14. The Bank of England the Cause of Fluctuations and Panics, &c. (p. 4293.)

The Bank has been the cause of the panics. Their manner of issuing and withdrawing the Bank of England paper produces those continued fluctuations at short periods, which affect the prices in the market, and thereby affect trade. Those issues, sometimes in a single week, vary three or four millions. The Bank may be necessitated to do so, but such a necessity is that of inflicting a great evil on the country. The returns of the weekly issues, from the 28th of December, 1819, to February 4, 1826, prove witness's statement. The fluctuations which take place, from the necessity of paying the public revenue through the Bank of England, would be likely to affect the aggregate amount, at different periods of credit, in circulation. The Bank, as the instrument of causing this influx and efflux of paper, does great injury. If the Bank issued a quantity of notes in the purchase of bullion, and if the same amount of bullion were taken to the Mint to be coined, that gold would be part of the circulation as soon as coined, and the issue by the Bank would be fairly accounted for. If there were nothing but a metallic currency, the total amount from time to time brought into the country, and sent to the Mint to be coined, would add so much to the sum total, and so far depreciate the individual parts of it, and vice versa, as to the exportation.

JOHN BENJAMIN SMITH, ESQ.

Director of the Bank of Manchester, a Joint-Stock Company. 1. Annual Statements of the Manchester Bank; Losses to which it is subject; Provision against them, &c. (p. 4302.)

For the inspection of the proprietors of the bank at Manchester, an annual debtor and creditor account is taken out: on one side is put the capital, the sums owing by the bank on lodgment accounts, and on accounts current; on the other side is put the debts owing to the bank, the assets on hand, consisting of bills and cash, and different kinds of securities; the balance constitutes the profit or loss. The profits of the first year of the bank were not divided, but were carried to the reserved surplus fund, to provide against any unforeseen losses, and bad debts. The surplus fund was more than sufficient to cover any losses the bank had sustained; and, if sufficiently supported, is to continue to meet the amount of bad debts in subsequent years. No estimate was made of probable losses, but merely of absolute bad debts. The accounts of the bank have been made up these two years. The interest of the surplus fund will be adequate to meet the bad debts, as the directors will maintain it by periodical additions from the bank profits. The fund has not hitherto been diminished by bad debts. The number of bank customers consists of a larger proportion of persons who are not interested in the bank. The proprietors are not obliged to keep a private account with the bank. No estimate has been made of how much per cent. it would take to insure the bank against bad debts, and other losses.

2. The Bank of England ought to have no exclusive Privileges whatever. (p. 4331.)

The Bank of England charter should not be renewed with any exclusive privileges whatever. The evils resulting from the control of the currency by the Bank are sufficient evidence of the impolicy of continuing such privileges to that or any other company. The origin of those evils was the limitation of other banking companies to six partners to secure the Bank of England's uncontrolled power over the monetary system, which real controlling power over the currency has been solely vested in the Bank Directors, a power over the property of the kingdom far exceeding the power vested in any governinent. When, in 1826, the evils of weak banks had become intolerable, by the failure of one sixth, the Bank of England consented to allow the extended partnerships and the establishment of joint-stock banks, taking care, however, to obtain the power to establish branch banks, conducted on the same principles of secrecy, which was a virtual extension of their monopoly. If the establishment of joint-stock banks were freely permitted by law, merchants would possess equal facilities of obtaining discounts as at present.

3. Contrast between the Bank of England and the Bank of the United States; Joint-Stock Banks similar in principle to the United States Bank. (p. 4353.)

The difference between the disposal of the capital and circulation of the Bank of the United States and that of the Bank of England is very great. According to an official statement, dated 1st April, 1830, the capital of the United States Bank was thirty-five millions of dollars; their notes in circulation were sixteen millions, making a total of fifty-one millions; this was partly disposed of in discounting notes, thirty-two millions, and in discounting domestic bills ten millions and a half, making a total of forty-two millions and a half employed in commercial objects. The state of the Bank of England's concerns can be merely guessed at. The capital may be taken at fourteen millions and a half; the amount of notes in circulation at nineteen millions and a half, making a total of thirtyfour millions, of which not more than two or three millions is issued on commercial discounts, the remainder being employed in accommodations to the government. The notes are not part of the capital of the Bank; they are its circulating credit. If the Bank have lent its capital to the government, it can have no circulating capital. The sum owing by the government of the United States Bank, at the period referred to, was eleven millions of dollars. Joint-stock banks are similar in principle to the United States Bank. If there were only joint-stock banks there would be no more difficulty in getting discounts than there is at present. If 19,000,000l. were the Bank of England circulation, and were sufficient for the demand, it would make no difference in the accommodation to merchants, whether they applied to private bankers,

in whose hands the circulation was, or whether they had to go and get bank notes in discount from the Bank of England. When the Bank of England issues on commercial discounts, it issues from a demand connected with trade; if in exchequer bills, on a demand distinct from,land injurious to, trade. The holding of public securities by the Bank may cause a new and increased issue of its notes, which will swell the circulation, while the merchant can only hold them in exchange for notes already in circulation, or for some other property not affecting the circulation. It makes no difference to the merchant whether mercantile bills are discounted by the Bank of England or private bankers, if the same amount of notes be used. If the amount which the private bankers now have in discount were transferred to the Bank of England, it might make a difference as to the facility of discounting bills. A bank that employs a great part of its capital in loans to government is of little public utility. A bank issuing its own notes could give more accommodation to trade than a bank depending on another for its supply. The profit of issuing notes enables a banker to give more accommodation than one not issuing notes, as the Scotch banks show, by their liberality as regards cash credits and deposits.

4. The circulation of Bills in Manchester; Mischief caused by them in 1825, &c. (p. 4361.)

The Lancashire banks issue drafts upon their London agents, which issue is tantamount to that of their own notes. These drafts do not form so large a portion of the circulation now as they did The substitution of the Bank of England notes some years ago. for bills of exchange is an advantage to the trading community of Lancashire. It is common for the Lancashire banks, when applied to for advances, to give their customers their drafts on London at three months, and their customers provide the bankers with cash to meet them when due. The extent of those bills issued in 1825 was immense, and induced considerable speculations-such as the purchase of manufactures and raw materials, and the establishment of mills and manufactories, which should not have been established. The bankers would have been less inclined to make these advances, if they had issued their own cash notes, which would be payable on demand. There was more mischief done in 1825 by this enlarged issue of paper, than there was from banks issuing their own notes in other parts of England. The accommodation would be less with notes payable on demand, than by bills payable after date. The issue of such bills is greatly diminished by the establishment of the Manchester bank. In some cases, the bankers were willing, in addition to the sums lent in bills, to lend a sum as a dead loan upon the mortgage of any building which was formed by the credit given by bankers. If the party to whom the bill at three months was lent, did not meet it when due, it would become a dead loan. The bankers at Manchester would take a mortgage on such buildings or manufactories, if they could get no other security. It is over-trading where a man builds a manufactory

and increases his business, not from extra demand for the manufactured article, but because he is furnished with the means of increasing the supply of it. No man possessing capital will build a mill, unless he has a prospect of disposing of the extra quantity which will be produced. The increase of mills in Manchester has not been gradual; it was very great from 1824 to 1825; and since then, from 1826 to the present time, there have been very few mills built. It was a long time before the mills built in 1824 and 1825 came into operation. The aggregate manufacture in Manchester has increased year after year, for some years past. Every operation in trade is a speculation.

5. The great evils which resulted from the large Loans of Bankers in Lancashire being suddenly withdrawn; by a Joint-Stock system these evils would have been averted; practice of business in Manchester, &c. (p. 4368.)

Great evils arose in Lancashire from the large loans lent by bankers, which led to over-trading in 1824 and 1825. In 1824, a house worth, perhaps, 10,000l. built a large cotton mill; discounts were then easily obtained, and by keeping accommodation bills. afloat, they expended 40,000l. or 50,000l. in machinery. This caused surprise; but the panic came, and explained the mystery by breaking up their credit. Another house, possessing a mill, were encouraged by their bankers to borrow, and double the size of their concern. The bankers took a mortgage on the mill for part of the loan, but for the rest had no security. So long as discounts were to be bad, all went on well; but when a scarcity began to be felt, the bankers gave notice to pay off the advances. The house, however, failed, and out of a loan of about 25,000l. the bankers were fortunate enough not to lose more than one-half beyond the sum secured to them. In another case, the bankers lent S0001. to a man without capital to build a mill; the public believed him to be solvent, and he got extensive credit, but when he failed it was discovered that the loan which had deluded his creditors was all that he was worth, which loan was secured by mortgage. The extent to which this system was carried is almost incredible. The banks were enabled to carry it on by requiring every person who wanted an advance, to make all his payments by his banker's drafts at three months' date, and to pay in all the cash and promiscuous bills he received, so that the bankers were enabled to make advances on this circulating credit, without advancing a shilling of real capital. Yet such banks are not called banks of issue. If the ruin had been confined to those engaged in over-trading, the evil would have long since ceased; but it was so extensive that trade will long suffer from its effects.

If the increase of manufactures had been produced by real capital, it would have headed the demand. The fall of wages increased the demand, but not enough. In the case of one mill, the owner, on calculating, found that if he shut it up, his expenses of keeping it in order would be 1500/., while by working it, he only lost 500/.;

so that working at that loss would be a gain of 1000l. per annum. But such gains are ruinous. The consumption of cotton manufacture is increasing; and but for the over-trading there might have been as large a production brought about by real investments instead of artificial capital. If sound banks had been established in Lancashire, all these evils would have been averted. No doubt some of the bankers who made those advances were possessed of large capital. Joint stock banks could regulate the currency, as the Scotch banks do, better than the Bank of England, which, being the bank of the state, cannot, if it would, suit itself to the public wants. The fluctuations in the currency in Scotland are not so great as in England. The fluctuations in England must affect Scotland-it is impossible to say to what extent. One pound notes circulate in Scotland. There was considerable distress from over-issue of paper all over the kingdom, at the same time that Lancashire was affected. The bank of Manchester began, witness thinks, in March 1829. The rate of discount was four per cent. without a commission. The other bankers lowered their rate to three per cent., with the addition of a quarter per cent., somewhere about that time, which on a three months' bill is equal to four per cent. without commission, and more if the date be shorter. The payment for the purchase of cotton is by a bill at three months' date, within ten days, with an allowance of five per cent.: if paid in cash, a bill at a shorter date. The reduction in the rate accounts in a great degree for the reduction of bills of exchange. The facility in the transmission of payments by the branch bank is afforded only between two parties who keep accounts with the bank. Such accommodation serves materially to diminish bills of exchange. It also interferes with the business of the private banks. The failure of all the Lancaster banks produced the joint-stock company, which is now the only bank there. Thomas Crewdson and Co. failed about 1826: they had been in business only a short time, but they paid in full. All these bankers were too lavish. Had the bankers been able to issue their own notes, they would not have been able to issue them to such an enormous amount as they did bills of exchange; but the public would not permit them to issue their own notes, and if they did, it would have excited alarm to have issued large quantities of both. The bankers would not have issued the same amount if they had issued notes payable on demand, which were liable to be presented at any moment.

JAMES BURT, ESQ.

Director of the Bank of Manchester, a Joint-Stock Company.

1. Evils of the Monopoly of the Bank of England. (p. 4442.) The banking trade of England is altogether unsound, and must continue so while the Bank of England preserves its arbitrary privileges. The extension of its issues makes money appear to be plenty, for it makes other bankers let out their issues; but when