NEWTON'S London Journal of Arts and Sciences. No. CXIV. NEW SERIES), JUNE 1ST, 1864. THE PRESENT ASPECT OF THE CURRENCY QUESTION. AN opportunity has recently been afforded the daily and weekly journals, through the introduction into Parliament, by the Chancellor of the Exchequer and by Sir J. D. Hay, of bills for extending the power, possessed by the Scotch banks, of issuing promissory notes, to enlighten the public on that too commonly evaded subject, the currency. As the consistent champion of our present system, which dates from the year 1844, the Times, in a temperate and lucid leader, has exposed the retrogressive character of both Mr. Gladstone's and Sir J. D. Hay's projects, and has been taken to task by a young and ambitious rival, in an article which demonstrates that the writer, so far from being able to instruct, has yet to learn the aim and operation of our currency laws; and other papers have also, more or less wisely, commented on the bills. The public discussion of this subject, however indifferently sustained, must have the good effect eventually of setting people thinking, and when men have once taken this step they are apt to move a step further. To aid in this movement, which we deem most needful to the welfare of the commercial classes, will be the aim of the present paper. It will be remembered that, at the early part of this century, there existed in full perfection what has recently been demanded in the House of Commons, viz., free trade in banking. That is, any speculating scoundrels, who pleased, might, having obtained a license, start as bankers, flood the country with worthless promissory notes, and disappear, leaving ruin and wide-spread distrust behind them. To bring our currency to a healthy state, and to check the tendency to inflation, was the steady object which the late Sir R. Peel pursued. It was a bitter lesson which the country had to learn, after the close of the long continental war, of the evils attendant on a paper currency, representing only the indebtedness of the parties issuing the promissory notes; but in the years 1844 and 1845, Sir R. Peel succeeded in limiting the issues of the Banks of England and Ireland, and also of all the private and joint-stock banks of issue of the three kingdoms. VOL. XIX. 2 s 1st That this was a very difficult task is evident enough from the manner in which the result was obtained. To some minds the acts of 1844-5 bear evidence of being a temporary expedient, or an instalment of a great prospective achievement, rather than a finality measure; but this is not the view taken by the Times and Lord Overstone's party, who accept the Act of 1844 as the culmination of a policy that has secured to Great Britain for all time a convertible paper currency incapable of depreciation, whatever may be the course of events, whether political or commercial. This legislation limited the issuing of notes to existing banks already possessed of that privilege; and it provided for the extinction of that right by offering certain inducements to private bankers to use Bank of England notes, of which forty-three bankers at once availed themselves; and, secondly, by debarring bankrupts or others, who have ceased to use the privilege, to renew the issue of notes; the apparent object being to prepare the way for the resumption, by the nation, of the exclusive power of issuing paper money. The privilege was, however, awarded to the Bank of England, and also to the Scotch and Irish banks, to increase the issue beyond the authorised amount, to the extent of the bullion in their respective coffers; a return of the monthly average of which being made and published in the Gazette. The paper currency, therefore, although in one point of view fixed by the legislation of 1844-5, admitted of enlargement as the deposits of gold increased in the coffers of the banks. The theory was, that the paper currency would increase as the sources and mercantile requirements of the country increased; an accumulation of gold in the cellars of the banks of issue providing at once the means for increasing the paper currency, and a guarantee of its convertibility. This was a daring scheme to introduce before the discovery of the gold-fields of California and Australia, and whilst the limited supply of gold was as keenly contested for by other countries as our own. The proof of its daring character is shown by the Bank Charter Act of 1844 having created a dead-lock in trade in the year 1847; and even after the wealth of California and Australia had been poured into our markets, by the like effect being repeated in 1857. But notwithstanding these little episodes, the Act still holds its ground, and retains as its firm supporters the Times and the Economist. That the Act of 1844 has done good service to the country, it would be idle to gainsay; but that it possesses all the virtues that have been claimed for it, or that its provisions are equal to the requirements of the day, we deny,—and for the reasons that we will proceed to adduce. It requires no great insight into monetary matters to know that the circulating medium adopted by a community must bear some sort of proportion to the amount of business transacted by that community, and 1st that so surely as the proportion which experience has shown to be necessary becomes contracted, from whatever cause, then trade will be crippled, or the community reduced to the primitive state of barter. We are apt to estimate wealth by our command of gold, or its representative; but gold is only one of many phases of wealth. Many of our colonies, before the discovery of the gold fields, were wealthy, but they were driven to great straits for the want of a circulating medium. When that was once obtained in our Australian colonies, their rapid growth and prosperity exceeded all precedent, and the like result in kind, though not necessarily in degree, must ever attend an increased facility of exchange. Whether the prosperity will be permanent or not will, of course, depend upon the intrinsic value of the medium of exchange, to keep which to a standard value was the main object of Sir R. Peel's legislation. That he completely succeeded no one can for a moment doubt; but that the Bank Charter Act has, during its twenty years' existence, been an unmixed boon to the country, admits of great doubt: certain it is, that it could not have existed to the present day if the yield of gold had not most unexpectedly increased, and thus mitigated the severity of its working. The total of the notes in circulation in 1844 represented about thirty-eight millions of pounds sterling. It is impossible to estimate the amount of business settlements of which this representative currency was the medium, and, therefore, it would be idle to attempt an inference of the proportion which the one bore to the other; but whatever that proportion was, the amount of notes was deemed by Sir R. Peel ample for the legitimate business of that day, and upon this basis he proceeded, by the Acts of 1845, to fix the issues of the Scotch and Irish banks. Now, although we cannot estimate the mercantile transactions of 1844, yet we can very well compare indicatively the amount of business transacted that year with any following years, and by that means ascertain whether the increased supply of gold has sufficed to expand our currency, so as to permit of a proportionately increased issue of bank notes to meet the wants of the country. In 1844 we find that our imports amounted to £75,441,555, and that our exports were valued at £58,584,292, making a total of external commercial transactions, amount. ing to £134,025,847. The proportion, therefore, of the notes in circulation to this sum was as 1 to 3.5. If now we refer to the year 1863, we find that the value of the imports was £248,980,942, and of the exports £195,974,773, making a total of £444,955,715; while the notes in cir culation the same year remained at £38,000,000, showing a proportion of 1 to 117. Again, if we take the yield of the incometax at the same periods, we find that the tax of 1844 was levied on an income of £177,000,000; but that in 1863, no less an income than ist £311,000,000 was assessed. These figures indicate an enormous growth of national wealth during the last twenty years, but they give a very imperfect notion of the relative amounts of mercantile transactions at the two periods; for if the almost universal complaint be true, that in these cutting days none but scanty profits are to be made, the increase in the assessed income of the country shows an enormous development of trade since 1844, to have produced such an aggregate of profits. Are we then to assume that the amount of notes in circulation in the past year was ample for the requirements of trade, or, in the face of these facts, that in proportion as our trade expands, gold will accumulate in the country, and provide us with an adequate proportion of convertible circulating medium? It is true that we possess great facilities, other than the transfer of bank notes, for settling monetary transactions; but these are in general but fair-weather expedients— the credit of one house played against the credit of another house. Credit is at the best a temporary substitute for payment, and introduces into trade an element of uncertainty which requires to be insured against by increased profits. "Credit," says the Times (but not when writing of the currency) "is a law-made evil: it can be maintained only by extortionate prices, by tipstaffs, process-servers, and gaols. Ready money, if law could stand aloof would be the natural course of social dealings." We will accept this definition of "credit," -that it is a law-made evil;" but is not the law of 1844 answerable for a large amount of credit, that is either taken or accepted by our merchants and manufacturers? How else can we explain the fact, that in this wealthy country, in the past month, the rate of discouut at the Bank of England was 9 per cent., while the Bank rate at Frankfort was 3, at Brussels 4, and at St. Petersburg 5 per cent.? The truth is, that it is simply impossible, with all the facilities of credits and clearing houses, to conduct the mercantile business of the country with any degree of confidence while there exists a tendency for gold to leave the cellars of the Bank of England. No sooner is this tendency perceived, than the Bank directors contract their issue, and raise their rate of discount, and the private and joint-stock banks of issue, in order to strengthen their position, are compelled to follow this lead. Thus, the English money-market has become a most sensitive barometer, showing the irregular pulsations of gold throughout the whole world; while the British manufacturer and merchant are the sufferers, no matter from what cause the malady proceeds. The Economist would reconcile us to our fate by the soothing assurance that " we can afford to pay more than any other country for the means we require, because our trade is the largest, and our accumulated wealth, as a whole, immeasurably the greatest." This may be true, but 1st it is a strange result, that the possessors of immeasurable wealth should have to pay higher rates of discount, than comparatively poor communities. When discounts rise, which it is their inevitable tendency to do under the Bank Charter Act, as the stock of bullion decreases in the Bank cellars, we are at once assured by the oracle of Printinghouse Square, that there is business going on of a highly speculative character, which requires to be checked. One morning we are told that "the total stock of bullion is even now only about £1,000,000 below the average held during the last fifteen years, while the rate of discount adopted to day is nearly 2 per cent. above the average,” and that if the market does not right itself without a fresh advance, "a continuance of the corrective process will be regarded with perfect equanimity." No doubt it will by the money dealers, who, as the note circulation of the Bank is decreased by one-twentieth, find the value of their money increase in the enormous ratio thus indicated; but why is the staple trade of the country, by which alone wealth is created, to be thus exposed to the extortionate demands of the discount houses? In the Times city article, of May 27, occurs the following instructive admonition, written with the full knowledge that an unexampled demand will be made for bullion during this year, for the payment of the cotton importations of the year, which are estimated at the enormous sum of £88,656,000. The writer says:-- "During the last drain of gold, 8 per cent. was found a sufficient rate to turn the tide. On the present occasion, 9 and 10 per cent. have been found necessary. Next time, perhaps 10 or 12 per cent. will barely answer the purpose, and when, ultimately the inflation shall have attained its extreme limits, 12 or 15 per cent. may have to be submitted to. The mass who now, in the face of all warnings, are rushing headlong into the vortex, see plainly that the future is inevitable, but they nurse the old delusion that each man will be able to draw back, and leave his neighbour in the difficulty, and that even those who may happen to be caught, will find the government ready to repeat, for their especial benefit, the precedent that has been twice set, of interfering, by a suspension of the Bank Charter Act, with those natural laws, the undisturbed operation of which would have imparted a lesson never to be disputed or forgotten." In this way the mercantile community is constantly denounced for seeking that accommodation without which trade cannot be carried on, and the supply of which the very prosperity of trade has, under the operation of the law of 1844, the tendency to contract. The 'natural laws" referred to, with which the government is said to have twice interfered already, and whose "undisturbed operation" is most certainly calculated to make an indelible impression, are the prohibition beyond the limit fixed in the year 1844, to issue notes not |