against its liability to destruction. When we consider that the value of property in this country, which consists of credit, is at least £600,000,000 and that the cash is not supposed to exceed £70,000,000, we see that the value of the credit is somewhat, what physicists would call, in a position of unstable equilibrium. This wonderful mass of property may, if mismanaged, come to resemble what is said has taken place upon opening the tombs of some Etrurian kings. There appeared to be the form of man reposing and arrayed in his royal robes, but upon the slightest vibration disturbing the atmosphere, it immediately sunk into a few spoonfuls of dust! 2. The proper regulation, then, of the paper currency, is not only by far the most important problem in Political Economy, but one of the most important in human affairs. It sums up within itself the whole science of Political Economy. To settle it on truly scientific principles, to arrive at the true method of controlling it, demands the investigation and settlement of the meaning of every single term in the science. Hume says, that the whole end of civil government is for the administration of justice between man and man, so we may say, that the whole end of Political Economy is to regulate the currency. 3. We shall, then, shortly state the principles which the Bank of England has stated to have guided it, in various monetary crises, their results, and the principles upon which the Bank Act of 1844 is intended to be founded; by which we mean the specific theory of currency adopted by its framers, and also examine whether it does carry out those principles, and also how the Bank has managed itself in the crises which have occurred since its passing. 4. The first crisis of which we have a distinct account took place in 1782, when the unhappy war with America was fortunately terminated, and immediately a prodigious extension of the foreign commerce, which had been previously unusually restricted, took place. The enormous markets thrown open to the merchants, led to the most extravagant overtrading, which was greatly fostered by the most incautious issues by the Bank,* and a very alarming drain of specie from the Bank, which produced a crisis threatening to compel them to stop payment. The directors, however, considered that if they could only restrain their issues for a short period, the returns in specie in payment of the exports would soon set in in a more rapid manner than they went out. They determined, therefore, to make no communication to the government, but for the present to contract their issues, until the exchanges turned in their favour. The alarm felt by the Bank was greatest in the month of May, 1783. They then refused to make any advances to government on the loan of that year, but they did not make any demand for payment of the other advances to government, which were then between nine and ten millions. They continued this policy up to October, when at length the drain had ceased from the country, and money began to flow in from abroad. At length, in the autumn, when the favourable signs began to appear, they advanced freely to government on the loan, although at that time, the cash in the Bank was actually lower than at the time when they felt the greatest apprehensions.† 5. The doctrine then stated by Mr. Bosanquet that guided the directors was this: That while a drain of specie is going on, their issues should be contracted as much as possible, but that as soon as the tide had given signs of ceasing and turning the other way, it was then safe to extend their issues freely. This was the policy they acted upon, and it was entirely successful, and the credit of the Bank was saved. *Evidence of Mr. Tooke-Committee on Bank of England Charter, 1832, p. 269. The evidence of Mr. Bosanquet before the Lords' Committee of Secrecy, 1797, p. 31; and before Commons' Committee, p. 26. It was reduced to £473,000. Evidence of Mr. Tooke before Committee on Bank of England Charter, 1832. 6. At this period, as is well known, an immense extension took place in the industry of the nation. From being one of the most backward of European nations in this respect, it suddenly became one of the most active. Burke says, that when he first came to England in 1750, there were not 12 bankers out of London.* These prodigious industrial works that then commenced, demanded a very much enlarged currency to carry them on. The Bank of England would not establish any branches in the provinces, and its monopoly prevented any other banks of large and solid capital being formed. The consequence was that multitudes of small shopkeepers of all sorts started as "bankers," i. e., issuers of paper currency, in all directions. By 1793, there were nearly 400 country bankers inundating the country with their notes. There was at this period, and had been for some time previously, an enormous and undue extension of commercial speculation all over Europe and America. In the autumn of 1792_general failures began, and became very serious in January, 1793, and in February, when war was declared, a general crash came. Three hundred country banks were very much shaken, and upwards of 100 stopped payment. 7. This great pressure extended to the London bankers as well as the country ones. One of them says that the extraordinary state of credit had obliged every person connected with trade and money transactions, to gather in and husband every resource to meet all demands. That for six weeks back every man of money and resources had been straining every nerve to support himself and immediate friends, and could not give that support to others which they would have been disposed to do. All these circumstances naturally produced a demand on the Bank of England for support and discounts. But the Bank being thoroughly alarmed, resolved to contract its issues. Bankruptcies multiplied with frightful *Letters on a Regicide Peace. Works Vol. II. p. 292. rapidity. The government urged the Bank to come forward and support credit, but they resolutely declined. 8. Sir Francis Baring greatly blames the directors for their conduct on this occasion. He He says that they at first accommodated themselves to the crisis, but their nerves could not support the daily demand for guineas, and for the purpose of checking that demand, they curtailed their discounts to a point never before experienced; and that if they determined to reduce their issues, it should have been gradual. Their determination, and the extent to which it was carried, came like an electric shock. 9. He says that there are three different causes for a great demand for guineas.† 1. For Export. 2. For the purpose of hoarding, from want of confidence in the government, and in the circulating paper. 3. To enable country banks to discharge their demands, whilst confidence in the government and in the bank remained entire. That every measure ought to be taken to prevent and mitigate the first cause, except prohibition or bankruptcy. We may reserve the second till we come to 1797. That the third ought to be viewed, not with indifference, but with a disposition to spend almost their last guinea. He shews, from the state of the exchanges, that it was quite impossible the guineas could have left the country, as the loss on exporting them to Amsterdam was £3 6s. 3d., and to Hamburg, £4 2s. 6d. per cent., and it was notorious that large quantities of gold and silver were coming in from France. The cause of this was the continued depreciation of the assignats. Under these circumstances, he says that the directors acted quite wrongly, they ought to have seen that the guineas would have very soon come back to them, and that they ought, in fact, to have followed the precedent of 1783, which had been so successful. • Observations, &c. p. 21. + Ibid. p. 23. 10. When the Bank adopted this perverse course, universal failure seemed imminent. Sir John Sinclair remembered the precedent of 1697, when Montague had sustained public credit by an issue of Exchequer bills, and thought that a similar plan might be followed in this crisis. The minister desired him to propose a scheme for the purpose, which he presented on the 16th April.* A committee of the House of Commons was immediately appointed. In the meantime, a director of the Royal Bank of Scotland came up with the most alarming news from Scotland. The public banks were wholly unable, with due regard to their own safety, to furnish the accommodation necessary to support commercial houses, and the country bankers. That unless they received immediate assistance from government, general failure would ensue. Numerous houses, who were perfectly solvent, must fall, unless they could obtain temporary relief. Mr. Macdowall, M.P. for Glasgow, stated that the commercial houses and manufactories there were in the greatest distress from the total destruction of credit. That this distress arose from the refusal of the Glasgow, Paisley, and Greenock banks to discount, as their notes were poured in upon them for gold. 11. The committee reported that the general embarrassment of commercial credit was so notorious as to call for an immediate remedy, without much examination. That the failures which had taken place, had begun with a run on those houses that issued circulating paper without sufficient capital, but had extended so as to affect many houses of great solidity, and possessed of funds ultimately much more than sufficient to answer all demands upon them, but which could not convert those funds into money in time to meet the pressure. That the sudden discredit of so large an amount of bankers' notes Sinclair's Hist. of the Public Revenue, Vol. 1. p. 289. |