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through the Reports and Evidence given to the Committees of both Houses of Parliament. These form several large volumes, but I have endeavored to arrange the quotations so as to give as far as I can a connected statement of the events which led up to the Crisis of 1847 and of the influence which the Division of the two Departments of the Bank of England had on the business of the country at the time. The papers I have prepared will, I hope, put before the Members af the National Monetary Commission as complete a history of these events, in a short compass, as can be given. I have made a memorandum before each separate quotation from the Evidence, of the name of the Questioner, and of the person who gave the answers, so as to enable any reader who desires to continue the investigation to refer to the original documents. The numbers appended to each question and answer are those which occur in the original Parliamentary Paper. There have been no similar Enquiries made by either House of Parliament after any subsequent Crisis.


COMMONS, 1832.

(Questioner, Viscount Althorp; the answers are from Mr. John Horsley Palmer, then Governor of the Bank of England.)

72. What is the principle by which in ordinary times the Bank is guided in the regulation of their issues ?

Note.—The advantage of keeping the Bank of England free from the control of the Government is clearly expressed in the evidence of Mr. John Horsley Palmer, at that time governor of the bank, in his answers 551-557, part of the evidence given before the committee of the House of Commons in 1832, on the charter of the Bank of England.-R. H. INGLIS PALGRAVE.

The principle, with reference to the period of a full currency, and consequently a par of exchange, by which the bank is guided in the regulation of their issues (excepting under special circumstances) is to invest and retain in securities, bearing interest, a given proportion of the deposits, and the value received for the notes in circulation, the remainder being held in coin and bullion; the proportions which seem to be desirable, under existing circumstances, may be stated at about two-thirds in securities and one-third in bullion; the circulation of the country, so far as the same may depend upon the Bank, being subsequently regulated by the action of the Foreign Exchanges.

73. By the circulation of the country, do you mean the whole circulation of the country, and not the country circulation ?

The whole circulation of the country.

74. When you say that as a general principle you think it desirable to have one-third of bullion in your coffers, against your circulation, you mean to include in that circulation not only your paper out, but all deposits, whether of Government or individuals?

75. In short, all liabilities to pay on demand ?

76. And you hold the liability to pay on demand arising from a deposit, to be an equivalent to a note out?

I hold it to be that sort of liability which the Bank are bound to provide for by a reserve of bullion.

77. Do you think the liability arising from the deposit to be more dangerous to the Bank as to sudden calls, or less dangerous to it than the same amount out in paper ?

Less dangerous.

(The questioner, as before, Viscount Althorp. Answers from Mr. John Horsley Palmer.)

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551. You stated in your evidence, that you think a single establishment would be better for the management of the circulation of the country, than having notes issued by different establishments; if that be the case, do you consider that that single establishment ought to be a commercial company, independent of the Government?

I do.
552. Will you state the reason for that opinion?

Because it has the power of giving that commercial aid which I have alluded to in the explanation I have offered to-day.

553. Why would it have the power of giving commercial aid, being independent of the Government, which it would not have if it were not independent of the Government?

I imagine that a commercial bank, formed as the Bank of England is, has the power, from the constitution of its body, of offering assistance to the commercial world which no political bank could offer.

554. Do you think that if the Bank was connected with Government, the power of granting commercial aid, in the way you have described, would be liable to abuse?

If the Bank is formed of commercial individuals, as the Bank of England now is, with a capital totally unconnected with the Government, it appears to me to answer every purpose that is desired.

555. If it was a Government bank, would it have the same facility of giving aid in cases of commercial difficulty, that a commercial body, like the Bank of England has ?

I do not think that a bank formed of political individuals, or of commissioners, would have the same general knowledge of the commercial transactions of the country, as a body formed of commercial persons.

556. You think, then, that a knowledge of individuals that apply for aid, which a commercial body possesses, is

essential in order to enable them to give commercial aid properly in times of difficulty ?

I think so.

557. Do you think it is also important that that aid should be afforded by a body independent of any political connections or considerations?

I do.



I need not quote in detail the evidence given before this Committee, as the Report sums up the whole question as to this division of the two departments with the following words:

In the course of their inquiry into the management of the affairs of the Bank of England the attention of your committee has necessarily been directed to the principle by which it was stated in the evidence taken before the Bank Charter Committee in 1832 that the Bank was in ordinary circumstances guided in the regulation of its issues. The principle has been restated to Your Committee, in Mr. Horsley Palmer's evidence, in the following questions and answers:



[The questioner was Mr. Charles Wood, afterwards Lord Halifax; the answers were from Mr. John Horsley Palmer, a Director and sometime Governor of the Bank of England.]

1142. As it was mainly your evidence given before the Bank Charter Committee in 1832, which contained the

exposition of the principle by which in ordinary times the Bank is guided in the regulation of its issues, will you have the goodness to restate that principle to the Committee?

I will restate it in as nearly the same words as I can. The principle, with reference to the period of a full currency, and consequently par of exchange, by which the Bank has been guided in the regulation of its issues, always excepting special circumstances, has been to retain an investment in securities, bearing interest, to the extent of two-thirds of their liabilities, the remaining one-third being held in bullion and coin; the reduction of the circulation, so far as may be dependent upon the Bank being subsequently solely affected by the foreign exchanges or by internal extra demand.

1143. Did you not also state it as desirable, in ordinary circumstances, that the securities should be retained at nearly the same amount?

Yes; the object of retaining a fixed amount of securities by the Bank at the period alluded to and continuing it afterwards, so far as may be practicable, is to throw the action of the increase or decrease in the circulation upon the public, with reference to the state of the foreign exchanges, in the import or export of bullion.

1144. Are the answers which you have now given a fair exposition of the principles upon which the conduct of the Bank has been regulated since the period of the renewal of its charter ?

I should say certainly, always taking into consideration the extraordinary circumstances that have intervened.

Your committee would upon this point wish to call the attention of The House to the evidence of the two Bank Directors who have been examined, Mr. Horsley Palmer and Mr. Norman, from which it appears that in several instances since 1832 the rule then laid down has not been

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