Hamilton Bank. OF THE UNITED STATES. DEVOTED CHIEFLY TO FINANCE AND CURRENCY, AND TO BANKING AND COMMERCIAL STATISTICS. "It is the interest of every country that the standard of its money, once settled, should be inviolably and immutably kept to perpetuity For whenever that is altered, upon whatever pretence soever, the public will lose by it. Men in their bargains contract, not for denominations or sounds, but for the intrinsic value."-Locke on Money. Vol. I. WEDNESDAY, JULY 19, 1837. THE BULLION REPORT. In consequence of the opinion which your committee entertain, that, in the present artificial condition of the circulating medium of this country, it is most important to watch the foreign exchanges and the market price of gold, your committee were desirous to learn whether the directors of the Bank of England held the same opinion, and derived from it a practical rule for the control of their circulation; and particularly whether, in the course of the last year, the great depression of the exchanges, and the great rise in the price of gold, had suggested to the directors any suspicion of the currency of the country. being excessive. Mr. Whitmore, the late governor of the bank, stated to the committee that, in regulating the general amount of the loans and discounts, he did not "advert to the circumstance of the exchanges; it appearing, upon a reference to the amount of our notes in circulation, and the course of exchange, that they frequently have no connection." He afterwards said, My opinion is-I do not know whether it is that of the bank-that the amount of our paper circulation has no reference at all to the state of the exchange." And, on a subsequent day, Mr. Whitmore stated that "the present unfavourable state of exchange has no influence upon the amount of their issues, the bank having acted precisely in the same way as they did before." He was likewise asked, whether, in regulating the amount of their circulation, the bank ever adverted to the difference between the market and mint price of gold? and having desired to have time to consider that question, Mr. Whitmore, on a subsequent day, answered it in the following terms, which suggested these further questions: "In taking into consideration the amount of your notes out in circulation, and in limiting the extent of your discounts to merchants, do you advert to the difference, when such exists, between the market and the mint price of gold? We do advert to that, inasmuch as No. 2. we do not discount at any time for those persons who we know, or have good reason to suppose, export the gold. Do you not advert to it any further than by refusing discounts to such persons?-We do advert to it, inasmuch as whenever any director thinks it bears upon the question of our discounts, he presses to bring forward the discussion. "The market price of gold having, in the course of last year, risen as high as £4 10, or £4 12, has that circumstance been taken into consideration by you, so as to have had any effect in diminishing or enlarging the amount of the outstanding demands?-It has not been taken into consideration by me in that view." Mr. Pearse, now governor of the bank, agreed with Mr. Whitmore in this account of the practice of the bank, and expressed his full concurrence in the same opinion. Mr. Pearse." In considering this subject,. with reference to the manner in which bank notes are issued, resulting from the applica tions made for discounts to supply the neces sary want of bank notes, by which their issue in amount is so controlled that it can never amount to an excess, I cannot see how the amount of bank notes issued can operate upon the price of bullion, or the state of the exchanges, and, therefore, I am individually of opinion that the price of bullion, or the state of the exchanges, can never be a reason for lessening the amount of bank notes to be issued, always understanding the control which I have already described. "Is the governor of the bank of the same opinion which has now been expressed by the deputy governor ? Mr. Whitmore."I am so much of the same opinion, that I never think it necessary to advert to the price of gold, or the state of the exchange, on the days on which we make our advances. "Do you advert to these two circumstances with a view to regulate the general amount of your advances?—I do not advert to it with a view to our general advances, conceiving it not to bear upon the question." And Mr. Harman, another bank director, serving as a remittance; and unquestionably expressed his opinion in these terms:-"I also in part, probably much more extensively, must very materially alter my opinions, be- by the reduction of the total quantity of the fore I can suppose that the exchanges will be remaining circulating medium, to which reinfluenced by any modifications of our paper duction the bank were led to contribute by currency." the caution which every drain of gold naturally excited. Under the present system, the former of these remedies must be expected more and more to fail, the guineas in circulation being even now apparently so few as to form no important remittance; and the reduction of paper seems, therefore, the chief, if not the sole, corrective to be resorted to. It is only after the bank shall have for some time resumed its cash payments, that both can again operate as they did on all former occasions prior to the restriction. pressing it to be their opinion, after a very deliberate consideration of this part of the subject, that it is a great practical error to suppose that the exchanges with foreign countries, and the price of bullion, are not liable to be affected by the amount of a paper currency, which is issued without the condition of payment in specie at the will of the holder. That the exchanges will be lowered, and the price of bullion raised, by an issue of such paper to excess, is not only established as a principle by the most eminent authorities upon commerce and finance; but its practical truth has been illustrated by the history of almost every state in modern times which has used a paper currency; and, in all those countries, this principle has been finally resorted to by their statesmen as the best criterion to judge by, whether such currency was or was not excessive. These gentlemen, as well as several of the merchants who appeared before the committee, placed much reliance upon an argument which they drew from the want of correspondence in point of time, observable between the amount of Bank of England notes and the state of the Hamburgh exchange during several years. Your committee would feel no distrust in the general principles which they have stated, if the discordance had been greater-consider ing the variety of circumstances which have a temporary effect on exchange, and the un- The committee cannot refrain from excertainty both of the time and degree in which it may be influenced by any given quantity of paper. It may be added, that the numerical amount of notes (supposing £1 and £2 notes to be excluded from the state ment) did not materially vary during the period of the comparison; and that in the last year, when the general exchanges with Europe have become much more unfavourable, the notes of the Bank of England, as well as those of the country banks, have been very considerably increased. Your committee, however, on the whole, are not of opinion that a material depression of the exchanges has been manifestly to be traced in its amount and degree to an augmentation of notes corresponding in point of time, They conceive that the more minute and ordinary fluctuations of exchange are generally referable to the course of our commerce; that political events, operating upon the state of trade, may often have contributed In the instances which are most familiar in as well to the rise as to the fall of the ex- the history of foreign countries, the excess of change; and, in particular, that the first paper has been usually accompanied by anremarkable depression of it in the beginning other circumstance, which has no place in of 1809, is to be ascribed, as has been stated our situation at present-a want of confidence in the evidence already quoted, to commercial in the sufficiency of those funds upon which events arising out of the occupa tion of the the paper had been issued. Where these two north of Germany by the troops of the French circumstances-excess and want of confidence emperor. The evil has been, that the ex--are conjoined, they will co-operate and change, when fallen, has not had the full produce their effect much more rapidly than means of recovery under the subsisting sys- when it is the result of the excess only of a And f those occasional depressions, paper of perfectly good credit; and, in both which arise from commercial causes, are not cases, an effect of the same sort will be proafter a time successively corrected by the duced upon the foreign exchanges, and upon remedy which used to apply itself before the the price of bullion. The most remarkable suspension of the cash payments of the bank, examples of the former kind are to be found the consequences may ultimately be exactly in the history of the paper currencies of the similar to those which a sudden and extrava- British colonies in North America, in the gant issue of paper would produce. The early part of the last century, and in that of restoration of the exchange used to be af- the assignats of the French Republic; to fected by the clandestine transmission of which the committee have been enabled to guineas, which improved it for the moment, by add another, scarcely less remarkable, from tem. the money speculations of the Austrian go- | rate knowledge of all the principles by which Examples of the other sort, in which the depreciation was produced by excess alone, may be gathered from the experience of the United Kingdom at different times. lent money not only by discount, but upon real securities, mortgages, and even pledges of commodities not perishable; at the same time the bank contributed most materially to the service of government for the support of the army upon the continent. By the liberality In Scotland, about the end of the seven of those loans to private individuals, as well years' war, banking was carried to a very as by the large advances to government, the great excess; and by a practice of inserting quantity of the notes of the bank became exin their promissory notes an optional clause cessive, their relative value was depreciated, of paying at sight, or in six months after and they fell to a discount of 17 per cent. sight with interest, the convertibility of such At this time there appears to have been no notes into specie at the will of the holder was failure of the public confidence in the funds in effect suspended. These notes accordingly of the bank; for its stock sold for 110 per became depreciated in comparison with spe- cent., though only 60 per cent. upon the subcie; and, while this abuse lasted, the exchange scriptions had been paid in. By the conjoint between London and Dumfries, for example, effect of this depreciation of the paper of the was sometimes four per cent. against Dumfries, bank from excess, and of the depreciation of while the exchange between London and the silver coin from wear and clipping, the Carlisle, which is not thirty miles distant from price of gold bullion was so much raised that Dumfries, was at par. The Edinburgh banks, guineas were as high as 30s. ; all that had rewhen any of their paper was brought in to be ex-mained of good silver gradually disappeared changed for bills on London, were accustomed from the circulation; and the exchange with to extend or contract the date of the bills they Holland, which had been before a little affected gave according to the state of the exchange; by the remittances for the ariny, sunk as low per cent. Sediminishing in this manner the value of those as 25 per cent. under par, when the bank bills nearly in the same degree in which the notes were at a discount of 17 excessive issue had caused their paper to be veral expedients were tried, both by parliadepreciated. This excess of paper was at ment and by the bank, to force a better silver At length the last removed by granting bills on London at a coin into circula ti on, and to reduce the price fixed date; for the payment of which bills, or, in of guineas, but without effect. other words, for the payment of which excess true remedies were resorted to: first, by a of paper, it was necessary, in the first instance, new coinage of silver, which restored that to provide, by placing large pecuniary funds in part of the currency to its standard value, the hands of their London correspondents. In though the scarcity of money occasioned by aid of such precautionary measures on the part calling in the old com brought the bank into of the Edinburgh banks, an act of parliament straits, and even for a time affected its credit; prohibited the optional clauses, and suppressed secondly, by taking out of the circulation the The exchange excess of bank notes. This last operation ten and five shilling notes. between England and Scotland was speedily appears to have been effected very judiciously. restored to its natural rate; and bills on Lon- Parliament consented to enlarge the capital don at a fixed date having ever since been stock of the bank, but annexed a condition given in exchange for the circulating notes of directing that a certain proportion of the new Scotland, all material excess of Scotish pa-subscriptions should be made good in bank per above Bank of England has been pre-notes. vented, and the exchange has been stationary. (Wealth of Nations, vol. i. p. 492.-Report of Committee upon Irish Exchange, 1804. Mr. Mansfield's evidence.) The experience of the Bank of England itself, within a very short period after its first establishment, furnishes a very instructive illustration of all the foregoing principles and reasonings. In this instance, the effects of a depreciation of the coin, by wear and clipping, were coupled with the effect of an excessive issue of paper. The directors of the Bank of England did not at once attain a very accu These In proportion to the amount of notes sunk in this manner, the value of those which remained in circulation began presently to rise; in a short time the notes were at par, and the foreign exchanges nearly so. details are all fully mentioned in authentic tracts published at the time, and the case appears to your committee to afford much instruction upon the subject of their present enquiry. (See a short Account of the Bank, by Mr. Godfrey, one of the original directors; and a short History of the last Parliament; both in Lord Somers's Collection of Tracts.) Your committee must next refer to the con firmation and sanction which all their reason ings receive from the labours of the committee of this house, which was appointed in a former parliament to examine into the causes of the great depreciation of the Irish exchange with England in 1804. Most of the mercantile persons who gave evidence before that committee, including two directors of the Bank of Ireland, were unwilling to admit that the fall of the exchange was in any degree to be ascribed to an excess of the paper currency arising out of the restriction of 1797; the whole fall in that case, as in the present, was referred to an unfavourable balance of trade or of payments; and it was also then affirmed that "notes issued only in proportion to the demand, in exchange for good and convertible securities payable at specific periods, could not tend to any excess in the circulation, or to any depreciation." This doctrine, though more or less qualified by some of the witnesses, pervades most of the evidence given before that committee, with the remarkable exception of Mr. Mansfield, whose knowledge of the effects of that over issue of Scotish paper, which has just been mentioned, led him to deliver a more just opinion on the subject. Many of the witnesses before the committee, however unwilling to acknowledge the real nature of the evil, made important concessions, which necessarily involved them in inconsistency. They could not, as practical men, controvert the truth of the general position, that "the fluctuations of exchange between two countries are generally limited by the price at which any given quantity of bullion can be purchased in the circulating medium of the debtor country, and converted into the circulating medium of the creditor country, together with the insurances and charges of transporting it from the one to the other." It was at the same time admitted that the expense of transporting gold from England to Ireland, including insurance, was then under one per cent. ; that, before the restriction, the fluctuations had never long and much exceeded this limit; and, moreover, that the exchange with Belfast, where guineas freely circulated at the time of the investigation by that committee, was then 14 in favour of Ireland, while the exchange with Dublin, where only paper was in use, was £10 per cent. against that country. It also appeared from such imperfect documents as it was practicable to furnish, that the balance of trade was then favourable to Ireland. Still, however, it was contended that there was no depreciation of Irish paper, that there was a scarcity and consequent high price of gold, and that the diminution of Irish paper would not rectify the exchange. "The depreciation of bank paper in Ireland (it was said by one of the witnesses, a director of the bank of Ireland) is entirely a relative term with respect to the man who buys and sells in Dublin by that common medium; to him it is not depreciated at all; but to the purchaser of a bill on London, to him in that relation, and under that circumstance, there is a depreciation of ten per cent." By thus avoiding all comparison with a view to the point in issue, between the value of their own paper and that of either the then circulating medium of this country or of gold bullion, or even of gold coin then passing at a premium in other parts of Ireland, they appear to have retained a confident opinion that no depreciation of Irish paper had taken place. It is further observable that the value of a considerable quantity of dollars put into circulation by the Bank of Ireland at this period, was raised to 5s. a dollar, for the professed purpose of rendering the new silver coin con. formable to the existing state of the exchange —a circumstance on which the committee animadverted in their report, and which serves to show that the Irish paper currency could not stand a comparison with the standard price of silver, any more than with that of gold bullion, with gold in coin, or with the then paper currency of this kingdom. A fact was mentioned to that committee on the evidence of Mr. Colville, a director of the Bank of Ireland, which, though it carried no conviction to his mind of the tendency of a limitation of paper to lower exchanges, seems very decisive on this point. He stated that, in 1753 and 1754, the Dublin exchange being remarkably unfavourable, and the notes of the Dublin Bank being suddenly withdrawn, the exchange became singularly favourable. The mercantile distress produced on that occasion was great, through the suddenness of the operation; for it was effected, not by the gradual and prudential measures of the several banks, but through the violent pressure which their unguarded issues had brought upon them. The general result, however, is not the less observable. With a view to the further elucidation of the subject of the Irish exchanges, which so lately attracted the attention of parliament, it may be proper to remark that Ireland has no dealings in exchange with foreign countries, except through London; and that the payments from Ireland to the continent are consequently converted into English currency, and then into the currencies of the countries to which Ireland is indebted. In the spring. of 1804, the exchange of England with the BULLION REPORT. able. continent was above par, and the exchange of that paper for which their own was exchange- The principles laid down by the committee It is due, however, in justice to the present directors of the Bank of England, to remind the house that the suspension of their cash payments, though it appears in some degree to have originated in a mistaken view taken by the bank of the peculiar difficulties of that time, was not a measure sought for by the bank, but imposed upon it by the legislature for what were held to be urgent reasons of state policy and public expediency. And it ought not to be urged as matter of charge against the directors, if in this novel situation in which their commercial company was placed by the law, and intrusted with the regulation and control of the whole circulating medium of the country, they were not fully aware of the principles by which so delicate a trust should be executed, but continued to conduct their business of discounts and advances according to their former routine. It is important, at the same time, to observe that, under the former system, when the bank was bound to answer its notes in specie upon demand, the state of the foreign exchanges and the price of gold did most materially influence its conduct in the issue of The Bank of Ireland has again gradually those notes, though it was not the practice of enlarged its issues to about £3,100,000, being the directors systematically to watch either somewhat higher than they stood in 1804, an the one or the other. So long as gold was de-. increase probably not disproportionate to that mandable for their paper, they were speedilywhich has occurred in England within the apprised of a depression of the exchange, and same period. Perhaps, however, it ought not a rise in the price of gold, by a run upon them to be assumed that the diminution of issues of for that article. If at any time they incauthe Bank of Ireland between 1804 and 1806, tiously exceeded the proper mit of their would produce a corresponding reduction in advances and issues, the paper was quickly the issues of private banks in Ireland, exactly brought back to them by those who were in the same manner that a diminution of Bank tempted to profit by the market price of gold,. of England paper produces that effect on the or by the rate of exchange. In this manner country banks in Great Britain; because the the evil soon cured itself. The directors of Bank of Ireland does not possess the same the bank having their apprehensions excited exclusive power of supplying any part of that by the reduction of their stock of gold, and country with a paper currency, which the being able to replace their loss only by reiteBank of England enjoys in respect to the me-rated purchases of bullion at a very losing tropolis of the empire. The Bank of Eng- price, naturally contracted their issues of paland, by restricting the quantity of this neces- per, and thus gave to the remaining paper, as sary article in that important quarter, can well as to the coin for which it was intermore effectually secure the improvement of changeable, an increased value, while the its value; and every such improvement must clandestine exportation either of the coin or the necessarily lead, by a corresponding diminution in amount, to a similar augmentation of the value of country bank paper exchangeable for it. That the same diminution of the circulation of private banks took place in Ireland is more than probable; for the private banks in Ireland are accustomed to give Bank of Ireland paper for their own circulating notes when required to do so, and, therefore, could not but feel the effect of any new limitation of gold produced from it, combined in improving the state of the exchange, and in producing a corresponding diminution of the difference be tween the market price and mint price of gold, or of paper convertible into gold. Your committee do not mean to represent that the manner in which this effect resulted from the conduct which they have described, was distinctly perceived by the bank directors, The fact of limiting their paper as often as |