this Bank with the Notes they held belonging to 
 it, as far as they would go, and pay the balance 
 in coin. As, however, this way of exchanging 
 Notes would be very slow and troublesome, it is 
 evident that the Banks would make an arrange- 
 ment amons: themselves, by which each should 
 send daily a clerk to an appointed place, to make 
 the exchanges of their Notes, and pay the ba- 
 lances due in coin, or by some other secure and 
 satisfactory method. Now, so long as each Bank 
 regulated its issue of paper according to sound 
 principles of Banking, that is, by giving no 
 greater accommodation to its customers than a 
 legitimate practice of carrying on its business justi- 
 fied ; by charging the regular rate of discount; and 
 by immediately, but gradually, contracting its ac- 
 commodation, whenever the price of bullion rose, 
 or the foreign exchanges became unfavourable, the 
 Banks would prosper, and tlie public would he 
 benefitted by the accommodation it received from 
 them. 
 
 If, however, instead of proceeding in tiie way 
 here described, the Banks should proceed in the 
 way the author of the Historical Sketch says they 
 would ; that is, if they should niinhine together, 
 and have recourse lo all kinds of expedients to 
 
 G :j
 
 86 
 
 force their paper into circulation, and thus bring 
 about an over-issue, wliat would be the conse- 
 quences ? The currency would be redundant ; 
 the value of it would be depreciated ; the price of 
 bullion would rise ; the foreign exchanges would 
 fall ; it would be more advantageous to send gold 
 abroad than to buy foreign bills of exchange ; and 
 every one would run to the Banks to return their 
 paper, and demand specie for it. Ihider these cir- 
 cumstances, the ordinary stock of specie kept by 
 the Banks would be quickly exhausted ; they would 
 then have to tind more, cost what it might. But 
 the only means they will possess of purchasing 
 gold, will consist in selling Exchequer Bills, or 
 other public securities. In a period, however, like 
 this, the price of all securities will fall, ten, fifteen, 
 twenty, or thirty per cent. So that if the Bankers 
 should be able to save themselves from stopping 
 payment, they would be ahle to do so, only by in- 
 curring an enormous loss. 
 
 Now as these consequences >\ould inevitably 
 follow, if the Banks were to act in the way it is 
 said they would act, it is clear that the author of the 
 Historical Sketch has not the slig-htest foundation 
 for his anticipations^ and that the Banks would fol- 
 low precisely the opposite course of conduct to that 
 which he has traced out for them. 
 
 But it further appears, that, according to the 
 Author, it is not necessary that all the Banks 
 should over-issue to produce the evils he predicts; 
 " if one Bank," he says, " in good credit, endea-
 
 87 
 
 vours, by discounting at a lower rate of interest 
 than the rest, or by any other means, to increase 
 its business, it could not fail, in doing so, to ren- 
 der the whole currency of the metropolis redun- 
 dant, and to bring on such a drain for bullion as 
 might be productive of the most mischievous con- 
 sequences." * Now if, as it has been supposed, 
 there were five London Banks, and that they 
 issued the same amount of paper which the Bank 
 now issues, that is, about twenty millions, no one 
 Bank could, by possibility, force such a quantity 
 of its paper into circulation as would produce a 
 redundant currency. For it is to be considered, 
 that the currency consists not only of the paper 
 issued in London, but also of that issued in the 
 country, and of the whole current coin ; and 
 therefore to make it so redundant, as to depreciate 
 its value, and produce a fall of exchanges, &c. &c. 
 a much larger addition must be made to it, than 
 any one Bank could, by possibility, make to it. 
 This will be the more evident, when it is taken 
 into consideration that the effect of an over-issue 
 by one Bank^ is, for the most part, to diminish 
 the issues of the other Banks. 
 
 But this effect of an over-issue will be a direct 
 injury to the other Banks ; the means by which 
 the over-issue has been brought about will be 
 considered by them as unfair and hostile to their 
 interests, and as a breach of an implied compact. 
 When, therefore, the Banks discover, by the ex- 
 * Page 47. 
 c; 4
 
 88 
 
 changes, that the over-issuing Bank has violated 
 the rules of fair dealing, they will seek to obtain 
 redress, and to protect their own interests, by 
 taking those means which they possess to force 
 the transgressing Bank to retrace its steps. 
 
 How one of the five Banks could even attempt 
 to force an over-issue of its paper by way of a 
 profitable speculation, it is impossible to imagine. 
 The mere profit of two or three per cent, upon the 
 amount of paper it could keep in circulation by 
 every kind of contrivance, beyond what it pro- 
 perly ought to issue, could never be a compensation 
 for the expence it would incur in the end, in pro- 
 viding a sufficiency of specie to meet the demand 
 for coin, which the excess of its paper would in- 
 evitably lead to ; and for the risk of ultimate ruin 
 which it would bring upon itself. Nothing, there- 
 fore, can be more visionary than the prediction, 
 that if several Banks were established in London, 
 some one of them would always be able to produce 
 all the mischievous consequences of a redundant 
 currency. This prediction, consequently, ought not 
 to have the slightest influence as an objection to get- 
 ting rid of the monopoly of the Bank of England. 
 
 It is necessary now to refer to a statement in 
 the Historical Sketch, in which it is laid down 
 that no identity could exist between the interests 
 of the several London Banks, and the interests of 
 the public. In this case it is only requisite, in 
 order to show how unfounded this assertion is, to 
 make a short analysis of what the interests of the
 
 89 
 
 Banks would be. 1st, It has been already proved 
 that their profit and security would depend upon 
 their so managing their issues that an over-issue 
 of paper should never take place. 2dly, It is 
 evident that nothing would be more essential to 
 their profit and security as their constantly exert- 
 ing all their influence in preventing over-issues by 
 the Country Banks; because by doing so they 
 would protect themselves from drains for specie. 
 3dly, It would be their interest in times of suspi- 
 cion and discredit, in order to avert the injury they 
 would suffer from commercial failures, to give the 
 greatest possible assistance to trade. 4thly, In 
 times also of confidence it would be their interest 
 to do the same. Now, so far as the public are 
 concerned in the Banking trade, what is so ob- 
 viously the interest of the Banks to do in each of 
 these four cases, will be as obviously beneficial 
 to the interests of the public, and, consequently, 
 there is as close an identity as possible between 
 the interests of both parties. It is, in point of 
 fact, this identity of interests that places the trade 
 of Banking exactly on the footing of all other 
 trades ; and makes the principle of free trade as 
 applicable to it, as it is to all other trades. 
 
 Although more than enough may now seem to 
 have been said in favour of making the Banking 
 trade of London more free, the non-applicability 
 of the principle of free trade to Banking is discus- 
 sed in so extraordinary a manner in the Historical 
 Sketch, that some observations must be made
 
 90 
 
 upon it. The general policy of leaving trade 
 free from all restrictions, is admitted to be right, 
 as is sure to be the case whenever restrictions 
 are about to be proposed. The author says, 
 " There are not many absolute principles in poli- 
 tical science, that is, there are not many that will 
 admit of being laid broadly down, and rigidly 
 enforced, at all times and places. The preventing 
 of all private individuals from issuing coins, and 
 the compelling of all weights and measures of the 
 same denomination to be made of the same weight 
 and magnitude, are restraints on the free exercise 
 of industry ; but does any one presume to contend 
 that they are not of the greatest utility ?" And 
 then, after giving an accurate description of the 
 reasons on which the general freedom of trade is 
 founded, the author proceeds to say, '' but in the 
 operations of Banking, this principle cannot be 
 admitted, only under certain Modifications." 
 The instances of coins, and weights and measures, 
 which are produced to warrant this conclusion, 
 are taken from the works of A. Smith and Mr. 
 Ricardo ; who employed them to justify their 
 opinions, that the Banking trade ought to be put 
 under certain modifications. But the whole 
 amount of modification proposed by A. Smith 
 consisted in having Bank Notes convertible into 
 specie, and not of a smaller sum than one pound : 
 and the particular modification Mr. Ricardo re- 
 quired was, that every Bank should give security 
 for the amount of Notes it issued. But what the
 
 91 
 
 author of the Historical Sketch proposes, with the 
 aid of the same materials of reasoning, is not a 
 Modification, but a total Extinction of the 
 principle of free trade in the trade of Banking. It 
 is nothing short of a pure Monopoly. 
 
 A. Smith and Mr. Ricardo thought it necessary 
 to support their opinions by a course of reasoning, 
 conducted according to the established rules of 
 reasoning. But the author of the Historical 
 Sketch rests his case of excluding all freedom of 
 trade wholly upon an hypothesis. " If," says he, 
 " a Banker^ while pursuing his own interest, in 
 his own way, issues so many Notes as to depress 
 the exchange, and cause a drain of bullion, he 
 subjects, not his brother Bankers only, but the 
 whole community to a considerable and certain 
 inconvenience;" and the modest conclusion he 
 draws from this hypothetical case is^ that "it is 
 indispensable, in order to protect the exchange 
 from being depressed, the credit of the country 
 from being injuriously affected, and its commer- 
 cial transactions thrown into inextricable confusion, 
 by the selfish and mistaken proceedings of indi- 
 viduals to confine the power of issuing paper in 
 London to a single body." * The reader cannot 
 fail to observe that this formidable, and frightful 
 summary of evils to be prevented, rests wholly on 
 the word if. The author says, if a Bank should 
 do so and so, this and that result will follow. 
 But in calling upon the public to agree with him 
 • Page 61.
 
 92 
 
 in opinion on this most important question, as to 
 what is the best way of carrying on the trade of 
 Banking, it was his business to demonstrate, by 
 due course of reasoning, if he could, that, under a 
 free system, a Bank would positively do so and so, 
 that is, would over-issue its paper, and that such 
 an over-issue by one Bank would produce a re- 
 dundant currency, and the evils attendant on it. 
 The author should have gone into an examination 
 of the causes of the success of freedom in other 
 trades. He should have explained why private 
 interest in Banking could not lead to the same be- 
 neficial results as in other trades, and why free 
 competition in Banking would not lead to similar 
 results, as in other trades ; for, to say that the 
 trade in Banking ought to be made an exception 
 to the general rule, is to deny that private interest 
 and competition in Banking will not produce the 
 same effects in this trade that they produce in 
 other trades. In the absence of any such ex- 
 planation, on the one hand ; and on the other, 
 seeing what unanswerable reasons can be urged to 
 show that private interest and competition in the 
 trade of Banking will operate in the same way as 
 in other trades, for the mutual benefit of the Banks 
 and the public, no one should allow himself to 
 concur in opinion with the author of the Historical 
 Sketch, that " the power of issuing paper in Lon- 
 don should be confined to a single body." 
 
 It is stated in this pamphlet, that if a free sys- 
 tem of Banking were introduced in London, " it
 
 93 
 
 would give to ignorance, craft, and rapacity, the 
 ascendancy over skill, integrity, and liberality." 
 On this it may be asked, what right there is to 
 attribute superior skill, integrity, and liberality, 
 to the Directors of the Bank of England ; and 
 what reason can be given to warrant a presump- 
 tion that the Directors of the new Banking Com- 
 panies, selected, as they would be, out of the 
 whole mercantile classes of London, to discharge 
 the great trust of managing several millions of 
 capital, could so demean themselves as to bring 
 upon them a well-founded imputation of having 
 been influenced in this conduct by ignorance, 
 craft, and rapacity? 
 
 The next objection made to a change of system, 
 is, that in periods of distress and discredit, '* the 
 various Banks issuing paper in London would not 
 be provided with sufficiently large supplies of 
 cash and bullion to meet the emergency of a se- 
 vere drain of gold." This opinion is made to rest 
 wholly on the assumption that the London Banks 
 would in this, as it is said they would in every 
 other instance, entirely mistake their own in- 
 terest ; that "they would understand their inte- 
 rest only in a limited and contracted sense ;" — 
 " that each Bank would trust to the efforts of the 
 other Banks, rather than to its own;" — " that it 
 would be a mere matter of chance whether their 
 conduct could be right or wrong;" and " that the 
 result would be a most inadequate provision to 
 meet the emergency." But all this soothsaying and
 
 94 
 
 prophecying is nothing more than piling together 
 fanciful conjectures, to sustain a preconceived 
 doctrine. There exists not the slightest reason 
 for presuming that the managers of the various 
 London Banks v^ould take a mistaken view of their 
 own interests, that they would leave it to chance 
 whether or not they had at all times a sufficient 
 supply of specie, that they would exhibit such 
 ignorance of their trade^ as not to see that their 
 existence depended upon their being amply pro- 
 vided with such a supply. There can be no doubt 
 that the persons chosen to be the Directors of the 
 new Banks, would be the most experienced men 
 that London could produce, and the best ac- 
 quainted with the practice and science of Bank- 
 ing. It is, therefore, quite visionary to predict 
 that the management of the new Banks would be 
 what it is said it would be. 
 
 With respect to providing at all times a suf- 
 ficient supply of bullion and coin, the proper 
 question is, not under which system the demand 
 for them will be best supplied, but under which 
 system the demand will be less frequent and less 
 urgent ; that is, under which system over-issues, 
 panics, and drains for gold, will be best guarded 
 against. Now enough has certainly been said to 
 show that these evils have repeatedly occurred 
 under the present system, and therefore it is cor- 
 rect to conclude, that, if this system be conti- 
 nued, they certainly will occur again ; whereas, 
 on the other hand, since under the plan that is pro-
 
 95 
 
 posed, a new control over the recurrence of these 
 evils will be introduced, by the competition which 
 will accompany it, this plan will more contribute, 
 than the present system, to diminish the difficulty 
 of having at all times a sufficient supply of gold 
 and bullion. 
 
 Another objection that is made to opening the 
 trade of Banking in London, is, that in times of 
 distress and discredit, the new Banks would not 
 be able to render the same efficient support to the 
 mercantile classes, as the Bank of England can do. 
 But this opinion is given without any satisfactory 
 evidence to sustain it. When it is remembered 
 how the capital of the Bank of England is locked 
 up in advances to Government, the Dead Weight 
 Annuity, Exchequer Bills, &c., and how small a 
 portion of its issues are applied to mercantile dis- 
 tricts and accommodation, and how difficult the 
 Bank has always found it, in times of distress and 
 discredit, to carry on its own affairs, without great 
 embarrassment, it is impossible that the Bank can 
 give such an efficient support to the mercantile 
 classes, as it has been said it can give. If the state 
 of the case be closely looked into, it will be found 
 that the Bank has only given support to trade 
 after the crisis of difficulty is over, and when it 
 has got itself into a safe condition ; whereas, if 
 there were several Banks in London, they would 
 give great support during the early periods of dis- 
 trust, and save many commercial houses from 
 ruin. If, instead of twenty millions of paper
 
 96 
 
 being- kept in circulation by the means now em- 
 ployed by the Bank of England, that amount of 
 paper were issued by several London Banks, ac- 
 cording to the regular rules of Banking ; that is, 
 in discounts, and other ways of accommodating 
 trade, it is quite evident, that at all times, whe- 
 ther of distress or prosperity, the capital of the new 
 Banks would render a more effectual support to 
 the mercantile classes than has ever been afforded 
 them by the Bank of England. 
 . The author of the Historical Sketch has en- 
 deavoured, throughout his pamphlet, to maintain 
 the policy of renewing the monopoly of the Bank 
 of England, by drawing a contrast between what 
 he says would be the conduct of the Bank of 
 England, and what the conduct of various Banks, 
 established in London ; but in each case of pre- 
 ference given to the former, and of objection taken 
 to the latter, we feel confident our success has been 
 complete, in showing, on the one hand, that there 
 is no grounds for supposing that similar evils will 
 not again arise from the Bank monopoly, to those 
 which have already arisen ; and, on the other, that 
 not one of the objections which have been brought 
 forward is deserving of any weight. In point of 
 fact, the experiment of the Bank monopoly is a 
 complete failure. A change of system, therefore, 
 is become necessary ; and this being the case, the 
 change to a freer system is proposed, but not as a 
 plan pressed upon the notice of the public in a 
 mere spirit of innovation, or with any over-ardent
 
 97 
 
 zeal to extend the application of the principle of 
 free trade. A freer system is only one plan, among 
 others, that have been, or will probably be recom- 
 mended ; and the advocates of it merely ask to 
 have its merits fairly examined. In comparison 
 with the monopoly plan, they say that the issuing 
 of paper money by several London Banks, will be 
 placed under the double control of convertibility 
 and competition ; whereas, under the monopoly 
 system, it is only under the control of converti- 
 bility ; and they show that competition will prove 
 an effectual control. 
 
 More pains, perhaps, have been taken than the 
 defence of the Bank monopoly, by the author of 
 the Historical Sketch, seemed to call for, in ex- 
 plaining the false grounds on which it has been 
 constructed ; but the securing of measures based 
 upon sound principles of legislation, on this occa- 
 sion of making a new settlement of the Banking 
 system of England, is a matter of such vast im- 
 portance, that no pains can be thrown away in 
 guarding against the repetition of error, from 
 the want of knowledge among our Statesmen 
 and Members of Parliament, of the elementary 
 principles of law making. If, when we investi- 
 gate the history of our political conduct, of our 
 policy, as well foreign and domestic ; of our trea- 
 ties, our wars, our commercial regulations, our 
 legislation, we see they are marked by errors, 
 which are the produce of disgraceful ignorance, 
 we surely ought not to put our whole trust in our 
 
 H
 
 98 
 
 Cabinets of Ministers, or our Committees of Par- 
 liament, but rather, while it is yet time, we should 
 instruct the public, and excite it to look after its 
 own interests, and make itself heard, in the way 
 we now know will effectually secure attention to 
 them. It is only by the public taking this course, 
 that the new arrangement for the management of 
 the currency and Banking trade will be rescued 
 from the influence of loan contractors, stock job- 
 bers, and bill brokers, and laid on a foundation, 
 having for its object the welfare of the industrious 
 classes. 
 
 \ 
 
 TILLING, PnrNtER, CilEtSEA.
 
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